Monday, June 9, 2014
Economics For Dummies
Income inequality....everyone is talking about it these days. And by "everyone" I really just mean those who can think, and those who don't limit their reading to publications that have some knocked-up starlet on the cover and ads about how to spackle over your wrinkles.
Just to be different, let's not look at it in liberal or conservative terms. You know, the argument that "we earned it, it's ours, you can't have it" (conservative) or "the Man skims off all the profits and pays the workers a subsistence minimum wage" (liberal). Let's be pragmatic for once. How is income inequality REALLY affecting us, besides just politically polarizing us?
The Reader's Digest condensed version?....Not enough people have enough disposable income (income left over after just paying for the bare necessities) to buy enough "stuff" to justify business expansion. Without business expansion no new jobs will be created and unemployment will remain high, which means many people won't have the disposable income to buy "stuff", which won't create business expansion.... It's a vicious circle.
But our unemployment rate is down from 10% in 2009 (?) to 6.3% today. That's good, right?
"Lies, damn lies, and statistics." Many of those newly employed are working low paying retail / burger flipping jobs, paying a fraction of what they were making before the recession. Or they are only working part time. Many have given up looking at all and are living in mama's basement.
But we ARE buying stuff. LOTS of stuff.
Umm, sort of, but only by going head-over-heels in debt. Household (consumer) debt is crushing the middle class. We're living in a house of cards. We can't go on like this forever.
So while the middle class hasn't received a raise in 20+ years (after allowing for inflation), the wealthy have seen their income rise by well over 200%. So much that today the wealthy have lots of money, but no where to invest it.
Publications such as The Wall Street Journal and The Economist estimate that in the US alone there is somewhere between 1 and 2 TRILLION dollars sitting on the sidelines in short-term accounts. Worldwide they estimate as much as 20 TRILLION dollars is just sitting there.
That much money (or at least some of it) in the hands of a vibrant middle class could buy LOTS of stuff. Stuff that would need to be manufactured. Stuff that would necessitate the creation of MILLIONS of new jobs. The middle class would again be a powerful consumer engine, and remember, our economy is 70% consumer driven. Again, it's a vicious circle, but this time in a good way.
Now for an exclamation point lemme throw out some cliches: "A rising tide lifts all boats". If the middle class does well so will the wealthy, who own the means of production. Win-win.
"A little piece of a big pie is better than a big piece of NO pie". If we keep going the way we are....well, let's just say that's how revolutions begin. Beware of the unwashed masses surrounding your house while carrying pitchforks and torches.
You think that couldn't happen here? Maybe not directly, but in most parts of the world it's common. Unemployment in the Euro zone for example is over 10%, and the natives are very restless. Enough discontent around the globe will definitely affect us.
So, we just grab some of the rich folks money and pass it out to the less fortunate, right?
Hardly! That's how you kill everyone's incentive to work. Reform the tax code, stop giving favorable tax breaks, subsidies, etc to those who don't need them. There are probably other ways to level the field, too, but that alone would go a long way.
One last cliche: The rich need to wise up and recognize they are "killing the goose that laid the golden egg".
That's not a liberal or a conservative opinion. That's a pragmatic fact.