Tuesday, December 16, 2008

More on the unsustainability of full employment

The concluding point of this recent post was that perhaps an economy based on full or nearly-full employment is unsustainable, or at least in conflict with what is healthiest for individuals as consumers, as well as for residents of a finite planet. Robert Reich concurs, but he does so by explaining why a Keynesian solution to the current economic crisis may prove insufficient.

The false assumptions, according to the Keynesian model, are that "American consumers will eventually regain the purchasing power needed to keep the economy going full tilt," and "even if Americans had the money to keep spending as before, they could do so forever."

His explanation of the error of those assumptions illustrates the dilemma of full employment:

This would be a problem if most of what we consumed during our big-spending years were bare necessities. But much was just stuff. And surely there are limits to how many furnishings and appliances can be crammed into a home, how many hours can be filled manipulating digital devices, and how much happiness can be wrung out of commercial entertainment.

The current recession is a nightmare for people who have lost their jobs, homes, and savings; and it’s part of a continuing nightmare for the poor. That’s why we have to do all we can to get the economy back on track. But most other Americans are now discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with.

What we most lack, or are in danger of losing, are the things we use in common – clean air, clean water, public parks, good schools, and public transportation, as well as social safety nets to catch those of us who fall. Common goods like these don’t necessarily use up scarce resources; often, they conserve and protect them.

He identifies the problem perfectly and lucidly, but his solution doesn't nearly address it. His solution is the standard liberal model of social programs supported by income taxes. Though the social programs he proposes are good and often absolutely necessary, income taxes won't be sufficient if we're facing the dilemma of chronic underemployment.

Whatever solution we concoct must address the fact that: a) individuals might not be able survive on purely employment income alone, and b) taxing employment income might not get you as far as it once did. A potential solution that fits the bill could be extensive natural resource taxation, levied on all income that people earn from selling land, airwaves, oil, et cetera. These are all things that came with the earth, and anyone who profits from them did little to earn the profit, other than get there first. Each of those industries are among the most profitable on the planet, since most of the income is taken from control of common resources, rather than productivity. And if those things are common resources, the existing system of control and profit is theft, and justice requires their taxation.

The government should step in, yes. Though instead of as a buyer where consumers no longer can, they should as a supplier where corporations should not. The few necessary social programs that Reich defines as common may still be necessary, but they in no way match the revenue that is available from natural resources. The remaining surplus can be returned to each citizen as a share of the commons, thus addressing dilemma (a).

And we have, reported Friday, an appointee for Secretary of Energy who might be amenable to such a solution (at least in part). The Nobel Laureate Steven Chu has advocated the increasing of gas taxes. Though unclear from this article whether his proposal would be the case, most often the gas tax is proposed with an income tax decrease to offset it. This is the direction we would like to head.

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