By Rudy Barnes, Jr
The pandemic has brought into sharp focus just how much money matters, especially during times of stress. In politics money matters are the responsibility of Congress and the Federal Reserve. Congress authorizes government spending, taxing and borrowing, and the Federal Reserve manages the money supply by creating new money and setting interest rates.
Most Americans claim to be Christians, so it would seem that the moral teachings of Jesus would govern money matters, but they don’t. America’s true religion is the prosperity gospel, an unholy mix of Old Testament religious rules and Ayn Rand’s self-centered objectivism; and its popularity is evident in America’s materialistic and hedonistic culture.
The altruistic moral teachings of Jesus are summarized in the greatest commandment to love God and to love our neighbors as we love ourselves, including our neighbors of other races and religions. It’s taken from the Hebrew Bible, taught by Jesus and accepted as a common word of faith by Muslims; and in politics it’s a moral imperative to provide for the common good.
Greed is the love of money, and for Christians greed is a mortal sin. But it’s a virtue for the super-rich on Wall Street who control the means of production in America. With favorable taxes and little regulation, mega-corporations now dominate markets, having decimated smaller businesses that once provided local jobs and a measure of competition for consumers.
The Fed has exacerbated economic inequities by propping up mega-corporations on Wall Street and allowing smaller businesses on Main Street to fail. It’s not likely that a Congress beholden to their patrons on Wall Street will provide the regulations needed to provide more competition and reduce the economic disparities that have eroded America’s middle class.
America is facing an existential economic crisis with an unrelenting pandemic, a massive national debt of over $27 Trillion, a Fed balance sheet of over $7 Trillion and a Fed commitment to continue subsidizing mega-corporations and maintaining low interest rates. There is no end in sight, and economists and politicians remain divided over how to address the crisis.
Meanwhile, America continues to operate at a deficit with Social Security, Medicare and Medicaid, along with some form of universal health care. And if the jobs lost in the pandemic aren’t restored--and many will not be--there will be the need for increased unemployment compensation and other pandemic relief expenses. It’s not a pretty picture.
The Pope has spoken out on the failure of global economies to provide for the common good. In America's dysfunctional economy, a booming stock market and increasing income disparities have fostered social unrest. Money clearly matters in America’s religion and politics, and its economy must experience a moral reformation to preserve the fabric of its democracy.
Mariana Mazzucato has addressed capitalism after the Pandemic: Getting the recovery right. She asserts that “it is not enough for governments to simply intervene as the spender of last resort when markets fail or crises occur. They should actively shape markets so that they deliver the kind of long-term outcomes that benefit everyone. As countries climb out of the current crisis, they can do more than spur economic growth; they can steer the direction of that growth to build a better economy. Instead of handing out no-strings-attached assistance to corporations, they can condition their bailouts on policies that protect the public interest and tackle societal problems. They can refuse to bail out companies that won’t curb their carbon emissions or won’t stop hiding their profits in tax havens. In times of need, many businesses are quick to ask for government help, yet in good times, they demand that the government step away. ...If governments focus only on ending the immediate pain, without rewriting the rules of the game, then the economic growth that follows the crisis will be neither inclusive nor sustainable. The intervention will have been a waste, and the missed opportunity will merely fuel a new crisis.
...Advanced economies had been suffering from major structural flaws well before COVID-19 hit. For one thing, finance is financing itself, thus eroding the foundation of long-term growth. Most of the financial sector’s profits are reinvested back into finance—banks, insurance companies, and real estate—rather than put toward productive uses such as infrastructure or innovation. The current structure of finance thus fuels a debt-driven system and speculative bubbles, which, when they burst, bring banks and others begging for government bailouts. Another problem is that many large businesses neglect long-term investments in favor of short-term gains. Obsessed with quarterly returns and stock prices, CEOs and corporate boards have rewarded shareholders by buying back stocks, increasing the value of the remaining shares, and the stock options that are part of most executive pay packages. In the last decade, Fortune 500 companies have repurchased more than $3 trillion worth of their own shares. These buybacks come at the expense of investment in wages, worker training, and research and development.
...The pandemic has also revealed how imbalanced the relationship between the public and the private sector has become. In the United States, the National Institutes of Health (NIH) invests some $40 billion a year on medical research and has been a key funder of the research and development of COVID-19 treatments and vaccines. But pharmaceutical companies are under no obligation to make the final products affordable to Americans, whose tax money is subsidizing them in the first place. Gilead, a California-based company, developed its COVID-19 drug, Remdesivir, with $70.5 million in support from the federal government. In June, the company announced the price it would charge Americans for a treatment course: $3,120. It was a typical move for Big Pharma. Even so, U.S. drug prices are the highest in the world.
...Equally bad deals have been made with Big Tech. In many ways, Silicon Valley is a product of the U.S. government’s investments in the development of high-risk technologies. The National Science Foundation funded the research behind the search algorithm that made Google famous. The U.S. Navy did the same for the GPS technology that Uber depends on. And the Defense Advanced Research Projects Agency, part of the Pentagon, backed the development of the Internet, touchscreen technology, Siri, and every other key component in the iPhone. Taxpayers took risks when they invested in these technologies, yet most of the technology companies that have benefited fail to pay their fair share of taxes. Then they have the audacity to fight against regulations that would protect the privacy rights of the public. It was high-risk public investments that laid the foundations. Without government action, the gains from those investments could once again flow largely to private hands.” See https://www.foreignaffairs.com/articles/united-states/2020-10-02/capitalism-after-covid-19-pandemic?utm_medium=promo_email&utm_source=pre_release&utm_campaign=mktg_reguser_mazzucato_pandemic_capitalism&utm_content=20201002&utm_term=registrant-prerelease.
David Lynch has addressed the lengthy era of rock-bottom interest rates leaving its mark on the U.S. economy. “Consumers have snapped up zero percent auto loans and mortgages at sub-3 percent rates. That’s helped the economy by driving sales of new homes and automobiles. Depressed rates also have fueled a rise in corporate and government debt, aggravated trends toward greater inequality and left a wounded economy more dependent on fiscal support from lawmakers at a time when Congress is intensely polarized. Rates have been stuck at ultralow levels for most of the past 12 years because of chronically weak demand in the United States, Europe and Japan. The recovery from the 2008 financial crisis was the most anemic since World War II, and — despite President Trump’s claims to have produced the greatest economy in history — the U.S. economy grew at an average rate of just 2.5 percent from 2017 through the end of last year.
With rates expected to stay low, the Fed will have less ammunition to fight recessions. The Fed’s limited firepower leaves Congress with more responsibility for propping up the economy. House Democrats and the Trump administration have been locked for weeks in fruitless talks over a new round of relief spending. ‘The risk here is a downward spiral,’ Brainard said, warning that the economy could be trapped in a vicious cycle of low interest rates, muted inflation and weak growth.
“There are real costs to keeping rates at zero for a prolonged period of time,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, said in a recent speech. “Keeping rates at zero can adversely impact savers, encourage excessive risk taking and create distortions in financial markets.” In November, the Fed warned that a prolonged period of low interest rates could damage the profitability of banks and life insurers and force pension plans to take bigger risks. The result would be to increase “the vulnerability of the financial sector to subsequent shocks,” the Fed said.
The banking industry is a good example of the relationship between economic weakness, low interest rates and financial stability. Falling interest rates meant banks charged borrowers less for their loans. The spread between what banks earned by lending and what they paid depositors for their savings — the net interest margin — fell to its lowest mark since the government began keeping records in 1984, according to the Federal Deposit Insurance Corp. Over the past two years, new deposits have far outpaced demand for loans, according to a Goldman Sachs analysis. That reflects both the Fed’s asset purchases, which have injected large amounts of cash into the financial system, and weak demand. ...As banks parked much of that $3.2 trillion inflow in cash, which earned just one-tenth what they could make by lending the money to a good corporate credit risk, their profits have shrunk. Banks have enough of a capital buffer to ride out a renewed economic downturn, the Fed said. But the risk is that an economic relapse would cause large numbers of consumer and business loans to go bad, eroding industry reserves and causing banks to restrict new lending.
By depressing the returns on risk-free U.S. Treasury securities, low rates also have encouraged investors to buy stocks. Since Dec. 16, 2008, when the Fed cut its benchmark lending rate to near zero for the first time, the Dow Jones industrial average, with dividends reinvested, has gained roughly 320 percent. That’s about five times what the iShares Core U.S. Aggregate Bond exchange-traded fund, a broad bond market proxy, returned over the same period. The rise in stocks has benefited the already prosperous. The wealthiest 1 percent of Americans own more than $11 trillion of stocks and mutual fund shares, more than 70 times the total held by the poorest half of the country, according to the Federal Reserve. The top 1 percent now own 52 percent of the equity in the United States, up from 42 percent when the Fed first dropped rates to zero. The bottom half of the country owns a slightly smaller share of all stocks than it did 12 years ago, according to Fed data. And small savers earn almost nothing from bank accounts or certificates of deposit. See https://www.washingtonpost.com/business/2020/10/03/low-interest-rates/.
The Washington Post hasreported that the $4 trillion COVID bailout to revive the economy was doomed to fail: “The U.S. response to the coronavirus has already been the costliest economic relief effort in modern history. At $4 trillion, the assortment of grants, loans and tax breaks exceeded the cost of the Afghanistan war. More than half, or $2.3 trillion, went to businesses which in many cases were not required to show they were impacted by the pandemic or keep workers employed.
The bill included $651 billion in tax breaks, that often went to companies that laid off workers. The Cheesecake Factory, for example, furloughed 41,000 people, and said it will claim a tax break worth $50 million. $454 billion went to the Federal Reserve to help stabilize markets, and those efforts enabled many companies, including Wells Fargo, AT&T and Carnival, to borrow at lower rates even while laying off employees. While an accounting of the $670 billion Paycheck Protection Program remains unfinished, companies that received the money were not compelled to use it to protect paychecks - and many didn’t. At $884 billion, roughly one-fifth of the relief money went to help workers and families.
The bill included $651 billion in business tax breaks that often went to companies unaffected by the pandemic and others that laid off thousands of workers. Billions more went to the Federal Reserve to help stabilize markets, and those efforts enabled many companies — including Wells Fargo, AT&T and Carnival, the cruise company — to borrow at lower rates while also laying off thousands of workers. Finally, while a complete accounting of the $659 billion Paycheck Protection Program likely won’t be completed for months or years, companies that received the money were not compelled to use it to protect paychecks – and many didn’t. So while the Cares Act and other bills spread out the money, much of it appears to have benefited companies that don’t need help.
There may be no clearer example of this than the Cares Act tax breaks.
The legislation offered generous tax breaks for businesses of any size, in any industry and regardless of need. Congress estimated they will cost the federal government $250 billion, an amount that is significant even within the scope of federal budgets: The IRS collected roughly the same amount from all corporate income taxes in 2019. The largest chunk of those tax breaks consisted of a $135 billion benefit for business owners. The measure gives an average benefit of $1.6 million to 43,000 individuals with incomes in excess of $1 million, according to the Joint Committee on Taxation, a nonpartisan congressional body. Applicants must have suffered an operating loss in 2018, 2019 or 2020 — so they’re eligible even if their loss occurred well before the coronavirus.
...While enriching shareholders, the tax breaks offered little incentive to keep workers. Companies that receive them are under no obligation to refrain from furloughs and layoffs. Rather than helping people and companies most affected by the pandemic, the tax breaks may simply enrich shareholders. Many of the firms claiming the tax break are rewarding investors with dividends and share buybacks.”
In an encyclical called “Fratellio Tutti” (brothers and sisters all), Pope Francis “took direct aim at trickle-down economics, the theory favoured by conservatives that tax breaks and other incentives for big business and the wealthy eventually will benefit the rest of society through investment and job creation. ‘There were those who would have had us believe that freedom of the market was sufficient to keep everything secure (after the pandemic hit),’ he wrote. Francis denounced ‘this dogma of neo-liberal faith’ that resorts to ‘the magic theories of ‘spillover’ or ‘trickle’ ... as the only solution to societal problems’. A good economic policy, he said, ‘makes it possible for jobs to be created and not cut’. Without naming countries or people, Francis condemned politicians who ‘seek popularity by appealing to the basest and most selfish inclinations’ or who enact policies of ‘hatred and fear towards other nations’”. See
In Pope Francis’ unexpected election message, he criticized “‘myopic, extremist, resentful and aggressive nationalism,’ and castigated those who, through their actions, cast immigrants as “less worthy, less important, less human.’ He called out an ‘every man for himself’ worldview that ‘will rapidly degenerate into a free-for-all that would prove worse than any pandemic.’ And he said ‘The marketplace, by itself, cannot resolve every problem, however much we are asked to believe this dogma of neoliberal faith. Whatever the challenge, this impoverished and repetitive school of thought always offers the same recipes … the magic theories of ‘spillover’ or ‘trickle’ — without using the name.’” Francis’s emphasis throughout was on denunciations of “empty individualism,” a “narrow and violent nationalism, xenophobia and contempt, and even the mistreatment of those who are different,” and “a cool, comfortable and globalized indifference.” It was hard not to think of the president as Francis described “a strategy of ridicule, suspicion and relentless criticism.” “Political life no longer has to do with healthy debates about long-term plans to improve people’s lives and to advance the common good, but only with slick marketing techniques primarily aimed at discrediting others,” he wrote. “In this craven exchange of charges and counter-charges, debate degenerates into a permanent state of disagreement and confrontation.”https://www.washingtonpost.com/opinions/2020/10/04/popes-unexpected-election-message/?utm_campaign=wp_todays_headlines&utm_medium=email&utm_source=newsletter&wpisrc=nl_headlines.