This is a piece about the economy and I am not an economist. It is then, an opinion piece, and I would welcome your comments on it. I have been thinking about this for quite some time.
Universal Health Care was a plank in the platform of Teddy Roosevelt in 1912, and the need to invest in clean, renewable energy has been a political football of sorts at least since the Oil Embargo of 1973. These are not new ideas. But, in the wake of the de-regulation of the banking industry, the disastrous trade agreements from NAFTA and CAFTA to the TPP, the mortgage industry meltdown and now, the revelation from the Panama Papers of how easy and de rigeur it has become for the wealthy individuals of this world to cheat their own national taxmen, our crumbling economy necessitates that bold changes be made to save our country from further economic collapse.
Economic collapse? But, but the government just said…. Yes, the government is routinely telling us that the economy is improving. It has gotten to the point where the government’s proclamations echo the reports from the Front in Orwell’s 1984. Charts and graphs and numbers backed by plenty of zeroes, yet the wallets and bank accounts of most middle and working class Americans continue to grow thinner. The Economy, it would seem, only applies to the wealth at the top of the mountain. We are standing here, open mouthed and waiting for the trickle down, but it ain’t trickling.
(for more on Trickle Down Economics, see our prior article, Time For Some Trickle Up Economics)
Perhaps it is that we have been looking at the economy from the wrong end. Economists are well schooled, well paid folks, who often treat the rest of us as though we haven’t been taught the secret handshake. The tendency is to look at the economy in vast numbers, too large for mere mortals to comprehend, and cloak all discussion in a form of econo-babble which explains little, guarantees nothing and leaves plenty of room for shrugs and head scratching later on. For real people, this is no way to understand the Economy. Looking at the Economy from the top down does us no good when we are at the bottom looking up.
The Economy is not a matter of GNP set against National Debt as reflected in a Provisional Budget subject to Line Item Veto. The Economy is the sensation that spreads up your spine just before you open your most recent credit card or heating bill. The Economy is deciding between feeding your children and paying your mortgage. The Economy is not national or global, it is intensely personal. And, in that sense, it is readily understandable to all of us. Economists? We don’t need no stinkin’ economists.
You see, the Economy, for the vast multitude of us, is as easy as pie. Your Economy is what you earn, plus what you have (assets), divided among what your financial obligations are. In that sense, your wealth is a pie and everything on which you need to spend that wealth are pieces of that pie, wedges if you will, of varying sizes.
I thought this article was about how universal health care and renewable energy will save our economy? It is. To see it, we need to embrace three essential ideas about our Economy.
At the core of this understanding is the first simple precept; the pie is the pie. What you have is what you have. If your income is not growing, your pie remains the same size. For many of us, if we look at our incomes in adjusted dollars, we are actually earning less than we were thirty years ago. Our pie is not getting bigger. As a result, no matter how many ways we slice it, we never end up with more pie. Unless we are doing fairly well, we seldom end up with leftovers.
Within this first aspect of understanding our Economy lie two other simple concepts, necessary vs. discretionary spending. In my view, there are five things that we have no choice but to allocate our financial resources toward:
Housing – rent or own, you need a safe place to get out of the elements
Food – we can not yet outsource eating – we have to do it ourselves
Energy – we need to heat and cool that shelter, plus get ourselves to and from work, for most of us either by car or public transportation – all of this requires energy
Health Care – for ourselves and our families, our good health goes a long way to make life worth living
Education – education is the key to making ourselves better able to increase the size of our own pie and make all other expenses easier to bear
We could argue that this is a simplistic view of our necessary spending, but there is an important unifier to these five items. Unless you own your own home or are purchasing it under a fixed rate mortgage, each of these expenses can, will, and is increasing without your ability to control it.
What we have to pay for food, energy, health care, and education has been rising steeply, for most of us, outpacing earnings. In one way of looking at it, if we considered those five items as the entire pie, we would see the wedges for food and energy increasing in size modestly, and health care and education increasing in size substantially. The wedge that we would label housing, would of necessity be getting smaller. We used to call this robbing Peter to pay Paul. When the housing bubble burst and the market crashed, it was revealed that mortgage companies had been engaged in what has come to be known as predatory lending, one aspect of which was that mortgages were being granted to people who lacked the financial resources to pay for them. That is the effect of the shrinking pie wedge. It is also the reason that the home you own will be losing value rather than gaining it, until the majority of people start to see an increase in the size of their pie.
Of course, our pie can not be cut just five ways. We have many other expenses as part of our daily lives, many of which we feel we can not do without, but which for the time being we will label as discretionary. Now, if you are reading this in your home, take a look around at all of the things that you have purchased: furniture, clothing, books, televisions, cooking utensils, cds, dvds, even your pets. The list could go on and on. All of these things are discretionary spending. For the purposes of this exercise, let us imagine five elements of discretionary spending: car maintenance, haircuts, restaurant dinners, remodeling and a new toaster.
As costs rise on our necessary expenditures, the pie changes shape and the wedges for our discretionary spending grow smaller. Every time you celebrate a birthday, your health insurance costs tick up a notch. Every time the market price for a barrel of oil rises, you pay more at the pump. Every year, the tuition at your college increases. Every time you head out to the grocery store, you wonder why the milk is getting more expensive. You can not change this world and you can also not reject this world out of hand. You inhabit this world and are committed to paying the price of it.
So the discretionary wedges get smaller. In our exercise, what does this mean? Perhaps you decide that you’ll live with the dent in your front quarter panel or the long scratch along the passenger side of the car. Maybe you’ll cut back on trips to the hair salon and only go every other month. Much as you’d like to, you’ll opt to eat in more often and save restaurant outings for very special occasions. The deck out back will have to wait until next year. And the old toaster, well it still warms the bread, so you’ll limp along with it. These are decisions each of us make every day.
But here is the second essential idea; your discretionary spending is the filling in someone else’s pie. When you skip a haircut, the stylist does not get paid. That is an easy to understand, one for one transaction. When you don’t go out to dinner, the restauranteur, wait staff, chef, line prep people and bus boys take a financial hit. When you hold off on building the deck, the carpenter and his helper don’t get paid, and the lumber yard doesn’t sell wood and screws. When you steer away from the body shop, the mechanics don’t put in their hours and the replacement parts sit in stock. And when you don’t buy the new toaster, the hardware store owner loses a sale and the manufacturer has one less reorder to fill.
The direct result of a growing loss of your discretionary spending is for other people in your own community to see their pies growing smaller, while their necessary expenditures continue to rise. As a result, their allotted wedges for discretionary spending shrink as well, and the ripple effect through the community and the nation spreads. In some cases, a factory that makes auto parts or toasters we’ll say, the shrinkage of pie as experienced at a corporate level creates loss, which must be offset by a cutting of costs. One of the easiest costs to cut is labor, and another job is outsourced overseas. Now, that person who was making quarter panels or toasters has a pie that consists only of assets, not earnings, and it shrinks to nothing before their eyes.
Within the broader picture of the national Economy, those institutions that comprise our necessary expenditures continue to grow and, as a result, the economic forecast looks good. The health insurance industry, the fossil fuels industry, corporate agribusiness and big-education continue to gain traction. But more of the people in our communities are employed in thousands of smaller fields, which fall within the parameters of discretionary spending. There, the cuts in our discretionary pie wedges are resulting in a loss of well paying jobs or the demise of entire industries.
Whether we choose to think of it as a Local Economy with feedback loops or as an outpost in the Global Economy, it is easy to see that our own, personal Economy, is entwined with everyone else’s. For our Economy to grow, others must contribute to our pie filling, as we do to theirs. And, when the wedges shift out of balance, all of our pies are subject to having a bite taken out of them.
For this reason, it is my contention that we need to shift part of our economic focus to creating universal health care and an energy system that is based on clean, renewable sources of energy. A reapportionment of pie wedge sizes will revitalize our economy.
Of course, we could make other, simpler arguments for these two items. Since we have the capability of providing fine health care to people in all stages of their lives, and since we function as a nation under the supposition that each of us is created equal, it stands to reason that each of us should by right have equal access to that fine health care (and at an equal cost). In the rest of the industrialized world, universal health care is the norm and is paid either through taxes or private health insurance, but in the latter case, the health insurance companies operate on a not-for-profit footing. The costs are substantially less than our own and the health care outcomes tend to be better because people feel more economically able to take advantage of what their systems have to offer.
Similarly, we could look at clean, renewable energy as a necessity as we own up to the reality of climate change. Carbon emissions must be cut now. Polluting of our waterways and our air must be curtailed now. Non-renewable energy is by its very definition unsustainable, yet we have already determined that energy is essential. We need a better plan.
Appeals to the morality of our energy providers and our health insurance carriers have fallen on deaf ears. They are not inclined to do what is right because it is right, not while a profit remains to be made. So, it is to our government that we must be able to turn, to do what is right because it is truly for the greater good.
Consider that by taking two of our necessary expenditures and shrinking their wedge size, all of the other wedges would have a little more breathing room, a little more room for expansion. In fact, if a universal health care system could bring the costs Americans pay for health care into line with that borne by people in other industrialized nations, that wedge of the pie would shrink to one half its current size.
Almost ten years ago, scientists in the solar energy field determined that an array of solar panels one hundred miles square (most likely in the western desert), could provide all of the energy needed by the entire country. Other industrialized nations, such as Germany, have already embraced solar technology as the energy of the future, and are putting up panels everywhere they can. Wind, water and geo-thermally produced power might even make us an exporter of clean energy. In many calculations, the United States remains the world’s largest consumer of energy. As such, we could do much to curb the rate of climate change, and provide our people with an energy system whose costs would decline over time, rather than rise. Again, a wedge of the pie would first be stabilized and then it would shrink.
The result would be a more balanced pie, with leftovers. The last essential idea is simply this: economic growth depends on leftovers. This is a Demand Side, rather than a Supply Side concept. Starting from the vantage point of the consumer, rather than the provider, the leftovers are the key to growing the Economy. After all, what do you do with leftovers? You consume them. The leftover sections of our pie are unspent wealth and that wealth is what would wind up in the filling of ours and our neighbors’ pies. Either by spending the money directly at the hair salon or body shop, investing it in the parts manufacturer or toaster factory, or contracting with the carpenter, the discretionary spending of those leftovers would pass through the pies of each of us, growing the size of our own pie, making the expenses we have to meet more bearable while allowing for economic stability and growth.
In the end, growth means a bigger pie for those of us who have waited too long for the trickle down. Growth, when viewed against a reduction in necessary spending, creates greater and greater degrees of discretionary spending. Greater discretionary spending (Demand) creates jobs. Growth means that the value of your home, the single largest asset that most middle and working class Americans possess, can rise again.
Universal health care and clean, renewable, sustainable energy, are essential components of our personal economy. They are a requirement, not just for the rebuilding of the wealth of the middle and working classes, but for the well being of the planet. Teddy Roosevelt saw this in 1912. The rest of us, waiting in line at gas stations in 1983, knew this day had to come. It’s here.