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Trickle-Up Economics

Since the inadequate stimulus program enacted in early 2009 expired, nothing at all has been done by government that might help the middle class, let alone the poor. This is the direct result of Republican control of the House, but there are plenty of Democrats who agree with their stupid economic theories. Both parties accept the idea that the millions of Americans can’t find decent jobs because of personal inadequacy, and that what these worthless people need is less government help. We have a bi-partisan consensus on economic issues: don’t tax the rich, everyone has to have skin in the game, and screw you if you aren’t rich, it’s your fault.

Congress is perfectly happy to let the Federal Reserve Board handle any residual problems through interest rate policies. The Fed has been trying creative monetary policy to deal with its responsibilities to control inflation and insure full employment. Its current tool is Quantitative Easing, a program under which it buys bonds at the rate of $85 billion per month. The effect of these purchases is to increase the amount of money in circulation, in the hopes that for some reason, people will borrow more money. The program has hurt the sensitive feelings of the hyper-rich and their paid economists, who have been shrieking about inflation and debt since 2008. They were right about one thing, QE isn’t working.

Here’s a chart showing the ratio of loans to deposits:

Of course it isn’t working. Why would anyone want to borrow money? Corporations and the filthy rich have plenty; they are lenders, not borrowers. Consumers are loaded down with debt. Their goal is to pay off their debt, not borrow more, except, of course, student debt. People are borrowing to try to improve their chances at getting a job by improving on what neoliberal Gary Becker (U. Chi. Galtian) calls their human capital. You are nothing but the sum of your marketable skills, so buying more skills makes you a better person.

Conventional analysis says that beginning in the 80s, as incomes began to stagnate, people financed their consumption through borrowing. The Great Crash proved that was a really bad idea. It reinforced the old lesson that we should pay cash for practically everything, and borrow only for things like houses that should theoretically have value in excess of any debt. That doesn’t apply to new cars, which depreciate by thousands when driven out of the dealer. So, if you can’t pay cash, you buy used with cash. Of course, that only works if you don’t get sick or hurt, if you have insurance, if you don’t lose your job and that don’t face any other disasters.

Low interest rates aren’t helping anyone. Well, except banks, which are gambling with the deposits in the Great Wall Street Casino. The house is winning, just as Las Vegas teaches us. In 2012 Goldman Sachs made money 236 trading days, and lost money on only 15. And, of course, corporations are doing fine. They refinanced their debt at low rates, and they can borrow all they want at very low rates. That means they can easily finance new capital equipment to reduce their reliance on labor and deepen the unemployment crisis, and easily move operations to the cheapest labor force.

Low interest rates hurt small savers and retirees. If they want a real return to their money after taxes and inflation, they are forced into the Wall Street Casino where too many are plucked clean by the best and brightest and their computer trading systems.

Why do we keep doing the same stupid things? Why don’t we quit helping the stinking rich and try helping the rest of us? One reason is that there aren’t any politicians willing to say the obvious truth: that we operate the financial system for the sole benefit of the rich. It has no other purpose than to take money from the rest of us and give it to the oligarchs and their corporations and trusts and endowments. No doubt many of our politicians in both parties are stupid enough to believe that this is good policy. But perhaps a bigger problem, at least for democrats, is that they have no other ideas about what to do. In the spirit of helpfulness, I offered some changes to Social Security. Here is a proposal for interest rates: get the Fed to raise rates.

Of course, this will hurt borrowers. I couldn’t care less about interest rates on the filthy rich and their corporations, because that’s just taking money from one rich person and giving it to another. But I do worry about the rest of us. So, we change taxes to help out the rest of us. The first $5,000 of interest payments is deductible, and the earned income tax credit remains available. The first $5,000 of interest earned (5% on $100,000), is not treated as income. The first $3,000 of dividends is not treated as income. The lower amount is due to the likelihood that the value of stocks will increase over time. We pay for this change by raising taxes on the rich. We install new brackets, at $750,000 and $2.5 million with higher tax rates for each. We impose a minimum tax on corporations with revenues in excess of $100 million of 25% based on their profits as reported to shareholders, and we do the same for trusts and endowments. We tell the rich that we are helping them a great deal with our new interest rules, so they shouldn’t feel so bad, which is what they told us when they cut tax rates during the Bush Administration.

I call it “Trickle-Up Economics”.

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I read a lot of books.