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.

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