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Richmans' Trade and Taxes Blog
Book Review: A Leftist Approach to America's Economic Problems
Donald L. Barlett and James B. Steele, The Betrayal of the American Dream (NY:Public Affairs, Perseus Books, 2012)
In the Prologue, the authors write that they propose to show how a “small number of people in power have deliberately put in place policies that have enriched themselves while cutting the ground out from America’s greatest asset – its middle class.” The “small number” who put these policies in place, like most leftist tracts, are never identified. Depending on the chapter, they are “Wall Street”, or “the elite”. They never include “liberal” professors, or Pres. Obama, or liberal Senators or Representatives, even if they are indebted to Wall Street or the elite or the corporations.
They (I guess “they” control the Congress and the president) “created a tax system that is heavily weighted against the middle class.” They make no mention of the fact that 47 percent of all income recipients, pay no income tax, that the burden of the corporate income tax falls heavily on the owners of corporate shares, and thus dividends are taxed twice.
Wall Street (Congress and the President?) “deregulated sectors of the economy and in so doing killed jobs or lowered wages for employees across entire industries such as airline and trucking.” They “ignited in the financial sector a wildly speculative run-up in mortgage-backed securities of little value that imploded in the 2008-2009 recession.” As I have argued on this site, the Community Reinvestment Act of 1957 caused the real estate bubble and administering the CRA was the Fed Reserve.
They “encouraged corporations to transfer jobs abroad and eliminate jobs in this country to bolster the value of stock, increase dividends, and boost executive compensation.” Corporations like Apple, Hewlett Packard, Dell, etc., needed no encouragement from Wall Street. It was a way of making greater profits.
The authors write that the elite “(e)nabled companies to eliminate positions and replace permanent employees with contract workers at lower pay and with no benefits”, “allowed multinational corporations to shelter profits overseas and avoid paying taxes on earnings that could be used to help stimulate jobs at home.” [Yes, they could. Why are businesses that are floating in dollars, not investing in the U.S.? Because of writers like these inter alia.] Businesses need no encouragement to reduce expenses. Wall Street or the elite “refused to support the growth of new industries that could generate jobs for the future.” [Evidence?] The book is riddled with similar nonsense.
The rich pay less taxes, oppose the minimum wage, are bad people. [Pay less? The top 10% pay 50 percent of the personal income tax and most of the corporate income tax! No mention that the minimum wage may be at the expense of job opportunities for teenagers. Nor that unions want the minimum wage, not for their members but to avoid competition.]
“Thanks to the rules, which are written by corporations, a company can pull up stakes and use cheap foreign labor to make the same product it once did in America.” [The italics are mine. Did you know that corporations write our laws?] They continue, "And the company can ship the product back to the U. S. where they will pay little if any duty." [The authors are right on that!]
The authors argue that the rise of conservative think tanks and foundations directly coincides with the economic decline of the middle class. [The middle class was growing until the recent recession. Was the growth of the middle class also due to the conservative think tanks?] The conservative think tanks do back unrestricted free trade, but so do most economists, as well as corporations that do not face foreign competition, as do both major political parties. I am an economist but I believe in balanced trade - if trade is free and balanced, so much the better. The authors make no mention of leftist think tank s. No mention of George Soros who is rich and a leftist.
In Chapter 2, entitled “The Cost of Free Trade”, the authors write:
The last decade alone saw the closing of 14 percent of the nation’s factories (56,190 establishments)… The decline of U.S. manufacturing isn’t a new story. But what hasn’t been told is how it happened, the role played by Wall Street and the ruling class …But what doomed manufacturing jobs was largely an economic policy crafted by Washington and Wall Street …They called it “free trade.”
The loss of American jobs is true but the rest of it is nonsense. The great classical economists, Adam Smith and David Ricardo, argued for free trade and an end to mercantilism (barriers to trade and unfair trade practices) and economists from that time forward taught the advantages of trade, fair or not. Even the very liberal Prof. Krugman teaches this to his students, although recently he argued for a tax on Chinese goods alleging that China was keeping the value of the yuan artificially low, a mercantilist practice.
I agree with the authors that unbalanced trade is costing us jobs. My colleagues and I wrote an article in an economic journal advocating the imposition of a single country variable tariff, called the scaled tariff, that increases when the trade deficit increases and diminishes as trade is brought into balance. It was not “Wall Street”, "they" or the “elite” that invented free trade. We agree with the authors that free trade has been bad for the U.S. in recent decades.
We agree also with them that the free trade areas negotiated by the U.S. have hurt the American manufacturing worker. Even leftist Pres. Obama is negotiating more free trade areas. But part of Wall Street in the form of Ross Perot opposed free trade and predicted correctly that a free trade area with Mexico would cost thousands of U.S. workers their jobs.
The authors are right that outsourcing has been harmful to the American worker but blaming “Wall Street,” whoever they are, is nonsense. The opportunity to make greater profits by producing abroad is a simpler explanation.
The authors are right that innovation “is the pride of America” but unless the product is produced in America, it makes no contribution to growth. American companies who produce their products abroad are exploiting the foreign workers. They blame the American companies. The reason for low wages in foreign countries is the low productivity. American investment in a foreign country raises wages in that country by increasing the demand for workers. That is why China and other countries offer incentives to foreign producers to locate their factories abroad.
They cite Apple as one such company and its abandonment of factories in California and which has most of its products produced by its partners in China. The authors allege horrible condition in the factories for which it blames the American companies “Workers at Longhua and other Foxconn plants in China usually work from ten to twelve hous a day…. For this, they earn little more than a dollar an hour at most.”
Do the authors blame their Chinese government? No. Apple, subcontracting and outsourcing. “For the Apple executives who sent the company’s jobs offshore, the results have been especially rewarding.” What to do about it? They offer no solution.
They tell the story of a Bank of America programmer who committed suicide after he was replaced by an Indian whom he trained. The authors blame “those in power… No safeguards were ever put in place to prevent other nations from taking advantage of our open-door policy.” Their criticism is justified. But the authors never considered the fact that the US enjoyed a favorable balance of trade when our wages were higher than anyone else’s. Low wages abroad is only one of the inducements to outsource manufacturing.
The authors decry the fact that In 1955 the four hundred households with the highest income paid 51.2 percent of their income in federal taxes while in 2007, they paid only 16.6 percent. But they ignore the fact that much of their income had already been taxed by the corporate income tax.
They assert that the corporations are guilty of tax avoidance by producing overseas and not repatriating their profits. Many countries have a territorial conception. Earnings, they believe, is income only where it is earned and not taxed elsewhere and should not be taxed elsewhere. The U.S. taxes income of its corporations and citizens wherever earned. They ignore the fact that there are different concepts of income.
The authors are right that under U.S. law, deferral of income taxes is an avoidance loophole. But they know nothing of individuals who are exempted from income earned abroad if they are out of the country for eleven months of the year.
The authors want higher taxes on the rich but they never mention the fact that nearly half of income recipients pay no income taxes at all nor the fact that the upper ten percent on income earners pay about half of all income taxes collected. How progressive should the income tax be? They seem unaware of the negative effects on economic growth of higher income taxes. There is a trade-off between progressivity and incentives to work and invest.
The authors identify a number of problems that need to be corrected, but they have no solutions. They are rightly concerned about the trade deficits and the outsourcing of manufacturing. They are reluctant to give private enterprise any credit for America’s growth. They seem unaware of the collapse of the Soviet Union or China’s growth as a result of its experiment with private enterprise. They display no awareness that governments have few incentives to do anything efficiently, including regulating private enterprise.
It is a good introduction to the leftist approach to economic issues. The book is worth reading only for the exposure it gives to problems we need to solve. Unfortunately, it doesn't include any solutions.
Comment by Jeff Paetkau, 10/8/2012:
Solid review, typical Leftist.
Response to this comment by Lindsey G. Lopez, 5/28/2013:
Response to this comment by Joseph T. Trawick, 5/28/2013:
Corporate Income Tax
Economy - Long Term
Economy - Short Term
Real Estate Taxation
Journal of Economic Literature:
Atlantic Economic Journal: