Rubicon

These are the times that tax men's souls

Under the feckless reign of George Bush, the US has fallen deeper and deeper into debt. We fight expensive wars, subsidize Exxon, and spend vastly more every year than we take in. We pay for our profligacy by borrowing money from the Chinese instead of taxing the rich. John McCain, George Bush, and all their well-connected friends pay less than their fair share, despite the enhanced opportunities they enjoy. The United States government cannot continue down that path.

The government of California cannot, either. Five years ago, Arnold Schwarzenegger juked his way into office, pretending to be a realist while slashing $4 billion a year in vehicle registration taxes, taxes that are required to provide the services Californians need. He has continued to play games with the state's finances every year since, selling bonds to pay operating expenses and avoid any tax increases. After his latest ploy, mortgaging the state lottery, was rejected by the legislature, he did finally propose a tax increase, but it's a one-percent rise in the sales tax that would fall disproportionately on poor and middle-class citizens.

Brad DeLong points out that we cannot continue forever to live beyond our means, expecting the services of government while dunning our grandchildren for the costs. After eight years of Republican no-tax fundamentalism, we have few choices now, and they do not include the option of reducing taxes even further on those who receive the most from society. As DeLong writes, we must "raise taxes to cover … the long-run fiscal gap …, and so bring the federal budget back into balance over the long run." All realists agree, even the most conservative:

As the late Milton Friedman liked to put it: to spend is to tax. If the government buys things, it must get the money to buy them from somewhere. It can get the money from three places. It can tax. It can borrow--but then the borrowing has to be repaid with interest, and the more is borrowed the higher the interest and the worse the value the taxpayers ultimately get for their money when they are taxed to repay the borrowing. Or it can print the money and so inflate the currency--but that too is a tax, and an especially unfair, painful, and destructive one, as lots and lots of people victimized by inflation find their wealth doesn't buy what it used to and what they expected.

[Raising taxes] is not optional--not, that is, if we want to continue to have a rich country in the long run. And the politicians who have told you that [it] is optional from Ronald Reagan to George H.W. Bush to Robert Dole to George W. Bush and now John McCain are not your friends, or America's friends.

DeLong has much more to say. Read it all here.

The American dream is a nightmare

The Economic Mobility Project has published a disturbing report on Americans' ability to rise above their station, as we used to say: to make more money than their parents did, to achieve the American dream. It's a disturbing report, but not surprising. The US economy now exhibits both less relative mobility and less absolute mobility.

Relatively, the US offers less opportunity than most other developed countries:

Using the relationship between parents’ and children’s incomes as an indicator of relative mobility, data show that a number of countries, including Denmark, Norway, Finland, Canada, Sweden, Germany, and France have more relative mobility than does the United States.… Compared to the same peer group, Germany is 1.5 times more mobile than the United States, Canada nearly 2.5 times more mobile, and Denmark 3 times more mobile. Only the United Kingdom has relative mobility levels on par with those of the United States.

When measured in absolute terms, the picture is no brighter. American men in their thirties are now earning less than their fathers did:

Those in their thirties in 2004 had a median income of about $35,000 a year. Men in their fathers’ cohort, those who are now in their sixties, had a median income of about $40,000 when they were the same age in 1974.… Indeed, there has been no progress at all for the youngest generation. As a group, they have on average 12 percent less income than their fathers’ generation at the same age. This suggests the up-escalator that has historically ensured that each generation would do better than the last may not be working very well.

Even when considering total family income, which includes the effect of many more women moving into the workforce, the improvement from one generation to the next is severely stunted:

Going back to 1820, per capita gross domestic product in the United States has grown an average of 52 percent for each generation. But since 1973, overall median family income has grown only 0.6 percent per year, a rate that produces a 17 percent increase in the average family’s income for each generation. Thus, unless the rate of economic growth increases, the next generation will experience an improvement in its standard of living that is only one-third as large as the historical average for earlier generations.

The US has become a rigid, stratified society, with government policies that block egalitarian changes. For many Americans, the dream has become a nightmare.

Pennies from heaven—a personal view

In much of the US, it's now cheaper to install a solar-electric system than to buy your electricity from the grid. If your house is in the right place—it gets enough sunshine and it's in a state that provides a solar rebate—a photovoltaic system is simply a good personal investment. You're not just reducing your carbon footprint, you're actually saving money—and the resale value of your house is likely to rise by almost exactly the amount you invest, while you get free electricity, year after year.

That was not always the case. In 2001, when I last investigated the feasibility of going solar in Berkeley, it would have cost about $40,000 to install enough PV panels to reduce my PG&E electric bill to zero. So when Dick Cheney said, "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy," he was not altogether wrong. It was an expensive choice, however virtuous.

But Cheney is wrong now, at least when it comes to solar power. In California (as in many other states—here's a list), you can reduce your carbon footprint and bask in that sense of virtue, and as of 2007 you'll come out ahead financially too. Well, perhaps not ahead of Cheney, with his oil-gotten gains, but well ahead of where you would have been.

So I'm putting in solar power. Sun Light & Power, a local Berkeley company with 30 years' experience in alternative energy, is designing and building a PV system with 3.2 peak kilowatts. The total cost is $26,000; the California Public Utility Commission will pay a rebate of $6,000, and I can claim a federal tax credit of $2,000, so the net cost will be $18,000. It's exciting!

But it is a lot of money, so the next obvious question is how long it will take to recoup that cost. Sun Light estimates that with the energy I save it will take me about 13.5 years, with a return on investment of 9% over the 30-year life of the system—assuming (improbably) that the cost of electricity will rise no faster than the overall inflation rate.

But that's the wrong question, because the $18K cost is in fact translatable directly into home equity. It's an investment, not a sunk cost. As Andrew Black reported to the American Solar Energy Society:

These monetary benefits are financially quantifiable. A solar electric system increases home value by $20,000 for each $1,000 in annual reduced operating costs, according to The Appraisal Institute. A solar electric system compares very favorably with other home improvements in percentage of cost recovered. Often, a solar system can recover much more than 100% of its cost, and this percentage actually increases over time as electric rates rise.

In my case, that is, I invest $18K into the house with a new solar-electric system, and the house is now worth $18K more in resale value. Since my electric bill goes from $900 per year to zero, my immediate return on investment is 5%. When electric rates double, the ROI will be at least 10%—and possibly much higher, if the resale value of the PV system increases. (In fact, I am also adding a solar hot-water system, at a net cost of $6K, with a similar projected ROI.)

So here's the point: Go solar now. There's no reason to wait for the cost to come down further. Even if you aren't particularly motivated to save the Earth, you can save some real money. Of course, the Earth would be grateful too.

[Cross-posted at Scholars & Rogues]

First in war, last in peace . . .

And last in the hearts of everyone else. What a long way we've come since George Washington. Instead of exporting democratic ideals and consumer goods, the US has now become chief arms dealer to the world.

Frida Berrigan of the World Policy Institute has details at TomDispatch. She points out that, among all nations on this planet, we greedy, militaristic Americans are:

• first in oil consumption
• first in carbon dioxide emissions
• first in external debt
• first in military expenditures
• first in weapons sales
• not first in automobiles
• not even first in bulk goods

But then she comes back to our real economic strength—weapons sales—and breaks it down. We are:

• first in sales of surface-to-air missiles
• first in sales of military ships
• first in military training
• first in private military personnel

That's what keeps the economy humming, all those profits in wars, our own and other countries'. When the US is not starting a war or exacerbating an existing war, we're making it easy for others to start their own. Berrigan suggests that we should not be thinking of war profits in economic terms at all:

[M]aybe we have to stop thinking about the export of fighter planes and precision-guided missiles as if they were so many widgets and start thinking about them in another language entirely — the language of drugs.

After all, what does a drug dealer do? He creates a need and then fills it. He encourages an appetite or (even more lucratively) an addiction and then feeds it.

Arms dealers do the same thing. They suggest to foreign officials that their military just might need a slight upgrade. After all, they'll point out, haven't you noticed that your neighbor just upgraded in jets, submarines, and tanks? And didn't you guys fight a war a few years back? Doesn't that make you feel insecure? And why feel insecure for another moment when, for just a few billion bucks, we'll get you suited up with the latest model military… even better than what we sold them — or you the last time around.

Why does Turkey, which already has 215 fighter planes, need 100 extras in an even higher-tech version? It doesn't… but Lockheed Martin, working the Pentagon, made them think they did.

We don't need stronger arms control laws, we need a global sobriety coach — and some kind of 12-step program for the dealer-nation as well.

We're number one! Read it and weep.

The Rich Get Richer

The American dream is becoming a nightmare for the majority of workers, as income and wealth are increasingly concentrated within a small sliver of the richest among us. Not since the 1920s has inequality been so great.

Inequality is a bad thing, first, because it is unfair—and when people begin to think that success is more a matter of good luck than hard work, the whole society is less hopeful and less productive. The US economy is now increasingly skewed to favor those who already have advantages, and since the time of Ronald Reagan the government has ceased to act as a fair umpire.

Inequality is also a bad thing because it cripples democracy. The powerful can buy the rules they want, while the rest of us find that government is often more responsive to money than votes. This leads to disillusionment, and thus either to withdrawal from civic life or to disruptive change.

These thoughts were occasioned by several shocking graphs I've seen recently from the Economic Policy Institute. This first graph shows that all US income gains in 2005 (the latest year available) went to the top 10 percent of households, with a large percentage of those gains going to the top 0.5 percent (the bar at the right). Amazingly, the bar at the left indicates that the bottom 90 percent of us actually lost ground, with an income drop (in real terms) of 0.6 percent. (Click on the graphs for larger versions.) And this is in a time of economic recovery—or so Mr Bush would have you believe.

But this recovery is not like other recoveries, as another graph from the EPI shows (via Kevin Drum). There have been six recoveries in the US since World War II that lasted at least five years, including the current recovery. When compared with the other five, the Bush recovery is more anemic in growth of GDP, employment, equipment and software investment, and residential investment. The only area of robust growth is in corporate profits, up 12.1 percent versus the previous average of 4.9 percent. The resulting capital income flows increasingly and disproportionately to the top one percent, up from 38 percent in 1979 to 59 percent in 2004.

The trend toward inequality is not new, but it has received an enormous boost in the last ten years, as Janet Yellen of the San Francisco Federal Reserve Bank pointed out in a UC Irvine lecture last November. She used this EPI graph for 1973–2005 to  show the large increases for the 95th and 90th percentiles (more than a 30 percent increase), while the 10th, 20th, and even the 50th percentile rose by less than 10 percent over the same 32-year period. Yellen lists several of the known causes for this widening inequality: education, skill-based technology, and globalization.

All of these factors are susceptible to government interventions that would tend to increase equality. But first we need to send some politicians to Washington who think equality is a good idea. 

The Economics of Extinction

The Stern Review on the economics of climate change was published by the British government in October 2006. Sir Nicholas Stern, former chief economist of the World Bank, led an investigation that concluded the cost of delaying a meaningful response to global warming would be enormous. Even if carbon usage is reduced massively in the next few years—stabilizing global emissions in 20 years and reducing emissions by 1 to 3 percent annually after that—the cost to worldwide GDP would be 1 percent, an estimated loss of $1 trillion in what is expected in two decades to be a $100 trillion world economy. But if such changes are not made, a worldwide recession is likely, with a potential cost of $20 trillion.

A few days ago, a postscript was issued to counter criticisms of the original review. The criticisms were summarized under three major headings:

1. Some still deny the science of climate change.
2. Some people accept the basic science, but still believe it is preferable to wait and see before taking significant action on mitigation. Some suggest a new technology will come along that will greatly reduce the costs of action, or that the changes will be such that future generations, with a higher capital stock available to them, will be able to adapt.
3. Some people prefer to place very low value on the future, or to put it another way, to place a very high value on near-term opportunities for consumption. It is a key feature of the challenge of climate change that we must think long-term to understand the issues and to respond to them. It will always be possible to choose a pure time discount rate that makes the benefit of reducing future damages appear trivial.

The first criticism may be dismissed as willfully obtuse: "[I]t is no longer credible to doubt the underlying physical mechanisms associated with increases in greenhouse gases in the atmosphere."

To the second, the reviewers emphasize the dangers of delay: "We should recognise the balance of risks. If the science is wrong and we invest 1% of GDP in reducing emissions for a few decades, then the main outcome is that we will have more technologies with real value for energy security, other types of risk and other types of pollution. However, if we do not invest the 1% and the science is right, then it is likely to be impossible to undo the severe damages that will follow."

The third criticism is the most interesting. It would seem that choosing a plausible discount rate is nothing more than a technical exercise for professional economists, in order to determine whether the cost of investment in the present (admittedly high) would outweigh potential future benefits. But the reviewers, arguing for a low discount rate, point out that one potential risk is extreme: the extinction of the human species. Therefore, a decision that seems purely economic is in fact profoundly moral:

[W]e apply only a low discounting to the future simply because it is the future (we account for the possibility of extinction). Choosing a high rate of pure time preference to analyse a long-term issue that affects the global environment is to make a profound ethical choice with, in this case, irreversible effects on future generations. It is as though a grandparent is saying to their grandchild, because you will live your life 50 years after mine, I place far less value on your well-being than I do on myself and my current neighbours, and therefore I am ready to take decisions with severe and irreversible implications for you. Nevertheless ethical choices appear different to different people and that is why in the technical appendix to this postscript we investigate different possible ethical positions concerning inequality and pure time discounting. The conclusion that strong mitigation is warranted is robust except where high pure time discounting is embraced.

In short, are you willing to run the risk of making your grandchildren poorer than you are? Are you willing to run the risk of creating an uninhabitable environment for your grandchildren, perhaps even sentencing them to an untimely death?

If we refuse to take strong action to mitigate climate change, we are running precisely those risks, effectively stealing from future generations for our own present comfort and convenience. The technical appendix to the postscript phrases the issue in this way:

If you take little account of the interests of future generations you will care little about climate change. But ethical positions cannot be dictated by policy analysts.

In any short-term context, such callous selfishness would be unthinkable: we would never intentionally deprive our grandchildren of food or knowingly place them in mortal danger. Global warming, however, is likely to have the same terrible results over the course of many decades. We cannot in good conscience allow that to happen.

Global Warming: Accelerating Disaster

Carbon dioxide is the culprit, we know, but it's worse than we thought. Much more carbon dioxide has been entering the atmosphere in the last few years, and the rate of increase is accelerating. The Global Carbon Project (GCP), an international group of atmospheric scientists, reports that human emissions of CO₂, which had been rising at about 1 percent per year in the 1990s, are now rising at an annual rate of 2.5 percent. Richard Black of BBC News writes:

The Global Carbon Project draws its data from a wide range of sources, including measurements of carbon dioxide levels in the atmosphere and studies on fossil fuel use.

From that data, researchers have extracted two trends which they believe explain the sharp upturn found around the year 2000.

"There has been a change in the trend regarding fossil fuel intensity, which is basically the amount of carbon you need to burn for a given unit of wealth," explained Corinne Le Quere, a Global Carbon Project member who holds posts at the University of East Anglia and the British Antarctic Survey.

"From about 1970 the intensity decreased - we became more efficient at using energy - but we've been getting slightly worse since the year 2000," she told the BBC News website.

"The other trend is that as oil becomes more expensive, we're seeing a switch from oil burning to charcoal which is more polluting in terms of carbon."

The Project does not have data on precisely where this is happening, but there is anecdotal evidence of increases in charcoal burning in parts of Asia and Africa.…

"We need to think about radical alternatives to the belt-tightening approach," said Professor [Myles] Allen [of Oxford].

"At the moment the assumption is we will solve the problem by controlling demand; but regulating at the point of use is clearly not working."

At the recent United Nations climate summit in Nairobi, a number of delegations, including those of Britain, Australia and the US, pointed out that they had managed to grow their economies without significant increases in carbon emissions.

But, said Corinne Le Quere, the latest data shows this approach will not be enough to curb emissions in the future.

"Improvements that have been made in the last 30 years appear to be stalling," she said.

"We are going to need a real decrease in emissions."

You can find more information at the GCP website. The complete 2006 report is here (PDF).

This disturbing news comes on the heels of the Stern Report, a British government report that lists many dangers of global warming, including the following:

• There is a 50% chance that average global temperatures could rise by five degrees Celsius.
• Crop yields will decline, particularly in Africa.
• Rising sea levels could leave 200 million people permanently displaced.
• Up to 40% of species could face extinction.

These facts are well known, but the Stern Report is unusual in its additional emphasis on the economic effects of global warming. The author, Sir Nicolas Stern, is former chief economist of the World Bank. He writes that if massive changes are made in carbon usage in the next few years—stabilizing worldwide emissions in the next 20 years and reducing emissions by 1 to 3 percent annually after that—the cost to GDP would be only 1 percent. If such changes are not made, a worldwide recession is likely, reducing global consumption by as much as 20 percent. Pay me now, or pay me later.

Such changes, essential as they are, will occur only with massive government intervention, according to Stern. In fact, capitalism is at fault for creating the problem. Climate change, he writes, "is the greatest and widest-ranging market failure ever seen." The new GCP report demonstrates how that failure occurs: as oil becomes more expensive, dirtier substitutes like coal and charcoal are used. They are cheaper—and therefore appear to be the sensible short-term choice economically—but their use hastens the ecological disaster of higher temperatures that will inevitably bring on the economic disaster of global recession. Governments around the world must act, and act soon. The alternative would be very costly.

Tax Cuts for the Rich

Over at the Economic Policy Institute website, the indomitable Max Sawicky puts the lie to the right-wing claim that Bush's tax cuts are progressive: he points out that they leave the rich with a much greater percentage increase of after-tax income. And what better measure could there be? A few words:

Economists disagree about many things, but there is a long-standing consensus that a "progressive" tax is one in which the average rate—i.e., tax liability divided by income—rises as income increases. The tax code may be dubbed "more progressive" under a spurious White House definition of progressivity, but not according to any valid, commonly accepted one.

Taxes are a "burden" because, obviously enough, they reduce the income available for personal use.  (Taxes also finance public programs that provide benefits to households that are not necessarily counted as income, but that side of the government's accounting ledger is not considered here.)  Advocates justify a progressive tax burden, defined in terms of a rising average effective rate of tax (ERT) because it reduces the inequality of after-tax income, compared to a flat, proportional tax or one with a falling ERT.  Most sales or consumption taxes have a falling ERT because saving tends to rise with income.

And a picture:

In short, says Sawicky, "what matters most is not the change in what you pay in taxes, but the change in what you have left afterward. In reality, the distribution of the after-tax gains was stacked heavily in favor of the highest-income taxpayers." It's necessary to consider the entire tax system, not merely federal income taxes levied on individuals, to determine real gains. And both state sales taxes and federal Social Security taxes are regressive. So the result is hardly surprising, and just what Bush wanted—for his base, the "have-mores."

Back at his blog, Sawicky quashes the notion that hiring Henry Paulson as Treasury secretary will change anything for the better. True, Paulson seems competent—a rare attribute in this administration—but his proven competence extends only to "helping Goldman Sachs make money," not to "guid[ing] the nation's economic policy." Specifically, his ideas about cutting taxes on dividends are mistaken and dangerous:

We get the usual canards, that dividends are widely spread across the population, although they are actually highly concentrated. That a dividend tax burdens the elderly, though in fact most elderly get little income from dividends. That it is a 'double tax,' though much dividend income is not taxed at all. That half the revenue loss from the tax cut is recovered (a higher rate than that suggested by Martin Feldstein). All this is standard wingnuttery. It speaks to Paulson's qualifications as an ideologue, not a wise source of policy advice.

Sawicky lists a few more examples of Paulson's "upside-down piffle" and points out that many Democrats have gone over to the economic dark side, too. Now that wealth distribution in this country has reverted to the unhealthy inequality of the 1920s, perhaps we need another Great Depression to remind Americans that an active government with egalitarian goals is desirable. Let's hope it won't be that bad, though Bush's policies have certainly paved the way. Sawicky again: "[I]f you hate government, you are the wrong people to govern. If you can't stand Elvis, don't try and sing Blue Suede Shoes."

Oily Politics

Michael O'Hare, professor of public policy at UC Berkeley, "considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs)." Today, at The Reality-Based Community, that excellent group blog chaired by Mark Kleiman, O'Hare writes as the resident expert on oil, energy, political pandering, and stupidity—a congeries of topics that has spawned the absurd Republican proposal to give everybody a hundred dollars, just to assuage the pain of high gasoline prices.

Sure enough, on this particular subject, there seem to be few other experts, and none of them are in Congress or the White House. O'Hare does not suffer fools gladly, and the large number of fools clustered around the subject of expensive gasoline ratchets his rhetorical temperature up to a white-hot brilliance:

In my line of work, I spend a fair amount of time thinking about policies that could be a lot better if they were redirected or revised somewhat, even a lot. But the gas price story is unusual in the near unanimity with which public figures and commentators are competing to find a way to make things worse instead of better. I recall few debates in which so nearly everyone isn't just mistaken, but has the sign wrong, looking for ways to move in precisely the wrong direction.

Aside from the occasional glimmer,… the ideas in play are the most disheartening collection of wrongheaded and ill-informed goofiness I can recall...well, maybe abstinence-only sex education is up there.

I don't know where to start with this stuff. Hydrogen is not a fuel, and neither is electricity. There's no mine for either of them; if people start plugging in cars into the wall, power plants of all kinds will just rev up faster and longer, and the marginal electricity is made from natural gas, a fossil fuel that's only somewhat less greenhousy than oil, though a lot less than coal. These cars have to haul an enormous stack of heavy batteries around, and half the energy that goes into the power plant is lost in the transmission and generation system anyway. "Clean coal" doesn't mean "coal that doesn't cause global warming," it means less pollution of every other kind: coal, clean or not, is the worst greenhouse fuel until we figure out how to capture all the stack gas and put it somewhere (this is called carbon sequestration, and it's a very long-term, daunting, technological road at this point).…

One doesn't even have to wonder about the whole concept of all the schemes to make oil less expensive; did the demand curve for petroleum suddenly tilt the other way while we weren't looking? One more time, what's the logic of subsidizing domestic production and exploration: is there some prize for being the first country to use up its petroleum?…

Petroleum is not like solar energy. Fossil fuels are a stock, not a flow, of sunlight that was stored up over millions of years when no-one needed to drive kids to the soccer game. We've had a nice century drawing down that bank account, and it's over.… Of course the beach will [be] much easier to drive to as it moves inland.

What will make a difference is to use a lot less, and using less oil means real behavioral change on a broad, retail level. It absolutely doesn't mean making gasoline cheaper! We're talking about things like living in smaller houses, close enough together to get people out on their feet and bicycles, and into trains and trams.…

We're not talking about those things, though; we're talking (praying, actually) about making it not so, please. Our politics have a long, toxic tradition of candidates' and voters' mutual infantilization. The politicians treat an election, or an office, as the worst thing one can lose, and promise to fix everything with a trick that won't require any actual work by us; we vote for people who tell us fairy tales that would excuse us from any heavy lifting if they were true, and excuse us from confronting downers and grownup responsibilities if we pretend to believe. This game is being played at a really frenzied level around gas prices, and the mix of ignorance and plain mendacity both parties are wallowing in is--this is really amazing--neck and neck with the immigration performance in the theater next door.

Raise the gas tax. Quadruple it. That's something Congress could do, something that would actually improve the situation. Phase it in, of course, as Jimmy Carter proposed back in days of yore, by raising it 25 cents periodically (perhaps every 6 months or so), until the true societal cost of gasoline is finally reflected in its pump price, just as it is in every other developed country. And provide targeted financial help for the poor until housing patterns and transit availability catch up with the new reality of expensive gasoline.

But a one-hundred-dollar bribe? To everyone? I think I'll go out and buy a couple of tanksful, tanks a lot, thereby increasing demand for a product with increasingly constricted supply. Look, oil is over $70 a barrel now and will soon be $150 a barrel. Higher taxes would reduce demand and slow the inevitable continuing rise in price. As long as we have to pay dearly for gasoline, let's give the extra money to the government to alleviate the situation (after Bush departs, anyway), rather than to the oil companies to line their pockets and empty ours.

By the way, in case it slipped by you, O'Hare actually is an expert, as well as a logical thinker and impassioned writer, so read the rest. There are other experts, too. Check out Michael Klare's excellent book Blood and Oil and his recent article on TomDispatch, "The Permanent Energy Crisis." And then there's Paul Roberts. He wrote The End of Oil in 2004, warning about the catastrophe of $30-a-barrel oil, and updated it in 2005, noting new peaks above $55; now that we are becoming accustomed to even more stratospheric prices ($74 today), his analysis is more crucial than ever. And his warnings. Please, class, a little logical thinking here!

Mayday! Mayday!

As an military brat in 1952, I lived on a US Army base in occupied Japan, and when May Day rolled around, we were ordered to remain on base—not to venture out into Tokyo—because the Communists, we were told, were planning demonstrations, and Americans might get hurt. Extra soldiers were stationed at the gates of Washington Heights, and no one was allowed in or out. As it turned out, the labor-union demonstrations were entirely peaceful, though many unpleasant words were uttered about the occupying Americans and about the right-wing Japanese politicians they supported.

On May 2, everything returned to normal: our family's Japanese maid and cook came back to work, everyone was pleasant and proper, the right-wing politicians continued to pass anti-labor laws and consolidate their power, and the American occupation carried on with the corporatization of Japan. It was then I learned that May Day is International Workers' Day, and I was surprised to find out that some workers were so angry at being treated unfairly that they marched up and down the street, carrying signs and shouting slogans. At age 12, of course, I did not lose my faith in our sacred American mission, our duty to bring democracy and capitalism to the underprivileged nations who yearned to breathe free. I did not really understand why those Japanese workers were marching.

The struggle continues today, and the story of workers and unions and labor-oriented political parties continues to be entangled with the story of American empire-building  and free-market zealousness. One aspect of that entanglement is that very few Americans identify themselves as workers, and they do not realize what they could gain by making common cause with other workers (in particular, with immigrants). They think of themselves more often as incipient plutocrats, just one job or one stroke of luck away from being rich capitalists themselves, so they don't want to join in workers' protests or press the government to ensure economic fairness. Even the struggling minimum-wage workers who by rights ought to be joining protests and demanding a government of the people—and showing solidarity with immigrants—tend to support the harshly individualistic American system, every man for himself and no safety net.

It seems fitting, therefore, that it was on May 1 three years ago George Bush proclaimed "mission accomplished" in his bomber-boy costume. He thought that the military fireworks and epaulets would provide the plebs with diverting circuses (if not always enough bread), while emphasizing the doctrine that any problems the poor plebs might be experiencing are temporary, blamable on someone else, and susceptible to dramatically instantaneous solutions—like a lottery jackpot or a war.

In fact, a properly functioning government—like a properly functioning economy—is not a simple matter of invading an oil-rich country, or wearing a jaunty costume while making an inspiring speech. It requires more thought, more careful planning, than that. It also seems fitting, therefore, that on this May Day, following the death of John Kenneth Galbraith at age 97, people were looking again at what he wrote about such matters.  As Stephanie Flanders writes in the Financial Times (London), Galbraith's ideas are more relevant than ever (via Brad DeLong):

[M]any of the dangers of untrammelled markets he had described in the 1950s and 1960s, not least the coexistence of "private opulence and public squalor", seem rather more obvious in George W. Bush's America than they had been in Eisenhower's or Kennedy's. The return of an income distribution that looks increasingly similar to that of a century ago must make his work increasingly relevant.

Galbraith’s persistent criticisms of Ronald Reagan’s (and Margaret Thatcher’s) policies culminated in the publication, in 1992, of a surprisingly influential book, The Culture of Contentment. It described how the emergence of a contented, voting majority in the US and elsewhere was hastening the emergence of a new and dangerously marginalised underclass; offering, in the words of one reviewer, “both a compelling logic and a tempting vindication of those disillusioned by electoral defeat”.

In fact, it is precisely these ideas of a restored social compact that might provide the foundation for electoral victory against Bushian crony capitalism and imperialism—for the whole society, not for the "marginalized underclass" alone. Galbraith's final book, The Economics of Innocent Fraud, emphasizes the need for  a "coalition of the concerned":

The affluent would still be affluent, the comfortable still comfortable, but the poor would be part of the political system.

And that would be a very good thing. It's fitting, too, that the million people marching for immigrants' rights around the country made their statement on May Day, International Workers' Day. In fact, we are all workers or would-be workers. We are all citizens or would-be citizens. Those of us who are comfortable cannot expect the society to become inclusive and democratic again if we remain locked in our safe military bases and gated communities. The coalition of the concerned must join together with the ranks of the dispossessed, as many did this May Day. It was a good start.