Earlier this month, we asked you to share your most pressing questions about the economy and you delivered! Here, we're sharing responses from Paul Constant, a team member whose job it is to debunk trickle-down myths in mainstream economics. Read on…
Do we need degrowth economics to address our worsening climate chaos and ecological damage, as well as gross wealth inequality? If not, what's the alternative?
This is an excellent and intelligent question. And thankfully, someone who is way smarter than me has already answered it. I’d encourage you to listen to the episode of Pitchfork Economics [[link removed]] that features a long interview with sci-fi author Kim Stanley Robinson.
Robinson’s novel “ The Ministry for the Future [[link removed]] ” details specific answers to many of the answers you seek. It’s set in a near-future in which the climate disaster has grown even more dangerous, and it details the establishment of new economic and political systems to both contain the environmental damage and create a more sustainable, equitable future. It’s at once a thrilling speculative novel and a thoughtful examination of our modern assumptions, which means I think it’s right up your alley.
But in terms of a middle-out economic solution to ecological damage, it’s important to remember that we live in the most prosperous civilization in human history, and prosperity can be broadly defined as the accumulation of solutions to human problems. When I think about the progress that has happened in my lifetime—including the elimination of lead and asbestos in homes, the restoration of the ozone layer [[link removed]] , and the massive improvements in cancer survival rates [[link removed]] —it becomes evident that through intelligent cooperation we can solve any problem. Government’s role in this, I think, is to incentivize innovation and sustainability in the environmental space through regulation and investments—to direct our greatest minds toward the problems that most need to be addressed in order to ensure our society’s survival.
How can we protect Social Security, Medicare, Medicaid and disability? Specifically, is there a way to give retirees full Medicare and Medicaid with optical and dental, hearing included as one package?
We can protect Social Security pretty easily by eliminating the maximum income cap on Social Security [[link removed]] . As it stands right now, every working American puts some money into Social Security every week, but those payments stop increasing for anyone who makes more than $160,200 a year. That means if you make $160,200 per year, you put exactly as much money in to Social Security every year as Elon Musk, Jamie Dimon, and Scarlett Johansson do. That’s insane!
Similarly, we could easily protect and expand Medicare to cover all the essential health services by expanding Medicare taxes on high earners. President Biden proposed [[link removed]] raising Medicare taxes on people earning more than $400,000 per year from 3.5% to 5%, which would keep the system functioning perfectly well into the foreseeable future. Bumping that figure up by a percentage point or two would pay for the optical, dental, and hearing coverage that every senior needs.
How do we get Congress to pass paid family leave? What positive effects on the economy would this have? I assume countries with it have found it helps the economy. Please quantify so Republicans can't just see it as a feel-good "liberal" give-away.
A huge body of research shows that paid family leave has tremendous positive effects on the economy—and not just for individual families. Businesses have shown positive effects, too. The Center on Budget and Policy Priorities [[link removed]] did a wide-ranging survey of paid family leave studies and they found that in California, which has a paid leave program in place, “about 90 percent of businesses reported either a positive or neutral effect on productivity,” and “87 percent of businesses surveyed in California reported no increased costs and 9 percent even reported cost savings due to lower rates of employee turnover or lower spending on employee benefits” thanks to the state’s paid family leave insurance system taking on expenses that were previously paid by businesses. And more workers—especially mothers of younger children—rejoined the workforce.
And because paid family leave helps parents care for children, those effects pay off well into the future. CBPP reports that “Providing new parents with paid time off to care for their newborn or recently adopted children contributes to healthy growth and development for infants and toddlers.” Children from families with lower incomes are healthier and happier. This isn’t just true in California: States like New Jersey that have passed their own paid family leave laws show the same positive benefits across the board.
Probably the only way Congress will pass paid family leave at this stage in our political evolution is if we elect a supermajority of Democrats to Congress, and then hold them accountable to the principles of middle-out economics. The coronavirus pandemic underscored the importance of paid family leave, so every working American now understands how vital it is to have systems in place for when—not if—we or our children get sick. It’s a popular issue, and Democrats should run on it in states around the nation.
Could you explain the "debt ceiling"? If our national debt is huge, why are there so many people advocating to increase the debt ceiling?
The debt ceiling is the limit on debt that the federal government can accrue. One of Congress’s duties is to vote every so often to raise the debt ceiling so the government doesn’t default on its debts. This has happened dozens of times without incident since the end of World War II, but when the House of Representatives falls under Republican control while a Democrat is in the White House, those Republicans threaten to hold all federal spending hostage and default on our loans.
If Republicans follow through with their threat to force the US government to default on its loans, the world economy would likely bubble over into a meltdown which would drag nearly every nation on Earth into a recession. This would happen because the U.S. dollar is the world’s dominant reserve currency, meaning the world’s nations largely perform international trade and transactions with our currency. By refusing to pay our debts, Republicans would throw the value of the world’s currency into doubt.
And you’re right that the national debt is huge—depending on who you ask, it’s over 30 trillion dollars. But the national debt is not the same thing as a household’s credit card debt. For one thing, more than a third of the national debt is technically money that the U.S. has borrowed from itself in the future. And a certain amount of debt between nations is a perfectly healthy thing.
How would the overall economy change if more money was shifted from the top to the middle and the bottom?
For the best, clearest answer to your question, we should look to the past. America was by no means perfect in the 1960s and 1970s, but by just about every measurement that’s when our economy was at its strongest. That’s because it’s also when wealth inequality between the top 1% and everyone else was at its lowest ebb and the American middle class was thriving.
To be clear, there were still tons of rich people during that time. They lived comfortable lives, businesses were hotbeds of innovation that laid the groundwork for much of the technology we enjoy today, and a huge swath of families enjoyed financial security knowing that if they worked hard, they’d be able to enjoy life in their communities and retire comfortably.
So to take on your question directly, if we re-center the American middle class as the true job creators in the economy and rebuild the social safety net that ensures even the poorest households have access to food, housing, and medicine, everybody would thrive—including businesses and the wealthy people at the top of the economy. When more people have more money, that’s good news for everyone in the economy.
Why do you foreground the capital gains tax as a means of making taxation more equitable? It's historically been a low tax compared to income taxes and it's also historically been wide open to evasion by creative accounting. I know you don't want more of the same shoddy history but isn't there a better way, like a wealth tax, restoring inheritance taxes, high upper income tax brackets?
This is a great question! I assume you’re asking because our email list did wonderful work last year to encourage the passage of a capital gains tax in Washington State. That context is important because though Washington State is very politically progressive, it actually has the most regressive tax system in the union. Because our state supreme court over a hundred years ago decided that an income tax was unconstitutional, Washington gets much of its revenue from sales taxes and property taxes, which puts an undue burden on working- and middle-class households while the wealthy few pay markedly less in taxes.
Passing Washington state’s first-ever tax on the exorbitant capital gains profits gained from the sale of stocks was a crucial first step in fixing our worst-in-the-nation state tax system, ensuring that wealthy people finally pay a little more of their share. Because 41 states in the union—even deep-red states like Idaho and Alabama—collect capital gains taxes, and because capital gains taxes are collected from the wealthiest few, this was the fastest and easiest way for Washington state to begin the transformation from a regressive tax system that punishes the majority of people and undertaxes the wealthy to a progressive tax system where the wealthy few pay at least as much in state taxes as their secretaries and car mechanics.
Why is low unemployment considered to be a bad thing for the economy? Low unemployment should mean more people do not receive as much government assistance and instead are paying into the tax system and Social Security and Medicare benefit plans.
If I may just slightly rearrange your question, I think it’s important to ask who considers low unemployment to be a bad thing, and why . Because you and I both agree that low unemployment (and higher wage growth) is a good thing, but some experts have made a point of complaining loudly in the media about the fact that unemployment has remained low for the past two years, and that wage growth has increased. And the Federal Reserve has specifically stated that their goal in raising interest rates is to cool down the hot labor market—which, translated to plain English, means that they are explicitly trying to lower the wages of working Americans and raise the unemployment rate by making it harder for businesses to borrow money.
How can this be? Why would economists argue that low unemployment is bad news [[link removed]] , and call for millions of Americans to lose their jobs [[link removed]] in order to lower prices? It’s because 40 years of trickle-down economic dogma has convinced mainstream economists that prioritizing the wealthy few at the expense of everyone else is how you fix the economy, when in fact the opposite is true. The Fed believes that low unemployment and higher wages caused the high prices we’ve all been paying for the last year, when in fact, the inflationary crisis was caused by the supply chain breaking down during the pandemic. And prices were kept high by corporations taking advantage of the supply chain crisis to raise their prices even higher. When you have CEOs bragging about raising prices in order to stoke record profits, that’s not inflation—it’s greedflation.
Trickle-downers believe that the wealthy few at the top of the economy create prosperity in the economy, when in fact it’s working Americans who create prosperity for everyone. When unemployment is low, it means more people are making money that they spend in their communities, creating more jobs with their consumer demand. And as you said, it means more people are paying revenue into the system and supporting the social safety net. So until economic leaders come around to understanding how the economy really works, we will continue to see headlines arguing that up is down, bad is good, and low unemployment is bad.
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