Saturday, July 28, 2012

The Party of the Rich has Triumphed in its Spead of Disinformation

The party of the rich has triumphed in its spread of disinformation. Check out this poll by Bob Livingston,  “Poll Results: Higher Taxes for the Rich or More Drastic Spending Cuts,” at

Of course, Bob is somewhat to the Right of Center, as are his readers and the responders to his poll. See Q5.  But, among his responders: 60% think that higher taxes on the rich will hurt the economy, and only 23% voted to increase taxes on the  richest Americans.  76% voted the government should make significant spending cuts to try to reduce the deficit. 

As for where those budget cuts should come from, 0% voted for cuts in Social Security, Medicare or Medicaid, (except for the 18% who voted ‘All of the above.’)  22% voted for cuts to Foreign aid, which is an insignificant portion of the budget.  A bit of disinformation there.  27%, (the largest,) voted  for the elimination of Federal Agencies (the EPA, Dept of Education, etc.  You know, things to do with our future, and Justice, the Treasury, including the IRS, etc., things to do with running the day to day stuff.)  Only 7% voted for cuts in the Dept of  Defense, despite its legendary wastefulness. 

For a more realistic perspective on what can and cannot be done, check out the NY Times ‘Budget Puzzle’, from Nov 13, 2010:

But the real bottom line, of course, is the coddling of the rich. Getting 60% thinking that increasing taxes on the rich will hurt the economy, against all historical evidence, including the evidence of their own experience.   Taxes on the rich haven’t been lower in most of these readers’ lifetimes, and when during those lifetimes has the economy ever been in such sorry shape? This is surely one of history’s great triumphs of propaganda.  Getting a sizeable percentage of the population to think against their own interests, to identify with those who exploit them, and to imagine their interests align with those who, over the past 30 years or so, have taken over 15% of their income, ( ) and a greater percent of their wealth, is astounding.

It is also a triumph over logic:  What the rich do not pay in taxes, the rest of the people will have to. What the rich do not pay for defense, or for the common wealth of the people that is the government, the rest of the people will have to. Further, who does the government borrow from?   The rich.  So the rich are giving their money to the government anyhow, but when it is borrowed, they expect it paid back, eventually.  With interest.  And where does that money come from?  The people. 

And who’s services will get cut?  Not the rich’s.  The people’s.  When Education, Health and Human Services, Energy, all get cut, who will be the poorer?  Not the rich.  You can bet the rich will have the money to grease the palms of Congressmen to keep their places at the public trough warm and well stocked. 

And who will be at the front lines when the payrolls of government are slashed?  The Wall Street banker?  Or the Main Street small businessman, who depends on government wage earners, and other government expenditures, directly or indirectly, for a part of his business. 

Friday, July 13, 2012

One of the Main Functions of Government is to Consume Excess Production

One of the main functions of government is to consume excess production, hopefully in a socially constructive manner, and so maintain the price level. Keynes suggested this, as a solution to inadequacies of demand, but it must be done even in 'good' times, and adjusted, for bad. That is, government consumption must be increased during recession or depression.  Further, the government must redistribute even more as industries become more capital intensive.  To do this in perpetuity, government’s debt cannot get out of hand, but must be constrained as a percentage of GDP.  This means collect more taxes, and these must necessarily be collected from the rich.

First, the wealthy consume less as a percentage of their income than the rest of the population. They save more. On the other hand, since the government will spend all it collects in taxes, collecting more in taxes from the rich will be economically stimulatory.   That is, the economic multiplier on taxes on the wealthy is greater than one.    This implies a strongly progressive tax to stimulate the economy. 

Indeed, from the point of view of economic stimulus, there is no point in taking taxes from the poor, or even much of the working class, when their savings is very low.  Any money taken as taxes from the poor would have been spent anyway, and so would not provide net stimulus to the economy.  What is more, a certain rate of savings in the middle and lower classes should generally be seen as desirable, since it would act as an automatic stabilizer.  Money would be saved during good times, helping to slow down the economy, and dis-saved, or spent, during recession or depression, helping to stimulate the economy, thus helping to smooth economic fluctuations.      

Further, as the owners of capital, an increased share of market income will go to the wealthy as industries become more capital intensive.  More demand, that is money, will have to be redistributed to maintain the market, which otherwise would slowly contract as labor is increasingly forced out of the productive process. (The same thing happens in a country as production is off-shored. No country can afford to have a significant proportion of the goods it consumes to be imported, unless it has compensating exports.  Thus the need for balanced trade.  See:  Indeed, given the observation that one of the government’s functions is to consume excess production, and running a trade deficit effectively increases that excess,  much of a government’s deficit can be laid at the feet of that trade deficit.)

Now there is no market for labor forced out of the productive process. This is because, as unemployed, they do not represent a market for production.  Supply increases, due to increased capital expenditures, but ultimate demand does not, because there is no increase in the number of consumers, that is, labor. Demand increasingly becomes concentrated at the top. (Of course, the wealthy could spend this money on providing public goods and services to the rest of their community. They instead rail against government, and do not themselves provide the things the community needs.)   

On the contrary, the absence of a progressive tax is/will be depressive, and destabilizing, as wealth becomes more concentrated and inequality increases. One of the causes of this destabilization is that as wealth becomes more concentrated, the market for commodities and financial instruments becomes thinner, and subject to greater fluctuations, as fewer people have the greater concentrations of wealth to invest in the various markets. Meanwhile, the market for production, represented by the middle and working classes, gradually contracts in the absence of a progressive tax.  The government, for a time, may maintain this by running up debt.  But this is regarded by many as unsustainable.

Privatizing government functions is counterproductive, since profits in privatized industries cause an increase in the upward redistribution of income, which must be counteracted with an even greater progressivity of taxes to compensate.  Indeed, a certain amount of inefficiency in government spending is a virtue, as it allows wider dispersion of government expenditures. 

What is important is the efficiency with which government collects taxes from the wealthy, since the primary goal is the constant redistribution of demand throughout the economy.  If it is inefficient in collecting taxes from the wealthy, too much money will remain at the top, and it will be inefficient at redistributing this money to the base of the economic pyramid, where it is needed to stimulate demand.  In particular, the taxes on the wealthy should be increased during recessions and depressions, that is periods of inadequate demand and excess supply.  Of course, that suggests taxes on the wealthy be decreased during periods of inflation, when they are large, but they are now already inadequate.  We are talking about a tax rate centered about 65% or so, and adjusted from there, depending on circumstance:  Higher during bad economic times; lower during good economic times.