THE OVERWHELMING IMPRESSION I get, watching the news these days, is that, when it comes to economics, everyone is an amateur.
"In the long run, it doesn't pay to starve the goose who lays the golden eggs."
There seem to be as many theories about what went wrong, and how to fix it, as there are economists, politicians, and journalists combined.
Maybe more.
So I thought I'd take a moment to set everyone straight:
- The problem.
We hear constant chatter these days about the housing crisis, the banking crisis, Wall Street, etc., and all of these are probably important, and probably need fixing, but they aren't the basic problem.
The basic problem is clear to anyone who works for a living. The working poor and the middle class don't have enough money.
Why can't Detroit sell their cars anymore? It's partly because they haven't been making very good ones, and it's partly because they haven't been making the kind of car that people wanted, but that never stopped people from buying before. The fact is that people can't afford to buy a new car.
Why was there a housing crisis? You can point the finger at lending policies and the banking industry, and you're probably right. But the bottom line is that no matter how bad the loan deals were, or how mismanaged the industry is, we wouldn't be having this problem if people were making enough money to pay those mortgages bills.
Wall Street is in trouble because business is in trouble, and business is in trouble because people aren't buying, and people aren't buying because they don't have the money. - Debt.
A common explanation for this lack of funds is that the working poor and the middle class has too much debt. This is probably true. But the usual next step is to blame the poor and middle class for greedy lifestyles, and that is nonsense, on two counts.
First of all, if the working poor and the middle class were to take that charge to heart, what would the result be? They would use what money they have to pay down debt and increase their savings. The result would be less buying, and less buying would make the problem worse, not better.
Secondly, just look around. Do you see the poor and middle class living extravagantly? I don't.
The obvious reason for the increase in household debt is that ever since the advent of Reagan's "trickle-down" economics, the normal working people in this country have had to pay increasingly higher expenses without an equal increase in pay. - Inflation and Wages.
Roughly forty years ago, when I started out as a teacher in a parochial high school, my salary was $7,000 per year. A gallon of gas cost $.25. A loaf of bread cost about the same. When we bought our first house, we paid $23,000.
Today that house would cost over $300,000, even after the housing bubble burst. A gallon of gas is currently relatively cheap at $2.25. A loaf of bread costs $2.50 or more.
Notice the pattern. Everything is close to ten times as expensive.
Do you think that parochial school is paying first-year teachers $70,000 now?
The wealthy have been getting wealthier, and they've been doing it by charging more and paying less. - The Fix.
The solution is fairly obvious. When the working people, who are the vast majority of the country, are not making enough to pay the increasing costs of living, there are only two alternatives.
Either they can stop spending, and throw the economy into a downward spiral, or they can take on debt to keep the economy going.
We've been asking, even urging, them to do the latter. And they have done their best.
But debt only works for so long. Ultimately it only accelerates the suction which moves money into the hands of the wealthy.
When that happens, when the working poor and the middle class can no longer afford to live or pay their debts, everyone suffers—even those at the top.
The only way out is to put more money in the hands of the common people.
And the best way to do that is to do two things: -
- Lower taxes on the poor and middle class.
This will directly increase their spendable income and put them in a position to start the economic engine running again. - Raise taxes on corporations and the wealthy.
This will make it possible for the government to do things like rebuilding our infrastructure, invest in education, and ease the hardship on those thrown out of work by the crisis.
Each of those things will put more money in the hands of the common people, and help kick-start the economy.
But it will have another effect as well. The higher corporate taxes are, the more incentive corporations have to spend on their employees. Employees are, after all, deductible expenses.
- Lower taxes on the poor and middle class.
The Obama administration has begun to take both of those steps, but it needs to go further. This isn't about "socialism", it's about making the free market work.
And it isn't just about fairness.
The people at the top of the economic pyramid tend to be short-sighted as well as greedy. They tend to forget that the wealth of this country, including their own, is a function of the work and the spending of the poor and the middle class.
When the poor and middle class are out of work or can't afford to spend, then everyone suffers.
In the long run, it doesn't pay to starve the goose who lays the golden eggs.
