Frequently Asked Questions
Q: What is your background?
A: I taught political science for five years and received my doctorate from Tulane in 1992. After 20 years in the private sector, my reaction to the Occupy Wall Street movement was to write a series of books and establish the non-profit SWIFT Act Alliance. The U.S. economy is in crisis, and unprecedented numbers of voters are rejecting the status quo. I wrote these books in hope of providing a common sense guide to understanding how economies work and why ours no longer functions the way it should.
Q: Why did you write these books?
A: Fundamentally, I wanted to explain what’s wrong with the economy and how I think we can fix it. The conversation I think we need to have isn’t covered in the discussions I see on TV.
By and large, the media follows what I describe as the bipartisan consensus that supports unrestricted trade with deals like the North America Free Trade Agreement (NAFTA), Permanent Normal Trade Relations (PNTR) with China, and the Trans Pacific Partnership (TPP). Those trade deals have brought offshoring, which means shutting down American factories, re-building those factories in low wage countries, and selling the products back into the American market.
What’s critical to understand is that offshoring is not trade. The media and the political establishment have framed the issue as being about the benefits of “trade.” But “trade” describes making things in this country that we sell to other countries, and vice versa. “Trade” does not describe shutting down American factories and re-building those factories in low wage countries.
Offshoring has brought the loss of nearly 60,000 factories, just since 2001. Using the word “trade” to describe shutting down factories and offshoring manufacturing to low wage countries is ridiculous. It’s an intellectually dishonest use of the word that nobody should be allowed to get away with.
Thanks to offshoring, the economy that used to be based on high wage jobs in manufacturing has been transformed into a New Economy based on finance and low wage jobs in the service sector.
My goal is to explain how that happened and what we need to do to bring back American industry.
Q: In a nutshell, what do you mean by smart growth?
A: First, it means we have to acknowledge the kind of growth we’ve had over the last 30 years isn’t working. What we’ve had is growth based on excess profits in the financial sector, and growth of asset prices in stock and house prices.
I use a lot of graphs and tables. From 1947 to 1979, annual income growth for the bottom 80 percent of families was 2.4 percent. In that time period the economy was based on manufacturing.
From 1979 to 2007, BEFORE THE FINANCIAL CRISIS, annual income growth for the bottom 80 percent of families was 0.5 percent (one half of one percent). That means the rate of annual income growth, for the bottom 80 percent of families, DECLINED by 80 percent.
In the time period 1979 to 2007 the economy was gutted by offshoring. The New Economy, based on finance and services, DOESN’T WORK. What I want people to understand, is that the New Economy won’t work in a Republican administration, or in a Democrat administration, because IT CAN’T WORK. Banks are not factories. Manufacturing employs millions of people, whereas banks don’t. An economy based on finance doesn’t create enough jobs.
So smart growth means 1) rejecting the president’s state of the union claim that “Anyone who says America is in decline is peddling fiction,” and 2) recognizing the role of manufacturing in providing high levels of employment in high wage jobs.
Q: What can you offer as a take-away on wage standards?
A: The president and the leadership in both parties promote trade deals as a way to increase exports. The reality is that 85 percent of the U.S. trade deficit is with low wage countries where people don’t have anywhere near the income they need to buy American products. Businesses can’t sell anything to people who can’t afford to buy. We can’t increase exports without addressing foreign wages that are too low for people to be consumers of American products. That’s why we need wage standards on imports.
Q: If wages go up overseas, wouldn’t the price of imports go up?
A: Incomes are stagnant in this country, so businesses can’t raise prices without losing sales. Companies were given a wide range of incentives (tax incentives, lack of environmental and safety standards, and undervalued currencies) to offshore production, with low wage labor being only part of the calculation of profits. Wage standards on imports would raise the wages of foreign workers and increase demand for American products.
Q: What is your position on the minimum wage in this country?
A: There should be no argument that American workers need higher wages. I think the best way to raise wages is through full employment. If we had 15 million more jobs than we have now (created by new investment in manufacturing and reducing the trade deficit), wages would go up as a natural outcome of the job market.
Q: Why do you think we need industrial policy?
A: First, we already have industrial policy. The Federal Reserve spent $7.8 trillion bailing out the banks after 2008. Then the Fed bought $900 billion in toxic assets from Wall Street banks in 2013, and another $300+ billion in 2014. If that isn’t industrial policy, I don’t know what is. Second, the private sector isn’t making the investments we need for the economy to grow. Compared to the long term average before 1984, private sector investment is at least $300 billion a year less than what it needs to be for long term growth. That investment will have to come from somewhere. The private sector doesn’t see enough demand to justify it, so there really isn’t any alternative to the federal government making the large scale, long term investments required to bring back American industry.
Q: Explain your position on financial reform.
A: 1) Break up the banks. Conservative support for breaking up the banks has come from Republican governor John Huntsman, James Pethokoukis of the American Enterprise Institute, and former Reagan budget chief David Stockman. The SAFE Banking Act included size limitations that would go further than the separation between commercial and investment banking required by Glass-Steagall. SAFE was supported by Paul Volcker and ranking Republican Senate Banking Committee member Richard Shelby. Other supporters included former Bush appointed chair of the FDIC Sheila Blair, and Thomas Hoenig, FDIC board member and former president of the Kansas City Federal Reserve. There were also four other Federal Reserve presidents who supported the legislation. I can’t emphasize strongly enough that breaking up the banks is not a liberal/conservative issue, promoted by Democrats and opposed by Republicans. The reason the SAFE Banking Act didn’t pass was because of bipartisan opposition from Senators who have been bought and paid for by Wall Street. We need to break up the banks to prevent future bailouts. The banks that were too big to fail in 2008, are 30 percent bigger today than they were then. Prominent conservatives and SIX current and former Federal Reserve presidents agree we need to break up the banks. The public needs to be made aware of that clear evidence of bipartisan consensus.
2) Repeal exemptions that amount to federal deposit insurance for derivatives. It is really absurd to claim Dodd-Frank was a victory for financial reform, and then turn around and grant exemptions for derivatives.
3) Impose a financial transactions tax (FTT). Support for an FTT has come from none other than the editorial page of the Wall Street Journal. Here again, it isn’t a left/right issue. We need an FTT to establish parity between the returns made on financial investments and those made on investments in manufacturing. An FTT of one half of one percent would raise $2.2 trillion dollars we could use to fund strategic investments in manufacturing.
4) Prohibit CEO stock options. What kind of country pays corporate CEOs to offshore manufacturing? That’s how stock options work. The CEO says “Pay no attention to the $50 million I made in stock options, it just wasn’t profitable to make these products in America.” The idea we should believe that kind of cover story is ridiculous. If a company needs to pay the CEO $100K a month to do that job, then go ahead. But giving the top decision maker a financial interest in offshoring is economic treason. The practice should be outlawed, period.
5) Establish voluntary pensions. The loss of manufacturing has not only brought the loss of high paying jobs, but also the loss of guaranteed pensions that were once considered the norm for retirement. I think the Consumer Financial Protection Bureau should establish a voluntary pension plan for private sector employees.
I’m not talking about expanding Social Security. The idea is to have a voluntary plan that employees could participate in throughout their working lives, regardless of how many times they change jobs. Pension benefits are typically 3 to 4 times higher than the same contribution generates in a 401(k). It isn’t reasonable for politicians, who themselves have pensions, to tell voters their only option is a 401(k) rip off plan that generates $3 billion a year in management fees for Wall Street.
6) Repeal Citizens United. Republican senator John McCain called Citizens United the worst decision he’s ever seen. Taking stock of the narrative in the 2016 primaries, I think most people understand we don’t need unlimited and undisclosed contributions to political campaigns.
Q: Explain your position on trade and tax reform.
A: First, the Financial Transactions Tax (FTT) tax I propose in #2 under financial reform, serves a dual purpose. We have to lower the level of profit from financial speculation. At the same time, an FTT would raise $2.2 trillion to help fund strategic investments in manufacturing.
Second, a value added tax (VAT) of 10 percent would make imports less profitable and exports more profitable. Germany has a 19% VAT. By itself a 10% VAT wouldn’t be high enough to have much impact. But in conjunction with wage standards on imports, eliminating stock options that give CEOs incentives to offshore production, and $300 billion a year government investment in manufacturing, it would help establish profit parity between domestic production, and production overseas.
Q: Explain the refundable VAT.
A: Realize there isn’t anything I’ve proposed that changes the current tax system. Both the FTT and the refundable VAT could be implemented as a separate module, or a specifically targeted tax that raises revenue and allocates that revenue to strategic investment in manufacturing.
A refundable VAT on most things people buy would raise the cost by 10%. Individuals would receive a corresponding tax credit of 10% that would be refundable. What that means is that people who don’t owe any tax would receive a tax rebate. The purpose of a refundable VAT is not to raise revenue. There would be some excess revenue – maybe $80 billion a year – but that would go down over time as the trade deficit comes down.
As I explain in SWIFT Act, the bipartisan Debt Reduction Task Force recommended a 6.5% VAT (not refundable) to raise revenue. The Task Force plan would also eliminate 85% of the mortgage interest deduction, by using a refundable tax credit, applied only to mortgage interest. That’s where I got the idea. When the politicians come out and say it’s too complicated, be ready to call BS! The mechanism of a refundable VAT tax credit would be the same as what has already been proposed as a refundable mortgage interest tax credit.
Consider an item currently sold in the U.S. for $10. The VAT adds 10%, so both the importer and the domestic producer (if there is one) now sell the item for $11 to maintain profit margin. The consumer gets the dollar back as a refundable credit, so the impact is tax neutral for the consumer. Both the importer and the domestic producer pass the 10% onto the consumer, so for both the impact is tax neutral.
But the U.S. producer exporting the item can sell it for $10, not $11. The exporter has a 10% profit advantage over the importer, and for that matter has the same advantage over sales in the domestic market.
The goal is to provide incentive for exports. The only way to export something is to manufacture it domestically.
What is important to realize is that the writing is on the wall. Political pressure to balance the budget means Congress will eventually pass a VAT to raise revenue. I’d rather have a refundable VAT that raises minimal revenue, but would help eliminate the trade deficit and create 15 million new jobs. If we do that, tax revenue will go up as the economy grows, and the government won’t need to raise taxes.
If you don’t like the idea, I appreciate the sentiment. But consider the alternative. Within the next few years, Congress will pass a VAT. Would you rather have a VAT that is refundable, or a VAT that isn’t? That’s the choice. If you need to go through the stages of grief, with stage one being denial, so be it. But everything I’ve read tells me that is the choice at hand.
The bipartisan Debt Reduction Task Force recommended a 6.5% VAT (not refundable) and eliminating 85% of the deduction for mortgage interest. When a bipartisan Task Force makes that kind of recommendation, we need to pay attention to the conversation that is taking place in Congress.