By Matt Talbot
ONE IMPORTANT CONTRIBUTING FACTOR of the current American economic predicament is that median purchasing power — that is, the inflation-adjusted pay that the bottom 80 percent of workers get — has not appreciably increased in over 30 years. People not making enough money to keep the economy growing means the economy can’t grow.
Actually, that’s not quite true. The economy can still grow, but since wages aren’t increasing — except for a few people at the top, who, precisely because there aren’t very many of them, can’t make up for the shortfall in consumer spending — the only recourse for consumers is buying things on credit, i.e., growth financed through debt.
This is exactly what we’ve seen in the years since the median wage stopped growing: steadily increasing household debt.
The thing is, financing economic growth by increasing personal indebtedness is not a sustainable path. Eventually the credit cards are maxed out, and then everyone needs to pay down their debt before they can begin spending again.
While this is happening, the economy shrinks, since people are not spending on anything except essentials. The result is layoffs, which means some people can no longer keep up their debt payments — which results in bankruptcies, which result in the banks that are owed that money raising interest rates to cover the increased risk, which results in more bankruptcies, which means more trouble for banks, and so on in a downward spiral.
Eventually, confidence in the entire system begins to erode, which leads to a general panic and the entire financial system grinding to a halt. See October 1929 and September 2008 for an idea of what that looks and feels like.
History tells us these kinds of situations can either be reformed (see Teddy Roosevelt and the trust-busters, FDR and the New Deal, and so on), or, if the oligarchs have so tight a grip on the levers of power — including the means of mass communication — that they can prevent reform, then eventually the people will rise up.
If it gets bad enough, you have the situation famously described by John Steinbeck:
There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificates — died of malnutrition — because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.
Growth through debt leads eventually to systemic crisis. The merest, cursory reading of economic history demonstrates this. History also provides ample evidence that economic growth from rising incomes leads to sustainable and widely shared prosperity.
Going forward, one new aim of national economic policy should be to get the real median wage growing on a consistent basis, and to restrain the tendency of capitalism to concentrate wealth at the top of the income scale.
How? Here are some proven, sensible liberal ideas.
1. Give workers a bigger voice in how profits are distributed. A great way to do that is by encouraging union membership. Let me put this bluntly: The government ought to do everything it can to encourage unionization across all economic sectors. A good start would be repealing the Taft-Hartley act, and passing the Employee Free Choice Act.
2. Use the tax system to discourage out-sized payouts for corporate executives and banksters. Restore the tax brackets (adjusted for inflation) to what they were in 1955. Top marginal tax rate: 91.5 percent. This will discourage the obscene paychecks the One Percenters currently award themselves, and might even encourage them (through deductions) to do economically beneficial things with the money.
3. Re-regulate the financial sector. Restore and strengthen the Glass-Steagall Act. Break up the big banks to the point that the insolvency of one won’t threaten the economy. (While I’m at it: impose a retroactive tax of 100 percent on all non-salary compensation of every executive of every financial institution that received federal bailout money. It might not prevail in the ensuing litigation, but it would be amusing to watch them squirm.)
4. Raise the minimum wage to a living wage, and tie future increases to the rate of productivity growth. This will put subtle upward pressure from below on the wages of other workers.
All this would, of course, cause keening howls of outrage on Wall Street and in the executive suites of America’s corporate headquarters, and confusion and alarm among the Wall Street worshipers on CNBC. But the thing is, economic growth that is widely shared will make everyone — corporate elites included — richer in the long run.
Matt Talbot is a writer and poet, as well as an old Benicia hand. He works for a tech start-up in San Francisco.
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The thing is Matt financing economic growth by increasing national indebtedness is not a sustainable path. Eventually the debt limit is maxed out, and then everyone needs to pay down the debt before the democrats can begin spending other people’s money again.
American has a short-term jobs problem and a long-term debt problem. Right now, we should focus on getting people back to work. When people get back to work, they pay taxes and don’t have to rely on government benefits, so the long-term debt problem decreases.
Personally, I’d really like to see all the American construction people get back to work, improving our American infrastructure.
Regarding government spending, I really believe that we can cut about 20% of our defense spending without sacrificing our safety. There’s so much bloat and waste in defense spending.
There’s so much bloat and waste in defense spending.
Bloat and waste is not limited to the Defense Department. This all sequester is about pennies on the dollar and seeking political gain.
Do you have sound evidence, Dennis, that our national (or federal) indebtedness is “maxed out?” Or is it just one more thing you lily-livered “conservatives” fear? Tea Party sequester will be good for the U.S.
Well, if we’re maxed, then we need to double everyone’s taxes for a year because growth is out of the question. Jobs can go hang. Let a bunch of old people and ill people die off. Let education at all levels suffer and suffer all the little children to come to Jesus, because socialist government handouts won’t help them. Let the little buggers (beggars) earn their own way like you and I did — (not.) Forget raising the minimum wage, it’s too high already. Let ’em keep working two and three jobs if they can find any, or live with parents or relatives so they don’t need a living income. Let ’em live communally. Communism for the poor, laissez-faire for the rich (unless they’re corporations, then its Socialism for them.) Let’s start a war with Iran. That’ll prime our pumps and motivate everybody to support the troops, boy, they’ll need it! We don’t need all those young folks, anyhow — not enough jobs at home. Let ’em go entrepreneurial when/if they come home, and start more pool-cleaning firms and lawn-care companies, let ’em garden and flip burgers and be greeters in the big-box stores that are about to disappear like dinosaurs. Let ’em start up little shops making things nobody can afford.
Where did I say that it was maxed out Robert?
Robert you are a very mixed up person. No one says we do not need revenue. It is how you increase revenue. Robert it is for sure not your way or the Liberal Socialist way. This whole issue could be solved in about twenty minutes if the Liberals decided that taxes are not the answer and job growth is. Yes Robert I do know who President Obama is catering to. The problem is those will always be there. We must have separation and at the same time take care of the folks that either will not percipitate or are unable. America has always been that way Robert. We are not a Socialis/Marxist government. Some where along the line Robert we all must contribute. It appears that notion just went way over your head as I assume it has your entire life. Robert this country is more than happy to give you a life that you like. But Robert you have no right to take it away from the producers which you are not one of. Your life will be fine. Healthcare, Social Security and many other benefits that all tax payers are willing to give you. But Robert at the same time I do hope you understand we do care about you and your off the wall thoughts. I assume that is why you live in America and not Cuba. Robert think about it.
Really nice work once again Matt. Your contributions to our little newspaper are very much appreciated.
There’s talk that America’s elite are the job creators, because they can build businesses that hire people. The fact is that America’s middle class are the job creators. When the middle class has money to spend, then businesses will grow by selling them goods and services.
When America has a vibrant middle class, then everyone does well. When America has income inequality, then the rich do well while everyone else fights over the leftovers.
More on Keynesian economics for the community to ponder….
http://www.businessinsider.com/gop-at-war-against-econ
More for folks to consider regarding Keynesian Theory:
The Fallacy of Keynesian Economics
As they say, the proof is in the pudding, and every time this progressive Keynesian model has been tried, it has failed, and failed miserably. From Wilson’s policies after WWI, to FDR and making the great depression worse, to Carter and now Obama, big government spending has killed the economy, not rescued it. Yet, Progressive politicians still think that government needs to step in and fix us.
This is not a good treatment of Keynesian economics, Dennis. It starts nagatively and and stays biased. It addresses no cause or context, leaving it’s circumstantial appeal and application inexplicable. Why did it not fail immediately instead of seem to work effectively for a while?
State of the U.S. economy and more on Keynes for the community to consider…
http://www.informationclearinghouse.info/article34157.htm
Sorry Will just another turn coat. You must have looked all day for that comment. It means nothing.
More on the 80 percent for the community to consider…
http://www.zcommunications.org/income-inequality-and-double-dip-recession-by-jack-rasmus
Thanks, Will. The Zcommunications article offers the most thorough report on our economy and its recent history I have seen. It’s a keeper. Bookmark filed.
More on the 80 percent for the community to consider…
http://heist-themovie.com/index.html
I will agree with an increase in the tax rate to that in 1955. I will also agree to supporting the expansion of unions in the country and giving workers a bigger voice in how profits are distributed. Same for restoring regulations and increasing the minimum wage. However, in return I want people to take responsibility and learn to not rely on others for support. I want to require everyone graduate from high school or a trade school, no GED, so they can be ready to join the work force as productive members. I also want to require anyone who needs assistance to demonstrate that they are doing everything on their part to take ownership of their situation. By this I mean I want drug and alcohol testing for everyone who requires assistance. I also want people to work for what they are given, meaning that if you are receiving assistance you show/prove that you are actively seeking work to improve your situation and if you are not you do community service and/or learn a trade. I also want to everyone to be required to pay some income tax.
John stated: I also want to everyone to be required to pay some income tax.
All very valid points, John, two comments:
1) I would be happy if we just eliminated the “earned income tax credit”. I am OK with the poor not paying federal income tax, but it is just plain wrong to give them a “refund” of taxes that they did not pay.
2) One thing that those who pine for the glory days of 91% tax rates always overlook is that everyone paid at a starting rate of 15-20% (depending on which year you go back to). The number of people who actually paid at the highest rates numbered in the hundreds (out of millions of taxpayers).
And you conclude what?
And you conclude what?
That those who think taxing the rich (which is not me) or to make sure ‘everyone-pays-their-fair-share’ (leftist code for the next guy pays more), is a solution are as sadly ill informed as those who still follow Keynesian theories.
DDL. Agree with both of your points.
What is “alcohol testing”?
Let me make it even more clear. Random breathalyzer tests administered to anyone collecting assistance at any time during the day.
Cool! I was thinking I might have to stop drinking entirely.
Really, what is alcohol testing? How about random tests during the day when you are supposed to be working or looking for work?
Who would go around conducting random breathalyzer tests?
http://www.upworthy.com/9-out-of-10-americans-are-completely-wrong-about-this-mind-blowing-fact-2
Looks like were headed for that ” Let them eat cake ” range , as much as I dislike long term welfare, without it we would probably be having some food riots, more robberies and crime.