Wednesday, October 13, 2010

So how are we doing?

If the truth must be told, not terribly well. In March of 2009 I made this statement about the health of the country “I think we’re in big trouble and it’s going to take some doing to turn things around, two, maybe three years or maybe even longer. The big question is how much patience will the traditionally impatient American public have?”

Well, as it turned out, it didn’t have a whole hell of a lot of that patience. In far less than two years I’m hearing the electorate is “ANGRY” and prepared to vote out the Democrats and sweep in the Republicans.

I guess I would like to ask two questions. The first is why are folks angry with an administration that did exactly what it said it was going to do, (1) implement Health Care Reform, (2) implement Financial Industry Reform and (3) end the war in Iraq? The second is why would you give control to a party whose solution to everything seems to be either “do nothing” or “give the rich folks more money and wait?”

Then there is the Tea Party.

Recently I’m hearing that their big beef is government is too intrusive. I interpret this to mean “they’re taking my money and giving it to someone else.”

Now I sympathize with that position. If you’re doing the work, then you should be getting the benefit. Charity is fine as long as it’s voluntary and not depriving you or your family of stuff. If you’re putting in the hours, then you should be able to buy not only what you need but what you want as well.

However, I keep warning people they need to be certain that they understand the problem before they figure out the solution. The problem is that far too much of the country’s wealth is being sucked up by a tiny percentage of the population and the primary factor at the root of that is our not terribly progressive income tax structure.

Stop worrying about the few pennies you’re contributing to housing subsidies and start worrying about the thousands of dollars that never even make it to your paycheck.

Let’s talk prosperity shall we. Between 1950 and 1980, the real income (in other words adjusted for inflation) that marked the top of the lowest income quintile rose by 99.5%, the 2nd quintile by 95.4%, the 3rd quintile by 107.9% and the 4th quintile by 109.9%. At the tippy top of the income scale, the minimum income to be in the top 5% rose by 103.4%.
In other words, everybody was doing pretty darn good.

To be honest though the 1970s were a bit of a dud and the real boom times were the 1950s and 1960s. Would you like to know the minimum and maximum tax rates back then? In 1959, the minimum tax rate was 20% and the maximum was 91%. In 1969, the minimum was 14% and the maximum was 70%. In 1979, the minimum was 0% (yes, that’s right, 0% if you were married filing jointly and made $3,400 or less, which translates to around $10,000 in 2008) and the maximum 70%.

Now let’s look at 1980 to 2008. The real income that marked the top of the lowest income quintile rose by 7.4% (no, that’s not a typo, I really meant 7.4%), the 2nd quintile by 13.2%, the 3rd quintile by 21.6% and the 4th quintile by 30.8%. At the tippy top of the income scale, the minimum income to be in the top 5% rose by 46.2%.

The 2000s were a complete dud. Real income actually went down for all of the groups. For the lowest income quintile income went down by 7.4% (no, that’s not a typo, I really meant 7.4% again), the 2nd quintile by 3.4%, the 3rd quintile by 2.2% and the 4th quintile by 0.9%. Even the tippy top of the income scale felt the blahs slightly, the minimum income to be in the top 5% went down by 0.1%. Notice however that the higher up you are, the less the negative impact.

And you wonder why the electorate is upset?

As for the income tax rate, the lowest rate is 10%, and the highest 35%.

Ok, that’s a lot of numbers, so what does it all mean? Our national psyche was established in the 1950 – 1970 boom times. Strong economy, military superpower and squanderer of the world’s resources. We were the biggest, the baddest, the best and, naïve suckers that we are, figured even better was yet to come.

There was a bit of a hiccup in the late 1970s but hey, that was all Jimmy Carter’s fault. Ronald Reagan and the Conservative resurgence of the 1980s saved the day.

Or at least that’s the story you will hear from lots of places.

The actual numbers however tell a different story. Simply looking at the graphs says that things started to flatten out in the 1980s. So how come no one noticed? Well, they did, they were just shouted down or were in the process of insuring that the right people didn’t get too badly inconvenienced.

The Republican Administrations of the 1980s (often cheered on and supported by Democrats who owed their campaign treasuries to the same special interests) (1) adjusted the tax rates to reduce taxes and drastically reduce the marginal tax rate and (2) cut interest rates making easy credit available.

This is the Conservative Supply Side “trickle down” philosophy. Cut everyone’s taxes, but especially the taxes for the rich, so there is investment in the economy, make credit easily available so companies can expand and insure the riff-raff are standing by, with the cash from their tax cuts ,to buy the results of that investment and expansion. Prosperity will eventually “trickle down” from the rich (who got the direct cash through the big tax cuts) to the poorest citizens. Even government revenues increase thanks to the magic of the Laffer Curve.

Basically, this is total horseshit.

What actually happens is (1) the rich take the extra cash (thank you very much) and do with it whatever they want which may include investing in more rapidly expanding economies such as China, Brazil and India, (2) the middle and working classes get tired of waiting for the “trickle down” prosperity and discover that credit works almost as well as income.

From 1978 to 2008, the Outstanding Consumer Credit, adjusted for inflation, rose from $867 billion dollars to $2.5 trillion. Yes, that’s trillion with a “T.” An increase of 192%. Of course the Federal Government did even worse. The National Debt, also adjusted for inflation, rose by 294%.

We are clearly living beyond our means. Let me say that slowly, W-E- - -A-R-E- - -L-I-V-I-N-G- - -B-E-Y-O-N-D- - -O-U-R- - -M-E-A-N-S.

Here’s the bottom line, the country can no longer live like it’s 1968. It is time to face the new realities of the world. We need to do more with less and we need to start digging out from the financial hole we’ve dug ourselves into.

I don’t know how we’re going to do this but someone better figure it out or we’re all pretty much screwed. More of the Supply Side nonsense that got us into this mess I don’t think is going to cut it. When Slick Willy RAISED taxes, things worked out quite well. Not only were the 1990s more prosperous than the 1980s, we got a balanced budget too.

Unfortunately Dubyah gave us more Reaganomics and I don’t know WTF Obama is doing. Do these people even recognize the looming catastrophe we’re facing? I don’t hear ANYONE, in either party, that sounds like he does. Of course the Tea Party has no idea what’s going on and probably couldn’t do the simple arithmetic necessary to work it out.

I have this really bad feeling.

No comments: