Without a Debt Deal, Obama Can Make the Rich Pay

What we should be talking about when we talk about the debt ceiling is the proper role and size of government. Instead, we are asking whether the government spends too much on programs that alleviate the pain that is the result of government policies in the first place. Social Security, Medicare, Medicaid, unemployment insurance and food stamps are all good programs, but all are meant to deal with the consequences of the income inequality that the government makes possible by the laws it passes. Income security programs make up 65 percent of all government expenses, and from this we are asked to conclude that the government is mainly in the business of serving and taking care of common people. But the most profound actions that the government takes, passing laws that make the rich rich, ostensibly cost no money and, because we play along, enforcing them supposedly has no cost.

Any agreement by Congress to cut the income security programs while leaving the main beneficiaries from our government — the rich — untouched, would be unconscionable. If Congress does not reach an agreement, and the deficit remains unfunded, this will give the president an unprecedented opportunity to expose who the government really serves, because it will be up to him alone, no agreement from Congress would be necessary to decide where to cut. Let him first withhold money from the enforcement and the support of laws that enrich the rich. This would lead to higher wages for workers and lower prices for consumers, and it would therefore be a good quid pro quo for the cuts he wants to make in income security programs.

What are the laws that enrich the rich? They change with the times. When the first English settlers came to America, the king declared a law that gave him all the land of the colonies. He proceeded to give huge tracts of this land — William Penn was given all of Pennsylvania — to the well-connected. They became landowners, and the rest of us became their tenants, paying them rent for the right to live on “their” land. Things did not improve when the United States was first formed, because the Founding Fathers passed a constitution that, in Article 1, prohibited the income tax. That single article assured that instead of paying for public projects by taxing the rich, the government would have to pass public land to the rich as a form of payment for these projects; the “land grants” to the owners of the railroads are the most important example. (The Homestead Act gave common citizens the right to own government land, but this law was not passed until 1862.)

As more and more people shifted from farming to manufacturing in the 19th century, a new class of small-scale producers emerged. For a brief while, city residents enjoyed a life cycle that saw them learning a trade when they were young and becoming masters of their own workshops when they reached their prime. But self-employment was undermined by a new law, the Limited Liability Law, that greatly facilitated the creation of corporations. The Limited Liability Law was passed by most states in the 1850s, and the concentration of wealth that it led to created victims then, and is still creating victims today. In the 19th century, John D. Rockefeller and Standard Oil destroyed independent oil refiners; today, Wal-Mart destroys independent retailers all over the world.

While the Limited Liability Law turned the self-employed into workers, another law, the Wagner Act, passed in 1935 under the leadership of Franklin D. Roosevelt, made it possible for workers to form effective and powerful unions. But the law did not survive FDR´s death. In 1947 it was amended by the Taft-Hartley Act, which permits states to pass laws that came to be known by their doublespeak name, “right to work” laws. A right-to-work law gives the employer the right to hire employees who are not union members when hired, and does not require these workers to join the union or even pay union dues, upon getting the job. These employees effectively get a free ride on the efforts of the union, since they earn the union wage without contributing to the union. Not surprisingly, the rate of union membership is much lower in right-to-work states. When the law was passed, Congress of Industrial Organizations (CIO) President Philip Murray predicted: “From here henceforward, if this bill becomes law, the organized labor movement is on the defensive in this country.” Just as he predicted, the demise of unions and the rise of employers´ power naturally followed. Unions cannot thrive in some states when employers have the alternative of hiring workers in other, nonunion, states.

The Taft-Hartley Act is still the law, and it is the single most important explanation of why employers can so thoroughly take advantage of and exploit their workers. As part of their budget negotiations, Democrats should insist on repealing the Taft-Hartley Act. If the parties do not reach an agreement and the deficit is unfunded, the president should use his power to cut funds to right-to-work states and redirect them to states that let unions be. This will call attention to the problem and stimulate job creation in states where work actually pays. And with higher wages, workers will be better able to save for retirement in anticipation of Social Security cuts.If the Taft-Hartley law is detrimental to us as workers, the patent law is detrimental to us as consumers. While the Sherman Act was meant to take away the right of corporations to monopolize, the patent laws have not only returned this right, the government now enforces corporate monopoly power. The patent law is the reason that health care is so expensive that it is a major cause of the deficit, and that millions of people around the world die because they cannot afford drugs that cost little to produce and are often developed by government employees or with government financing. The patent law is also the reason that Monsanto, the agriculture giant, can sow despair and suicide among farmers around the world, with the most notorious example being the Green Revolution in India, because the law prevents them from growing their own seeds once they have bought seeds from Monsanto.

Does innovation require patent protection? George Stigler, the Nobel Prize-winning economist, researched this question and concluded that historically there were just as many innovations before patent protection as after. Stigler believed that all patents do is close entry to an industry without any benefits to society at all. What is beyond dispute, however, is that by granting a patent, the government confers on the recipient monopoly power. What is the government asking for in return? How is the government protecting consumers against the monopoly that it creates? The granting of a patent should involve the setting of a maximum price, and this should be what Democrats demand. If an agreement is not reached and the deficit is unfunded, the president should stop funding the enforcement for patents that are older than five years. This would preserve the incentive to innovate — if innovation even requires it — while lowering prices substantially on millions of products in the marketplace. With lower prices, workers will be in a better position to absorb cuts in the income security programs if these are made.

In the debate about the proper size of government, an agreement should be easy to reach: If the government stops serving the interests of the rich, the rest of us will not need to rely on it to dress the wounds that it inflicts.

Moshe Adler teaches economics at Columbia University and at the Harry Van Arsdale Center for Labor Studies at Empire State College. He is the author of “Economics for the Rest of Us: Debunking the Science That Makes Life Dismal” (The New Press, 2010).