The New American Story about the Economy

Review of Bill Bradley’s The Economy chapter in “The New American Story,” assigned by Gather.com 

"If the story we are told about the economy ignores the burgeoning personal and national debts, the increasing inequality, and the explosion of risk, what might a new story be?” (p. 69)

I don’t usually read political books. It’s not that I’m not interested. Rather, I’m simply disillusioned with political rhetoric. Yet, I read “The Economy” chapter with great interest. Here’s a one-time Presidential candidate, and current managing director for the Allen & Company investment bank in New York, challenging traditional Republican economic rhetoric and expounding on what he sees as an American “collision” under the current administration.

“The main problem with [the old] story is that it ignores economic fundamentals and minimizes the facts that we are the world’s biggest debtor nation,” he writes. “We can’t continue to run increasingly large budget deficits and trade imbalances, or have the lowest personal savings rate of all industrial countries except Australia, without the sky falling someday. The only question is, When—and how bad—will it be?”

He backs up his debate with disquieting economic statistics:

·        Current and future U.S. government obligations amount to half a million dollars for each household in America.

·        Add up the indebtedness of the public and private sectors, and the United States is “practically bankrupt.”

·        By 2016, without legislative change, our costs for defense, health care and programs for the elderly will consume 88 percent of the national budget.

·        We could cut defense spending 10 percent and still spend twice as much on defense as Russia, China, Japan, India, Germany and England combined.

·        Foreigners now own  half of America’s publicly held debt of $4.2 trillion, with Japan holding $639 billion and China $323 billion.

·        Each year, the government loses $911 billion in federal revenue thanks to tax deductions, exclusions and credits.

·        The amount of the tax cuts going to the top 1 percent of American taxpayers exceeds what the federal government spends on elementary and secondary education and homeland security combined.

·        Consumption now represents 71 percent of the U.S. gross domestic product, and savings 1 percent. The Chinese, by contrast, have a consumption rate of only 38 percent of GDP, a personal savings rate of 35 percent, and a fixed-investment rate of 48 percent, compared with America's fixed-investment rate of 17 percent. 

The good news? (Yes, amidst the alarming statistics he cites to represent our current state, it’s here.) “If we make simple changes, the deficit will drop, economic growth will be stimulated, and additional resources will be available for pressing human needs.” The rest of his chapter goes on to detail his plan.

The plan includes everything from military hardware scrutiny and cutting costs for military and administrative support (right now, 70 percent of the defense budget goes to administrative costs), to reducing “pet project” spending attached to bills in Congress (this cost us $67 billion in 2005) and increasing the minimum wage (proposed as if it would miraculously bring 24 million part-time workers into the full-time workforce and others out of unemployment).

Bradley also suggests cutting farm subsidies (recent studies have shown many go to wealthy land owners who never intend to farm); raising taxes only if it’s clear how the money will be spent; regulating hedge funds; and, perhaps the hippest recommendation, bundling all budget items together in one bill and posting the final federal budget on the Internet so that it’s searchable by the public by keywords.

About taxes: Bradley goes into detail about his thoughts on improving tax revenues into the U.S. government in order to pay down America’s increasing reliance on foreign loans to cover our debt. His plan includes eliminating most of the tax deductions (though he doesn’t seem to want to touch IRAs), increasing earned income tax credits, and taxing “whatever is dangerous to us.”

Chief among the dangers, he says, are companies that pollute, deplete natural resources and cause health problems. Other than a $1 per gallon gasoline tax (ouch), he implies taxation of the respective businesses, not the individual tax payers.

But my big concern here is that the other costs would be passed to the poorest of American consumers, the ones who can’t afford the new alternative-fuel cars or who can’t afford relaxation spa treatments and thus get through the stresses of life by drawing on a cigarette.

I do like Bradley’s why-haven’t-we-done-this-before idea to automate IRS tax returns for those who don’t file Schedule C or other deduction worksheets. After all, the IRS already gets copies of everyone’s reportable work and interest income in the form of W-2s, 1099s and so on sent to it several months before individuals are required to send in returns. This would mean that anyone without deductions wouldn’t have to manually file, thus saving what can amount to several hundred dollars per year in tax preparation fees.

About Social Security: I agree that Social Security needs to be fixed. I don’t, however, agree with his suggestion to wait to collect Social Security benefits until age 70. Seventy? Wow, most of us will feel lucky if we even live that long. For me, that’s again a bias toward the rich, given that the poor often have less access to affordable long-term medical care and hence, if they die before 70, won’t get anything at all for themselves from a system they’ve paid into for decades. However, he proposes this as part of a whole package addressing the subject, with give and take for all.

Conclusion: Most of us had a hunch problems exist on these issues, and know something needs to be done about it. While my first thoughts were that Bradley was simply spouting “campaign propaganda,” I do know that he 1) opted not to run for reelection to the Senate in 1996 because, as he said then, American politics is "broken” and 2) received an honorary Doctor of Civil Law in 2003 from Oxford University for being “a powerful advocate of the weak.” So I walked away feeling like this man simply has a concern -- based upon his investment, government and management background -- that America is on the wrong track, and he wants to share it outside of the listeners of his Sirius satellite radio show, “American Voices.”

“Most people remember the last Reagan years as a time of lower taxes and the last Clinton years as a time of great prosperity,” he concludes. “By initiating tax reform in order to return to a level of taxation halfway between the two, we can both invest in our future and assure the savings necessary for that investment. Such a course seems like a no-brainer to me. The choice is ours.”

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