I was going to write some thoughts regarding "trickle down" and then I ran into this link over at MNPublius.
NY Times The Limping Middle Class
NY Times Prosperity/Regression Graphic
It definitely has some interesting graphics, though I am pretty sure I disagree with a fair number of his comments. In particular with regard to his thoughts that we should be more like Germany. Though us Minnesotans surely do like sending our money to VW, Audi, BMW and Mercedes Benz.
So what do you think of the graphics and his comments/analysis?
As for my trickle down story. Last winter I commented on MNPublius that I had seen some excellent examples of "trickle down" while snowmobiling on Lake Mtka. (ie several mansions were being remodeled) Of course one of the more Liberal commenters took exception to this... He thought it was WRONG that people had to SERVE the wealthy to get their money... It was very strange considering we live in a service economy. I assume he thought higher taxes and more handouts were in someway more ethically correct. (strange values out there)
The reason this came up was because though I am upper middle class, I have been spending a great deal of money on home improvements this Summer. To me this what trickle down is all about. And it really hit home when I was up at the cabinet maker's shop and saw that he was employing some neighbors to build our new kitchen cabinets. It occurred to me then: the Large Corporation that pays me, I pay the Cabinet Maker, and he pays local employees and suppliers.
Now if we all bought USA goods and services, trickle down would work much better. Instead we buy VW, Audi, BMW and Mercedes Benz, and send the money flow to Germany. (or Korea, China, Japan, etc) Maybe we could fix our economy and improve the worker incomes by just changing our buying habits. No Governement intervention required...
It was interesting that the graphs shifted in ~1980, which is about the time buying "non-American" became fashionable. Before that most folks would not have been caught dead with that "foreign junk" product.
G2A Made in America: The Myth?
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11 comments:
Your post topic has me almost too ticked off to comment, that and I have a bunch of other stuff to do.
So I guess you are alright with an economy where 25% of the income goes to the top 1%. I think it is immoral, obscene, unjust etc. I will check back in a day or two, when I may take more time for ranting at length.
For now here are a couple of links, which are not hyperized due to my bad mood.
http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105
http://www.theatlantic.com/business/archive/2011/09/the-greater-recession-america-suffers-from-a-crisis-of-productivity/242704/2/
That second one is not exactly related to your topic, but I found it an interesting explanation of economic trends. BTW, The Atlantic is a great source for analysis /reporting of economic news.
What we are seeing is the creation of a bifurcated economy comprised of those who are rich, and those who flip the rich's burgers. It's a Texas-style economy, where the healthy job growth comes from an increase in minimum wage jobs. What I am fond of calling a Craigslist economy. The problem we are facing now is how does wealth trickle up in such an economy? If Americans can no longer afford to pay for what the rich have to sell them, how can the rich stay rich? Especially since the paper shifting creation of wealth that sustained the economy to the extent it was sustained during the Bush years is no longer effective in generating paper profits?
It is always highly amusing to watch some overeducated professor try to reason his way to his desired conclusion. It is no different here. Despite the vaunted credentials, the whole article would have done the brothers Grimm proud, as one of their fanciful tales.
What the article lacks is to go back to basic principles and reason from there, rather than looking at the data after the fact and concocting some arbitrary, elaborate and self-serving explanation. The basic principle here is that our consumer economy is driven by the production of goods and services that people want to buy, at a price they can afford, based on what they earn, which in turn is driven by what they produce. It's a nice, neat cycle that works beautifully all by itself, up until government steps in to muck things up, say about 1970. How oddly coincidental.
You can see how much better this explanation is by simply testing the good professor's prescriptions against the basic principle.
1. The rich have more discretionary income, and more discretionary spending. Raise taxes on the rich and they will spend much less than if you had raised taxes on the poor, who have proportionally less discretionary spending, so the economy suffers more when you tax the rich.
2. We could raise the minimum wage, but then workers would not produce more than their wages and they would lose their jobs entirely.
3. We could mandate a strict buy American policy by government fiat, but then competition from abroad would not be allowed and US goods would remain priced out of the reach of most consumers.
4. We could increase the size of the "safety net" – unemployment insurance, employee benefits, etc. – but all that does is to increase the cost of employees and, again, people lose their jobs or don't get hired at all. It explains our current situation.
5. Our current economy is based, in large part, on continued innovation. That is, on developing new and better things for people to want and to buy. But when these things are first invented, take HDTV's for example, they are incredibly expensive and so only the rich can afford them. But as more and more rich people buy them, the factories gear up to mass produce them (employing more workers, by the way) and the prices come down to where the middle class can afford them, and around the cycle goes until now two thirds of all "poor" households own one. Innovation is driven by rich people, and a consumer society makes the innovators into rich people. It's a perfect system, unless government intrudes too far.
6. We could "do something about inequality" but that most likely means raising taxes on the rich rather than cutting taxes on the poor, which of course can't work because we ALWAYS raise taxes on the rich and it NEVER works. The whole problem is that government cannot mandate equality because people aren't equal. Some work harder and are entitled to what they earn, while others prefer to work and earn less. The latter choice does not entitle them to a share of their neighbors' labor.
Finally, this whole notion of inequality flies in the face of mathematics. Let us say that, at any given point in time, the lowest person on the income scale makes zero, while the hardest-working son-of-a-gun on the planet made $1 million. The following year some other poor slob (we hope) still makes zero, because nobody can make less, while our go-getter friend makes TWO million dollars. Inequality has doubled, or has it? No, it hasn't, but the numbers have changed. Even if the poor fellow at the bottom had doubled his income, he would still be making zero! Why don't we concentrate on getting government out of the way and letting people earn as much as they can by innovating, investing, working and producing?
J. Ewing
The problem is that the rich don't spend efficiently. They invest too much, save too much, blow too much money on worthless stuff. And of course much of the wealth of the rich was destroyed in the various investment bubbles we have had in years. Really, where did that money invested in Worldcomm go? It's the legendary Henderson problem, the U of C prof with the oncologist wife who found he was going broke on 400 thou a year and couldn't understand why.
This is like my favorite video ever:
http://www.youtube.com/watch?v=2tw688Kbjy4&feature=player_embedded
Nothing I have seen shows the recessionary mindset so succinctly. The company is prospering, literally rolling in the cash, but the fearful boss refuses to expand because of a number of vague fears of the kind that have been with us since the dawn of capitalism. In the sequel, which I have not been able to find, but I am sure exists out there somewhere, the company has gone broke, all the dollar dollar bills gone forever. That's because when they were sitting on their cash, other companies, not paralyzed by fear of the future, stepped in, and ate their market share for lunch. Those dollars, that could have gone to start that family, didn't trickle up, down, sideways, or anywhere at all. They simply vanished into thin air.
Laurie,
Hope you calm down with time.
Anon1,
The rich can continue to invest in foreign firms if that is what the rest of us continue to buy. Therefore they stay rich while we get poorer.
J,
Make some rational sense.
Anon2,
Do they save or spend too much? Which is worse? I am replacing perfectly useable oak cabinets with newer maple cabinets that are not "dated". I am not sure my cabinet maker would find that to be a bad thing.
By the way, what do you think a used set of kitchen cabinets go for on craigslist? They are taking up my whole 3rd stall.
Anon3,
Funny video. I thought the second part would show the company starting to hire lots of people just in time to see the double dip hit. Then they would need to start letting people go again, which would lead to Liberals villifying them for being so heartless. Thanks heavens for "Agency" workers, they can get work done w/o the commitment.
"Funny video. I thought the second part would show the company starting to hire lots of people just in time to see the double dip hit."
There is a lot in the video. I liked the references to Gates and Buffett. Buffett, as an investor, is well aware of the concept of buying low and selling high. He seems to be buying in this recession. Gates and his great frenemy, Steve Jobs created the two great industrial corporations of the late 20th century in times of recession. Didn't seem to bother them. Very often, the best time to expand is when times are bad, when everyone else is paralyzed by fear. Right now, interests rates are low, labor is cheap, folks are on the bench, yet people are telling us, not the rich mind you, but us to be austere, to fire more people, possibly for the sin of wanting to be paid for work done.
There was an article in yesterday's Wall Street Journal to the effect that middle class wages are the lowest since 1996. The middle class in this country is being squeezed out of existence, as we mindlessly adopt the Texas model of a society comprised of the rich and those who serve them. The latter being paid at minimum wage.
--Hiram
"The rich can continue to invest in foreign firms if that is what the rest of us continue to buy."
The problem really isn't that they are investing, rather the problem is that they are not. Instead they are speculating on financial assets, and that's not good for business.
--Hiram
"Make some rational sense."
What is your quibble? Is it with the definition of a consumer-driven economy? Is it that I present rational explanations for the current situation based on that definition? Or is it that you think government can always spend your money more wisely than you can?
J. Ewing
Do they save or spend too much?
They tend to invest too much, and spend in ways that are wasteful.
"I thought the second part would show the company starting to hire lots of people just in time to see the double dip hit. Then they would need to start letting people go again, which would lead to Liberals villifying them for being so heartless."
Something that's at the heart of the problem with modern businessmen is their excessive sensitivity. It seems even the mildest criticism sends them weeping to their yachts. All of Wall Street is currently in a snit because the president, on one or two occasions, said mean things about them. That our nation's business community is led by a bouquet of shrinking violets, paralyzed, not even by criticism, but the possibility of criticism, is one of the things that's driving this recession.
--Hiram
This seems timely.
GOP on Jobs and Taxes
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