How should we fix the economy? -- Part 2

Well, I'm advocating for the same level of government we had leading up to WWII, where a conjunction of New Deal spending and the military buildup allowed us to escape the Great Depression. Indeed, I'm advocating higher taxes, but bear in mind that we had tax rates from 70 to 91% from 1945 to 1980, and yet we saw the golden age of U.S. history. Income inequality saw its root, in fact, with the onset of Reagan's trickle-down orthodoxy, which in many ways continued throughout the yeas following his presidency until today. To illustrate the point, average federal tax rates today are near historic lows, and there has already been significant deregulation of the financial sector. Not ony did the US prosper with higher tax rates, but it did so with higher inflation -- in fact, inflation was about 4 percent in Ronald Reagan's second term, but is now down to 1.6%, which is below the Fed's expectations -- tigher regulation, and more significant public investments. As I pointed out earlier, businesses are suffering from lack of demand, not lack of productive capacity, and survey after survey has demonstrated this (1).As for the Affordable Care Act, you mentioned that it will cost 2.5 million jobs. This is untrue, however. The CBO report you're referring to said that people would voluntarily reduce their hours worked because they no longer need to rely on their employer for health insurance. The reduction in hours worked would amount to a figure equivalent to 2 million jobs, but 2 million jobs will not be lost. I agree with you that the private sector needs to create jobs. However, you're acting as though the private and public sector are in direct competition with one another, and the public sector is so evil that it ought not exist at all, or should exist only insofar as it is inconsequential to our lives. That's where the crux of our disagreement lies. I believe in free markets and self-interest, along with the profit motive. I believe in capitalism. But I want the government to act as a referre so that subprime can't happen. The problem with TARP was not that the government stepped in, but that it had to in order to prevent a severe moral hazard -- the collapse of the global economy. It's an issue of privatizing profits and socializing losses, and save for nationalizing the banks -- which I'm not quite ready to support, though Paul Krugman has suggested it in the past -- the only other viable option that we have is regulating them in such a way that they can't go overboard. Also, you speak of government inefficiency, which is why you want to literally eliminate every department except for the Pentagon. I find that proposal highly unlikely to ever occur. I don't have the figures offhand as to how many jobs that would cost, but the figure would be stratospheric. You would literally increase the unemployment rate by several percentage points just by shrinking govenrment, and the consumption gap would increase still further. Is your intention for the private sector to land planes, inspect meat, make roads, etc.? Or are you in the "state's rights" campaign? Ultimately, I think this proposal is highly destructive, and there is no evidence that gutting the federal government in order to finance more tax cuts -- when rates are already lower than they've been in quite some time -- will generate a net benefit. You also mentioned abolishing Social Security, Medicare, and Medicaid because they're bankrupt. The problem is, they are not. Indeed, health care costs are rising, but we can still afford to pay for these programs. We should be looking for ways -- e..g, a public option -- to lower health care costs to make these programs solvent. The reason they're so poorly off right now is George W. Bush's passage of Medicare Part D, which purchased prescription drugs at retail rather than wholesale prices and prevented the federal government from negotiating drug prices, as it does for Medicaid. As for Social Security, according to the trustees of the program, it's fully solvent until 2037. Indeed there are issues with it, since people are living longer, more people are unemployed today and perhaps long-term unemployed, and some people may be retiring earlier because they've been long-term unemployed for quite some time. But the problem with Social Security is that the current system which funds it is fundamentally regressive. You pay a tax on your first $113,700 and that's it. So if you earn less than that, that tax targets all of your income. If you make significantly more, the tax only targets a small percentage of your income. And let's not forget the disparity in the tax code between capital gains and ordinary income, as well as the fact that Mitt Romney and Donald Trump are receiving Social Security benefits. Granted, I'm not the biggest fan of means testing Social Security, but lifting the income cap and means testing the program are far superior to abolishing it all together. That's simply giving up without trying.You mentioned legalizing and taxing drugs. I'm all for that, actually, and believe regulating hard drugs -- I take it you're not for regulation, but perhaps would accept state regulations? -- is more efficient at preventing calamity than throwing people in jail who are suffering with addiction. So we largely agree on this issue, though I want to generate the bulk of federal revenue elsewhere than from excise taxes on drugs, espeically since the taxes are ipso facto regressive. You mention free trade as a job killer, also. This may actually be an area where where I may be to the right of you in that I actually am, by and large, pro-globalization. By all accounts, though NAFTA wasn't what we wanted it to be, it was by no means a massive job killer. In fact, the impact of globalization has been largely overestimated. Indeed, free trade encourages competition and thus may lead to outsourcing and lower wages. However, the impact of discouraging free trade are far worse. For instance, tariffs are a regressive tax paid largely by poor and middle-income Americans, and imposing tariffs in the US would lead to tariffs abroad and thus discourage trade on a larger scale. We live in an economy where there is an increasing amount of exports of intermediary goods. So we would be, in effect, discouraging other countries from purchasing US goods and thus destroy jobs here, not to mention we would see higher prices of consumer goods here. At the same time, the low-wage-argument has largely been debunked. Companies do not flock to low wage areas by and of themselves, for productivity tends to reflect wage levels -- that is, higher wages tend to reflect or encourage higher productivity -- and we need to factor in relative demand, as well. My question in response to your position on trade is why you oppose regulations on a large scale, but support tariffs and trade restrictions. Are tariffs not a form of regulation?A part-time Congress is an interesting idea, but I don't see how that bears on the economy. How will reducing the amount of time legislators work -- especially at a time when the Congres is largely seen as a do-nothing Congress, and thus it needs to work more than it has -- improve the economy? I just don't see the link. You advocate for a gold standard, but the gold standard was a large cause of the Great Depression. Implementing the gold standard now would cause a massive deflationary drive that would squelch wage growth. Inflation right now is at 1.6 percent, below expectations, and the Fed has already tapered its QE3 asset purchases by $10 bllion per month. So deflation, not inflation, is the threat right now. We actually had moderate inflation after WWII and in the late Reagan years, and it's good in moderate levels because it eats away at nominally denominated debt, whereas deflation increases debt burdens. You mention welfare creating a "culture of dependency." Yet you advocate for increasing oil subisidies. Why are oil subsidies not a form of welfare to you? Why is it that only money going to poor people is conducive to a "culture of dependency?" Moreover, welfare was largely cutted in the 90s by Clinton and a Gingrich-led Congress -- capped at two years, harsh work requirements, states can impose family caps, etc. Do you really think the problem right now is that people are not looking for work because of welfare? At a time when there are three unemployed people for every job vacancy, I don't think you have your finger on the correct problem. I addressed the minimum wage earlier and demonstrated why the net effect is largely positive. I'd go through it again, but I'm running low on character space. You have not addressed the arguments I made or data I cited, either. The last thing I'll comment on is oil subisides, not as a matter of welfare, but as a matter of energy indepdence. The truth of the matter is, economies of scale are already on the side of the oil companies. Oil subsidies are not holding down gas prices -- gas prices fluctuate with global demand, which is on the rise with the industrialization of China and India. So if you want energy independence, as I do, the key is green energy, which has the added bonuse of reducing climate change, which you have not addressed.Thanks for another interesting debate! 1. http://mediamatters.org...