…Old Cliché
f recent opinion polls are anything to judge by, it is most probable that Barack Obama will become the next president of United States of America. During campaign stops his opponents – McCain and Palin latched on to the old and tired cliché of calling him a “Socialist”, for suggesting to so-called “Joe-the-Plumber” that he wants to “spread the wealth”. As majority opinion indicates, issues bordering on economic well-being of Americans is what matters most in this election season therefore it’s not by chance that the Republican ticket decided to switch to such labeling, at least to underscore their focus “on the economy”.
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For most people this is nothing short of the usual ideological pandering or stereotyping, much like the practice during the cold war era, especially in the 1950s and 1960s when if you deferred on fundamental issues of policy you were tagged a “communist”. I doubt that such soubriquet will stick this time, but then, don’t the signs of time we live in and actions of Western democracies point to socialist inclination? Especially against the backdrop of recent bailout packages where Western governments are acquiring stakes in major banks just to save the financial system from collapse. Even the current US administration jumped into the fray, albeit reluctantly with a $750 billion price tag, somewhat abandoning its free-market conservative mantra.
The main reason for painting Obama as socialist is his tax policy, which according to Republicans benefit those who pay little or no taxes. Not even the painstaking clarification that Joe-the-plumber won’t be taxed (because he doesn’t earn above $250,000) has helped douse the scare-tactics. The reality of Obama’s tax plan is that 95% of Americans will indeed enjoy tax decrease and/or refund.
…Instruments of Policy Maneuver
Tax regime is all but one of the numerous interventionist tools with which governments can influence economic process. Just as inflation targeting framework or interest rate policy are often utilized by the Federal Reserve Bank to direct economic trend – all that doesn’t necessarily amount to socialist techniques, does it?
Come to think of it, such arguments about socialism today indeed sound hollow against the recent onslaught of governments to rescue their economies in midst of global financial crises. This is quite in-synch with popular economic ideas espoused during the early to mid part of last century by Dutch economist Jan Tinbergen (Theory of Convergence - 1959) or British scholar John Maynard Keynes (during the late 1920s), which served as basis for post-war reform in Western Europe and even the US. I imagine that it is not the intention of Barack Obama’s economic team to socialize this country with their tax and spend policy, but I’d say they are more in tune with the times and not far from current reality.
…Slow and Steady Convergence
Theory of convergence propounded by Tinbergen gained momentum from 1989 when the iron curtain began to fall in Eastern Europe – to share a brief quote – “The division between capitalist democracies in Western Europe and North America and communist states in Eastern Europe is fading. The nature of industrial society leads both types to converge towards a common center. Capitalist societies are becoming more organized and managerial, communist societies more open to market methods and to greater political and civil freedom”.
If you carefully observe the trend of the last two decades, you will notice that such convergence has become reality with communist Russia and Eastern Europe transitioning to free market as US and Western Europe revert to the power of state to regulate their economies – case in point is European Union but China is indeed way ahead that game.
The failure of Russia and Eastern European countries in early 1990s put to rest the myth that communism was the answer to all human ailments or the most suitable form of organizing society and production processes. But look at current situation in the US and Western Europe and tell me what you see. Is it possible that unfettered free-market, as we know it is failing?
If that were the case, then Obama’s presidency might well usher in a whole new era of “Obamanomics” that seeks to regulate differently but better, driving economic growth from bottom-up, by bolstering middle class through taxes and other incentives targeted to the mainstream of society, as opposed to Reaganomics of President Reagan during the 1980s, (analogues to Bush/McCain tax plan for the rich) in which tax breaks were offered to the upper echelon of society, on the spurious believe that the benefits will “trickle down” to the lower class with time.
The result of that policy was run-away inflation, which was in double-digits, coupled with high interest rates that trended between 15-18 percent, culminating in a financial crash of 1987. Not until the election of President Clinton in 1992 did we experience normalcy in the economy. We learnt a lot thereafter and the ensuing change in focus precipitated the longest post-war economic expansion lasting from 1992-2000. Ironically the fulcrum of Clinton’s policy was middle class and small business owners that created over 20 million jobs during the mid to late 1990s. Was the economy stupid? If we recorded such unprecedented economic growth would you say the emphasis on middle class tax-cut is flawed or socialist? I don’t think so.
…Deregulation and The Consumer
The second key issue at stake is the impact of deregulation and who ultimately benefits from it. Hence the effort to address current crises by focusing mostly on financial institutions or offering to purchase delinquent mortgage notes from lenders at full face-value (as McCain has proposed) is defective policy, which leaves the mainstream – nay ordinary homeowners out in the cold.
Who would argue that the policy to increase home-ownership in the US during the 1990s was not well intentioned? That resulted in access to capital for lower-to middle-income families and national home-ownership rate now stands at 68%. That momentum helped sustain the US economy during the early 2000 when the tech-bubble busted in the stock market. Essentially, home-ownership is not only an epitome of American dream but also a pillar of economic growth.
However when deregulation led to emergence of exotic financial products (credit default swaps, and other mortgage-backed securities), underwriting standard became relaxed and caution was thrown to the wind. Most of all, reasonable risk management guidelines were not adhered to by financial institutions, thus igniting the current credit crisis. The sensible alternative proposed by Obama is not simply to bail out banks but also extend some financial lifeline to average homeowners. Such an approach is not only fair and expedient but could go a long way in resuscitating consumers.
So the issue is not in terminologies, but the net-effect of policies on society at large. A new emphasis on mainstream tax incentives, smart regulation of the financial system that cuts across all layers of the market – at the institutional and consumer levels will definitely bring about more balanced long-term growth as we have seen previously – if that is the hallmark of Obama’s strategy then we ought to embrace it - by the way statistics show that 20-30% more Americans support that than do back McCain’s policy – you be the judge.
…Focus on Mainstream
To sum up, here are some thoughts that underpin my arguments and the reason why Obama’s ideas make sense for the future of this country:
- The American dream is built on equal opportunity as well as access to capital, and fair amount of financial incentives for those who deserve it. After all the bulk of Americans are not wealthy; Hollywood stars, Wall Street types, business moguls top executives etc, they are “average Joes” striving to make a living and build stable future. Statistics show that median income is $55,000, while about 70% of population makes less than $50,000 per annum, just as only 5% of citizens earn over $250,000. How else to spread opportunities than a broad-based tax-cut in addition to other targeted measures for the mainstream population?
- Quite frankly, blind ideological posturing practiced by the Republican Party hasn’t served America well economically in the past. Except for the purpose of balance of power, the party has espoused and practiced tax policies that are in favor of an absolute minority of the population and well-heeled people at the detriment of most others. That’s quite un-American and against the ethos of equal opportunity enunciated in the constitution. So spreading the wealth is not harmful.
- Focus on working class and business owners is not only fair but also encompassing. For starters, majority of consumers fall within that population segment, whereas small businesses create the bulk of employment in this country as statistics showed during the late 1990s to early 2000. It is a well-known fact that consumer sentiment is a leading economic-indicator, which also happens to be a growth-driver for productivity in host of industry sectors. Therefore any measure that doesn’t include these groups could jeopardize recovery and impede growth prospects of this country in the long run.
- Yes, big businesses and the ultra high-income population segment are good for the society and economy - if for nothing, as “dreams” to strive for by most Americans, and driving force for research and development as well as enhancing competitive advantage of this country – “to be wealthy is glorious” as Deng Xiaoping, former Chinese leader ones noted, but without a long-term inclusive tax plan and economic stimuli that impacts small businesses and middle class the future prospect for major corporations becomes diminished, whereas the purchasing power offered by large consumer-base is impaired.
Despite how lofty his economy strategy might come across, if you are an Obama/Biden fan it might be too early to celebrate however you will find solace in this old lyrics sang by Jimmy Cliff, the famous Jamaican reggae star – “Goodbye yesterday, welcome today I've been waiting for a long long time, goodbye yesterday, welcome today, I know every thing's gonna be fine”.
Jimmy Cliff | Lyrics | Goodbye Yesterday
