MSNBC w/ Cenk: Reich – Middle Class & Wages

This video reminded me of why it doesn’t help the economy to give tax cuts to the rich and generally increase the wealth of rich while leaving behind everyone who isn’t part of the ruling elite. From just an economic perspective, there are three problems:

1) Increasing the wealth of the wealthy doesn’t necessarily increase investment. At some point, a person becomes so wealthy that further wealth becomes meaningless. This leads the super rich to gamble with their excess wealth which was one of the contributing factors to our recent economic crash. Financial gambling doesn’t make for a stable economy nor does it have any social value. So, if the government genuinely wants an economy that grows with stability rather than constantly crashing, they should create regulation and taxation that helps decrease wealth disparity so that excess wealth isn’t concentrated at the very top.

2) Most new jobs are created by small businesses, but the tax cuts for the rich mostly only help big businesses. Also, the bailouts help Wall Street while leaving Main Street to suffer. Why help the rich who helped break the economy while sacrificing the working and middle classes which are simply trying to get by? A lot of the working and middle class was in debt for the reason that wages were stagnating even as the rich were getting richer. So, if the government genuinely wants to stimulate job growth, they should ensure that wages grow as the economy grows and they should give bailouts to small businesses while breaking up corporations that are too big to fail.

3) Even ignoring all that, giving more wealth to the wealthy doesn’t stimulate the economy for some simple reasons. Assuming they don’t gamble it, the other choice the rich could do with excess wealth is simply to put it into savings. The middle and working classes, however, will spend any extra money they have which invests back into the economy. For good or ill, the US economy is based on consumerism and consumerism is based on working and middle classes that have money to spend. Let me explain why. A rich person spends several hundred or even several thousand on a pair of shoes. For the same amount of money, hundreds of working and middle class people could buy shoes. The purchase of hundreds of shoes stimulates the economy more than buying one pair of shoes even if it’s the same amount of money. So, if government genuinely wants to stimulate the economy, they should give tax cuts to the working and middle classes.

All of this assumes that those in power actually care about the economy as a whole and actually care about the average American. I suspect that this is a false assumption. It’s hard for me to believe that after all these decades intelligent people (including Democrats like Obama apparently) think that trickle down economics actually works. I think these people know that it just makes the rich richer. That is why they do what they do. Politicians are of the rich and have campaigns funded by the rich. Why would they help the lower classes? So, what if the economy collapses? The rich will always maintain their wealth. If the country gets bad enough, they’ll just move to a pleasant tropical island and take their wealth with them.

Here is another video that relates, but it’s from more of a libertarian perspective:

The author interviewed, Thomas E. Woods Jr, is criticizing the US military-industrial complex. Besides the moral argument, he mentions that military is not a very good investment. When we invest in military that is less that can be invested in other things such as education or infrastructure. Also, funding goes to defense research which uses up public tax money and wastes the most brilliant minds on discovering more efficient ways to kill people. Those same dollars and those same brilliant minds could be used for research to cure cancer or research into alternative energy.

Once again, the only people who benefit from the military-industrial complex are the defense contractors and the wealthy investors in these companies. Certainly, the average American who pays for these wars and dies in these wars aren’t benefiting. The only reason we have any interest in the Middle East in the first place is because of the oil that is there and those most interested in that oil is of course the big oil companies seeking profit from a dwindling resurce.

There were some comments below that last video which gave me some hope. Here is one from a user going by the name capitalist4life:

“I am a recovering neocon. I was converted through Dr. Paul’s gentle suggestion that our foreign entanglements may cause some foreigners to want to kill us. I found that reasonable and I became more anti-war as I saw Hannity and Limbaugh vicously attack that reasonable idea. The one thing that didn’t convince me was strong anti-war rhetoric. I had to be eased into it. Just keep that in mind. Don’t be aggressive and extreme. Gently ease our “conservative” friends into the anti-war way of thinking.”

But let me end with a different quote. One of the last truly moral Republican leaders was Dwight D. Eisenhower who, of course, is famous for warning about the military-industrial complex. He was far from being a pacifist liberal and for that reason his words are all that more important. He seemed to genuinely believe that politicians should serve all Americans and not just the wealthy. Here is what he said in a 1953 speech:

“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.”

Reagonomics & Tax Cuts for the Rich

Rich and defenders of the rich (who have an unfounded belief that one day they will be rich) love to argue for tax cuts for the rich. Afterall, they earned it. The people working in the factories didn’t earn it. The indigenous who were living on natural resources the rich took away didn’t earn it. The taxpayers (which excludes some of the wealthies US companies that pay no taxes at all) who bail out the rich didn’t earn it.

Who owns most of the wealth? The best way to determine this is to add all wealth and invested wealth. The only factor that should be excluded is the wealth invested in the houses people live in because it can’t easily be translated into tangible wealth and in this market many people lose their homes after investing lots of money into them. So, going by all wealth accept for homes, the top 1% own more wealth than the bottom 95%.

How do wealthy people get their wealth? Most wealthy people are born into and grow up with wealth. Most wealthy business owners received larged start-up money, inherited a business, or inherited other forms of wealth.

Another way of thinking about wealth is wealth disparity. Ever since Reagonomics, the wealth disparity has increased to the highest in the developed world.

http://counterpunch.org/pollin02222006.html

“At the simplest factual level, it is not accurate that Reagan’s tax policies were responsible for bringing inflation down, from an average rate of 8.2 per cent under Nixon, Ford and Carter, to 4.6 per cent under Reagan. The main force here was the stringent monetary policies imposed by then Federal Reserve Chair Paul Volcker. Volcker was appointed not by Reagan but by Jimmy Carter in 1979… Volcker did indeed break the back of persistent and rising inflation brought on primarily by the four-fold oil price increases in 1973-4 and again in 1979. But he achieved this at a very high cost… real wagesi.e — . the buying power of your dollars of wages — peaked in 1973, the period of high inflation. Average real wages fell sharply throughout the Reagan presidency. The average figure for those eight years, at $15.72 per hour (in 2005 dollars), was 7.6 per cent below the average hourly wage under Carter of $16.95, and 9.6 below the Nixon/Ford peak of $17.39.

…This decline in real wages, beginning in the late 1970s and accelerating sharply in the 1980s under Reagan, is also a crucial link in understanding why inflation did not rise up as unemployment fell in the 1990s, contrary to expectations of virtually every single economics textbook. The standard theory held that when unemployment gets too low, workers gain in bargaining strength. They then push up wages, and businesses pass along these additional costs in the prices they charge consumers. This means rising inflation. But beginning in the 1990s under Clinton, unemployment fell, to as low as 4.0 per cent in 2000, but inflation stayed low. What happened?

Former Federal Reserve Chair Alan Greenspan’s own answer to this question (as reported by Bob Woodward in Maestro, his book-length hagiography of Greenspan) was that U.S. workers had become increasingly “traumatized” in the 1990s, and as such did not feel sufficiently secure to attempt to bargain up wages even at low unemployment. …if one would have to pick the single most important turning point over the past 30 years in the treatment of U.S. workers, I would choose Ronald Reagan’s decision to summarily fire more than 11,000 air traffic controllers who, as members of PATCO, the air traffic controllers’ union, went on strike eight months into Reagan’s presidency, in August 1982. This early attack by Reagan was followed by eight years of relentless hostility to the organized working class.

But Reagan did not attack the organized working class only. More broadly, Reaganomics entailed a dramatic new framework for fiscal policy, the area in which Mr. Roberts was likely to have primarily involved as a Treasury official. Reagan’s fiscal program was fundamentally about tax cuts for the rich, a massive expansion in military spending, sharp reductions in social expenditures, and an acceptance-or better still, an embrace-of large-scale federal government fiscal deficits on these terms. All of this should have a familiar ring to those who have followed the course of economic policy under George W. Bush.

No doubt Mr. Roberts recalls President Reagan’s frequently recounted stories about “welfare queens” driving to pick up government checks in their Cadillacs. It was through repeating stories like this that Reagan was able to build support for an assault on even the minimal welfare state programs that had been operating prior to his taking office. It is no surprise that the individual poverty rate rose from 11.9 per cent under Carter to 14.1 per cent under Reagan. ..large-scale fiscal deficits create persistent pressure for a permanent contraction in social spending by the federal government… Remember the Reaganites, as with the Bush group, apparently experienced few qualms about throwing more money to the military while cutting taxes for the already overprivileged.”