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Two Polarizing Policies That Would Expand And Stimulate Our Economy
Two Polarizing Policies That Would Expand and Stimulate Our Economy
President Barack Obama's January 20, 2015 State of the Union speech hit on many policy points. Two of them drew my focused interest due to the fact that they are policies that I have advocated for in some of my previous Hubs. A further point of interest struck me during the post speech spin delivered by both Democrats and Republicans. The two parties are very supportive of one policy and strongly opposed to the other. Of course they are on opposite sides of both of these issues.
I will attempt in this Hub to show why each side should support both of these policies and alter their economic and political orthodoxies. Each issue will achieve economic expansion in an important and similar aspect. The first issue concerns the increased inequality of wealth in this nation. The President proposed several new initiatives to address this problem during his speech. Democrats support them and Republicans strongly oppose them.
Secondly, the President argues for the passage of "Fast Track" status on two trade negotiations that are reaching fruition. He feels that these two trade agreements would greatly expand trade between ourselves and Asia and Europe. The Republicans are generally supportive of this policy while most Democrats have expressed extreme reservations regarding these negotiations.
I will delve further into these two issues and show why and how both of President Obama's policies regarding them will greatly expand the economy. My summary will show how both policies will accomplish this by expanding buying power domestically and expanding markets abroad.
The President had finally begun to sound the alarm about wealth inequality after the 2014 elections and now during the State of the Union speech. He highlighted this new emphasis with a few policies that would help narrow the widening wealth gap. President Obama announced that he would propose a rise of the top income tax rate, raising the capital gains tax, and eliminating an inheritance tax break.
He further proposed using this added revenue to give middle and lower class families tax breaks. A tax credit for two worker families was proposed for families with incomes less than $210,000 up to $500 a credit. The earned income tax credit will receive a raise as will the child care tax credit. He also proposed easier access to tax free retirement accounts.
College students will also benefit by way of a proposal to allow for two years of free tuition at a public community college. These students would have to maintain a 2.5 GPA or higher. Furthermore the schools they attend must be fully accredited and their credits must be fully transferable to a four year college.
Finally he reiterated his proposal for a minimum wage hike to $10.50 an hour. This proposal is vital for strengthening the bottom income level for our wage earners and hopefully it reverberates its way up the wage chain. It is an important first step yet hardly a living wage.
Democrats argue that these policies to expand the wealth base and shrink the wealth gap are much fairer to all Americans and they will stimulate the economy. Republicans argue that they are job killers that will increase unemployment, destroy small businesses, and increase the budget deficit.
The second area that the President emphasized that I would like to examine is his request to Congress for "Fast Track" authority for his trade negotiations on the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment (TTIP). The most controversial of these two negotiations is the TPP. The reason for this is that the Pacific Rim nations have historically undercut our trade with cheaper labor and onerous trade restrictions.
Developing countries inherently have cheaper labor rates due to their relatively recent rise out of poverty. Nations have also imposed protective tariffs to aid their fledgling industries as they struggle to gain a foothold in the world economy.
The United States took this protectionist track throughout its early history and throughout the Nineteenth Century. In fact, our government generated the bulk of its revenues by way of these protective tariffs. This practice did not end until the national income tax was instituted through the ratification of the Sixteenth Amendment to the United States Constitution in 1913.
The time has now come where the trade interests of developed and developing countries have begun to merge. The Asian countries involved in these negotiations have developed to the extent where they no longer have a massive wage advantage in their manufacturing sector. The developed countries want their trade barriers lowered before they give them wider access to international trade.
Lowering trade restrictions is now in the national economic interests of all of these nations. Both sides are now strong enough economically to seek a less restrictive trade environment as a way to access as many foreign markets as possible.
The main sticking points holding up TPP at this time center around assuring product quality standards as well as providing mechanisms to detect and punish cheating nations. The developed nations fear that the sparse or non-existent regulatory agencies within developed countries will result in shoddy and dangerous products being imported into their countries. The developing countries must prove that they will require their industries to ramp up to proper international standards so that they can become respected international trade partners.
The increase of high quality imports into developing nations by way of these trade treaties should enable this process because their citizenry will now expect higher quality products. An example of this was the forced improvement of American car companies in the face of superior quality imports beginning in the 1970s especially from Japan.
The TTIP is considered to be a significant but lower impact negotiation because the trade barriers between the United States and Europe are already low. This is still an important negotiation because it encompasses a third of total global trade. Its major goals are to increase further market access for all nations involved, create specific regulations, and formalize trade rules between the United States and the European Union. Opponents believe that this trade agreement could erode national sovereignty as well as enabling and protecting corporate predatory actions.
What then are the similarities in these two policies that will greatly expand our economy? What are the differences that cause such huge polarization?
The similarities lie in that both policies expand the total wealth of the nation. The lower and middle classes must spend this additional wealth. Saving or offshoring these additional funds is not an option for them. Thus transferring some wealth to the lower and middle classes instantly raises economic activity which stimulates business and creates wealth for all involved.
Trade liberalization treaties reduce tariffs and other barriers increasing trade activity. This policy increases economic wealth due to the expanding trade playing field. This policy also expands wealth for workers because this increased economic wealth leads to a greater level of higher quality jobs.
Yes, some jobs will be lost to nations with lower cost labor. It is the duty of all nations to increase the skills of its citizenry by investing in a top rate educational system for both its children and its adults. This will help them adapt to a changing global work environment. Investing for a knowledge based and technology heavy economy is critical. It is also their job to prevent nations from dumping shoddy products into their markets as well as ensuring that trade barriers remain lowered.
The differences that cause polarization regarding these two policies reside in the blind ideologies within both the liberal Democrat and conservative Republican camps. Wealth and income gap lowering strategies are Democrat ideals but are considered class warfare in most Republican circles. Trade liberalization treaties are libertarian Republican ideals but are anathema to most Democrats because they feel that they destroy American jobs.
The key for all political players is to drop their hardened economic ideologies and search for policies that actually deliver economic growth. A search for common ground as I have written about within this Hub is also key. Political polarization has led to legislative gridlock and economic myopia.
Our politicians also need to focus on policies that are best for the majority of their citizens and not on what policies best serve their political aspirations. In other words, where have all of our statesmen gone? There still are some around but far fewer than in the past. Political partisanship now rules the day over making the lives of their constituents better.
Our economy is currently on a path of steady and growing recovery. Unemployment is down to 5.5% but there are still problems. There are many structurally unemployed people out there who are no longer seeking employment and are resigned to this lot in their lives. Wages are rising anemically causing people to fall behind in their standard of living.
The time is now for our political leaders to bury their past ideologies and take a strong new look at the policies I have outlined and come up with legislation that will maximize wealth in this country and robustly grow our economy. Adopting legislation to shrink the wealth gap and free up international trade will definitely achieve real and sustained growth. This will quickly raise up all boats in this economy and put the United States on the road back to being the preeminent economy in the world and a model for what other countries should do with their own economies.