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United States of America, Inc.

The Virtues of Big Government

by ROBERT HUNZIKER

For decades now, actually since President Reagan’s administration, Republicans, with encouragement from Neocons, Supply-siders, Neoliberals, Tea Partiers, or, in short, the Right Wing in toto, have argued big government is evil, a bureaucratic money-trap that is inefficient without producing one iota of good for the country. As Ronald Reagan so infamously said, “Get big government off our backs.” This is a fallacious argument that, in reality, centers on the Right’s own selfish motives and desires to capture the country’s wealth for themselves in the shortest period of time possible, and, in large measure, they have been extraordinarily successful because their time-worn, primordial argument has become the nation’s commentary. It is time to change the argument!

Meanwhile, and dovetailing the Right’s extraordinary success in capturing a disproportionate share of national income, the government’s biggest problem, quite coincidentally, is a distorted tax code under which federal tax receipts, as a percentage of Gross Domestic Product, are at 50-year lows. Thus, starving the government of operating funds while dramatically enriching those at the very top of society in receipt of generous tax breaks. Along these lines, the effect of Supply-side policy on the U.S. government is comparable to IBM abruptly losing a big chunk of revenue on a contract it is still obligated to fulfill. As follows, IBM would be forced to borrow money to stay in business.

As things now stand, personal income tax rates in the United States are among the lowest of major economies of the developed world, e.g., lower than Switzerland, Canada, Belgium, Sweden, and Germany, whose top marginal income tax rate is 45%, but yet Germany is hailed as one of the most productive economies in the world. Another way to analyze America’s taxation levels relative to the world is by comparing tax rates as a share of Gross Domestic product, and on this score the U.S. is fourth amongst the lowest, ranking along side Turkey, Chile, and Mexico, of all 33-member countries of the Organization for Economic Co-operation and Development (“OECD”.) Interestingly, if U.S. tax rates were comparable to Germany’s, the federal government would likely run a surplus, or close to it, not an unmanageable deficit.

And, when did the U.S. government last run a budget surplus? President Clinton, whose policies ran against the grain of Supply-sider policy, balanced the budget. He raised taxes to accommodate the government, and he gave the country its best economic performance in decades. Clinton’s performance is proof positive the Supply-side mantra, and its policies, need to be dissolved, abolished, and reversed to efficiently run our democratic capitalist nation-state!

It is amazing how the Right continues to hammer away on tax cuts and deregulation as the cure-all solution for jobs, and American prosperity, when the evidence is so crystal clear that their platform (1) hinders job creation and (2) inexorably increases annual deficits. Indeed, with the onset of President Reagan’s administration, the United States became the world’s largest debtor nation, establishing a trend of annual budget deficits never before experienced since WWII.

The enclosed chart is a comparative review of the taxation policy effects of Bush I, Clinton, and Bush II, including their impact on job creation and government budgets. It is worth noting Clinton’s rejection of Supply-side economics performed very favorably with GDP, growing at an annualized rate of 3.9% almost double the growth rate of 2.1% for Bush I and 1.7% for Bush II. As a matter of record, Clinton’s GDP growth rate also outperformed Reagan’s. He outperformed these Supply-side policymakers by, in part, adopting anti-Supply-side policies. And, even more amazingly than Clinton, no modern-day president has outperformed the ultra big government President Lyndon Johnson (5% GDP growth rate), who surpassed all, even though the top marginal tax rate under his administration at 70% was double that of each Bush administration.

The question is: How can Supply-side policymakers continue to claim their policies of cutting taxes and removing governmental regulations grow the economy and create jobs?  The facts do not support the storyline, and, as for deregulation, look at what happens when they are regulated: BP/Gulf of Mexico.

President Top Marginal Tax Rate Jobs Created Jobs% Increase Annualized Deficit at End of Term
Bush I 28%-to-31%   2,592,000   2% $300 Billion
Clinton 31% upped to 39.6% 22,744,000 21% $  32   Billion
Bush II 39 cut to 35%   1,080,000    1% $641 Billion

Since anti-Supply-side administrations consistently outperform Supply-siders, is it fair, and reasonable, to postulate that the government is a beneficial enterprise comparable to private corporations? This question is central to the argument supporting the value-added proposition of big government, the same as General Electric adds value to the nation’s economy, notwithstanding the fact the government already fulfills critical operational functions and infrastructure for the entire nation, benefiting all U.S. corporations by (1) providing for national defense (2) defining and securing property rights (3) promotion of fair competitiveness in markets (4) redistribution of income and reduction of hardship  (5) investment in public transportation and education (6) monitoring/addressing environmental issues, caretaker of the nation and (7) promotion, and stabilization, of economic growth via fiscal/monetary policies as well as international trade agreements.

The central problems with current governmental policies are centered around tendencies that lean to the Right, not to the Left, increasingly veering towards a totalitarian nation-state under the influence of Supply-side principles simply because, even though there is plenty of wealth to go around in the world, it’s tied up in too few hands for democratic capitalism to operate efficiently for society at large. Thus, in order to maintain civil order, totalitarianism increasingly becomes a byproduct of this conundrum.

Regarding the benefits of big government, this article would not be available on the Internet had it not been for a U.S. government initiative, following the Russian Sputnik success story in October 1957, that created DARPA, the Defense Advanced Research Projects Agency, a department of the US Department of Defense, which agency’s most famous project was the creation of the Internet.

And, as the result of innumerable research efforts by the government, America’s version of capitalism provides citizens the option of purchasing shares in private enterprise that benefit by government largess, like Facebook, Inc. or shares of Yahoo! and if the business is successfully operated, shareholders benefit by a rising value. Similarly, US taxpayers purchase shares in the US government by paying taxes, although not on a voluntary basis. Nevertheless, paying taxes purchases shares, i.e., ownership in America. Otherwise, there would be no citizens or nation-state. Paying taxes entitles one to citizenship and ownership of the United States of America, Inc., similar to when a park ranger informs visitors upon entering the Grand Canyon National Park; this is “your park.” The question thus becomes, is the government a good investment?

Contrary to private enterprise, the incalculable benefits of governmental research and investments are mostly hidden from view, for example, according to the Federation of American Societies For Experimental Biology: “Public funds promote the climate of openness and sharing that accelerate the process of discovery, verification, and product development. While the private sector is important to research and development in this country, the federal government is the only source able to provide the broad, long-term support necessary for basic research…. If left totally to market forces, basic research would be under funded since the gains from basic research are shared and the profits may not be captured by private investors… The Council on Competitiveness (a nonprofit council of 161 corporate chief executives, university presidents, and labor leaders) recommends that the federal government increase its investment in basic research.”

As seen from the viewpoint of private owners of business, the main indicator of economic efficiency in capitalism is profits. But from the point of view of national economic development, social costs and social benefits, which are not reflected in profitability, can be no less important. As one example, companies that dismiss employees to enhance their profitability do not necessarily improve the efficiency of the nation’s economy as a whole. Corporate dismissal, or firing, of workers often times contributes to profitability, referred to as downsizing, which is a key corporate expression these past decades. Meanwhile, this enhanced corporate profitability comes at a social cost to the nation’s economy, as a whole, via growth in unemployment, casting a burden upon the nation-state. Indeed, without the nation-state as a backstop to the effects of corporate layoffs, it is likely the nation-state would fail as a viable entity by not providing for its citizens and chaos would result. This phenomenon is what America has been experiencing.

The U.S. federal government is America’s biggest business, it employs more people, who are subject to higher tax rates than most elected leaders, buys more products, owns more real estate, constructs more buildings, insures more investments, and borrows more money than any organization in the world, and private enterprise is the government’s biggest customer, benefiting Halliburton, McDonnell Douglas, Lockheed, IBM, General Foods, Boeing, Ford, and, in fact, all of the companies listed on the New York Stock Exchange. The federal government is the largest single customer for America’s industrial products and services, and the government directly, and indirectly, supports most of the research done in the country, according to: The American Private Enterprise System, The University of Kentucky and Kentucky Council of Cooperatives, ongoing series of studies.

Thus, the value proposition for big government enterprise is a positive one. The federal government is, in almost all respects, similar to any U.S. corporation, and it is the country’s biggest corporation and 100% owned by the its citizens, employing people, paying wages, and providing the necessary infrastructure for the profitability of the country as a whole. This is the United States of America, Inc.

However, the burning issue of Supply-side economics, entrenched in American politics for decades, is the result of a small, but extraordinarily and overwhelmingly powerful, vocal faction that does not equitably pay for services rendered by the nation-state. Herein lies the “where,” and “how” of America retrieving its status as the world’s most productive economy… by reversing Supply-side policies. Otherwise, if Mitt Romney, who pays a “carried interest” tax rate of 15%, wins the highest office in “the land of opportunity,” and follows his principles, the United States of America, Inc. will undergo drastic downsizing, abiding by a practice that is deeply imbedded in the corporate mindset. Bain Capital has him well prepared.

Robert Hunziker earned an MA in economic history at DePaul University. He lives in Los Angeles.