Is it Still the Economy, Stupid?
As always a great post by Shaun D. Mullen over at Kiko’s House: It’s still the economy, stupid.
Why such a dramatic disconnect?
* While the gross domestic product has been going up, employment has stayed flatter than a flounder.
The upshot is that the rich get richer, feeding those spectacular Wall Street numbers, and almost everyone else gets poorer. The boom that Kudlow and his fellow travelers babble on about is passing the Sixpack family by. Jane and Joe have no money to invest, let alone put away for a rainy day, and like many other Americans they are running up record credit card debt.
* The notion that giving tax breaks to the rich is good because the money that they make will trickle down to the Sixpacks is grossly overstated.
The stagnation of middle-class wages, which peaked in the 1970s and the overall long-term trend of growing economic inequality put the lie to that. Anybody who thinks that a few cents from every dollar that Donald Trump spends ends up in the Sixpacks’ pockets is being naïve.
Read it all at Kiko’s House. Shaun makes a good case.
Thoughts, anyone?
27 Responses to “Is it Still the Economy, Stupid?”
How much of the poor getting poorer is due to our importation of Third World poverty?
Actually, I have no doubt that a few cents, maybe even more, of every dollar Donald Trump spends do end up in the Sixpacks’ pockets. However, maybe it’s just an issue of semantics.
Some of every dollar Trump spends ends up trickling down to Joe Sixpack. However, how much of what Trump makes trickles down to Mr. Sixpack? When taxes for Trump are reduced, how much more does he spend? He already has a virtually unlimited budget. By reducing his tax burden, you are essentially allowing him to invest, not spend, more money. OK, a bit of the money he puts into the stock market or into one of his corporate ventures will also work its way down to Mr. Sixpack but the real benefactors of this money will be the Trump family.
It’s already been established that trickle down economics just doesn’t work. Sure, some of the wealth does trickle down but the major benefactors of giving more money to the rich are the rich. As we can see from the past 25-30 years, they get richer while everyone else is lucky if we avoid a backslide.
It’s not simply the ‘rich’ benefitting from the market gains. mutual funds are held by ma and pa and more people than ever before have investment accounts, either private or through their 401k and IRAs.
And which tax cut advocate has ever gone on the record pushing the trickle down as a rationale? Wasn’t trickle down a line created by tax cut opponents? the tax cut advocates I listen to all tout other reasons for tax cuts.
and the supposed stagnation of middle class wages is somewhat distorted by the increase in non-wage benefits they’ve received. people may not be taking home much more in their paychecks, but they sure aren’t getting nothing (yes, intentional).
David Stcokman coined the phrase “trickle down economics” Steve.
And just speaking from my little corner of the world, the only thing “trickling down” is unrepeatable on this blog. Health insurance has eaten into our income, already staggered by cheap imports from Asia and Canada (we are commercial fishermen), combined with rising fuel costs and the buy out of previously indenpendent fish buying companies by one man (a very long story, but it has altered the entire fishing community here).
As for investments, maybe I’m too old to recoup the losses my mutaul funds suffered in the early part of the decade…I lost capital even though I moved it around as much as I could.
But I am a self-employed person/family…once middle class, now struggling against big business, globalisation and regulation. We’ll survive, but trickle down…please, spare me the favour, it’s getting wet and smelly down here.
Steve sturm,
I agree completely on both of these points. On your second point, I would add that “trickle down economics” and it’s cousin, “voodoo economics” were to Reagan’s economic plans as “cut and run” is to Democrate’ Iraq war plans. These are simply rhetorical terms which discourage any rational discussion or understanding of proposals by an opposing party.
The point about tax cuts that is relevant is that during certain economic conditions, putting more money into consumers’ hands really does spur a recovery (and both Reagan’s tax cuts and Bush’s have resulted in expansion of the economy and an increase in tax revenues: unfortunately in both cases the Congress has spent the additional revenue and then some, spending as usual like drunken sailors).
And here is the salient point about why Joe Sixpack isn’t benefitting from the current economic recovery:
It’s the debt, stupid.
The GDP keeps going up and yet wages remain stagnant.
Americans are working longer and harder and they aren’t getting any benefit from it.
They are hurting because of the rising cost of gas, health care and higher education.
The system is broken.
Ryan, a small point, investing is spending, in light of the current question. The spending just occurs on capital instead of consumable goods. I’d argue that this spending is less efficient because it has to change hands 2 or 3 times before it actually turns into captial, but then that’s debatable because those middlement also invest, which is turned into capital, etc.
I think the real problem with trickle down economics is that once it passes a certain point of have-nots and haves, it becomes a self-perpetuating cycle. When the have-nots have little money, they are forced to buy the cheapest product available, however, that product is cheap perciesly because the company making it has lowered labor costs, effectively giveing little back to the have-nots. So, the have-nots are unintentionally choosing the product which gives the least back to them, perpetuating the cycle.
Steve, I think the Regan administration actually coined the term ‘trickle down’ to combat the opposing catch phrase ‘voodoo economics’, but I might be wrong. Basically they are simplifications of supply-side economic theory. Its basically the same think as saying ‘stimulating growth’ or many of the other current catch phrases.
I agree, but I don’t think this is what is really happening, most of the money goes not to consumers, but to the wealthy, who spend more of their income in the form of investments, or the supply side of the equation.
Kevin H,
Then how do you explain creation of jobs and increase in federal revenues after the tax cuts?
Another small point, the investing doesn’t do Americans much good if it is done overseas. Of course, the spending also doesn’t do Americans much good if it is done overseas.
One curious thing that I can’t figure out with this “trickle down” or “supply side” economics. If we’re to believe that allowing the wealthy to have more money so they spend it and the money works its way down to the less wealthy, why not believe that allowing the less wealthy to have more money so they spend it and the money circulates more directly within the middle and lower classes?
One more thing, this discussion reminds me of a recent discussion of the Laffer curve. As noted there:
One would have to use what would seem to be an unrealistic rise in GNP to even reach a break even point.
absurdly low interest rates and the housing boom are major contributors, c.
It’s understandable that people would wish everyone to make more money and have more in their pocket. But reality should be part of the picture too. We don’t and won’t have an economy that will allow labor to make good middle class incomes. That is history and we won’t get it back. The new slogan should be “It’s the global economy stupid” because it really is about that. Tax the corporations sounds good but doesn’t work. What will happen is that the corparations will leave and take their money with them. the only country that has higher corperate tax rates than the US is Japan. When companies move to the UK for lower taxes we have a problem.
From this article …
NYTimes
Seems corporate taxes are fueling it. Oh and exectutives. You know it’s a sad state when you can point to executive compensation (a very elite group of individuals) as actually significantly impacting the budget numbers. Rich getting richer, like Mr. Exxon.
Corporate taxes are paid from people buying stuff. Which actually means very little if people are paying themselves into debt. Spending money might be good for the economy but bankruptcy isn’t good for the individual. There was a large surge in bankruptcies last year but the new laws were a big factor. There is some preliminary indication that after a drop (due to the rush to beat the law) bankruptcies are rising again.
Sure unemployment is at a low level but as has been shown wages have basically stagnated for everyone but the wealthy. The report is very intersting. Walmart is a prime example of lower wages. There are a significant number of Walmart employees on medicaid. Even worse there are a number of employees who qualify for food-stamps. These are people who are working who can not afford to live. The old adage … “get a job” should be revised to “get a job or two”.
So no it’s not merely higher health care costs. Companies are keeping more profits period. This is show in both higher corporate income taxes and higher executive compensation.
Speaking from personal experience I did receive some income tax releif, but my local taxes more than offset my lower income taxes. Of course your mileage may vary.
CS, I don’t think we can really credit Bush for the increased growth. Tax revenues are growing because GDP is growing, which is due to the fact that jobs are being created and our ecnomy is generally growing. So what’s the relationship between tax rates and growth? Well luckily there are some smart people out there to crunch the numbers. It is an interesting read, but the crucial line is:
This is slightly below the tax burden in the Clinton years, and slightly above the tax burden now. This isn’t like europe where we have taxes at 40% GDP (which interestingly, seems to be the peak of the laffer curve). The rise in our ecnomomy is probably due more to natural economic cycles.
So in summery, I’m not as concerned about the size of the tax cuts as their distrabution (I think they help the wealthy more at a time when I think its better to help the poor). and government spending, which we agree on.
Is there ever a time that its not better to help the poor Kevin? I hate the way our tax system is set up. Its geared to those who study and plan their finances according to the tax code. Poor people don’t do that. Still the greast tax burden falls on the top 25%.
Steve Sturm said
What’s wrong with this stupid meme? Simple. Non-salary compensation doesn’t put a roof over your head, food on the table, gas in the tank, pay the doctor bills that are still left after the insurance benefits or put your kids (or yourself for that matter) through college. If the best thing that defenders of the status quo can come up with is that it’s OK because you’re getting more money that goes into a broken health insurance/care system but nothing to get you ahead of even relatively mild inflation then their argument isn’t worth much.
The Rust Belt is getting more rusty, I don’t know if any Democrat or Republican can change this without drastic measures which may take yeat=rs or decades to show results. Michigan and Ohio are a mess and Bush may have to pay the price.
It isn’t the economy, it’s the jobs stupid.
Joe Sixpack used to work 40 hours a week at the plant making widgets. One day he was notified his service was no longer needed, and his job left for China. So Joe did what he had to after his unemployment ran out, and searched in vain for the next 9 months for a job only to settle with the night shift at Wal Mart for 7.50 an hour, while his wife works the Quick Mart across town, hoping not to get shot in a robbery attempt on the third shift in an incresingly desperate town. They can no longer pay for health insurance, and have little quality time with their kids, that are niw often left alone during peak hours for teens to find trouble, so the kids are finding their own problems in a town with people now desperate enought, and depressed enough to turn to drugs for escape, and profit. So now Joe sells the widget he once made for pay that isn’t half what he used to make, but Joe CEO’s stock options are kickin ass from his gated community!
Late at night as Joe and Jane Sixpack leave their jobs, while Joe CEO’s trickle falls upon their heads.
The few that cherish corporate collectivism, and reap the benefit sold the US to China, thats what happened. The same people that used to foam at the mouth about communism now embrace the collective, just in corporate form.
Yes, oddly there are times it’s better for everyone in the long run to let the poor stay poor in the short run. Lets say everyone, or almost everyone is poor, really, really poor. No one really has enough money to start a business, and we have $1 million dollars to give out. We could give $1 to a million people, but what would that do? They couldn’t much of anything new because there are no business to meed their increased demand. So you give $100,000 to ten people. They in turn start businesses and hire people, giving those people more money. This increases supply AND demand.
However, as I’ve said before in other comments, I think this scenario only holds true when you have a shortage of capital in an economy, which doesn’t seem to be the case here in the US with large venture capital firms etc.
On a personal note, I always greatly enjoy the threads about economy here. The discussions are very different than those in Europe.
Ahh, yes. The increase in non-wage benefits. You mean the pensions that are disappearing faster than leaves on the trees this time of the year? Or the medical benefits that are being cut or rolled back every year? The profit sharing that many companies are dropping?
What non-wage benefits have been increasing in recent years? At least around here, wages have stagnated and benefits are being pulled away at an alarming rate. Just last week, Harley Davidson, which has a reputation of taking very good care of employees, was asking the union to cut wages of new employees by 1/3 and decrease, virtually drop, medical benefits.
Padding the rich’s pockets has NEVER worked. Ask any accountant and they can tell you that #s can be trained to say anything. They’re like dog tricks. We’re still waiting for the rain from Reagan’s trickle down. The very reason tha avr consumer has less buying power now than thirty years ago is precisely because the booms of the 80s and 90s passed us by.
However, the economy is not important in times of war. In Texas, there are poor folk perfectly content and narcotized by DVDs, cable tv, Ipods, and all the other cheap luxury gadgets that they don;t care that they’re in debt and will never get out.
When the economy’s bad, import cheap junk from China, and the masses will stay quiet.
Shaun here from Kiko’s House. Thank you for the great post, Joe.
Economics is the second oldest profession, and I tried to go light on the numbers in “It’s the Economy, Stupid” because that results in the kind of never-ending arguments at play in some of the comments above.
The bottom line is that if millions of people feel like their being screwed, which Joe and Jane Sixpack do, then it doesn’t matter what the numbers are.
Shaun, great point. This is true on any topic in politics. It is why negative advertising is so successful. It doesn’t matter what the truth is, which is a very complex subject and open to a lot of debate when talking economics, as much as what voters think is going on. People feel more taken advantage of all the time right now and will vote accordingly.
Oops! I shoulda said thanks for the great post, Michael.
Apologies.
No problem Shaun. And don’t mention it: I encourage every reader of the moderate voice to stop by at Kiko’s House as often as possible. Great blog with very interesting, well written and researched posts.