Capitalism and Our Infrastructure

airlinesIn the interest of furthering our discussion concerning the economics behind capitalism and socialism, and in looking for places where we can find balance, I would like to begin here by focusing on the airlines.  As a worldwide traveler I’ve flown on just about every major airline in the world, multiple times. So when it comes to air travel, I guess I could be considered an expert.

Just this past week I had an experience where my Cathay Pacific flight from LAX to Hong Kong was delayed an entire day due to a mechanical failure on the incoming flight, which resulted in an emergency landing in Alaska.  It wasn’t that bad, as when I got to LAX, the airline already had the flight and our connections rebooked and hotel rooms waiting for all 300 of us to stay the night in LA.  When I finally boarded the flight the next day, I was sitting next to an Australian businessman. We got to talk about how great Cathay Pacific is. That we’ve both flown them numerous times, this being the first delay we’ve experienced with them, but that the airline handled the situation wonderfully. Then we were in agreement, imagining if it was an American airliner that this happened with. We were both quite certain it wouldn’t have been handled nearly as well. We both went on to praise how great all the other Asian airlines are. Japan, Korean Air, Malaysia Airlines, Singapore Airlines and Thai Air are all top notch. Also the Middle Eastern airliners of Emirates (which is now the largest in the world), Qatar and now Etihad out of Abu Dhabi are again all top rate airlines. I would like to add that LAN in South America and a number of other South American airlines have drastically improved over the past few years. The absolute, hands-down, worst airlines in the world are all American carriers. Traveling on U.S. airliners with outdated old planes, plagued by constant delays, horrible customer service and added fees for everything from baggage to soft drinks, makes traveling in the U.S. by far the worst experience.

While no airplane food is anything like a home cooked meal or a five-star restaurant, the food on many airlines isn’t bad and some are quite good. I actually look forward to the Bimbambop (Korean rice dish) whenever I fly Korean Air. The food on most of the airlines I’ve mentioned above is quite decent. But American airliners, if you are lucky to get a meal, are still pretty horrible.

So why is there a big difference in quality between U.S. air carriers and Asian/Middle Eastern carriers? The answer is government subsidies! While all U.S. airlines are privately owned and operated, almost all of these other airlines mentioned are heavily funded by the Asian governments. They do this because they want to make their countries attractive to foreigners, and no better way to attract foreign interests by the first impression a foreigner gets while traveling to a country on their airline.

korean air

Korean Air cabin

Actually the airline Cathay Pacific that is from Hong Kong is a 100% privately owned airline, but they do get some government help and they have to compete with all the other government subsidized airlines in the region.

Just about every year we hear of American airline companies going bankrupt. Warren Buffet has even stated “you’ve gotta be crazy to go into the airline business. The expenses and logistics of it are a losing business proposition.” Hence the biggest investor in the world will not invest in airlines.

Here is just one example of a need, which is necessary for society, individuals and businesses alike. But running an airline can often be too overwhelming for a private company to handle and do well.  Am I suggesting the government should takeover running our now private airlines? Not at all. But as a nation, do we recognize certain areas where businesses need the help of government? The first and most obvious area that government can and already helps with is at our airports and our air traffic controlling systems. Most airports are already run by government entities, but with recent budget woes, funds to help upgrade these systems have been cut and withheld. Again this is one of those areas where private business and government need to work together to help provide the country with what is best, but of course government needs the funds to do it.

America is a great place for innovation and advancement. Hell, we invented the airplane and the airline business. So why have we fallen so far behind? We can find comparable situations looking at other industries. We invented the cell phone and were the first to advance cellular technology and bring it to market. But then came  the more advanced system of GSM networks that we have been slow to adopt. The same could be said of our train system and even our power standard. America was the first to distribute electricity to the public and we did so at 120volts. Then Europe figured that a 220volt system would be more efficient and more cost effective. After we’ve already spent and developed our 120volt systems, it would be too expensive for us to switch over. As globalization ensued and many countries have been able to develop rapidly, they were able to first implement these systems using the better method, while we are stuck with our original, outdated implementations.

This is where government assistance and initiatives are needed. All of these systems, if we want to improve and move ahead of the curve, need some form of government backing. Both in will and in monetary assistance. If we want to advance, we do not need government takeovers, which is socialism. It is Social Capitalism, where government plays a role in helping businesses to advance and progress for the good our entire country. But progress cannot be made if people continue to simply believe government should get out of the way, and that government should simply spend less. Here is where I would like to end with a quote from President Obama “We cannot simply cut our way to prosperity.”

Moving Forward

John BoehnerA long grueling election season has finally come to an end. The president was reelected and just as important, the power in Congress has remained the same. Democrats still control the Senate picking up a few more seats. The Republicans remain the majority in the House of Representatives although they lost a few seats there as well.  Even though I tend to be more on the liberal side, I’m still glad that Republicans control the House. It means that the half of the country which is Republican still have a strong voice in the federal government. I say that I’m glad to have Republican control in the House for one reason…compromise. As long as John Boehner and his constituents are willing to compromise, we can get something accomplished. This means they should refrain from remarks like “Our main goal is to deny the president another term”. If they can get away from this kind of politicking, things may actually be able to get done. (I know the president can’t run again in 2016, but the GOP could state their main goal as that of regaining power in the White House.)

Republicans, running on their high from the 2010 midterm elections thought they were given a mandate by the people to stop Obama and the Democrats at all costs. After this last election, now they may be second-guessing that thinking. Either way, what the American people want most of all, is government to work and their elected officials to do what’s best for the country.

And finally we have some hint of compromise from Republicans in the House when Mr. Boehner recently agreed to look at raising tax revenue. He still says he opposes raising tax rates, but at least there is a better tone of compromise. So what could a compromise on budget and taxes look like?

Democrats want to raise tax rates. Republicans want to cut spending.  So a compromise would be a bit of both. It is the “balanced approach” President Obama has spoken of for the past 4 years. Boehner mentions raising revenue by cutting deductions. Which deductions do we eliminate or reduce that would have little impact on the struggling middle class and be able to raise enough revenue? Most middle class people rely on the Mortgage interest deduction and the Student Loan interest deduction. But what about the Foreign Income deduction? Here’s one that I think few could argue against eliminating; getting rid of a deduction that rewards people whom keep money overseas. But this is just one example of a deduction that can be eliminated which would affect few people. What other deductions are there, which unfairly reward a small percentage of people?

Next let us look at individual tax rates for a moment. In the recent past when Democrats wanted to extend tax cuts for everyone except those in the top tax bracket, the Republicans wouldn’t allow it, calling it unfair. As a Democrat, I would point to what the original Bush Tax cuts did. They lowered taxes for everyone by 3%. But the top income bracket had their rates lowered by 4.6%. Talk about unfair. So, maybe as a starting point we could make up this unfair difference by raising the top tax rate by 1.6%. Can we at least get Republicans to agree to this?

But an even more important piece to the tax puzzle is the Capital Gains tax rate. Under Clinton the tax on Capital Gains was 20%, already far below individual tax rates. Then Bush lowered it even further to 15%. This is the biggest tax loophole! It is what allows Mitt Romney to pay a lower tax rate on his income then most middle class families.  This low capital gains rate severely benefits the wealthy disproportionately since very few middle class Americans actually see income from capital gains and dividends. (More on this argument in my book Social Capitalism). How do we fix this? First we can either raise the rate again or we can do as the recent “Buffet Rule” called for a minimum tax rate on those who earn over a million dollars. It is in essence an Alternative Minimum tax for the wealthy, which would limit deductions. If Republicans in Congress want to talk about their mandate given to them by the American people, how about the polls, which showed about 77% of Americans favoring the Buffet rule. Even Mitt Romney proposed limiting deductions. The Buffet Rule is a perfect example of how you can do this.

Then finally, in our quest for sensible compromise we have the issue of corporate tax rates. Everyone agrees we should lower corporate tax rates. It is now at 35%, which is high when you compare it to rates in other countries. If we want to be competitive around the world and want to help our businesses here at home we can and should lower this rate. It is one thing the Republicans have always wanted and we can give it to them! But with our fiscal situation we cannot risk drastically loosing revenue. So at the same time we make sure to close loopholes and deductions for the big multinationals. Deductions that reward moving jobs overseas, or keeping profits overseas. These are just a few of the loopholes that cost us billions every year. I’m sure here is a sensible compromise that could be easily reached.

Then there is the issue of spending cuts. We can come up with a sensible budget that trims the fat is some areas, but preserves our most needed government functions. With the Iraqi war over and Afghanistan winding down, the defense budget, which makes up about a quarter of government spending can be significantly reduced. As for Medicare and Medicaid, these costs have already begun to be tackled in part by the Affordable Healthcare Act. One of the key purposes behind the law was to lower healthcare costs not just for individuals, but for the government as well. Only that it won’t be until 2014 when the full law goes into effect, and it will be another year or two afterwards before we can see if the law is successful in lowering our country’s healthcare costs. Further moderate reductions can be made to these programs in a sensible fashion that doesn’t jeopardize the intended benefits of these programs.

You don’t have to agree with all these ideas. The bigger point is that there are many issues to look at and there is room for compromise in all of it. Not everyone will get his or her way 100%. But for progress to be made, each of these issues needs to be debated sensibly in a moderate fashion, free of past pledges and promises.  Hopefully a solution can be reached that looks to benefit our entire nation and all Americans. We are tired of the past few years where partisan politics has prevented our government from taking action in a time when we need progress the most. If I could say anything to Congress I would say, THIS IS YOUR MANDATE, to work together, compromise and find solutions; even if it means staying up to 2am and forgoing another vacation. Git er done!

If you like some of the ideas laid out in this article, you may read further on how we can find common ground and compromise in my book Social Capitalism: A Return to Balance and Reason.