How to save the US economy

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Story highlights

  • Yanis Varoufakis: America needs to develop a new Manhattan project by boosting public and private investment -- significantly
  • In the past, American prosperity relied heavily on government intervention and subsidies
  • Yet now the sensible policies that the US needs are off the table

Yanis Varoufakis is a former Greek finance minister, a professor of economics at the University of Athens and a Distinguished Visiting Professor of Political Economy at Kings College, London. The opinions below belong to the author.

(CNN)Arthur Miller once said that "an era can be considered over when its basic illusions have been exhausted."

The faith in trickle-down economics, in the wisdom of unfunded tax cuts, in the capacity of Wall Street to regulate itself, and in Silicon Valley to look after America's innovations -- all of these illusions now look completely exhausted.
    Americans have good cause to be disillusioned. Median incomes have hardly grown since the mid-1970s.
    McKinsey recently reported that, between 2005 and 2014, 81% of American families, despite working longer hours, have seen their incomes stagnate, or indeed fall. Whereas in 1980, 99% of Americans were enjoying 90% of US income, today their share has fallen precipitously to 78%.
    The establishment may be celebrating the ultra low 4.9% unemployment rate, but says nothing about the fact that between 2000 and 2015, 3% of 25 to 54-year-olds have fallen out of the labor market and into the wilderness of destitution. And many of those who remain employed would like to work more hours and in jobs that offer greater dignity.
    Yanis Varoufakis
    What explains this decline? The answer is simple: investment in the real US economy has been woefully low. And what can be done about it? Simple again: boost investment -- significantly.
    But here's the question: shouldn't the business sector be doing this? It would be swell if business were willing to do so, but the simple fact is that it is not. More than $2 trillion are slushing around in America's financial sector, without being invested in something productive.
    American economic prosperity always packed a delicious irony: while it depended heavily on government intervention, the dominant narrative was that every success was due to heroic individualists and each failure was caused by the state. In reality, America got prosperous because the waves of infrastructural investments that transformed the nation were subsidized by the government.
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    In the 19th century, it was the Erie Canal that linked the Midwest with the Atlantic and the railway projects that were underwritten by the public sector, usually after the privateers filed for bankruptcy.
    In the 20th century, it was (besides the two world wars that did wonders for growth and innovation) the construction of the highways at first and later the great government-funded research projects that spawned, among other things, the computer and the Internet.
    Today, it is clear, at least to outsiders, that the US needs another such infrastructural revolution.
    So is Silicon Valley doing it? What about the shale-oil industry?
    While Silicon Valley is producing astonishing innovations, with corporations on the verge of global informational domination and Elon Musk ready to invade Mars, it has no capacity to provide the high-quality jobs that may re-balance American society.
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    And as for the shale-oil industry, it's demonstrated how adept the private sector is at unearthing well-hidden fossil fuels, but not its capacity to stop humans from treating the planet we inhabit like a stupid virus killing its host.
    When the world faced Armageddon in the 1940s, in the form of Hitler's atom bomb program, Washington responded with the Manhattan Project. In effect, they gathered the best scientists, gave them as much money as they needed in fully-appointed facilities, and said to them: "You have two years to deliver the bomb."
    Today, we face similar threats to the planet: climate change, rising seas, water shortages, etc. Our cities are less sustainable than ever. Commuters waste more and more of their lives in stationary cars.
    America needs a new Manhattan Project, one located on hundreds of campuses around the United States, that helps put to work the idle trillions of dollars, our scientists, and the next generation of youngsters (who must be educated with government subsidies to end the student debt scandal). The joint effort would produce technologies that could lead to a cost-effective green transition.
    Who will pay for it? Just as the government-funded Internet spurred massive private sector growth -- and taxes -- so would the technologies that could spring out of a new Manhattan Project.
    But first the initial investment must come from government. To do this, the United States needs to collect more taxes. It is scandalous, for instance, that the IRS does not exercise its right to tax the earnings of corporations like Apple, Google and Gilead for intellectual property rights developed on American soil, letting them park billions upon billions of dollars in tax havens, including Ireland. Overall, US federal taxes must rise from the present ultra-low 17% of GDP to at least 25%, with all of the increase coming from the top 1%. This is what logic and justice demands.
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    What stops America from doing this service to itself? It is the 30-year-old bipartisan class war waged against America's working class and shrinking middle class. Republicans automatically gravitated to tax cuts for the rich. Democrats served Wall Street and exhausted their talents at finding ways to curtail welfare. Both burdened the young with unbearable student debt. The US has reached a point where sensible policies, that the nation needs, are off the table.
    Bernie Sanders' campaign is the silver lining of this year's Presidential campaign. One does not need to agree with everything he proposed to come to this conclusion. What matters is that he raised all the important issues that had hitherto been taboo (e.g. student debt, re-regulating Wall Street, higher taxes for corporations). And he demonstrated that a new progressive internationalism can breathe life into politics.