Posts tagged ‘flow down’

Econ 101 for Republicans

Republican economic theory (theology?) relies on two beliefs or tenants. The first is that if you cut taxes there will be new investment by businesses and corporations, and with that, jobs and wage growth. The second is that this increased economic activity will actually grow the treasury’s coffers, paying for themselves. This effect when applied to the impacts of a tax cut is called dynamic scoring. See, the tax cut will cost x, but the result will be y additional income to the treasury or so the theory goes. The first one could be true in certain circumstances and the second one is demonstrably false. But that is what their whole approach to the economy is made up of. Oh sure fewer regulations, but that is really a subset of the first tenant and when you add the secondary costs, like damage to environment, death and dismemberment, and loss of rights for workers, the cost are usually more than the benefits.

Let’s go after the first tenant, cutting taxes creates jobs and stimulates the economy. Well there are times when that actually helps, not as much as actual increases in government spending (a tax cut has the same effect on balance sheet of the Treasury as increased government spending), but it helps and it can be faster than government spending. Economic theory and practice have shown us that after a recession or even during one, with high unemployment, making money available to corporations and businesses in the form of a tax cut does stimulate growth. It is a tool Republicans favor because they don’t believe in direct government spending in things we need like infrastructure and R&D, and want to give it to corporations and businesses (and people) to decide for themselves.

Two things you need to ask yourself here. First are we coming out of a recession, and how high is unemployment? The answer which conservative economist Bruce Bartlett gave us the other day was neither apply as corporations are already awash in record profits, and the unemployment numbers tell us we are almost at full employment. Second, one thing we know for sure is money given to the middle and lower classes is generally spent, while money given to wealthy is much less effective. Where was the emphasis in the current tax bill? Oh, the wealthy. There are great debates about whether direct spending by government is far more effective in these times to create real demand through jobs and wages. But we have some empirical data from Governor Brownback and the Kansas experience where they slashed taxes, little change in jobs or wages, and the state went into massive debt, defunding education to help balance the books.

The bottom line on the first tenant, is that if used judiciously at the appropriate time in the economy (not now) it might help. But considering the infrastructures needs across the country, the money would have a much higher multiplication factor (return on investment; every $1 spent creates say $1.5 of increased activity in the economy), and we would create jobs, higher wages, and invest in our future. The money they are going to spend paying off their wealthy donors, in other words, is going into a big hole.

Okay, tenant number two, that cutting taxes pays for itself (dynamic scoring) is fairly straight forward, it has never worked. Oh sure there might me some increased revenue if the tax cuts were properly targeted to the middle class, but nowhere near the income to make up for the spending. “Assessing the House version of the plan and accounting for the economic growth its tax cuts would induce, the analysts found that growth would offset only about 12 percent of the plan’s cost over the first decade. After an initial economic boost, bigger deficits and rising interest rates would drag on the economy.” Here is another well research source that can find no pay for itself effect in Vanity Fair. But hey, get it from the non-partisan Joint Committee on Taxation and note they still used very optimistic growth rates.

So there you have it. Or as conservative economist Bruce Bartlett said, “…virtually everything Republicans say about taxes today is hogwash.” So we are going to take a big hit. Get ready. And what is next? This from Paul Ryan in the NYT this morning:

Speaker Paul D. Ryan and other Republicans are beginning to express their big dreams publicly, vowing that next year they will move on to changes in Medicare and Social Security. President Trump told a Missouri rally last week, “We’re going to go into welfare reform.”

That’s right. When the numbers don’t add up and the Treasury starts going in the red, they will all of a sudden care about the deficit again and go after the programs that we need most. Maybe that was their game all along. We are in for hard times ahead, but as I told my son who works in the school district in San Diego and is afraid the new tax bill that eliminated his tax deduction for interest on loans and cut the deduction for state and local taxes that school districts depend on could bankrupt him, Conservatism is like cancer. The treatment to cure it if it can be cured almost kills us. That is where we are at. The great Kansas Experiment has moved to the national stage, and we will see the same results. Think you might get out and vote in 2018?

And a Chicken in Every Pot!!!

I am listening to the DIC (Dotard in Charge) talk about his tax cut plan and lie through his teeth about he or his wealthy friends not getting big breaks.  I am thinking he must really think we are stupid, and then I look at Alabama’s nomination of a right wing nut (more religion in government (whose religion?), and outlaw gays) to run as their GOP candidate, and maybe he is right.  But let us just stick with the tax “reform” plan.

First question you might want to ask is how do we pay for all this cutting?  One, if he were rational, would start from the understanding of what we need to invest in future, add that to our current obligations and figure out how much money we want to have coming in.  Now this would include what is a reasonable debt (based upon % of GDP) and how to pay for programs in the future.  Then understanding our income needs, we could look are reforming the tax code to simplify, and decrease/increase where it makes sense.

Now we could argue about expanding Social Security by allowing the tax not to be capped at a certain income level.  We could argue about Medicare for all and how to pay for it with a trade-off of higher taxes versus no private insurance bills.  But we are not doing that, we are cutting, cutting, cutting, and what of the deficit.  Oh wait,  I forgot, tax cuts pay for themselves except of course, they don’t.  So the first question to be asked is how does this devastate the deficit.  I happen to be one who thinks a reasonable debt is okay and necessary, but make no mistake, they guys who want a balanced budget don’t give a shit about the debt when it comes to tax cuts, and will cut programs like healthcare (Medicare and Medicaid), education, R&D, infrastructure spending, and Social Security to keep their cuts.

Now, it is true that some pay way to much in taxes.  They are the ones who really need a tax cut, and they have no power.  Those that have power have already massaged the system.  You don’t really think that while we have the highest corporate tax rate, they actually pay that right?  Of course they don’t because they have gamed the system with their money and the gaming continues with the DIC out there lying through his teeth.  So let’s see the details and see what this really costs us, but unless they can pass this with 50 votes, it is probably dead meat.

In many ways one has to ask, what is the strategic plan of Republicans and how does this fit into a vision of  a great tomorrow.  It doesn’, and it is repeal and replace and cut taxes and the devil is in the details.  It assumes as always that government is bad, regulations are bad, and markets should be free to solve all problems.  It has never worked and this is more of their nonsense.  But hey! who does not want a free ride?  That is what America has become.

An Upside Down World

Trump voters are about to see what they bought themselves.  The Republican mainstream, the nut jobs in Congress, want to gut Social Security and Medicare.  They want to do it in the name of tax cuts for the wealthy.  The Donald, to separate himself from that mob, promised his voters he would protect Social Security and Medicare.  But did you actually pay attention to who he is putting in his Cabinet?  Both will definitely be on the chopping block.  Here is what the NYT said, which I also found wildly off the mark on Social Security:

Republicans say that benefit cuts are needed to save Social Security from insolvency in 2034, when the system is projected to be able to pay only about three-fourths of its promised benefits. It is indeed important to avert that outcome, but benefit cuts alone would force all of the needed adjustments onto recipients.

…A prudent approach to reform would target the causes of the system’s shortfall with a mix of modest benefit cuts and modest tax increases. It would make sense, for instance, to trim the benefits of recipients who were high earners during their work lives, because, in general, high earners live longer than low earners and thus draw their relatively higher benefits for a longer period of time. Another sensible reform would be to bring more tax revenue into the system by raising the level of wages subject to Social Security taxes, currently $118,500. In recent decades, the wage cap has not kept pace with the income gains of high earners; if it had, it would be about $250,000 today.

Yet I firmly believe we have to expand Social Security and make Medicare for everyone.  Expensive? Yes. Can we afford it?  Depends on whether you believe we are in this all together or not.  Again, I firmly believe that we are entering a world economy where retirement plans are few and far between.  That to be economically viable you are going to have to change jobs many times and continue to learn and grow your entire life.  A safety net is the one thing that will let that happen and it is already meager compared to European countries and we are talking about making it smaller?  It is small thinking.  We can afford it if we do something about the gross economic inequality we live with.  But Republicans want to increase that economic inequality by further cutting taxes for the wealthy and cutting everything else.  Donald seems to be aligned with this conservative economic theory on steroids.

I am not a casual observer here.  I depend on my Social Security, already reduced (doubly) because I have military time (11 years) for which I earned Social Security, and a federal retirement pension which was reduced when I received Social Security.  Thank you Ronald Reagan.  If I would have done the same thing in two civilian jobs, I would not suffer the almost half reduction in my retirement and Social Security.  So I am not unprejudiced here.  But think about it.  Most Corporations don’t offer retirement like they used to, and so it is on you to save enough and then your savings are at the whim of Wall Street.  Oh, and enter economic inequality.  Most middle Americans don’t have disposable income they can really save if they are raising a family and more and more of the pie in terms of disposable income is going to the wealthy regardless of productivity gains of the workers.

Now Trump and the boys and girls from the Republican Party want to make that even worse.  It will be interesting four years from now when all those rubes who got sucked into voting for Donald Trump realize he was their worst enemy, or will they?  They were stupid enough to buy into wild claims of what he would do for them that are not even close to being within the realm of reality, so will they still be in La La Land when they see things get worse, not better?  With Republicans everywhere will they still not put the blame where it belongs?

Here is what I think.  The Republicans believe in flow down, or at least pretend they do because then taking from everyone else is justified in their minds as somehow making things better for everyone.  But of course it doesn’t and as economic inequality grows, and Americans have less and less to support the markets necessary to produce larger and larger profits for corporations, corporations have to look elsewhere for profits.  That has already happened as many corporations are international in the sense they sell across a global market and continue to move to where they can further suppress wages and not have to follow basic regulations for the health and welfare of their workers or the environment they live in.  That is the driving force of corporations when their sole goal is to maximize profit for their shareholders.  It makes them resent government.  Welcome to the Republican Party.

But there is a law of diminishing returns and they are driving themselves out of business if they don’t share their profits with their workers so there is a growing pool of consumers.  Government has been the only force that was able to rein them in and ensure that outcome and now we have put a businessman and his cronies in charge and we will have economic inequality on steroids.  Will the rubes figure this out?

I don’t know, but as sure as they became disenchanted with the establishment and brought into change, and  that will make things worse for them, they will become disenchanted with this snake oil salesman if he doesn’t get us in a war first.  The real question is will they finally understand their plight and pay attention, not to promises, but to policies that make sense?  Will a party arise that is willing to tell them the truth about the future and have a plan to meet it?  So far what we have seen is that has not happened.  Rubes are rubes, and the Democrats can’t find their ass with both hands.  Just maybe when this four years is over the shock will be enough.

Less Than Four Weeks

The election will be in four weeks after almost 2 years of brutal campaigning, smearing, and lying.  We have had a dysfunctional government and if the American people don’t wake up to the fact that the Republicans have made it dysfunctional , aided and abetted by our media, we are destined to decline further.  I had a dinner party discussion the other night where one participant told me the problem was everyone was too partisan*.  It is another form of both sides do it.  It is also the road to no solution.  I pointed out to him the work of Ornstein and Mann, two legislative scholars on both sides of the partisan divide, that firmly shows how the right went so far right that compromise was no longer on the table.  Think he will read it?  Me neither.

That is the world we live in today.  Republicans are shocked, shocked, shocked I tell you about Donald Trump.  I wasn’t surprised.  Were you surprised?  He lies 24/7 and it is documented.  See Politifact.  He is a racist (although that appeals to some), and his xenophobia and nativism is based on either his lies or the fact that he doesn’t know he has his facts wrong. Most of the problems he identifies don’t exist but play well in the blame game. His misogyny has been well documented long before the Trump on a Bus incident.  His statements regarding the rule of law, our Constitutional system, and foreign policy indicated a gross ignorance of basic knowledge about our government and foreign policy.  AND YET THE REPUBLICANS EMBRACED HIM. THEY CRAVENLY ENDORSED HIM.

I don’t think you have to go any further than that to show where the problem is.  Now when News at Five has his salacious remarks on audio so that denial is no longer effective with those in an alternate reality, where their deal with the devil is now so evident, they say we withdraw our endorsement.  We are honorable people.  Really, this is not new or news.  This is who he was from the get-go.  Now there are some Republicans who are not un-endorsing him like Marco Rubio and you begin to see how craven the Party really is.  “I would rather go with a racist, misogynist, ignorant fool than alienate his base and loose my slight chance to win my election.”  Got any further questions on where this Party has gone?

Now I want you to focus on some mainstreet thinking by Thomas Friedman this morning, some of it right, and some of it flawed:

For starters, this version of the Republican Party has to die. I don’t say that as a partisan. I say that as a citizen who believes that America needs a healthy center-right party that offers more market-based solutions to problems; keeps the pressure on for deregulation, freer trade and smaller government; and is willing to compromise. But today’s version of the G.O.P. is not such a problem-solving party.

We have known that ever since the G.O.P. speaker of the House John Boehner quit, not because he couldn’t work with President Obama but because roughly a quarter of House Republicans, the so-called Freedom Caucus, were simply not interested in governing and had made his job impossible.

…For the sake of the country, this version of the Republican Party has to be fractured, with the extreme far right going off with the likes of Donald Trump, the Tea Party, Ted Cruz — along with all the right-wing TV and radio gasbags who thrive on chaos — leaving behind a moderate center-right bloc, which, one hopes, one day would become the new G.O.P. But it will need to nurture a new base, one inspired by a Jack Kemp spirit of conservative innovation, not by Trump dog whistles of anger, xenophobia and racial enmity.

Dead on sort of. The problem clearly lies within the Freedom caucus. Those Jack Kemp spirit of conservative innovation Republicans co-opted themselves or became moderate Democrats. Then he says the following which indicates his lack of understanding of where Trump came from, the failure of the conservatives to have answers for Trump’s more populist base:

The bigger Clinton’s margin of victory, the less dependent she’d be, I hope, on the left wing of her party, and the more likely she’d work with Republicans, as she vowed during the last debate, by “finding common ground, because you have to be able to get along with people to get things done in Washington.”

…The nightmare scenario — ruling out, God forbid, a Trump victory — is that Clinton wins with a slim majority and the G.O.P. holds the House and the Senate. The Democratic left would have a stranglehold on Clinton while Trump, who would start his own TV network and movement, would keep the Republican base in a state of permanent anger, intimidating every Republican lawmaker who contemplated compromise. If that happens, America will be adrift.

First there are no Republicans to work with as evidenced by the last eight years.  As we learned in California when we put Republican in the permanent minority, they just obstruct.  Now our government works. There are plenty of moderate Democrats to argue for compromises for commen sense solutions with Progressives.  Republicans have no incentive to compromise and that is the lesson of the Obama years.  They can’t afford for more common sense and Progressive solutions to work because it demonstrates the bankruptcy of conservative philosophy, even moderate conservatives.

Here is the other thing he misses.  There is a straw man out there that Democrats just want bigger government and don’t believe in the market place.  I don’t know if that was ever true.  Democrats want government that works.  So big government or small government is not the metric.  Effective government is. And that is where conservatism goes basically wrong.  When small government is more important than effective government, we have lost our way. Sometimes big government is the answer and sometimes it is not.  Democrats are not against the free market, because there is no free market, but operates on rules and regulations that benefit somebody.  Democrats are for a free market that more equitably shares the benefits because we have learned, flow down equals economic inequality.  

When you consider the lessons we have learned, flow down** does not work and increases economic inequality, that the playing field is not level and government’s role is to make it more level, and a truly free market, meaning the government does not oversee the existing rules, leads to ever increasing risk taking and price gouging, conservatism as we know it falls apart.  That is where the White Mob came from.  They understand conservatism was not working for them.  That lesson is not going to go away.  So where Tom goes astray is to hope for a rejuvenated rational Republican Party.  It died when its ideas did not evolve.  And the fear that Democrats stifle the free enterprise system is just flat wrong.  But they do regulate it so that the playing field stays level.  

The only hopeful future we have is to sweep Republicans out of office and let progressives, balanced by more moderate Democrats take charge of the country.  And Tom, here is the real difference:  Progressives will try new ideas and if they don’t work, will make changes.  Our ideas are not a religion and they will evolve.  That is where conservatism failed.  Conservatism in its struggle to stay relevant when their ideas failed, created Donald Trump and rejuvenating a younger version will lead to the same result.

*This same individual took me to task my support for free college education.  He basically disagreed with the idea and his thinking went this way:  It is a business decision.  You must only take on the debt that your future job allows you to pay off.  He was a doctor.  I said what about teachers.  First he was apparently clueless that to get the necessary credentials could run up a $100,000 debt.  But still they made a bad business decision.  So I let it die, but really, no teachers, no anthropologists, no research scientists, because in most cases what they earn is not a good return on what their education costs.  In today’s world, college education is just an extension of high school, a necessary basic skills set to compete.

**Flow down is the belief that if the rich get richer, they invest their earnings in jobs and industry, creating more jobs and wealth.  It is the heart of cutting taxes for the wealthy.  It has not worked and economic inequality is greater than it has ever been in our history.

The Donald’s Economic Plan

Can you say bull shit and supply side economics?  Basically it was nothing new.  Cut taxes for the wealthy and the world will take off. Oh, and no mention of how to pay for it except the growth in the economy will pay for it.  Might I remind you that their own guy at the Government Accountability Office (GAO) said this was a fiction, tax cuts don’t pay for themselves.  Then of course was the lie about tax rates.  We are the number one tax payers in the world! NOT!  While our rates are the highest (35% for corporate federal and 6% state), none of the corporations pay those rates.

The United States actually rates 16th in world in effective tax rates on corporations (what they actually pay).  The reality is that companies generally don’t actually pay those rates due to tax credits, exemptions, and offshore havens.  The GAO found that among profitable companies in the United States, the average tax rate was 12.6% and two-thirds of American corporations have no tax liability.  In other words, to be kind it is a big lie.  Cutting taxes for the wealthy in a demand starved economy will do nothing.

Supply side economics, if you build it, they will come, was effective in the Eisenhower days when there was pent-up demand and savings to support it.  We live in a world where corporations are rolling in the dough and don’t invest it because they don’t see demand to support their investment.  We live in a different economic era and Republicans have not moved on.

It was nonsense, full of misinformation like the tax rates, and outright lies like Obamacare cost jobs which it did not.  Oh and let’s get rid of the Estate Tax so the wealthy which will have no impact on the economy except to increase once again economic inequality.  It is the same old Republican nonsense that has held us back and increases the root problem, economic inequality.  Oh, and none of it adds up because he borrowed Ryan’s magic asterisk, cutting taxes will return enough money to pay for it.  It was done under George Bush and created giant deficits.  In other words, the same old shit:  Supply side economics, flow down, and tax cuts for the wealthy with no way to pay for it.

Oh, and you see all those links above?  It is called critical thinking, believe nothing, ask questions, find out the facts.  Oh, and judge your sources appropriately.

Republican Denial

I have spent a lot of cyber ink in this space pointing out the Democrat’s denial about what the Bernie movement is telling them.  It is an important message for their very survival, but the Republican’s denial about Trump leaves the Democrat’s denial in its wake.  Here is what you hear these days from Republicans in shell shock about Trump:  “He will ruin the party and we need to replace him with anyone, preferrably Rubio, Cruz, or Kasich.”  I listened to one serious and earnest Republican delegate to the convention talk about how they could unbound themselves from voting for him to give them a replacement.  I question their arguments on this one, but the real denial is that one of the “other guys” would be acceptable.   

Look at it from the Republican point of view.  Although they deny it, or at least have not faced up to it, the White Mob that supports Trump is their creation.  They have happily backed lies and half truths about policy, along with code for racism and discrimination to stoke the White Mob’s excitement when it served their purpose.  Now here is simply a fact.  Republican economic policies are totally focused on the wealthy and in fact further undercut white middle class (well, anything below the 1%).  That has not been lost on the White Mob, hence their rejection of the “other guys” and the selection of Trump. So there are two things going on here, a creation of an uniformed and irrational base, and economic policies that do not address their problems.

The denial the Republicans refuse to face is that while the White Mob is racist and xenophobic, they are right about one thing, Republican economics has not worked for them.  It is a message similar to the one being given to the Democrats albeit from a more rational crowd, that politics as usual, and money in politics, has failed.  Republicans seem to want to double down on their economic ideas with a “traditional” Republican that the base has rejected.  So if they nominate one and throw Trump out, there will be real riots in Cleveland.  And if they don’t, and stay with Trump, they will lose and lose big, especially in down ballot races.  It is lose-lose and they have yet to look in the mirror.

The real issue is that they have no new ideas.  They strongly believe in conservatism which translates to small government, low taxes, and little regulation, and none of it relates to the world we live in.  Instead of small government we need smart government.  Instead of low taxes we need resonable taxes considering what we want government to do.  Instead of little regulation, we need smart regulations.  Republicans have never dealt with the fact that small government means cutting the very programs the White Mob depends on (and so do most of the other 99%).  It doesn’t address how we rebuild our infrastructure or create an economy for tomorrow.  They have never dealt with the fact that low taxes means wealth accumulation for the few and that flow down does not operate.  They have never dealt with the fact that every time they unleash the market place with few regulations, disasters follow.

So they are in giant denial.  They think they just need to restore a real Republican and things will go back to normal, but their normal is only okay for the 1%.  The White Mob is giving them a giant lesson in their politics of lies, distortion, xenophobia, and racism, along with a wake up call about who their economic ideas really appeal to.  In contrast, while Democrats are also in denial, their denial is about how they have been co-opted by the system to expect very little in the way of change and call it progress.  But at least the change they do fight for is to help the 99%.  It will be interesting to see how this all plays out over the next 4 1/2 months.  Happy Saturday

Lower Taxes and the Economy will Take Off

That is the basic Republican mantra now chanted by Donald Trump. And of course jobs will be created. Oh, and let’s not forget the giant bonus, with the growth in the economy, they pay for themselves with increased tax revenue.  Who wouldn’t want to do this? If this works, it’s genius. Except there is a problem.  It has never worked.  The rich got richer, the deficit got much bigger, and the jobs along with economic growth did not materialize (Business Insider).  But they did grow economic inequality. Yeah Team.

We have the Bush years and the present day example of Governor Brownback in Kansas (Prospect) to look at for evidence of massive tax cuts and job growth (Forbes).  In both cases deficits soared because the growth did not materialize and neither did the tax revenue.  Further evidence comes directly from the director of the nonpartisan Congressional Budget Office (CBO), who was appointed by GOP lawmakers earlier this year to do their “dynamic scoring” of budget proposals, and to their shock, he said at a press briefing that tax cuts don’t pay for themselves:

“No, the evidence is that tax cuts do not pay for themselves. And our models that we’re doing, our macroeconomic effects, show that.” (The Hill)

What’s a poor Republican to do?  His whole basis for free lunch economics does not stand up to scrutiny.  Well as the Prospect cited above points out, they don’t care about no stink’in evidence:

But the real source of the conservative support for tax cuts is moral, not practical. They believe that taxes are inherently immoral — the government stealing from you the fruits of your labor (or inheritance or wise investments, as the case may be) to enact its nefarious schemes. Taxes should therefore be as low as possible. Conservatives also tend to believe that progressive taxation is doubly immoral, since it takes more from the most virtuous among us.

So we now have two tax plans presented by two of the Republican candidates (Bush and Trump) and thanks to Vox here is their impact:

And neither are “revenue neutral.  Trump’s is estimated to cost $10.8 trillion in its first decade.  Bush’s tax plan would cost $3.6 trillion over 10 years.  Read deficit here deficit hawks. Yikes.

The reality is that we need more tax revenue, either from a growing economy (remember what happen under Clinton when he raised taxes and the economy continued to grow and deficits shrunk?) or from just raising taxes.   We need to pay for what we need while maintaining a reasonable debt.  And many of those things we need, like making education affordable, single payer health care, a secure retirement system, improved infrastructure, are the very things that will grow our economy for the future and make our debt smaller.  So we need a tax system that is fair, allows a fair gain for risk taking, yet makes sure that all of us share in its growth, while properly servicing our debt,

Certainly this means that one of things we will have to do is revise the tax code.  How we do that is grist for another blog, but beware of strangers bearing gifts.  As you can see from the above analysis, there is no free lunch, and Republicans are wolves in sheep’s clothing selling old failed policies as new ideas.  What else is new?  Happy Tuesday.

Moderate Republicans and What is Wrong With That (Cont. Part 2)

In my continuing saga of looking at the problem with the 7 things all Moderate Republicans and some Democrats (economic conservatives) believe almost religiously. I listed them as follows:

  1. Our economy is driven by the market place and restrictions put on the market place simply drag down the economy
  2. Jobs are created by the 1% investing their profits in the market place (Job creators). This is trickle down or flow down.
  3. Regulations and taxes simply hinder the market place and take money out of the hands of job creators to create jobs
  4. The system is fair and those who work hard get rewarded. Spending on social programs like Social Security, Food Stamps, and Medicaid simply take money out of the job creators and create programs that let workers opt out of the system (the 47%) or the lazy fail to perform
  5. Government should not have any debt and balance it’s books (Debt is bad and makes us dependent on foreign countries)
  6. Government is very inefficient and its role in our economy and life should be minimized
  7. A Strong dollar

So today let’s look at #2, the trickle down theory.  The best way to describe this is to say that for a capitalist system to work, there has to be incentive and opportunity to make major profits and allowing those who make these profits to keep them because these profits get reinvested in the economy and create jobs.  Hence the conservative description of the wealthy as job creators.  Like all beliefs, there is an element of truth to it.  There has to be incentive (large profit) to take risks.  Secondly, money does not sit idle so it will go where it can make more money, hence the belief in job creation.  But there is trouble in ideology land.

Wealth is concentrating as never before and job creation is lack luster.  The rich are not investing their money in things that create jobs for the rest of us, and the rest of us are making only marginal gains if at all in our income.  There are side effects.  By lowering the tax rate on the wealthy thinking they will create jobs and increase revenues to the treasury, we are depriving ourselves of funds to rebuild the infrastructure necessary for a vibrant economy (infrastructure includes not only roads, rails, telecommunication, water systems, airports, but investments in people through education, health, and welfare). 

Secondly, with a lackluster economy and small wage growth, we are depriving the majority of people in this country the buying power to sustain a thriving economy. And there is one further side effect and that is with concentrated wealth, in our pay for play government, comes concentrated power.  Those who have are controlling the agenda in Washington to maintain the system to benefit them.

There are many reasons flow down doesn’t occur from the fact that the financial markets have taken over wall street, to import and export laws, to tax policy.  But the major driver is that demand drives the economy, not supply (another thing conservatives have wrong).  “If you build it they will come”, doesn’t work when those who come don’t have the buying power to come and industry won’t build things until they see a demand (hire people).

Now, trickle down would work if we had a growing economy with pent-up demand (meaning not only wanting stuff but the income to purchase it).  But we don’t and trickle down has been shown to be a failed concept during the Bush years when the massive tax cuts, mostly for the wealthy, did not create jobs, and the great conservative experiment in Kansas by Governor Brownback that has bankrupted funding for schools.  But conservatives still chant low taxes to assume somehow, this time it will work.  Ideology run amok.

Haley for VP!

Really?  She did the no-brainer thing on the flag, but in Republican land that is really a big deal.  Note that all the other candidates for President in the “deep” lineup of Republicans who have their finger perpetually up in the air testing the direction of the political winds, are now concurring with her “brave” decision.  It was kind of obvious wasn’t it.  The flag stands for racism, and separatism, and now that its real meaning was exposed to everyone, not just thinking people, they did the right thing because they had to. Pandering to racists just wasn’t going to fly.  Of course, it is not a done deal and more importantly it is just a symbol of racism, not racism itself. And that brings me back to Nikki for VP

Isn’t she the governor who refused Medicade impacting mostly black poor people and depriving them of healthcare?  She championed voter ID laws that are poorly disguised voter suppression policies aimed at primarily Democratic (and black) voters. Here is a list of the things you might want to know other than she can really tell which way the political wind is blowing:

  • Rejected Obamacare state exchanges (along with Medicaid). Wants to repeal (if it were up to her) Obamacare
  • Voter ID is “No-brainer to protect election integrity”, except of course there is no voter fraud
  • Made concealed weapons permit easier and is one of those that believes the 2nd Amendment gives absolute right to private personal weapons
  • Wants to deport all illegal immigrants (Build the wall)
  • Fought unioization and supports right to work laws that drive down wages
  • All for slicing taxes for the wealthy (Eliminate business taxes starting with corporate income tax)
  • Wants more God in the public square
  • Firmly against a woman’s right to choose
  • Strongly against same sex marriage and gay rights
  • No debt ceiling increase without spending cuts and caps (idiotic:  If Congress authorized the payments, now we reneg?)

So what you get is another religious conservative Christian, who actions have discriminated against the poor and black, wants to repeal Obamacare with no real plan for replacing it other than back to the marketplace, and an economic conservative that still believes in flow down.  Yep the perfect VP candidate, nice wrapping, but the same bullshit in the package. Probably fool some of the people most of the time (TV talking heads).

The Aha Moment that Could Just Save Us

This is going to be one of those connect the dot blogs, so bear with me, and no it is not about Denny Hastert or Hillary’s emails.  It is about America’s tomorrow.  I have maintained that the number one threat facting America is Global Warming.  However the number one political issue will be the economy.  If we tackled Global Warming we could go a long way to solving the economy, but that is a blog for another day.

You know that old refrain, it is the economy stupid?  Well it is.  But the economy doesn’t seem to be fixable and that is because almost everything we assume we know about the economy is wrong.  Let me start with the obvious.  The country has been on a path that assumed that trickle down worked.  If we made a business friendly climate where the wealthy could keep and reinvest their earnings, the rest of us would enjoy the benefits of this through job creation and a “rising tide.”  Except it did not happen.

What we have is a lackluster economy where wealth is being transfered to the wealthy and the middle class is losing ground. Investment is non-existent.  During the Bush years, George cut taxes on the wealthy, de-regulated to his hearts content, and jobs went nowhere. The Republican Miracle is being played out in Kansas and other red states where cutting taxes just bankrupted the treasury withouth the jobs and revenue.

 And this has not been a partisan thing, both Democrats and Republicans have had a hand in it.  The conventional wisdom was that if Wall Street was doing well, the rest of us will.  You can split hairs and say well Democrats have thrown up some roadblocks in terms of regulations to control pollution and help out the poor with safety nets, but all in all, everyone bought into this theory.  Except our economy doesn’t work like that anymore.

I have been frustrated over the years, because as a Paul Krugman student, I knew he was on to something and was being totally ignored.  When the economy started to fail, he argued this was not about supply, but demand.  Unless we give people the means to earn money, and spend it, the economy was going nowhere.  He was dead right and his predictions about interest rate and inflation have been dead on.  And as I noted he has been totally ignored.  Paul calls the people who have been calling the economic shots VSPs, Very Serious People.  They couched reserve and austerity to give the system back its confidence (supply side thinking) and their bitter medicine fit our need to feel we have done something wrong (the debt), but in our present circumstances it was exactly the wrong advice.  

These people have controlled our policy decisions, sadly our President is one of them, and we have not done the things we need to do to start to heal our economy.  Okay that is my history lesson.  We all know that the economy is lack luster, jobs are a joke (yeah there are jobs, but not good paying ones), and wealth is rushing faster and faster into the hands of the wealthy with no reinvestment.  So what the hell is going on.  Okay, hang on to your hat, here are the breakthroughs.  Let’s start connecting the dots.

To review:  The rich are getting richer, the middle class is losing ground, and wage growth is stymied.  Trickle down doesn’t seem to work.  Enter Mike Konczai with The Proof That Centrism is Dead.  Basically Mike is talking about Krugman’s VSPs.  I suggest you read the entire piece, but I am going to quote freely:

An optical illusion has shielded centrism from critique. Centrists position themselves as anti-ideology, representing a responsible compromise between liberals and conservatives. The word conjures sobriety and restraint, caution and moderation—all of which sound compelling in uncertain economic times. 

But institutionalized centrism is more than that: It’s an elite group of thinkers and writers, popular in Washington, DC, and favorable to business leaders, who told a very specific story about what was happening during the Great Recession. They populate the opinion pages of The Washington Post and think tanks like the Bipartisan Policy Center, and they influenced officials like former Office of Management and Budget director Peter Orszag.

Circa 2010, they argued for a “sensible” response to the Great Recession: reduce the deficit to fix the short-term jobs crisis, privatize Medicare, and focus on the long-term economy—since, they claimed, working Americans would eventually bounce back during the recovery. Democratic candidates took these positions seriously. Yet each element of the centrist story has turned out to be absolutely false.

He then goes on to list how they got it wrong over and over again.  How everything they predicted did not come to pass. Then he points out the obvious:

Yet six years into the recovery, wages are still down for most workers. Since 2000, median family income has dropped by 7 percent. Workers have never been more educated, but the result is just fiercer fighting for jobs. Corporate profits have skyrocketed, and 76 percent of the recovery has gone to the top 1 percent. How can centrists continue to focus on the long term and business confidence when all the fruits go to such a small group?

This failure explains why liberal politicians will sound more confidently liberal in 2016: The dominant ideology pulling them toward business interests has failed. Thus, liberals can analyze the economy within a structural framework that isn’t muddled by a commitment to wrongheaded corporate prerogatives.

Okay dot one, trickle down no longer works and the VSPs/Centralists whom we have all looked to for sensible guidance in our economy have failed us.  All the stuff we thought we should do did not help.  Now comes the big dot.  Maybe the way we think our economy works is not the way it really works.  Note that if we get Republican leadership in 2016 they are going to double down on trickle down.  Cut the safety nets to afford tax cuts to the wealthy and “they will cereate jobs for all of us”.  But if our economy doesn’t work this way, this is the road to disaster.

Now Democrats see the effect of the problem (as oppsed to the cause) in our economy, economic inequality.  Many want to treat that effect with things like equal pay for equal work, raising the minimum wage, taxing the wealthy more, and that certainly would help, but we are treating the symptoms here, not the disease.  What is it in the way we have set up our economy to operate (through laws, regulations, trade policy, and tax policy) that favors the wealthy and leaves the rest of us out in the cold while they are raking in their dough?  That is where some really smart people(Neil Abernathy, Adam Hersh, Susan Holmberg, Mike Konczal) led by Nobel laureate, Joesph Stiglitz comes into the play.

They said, we can’t just move the deck chairs around on the Titanic and tax the wealthy, we have to fix the root problem with a wholestic approach to fixing our economy and they came up with a plan to do just that, called Rewriting the Rules of the American Economy. This plan is a 115 page document that lays out exactly what has to be changed in our economy and the justification of why this will fix the problem.  But the key to this plan is not all the changes they recommend, but the root problem they found in the way we have structured our economy that defeats flowdown. So before you read this report, let’s look at Dylan Mathews’ analysis on Vox that gives you the context in which to understand why these changes are so critical and make sense.

Okay, what is it that makes our economy dysfunctional, wealth is gained but not reinvested in jobs and production? Here is how Dylan frames it:

 Conventional thinking holds that wealth should be invested and, through investment, put to productive use, with those investments creating job opportunities and higher wages.

Alternatively, if few productive investment opportunities are available, the return on invested wealth should start falling. It ought to be a self-correcting cycle in which wealth cannot outpace incomes for long. But the return from capital remains high, and wages are stagnating. Something’s gone wrong.

In You’ve Met Hillarynomics.  Now Meet Left-of-Hillarynomics, Vox’s in resident economics writer lays the root problem for us in his analysis of Stiglitz’s plan.  In a word, rents.  I will try to make this simple.  Through laws, rules, regulations, treaties, and the tax code, we have made an economic system that makes it more profitable to seek rents instead of investing in new production and jobs.  Rent seeking is basically investing in things that return a rent on your investment , but builds or creates nothing.  Here is how Dylan explains the concept:

Stiglitz and his co-authors extend the idea to include a wider and more modern array of rents. A patent or a copyright, for example, can be a valuable financial commodity to own, even without being productive in the way a factory or tractor is. 

To see the distinction, imagine you have $300 million and can either invest it in a startup or use it to buy the rights to the Beatles’ songs. In the former case, you’re providing money that a company can then use to hire people, produce goods, and generally create wealth in the world. In the latter, you’re producing nothing; you’re just grabbing something that someone else produced and claiming the proceeds from it.

“Rent-seeking,” as economists call it, is generally viewed as economically counterproductive. It’s especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people’s money than real investments.

And that is what has happened. Stiglitz and his co-authors show how we have rigged the whole economy this way, whether it is Wall Street and too big to fail, to copyrights and marginal tax rate for the wealthy.  They all increase rent seeking as a way to growth wealth instead of real production and jobs.  So the key is to remove these rent seeking incentives in our economy and that is where Rewriting the Rules comes in.  They look at all the incentives we have built into the system for the wealthy to primarily use rent seeking as a path to increase wealth, and then recommend how we can restructure our economy to work for all of us.

So here it is in a nutshell:  We have an economy that is not working for anyone but the wealthy.  The conventional wisdom that came from VSP/Centralists that we have all been following, says reduce the debt and make the world business friendly, solve our structural employment problems, and the market place will solve all problems.  This has failed miserably.  Along comes Stiglitz and his co-authors to show how the economy has been gamed over many years to reward rent seeking, making money on money, instead of investment in production and jobs.  That is why there is no flow down.  And then Stiglitz and his co-authors, give us a plan forward.  Anthing less will just be more of the same, moving those proverbial deck chairs around on the Titantic.

Now you start to see the real fight in 2016.  Republicans will want to do more of the same flow down strategies, simply accelerating what we are already seeing.  Hillary and Bill have been big supporters of the centralists.  She may get some of the populist changes, but not a systemic program like Stiglitz proposes that would really fix our economy.  From Dylan Mathews’ analysis:

Hillary Clinton has yet to lay out a detailed economic platform, but knowing the people she listens to on the matter, and judging from her 2008 campaign, it’s not too hard to guess what it’ll be. She’ll call for a bigger safety net for working parents: more child care subsidies, paid leave for new mothers and fathers. She might call for a slight increase in taxes for the rich. But she’s always been a fan of markets. Her agenda — like President Obama’s, like former President Clinton’s — has been defined by a faith that markets are creating wealth reasonably effectively, and that their major flaw is they don’t distribute income as evenly as they should. Let businesses do their thing, redistribute a bit, and you’re basically set.

Enter Bernie Saunders who gets it.  Without Bernie we won’t have the debate we so badly need to see how we must make basic structural changes in our economy to make the market place work of all of us.  He will use Stiglitz plan to propose a real cohesive approach to making the economy work for all of us.  Hilllary, forever triangulating and trying not to look like she is leaning too far left, will come up with deck chair movements which is way better than Republican full speed ahead, but still far short of what we need.  If this debate really happens and the ideas I have written about get into the public mainstream, hell, we might actually fix something for a change.  You know, it is that science and data thing.

There.  Did I connect the dots for you? Did you say, Aha! If you get this, I path forward is really fairly simple and now we are arguing from analysis and logic, not ideology.