The Eurocrisis for Whom?

Here is the link of my interview with Real News Network. Emphasis, as always, on who wins and who looses with the crisis, and its adopted solution, i.e. austerity. This is not about center vs periphery, but about capital and labor. This crisis has been functional, and serves certain interests. The question is what is behind the current neoliberal European project?

The political economy of the Euro crisis

The solution for the euro crisis seems increasingly out of reach. The victory of the conservative Popular Party in Spain, and the promise of more austerity, following the same in Italy and Greece, bodes badly for a more rational solution. Further, the German officials, and the ECB, in particular, its new head, Mario Draghi were very clear that they would not support anything but austerity.

A question that was raised in my talk last Friday was why would anybody favor such a suicidal policy. Think of the US for a second. Why would the Republicans play with the possibility of a self-imposed default (by not raising the debt-ceiling limit last summer)? The point is that the idea that there is a fiscal crisis (yep there isn't), would allow them (and some pro-business Dems too) to cut spending on welfare programs like Social Security and Medicare. And by the way, high unemployment helps to keep workers in line and wages low. The same is true in Europe.

A severe fiscal crisis, that forces adjustment in the periphery, helps to keep workers in line, not just in the periphery, but also in the core countries. And helps if they want to roll back their Welfare State too. Jerry Epstein says essentially the same thing here.

The political economy of flat taxes

The GOP has revived this season the ghost of the flat tax. Cain is for the 999 plan (whatever that is) and Perry for a 20% flat income tax (see here, for example). I haven't seen any particular analysis of the Perry plan so far, but it won't be much different from the Cain breakup. For example, the Tax Policy Center (here) shows that Cain's plan would increase the federal taxes of the lowest quintile by 18.3% while reducing that of the top 0.1% by 17.9%.  And that's not class warfare! You don't need to be a rocket scientist to know that when you hear flat tax it's all about reducing the taxes of the rich.

Taxation was, by the way, always a key concern of classical political economy (it's there in the title of Mr. Ricardo's Principles). One of the most famous tax proposals of the 19th century, Henry George's single land tax, was in fact based on the 'Ricardian' theory of the rent. That is, the idea that landowners derive their income (rent) from ownership, and that their income (for a given level of output) detracts from profits and the possibilities of accumulation, required a tax to transfer income against wealthy landowners.

The interesting thing is that since the old classical surplus approach makes it clear that class conflict is essential for understanding the functioning of the economy, it does not try to disguise the issue of taxation as not having distributive consequences.

Class warfare

Only now I saw this great video by Mark Fiori in Marie Duggan's blog.

Complements Krugman's column today. A must read.

Wouldn't it be nice if ...



Nope, not the Beach Boys song.  Ronald Dworkin reminder that Obama is not FDR (here).  From FDR's Madison Square Garden's speech:

"For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up. We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred. I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master."

These days that would be called class warfare.  And you know that's not acceptable. There are no social classes in the US.  There are only winners and suckers!

Taxes and class warfare

Doing my taxes (yep another procrastinator) and getting the little Tea-bagger (talk about darker side!) inside me a bit angry.  Just read this week David Cay Johnston's great piece for the Willamette Week debunking the myths about taxes (e.g. the rich pay most of the taxes, but not really, just most of the income tax, and so on).  He shows that the worker making the median wage pays around 23% of his/her income as compared to almost 19% for the 400 wealthiest Americans (See Table below).

If that does not lend support to Obama's proposal to allow the top rate to increase again to 39.6%, I don't know what does.  The graph below (via thruth&politics) shows the top marginal tax rate over time.

We do not need to go back to the good old times of that Socialist, Eisenhower, when marginal tax rates where 91%, but it would certainly help to raise taxes on the rich, if you are really concerned about public debt.  It seems that class warfare wasn't that bad!