Archive for February, 2011

A New Kind of Capitalism

February 20th, 2011

“Capitalists have done a remarkably poor job of safeguarding the future of capitalism.” (source)

Capitalism can mean dramatically different things to different people. To a Wall Street executive it means being able to accumulate unimaginable wealth. To big business it may be a competitive game that must be won at all costs, even at the expense to the public interest. To a small businessman with a great idea, it might mean being able to turn his passion into an occupation, and enjoy the freedom of self-employment. To many, it is a system that has increased the standards of living for millions. To its victims, capitalism is a monster whose greed leaves many behind, and even commits great crimes against vulnerable citizens. Which view is correct? All of them.

If by “capitalism” we mean creating markets that meet the needs of the public, allowing the best ideas and products to succeed through demand, then this is a highly democratic system that should be encouraged. If capitalism means “greed is good,” and we should look out for our own self-interest at all costs than this is a very anti-social, destructive philosophy that must be tempered.

According to Mother Jones Magazine, “Just before the market crashed, one Wall Street manager wrote to another, ‘Let’s hope we are all wealthy and retired by the time this house of cards falters.'” This is one small example of how the greedy version of capitalism can lead to untold suffering (market crash, lost retirements, unemployment, etc.).

Over the past two years, as the dust of the Great Recession began to settle, a host of business leaders and prominent economic leaders have started to imagine a new kind of capitalism; one that is responsible, broadly-enjoyed, and sustainable. Below, we have included excerpts from these leaders, including Bill Gates, Michael Porter, Elizabeth Warren, James Galbraith, Joseph Stiglitz, Fareed Zakaria, and others.

There are common themes in their writings, including the need to regulate corporations, balance the interests of the public and private profit, and the need to have a strong social purpose that goes beyond the profit motive.

Keep reading. » Read more: A New Kind of Capitalism

Infrastructure: The Best Government Investment

February 5th, 2011

In his recent State of the Union speech, President Obama promoted infrastructure development as an essential component to remaining competitive in the world, for providing jobs, and keeping our economy strong. Here’s what he said:

“Our infrastructure used to be the best, but our lead has slipped.  South Korean homes now have greater Internet access than we do.  Countries in Europe and Russia invest more in their roads and railways than we do.  China is building faster trains and newer airports.  Meanwhile, when our own engineers graded our nation’s infrastructure, they gave us a “D.”

We have to do better.  America is the nation that built the transcontinental railroad, brought electricity to rural communities, constructed the Interstate Highway System.  The jobs created by these projects didn’t just come from laying down track or pavement.  They came from businesses that opened near a town’s new train station or the new off-ramp.

So over the last two years, we’ve begun rebuilding for the 21st century, a project that has meant thousands of good jobs for the hard-hit construction industry.  And tonight, I’m proposing that we redouble those efforts.  (Applause.)

We’ll put more Americans to work repairing crumbling roads and bridges.  We’ll make sure this is fully paid for, attract private investment, and pick projects based [on] what’s best for the economy, not politicians.”

Infrastructure spending was only 7.5% of the 2009 stimulus. Yet one dollar invested in infrastructure has a return of $1.59 in GDP growth, while most tax cuts don’t even return 50 cents.

“The performance of the nation’s transportation system is not keeping pace with the rate of growth of the demands on that system,” said Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce. “As our economy recovers, the nation’s transportation infrastructure must be prepared to meet the projected growth in freight and population. Yet our index shows that from now through 2015 there will be a rapid decline in the performance of the system if we continue business as usual. Right now we’re on an unsustainable path.”

Nobel Prize-winning economist Paul Krugman explained, “The one thing we know is that the good thing about federal spending is it’s actually spent, that it actually does boost the economy. And if it’s infrastructure, it also leaves you with something of value afterwards. Whereas if you do it the way the Republicans want to do it, which is always tax breaks, first of all, it might not be not be spent or it might not help the economy at all. And then, you’ve got nothing to show for when the thing is over.”

See this press release by the U.S. Chamber of Commerce.

Chris Farrell’s Bloomberg article, “U.S. Infrastructure Spending: No Time to Get Cheap,”

“Spending now on infrastructure stimulates the economy in a way that will help provide for long-term higher economic growth that will increase future tax revenue and bring down the debt-to-GDP ratio,” says David Aschauer, economist at Bates College.

The most striking example in U.S. history of the economic payoff from infrastructure expenditures has been largely obscured with time: the building of the Erie Canal. It was a 363-mile-long canal dug through the middle of New York State. A bold adventure, it cost about $7 million, an astounding sum equal to more than a third of all the banking and insurance capital in New York State (and more than three-quarters of the federal budget in 1810). The Canal was started in 1817 and finished 8 years later, after much political wrangling.

Perhaps even more striking (considering the current economic climate), after the panic of 1818 the price of money and labor fell sharply when the economy sank into recession. “By 1820, the canal commissioners were drawing contracts at prices 30 percent to 40 percent below what they had paid during the first three years of construction,” notes the late Peter Bernstein in Wedding of the Waters: The Erie Canal and the Making of a Great Nation.

When it was done, the cost of commercial transport plunged. For instance, it had taken three weeks and $120 to send a ton of flour from Buffalo to New York City before the canal opened. Afterwards, it took 8 days and $6. “The Erie Canal would prove to be the most consequential public works project in American history and make New York, both state and city, the linchpins of the American economy for more than a century,” writes historian John Steele Gordon in An Empire of Wealth. (source)

“In their 2005 paper, ‘Healthy Returns,’ they calculated that Americans gained more than $788 billion a year from transportation infrastructure and paid taxes and fees of $185 billion to support that infrastructure…’These findings establish clearly that strong commitments to surface transportation and the spending required to support it well serve America’s economic interest,’ they concluded.

Conclusion

The construction industry is in a depression, with about 20% unemployment. A national infrastructure investment will immediate improve the lives of hundred of thousands of workers in the construction industry, it will revitalize this critical part of our economy, it will improve public safety by improving our run-down public infrastructure, and it will inject new money into the economy in a way that will give us a strong return. Enough fear-mongering about the deficit. We need a substantial injection of capital into infrastructure now. Republicans need to stop filibustering initiatives to pass infrastructure investments. And Democrats need to make this priority number one! It is a priority that will affect all Americans in a positive way.

Further Reading:

http://www1.worldbank.org/publicsector/pe/pfma06/EdwardGramlich.pdf

http://www.bos.frb.org/economic/conf/conf34/conf34b.pdf

http://www.uschamber.com/press/releases/2010/september/us-chamber-commerce-releases-first-ever-indexes