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To Save the U.S. Economy, Lift the Bottom

In this column, Johan Galtung, rector of the TRANSCEND Peace University, writes that the problem of the U.S. economy lies much deeper than the fiscal cliff. Wise people--Robert Borosage, Paul Krugman, Joseph Stiglitz--see neither the fiscal deficit nor the U.S. debt as the key problems, but the lack of growth. Galtung is author of "Peace Economics: from a Killing to a Living Economy" (www.transcend.org/tup)

ALFAZ, Spain, Jan 14 2013 (IPS) - The problem of the U.S. economy lies much deeper than the fiscal cliff. Wise people–Robert Borosage, Paul Krugman, Joseph Stiglitz–see neither the fiscal deficit nor the U.S. debt as the key problems, but the lack of growth.

Johan Galtung

They point to the Bill Clinton years and how, through growth, the Debt/Gross Domestic (GDP) ratio went from a half to a third. Important, but then there is a fourth consideration: some Americans are suffering, out there. The bottom “16 percent” of people and families below the poverty line do not know for sure where their next meal will come from and have no medical insurance. Macro-economics is blind to basic human needs, yet there are solutions.

After Clinton, increasing expenditure with enormously costly wars making conflicts even worse, and, in addition, lowering the revenue by reducing taxes on the super-rich. That a fiscal deficit would rear its ugly head, fed by such policies year after year, was a foregone conclusion. U.S. voters, you asked for it, you got it.

Congress voted a compromise on ten fiscal cliff factors. The market reacted “positively”, if that is the right word when the finance economy makes a Dow Jones Index leap upwards while the real economy is stagnant, thus increasing the gap feeding future crashes.

It was a lazy compromise, little new beyond the juggling of old factors. Major problems like Medicare payment–the U.S. health services, at 17 percent of the GDP, produce less health than the typical European services at eight percent of GDP–and unemployment insurance were postponed, not solved. Like the debt ceiling. The new Congress inherits ever more intractable and pressing problems. One reason is obvious: the fiscal cliff discourse is much too narrow.

There is nothing pointing in new directions. How about a Municipal Uplift Authority (MUA) as a major federal programme? Hovering over the U.S. municipal map, identifying the municipalities with the highest levels of misery–people below the poverty line, with hunger threatening and no health coverage–is easy. Lift them up!

Cutting some expenditure and increasing taxes on the rich is indispensable, but limited and limiting. A huge imaginative programme for the 16 percent to lift themselves up by their own bootstraps, with credits for small companies-cooperatives designed to produce food, clothing and housing, health and education all at affordable prices might do miracles.

Carefully monitored, MUA should be self-sustaining, and after the credits have been repaid, generate domestic demand for considerable economic growth. Sixteen percent is a major proportion. A more realistic approach to getting the economic wheels turning than hoping to become the major world hydrocarbon exporter by 2030–by then hydrocarbons may be phased out. Better turn inward, facing the fact: U.S. and Western world trade dominance is gone. Outcompeted.

But there are also other approaches, and they in no way exclude each other, nor do they exclude the fiscal cliff avoidance compromise.

The U.S. debt is increasing. States and corporations buy U.S bonds at low interest–parking dollars for some limited time to avoid the costs of buying other currencies–trusting to be serviced by freshly printed dollars. But that cannot last forever, given the many schemes for regional and world currencies based on a mix, not on any single currency.

With a (flexible) U.S. debt ceiling of 16.3 trillion dollars the major creditor, China, has problems. Could the two agree on something in return for some debt forgiveness? Like the reduction of a major U.S. federal expenditure, the one trillion dollars on military expenses?

A creditor is entitled to look at the debtor’s budgets to identity cuts; the debtor is entitled to say “that one has to do with you (and Russia)”, and the creditor to reply, “if so, let us talk; our economy is still smaller than yours, to match you militarily is more of a burden on us; how about bilateral-balanced-controlled disarmament, and we could throw some debt relief into the bargain?” China might demand no encircling of China militarily, nor any Trans-Pacific Partnership bloc excluding China economically. Who will benefit? Obviously both; relieved of military waste, of a sizeable tip of the debt iceberg, cooperating rather than competing in the global arena.

We sense three possible losers: European Union, Russia and Japan, with Australia, hoping to be favoured by one or the other. But USA-China together matter more; they might even engage in imaginative joint projects for poverty alleviation elsewhere. Lift up the bottom, create customers.

The two policies, lifting up municipalities and tying debt relief to disarmament, are both rational. But in the way of rationality stands the arithmetic of Congressional voting, as adjusted to the arithmetic of the deficit reduction as a hand to a glove; even if the hand becomes paralysed. They fit too well, blocking out other views.

Some other input is needed if the legislative power has no other game to offer. The onus is on the executive power. Could there be a latent New Deal, hiding in Obama’s second term? If not, poor U.S.–four more years of the same, downhill.

In the swamp of problems there are bubbles waiting to burst: finance versus real economy, printed money versus real value, debt service versus people service. There is a way out.

(END/COPYRIGHT IPS)

 
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  • BobFromDistrict9

    With a (flexible) U.S. debt ceiling of 16.3 trillion dollars the
    major creditor, China, has problems. Could the two agree on something in
    return for some debt forgiveness? Like the reduction of a major U.S.
    federal expenditure, the one trillion dollars on military expenses?

    A creditor is entitled to look at the debtor’s budgets to identity
    cuts; the debtor is entitled to say “that one has to do with you (and
    Russia)”, and the creditor to reply, “if so, let us talk; our economy is
    still smaller than yours, to match you militarily is more of a burden
    on us; how about bilateral-balanced-controlled disarmament, and we could
    throw some debt relief into the bargain?” China might demand no
    encircling of China militarily, nor any Trans-Pacific Partnership bloc
    excluding China economically. Who will benefit? Obviously both; relieved
    of military waste, of a sizeable tip of the debt iceberg, cooperating
    rather than competing in the global arena.”

    That has got to be one of the dumbest commentaries I have ever read. China has no problem with a US military buildup, all they have to do is cut their own military expenditures. In fact, they won’t, because their military is not aimed at external conquest, but control of their own people. Despite any recent loosening, China is still a brutal dictatorship, and the US owes them nothing in relief from military excess.

    China has no right to demand anything from the US. No dictatorship has that right.

    Asking for debt forgiveness immediately identifies the US as a charity case, a failed state. We don’t need debt forgiveness, we need an end to free trade to restore the US industrial base.

  • BobFromDistrict9

    Please note, in my response to the relationship with China I did not say one word about not cutting the US military, I only said China has no right to make any such demand.

    Back in 2010 the NY Times ran an article about the debt, with an interactive feature allowing the reader to explore ways to balance the budget by 2015 and all the way into 2030. I managed to do it with 20% spending cuts and 80% revenue increases. Some significant cuts came from military spending.

    You can check out the feature at

    http://www.snipurl.com/nytfixthebudget

    And my solution at

    http://www.snipurl.com/mysolution

    Please note that I do not consider a balanced budget a necessity, nor even an automatically good thing. However, that was the challenge in the article.

  • BobFromDistrict9

    The author makes an excellent case in analyzing the problem. Unfortunately his solutions are mired in the “military is bad negotiation and compromise is always good even with dictators” stream.

    It ain’t so.

    Please, someone try working at this from another angle. Demand the GAO and the congressional budget office recalculate the future of the American economy with a base of real unemployment, (U5) at 5%. Now it’s more like 15% or more.

    I will bet pretty much all our country’s problems will be solved.

  • zlop

    Parasitic Vampire Bankers only weaken, do not kill the economy.

  • Karlin

    Ya BOB, I agree that new directions are needed. You are promoting growth, which is “more of the same”. I suggest sustainability. The author above, Johan, is at least trying to focus growth on the poorest, the MUA is a good idea.

    Bob says “China has no right to demand anything from the US. No dictatorship has that right” but I say no nation has the right to make demands, only mutual negotiation is right. Dictatorships don’t lose that right!! How do you figure that? Especially with the USA being “the world’s policeman” that no other nation agreed to – the USA dictates to the world, and internally it is the “two party cabal” that is as facist as it gets. G F Y USA.

    The American subsidy on oil includes spending $400 Billion a year on military control of oil-rich nations. I say cut the USA military budget and go for sustainable energy – another program that would increase employment in the USA {“there are 6 to 10 times the number of jobs created in renewable as compared to oil for the same amount of energy produced”}

  • http://www.globial.com/ Sunny Mui

    I think the chances of an agreement for bilateral disagreement are sketchy at best. Will republicans really let the government relent on maintaining a strong military? Will China, a country that has an exceptional degree of national pride, really agree to disarming its military?

    A municipal uplift authority would be great, though in some ways it’s already alive as the Small Business Administration. Just throw in some extra funding and a directive to focus on underserviced communities. I think when the people are left wanting for some kind of aid, much of the time it’s up to the entrepreneurs and private markets to craft a solution. My startup, Globial http://www.globial.com, aims to help small businesses by connecting them with global suppliers and customers. It’s something that’s meant to help the underserviced 16% of people.

    Sometimes these programs are harder to justify when the wealthiest 1% create 93% of the income.

  • zlop

    De-industrializing U$, was decided by the Evil World Order Pedophile Satanists.
    China to manufacture and South America to produce food.
    Most of U$ to become “Green Zones”, with Humans occupying along rail corridors.

  • zlop

    Politics is a Cruel Hoax.
    On the verge of rebelling, the Zombie Domesticated
    Serfs are hypnotized by regurgitated Noble Lies.

  • Colin Reynolds

    Before even getting to the beginning of this article, I had to pass three repetitions of references to ‘the lack of growth’ (one being from the lead-in that linked to the article). When are these so-called ‘experts’ going to wake up and realise that growth isn’t the solution, it’s the problem?

  • zlop

    How can the Universe have a Tendency Towards Development ?

    “randomness of Brownian motion at thermodynamic equilibrium
    can be spontaneously broken by velocity-dependence”

    In a Force Field, motion is not direction independent Brownian Random.
    Simple example is power generation by lapse exploitation.

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