April 15, 2006
The Story and the Meta Story

Here’s an odd pair.

The Story Itself

First, there’s the story itself. A Democrat running on a platform of raising taxes! Man bites dog!

Here in California, the race to replace Arnold is underway. According to the polls, most Democrats favor Phil Angelides or Steve Westly. Angelides’s early lead appears to be shrinking. In part this is probably related to his strategy of saving most of his money for the last few weeks before the election. So what does he do to draw some media attention? He holds three press conferences in a week to talk about raising taxes to “fully fund education.”

Westly’s chief political advisor had to be restrained, calling the plan

… “beyond idiotic.”

“I can’t even begin to tell you how stupid that position is,” South said. “If he is the Democratic nominee in November, he is toast.”

Thus, presumably, Mr. Westly is willing to sign a New Hampshire-style No Taxes pledge? “Westly has said that he would consider tax increases only as a last resort.”

Schwarzenegger’s spokesman suggested that at least Angelides is being honest, and accused Westly of “hiding the ball”.

The Element of Surprise

Is Angelides crazy? Perhaps, but he does have an interesting position.

On the campaign trail, Angelides talks about “closing corporate tax loopholes” and “asking multimillionaires to pay their fair share.” He brushes close to a class warfare argument: “They may have fewer Ferraris in the short term — but this whole state will have a better-educated workforce for the long term.”

What’s interesting is what he proposes to spend money on: education and the budget deficit. California spends about $4 billion a year more than it receives in taxes, and he wants to address that problem.

Can We All Just Get Along?

Those seem to be priorities that liberals and conservatives could agree on. Conservatives traditionally wanted balanced budgets, though they haven’t really acted that way in office — not just Bush, but Reagan and Nixon presided over economies out of whack due to their reliance on what Chomsky calls the Pentagon system. Reagan also had some good economic times, but they were much like those Republicans claim we’re having now: grotesquely unbalanced in favor of the already extremely wealthy.

Of course, liberals did the same: Johnson certainly, Kennedy to some extent; but he was also deeply involved in the Cold War, and was talking about ways to reduce that tension before falling off the roller coaster. Carter’s economic troubles were largely foreign in origin and thus not subject to US control; and of course Clinton presided over a boom. So did Eisenhower, but that grew out of the Second World War, after which we were not only the last one standing but also the world’s banker and arms dealer.

What we needed then was markets, and lots of them! Our productive capacity had increased drastically through the war effort, while many parts of Europe and some parts of Asia were devastated. Too devastated to be able to buy what we could produce. We needed those people on their feet and earning money fast, so we could sell them stuff. Otherwise our economy was headed right back down the drain for the same structural reasons as were manifest in the Depression: we use overproduction to enrich the few rather than the many, with the result that the many have nothing to spend and the economy stalls. All for ourselves, and nothing for others, are the sentiments Adam Smith ascribes to the masters of mankind.

The Pentagon system was considered ideal for these purposes. It imposes on the public a large burden of the costs (research and development, R&D) and provides a guaranteed market for excess production, a useful cushion for management decisions. Furthermore, this form of industrial policy does not have the undesirable side-effects of social spending directed to human needs. Apart from unwelcome redistributive effects, the latter policies tend to interfere with managerial prerogatives; useful production may undercut private gain, while state-subsidized waste production (arms, Man-on-the-Moon extravaganzas, etc.) is a gift to the owner and manager, who will, furthermore, be granted control of any marketable spin-offs. Furthermore, social spending may well arouse public interest and participation, thus enhancing the threat of democracy; the public cares about hospitals, roads, neighborhoods, and so on, but has no opinion about the choice of missiles and high-tech fighter planes. The defects of social spending do not taint the military Keynesian alternative, which had the added advantage that it was well-adapted to the needs of advanced industry: computers and electronics generally, aviation, and a wide range of related technologies and enterprises.
So Now What the Hell Do We Do?
(Believe me you’ll find out
that everything’s rotten
from bottom to top through and through
All gold is just glitter
all gains are ill-gotten
But now what the hell do we do …)

(— Rant and Rave, Joe Jackson )

In general, my feeling is that the US should not invade any country unless that country has committed an act of war against us. And no one will be stupid enough to do that; we spend nearly as much on our military as the rest of the world combined. We need to redirect our use of the common wealth to more constructive purposes.

The problem is that our economy is currently built on that base. Military Keynesianism operates on the Keynesian principle of deficit spending to pump up the economy in bad times, and turns the Pentagon into a financial arm of the government. This generates enormous profits for a small number of well-connected corporations, which in turn are owned by a relatively small number of citizens. It’s redistribution, compared to which the amounts we spend on welfare and related issues are insignificant.

How do we break the cycle? Well, a groundswell of anti-war sentiment would certainly help, but in the current propaganda climate a direct assault on the legitimacy of the war machine seems unlikely to succeed. Better to adopt the strategy chessplayers call hypermodern, chip away at the edges of the opponent’s central structure, undermine it, then be ready to rush through when it falls.

Tear Down That Wall

Education chips away at the wall that is growing between the extremely wealthy in the United States and the rest of us, by which I mean at least the bottom 95% of the economic ladder. Or perhaps a better number is 98%. In any case, inequality is reaching dangerous proportions — dangerous to general economic well-being, and thus to social cohesion.

California used to have an educational system that was the envy of the world. Now we rank nearer the bottom than the top of the states in many measures. Even given the difficulty of making accurate rankings, it’s clear that California’s financial policies have resulted in a significant reduction in the capacity of one of our most important public resources.

If a politician made a clear case for education, he or she would have a huge natural base of sympathy for ideas. The economy may be booming for the upper crust, but most people are more likely to have their jobs outsourced than they are to make a million dollars a year. Everyone realizes that education is required to make it in the modern competitive environment. The only argument against education I’ve thought of so far that’s at all reasonable is the basic no-taxes approach.

The Meta Story

Which brings us to the second half of the pair I mentioned at the beginning. (Thought I’d forgotten that, huh?)

What really surprised me was not Angelides’s position, though it does strike me as considered and courageous. My impressions of him come from news reports since I became aware of his candidacy; but my interest was sparked by William Greider’s book The Soul of Capitalism. Angelides is perhaps the prime example of one point the book is making, which is that publicly controlled money such as that in CALPERS can be used to effect changes that are positive for the public, not just the private. Pension funds can be used as leverage to encourage corporations to act in socially responsible ways, and Angelides has tried to do this, sometimes successfully.

His populist credentials are thus pretty solid, and his progressive intent is clear in the nature of the tax increases he supports. I like his Ferrari jab, and it might work.

Of course, you would expect the media to attack this ferociously. Taxes are always bad, right?

California voters are not necessarily against raising taxes on upper incomes: two years ago, voters approved a 1% tax increase on those who make more than $1 million to pay for expanding mental health services. Proposition 63 passed with nearly 54% of the vote.

Public opinion surveys also show a somewhat receptive audience thus far to Proposition 82, a June ballot initiative that would raise the tax rate on individuals making more than $400,000 and couples making more than $800,000 to fund a statewide preschool program.

Oh, and just in passing, Mr. Horrified-by-taxes Westly, like Mr. Angelides, supports Prop 82.

Say What?

The approach Angelides is taking gets him points for honesty and straightforwardness, two premium qualities in the current miasma of ethics in politics. It also brings the obvious political dangers.

Mark A. Peterson, a political science professor at UCLA, said voters “want someone who will tell you the truth. Well, yeah, but they don’t want to be told their taxes are going up. That is a truth they don’t want to hear.”

One irony about raising taxes on the wealthy is that many ordinary Americans, aspiring to be rich, oppose them. Polls show that the strongest support for tax increases on upper incomes comes from wealthy liberals — not middle-class Americans, said John Samples, director of the Center for Representative Government at the Cato Institute.

Angelides seems to expect the public to respond to his argument of governing responsibly and using public resources to help everyone. The Republicans have been calling redistribution in that direction socialism for so long that lots of people believe it. Hey, if progressive tax systems, universal health care, and fully funded education are socialist, I can live with that.

But I don’t expect this from the LA Times:

For a several years, as California has struggled with a persistent budget shortfall, economic experts have suggested temporary tax increases. In a 2003 letter to the Legislature, 14 respected California economists argued that a below-average education system would hurt the economy more than a tax increase.

“It is totally unrealistic to pretend that spending cuts alone can solve the problem,” they wrote. What followed from the Legislature and Davis was the vehicle license fee increase, since reversed by Schwarzenegger.

What? Actual reporting, including actual facts that don’t support the talking points? Whoulda thunk it? Kudos to Robert Salladay and the Times.

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Posted by Chuck Dupree at April 15, 2006 03:11 AM
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While you're up, could you look around and see if you can find a real candidate for governor anyplace?

Posted by: Martha Bridegam on April 15, 2006 1:49 PM

I'm not sure I'd recognize one. Can you specify further?

Posted by: Chuck Dupree (Belisarius) on April 16, 2006 12:25 AM
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