Inequality

By ERNEST F. HOLLINGS, former U. S. senator


Hollings

MAY 12, 2014 -- As Lee Kuan Yew told Senator Shelby and me, in Singapore ten years ago, "China's leaders are not only good politicians, but students of government." China practices managed capitalism and managed human rights. They have to build a strong economy and at the same time keep the country together before they can grant more human rights.

So far China has had terrific success. But China's recovery model has put all countries in a dither trying to compete and trying to keep open markets and trade free. This came to my attention with Thomas Picketty's book: "Capital in the 21st Century".

After fifteen years of analyzing data in thirty countries, Picketty concludes that the rich get richer and their wealth doesn't trickle down. I always thought that "trickle-down economics" was a political expression. I don't know of an economic study that finds the rich get poorer or that wealth trickles -- either up or down.

To learn about inequality, Picketty should have studied the effect that China's managed capitalism has had on the economies of other countries. Other than Warren Buffett and Bill Gates, the rich always hold on to their wealth, getting richer and there is no trickle down or up. It's more become rich as in China, the poorest country, which has already produced more billionaires than Europe.

After World War II, Japan closed its market, subsidized its manufacture, and sold its export at cost; making up the profit in the closed market. For example, my 2006 Lexus that cost $34,000 - the same car in Tokyo sold for $44,000. Last year, Ford's Vice President was complaining about Japan's still closed market. Now, with China's controlled capitalism, Japan's model of closed markets and predatory practices has trouble working. The Prime Minister Abe is doing his best to compete.

Countries in the European Union are also struggling to compete. But the Unites States refuses to compete. The economists for Corporate America attribute the lagged economy to the Great Recession - ignoring the continued offshoring of our economy by Corporate America. Foreign countries using their Value Added Tax assemble cars, watches, etc. Labor and Main Street have taken a hit. But Wall Street, the Big Banks and Corporate America want to keep the offshore profits flowing so they contribute to the President and Congress to do nothing to compete in globalization; to not make it profitable for manufacture in the Unites States; to oppose the VAT that has no loopholes and is self-enforcing - to do nothing. The President and Congress do nothing.

There is no way to stop inequality. But to eliminate inequality as a political issue:

First pay for government. It took the United States over 200 years to incur a national debt of $1 trillion in 1981. Given a balanced budget in 2001, Presidents Bush and Obama have increased the national debt $12 trillion in fourteen years. The richest country spends and borrows 2,400 years of debt and nobody says anything.OMB estimates that the interest cost on the national debt will be $223.6 billion - spending billions for nothing. In five years, OMB estimates that the interest cost will be $550.7 billion.

Second: Replace the 35% Corporate Tax with a 7% Value Added Tax that produces billions to balance the budget in two years rather than ten. This tax cut releases $2 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs.

Third: Stop begging Russia for helicopters and importing uniforms for the GI's. Business likes certainty. It won't invest unless it has certainty that production of items vital to a strong economy will be protected. Enforce the Defense Production Act of 1950 and our trade laws against closed markets and predatory practices.

Senator Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of Making Government Work (University of South Carolina Press, 2008).

© 2014, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives.

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