5 Ways Wall Street Continues to Screw Up the Economy for the Rest of Us and How to Fix It
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In coal country, that brand of automation destroys mountains, leaves massive open pits, and polluted rivers. The coal companies make more money than ever.
Wouldn't it be useful if public investment could provide decent jobs for people who'd rather not work in mines, and reclaim ruined landscapes and rivers along the way?
Public investment is also the best answer to the latest automation scare. The economy keeps getting richer, but the mix of jobs keeps changing as technology replaces human workers. A public investment program can make that ongoing transition easier to bear.
Isn't this all just utopian? Not at all. As I recently wrote in The American Prospect, we've done this exercise before.
Twelve years after the Great Depression, when the aftereffects of the collapse of 1929 were still sandbagging the real economy, we finally blasted back to recovery with all of the spending from World War II.
We financed it partly by surtaxes on the rich, partly by deficits. And just for good measure, we put the financial economy back in its box, where it usefully stayed for more than three prosperous decades.
The war was, first, a massive macroeconomic stimulus. Unemployment was still more than 14 percent in 1940. Thanks to more than $100 billion of war-production orders in the first six months of 1942 -- more than the entire gross domestic product of 1939 -- joblessness vanished. The war also recapitalized industry that had languished during the Great Depression, and it gave government a central place in developing science and technology. The war was not just a huge jobs program but an unprecedented job-training program. President Franklin Roosevelt also chose to use war production to increase the power of unions as full social partners. A company that wanted defense contracts had to recognize its unions. So the war transformed labor markets.
Second, the war altered incomes. Steeply progressive income taxes with marginal rates as high as 94 percent, limits on executive compensation, and strict controls on the bond market led to a compression of the income distribution that lasted more than a quarter-century. The need to finance the war led to emergency measures pegging the rate on government bonds at a maximum of 2.5 percent. The Federal Reserve simply bought whatever quantity of bonds the war effort required. This meant that a major category of financial industry profit -- buying, selling, and speculating in Treasury bonds -- was eliminated, at the expense of the rentier class. Economists even have a name for this process: repression of finance. We could use some of that today.
A side effect of the Good War was enhanced social solidarity, which in turn reinforced political support for egalitarian policies.
We could do all of this again, without the war, and spend the money in a serious green transition that would put people back to work at good jobs.
All that's missing is the politics.