When we talk about "subprime crisis", the ponzi schemes, or the exotic commercial paper clog, etc. as unique phenomena that somehow sprouted out of the dark waters of the free market, we are doing a disservice to the context we are in. When we think of the economy, it's important to remember that the true context is always much larger than any one person can perceive in totality. While there are many backstories and subcontexts in this mess, the concept of "trickle down" is one that permeates all of it.
It seems so obvious from the perspective of today's financial calamity that trickle down is another way of saying "starve at the bottom". But I'm continually shocked to find that some people spouting on teevee STILL believe that trickle down is the best answer for our economy. It's easy to forget that there was a time and place when it actually made sense to some selfish darwinian endtiming clueless people to structure the economy as they have. It's hard for the average person to connect all the dots and see that this has been such a long time coming. And there are those who want to be sure we don't connect the dots and get their thumbs off the scales.
Trickle down - You know -- feed the guys at the top a cake and let the masses scrounge their crumbs.
Here's one high profile member of the trickle-downer's club, none-other that Rudy "a noun, a verb, ..." Giulanini. He lived the 'hands on' experience of trickle down theory. He's witnessed this phenomenon like few others have. With his wealth of experience handling the interaction of Wall Street bonuses and big city funding as the Mayor of New York City, he is someone who really has seen this theory in action. He seems to believe in keeping trickle down structure in place as a staple in our economy... Even though it's tearing at the fabric of our society.
Let's hear what he has to say about bonuses and trickle down.
Video and transcript below(emphasis mine):
Thud.
Transcript:
Former Mayor of New York City, Rudy Giuliani: "The economy is so complicated, you end up with everybody having an opinion about anything. Even with these bonuses we were just talking about, I don't know if they are 19 billion? - twenty billion? - Those bonuses, if they are reversed, are gonna cause unemployment in New York, alright (W-style shrug-chuckle with big grin).
Interviewer: "Are you talking about how... [unintelligible - Giuliani begins talking over her] ... kept alive by that revenue?
Giuliani: Right. I remember when I was mayor, one of the ways in which you determine New York City's revenues are Wall Street bonuses. Wall Street had a billion, two billion in bonuses - City had a deficit. Wall Street had 15 or twenty billion, New York had a $2 billion dollar surplus.
It's because, that money gets spent. That money goes directly into the economy. It's not as if - First of all, that money gets taxed with income tax. Secondly it gets taxed again when somebody buys something with it.
Interviewer: Right. But as a fiscal conservative, you can understand the outrage. I mean, these are the banks... [unintelligible - Giuliani begins talking over her] ... government is giving our billions.
Giuliani: I- I was worried for the City long about Christmas-time, I still think about it even though it's eight years ago. I started thinking about, 'Well what are the tax receipts gonna be?' And I was very worried for the the City, because I thought there would be no bonuses -- or there'd be... five billion, six billion. It'd probably some bonuses, but down substantially - I'm surprised it's that high.
But it does have a reverse effect on the economy if you somehow take that bonus out of the economy. It - it really... will create unemployment. It means less spending in restaurants, less spending in department stores. So everything has an impact."
I don't disagree that what Mr. Giuliani says is true. Trickle down does have an effect. It's clearly true, that if Wall Street does better, New York does better. Duh. Cause and effect. But that's not the end of the story. If Wall Street does better through the destruction of the US economic infrastructure and off the backs of US tax payers - No it's not so great. No matter how good it is for "the City"... if it sucks for "the Nation", it really ought to be pointed to as a flawed structure based on a flawed theory.
It's a fallacy to imply that preventing Wall Streeters from having exorbitant bonuses while destroying our entire economy - is bad for the economy. Here's what's psychological, you know the Republicans are so into the psychology of the market? - What these ridiculous, tax-payer-funded bonuses are bad for is morale. It's not just in our heads that the destroyers of the system are still benefiting (at our expense) from the madness they created as it burns to a crisp.
It's also a fallacy to imply that somehow - the rich people will spend their money more than other people will. Giuliani defending Wall Street trickle down:
It's because, that money gets spent. That money goes directly into the economy. It's not as if - First of all, that money gets taxed with income tax. Secondly it gets taxed again when somebody buys something with it.
It doesn't have to be a bonus to have that effect. Money earned and spent will have the same effect even if it's earned below the stratosphere. Notice Giuiani cuts himself off there? That sentence leads him to a weakling straw man in the territory of moral hazard. What would he have said? 'It's not as if they are gonna sit on that money?' 'It's not as if they haven't set up their lives to require that kind of money on a regular basis?' 'It's not as if poor people are the kind of addictive shoppers that Wall Street wives are?' 'It's not as if Wall Streeters are as tight with their discretionary spending as the rest of us, ie they can be more free with their money?' 'It's not as if they got other stashes of liquid money somewhere that they can use to make the ferrari payments?'
I heard one Davos attendee interviewed on BloombergTV defending trickle down. He had a recent million dollar renovation of his offices, and was saying the reason people who are filthy super rich should get tax cuts is because for example, his wife buys thousand dollar expensive boots* that she just throws in her closet to get lost in a pile of other thousand dollar boots. According to him, that stimulates the economy. I call BS.
That is hoarding. Ten people could have bought hundred dollar boots, creating just as much tax revenue, etc. The difference is that they would actually wear their boots (probably to work). That stimulates the economy far more, because more people have more needs and will therefore spend their money out of necessity not out of mood. And where the morale part comes in... Duh. If you don't have one good pair of boots, it's hard to get behind the logic that someone having 20 that they don't use is the best way to go to get this ball rolling (or try to keep it rolling that way, for that matter).
Can anyone else smell the oozing elitism from the context of this?
It's interesting that the proponents of trickle down economics have given up the previous talking point that trickle down is good because the wealthy put their excess money into business investments that directly create jobs. It's pretty clear by now that most investors on Wall Street were not creating jobs - just creating the illusion of money for nothing with investment vehicles and hedges to nowhere. That is so obvious to most anyone by now that it appears to have been dropped from the list of talking points. Now they no longer deny the selfishness of the trickle down structure. "Trickle down is good because the rich get nicer things, nicer experiences, and more of them. We in turn get to serve their needs. Period. More please?"
I'm not endorsing taking anything from the rich. Just that we need to setup the structure so that the flow is everywhere - like blood. Money is the blood of our economy. It's been squeezed off for too long by Wall Street's reckless, high-stakes game of finance-fenagling. It's inappropriate that they should continue to benefit from running this ship ashore. Why is it so hard for them to get that? I guess it's like water to a fish. They don't notice it till it's gone. They just expect it to always be there. Well, wake-up trout heads, you've run ashore.
Ok that's my rant. Just keeping it real.
*
Correction/Update, January 31st:
Just a thought that came to me. Above when I wrote of the Davos attendee and the thousand dollar boots. Eh, what he actually said was "expensive boots". I tried to put a number on "expensive". It has since occured to me that one thousand is my idea of expensive boots. But it's not that guy's idea of expensive boots. I now understand that boots in the stratosphere probably are just 'regular' at one thousand $ a pair. I know that some places charge $8000 starting fee for custom boots.
What got me thinking of this was the "trash can". I assume the little waste paper kind? some CEO apparently paid one thousand four hundred dollars to grace his presence with. Ok, that's messed up right there, folks. Think about what goes in a trashcan. What day to day item is so special it needs to do pergatory in a gilded recepticle before hitting the landfill? That just boggles the mind a bit - it really shows a loss of touch with the meaning of money, among other things. But then I remember - one thousand dollars is cappuccino money - it's literally the slang term for anything under 10K - aka chump change.
Just for my own satisfaction, I got this thought... if $1400 for a trash can doesn't seem too 'expensive', what would be expensive for boots? CE0-deciphering word math, ya'll.
Ok... If , lets' say, $50 would be quite expensive (enough to consider a lesser model, in my mind) for a waste paper basket - something for which a CEO would pay $1400, how much more is the CEO willing to pay. That's (at least) 28X more, a CEO would perhaps be willing to pay.
SO, if I were to extrapolate that figure to the Davos attendee's wife's boot stash... That could mean when this guy is saying "expensive boots", maybe he means $28,000.00 a pair, not my (dribbltly-drip) one measly thousand dollar expensive pair. Well maybe 28K's on the high end even for them - who knows? But I'm getting the clues that it could very well be in the range of $10,000+ a pair and not cause this guy to bat an eye.
Ok, like I said it just came to me.... Maybe other people are starting to fill compelled to do the math on this stuff and find out these guys were/are completely insane.
I like the way Senator Claire McCaskell put it:
"They don't get it," McCaskill said on the floor. "These people are idiots. You can't use taxpayer money to pay out $18-billion in bonuses... What planet are these people on?" **
One other thing... For those who haven't heard it spoken in it's native accent, I believe Davos is pronounced Daw-voshe. That's how I've heard it from people who speak the language.
OK, happy weekend and hang in there peeps.
**Update 2/3/09:
Hahaha. Apparently I'm not the only one thinking about how one's view of boots effects one's view of the economy.