Economics 9-1-1: The Tower of Terror, Plutonomics
It's been a long time since I posted anything on D-KOS. I've been occupied waiting for agents' rejection notices for my first political suspense novel. Not to worry 10 people have found that self-published needle in a haystack on Amazon. Thank god for those few relatives who still read. Anyway, it was a sidebar, "Plutonomics," in the June The Hightower Lowdown that got caught sideways in that dark uncomfortable place. That then irritated me into writing what follows.
Due the length of this post, it has been broken up into 3 parts. I'm catering to our short attention span which is really a result of a world that is moving faster than the speed of thought.
Part I: Wealth, huh, good God. What is it good for?
Part II: Taxes? We don't want no taxes. We don't need no taxes! I don't have to show you any stinkin' taxes!
Part III: Won't somebody please help that poor man?
Part II and III rest will be posted during the next few days.
Part I: Wealth, huh, good God. What is it good for?
Thesis:
Wealth does not create more jobs; need does. In a healthy capitalistic system, one which creates a long term economic stability, satisfying the needs of the bottom 90% of workers provides the greatest stability. Wealth becomes a byproduct of employment. Guarantying high levels of wealth to the top 1% creates an overall unstable economy for the vast majority of Americans, the bottom 90%. Wealth in the hands of the plutocrats, plutonomics, is a hindrance to stable high employment and sustained new job creation.
Definitions
Plutocracy: An elite or ruling class of people whose power derives from their wealth. Government controlled by the wealthy. (Basically, the richest 1% of U.S. Households)
Plutonomy: A term coined in 2005 by Citicorp's Ajay Kapur to describe the economy of the past three decades. Economy controlled by Plutocrats; Economic system run by and for the benefit of the Plutocracy.
Five years after Kapur created the term Plutonomy, the plutonomic system has become so entrenched that its dominance will soon, if it hasn't already, turn into permanence. That's not good.
According to Kapur, understanding this new economy and the importance of preserving it is simple. "The World is dividing into two blocs - the Plutonomy and the rest. The U.S.,UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc."
Kapur's contention is that the plutocracy (the economic ruling class) drives the economy and, thus, needs to be protected. However, the other side of this economic protection is the diminished importance of the "average consumer," and that is not a pretty picture; it means unemployment and depressed wages for a huge portion of Americans (the bottom 90%), the "average consumer." Actually, it's even worse than that. For Kapur and the plutocrats, "There is no "average consumer" in a Plutonomy. Consensus analyses focusing on the "average" consumer are flawed from the start. The Plutonomy Stock Basket outperformed MSCI AC World* by 6.8% per year since 1985. Does even better if equities beat housing." Note that his focus is on who is winning the financial market and not the health of the job market.
(*The MSCI World is a stock market index of 1500 'world' stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International)
Though we, the bottom 90%, weren't aware of it, we have been the magician's assistant in a vanishing act that probably will not reappear. We are invisible to the plutocrats. We don't count in their plutonomy because an "average consumer" is no longer necessary to create wealth for the top tier. We just don't matter and neither does our employment. They just need enough of us working to create the luxury items that they wish to purchase and the services they need to use. (If we don't wake up, we're all going to be vying for the honor of mowing their lawns and dusting their lladros.)
Since the wealthy have the bulk of - well - the wealth - ("the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better (or worse, depending on your political stripe) - the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together.") and they purchase luxury items and employ domestic workers and gardeners, production and services trend toward those areas.
Therein lies the obvious problem. 1% of the population buys far fewer items than the 90%. That logic is obvious. From there too many people seem to drop the economic thread that would allow them to understand how stable employment is attained. Nonetheless, the logic is not difficult to follow. It takes fewer people to produce goods and services for the 1% than it does for the bottom 90%. Think of it this way: it's the employment power (which is not the same as purchasing power, i.e. money) of 1 million households versus 60 million households. The wealthy have more purchasing power by virtue of their money, but they have far less employment power.
Most Americans, at the urging of economic media pundits, make the mistake of thinking that the health of the financial markets creates long term stable employment, but the markets are a major factor in creating wealth in a plutonomic system for the top 1%, the plutocrats, not long term stable employment for the bottom 90%.
(What follows is a simple, even simplistic explanation of the fallacy that wealth creates jobs. Don't have a cow. I know there are holes in it.) If the number of workers needed to make a luxury car versus the number needed to make a normal car is roughly the same then the "average consumers'" purchases would generate far more employment. (If the bottom 90% had the money to purchase new cars - which, increasingly, they don't.) The plutocrats (the 1 million wealthiest households) may buy as many as 4 cars at $80,000 to $200,000 each, but the number of workers needed to make the 4 million cars is a fraction (6.7%) of what it takes to make 1 car for each of the 60 million households, the bottom 90%.
However, that logic is the last thing the plutocrats want the bottom 90% to realize. They want us to believe that their wealth, not our needs, creates the jobs. However, businesses criterion for creating jobs has far less to do with wealth than they would like us to believe. The notion that increased profits result in increased employment and/or wages is inaccurate. No businesses that wishes to stay solvent base their expansion on profits. They base it on the need for their product or services. Premature expansion has killed many businesses. It is true that money is needed to expand a business when it wants to meet increased demand, but readily available cash on hand is not a necessity. In fact, tapping into cash reserves is not necessarily wise, arranging additional financing is preferable. The business may need the reserves for survival if things go bad.
Right now there's still a lot of wealth in the economy, enough to revitalize the economy, but it is in the hands of the wealthy, and there are just not enough of them (1%) to create enough need that would result in a healthy level of stable employment. So there's far less employment and the bottom 90% suffers. Wealth does not create more jobs; need does. Satisfying the needs of the bottom 90% creates a healthy sustainable economy.
Wealth, huh, good God
What is it good for
Absolutely nothing
Listen to me