The GOP Is Wrong About the Economy - Dead Wrong

I want to get into some of the issues that we understand and misunderstand about taxes, money, wealth, and how the very, very morbidly rich in the United States have seized not only virtually complete economic power in this country but also virtually complete political power. They're damn close and they're doing absolutely everything they can to nail it down so that they never lose it.

And all over the country you've got individual Democrats running for office to pry those nailed-down boards back up. But anyhow, some concepts:

The first is a concept of money and this is actually a brilliant piece. Conrad Shaw is a writer, actor, filmmaker, lapsed engineer is how he describes himself, and he wrote this piece for titled "Money Isn't Money". And he makes two important points that I just want to stick in your head, here. The first is, he says:

"If you give a starving man $5, you've given him his next sandwich."

"If you give a wealthy man $5, you've given him five dollars."

You haven't given him a sandwich. He doesn't need a sandwich. What you've given him is $5. So sometimes money actually represents our core needs and sometimes it represents money. It's just money. It's just a medium of exchange.

And then building on that he takes the example of Mark and Mary. Mark and Mary live in the same neighborhood in the same town, so all the economic and socio-economic and whatnot factors, cost of living and everything, it's all the same. And Mark makes $40,000 a year and Mary makes $20,000 a year. And in this particular neighborhood, when you add up the cost of rent and food and transportation, electricity, septic, water, all the basic stuff that you have to have to live, it costs $19,000 a year to live in this neighborhood.

Mary's making twenty so Mary has $1,000 in disposable income at the end of the year or throughout the year. Mark, on the other hand, who's making $40,000 - Mary's making $20,000 - now most people would say Mark makes twice as much as Mary because he makes $40,000 whereas she makes $20,000, right?

He's actually making 21 times as much as Mary because both of them have to spend $19,000 to live in the neighborhood. After that, "money" is spent. And that's not really money, that is cost of living, right, after the basic core costs are covered. Mary has $1,000 left over, Mark has $21,000 left over, so there's a huge difference between the two.

And as Conrad Shaw writes:

"This is why increasing wealth and income inequality are so insidious. It is why the wealthy should pay a larger share in taxes."

So you've got that. Put that your head.

Secondly, Yves Smith wrote a brilliant piece over the last week over at Naked Capitalism and it starts out by recapping the current most widely held theory that keeps constantly being regurgitated on the pages of the New York Times and the Wall Street Journal, in the Financial Times and talking to financial advisors or friends or whatever, that why is it since 1980 the economy has just been kind of blah?

Why is it that working people's wages never recovered after the Reagan presidency?

Why is it that the rich - the top one-tenth of 1% or one hundredth of 1% - have seen their income go up over six hundred times, 600%, but the average working person has actually seen their wages go down since the Reagan presidency? Why is that?

The main theory that's put forward right now is that we stimulate the economy, that the economy is soft because of lack of cash - whether its lack of available credit or whether it's lack of money for investment - it's a theory that's devoted to the top end of the economic pyramid, right?

And the story goes something like this: quoting from Yves Smith:

"The secular stagnation is caused by a heavy overdose of savings (relative to investment), which is caused by higher retirement savings due to declining population growth and an ageing labour force ... higher income inequality ... and an inflow of precautionary Asian savings."

In other words, the theory that everybody's operating under is that billions and billions of dollars of money are coming from China, they're buying up real estate, driving up housing prices but they're not helping anybody's wages, that baby boomers are aging out and they're just saving their money, that wealthy people are saving their money and all those savings are slowing down the economy. And the Fed needs to speed it up by making interest rates even lower.

Well, we know that that's not true because the Fed reduced interest rates to zero, functionally. In Switzerland they actually made them negative. You actually had to pay banks to take your money and they would loan you money for free, functionally. It didn't make any difference.

And in his piece over at Naked Capitalism titled "Debunking Mainstream Economists on Secular Stagnation and the Loanable Funds Fallacy", Yves Smith points out that what really drives economies - and we've known this since Adam Smith, but somehow we've forgotten this since Reagan, since we got indoctrinated with this mindless trickle-down theory - that what drives economies is something called aggregate demand, which is wages in people's pockets - remember the Mark and Mary example - in the pockets of people who spend virtually all their money.

So if we really want to stimulate the economy, what we need to do is do the things that cause wages to go up, which means empower unions. What's Donald Trump done? One of the first things Donald Trump did is take a meat ax to unions. This from Dave Jamieson in The Huffington Post: "In Less Than A Year, Trump Has Stripped Back Workers' Ability To Unionize":

"His revamped labor board issued a slew of new policies at the end of 2017 that will make collective bargaining harder."

So Trump and the Republicans are doing the things that will suppress wages, which isn't going to help the economy, at the same time that they're telling us that this was the JOBS Act, right - the tax cut was actually the JOBS Act - at the same time they're telling us that by giving rich people more money, well, by giving all of us more money, they're saying that it's going to wonderfully stimulate the economy.

Well, some money will be going, some of these tax cuts, many of these tax cuts will be going to people in the middle but they're not going to be very large and probably won't have that much impact on the economy and they're not permanent. They're only there for a few years and then they go away.

The tax cuts for rich people are permanent. The tax cuts for corporations are permanent. The tax cuts for banksters are permanent. But the tax cuts for average working people, no - they go away after just a few years.

So what the Trumpistas are doing is the exact opposite of what should be done.


Kend's picture
Kend 5 years 22 weeks ago

"It is why the wealthy should pay a larger share of taxes"

They do according to CNBC

The top-earning 1 percent of Americans will pay nearly half of the federal income taxes for 2014, the largest share in at least three years, according to a study.

According to a projection from the non-partisan Tax Policy Center, the top 1 percent of Americans will pay 45.7 percent of the individual income taxes in 2014—up from 43 percent in 2013 and 40 percent in 2012 (the oldest period available). (Tweet this)

The bottom 80 percent of Americans are expected to pay 15 percent of all federal income taxes in 2014, according to the study. The bottom 60 percent are expected to pay less than 2 percent of federal income taxes.

OrgDevGuy's picture
OrgDevGuy 5 years 22 weeks ago

Has the writer changed? The "voice" on these posts seems to have changed writing styles considerably over the past week or so...

Legend 5 years 22 weeks ago

#1. Welcome to the world of inequality. They have the vast majority of income. Thus they pay taxes on it. Strongly suggest that you watch this video from one of America's honest billionaires.

ikeberltersen's picture
ikeberltersen 5 years 22 weeks ago

ODG: I've noticed this too. It looks like Thom's blog posts are transcripts of talks that he's given.

2950-10K's picture
2950-10K 5 years 22 weeks ago

The Koch Party might be dead wrong about trickle down and its impact on 99.99% of us, but their aim is true if you look at how the few hundred Fascists who own and manipulate them benefit. They're the true deep state that Fox News and other propaganda sites keeps hidden from their cult followers. The deep state fascists will actually increase their wealth and power as the economy becomes unraveled for the rest of us. They always do.

The Fascists have successfully inflated the stock market to record levels which brings up a question I've never heard addressed by anyone. Why is it that "main street" inflation is always well attended to in a timely fashion by the federal reserve managing credit via raising interest rates, yet they do nothing to curb the extreme inflation of "Wall Street markets?"

In fact the almost zero percent rates Thom mentioned create the opportunity for the Fascists to buy back their own shares and thus inflate the market. Ultimately the upcoming crash will do at least as much if not more economic harm than equally unattended main street inflation.

2950-10K's picture
2950-10K 5 years 22 weeks ago

Thom is exactly right, as well Richard Wolff.. ...labor unions are the pathway to economic justice and prosperity for all in a capitalist system.

"I'm sticking with the union!"..till the day I die.

stopgap's picture
stopgap 5 years 22 weeks ago

As usual, conservatives like Kend don't bother to ask why these numbers are the way they are. They just throw the numbers out there for whatever propaganda value might be garnered from them without ever asking why? Maybe his numbers are right, but they don't really tell the real story.

The question that Kend should be asking is why do CEOs now make 500 times the wages of blue-collar workers when in the past they only made 40 to 50 times what blue-collars workers made.

Kend's numbers only prove the extreme disparity of wealth that has resulted from Reaganomics. Of course the super wealthy will pay the bulk of income tax, since blue-collar wages, relative to inflation, have remained flat during the era of "tickle down economics," while the wealth of the 1% has skyrocketed.

After all, you can't squeeze blood from a turnip.

Bottom line, Reaganomics has created a nation of turnips.

deepspace's picture
deepspace 5 years 22 weeks ago

OrgDevGuy #2; ikeberltersen #5. Yeah, lately his blogs are largely taken from the transcripts of his radio show. That's cool, because it's a venue covering a lot of important but difficult topics; plus, you're witnessing Thom's mind as he works live with callers and guests of different political persuasions, along with many others who are experts in their particular fields.

When he puts pen to paper (fingers to keyboard) in the conventional fashion, he usually tightens up his syntax like any professional writer would do. But his on-air program is also a great, easy-to-listen-to resource, especially the commercial-free podcasts. A glimpse into his raw thought processes as they unfold in real time offers a unique, more natural conversational eloquence. Of course that's why he's a popular talk show host as well as an accomplished author.

2950-10K; stopgap. Right on. The best way to balance the economy so that it works for everyone is to bring the wild inflation of wealth at the very top down to realistic levels that would be in more proper ratio to everyone else. And the best way to accomplish that amazing feat is to pass a tax bill that significantly raises taxes on overly concentrated wealth as it reaches heretofore unimaginable heights.

Then taxes can be lowered and benefits increased on the middle and lower classes, so that consumers with money in their pockets to spend can create a natural "aggregate demand" -- not based on personal debt -- and therefore create a vibrant economy. Call it "trickle up," which is how actual successful economies have worked since early man and woman first learned to cooperate by trading resources and labor in order to collectively survive and thrive.

Ignore whiny rich bastards pleading for the rest of us taxpayers to please understand their horrible and terrible plight, sniff, and to please provide the poor babies much needed "relief." (And change their diapers while you're at it.)

Bullsh*t! Reframe the argument: taxes are not penalties to "punish" the so-called "makers" just because they had the wherewithal to get fabulously rich, as they would have us believe. It's about objective reality, simple math, and pragmatically calculating what makes for a healthy economy; it's not about the gossipy lives of the rich and famous and how they are God's gift to humanity in some Ayn Rand, Koched-out fantasy. So just follow the damn money and tax accordingly. What the hell is wrong with that?

Progressive, graduated taxes are more than a fair price to live in a large modern country. Wealth is not generated in a vacuum; and the more it accumulates and concentrates, the more it utilizes an infrastructure that must be paid for, including: an education system that produces an educated workforce; public investment in unbiased scientific research void of partisan politics and aggressive greed; water and sewer systems; electrical and communication grids; public transportation routes and structures; roads and bridges; fire departments; a police force; a court system; a postal system; an emergency response system; a National Guard; international diplomacy and defense treaties/agreements; forests and other protected publicly owned lands and waterways (ours, not theirs); clean air, water, and food; product safety guidelines; etc., etc. -- the rules of the road, so to speak.

Or, the alternative: Try making that killer billion-dollar Wall Street deal in the Mojave Desert, cowboy ...and here's a bottle of water to get you started. Ain't socialism great!

Oh, you'd like a little more, a better balance between reasonable capitalism and reasonable socialism, between "private enterprise" and "the commons," to use our forefathers' words? Well finally, welcome to the real debate.

The link provided by Legend, with Judy Woodruff interviewing Warren Buffet, says it all:

Legend 5 years 22 weeks ago

Here is a classic of what is going on. Tim Cook of Apple gets $12.8 million in Compensation plus $89 million in Apple stock. Tim Cook is nothing but a hired hand that happens to have inherited the CEO's position from Apple's founder Steve Jobs. He is living off of the legacy of Steve Jobs and has invented or brought to market virtually nothing on his own. Why not spread some of that wealth that he will never be able to use among the employees of Apple, the ones that really make the company work.

I have worked for companies that have been driven into the ground by over paid CEO's. They walk away with a golden parachute and more money than they can spend in a lifetime. They do not even have to be smart or competent. Just in the right place at the right time. I am sure that some are very smart but in the case of Charter Communications CEO is he worth (being generous and saying that he works a 72 hour week, 52 weeks per year) 98,000,000/(72 x 52) = $26,175 per hour?

Most of these types are completely out of touch with reality. They live behind secured gates with private guards. They socialize in private clubs only. They have several homes (with property managers) and travel to them in private jets that land at tax paid airports and are controlled by tax paid FAA. The jets and clubs are tax write offs and/or provided by the company. They donate money to politicians to protect this life style. The Republicans just paid them back. The link in post #10 is well worth watching.

Trump's Ex-classmate Joe's picture
Trump's Ex-clas... 5 years 22 weeks ago

VOTING OUT EVERY TRUMP AIGNED GOP MEMBER in 2018 - sparing only the few that are not afraid to challenge him - is the ONLY way out. If we fail, we risk losing democracy forever. It takes ONE generation - 20 years - for the new crop of humans to completely forget about what life in a true democracy was like. We must go all in in 2018. Trump, if he survives, will too.

I dont think we should run on impeachment. Trump is an asset to advertise our cause. Keep him IN until we take both houses. THEN - if we succeed - which we must - Trump, Sessions, Pence and ANYONE close to that conspiracy should go!

I think maybe Tillerson will end up being president for 2 years. We can do ANYTHING we want when we take control of the 2 houses. We should know that. We should not govern softly. Obama's one fault was being soft. This is a war!

JanB 5 years 21 weeks ago

Lower taxes discourage employee benefits because when corporate taxes go down, the after tax cost to the corporation increases. If the corporation is taxed at 50%, the net cost of $100 of benefits paid to employees is $50 (assuming profitability of the corp); If the taxes are reduced to 20%, that $100 of benefits costs the company $80 after taxes.

The lower tax rate drives up the actual net cash payout for their expenses, reducing the incentive for corporations to offer benefits (or higher salaries) that are not required by law and puts pressure on the company by stockholders to increase After Tax Profit by reducing those benefits.

As a CPA with a Bus Econ degree, I see this lack of understanding all the time. We need to teach economics and basic accounting to all high school students. Everyone should understand these basic concepts that affects every person’s cash situation, not just those who open businesses or take college courses in accounting and economics.

changeX's picture
changeX 5 years 21 weeks ago


If you are a wealthy Evangelical or even just a wealthy Christian with large sums in financial reserves, then by definition you are Anti-Christ. Thank you very much.

Alex Hidell's picture
Alex Hidell 5 years 21 weeks ago

No, the rich don’t pay most of the taxes. Federal taxes, yes, but taxes overall (state, local, and federal added up), NO ! See David Cay Johnston’s writing on this

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