What the Republican and Democratic Parties Stand For
By Robert Steven Ingebo
In order to understand the true nature of the two major political parties that are currently in power, we must examine their ideologies.
The economic cornerstone of the Democratic Party ideology is social justice. Social justice assigns rights and duties in the institutions of society. The relevant institutions include taxation, social insurance (Social Security, Medicare and Medicaid), public health, public school, public services, labor laws and regulation of markets to ensure equal wealth distribution and equal opportunity for everyone.
The practical application of social justice is the welfare state. The welfare state is based upon capitalism, which is defined as free markets and private ownership of business. In order for social justice to be realized, the welfare state must regulate the free market to make sure that there is no wealth accumulation among private business owners. Wealth must be distributed equally among all citizens of the welfare state.
The welfare state must provide all citizens with equal opportunity in all institutions of society, including health insurance, public education and strong social welfare programs to keep them out of poverty, because, according to social justice, everyone must have the same relative standard of living (equality of outcome).
The welfare state relies upon capitalism because it uses the mechanism of progressive taxation to fund its entitlement and social welfare programs. Progressive taxation means that individuals and businesses are taxed based upon their income. The higher the income, the higher the tax, and the lower the income, the lower the tax. This satisfies the social justice principle of wealth equality, because it ensures that the business owners’ incomes are kept within the boundaries of the middle class and that lower income families are not taxed into poverty.
The problem with the welfare state is that, if the progressive taxes on the business owners and their companies become too high, the owners have no incentive to risk capital on business expansion. If businesses are no longer expanding, unemployment is created because there are an insufficient number of jobs available for those who are entering the labor force.
Here are the results of the Obama administration’s expansion of the US welfare state:
Number of Americans on food stamps: 43 million.
Home ownership: Dropped to the lowest number in more than 50 years.
Amount spent on social welfare programs: $1 trillion dollars annually. The Census Bureau estimates that if we paid that amount out in cash to the poor in our country, it would be four times the amount needed to lift them all above the poverty line.
Number of U.S. citizens living in poverty: 45 million.
Job creation: 11.5 million jobs were created, however, 95 million people lost their jobs, resulting in a net loss of 83.5 million jobs. Some of these unemployed individuals are actively looking for work, while others have given up because they can’t find what they consider to be meaningful work. The fact is, in 2017, there are 96 million able-bodied Americans without a job.
GDP growth rate: 15 percent, which is 9 percent lower than the median GDP growth rate of 24 percent.
National Debt: More than doubled to $19.8 trillion (exceeding $20 trillion in 2017).
Debt as a percentage of GDP: Over 100 percent by the end of President Obama’s second term.
According to the social justice principle of income equality, the U.S. welfare state must raise all 96 million unemployed Americans out of poverty, whether they want to work or not.
This would put a severe strain on the economic resources of the government because of the ever-increasing cost of the social welfare programs that would be needed to keep them all out of poverty.
If the welfare state responded by further raising taxes to offset these costs, business owners would cut back on production and lay off workers, creating an even larger pool of unemployed, eventually leading to the bankruptcy of the U.S. government through out-of-control deficit spending, such as what has happened in Greece.
The cornerstone of the Republican Party’s ideology is American conservatism. Conservatism includes respect for American traditions, freedom of speech, support for Judeo-Christian values and economic decisions that are made by individuals or households rather than by collective institutions or organizations. Conservatism is strongly anti-communist and believes in American exceptionalism and a defense of Western culture from threats posed by socialism, moral relativism, multiculturalism and a borderless state. American conservatives consider collective liberty, within the boundaries of American values, as the fundamental basis of democracy.
The practical application of conservatism is free market capitalism. Free market capitalism is a free market system that limits government intervention in the economy and lets the market operate unimpeded. According to the theory of the free market, business owners, acting in their own self-interest, create businesses that fill the demands of their consumers by offering them the finest quality products and services at the lowest possible prices.
Government regulations, trade barriers and labor laws impede the market. Left to itself, the free marker provides the most opportunities for both consumers and business owners by creating more jobs and allowing competition to decide which businesses succeed and which businesses fail.
The criticism of free market capitalism is that an unimpeded free market creates wealth accumulation by the business owners and suppresses wages, leading to the concentration of wealth in a small percentage of the population.
This criticism does not take into account the concept of upward mobility. Upward mobility, put simply, means the opportunity for workers to increase their wages.
In the free market, there are many companies competing for customers. They are competing for employees as well. Job competition is what creates better paying jobs, not labor unions. If a company is successful in the free market, it will expand if the business owner sees an opportunity to make more profit. For the business to expand, it must hire new workers. Job competition puts upward pressure on wages, so the new jobs offered by these expanding companies will be higher paying jobs.
The employees already working for a company that is expanding will have upward mobility because they will be promoted to higher-paying positions and will receive stock options that could eventually make them seriously wealthy. There are stories of janitors working for Google that became millionaires after the company went public in 2004.
Successful, expanding U.S. businesses produce higher economic growth in the economy. Research has found that high-growth firms account for up to 50 percent of new jobs created. They expand not only in size but also in number of new locations — creating new opportunities in diverse geographic areas. These companies also create growth in their related industries because of increased demand for their suppliers’ products and services.
When the economy grows at a faster rate, the government’s tax revenues increase, while simultaneously lowering deficit spending because fewer people need the social welfare programs, because more of them are employed. The higher employment created by higher economic growth automatically reduces the budget deficit with no change in underlying economic policies.
According to CBO estimates, if economic growth was 0.1 percentage point lower each year, annual deficits would climb by $56 billion by 2027, ten years hence.
Conversely, if economic growth was .1 percent point higher each year, annual deficits would decrease by $56 billion by 2027. Under that scenario, U.S. economic growth would increase by 1 percent in ten years.
The annual deficit forecast for the U.S. government in 2017 is about $600 billion.
What if economic growth increased at an annual rate of .5 percent instead of .1 percent? That would lead to a U.S. economic growth rate of 5 percent in ten years, reducing the annual deficit by $280 billion. If the U.S. economic growth rate reached 7 percent in ten years, the deficit would shrink by $208 billion.
For individuals saying that you can’t assume the annual deficit won’t go higher than $600 billion, higher economic growth would shrink the annual deficit, not expand it.
According to the Bureau of Economic Analysis, economic growth was 1.2 percent in the first quarter of 2017. In the second quarter, economic growth was 3.0 percent. That’s an increase of 2.5 percent in just one quarter, opening the U.S. economy to the possibility of reaching an economic growth rate of 4 percent in 2018.
Assuming the current rate of inflation remains relatively unchanged, I believe a 4 percent economic growth rate could create a budget surplus because the CBO scoring doesn’t account for the huge decrease in unemployment caused by the millions of new jobs created, which would dramatically lower the annual budget deficit while simultaneously increasing tax revenues.
The final criticism of free market capitalism is that hugely successful companies, unimpeded by government intervention, become monopolies and stifle competition.
That is a false assumption, because the concept of a monopoly is diametrically opposed to the definition of free market capitalism, which is based upon competition. In a true free market, the government would rightfully intervene and break up the monopoly.
Unfortunately, we don’t have free market capitalism in the U.S. Instead, we have crony capitalism, which has corrupted both the Democratic and the Republican Parties and has led to massive wealth accumulation by a relatively few number of business owners and wage stagnation of the middle class.
This article was written by Robert Steven Ingebo, president of FRI Corporation.