THE TRUTH ABOUT THE ECONOMY IN 2 MINUTES
Robert Reich describes what’s wrong with the economy in 2 minutes. His bullet points (thanks to Stephanie Kelton):
- The economy doubles since 1980, but wages flat. Where did the money go…
- All (or most) of the gains went to the super rich. And…
- With money comes political power. Taxes on super rich slashed, revenues evaporate. This leads to…
- Huge budget deficits. Middle class agitated, fights for scraps…
- Middle class divided. Buying and borrowing slow. Resulting in:
- Anemic recovery/economy.
I would add one very important point that Mr. Reich misses here. The real destruction has come in the growth of the financialization of the US economy. Since the 1970′s when the financialization of the USA began we have seen an increasing number of would-be entrepreneurs leave productive positions for Wall Street jobs where they largely help devise ways to help separate the middle class from their savings. As the country grew more and more wealthy in the 1980′s and 1990′s (thanks to entrepreneurs like Bill Gates) the problem compounded because the demand for Wall Street’s services expanded (higher wealth meant higher demand for protecting that wealth). Wall Street convinces Main Street that the best way to protect their wealth is by giving it to them (2% at a time) and Main Street doesn’t know any better because they don’t (and still don’t) understand how the monetary system or the economic system in the USA actually works so they give their money to a trusted “expert”.
The result is fewer Bill Gates’s (real job producers) and more Gordon Gekkos (company destroyers). The wealth gap grows as Wall Street’s incomes explode, Wall Street deregulates and the result is a weak middle class, rising inflation (largely thanks to the wealth disparity), a debt bubble that results from the middle class trying to sustain their standard of living (“keeping up with the Jones’s!), and ultimately a crash that turns what should have been a garden style recession into a near depression as Wall Street takes advantage of the zero collateral laws to leverage themselves up to the hilt in their never ending search for profit maximization and ultimately even greater pay.
Now we all suffer because of this cannibalization of capitalism.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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98 Comments
Mr. Reich is actually ” Chancellor’s Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including The W…”
Brilliant summary. Though Reich seems to think the deficit is a problem. He needs to brush up on his MMT.
Amen !
And don’t forget fiscal legislation that has generated a lot of income for the banks. Remember the famous quote from Mrs. Helmsly: “”Only the little people pay taxes”". And to compensate for that lost taxrevenues the taxburden on the working class had to be increased.
http://motherjones.com/politics/2011/04/taxes-richest-americans-charts-graph
Then you should visit the website of a guy called mr. Michael Hudson as well.
http://www.michael-hudson.com
This is enough to make you sick to your stomach. Cullen, what are the answers here? It seems like we’re in this sort of permanent bind?
Regulation would have been a good start, but that’s not really happening. The only other thing is for Main Street to get smarter about all of this. If the demand for Wall Street’s services decline then people will stop paying fees for services that don’t necessarily add value. We’ll stop praising Warren Buffett and start praising Bill Gates. Wall St incomes will decline, Harvard graduates will start migrating to Silicon Valley again (and not Wall St) and the greatest innovation creator mankind has ever known will get back to doing what it does best – making great products. Unfortunately, that’s going to take time. So there are no easy answers here….
Cullen, the people doing the praising, in effect, work for Wall Street, so they will praise bankers, not industry innovaters. Something stronger will have to educate the middle class.
I always find Robert Reich’s columns at his website to be excellent, even though he is a deficit dove and not an MMTer. I know that Warren Mosler has criticized Mr. Reich’s deficit dove position as being “part of the problem”. However, Reich is a strong and articulate advocate for the position that it is insane to be focusing on deficit reduction now rather than job creation, something which MMTers obviously agree. I think that MMTers should welcome Reich and other deficit doves in this fight, rather than dismiss them or attach them as being part of the problem. Although Reich might incorrectly believe that the deficit must be addressed in the long term, at least in the near term he has it right — in time, he and others might be persuaded to the MMT point of view, but it seems to me that those who agree on what needs to be done in the short term should stick together.
Our lives have been turned into soundbites, Reich is as guilty as Fox and MSNBC on this one. This is a complex issue and goes far beyond the Gates vs. Gekko plebean argument, with easy to spot good and bad guys (watch for the white hat).
typical arguments that the people who have power shove down our throat “the world is complex bla bla bla please rely on us who know and understand”…this Reich 2 minutes is exactly what’s going on, it’s as simple as that
I’ve been thinking about this a lot lately and I can’t imagine that we can regulate or depend on the government in any way to get us back on track. Our congressmen are now in the pockets of the super rich aforementioned. There are good people in congress / goverenment but what does a 50/50 split vote do for anyone? It just perpetuates the environment we are already in. The only way real fundamental change in our economy can come about is if people actually drop out of the system and just start doing things differently. I don’t know what “differently” means exactly, but I imagine it being akin to just being really really independent in our thoughts and actions. That is to say independent from the status quo but organized on a group level. Like the hippies did in the 60′s. As long as we are playing their game we will continue to lose… The system is broken and needs to be re-built.
Excellent commentary, what truly worries me though, is that I do not see any of this changing in the foreseeable future.
Wall St is only emboldened by the fact they not only got away with outrageous criminal behavior; they were rewarded for it.
revolution is inconveniently looked down upon and is probably illegal too.
the polite / approved method is for mainstreet to vote and “choose wisely”.
both parties appear to be bent on distracting mainstreet with less relevant
issues like the national debt. it is unfortunate that we can’t vote out all of
congress and try a fresh start.
Agreed. Why so many choose to align themselves with a lesser evil is dumbfounding.
Never say never.
Vote out all incumbents until the people are represented again. They will get the message after only a few trys at this.
Remember last time the Republicans said, “Oh we get it America”. They didn’t get anything. It’s right back to business as usual.
They are so deeply entrenched in their respective ideologies there simply is no other choice. Vote out all incumbents. (with a few exceptions)
It’s nothing less than idol worship. People who are die hard party supporters are only using half their brain.
EV I totally agree. I adopted that strategy last election and i’m sticking with it. People call me misguided but I believe it’s the only way to create change. Just vote against the incumbent!
It seems so frustratingly impossible to get the change at the election booth. But, I wonder if we can fulfill a dream of mine, which is: Washington holds an election and no one shows up.
The younger generations all ready have poor turnout. -I really feel a huge part of that is the disconnect that is felt(and maybe younger generations have never turned out nationally, I don’t know).
And yes, Ideally, 90% wouldn’t show up, so 10% would choose our leaders… but does any educated person care anymore which of the ‘lesser evils’ makes it in anyway???
And I don’t want numbers that let the media say, “it was an historically low turnout” -but an extreme low that can’t be ignored.
…I’ll keep dreaming
“All that is required for evil to prevail is for good men to do nothing”
Show up and vote against all incumbents (minus a few independents and others)
Voting against all incumbents is a start, but voting for no Reps or Dems is better. That’ll send a real message. They’ve both failed.
Voting against the incumbent is not the answer. Why? Because that doesn’t resolve the issue. What is the issue? We need a real change. Please note that in the last presidential election, nothing really changed. The financial and international policies (the reasons we elect federal officials) are the same now as they were in the Bush administration. Why? It has already been stated: the politicians (i.e. democrats and republicans) are in the pockets of the very rich.
What is the solution? Don’t vote for a republican or a democrat. Now THAT would resolve the issue.
> Wall Street jobs where they largely help devise ways to help separate the middle class from their savings
Ha. But you know why people go to Wall Street? If you start a real business in the US you have to pay 35% corporate tax, all kinds of other taxes, comply with all kinds of state and corporate audits and tax rules and regulations. If you start a hedge fund or just trade for your won account you only pay 15-20% tax and don’t have to deal with all the regulations at all. It should be the other way around. The realbusinesses should be taxes at 10-15% and all the overhead liek financial services at 35%.
Only a year ago I would have said you were dead wrong. Thanks to Cullen’s site, and the writings of Mosler, Fullwiler, etc., I think you might have something here. Since Federal taxes don’t actually fund anything, but are really an incentive tool, why don’t we incentivize productive behavior (entrepreneurship, innovation, etc.) by reducing the tax burden on small businesses not engaged in financial services? And, likewise, discourage the financialization of this country by taxing the bejeezus out of banks that don’t abide by the old Glass-Stegal rules (i.e. anyone but community banks) and hedge funds (sorry Cullen). This would potentially be a politically palatable solution to deficit hawks and “progressives” alike, while still adhering correctly, and covertly, to an MMT foundation.
Ideally maybe but we’ve already seen what happens when banks are squeezed (really you can’t call it that but…) they turn around and squeeze their bottom tier customers. They lose excessive merchant fees and they make up lost revenue by applying fees to accounts that don’t have DD or have under X dollars. Don’t see disincentive through taxation working
The theoretical beauty of capitalism is its self correcting nature. For example, the multi-family starts data today is likely the direct result of the dying homeowner. But he owes pays a fortune to the landlord eventually thinks it better to be a homeowner.
The banking system should have been the victim of a forest fire in 2008. Forest fires kill that which should die, leaving only the strongest to repopulate the earth. If the system was truly not able to fail because of societal destruction, then, logically, the problem can ONLY be blamed on a failure of regulation.
If you didn’t get uncomfortable, fat, or heartburn, would you stop eating before your stomach exploded? Art Cashin said it this morning, it is remembering a lot of pain, that makes you stop at a little pain. No one had enough pain.
Our current brand of capitalism doesn’t have the beauty of self-correction. The cannibalization of capitalism indeed. You are a smart guy Cullen. Shy of the rare leader with a big, clear mirror and a kind but stern tone, I think the beast feeds on itself until it’s stomach explodes. I’m too cynical to think such a leader exists or that a populace that wants to hear her exists. Hopefully I’m wrong.
Glass-Steagall, a business that takes main street’s money .25% at a time while instilling financial confidence in Main St, and math and science, not marketing and PR, would be a great start.
Save the bank and get rid of the CEOs and others of like mind. They did it to the head of GM and he was no where near the worst of the bank CEOs.
Save the trees and get rid of the arsonist.
The real irony is these govt idiots go after the wrong people. We are fighting tyranny overseas and the real tyrants are right here.
Haven’t you noticed that they always go after easy targets and then promote or give govt positions to the really guilty. It’s a smoke screen!
Irony is sweet?
CR: “The only other thing is for Main Street to get smarter about all of this.”
It’s coming. People are mad as he11. This site is a good start.
A diverse assemblage of small things is all we can do right now. There is no panacaea for this other than education of the masses.
This is a turning point. I’m seeing more and more say that the rich caused this mess.
When LTCM failed at least 50 hedge funds sprang up in their place. What kind of insanity is that? Who do they cater to? Can most Americans invest through hedge funds?
The Republicans say the rich create jobs! That’s just BS. The rich put their money with hedge funds. Self employed and small businesses create jobs. Ronald Reagan in league with his rich corporate buddies created the self employment tax. It’s outrageous. Remember the self employed guy that flew his plane into the IRS building in Austin? Why do you think he did it.
Last time you voted out Democrats. This time make it Republicans.
These posts give me hope.
I wouldn’t site Gates for his US employment initiatives over the past few years. Microsoft has spent a great deal of effort using the H-2B visas to displace workers in the Seattle at 25 cents on the dollar while arguing that the American worker lacks the skill set to be hired. Its BULLSHIT. So we provide sovereign protection for Microsoft, service men and women are DYING overseas so SOB’s like Gates can cut the legs underneath highly skilled high tech American workers.
http://www.huffingtonpost.com/dan-rather/guest-workers-and-us-unem_b_743884.html
Reich it right on. He could have addressed the expense side of gov’t. I listened to the CNBC talking head host Simon stated that Greek just needs suck it up and take the austerity measures so the markets don’t sell off…he’s completely clueless. Greece’s parliament will be burned to the ground before this is over.
There is one common thread that runs through every social upheaval that results in government change and that is the elite ruling class becomes completely desensitized to the majority of the population. The major European countries and the US are at this point. The markets are nothing but a game for the wealthy.
Yeah, Microsoft I hear set up a company in Canada just so they could circumvent the restrictions on the number of immigrant engineers. Somehow it was easier for them to get them to Canada first and then into Microsoft-USA.
Don’t quote me on this, but a friend that works in Austin told me a year ago about this anti-American BS.
Look, all of this is because stock holders are represented in the board rooms above all else. Long term health of the economies of corporations and the country are sacrificed for short term gains and bonuses.
Bonuse rules really need to be changed to support long term health.
“Flavor of the day” business proctices spread like wildfire in this country!
Man I’m fired up and I didn’t lose anything in the crisis or the most recent downturn. I’m just angry over what they have been doing to my country and my fellow Americans. This article really gives me hope. I think the truth is beginning to come out.
Pardon my delay whilst I commute.
While you personally may not have lost anything to date the country is losing its future competitive advantage as a slight of hand is being played in front of the American public. When inefficiencies are promoted in order to enrich but a few, taxes will rise, governments will change, lives will be lost and liberty will be at risk.
Teddy Roosevelt understood this clearly. He came from American wealth yet was motivated by his moral fiber, devotion to promoting the Amercian common mans station in life with the understanding that if an American worked hard and tuned his/her skills they would succeed in America. Contrast this with how Bill Gates, Wall Street, our politicians and others in power. It is a long and dark shadow that is cast over Europe and America.
My friend in Austin, who speaks fluent German, told me that just before the nazis came to power there was emmense corporate power. Somehow that led to facism. Maybe someone can enlighten me on this.
Who knows maybe the FEMA camps are real. I do know homeland security got a whole lot of money and I don’t see much of it being used.
El Viejo, the big German corporations backed the Nazis, because they feared the German Communists were gaining popular support.
Almost everybody I used to know while working in Russia is now either in UK, USA, Autralia or Canada. Three went to work for Microsoft. They were making 1K am onth while in Russia at Microsfot they probably make 100-150K. You’d have to search far and wide for an american with equivalent brains willing to work for 100K. But it is not only that, these guys were truly outstanding , it goes beyond monetary value and they didn’t dsiplace any americans because you don’t enough of such americans. Americans with equal brains what to be CEOs or CIOs at the very least. So, I don’ really buy any of the H1B compalints. The contries and corporations benefit from such programs even more than H1B workers. These H1B workers will have kids who will be equally outstnading and amerianc on top of it.
If you are in the US then welcome and you are most welcome. I had a russian friend who was a former T3 tank commander before immigrating to this country and he was very talented as well. If you have seen some of my other posts you will know I am not against immigration. And nothing against the truly talented and the salaries they command regardless of where they are from, but obviously the ones that led us to this disaster were not worth their salaries and they are still getting them with bonuses.
My argument is with those that think they are good stewards of the wealth and power of this country. This rant if you want to call it started with two legged greedy algorithms and sure performance of funds is important, but it is the politicians with whom I have my main complaint. They started catering to the wealthy captains of industry and financial institutions thinking that if they did away with regulation things would be much better and they were for a while, but being a believer in Minsky I take it seriously wheh he said that regulation would only work for a while and then there would be circumvention and new problems with the economy would pop up. So when you do away with regulation how much more problems will you have.
There really are two extremes working here and greed is at both ends. Don’t get me started on union greed or govt employee greed. The two extremes have worked their way into politics where the real games are played. It helps to understand my position politically if you know that I cheered when Joe Lieberman won reelection as an Independent when his own party betrayed him then you will know I am a centrist.
There was a time when govt employees worked for less, had more time off for holidays and vacation, but they also had more job security. The private sector had more risk, worked longer hours and had less vacation, but made more money. For the past two decades I’ve seen a trend towards enslavement of the middle class private sector. Maybe it started when congress said that they deserved more money in order to attract the best and the brightest. Frankly I don’t see that extra cost has bought us anything.
Like it is said here the purpose of govt is to support the private sector and it used to be said elsewhere that a strong country will have a strong middle class.
Microsoft has made some very fine products, but lately they seem to just repackage them and move things around and call it an improvement. It’s rather like the government in this country. Vote them Out! Vote out all incumbents!
“Wall Street takes advantage of the zero collateral laws to leverage themselves up to the hilt in their never ending search for profit maximization and ultimately even greater pay.”
Cullen you always miss the point like most economics do, that profit maximization is not a virtue – bad nor good, its caused by the pressure that cant be regulated (like you believe it could), that the moneysystem puts on the marketparticipants.
Therefore there is no place for good/ bad banks i.e unethical business. Mathematic law doesnt know about ethic.
BS…Mathematical law has constraints.
BS: mathematical law, in the form of compounding interests puts on the system has no constraints, that is what wags the tail of the moneysystem, thast is the dominante factore in the money system.
you only have to analyze the 1. point to get this right:
“The economy doubles since 1980, but wages flat. Where did the money go…”
the compound interest is the holy cow noone touches and everyone thinks he can heal the system by regulating its symptoms…so laughable
weee total bs!
ps: why allow only positve interests when econmy is a piece that grows and shrinks.
Why put this system under infinti growth pressure and then argue well, we are able to regulate that pressure.
Why build a bomb of massdestruction when you either tell we will never need it. We just need our smaller bombs.
Why have that + compound interest, when it hurts sustainable economic order?
Why have it and then regulate the bad symptoms it causes when it works without it?
That is totally irrational, illogical bs!
I agree that greedy algorithms will fail under certain circumstances. Take the prisoner’s dilemma are they not greedy? Under certain circumstances do they not fail?
The question is what makes the market go up and down. Is it manipulation from Wall street? Do they not profit more during times of volatility? Certainly the average Joe never shorts a stock.
Is it population demographics? Do we need to regulate immigration not on corporate profit desires, but on demographics. This country has aborted 30 million babys in recent history. Has the recent immigration from Mexico saved us from a fate worse than Japan?
I see where you are heading at, but why give psychopath weapons and then regulate the usage.
i mean why not support a system where hoarding money is not supported from the beginning. Why instead support a system that really support psychopath thinking, acting, why support a system that even makes psychopath out of peacful people.
Why, there is just no need!
ps2:
Money is a claim on human labour, not more!
“+” compounding interests on money makes money preferable than goods which they stay in competition with.
Thats the reason why trading is more profitable than producing. Cause the producers can always be extorted by the traders, cause most goods loose value over time, money not!
and that is basically whats wrong wiuth the current money system.
we need a moiney system that supports a natural economic order that is not forced to grow by the money system.
One smart guy Silvio Gesell did analyze that 100 years ago and came up with an economic theory that unlike all others oversaw, he included moneycreation.
In short, he came to the conclusion that money must not be preferable than goods, and that all money in circulation should loose value over time.
1. THat will keep people from hording money, money will always be available -> thus prevents deflational contraction.
2. money on your savings account will not loose in value ($100 today = $100 in the future, until you take it out of the system then it will loose value over time), since this money is lend to other people ( for no interest rates), it stays in the system.
I’m old enough to see some trends first hand. I remember when Shirly McClain was on the cover of Time or Newsweek? Dec of 1988? and Executives were going to seances and visiting maharishis for answers to life’s questions. In fact there were ads with a picture of some maharishi in those airline magazines advertizing answers to economic questions. “Government’s Problems Solved” they said, and our captains of industry fell for them. Give me a break.
Remember when sports icons started getting agents and then demanding more money? Shortly after that congress says we need to raise our salaries so we can attract the best and the brightest. I personally heard a radio broadcast with a congressman literally whiny complaining about how much money certain atheletes made. Not long after that CEO’s salaries started toward the stratosphere. And of course financial CEO’s salaries had to be much bigger.
Now they actually judge an athelete by how much money he makes. Listen to the commentators on golf matches. Unbelievable.
I’m not so offended by CEO’s incomes as much as people like Soros, Gates, Buffett and the cell guy in Mexico. It’s just a game to them. They don’t care if people are hurt by their game.
And even these guys are not as bad as the financial guys.
Some of them take money (all legal of course) from good God fearing people and give it to idol worshipping pagans (or people of like mind or even the violently self-righteous) who then send emmisaries over here to kill us. Oh, but look how much money they gave to charity. Pure unadulterated self-righteousness.
That’s why in the New Testament the “widow’s mite” is held up as an example of real charity. She supposedly put in more than all those before her and a mite was practcally nothing.
Note to would be philanthropic robber barrons: It ain’t charity when you steal the middle class blind and then build a library.
REINSTATE THE 90% TAX BRACKET!
One has to proof wether your short story is either a reflection of the vlaues of an ill society spoiled from the pressure the moneysystem puts on everyone – or mankind canibalistic genes.
We learn from beginning to be better smarter than others. This could likely be another symptom resulting from the pressure the moneysytem puts on us.
i prefer to give a system a try that does not reward hoarding. I mean those balance sheet depressions how Cullen call them pretty unspectacular, caused several wars in history.
I prefer to take another root instead of trying to heal something that is a sick construction fromthe beginning!
Maybe a revolution is called for I can’t say, but a peaceful one here is possible and there have been others. The Marcos were thrown out of the Phillipines in a bloodless coup d’etat – more or less.
Anyway that is why I asked the question about the strength of the corporations in prewar nazi germany because that seems to be what we are setting ourselves up for here.
It happens like this: first there is a swing to the left and then back to the right and ultimate power is obtained. In Germany it happened when the black shirted SS killed off the brown shirts.
Bring back the 90% tax bracket. Ham string these jerks before they cause a war.
Balance of power used to be what this country’s politics was about.
ya thats corporation driven fashicm, not because corporation hae a choice to be good or bad ones. THey just try to optimize businnes under these environemnt.
THe end of a comound driven business cycle always ends up in a balance sheet depression. And thats the ground for all sorts of life despising political ideologies. That has always been the case and we are right heading into fashistic regime.
We cann see this already that media is not supporting truthfinding processes anymore.
They tell us all governments lies 1:1, instead they should investigate!
THats the most alerting hint
cannibalization of capitalism
true that, that was a great post.
Any reason specifically why you see the 70s as the beginning of the financialization of the US economy?
I’d be more likely to peg it in the mid 80s, specifically the M&A boom and the beginning of Greenspan’s tenure at the Fed; this is somewhat corroborated by the US household wealth / GDP chart, which explodes higher at this point, likely due to rising asset prices vis-a-vis an every easing Fed.
Suggestion: It would likely be much easier to raise tax rates if gov’t reduced the massive waste.
Waste includes fraud, overly compensating underproductive or nonproductive employees, gifts to special interests, entitlements/pensions not adjusted to new reality (people living longer, etc.), etc.
Reduce the waste, reform spending and use more “common sense” and at least some of those resistant to raising taxes will be more agreeable.
In the end, we don’t want to buy a drink for a drunken sailor. Get sober and we’ll take care of you.
No doubt a strong middle class is necessary, but what Reich fails to mention is that many of the middle class, whose jobs have been sent to China, have failed to invest in themselves and get retrained in jobs that either take more skill or cannot be outsourced. I have seen very few factory workers get retrained to be an x-ray tech or something in the medical field, but I have seen them take service jobs making half of their former wage. The switch to truck driving is an interesting irony – they can help haul the now imported goods, which they used to help make, to final markets – which many have chosen. Granted, retraining takes time – which is why night school exists. It takes money as well, which is where the government should help out – possibly subsidized by the foreign entity sending their goods to the US. The days of standing on an assembly line and inserting widget A into gadget B to make a liveable wage are over given that someone on the other side of the world will do it for 5% of the wage. Mr Reich’s solution appears to be tax the rich and redistribute (or maybe he is just simply attacking the wealthy) like Europe, which has obviously worked out well.
Unfortunately Cullen, today’s entrepreneurs do not start businesses that employ the middle class, which blows a hole in your definancialization theory(although, I don’t disagree with you that all Wall Street does is create a river of cash and skims some for themselves.) MSFT software engineers are not former factory workers – they are people with advanced degrees. I doubt that many Harvard grads, if the Wall Street career path was not available, would have chosen to start a business that employs former textile workers.
What do you mean the middle class isn’t employed by entrepreneurs these days? Where is your proof of this?
Cullen and others,
Thank you so much for your pragcap web site. As an amateur economist, I have tried to wrap my head around MMT. It’s like the difference between Newtonian physics (gold Standard) and relativity (fiat money). As one ventures into MMT space, one has to be careful to not bring Newtonian gold standard assumptions, else things don’t work out. Our life experience are basically gold standard and it is all too easy to map these assumptions into MMT space and not realize it. You have pointed this out numerous times.
I wonder if I could ask you some questions.
!. Can you direct me to some good elemental papers on the Capital and Current accounts. I think you say they are equal but opposite in signs. I know we want red on the bottom and blue on the top, but what about all of the green (color sector balance diagrams)?
2. Is Supply Side economics valid? To me Supply Side is like pushing on a rope. A rope is a wonderful machine when used properly – pulling not pushing. I think we must work from the demand side (Keynes). Is this correct?
3. Is Milton Friedman’s Monetary Theory valid? Seems the measurement of the money supply is very difficult.
4. Keynesian economics still valid? Many institutional economist say it’s dead. I think they get paid to say that and push the supply-side and tax cuts for the rich.
Now I will turn political. I am not registered with any political party. However, the deficit/debt obsessed Republicans are advocating policies that clearly won’t work. I believe they know this and are deliberately lying to the American people to capture political power and destroy entitlement programs and capture all government spending for their sponsors corporations. For them, it is OK for the government to spend money as long as it is spent through the multi-national corporations (privatize and voucherize entitlement programs). Is my perception correct? Comedian Robin Williams proposed that Congressman should have to wear jump suits like NASCAR drivers with the corporate sponsors names and logos plastered all over them. Interesting thought.
A bewildered MMT student.
Cases in point:
The recent imminent domain case where for the first time in the history of this country private property could be taken away for some mall developer in cahoots with a local politician. And the original case was overturned back in Michigan. Shortly after 39 states passed laws against this, but the Supreme court decision still stands.
Or the more recent case where corporations can give towards political campaigns.
People please these aare huge moves against the constitution which I have sworn along with all military vets to defend against all enemies foreign and domestic.
Reich is now and always has been a far left liberal, and those are the policies that got us in this mess in the first place. There is even a new book out “Reckless Endangerment” ( one of the authors being a bonafide liberal, aka NYT writer) that documents said policies and their effects. I still believe that we will not do anything to fix the causes of the GR until we have another major drop which hurts the northeastern elites ( as in Wall Street and the TBTFs). As long as the NE elites are prospering there has been no sense of urgency on the part of Obama and the Dems to actually try to help main street.
My last rant for now:
See below for the smoking gun in the hands of government, corporations and the hyper-obcenely-rich:
Wages of private sector workers compared to public sector (second graph down):
http://theinvestingpig.blogspot.com/2011/03/problems-and-costs-unique-to-public.html
Corporate Taxes:
http://www.ritholtz.com/blog/2011/04/corporate-tax-rates-then-and-now/
http://economix.blogs.nytimes.com/2009/11/24/the-tax-burden-around-the-developed-world/
On the charts below notice how extreme incomes and low cap gains tax coincides perfectly with 1929 and present day.
Chart of top 1% income:
http://www.cbpp.org/cms/index.cfm?fa=archivePage&id=3-29-07inc.htm
Cap Gains Tax Rates:
http://www.ctj.org/pdf/regcg.pdf
Also look here for another chart that has two peaks (1929 and today):
http://www.debtdeflation.com/blogs/2011/01/21/how-i-learnt-to-stop-worrying-and-love-the-bank/comment-page-1/#comments
But this one takes the cake:
http://visualecon.wpengine.netdna-cdn.com/wp-content/uploads/Income_Corp_CapitalGains_Rates.png
Republican Scam:
http://www.economicpolicyjournal.com/2011/04/budget-cuts-turn-out-to-be-total-scam.html
Stop worshipping political idols! Vote Out All Incumbents! Last time it was Democrats. This time make it Republicans. (They resist tax increases for their rich buddies.)
Impose Term Limits! Let em know we are still out here and we mean business!
It’s time for the lying Republicans to go! Next time it will be the Democrats turn again!
Throw em out!
I have been reading all the articles on this site religiously for 8+ months and have not commented until now. Cullen, you are awesome, I love your work, you have changed my perspective on so many things, thank you.
This guys speach seems all logical but we cannot engage in this attach the rich mentality. There are great and horrible rich people. I would say most have truly earned their wealth, yes by using the system but can you blame them. I have studied like crazy and using the system in place is the most logical way to make my families future better. The knowledge it take to acquire wealth is free for the most part but it truly takes work to apply. The class mobility in the US is great because of this and that is the biggest issue that guys like this fail to figure in. I agree that financialization is a major problem and it is not an easy issue to fix. Our best solution is education. I personally have found that our educational system is not helping the situation. We teach our youth the wrong things, we teach in the wrong way, and we strive for the wrong goals. We as parents and a nation need to return to the pride that our nation once had. We need to teach the value of starting our own businesses and innovation and just plain hard work.
Keep up the good work Cullen!!
It’s very important that people recognize that I am not demonizing rich people. There’s nothing wrong with being rich and I am certainly not trying to punish rich people. I am specifically referring to money manager capitalism. I don’t have a single problem with Bill Gates or great wealth accumulators like that. I have a problem with the Stan O’Neals who are off playing golf somewhere after making $500MM for running a company into the ground. That’s my problem. In my eyes, this problem is much more specific than the way Reich sees it.
There was an article by the Economist which showed that the US has the widest wealth disparity in the Western world and among the lowest (if not THE lowest) class mobility.
I don’t believe we have the widest wealth gap with the richest man being Carlos Slim in Mexico but that is not really a bad thing. The larger the spectrum the more potential for all. I am reminded of Michael Moore’s, speach in Madison wisconsin. He stated that the top 400 richest people in America have as much wealth as the bottom 50% of Americans. This accounts for maybe $3 trillion dollars. This sounds aweful until you look at the details and math and see how much debt our nation’s people take on. More importantly he completely forgets the $53+ trillion that the rest of the nation’s people share. This is huge and this needs to be the focus. Our nation can do great things if we stop this silly class warfare from all sides and mpre importantly actually understand how our monetary system works.
There must be the respect for the rule of law by government. The fact that there has been no prosecutions from the fraudulent behavior of the financial crisis speaks volume. I hope for a candidate that’s runs on a platform of dismantling lobbyist/special interest apparatus in Washington. Yet that candidate will not make it too far in the republican or democrats rank.
“Taxes on super rich slashed, revenues evaporate. This leads to… Huge budget deficits.” Does anyone on this site believe this fairy tale? Reich is a polemicist and a left wing ideologue; he is not the objective academic he pretends to be. Reich and Krugman have a lot in common.
Reich knows the size of the federal budget and that you could confiscate 100% of the income of the super rich and not make a material dent in the deficit. When the left says it wants to raise taxes on the rich, it means self employed doctors, dentists and businesspersons making $200K to $250K a year in earned income who pay 15.9% off the top of the first $106K they earn in self employment and Medicare tax before they pay one third of their income in federal income tax, plus state income tax, plus property tax, sales tax etc. ad nauseam.
Reich and Krugman know enough MMT to know that their love of high taxes is ideological rather than reality based. Main Street earners at the $200K level and above will trend Republican-right. If the left really wants to cut the detestable class of Wall Street banksters down to size (as I fervently do) and deal with the grossest of income inequalities, it should reregulate banking, definancialize the economy, get Wall Street off welfare, break up the TBTFs and discipline the Fed. Don’t tax Main Street into the ground. The fact that the Obama administration squandered the stimulus on state payrolls rather than capital projects, has protected Wall Street, and wants to raise taxes on Main Street, tells you all you need to know about how our leadership has failed us in the crisis.
““Taxes on super rich slashed, revenues evaporate. This leads to… Huge budget deficits.” Does anyone on this site believe this fairy tale? Reich is a polemicist and a left wing ideologue; he is not the objective academic he pretends to be. Reich and Krugman have a lot in common.”
That was where I was having trouble, too. I think he was trying to argue that Reagan/Bush tax cuts lead to deficits, and then as a result spending gets cut. Seems to me until this year there’s been very, very little spending cut because of deficits, though. Indeed, with the vast majority of the Reagan tax cuts in place, we got surpluses in the late 1990s; and even with Bush II’s additional cuts, we had a very small deficit as a % of GDP (1% or so) just before the recession hit. And the periods of larger deficits in the past 30 years have more to do with recessions than tax cuts, again, verified by the fact that deficits were much, much smaller even with the tax cuts when the economy was stronger.
So, “tax cuts on the rich” leading to “reduced revenues” leading to “budget cuts” and “non-rich fighting for scraps” isn’t how it happened. Most of the changes in spending priorities–not necessarily cuts, it would clearly seem–have to do with other things, like political ideologies, political influence, etc.
Seems to me Reich didn’t actually explain how we got to the point of such inequity at all, which was the entire point of his video, since his proposed chain of causation didn’t really happen. There’s definitely some truth (actually, more than some) to the notion that the tax code has become much more regressive (“rich” pay most of income tax, but that’s only 1/3 of all taxes collected at all levels, and only demonstrates that they have most of the income). But that wasn’t the point he was making, and by itself I don’t think it’s enough to explain what he’s trying to explain, anyway.
Thank you Scott… Finally a different view.
Tax cuts do not necessarily lead to deficit. Tax revenues are not related to government spending anymore. – and thats the problem.
Look at countries like Germany or France where you have about 50% tax burden. One should conclude that these governments must be the richest on this planet… But in fact they were the first european countrirs breaking the euro stability pact and have huge deficits. Government spending is just not linked to tax revenues and every increase in taxes won’t change anything. Increasing taxes will only lead to even higher increased government spending.
I travel alot around Germany and France and I wonder where all this tax money goes. Infrastructure is in a piss poor condition, public service is terrible and regulations are out of hand.
I prefer to live in a country with low taxes and at least I know why infrastructre and public service are in poor condition then to live in a country with high taxes and not knowing where my tax money disappears.
The poor, the super rich, and affluent professionals who work for firms tend to be Democrats, and the small businessmen who make 200K-1000K tend to be Republicans. This is all you need to know to understand Obama’s policies. Obama has been very good to the super rich. The banksters are still in business, the bailouts were completed, the Banksters got record bonuses in 2009 and 2010 even after being bailed out, and Dodd-Frank did nothing more to rein the banksters in than window dressing (he had to throw a few bones to the lefties for show). The banks are still too big to fail, and are in fact bigger than ever.
I like Reich and I think most of the time he gets it right but this time I have to partially disagree and point out that the story is a little more complex. The super-rich did not steal the middle class money. The flat middle class incomes are a logical consequence of the globalization. I often ask this question and has not gotten a good answer yet: why would an American software developer be paid five or ten times more than a Russian or Indian one? They are equally productive. My answer is that they won’t be paid more than the Russians and the Indians. In real terms the American incomes must come down in order for this country to become competitive again. The middle class is a loser from the globalization while the upper class is positioned to benefit from this process. This is how we got the income disparity and this will not stop here.
I have been working with Indian developers, I can tell you why
That is correct. But there are also the cheaply produced goods in the Emerging Markets factories that are still sold at the old, made in the West, prices to the middle class. Here is where maybe the bulk of profits comes. So I am amazed that people do not discuss this point – buying a pair of sneakers still costs the same as before the globalization. Knowing how cheap they are to produce now, I would not be willing to pay the old price.
InvestorX
I enjoy reading Robert Reichs views and I personally agree with much of what he says here however I have to point one thing out. Yes, the federal tax rate was much higher in 1970 but keep one thing in mind. State and local income taxes and sales taxes were significantly lower and in some cases nonexistent in 1970. We need to look at the change in the total tax liability, not just the federal. The total tax burden on the upper income (and I’m not talking my book here either) may not have changed as much for the upper income people, at least in some states, as the federal rate would imply.
Same story in the UK. UK bank assets were constant at 50% of GDP from 1880 to 1970, then increased to 500% in 2006.
Source: 3rd page here: http://www.bankofengland.co.uk/publications/speeches/2009/speech409.pdf
Thus I suspect there is something more going on than the US political factors to which Reich refers.
brilliant, spot on , i agree 100% with this…money is being robbed everyday from the real engine of growth, from the real economy, we are forced fed speeches telling us that we have to compete with china and cannot afford to have social safety nets…while 100B$ are bing paid every year in bonuses then pumped in financial economy through tax optimising scheme
his point about deficit was not to underline US solvency iosue but to underline that, in the world we live today, it creates govt spending reduction. Now under MMT it is probably not that much of an issue, but my opinion is that the mechanism he describe shall be broken down before putting MMT in practise.
sorry for posting one more time but one issue is that, imho, people are less into politics. It seems that current system is being accepted by anyone as axiomatic and apolitical wheras it is highly political: we live in a plutocratic oligarchy. Blame it on politicians who turn politics into a vast jokes.
goodfiend, people are less into politics and often don’t vote, as I am sure you know, but the education the vast majority of Americans get does not include economics or true history. They are not taught about the great depression, the union movement except to demonize it, the important laws of the New Deal to forestall another depression (now gone) and lack basic knowledge of their own government. And who influences the State Boards of Education to eliminate controversial subjects including textbooks.?
People see that voting for the one party or the other: a) brings the sam outcome – there is no difference and b) elected politicians do not care about the people’s will (e.g. TARP).
So they are absoluteey right not to vote. I think what they need to do is to demnostrate and strike more. But I think this system will not be changed with demonstrations. What we need is first non-compliance wth the system and maybe a revolution similar to the Middle East.
InvestorX