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The other day my oldest brother, Ron (I have four), emailed me the following request:

The following is an argument by our brother, Steve, for not increasing taxes on the rich.  Can you help me out with understanding how much he is (or isn't ) confused about this?

Steve is my youngest brother.  He has become the most outspoken Republican in our family.  Ron was asking for my help because I have a Master’s Degree in Economics and have studied economics at the Ph.D level.

I suppose part of the reason why Steve embraces Republican economic mythology is because his sales business took off about ten years ago.  From what he has told me, I figure he has been earning between $150,000 and $250,000 annually over the past several years.  Ron was trying to tell Steve that he probably wasn’t going to be paying higher taxes when the Republican tax hike goes into effect in January 2011.  Steve responded with the kinds of arguments many of us have become familiar with, including...

My concern isn’t for just myself.  I think that it is completely asinine to suck huge amounts of money out of the private sector when we’re in the middle of a recession.  Lower taxes free up venture capital which creates jobs.  More jobs create more buyers (demand).  More demand leads to higher production.  Higher production leads to more jobs, and so on.

                                            .

I decided to publish nearly all of my response to Steve’s arguments in this diary, since Ron seemed to find it quite helpful.  As I told Ron, I could simply respond with a list of counter-claims, but I thought Steve would want to debate all the underlying assumptions, so I provided him with the following lengthy, detailed response.  The first time I published this (in the afternoon, about five days ago) several readers said it would help them to respond to their wealthy Republican friends/acquaintances.

                                           .

Steve says that he thinks it is a bad idea to "suck huge amounts of money out of the private sector" when we're in the middle of a recession.  He says this because he assumes, incorrectly, that all of the money that the government will be collecting from rich Americans in January [when the Republican tax hike takes effect] is money that would otherwise be put to productive use by the earners of that income.

Rich Republicans want very much to believe that the money they put into 'savings' or 'investments' is doing all kinds of wonderful things for the economy.  Unfortunately, this belief is based on little more than wishful thinking.  To understand why they are so very wrong, people need to understand the difference between financial investments and economic investments.

Economic investments are the kind of investments that actually end up "growing the size of the pie"  They occur when money is spent on capital goods or other economic resources [like humans] that are then used to produce more capital goods or more of the final goods that consumers find desirable.  In other words, economic investments either increase output or expand the supply-side's productive capacity.  This happens whenever firms purchase machinery/equipment to improve productive efficiency or when they spend money on the construction of new stores or factories or on the salaries of new employees.  However, not all firm expenditures are economic investments.  (e.g., money spent by firms on advertising that either (a) misleads consumers or (b) does nothing to help them with their purchasing decisions.)

Financial investments are purchases or commitments of money that provide the "investor" with an income stream.  Saving money is a financial investment because it provides interest income; purchases of assets can be financial investments if they eventually provide a capital gain.  Economic investments made by firms are usually also financial investments because they generate income that exceeds their cost.  The economic investments made by governments that improve infrastructure or human capital are not financial investments because they do not provide the government with an income stream.

Some financial investments are also economic investments, but many of them are not.  The purchase of a piece of land, for example, is a financial investment if it appreciates in value over time, but it is not an economic investment if it just sits there, undeveloped.  Purchases of stocks in secondary markets (e.g., NYSE, NASDAQ) are clearly financial investments if the stocks appreciate in value, but they are not economic investments because they involve nothing more than exchanges of titles of ownership of already existing assets.  They do not typically put any money into the hands of firm managers that could be used for economic investments.  That normally happens only when stocks are first sold by companies to underwriters, prior to an initial public offering.

Supply-Side theorists have taken advantage of the impreciseness of the word investment to craft tax policy proposals that sound as though they are beneficial to the economy, but actually are not.  The famous Capital Gains Tax Cut, for example, is frequently promoted as an incentive that would stimulate "investment."  Unfortunately, the only "investment" that such a tax cut is likely to stimulate is increased financial investment in stocks and other real assets.  One financial investor hands money over to another financial investor for a piece of paper.  Very little if any of the money involved in these transactions ends up being spent on capital goods that would increase output or the productive capacity of the economy.

When do firms need special incentives to motivate them to invest in new capital goods?  The answer is never.  In modern market economies, competition provides firm managers with the most powerful motivation to continually invest that they will ever need: fear.  They ultimately face both the fear of bankruptcy and the fear of lost opportunity.  If your competition lowers its costs by investing in new equipment, or improves the appeal of its products by incorporating new innovations, then you’d better do the same or you will soon find yourself driven out of business.  With only a few exceptions, additional government-provided financial incentives are nothing more than an unnecessary waste of tax dollars.

Entrepreneurs do not need special additional incentives provided by the government to encourage them to assume the risks of creating a new business. True risk takers believe that their ideas will succeed in the market and have so much of their identities invested in them, they really don’t care if they receive any return at all on their invested time and money, sometimes for several years, as long as they have hope of eventual success. The problem for them is not that they lack motivation; it's that they can't find someone who is willing to provide them with a loan that banks, venture capitalists, and angel investors find too risky.

In confronting this situation, Congress has a couple of options.  It can choose to do nothing and simply allow the marketplace to reward firms-that-make-wise-investments with the market share of firms-that-do-not.  The other option would be for lawmakers to help entrepreneurs [and already-established firms that are judged by banks to be 'too-risky'] to obtain the funding they need in the hope that they might end up becoming competitive with better established firms.  The rational way to do this would be to provide these marginal firms with targeted investment tax credits or perhaps with government guarantees on private loans.

These kinds of initiatives would put the money directly into the hands of those who will be economically investing the money.  Compare this to the insane idea of throwing hundreds of billions of extra disposable dollars at wealthy savers in the hope that some small fraction of their extra savings might somehow make their way into the hands of true economic investors when private banks have already rejected their borrowing plans as too risky.  Very little, if any, of those billions of dollars would actually end up helping needy entrepreneurs and firm managers.

Cutting the taxes of rich people is a profoundly inefficient way to put more dollars into the hands of individuals/firms that want to invest.  And what about the money that banks get from savers?  According to Republican economic mythology, increasing the amount of money that is put into banks by savers is a great way to get those $$ into the hands of entrepreneurs and firm managers.  The reality is that very little of the money that rich people put into banks ends up in the hands of the people who make economic investments.

Empirical evidence reveals that:

  1. Between 1988 & 1997, an average of nearly 85% of the money that corporations spent on investment came from retained earnings or other internally-generated funds. (Brealey & Myers, Principles of Corporate Finance, 2000, pp. 383-384)

This empirical fact strongly refutes the Republican suggestion that firms are desperately dependent upon borrowed money (and therefore upon savings) when they want to make investments.  What is the ultimate source of the internally-generated funds?  It would be the spending of consumers and firms and government, not savings.  If the government increases its spending to a high enough level, firms will finally have the incentive they have been looking for---an increase in demand for their products---and will begin to invest the money they've been saving.  

(Simply throwing more money at businesses [tax cuts and subsidies] when demand for their products has not picked up is a ridiculous waste of government dollars.  Over the past couple of years, firms have been showing us---once again---that simply making it 'cheaper' for them to invest is not enough of an incentive for them to actually do it, not when demand for their products is stagnant.)

  1. Between 1998 & 2001 (years that included cyclically high levels of business investment) the combined borrowing of all non-financial corporations and all non-corporate businesses varied between 20-34% of total borrowing nationwide.  During the same period, the household sector of the economy accounted for 20-30% of total borrowing.

These statistics tell us that only a fraction of total savings is directed, ultimately, to the noble purpose of improving economic efficiency.  Much of the money that is saved is ultimately spent on credit card loans and installment purchases.  If firms find that interest rates are too high, is it necessarily because there is a shortage of savings, or is it perhaps because lending institutions are quite happy to starve the supply-side of the economy if they can get higher yields by lending to consumers?

  1. Savings are not the only source of loanable funds

The ultimate determinant of the supply of loanable funds in the U.S. economy is the Federal Open Market Committee of the Federal Reserve System.  Whenever The Fed buys securities in the open market, it pays for them with money that it creates out of thin air with a keystroke.  It does not draw the money from some reserve account that is limited in size.  It is "new money" that did not exist prior to the keystroke that created it.  With any of its purchases of securities, the Fed provides loanable funds to banks that were not saved by any saver.

There is no limit to the amount of money The Fed can inject into the loanable funds market.  If savers were to suddenly pull most of their money out of banks and put it under their mattresses instead (equivalent to a dramatic reduction in savings), The Fed would still be able to easily maintain the supply of loanable funds or even increase it by simply buying every sort of debt instrument offered in the credit markets.  Even if The Fed bought up all of the nation’s debt---something that would never happen---and there was still a shortage of loanable funds, it could maintain/increase the money supply by buying buildings or land or anything else it fancies.

The facts I've mentioned above help to explain why it does not hurt the economy when the government taxes the excess savings of the richest Americans.  When can we know that there are excess savings in the economy?  It's fairly simple, actually.  Whenever there is any level of unemployment, like during a recession, it is because the economy is suffering from excess savings.  How do we know that is true?  Simple logic.  

Fact 1: Virtually all jobs in the economy are ultimately dependent upon SPENDING.  Almost all of the money that ends up in paychecks or profit margins can be ultimately traced to the expenditure decisions of consumers, firms, or governments.  When aggregate spending drops, jobs disappear.  That's what a recession is: a drop in spending (GDP).

Fact 2: By definition, all money-income that is NOT SPENT, is money SAVED.  

Fact 3: Combining Fact 1 and Fact 2, whenever there is any level of unemployment, it is because aggregate spending has dropped, and when aggregate spending has dropped, by definition, savings are at excessive levels.  

Some of the money that has been saved needs to be spent to keep the excessive savings from hurting the entire economy.  One way to do that is to borrow the savings; another way is to increase the tax obligations of the wealthy.  It is simply not true that there is no limit to the amount of savings an economy can safely tolerate.

When there is too much saving in the economy, this does not mean that everyone is saving too much money.  The problem is that some people are saving too much money; even while others are not saving enough.  In effect, these Super Savers (generally, the Uber-Rich) are ‘hogging all of the available savings’ that the economy can safely tolerate (without creating or worsening an unemployment problem).

Two things happen if we tax the incomes of the Uber-Rich at steeply progressive marginal rates: (1) the government has all the money it needs to finance increased spending on public ECONOMIC INVESTMENTS, and (2) all the rich people who are paying higher tax rates do not end up losing any of the purchasing power of their incomes.  

(Since they are all paying the same extra percentage in taxes, none of them loses his/her 'ranking' within the hierarchy of all disposable incomes.  Since they still have more disposable dollars than everyone else, they still get to consume the scarcest goods/services/experiences that the economy is able to produce.  There aren't any fewer luxuries or miles of beach front property when rich people start paying higher taxes; the prices of all luxuries simply drop to a level that the now-poorer rich folks can afford with their reduced disposable incomes.  In real terms, the rich give up nothing** when they pay significantly-higher marginal tax rates.)

**Nothing, in terms of lost purchasing power, in terms of material possessions and lifestyle.

The problem with the current recession is that a major source of aggregate spending has disappeared, perhaps forever: the reckless lending practices that banks became accustomed to when they owned the Bush administration.  When the Republicans slashed the taxes of the wealthy under Bush, most of those extra disposable dollars ended up in the financial markets and the banks were awash with cash to lend.  

With lax regulation and extra dollars to lend, banks happily took on riskier loans (including mortgages) because higher risks earned higher profit margins.  For whatever reason, banks have now become very stingy in their lending practices, and that is perhaps a good thing.  The only problem is that the $$ that those risky loans contributed to aggregate demand were substantial and they have to be replaced.  

The best solution: increase the tax rates of the richest Americans and spend the money on ECONOMIC INVESTMENTS, e.g., infrastructure, human capital (education, health).  Economic growth gets a big stimulus, unemployment drops, our standard of living improves, the national debt is paid down, and the rich actually give up nothing in real terms from paying the higher taxes.  It's a solution that not only makes the non-rich better off, in real terms, but it also makes the rich better off, in real terms.

Yes Ron, I still entertain the hope that I will someday have a chance to explain it all to Steve and he'll [somehow] see the truth of what I am saying.  I'm sorry that the political party he came to identify with is so profoundly wrong in its economic prescriptions, but if it is any consolation to him, most Democratic politicians have been equally misguided in their understanding of the economy.

Originally posted to James Kroeger on Thu Oct 21, 2010 at 11:45 PM PDT.

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  •  I sure hope you get on the rec list (35+ / 0-)

    because I think the way you broke this down is quite brilliant and simple. Nice work!

    If you could watch yourself in action, would you be proud? I love everyone from a distance. A huge, huge, vast reaches of space, distance.

    by Ruemara on Thu Oct 21, 2010 at 11:50:03 PM PDT

    •  Thanks... (22+ / 0-)

      Based on the response I got the last time, I think a good number of people would find it helpful.

      So what does it take to get it on the rec'd list?

      •  I think it takes a lot of readers, (8+ / 0-)

        like me, who are going to make it a point to hit the 'recommend' button on the way out, after they read the comments.

        This is a really great diary.  It makes it all seem so simple.  It's going to take a lot of re-reading to make it become the base line, common sense standard automatically used to evaluate the economic news that's floating around.

      •  Thought experiment (29+ / 0-)

        Which would be more stimulative for the economy?

        1. A $500 billion tax cut for the wealthiest 2% of Americans.
        1. A $500 billion tax hike on the wealthiest 2% of Americans, spent on unemployment insurance, food stamps, aid to states to avoid layoffs, and other forms of direct stimulus.

        CBO numbers on the efficiency of stimulus funds suggest that the second would be around twice as stimulative, in terms of money spent.  How many jobs that $500 billion tax cut would produce is very debatable, but I'd wager that most of the jobs produced wouldn't be in this country anyway.

        •  A lot of those "financial investments" made by (15+ / 0-)

          richest 2% end up by increasing asset values in China or India or Brazil.  Not only do they not increase the size of the pie, they don't even help the markets here.  

          The sleep of reason brings forth monsters. --Goya

          by MadScientist on Fri Oct 22, 2010 at 05:55:09 AM PDT

          [ Parent ]

        •  You're making an important point here... (12+ / 0-)

          Your thought experiment is right on, Dallasdoc.  Income tax hikes are actually far more stimulative than any tax cut could ever be.

          An income tax cut by itself cannot produce a net economic stimulus.  This is because a tax cut by itself must necessarily be accompanied by a reduction in government spending.  

          Governments cannot spend money that they do not have, so any time a government reduces the amount of taxes it collects, it is automatically depriving itself of the money it needs to continue spending as it had.  Unless something else is done a tax cut automatically forces the government to reduce its spending.

          The 'something else' that usually enables governments to continue spending is called borrowing.  When governments borrow money, the economic result is always the same: strong, direct economic stimulus.  This is because money that had been removed from the economy (saved) is then spent by the government.  

          In contrast, an income tax cut by itself takes money that would have been spent by the government and gives some of it to people who will remove a portion of it from the economy [by saving it].  

          The only time an income tax cut by itself is not contractionary is when all those receiving the tax cut go out and spend all of it.  When that happens, the drop in government spending would be exactly matched by the increase in consumer spending.  In other words, no improvement at all occurs.

          When any portion of a tax cut is saved, the increase in consumer spending we would expect to see would be less than the drop in government spending that would occur.  When that happens, the obvious result is economic contraction.  Aggregate spending drops; jobs disappear.

          Now consider the impact of an income tax rate increase on the incomes of rich people..  When rich people pay higher income taxes due to a rate increase, money that would have been removed from the economy by the wealthy would get spent by the government, instead.

          Result: the increase in government spending would be greater than the decrease in consumer spending by the wealthy, providing us with a net increase in aggregate spending, the very definition of economic expansion.

          •  which is why the tax cuts must expire (2+ / 0-)
            Recommended by:
            James Kroeger, adrianrf

            the only thing that maybe needs to be extended is child credits.

          •  Stimlation is caused by redistribution (6+ / 0-)

            Highly unequal income distribution is itself destabilizing and suppressive to economic activity.  Broad-based prosperity without high income inequality is the best solution to our economic woes, and the policies of the past 30 years which have moved us away from this goal is what have basically created our problems.

            Put more money in more hands, and take the huge hoards away from the greedy rich, and you've gone a long way to solve our problems.

            •  Or stop redistribution (4+ / 0-)
              Recommended by:
              Dallasdoc, wmc418, Kevskos, James Kroeger

              What we have now is redistribution of income from the bottom to the top. That's what we have to stop.

              Here's my clever little line:

              The problem with concentration of wealth is that eventually you run out of people with enough money to buy anything.

              Also, as confirmed by Thom Hartmann,

              Concentration of wealth is the biggest tax you pay.

              Wouldn't it be cool to be a teabagger named Balzac?
              ALL of America is a free speech zone once again!

              by armadillo on Fri Oct 22, 2010 at 12:55:28 PM PDT

              [ Parent ]

          •  I take issue with this (0+ / 0-)

            "An income tax cut by itself cannot produce a net economic stimulus.  This is because a tax cut by itself must necessarily be accompanied by a reduction in government spending. "

            This is neoliberal paradigm mythology.  There is no reason tax revenue and govt spending must match. You are arguing for a "balanced budget" which means no net injections of money into the economy. An economy without deficits is an economy with no new money. It becomes a goldstandard type zero sum game.

            "Deficits" ( I hate that word because it implies something lacking) should be as big as is necessary to have full employment.  Its just a number with a negative sign, the positive sign is in the non govt sector (us)

            •  Well.... (2+ / 0-)
              Recommended by:
              gbgasser, Justice Hildebrand

              I don't know what neoliberal paradigm mythology is, but there is no flaw in what I have stated.  

              In order to analyze the effects of specific economic variables, we need to assume that all other economic variables are held constant.  When I say that govt spending is necessarily reduced whenever tax revenues are reduced---all else equal---I am assuming that the government has not yet done 'something else' that would enable the government to maintain its spending after it has reduced its tax receipts [like increasing the amount that it borrows].

              If, after it has cut taxes, the government then decides it wants to maintain its spending levels by borrowing the money it needs, that is when 'something else' is done, an entirely different economic variable, is brought into the equation.  Surely you do not deny that if the government were to cut taxes and not do anything else to give itself money to spend, it would not be able to maintain its spending and would have to accept lower levels of spending?

              And no, I'm not arguing for a "balanced budget."  I'm simply identifying the necessary causal effects of specific fiscal actions, isolated from the effects of other changing economic variables.  It is simply not true that a government decision to cut taxes would necessarily require that it borrow money to maintain spending levels.

              The Fed makes new injections of money into the economy all the time, whenever it purchases debt instruments.  

              I'm sorry but I can't agree with you that 'deficits' should be as big as necessary to achieve full employment.  Increasing the income tax rates of rich people to 'high enough' levels would also provide the government with all the $$ it needs to increase its spending enough to eliminate unemployment.

              If/when the government does this, it would have the net effect of injecting money into the economy that would have been removed from the economy by rich savers.  

              You don't call that a net injection?

              •  Thanks for the clarification (1+ / 0-)
                Recommended by:
                James Kroeger

                I now understand what you are saying.  

                Dont take my comment about deficits as a belief that there is no limit to spending.  My point is that looking at the level of the deficit itself is not a proper metric. It must be evaluated in respect to real economic metrics like unemployment and output gap.  This is why I say  "deficits' should be as big as necessary to achieve full employment".  Deficit is a balance sheet entry and unemployment is a real variable.

                You are correct that increasing taxes on the rich will give more room for injection without a deficit increase, but given the political difficulty of tax hikes, I think it is important for economists to stress that the level of the deficit is meaningless by itself and push for more spending to combat the real economic problem of unemployment.

                •  I understand your intentions, and they are good (1+ / 0-)
                  Recommended by:
                  gbgasser

                  ...given the political difficulty of tax hikes, I think it is important for economists to stress that the level of the deficit is meaningless by itself and push for more spending to combat the real economic problem of unemployment.

                  This may be correct, but my instinct is to take the Right's complaints about deficit reduction and use it to force a discussion of tax increases on the Uber-rich.  It forces them to defend a position they cannot defend.  Opportunities like that don't come around all that often.

                  •  The trouble is (1+ / 0-)
                    Recommended by:
                    James Kroeger

                    Their answer will be like Britains, lay off half million public employees as an offset to the tax decreases.  The demonization of public sector  employees has been completed.  The success the right has had in marginalizing the public sector worker is astounding really.  People act as if money coming from a public worker is different because it actually came out of THEIR pocket.

                    Until we can successfully break the link between taxation and the public sector level of spending we will continue having these counterproductive policy prescriptions.  The right cares not about economics they only care about private control of every aspect of our lives.  

      •  You MUST tell us how your brother responded. (11+ / 0-)

        I'd be interested to know if it changed his thinking, even a little bit.

        "And God separated the light from the dark, and did two loads of laundry"

        by Fiddlegirl on Fri Oct 22, 2010 at 05:59:51 AM PDT

        [ Parent ]

      •  I think a good number of people would (2+ / 0-)
        Recommended by:
        James Kroeger, zedaker

        find it helpful.

        And we do!

        Daniel Ellsberg - "It was always a bad year to get out of Vietnam."

        by allenjo on Fri Oct 22, 2010 at 06:39:37 AM PDT

        [ Parent ]

      •  Seriously (6+ / 0-)

        James, this seriously needs to be published more widely. Have you cross-posted it anywhere? Do we have your permission to copy it in emails to others? This is a great analysis and an explanation of why tax cuts are so inefficient as a means of expanding an economy.

        Great job.

        Taxes: the use fee for an orderly society.

        by Mr Bojangles on Fri Oct 22, 2010 at 10:15:18 AM PDT

        [ Parent ]

        •  Thanks (1+ / 0-)
          Recommended by:
          Kevskos

          Do we have your permission to copy it in emails to others?

          Sure.  Spread it around.  Any way you can get copies distributed on Capitol Hill?  :)

          I haven't cross-posted it anywhere as yet.  My own website is in dis-repair.  I'm not sure when I'm going to find the time to fix it.

    •  Brilliant, but Republicans rarely listen this (22+ / 0-)

      long or pay close attention. I'm with Barney Frank, I'd rather argue with a dining room table.

      "Don't knock football...it's just like chess but without the dice" - john07801

      by voracious on Fri Oct 22, 2010 at 12:33:52 AM PDT

      [ Parent ]

    •  I agree completely. (0+ / 0-)

      I hope this stays on the Rec List for a good while until every Kossack has had a chance to read it.

      I'd like every member of congress and politician running for office to have to listen to it on their mp3 players at least 4 times until they really understand it.

      I sent it to MY rethuglican brother (whom I love dearly, but he's got money) as well. I don't know if he'll read it.

  •  Deja Vu ? (3+ / 0-)
    Recommended by:
    Renee, Iberian, martini

    Could swear I saw this diary before.

    IT'S NOT TEA IN THAT CUP

    by lawnorder on Fri Oct 22, 2010 at 12:07:07 AM PDT

  •  Read Robert Reich's new book. He (48+ / 0-)

    explains this rather well.  Republican economics is a lie.  What causes major disruptions in our economic life is the creation of major income inequality.  The same thing happens every time we let it happen, we have a major depression/recession.  We absolutely must keep the income distribution equitable otherwise the imbalance destroys the economy, the rich just cannot invest or buy enough to keep the economy balanced and moving forward.  I don't know why these morons don't understand that.  They need people to buy what they are selling and making their money from....it is as simple as that.

    "When fascism comes to America, it'll be wrapped in a flag and carrying a cross." Sinclair Lewis

    by lakehillsliberal on Fri Oct 22, 2010 at 12:09:05 AM PDT

    •  Along those lines, there's a reason Henry Ford (41+ / 0-)

      insisted on paying the workers who assembled his cars a relatively substantial wage for the times. It was so they could afford to buy his cars. No supply-side economics for him!

      •  On this (12+ / 0-)

        Ford was absolutely right.  It would be an interesting exercise to review some things that other earlier business people did right.  Folks like Arthur Guinness who took the welfare and well being of his employees - and that of his businesses neighbors to heart - providing healthcare and good clean affordable housing.  Part of his motivation was that he felt that he and his family had benefitted from his business due to the people and it was his duty to give some back to the community.  And what he gained from it was a wealthier, happier, healthier employee group who were absolutely loyal to the Guinness brand.  There were a number of other companies at the time who were doing similar things - the Levers (the soap people) were of the same mold - and others who don't come right to mind.  

        Skimming a bit off their pile did not hurt the Guinness or the Lever families a bit.  And it made for a better community as well as a better business.

        "You have attributed conditions to villainy that simply result from stupidity"

        by newfie on Fri Oct 22, 2010 at 04:52:36 AM PDT

        [ Parent ]

      •  Originally, no. He did it to be able to (15+ / 0-)

        retain good workers.

        But the unskilled workers, many of them foreign born, didn't enjoy their work, earning a mediocre $2.38 for a nine-hour day. Indeed, the simplification of the jobs created a treacherous backlash: high turnover. Over the course of 1913, the company had to hire 963 workers for every 100 it needed to maintain on the payroll.

        The really high turnover, and high training costs for replacement workers hurt production.  So he raised the wages.

        On January 5, 1914, Henry Ford announced a new minimum wage of five dollars per eight-hour day, in addition to a profit-sharing plan.

        It worked.

        Recognizing the human element in mass production, Ford knew that retaining more employees would lower costs, and that a happier work force would inevitably lead to greater productivity. The numbers bore him out. Between 1914 and 1916, the company's profits doubled from $30 million to $60 million. "The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made," he later said.

        http://www.wiley.com/...

        •  Try modern Switzerland (2+ / 0-)
          Recommended by:
          Kevskos, Alohilani

          Switzerland is doing well economically right now, with a minimum wage of $20 an hour. On the one hand, a visitor finds that the cheapest restaurant meals end up costing $20 too, rather than < $10 as in the States - what with having to pay the workers well. On the other hand, for those who live there, a hour's pay will buy a basic restaurant meal, much the same as here. As for everything else - housing, clothing, transport - prices are in the American range. The country does well by this.

      •  and that example was in the Reich book (0+ / 0-)

        as well.  It really is an excellent, very readable book.  The discussion on how money is spent by the rich vs. the not-rich, and how that increases the demand in the economy was quite persuasive I would think.  And even if you already knew those things, the charts on income distribution, and the writing itself made it a very worthwhile book to read.

        (Sadly, in Kathmandu no longer.)

        by American in Kathmandu on Fri Oct 22, 2010 at 09:52:28 PM PDT

        [ Parent ]

    •  You might want to... (4+ / 0-)

      ...actually try reading this diary.  You just might find some parts that you like...

      •  It is not a matter of like or dislike. Reich (4+ / 0-)
        Recommended by:
        mrkvica, drewfromct, James Kroeger, dww44

        identified the core problem in nutshell.  Income inequality and full employment, they are the key measures of our economic success as a nation.  Germany has weathered the global downturn very well because they used their money to maintain employment.  They paid companies to maintain jobs and the result is their economy is returning to balance.  We need to put the focus on the 98% instead of the 2%.  This lopsided focus is why we have so a poor allocation of resources in this country.  We are myopic in the extreme.

        "When fascism comes to America, it'll be wrapped in a flag and carrying a cross." Sinclair Lewis

        by lakehillsliberal on Fri Oct 22, 2010 at 08:03:54 AM PDT

        [ Parent ]

    •  Both versions are lies. (1+ / 0-)
      Recommended by:
      mrkvica

      Neither comes to grips with the reality that in the declining stages of empire--when our remarkable head start into industrialization has run it's course--our economy, and culture, are struggling to emulate the past. We can no longer grow demand by making more and more crap. Our demands are the problem. Our expectations need to evolve, and will, one way or another.

      and I wait for them to interrupt my drinking from this broken cup

      by le sequoit on Fri Oct 22, 2010 at 04:44:52 AM PDT

      [ Parent ]

      •  your vision of permanent austerity for the masses (7+ / 0-)

        and luxury for a favored elite in the name of ecology are just as unsustainable as anything Wall Street is doing in the name of "free enterprise".

        No, we can't readjust our personal consumption to somewhere around zero, and there isn't going to be a lot of enthusiasm for doing so when we know that the superwealthy are finding new frontiers in conspicuous consumption. And that's precisely how your "evolving expectations" will work out in practice.

        As long as they last, and what happens after is adequately covered in Jared Diamond's Collapse.

        I have better things to do with the rest of my life than watch that happen in person, probably worldwide. (isn't globalization fun?)

        The "crap" we are going to have to make in order to avoid becoming a Third World failed state involve $2.3T in civil infrastructure fixes and probably 3x that in terms of reducing America's carbon load on the biosphere.

        We need wind turbines and solar panels and energy efficient retrofits on existing structures. We need to start serious planning for the effects of global warming already baked into the pipeline. We need more energy efficient transportation.

        If America is to stay a place where young people can look forward to a life at some level of comfort and dignity, we really don't have a choice about this.

        Evolve your expectations to look forward to a land where safe water no longer comes from faucets and road trips are rare because they're physically dangerous and living to a ripe old age is unlikely without my help.

        Looking for intelligent energy policy alternatives? Try here.

        by alizard on Fri Oct 22, 2010 at 05:41:14 AM PDT

        [ Parent ]

        •  We need to adopt a more European attitude about (7+ / 0-)

          what we value.  And we should specifically adopt a French attitude to holding our government accountable, which is to march in the streets when we are as unhappy as we appear to be with them.

          "When fascism comes to America, it'll be wrapped in a flag and carrying a cross." Sinclair Lewis

          by lakehillsliberal on Fri Oct 22, 2010 at 07:57:48 AM PDT

          [ Parent ]

          •  precisely (0+ / 0-)

            if our government gets its shit together, which unfortunately, I think unlikely (Note to any Obama staffers reading this: Jared Diamond's "Collapse" and Orwell's Brave New World/1984 were intended as cautionary tales, NOT game plans) and the money is put into civil and green power infrastructure, I see no particular reason why the US standard of living should drop below EU levels.

            Yes, we've got problems. To an engineer, problem means "cool, a fun puzzle I can get paid to solve". We have many unemployed engineers.

            I think la sequoit is getting his party line from Kunstler. Who doesn't consider alternative energy a problem worth solving because he's as ignorant about it as Senator Imhofe is. And at that, I may be slandering the senator. After one too many WTFs in reading Kunstler, I spent an hour on his website... if he actually knows anything about alternative energy, he certainly has kept it well hidden.

            If we trade in fossil fuel for adequate sources of green energy, the rest of it can be handled.

            Looking for intelligent energy policy alternatives? Try here.

            by alizard on Fri Oct 22, 2010 at 05:26:44 PM PDT

            [ Parent ]

    •  Elizabeth Warren has a great riff on this (4+ / 0-)
      Recommended by:
      mrkvica, Kevskos, dww44, marleycat

      The economic history of the United States, since the time of Washington, has been a cyclic period of boom and bust, usually on a 20-30 year cycle.

      The one exception was the period from the 40s to the 80s, which showed the most steady period of universal economic growth in this nations history. It was also the period in which top earners were taxed the highest.

      Coincidence?

  •  Bravo & Thanks James Kroeger (10+ / 0-)

    Patriotism means to stand by the country. It does not mean to stand by the president or any other public official... ~Theodore Roosevelt

    by Pam from Calif on Fri Oct 22, 2010 at 12:30:28 AM PDT

  •  Very well written (25+ / 0-)

    This quote in particular strikes me...

    ...the problem for them is not that they lack motivation...

    Exactly. Whenever a conservative friend of mine says that a higher tax rate will have people unmotivated to work, I simply say that the Swedish rich pay almost double the income tax that the American rich do, and I do not see any less motivation to work over there. Infact, that extra money ends up invested in infrastructure, health care, and overall, people are generally happier with their lives there than here.

    It's too bad that the Democrats haven't been able to put the tax increases in terms like you did. Maybe they are scared of a backlash from Wall Street or something like that. Maybe this should be the next topic that Goolsbee draws on his dry erase board.

  •  You argue facts (18+ / 0-)

    while hardcore Republicans argue ideology. They don't care if their ideology is demonstrably false or harmful. All that matters is that their taxes are low, and schools, parks, roads, and poor people be damned. That's why it's like arguing with a dining room table, as Barney Frank has so cleverly said.

    Anarchist bartender poets for beer, verse, and disorganization.

    by degreesofgray on Fri Oct 22, 2010 at 12:52:37 AM PDT

    •  Yes... (26+ / 0-)

      You won't be able to convince a hardcore Republican with a single, lengthy argument.  Generally speaking, whenever people have invested their identities in a particular political group, they become motivated on an instinctive level to defend the group beliefs from any criticism as though their lives depended upon it.  

      You can speak to them with flawless logic, but they will typically hear your arguments as a threat that the group must be defended from, oftentimes in knee jerk fashion.

      It is possible to change even the opinions of those who are fully-invested in their group-identification, but it only happens gradually, usually when they've heard their group being ridiculed for actual screw-ups that can't be denied, for a lengthly period of time.

      We'll see how successful I am with my affluent, intelligent, Republican brother, Steve.

      •  Damn, wasn't from 2001 to 2009 long enough? /eot (3+ / 0-)
        Recommended by:
        mrkvica, alizard, Josiah Bartlett

        Republicans: "Double your pleasure, double your fun, double your National Debt, and blame 'The One' "

        by Bluefin on Fri Oct 22, 2010 at 05:23:56 AM PDT

        [ Parent ]

        •  Republicans have an excuse for this (5+ / 0-)
          Recommended by:
          Josiah Bartlett, drewfromct, Matt Z, dww44, 1BQ

          See.... first of all, you have to understand that the rosy economic times during the Clinton years started in 1994 with the Republican takeover of Congress - so they were responsible for this.  Then, the bust in the '00s happened after 2006 when the Dems took over Congress, so we were mostly to blame for that.  Also, the economy crashed because the Democrats in the 90's were too lax on Freddie and Fannie and allowed the housing market to fall apart.

          They have been fed their excuses and they stick to them.

          The smartest thing you'll read todayTM.

          by TheC on Fri Oct 22, 2010 at 06:48:12 AM PDT

          [ Parent ]

          •  Yup, yup, I see... (0+ / 0-)

            and don't forget the big bust of 00-01', it made it sooo rough for Dumbya, but he pulled us up by our bootstraps, yes he did...gave us tax cuts, deregulation, yup, yup, also...

            (yeah, I've heard all that BUllSHit from my RW bro, heh)

            Republicans: "Double your pleasure, double your fun, double your National Debt, and blame 'The One' "

            by Bluefin on Fri Oct 22, 2010 at 01:15:30 PM PDT

            [ Parent ]

          •  So, true. One just has to laugh. (1+ / 0-)
            Recommended by:
            Free Jazz at High Noon

            to avoid crying.  And, I ain't crying.  No future in that.

            I have heard all of these same arguments from my many many conservative relatives and coworkers and now they are being played back in these incessant political ads (Pelosi is responsible for millions of lost jobs, didn't you know?)  Their most favorite argument for the present economic problems are, in order, Chris Dodd, Barney Frank, Fannie Mae and Freddie Mac.  

            Sadly, as was pointed out by the diarist, when people are so INVESTED in their political idealogies as Republicans are, it is so very wearing trying to persuade them to consider other views.  It's a full time, mostly unrewarding, job.  However, I always try to remember that real progress/real change has always occurred in inches and never in feet.

    •  Our local small town paper interviewed residents (8+ / 0-)

      about a proposition on the ballot to join the Austin Community College tax district and have them open a campus in the area. Fortunately 90% of the comments were positive, about things like opportunity for our kids education and the jobs, both direct and indirect that would be generated. The negative comments were all the same. "No TAXES!!"

    •  Ask them the right questions. (2+ / 0-)
      Recommended by:
      Josiah Bartlett, phonegery

      Is $1000 per day net a middle income wage?

      Was Jimmy Carter the greatest President.

      It begins a real conversation, one that can lead somewhere except to the most extreme, and even they have a hard time arguing $1000 a day isn't an elite income.

      "A functioning Democracy must defy economic interests of the elites on behalf of citizens" Christopher Hedges Econ 3.50&Soc. 5.79

      by wmc418 on Fri Oct 22, 2010 at 05:03:22 AM PDT

      [ Parent ]

  •  Great explanation! (2+ / 0-)
    Recommended by:
    James Kroeger, alexa100

    What was Steve's answer (if any)?

  •  If all else fails, you and your other brothers can (4+ / 0-)

    can threaten to trade Steve in for a sister.

    " It's shocking what Republicans will do to avoid being the 2012 presidential nominee."

    by jwinIL14 on Fri Oct 22, 2010 at 01:13:05 AM PDT

  •  Recycle wealth... (14+ / 0-)

    I'm glad to see someone who actually knows and has studied economics offer an explanation to what I, as a layman, saw intuitively: We need to recycle wealth that has concentrated at the top.

    "Those who can make you believe absurdities, can make you commit atrocities" Voltaire.

    by JWK on Fri Oct 22, 2010 at 01:29:24 AM PDT

  •  Very well explained and written (13+ / 0-)

    Thanks for this. As an ex derivatives trader who quit in disgust with the way the whole casino is rigged, I love the way you have explained the concepts so lucidly.

  •  I missed the first post (5+ / 0-)

    have this saved for future reference.  Tipped and Reccd.

  •  Zero Interest Rate Policy (3+ / 0-)
    Recommended by:
    alizard, drewfromct, phonegery

    Favors financial investment over economic investment, in my opinion.  When bank CD rates (for example) are as low as they are now, savers are forced to put their money elsewhere if they want good returns.

  •  Most Republicans would actually be better off (11+ / 0-)

    under Democratic Administrations - but they get these Republican talking Points  in their heads and end up believing that the Repubs have their interest at heart, when in fact the Repubs really only care about the top 3% or so.
    Progressives have to do a better job of selling their wares and this is a great example.

  •  Yes, (4+ / 0-)
    Recommended by:
    alizard, James Kroeger, Matt Z, Bluefin

    this is a great argument against movement conservatism's economic theory.

    Some forms of investment are actually destructive to the economy. For example, consider the inflating and implosion of the housing bubble over the last decade, including the fraud involved in predatory lending and Mortgage Backed Securities (MBS). Consider the investment in offshoring much of the productive industrial capacity of the US, and the resultant hollowing out of our national job market. We are now mired in a long term, intractable recession/depression due to these practices. It will be many years before we can fix these structural and regulatory problems, and our economy creates a sufficient number of jobs that pay a living wage to bring us back to near full-employment and narrow the income gap between the wealthy and everyone else. This shrinking of the middle class is hazardous to the functioning of our democracy.  

    And when he came back to, he was flat on his back on the beach in the freezing sand, and it was raining out of a low sky, and the tide was way out. --DFW

    by klingman on Fri Oct 22, 2010 at 02:57:34 AM PDT

    •  Quite (6+ / 0-)

      Some forms of investment are actually destructive to the economy.

      A lot of people---politicians in Washington---do not see the big picture: when the Republicans slashed the tax rates of the ultra-wealthy, an incredible number of dollars were thrown at the asset markets, which did little more than set off a vigorous round of inflation in those markets.  Almost nothing good, economically-speaking, was accomplished by this.  A pure-inflation event that took the form of various 'bubbles.'

      Another important thing that even most economists do not realize is that different income groups can experience different rates of inflation.  When the tax cuts for rich people were combined with globalization, the rich experienced a robust level of inflation in their incomes (AND PRICES) at the same time that the working class was experiencing dis-inflation and perhaps even deflation in certain economies.

      •  The first part is right, but I can't see this at (1+ / 0-)
        Recommended by:
        drewfromct

        all:

        at the same time that the working class was experiencing dis-inflation and perhaps even deflation in certain economies.

        .
        My cost of living went up very significantly 2001-2010, I got the receipts to prove it; all the  while the dollar lost about 50% too as the 'markets' did absolutely nothing (the Dow was right around 11.5K in 2001 and 2009). And I'm neither wealthy/rich nor poor.

        Republicans: "Double your pleasure, double your fun, double your National Debt, and blame 'The One' "

        by Bluefin on Fri Oct 22, 2010 at 06:30:21 AM PDT

        [ Parent ]

        •  Dis-inflation... (1+ / 0-)
          Recommended by:
          dww44

          ...means you are experiencing inflation, but at a declining rate, like say from 7.5% to 1.5% over a decade.

          Who is worse off?  A working class slob who experienced declining wages [factory job went overseas] but an annual increase in prices of about 3% annually, or a lower-upper class Republican, whose income AND the prices he pays both increased about 100% over a 7-year period?

          •  I guess I fit both those (wcs and lucs) since (0+ / 0-)

            I went from working a low-mid 6 figure tech job to a retired high 5 figure slot.
            Even if continuing to work, my income wouldn't have matched the 'W' years real increasing inflation numbers and investment losses. I don't know that anyone escaped the rampant inflation of the W years (and the effective devaluation of the almighty dollar, remember all the jawboning/lipservice BS about "maintaining a strong dollar" while it lost 40-50% value in 4-5 years?).

            Not to quibble, an excellent piece, JK; my formal economics education is limited to a couple of uni courses in it many years ago.

            Republicans: "Double your pleasure, double your fun, double your National Debt, and blame 'The One' "

            by Bluefin on Fri Oct 22, 2010 at 12:52:25 PM PDT

            [ Parent ]

  •  Thank you for reposting, I missed it first time. (8+ / 0-)

    Please consider posting it every month or so. More eyes on it. As individuals, we should be able to break it down to personal examples to clearly demonstrate the logic.

    Have you considered teaching an economics course? As an adult education offering? Teaching newbie elected officials? A LTE to large circulation newspapers?

    A concise, clear explaination as yours deserves a lot of eyes and thinking.

  •  Not to mention that so much of the money that (23+ / 0-)

    rich people make is on account of:

    > government contracts, government subsidies, tax incentives and giveaways;

    > from externalizing the true cost of their business onto the government (like pollution cleanup, environmental damage restoration, environmental and medical side effects such as long-term healthcare for people poisoned or injured);

    > from exploiting the technology developed by the government and government labs;

    > from exploiting the infrastructure created by the government used in commerce (roads, bridges, the internet, GPS, air traffic control, power grid)

    > from exploiting the systems created by the government to allow for their "orderly" commerce (the monetary system, the courts, law enforcement, the military, fire departments, unique transmission frequencies, the diplomatic core)

    > from gaming the system with politicians and judges that give the rich and corporations excessive rights over ordinary people therefore allowing them to take more while stopping ordinary people from competing fairly;

    > from leveraging the influence of the government to create global situations in treaties, trade agreements, embargos, tariffs, covert actions, and war;

    > from subsidizing think tanks to use psychological research to exploit the fears of people to convince them to not only hate their government, but to demand leaders that ensure the rich get richer and the poor constantly lose the ability to control and influence anything, including their own lives.

    > and from the blood and toil of every regular American who fought and died so they would be free to start a business, inherit a business, or invest in the market without having to worry about being slaves to any person, government, or foreign power.

    The least they can do is invest some of the bounty they enjoy back into the system they use so thoroughly and exploit so wantonly.

  •  I too have Republican relatives (20+ / 0-)
    I'm usually pretty polite and I let them interrupt me before I finish my explanation. But here's a short rant.

    1)    When Obama came into office, he lowered taxes as part of the stimulus program because he thought that might get some bipartisan support. So you're paying less in income taxes than you were when Bush left office. And yes, because the economy was in trouble, it was necessary to increase the deficit (and the national debt) to try to jumpstart the economy.
    2)    If all income taxes increase on January 1st, it's not because Obama or the Democrats raised taxes. It's because the Bush tax cuts expired. They expired because Bush and the Republican Senate and Republican Congress put an end date of 2010 on the tax cuts. The Democrats in 2010 want to continue the Bush tax cuts for people under $250K.  But Republicans are saying no. If taxes go up, it's because Republicans said no.
    3)    When Clinton left office, the Federal Budget had a surplus. We were in good shape. If GW Bush had done nothing, we would have had eight years of paying off the debt. But what Bush did was send everyone a few hundred bucks (as a rebate), he lowered taxes (especially for rich people), and he started two wars. To pay for all of this, he borrowed money from our children and grandchildren. In effect, he put it on the Bank of China credit card. And he did this all with the collusion of a Republican Congress. It was Republicans who increased the deficit and the debt.
    4)    Bush and his cronies also gutted government oversight and regulations of the financial sector. They believed that governments shouldn't regulate things like giving bad loans to people who can't pay for a house mortgage. They believed that banks could then re-sell these bad loans to investors from around the country and around the world. They believed that the price of houses would continue to increase (and everyone would become rich, in a classic recreation of the Dutch tulip bubble). Remember Bernie Madoff? The Bush-era SEC thought he was a good guy who didn't need to be regulated or audited. The invisible hand of the free market was invisible because the regulatory hand of the government was non-existent.
    5)    Then, a few months before the 2008 election, the housing bubble burst. The economy crashed (anyone remember when McCain famously said, "The fundamentals of the economy are sound"?). Bush and his economic advisors decided we had to bail out Wall Street. Republicans did the bailout and then they lost the White House. They were idiots.
    6)    The George W. Bush Administration was like irresponsible teenagers whose parents went out of town for a week. The teens had a big party and got drunk. They used a credit card to buy stuff. They puked and pissed everywhere and set part of the house on fire and now they're complaining that the house hasn't been repaired and cleaned up yet. And they're begging for a new cell phone with more minutes and a bigger allowance. They're also saying, "You can trust us to be in charge of the house again. We're older and wiser now." Yeah, right.

    WWJD? Jesus would drive faster is what he would do.

    by Dbug on Fri Oct 22, 2010 at 03:12:23 AM PDT

  •  Thanks for taking the time to write this up. (6+ / 0-)

    It's a clear-headed view of what "investment" means that gets lost by the media. "Economic" vs "Financial" investments: I'll remember that now!

    Radarlady

  •  What's wrong with Steve's argument (11+ / 0-)

    is the premise that businesses will create jobs, period.  I've yet to hear even a half-assed attempt from the Job Creatorz to explain how they are going to magically create jobs if we eliminate the corporate tax altogether (nevermind that most corporations pay only a fraction of the 36% corporate tax rate).  

    Corporations exist to make money.  The prime objective is to increase profits by any means necessary.  

    Robotics and automation is the ideal method to reduce labor costs.  Robots & machines are not paid a salary or insurance, and work nonstop for years with standard maintenance.  While carrying an initial high expense, the savings in productivity and labor add up quickly.   Automation is the corporation's ideal.

    Note that automation includes changes in software technology.  Ten years ago humans were required to code professional, database driven websites.  Now open source (free) tools like Joomla exist that allow end-users to create and maintain a complex, professional looking website at virtually no cost.  

    Where robots and machinery cannot be used, the cost of human labor must be reduced or eliminated by increased productivity.  This may include setting up automated checkout lines at the grocer, assigning multiple roles to office workers to eliminate "waste", or moving plants/mills to China to leverage it's currency manipulation on the global market.  

    Corporations will do anything to lower costs.  The last thing on any executive's mind is to hire more workers, or remove machinery and place humans instead.  An executive would be fired for even suggesting it.

    So I'd like to hear from this guy Steve, or any Republican or conservative Democrat exactly how lowering taxes on the upper class & corporations will lead to increased job opportunities for those in America.

    We certainly didn't see new opportunities as a result of Bush's tax cuts 10 years ago.

    •  Underwear gnome planning (3+ / 0-)
      Recommended by:
      mrkvica, stagemom, mightymouse
      1.  Cut corporate taxes to the bone
      1.  Corporations see more profits
      1.  ............
      1.  Jobs are created

      The idea that jobs get created because the top of the food chain has more money is ludicrous.  It isn't like there are groups of corporate leaders just seeking to see more people working around them.  It is so backassward thinking that it is mind boggling.

      "You have attributed conditions to villainy that simply result from stupidity"

      by newfie on Fri Oct 22, 2010 at 05:08:28 AM PDT

      [ Parent ]

    •  The published tax rate for corporations (8+ / 0-)

      is not paid.  It is never paid in the US. That's what corporate lawyers are paid to do - torpedo those taxes. They also relocate to states like Tennessee and other corporate friendly places where taxes are waived or lowered to next to nothing.  It is BS to base this argument on published tax rates for corporations.  Corporations in the US are now in corporate heaven.  Only in places like the Marianas do they get to even steal more from their employees and ignore humane treatment of workers.  Just wages?  What a joke.

      European nations are less conducive to corporate irresponsibility.  The French have been my heroes lately, actually for a long time.  They are not taking the changes in their social safety net lying down.  Bravo, mes amis en France.  We Americans could use more of their backbone and insistence on human dignity, just wages and rebelling against working until we die.

    •  We've all seen Robots (3+ / 0-)

      Robotics and automation is the ideal method to reduce labor costs.

      on assembly lines building cars. Who here has ever seen a robot roll into a showroom and buy one?

      When every American job has been outsourced, when every American worker has been replaced by robots or third world slave labor, just who do they think is going to buy the stuff they're making?

      Al Qeada is a faith-based initiative.

      by drewfromct on Fri Oct 22, 2010 at 08:55:03 AM PDT

      [ Parent ]

  •  The way China is growing so quickly (8+ / 0-)
    1. Take a large pool of underutilized unskilled labor
    1. Train them up in specialties (make skilled labor)
    1. Pay them the going rate (which is not much due to #1)
    1. Build lots of low-cost manufactures
    1. Figure out a way to build a vehemently anti-democracy message to keep the ride going as long as possible.. because it's not just the Communist Party that likes thinks authoritarian. Oh, no. Authoritarian regimes come with lots of guys with sticks that keep labor docile.

    This was once the "American Solution". No more

    The New American solution is:

    1. Create a large pool of underutilized skilled labor
    1. Dumb them down/obsolesce specialty kills (make them unskilled labor)
    1. Pay them less and less (outsource or in-source cheaper labor of all skills sets from elsewhere)
    1. Do lots of important stuff in cubes
    1. Figure out a way to build a vehemently anti-union (and anti-unemployed) message to keep the ride going as long as possible. Explore anti-democratic messaging and alternatives like, say, corporate autocracy. Maybe call it "meritocracy". The experts will like that...until we in-source cheaper replacements for them.

    We are real and soulful, with heart and mind, feelings and flesh, thoughts and motives mixed and bright and dark all at once.

    by cskendrick on Fri Oct 22, 2010 at 03:26:11 AM PDT

  •  Great civilizations based on government spending. (5+ / 0-)

    Rome's success is based on public works of roads, ports, aqueducts.

    Rome's failure and decline occurred as working men were displaced by slave labor which caused concentration of wealth and power, leading to the fall of the Republic ironically by the "Democrats" of the day, Julius Caesar's popular party, looking to break up the big estates and distribute the land and wealth.

    US and all civilizations succeeded most when people united in government to build economic base and when that economic base benefited the most people as evidenced by median income in society vs. average.

    For current politics, point out that Reagan infinite tax cut ideology failed at its key claims of balanced budget and GDP growth.  Debt/GDP being the best metric.  

    Debt/GDP declined from WWII peak of 144% under every president and Congress, Democrat, GOP combo from 1945 to 1981, all time low during Carter of 33%.

    Debt/GDP (and deficits and debt) rose dramatically under Reagan/Bush to 70% of GDP.  US infrastructure base, roads, rail, public education, water, sewer declined.

    Debt/GDP fell under Clinton (demonstrating failure and fallacy of Reaganomics).

    Debt/GDP rose again under Reaganomics of Bush Tax Cuts for rich to high of 75%.

    Obama is the first Democratic president to fail to lower Debt/GDP.  His Catfood Commission, to try and do this by cutting the  surplus generating Socials Security from whom Reagan/GOP borrowed $3T, will be Obama's crowning economic failure. Obama will see classic Reagan/GOP failure of higher deficits, higher debt, higher Debt/GDP and historically low GDP with increase in concentration of wealth which government spending tends to lessen.

    Note that countries who have government run health care do it for 10% of GDP vs. US 17% of GDP and do it better based on health care results. Obama, increased costs to 20%.  US economic burden of $800B in additional non-productive costs of health care (keeping insurance companies in business) is due to lack of more efficient government run health care with solid tax backing.

    •  Obama is a republican when it comes to (0+ / 0-)

      economics, a big fan of Reagan.

      •  twisting his words (1+ / 0-)
        Recommended by:
        Alohilani

        he was speaking as to Reagan's impact on America, which was significant.  He was not speaking as to how good the policies were.

        America simply does not need the [GOP] as ... currently constituted. If it cannot reform itself, it needs to die. - Brad DeLong

        by billlaurelMD on Fri Oct 22, 2010 at 07:13:17 AM PDT

        [ Parent ]

        •  his impact on america was significant (2+ / 0-)
          Recommended by:
          drewfromct, FightTheFuture

          and horrible, he should only be spoken of with derision.

          Reagan would love the catfood commision.

          •  Differ (0+ / 0-)

            The cold war ended gracefully. That was no insignificant accomplishment. It may have owed more to Russia's leadership than our own, but our own, including Mr. Reagan's, was nonetheless essential in the equation.

        •  Do not be so sure of that! Obama's actions (0+ / 0-)

          such as the Catfood commission; ramping up useless wars; domestic spying; shielding bad corporations are right up a Republicans alley.  Here is what Obama said:

          Obama's Admiration of Ronald Reagan:

          I don't want to present myself as some sort of singular figure.  I think part of what's different are the times.  I do think that for example the 1980 was different.  I think Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not and in a way that Bill Clinton did not.  He put us on a fundamentally different path because the country was ready for it.  I think they felt like with all the excesses of the 1960s and 1970s and government had grown and grown but there wasn't much sense of accountability in terms of how it was operating.  I think people, he just tapped into what people were already feeling, which was we want clarity we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing.

          :
          Obama admires Reagan because he agrees with Reagan's basic frame that the 1960s and 1970s were full of 'excesses' and that government had grown large and unaccountable.

          Those excesses, of course, were feminism, the consumer rights movement, the civil rights movement, the environmental movement, and the antiwar movement.  The libertarian anti-government ideology of an unaccountable large liberal government was designed by ideological conservatives to take advantage of the backlash against these 'excesses'.
          :

          Obama needs to channel TR+FDR: Walk Softly, Carry a Big Stick and Welcome Their Hatred. Walk Softly, CHECK. Time to get on with the rest already, Barack!

          by FightTheFuture on Fri Oct 22, 2010 at 04:16:22 PM PDT

          [ Parent ]

      •  Obama's more of a neo-liberal. It just happens (0+ / 0-)

        that some neo-liberal policies jive with republican shenanigans as they seek their goals.  

        Neo-liberalism, centered much on the Chicago School of economics and Milton Friedman, among others, is showing itself to be a failure, in general but it will not die off easily.  It has made too many of the rich into the uber-rich while fooling many, like Obama (I'm being kind, here).  Considering all that rap that has happened, I really question Obama's real motives.  Stupidity or haplessness from republican intransigence just doesn't cut it

        Obama needs to channel TR+FDR: Walk Softly, Carry a Big Stick and Welcome Their Hatred. Walk Softly, CHECK. Time to get on with the rest already, Barack!

        by FightTheFuture on Fri Oct 22, 2010 at 04:06:10 PM PDT

        [ Parent ]

  •  Money in safes doesn't help the economy (4+ / 0-)

    In recent years, I have noticed that an increasing amount of floor space in our local Southern States farm cooperative is devoted to various models of refrigerator sized safes. Poor people aren't buying those safes and whatever assets rich people store in them, those assets aren't helping the overall economy sitting in a safe. I think, taken to its extreme,  Republican tax policy would eventually lead to a few Scrooge McDucks having all the cash in swimming pool sized money bins, with the rest of us eking out a living through barter.

  •  "Wealth transfers" (7+ / 0-)

    My upper-middle-class Republican friend complained that she was tired of money being taken away through the tax system from people who had "worked hard to earn it" and given to "lazy" people.  She advocated a flat tax as the most "fair".

    As someone who's been a volunteer tax preparer for several years, I tried to break this down with discussion of refundable vs. non-refundable tax credits, the EITC, marginal tax rates, and capital gains tax rates (including the statement that most of the "earnings" of wealthy people came through capital gains).  I tried to show how a flat tax was very regressive toward lower-income earners.

    I also tried to explain how lower-income earners spend a much higher percentage of their money on what you call "economic investments" and high-income earners spend their $$ on "financial investments" - thus it's better to move the money to those who will spend it and stimulate the economy.  Sadly, I lacked your eloquence (and financial education), and I don't think it had much effect on her.

    I think one root of the disagreement between my friend and me is that what's good for an individual (save or invest your money; limit your spending; don't run up debt) is not necessarily the most productive for an economy (which is most vibrant when people are spending rather than saving, as a whole) or for a government (for whom debt can often be very productive for the economy).  Having been raised in a very fiscally conservative family myself, I understand the difficulty in transitioning from micro to macro but couldn't really communicate it effectively to her.

    Thanks for your excellent and clear analysis.  I will file this one away.

  •  Poor People Saving = "Idle Capital" (6+ / 0-)

    Economists tell us poor people saving money is a Serious Problem.  But this never comes up when 80% of the country's money is tied up by the rich. I guess economists  can be bought.

  •  I'd just ask him... (6+ / 0-)

    if lower taxes lead to more private sector jobs, how come the 2003 cuts led to... zero job growth?  

    On a related not, ask him how come we've created more private sector jobs in one year under Obama than in eight under Bush?

     
    http://newsjunkiepost.com/...

    But you're right about one thing:  If you want to create jobs, as long as your business plan is good, any bank will help you out.  If they won't, maybe it's because your business isn't as strong as you think.

  •  The usual response at this point (10+ / 0-)

    has to do with motivation--- rich people won't work hard! rich people will move away!

    Which is b.s. of course--- your brother isn't going to quit it all and go into poetry over some fair taxation.  

    And if rich people move away, let 'em!   Our country is full of talented, ambitious people who'd be more than happy to take their place.  They will find that they are just as disposable as the rest of us.  And ironically, they will find that living outside the U.S. does not exempt them from paying U.S. income taxes.

    •  They are better than us. (3+ / 0-)
      Recommended by:
      mrkvica, drewfromct, James Kroeger

      They are smarter, work harder, etc.

      Bull.

      Most of them simply belong to the rich people's club. They get into the best schools because Daddy funded the new stadium. They graduate because they can hire the best tutors and the best term paper ghost writers. When it comes to actual business, they serve on each others board of directors, where they vote each other fat contracts and golden parachutes galore.

      Meanwhile, they hire people to do the real work, including putting their pet politicians on the payroll. (Off the books, of course.)

      These people aren't capitalists. They don't have their livelihood and future invested in these companies. And so, so often, even if the company tanks, they get theirs. Where is the incentive to innovate, calculate risks, work hard?

      The idea that if you cut their fat paychecks by an extra 5%, they'd quit and the country would collapse ...laughable.  

      Freedom has two enemies: Those who want to control everyone around them...and those who feel no need to control themselves.

      by Sirenus on Fri Oct 22, 2010 at 06:58:29 AM PDT

      [ Parent ]

    •  another way to look at this (2+ / 0-)
      Recommended by:
      mrkvica, drewfromct

      how many households are in the top 2%?  How many in the remaining 98%? What possible impact on consumption will the end of the Bush tax cuts have when only 2% of the population will ultimately be affected?

      One thing I've never understood.  If you get to keep $0.60 per additional dollar of income rather than $0.65, are you not going to want to earn that income because your taxes increase 0.05?  Talk about cutting off your nose to spite your face!

      America simply does not need the [GOP] as ... currently constituted. If it cannot reform itself, it needs to die. - Brad DeLong

      by billlaurelMD on Fri Oct 22, 2010 at 07:11:05 AM PDT

      [ Parent ]

  •  Tipped, recommended (5+ / 0-)

    and Facebooked. What an educational, informative and important diary. Thank you!

    "...shouting is not a substitute for thinking and reason is not the subversion but the salvation of freedom." - Adlai Stevenson

    by rambler american on Fri Oct 22, 2010 at 04:26:21 AM PDT

  •  If I get a million dollars in tax cuts, so that (4+ / 0-)

    the deficit grows by one million dollars, and the governemtn has to borrow a million dollars, so I lend the government the million dollars.....

    I guess it comes down to, rich people are so good and wise and interested in growing the economy, they'll take that million and create a new business.  But anecdotal reports are that businesses have trillions of dollars in cash they already won't invest due to the lack of demand for goods and services.

    Yes, I'd give the Devil benefit of law, for my own safety's sake!

    by Inland on Fri Oct 22, 2010 at 04:38:08 AM PDT

    •  Nailed it! (2+ / 0-)
      Recommended by:
      mrkvica, James Kroeger

      the deficit grows by one million dollars, and the governemtn has to borrow a million dollars, so I lend the government the million dollars.....

      Reagan's policy of cut taxes/borrow/spend was a tremendous double-boon for the rich: First when they got their taxes cut, then when they were able to lend those excess funds in order to have them paid back with interest.

      Al Qeada is a faith-based initiative.

      by drewfromct on Fri Oct 22, 2010 at 09:02:06 AM PDT

      [ Parent ]

  •  No pensions means excessive saving (6+ / 0-)

    The argument that a country can save "too much" is compelling.  I think that was the problem that Japan had to deal with during the 90s.
    My argument for employer-provided pensions is that it is a relatively inexpensive means for providing retirement income... many retired employees will withdraw just a fraction of the funds that were added to the plan on their behalf, and the pension administrators take this into account.  Without these large pensions, every employee must save enough to provide for his own retirement and must account for the "worst case" scenario: a long life after retirement.
    Can we argue, then, that the current rush by corporations to trash their pensions is ultimately self-defeating?

    Don't be a DON'T-DO... Be a DO-DO!

    by godwhataklutz on Fri Oct 22, 2010 at 04:51:16 AM PDT

  •  I have the same problem with my (5+ / 0-)

    conservative siblings.  What is odd to me is that these people who make 150-250k per year are aligning themselves with the super rich.  I have tried to break it down to them several times and this post gives some good ammunition.  

    I would explain the reason for the stimulus this way.  If the government gave me or you (my financially comfortable sibling) a 1000 per month tax cut, would you significantly change your spending habits?  The answer of course was no and you would just take it and add it to your just in case funds.  

    So the only way to get money flowing through the economy is for the government to pay for infrastructure projects and human capital like this diarist described above.

    •  Even my conservative relatives in Cincinnati (0+ / 0-)

      whom I refuse to engage, making far less than $60,000.00, identify with and used to vote for the Republican party (I haven't had direct contact since 1978 - I don't want any contact with conservative idiots).  There is no logic there.  Period.

    •  Saw a program on mega yachts awhile back. (4+ / 0-)
      Recommended by:
      Bri, mrkvica, drewfromct, kareylou

      These are yachts in the $100 million plus range. Monster yachts, tricked out with every mechanical bit of razzle dazzle, every luxurious comfort you can imagine.

      What really got me was this owner...looked to be in his late thirties, tanned, dressed in white shirt and shorts....with a big grin on his face, saying "Well, you have to spend the money on something!"

      Well, yes. Like easing back the national debt, decent roads, schools, healthcare and a few extra bucks each week in the paychecks of millions of people.

      Freedom has two enemies: Those who want to control everyone around them...and those who feel no need to control themselves.

      by Sirenus on Fri Oct 22, 2010 at 06:48:31 AM PDT

      [ Parent ]

  •  He will only be taxed at the higher rate (7+ / 0-)

    on what he earns above $250k. He is not being moved into a higher bracket for his entire income.

    It's not whether you win or lose; it's whether I win or lose - Bill Walton

    by jhecht on Fri Oct 22, 2010 at 05:12:04 AM PDT

  •  Three more thoughts on this (5+ / 0-)
    1. The very wealthy were the ones who supported Bush and his policies that got us into this mess, even if they didn't benefit directly from it.
    1. As long as they know that the government will never take away their tax cuts or reregulate them during a recession or economic downturn like we're having, they have a very strong incentive to keep the economy in a sour state. Maybe not a full blown depression, but certainly one where a large number of people are having a hard time keeping their heads above water.
    1. Not all spending is the same. Bush did the equivalent of an eight year long toga party a la Animal House. We got nothing for it, and now we don't have the industry to actually rebuild our economy. Good spending now is not only desirable, but necessary.

    Do Pavlov's dogs chase Schroedinger's cat?

    by corwin on Fri Oct 22, 2010 at 05:24:44 AM PDT

    •  This bears repeating: (2+ / 0-)
      Recommended by:
      corwin, James Kroeger

      As long as they know that the government will never take away their tax cuts or reregulate them during a recession or economic downturn like we're having, they have a very strong incentive to keep the economy in a sour state.

      Al Qeada is a faith-based initiative.

      by drewfromct on Fri Oct 22, 2010 at 09:04:39 AM PDT

      [ Parent ]

  •  Having worked in the field of (9+ / 0-)

    Children's Protective Services all of my civilian career, from Foster Care Counselor to Child Protective Investigator and Supervisor (CPI and CPIS) to Program Coordinator, in two states - FL and MA, I can tell you I am delighted when someone speaks up for those who have no voice.  The poor have no voice in the US.  Rather, they have few voices - Michael Moore comes to mind.  Bernie Sanders comes to mind also.

    The rich, including all of the members of the US Chamber of Commerce, have high paid lobbyists in Washington D.C.  That is the truth and it has been that way for years.

    No one needs to gain more influence to support the rights of the rich, of persons who make over $250,000.00 yearly.  They create jobs no more than I create jobs if I hire a person to mow my lawn or wash my car.  That is nonsense.  They no longer provide health insurance.  McDonald's franchises are small businesses.  Do they treat any employee with dighnity and just wages and good jobs?  To allege that is BS, total BS.  

  •  Great diary. I did very well in my Econ classes (7+ / 0-)

    in school, but this is one of the best explanations of economic policy I have read because it is simple and connects on an emotional level somehow.

    I have a dream of an middle-class focused economic bus tour that travels to all 50 states, making multiple stops in each states, for at least a year, educating and reeducating Americans on just what has happened and what is possible.

    Put some attention-getting names on there, answer lots of questions, make it fun.  Make it truly populist -- take it directly to the people -- and Americans will respond.

  •  Theory Shmeory, Scan the Actual Record (8+ / 0-)

    The Panic of 1819
    Panic and Depression 1832
    Panic and Depression 1836
    Six Year Depression 1837-1843
    The Panic of 1857
    Panic and Depression 1869-1871
    The Panic of 1873
    The Panic of 1893
    The Panic of 1901
    Panic and Depression of 1929

    50 year time out for liberal New Deal regulation and top marginal tax rates rising to 91%. The US climbs from flat on its back to creating our first ever huge comfortable middle class which went global after the war as heavy top income taxes and business & finance regulation were established across the developed world.

    No panics, no depressions, the rich reached their lowest wealth compared to society as the common people reached their highest compared to the rich.

    The American people lead the world in most measures of welfare and opportunity. We became sole global superpower.

    1980 Republican economics resume, top tax rates slashed, deregulation commences.

    S&L Panic of the 1980's.
    Great Recession of 2008-11+

    The American people decline compared to their peak and the rest of the developed nation peoples, the people and the nation ranking in as low as the 20's to 40's by more and more measures.

    Data's in.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Fri Oct 22, 2010 at 05:37:43 AM PDT

    •  You forgot the Internet Boom-Bust (0+ / 0-)

      (-9,-9) pragmatic incrementalist :-P

      by Enterik on Fri Oct 22, 2010 at 05:47:50 AM PDT

      [ Parent ]

      •  One of the best examples of the "greater fool" (1+ / 0-)
        Recommended by:
        drewfromct

        situation ever to come down the pike.

        I remember hearing that--geez, which was it, Yahoo? Google?--had a market cap greater than General Motors. This, for a company that had no factories, no inventory, and not a single quarter of profits.

        Ironically, had you bought early when the stock was cheap and held it.....  

        Freedom has two enemies: Those who want to control everyone around them...and those who feel no need to control themselves.

        by Sirenus on Fri Oct 22, 2010 at 06:42:34 AM PDT

        [ Parent ]

    •  Agree with most, but there were a number of (0+ / 0-)

      recessions and disruptions throughout the late 40's, 50's-70's. Don't make it sound like the 'happy days' that the teabaggers want to take 'their country' back to, it never existed.

      Republicans: "Double your pleasure, double your fun, double your National Debt, and blame 'The One' "

      by Bluefin on Fri Oct 22, 2010 at 05:57:05 AM PDT

      [ Parent ]

      •  Don't trash the fifties just because the TBers... (0+ / 0-)

        ...exaggerate the decade's virtues. That's just the flip side of what they do.

        Freedom has two enemies: Those who want to control everyone around them...and those who feel no need to control themselves.

        by Sirenus on Fri Oct 22, 2010 at 06:39:36 AM PDT

        [ Parent ]

        •  Hey, I was a kid then, more or less enjoyed them. (0+ / 0-)

          School was great, had an idyllic time hunting and fishing, playing sports and wandering the countryside. But my parents had all the usual struggles of any other decade.
          Then me and my siblings/cohorts advanced on to a relatively improved future back then. That is what todays generations have probably lost due to the (R)'s destruction of the "American Dream" (and that is why the teabaggers are so ludicrously gullible).

          Republicans: "Double your pleasure, double your fun, double your National Debt, and blame 'The One' "

          by Bluefin on Fri Oct 22, 2010 at 01:07:09 PM PDT

          [ Parent ]

  •  Great Diary. (3+ / 0-)
    Recommended by:
    tobendaro, phonegery, Kharafina

    Hope your brother pauses and reflects on your cogent explanation of taxes and savings.

    I erroneously thought that after wall street collapsed due to the real estate and credit debacle, and, Greenspan subsequently admitted (to Congressman Waxman) that the theory of efficient markets may be lacking after all, that a more adult discussion would ensue about things economic.

    How silly of me.

  •  Supply Side Uncertainty... (3+ / 0-)
    Recommended by:
    James Kroeger, LI Mike, Bluefin

    ...it seems to me that supply side economics puts the cart before the horse in that those who supposedly make economic investments, to use your term, upon receiving the financial benefit of a tax cut are forced to predict whether or not, and where, expansion of their business is warranted by some as yet to be realized future demand.

    It seems much more natural to give the tax breaks to those who will generate demand with every dollar of benefit the receive, that being the not wealthy, which by my definition may very well include Steve. These masses of people have necessities they must buy and would if they had the money, this directs demand to where it can promote the most rational and sustainable economic investments.

    What do you think?

    (-9,-9) pragmatic incrementalist :-P

    by Enterik on Fri Oct 22, 2010 at 05:41:45 AM PDT

    •  Yep. (5+ / 0-)
      Recommended by:
      Enterik, mrkvica, drewfromct, dww44, Kharafina

      I like it.  If you're going to try to stimulate the economy with tax breaks, instead of through direct investments in the infrastructure, etc., it only makes sense to give the $$ to the poorer half of income earners, since they will spend it all.

      I've always wondered why it is that rich people are so worried re: 'redistributive' transfers.  If you take a bunch of money from rich people and give it to poorer folks, they're just going to spend it and then it will go right back to the rich again, anyway.  

      So what's the problem?

      •  "Trickle-Up" economics: (2+ / 0-)
        Recommended by:
        mrkvica, dww44

        If you take a bunch of money from rich people and give it to poorer folks, they're just going to spend it and then it will go right back to the rich again, anyway.  

        Exactly. It's not as if a single mother scraping by on less than $20k/yr is going to take an extra $500 and call her broker!

        Al Qeada is a faith-based initiative.

        by drewfromct on Fri Oct 22, 2010 at 09:09:27 AM PDT

        [ Parent ]

  •  You can't argue with selfishness and greed (7+ / 0-)

    I have come to that conclusion. My plan is to start an aggressive savings plan - between 10 and 20% of my salary on top of my 457 plan. And buy land in Canada, just in case. I love what my country is supposed to stand for, but I just cannot abide greed and stupidity in such a large part of the country.

    My new bumper sticker: Palin-Satan '12

    by adigal on Fri Oct 22, 2010 at 05:56:29 AM PDT

  •  quantitative easing (1+ / 0-)
    Recommended by:
    drewfromct

    James- This is a great piece, thank you for posting.

    A somewhat related question... The fed is considering starting quantitative easing again.  If I understand it correctly, they put new $ into the economy by buying bonds and loans from banks. I assume, please correct me, that the $ comes out of the economy as the loans are paid off or the Fed sells the bonds.

    But they are injecting the $ by giving it to banks with the hope they will loan more of the $.  But we know they are not loaning the $, and we know that some portion of the $ is considered "profit" by the banks and their executives make a pile of $ from this.  

    Theoretically, the Fed could buy infrastructure bonds from states and local municipalities. Correct or no?

    The bonds should be cheap to free- the banks are getting nearly free $.  Payment could be delayed. Return to the whole economy would be substantial while putting people to work.  

    What are the barriers to doing this?

    •  clarify (0+ / 0-)

      I re-read your piece and realize that you did  mention quantitative easing, just not that exact term.  

      Why isn't the Fed injecting the $ towards a direct economic investment. Infrastructure?

      •  Well, the Fed... (0+ / 0-)
        ...basically does what it wants to do, which is prop up the banking system (lender of last resort) and make the banking sector, as a whole, 'profitable.'  It would have to be directed to spend the money on direct investment by Congress, and that doesn't appear likely any time soon.

        I'm not sure why the Obama administration hasn't recommended it, unless he was advised by Geithner, et al., to not interfere with the business of the Fed.

  •  Maybe we need a different tax structure (1+ / 0-)
    Recommended by:
    NearlyNormal

    altogether?  Given that your depiction of macroeconomics is accurate, it seems to me that an income tax would be a pretty indirect way of protecting the economy from too much financial investment and not enough economic investment.  After all, the very wealthy have a choice about how they invest their money, they could fund grants or no/low interest loans for entrepreneurs, or scholarship programs.  

    If the problem in a modern economy like ours is too much saving from too few people, the answer seems like it ought to be to tax savings.  It would finally provide an answer to the perennial conservative concern that the tax rate is too high and is retarding economic growth.  Only a conservative so radical as to be an anarchist would insist that any amount of government retards economic growth through the imposition of taxes.  Infrastructure counts for something, after all.  The appropriate way to fund a government would seem to be from that portion of a people's wealth that would otherwise be saved.  

    And this is why Republicans sell so well with the lower and middle classes.  Because we tax wages, income, sales and real property or assets, those with some, but relatively little of these things pay too much in taxes.  The government takes money from them that they would otherwise have spent, retarding their ability to economically grow.  So when Republicans cry "Cut Taxes!" they reply, "Hell Yeah!" with good reason, even though their taxes aren't cut by near as much as the very wealthy, and deficit spending and cuts in government services further retards their ability to grow.

    I fear, though, that much federal and state spending is misallocated, and that we're currently spending more than the excess savings rate can sustainably maintain.

    From such crooked wood as that which man is made of, nothing straight can be fashioned. -Immanuel Kant

    by Nellebracht on Fri Oct 22, 2010 at 06:05:34 AM PDT

  •  Breaking: The private sector has not (3+ / 0-)
    Recommended by:
    mrkvica, drewfromct, CoExistNow

    revived the economy, despite massive tax cuts and bailouts.

    Just where are all these private sector generated jobs hiding?

  •  Rethugs are in a bubble and need to 'man up'. (0+ / 0-)

    Some people believe that if they are doing well personally than most everyone is doing well and conversely if they are doing badly most everyone is also doing badly.
    In fact the country has been struggling for at least a decade and they ignored it.
    Just being rich doesn't mean you created ANY jobs.
    Actually the reverse because making more profit has meant eliminating jobs (aka productivity).

  •  My favorite sentence in this diary is (8+ / 0-)

    (Simply throwing more money at businesses [tax cuts and subsidies] when demand for their products has not picked up is a ridiculous waste of government dollars

    What a great way to turn the "throwing more money" meme back at them.

  •  It's very simple (3+ / 0-)
    Recommended by:
    mrkvica, drewfromct, CoExistNow

    The private sector isn't hiring enough.  The public sector needs to pick the pace up.  It's clear that it isn't a matter of "incentives".  Tax rates are low already; interest rates are ridiculously low.  Business is just not hiring enough and/or offshoring too many jobs.

    "The real wealth of a nation consists of the contributions of its people and nature." -- Rianne Eisler

    by noofsh on Fri Oct 22, 2010 at 06:16:06 AM PDT

    •  It's demand as James so masterfully pointed out. (0+ / 0-)

      No one is going to hire if people aren't buying. The gov't is trying to replace private sector demand until the private sector deleverages (saves) . With the private sector saving so much it's tough to see if the gov't can overcome the total savings going on in the private sector right now. James, how does the gov't overcome a situation that was caused by "funny money" (derivatives and securitized loans) when the amount of debt caused by these shenanigans is artifically, astronomically high?

      "It's getting late early" - Yogi Berra

      by buckshot face on Fri Oct 22, 2010 at 06:51:29 AM PDT

      [ Parent ]

      •  It could have been done... (0+ / 0-)
        ...how does the gov't overcome a situation that was caused by "funny money" (derivatives and securitized loans) when the amount of debt caused by these shenanigans is artifically, astronomically high?
        Back in Feb. 2009, I recommended that Congress create a Taxpayers' Bank that would serve all of Main Street's banking/credit needs (including refinanced mortgages on affordable terms) at the same time that the financial sector was allowed to experience the ultimate in Moral Hazard, a complete meltdown devoid of any government assistance.

        Hundreds of billions, if not trillions, of dollars of paper assets would have ultimately been written off if this solution had been pursued, but Main St. would have hardly noticed if Congress had immediately authorized the spending of 1-2 trillion dollars on infrastructure and human capital (education, health care).  We would have enjoyed full-employment and an economic boom at the same time that financial companies lost billions of dollars of paper assets.

        (Actually, if Congress had just spent the entire $700,000,000,000 of TARP on infrastructure and human capital, it would have saved the banks anyway, because those billions would have been put in banks all around the country, restoring their balance sheets, until that time when state and local and federal governments started writing checks to pay for their spending.)

  •  Great diary, James, thanks for reposting (4+ / 0-)

    I missed this the first time.  Your explanation is clear to me, and I'm a near-complete dolt when it comes to economics ;) .  

    Tipped, recced, and bookmarked for my 16 year old.  He's covering the Gilded Age in US History, and is quite aware of the parallels to today.

  •  right wingers (0+ / 0-)

    repeat what other people tell them... they don't like/will avoid (to) think(ing) for themselves ( various degrees of authoritarianism ) they celebrate ignorance....

    O'Donnell.... and Palin wave around the Constitution but never read it... but their 'followers' parrot every word they say.....

    Weather Modification: Technology will be made available to the leaders of major nations for conducting secret warfare. ~ Brzezinski

    by anyname on Fri Oct 22, 2010 at 06:26:09 AM PDT

    •  cognitive dissonance ~ confirmational bias (2+ / 0-)
      Recommended by:
      pontechango, drewfromct

      http://en.wikipedia.org/...

      Dissonance is aroused when people are confronted with information that is inconsistent with their beliefs. If the dissonance is not reduced by changing one's belief, the dissonance can result in misperception or rejection or refutation of the information, seeking support from others who share the beliefs, and attempting to persuade others to restore consonance.

      Dissonance can also lead to confirmation bias, the denial of dis-confirming evidence, and other ego defense mechanisms.

      ~~

      http://en.wikipedia.org/...

      Confirmation bias (also called confirmatory bias or myside bias) is a tendency for people to favour information that confirms their preconceptions or hypotheses regardless of whether the information is true. As a result, people gather evidence and recall information from memory selectively, and interpret it in a biased way. The biases appear in particular for emotionally significant issues and for established beliefs.

      For example, in reading about gun control, people usually prefer sources that affirm their existing attitudes. They also tend to interpret ambiguous evidence as supporting their existing position. Biased search, interpretation and/or recall have been invoked to explain attitude polarization (when a disagreement becomes more extreme even though the different parties are exposed to the same evidence), belief perseverance (when beliefs persist after the evidence for them is shown to be false), the irrational primacy effect (a stronger weighting for data encountered early in an arbitrary series) and illusory correlation (in which people falsely perceive an association between two events or situations).

      ~~~

      Smoking is often postulated as an example of cognitive dissonance because it is widely accepted that cigarettes can cause lung cancer, yet virtually everyone wants to live a long and healthy life. In terms of the theory, the desire to live a long life is dissonant with the activity of doing something that will most likely shorten one's life. The tension produced by these contradictory ideas can be reduced by quitting smoking, denying the evidence of lung cancer, or justifying one's smoking.

      An overarching principle of cognitive dissonance is that it involves the formation of an idea or emotion in conflict with a fundamental element of the self-concept, such as" "I am a successful/functional person", "I am a good person", or "I made the right decision." The anxiety that comes with the possibility of having made a bad decision can lead to rationalization, the tendency to create additional reasons or justifications to support one's choices

      Cognitive dissonance is an uncomfortable feeling caused by holding conflicting ideas simultaneously. The theory of cognitive dissonance proposes that people have a motivational drive to reduce dissonance.

      Weather Modification: Technology will be made available to the leaders of major nations for conducting secret warfare. ~ Brzezinski

      by anyname on Fri Oct 22, 2010 at 06:39:57 AM PDT

      [ Parent ]

  •  Nice, thoughtful diary (4+ / 0-)

    but here's the short version: Unless your brother consistently earns more than $250,000 per year, any time he votes for a Republican he is voting against his own economic self-interest.

    And when you destroy your own economic self-interest, you cannot use your resources to benefit anyone else.

    One of the advantages of being disorderly is that one is constantly making exciting discoveries.--A.A. Milne

    by Mnemosyne on Fri Oct 22, 2010 at 06:33:16 AM PDT

  •  James you have infinite patience (0+ / 0-)

    Steve may be suffering from a scarcity conscience. Some of the symtoms:
    Living in denial
    Easily manipulated
    Ego-sickness

    Can't feel sorry for Steve, he has James for a brother and mentor.

  •  Very clearly stated (4+ / 0-)
    Recommended by:
    yuriwho, drewfromct, James Kroeger, Matt Z

    Some comments:

    Financial investments are investments in the paper (or virtual) economy.

    Economic investments are investments in the real economy to actually create more workplaces or to finance in advance the expansion right now of jobs.

    Capital gains tax cuts are realized when the financial investment is sold, which might not be for years.  It is exactly the wrong tool to use in a demand-driven downturn because it provides incentives to churn the paper (financial investment) markets to capture the tax cut.

    50 states, 210 media market, 435 Congressional Districts, 3080 counties, 192,480 precincts

    by TarheelDem on Fri Oct 22, 2010 at 06:44:02 AM PDT

    •  Absolutely right (0+ / 0-)

      Capital gains tax cuts are realized when the financial investment is sold, which might not be for years.  It is exactly the wrong tool to use in a demand-driven downturn because it provides incentives to churn the paper (financial investment) markets to capture the tax cut.

      Thank you for adding that.  Sort of makes you want to enact a Tobin tax, eh?

  •  He's the non-academic brother, right? (0+ / 0-)

    ------
    The Tea Party -- Mongering the fear that someone will take away Medicare and Social Security and replace them with government-run programs.

    by Alden on Fri Oct 22, 2010 at 06:44:51 AM PDT

    •  He's the non-academic brother, right? (0+ / 0-)

      He'll never read anything that long.  And even if he did, he wouldn't follow it. Impatience with ideas that don't fit into a Fox News sound bite is one of the main reasons he's a Republican in the first place.  Older brothers who know better is the other.

      (Keyboard went wild on that earlier attempt, didn't get to finish the post.)

      ------
      The Tea Party -- Mongering the fear that someone will take away Medicare and Social Security and replace them with government-run programs.

      by Alden on Fri Oct 22, 2010 at 06:48:39 AM PDT

      [ Parent ]

  •  God knows I'm no economist, but...... (12+ / 0-)

    Unless you're a high income wage earner like a doctor working for someone else and only pulling a salary (which is patently ridiculous, I know)who decides to take his after tax income and open a motorcycle shop, the Republican argument is ridiculous.  

    Anyone expanding or starting their business uses before tax dollars.  

    We have a very small business and yes, we incorporated.  If I got sick and my husband had to hire someone to replace me, he would do that with before tax dollars, not his profit from the business.  

    I am now doing a consulting job for a very wealthy man.  Yes, I guess you could say he's created my job, but he pays me with before tax dollars.  And when I think of the people he could employ instead of buying million dollar antiques, it is outrageous.  That's what he does with his after tax dollars.  

    •  That's an excellent point (6+ / 0-)

      Real business investments are expenses that can be written off, so the tax rate doesn't matter at all.

      The real Republican argument is more abstract - that all this money in the private sector will get people spending. It sounds plausible at first blush. It also sounds plausible that the sun revolves around the earth - I mean just look at it!

      Freedom isn't free: Pay your taxes!

      by walk2live on Fri Oct 22, 2010 at 07:55:27 AM PDT

      [ Parent ]

  •  Great diary and such a scary coincidence (3+ / 0-)
    Recommended by:
    drewfromct, FlamingoGrrl, Matt Z

    I had a dream last night that I was at a townhall meeting with the President (even though I couldn't see him).  There was a lot on my mind but one in particular: taxing the rich.

    I asked him, "Mr. President, I feel that the wealth inequality now is so great that we are returning to the Gilded Age.  To pay for more WPA-type programs, could we please go back to effective tax rates under FDR?  

    He thought for a second and later responded (although I couldn't hear that part).

    All this is is trickle-up economics that, as you said, benefits the rich in the long-run too.  

     

  •  This would be my response: (4+ / 0-)

    Taxes are presently at their lowest in decades.  Prosperity has flourished with much higher taxes.

    The economy is not stagnant because of a lack of money.  Corporations are sitting on vast cash reserves right now, because there is not enough demand to justify their ramping up and hiring more employees.  Why would you hire employees to produce a product or service that lack a willing and able buyer?  Lower taxes on corporations would not have any effect other than to increase those cash reserves
    at the expense of the very people who would be those corporations' customers.

    Taxes were as low as they are now when George Bush presided over the worst economic recession since the great depression.  If low taxes were the sole catalyst for economic growth, we should have been swimming in jobs instead of losing 700,000 a month.

    As long as all businesses are paying the same taxes so that competition is not disrupted (to the extent that the mega-corporations have not already destroyed it by other means), then there is no disincentive to business, at a time when corporations are not starved for cash in the first place.

    The idea of pumping money into the private sector is not a bad one, it just needs to be applied in a rational manner.  Given that corporations have gotten fat by exporting American jobs to cheap labor markets, it makes more sense right now to create tax incentives that encourage businesses to hire Americans.  Not only does that lower the taxes of businesses, but it puts Americans to work, strengthening demand to buy the products/services businesses produce.

    It also makes sense, rather than to lower taxes at a time when businesses are not in need of cash, to instead invest that money in rebuilding infrastructure which has been allowed to deteriorate.  And remember, this money is spent purchasing the products and services produced by the private sector.  The money used to rebuild public infrastructure will have to be spent sooner or later anyway.  Now is the perfect time, when private businesses can be put to work on public projects which hire American workers, and once again, strengthen demand.

    As for the bromide that raising taxes on incomes over $250,000 will hurt small business and cause them not to hire, a couple of points.  

    Most small businesses would marvel at the idea that a company with a NET, TAXABLE income after all deductions, depreciation and other expenses - would dare call itself a small business.

    Most small businesses who create employment do NOT have this much taxable income.

    Many wealthy investors are using S corporations to shield income.  They count as small businesses in the statistics, but they do not create employment.

    In short the idea is a myth advanced by the wealthy to retain all their wealth at the expense of the middle class.

    That's my answer.

    "If I owned hell and Texas, I'd live in hell and rent out Texas" - Union General Phillip Sheridan

    by ZedMont on Fri Oct 22, 2010 at 06:59:03 AM PDT

  •  Great diary (1+ / 0-)
    Recommended by:
    mrkvica

    I boil things down in a few different ways. When such questions come up, I talk about the concept of growth.

    What is growth?

    Your brothers' sales business is likely not an enterprise that produces or enables real growth.

    Growth, for me, is simply the improved efficiencies that result in an increased standard of living. New advances in technology that improve communication, for instance, are a form of growth. The internet, for instance, is a growth driver. But most of our economy, based as it is in services and consumer products, is not actually growth oriented. It doesn't grow the pie and improve efficiencies in living.

    So, to reduce it even further:

    Growth: Greater efficiencies
    Wealth: Standard of living
    Money: Distribution system for wealth

    Too often, people think money is something hard and reliable, something they deserve. They went to school, they got a law degree, therefore they DESERVE: $100k+.

    Salaries are fungible, and ultimately they are a product of the societies ability to produce greater efficiencies in the standard of living.

    There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

    by upstate NY on Fri Oct 22, 2010 at 07:03:06 AM PDT

  •  If this point is true... (0+ / 0-)

    Fact 1: Virtually all jobs in the economy are ultimately dependent upon SPENDING.  Almost all of the money that ends up in paychecks or profit margins can be ultimately traced to the expenditure decisions of consumers, firms, or governments.  When aggregate spending drops, jobs disappear.  That's what a recession is: a drop in spending (GDP).

    Then how do we get out of a recession without propping up unsustainable consuming levels? In other words, if propping up the housing market keeps homes unsustainably high where we're always having to inject more money to keep values there, how or even why do we want to sustain levels of consumerism that are unhealthy for the planet, among other things? Do we always have to spend our way out of a recession?

    •  Actually, yes... (0+ / 0-)
      We do always have to spend our way out of a recession.  The only way it is possible to create jobs in a market economy is through increased spending.

      Now after the decision is made to increase aggregate spending, important choices need to be made on what the money is going to be spent on.  I recommend economic investments, investments that actually either improve our standard of living (more teachers, cleaner environment, expanded health care) rather than economically wasteful types of spending (like war, bailouts of financial corporations).

      For those who are especially concerned about how the planet struggles with improving standards of living around the world, I recommend focusing your efforts on shrinking the global population over time.  In other words: birth control.  It will ultimately be necessary anyway, if we want to enjoy a high standard of living, given the planet's limited resources.

      IMO, when it comes to the environment, there really isn't any other issue.  You can recycle and conserve and ration all you want, but eventually, if the population continues to grow, humans will have to start intentionally limiting the size of their families.  In order for that to happen, people---and cultures---will need to develop new values, like limiting the number of children that couples bring into the world and focusing on the welfare those already here.

      If it will be OK for us to limit/shrink the population when it gets to 50 billion, then we might as well start doing it now, to improve the quality of life of all those who are currently here.

  •  Angel Investors invest because they expect (0+ / 0-)

    high returns. More than anything, the value of the stock market determines how much money they have to invest in startups. Right now, stocks are high again. If anything raising the marginal rates on high income earners should stimulate angels to invest more in economic investments since the angels would see less benefit from just keeping their money in the markets (making interest, dividend & capital gain income but little economic stimulus) vs investing directly in companies (high economic stimulus) with the chance at high capital gains.

    "There is no theorem that says (all) the interesting things in the world are conserved, only the total of everything." Richard Feynman

    by yuriwho on Fri Oct 22, 2010 at 07:10:06 AM PDT

  •  Rec'd and Tipped on behalf of my looney (3+ / 0-)
    Recommended by:
    DFJtoo, James Kroeger, Matt Z

    Republican siblings.

  •  How much more will he pay? (2+ / 0-)
    Recommended by:
    mrkvica, drewfromct

    An LTE in our paper this morning pointed out that:

    1. The additional tax is ONLY on the net amount over $250,000 (taxable income after deductions, etc.)
    1. The present tax is 35% on that amount
    1. The return to the old tax would be 39%.

    That is 4% more than they are paying now, and it is on the amount over $250,000. So if they made $260,000, they would be paying an additional 4% on $10,000. If my math is right, that is an additional $400, or a little more than $1/day. Hardly worth squealing about!! It's almost margin of error.

    This amount could hardly discourage a small business from hiring a new person. Most small businesses do not net $250,000. And if they do and want to avoid the additional tax, they could hire someone which would increase their deductions and put them back under the $250,000.

    "The word bipartisan usually means some larger-than-usual deception is being carried out." George Carlin

    by lynneinfla on Fri Oct 22, 2010 at 07:24:47 AM PDT

  •  Very interesting... (0+ / 0-)

    As I am no econ major by any stretch, this is an interesting explanation. I did have one question though: The difference in definitions between economic and financial investments. Is this a distinction made within the practice of economics? Is it a distinction that is made in economic law? Both? More?

  •  I can afford to pay more in taxes, but......... (1+ / 0-)
    Recommended by:
    DBunn

    Sunday article excerpt in New York Times by
    N. Gregory Mankiw, who was chairman of President George W. Bush's Council of Economics.....

    "Why now would I turn down money making opportunities."

    HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

    By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.

    http://www.nytimes.com/...

    Daniel Ellsberg - "It was always a bad year to get out of Vietnam."

    by allenjo on Fri Oct 22, 2010 at 07:26:27 AM PDT

    •  His argument is ridiculous and disingenuous... (4+ / 0-)
      Recommended by:
      m16eib, drewfromct, DBunn, allenjo

      It almost entirely relies on considering the estate tax, and comparing a 35% corporate tax rate to a world in which there is no corporate income tax...

      So, he says that the extra $1,000 he makes now would grow to $10,000 by the time he dies,

      vs.

      Some bizarre universe where the corporation where he invests is so burden by taxes that his investments suck. Plus he'd get hit by the estate tax - which he probably wouldn't unless he's a LOT more rich than he lets on (and even then, it'll only affect a marginal portion of his income).

      It's such a thin argument, and obscures the main point at hand - a 2-3% raise in the top marginal income rate.

      Freedom isn't free: Pay your taxes!

      by walk2live on Fri Oct 22, 2010 at 07:48:17 AM PDT

      [ Parent ]

      •  yes, a ridiculous right winger viewpoint from (0+ / 0-)

        that bizarre universe that considers the end of the Bush temporary tax cuts as now the Obama tax increase.....

        Daniel Ellsberg - "It was always a bad year to get out of Vietnam."

        by allenjo on Fri Oct 22, 2010 at 08:09:22 AM PDT

        [ Parent ]

    •  That explains a lot (4+ / 0-)
      Recommended by:
      mrkvica, snazzzybird, Catesby, allenjo

      ... about why the Bush economy doesn't deliver for the other 99%. Consider these propositions:

      Dr. Mankiw could do the work anyhow, because even at the higher tax rate it still brings him $2K he wouldn't otherwise get.

      Dr. Mankiw could do the work anyhow, because if he's being taxed at those rates he already has plenty of money, and the work presumably has intrinsic merit.

      If Dr. Mankiw doesn't need the $2K, then he certainly doesn't need the $10K, and the work should go to someone who does need it.

      If Dr. Mankiw feels the work does not have intrinsic merit, then we didn't need his article in the first place, and the world is no poorer for it not being written.

      Alternatively, if Dr. Mankiw feels the work does have intrinsic merit, but that's not sufficient motivation for him, then one must question the value of whatever he would have written. He appears to be over-concerned with money accumulation as a value in itself, to the exclusion of other values such as doing the right thing. Which is precisely the mind-set that got us into our present adverse circumstances in the first place :)

  •  I am glad I am not the only family (7+ / 0-)

    with this problem.  My Dad is hard core, nearly Tea Party-ish these days.  Recently, I had a discussion with him regarding the futility in continuing deployments in Iraq and Afganistan and the comparisons to his experience in Vietnam (he was all for this deployment and W at the time).  Again and again he agreed with things I said and finally looked at me and said "gosh, you sound like a Republican!" and I promptly replied "no I am a strong Democrat that is pro-military, there is a HUGE difference"

    He failed to realize how many of his beliefs were closer to "Democratic" views.  Funny and sad at the same time.  

  •  I'm rich; tax me more (8+ / 0-)

    Here is an opinion piece from the LA times a couple months ago. It makes a similar argument, but it comes from someone who would actually be paying these taxes.

    I'm rich, tax me more

    I think this kind of thing can hold a lot weight. I mean, it's easy for someone who wouldn't be paying to make the case, but here's someone who would be paying, and is just the kind of venture capitalist your brother is talking about.

    Bottom line: companies and rich people make investments based on opportunity, not if they have 2-3% more money on a given date. If they don't have enough money, and the opportunity is good, they'll raise or borrow the money. If there is no opportunity, they'll sit on the money.

    Also, note my tag line...

    Freedom isn't free: Pay your taxes!

    by walk2live on Fri Oct 22, 2010 at 07:32:46 AM PDT

  •  He's got it backwards (7+ / 0-)

    Higher taxes free up venture capital, because when the money is used as capital, the spender avoids the higher taxes.

    "When I was an alien, cultures weren't opinions" ~ Kurt Cobain, Territorial Pissings

    by Subterranean on Fri Oct 22, 2010 at 07:37:38 AM PDT

    •  Subterranean - you lost me (0+ / 0-)

      If you have higher taxes on income how does it free up venture capital? Venture capital investments are not a tax deduction. They are eligible for long term capital gains treatment, but the initial investment comes out of your after tax savings.

      "let's talk about that"

      by VClib on Fri Oct 22, 2010 at 09:39:31 AM PDT

      [ Parent ]

      •  As I understand it (0+ / 0-)

        The scenario is a business owner is faced with either giving himself a raise, or plowing the money back into his business.  When the upper income brackets are well over 50%, the owner is more likely to forego the raise and invest more of the money in his business, which translates into job security for him rather than instant cold cash.

        I don't know how the specifics work out, but this is based off what I've read from reputable economists.  No links, just something I've absorbed over the years, and yes it's possible that I'm mistaken.  

        "When I was an alien, cultures weren't opinions" ~ Kurt Cobain, Territorial Pissings

        by Subterranean on Sat Oct 23, 2010 at 08:01:20 AM PDT

        [ Parent ]

        •  I don't buy it (0+ / 0-)

          As someone who has started multiple companies, been an institutional venture capital investor and been very active in mentoring and funding first time entreprenuers, I just don't buy the notion that higher taxes create job growth. In my experience when income and capital gains tax rates are low, it is easier to find investors for startups. There may be many good reasons to raise the top marginal income tax rates, but I don't think job growth is one of them.

          "let's talk about that"

          by VClib on Sat Oct 23, 2010 at 08:08:11 AM PDT

          [ Parent ]

          •  Why so much more growth pre-80s (0+ / 0-)

            when income tax rates for the top brackets were higher?

            "When I was an alien, cultures weren't opinions" ~ Kurt Cobain, Territorial Pissings

            by Subterranean on Sun Oct 24, 2010 at 09:17:16 AM PDT

            [ Parent ]

            •  Many investments were tax shelters (0+ / 0-)

              Prior to the Tax Reform Act of 1986 (TRA86) there were many investments available that provided tax shelter. That is why after the TRA86, which lowered the top marginal rate from 70% to 28% and removed all of the tax shelters, the effective rate for most of the top 1% went up, not down. The tax shelters were available for investing in research and development, real estate, oil & gas, movies, and many other sectors. The tax sheltered investments had two major impacts, they lowered the effective tax rate of the top 1% to less than half the top marginal rate and created a lot of economic activity and job growth in the US.

              "let's talk about that"

              by VClib on Sun Oct 24, 2010 at 11:50:07 AM PDT

              [ Parent ]

          •  Something you said... (0+ / 0-)

            I just don't buy the notion that higher taxes create job growth.

            You may not buy it, but it's true.  You have completely ignored what happens when the government gets that money.  It's going to SPEND it.  That spending creates jobs, directly.  If the spending is on real economic investments, like infrastructure or human capital, then the spending not only creates jobs, it also a pure investment in future economic growth.

            As I pointed out in my essay, only a small fraction of the money that the government gets from higher taxes on rich people would have been spent on start ups if the money had remained in the hands of rich taxpayers.  It is useful spending that the government could easily replace, at a far smaller cost, through loan guarantees or even direct loans (as in education loans).

  •  More or less in the middle-class here (2+ / 0-)
    Recommended by:
    m16eib, James Kroeger

    But if letting the tax cuts expire means the rich start paying more, I'm for it.

    It isn't shameful to vote your own self-interest instead of the interests of multi-national corporations--iceman

    by fumie on Fri Oct 22, 2010 at 07:42:08 AM PDT

  •  Dammit why doesn't DKos have a printer-friendly (5+ / 0-)

    format?  This sucker's going in the chango family library.

  •  Probably one of the most useful posts (10+ / 0-)
    I've ever read. Thank you, thank you thank you.

    Not only is it useful in refuting Republican economic claims it clears it up for me personally.

    Tipped and Rec'd and I wish I could do it a thousand times over.

  •  I love this: (5+ / 0-)

    It's a solution that not only makes the non-rich better off, in real terms, but it also makes the rich better off, in real terms.

    It's a point I once made, with moderate success, to an upper middle class Republican friend of mine. Actually, I was talking about how having a strong, healthy, educated middle class benefits everyone, not just the middle class. But I think some of the underlying premises (for example, that none of us operates in a vacuum) are the same.

    •  That is the big point (4+ / 0-)
      Recommended by:
      WisVoter, m16eib, James Kroeger, Matt Z

      ... that we need to internalize and propagate: higher marginal tax rates benefit the rich.

      Which is better-- to be the richest person in a stable society where everyone respects each other, or even richer than that, but in an unstable society where people will cut your throat if they think they can get away with it?

      Which is better-- to be the richest guy on a dying planet, or a less-rich guy (but still richer than anyone else) on a healthy planet?

  •  Request permission to post at my place... nt (5+ / 0-)

    'If you want to be a hero, well just follow me.' - J. Lennon

    by Clive all hat no horse Rodeo on Fri Oct 22, 2010 at 07:57:22 AM PDT

  •  Here is my much shorter argument... (7+ / 0-)

    The wealth aren't interested in investing, they are interested in wealth preservation.  The desire for wealth preservation is what lead to the artificial market of real-estate speculation, derivatives, credit default swaps and generally trading paper around with nothing underneath it.  This does not help the economy as a whole, and even if it wasn't based on fraud, it is still detrimental because it sucks capital out of building factories, capitalizing the next biggest in technology, repair infrastructure, etc.  The government does not concern its self with wealth preservation - it needs to spend the money it has and it needs to do it either on employing people or infrastructure.  Those are capital investments that have multiplicative effects in the economy.

    "Nothing great was ever achieved with out enthusiasm." -Ralph Waldo Emerson

    by RichM on Fri Oct 22, 2010 at 08:05:40 AM PDT

    •  Thomas Geoghegan (1+ / 0-)
      Recommended by:
      James Kroeger

      a labor lawyer, wrote an article that appeared in Harper's magazine in April 2009. He was subsequently interviewed on Marketplace on Public Radio, which I just happened to catch.  So, long ago, I bookmarked his interview and continue to use it when the need arises.  Perhaps he's predisposed to be against the financial sector, given his occupation, but I worked in a branch of a major national brokerage/investment firm from 1974 to 2002 and I witnessed everything he references.  I happen to believe he is correct. Plus, to be honest, it's not so esoteric that I have to spend a lot of time figuring everything out.  It just all somehow rings true and logical to me.

      From the beginning of the dawn of human civilization up until the Reagan era, there were always caps on the interest rates that banks could charge. But even in our own modern era, economists from Adam Smith to John Maynard Keynes all wrote about how it's important to keep returns to the financial sector low so that you don't have money gushing out of manufacturing and the areas of our economy that make us globally competitive, that feed on technological developments, and going into well, what is kind of a parasitical, usurious form of capitalism, which is the finance sector. That's what I was basically trying to get at -- that when we deregulated interest rate caps and let interest rates that had been capped historically in our country at nine percent, eight percent, seven percent even, to go as high as 20, 25, 35 percent on credit cards, we really gave the financial sector the chance to suck capital out of manufacturing. That's what has brought about this catastrophe.

      Was Infinite Debt to Blame?

  •  Wow.....great article! (4+ / 0-)
    Recommended by:
    James Kroeger, DBunn, Matt Z, MA Mom

    I am really impressed with how well you were able to marshall all that info into a form that all of us could comprehend.

    Thanks ever so much!!

  •  Excellent diary (4+ / 0-)
    Recommended by:
    m16eib, James Kroeger, Matt Z, MA Mom

    I especially appreciate the discussion of the real cost to the rich of higher marginal tax rates, which is effectively nothing. They do not lose their place in the rankings of who is richer than whom. They don't even lose access to high-status goods, since prices in that market are set by the bidders, and all the bidders are paying the same higher tax rates. Worst case, they might have to settle for a 75-foot yacht instead of a 150-footer-- but they'll still have the biggest yacht in the harbor, which I believe was the real point in the first place :)

  •  Thanks for a wonderfully clear diary. (5+ / 0-)
    Recommended by:
    m16eib, James Kroeger, DBunn, Matt Z, MA Mom

    As I have tried to explain to a number of people both online and in person, when I was a struggling small business owner, every decision to spend money was driven only by the economic demand placed on the business. It would have been the height of foolishness to do something based on an incentive, if it was not a wise expenditure based on customer demand. And conversely, avoiding a needed expenditure just because it would have tax consequences is also absurd.

    I am sure there are a number of decisions that stand on the border, when tax considerations are an important part of the mix, but I would bet they are a very small portion.

  •  Excellent diary (4+ / 0-)
    Recommended by:
    m16eib, James Kroeger, DBunn, Matt Z

    Honestly, one of the best diaries I've ever read here. Thanks so much for taking the time to write such an informative and useful email to your brother, and for sharing it with us.

  •  I have a brother Ron also, only he's a DEM (3+ / 0-)
    Recommended by:
    wishingwell, m16eib, Matt Z

    and working the election polls.  He retired almost six years ago and does not have insurance.  Now he might be able het insurance while waiting for Medicare in five years.  My other brother Keith is a christian and like Sarah Palin because she's a "christian".  We had some heated arguments during the 2008 elections.  He does not like Obama because he's not christian enough for him.  I made up my mind to not comment anymore to he's remarks.  The other day I told him I was canvassing for Nov Dems and his wife said one of her friends had a chance meeting with Obama in the crowd and said "God is Lord" and Obama told him to pray for him.  Of course my brother made a remark "than why won't be say the word 'Creator' when citing the Declaration of Independence.  He saw this on a Youtube video where some teabagger is complaining he left out the word 'creator'.  I was watching a advertisement and it also left out the word 'creator'.  So unless someone is a christian and says God or Jesus, he'll vote for them even it they start wars, bankrupt the country, lie, cheat, steal and kill --like Bush or Palin.

    •  It is hard to see how you reach that segment of (3+ / 0-)
      Recommended by:
      wishingwell, mrkvica, Matt Z

      the electorate who base their vote on how "Christian" a candidate is.  They do not respond to rational argument but base their vote on supernatural forces that they believe control the universe.  Unless you pander to them by pretending to adopt their world view, like many Republicans do, there is no argument that you can make about economic justice, social equity, or the place of the US in the world that will trump their supernatural belief in simplistic Christianity.  

      And it feels like I'm livin'in the wasteland of the free ~ Iris DeMent, 1996

      by MrJersey on Fri Oct 22, 2010 at 09:28:25 AM PDT

      [ Parent ]

  •  Sounds suspiciously like progressive taxation (5+ / 0-)

    "The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state."
    Adam Smith - the father of Capitalism (OR the founder of free market economics)

    Adam Smith The same guy who sounds suspiciously like he is talking about a living wage and NOT a minimum wage:

    "Servants, labourers, and workmen of different kinds make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged."
    Adam Smith

    Freakin' commie father of capitalism and free markets giving an invisible hand up to the poor with living wages and redistributing the wealth (and encouraging social change) with taxes just because it is good for everyone.

    But I suspect you knew that already... :)

    ePluribus Media
    Collaboration is contagious!

    by m16eib on Fri Oct 22, 2010 at 08:28:50 AM PDT

  •  Excess Liquidity (8+ / 0-)

    You should add a section on the term "Excess Liquidity" which is thrown about a lot these days in economic discussions.  Essentially a global pool of excess liquidity has been chasing assets around the globe for several decades creating a series of rolling asset bubbles. Leading to an increasing frequency of collapsed bubbles and financial crises...(third world debt, tech bubble..housing...Peso crisis etc...)  Really all excess liquidity amounts to is excess savings of the wealthy.  If that money was instead put into higher wages, it would circulate through the economy, which would create greater economic security for everyone including the wealthy business owners.  Money is like oil lubricating an economic engine...Excess savings (excess liquidity) is like oil stuck in the bottom of the oil pan and not lubricating the engine.  

    My favorite trick is to ask folks which decades of the 20th century they would like to return our economy to.  The greatest percentage will cite the 50s, an era of sustained economic growth, and generally a good feeling about the nation.  Top tax rates throughout the fifties were 91 - 92%.

    •  Buffalo - tax rates of 90% (0+ / 0-)

      Discussing high marginal tax rates isn't really helpful because it distorts the taxes that people actually paid. It is important to remember that when marginal rates were high, above 50% and all the way to 90%, there were legitimate, legal, tax shelters with good economics that were available. The top 1% had effective tax rates of less than half the top marginal rate. That was all changed in the Tax Reform Act of 1986 which lowered the top marginal rate from 70% to 28%, but actually raised the effective tax rate on the top 1% by eliminating all of the tax shelters. In fact, the highest effective rate of tax for the top 1% was Bill Clinton's top rate of just under 40%.

      "let's talk about that"

      by VClib on Fri Oct 22, 2010 at 09:35:38 AM PDT

      [ Parent ]

  •  Great letter (4+ / 0-)
    Recommended by:
    m16eib, James Kroeger, Matt Z, Kharafina

    I don't have a business degree or any formal education in economics, so I love when I read articles like this which can explain these complex ideas in ways the I can understand.  
    One thing I have argued with conservatives about is this false idea that when the government taxes us that somehow that money just disappears and is gone forever.  As you have said in this article it is much better for the government to spend that money than for it to sit in some wealthy person bank account or in the stock market.  We can have plenty of debates about the spending priority's of our government, but to attack all spending like the government was just throwing the money on a bonfire is false.  In this economy even wasteful spending is still putting money into circulation.

    Patriotism is the last refuge of a scoundrel. - Samuel Johnson

    by tkwasny on Fri Oct 22, 2010 at 08:34:03 AM PDT

  •  So glad this made the rec list (4+ / 0-)
    Recommended by:
    m16eib, stagemom, James Kroeger, Matt Z

    I rec'ed it the other day when you posted it the first time, and thought it was the best thing I'd read in weeks ... and was totally flabbergasted when it disappeared without making the RL.

    Thanks for the persistence!

    If you don't stand for something, you'll stand for anything.

    by Keith Pickering on Fri Oct 22, 2010 at 08:45:46 AM PDT

  •  Wish this could stay at the top of the rec list (4+ / 0-)
    Recommended by:
    m16eib, stagemom, James Kroeger, Matt Z

    for the weekend.  

    Poverty is a weapon of mass destruction. Dennis Kucinich

    by keeplaughing on Fri Oct 22, 2010 at 08:54:19 AM PDT

  •  Excellent, and there is proof as to (5+ / 0-)

    the effect of these taxes. When they were put in place in 1993 we surged out of recession and saw the greatest period of extended growth in history. When the taxes were lowered in 2001 and 2003 emerged from a recession and saw the most anemic post recession growth in our history.

  •  Or just follow German's lead (0+ / 0-)

    Truth forever on the scaffold, wrong forever on the throne. - James Russell Lowell

    by Deep Harm on Fri Oct 22, 2010 at 09:14:22 AM PDT

  •  trickle down economics have never worked (5+ / 0-)

    the rich just get richer and the poor get poorer and the middle class just keeps getting squeezed smaller and more into the poor column

    the 3 1/2 million inheritance tax free  covers 98% of the nation  most people don't have those kinds of estates to leave their kids  if they have  4 kids and can leave each of them  3.5 million  tax free  that is a lot of money  few people ever see it

    when I started working my annual salary was 4,000 a year   when I became disabled it was 70,000 annually

    now on average most people will make a million dollars every 20 years   which means they will earn and probably spend 2.5 million before they even retire

    life has changed and with the loss of the manufacturing jobs fewer Americans will have these  type of job opportunties and the same levels of compensations

    no one should be voting for Republicans  the TEA party belongs to the Koch brothers  as the NY times showed 45 entities contributed most of the millions to the Chamber of Commerce  that they are using for the 2010 election cycle   how much are they going to spend for the next Presidential race  along with Karl Rove and the Republican Governors Association as we know that many donors gave their money to  Haley Barbour rather than the RNC and Michael Steel this year  after  his many missteps  the last being the  bondage bar in Hollywood

    R's do not care about average Americans and anyone voting for them is voting to become poor and making companies the real rulers of America  not even the Military Industrial Complex is in as deep as the Koch brothers and the Chamber of Commerce and other uber rich donators   follow the real money  forget the RNC  follow Karl Rove and the Chamber of Commerce    there are the real enemies of middle class America

  •  Rich are only ones with enough money... (6+ / 0-)

    ...left to pay taxes at this point--yet they still want to believe they somehow are necessary for the survival of the less well to do--even though facts have proven otherwise:

    In the 1950’s the corporate tax rate was much higher

    "In the 1950s, the corporate income tax brought in, on average, one of every four dollars in federal tax revenues. By the 2000s, however, it raised just one of every 10 tax dollars.

    The shrinking share of corporate taxes was made up by an increase in payroll taxes to fund social insurance and retirement programs. Excise and other taxes—such as fuel taxes, phone taxes, etc.—shrank as well over the last 60 years, while the individual federal income tax rose slightly, from an average of 43% of total federal revenue in the 1950s to 46% in the 2000s (see chart)."

    So, in the 1950’s the corporations managed not only to use their profits to pay a significant share of  the US tax burden, but they managed to pay enough wages to American workers to fuel  prosperity in the US.

    However,  in the decades since then, corporations have decided that they apparently don’t care much about prosperity in the US, or about the American worker either.  It seems that no amount of profitability is quite enough for them.  

    So, the current situation is that the tax burden has shifted from the corporations to the individual—and the individuals can’t seem to come up with enough money—considering the fact that so many of them no longer have jobs—courtesy of corporations shipping jobs overseas.  The rich can complain about having to pay taxes—but at this point, they’re the only ones with any money left to pay them.  

  •  "Lower taxes free up venture capital... (0+ / 0-)

    ...which creates jobs."

    What planet is he living on? VCs don't get their money out of their own piggy bank. They get it by going to places that have huge piles of money, like big retirement plans and insurance companies that are looking for places to invest their resources. The problem right now for VCs is not lack of cash, it's lack of good new ventures to invest in. And that's because (ta-da!) too much money is sitting on the sidelines, or in Republican brother's money bin, instead of being spent on goods and services.

    No, the waitress isn't flirting with you. It's her job to be nice to her customers.

    by DtheO on Fri Oct 22, 2010 at 09:32:26 AM PDT

  •  Helpful reading. Brain science. (1+ / 0-)
    Recommended by:
    aisling

    http://www.guardian.co.uk/...

    Progressives, he shows, have been suckers for a myth of human cognition he labels the enlightenment model. This holds that people make rational decisions by assessing facts. All that has to be done to persuade people is to lay out the data: they will then use it to decide which options best support their interests and desires.

    SNIP

    Our social identity is formed by a mixture of values. But psychological tests in nearly 70 countries show that values cluster in remarkably consistent patterns. Those who strongly value financial success, for example, have less empathy, stronger manipulative tendencies, a stronger attraction to hierarchy and inequality, stronger prejudices towards strangers and less concern about human rights and the environment. Those with a strong sense of self-acceptance have more empathy and greater concern for human rights, social justice and the environment. These values suppress each other: the stronger someone's extrinsic aspirations, the weaker his or her intrinsic goals.

    We are not born with our values. They are shaped by the social environment. By changing our perception of what is normal and acceptable, politics alters our minds as much as our circumstances.

    Media Reform Action Link http://stopbigmedia.com/

    by LNK on Fri Oct 22, 2010 at 09:48:13 AM PDT

  •  My millionaire brother should read this. (2+ / 0-)
    Recommended by:
    James Kroeger, Noamjunior

    I'm poor, drive a '94 van, live cheaply on SS. I lost house and business due to illness and disability.

    He's a self-made millionaire entrepreneur. No kidding. And yet, I feel sorry for him since he's not happy despite the Jag and the Bentley.

    Our unemployment crisis could be cured very quickly if we had the intellectual clarity and political will to act. ~ Paul Krugman

    by Gorette on Fri Oct 22, 2010 at 09:50:51 AM PDT

  •  infrastructure bonds (0+ / 0-)

    flymice earlier asked if there was anything stopping the Fed from buying infrsastructure bonds from state and local governments.  If they got the same rates the banks are getting that would be a really cheap source of funds. Our infrastructure surely needs the work.  I also would like to know if anyone knows if this is workable?

    As long as I wake up breathing everything else is a bonus. Sometimes not much of a bonus but still a bonus.

    by pirate1 on Fri Oct 22, 2010 at 09:53:12 AM PDT

  •  thank you for the explaination, james (1+ / 0-)
    Recommended by:
    James Kroeger

    It is so good to have someone easily explain the myth and where it is at and how it is used.
    the financial v the economic is something I learned from you and explains where most likely the bulk of the people are misled.
    And how the gop talking points can twist that to make it conventional wisdom for the country.
    thank you for informing and educating all of us

    •  You're quite welcome... (0+ / 0-)

      A number of comments have lamented the length of the 'explanation', yearning for a shorter synopsis.  I've been pointing out that there is a certain target audience for whom this lengthier tract is intended.  Primarily those who have some education, some basic exposure to maybe Econ 101.  This group is a key to getting complicated explanations disseminated to a broader audience.

      Appeals to the less-informed public are important and they need to be pursued, but people who have some education need the kind of explanation I'm offering, if for no other reason, to give them confidence in responding to the specious arguments that Republicans trot out.

      It is good to see from the responses that many of those in the target audience are Dailykos regulars.  I'm glad to see that it has helped as intended.

  •  Another thing I want discussed (1+ / 0-)
    Recommended by:
    James Kroeger

    Big banks seized control of the economy in a new way when they created Mortgage Electronic Registration Systems. Their manipulation was vertically integrated, with manipulated appraisals at the base. The financial markets they created with mortgage derivatives were another, private, way of generating money out of thin air, essentially a massive counterfeiting operation for electronic money. The government lost control of the currency. What the banks used MERS to do with money was not unlike what Enron did with power, circulating it internally and inflating it with every "transaction." Meanwhile, middle class consumers were given "credit" in the form of lent money of the banks own creation, instead of increases in pay.

    I'd bet that much of the "savings" the participants in these scams are continuing to remove from economic activity is getting stashed offshore somehow. Also, they have figured out a way to monetize the foreclosure process itself, so that it is profitable to a bank to foreclose on a home and leave it vacant.

    Republicans: Their only tool is a hammer, and every problem is a thumb.

    by Sue Hagmeier on Fri Oct 22, 2010 at 10:03:01 AM PDT

  •  IF 2001-2008 wasnt enough.... (2+ / 0-)
    Recommended by:
    James Kroeger, Alohilani

    to convince him that cutting taxes as a plan for ecconomic stimulus is a terrible Idea, as in an ultra-sarcastic comment...

    " yea cutting the wealthy's taxes is such a great Idea, look at how much good it did by the end of  W's administration"

    then this is a lesson he likely will never learn.
    great post though

  •  Core idea (1+ / 0-)
    Recommended by:
    James Kroeger

    I think the explanation in this post is excellent.  I will be saving it.  I think it basically comes down to a simpler thought:

    No amount of tax breaks, tax incentives, etc will lead a responsible business person to make capital investments in their business, increase production, hire new employees, etc if there is no existing demand for their product / service.  To do so would be insane.    Placing more money in the pockets of those who actually spend their money will increase demand for goods and services, at which point businesses will respond accordingly even in the absence of such tax incentives.  It is the poor and the middle class that buy the goods and services that make the rich even richer.  If you are a wealthy business person and legitimately want your business to grow, then you will want these other people to have money in their pockets.  The tax breaks for the uber wealthy are nothing more than a handout -- a transfer of wealth directly into the pockets of the already rich.  They will not spend the money.  They will not expand their businesses.  Not until their is a demand.  And then, they'll do it without the tax breaks.

    Perhaps I'm misguided in my thoughts, but it is how I currently view the issue.

  •  Beautiful! I keep saying it ... (3+ / 0-)

    Seventy percent of the GDP is the spending of the middle class.

    If the middle class is income scared/deficient demand falls.

    If demand falls, business hesitates to hire and/or expand.

    Meanwhile, "investment" continues, stocks rise and fall. But, that is a zero-sum game. For every winner this is a loser, thus ZERO economic gain can be had.

    The US has exported it's ability to produce goods. Only it's ability to "service" remains. This puts us (US?) at a disadvantage with respect to those who produce what we no longer see fit to build.

    THEREFORE, the US has created a market in which those who produce no economic benefit control our economic progress, using dollars derived from external sources (China?), to further a system that effectively destroys the very market (the middle class) that created such wealth.

    Political Correctness Police: may your puckered, disapproving lips forever cover your donuts.

    by FeloniousMonk on Fri Oct 22, 2010 at 10:16:14 AM PDT

    •  It's stunning how this simple fact (2+ / 0-)
      Recommended by:
      James Kroeger, FeloniousMonk

      seems to elude so many. Willful ignorance? Fear? Both?

      I have colleagues (who should know better) this week who instead of looking at the French with admiration have had nothing but disdain.

      "Retiring at 62? Boo hoo! We should be so lucky!"

      Luck, I've suggested to at least one, has nothing to do with it! What the middle class has enjoyed here was never freely given to us. We have had to negotiate for it and (yes) demand it when it when necessary! And take responsibly for our purchases and our votes when times were better.  

      And these are not Rethuglicans I'm talking to, nor Obama voters who expected "immediate results"

      If the bottom keeps falling out of the middle class, I hope that the French example will take root here.

  •  How do conservatives propose that we pay (4+ / 0-)

    for the vital physical, institutional and regulatory infrastructure without which this country cannot function? E.g. roads, bridges, electricity, schools, the legal system, police, fire, work and food safety, etc.? By switching to a flat tax, which will just depress purchasing and not even come near to paying for these things?

    Rich conservatives just want to push back the day of economic reckoning so that they can hoard as much money and assets as they can. Their proposals don't work and are unsustainable and even they know that. But, being greedy, selfish and irresponsible by nature and viewing economic activity and the social contract as a game of hot potato, their main interest is to not be left holding the potato.

    They don't see themselves as a part of society. They see themselves as outside and above it, and thus not subject to its timeless and irrevocable rules. Especially:

    Love Thy Neighbor
    We Are Ours Brother's (And Sister's) Keeper
    Do Unto Others As You Would Have Others Do Unto You

    Or: Don't Shit Where You Eat

    "Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" --Alexander Hamilton

    by kovie on Fri Oct 22, 2010 at 10:18:15 AM PDT

  •  Good stuff (0+ / 0-)

    Now the real challenge is to trim that down to an elevator pitch.

    Something like: Business doesn’t invest in workers until there is something for those workers to do. If Business doesn’t believe there is sufficient demand for those workers services, they won’t hire them. Throwing more money at them won’t make them any more likely to hire. They’ll just invest in safer financial vehicles (like, ironically, T-bills) and wait for the economy to get better (i.e., demand to increase).

    So, if you want to improve the economy, the only real choice is to increase demand. That means increasing spending. The debt is a non-issue because there is plenty of money out there (all those T-bill buying safe business investors mentioned above).

    Maybe a bit long for an elevator pitch, but certainly less eye-glazing than what you wrote.

  •  Thanks so much excellent (0+ / 0-)

    Where are the jobs then with these great tax cuts? The money created the last bubble...that's where the money went. That is the real reason why they want to steal SS. So that they can steal it and wreck it and leave us with nothing.

    Like Wall $treet knows how to do anything but launder money and extort money.

  •  Awesome. So well explained. Very useful. (2+ / 0-)
    Recommended by:
    James Kroeger, LynneK

    I'm surprised, however, that you did not use the word "gambling" at some point.

    Well done.

    You would think the fury of aerial bombardment would rouse God to relent. -Richard Eberhart

    by geomoo on Fri Oct 22, 2010 at 11:36:25 AM PDT

  •  $150k is chump change next to $30 million (1+ / 0-)
    Recommended by:
    Amber6541

    We need to do more than just increase marginal tax rates by a few percentage.  What we need is to add more tax brackets after $300k, and increase those beyond 70% when you reach 12 million.  $300k was a lot of money back in the 1950s, now it's just upper middle class.  

  •  remind him (0+ / 0-)

    that 1951 to 1963 the top marginal tax rate was 91% or 92%.

  •  How many people does he employ? (0+ / 0-)
  •  Thanks for this diary. I will be able to use (0+ / 0-)

    this info on some of my family members.

  •  Barack Obama, Hire this Man! n/t (1+ / 0-)
    Recommended by:
    James Kroeger
  •  Terrific piece, James - I get most of (1+ / 0-)
    Recommended by:
    James Kroeger

    what you explained so well in an intuitive way but it is nice to understanding the underlying logic of how are economic system works. Good luck with your brother but at least you and Ron are still trying!!

  •  Bush DOW @ 7,920 and Obama DOW @ 11,132. (1+ / 0-)
    Recommended by:
    James Kroeger

    Maybe your "affluent brother" likes a 3,212 point gain in the DOW in 22 months? Can't the business community use that extra $ trillion or two?

    Now, congratulate your brother, and all his pals, and tell them to do what they claim they do so well: create jobs for Americans. If they don't want to do that, then it would be better if we taxed their handsome profits and made the jobs ourselves.

    Greenspan admits his free market faith was "a mistake" - Reliance on self interest creates a flaw "in how the world works."

    by Otherday on Fri Oct 22, 2010 at 05:36:46 PM PDT

  •  Now this resonates with me (1+ / 0-)
    Recommended by:
    James Kroeger

    When the Republicans slashed the taxes of the wealthy under Bush, most of those extra disposable dollars ended up in the financial markets and the banks were awash with cash to lend.

    One of those Ah Ha moments.  I really think I should have went to school for economics but it involves evil math.  Put dollar signs in front of the numbers though  and we are all good...

    Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

    by whoknu on Fri Oct 22, 2010 at 05:55:31 PM PDT

  •  Ah. Now I see why this has been on the rec list (1+ / 0-)
    Recommended by:
    James Kroeger

    for like two days.  I only just read it because I nearly always avoid those "here's what I wrote back to my ignorant, racist Republican relatives' viral e-mail" kinds of diaries.

    This, however, is going on my hotlist.  This is SO helpful.  Thank you a million times over for taking the time and for sharing this.

    "Put your big-girl panties on and deal with it." -- Stolen from homogenius, who in turn stole it from a coffee mug.

    by Mother of Zeus on Fri Oct 22, 2010 at 07:21:38 PM PDT

  •  the great lie of the Conservatives (1+ / 0-)
    Recommended by:
    James Kroeger

    is that Government provides nothing of value.

    In reality, Government provides Public Goods,
    Club Goods and regulates Common Goods quite well.

    Fire Service is a club good and that teabagger
    didnt want to join the club.

    George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

    by nathguy on Fri Oct 22, 2010 at 08:45:42 PM PDT

  •  I'm sure he'll look at his paycheck (0+ / 0-)

    and yours and basically ignore your response.

    I don't belong to an organized party, I'm a democrat.

    by thestructureguy on Fri Oct 22, 2010 at 11:01:51 PM PDT

  •  This is not just a fantastic diary. (2+ / 0-)

    This is also perhaps the best comment thread I've ever read on Kos. Really bright, knowledgeable and articulate people politely explaining difficult concepts in completely accessible language and building on each others ideas.

    My idea of paradise.

    This whole thread, condensed in some way, really needs to be spread as widely as possible, now and way into the future until everyone understands it.

  •  James, not only is your diary smart and useful (1+ / 0-)
    Recommended by:
    James Kroeger

    but the comments thread here is one of the best I have seen in some time. Excellent ideas and insight here.

  •  Excess saving and dynasty formation (0+ / 0-)

    We need to ask why people want to save to excess.  I think it's more than just counting coup on their adversaries, or saving to ensure enough to retire at a high standard of living.  I think it's at least in part to ensure that one's offspring (and their offspring) will live well and be among the power elite in the future -- in other words, to found dynasties.

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