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Fri May 16, 2014, 10:59 AM

The Dirty Secret of a Great Economy

Small Economies

In a society money moves around, changes hands, is used for goods and services, and for our purposes, let’s call that its economy. Imagine an economy where very little money changes hands, and in which few people are involved. This “small” economy occurs when there are just a few very wealthy people and the vast majority of people are poor. Very little money flows in this kind of small economy because 1) the majority of people don’t have money to spend on their demands and 2) the rich, who have money, have relatively few demands. Their demands have already been met, and their wealth represents excess buying power which they aren’t using.

Small economies, because of the way their wealth is distributed, are unhappy places in which to live. For the vast majority, there is no way to meet their demands for housing, clothes, food, medical care, education, transportation, and entertainment. Even the rich, with all of their wealth, have to protect themselves and jealously guard their situation, and they have to live in a world where most of their cohorts are poor, badly clothed, unhoused, uneducated, sick, and unsatisfied. Injustice, corruption, and exploitation flow from small economies.

Large Economies

In contrast, consider a large economy in which lots of money changes hands, and in which lots of people are involved. There are still rich people with excess wealth in this large economy, and poor people who take in and spend very little money, but in general the poor take in enough money to meet their demands. They can afford to feed, house, transport, heal, and educate themselves.

Life in a large economy is a much happier place. Everyone can meet their needs, rich and poor. Because even the poor have income, a portion of the economy orients itself to meet their demands. The rich, whose demands are always met, get to live in a society where their fellow humans are much more secure.

Examples

There are many examples of large and small economies in the world today, but consider just two examples from the history of America in the last century. The problem with The Great Depression is that America’s economy suddenly got very small, in contrast to the large American economy in the decades after World War II.

Moving from a Large Economy to a Small Economy

How does a large economy become a small economy? Unfortunately, that change is a natural tendency in a capitalist system. It is captured in the folk wisdom of sayings like “The rich get richer” and “It takes money to make money”. Rich people can turn their wealth into mechanisms for making more money. This is capital. Poor people generally only have their time and effort to exchange for money. This is labor. In capitalism, money gravitates naturally to the already rich, making the economy smaller and smaller and life worse and worse. With no intervention, the money that is flowing around in a large economy gets vacuumed up by the rich.

Moving from a Small Economy to a Large Economy

Because a large economy is both desirable and short-lived in a capitalist system, another mechanism is required to maintain or grow an economy. This is where the government comes in. The way the government creates larger economies is by taking rich people’s money, and giving it to poor people. Government has a number of ways to do this. It can take rich people’s money directly and redistribute it to the poor as foodstamps, healthcare, subsidized housing, public transit, public education, etc. It can also, by supporting organized labor and legislating minimum wages, facilitate larger transfers of wealth from rich to poor in exchange for labor.

The Dirty Secret of a Good Economy is that Rich People have to give Poor People Money

Wealth redistribution, taking money from the rich and giving to the poor to spend, is the way that economies grow, become responsive to all the members of society, and create a better society. And putting money into the hands of the poor creates new opportunities for the rich to try to get that money back. Getting the money back also makes the economy bigger. There is no way to do this through capitalism, it is almost purely a governmental function. It is why government putting money into the hands of the poor, through foodstamps or welfare or any other way, has a huge “multiplier” effect on the economy, whereas giving the rich tax breaks to keep even more of their money out of circulation has relatively small beneficial effect.

Voodoo Economics

The relatively healthy American economy in the 50s, 60s, and 70s, has been shrinking over the last 35 years starting with the Reagan tax cuts. By drastically slowing the taking of money from the rich, Reagan began the process of shrinking the economy. This is why George H. W. Bush called Reagan’s tax plans “voodoo economics” in the Republican nomination race of 1980. Bush knew that cutting taxes on the rich would take money out of circulation and shrink the economy. The shrinking of the economy has been masked somewhat by allowing the working class to borrow large amounts of money and spend that to cover their needs, but this just pushes the problem of the shrinking economy into the near future. Changes in the law have allowed the rich more and more power to change the rules (and the goals) of government, to the point where government’s function has been perverted to give money to the already rich, which will shrink the economy further.

The Golden Goose

By weakening the government’s redistributive power, the already rich have made themselves vastly richer, shrinking the economy, and making America an increasingly unpleasant place to live. Instead of enjoying the fruits of a large economy, they are sitting on top of a horde of wealth in a smaller and smaller economy, while the needs of their fellow Americans go more and more unmet. There are only three ways out of this trend. The first is revolution, a dangerous, deadly, and uncontrollable force. The second is stagnation in a very small, feudal economy, rife with injustice and unmet needs. The thirds are FDR-like reforms, where the government begins to redistribute wealth and make the economy larger. By leveraging more and more power and wealth to themselves, the already very rich shrink our economy, and kill the golden goose of a large American economy.

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Replies to this discussion thread
Arrow 11 replies Author Time Post
Reply The Dirty Secret of a Great Economy (Original post)
ProfessorPlum May 2014 OP
CrispyQ May 2014 #1
ProfessorPlum May 2014 #4
Wounded Bear May 2014 #5
Wounded Bear May 2014 #2
ProfessorPlum May 2014 #3
Wounded Bear May 2014 #6
Wounded Bear May 2014 #7
CrispyQ May 2014 #8
ProfessorPlum May 2014 #9
ProfessorPlum May 2014 #10
laundry_queen May 2014 #11

Response to ProfessorPlum (Original post)

Fri May 16, 2014, 11:59 AM

1. When we started to value capital over labor was the starting point.

Money made from capital should be taxed higher for the very reason that it is not earned by an exchange of one's time, one's life, like labor is.

I think we're going to go the way of #2: stagnation. I just don't see the rich & average republican Americans supporting a progressive tax structure & taxing investment like or more than labor. Even the ones in the shrinking middle class will chortle against raising taxes.

Good commentary. I would love to see the responses it would get on the new site.

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Response to CrispyQ (Reply #1)

Fri May 16, 2014, 12:45 PM

4. Thanks!

I keep hoping that stagnation isn't the final end - that the powers that be won't be smart or evil enough to just shut down everything . . . but with the surveillance and police states they are setting up I think I have to agree with you.

Maybe I'll have to try it out on the new site

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Response to CrispyQ (Reply #1)

Fri May 16, 2014, 01:01 PM

5. I fear you are right about the US drifting toward #2...

A new brand of feudalism seems to be the end game in our current state.

And once that settles in, it takes a long time, historically, to correct.

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Response to ProfessorPlum (Original post)

Fri May 16, 2014, 12:22 PM

2. A simplified, but accurate description IMHO...

A corollary I've played with is the human body.

If you think of a society or a nation as a human body, then the economy, being the circulation and distribution of goods and services, is the circulatory system and money is the blood.

In times of stress, the body naturally directs and re-directs blood flow to compensate. Generally that means that vital organs are supplied at the expense of the extremities. Our current economic system is like having a one-way tourniquet on one area of the body, which gets bloated and oversupplied with blood and nutrients, while the rest of the organism slowly deteriorates and rots away.

It boils down to the basic idea of what an economy is and what it is supposed to "do." To the wealthy, the economy is their source of wealth and power. To the poor, it is a matter of survival.

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Response to Wounded Bear (Reply #2)

Fri May 16, 2014, 12:44 PM

3. That's a brilliant analogy

and one I hadn't thought of - i've often struggled with how to get the concept of the economy as the flow of money (and things that stop up that flow being detrimental) - and that is a good way to think of it.

What I'd really like to do is animate this set of thoughts with some simple animation - it seems like no one understands how we get good policy (or what good policy would look like) because no one understands this basic underlying dynamic.

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Response to ProfessorPlum (Reply #3)

Fri May 16, 2014, 01:02 PM

6. Thanks...

It's one I've played with in my mind for quite a while. That's probably the first time I've committed it to print.

I think one of the big problems is that the 1% tend to think they are immune to the difficulties that come with the "small" economic model you've described. They don't feel any pain until it is entirely unmanageable.

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Response to ProfessorPlum (Original post)

Fri May 16, 2014, 02:13 PM

7. Kick...

Just because...

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Response to ProfessorPlum (Original post)

Fri May 16, 2014, 04:51 PM

8. Take a peek at the same thread on the new site:

http://www.discussionist.com/10158115

Glad you did that!

~kick

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Response to CrispyQ (Reply #8)

Fri May 16, 2014, 05:24 PM

9. And thanks for the idea

would it be gauche to cross post this one from over there?

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Response to ProfessorPlum (Original post)

Sat May 17, 2014, 09:39 AM

10. Self-kick

I've been thinking about turning this outline into a larger book or an animation/video. Can you think of ways to illustrate it that would be interesting/understandable to people?

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Response to ProfessorPlum (Original post)

Sat May 17, 2014, 11:30 AM

11. K&R nt

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