Wayne McMillan. Rewriting the Rules: Lessons for Australia

Jan 2, 2016

The Roosevelt Institute’s Chief Economist Joseph Stiglitz a Nobel Economics prize winner in his own right, has come up with a block buster report on the social and economic problems facing American society. This115 page report which was published as a book in November 2015 was put together with valuable assistance and input from a broad cross-section of people under the stewardship of Stiglitz. Notable economists such as Brad De Long and Robert Reich were among the consulting researchers.

Stiglitz’s team of researchers have revealed that the USA is in big trouble and at the heart of it are misplaced rules, laws and economic policies, based on faulty economic theory. If you combine this with an over-arching, pervasive, narrow minded neo-liberal ideology, then you have a recipe for economic and social disaster.

American neo-liberal ideology and orthodox economic thinking have produced income and wealth inequality of immense historical proportions. Lowly paid workers are in the majority whilst the greater percentage of income and wealth is transferred to an ever decreasing smaller number of people.

“Over the last 35 years, America’s policy choices have been grounded in false assumptions, and the result is a weakened economy in which most Americans struggle to achieve or maintain a middle-class lifestyle while a small percentage enjoy an increasingly large share of the nation’s wealth. Though these lived experiences and personal challenges are important, they are only the tip of the iceberg that is the crisis of slow income growth and rising inequality. To fully understand the scope of the problem, we must also examine the array of laws and policies that lie beneath the surface—the rules that determine the balance of power between public and private, employers and workers, innovation and shared growth, and all the other interests that make up the modern economy.” Dominant economic frameworks over the past 35 years—like “trickle-down” economics, and the idea that markets work perfectly on their own—paved the way for an onslaught of policies that decimated America’s middle class. This paper presents an evidence-backed alternative framework:

  • Markets are shaped by laws, regulations, and institutions. Rules matter.
  • The rules determine how fast the economy grows, and who shares in the benefits of that prosperity.
  • Concentrated wealth can hurt economic performance. Under the right rules, shared prosperity and strong economic performance reinforce each other. There is no trade-off.
  • A tentative, piecemeal policy response to help the neediest will not suffice. We must rewrite the rules of the economy with a focus on restoring a balance of power between the competing interests that make up the modern economy” p.7

What should and can Americans do to rectify this appalling predicament? According to Stiglitz and his researchers they must:-

  1. Ensure that the financial sector becomes responsive to consumer needs, by removing hidden financial charges and fees. Bring in rules that penalises risky investments.
  2. Make full employment the goal.
  3. Introduce legislation to protect vulnerable workers. Allow workers to organise and strengthen their right to collective bargaining.
  4. Change the tax system to make it fairer, by removing corporate welfare tax expenditures and raising taxes on capital gains and dividends. Introduce a financial speculation tax to deter short-term trading and encourage long-term investment.
  5. Ensure some reasonable level in the remuneration of chief executive officers with ordinary salary/ wage earnings.

The most dramatic recommended changes were to:-

  • Overhaul American social security, by introducing a universal Medicare and affordable health care.
  • Expand Social Security with a supplemental public investment program modelled on private Individual Retirement Accounts, and raise the payroll cap to increase revenue.
  • Invest in young children through child benefits, early education, and universal pre-kindergarten.
  • Increase access to higher education by reforming tuition financing, restoring protections to student loans, and adopting universal income-based repayment.
  • Expand access to banking services through a postal savings bank. Create a public option for the supply of mortgages.

The lessons learnt from the USA are there as a warning to Australia. Australians should be very careful now about allowing the present government to focus on deficit reduction via fiscal cutbacks, instead of new job creation. Full employment for anyone who wants to work is the keystone for any just and healthy society and should be the number one priority for any government. In addition, workers should be on guard where they have no union coverage or their union protection is whittled away by new industrial legislation that prevents unions from operating effectively in workplaces. Reducing deficits and worker protections during economic slumps will only impoverish workers, the unemployed and the poor and should be resisted vigorously by all ordinary Australians.

The Anglo-American variety of neo-liberalism has been a dismal failure in the UK and the USA, where it has caused only hardship and poverty for the populace, Australia should take the right steps not to make the same mistakes.

[Wayne McMillan is a keen follower of current economic trends and policies. He has been studying Economics for over 30 years, he lives in Whalan NSW.]

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