Welcome to Income Inequality Kos.
Join us Thursdays, at 9:00 p.m. eastern. We discuss income inequality, concentration of wealth, and related issues.
Previous diaries in the series can be found by the tag Income Inequality Kos, or by a series history.
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Deficit spending did not cause the current economic crisis. Fixing deficit spending will not fix the current economic crisis. Now is not the time, in the economic cycle, to be worrying about deficit spending.
The current high political focus on deficits is a great scam.
Republicans are the swindlers. Democrats, and the American people, are the swindled.
The scam is the basic confidence trick. It is the old bait and switch. It is the old switcheroo.
Deficit reduction is the bait. Tax cuts, for the wealthy, are the switch. The switch isn't even very hidden.
The Confidence Game
Neither experience nor economic theory clearly indicates the threshold at which government debt begins to endanger prosperity and economic stability.
Federal Reserve Chaiman Ben Bernanke, April 27, 2010
Economic theory cannot say that any particular federal debt is harmful. No experience points to any particular level as harmful. The Federal Reserve Chairman has confidently shown you, no pea is under his cup.
But given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time.
Federal Reserve Chairman Ben Bernanke, April 27, 2010
Debt and Economic Inequality
Economic theory recognizes a more general correlation of debt and economic harm. Experience shows the correlation. The experience of the Great Depression, say:
As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
Federal Reserve Chairman Marriner Eccles
Concentration of wealth drives up debt levels. Money in the hands of a few causes others to borrow to keep up. The following graph is of private and household debt, as a percentage of GDP. The graph has the U-shape, so typical of graphs about concentration of wealth in America:
The Cause of the Current Economic Crisis
Concentration of wealth caused the current economic crisis. We have a hyper concentration of wealth: wealth is not merely concentrated, but hyper-concentrated at the very top:
Fixing concentration of wealth will fix our fundamental economic instability. It is, simply, necessary. It is the only solution that will work.
The progressiveness of our tax system is out of whack. Unprogressive top tax rates drive concentration of wealth. Concentration of wealth drives debt.
Conservative and Republican economic theory, being empty, and having no solution to our problems, presents a shell game. It talks deficit, really meaning to keep top tax rates down. It presents more of the cause of our crisis, pretending it as solution.