Tinkle-Down Economics

Being laid up with bronchitis isn’t pleasant. Thousands of thoughts race through my mind. Although I haven’t fully recovered, I just couldn’t wait. The absurdity of our present situation is so obvious. The lack of understanding of why it happened is not.

The only thing that has relieved my misery has been laughing at the idiot ideologues complaining about socialism as if they understood what it is. The misunderstood use of such terms as free market, capitalism, et al. is hilarious. This problem of ignorance is shared by both the pros and their victims.

Someone came up with a cute little definition. It is hardly accurate but there is enough truth to make you smile: Socialism is when big government steals from the banks to bail out the people; capitalism is when big government steals from the people to bail out the banks. You can discuss and laugh about it the next time you and a corporation go out to the pub for a mug.

Events keep leading back to Hank Paulson, the supposed smartest man in Washington. First, he wanted to buy bad paper. That would reward the banks, mortgage companies, investors and Wall Street. It would screw the taxpayer.

Now, he is imitating the ‘brilliant’ approach of the British and the Europeans who followed them. This is buying equity in the banks. Whatever its drawbacks, it is far superior to his initial approach.

I probably shouldn’t mention that some time ago Hank considered it a terrible way to go. He cited the Japanese doing that when they ran into an economic mess in 1990. He blamed it for causing Japan’s economy to languish in a recession that lasted a decade.

Does he now think that our situation is so bad that a 10-year recession is the best alternative? Has he changed his mind? I guess we just can’t hope to understand the smartest man in Washington.

I don’t recall if I have mentioned this before. Paulson is supposed to be saving the banks. One would think that a banker might be put in charge of that. Hank wasn’t a banker. He was essentially a day trader, a speculator, a gambler. That is, or should be, a long way from the proper background for a banker.

The average Joe Blow is definitely not an expert on the market, derivatives, etc. So, let’s get him to put his retirement nest egg into the market. What should he have been doing? Should he have gotten out of the market when it started falling? Should he have held on the the bitter end? How should he know? Just give them your money.

Why would the professionals on the street want Joe Blow to play their game? Well, could it be that they think they have an advantage over him? Could they possibly see him as a sucker? Wouldn’t his money mean that more money would be chasing, basically, the same number of corporation’s stocks, raising prices for the stocks that the pros owned? Remember, derivatives were created to take care of all of that increase in money that needed to be invested.

Our economy is consumer-driven. That is at the base of most of our economic problems. We have the lowest savings rate of any major country. That makes matters even worse. All of this makes recovery far more complicated, far more problematical.

At some time in the future we have to squeeze out the puss. But, doing so now would be fatal to the patient, our entire economy. We have lived on credit. This all started in the early eighties. The hoi polloi used to talk approvingly of the great economy of the eighties. Give me a credit card with no limits and no requirement to pay it off and I will show you how to party. And that’s what we did.

If you want to reduce your debt you might put off buying a new car for a year. That would do even more damage to the auto industry. Reducing the housing inventory would be good. But, to build fewer houses means fewer jobs. That isn’t good.

The government, industry and Joe Blow are all up to our eyeballs in debt but can’t stop spending without doing further damage to the economy. Yet, we must reduce consumption. It should be a delicate balancing act but we can’t seem to manage delicate.

Our choices are to endure a fatally flawed system for a long time while we slowly squeeze the boil or take our medicine and pay the price of our decades of indulgence or just keep on doing what we’ve been doing until the house of cards totally collapses. Do you have a favorite?

While ninety-five percent of us bear the burden the scum up on top just get richer. During Bush’s term an amazing discrepancy has developed. The fortunes of just the 400 wealthiest families have increased from $900 billion to $1.6 trillion. Again, that is just 400 families.

While they sucked all of that money out of the nation’s economy the average family income decreased from $48 thousand to $45 thousand. Inflation took another $2 thousand in purchasing power away. Tinkle, tinkle, little suckers.

As wealthy as the 400 and a few others have become, such growth in their assets was possible through a different route. To repeat, this is a consumer-driven economy. The more the consumers have to spend, the more wealth there is available to everyone, including the 400.

Why not take that path? When you have multiple millions, a dozen fancy cars and seven houses, what else could you want? Some just want to score as high as possible, as though it were a video game. Some find that wealth alone leaves a yearning for something else.

Money can be turned into other things. It can be turned into power. It can be turned into an ego massager. I can be the strongest kid on the block. I can control other kids. Schoolyard mentality is one of the strongest forces in both our financial and economic systems. Why care about the fortunes of your fellow countrymen (or the economic health of the nation) when you can feel superior to them; when you can control them; when you can take away their self-respect?

Would you believe that they tell lies? Some of these prevarications are even slightly clever. Have you heard that we have the highest corporate taxes of any industrial country? It’s untrue but almost everyone believes it when the elite says it. Actually, Japan has a higher corporate tax rate. But that is not the real story.

We do have the second highest tax rate, before loopholes. From 1996 to 2005 (the latest figures) 66 percent of American-owned corporations paid no corporate tax. 68 percent of foreign-owned corporations paid no tax. Now compare that to the 11 percent corporate tax that is paid in Ireland. The corporations are not really hurting that much, at least from the tax code.

Warren Buffett has often remarked that he pays a lower tax rate than his secretary. This is beginning to sound like class warfare. It is. The problem is that the wealthy have all of the weapons and are the only ones fighting. One little peep from you or me and the immediate reaction is to charge us with engaging in class warfare. Where is Alice? I know for a fact that we have gone Through the Looking-Glass of Reverend Dodgson.

The next time you hear the wealthy or one of their politicians accuse Joe Blow of class warfare, just remember it is pure bullsh*t. There is class warfare. There is a redistribution of wealth. Refer back to the 400 families versus the average family income.

You may say that is the result of luck, hard work, investment, whatever. Regardless of how any of those factor into the result, not paying taxes plays a major role.

The wealthy get more from the government. It may be that the weather service helps you decide whether to take a bumbershoot to work. It may determine whether you have to bring the smoker indoors for the weekend barbecue. It allows the airlines to plan routes and save lots of money. Corporate farmers find it necessary.

The money the government spends on airports and air traffic control brings less benefit to those who cannot afford to fly. Go through the federal budget line by line when you have a spare moment you may be able to find another instance or two of the wealthy getting more than you or me.

Why do you pay a higher rate of tax than do the wealthy? Psst. It’s called redistribution of wealth. It’s called welfare for the wealthy. Oh, the humanity of it all. We simply must cut their taxes, if they still pay any, so they can tinkle on us while sending our jobs to Bangladesh.

There is a class war going on. There is a redistribution of wealth going on. It is socialism for the wealthy and capitalism for those that have to bail them out.

You may allow yourself to be called a Democrat or a Republican. It doesn’t matter. Unless you own a few politicians you are a victim.

Addendum

If you have read some of my earlier posts, you might recall that I, and many economists, have a rogues gallery of those responsible for our present economic turmoil. The list is headed by Alan Greenspan. Next comes Phil Gramm. That is scary because McCain wants him to be Secretary of the Treasury, in charge of that $700 billion.

Number three on the list is Robert Rubin, Secretary of the Treasury under Clinton. The bad news just keeps on coming. I heard from one source that Rubin is Obama’s choice to hold the job again. I’m not sure how much difference there is between numbers two and three. Gramm is a raving lunatic but the slightly smarter one may therefore be more dangerous.

Bronchitis has obviously put me in a bad mood.

Tagged as: bush, class, congress, Economics, gramm, mccain, obama, paulson, redistribution, rubin, wall street