The Truth, Revisited
This post is from a year ago. Maybe I should re-post this annually, or even monthly. It bears seeing again, and again. Recommend this. Share it. Post it. It’s the Truth.
Precisely. I’ve also been reading Thomas Frank’s Pity the Billionaire, which deals with the same topic from a different perspective.
The frustrating thing is, this should be so obvious, as obvious as the fact that the Laffer curve was full of crap. And yet millions, even a majority, buy into the bull.
Money naturally circulates upward; in order for an economy to work well, there must be some kind of mechanism to circulate the money back down. Conservatives think that jobs will perform this function all by themselves, even as they try to destroy unions, deny workers benefits, and otherwise minimize that precise flow downwards. In fact, a healthily progressive tax system and good working conditions are what create jobs and a prosperous economy.
The best way to stimulate the economy is to inject the money into the lower half of the economic cycle; injecting it into the upper half is counter-productive.
Taxing the rich is not only a good thing, it is a necessary thing. Government spending on infrastructure, education, and supporting the poorest among us is not just a good thing, it is a necessary thing. If you truly wish to have a robust economy.
But just as we still prosecute the same old drug war despite decades of studies telling us that decriminalization and treatment would be light-years better, we still bridle against the bloody obvious in economics.
We know it’s a fact that dollar for dollar, food stamps are the most effective stimulus mechanism, followed closely by unemployment benefits and infrastructure spending, and yet most of the nation seems to accept Republican whining about how that will destroy the economy.
It is just as solid a fact that dividend & capital tax gain tax cuts, corporate tax cuts, and the billionaire-slanted Bush tax cuts are among the absolute worst stimulators–and yet we somehow allow right-wingers to insist that these be given a priority.
We’ve tried it the Republican way for 30 years and we have nearly destroyed our economy. Now right-wingers complain about how they have never gotten a chance and how liberals have ruined everything. They are absolutely wrong. Tax rates for the wealthy and for corporations should rise, for their own good as well as everyone else’s. Tax rates for the middle class should stay the same (being as low as they are) or be eased. Money should be spent on infrastructure, scientific & technological research, and education.
The best way to stimulate the economy is to inject the money into the lower half of the economic cycle; injecting it into the upper half is counter-productive.
yes and no . . . Another problem of modern economics is failure to understand the importance of land value.
Land value to us is like water to fish — it immerses us so completely that we fail to see it.
Just dumping money into the lower quintiles will result in that benefit largely ending up in higher housing rents (and thus in the pockets of landlords and the real estate industry).
Henry George described this treadmill back in the 19th century, having seen it in operation in post gold-rush San Francisco.
To really fix the economy we’ve got to lop off the heads of the rent-seekers directly.
The top 5% in the US clear 1/3 the national income now. Economic rents in housing, health care, and energy are a large part of this flow up the pyramid.
But I do agree that closing these rents is not enough, for even wage-earning wealthy like pro ball players simply cannot spend the millions they receive from the wage-earning public back into the wage-earning economy.
The problem with soaking-the-rich is that you do punish bona-fide successful Entrepreneurialism. The more we address rent-seeking directly the less we’d have to beat money out of the rich in taxes.
Imagine a world with fair costs of housing, energy, and health care.
Japan has health care largely sorted out but the first two are still entirely f’d up. You paid how many millions of yen in rent, 2000-2010? Some of that was on the actual capital cost of the housing good (i.e. building) itself, but most was just what it took to outbid the next schmuck for the place.
I get to drive a Leaf occasionally now and it’s super as a town car. Saddens me to see how little rooftop solar Tokyo has when I cruise over in google satellite view.
At least Abe is making noises about investing his money-pumping in energy advances.
It’d be cool if Japan builds a massive floating solar array out by Minami Torishima or something.
So, we’re talking price caps? I love the idea (Japan has reasonable caps on health care costs, for example). I just don’t see it happening in the U.S., everyone seems too invested in the “free market,” as if it is magical or something.
price caps without increasing the supply just gives us scarcity at lower prices — e.g. how rent control doesn’t really solve the larger problem of affordable housing.
The secret is to forcibly increase the supply of goods and service-providers such that provider prices naturally fall towards the cost of production.
Note that it is hard to increase the supply of land, though!
We *can* improve it by landfills etc and that does increase the supply of buildable land.
We can also virtually increase land supply by improving transportation infrastructure to reduce the time & energy costs of changing locality.
That’s how Tokyo got so big in the postwar — the radiating railways enabled seemingly unlimited expansion of bedroom communities, out past what was walkable.
Plus Tokyo also built ^up^ quite aggressively, IMO too aggressively some places . . .
http://livedoor.blogimg.jp/betterhomesinc/imgs/2/7/27d3076f.jpg
aesthetically murdered one of Tokyo’s most exclusive neighborhoods, LOL
The dominant life expense for most people is housing, and that is where the 1-5% really make their rents, by investing in real estate, which has very high barriers of entry in most places. Again, cf. the Mori corporation for how that works.
My hope for Japan is that the falling working-age population will absolutely slaughter housing costs this century.
This is already kinda the case, if you know enough people, you can find someone who’s inherited an unrentable prewar house somewhere out in Okutama or Chiba . . .
Real estate within the Yamanote will always be super expensive, but maybe supply/demand of all the bubble-era stuff will result in free-ish housing for more and more people.
1981 was the peak for Japan’s age 30-50 demographic, numbering at ~43.6M.
By 1990 this had fallen to 40M, early 2000s it bottomed at 35M, then the baby boom echo, such as it was, arrived and you’re at 36M now, but in ten years Japan will be down to 30M prime-age adults, to 25M by 2033 (this is already baked into the cake), and maybe down to 20M around 2050.
Tokyo-to won’t depopulate to that extent, since it imports young people, but that’s the macro picture, and it’s really quite something.
Japan WILL need tons and tons of senior service providers, too:
http://www.economist.com/node/13611235
shows Japan will hit a 3:4 dependency ratio by 2050!
Free-marketeerism has largely devolved into a knee-jerk defense of the status quo, no matter how dysfunctional and rent-seeking it has become.
This is intentional, since big money has been funding the think tanks — Heritage Foundation, AEI, Manhattan Institute, Hoover Institute, etc etc etc — for 40+ years now.
Romney was just the most recent lizard this system produced, they’ll be more coming out. The stupid thing is that the system has bamboozled so many that they think Obama is some leftist marxist, when he is in reality a centrist neoliberal (of the Clinton mold) at best.
Nobody ever went broke under-estimating the intelligence of the American people, alas.