With party conventions heating up the rhetoric, economic policies will take center stage as Republicans and Democrats present distinct policy differences on taxes and strategies for moving the U.S. economy forward.
American voters will have clear choices. At issue is which policy will be most credible.
The GOP position on taxation on wealth is a key difference, holding that accumulation of private wealth provides capital for economic development and the wealthy should be free of government interference in use of capital. It is a policy derived from theories of such free-market economists as F.A. Hayek that government interference in markets promotes inefficiencies and is ineffective.
"The size of the stock of capital of people, together with its accumulated traditions and practices for extracting and communicating information, determine whether that people can maintain large numbers. People will be employed and materials and tools produced to serve future needs of unknown persons, only if those who can invest capital to bridge the interval between present outlay and future return will gain an increment from doing this, which is at least as great as what they could have obtained from other uses of that capital," he says ("The Fatal Conceit," Hayek, University of Chicago Press, 1988).
Democratic policy accepts the need for private capital for economic development, but that not all private wealth is directed adequately to the national economy. Government tax policy is seen as a way to direct private capital to the national economy, as when Democrats favor tax benefits "to businesses that create jobs in America."
In a global economy, there is basis for the Democratic argument in the transfer of jobs to low labor cost countries, largely for low-skill positions but increasingly for high-skill technical work.
American workers are competing with the rest of the world, not just with each other or illegal immigrants willing to take tedious, low-wage jobs that still provide them with more than they could earn in their country.
Reuters writer Chrystia Freeland illustrates the issue in citing comments by American executives, such as Allstate CEO Thomas Wilson: "I can get (workers) anywhere in the world. It is a problem for America but it is not necessarily for American business. . . . American business will adapt" ("The Rise of the New Global Elite," The Atlantic, Jan./Feb. 2011; Freeland).
The issue of national job creation has multiple facets, with a major reality being that small businesses provide more employment opportunities. Given that, accumulation of wealth by small businesses may be more beneficial to the country's workers than capital growth benefitting major corporations.
Some very wealthy dispute that wealth alone creates jobs, such as venture capitalist Nick Hanauer: "I can say with confidence that rich people don't create jobs, nor do businesses, large or small.
"What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire" ("Raise taxes on rich to reward true job creators," Bloomberg.com, Nov. 30, 2011).
American corporations may believe there is no need to consider the consumer market within their country. But even China's massive consumer market needs workers with sufficient income to be consumers while the country's industries seek investment with low labor costs.
Consumer products rely on a population with income. Sales to consumers represent the highest proportion of spending in calculations for the national gross domestic product.
Logically, suppressing worker incomes to lower costs and increase productivity for a manufacturer also weakens purchasing power by the worker-as-consumer. Sufficient consumer income is key to the equation. Even the poorest contribute when they have a dollar to spend, but the larger contribution is by families with disposable income, some basic level for necessities of food and shelter, but also savings and discretionary spending.
Economic policies - whether by industry or government - need to balance production and consumption patterns skewed by vast differences in incomes and production costs across the global marketplace.
Voters on Nov. 6 have a choice.
* Edwin Tanji is a former city editor of The Maui News. He can be reached at hakumoolelo@earthlink.net. "Haku Mo'olelo," "writing stories," is about stories that are being written or have been written. It appears every Friday.
