Ethical Economics: Behar-Bechukotai Leviticus 25:1 – 27:34

Ethical Economics: Behar-Bechukotai Leviticus 25:1 – 27:34

by

Howard Adelman

IN MEMORIAM

RON ATKEY

Ron Atkey will be buried today in a private family service. But a public memorial service will be held at the Metropolitan United Church on 58 Queen Street East at 11:00 a.m. this morning. I will be in attendance. I am also sure that the church will be packed, not only because he had a wide group of friends and acquaintances, but because there will be many Indochinese Canadians in attendance.

Ron was my Member of Parliament for St. Paul’s Riding during the period of the Indochinese refugee movement into Canada. He was first elected in 1972. I never voted for him, but he was an outstanding representative of our riding. He was also the Minister of Employment and Immigration in the Joe Clark cabinet in 1979. He, along with Flora Macdonald with the support of Prime Minister Joe Clark, pushed the decision through cabinet to allow the entry into Canada of 50,000 “Boat People,” refugees fleeing Indochina.  He continued to be a supporter of refugee causes the rest of his life; his family has asked that donations in his honour be made to Operation Syria.

Ron was a few years younger than myself and taught law at Osgoode Hall Law School when I was a professor at York University. But I only came to know him well when we worked together to foster the private sponsorship of refugees into Canada. It was he who sent the instructions to the civil service to attend a meeting (to our surprise) on a Sunday afternoon after church in June of 1979 to introduce us to the idea of privately sponsoring refugees. That was the beginning of Operation Lifeline, the Canadian private sponsorship organization for Indochinese refugees.

Ron was a lawyer in practice at Osler, Hoskin & Harcourt. He was also the first Chair of the Security Intelligence Review Committee. In juxtaposition, he was also a board member of the Canadian Civil Liberties Association for years. Support for refugees, support for human rights and a commitment to Canada’s national security were for him complementary political commitments. Ron also happened to be a very accomplished musician, a humourist with a very dry wit, and a wonderful father to his children and grandchildren. A product of a very enlightened New Brunswick Tory family, he demonstrated the best and the brightest that Canada has produced and that allowed this country to become as great as it is.

 

Let me begin with the Haftorah portion read after the reading of the Torah. The selection is from Jeremiah at his thundering best. God is in despair. God exclaims, “I will destroy my people, for they would not turn back from their ways.” “I will bring down suddenly upon them Alarm and Terror.” And why? Mainly because they fail to keep the sabbath. On that day, they are not allowed to work.

Economics is about the days Jews are permitted to work. Does that mean that the other six days belong to a dog-eat-dog world? Does it mean a world that rewards the nasty, brutish and strong?

Not according to the Torah.

כִֽי־תִמְכְּר֤וּ מִמְכָּר֙ לַעֲמִיתֶ֔ךָ א֥וֹ קָנֹ֖ה מִיַּ֣ד עֲמִיתֶ֑ךָ אַל־תּוֹנ֖וּ אִ֥ישׁ אֶת־אָחִֽיו׃

When you sell property to your neighbour, or buy any from your neighbour, you shall not wrong one another. (Leviticus 25: 14)

Economic contracts are intended to constitute a positive sum game in which both parties benefit.

Further, if someone borrows money from you and is unable to pay, you may foreclose, but you also must use your best efforts to ensure that he or she can redeem that land and property.

כִּֽי־יָמ֣וּךְ אָחִ֔יךָ וּמָכַ֖ר מֵאֲחֻזָּת֑וֹ וּבָ֤א גֹֽאֲלוֹ֙ הַקָּרֹ֣ב אֵלָ֔יו וְגָאַ֕ל אֵ֖ת מִמְכַּ֥ר אָחִֽיו׃

If your kinsman is in straits and has to sell part of his holding, his nearest redeemer shall come and redeem what his kinsman has sold. (25:25)

וְאִ֕ישׁ כִּ֛י לֹ֥א יִֽהְיֶה־לּ֖וֹ גֹּאֵ֑ל וְהִשִּׂ֣יגָה יָד֔וֹ וּמָצָ֖א כְּדֵ֥י גְאֻלָּתֽוֹ׃

If a man has no one to redeem for him, but prospers and acquires enough to redeem with, (25:26)

וְחִשַּׁב֙ אֶת־שְׁנֵ֣י מִמְכָּר֔וֹ וְהֵשִׁיב֙ אֶת־הָ֣עֹדֵ֔ף לָאִ֖ישׁ אֲשֶׁ֣ר מָֽכַר־ל֑וֹ וְשָׁ֖ב לַאֲחֻזָּתֽוֹ׃

he shall compute the years since its sale, refund the difference to the man to whom he sold it, and return to his holding. (25:27)

Further, you may only accumulate wealth (then held in land and property) for a generation. The land is not yours; it belongs to God. In your life, you are merely a trustee.

וְהָאָ֗רֶץ לֹ֤א תִמָּכֵר֙ לִצְמִתֻ֔ת כִּי־לִ֖י הָאָ֑רֶץ כִּֽי־גֵרִ֧ים וְתוֹשָׁבִ֛ים אַתֶּ֖ם עִמָּדִֽי׃

But the land must not be sold beyond reclaim, for the land is Mine; you are but strangers resident with Me. (25:23)

Further, excess land acquired must be returned to the commons every fifty years. Inheritance taxes were very steep.

בִּשְׁנַ֥ת הַיּוֹבֵ֖ל הַזֹּ֑את תָּשֻׁ֕בוּ אִ֖ישׁ אֶל־אֲחֻזָּתֽוֹ׃

In this year of jubilee, each of you shall return to his holding. (25:14)

AND

וּבְכֹ֖ל אֶ֣רֶץ אֲחֻזַּתְכֶ֑ם גְּאֻלָּ֖ה תִּתְּנ֥וּ לָאָֽרֶץ׃

Throughout the land that you hold, you must provide for the redemption of the land. (25:14)

This is a social justice ethos. Economics is not a matter of losers and winners, but striving to ensure as many as possible are winners and that when you are down you get a helping hand. This is not anti-capitalist. Private ownership is not only recognized, but encouraged. However, as practiced and organized today, our system has shown itself to be very fragile and sometimes dysfunctional. The economic crisis of 2007-08 was a case in point.

Though the causes were building up over the previous decade, this deepest and longest recession since the Great Depression was a warning, but without the thundering voice of Jeremiah that there was an underlying deeper crisis. Why? Because the economies of most of the Western world – in Europe and Japan – are just finally getting out of that dramatic downturn and posting significant growth. However, even in the pre-crash period, during a period of strong expansion, living standards for the majority had stagnated and, in some cases, even declined. And that is almost still the case even though unemployment is now very low.

Further, in Canada, in the major cities, there is now a housing bubble. The Bank of Canada is trying to ensure that the air seeps out of the bubble rather than bursts by gradually increasing interest rates both by small increases and by interspersing those increases intervals of several months to prevent a sudden shock to the system.

We are not free of crisis and dangers. Further, the inequalities between the rich and the poor, between the rich and the middle class, continue to expand exponentially. Young people, who cannot hope for a capital infusion from parents and family, begin to despair of ever purchasing a home. And overshadowing this fear is the huge anxiety about climate change and our collective failure to take care of the earth as proper and responsible trustees should.

Classical economic policies are not working. And when the most powerful leader in the world believes that he invented the expression “priming the pump,” we are in deep trouble. However, even an infusion of an economic stimulus, or a bailout package in a period of a greater crisis, is not adequate. These are only stopgap measures. Must one choose the alternative – fiscal austerity as now practiced in Greece with its corresponding political instability that follows from cutting social spending in the effort to reduce public debt. Going further and backward, the resurrection of a mercantilist system to replace our global one, of protectionist economies and mobility barriers in place of increasingly open borders with enhanced trade and human mobility to foster a free flow of goods, services and people, are steps into a backward dead end and even greater calamity.

Nor is an economy run on ethical principles the right choice, an option Karl Polanyi had proposed. However, an economic system not guided by and framed with ethics is even worse. Just war doctrine does dictate how or when wars are fought. It merely tries to civilize a horrific pattern of humans coming together in violent conflict. Ethics in economics can go further, for, unlike war, economics can be a positive sum game. Without intervening in economic fundamentals, taxation policies, inheritance restrictions and a whole host of measures can be taken to even out the odds against those in weakened positions.

This does not mean evading understanding the fundamentals of economic growth. These must be grasped. As much as we congratulated ourselves in the past for accomplishing this task, we have not done so adequately. Why is there economic inequality that continues to grow? Why do we continue to threaten the very planet that has treated us so well? Why do we elect leaders who counter the massive scientific evidence and consensus about human instigated climate change and are climate change deniers? Why do we not ensure steady if sometimes a bit bumpy economic growth alongside wealth redistribution?

 

With the help of Alex Zisman

Obama and Haley: Part II Economic Policy

Obama and Haley: Part II Economic Policy

by

Howard Adelman

On economic policy, Governor Nikki Haley criticized Barack in six areas: excessive taxation, excessive expenditures, excessive debt, and the failure to provide adequate support for innovation, education and ensuring increasing incomes for average Americans. What did Obama claim about his record on taxes and policies going into the future?

He advocated raising taxes for those who avoided taxes by opening offshore accounts. On the other hand, he also argued that the Trans-Pacific Partnership (TPP) will both make more jobs for Americans, but also cut $18,000 in taxes on products made by Americans. With respect to businesses, Obama argued that his policies were intended to lift up businesses, not oppress them by more taxes, at least those businesses which try to do right by their workers in terms of the rules of the TPP which will recognize the benefits for their shareholders, customers and communities when they did.

Republicans proposed much more extensive slashing of taxes on personal and corporate incomes. Texas Sen. Ted Cruz proposed lowering the rate to 10%, Florida Sen. Marco Rubio proposed eliminating it, while Donald Trump wanted to set capital gains tax rates at 20%.  Who would benefit from a reduction? To a considerable extent, and certainly disproportionately, wealthier Americans! Certainly proposals to cut rates on capital gains and on qualified dividends would as well. After all, almost 80% of federal and state taxes from the latter two sources come from the very wealthy, in fact, the top 1%. Capital gains taxes on assets held for more than a year and then sold, as well as taxes on corporate dividends, in 2003 were reduced to 5% in the lowest two income tax brackets and 15% in other income brackets constituting the vast majority of income from capital gains and dividend taxes. Obama extended these provisions of Bush’s Tax Prevention and Reconciliation Act of 2005 to 2010, but in The American Taxpayer Relief Act (2012) signed in January of 2013, that tax was raised to 20% for those in the highest 39.6% tax bracket. The rich were still entitled to pay 50% of normal income taxes on these two taxes. And the rich were overwhelmingly the beneficiaries of this type of reduction in taxes. (Cf. Thomas Hungerford (2010) The Economic Effects of Capital Gains Taxation.)

If Republicans eliminate estate taxes altogether, federal coffers would be deprived of $30 billion a year. These were figures cited in a New York Times op-ed piece last week by Mike Lofgren, a former Republican staff member who served on both the House and Senate Budget Committees and authored the book, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government. As it is, inherited property is only taxed for capital on the difference between its value at the time the property was inherited and when it was sold at the time it was sold. This means that there is no capital gains tax, that is zero tax, from the time a person acquired the property to the time of his/her death and bequeathing that property to a heir. Hence, the proliferation of “trustee” adults who effectively live as rentiers on the wealth accumulated by the family members who bequeathed them their property.

This supports Obama’s argument that the democratic deficit in American politics is fed by economic distortions and the widening gap between the wealthy and the rest. Cutting taxes is a formula for enhancing the control of money over American democracy, not reducing it. The state would be starved in its ability to do much of anything for the middle and lower classes, quite aside from damaging infrastructure and environmental projects that would benefit all Americans.

In contrast, like the new Liberal government in Ottawa promises to do, Obama did increase taxes on the wealthiest Americans, those earning in excess of $250,000 per year, including decreasing the level of charitable deductions from 35% to 28%. But as he said in a speech when he was first running for election in 2008 (23 October), Obama promised those earning less than a quarter million a year would not pay an additional dime in taxes. That included 98% of small businesses. Joe the plumber would not be affected, only Joe the CEO and Joe the hedge fund manager. In fact, most middle class families saw their income taxes decrease. The typical middle-class family received about $1,000 in tax relief, paying taxes 20% lower than under Ronald Reagan. His original budget gave a tax credit of 6.2% of earned income up to $400 for single workers making less than $75,000 a year and $800 for married couples making less than $150,000 per year.

On the other hand, by eliminating “tax credits that have outlived their usefulness,” closing corporate tax loopholes, and reversing a portion of the tax cuts awarded to the wealthiest 2% of families, the treasury recouped greater revenues overall while cutting income taxes overall, taking a smaller ratio of GDP through income taxes than under Reagan. By reducing net overall taxes at the same time as tax loopholes were closed and tax credits eliminated where they were no longer useful, it is estimated that the government took in or is on the verge of taking in at least 600 billion in extra revenue over the last seven years. Contrast the tax cuts of the Bush administration that distributed twice that amount, about $1.35 trillion over 10 years, mainly to the wealthy, but also families with children. IRS data released showed that the average effective tax rate for the richest 400 Americans rose in 2013, but only to 22.9% compared to 16.7% previously. No wonder the very wealthy and the Republicans that represent those interests have been irate.

What about capital gains taxes, taxes on dividends and estate taxes? On the latter, taxes of 35% on estates and individuals worth over $5 million and on family estates worth over $10 million were restored. Obama when he took office proposed dividend tax rates 39% lower than what George W. Bush proposed in his 2001 budget tax cuts. On capital gains tax, Obama continued the rates set by George W. Bush. It is not clear why since this certainly benefits the wealthy most of all since lower capital gains taxes means a decrease in revenues for the state with no offset whatsoever in economic stimulus though no correlation with decline either. (Cf. Len Burman (2012) “Capital Tax Rates and Economic Growth (or not),” Forbes, 15 March 2012; See also the independent Congressional Research Service (CRS) in its report (subsequently withdrawn under pressure from Senate Republicans), Taxes and the Economy: An Economic Analysis of Top Tax Rates Since 1945 and Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues.)

It would appear that Haley’s criticisms of Obama in this area were simply a repetition of a Republican mantra with little if any basis in fact. What about Haley’s complaints about exploding expenditures under Obama? She certainly has a case for 2009. In seven months, the American Recovery and Reinvestment Act (ARRA) led to over an additional $240 billion being poured into the American economy. In total, by the end of March 2011, over $630 billion additional funds were invested in the U.S. economy. These were not expenditures in the normal sense of the term, but capital investments in infrastructure, in bailing out the automobile companies and saving the American economy. Obama has every reason to boast and no reason to regret making those expenditures (investments), though some criticism seems warranted on who received the benefits of those investments.

What about deficits? The budget was last balanced in 1998, with credit going largely to Bill Clinton even though Republicans controlled Congress at the time, for Clinton had fulfilled his promise of reducing the deficit, as had George Bush Sr., his predecessor. As a contrast, the leading Republican contender, Donald Trump, would add a staggering $12 trillion to the deficit. Though his competitors are all far behind in such an extravagance, the average addition to the annual deficit would be $3-4 trillion. George W. Bush inherited a $236 billion budget surplus from Bill Clinton but by the time he left office in 2008, the deficit was $408 billion and the national debt had doubled. As Mike Lofgren, the Republican budget staffer quoted above, opined, the Republican ritual denunciation of deficits is a fraud. As my son, an economic historian at Princeton wrote me, “It’s the worst kept secret of the last 30 years that the Republicans are reckless on the economy, but they still froth about fiscally profligate Democrats…”

Haley may be much more civil than the current Republican candidates for President, but on the economy she sings from the same denial of economic facts that has become the habit of Republicans. Tax cuts, especially those that are erroneously targeted, undercut the government’s abilities to create and maintain infrastructure and support new initiatives. Ever since the Reagan administration using voodoo economics drastically cut taxes while enormously increasing its investment in the military, the result has been huge deficits and enormous increases in the national debt. In contrast, Obama has reduced both. Conrad Black after Obama’s first year as president lamented that a $10-trillion national debt accumulated from 1776 to 2008 had become a $16-trillion debt while leaving 50 million citizens in poverty and the entire middle class living on an economic knife-edge. However, during Obama’s presidency, the debt has been enormously reduced, though he took his base line 2009 rather than 2008 with some justification since he inherited his economic woes from George W. Bush’s gross mis-management of the economy. In the last year of Obama’s term, the American national debt as a percentage of GDP is lower than in 1945 in spite of the enormous debt accumulated in saving the economy during his first term.

What about fostering innovation? Haley spoke of the need to reignite the spirit of innovation among Americans. Did she have an advance copy of Obama’s speech? Obama insisted that America’s best corporate citizens are the most creative, but nevertheless asked, in similar words to Haley’s: “how do we reignite the spirit of innovation to meet our biggest challenges?” for the “spirit of discovery is in our DNA.” Contrary to Haley, however, Obama claimed that his administration over the past seven years had “nurtured that spirit” by ensuring the internet remained open and increasing access to that internet for students and low-income Americans. Obama launched next generation manufacturing hubs and online tools. In other words, government played a significant role in fostering innovation.

Obama, however, insisted the government could do much more and, in the spirit of the space program that he had cited earlier, he named Joe Biden as head of Mission Control to launch a concerted effort to finally conquer cancer once and for all, just as the government had facilitated landing a man on the moon in just twelve years. The one area, other than health Obama cited, was the issue of climate change where a similar order of commitment was needed, a subject which Haley did not mention. For Obama, climate change deniers were relegated to a lonely existence of the margins as America’s military, business leaders, the majority of Americans and almost the entire scientific community as well as 200 nations around the world agreed that climate change was indeed a problem that had to be solved. There was a bonus in such recognition: America’s businesses, led by America’s spirit of innovation, could and should produce and sell the energy of the future. After all, over the past seven years, investments in wind power had now paid off since wind power was now cheaper than conventional power and employs more people than the coal industry. On top of that, America had cut its imports of oil by 60% and cut carbon pollution more than any other country on earth. Obama called for accelerating the transition away from dirty fuel by putting the costs of pollution on the backs of fossil fuel producers and investing in a 21st century transportation system.

So Obama argued that money will be saved, jobs will be created and the planet will be preserved by such measures. Jennifer Rubin, a right wing economic pundit in her op-ed, “Obama’s challenge: Why give a failed president another chance?” (The Washington Post, 3 September 2012) before his second term election, challenged Obama for falling back on failed policies of raising taxes on the upper income group, expanding investments in teachers and education and enhancing infrastructure investments. Ashe Schow, in her article, “President Obama’s Taxpayer-Backed Green Energy Failures,” in The Foundry (18 October 2012) argued that all the eco-companies in which the U.S. had invested large sums had failed in their initiatives: Geothermal ($98.55 million), Babcock and Brown ($178 million), Ener1 ($118.5 million) (Ener1 was sold to a Russian), Johnson Controls ($299 million) while others filed for bankruptcy – Abound Solar ($400 million) (the company actually only received $68 million when the government cut its loan off) and A123 Systems ($279 million) (the Chinese conglomerate, Wanxiang Group, bought A123 for 1% of its share value at its peak evaluation), Solyndra ($535 million). (For example, http://www.greentechmedia.com/articles/read/nec-snatches-a123-energy-storage-biz-from-wanxiang should be read regarding A123e.) The attacks continued unabated over the last four years paying little or no attention to the data that contradicted their contentions.

After the inaugural address of Obama’s second term, Charles Krauthammer accused Obama of promising “a state-created green energy sector, massively subsidized (even as the state’s regulatory apparatus systematically squeezes fossil fuels, killing coal today, shale gas tomorrow).” (Charles Krauthammer: “Obama Unbound,” Washington Post, 24 January 2013). Capitalists count on most of their investments not paying off but counting on the minority that do. If those government investments are compared to private ones, even though the private sector was far more risk averse, a comparison indicates that government investments, surprisingly, may have been more successful. (World Economic Forum http://www.weforum.org/content/closing-green-investment-gap)

To repeat what I wrote 3 years ago at the time Krauthammer wrote his piece, “The right wing economic critics of Obama’s various economic strategies work by repetition of stock phrases, are selective in their citations, and ignore analyses that might falsify their beliefs. It is possible that their position could be right to some degree. However, they create a caricature. The evidence when weighed does not demonstrate that the economic conservatives are right. Instead the evidence suggests that ideological conviction rather than comparative detailed analyses yield their conclusions.”

Finally, let me add the response to yesterday’s blog before he had a chance to read the above.

I agree Haley deserves credit for being a voice of civility in a party of spoilers.  But she did NOT take responsibility for the GOP being a financially ruinous party.  It is simply untrue that we have runaway spending.  It is simply untrue that the debt is crushing (it is almost back to the pre-2008 levels after a near depression).  It is simply untrue that the US does not innovate.  The world looks to America for the technological and social breakthroughs.  It is simply untrue that “American” taxes are “too high.”  That is utter crap.  What’s America when the top 1% for all intents and purposes pays no tax  anymore?  The New York Times for the past several weeks has been running long investigative articles, backed by peer-reviewed social science research, drawing attention to scale of regressivety of American fiscal (revenue as well as expenditure) policy.

The GOP is not just part of the “Washington syndrome.”  It is the purveyor of a fiction about the nature of the economy that profits from this narrative.  There is an alternative story.  It is this: the US is profoundly innovative and successful.  It is not beset by public debt (it is by private debt — but that’s a separate issue for the moment); it is not crippled by regulations of “Washington bureaucrats” and unions (just to take the example of education which you cite).  Blaming Washington recycles the problem by avoiding it.  The GOP has burnished this anti-Washington message for decades now — ironically, from within the beltway itself.  And the meta-narrative paralyzes by polarizing the very agent we need to be smart and responsive: the state.

So, what’s the problem?  The problem is that the benefits of private sector-driven innovation go to 30% of the population; 30% of the population is struggling to keep above water; 40% is backsliding, some very quickly. The problem is the absence of public goods that distribute the benefits more evenly.  The blame-Washington narrative endorses a view that divests from public goods rather than reframing the social pact for the 21st century.

That’s why America’s cities are in trouble.  That’s why the rich get richer (and contribute less).  That’s why we can be an innovative society while watching the bottom half struggle to keep up and depend on (public) infrastructures from schools to trains that would make a Third World country worry about its future.

Jeremy

 

This blog was prepared with the help of Alex Zisman.