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September 03, 2010 05:44 PM UTC

Econ 101

  • 23 Comments
  • by: JO

(In an age when billionaires fund “faux populist” tax revolts, a whiff of old fashioned class consciousness can’t hurt.  JO offers this thought provoking look at inequality in America.   – promoted by Voyageur)

Required reading: Robert Reich in today’s NYT on ending the Great Recession: http://www.nytimes.com/2010/09…

For those in a hurry, Reich’s main points:

–Since 1970 real wages of American workers have declined. To compensate working families adopted three stratagems: a second member of the household went to work, typically the wife/mother; work more hours per year; go into debt, esp. home equity loans.

–Since 1970 the share of national income flowing to the top one per cent rose from 9% to 23.5%. In effect this siphoned off demand for goods and services produced by the larger work force that was working more hours.

–Increased production from abroad (China) put further downward pressure on real American wages.

(These are Facts, or what American Teahadists refer to as a “pack of lies.” http://coloradopols.com/showCo… )

Solutions?

Reich suggests several specific measures and I won’t further crib from his piece by borrowing from them here. BUT, suffice it to say that at root, these involve a re-redistribution of income. It’s no surprise, therefore, that billionaire Libertarians like the Koch brothers are eager to finance Teahadists posing as Mall-town preachers (Beck) or a flock of High Plains shysters selling hokum by the barrelful.

As one prominent Louisianan once said, “It’s the economy, stupid.” Seems like an easy enough lesson. Odd that the official Democratic ticket seems to have such a hard time learning it, especially since FDR already showed the way!

Comments

23 thoughts on “Econ 101

  1. It’s a nice summary of our current problems, although I’m not completely convinced by his proposed solutions. Although I think they’re fine ideas, I don’t see how we alter income inequality, change lifestyle expectations by the middle class, or decrease demand for cheap labor by making early and higher education free, or by providing income insurance to our unemployed.

    I agree that we should implement those solutions either way, but I think that there are some much greater issues at hand that unfortunately can not be changed by government policy.

    1. Productivity has increased enormously in virtually all areas — manufacturing and agriculture to name two. A disproportionate share of the benefits of that productivity has gone to owners of the machines. One way of looking at it: do assembly line workers receive the same percentage of a car’s selling price today as they did in 1970?

      Per Reich, unions today represent under 10% of all workers. Stats in the current downturn show that many people who do find jobs after being unemployed work for lower wages. A significant raise in the minimum wage ($15/hour now, rising to $25 in 2 years) could help correct this trend, at least for some/many.

      We really have to face up to the issue of imports, and most particularly to the issue of the exchange rate of the yuan. One reason it’s cheaper to manufacture goods in China is because that cost is kept artificially low by the exchange rate. Unless and until China is prepared to float that rate, the United States needs to do so for them by imposing tariffs.

      Lastly: I have a recollection of a time when the top marginal income tax rate was 90% (and possibly slightly above that) for the highest incomes. Per Reich’s article, we may have to head back in that direction as a means of redistributing wealth in the form of public jobs. Last month, layoffs by government actually exceeded new jobs created by private industry, thereby driving the unemployment rate UP! Say that again: government counter-acted job creation by the private economy, contributing to a net decrease in jobs!

      Do I think that Democrats are going to win in November by vowing to raise the top income tax rates to 90%? No, that seems unlikely–not because it isn’t a good idea, but because an electorate whose economic sophistication hovers close to ZERO (“Keynes is dead…pack of lies”–you read it here) won’t understand the issues at stake, as explained by Thomas Frank in “What’s the Matter with Kansas? How Conservatives Won the Heart of America” (2004). And as we know, that aspect of Kansas doesn’t stop at the state line west of Kanorado! Still, absent a magic wand, there’s no choice but to keep pushing the message.

      1. Looks like an interesting read.

        Franks’ thesis goes thus. “In order to explain to the “Cons” why no progress gets made on these issues, politicians and pundits point their fingers to a “liberal elite,” a straw man representing everything that conservatism is not. When reasons are given, they eschew economic reasons in favor of accusing this elite of simply hating America, or having a desire to harm “average” Americans. This theme of victimization by these “elites” is pervasive in conservative literature, despite the fact that at the time conservatives controlled all three branches of government, was being served by an extensive media devoted only to conservative ideology, and conservatives had won 6 of the previous 9 presidential elections.”

        And then I will turn my tv or radio on and listen to the hosts explain how we are taxing ourselves into ruin and how Obama hates America and how Hickenlooper will cut spending, and how H-Man wants to keep the rich, rich, ughhhhh.

        I’m off to the mountains with a case of cold ones….have a great weekend.

  2. http://www.truthandpolitics.or

    My main objection to such confiscatory rates is that they didn’t raise much money.  Ike hated them because as a poor Schmuck who made a bundle on his book “Crusade in Europe,” he actually paid that high rate.  

      Old line money and businesses managed to shift income to tax-free municipal bonds, capital gains, etc.

      Lowering such high marginal rates, as Kennedy did, actually raised income, in part by boosting the economy but mostly by coaxing income into general income from tax shelters.

       At some point, I think it’s clear we overdid the tax cuts — unquestionably so with Bush.

    1. At some point — and we can argue about what that point is, whether $1 million per year, $2 million, or more — I’d argue that it’s the income that’s confiscatory, since all wealth is a function of society (hint for those in Ft. Collins: money is a social institution).

      Of course, the complexity of the tax code represents the collective efforts of special interests to gain an advantage, including attracting funds for non-economic reasons. Tax exemptions are just as “socialistic” as any government spending; indeed, they are just two sides of the same ledger.

      1. and I can’t understand how anybody earning less than me gets by.

          Confiscatory taxes may promote social equality, but it’s a sharing of misery.  I favor a very strong educational system, a safety net including universal Canadian style health insurance, and enough of a dole to assure nobody starves.  After that, I recognize that Bill gates got his billions by making my life better, and I begrudge him not.

           Intuitively, I’d guess that marginal tax rates above 50 percent are counter-productive, actually reducing taxes collected.  Sweden once managed to get its tax rate above 101 percent and seemed shocked that high-earning professionals quit their jobs rather than dig into savings to pay a 1.01 on every dollar earned.

          We’re well below 50 percent now, and could use a bump.  But we’ve also got to get past the crap of pretending that family incomes of $200,000 are poor.  They ain’t, and they can pay a fair share of the tax burden.  I’m not saying raise the current middle-class taxes, but we need to recognize that people earning $100,000 plus should pay a fair share of taxes to support education, especially higher education, and the other things usually responsible for their success.

          I do, however, favor a 110 percent tax rate on the earnings of talk show hosts.  It’s time these parasites paid for the privilege 😉

        1. I would suggest that high tax rates encourage investment in factories, equipment, development, etc. By taking advantage of the tax code they push themselves back into lower brackets while creating the very infrastructure that requires new employees, creates an expanding local tax base and puts us back on the wrong track.  Look at the problem we have today:  we know there are hoards of cash sitting on the sideline.  Profits are being taxed at a low rate so there is little incentive to invest.  It’s worth incrementally more sitting in someone’s bank. Use higher tax rates coupled with aggressive investment tax credit/job credit scenarios as the stick to spur investment. You know how the folks in your neck of the woods are about paying taxes.  A farmer would rather buy a $300,000 combine he doesn’t need than pay the feds $50,000 in taxes.  

          1. When the farmer buys a combine, it’s an investment.

            When he buys a Ford Confusion, it’s spending.

            A benefit, either way. Maybe, to get the point across, we need to tax idle bank balances–twice, once on the owner, once on the bank that sat on the funds. “A penny saved is a penny taxed.” [Plus, writing the tax code to accomplish this could employ any number of out-of-work law school graduates!]

            AND certainly we need to penalize corporations for laying off workers. One of the reasons that unemployment in Europe is lower that it is here is that companies don’t immediately lay of employees as a first-line-of-defense to keep them profits flowin’.

            1. A 0% tax rate gives business zero reasons to seek investments that produce credits, depreciation, etc.  Agreed that it’s all based on the premise there are profits first.  But, do you really believe Bill Gates cares what the tax rate is?  I can promise you whatever it is he’s looking at every possible nook in the tax code to [legally] evade as much liability as possible.  When the rate is high [and he is profitable] – he’ll be making investments that spur the general economy.

              1. He hires others to do that 🙂

                More importantly, I don’t think he or Microsoft made decisions based on the tax rate. When I worked at Microsoft the goal was total world domination, not maximum profit.

                I think we’re mostly agreeing though – that a change in the tax rate is not going to cause businesses to do anything different.

  3. I acknowledge that reasonable people can differ as to what the appropriate tax rate should be.

    If you want even basic services like police and fire, the money has to come from somewhere–it isn’t free. So a significantly lower tax rate inherently means a reduction in services.

      1. In some places, the fire department sends a bill afterwards. http://www.nytimes.com/2010/09

        How long until competing private departments? Gated communities with private security. Special schools for kids living there?

        How far are we from the complete atomization of American society? Not as far as some might imagine–further than some wish.

        1. if you want to enjoy America’s great open spaces, national parks and such, just be careful not to have an accident, because the greater tragedy might be when you get the bill for your rescue. We really have become such an individualistic society that we can’t even form a bucket brigade these days without asking for pay up front. What has become of us? Why did we let the John Birchers take over?

          1. Many people feel, correctly, they are slipping down the slope of social mobility, feel, correctly, they don’t have enough money to afford their current lifestyle, and thus are poised to view taxes (and the services which they fund) as nothing more than the hand of those even further down the slope reaching into their pockets.

            The reversal of social mobility for the great bulk of people in our society is no small matter. Certainly enough to set one group of down-sliders to fighting other groups of down-sliders for the (relatively) shrinking crumbs left to them. As of 2007, 1% of the population controlled 34.6% of the wealth; the next 19% had 50.5%; and the bottom 80% of the population held just 20%. http://sociology.ucsc.edu/whor… . (There are similar figures for share of income.)

            AND, when bank accounts can vote in the form of buying advertising (the above isn’t even accounting for the nominal holdings of corporations, nominal in the sense that the stock in corporations is owned by somebody), well… this ain’t exactly the land of Little Foreclosed Houses on the Prairie, or is it?

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