great jeff madrick column

[michael perelman <michael@xxxxxxxxxxxxxxxxx>]

November 29, 2001

ECONOMIC SCENE

Cure for Economic Ills of Our Democracy is More Democracy

By JEFF MADRICK

   ince Sept. 11, this nation has thought more deeply about itself and
its values than it has in a long time. Foreign
   criticism has stunned many Americans because we think of ourselves as
a good people and are surprised that
others may not. America's values are exemplary, we believe, and in many
ways that is true.

But in fact, much of what Americans cherish most is now under challenge.
Much that Americans might well be
disturbed by continues to be swept under the rug. And all these matters
affect the economy in ways people do not
always consider.

The right response to Sept. 11 is not a public relations campaign to the
world but an assiduous reassertion of the
nation's truest principles by the Bush administration. And nothing, in
fact, would be better for the economy. What
follow are several crucial characteristics that have long helped make
both America and the American economy
great. Some of them have for some time required more attention, and
since Sept. 11, that attention is in even
greater demand.

Immigrants have provided a foundation for the American economy since the
early 1800's. Now, the rounding up of
foreigners on the possibility they may be linked to the attacks as part
of the administration's domestic war on
terrorism is chilling. State attorneys general refuse to accept the Bush
administration's broad demands, and Spain
even refuses to extradite prisoners to the president's military
tribunals. But the concern goes beyond potential civil
rights violations to the everyday workplace. Since Sept. 11, nearly 100
lawsuits have been filed that contend that
Arab-Americans have been victims of bias in the workplace.

The president, rather than simply paying occasional lip service to
tolerance, should lead a series of town meetings
on reducing prejudice and burn the idea of tolerance into the American
consciousness. A presidential directive
should be issued to pursue violators of antiprejudice laws in the
workplace more vigorously. As the Nobel
laureate Kenneth Arrow has written, the economic evidence that there is
still prejudice against women and
minorities in labor markets remains overwhelming.

Free speech is almost as central to the workings of the economy as it is
to the workings of the nation itself. The
administration asked the news media to limit coverage of Osama bin
Laden's speeches and restricted information
about the war itself.

And from both corporations and Wall Street, there has long been a
pattern of increasingly less trustworthy
disclosures. Many businesses now aggressively "spin" their information.
Wall Street analysts, often the conduit of
that information to the media, are increasingly accused of tailoring
reports to please their investment banking
clients. Liberal accounting techniques are exploited to keep reported
profits rising.

In fact, the Levy Institute Forecasting Center argues that in recent
years, profits of American companies have been
overstated by 20 percent. The Securities and Exchange Commission should
take much more vigorous action at
home to assure the "transparency" of business in America. The Bush
administration, though, seems to be backing
away from the fight.

High levels of literacy and education were central to America's
political and economic development. By the
mid-1800's, local governments had produced the best public education
system in the world. But because it is based
largely on local taxes, the quality of education is now highly unequal,
and Americans are no longer the
best-educated people in the world.

To take one example, one in five American adults lacks functioning
literacy skills, according to the Human
Development Report ? a far higher rate than in any other developed
nation except Britain.

In some states, school financing is increasingly provided at the state
level, compensating for inadequate incomes in
localities. Such programs must be encouraged.

Even in colonial times, Americans were probably the healthiest people on
earth. Documents reveal that the average
American was three inches taller than the average British soldier sent
to put down the revolutionaries ? a result
of better nutrition and fewer diseases.

Good health care is fundamental to a productive work force. But health
care is unequal in America, and inadequate
for tens of millions. Nearly 13 percent of newborns do not survive to
60; in Canada, it is only 9.5 percent.

The most efficient way to protect Americans is through their employers.
What frightens people most since Sept.
11, even more than losing their incomes, is losing their health
insurance, one study shows. Efforts to enable them
to afford their benefits when they lose jobs are critical.

One of the more audacious assertions made by some serious economists in
recent years is that the growing
inequality of incomes in America has produced greater incentives to work
hard and create new businesses. In truth,
the best incentive for working hard and saving has always been to pay
people what they deserve. But income
inequality is greater here than in any other developed nation. The
richest 20 percent in America have incomes
roughly nine times those of the poorest 20 percent. By contrast, in
nations with a comparable per capita gross
domestic product, like Norway or Canada, the top 20 percent earn only
four or five times what the bottom 20
percent do.

Such inequality should be reduced through a higher minimum wage, less
regressive payroll taxes and negative
income taxes. But the state of inequality in America also emphasizes how
important it is to equalize other areas of
daily life, including education and health care.

Sept. 11 should elicit more than just soul- searching. We can differ
about how to address these problems, but
ignoring them or even aggravating them weakens the nation at home and
weakens America's pride in itself. It gives
others grounds for criticism.

Our attention is now mostly focused on the war against terrorism. But
the home front matters just as much.
--

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx