The Rich Are Getting Richer Yet

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The Rich Are Getting Richer Yet

Post by Amskeptic » Tue Dec 01, 2020 8:19 am

Robert Freeman
Common Dreams
November 30, 2020

The reason everybody is so angst-ridden about the economy is because we all have the wrong idea about what it is supposed to do and how it's supposed to work.

Most of us have a quaint, 19th century idea about free markets and all that up-by-the-bootstraps Horatio Alger stuff. You know, work hard, play by the rules, keep your nose clean, and you'll do well. That is certainly the cultural myth our society bathes us in.

But that's not how things actually work. It's the dissonance between how we imagine things work and how they really work that causes our perplexity and angst, and rage. It is also that dissonance that has been so deftly manipulated by Donald Trump and given rise to Trumpism.

Forty years ago, around 1980, the uber-wealthy decided they wanted to get their money out of the economy. There was too much political turmoil (Vietnam, Watergate), too much economic turbulence (Arab oil embargos, stagflation), and too high of a cost of production (high wages, environmental and labor protections).

They wanted to take their money somewhere where they could pay people 1/20th what they paid here (less than $1 an hour), where there were no environmental or labor laws, where the workforce was plentiful, hungry, and docile, and where politicians could be bought cheap.

So, they engineered a controlled demolition of the U.S. economy. The plan had two elements.

In the first part, they began systematically de-industrializing what had been the mightiest economy in the history of the world—the same economy that had almost single-handedly won World War II, the greatest industrial enterprise ever undertaken. They dismantled tens of thousands of factories, creating what became known as the "Rust Belt." They literally sent factory designs to east Asia, rebuilt them, and when they were ready to go, flipped the switch, shut down here, and opened up there. The consequences were devastating.

Tens of millions of white, working-class factory workers were put out of work, losing their high-paying jobs. Forever. With nothing to replace them. Major cities became hollowed out hulks of a once-glorious industrial past, bywords for decline. Think Detroit, Pittsburgh, Cleveland, Cincinnati, Milwaukee, Buffalo, Toledo, and more. The data tell the story.

In 1980, manufacturing accounted for about 22% of the U.S. economy. By 2012, just 30 years later, it contributed only 12%, an astonishingly rapid decline in historical terms, effectively a controlled demolition. The U.S. trade deficit, where we buy more from other countries than we sell, went from $19 billion in 1980—pretty close to a rounding error—to what looks to be almost $1 trillion this year. That is money that is sent directly out of the country to buy other countries' goods. $1 trillion.

The second element of the controlled demolition of the economy was that the U.S. embarked on a plan to shift massive shares of U.S. income and wealth from the working and middle classes to the already wealthy. This is what was called "supply side economics." It was Ronald Reagan's signature economic policy when he ran for president in 1980.

The mythical story was that if we all gave more of our money to the already wealthy, they would invest it for us and the resulting economic boom would more than pay back the transfer, even after taxes and inflation. It sounded too good to be true. It was.

Taxes on the highest income brackets were lowered from 71% to 38%, essentially cut in half. Importantly, there was no requirement that the beneficiaries actually invest their new-found gains in the U.S. So, they didn't. They invested them in the those east-Asian countries that were the beneficiaries of the deindustrialization discussed above.

What happened?

In the first full year under Reagan's plan, the economy shrunk by 2.1%, the greatest shrinkage since the Great Depression. Factory workers were out of work, so they weren't paying taxes. And, because the wealthy were paying so much fewer taxes, the government didn't have enough income to cover its expenses. It had to make up the difference by borrowing. That is what is called a "budget deficit."

Jimmy Carter's last budget deficit was $78 billion. Reagan's first full-year budget deficit, after his supply side tax cuts were put in place, was $128 billion, a 64% increase. The next year, 1983, the deficit exploded again, to $208 billion, another 63% increase. By 1992, when Reagan's vice president, George H.W. Bush finished office, the deficits were running $300 billion a year.

Of course, annual deficits accumulate into the national debt. When Reagan took office in 1981, the national debt (the accumulation of all the annual deficits since the country began) was $1 trillion. In 1993, just 12 years later, when George H.W. Bush left office, it was $4 trillion. Think about that.

Over 204 years, paying off the costs of the American Revolution, the War of 1812, the Civil War, building out the entire continent, fighting World War I, surviving the Great Depression, fighting and winning World War II, and winning the better part of the Cold War, the country only had to borrow $1 trillion. Then, in the next 12 years, years of peace and prosperity, that debt quadrupled, to $4 trillion.

These deficits and this debt benefit the very wealthy, because it is they who fund them, who loan the money to the government, at interest, that it has to borrow because it can't pay its bills from the taxes it's no longer bringing in. As with the deindustrializing of the economy, this was exactly the plan: to benefit the wealthiest people in the world.

Today, average working-class wages, adjusted for taxes and inflation, are the same as they were in the 1970s. For a stark comparison, average incomes in China are up more than 10 FOLD over the same period. This is why the U.S. has massive civil tension among its people and record distrust of the government while the people of China are ferociously loyal to their government.

The annual trade deficit—that money we ship out of the country to buy things we don't make anymore—is on track to exceed $1 trillion this year. That's $1 trillion taken straight off the top of what would otherwise be available national income, and shipped abroad. The national debt has exploded beyond belief, to over $27 trillion. This year's increment, the annual budget deficit, will exceed $4 trillion. That's four times as much as was incurred in the first 204 years of the country, combined. This is not a picture of economic vibrancy.

For the past forty years, the government has had to run average budget deficits of $675 billion a year just to keep the holes in the economy plugged. Otherwise, it would have fallen into recession, or depression. And the borrowing is going vertical.

This is a tremendous boon to the very wealthy because, as mentioned above, it is they who loan the government all that money. And importantly, they do so at higher interest rates because when anything is in higher demand, in this case, borrowed money, its price goes up. The price of borrowed money is the interest rate. But wait, it gets better—or worse—depending on whether you are a borrower or a lender.

Higher interest rates in one part of the economy mean higher rates in all of the economy, because the pool of loanable funds is essentially the same pool for all. That means that when budget deficits rise, the interest rates on mortgages, credit cards, automobiles, student loans—anything bought on borrowed money—goes up, too. This is a stealth way for the government to transfer still more money to the already wealthy, but with the appearance that it's an arms-length private transaction, between borrowers and lenders, involving interest rates.

What does all of this add up to?

For the four decades between 1940 and 1980, the share of national income that went to the top 10% of income earners was remarkably stable, around 34%. This included those decades that are generally regarded as "the golden age of capitalism"

But in the four decades since 1980, the share of the same top 10% has skyrocketed to 47%, a breathtaking upward shift in national income to those who are already the richest. The upward distribution of wealth over the same period is actually even greater.

It's a cliché, but like so many cliches, it is grounded in reality. The rich are getting richer and everyone else is getting poorer. That is exactly the plan, and the plan is working exactly as intended. In fact, it is accelerating, as every new crisis becomes a new pretext for ladling more and more and more of the nation's wealth into the coffers of the already wealthy.

Inequality is reaching feudal proportions, where very few own almost everything, and everyone else is crushed under the wheel of engineered destitution. This directly degrades democracy, because since it costs so much to run for office, office seekers pay attention to those who can write big checks. Have you written a $50,000 check to an office seeker lately? No? Again, that is exactly the plan. They don't want to hear from you because you can't help fund their expensive campaigns. But write a big check and you'd be amazed at how fast the doors fly open.

Two last, quick words on the politics of this all. Donald Trump has been stunningly successful for the very wealthy which is part of the reason they have backed him. He passed massive tax cuts that accelerated the upward transfer of wealth. But that is actually the lesser part of what makes him so valuable to the wealthy.

The far greater part is that he has re-directed the rage of the dispossessed, downwardly-mobile working class from the economic system that has caused their distress—those intentional policies mentioned above—to the altogether bogus factor of race. This has shielded the wealthy from being held accountable for having engineered and built an economy that has intentionally shafted the vast majority of its own citizens.

The mainstream media has been altogether complicit in this deception, focusing, laser-like, on the racist dimensions of Trump's issuances, but almost never on the much more legitimate economic origins of his base's rage. This is perfectly understandable because the mainstream media is owned by the very wealthy. They use it to condition cultural awareness of vital issues in ways that benefit them, like when they laundered the idiocy of supply side economics as some kind of divination come down from the mountain on stone tablets that would save the country.

The second political point is that we would be worse than naïve, even worse than stupid if we imagine that Joe Biden is going to do anything at all about this. We would be deceitful. Biden is one of the doyens, the stewards, the consiglieres of the neo-liberal order described here. He has spent almost five decades servicing the interests of the very wealthy who put him in power and kept him there and recalled him to service when it became apparent that Trump's utility had been exhausted. They didn't use to call him "The Senator from MasterCard" for nothing.

Biden is already discovering that there's not enough in the coffer to afford the kind of stimulus needed to simply feed people, to keep them housed, to help small businesses stay alive, to help schools reopen. But watch, he'll find plenty of money for weapons makers, for the Federal Reserve to buy the garbage debt of over-leveraged corporations, money for hospital chains and pharmaceutical companies, and for banks, and for all the members of the neo-feudal aristocracy that he helped build and who are our new masters.

The economy is working exactly as it is intended to work, the way it has been designed to work, to benefit the wealthy and to crush everybody else. The problem for the mass of the rest of us is that we didn't get the memo.
BobD - 78 Bus . . . 112,730 miles
Chloe - 70 bus . . . 217,593 miles
Naranja - 77 Westy . . . 142,970 miles
Pluck - 1973 Squareback . . . . . . 55,600 miles
Alexus - 91 Lexus LS400 . . . 96,675 miles

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sgkent
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Re: The Rich Are Getting Richer Yet

Post by sgkent » Tue Dec 01, 2020 2:52 pm

I find some of your premises flawed based on the evidence at hand. You are right about Biden's plans however to keep the status quo on Wall Street.

My econ statistics this is based on are from some 50,000 consumer mortgage applications I personally took or reviewed between 1975 and 2006, which gave me a very good overview of what was happening in people's lives and in the economy. Those stats are also why I left that business as Wall Street horse thieves moved into it. But you also said some things that I know to be false about a dear departed friend. Last I don't know anyone here who expects nothing for their time and work. It is only human nature to want to do better this year than last, and that drives all of us including Wall Street. I do not blame Donald Trump for every thing that doesn't go our way. One interesting fact is that the 30-year mortgage rate is down to 2.375%. The cost of servicing a loan is 2% - 3% so that is really a negative number to the investor - give me a dollar and I will give you back 98 cents. The reason that is happening is that the wealthy have so much money they can't find enough places to stash it. Add to that a potential recession the bond market thinks is coming due to this election, and we may be looking at worse unemployment in a year or two than the last year under SARS-2. If China gets what it wants from this election then money will get invested back into China again to grow their economy and many will be correct in that Donald Trump's put America First policy will have failed because the American people will have overwhelmingly made clear they want America's money to go into foreign investments, so not only will the rich get richer, but China and Russia both will get an abundance of billionaires while Americans find a way to get by with more homeless. And, don't forget that the rich just transfer their money offshore to avoid paying taxes if the tax rates get too high. Amazing how globalism works. The Dem party will not be our savior, they will be our henchman. Most of California was moved to "purple" this week and our fearless Democratic Governor, Nancy's nephew, said he will make it a double (or maybe even triple) purple if people don't listen to him. Since people are no longer listening to him, and our friends to the north are being told to call the police and report the number of people eating at the dinner table, I really do expect that 2021 will be an interesting year. And - I am secretly hoping that y'all will put all your money together, and buy my bus ($32,500 USD) so you can get rid of me. Happy Trails.

In general Colin your analysis of where the money went is correct. however there are many variables that must be allowed for. One huge variable is that even in Jimmy Carter's time it was pointed out by involved International Bankers that it was questionable whether either the US or Soviet Union, could survive the debt being piled up in the Cold War. The Soviet Union did not, and it is questionable whether we have. I can remember telling a good friend some 15 years ago that when it came time to pay that debt, the USA would simply print money to pay it. That is effectively what they have been doing. Print a dollar, give it to you to do some work for me, borrow it back then print another to repay you the one I borrowed. Give you the dollar I owe you, borrow it back with the second one, and print two others to pay you again. Now I have printed 4 dollars with nothing to back them, and I borrowed seven dollars - and it only cost me the ink to print it. Give the seven dollars to people I like and print seven more dollars to pay back the money I borrowed. But - my best friends now hold the first seven dollars, and I have a balance book of -0- owned and -0- owed. Exactly where I started. The only difference between Trump and Biden admins is that Trump was smart enough to figure he needed the working stiff to support him so he was willing to give them part of the money. Biden's people have no intentions of sharing with the you's and me's of this world. There is only one place that money can go - offshore. Not one pothole Obama fixed around here between 2008 and 2016 isn't a pothole again, and 2 or 3 times the size. All talk no action.
TBone208 wrote: "You ppl are such windbags. Go use your crystal ball to get rich & predict something meaningful. Nobody knows what's going to happen. How are we supposed to take ppl who don't know the definition of a recession & "woman" seriously?"

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airkooledchris
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Re: The Rich Are Getting Richer Yet

Post by airkooledchris » Sun Dec 13, 2020 7:39 pm

CliffsNotes:
everything your guy does is wrong and everything my guy was trying to do was smart.
if your guy is in charge everything will be worse, but if my guy is in charge it'll be better.
1979 California Transporter

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Amskeptic
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Re: The Rich Are Getting Richer Yet

Post by Amskeptic » Wed Jan 06, 2021 5:59 pm

Hand it to the rich! They have made off with another trillion during the worst pandemic in 100 years.

Every contraction of the economy sets off investment mechanisms that skim off the down slope and pays out on the upside.

Fine! All I ask is a transaction tax, then pay off the students' educational debt burden and invest in electrical/water/transportation infrastructure, because as any sensible republican could tell you, if we don't invest NOW, it will soon be waaay more expensive.
Colin
BobD - 78 Bus . . . 112,730 miles
Chloe - 70 bus . . . 217,593 miles
Naranja - 77 Westy . . . 142,970 miles
Pluck - 1973 Squareback . . . . . . 55,600 miles
Alexus - 91 Lexus LS400 . . . 96,675 miles

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