Tuesday, the President made the case for investing in education, energy independence, research, and infrastructure to get our economy moving again.

Our future can really be bright – not least because of the amazing technological advances on the horizon.

But for us to succeed, we will need to learn to spread the wealth those technological advances will create (not by going overboard with confiscatory taxation, but by finding a balance that recognizes both the need for rewards and incentives and the need for shared prosperity and a vibrant, healthy, well educated middle class).

And for us to succeed, the next couple of decades need to be somewhat more about public consumption (renewing our infrastructure) and less about private consumption (getting a new TV for the guest bedroom).

We fund public consumption via taxes; private consumption via credit and debit cards. Private consumption is hard to resist, as it offers immediate ‘One-Click™” satisfaction.  Which reminds me: I want a little coffee maker for the guest room.  Hang on a second. . . . Okay, I’m back.  It will be there Friday, free shipping. (Seriously; it took just a few seconds; all done.  I have to do these things when I think of them or I’ll forget.) . . . Public consumption is all about delayed gratification.  It requires far more patience and vision on the part of the buyer.  (Think Aesop’s ants and grasshoppers, sort of, vaguely.)  Every week your paycheck is lower than you’d like.  But years from now the bridge you drive across to work doesn’t collapse and the power that runs your home arrives through a more efficient grid and your sewage doesn’t back up – and your paycheck is higher (or at least you still get one) because by modernizing our infrastructure and better educating our kids, we got the pie growing again.

Think of all the money Somalia has saved by not investing in infrastructure!  And there are no taxes!  And yet . . .

THE STATE OF THE WORLD

A report from Davos by Peter S. Goodman, Business Editor of the Huffington Post.  In part:

. . . [H]ere at the annual World Economic Forum in Davos . . . a common-sense view prevails among the economists, government officials and international business executives gathered here, albeit one that can only be described as dispiriting: When things are bad in many places, pain spreads without respect to national boundaries.  The world’s economy is indeed global. There is no getting off this ride.

Dennis Nally, chairman of auditory and tax advisory giant PricewaterhouseCoopers International, laid out the details of a global survey of chief executives on Tuesday evening, describing a broad view of trouble laying in wait on nearly every shore, from continued anxiety over the fate of the eurozone, to weak growth prospects in the United States and a cooling economy in China.  Only 15 percent of the roughly 1,200 chief executives surveyed in some 60 countries expect the global economy to improve this year.

“CEOs, bottom line see the year ahead as being very challenging,” Nally said. “Confidence levels are down.” (Though not, apparently, at PricewaterhouseCoopers, which poured Laurent-Perrier champagne to journalists gathered in a room garlanded with orchids at the Belvedere Hotel, the Romanesque fortress that stands guard over the town’s main promenade.)

“It really points to the issue of how interconnected the global economy really is,” Nally said.

But just as one form of decoupling has been laid to rest, another form is quietly emerging, one that ought to be capturing primary attention among policymakers: In many of the world’s major economies, growth and unemployment are no longer connected. The world’s most successful companies have proven adept at wringing profits out of lean growth prospects, and they have mastered the art of boosting revenues without adding workers.

Indeed, even as the CEOs in the PwC were fretting over the fate of the global economy, 40 percent were anticipating growth in their own revenues in the coming year, a testament to what is becoming the defining business skill of the age: How to make money even while billions of people don’t have any.

This is worrying in the extreme, and not only for people who depend upon paychecks.  If this disconnect continues unchecked, the globe will increasingly be divided into haves and have-nots, each inhabiting starkly different realms.

In the United States alone, millions of people unable to earn their way will essentially find themselves tossed out of the economy, and rendered dependent upon handouts and luck in place of decent jobs. People of means will increasingly take refuge in gated communities and exclusive clubs where they are able protect themselves from the resulting social upheaval.

How are businesses supposed to succeed in such a climate? For now, many are prospering by aiming their goods and services at consumers with spending power, while cutting costs. But unless every company plans to transform itself in Luis Vuitton and BMW — brands that capture premiums from the slice of the world that can shell out for luxury — firms will eventually run out of customers able to absorb their wares.  In the end, the ability to consume depends upon the ability to work.

For now, however, companies are busily putting off that reckoning . . .

. . . Many of the discussions at this year’s global gathering are about the supposed breakdown of capitalism, the rise of economic inequality, and the need for new models that can broaden the benefits of what prosperity can be delivered. . . .

Over lunch with a room full of journalists on Wednesday, George Soros described the enduring crisis in Europe in terms unlikely to provoke good cheer in Brussels, with members of the eurozone refusing to marshal the resources necessary to dispel worries about their shared currency.  The only policy so far capable of garnering consensus has been the perpetual embrace of growth-killing austerity.

“This outlook is truly dismal,” Soros said. “Without a clear game plan, Europe will remain mired in a larger vicious circle, in which economic decline and political deterioration continue to reinforce one another.”

All of this grief is unavoidably global in scope.  If Europe remains weak, so presumably will orders from Europe for Chinese goods.  If Chinese factories slow further, so will demand for steel, which spells less demand for iron ore harvested in Brazil, Australia and India, and less need for heavy equipment forged by Caterpillar at its factories in Illinois and around the globe.

And yet the best companies have already mastered this dynamic, stockpiling cash, holding back on hiring, squeezing greater production out of fewer hands.

It is an equation that is working well for successful corporations and their shareholders, and badly for everyone else.

☞  I remember going around to wealthy liberal donors trying to raise money for the 2000 election.  One of my lines was inspired by Bush’s promise of lowering taxes on the rich:  “I don’t want to live in a world of gated communities where people like us are protected by machine guns.”  Well, that’s how the rich live in some parts of the world, and that’s the direction President Bush wound up taking us and in which Mitt – who pays an effective federal tax rate of 14% on his $20 million a year – and Newt – who would  cut Mitt’s rate on long-term capital gains to zero – would take us further.  Let’s squeeze education for our children, squeeze our elderly, and – at all costs – keep from taxing investment income at the rates it was taxed under Ronald Reagan (second greatest man who ever lived), let alone Nixon or Eisenhower.

I am an optimist.  I think that with leadership from far-sighted rationalists like Barack Obama and other heads of state – most of whom wildly outclass the George W. Bushes and Sarah Palins and Donald Trumps of the world in their depth of knowledge, processing power, and seriousness of purpose – we just may chart a constructive course, even if it means the best off have to pay a lot more taxes (and, once the recovery takes hold, everyone else has to pay a bit more, too).

The happy irony is that – kicking and screaming though the Koch brothers and their team will be to avoid it – this is ultimately and enormously in their interest.  A thriving global economy with relatively happy, hope-filled citizens is a much better environment for all of us, including the Koch brothers, than a world in decline, despair, turmoil, fear, and suffering.

Vote Democrat, and let’s get to work.  (We can start with 154,000 bridges in need of repair and 35,000 schools we need to modernize.  Right there, you’d end the unemployment crisis in the construction field – with ripple effects buoying millions more whose goods and services those well-paid construction workers could once again afford to enjoy.  As President Obama said in September, we need to pass The American Jobs Act “right now.”)

 

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