Bruce Sundquist
Edition 2 - January 2011 (Updated April 1, 2011 and Sept.13, 2011)

~ Table of Contents:

~ Section [1] ~ CORNUCOPIA I (The scale of natural processes - infinite?)
~ Section [2] ~
CORNUCOPIA II (The Laffer Curve)
~ Section [3] ~
CORNUCOPIA III (Self-Correcting Financial Markets?)
~ Section [4] ~
CORNUCOPIA IV (No Wage Convergence in a High Mobility World?)
~ Section [5] ~
CORNUCOPIA V (Convergence of Global Wage Scales at Developed World Levels?)
~ Section [6] ~
Ulterior Motives for Cornucopia IV and V - The other side of the Globalization Coin
~ Section [7] ~
Counter-Productivities that have made the Great Recession Worse ~
~ Section [8] ~
Could the Great Recession have been avoided if the EU and Japan had served as a role model for the US in managing globalization? ~
~ Section [9] ~
The Forever Recession Issue ~
~ Section [10]~
How do we get out of this mess? ~
~ Section [11]~ Conspiracy Theory
Reference List ~

The US economy has become increasingly bi-polar in recent decades – just like the world economy. For multinational corporations the Great Recession has been declared over some time ago, while the consumer sector of the US economy is still deeply mired in huge numbers of jobless, home foreclosures, vacant homes and empty commercial real estate. Because consumers aren’t buying there is no sense in multinational corporations expanding their production facilities. The multinational corporations have no use for their exploding profits other than selling their stocks back to investors and bestowing gigantic, and ever-increasing, bonuses on CEOs. Did you ever ponder the cause of the by-polar nature of the US economy? Did you ever wonder whether eliminating this bi-polarity could eliminate the Great Recession quite quickly and painlessly? Did you ever wonder what roll US banks played in creating the economic duress in the EU? (You probably already know what rolls they played in creating the Great Recession in the US.) This document is intended to answer these questions and give you a better understanding of these issues that have such a major influence on your daily life. 

Americans, like everyone else,  have a weakness for Cornucopian theories - a very costly weakness. Because they would love to believe that Cornucopian theories are true, they tend to avoid examining the logic supporting these theories with the same level of skepticism that they subject less comforting theories to. Many political leaders have discovered this human weakness and have come up with Cornucopian theories that support their self-serving political ideologies. Their political opponents then cannot attack such theories without appearing pessimistic. Such appearances would result in them and their political party being subject to intense scrutiny. If one examines the more influential Cornucopian theories of recent decades, the political ideologies they support, and the consequences felt by nations and mankind as a result, one sees a lot of economic duress in the wake of a series of tragically erroneous ideologies supported by tragically erroneous Cornucopian theories.

This document examines the likely consequences of five theories that are relevant to the "Great Recession" that plagues many developed nations. All five theories have imposed a lot of economic duress, and are likely to produce far more as the Great Recession drags on. It should not be concluded that the situation is beyond hope. It should be concluded that unless we understand the dynamics and the politics and the context of the Great Recession much better than most of us do now, it will not be possible to take the actions that are required to end the Great Recession. You will learn here (1) why the stock market is a poor indicator of when the Great Recession will end, (2) why the economic stimuli efforts of recent years failed to jump-start the US economy and (3) the elements of a fairly simple, relatively painless strategy for ending the Great Recession.

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In December of 1983, the Vatican's Congregation for Catholic Education issued a document to all governments which stated "It is the task of the state to safeguard its citizens against injustice and moral disorders such as the ... improper use of demographic information." In other words, it is the responsibility of the world's governments to censor demographic information that could suggest the existence of a population-related basis for the problems of developing nations and the world as a whole (
86M1). (The Vatican always disputes scientific analyses that imply links between population and the problems of mankind.) President Reagan apparently either took the Vatican's document seriously, or saw political benefit in the document. (Most of President Reagan's top officials were Irish-Catholic.) One of Reagan's top officials, Dixie Lee Ray, had a scientific background, giving her views the extra degree of credibility that Reagan needed. Ms. Ray argued that the scale of human activities is insignificant relative to the scale of natural processes. The obvious implication of that argument is that any concerns over population-related problems were baseless. President Reagan apparently saw the combination of the Vatican's admonition and Ray's Cornucopian viewpoint as a politically valuable concept. The concept apparently spread throughout the Republican Party and remains a part of Republican Party ideology to this day since all post-Reagan Republican presidents have supported it.

"Demographic information" is normally outside the sphere of interest of most religions. The intense interest of the Vatican in "demographic information" (86M1) therefore calls for interpretation. The only obvious explanation for the Vatican's interest in demographic information appears to be the fact that it would find it difficult to defend its opposition to modern contraception in a world of growing concerns for the sustainability and limits of mankind's key life-support systems.

High rates of population growth make financial capital scarce due to the huge investment in infrastructure growth that is required to accommodate population growth. (The cost of infrastructure expansion called for by the current rate of population growth in the developing world as a whole is about $1.4.trillion/ year according to an analysis by economist Lester Thurow (95C1). In a world with median earnings of less than $2/ person/ day, such a drain on financial capital produces extreme scarcities of financial capital. It is easy to show that extreme scarcities of financial capital are largely responsible for the bulk of the developing world's other problems (09S1). This explains why the standards of living in the developing world relative to those in the developed world appear to be explainable by the differences in population growth rates. For example, all the developing world nations that evolved to developed world status in the past 100 years have done so during periods of active, if not aggressive, family planning programs. Also the world's 50 poorest nations tend to have the world's highest population growth rates while the richest nations have the lowest population growth rates.

Bad Government Theory: Ray's theory rejecting any link between population-related issues and the developing world's ills then requires an alternative explanation for the developing world's ills. The "bad government" theory was thus born. This view appears to have provided much of the basis of Reagan's statement, at the 1984 Second UN International Conference on Population in Mexico City, that population growth is a "neutral" phenomenon (01N1). Ray's theory seems to have formed much of the basis for the views and policies of Reagan (and the post Reagan Republican Party) on population issues, environmental issues, foreign policy, and even military strategies. For example, the war in Iraq was apparently seen by then-President Bush as a simple problem of eliminating the "bad government" to achieve peace and democracy. The CIA and many others argued against such a viewpoint and for an environmental-determinism-based strategy, but to no avail (08S4). The broad acceptance of "bad government" theory has persisted within the Republican Party to this day. "Bad government" theory was also apparently the reason for imposing "Structural Adjustment Programs" (SAPs) on developing nations that had large external debts. A UN study called SAPS during the 1980s and 1990s the single main cause of increases in poverty and inequality (03U2). The problems of these nations had nothing to do with "bad government." The misery that SAPs inflicted on these developing nations was immense (08S1) and needless. The problems of these nations could easily have been solved inexpensively with a misery-free approach based on environmental determinism theory (08S1).

The "bad government" theory is examined at length in Chapter 4 and Section (5-A) of Ref. (09S1) and is shown to be incapable of explaining the ills of the developing world. The more realistic, more pessimistic, and more widely accepted environmental determinism theory is found to explain the characteristics of the developing world (and the differences between the developed world and the developing world) quite well (See Chapter 4 and Section (5-A) of Ref. (09S1). It is easy to show that "bad government" is just another one of many effects of financial capital scarcity - not a cause of it. The relevance of all this to the current Great Recession will become apparent in Cornucopia IV and V and throughout the rest of this document. The main points to bear in mind are that: (1) the developing world is suffering mainly from a dire scarcity of financial capital (09S1). (2) Essentially all of its other problems are outgrowths of this central problem (09S1), and (3) the financial capital problem could easily be fixed (09S1).

A cornucopian theory dear to the U.S. Republican Party is the so-called "Laffer Curve" theory. It proclaims that reducing tax rates provides added stimulus to corporate managers to increase profits. This, in turn, produces sufficient additional tax revenues to more than cover the loss of tax revenues resulting from the reduced tax rates. The theory did not work during the Reagan Administration, and the result of reducing tax rates was huge increases in the federal debt and budget deficits. Note too that during the Clinton administration (a period of increasing taxes) the US economy was in excellent shape, even producing a surplus of tax revenues.  During the Bush administration the US economy went to decline and tax revenues did not even cover expenses. Most people would find that "Laffer Curve" theory strains at credulity, but expressing such concerns in public would subject them to intense scrutiny and being branded with labels such as "tax-and-spend liberal."

Supporters of the Laffer curve should consider the fact that higher taxes would permit us to reduce the $2.1 trillion (10D2) maintenance/ repair backlog, reducing incidences of collapsed bridges and many other problems typical of poorly maintained infrastructure. Increases in infrastructure repair/ maintenance create lots of jobs, and hence additional tax receipts for further reductions in infrastructure backlogs. Higher taxes also enable us to increase social security checks, Medicare payments, and support for public education. All of this creates more jobs and resultant tax revenues. All this also benefits the consumer sector of the economy. As will be shown below, it was the sick consumer sector of the US economy that played important roles in creating the dysfunctional financial sector of the US economy and the current recession. It is the multi-year sickness of the consumer sector that caused the current recession to become the current Great Recession. The 1960s and 1970s were among the most prosperous in recent times, yet tax rates during these decades were higher than in any decade since then.  Warren Buffett pointed out the absurdity of the Laffer Curve on the Charlie Rose program on 8/15/11 based on his article in the New York Times of the same date. He tested it out on his employees and found that none of them would behave in the way the Laffer Curve would predict.

Keep in mind that, before and during the Great Recession, large US corporations have had a glut of cash and related assets with little useful to invest it. (See Section [6].) So higher taxes could hardly have any negative effects on large corporations. However higher taxes in the form of more progressive taxes would benefit both the sick consumer sector of the economy (where the most critical problems defining the Great Recession are found) and corporations of all sizes. (See Section [10].) There are much less expensive ways of increasing incentives for corporate managers, for example bonuses linked to long-term profits.

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The dysfunctional financial systems in the U.S. (See Section [C] of Ref. (
10S1)) are widely believed to be some of the primary causes of the Great Recession (10S1). It is also being increasingly realized that the bulk of these dysfunctionalities could not have occurred were it not for the deregulation that happened during the decade(s) preceding the collapse of the housing bubble in late 2007 and in 2008. This deregulation had its origin in the Cornucopian theory that contends that financial markets are "self-correcting," suggesting that any regulations affecting these markets serve no useful purpose. One might think, then, that the Great Recession would put an end to the theory, and produce bi-partisan efforts to apply regulations to the financial systems to replace the regulations that had been abolished prior to the housing bubble in hopes of avoiding future Great Recessions.

Unfortunately the hoped-for bi-partisan character of the re-regulation negotiations did not happen. The Cornucopian theory that financial markets are "self-correcting" appears to be so deeply immersed in Republican ideology that even an event like the Great Recession cannot break it loose. This appearance might be somewhat off the mark however. In low-interest-rate environments, banks and other financial institutions are dependent on selling high-risk investments to obtain the returns on investment that their customers continue to demand despite numerous warnings. Some new regulations have been accomplished since the bursting of the housing bubble, but it is far from clear that these could have spared the economy from the events like those that made a major contribution to the "Great Recession." It is also not clear that these new regulations will be able to survive the political pressures for deregulation that are virtually certain during the next few decades.

The economic collapse is often blamed on repeal of five regulations that had all been passed in response to previous financial disasters. Three deregulation bills, passed in 1999 and 2000, deregulated Wall Street (and Enron). All bore the name of Republican Senator Phil Gramm, and all were passed by the Republican Congress. Two other bills deregulated Fanny Mae and Freddie Mac. (See "Trillion Dollar Meltdown" by Charles Morris.) Most of what the financiers subsequently did to get fabulously rich and bring down the economy was illegal before the passage of these five deregulation bills. Some of the same processes (mainly deregulation) were at work in the savings-and-loan meltdown in the late 1980s, and in the extreme currency devaluations in Southeast Asia and Latin America in the late 1990s.

A Financial Crisis Inquiry Commission (FCIC) was established to examine the effects of these five deregulations and to establish a new set of regulations for the financial industry. Its report detailed the recklessness of the financial industry and the abject failures of policymakers and regulators that bought the US economy to its knees in late 2008 (11A1). The accuracy and facts of the commission’s investigative report have gone unchallenged since its release in January of 2011. The federal budget ballooned by more than $1 trillion annually since the financial collapse. Note, too, that nearly $9 trillion in household wealth has vanished since the start of the great Recession. Two thirds of the deficit increase is directly attributable to the economic downturn and to the bipartisan fiscal measures that were adopted to bolster the economy. The primary problem here is the ideology that contends that financial markets are self-correcting. That ideology has been deeply engrained in the Republican Party for decades. It is probably the primary cause of the deregulation. The financial sector’s share of corporate profits increased from 15% in 1980 to 33% by the early 2000s.

As noted in Cornucopia I, the developing world economies are suffering from: (1) extreme scarcities of financial capital (the cause of virtually all of the other problems of the developing world (
09S1)) and consequently (2) extreme gluts of labor. The globalization process is, in essence, a mixing of the developing world economies with the developed world economies.  Such a mixing can hardly avoid providing huge benefits to developed world providers of capital to the capital-starved developing world.  These providers of capital also benefit from purchasing goods produced by very inexpensive developing world labor and then selling these goods to far richer consumers in developed economies. 

Such a mixing can hardly avoid providing huge benefits to developed world providers of capital to the capital-starved developing world. Such a mixing of economies can also hardly avoid imposing extreme duress on those who provide labor to the developed world's GDP since globalization means that developed world labor must compete more directly with developing world labor earning far less. The current globalization process, and all prior globalizations, are a result of high mobilities of the elements of economic activity. The trade agreements defining globalization strive, mainly, to increase these mobilities. High mobilities inherently reduce gradients. The large difference in wages and benefits between the developed and developing worlds is such a gradient - by far the most contentious gradient affected by globalization. 

All this, in essence, explains the bipolar nature of the US economy. It also shows how easy it would be (in theory) to end the Great Recession virtually painlessly. All we need to do is to transfer some of the record-breaking profits of multinational corporations to the consumer sector of the US economy. This could be done by increasing taxes of multinational corporations. Actually even that might not be necessary. Currently multinational corporations tend to park their profits offshore, e.g. the Canary Islands, causing them to pay minimal or negative taxes to the US government. Just outlawing this practice could cause the sick US consumer sector to recover and make US labor more competitive in the world marketplace and reduce US trade deficits. Doing this would enhance corporate profits (by selling more goods to US consumers). These enhanced profits might be sufficient to compensate for any increased taxes they would pay. More on this is found in Chapter 10.

The Mobility of Labor Productivity: To address this contentiousness, a Cornucopian theory came along that contended that the earnings of the developing and developed world's labor will not converge because "labor productivities" of developed world labor are higher than those of developing world labor. However that "labor productivity" is almost totally a result of high levels of capital investment in human capital creation, and in productivity-raising capital facilities. Both capital investments have high, global-range mobilities in today's world, and this bestows high mobility on "labor productivity." High mobilities reduce gradients and produce convergence of labor productivities. Higher mobilities cause faster rates of convergence. One can see the high mobility of "labor productivity" in the hundreds of scientific and technical universities being constructed annually in China and India. (China's colleges and universities graduated 830,000 in 1998 and 5 million in 2010 (10J1). This should give us an idea about how the US trade deficit with China and India and the US job market and US wage scales are likely to change over the next decade.) This also gives one an idea of the things that the huge trade surpluses of India and China with the U.S. are being invested in - and how fast China's exports are growing. We also see high mobilities of "labor productivity" in the ability of multinational corporations to quickly ship the most advanced production machinery to almost any nation on earth, with destinations often decided based on the costs of labor, and how much of a subsidy a given foreign nation is willing to provide.

It is this convergence of wages and benefits that is producing the weakness in the consumer sectors of developed world economies. That weakness causes abnormally low interest rates, partly because the Federal Reserve sees low interest rates as a way to stimulate the weak economy. Low interest rates are also producing all those dysfunctionalities in the financial systems of the developed world's economies, and the greatly increased risks in the investment opportunities that investors demand (See Section [C] of Ref. (10S1)). The demand for risk played a major role in eliminating many of the regulations that previously protected investors from dangerously high-risk investments. It is this environment that has produced the housing bubble, its collapse and the recession. That recession became the "Great Recession" because the weakness in the consumer sector of the developed world economies was produced by a combination of (1) the effects of globalization on wages and benefits, (2) the effects of the housing bubble collapse on housing prices that comprise much of the wealth of consumers, and (3) a variety of other activities described in Sections [6] and [7] that tend to further weaken the consumer sector and prolonged that weakness. More detailed analyses of the above are found in Ref. (10S1).

Cornucopia IV has a backstop in the form of Cornucopia V that contends that, even if wages and benefits of the developing and developed world do converge, the convergence point will be close to the current standard of living of developed world labor. Cornucopia V, however, runs into serious problems in the form of "Footprint" analyses and "Net Primary Production" analyses (
08S3). Both of these analyses show that the resultant increase in demands on the world's basic resources could not support such a convergence point. That convergence point would require the natural resource base of five planet earths. One can see compelling evidence for this by noting that just bringing less than 20% of the economies of China and India into the global marketplace resulted in significant price increases for such things as energy, minerals, and food.

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It is of interest here to examine the multinational corporations that provide financial capital to a developing world that is suffering from a dire scarcity of financial capital (See Cornucopia I). Since former President G.W. Bush took office in 2001 corporate profits have seen huge increases. These profits have more than doubling since 2000. In 2006, corporate profits as a share of GDP were at the highest level ever recorded (07K1). In the third quarter of 2010, corporate profits were the highest on record (10L1). Corporate America's reserves of cash and similar assets, as a percentage of corporate assets in September of 2010, were the largest they have been since 1959 (7.4% - $1.93 trillion in cash and other assets, based on Federal Reserve data) (10L2). The cash buildup is attributed to (1) the extreme caution many companies feel about investing in expansion while the economic recovery remains painfully slow, and (2) high unemployment and battered household finances that continue to limit consumers' ability and willingness to spend. Also there are few other opportunities to use the cash productively, creatively or profitably. This explains why corporations are engaging in such high levels of stock buy-backs and huge bonuses for corporate executives (See below). Low interest rates mean that these large cash reserves contribute little to corporate earnings (10L2).

Stock Buy-backs: Also, US corporations have been distributing their earnings to shareholders by buying back the company's own stock. In the year ending 3/31/06, US corporations spent a record $367 billion in stock buy-backs, an extraordinarily large amount (06U3). In the second quarter of 2006, large corporations bought back their shares at an annualized rate of $464 billion. More than 40% of S&P500 companies reduced their shares outstanding with buy-backs in just the second quarter of 2006. In 2007, S&P 500 corporate buybacks totaled $600 billion (10D1). Never before has the magnitude of stock buybacks been at this level (06Y1). (More typical rates are about $100-150 billion per year (10D1).) The obvious implication of this is, again, that US companies can see no investment that represents a better use of corporate earnings, despite rising earnings.

Bonuses to Corporate Officials: Another use of the wealth of corporate profits has been huge bonuses to upper-level corporate officials. For example, the investment firm Goldman Sachs paid bonuses to its employees that averaged nearly $600,000 per person, its best year since it was founded in 1869 (10H3). Compensation at publicly traded Wall Street firms hit a record $135 billion in 2010 (11A1). This too suggests that US corporations can see no investment that represents a better use of corporate earnings.

Despite this corporate profit surge, non-residential investments (investment other than housing construction) in the US have been growing very slowly by historical standards. As a share of GDP, US non-residential investments in expanding production-, sales-, and services facilities, modernization, etc. have not been robust (06U3). They remain far below levels of the late 1990s, and have been declining in recent quarters (07K1).

The Other Side of the Coin: Wages, benefits and salaries, on the other hand, now make up the lowest share of the US GDP since 1947 - the year when such data first started being tabulated (06G2). The probable reasons for both of these trends are globalization-related:

The Weak Consumer Sector: The extreme weakness in the US economy noted above is clearly not due to the lack of corporate health. Nor is that weakness likely to be found in the lack (or higher price) of financial capital that could be used in funding corporate expansion. The source of the extreme weakness in the US economy must be sought in some other sector of the economy. The most obvious source of weakness in the US economy is in the consumer sector. It is composed, in large part, of those who provide labor to the US economy. The second bullet above then easily explains the weakness of the consumer sector. That sector is typically about two-thirds of US GDP (2/3 of $14.26 trillion or $9.51 trillion based on 2009 World Bank data). So consumer-sector weakness can easily explain why US corporations can find no reason for investing their growing earnings in corporate expansion (09B3)). US consumers are in no position to increase their purchases of any increased outputs of US industry, given the growing pressures that globalization puts on wages and salaries (06G2).

Comparison of Wages and Benefits to Labor Productivity: One can get a rough idea of the magnitude of consumer-sector weakness by comparing trends in labor productivity to trends in wages and benefits. Prior to 1980 (roughly when the effects of globalization began playing a significant role in the US economy), a close correlation between wages and labor productivity in the US existed for as many decades as such data have been measured. But since around 1980, earnings of US labor have been falling increasingly behind what labor productivity data would indicate. Since 1978, labor productivity in the non-farm business sector has increased by 86%, but real compensation per hour has risen by only 37%. This means that non-farm business wages and benefits are 49% lower than what they would have been had they continued to track long-term trends in US non-farm labor productivity (10B2). This 49% difference between wages + benefits and labor productivity means that total US wages and benefits would have to increase by $2.46 trillion/ year to restore them to the value indicated by current labor productivity ($9.34 trillion/ year) (Bureau of Labor Statistics data).

The Nationwide Costs of a Sick Consumer Sector: The weakness of the consumer sector has produced all sorts of damage to the remainder of the US economy. For example, the weakness caused the Federal Reserve to lower interest rates to extremely low values. This resulted in the financial system having to concoct all manner of high-yield (i.e. high risk) investments to meet the demands of investors who found low interest rate environments harmful to their retirement (IRAs, 401(s)s, annuities). The huge variety of high-risk investments caused much of the deregulation that was an important element in the cause of the recession, and in the development of all manner of high-risk mortgages that wound up as foreclosures and bank failures. These, in turn, caused a reluctance of banks to lend credit. It is quite likely that if a weak consumer sector of the US economy had been averted, the recession could also have been averted. The same argument can also be applied to the events described in Section [7] below.

For reasons probably justified mainly by Cornucopia II theory (the Laffer Curve), some counter-productive policies are being engaged in that further weaken the consumer sector of the economy and, as a result, makes the Great Recession significantly worse and more prolonged.

  1. US tax laws were revised to: (1) decrease tax rates on the earnings of financial capital (e.g. dividends) with no corresponding decrease in the tax rates on the earnings of labor, (2) decrease inheritance taxes and estate taxes and (3) reduce income tax rates in the higher tax brackets. All of these changes transferred the tax burden increasingly onto the weak and weakening consumer sector of the US economy (victims of globalization) and away from suppliers of financial capital (beneficiaries of globalization). All these reductions in progressiveness of the Federal tax structure have produced such strange results as Warren Buffet's secretary paying a higher federal tax rate than Mr. Buffet. In a Charlie Rose interview of Warren Buffet on 8/15/11 based on an article in the New York Times of the same date Buffet noted that his federal tax rate was 17%, while all his employees paid 30% or more.  It also contributed to a widening of the US "income gap" to the point where it has become the world's largest. (In 2000, the richest 5% of the US population owned more wealth than the combined wealth of the remaining 95% of the US population (05U1).) During the early stages of the Great Recession (2008 and 2009) those earning more than $50 million annually increased their incomes by a factor of five, even as the nation as a whole (and the consumer sector in particular) was being rocked by the worst economic downturn since the Great Depression (10H3). We often hear that the top 1% of income tax payers pay about 40% of all income taxes. But that's just income taxes. The payroll tax (the people's tax) now brings in about 96% as much revenue as the personal income tax (the rich man's tax). As recently as 2000 it bought in 65% as much (10B2).

  1. Federal tax policies and related issues have become even worse than described above (10H3). Since the late 1970s a long series of federal government policy changes occurred that overwhelmingly favored the richest 5% of the US population. These changes resulted from increasingly sophisticated, well-financed, and well-organized efforts by corporate and financial interests to tilt government policies further in their favor, and thus in favor of the very wealthy. These efforts involved far more than just tax laws. They also involved deregulation, safety net issues, changes in industrial relations policies, government action, and corporate governance policies that have allowed C.E.O.s to basically set their own pay. All this caused those who were already very wealthy to amass ever-greater shares of the nation's wealth (10H3). The poor through the upper middle class have fallen further behind. Real average hourly earnings (excluding fringe benefits) now stand roughly at 1974 levels (no real increase in hourly earnings in over 35 years (10B2))

    These policies, in combination with the effects of globalization on the consumer sector, have been causing a sick consumer sector of the US economy to become even sicker. This has caused the Federal Reserve to reduce interest rates in hopes of perking up the US economy. The low interest rates have increased demands from investors for higher yield (i.e. higher risk) investments. This is easily shown to be the cause of the deregulation and the dysfunctional financial sector of the US economy (
    10S1). The composite of all these factors have created the perfect environment for a huge housing bubble. Because of a combination of a sick consumer sector of the US economy and the pressures exerted by banks before the bubble burst to persuade homeowners to take out some of all of the equity in their homes (See Section [9] below.) the bursting of the housing bubble cause an explosion of home foreclosures, and the bankruptcies of banks and other financial institutions. This caused credit to dry up, massive job loss and an even sicker consumer sector, thus completing one loop of a vicious (downward) cycle - thus the Great Recession rather than an ordinary recession.
  1. Further damage to the weak consumer sector of the US economy resulted from numerous activities by multinational corporate and other financial interests. These were all aimed at structuring trade agreements so as to define the globalization process in ways that stacked the benefits of these agreements increasingly in favor of multinational corporations, and at the expense of the consumer sector of the US economy (See Chapter 9 of Ref. (08S2).)

In an environment of declining earnings of labor, a weakening consumer sector of the US economy, high unemployment rates, and increasing gluts of corporate earnings with no useful place to park them (See Section [6].), the changes described above were clearly counterproductive in terms of ending the Great Recession. Further changes of a similar bent (tax reductions) were negotiated as part of the various economic stimulus strategies of 2008 and 2009, despite their counter-productivity.

Are US corporations over-taxed? Corporations have reduced the "stated" tax rate of 35% to an effective average rate of 16.53% for all publicly traded firms by using loopholes (11W1). By off-shoring about $100 billion/ year of their profits in low-tax-rate nations like the Canary Islands multi-national corporations are able to reduce their effective tax rates to well below 16.53% - probably in the range paid by individuals in the lowest federal tax bracket (10-15%). Since the 1960s, federal corporate taxes have shrunk from 3.8% of the US GDP to 2% in 2010, thereby putting an increasing fraction of the tax burden on individuals (11W1). Note that this 2% figure is smaller than every other developed nation’s corporate tax/ GDP ratio (OECD data). The ratio of the total of all federal taxes to the GDP is about 21%. This means that US corporations pay less than 10% of all federal taxes, leaving the remaining 90+% to be paid by individuals – largely the sick consumer sector of the US economy.

Multinational corporations have discovered other ways of avoiding taxes even while making record profits. The top corporate tax level in the US is 35% (usually less – see above) (11D1). In the UK it is 28%. In Ireland it is 12.5%. In Bermuda it is 0%. So multinational corporations can simply declare their profits in the nation with the lowest corporate tax rate regardless of where the profits were actually earned. General Electric, for example, earned $14.2 billion in 2010 - $5.1 billion of it from US operations and paid no taxes. In fact, taxpayers wound up paying GE several billion dollars in 2010. Google saved $3.1 billion in taxes over the past three years by shifting the majority of its foreign profits into accounts in Ireland, the Netherlands and Bermuda (11D1). 

Forest Laboratories Inc. does almost 100% of its sales here in the U.S. They have almost 100% of their employees in the U.S. and their headquarters are in New York City, and yet the majority of their profits show up in a mailbox in Bermuda. An economist at Reed College estimates that the U.S. is losing nearly $90 billion / year in federal tax revenues from all US companies. Multinational corporations have also lobbied for a "tax holiday" that results in even more tax benefits. In 2004 Congress passed the "American Jobs Creation Act" that produced even more tax benefits. Instead of creating jobs the act caused most of the benefits to go into buying back company stock (11D1).  The non-profit group Tax Justice Network estimates that offshore tax havens shielded over $255 billion in global taxes in 2006. 

Corporations have found other ways of multiplying their wealth - investing in campaign contributions for judges and indoctrinating judges with ideologies beneficial to corporate interests.  Many state judges have been compromised by organizes wealth. The rise to power of super-wealthy right-wing extremists has opened state judicial elections to the interests or organized wealth.  A 2000 report from the Georgetown University Law Center reveals that many state judges must now raise $1 million or more just to run for election.  No matter who wind such an election, corporate money gains a seat at the bench (00E1). At least three right-wing organizations spent  tens of millions of dollars during the 1990s sending federal judges to all-expense-paid resort locations where they learn to interpret the law according to ideologies beneficial to corporate interests.  During the 1990s, a majority of the nation's federal judges have undergone such training at the hands of libertarian, free-market  extremists.  A former Chief Judge of the U.S. Court of Appeals for the DC Circuit, Abner Mikva, says, "It may be a coincidence that the judges who attended these meetings usually come down on the same side of important policy questions as the funders who finance these meetings... But I doubt it" (00K1).

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The reason for the huge and growing trade deficits and current account deficits of the US is that the US has not been competitive in world trade for over three decades (since 1976). The US international trade deficit in 2008 was 35% larger than Social Security spending, 50% larger than all US defense spending, and 2.5 times larger than all Medicare spending (
08H1). The US has also been paying little attention to the effects of trade with developing nations on US wages and benefits. These aspects of US management of globalization are unlike those of the EU and Japan. The EU and Japan have been able to: (1) remain competitive in world trade (no prolonged trade deficits) and (2) protect wages and benefits, i.e. preventing the convergence of EU- and Japanese wage scales toward those of the developing world. Germany has shown that producing products of high added value can retain a manufacturing sector even when labor costs are high. Hourly manufacturing compensation (wages plus benefits) was $48 in 2008 in Germany, and $32 in the US (10M1).  Germany's labor costs are the highest in the world, yet Germany runs the world's largest export surplus - 7% of the GDP (11K1).

It would seem, then, that any recession in the EU and Japan is not likely to take on the "forever" feature that seems assured for the Great Recession in the US. This is because the "forever" feature results from the simultaneous occurrence of (1) the extreme weakness of the consumer sector of the economy as a result of U.S. mismanagement of the globalization process, (2) a dysfunctional financial system, (3) low interest rates, and (4) the process of convergence of wages and benefits toward those of the developing world. (See Section [9] below.)

However, both Japan and the EU have been experiencing increasing difficulty in protecting the earnings of labor. One can see that in the excessive levels of borrowing by some of the weaker EU nations. That borrowing was probably motivated by desires to maintain pre-globalization standards of living, although Ireland and Spain also encountered real estate bubbles. One can also see the difficulty of protecting EU and Japanese wages and benefits in terms of the gradual formation of age-based caste systems in these nations. (See Section [G1] of Ref. (08S1).) That same type of caste system is now forming in the US as well. These events all suggest that the EU and Japan may be losing their ability to perpetuate their early successes. This would suggest that the management of globalization by the EU and Japan might not be a perfect role model for the US to follow. However, stronger efforts by the US to reduce trade deficits and protect the earnings of labor using strategies developed by the EU and Japan would be better that the current lack of any sort of U.S. strategies in these areas.

Bubbles like the housing bubble of 2007-2008, prolonged periods of low interest rates, a lack of regulation of the US financial systems, and sick consumer sectors of the US economy have all happened before. Yet the magnitude of the effects of the current Great Recession has greatly exceeded almost anything that the US has encountered in the past in terms of severity and duration. Note, however, that: (1) All US recessions since around 1980 have had jobless recoveries (
09G1); and (2) 1980 is around the time that the economic effects of globalization on the US economy became significant. This coincidence ought to cause us to suspect a role for globalization in the current recession. We should also suspect a role for globalization because we learned above that the two Cornucopian theories (IV and V) supporting globalization are easily shown to be wrong. Also there are those who enjoy major financial benefit from Cornucopia IV and V. (See Sections [6] and [7].)

As noted in Section [1], developing world economies suffer primarily from: (1) extreme scarcities of financial capital (the cause of virtually all of the other problems of the developing world (08S2)) and consequently (2) extreme gluts of labor. Globalization is, in essence, a mixing of the developing world economies with the developed world economies. Such a mixing can hardly avoid providing large benefits to developed world providers of capital to capital-starved developing nations. This is confirmed in Section [6] above. It can also hardly avoid imposing extreme duress on those who provide labor to the developed world where it must compete increasingly with developing world labor that earns 80-90% less. The main effect of this duress is seen in the consumer sector of the US that comprises about 2/3 of the US economy.

Since around 1980 when globalization began having a significant effect of the US economy, US labor began responding to globalization-caused duress by spending down assets in attempts to maintain their standards of living. The strategies for accomplishing this are listed below. Needless to say, any strategy involving spending down assets has lower limits. After these limits have been reached, standards of living must decline, and the consumer sector of the US economy must decline as well. This decline can be alleviated (actually postponed) by the Federal Reserve reducing interest rates, and by a series of economic stimulus projects paid for by the federal government that were hoped to jump-start the economy into an upward spiral. Both of these strategies also have their lower limits, and these limits have both been reached, the latter in late 2010. The upward spiral never materialized - most likely because no stimulus project addressed the US mismanagement of the globalization process. The US is now realizing the fundamental failure of this approach, and is also realizing that the huge costs of stimulus programs are causing serious political and economic problems without achieving any jump-start of the economy. All this shows how difficult it is find strategies that hold any hope of ending the "Great Recession." The huge and growing trade deficits, current account deficits, budget deficits, and interest on the expanding national debt could also be viewed as efforts to perk up the consumer sector of the US economy. They offer a more accurate, but more sickening, understanding of just how sick the consumer sector of the US economy has become.

Some political winds are working in a different, more fruitful direction however. The American public is getting increasingly angry about US mismanagement of the globalization process. About 70% of Americans (even many of those in the Tea Party) are opposing further globalization-related trade agreements.

Strategies (all of which have limits) for maintaining standards of living during the first few decades of the globalization process:

(1) Increasing the percentage of housewives in the labor force;

(2) Working longer hours;

(3) Increasing "Togetherness." Since 1980 (about the time globalization became a significant economic issue) there has been an upward trend in the number of multi-generational family households, defined as households with three or more generations, with a grown child (over age 25) and parents. After WWII, the portion of Americans living in multi-generational family households fell by more than half until 1980 when the trend reversed itself. From 1980 to 2008, this portion rose by a third to 16% of the total U.S. population, or around 49 million Americans (10B1).

(4) Submitting to ever-increasing degrees of stress in the workplace, driven by growing pressures to become more "productive." The growing stressfulness in the US workplace environment is spilling over into many other environments. Air rage, road rage, desk rage, pedestrian rage etc. appear to be growing in the US (00J1). Air rage incidents, globally, increased from 1132 in 1994 to 5416 in 1997. Road rage killed 218 people during 1992-1997 and left 12,610 people injured. Workplace violence - virtually unheard of until the 1970s - now costs businesses more that $36 billion/ year according to a 1995 report by the Workplace Violence Research Institute. About 14% of Americans are on the verge of exploding into acts of violence, according to the Anger Institute of Chicago (Pittsburgh Post Gazette (9/5/00)). Growing stressfulness is also reflected in the increasing nastiness and viciousness heard from televangelists, talk-radio, and all those mindless attack ads during election campaigns. Now people and political parties are discovering that rage-filled, irrational analyses can influence public policy. The nation's leadership appears to be guided increasingly by irrational analyses.

(5) Drawing down savings to the point where the average savings rate of American families has become slightly above or below zero. In the 1950s through the 1970s (pre-globalization) U.S. personal savings rates as a percentage of disposable income increased from 7% to 10%. In the 1980s through 2007 (in the globalization period) personal savings rates as a percentage of disposable income decreased from 10% to 1.5% (09B5) (Commerce Department data).

(6) "Maxing-out" credit card debts, and increasing the number of credit cards held.

(7) A seventh crucial strategy then came along in the form of a major advertising blitz by banks and other mortgage holders that urged homeowners to take out some, or all, of the equity they had in their homes (08S7). This is a major strategy since most assets of labor tended to be invested in their homes.

There was a certain amount of underhandedness by banks in this strategy. "Home equity loans" were sold using suggestions for spending the proceeds on frivolous "feel-good" purchases. Banks neglected to point out that such "second mortgages" were previously regarded as high-risk loans taken out only by people in dire circumstances who needed money for basic needs. The seventh strategy for protecting living standards ended tragically in late 2007 and 2008 in the long-anticipated (and inevitable) bursting of the housing bubble, declining home values, a blizzard of mortgage foreclosures, greatly increased difficulties in obtaining credit, and huge increases in unemployment. The misery of the mortgage foreclosure blizzard was multiplied by the far smaller amount of equity that homeowners had remaining in their homes after having sold so much of it off (See Section [3-J] of Ref. (10S1).).

At this point (early in the Great Recession), US consumers had little or nothing left to sell off: All their options had been "maxed-out," or nearly so. The huge loss of assets experienced in Strategy 7 and the foreclosure blizzard meant that the collapse of the housing bubble occurred at close to the time as the maxing-out of assets. This is perhaps why the Great Recession is so much worse than the previous two recessions. It also explains why the Great Recession could last forever, because now the providers of labor to the US economy must endure declining wages, benefits and living standards as they continue toward their convergence with wages and benefits typical of developing nations.

Spreading the Ills of the Consumer Sector: The weakness in the consumer sector noted above is now spreading to parts of the remaining third of the US economy. It has already caused the financial sector of the US economy to become dysfunctional as a result of its struggles to find high earning (i.e. high-risk) investments that can satisfy investors worried about their retirements. (See Section [C] of Ref. (10S1)). It is also spreading to commercial real estate. For example, some 920 football fields worth of vacant office space are available in Manhattan (10H2). This space is found in 180 major buildings with a value totaling $12.5 billion. Owners of these buildings often face foreclosure or bankruptcy, or they have problems making mortgage payments. Rents for commercial office space fell faster over the last two years than in any such period in the last half-century (10H2). Rents are expected to go lower. By 2011, the value of New York metropolitan area office buildings is predicted to decline by 58% from its late 2007 peak. It is already down 40%. Job growth in New York City has been impossible to detect -typical of the nation as a whole. Cities like Chicago, Washington, and Boston face similar, or worse, situations (10H2). In most parts of the US, abandoned storefronts are seen with ever-increasing frequency.

Forever? As noted above, the reason why the Great Recession could last forever in the US is that it occurred just after consumers had maxing-out of their strategies for protecting their standards of living from the inevitable convergence toward wage scales more typical of the developing world. This process must realistically be seen as being likely to last forever since there are only very difficult ways to improve the lot of those in the consumer sector and other affected sectors - or even to stabilize the overall situation.

Indicators of Progress: A common error that Cornucopians tend to make is to gauge the process of "recovery" of the US economy by the stock market. This is an artifact of the cash glut described in detail above, and this glut can hardly be capable of spreading economy-wide. Unemployment rates are a better (though overly optimistic) indicator, and these rates have remained static for many months, mainly as a result of huge (and temporary) federal government spending on economic stimuli. Another good indicator is wage scales. People returning to work after a layoff are often finding their wages cut in half. Other companies are converting to a two-tier wage structure. In prior recessions the two-tier wage structure was returned to the previous one-tier structure at the end of the recession. Now employers are making two-tier wage structures permanent (10R1).

One should not conclude from the above that stock markets are good, safe places to invest ones money in very low interest rate environments such as the current one. Financial journals have pointed out repeatedly that the current sick consumer sector of the economy cannot support significant prolonged increases in prices of stocks, bonds, derivatives, "credit default swaps" and others. The nation's corporations (and even health-care providers, universities, etc.) are gradually discovering that they have far more capacity than what consumers are capable of purchasing. That gap is unlikely to do anything but expand as wages and benefits converge toward those typical of developing nations.

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Probably the safest and surest strategy is to follow our footsteps that led us into this mess in the first place. Converting developed nations into something more akin to developing nations is not in anyone's interest. Who would China sell its goods intended for export to? And would developed world labor submit to 60-80% reductions in wages and benefits as part of a convergence process? The five Cornucopian theories and the ideologies they support, once they are seen for the self-serving frauds that they are, will guides us back along our footsteps and make the pathway out of this mess clear.

However, one needs to acknowledge the fundamental and irreversible global changes since the early 1980s. Virtually every element of economic activity has undergone huge increases in global-scale mobility, and this trend gives no sign of stopping or even slowing. In other words, globalization is here to stay. This does not mean, however, that the trade agreements' numerous strongly biased rules favoring multinational corporations are here to stay. Nor does it mean that the benefits that globalization bestows on those who provide financial capital to a developing world starved for financial capital should be taken as a gift that need not be paid for. Nor does it mean that the pain that globalization bestows on those who provide labor to developed world economies should have to be endured without compensation. These issues have been hiding behind Cornucopian theories I, IV and V since the early 1980s when globalization became a significant factor in the global economy. As noted earlier in this document, all of these Cornucopian theories can easily be shown to be false.

The Economic Model: To understand the economic problems of the Great Recession, one should think of economic activity as a circular flow of money. Goods and services can be seen as flowing in the opposite direction. Natural resources enter the circular flow at various points, run around the circle in the same direction as goods and services for a while and eventually exit the circle (e.g. to a landfill) or are converted to useless forms, (e.g. coal, oil, food, etc.) They are perhaps best considered as a motor driving the overall economic process. Various sectors of the economy, e.g. the consumer sector, occupy sectors of the donut-shaped cash duct. The amount of money, corrected for inflation, and the rate of flow of money within that circle determines the level of economic activity. Rapid flow is indicative of prosperity. Slow, or constricted, flow is indicative of recession. The current Great Recession is a result of a highly constricted, and hence low, flow of money.

The Constrictions: The analyses earlier in this document make it easy to see where that constriction is, and what caused it. Section [6] above shows that huge amounts of cash and related assets are collecting in the corporate sector of the US economy, mainly in large, multinational corporations - the primary beneficiaries of globalization. (The most recent S&P survey of the nation's largest 500 publicly traded corporations showed that roughly 47% of their revenues come from outside the US (10M1).) This cash glut is primarily a result of these corporations being unable to find any useful, creative, or profitable uses for their cash, thus the glut and the constriction. They find themselves giving it back to stockholders in the form of stock buy-backs - a pointless exercise because the stockholders just buy more stock in another company. They also resort to giving their management personnel huge bonuses - also pointless because the managers just buy stock with their bonuses. Current corporate holdings in cash and similar assets amount to $1.93 trillion. This is about double the amount held in the early 1980s when globalization started to become a significant influence on the US economy (10L2).

This corporate cash reserves are not the only reserves of stagnant cash that could benefit the overall economy were it not for the constriction that is blocking it. Over half of US household income ($3.35 trillion out of $7.27 trillion/ year) goes to households earning more than $150,000 per year (Census Bureau data). The overwhelming bulk of this income is invested in stocks, bonds and other investments where it too becomes part of the stagnant corporate cash that the constriction is blocking.

The nature of the constriction is easy to understand. On the upstream end of the constriction multinational corporations are, fundamentally, the primary beneficiaries of globalization (See Cornucopia I), thus the huge inflows of cash. On the downstream end of the constriction is the upstream end of the consumer sector of the economy. That sector is, fundamentally, the victim of globalization (See Cornucopia I). As a result, that victim is growing increasingly sick because globalization puts intense pressures on jobs, wages, and benefits as ever-increasing millions of US jobs get outsourced. This results in the weakening consumer sector being limited to purchasing ever-decreasing amounts of the goods and services offered by the corporate sector. As a result, corporate cash reserves cannot be used to expand corporate production facilities. The risks of over-capacity are increasing, and this results in more layoffs. This is the nature of the constriction. The elements of a vicious cycle are apparent here.

The bursting of the housing bubble and the dysfunctional financial system wiped out many in the consumer sector already weakened by the globalization process. This can be seen in the huge number of foreclosures on homes and in the declining value of homes. This is another reason why large, multinational corporations see no reason to expand their operations, and why they face increasing over-supply problems.

Eliminating the Constriction: At this point in the Great Recession, two problems must somehow be solved if the Great Recession is to be bought to a close.

Elements of a vicious circle are easily seen in the above two problems. Together these two problems can be seen as a flow constriction slowing the circular flow of money described above.

A healthier consumer sector of the economy is clearly the key ingredient in any strategy for ending the Great Recession because:

The easiest, and probably the only, way to eliminate the above-mentioned flow constriction is by changing federal tax policies (essentially the Cornucopian II Laffer curve in reverse). Using tax policy would allow the flow of cash to be directed to the portions of the consumer sector where it most effectively enhances the health of the consumer sector. Tax policy changes would also allow the origins of the flow of cash to be selected from among the individuals and corporations that have the largest reserves of cash and similar assets.

Multinational corporations would appear to be the best corporate candidate. They are widely known for manipulating their tax strategies so that the bulk of their income is declared in the nation having the lowest tax rates, regardless of where the income was actually earned. So just clamping down on this fraud could produce much of the cash for transferring downstream in the cash-flow donut. Also, large multinational corporations, because they benefit most from globalization, tend to have the largest amounts of idle cash.

The best choice for which individuals should pay tax increases would be those who have benefited most from the increasingly less progressive nature of the US tax code - a clearly counterproductive policy in terms of decreasing the pain of the Great Recession. This reduced progressiveness has contributed to a widening of the US "income gap" to the point where it has become the world's largest. It has reached the point of absurdity that even those with only modest economic means pay the highest tax rates. (In 2000, the richest 5% of the US' population had more wealth than the combined wealth of all remaining 95% of the US population (05U1).) During the early stages of the Great Recession (2008 and 2009) the income of those earning more than $50 million annually increased by a factor of five. This was happening even as the nation as a whole, and the consumer sector in particular, was being rocked by the worst economic downturn since the Great Depression (10H3).

Strategy Politics: The political difficulties associated with the above strategy may seem challenging, but this is not necessarily so. The following arguments suggest that the above strategy is a net benefit for all concerned:

To summarize the above arguments, what goes around comes around.

The task of returning two thirds of the US economy (the consumer sector) back to an essentially permanent healthy state using surplus cash ($1.93 trillion) wasting away in large multinational corporations and in the households with high incomes (roughly $3.3 trillion out of a total annual household income of $7.25 trillion) requires using the cash in ways that offer high benefit-cost ratios. To restore wages + benefits to values typical of a normal economy, and that match current labor productivity ($9.34 trillion/ year based on Bureau of Labor Statistics data) total US wages + benefits would have to be increased by $2.46 trillion/ year. (See bottom of Section [6].) Below are some possibilities.

Infrastructure: The nation's infrastructure is an element of the nation's economy that has long been a major victim of Laffer curve ideology. It is clearly impossible for the US to grossly under-fund the repair and maintenance of the nation's infrastructure indefinitely. A report "Infrastructure 2007: A Global Perspective," released on 5/9/07 by the Urban Land Institute and Ernst & Young LLP concluded that US airports, roads, rail lines, bridges and other transit infrastructure are deteriorating across the US because of insufficient investment. The report says that the failure to address this "emerging crisis in mobility" will undermine the ability of the US to compete internationally. In 2005 the American Society of Civil Engineers graded as "poor" the condition on the US transit infrastructure as well as US power grids, dams and systems for drinking water and waste water (water lines and sewer lines). The US faces a $1.6 trillion deficit in needed infrastructure spending though 2010 for repairs and maintenance according to the ULI/ Ernst & Young report. (A more recent analysis gives $2.1 trillion (10D2).) China spends 9% of its GDP on infrastructure; India spends 3.5%. The US spends 0.93% of its GDP ($14.26 trillion x 0.0093 = $113 billion/ year) on infrastructure according to the ULI/ Ernst & Young study (07H1). One result: a large fraction of the nation's bridges being rated as unsafe. Attempting to eliminate the infrastructure backlog within a few years would be inefficient. Allocating on the order of $0.4 trillion/ year to infrastructure repair and maintenance would eliminate the backlog in roughly five years. Another study estimates that it will cost $2.2 trillion over five years to raise the grade of the nation's infrastructure from "poor" to "acceptable" (10P1).

Much infrastructure problems are politically based. Instead of carefully allocating money for infrastructure projects, available funds tend to be dolled out as part of "earmarks." Such funds tend to go to high visibility, high-cost new infrastructure (e.g. high-speed rail lines and "magnetically levitated" rail lines) rather than basic repair/ maintenance of existing infrastructure. The latter tends to be far more labor-intensive and therefore tends to be more beneficial in terms of propping up the nation's sick consumer sector. Also, such uses as trucking are heavily subsidized, causing high levels of inefficiency in decision-making, e.g. making rail transportation appear to be non-competitive relative to truck transportation and legislating excessive weight limitations on trucks.

Tax Progressiveness: A large portion of the cash reserves and similar assets in large corporations and in the wealthiest of households (where it has no beneficial use in terms of ending the Great Recession) is largely the effect of:

~(1) The decreasing tax progressiveness of the federal tax structure in recent decades and

~(2) The inherent nature of globalization in a bi-polar global economy, and the way globalization is managed in the US and

~(3) Numerous other counterproductive Federal policy changes in recent decades. (See Section [7].)

In the 1960s and 1970s the federal tax structure was more progressive, and the effects of globalization on the US economy were minimal. As a result, the US economy during that period of time was far healthier than it has been since then - except possibly during the Clinton era. The decreasing tax progressiveness also contributed to a widening of the US "income gap" to the point where it has become the world's largest. (In 2000, the richest 5% of the US population owned more wealth than the combined wealth of the remaining 95% of the US population (05U1).) Attempting to end to the Great Recession without increasing the progressiveness of the federal tax structure would be difficult.

Health Care System Inefficiencies: A major financial drain on the consumer sector of the economy is the huge and rapidly growing costs of healthcare. That cost is now about 17% of the US GDP ($14.26 trillion x 0.17= $2.42 trillion) and that percentage is growing rapidly. These costs are responsible for a significant fraction of the household bankruptcies plaguing the weak consumer sector of the US economy. Much of the drain is a consequence the huge inefficiencies in the healthcare system - inefficiencies that have been pointed out by all major analyses of the health care system in recent decades. References (04S1) and (06S1) analyzes the four major categories of health care system inefficiencies and their causes, and have proposed ways of eliminating these inefficiencies. Eliminating the bulk of these inefficiencies could reduce the costs of healthcare by roughly 50% (by about $1.2 trillion/ year) without degrading the quality of healthcare and at minimal cost. Eliminating just labor utilization inefficiencies could also eliminate the shortfall of 200,000 doctors and 800,000 nurses that have been projected for 2020.

Fact Facing: The least expensive way to end the Great Recession is to face facts that, over the long run, continuing to ignore things like the degradation of the nation’s infrastructure and the ever-increasing fundamental inefficiencies in the health care is certain to result in extremely severe consequences. When we face facts that also help to end the Great Recession we essentially get a double benefit from the same expenditure of financial resources. Below are some examples.

Ignoring the nation's long-term degradation of its basic infrastructure. Sooner or later the collapse of bridges and the bursting of dams and water lines will force the issue and, in the mean time, will cause endless grief, expense and loss of life.

Allowing the cost of health care to consume large and ever-increasing fractions of the US GDP. There are four major causes of this problem.

~(1) Much of this problem is the huge inefficiencies that occur whenever insurance policies are interposed between the buyer and seller of goods or services. The problem is that free market efficiencies then become impossible. Other industries create "free market proxies" to solve the problem, but the health care system is so complex that the free market proxy itself creates its own huge inefficiencies.

~(2) Another major cause of the exploding costs of health care is that the federal and state governments tend to try to solve the high cost of health care by dumping huge amounts of taxpayer cash into the system. This makes for even greater inefficiencies that eat up much of the added cash.

~(3) A third major cause of the exploding costs of health care is the fact that the system's information-flow-analysis-storage system is badly managed. Computerization is the obvious way to go, and all major studies of the US health care system over the past few decades have pointed this out. However there are 300 small healthcare software companies and 20 major ones. The result is software incompatibilities wherever information tries to move between two different software systems. This makes computerized information flow between, say, a doctor's office and a hospital essentially impossible. Solving this problem would save on the order of $500 - $700 billion per year. One solution to this problem is proposed in Ref. (06S1).

~(4) Three other major inefficiencies in the US health care system are analyzed in Ref. (04S1). Together they probably cost the taxpayer and the healthcare consumer on the order of another of $500 to $700 billion per year. The cost of fixing all four of these major inefficiencies would be minimal, and they would be almost entirely one-time costs. These would total a small fraction of the cost of Medicare to the taxpayer in the year in which they are incurred.

Ending the Great Recession - A Summary: As noted above, the sick consumer sector of the US economy is where the crux of the matter lies. Once that problem is solved, all the remaining problems characterizing the Great Recession would largely vanish. To restore the consumer sector (2/3 of the US economy) to a condition that might be expected in a recession-free economy would take an estimated $2.46 trillion/ year. Just facing facts related to the infrastructure backlog problem and the major healthcare system inefficiency problems would supply something on the order of $1.5 trillion/ year to the consumer sector, leaving roughly another $1.0 trillion/ year remaining. Increasing the progressiveness of the Federal tax structure and a period of enhanced unemployment insurance would probably provide the remaining $1.0 trillion/ year until the economy returned to normal. The total cost of all this would be on the order of $1.4 trillion/ year ($0.4 trillion for the infrastructure backlog and $1.0 trillion for the tax structure change and the unemployment insurance). The cost of eliminating the major inefficiencies in the healthcare system would be negligible and short-termed.

The resources for supplying the remaining $1.4 trillion would be the $1.9 trillion in the cash reserves of large corporations and about $3.3 trillion in income in the wealthiest households. These cash reserves and income have no useful, creative, or profitable use in terms of benefiting the owner or addressing the process of ending the Great Recession. As noted earlier, the corporations and households supplying these assets would probably receive benefits from ending the Great Recession at least as large as their contributions.  Note that this is being increasingly realized. Sixteen of France’s wealthiest individuals, about 50 of Germany’s richest people, among others, have been campaigning for a higher tax rate since 2009 (11U1). They see that austerity is already undermining economic growth on both sides of the Atlantic. Slashing funds for education, infrastructure and other vital needs will further undercut competitiveness and endanger industrialized nations’ economic performance for generations (11U1).

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If one reviews the arguments and analyses above it is hard to avoid the suspicion that the Republican Party is intent of perpetuating the Great Recession. It is possible that this strategy could be more beneficial to that party than ending the Great Recession fairly quickly - Something they could do fairly easily (See Section [10] above). Possibly they haven’t weighed the cost/ benefit ratio carefully. Another possibility is that they could use the next year or so of Great Recession as a means of "taking Barack Obama down" (an intent that they have stated frequently). Their intent to eliminate every remaining vestige of the "welfare state" (social security, Medicare, Medicaid, FEMA, public education, food stamps, etc.) has become increasingly apparent in recent years. Here we examine the issue in more detail.

The US economy is becoming increasingly bipolar. The sector of the US economy represented by multinational corporations is being inundated by huge and growing, record-breaking, profits for which there is no clear beneficial use to which those funds could be put. The two most common results: buying back company stocks and paying huge bonuses to corporate officials. (See above.) Under normal circumstances profits would be invested in expansion of production facilities. But with the consumer sector of the economy being so sick, consumers are unable to purchase even the output of current production facilities let alone any increased production.

The consumer sector, on the other hand, is suffering from massive unemployment, declining wages and benefits, job losses, home foreclosures, and increasing costs of energy and food. Note that this bipolar situation is exactly what one would predict given the way that the US manages the globalization process to produce a massive trade deficit. (See Section [6].) (The EU and Japan have managed globalization to produce trade surpluses, even with wages higher than those in the US. {See Section [8]}) In the three decades prior to the bursting of the real estate in 2007 the consumer sector tried to maintain its standard of living by utilizing the seven non-sustainable strategies listed in the numbered list shown in Section [9] above.

Some Strategies used to perpetuate the Great Recession:
~ (1) Perpetuating cornucopian theories I through V listed above.
~ (2) Working to eliminate the five regulations of the financial system that resulted from prior recessions.
~ (3) Working to prevent the restoration of the five regulations of the financial system that resulted from prior recessions.
~ (4) Making a wide variety of revisions in the federal tax code that transferred the tax burden increasingly onto the weak and weakening consumer sector of the US economy (the victim of globalization) and away from suppliers of financial capital (the beneficiaries of globalization).
~ (5) Engaging in increasingly sophisticated, well-financed, and well-organized efforts by corporate and financial interests to tilt government policies further in their favor, and further impoverish the consumer sector e.g. safety net issues, changes in industrial relations policies, government action, and corporate governance policies that have allowed C.E.O.s to basically set their own pay.
~ (6) Continuing a long-standing effort to continually reduce real (inflation-adjusted) minimum wages – even in a recession environment.

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Stephen D. Mumford, The Pope and the New Apocalypse: The Holy War Against Family Planning, Center for Research on Population and Security (1986) 82 pp.
Joel E. Cohen, How Many People Can the Earth Support? W.W. Norton, New York (1995).
00E1 Environmental Policy project, Georgetown University Law Center, "Changing the rules by changing the players; The environmental issue in State Judicial Elections (Washington DC: Community Rights Counsel, 2000) available at http://www.envpol.org/sjelect/.
00J1 Leon James, Road Rage and Aggressive Driving, Prometheus Books (2000).
00K1 Doug Kendall, "Nothing for free: How Private Judicial Seminars are Undermining Environmental Protection and Breaking the Public's Trust (Washington, DC: Community Rights Counsel, 2000). http://www.tripsforjudges.org/.
01N1 Larry Nowels, "Population Assistance and IFP Programs: Issues for Congress", Congressional Research Service Issue Brief IB96026 (2/21/01) 10pp.
03U2 UN-Habitat (The UN's Human Settlement Program) "The Challenge of the Slums: Global Report on Human Settlements 2003," London (2003) (the first truly global audit on urban poverty).
04K3 Lynn A. Karoly, Constantijn W. A. Panis, "Forces Shaping the Future Workforce and Workplace in the US," RAND Labor and Population, 2004. (Prepared for the US Department of Labor) RAND Corporation 1700 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 (Available from www.RAND.org).

Bruce Sundquist, "Inefficiencies in the U.S. Health Care System - Identifying and Fixing Them" Edition 3 (August 2004) http://home.windstream.net/bsundquist1/hci.html
05U1 UN Development Program, "Human Development Report 2005," United Nations, New York (See William E. Rees "Are Humans Unsustainable by Nature?" Trudeau Lecture, University of British Columbia School of Community and Regional Planning (2007))

06G2 Steven Greenhouse and David Leonhardt, "Corporate profits rise as workers' pay stalls," Pittsburgh Post Gazette (8/28/06) p. A1.
06S1 Bruce Sundquist, "Large-Scale Computerization - The Cure for the Health Care Crisis" Edition 4 (May 2006) http://home.windstream.net/bsundquist1/hcc.html
(Unknown) "Where Did the Good Investments Go?" Editorial, New York Times (6/17/06).
06Y1 Deborah Yao, "S&P: Big Firms bought back a record $116 billion in shares," Pittsburgh Post Gazette via Associated Press (8/25/06) p. E2.

07H1 Thaddeus Herrick, "U.S. Infrastructure Found to Be in Disrepair," Wall Street Journal (5/9/07) p. B4.
07K1 Paul Krugman, "Profit-taking," Pittsburgh Post Gazette (5/5/07) p. B7.
07W1 Marcus Walker, "Just How Good Is Globalization?" Wall Street Journal (1/25/07) p. A10.

08H1 Michael Hodges, "Foreign Trade and International Debt Report," (February 2008).)
08S1 Bruce Sundquist, "The Informal Economy of the Developing World: The Context, The Prognosis, and a Broader Perspective," Edition 2 (December 2008) http://home.windstream.net/bsundquist1/ie.html
08S2 Bruce Sundquist, "Globalization: The Convergence Issue," Edition 16 (April 2008) http://home.windstream.net/bsundquist1/gci.html
08S3 Bruce Sundquist, "Human Co-Option of Net Primary Production - The Photosynthetic Limits to Global Carrying Capacity," Edition 2 (April 2008) http://home.windstream.net/bsundquist1/gcia.html
08S4 Bruce Sundquist, "Could Family Planning Cure Terrorism?" Edition 7 (March 2008) http://home.windstream.net/bsundquist1/ terror.html
08S7 Louise Story, "Home Equity Frenzy Was a Bank-Ad Come-True," New York Times (8/15/08).

09B3 E. S. Browning, Annelena Lobb, "Debt Burden to Weigh on Stocks," Wall Street Journal (8/10/09) p. C1.
09B5 Lisa Bannon, Bob Davis, "Spendthrift to Penny Pincher: A Vision of the New Consumer," Wall Street Journal (12/17/09) p. A1.
09G1 Mark Gongloff, "Jobless Recoveries: The New Normal, It Seems," Wall Street Journal (12/04/09) p.C1.
09S1 Bruce Sundquist, "The Controversy over U.S. Support for International Family Planning - An Analysis," Edition 9 (June 2009) http://home.windstream.net/bsundquist1/ifp.html 

10B1 Moriah Balingit, "Boomerang effect is a trend for U.S. Families," Pittsburgh Post Gazette (3/19/10). (Based on a Pew Research Center Study titled "The Return of the Multi-Generational Household.")
10B2 Alan S. Blinder, "Our Dickensian Economy," Wall Street Journal (12/17/10).
10D1 Liam Denning, "New American Cash Conundrum: Too Much" Wall Street Journal (1/21/10) p. C16.
10D2 Ianthe Jeanne Dugan, "Strapped cities Hit Nonprofits With Fees," Wall Street Journal (12/27/10) p. A6.
10H2 Christine Haughney, "Further Slide Seen in Commercial Real Estate," The New York Times (January 8, 2010).
10H3 Bob Herbert, "Fast Track to Inequality," The New York Times (November 1, 2010) based on a new book "Winner-Take-All Politics: How Washington Made the Rich Richer - and Turned its Back on the Middle Class" by Jacob Hacker and Paul Pierson.
10J1 Andrew Jacobs, "China's Army of Graduates Struggles for Jobs," The New York Times (12/11/10).
10L1 Luca Di Leo and Jeffrey Sparshott, "Corporate Profits Rise to Record Annual Rate," Wall Street Journal (11/24/10).
10L2 Justin Lahart, "Companies Cling to Cash," Wall Street Journal (12/10/10).
10M1 Harold Meyerson, "Exporting jobs," Pittsburgh Post Gazette (12/16/10) p.B-7.
10P1 Henry Petroski, "Declining Infrastructure, Declining Civilization" (8/29/10) See http://chronicle.com/article/Declining-Infrastructure/124137/
10R1 Robert Reich, "The Jobs Picture Still Looks Bleak," Wall Street Journal (4/12/10) p.A19.
10S1 Bruce Sundquist, "The Link Between Globalization and the Recession - Implications for the Future," Edition 4 (May 2010) http://home.windstream.net/bsundquist1/link.html

11A1 Phil Angelides, "Wall Street rewrites History," Pittsburgh Post Gazette (7/1/11).
Jesse Drucker, "How Offshore Tax Havens Save Companies Billions," Bloomberg News (3/17/11).
Robert Kuttner,"Business  Doesn't Need American Workers," Huffington Post (2/6/11).
11U1 (Author unknown) "The Enlightened Rich Want to Be Taxed," The New York Times (9/9/11).
11W1 Ivan Watson, Letter to the Editor, Wall Street Journal (2/23/11) p.A16.

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