A Short Course in Economics

Editorials

Apr 16

Your author is a consummate student of life, and has read copious amounts on far-reaching subjects, both common and eclectic. And for this reason and because our society has put the blinkers on, turning ridiculously tribal, this paper will not be appreciated by anyone who dismisses historical facts to support some political ideology held by their particular tribe. Even the term “liberal education” comes off as being polemical and strikes some of the population as “propaganda.”

So be it. Truth is truth no matter what anyone believes, and an education, to the open-minded, is always a blessing.

Right now, as I write these words, we are in the middle of the greatest pandemic to hit our shores. People are dying, and more will die. And sadly, because of our tribalism, it too has become a political hot button. Facts are being ignored, if not denounced outright. We are a funny, sad people. But I shall continue.

Because of social distancing and many locked up in their homes, our economy is tanking. I’ve heard it said, “If capitalism cannot take this minor bump in the road, maybe we should replace it with something that can.”

The problem is this: are we a capitalistic nation? Terms like capitalism, socialism, and communism are laid out like a plate of warm cookies, each person grabbing at the ones they want, and disparaging the ones they deem inedible, yet people really do not know what these concepts are. They define them loosely and cling to their supposed concept like an eel clings to its prey.

Words have both a denotation and a connotation.

Denotation, noun, the explicit or direct meaning or set of meanings of a word or expression, as distinguished from the ideas or meanings associated with it or suggested by it; the association or set of associations that a word usually elicits for most speakers of a language, as distinguished from those elicited for any individual speaker because of personal experience. https://www.dictionary.com/browse/denotation?s=t

Connotation, noun, the associated or secondary meaning of a word or expression in addition to its explicit or primary meaning; something suggested or implied by a word or thing, rather than being explicitly named or described. https://www.dictionary.com/browse/connotation?s=t

Thus, it incumbent upon this writer to lay before you the denotation and connotation of those things constantly tossed about by people unaware of their meanings.

Let us take the word capitalism. The word has the root, capital. In the context of our market economy, capital is defined as: the wealth, whether in money or property, owned or employed in business by an individual, firm, corporation, etc. https://www.dictionary.com/browse/capital?s=t

Some point out that we don’t have real capitalism, because the masses don’t have capital. But that is only a part of the extensive meaning of our economic system. Capitalism today is more easily described by the terms free market economy or free enterprise economy. https://www.britannica.com/topic/capitalism

Capitalism didn’t really start with Adam Smith’s publication of The Wealth of Nations, it had actually been around in some form in the Middle Ages. And hardliners tend to focus on Smith’s pronunciation against regulation. Here is something I found on the net.

In Smith’s time, markets were also often “thickets of regulation” imposed by the state, church, trading guilds and others, Norman said. Smith, indeed argued, that removing undue interference would allow trade to flourish and prosperity to increase. https://www.marketwatch.com/story/busting-myths-about-adam-smith-free-markets-and-the-invisible-hand-2018-09-18

But again, that is just one position on Smith’s monumental work, because even he advocated intervention in the form of taxation and bank regulation. Without these, capitalism could run ragged over the masses, and keep in mind that he lived long enough to learn of the French Revolution.

I’m sure you’ve heard the phrase “the invisible hand of the market.” Many economists have used this phrase referring to the “indirect or unintended benefits for society that result from the operations of a free market economy.” Or as Smith put it:

“By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

Adam Smith

However, Smith was well aware of human nature and also wrote about an order of men . . .

. . . whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. [Ref

Adam Smith

As you can see, Smith wasn’t exactly the Laissez-Faire ideologue some would have us believe.

“The oppression of the poor must establish the monopoly of the rich.”

Adam Smith

Smith goes on:

“But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.”

Adam Smith

As you can see, over 200 years ago, he was warning against a huge wage gap. All wealth begins with “labor” and the wealth gap increases when employers pay their laborers less than they are worth. (Or when taxes subsidize businesses by paying for their externalities, as you will see further on.)

“Labor was the first price, the original purchase – money that was paid for all things, It was not by gold or by silver, but by labor, that all wealthy of the world was originally purchased.”

Adam Smith

Let’s take a look at the definitions of socialism and communism.

Socialism consists of the social and economic doctrine that calls for public rather than private ownership or control of property and natural resources. https://www.britannica.com/topic/socialism

Communism is the political and economic doctrine that aims to replace private property and a profit-based economy with public ownership and communal control of at least the major means of production (e.g., mines, mills, and factories) and the natural resources of a society. https://www.britannica.com/topic/communism

Notice that I did not say, “On the other hand, communism is . . . .” because the difference between the two has been and always will be up for debate.

But Americans have had a bit of history with the word communism, and some of our darkest days were the “commie hunts” of the fifties, which rightfully or wrongfully came after FDR introduced us to the “welfare state” which has been derided by certain groups still to this day.

But it is their connotation of the term welfare state that they attack. The actual denotation of the term is this: a concept of government in which the state or a well-established network of social institutions plays a key role in the protection and promotion of the economic and social well-being of citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life. The general term may cover a variety of forms of economic and social organization. https://www.britannica.com/topic/welfare-state

As a friend and teacher once pointed out to me, commie-baiting and denouncing, loudly, I might add, socialism and the welfare state exist for the benefit of the wealthy who are hostile to sharing. She also told me that it would seem that the wealthier a person is, the more poorly they performed in kindergarten. However, as we will show you further on, socialism and the welfare state do benefit the wealthy because money flows upward. Demand is the key term here, and there is no demand if the masses do not have money.

Communism and socialism exist today in their strictest definitions, and there are also pockets of socialistic groups in many nations.

Milton Friedman famously regarded kibbutzim (regarded as socialist by the founders themselves) as “free market” institutions because they were voluntary.  All of the language around “orientation of social values towards the fulfillment of human need” is completely fine as long as it is voluntary. In the U.S., many religious groups, including the Amish, Mennonites, and Mormons are very focused on helping their brethren and others. https://www.allsides.com/dictionary/socialism

As you can see, how we feel about these doctrines is really based upon whether they are forced upon us or we’ve chosen to adopt them.

We have a new term in our lexicon today that supplants the term welfare state, and that is Democratic Socialism, which means we, the people, have chosen to care for the welfare of the people. A government based upon these principles still supports the free market, while taxing both the wealthy and the masses to pay for housing subsidies, cheaper and even free college and trade school education, the military, fire and police, the FBI, CIA, NSA, etc, and health care. Opposition to these some of these things comes in the form of calling them “free stuff,” when in reality, we are all paying for them, and the people pay according to their means.

“Why should I pay for other people’s free stuff? I worked hard for my money.”

In a humane society, we all chip in and pay, because nothing is free.

And you will note that certain pundits never call tax breaks (heck, some companies pay no taxes at all) or subsidies to industry socialism. For some reason, they call it good business and great for the economy, and I’ll debunk all that in a bit.

Did you know that the fossil fuel industry, one particular industry that is causing global climate change and will eventually harm all life on our planet, gets one million dollars a minute from the people’s taxes?

And they still call it free market capitalism.

Where did the idea that people owe back to society originate?

Ancient Greece.

You see, Greece originally had a flat tax: everyone paid the same amount. If you couldn’t pay your taxes, you were marched to the gates of the city and tossed out on your ear. Beyond the gates of the city was certain death.

However, after following this rule for a while, their civilization began to break down, for it was from the ranks of the poor that the ranks of the military were filled, as well as important functions, such as cleaning up garbage. The poor provided the wealthy with their best workers.

So the Greeks, famous for their thinking, got together to mull over this problem. The question foremost in their thinking was: What is the most important facet of a society?

The answer they came up with was quite simple: Society itself is the most important facet of a society. Without society, one could not gather and maintain wealth because someone would come and take it away. Without society, anyone could take your life.

They thus concluded that those who get the most from society owe the most back to that society. The progressive tax was born.

And did they become rampant communists or socialists? (The progressive tax too is often maligned as communism or socialism, and we all know how opposition to any proposal to help the people has been referred to as a “slippery slope.”)

Actually, if you wish to call the progressive tax socialism, go right ahead, because it was the Greeks who gave us the first democracy on our planet.

Democracy and socialism are not mutually exclusive. Our country has always been an admixture of philosophies just as it has been an admixture of religions and nationalities.

We can call our system of economics “free market capitalism,” but it must be regulated to some degree or it becomes disaster capitalism. Freedom isn’t free, as soldiers will tell you. And how free is the market when it keeps getting funded from our taxes to keep it from collapsing, or to revamp it after it has collapsed. Free market capitalism works only in theory. In reality, it creates the “greed and excess” that lead to financial unrest.

Capitalism needs regulations just as football needs regulations. No one would ever suggest that we pull the referees and officials off the football field. Human nature just tends to devolve into chaos when unregulated.

For years, America’s economy rode the roller coaster of “Boom & Bust.” And that last ride, the Roaring Twenties, followed by the Great Depression, caused economists and political leaders to rethink economic policy. It was an uphill battle between regulation and free market capitalism, and that battle goes on today, except deregulation has become the war cry of the rich and powerful.

“It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.”

Harry S Truman

You see, FDR put into place the most sweeping humanitarian and economic polices this nation has ever seen, although every program and every regulation has been slowly chipped away at, and what we have today, is hauntingly reminiscent of the days leading up to the Great Depression.

Here are the programs and regulations that FDR established.

Civilian Conservation Corps (CCC)

Created in 1933, it established the philosophy that the government should be the employer of last resort. It provided jobs for thousands who built public works projects in parks, consisting of roads, trails, and structures we still see today.

Civil Works Administration (CWA)

This too created thousands of jobs, but they were high-paying jobs in construction. However, it cost us so much that it was ended in 1934 after just one year of draining our coffers.

Federal Housing Administration

Established in 1934, it was designed to end the homeless problems caused by nearly the same things that led to our homelessness crisis today. Banks were crashing, they recalled their loans, and suddenly families were out on the street. And were the FHA today as it was back then, we’d be doing a much better job of ending homelessness, but bureaucracy and cuts to funding have left numbers who have reached out to them without many solutions, or even answers.

This is just one example of policies put into place to help the poor and middle class, much like LBJ’s War on Poverty, that opponents, over the years, slowly chip away at until they fail. And then those opponents tell us, “Look, that program is a failure.” The War on Poverty, at one time, was one of the biggest successes of any government program, shrinking poverty rates to their lowest level in its short, but recorded history. It’s hard to know poverty rates before 1964 because we didn’t keep records.

Federal Security Agency (FSA)

Abolished in 1953, it had oversight of Social Security, federal education funding, and the FDA, which had been created a year before the FSA.

Home Owners’ Loan Corporation (HOLC)

This one is interesting because it is true socialism; a corporate entity owned and operated by the Federal Government. It lasted a year longer than the FSA, but in its first two years, one million people received long-term, low-interest loans, which saved their homes from foreclosure. It might be advantageous today to re-open this office, but free market enterprise, and the spooky cry of socialism keeps trickling down from the rich and powerful through their lobbyists and the politicians in their pockets. And I’ll demonstrate further on that this cry is the only thing that trickles down; wealth hardly trickles down. NEVER GOT A JOB FROM A POOR PERSON

National Industrial Recovery Act (NIRA)

This one didn’t last long. According to the Encyclopaedia Britannica (which I’ve been forced to buy a one year subscription to, though, it really is the most authoritative piece of work on the web, putting Wikipedia to shame): “Under the NIRA, companies were required to write industrywide codes of fair competition that effectively fixed wages and prices, established production quotas, and placed restrictions on the entry of other companies into the alliances.”

Suddenly workers had the “right” to form unions and were still not required to join them to continue working. This was a huge leap for the workers, because prior to this an employer could fire you for just talking about unions.

This Act created the National Recovery Administration that promoted compliance to all the reforms mentioned above. And even though businesses throughout the nation voluntarily complied with its practices, including Hollywood, laissez faire, free market capitalists took the government before the Supreme Court and it was declared unconstitutional.

According to the Encyclopaedia Britannica, “By unanimous vote, the court held that Congress had exceeded its authority by delegating too much legislative power to the president and industrial groups. It also found that NIRA’s “codes of fair practice” went beyond the regulation of interstate commerce in attempting to control intrastate activity. NIRA’s successor, the National Labor Relations Act (1935), proved acceptable to the court.”

I mention Hollywood specifically, because there are a bunch of old movies that show the following image in their openings and in their credits from that era, and it always struck me as kind of funny what Hollywood had to do with the National Rifle Association.

Having been smacked down for its over-reach, Congress was later able to pass many of the NIRA’s labor provisions in subsequent legislation, such as the right to join a labor union.

Public Works Administration

From 1933 – 1939 this administration was designed to reduce unemployment though the construction of highways and public buildings. It spent about $4 billion dollars in the construction of more than 70% of new school buildings, 65% of city halls and sewage-disposal plants, 35% of new healthy facilities (back when hospitals were part of the commons), and 10% of new roads, bridges, and subways. The administration eventually ended when we moved to a war economy. https://www.britannica.com/topic/Social-Security-Act-United-States-1935

Social Security Act (SSA)

Established by Congress in 1935, it established a permanent old-age pension system, financed by a payroll tax on employers and employees.

A History of Boom & Bust

Hoover’s crash was coming no matter what he did. In economics there is always a delayed effect. Much of the recession that hit the Bush administration had been caused by the last of the Clinton years. Clinton (known to some as the best Republican president in recent years) cut welfare, gave tax breaks to companies moving their operations off-shore, and doled out greater tax cuts than the second Bush.

Partisan hacks have defended the Clinton administration robustly, claiming that George W Bush never inherited a recession; that he was just making it up. But your author went out in search of non-partisan economists (they’re out there) and learned otherwise. [I cannot reference this because I did the research, just for my personal benefit, about 18 years ago.]

Cutting welfare and moving jobs overseas took a lot of money out of circulation; so did the tax cuts. We had a slight bubble, and then the recession began just as Bush was settling into the White House.

The rule of holes goes like this: when you’re in one, stop digging.

However, this is not what the Bush administration did; every hole they dug was fixed by digging deeper.

The Bush administration was the first government in the history of the world to give tax breaks during a war. I asked my conservative friend what the heck is up with this. His response? “Leadership.”

Sure, the leadership of the head lemming approaching a cliff. That cliff turned out to be a near depression.

The economic mess we were in was not solved in the two terms of Barak Obama, though he did balance the budget.

And it is here that we must spotlight the difference between debt and deficit.

A deficit is the amount of money that falls short of the bills we have to pay.

Debt is what is owed, and we have to separate private from public debt. Private debt is what you owe, and public debt, often referred to as the National Debt, is what the government owes. You see, when we spend more than we’ve taken in, that deficit becomes debt, and it has to come from “somewhere.” We owe that money back to whoever loaned it to us.

“I, however, place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared.”

Thomas Jefferson
[It needs to be noted that “republicanism” of Jefferson’s time was not a political party but a concept that stressed liberty and unalienable individual rights.]

Presidents Clinton and Obama both balanced the budget, meaning that what they spent was what the government took in.

President Reagan, on the other hand, held a contradictory viewpoint on this matter.

When he came into office he said, “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”

As he governed he said, “I am not worried about the deficit. It is big enough to take care of itself,” and lowered taxes while increasing spending and increased the debt further than any president up till the present. We really do not know how much this current pandemic will cost us and we will have to wait to compare the current administrations deficit and debt at a later date.

And it is hard to fathom exactly how much a trillion of anything is, so here’s some help.

  • 1 million seconds = 11.57 days
  • 1 billion seconds = 31.71 years
  • 1 trillion seconds = 31,709.79 years

Or you could put it this way.

  • A billion seconds ago was 1988.
  • A trillion seconds ago was 29,689 BC.

As you can see, when politicians decry “big government,” it’s just a catch phrase. By the graph above you can see that those who denounced big government the loudest spent the most (especially when converted to today’s dollars).

When a politician runs on a platform to end big government, it turns out that what they really plan to do is give tax breaks to the wealthy, and President Reagan brought back the “Trickle Down” theory of economics: that if we give tax breaks and subsidies to big business, the people will all benefit with more jobs and better incomes. That is about to get debunked.

“If a free society cannot help the many who are poor, it cannot save the few who are rich.”

John F. Kennedy

However, my favorite quotation of JFK’s regarding the economy is this one:

“The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways.”

Supporting policies that favor the wealthy are those who hate the poor so fervently, they will go to the polls and vote against their own self-interests. They simply hate the fact that some poor person will get one dime they haven’t earned. So, instead, they vote to give their tax dollars to the rich. They believe that policies that make the rich richer will make them richer. This is where a “liberal education” comes in handy. History proves otherwise.

Far too many people do not believe their taxes are going to the wealthy. If that is so, then they must also believe that the 37,000 lobbyists in Washington are there to make friends. A great book to read is by David Cay Johnston, one of the best investigative journalists today. It’s called Free Lunch.

As we pointed out earlier, a million dollars a minute goes to the fossil fuel industry.

Tax payers, in 2013 paid $7 billion to help fast food workers because they don’t receive a living wage. That money went into our public safety net, paying for health care, nutrition, and rent subsidies.  

It’s so easy for some to shame the poor, because socializing costs of business while privatizing profits has created so many. Or as Martin Luther King Jr said:

“This country has socialism for the rich, rugged individualism for the poor.” 

MLK

And what exactly is “socializing costs?”

Businesses provide jobs and create wealth. However, the costs of doing business include something called, externalities. These are things we, the tax payers pick up.

In economics, externalities are: a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved. https://www.lexico.com/en/definition/externality

Some externalities are good, such as the pollination of surrounding crops by bees kept for honey.

Some are bad, such as air pollution and health care costs to care for those affected. In fact, we posted on the web this article:

Connecting the Dots: Glyphosate and COVID-19.

In it, epidemiologists are finding a connection between, not only glyphosate, but all types of pollution and the severity of being ill from COVID-19.

Externality costs can be measured in dollars, but now we’re seeing it measured in lives.

If a company (say, GE) pays zero in taxes, who pays for the roads they use to transport their products and services? Those externalities are picked up by the taxpayer.

“End corporate welfare—including hidden subsidies. We explained in earlier chapters how the government too often, rather than helping people who need assistance, spends its valuable money helping corporations, through corporate welfare. Many of the subsidies are buried in the tax code. While all the loopholes, exceptions, exemptions, and preferences reduce the progressivity of the tax system and distort incentives, this is especially true of corporate welfare. Corporations that can’t make it on their own should come to an end. Their workers may need assistance moving to another occupation, but that’s a matter far different from corporate welfare. Much of corporate welfare is far from transparent—perhaps because if citizens really knew how much they were giving away, they would not allow it. Beyond the corporate welfare embedded in the tax code is that embedded in cheap credit and government loan guarantees. Among the most dangerous forms of corporate welfare are ones that limit liability for the damage the industries can cause—whether it’s limited liability for nuclear power plants or for the environmental damage of the oil industry. Not bearing the full cost of one’s action is an implicit subsidy, so all those industries that impose, for instance, environmental costs on others are, in effect, being subsidized. Like so many of the other reforms discussed in this section, these would have a triple benefit: a more efficient economy, fewer of the excesses at the top, improved well-being for the rest of the economy.”

Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future

I’ve heard people say that the reason they want to pamper the rich is that one day, they might be rich too. A solid education in statistics would quickly put a stop to that kind of thinking since the odds of winning the lottery are greater than the odds of a poor person becoming a rich person.

“Socialism never took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires.”

John Steinbeck

And those types often despise people who don’t work, while dreaming of one day garnering billions in wealth, just so they will never have to work again.

The Progressive Tax

Eisenhower taxed wealth by more than 90%. He built the infrastructure of this country and in doing so, built the strongest middle class in our history.

Fun Fact: The statement above is often countered by historians, economists, and the general knowing public with: nobody paid that rate of taxation ever.

And this is true. There have always been loopholes that accountants drive their clients through in golden Cadillacs. The main point here is that the wealthy and corporations paid taxes at a rate above fifty percent.

Even today when taxes on wealth (don’t forget those who don’t pay any) are less than 50% of their incomes, have loopholes big enough to send a cruise ship through.

David Cay Johnston has another great book entitled, Perfectly Legal, that reveals how our tax system benefits the rich while cheating everyone else. In fact, I loved the part where he shows us how Bill Gates actually makes money by donating to charity.

But there are benefits to everyone when wealth is taxed heavily, and do you know what you call a person who pays 75% of his income in taxes? Rich.

Ironically, when the wealthy are taxed heavily, their money is “worth” more. The dollar is stronger.

Keep in mind the two historical economic truths:

  • Tax breaks to the wealthy are followed by a bubble, then a crash.
  • Taxing wealth creates a strong middle class and strengthens the dollar.

Today’s national debt is so high that no amount of taxes will pay it off in the lifetime of someone born tomorrow.

According to Barry Ritholtz, the author of Bailout Nation, if you adjust for inflation the costs of the Marshal Plan, the Louisiana Purchase, the race to the moon, the S&L crisis, the Korean War, the New Deal, the Iraq War, the Vietnam War, and the lifetime budget of NASA, add them together, the amount you’ll get doesn’t quite pay for our current financial crisis (as of 2010 when he wrote the book).

A middle class is not a natural phenomenon. The natural order of things, without rules and regulations, is for a very large class of poor to develop alongside a very small wealthy class (who, by the way, happen to be the rulers who make the rules that keep this system from ever changing).

The economic paradigms that led us to the near depression handed to President Obama began with Ronald Reagan, who believed that if we let the wealthy class keep most of their money through lower taxation, and allow them to make money hand over fist through deregulation, wealth would trickle down to the rest of us.

If this had worked, our middle class would have grown. However, poverty in America has grown, the middle class has shrunk, and each of us has been hit by what some economists call the “greatest hidden tax ever:” a shrinking dollar. We are all working harder for less, and all the while, productivity (the product of labor) has continued to climb.

It was under Reagan that the Savings and Loans were deregulated, which quickly led to a debacle that cost every man, woman, and child in this country over $30,000. This is a negative externality.

It has been said that if we don’t learn from history, we’re bound to repeat it.

It is incumbent upon each of us to examine history objectively and determine those economic policies that have created a strong middle class . . . again.

I have a conservative friend who consistently tells me that when a Democrat is in office, he makes more money, but he votes for Republicans because it’s best for the overall economy, though he’s never really been able to prove that. I still love him.

Even a cursory shrift of modern history shows us a few simple facts, the first being that tax cuts (especially to the wealthy) are followed by a bubble, then a crash.

Black Monday, October 19, 1987 saw the largest drop in the stock market in our history, that is until recently. Thomas Wolfe’s The Bonfire of the Vanities, published right after the collapse, described a world of “greed and excess” (many of you have heard this phrase lately) that epitomized the economic world of Reaganomics.

When President Reagan took office, we’d had a 12% inflation rate and unemployment rate of 7.1%. Reagan tried to cut government spending and gave huge tax breaks to the wealthy. This spawned an economic revival that was unprecedented. Our GDP grew at a rate of 3.4%, inflation and unemployment were cut in half, and the Dow Jones average grew at an annual average rate of 17%.

This was the “bubble.” Then came the crash on Black Monday.

Partisans are still debating the result of Reaganomics, but we are not partisan in this effort. We will present the facts and you out there can continue the debate.

I’m sure most of you would agree that the secret to a strong economy is balance. When the top gets too heavy, we crash.

“Loose money and light regulation were a toxic mixture. It exploded.”

Joseph E. Stiglitz

Another historical economic truth (debated furiously at times) is when wealth is taxed, the middle class is strongest. Taxing wealth, or progressive taxation, has been labeled socialism. The wealthy want us to believe this and they want us to fear it. They’ve convinced many who would never be affected by this sort of tax, who would actually benefit from it, into believing that taxing wealth is bad for the nation.

Socialism is terrifying to some people, even though, ironically, we’ve all benefitted from it. The “welfare state” brought us roads, highways, and bridges, police and fire departments, hospitals, our public schools. Yet, this term still strikes fear in Americans.

The progressive tax, brought to us by the ancient Greeks, is to many, socialism. Why? Because it harkens back to Marx’s saying, “From each according to his means.”

You have to be deaf not to hear how our democracy would end if a socialist were ever elected.

So Let Us Pamper the Wealthy

I love the question bandied about: “Have you ever gotten a job from a poor person?”

It’s really a rhetorical question, because the question simply assumes that the wealthy create jobs.

However, in economics, demand creates jobs. If the masses don’t have money, they don’t make purchases, consumer goods aren’t produced, and shop keepers don’t have employees.

When the poor spend money, we have jobs. Every job comes from money that is spent, not money stuffed away in banks, stocks and bonds, and empires.

The question, “Have you ever gotten a job from a poor person” has a fallacious predicate. Jobs are neither created by the poor nor by the rich, they are created by demand. Economics is much more complex than most think, but the answers it arrives at can be presented quite simply.

This premise is easily debunked by facts. First fact: most jobs in America come from small businesses. The owners of small businesses are not wealthy. They might be rich, but they are not wealthy. To understand real wealth, picture Bill Gates waking up one morning with Oprah’s money. They’re both rich, but Bill Gates is wealthy.

Going back to Adam Smith, we see that he stated quite clearly that the strength of any economy resides in its workforce. If the workforce is poor, the economy is weak; if the workforce has money to spend, the economy is healthy.

Here is an eyeopener from testimony before congress by economist, Mark M. Zandi (from Moody’s Economy dot com).

Action                                                   Economic Activity
                                                              Generated Per Dollar

Temporarily increase food stamps $1.73
Extend unemployment benefits $1.64
Provide general aid to state governments $1.36
Extend Alternative Minimum Tax patch $0.48
Make dividend and capital gains tax cuts permanent $0.37
Cut corporate tax rate $0.30
Make Bush income tax cuts permanent $0.29

This should be proof that money in the hands of the work force, the poor, and the middle class produces more economic activity, more demand, than tax breaks for the wealthy.

Ironically, there is a hint of truth in the original postulation that the wealthy create jobs, because they’ve been creating jobs overseas for years.

Demand creates good paying jobs. Tax cuts do not.

Taking one more look at the recession Clinton handed Bush we see that prior to the Welfare Reform Act when Clinton had increased taxes on the wealthy, 23 million jobs were produced; more than had been created at any other time in our history. Under Clinton’s taxation, growth was about 4%; under Bush’s tax breaks, growth was about 2%.

Four is always bigger than two.

In Clinton’s final years, as welfare rolls diminished, demand decreased and unemployment crept upwards.

So, ironically, when we are asked if a poor person ever gave us a job, the answer is “yes.” Jobs are created when the poor have money (via welfare, food stamps, etc). And they’re not about to bank that money. They need it to survive. So they spend, and as always with money, it flows to the top.

But if you tax wealth, they’ll just move their businesses overseas!

Funny, but right after Ronald Reagan cut taxes, businesses began moving overseas.

My favorite story about pampering the wealthy and waving good bye when they move their offices off our shores goes like this:

Haliburton (or KBR) electrocuted 12 soldiers in Iraq. The 12 were electrocuted while showering; the building they showered in was built and “wired” by KBR. Was the wiring faulty? The Army brought in an independent electrical contractor to review all of KBR’s installations. He reported that at all the sites he’d visited, the electrical wiring was not up to code. What happened to Haliburton? Well, a few months later the Pentagon gave them an 80 million dollar bonus and right after that, Haliburton moved its headquarters to the Cayman Islands.

Businesses will move overseas for cheaper labor no matter how they are taxed or not taxed. The solution to lost revenue is to close loopholes and establish a simple rule: if you make money in America, you pay taxes in America.

Progressive Taxation of Wealth vs Stagnating Workers’ Wages

One of the greatest economic myths in circulation today is that the government takes money from successful people and gives it to the poor and lazy. It’s related to the myth that if you tax wealth too much, they’ll lose incentive to work.

Of course there’s a reason these myths have become fact in the minds of so many: the wealthy, the ones truly benefitting from our tax policies, want the American public to believe them. Their mouthpieces, the politicians they own, repeat it again and again and again so that it soon becomes etched in our minds.

“The powerful try to frame the discussion in a way that benefits their interests, realizing that, in a democracy, they cannot simply impose their rule on others. In one way or another, they have to “co-opt” the rest of society to advance their agenda.”

Joseph E. Stiglitz

“Rich people pay wannabe rich people to convince average people that poor people are the problem.”

I’m not easily swayed by lies. I don’t care how many times a lie is told; it’s still a lie.

America’s story has become the story of Robin Hood in Reverse: we are taking from the poor and middle class and giving to the rich. This is fact. Welfare for the wealthy has never been so blatant, so abundant, and as profitable as it is today. Privatization is profitization. Everyone needs to watch the documentary: Iraq for Sale. It’s online free: Iraq for Sale.

Here is another economic truth: when wealth is taxed heavily, the wealthy pay their workers a decent wage and reinvest in their businesses. (Hang in there; I’ll explain why.)

Eisenhower built the strongest middle class in the history of the planet by taxing wealth.

We are told that if we tax people that much, they won’t go to work. Why work if the government is going to take it all away?

Another lie.

No CEO stopped going to work because of Eisenhower’s taxation plan; in fact, they still made money. They still accumulated wealth. They just didn’t make obscene wealth while their workers starved.

Does anyone remember how workers once refused raises because it would put them into a higher tax bracket? What ever happened to tax brackets?

Our taxation system has been plundered by lobbyists hired by wealth to make the tax code favor them (the wealthy). It’s that simple.

However, when wealth was taxed upward of 50%, companies took a lot of their profits and re-invested that into their companies; they compensated their workers very well. Why? Because it was tax deductible.

Or to look at it from a different angle, “they were using the government’s money.”

When a large portion of your profits goes to pay taxes, you can look at that money as belonging to the government.

Thus, if profits are taxed at 35%, money that goes into wages is 35% the government’s money and 65% the company’s money.

If the money I pay my employees is only 35% the government’s but 65% mine (Mine! Mine! Mine!), there’s not much incentive for me to pay out very much money.

If, however, I was being taxed 50%, let’s say 75% as an example, what I pay my workers is 75% the government’s and only 25% mine. Heck, I can be really generous with the government’s money.

And this, my dear reader, is exactly how wages began to stagnate in this country. Under Ronald Reagan, taxes on wealth dropped below the 50% mark, and you can see by the graph below how wages stagnated while productivity continued growing.

You should note that “stagflation” started under Jimmy Carter. Economists tell us that when Carter took office, unemployment had reached 7.4%. Carter initiated a spending program, calling for the Fed to expand the money supply. Within 2 years, inflation had risen to 13.3%. The Fed stepped in declaring it would fight this by limiting the money supply (raising interest rates), but by 1982 unemployment reached 10.8%.

One lesson to learn is that balancing economic growth with inflation is a complex problem. It would seem at times, whatever we do to fix a problem creates a different problem, and that is a failure of every economic system. One takeaway is continual growth might just not be possible, or desired. The cost of externalities is staggering. Our environment really takes a hit, and there is no Planet B.

Supporters of policies to cut taxes on the wealthy like to point out that after Reagan cut taxes, thousands of jobs were immediately created.

Yes, they are correct. The jobs created right after Reagan’s tax cuts were very low paying jobs . . . and then came the crash.

They were low paying jobs because there was no incentive to pay decent wages. Reagan cut taxes on wealth below 50% which cut incentives to pay good wages. And without tariffs on imports, Corporate America moved higher paying jobs overseas. The overwhelming theory driving our economics in the Reagan years was Greed is Good. Today we know exactly who it was good for.

One Way Out of a Recession

A lesson we’ve learned over and over: increase the government’s income and spend it in a way that will increase demand. As FDR showed us, using the government as the employer of last resort eventually leads to the creation of jobs in the private sector because of an increase in demand. Putting money into circulation leads to demand.

Every politician running for office says they’ll create jobs and boost the economy but apparently kicking grandma to the curb is now more important, along with gutting education, the environment, while promising affordable health care, and then taking it away when in office. Washington is through the looking glass right now as once again we are told that cutting spending and giving tax breaks to the wealthy will create jobs.

Just take a look at the following graph of recovery from the Great Depression:

Source: George Will – Think Progress

The economy began an upswing when Roosevelt taxed wealth and created infrastructure jobs around the country, but in 1937, he listened to his conservative wing and began giving tax breaks and cutting spending. You can see how much good that did.

Those who don’t learn from history are condemned to repeat it.

It’s time to tax wealth. For too long, we’ve had the worst form of “socialism” in America, redistributing wealth upwards and laying the tax burden on the backs of the middle class.

It is also time to take a step back and focus on where our budget goes.

We’ve got a huge military budget of which most of that money goes to conventional weapons for conventional warfare. The immediate problem is that we are right now in the middle of an unconventional war. Russian hackers are inside our power grid. Chinese hackers are targeting oil and gas companies. They could kill thousands in winter by cutting off outlying areas. Some good news on the war front is American hackers are fighting back. We’re at war, folks. Don’t fool yourselves.

And we are wasting money on conventional weapons, which just makes the rich richer, while providing us no protection from the cyber war.

We must refigure our priorities, and especially stop redistributing money upwards. They will always be rich. They make the rules.

The externalities caused by the wage gap, are deadly. We’re destroying the planet in just too many ways.

Unlimited growth is impossible with limited resources. This is why we recycle today, but not everything can be recycled, at least not yet.

And there is something I learned in college, in the seventies, that people seem to have forgotten today. It’s the phenomenon known as desertification.

The history of farming (from ancient times) was to use up the land and move on. The problem today is that there’s not much farmable land left. I college, I learned that some 200 acres per day, acres of farmland in California alone was turning to desert. It’s really hard to find the figures today, but it’s much easier to assume that it is continuing because conventional agribusiness farming methods are unsustainable.

This is one reason many are buying from local, small farmers, and organic farmers, because they are stewards of the land. Their farms, if farmed sustainably, and not scooped up by agribusiness, will be around centuries from now.

As an aside: The BACO stuff we’ve talked about at this site, was tested on desert soil. The results were just short of miraculous, one biologist explaining to the inventor that, apparently, it had killed the bad nematodes without harming the good nematodes. Within a week, they planted grass seed, and later found it growing lushly. New, out of the box, technologies can help us save this planet. But then, we must invest in them.

Our system must change, and rapidly, or Earth will become uninhabitable. Economic growth is killing us and we have to learn to live with economic balance, and perhaps less materialistic acquisitiveness. Having a healthy, happy, peaceful life does not have to rely on consumption. And something we should all realize is that the free market has no solutions. Only democracy, the people working together for its own benefits, for its survival, is the only way to actually survive.  

An Editorial Within This Editorial

At the moment of this writing, many are home practicing “social distancing,” or as some call it, “on lock-down.” People are all suffering. Those who’ve decried the lazy poor for years are right now experiencing for the first time what the poor have lived with most of their lives. They used to hate it when the government gave the poor a hand-out, and are now demanding a hand-out.

But you see, we have not been living in a healthy economy. Our economy has always focused on the stock market and banking profits, and how well the upper 1% is doing. Professor Joseph E Stiglitz (Nobel Laureate) believes that a healthy economy is an economy that is healthy for all.

“The only true and sustainable prosperity is shared prosperity.”

Joseph E. Stiglitz

Far too many tribal Americans, those who feel separate from the masses, have for a long time looked down on the poor, castigating them for the benefits our safety-net and welfare state has provided them, and so they’ve promoted the destruction of that safety-net and the welfare state they need so much to just survive during this pandemic.

But it’s not there.

When tribal members protest the “free stuff” the poor get, the other tribal members call back: “Just wait till you need help.”

And that’s where we are.

People want to return to “normal,” but normal doesn’t work. Bills are being passed to “boost the economy” and most of that boost is going to the upper crust proving Stieglitz’s maxim that there are two ways to get rich:

  1. By creating wealth.
  2. By taking wealth from others.

Right now we are witnessing number 2 in action. That is the normal. And it hasn’t worked for the people who are now suffering.

The wealthy are not suffering. They are completely out of touch with the common man and woman who are. The Treasury Secretary, Steve Mnuchin suggested today that the $1200 stimulus check could last families ten weeks.

Can $1200 last your family ten weeks?

We are all hurting and it is because we’ve divided into tribes at each other’s throats while the rich get richer off the fruits of our labor, destroying health care (9.2 million workers have lost health care during this pandemic), decimating programs to feed hungry children, hungry families, and leaving us with a safety-net too weak to hold all of us who are suffering.

We cannot return to normal. It didn’t work and it’s not working now.

This tribal bickering has to stop. We are not divided. We are one people with a common goal, and we will go nowhere unless we stand together. It’s that simple.

Stay safe. Stay home. And most of all, stick together. We can beat this.

This Just In: Nobel-winner Stiglitz: Poor coronavirus response leaves US on course toward another Great Depression.

“I learned more about the economy from one South Dakota dust storm that I did in all my years of college.”

Hubert Humphrey
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