FISCAL POLICY AND THE ECONOMIC CRISIS

Because of the global recession (2008-present), the fiscal issue is the most significant one of our time in the US as well as EU. Given that fiscal policy is a catalyst of how income is distributed from one group to the other, massive amounts of money is spent by lobbyists to influence fiscal policy. A key question today before politicians trying to decide on fiscal policy should be whether a fiscal structure in a democratic society must reflect a modicum of social justice, or simply take into account econometrics to the neglect and detriment of the social contract as workers and the middle class understand it.

There are countless experts on fiscal and monetary policy that have countless policy mixes of how to best deal with debt problems. The key is how to do it without precipitating sociopolitical disharmony, or at least lessening social disharmony as a result of socioeconomic inequality; this of course within the context of a pluralistic (democratic) society, and not an authoritarian or semi-authoritarian (quasi-police state) parading as 'democratic' merely because it holds elections every four years.

There is no such thing as a magic bullet, no ideal fiscal formula, no perfect tax plan. The fundamental question, as much for the US as for Europe in the past two years, is what kind of society do they (political and socioeconomic elites) want, and what consequences (sacrifices) are the political and socioeconomic elites willing to accept for defending fiscal policy mix A vs. B? The US is less complicated than EU because America manages its own reserve currency and it is not bound by treaties or accountable to any other country regarding monetary policy that is an integral part of fiscal policy.  

Robert Reich, who has written against the flat tax and in favor of heavier taxes on the wealthy, has a record of supporting the left-wing of the Democrat Party, moving more to the center when he worked for President Clinton, and then going back to the left once he was out of government; as he should have given that intellectuals can be more true to theory than policymakers. His views represent a segment of the Democrat party and of society more broadly. The question is whether the left Democrat position or a variety of Republican proposals will best serve the majority of the American people and at the same time put the country on the path toward lowering the debt.

My own perspective is that Reich does not go far enough, as I have already stated in a previous posting. In june 2011, I wrote a brief piece entitled "US Income Pyramid and the American Dream" in which I explained that the top 25% of the population earns 47% of income, while the bottom 25% of the people earn a mere 4% of income. 

So much capital has been absorbed and concentrated by the private sector and so much continues to flow from the public sector to the private that we have the very serious problem of sovereign debt in the US, EU and other countries. The state must adopt very radical measures to absorb capital from the private sector - this means the top 25% percent of the population that owns most of the wealth - in order to achieve fiscal equilibrium and regenerate the credit economy so that it can begin to expand again.

What I am proposing, and many others around the world have also proposed is a very radical Keynesian position. It will not happen in the US any more than it will in the EU, and neither will the US or EU adopt anything that Reich has proposed, which is a more more modest proposal. The reason is that the socioeconomic elites enjoying privileges of a society and political systems from the US to Russia that has elevated them to Medieval Lords (lords of capital) do not wish to surrender their privileges any more than the lords did when the French Revolution broke out.

Democratically-elected political elites will make sure that the 'lords of capital' retain their power, which by all indications is currently causing broad society disharmony and leading toward the twilight of democracy. The cost for pursuing policies that serve a small percentage of the population, namely, the lords of capital, will mean greater socioeconomic gap, greater poverty, downward socioeconomic mobilization, degrading of the democratic (representative) system, more frequent and more intense social unrest that will result in political polarization and the road toward quasi-authoritarian regimes. Such regimes will insist that they are 'democratic' because they have given people the choice of a bankrupt two-party system that represents the lords of capital. How long will people accept the myth of 'democracy' against the reality of authoritarianism under the lords of capital is already answered by mass protests across the US and EU.