Thought for Day: Extending Obamanomics to Public Dividends

Thursday, 5 February 2015, 11:56 am
Column: Keith Rankin

On the news yesterday I heard US President Barack Obama reject "mindless austerity" as an economic policy. Indeed Mr Obama has taken on a new lease of life since last year's elections; he has nothing to lose by going all out to raise his achievement level. He wants to adopt Keynesian public spending policies. Further, with economic growth raising tax revenues, he is unlikely to come up against the Federal Government debt ceiling that has dogged his presidency in the past.

What was slightly concerning, however, was the emphasis he gave to military spending. Sure the emphasis was on defence, rather than Bush-style offence.

Nevertheless, there are better ways than military spending to deploy resources made available by corporate and household savings. (This saving includes a massive pile of cash held by Apple Corporation; much of that cash is directly or indirectly lent to the American government. According to Sir Martin Sorrell, there is presently "7 Trillion dollars sitting on balance sheets uninvested'; A Richer World, but for Whom? BBC 'World Debate' from the 2015 World Economic Forum at Davos)

The second component of Obamanomics is conventional Keynesian spending on infrastructure renewal; on public works. This is good, given the level in which public infrastructure in America has been allowed to decay.

There is another, better, more sustainable prong to a twenty-first century Keynesian policy than military spending: directly return some of that savings equally to all Americans, as a public equity dividend. The good thing about public equity dividends is that, by definition, 99% of the money goes to the bottom 99% of the population, and 25% of the money goes to the bottom 25% of the population. (Contrast this with traditional tax cuts, which invariably favour the rich who spend little of it, and who, when they do spend, spend frivolously while there remains much need elsewhere.) This is money that will, for the most part, be spent, further reviving the American and (through imports) world economies.

Ideally, public equity dividends should be paid in conjunction with flat taxes. (This places the principle of horizontal equity at the core of an integrated tax-benefit system.) Such a scale of one-off tax reform is not feasible in the US at present though, especially given Obama's time constraint.

What President Obama could do instead is to take half the money he proposes to inject into the military, and return that money to the American people as a straight-out public dividend. In future years, under future presidencies, that dividend could be raised in conjunction with a flattening of the income tax scale.

Even a small per capita public dividend is symbolic of a new beginning. Further, for the battler wage-earners in the low-middle income range, any public dividends can facilitate a choice to work an hour or two less; an hour or two better spent relaxing (maybe with family and friends); an hour or two giving the planet a break.

More sustainable lifestyles, and reduced unemployment, can be supported with the help of public equity benefits.

ENDS

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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