Bush's "Magic" Economic Formula: The Rich Get Richer; Regular People Lose
- From: Florida <demeter547opine@xxxxxxxxx>
- Date: Mon, 04 Jun 2007 19:02:21 -0700
Bush's "Magic" Economic Formula: The Rich Get Richer; Regular People
Lose Ground
By Larry Beinhart, AlterNet
Posted on June 4, 2007
http://www.alternet.org/story/52955/
Supposedly we are in a sustained economic recovery and have been since
2002.
Part of this is Bush hot air and the Republican Noise Machine, which
the media quotes verbatim.
By a certain measure, however, it's real.
The economy has grown. Corporate profits are at an all-time high.
Average income is up. There's lots of money around.
But the recovery has some really strange features. Oddities never
before seen in a recovery.
Jobs: During Bush's first term the US actually lost private-sector
jobs.
It finally improved in 2005, and now job creation is almost keeping
pace with the increase in population. Still, over all, it's the worst
record since Hoover, the fellow who presided over the onset of the
Great Depression.
How do you have a recovery without creating jobs?
Income: Yes, average income is up during the tenure of the current
administration.
The joke about average income is: Bill Gates walks into a bar. The
average income of every person in the room immediately goes up 10,000
percent.
But median income, the amount that people in the middle of the group
earn, barely budges. So let's look at that figure. Median income is
down. The average person makes less now than when Bush came into
office.
Not only that, the downward pressure on wages is no longer just a blue-
collar issue, it's moved up to white-collar workers, the educated
classes, even doctors.
How do you have a recovery when people are making less than before the
recovery?
Cost of living: Key factors of the cost of living are much higher than
they were six years ago.
In particular, fuel is up 100 percent, higher education costs are up
about 44 percent, health care premiums are up 80 percent, and
affordable housing is scarce.
Normally, when the cost of living goes up, we have inflation. But
we've had low inflation during the Bush years.
How can the cost of living go up while the cost of money stays low?
Here's the most peculiar statistic of all: the Dow Jones index
You may have been hearing that the Dow Jones Index is at an all-time
high. It's true. However, it is only 16 percent higher than the day
George Bush came into office. By comparison, when Clinton left office
the Dow was 320 percent higher than when he came into office.
It's a very rough measure of course, and there are many others. But by
that measure, during the Clinton years investment in America's leading
business had grown more than three times over. Under Bush it's only
grown 16 percent in six years. Since the consumer price index is up 18
percent over the same period, when the new all-time high is adjusted
for inflation, growth is effectively below zero.
How can there be a "recovery" in which not even businesses grow?
When a government wants an economy to grow, it throws money at it.
The administration did that with spending on pharmaceuticals, homeland
security, and a couple of wars. But their most important weapon of
choice was tax cuts for the rich, especially on unearned income,
capital gains, inheritance, dividends, and interest.
This was sold, and accepted, on the myth that the rich -- the
investing class -- are the most creative and daring members of our
society. Just unleash them and they will march off into the wilderness
-- actual, urban, or cyber -- with sacks of cash over their shoulders
and they will build things!
Factories! Airlines! Housing! Toys! Computers! Undreamed wonders!
Entire new civilizations! With jobs! jobs! jobs! Like an Ayn Rand
novel!
But that's not what happened.
Because a shortage of cash was not the problem. The country, the
world, is awash with cash.
The good, old, risk for rewards version of capitalism -- the burghers
invest in a daring sea captain sailing to the Indies -- still exists.
In recent years, it's given us FedEx, Wal-Mart, Apple, Microsoft, and
Google.
But alongside it, over the last 50 years, the economy of credit has
grown up.
In vastly oversimplified terms the credit economy works like this:
You own a house. It's worth $100,000.
Someone buys the house, no money down. They borrow that money. Let's
say it's a straight-line 8 percent, 30-year mortgage. Forget closing
costs, points, and any other complications -- that's a $220,000 debt.
It goes on the bank's books as an asset.
Now you have $100,000. The bank has $220,000 (on paper). The buyer has
a house worth $100,000. The bank has a lien on it, but the buyer will
be gaining equity, plus he can get a second mortgage and home-
improvement and other loans on it.
Again, this is a vast oversimplification, but that transaction has
"created" something like $420,000 that is now "in play," as part of
the economy.
No "thing" has been created -- no new business, no product, no jobs,
no idea, no intellectual property, no entertainment.
But money has been created.
If you buy a dress on your Visa card or organize a consortium to buy a
company, the same thing happens -- debt creates money. In every
transaction, there's profit to be taken off the top.
A perfect example of the transformation of our society into a credit
economy is the change in the way we finance higher education. States,
and even cities, used to be in the business of building universities
that were free, or nearly so. These were financed, up front, with tax
money as an investment in our human infrastructure. Then, in 1965, the
student loan program was invented. This changed the higher education
business into a debt creation business and created a whole new
creditor class, college graduates, who, were handed, along with their
diploma, debts of ten to fifty thousand dollars or more.
The number one industry in America today is the money business -- debt
swapping. In a closed economy, that might have a positive effect, as
people look for something to do with their money.
Not, perhaps, as a general rule, but in an economy like ours, handing
out money to rich people is the least effective way to make a
healthier, stronger economy that benefits society as a whole. There
are two reasons.
The first is that the Ayn Rand fantasy is a fantasy. For the most
part, when people with millions of dollars get an extra hundred
thousand, or several hundreds of thousands, or even millions, they
invest it passively, in financial instruments and real estate.
So we get, for example, a real estate bubble. Which is worse that a
dot.com bubble because a dot.com bubble is symptomatic of the
excitement of investing in new, high risk, but high reward enterprises
that are producing new things. A housing bubble is symptomatic of lots
of money floating around with nowhere productive to go. The other
reason is that insofar as investment does go into business, in terms
of our society, there's a hole in the bucket. The hole is called
globalization.
I'm writing this on a Mac. When I bought it, the money went through
American Express (which took a few points) to Apple's headquarters in
Cupertino, California, where Steve Jobs dipped in his ladle, then the
rest poured out though the hole in the bottom to China, where it was
actually made.
That's the economy that the statistics describe.
Lots of money is moving. As it passes through the company, the company
profits. The company isn't going to build anything, so profits are
spent on executive compensation. The actual work is outsourced (the
money flows out), and no jobs are created. Nor does the actual
business grow very much either, except as a middle man, taking
American money and passing it on to foreign businesses (and oil
producers).
At the same time, this creates downward pressure on normal working
people.
Remember those old movies, with 200 men at the factory gate? A foreman
inside with three jobs to give out, saying, "You. You. And you. The
rest of you, go home." Those three lucky stiffs didn't demand health
insurance, pensions, or job security.
Now it's India, Bangladesh, Malaysia, the Philippines, Mexico,
Honduras, China, Korea, and many others at the gate. American
companies tell their workers they have to be competitive. Not only do
wages go down, but benefits begin to disappear.
This is combined strong anti-union and anti-worker efforts by
government, supporting the anti-union and anti-worker efforts of major
corporations.
This may be bad for America as a society, but the people in the money
business love it.
Indeed, it is the trick that makes Bushenomics work for people in the
money business. That includes anyone who invests in financial
instruments. The problem with pumping out money -- printing money --
is that it can create inflation. Money lenders hate inflation. If I
loan out money at 8% and by the time the creditor pays it back,
inflation is up 8%, then my profit is zero. The profit margin in
lending is -- in a significant part -- the difference between the rate
of the loan and the rate of inflation.
Really high inflation, and worse, runaway inflation, is, of course, a
threat to everyone. But moderate inflation, with rising wages, favors
debtors and hurts creditors.
So how can you pump out money while keeping inflation down?
In Bushenomics you do it by keeping a lid on earned income. Even
driving it down. Millions upon millions of people earning a little bit
less take away from the pressure of a few people earning millions upon
millions more.
That, along with, the flood of low cost goods from low wage countries,
helps balance out the inflationary pressure of rising costs in certain
particular industries, like oil, health care and higher education.
It's not a question of conservatism vs. liberalism. Of government vs.
free markets. All economies are, of necessity, mixed. All governments
are concerned with the wealth of their nation. Government decisions
will always affect how business operates. The question is, does the
way government spends and invests create a sounder and healthier
society? Or does it merely make certain sectors and classes rich,
while hollowing out our economy?
If we are to invest public funds -- through government borrowing or
spending or through simply spending tax revenues -- we have to be
aware that rich people running around with bags of money won't
necessarily do what is good for the wealth of our nation. They may run
us into bankruptcy, the way the smartest guys in the room ran Enron
into bankruptcy.
Larry Beinhart is the author of Fog Facts: Searching for Truth in the
Land of Spin.
© 2007 Independent Media Institute.
http://www.alternet.org/story/52955/
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