GAMBLER TAX FOR THE BLOATED FINANCIAL SECTOR

THE BLOATED FINANCIAL SECTOR, ECONOMIC INEQUALITY AND THE GAMBLER TAX

The status of the financial sector in developing countries is viewed with great interest and enthusiasm in the hope of growing the economy and decreasing poverty. It is a truism that a vibrant financial sector tends to (or should) mobilize savings, facilitate payments, increase trade in goods and services and promote more efficient allocation of resources (See: ADB -Asian Development Bank--working paper series #173). It should thus be a major factor in generating a vibrant national economy. But how does it function in an advanced and well-developed economy like the US?

Now after the debacle of the 2007-2008 Great Recession, some economists question aspects of the finance sector's role in the present US economy.In a recent paper entitled:”Reassessing the impact of finance on growth”, January 2012, Stephen G. Cecchetti and Enisse Kharroubi, investigated into how expansion of the financial sector in countries contributed to economic growth. Their findings indicate that such expansion is a generally positive force,but only up to a point. After that point, a rapidly expanding financial sector becomes a drag on growth. The authors reason that an unmodulated finance sector tends to draw funds away from other industries which are dependent on funding and/or research and development investment. In addition, an engorged financial sector competes for young talent, and draws innovative people-power from other industries,increasing the economic drag effect.

Evidence for this effect is found in our own US economy today. The US financial sector has grown rapidly in the last decades to something more than 8% of GDP. Historically it hit a peak of near 6% in 1929, then this part of our economy fell precipitously to little more than 2%, in response to the Great Depression. A slow recovery occurred after WWII. In the stable and generally affluent three decades between 1950 and 1980, the financial sector stabilized at about four percent (4%) of GDP (See:Wikipedia:”Financialization”) But in the last two decades of the last century, from 1980 to 2000 and on to the present time the industry exploded, doubling in size to about 8% of GDP and has remained at that level to the present time.

Besides being a drag on the economy, a bloated financial sector tends to encourage other economic disruptions and problems such as income inequality. Joseph Stiglitz, the Nobel laureate economist and Columbia University Professor, in a June 26, 2012 Salon interview on his new book: "The Price of Income Inequality", pointed out this problem stating: "...capitalism does have a lot of strengths, including producing things that are very innovative. But what drives capitalism is the profit motive. You can profit not only by making good things, but also by exploiting people, by exploiting the environment, by doing things that are not so good..a lot of the inequalities in the United States are not the result of creative activity, but of exploitive activity. And if you look at the people at the top (this author, would add here: the one-percenters), what is so striking is that the people who’ve made the most important creative contributions are not there.....”

The expansion of the financial sector in the 1980s is directly tied to government policy and deregulation. These practices led to the growth of the financial sector and, as well another problem: income inequality. According to Stiglitz: ”The most important aspect for deregulation was in the financial sector. And that deregulation led to this over-bloated financial sector, predatory lending, abusive credit card practices and so forth. That did double function. It lead to more wealth at the top. It took away wealth and income from the bottom." Stiglitz goes on to say that the process of deregulation and expansion of the financial sector encouraged American economic inequality, and was "Not good for American economic growth.".... ”So some of the forces that gave rise to deregulation gave rise to these other activities that also gave rise to inequality”.

Thus besides being a drag on the economy our ebullient financial sector also causes undesirable and debilitating increases in economic inequality. One interesting and innovative way to help remedy these two problems, --bloated FS and economic inequality--and also solve our chronic need for deficit spending has been proposed by Dean Baker.

Baker,(a macroeconomist and co-founder of the Center For Economic Policy Research) writes in a Huffington Post piece entitled: ”A Wall Street Gambling Tax:The Remedy to Inequality" posted July 2, 2012, warns us that the insiders in Washington are plotting to make major cuts to entitlement spending immediately post-election to try and ease the nation's deficit problem on the backs of the poor. Since both parties take money from the bloated financial sector and the bloated military-industrial complex it would take real political courage to address problems in those areas, both richly deserving of a 'marine style' haircut. The Republicans will not help to ehance the revenue stream by increasing taxes on the wealthy--their client base. So it appears they have no alternative, according to Baker, to solve the deficit problem but by slashing the meager social safety net for the weak, the infirm, elderly, the powerless and least-connected by cutting medicare, medicaid, social security and other similar programs.

But Baker proposes an alternative strategy: "For the 99 percent there are much better ways of dealing with whatever deficit problems may arise down the road. Most obviously, insofar as we need more revenue we can look to tax the sort of financial speculation through which the Wall Street gang makes its fortunes. A very small tax on trades of stocks, options, credit default swaps and other derivative instruments could raise a vast amount of money."

Baker points out that rather than taxing the wealthy directly (as Obama has proposed) a tiny tax of only three tenths of one percent (0.03%) on each Wall Street trade could raise more than one-third of a trillion dollars in less than a decade. The amount raised would be ten times what the "one percenter tax" or Buffett Rule would have raised over the same time. A higher rate of one-half of one percent (0.05%) as is charged in the UK for its traders could raise in the US economy as much as $1.5 trillion over a decade. Baker calls that "real money".

Furthermore, such a tax would be borne almost exclusively by the Wall Street gamblers. It would help to modulate the growth of the financial sector and its drag on the economy as well as the problem of income inequality. It would also address the problem of a bloated financial sector which in its present state sucks people-power and investment funds away from wealth-generating, job-creating and innovative industries.

Now if Baker and others can find a similar way to trim the bloated military, perhaps this nation could return to an even keel again with a prospering middle class and increased hope for all of us.

Get the picture?

rjk

BALANCING THE SCALES: OBAMACARE VS THE INSURANCE GIANTS

PATIENT FREEDOM VS HEALTH INSURANCE COMPANY'S FREEDOM

Thursday, June 28, 2012, the Supreme Court agreed that the Affordable Care Act commonly known as "Obama Care" was constitutional. We should be pleased. The "one percenters" (OPs) who have little need for equitable and affordable health care will try to convince you that the health care system we had prior to passage was just fine. (OPs are the approximately three million American multimillion and billionaires). They tout loss of our "individual freedoms" and promise to repeal the law. They and their facilitators distort the truth. What they favor is the least freedom for the people and the most freedom for the companies--their clients. The new health law is about freedom to choose. It tends to create a better balance between the freedom the insurance companies have and those that rightly belong to our citizens.

The radical right, the "OPs" and their media facilitators rant: ”Our health care is the best in the world". That is true, for the wealthy. Our system is the best in the world, and certainly it is even better IF you are a member of the top one percent. But numerous studies have shown that it does not provide good care for all Americans.

The OPs and their hirelings in the media, government, and think-tanks like the Heritage Foundation, claim that the health-care studies are "biased" against America. They make that lame assertion in response to legitimate scientific studies by the UN and other organizations which reveal that our system costs more, provides less timely service, less beneficial care and worse overall results than other types of health care systems. (The Commonwealth Fund in 2009 ranked USA last among six industrialized western nations. WHO in 2000 ranked USA 37th among all world nations, below Dominica and Costa Rica). The truth is we spend more, much more on health care and by all creditable accounts have higher morbidity, higher mortality and lower longevity than other similarly wealthy nations.

In response to these criticisms, the OPs and their media and government honchos try to claim that we have more ”freedom" in our system and freedom costs something. They will try to emphasize those freedoms such as the freedom to smoke tobacco, eat more sugar and salt-laced foods, drive faster on less regulated highways, carry and shoot concealed weapons, and (in some states) to have the luxurious freedom to ride a motorcycle free of the bulky encumbrance of a helmet which may protect your vital brain in a collision. These so called ”freedoms”, they claim, skew the results of our national health data to make our health care results look more like that of Bulgaria and Estonia rather than Canada or Western Europe. So when these super-wealthy folks, their friends in the insurance industry, and their unwitting supporters in the media "diss” Obama Care you can ask them these questions about our freedoms and how they have been parceled out between the business community and the consumer.

Why would you continue to let the health-insurance companies have the freedom to take more than 30% of their fees and allot them to administration and compensation for CEOs and investors, and then relegate the remainder, as little as 65%, for actual healthcare expenditures? Thus, before the ACA, out of every dollar the insurance companies spent, only 65 cents was used to defray actual health service costs. That is one main reason that our health and longevity outcomes are not as good as other industrialized western nations yet we spend twice the amount they do on their health care. The new bill, the Affordable Care Act (ACA) forces the insurance companies to limit their administrative costs to only 15%, or to spend 85 cents out of every dollar on actual health care service. (PS: Medicare--the government paid system uses only 2% of its funds for administrative purpose.) Shouldn't all of our freedoms include the right to have as much longevity, infant health, and effective care as those countires in Western Europe?

What about the freedom for access to preventative medical care? Why would you prefer that our uninsured citizenry, continue to be denied access to professional medical preventative care and instead must use expensive emergency room service? Often this type of care is not paid for by the patient and we all wind up "footing the bill" through elevated hospital costs. The ACA mandates that everyone have health insurance. That means that more emergency hospital visits will be paid for, hospital costs can fall, and more people will be getting preventative care rather winding up in a hospital emergency ward with something serious and expensive to cure. The ACA will save money over the long haul. That solution gives more freedom to the recipients of health service.

Why would you not be in favor of having the freedom of keeping your child insured under your family health plan until they are 26 years old--if they need it? The ACA now permits you to do that. That is more equitable and increased freedom.

What about the freedom of choice? Why hand over more choices and freedoms to the giant insurance companies? Prior to ACA , the insurance giants were free to "cherry pick" among potential clients like you, your children or grandchildren for those with the least likelihood of having costly disease? Then they had the freedom to exclude the others and relegate them to a life of medical uncertainty. What freedom is that? These companies are highly profitable already and can well afford to treat all patients equally. In the past, if you had some form of pre-existing condition, you would be excluded from affordable health insurance. The health insurance companies were always looking at their bottom line to limit any high risks and maximize profits. Now they can not.

Why would you want to continue to permit insurance companies to have the freedom to to cap the amount of money they can expend on your care or treatment, to limit their expenses and maximize their profits. Isn't that what health insurance is for? It serves to protect you against some unknown and catastrophic event. Shouldn't we be free to make such choices?

Who wouldn't agree that these provision in the ACA provide for a better balance between the freedoms of the citizen and those of the giant corporations? Don't fall prey to the lies and distortions of the three million OPs and their media hirelings on freedom issues--Obama Care is OK ---it expands freedom for the patient and citizen.

Get the picture?

rjk