Four Barrelstrengthians gathered for lunch today, and our one Obama supporter held forth in a way that was interesting enough to pass on. Oban’s argument went like this.

1. We are living in an age of deflation. Money is becoming relatively more valuable than things. Your dollar goes farther. It buys more and better for the same dollar than it did ten or thirty years ago. Think of anything from coffee cups to cars and computers; they are better than they were.
2. In an inflationary world you borrow to the max and buy real assets and pay off in less valuable dollars. In a deflationary world you struggle to keep out of debt. The psychology of the 1970s and 80s is reversed.
3. Deflation means that those who own money are pulling ahead of those who only offer services, because their money is worth relatively more than salaries or wages, because they have more of an increasingly valuable asset.
4. The consequence is the proletarianization (Oban’s word) of many members of the middle and working classes. Free trade and the Internet means we compete with lawyers and accountants in Bombay and Singapore, chip and computer makers in Indonesia, and with new, more intelligent, machines everywhere. The value of wages does not keep up  with the value of capital. By this I infer that Oban means: while your wages may buy you more than they did in the past, your salary returns relatively less than it did compared to the returns to the owners of capital. Capital procures more wealth than it did before, while labour both skilled and unskilled procures less. Less in relation to what? Wages and salaries buy less, not with respect to what they bought before, but less in proportion to the revenues accruing to the owners of capital. The slices in the social revenue pie change.  Returns to capital accrue relatively more than to wages and salaries. The result is that the relative wealth of the already rich is growing. Their capital is buying the increased productivity of machines and the instructions which drive them.
5. You, the working types, are better off if you can keep a job, but keeping your job is the challenge. An economy running on capital and intelligent machines needs fewer of you and me.
6. The solution: unknown. The immediate remedy: tax those earning $250K and 500K much more, rather than much less. Income transfers to them are not generating greater wealth.
7. And that realization, however dimly perceived by many Americans, is why Romney did not win. His plans to tax the rich even less would have had no effect in creating new jobs. ( We all recognize they pay most of the freight already) .

I have heard the demographic arguments (the browning of America) and they play a role in the trouble of the GOP. The changing economic underpinnings of capitalist society provide another strong argument for rethinking tax cuts for the rich.

That is Oban’s well-reasoned view. If you can do better, let us hear from you. Discuss.

The late George McGovern, Presidential candidate, US Senator, and convinced interventionist, bought a hotel in his retirement, which proceeded to go bankrupt in a severe recession. These are his thoughts on government intervention.

By George McGovern
Wisdom too often never comes, and so one ought not to reject it merely because it comes late.
– Justice Felix Frankfurter
It’s been 11 years since I left the U.S. Senate, after serving 24 years in high public office. After leaving a career in politics, I devoted much of my time to public lectures that took me into every state in the union and much of Europe, Asia, the Middle East and Latin America.
In 1988, I invested most of the earnings from this lecture circuit acquiring the leasehold on Connecticut’s Stratford Inn. Hotels, inns and restaurants have always held a special fascination for me. The Stratford Inn promised the realization of a longtime dream to own a combination hotel, restaurant and public conference facility — complete with an experienced manager and staff.
In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.
Today we are much closer to a general acknowledgment that government must encourage business to expand and grow. Bill Clinton, Paul Tsongas, Bob Kerrey and others have, I believe, changed the debate of our party. We intuitively know that to create job opportunities we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.
My own business perspective has been limited to that small hotel and restaurant in Stratford, Conn., with an especially difficult lease and a severe recession. But my business associates and I also lived with federal, state and local rules that were all passed with the objective of helping employees, protecting the environment, raising tax dollars for schools, protecting our customers from fire hazards, etc. While I never have doubted the worthiness of any of these goals, the concept that most often eludes legislators is: “Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.” It is a simple concern that is nonetheless often ignored by legislators.
For example, the papers today are filled with stories about businesses dropping health coverage for employees. We provided a substantial package for our staff at the Stratford Inn. However, were we operating today, those costs would exceed $150,000 a year for health care on top of salaries and other benefits. There would have been no reasonable way for us to absorb or pass on these costs.
Some of the escalation in the cost of health care is attributed to patients suing doctors. While one cannot assess the merit of all these claims, I’ve also witnessed firsthand the explosion in blame-shifting and scapegoating for every negative experience in life.
Today, despite bankruptcy, we are still dealing with litigation from individuals who fell in or near our restaurant. Despite these injuries, not every misstep is the fault of someone else. Not every such incident should be viewed as a lawsuit instead of an unfortunate accident. And while the business owner may prevail in the end, the endless exposure to frivolous claims and high legal fees is frightening.
Our Connecticut hotel, along with many others, went bankrupt for a variety of reasons, the general economy in the Northeast being a significant cause. But that reason masks the variety of other challenges we faced that drive operating costs and financing charges beyond what a small business can handle.
It is clear that some businesses have products that can be priced at almost any level. The price of raw materials (e.g., steel and glass) and life-saving drugs and medical care are not easily substituted by consumers. It is only competition or antitrust that tempers price increases. Consumers may delay purchases, but they have little choice when faced with higher prices.
In services, however, consumers do have a choice when faced with higher prices. You may have to stay in a hotel while on vacation, but you can stay fewer days. You can eat in restaurants fewer times per month, or forgo a number of services from car washes to shoeshines. Every such decision eventually results in job losses for someone. And often these are the people without the skills to help themselves — the people I’ve spent a lifetime trying to help.
In short, “one-size-fits-all” rules for business ignore the reality of the marketplace. And setting thresholds for regulatory guidelines at artificial levels — e.g., 50 employees or more, $500,000 in sales — takes no account of other realities, such as profit margins, labor intensive vs. capital intensive businesses, and local market economics.
The problem we face as legislators is: Where do we set the bar so that it is not too high to clear? I don’t have the answer. I do know that we need to start raising these questions more often.
Mr. McGovern, the 1972 Democratic presidential candidate, died Sunday at age 90.