Thursday, September 18, 2014

The symptoms of trickle-down economics

Oligarchies mean that the top 1% can make decisions for other people without accountability and without consequences. In an oligarchy, the people at the top can earn money without work. The people at the top become, in a sense, royalty. In a sense, it's very well obscured slavery.

We live in a defacto oligarchy, something proven by more than one study like this one. We can thank Reagan Republicans for getting the ball rolling. Tea Party Republicans are working hard to make sure we never find the ball. Trickle-Down economics, as it was called during an election featuring Ronald Reagan, doesn't work. George Herbert Walker Bush called it "voodoo economics", and I think, it was for good reason. He knew that Trickle-Down economics doesn't work.

We have inflation when there are more dollars chasing available goods. That what I learned in school, but we never discussed deflation. Maybe that's because they never believed that it would happen then. But it is happening in Europe, and it could happen here, too. Deflation comes with money being pulled out of the market, driving employment and prices down.

As wealth accumulates in the hands of the few, inflation is abated because money is being pulled out of circulation. This is exactly what we saw in the meltdown - a tremendous transfer and accumulation of money in the hands of the very few - with very low inflation. Very low inflation can lead to deflation, and that is very hard on anyone who doesn't have money. But for those who have money, their money increases in value without additional work, a very convenient fact that conservatives don't discuss too freely.

So while the press is happy to report on low inflation, they tend to omit the cost of low inflation to everyone else. Anyone who owes a debt will have will have to work much harder to pay it off. Take a simple mortgage for example. Over thirty years, the payment on the mortgage is the same number. At first, when families are young, the majority of the payment is interest with very little principle, and it's hard to make the payment because earning power is lower for young adults. As adults near middle age, the payment is the same, but relative to earning power and inflation over time, the effective payment is lower. More disposable income is available in later years.

That is what should have been happening in the years leading up to 2008. But incomes for labor had been stagnant for 30 years and people couldn't move. They couldn't pay off debt. They couldn't buy houses. They couldn't sell houses. But if you had money at that time, making money is much, much easier. The only people who were bailed out were the people who had money. Everyone else was out of luck.

If you own debt, low inflation is fantastic. If you owe debt, low inflation will be the bane of your existence. Maybe that's the reason we allow for inflation in the first place. You know, to avoid revolution.
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