To Be Perfectly Clear – Part 3

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        From 1980-2007 corporations were making higher profits and accumulating wealth more quickly, while at the same time through reduced corporate and personal income taxes of the very wealthy, returning much less of it to government to be distributed back into society;

Inequality of wealth and incomes grows out of control.

          1. Inequality of  wealth and incomes immediately began to grow like wildfire, so much so that the most wealthy captured virtually all growth for themselves, while most of the balance of society failed to grow at all, and middle class standards of living and real (inflation-adjusted) incomes declined;

          2.  This disproves the Reaganomics argument that tax cuts for the wealthy stimulated more jobs and wealth for the balance of society.  What actually happened over the next 30 years was the opposite – lower overall growth, little or no growth for everyone below the top 10%, and accumulation of wealth predominantly at the top.  

           3.  For tax cuts to the rich to have given up “trickle down” benefits would have required sharing the wealth they are taking from everyone else, but as discussed in Part 2, the wealthy have been actively engaged in gaining more wealth in every way possible.  It would have required growth to share, but as explained, it resulted in lower growth, as shown here:

          This graph shows that income growth (and hence the ability to accumulate wealth) was radically concentrated at the top after 1980.

          4.  Our estimate of the additional wealth gained through tax cuts by the top 1% by 2007, based on their increased percentage of total wealth, is $8.8 trillion; [4]

          5.  The market crash in 2008 and the Great Recession caused more wealth to transfer or vanish from the rest of society (the bottom 99%), but also the basic mechanism of wealth transfer continued over the last four years to transfer at least $1.2 trillion more, so we conclude the wealthy elite through the basic mechanisms of inequality growth since 1980 gained more than $10 trillion, [5] with the balance of society losing that much, compared to maintaining the same degree of wealth inequality as before;   

         6.  That’s a ton of money, almost impossible to imagine. [6]  But we know that in 2007, the bottom 99% held 66.2% of total 

  American wealth, which in 2007 was about $65 trillion, or $43 trillion.  A $10 trillion loss is a devastating 23% of the wealth of the bottom 99% transferred to the top 1%.  That’s the demise of the middle class. 

          8.  Add to that $5 trillion for loss of real estate wealth since the 2008 Crash, and the bottom 99% has lost more than 1/3 (35%) of its wealth.  [7]

         8.  Here’s the killer: Because these lower taxes for the richest Americans meant that lower revenues were coming in to government, the Republican Administrations had to raise federal debt to pay for these tax reductions! And they did.  The debt went from less than $1 trillion at the start of the Reagan Administration all the way up to $14 trillion today. At least $12.1 trillion of the federal debt was caused by the Reagan/Bush/Bush administrations, and that figure keeps growing through accrued interest; 

          8.  Effectively, they used our government to borrow additional wealth for themselves, creating a financial crisis;

          9.  What are the implications of all this?  The basic ones we see are these:

  • The underlying economy [8] within which the balance of society functions is only perhaps 2/3 of what it could and should have been.  And we can see the results: Towns and states and the federal government have significant budget problems. Unemployment is way up, the economy is way off, and tax revenues are hard to come by;
  • We’re at an inequality of incomes resembling where it was at the start of the Great Depression in 1929, but this time the ultra-rich probably won’t collapse along with the balance of society, if there is a depression. 
  • They really don’t need the rest of us all that much any more.  They’ve got global markets to conquer, and an international monetary system to manipulate.  The majority of their money and business operations, it appears, are now outside of the U.S., and there are plenty of other places they could live.             

They’re not finished yet!  They want the rest of the wealth, and permanent control of governments too.

           10. Incredibly it gets even nastier:  Remember we said there were three ways ultra-rich people could increase their wealth (did I mention, without coming by it the old-fashioned Smith/Barney way)?  They’ve been (a) reducing regulations and (b) cutting taxes pretty successfully for 30 years, and now with the financial crisis that they created, they’re turning their attention to:  (c) not returning excess wealth back to the balance of society.  They will use tax revenues (from everyone) to serve only them!

  • That’s right, cut “entitlements,” they say.  No more Social Security, Medicare, or Medicaid!  Just privatize all of the functions of health care and retirement, turning them over to their tender mercies!
  • And, they say, let’s cut out, or way back on, everything else government helps provide to society (like federal funding for NPR or Planned Parenthood; or state funding for things like police, firemen, schools, teachers, or the judiciary).
  • And while they talk as if they are, they’re not trying to close up any deficits: They’d rather take additional tax breaks, directly transferring more wealth to themselves from everyone else.  They’d like to bring the top marginal tax rate down to 25%, and rake in more wealth through state governments, whose budgets they don’t really care about either;
  • And capping the federal debt?  No, not if the rest of us don’t agree to their demands;
  • Finally, if any of our towns or cities are suffering a financial “emergency,” or perhaps even if they just want to, they plan to shut them down and take them over.  They might build resorts or golf courses on the nicest real estate (which I suppose they would take through eminent domain), but the bottom line is that what happens to communities then would be entirely up to them;   

Counter demands, anyone?

      Here are some demands the balance of society could reasonably make of the wealthy elite: 

  • These are your deficits, and the Republican Debt is your debt, borrowed to finance more wealth for yourselves.  We want you to start paying it back now. [9]
  • From now on, your “entitlements” are all we’re willing to talk about.  Ours are off the table. 
  • We like democracy and we intend to keep it.  Get your authoritarian plutocrats out of our lives, because we won’t rest until you do.

(How about that, I think I only used the e–word once!)

 JMH – 4/19/11


[4] Think of it as the amount by which they avoided distributing wealth back to the balance of society, keeping the excess wealth they had captured.  At the 70% rate, they would have retained some of the excessive wealth obtained by controlling government; that is included in this estimate.   

By increasing inequality, they gained wealth at the expense of everyone else, and that is true “wealth redistribution.”  (The amount of reduced taxes over time, below 70%, would be a minimal approximation of their increased wealth via lower taxes alone over those years, but we don’t have those numbers.)

[5] Sometimes we say $12 trillion, reflecting how conservative we think the $11 trillion figure is, especially since it reflects none of the investment or real estate losses from the Crash.

[6] Maybe this helps: If $11 trillion were paid out all at once, every man, woman, and child in theU.S.would get about $36,000.

[7] Middle class wealth is mostly real estate.  There are wild numbers out there for the cost of the crash: The loss of real estate value (initially $13 trillion?); loss of investment equity (initially $6 trillion?); tax dollars for the bank bailout ($14 trillion?).  These numbers in aggregate can’t be correct, but $5 trillion appears to be a reasonable estimate for the continuing loss of real estate values.   

[8] Darn! The e-word! And I almost made it.

[9] You think??

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One Response to To Be Perfectly Clear – Part 3

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