Monday, August 10, 2015

We live in a new age of limits and that has nothing to do with Jimmy Carter

I remember the Age of Limits under President Jimmy Carter. I remember how unhappy I was that he was giving away the Panama Canal. But I also remember the debates between Carter and that retired actor, Ronald Reagan. I remember how Reagan sold us the prospect of unlimited optimism if he were elected president.

So I decided to have a look at the debates again to see if I was right. There is a great video from the Ronald Reagan Library with the full length debate on hand on YouTube. This is just one of the great things about YouTube. YouTube has become a worldwide repository of culture. It's incredible that we have such a service at all a service that is free.

Reagan and Carter both seemed to agree that Carter's presidency was an age of limits. Carter was intent on promoting conservation and self-reliance. Reagan? Well, I'm not so sure. He seemed more sure of his economics fixing the problem rather than having specific solutions to the problems that Carter was trying to solve.

In 1980, our country was in the midst of very high inflation relative to the low inflation that we seem to enjoy now. Inflation was running about 14%, mostly due to the increases in oil prices in 1974 and 1979. These increases were due to events beyond Carter's control, but Reagan did his best to make Carter look the fool. Nevermind that Carter was at the time promoting drilling and coal mining to help alleviate the pain at the pump.

In the same debate, Reagan pumped his tax cuts as a way out. Reagan also responded to Carter's criticism of the tax cut plans as inflationary. Reagan said, "Why is it inflationary to let the people keep more of their money and spend it the way they'd like, and it isn't inflationary to let him (Carter) take that money and spend it the way he wants?"

34 years later, we're back in a new age of limits. Reagan got elected, enacted his tax cut plan and the rest is history. We live in an age of limits, but that's just for ordinary people. For the wealthy, there are, apparently, no limits to the aggregation of wealth into the hands of the few, the privileged, the anointed. When Reagan used the term "people", he probably wasn't thinking of the 99%.

Wages have stagnated for about 34 years. In fact, last quarter, wages rose at the lowest rate in about 34 years, 0.2%. That would take us back in the recession of 1983. We have a belligerent majority in Congress intent on cutting government spending despite the fact that only people who have any extra money to spend are hoarding it rather than spending it. This is the age of limits I'm talking about.

Inflation is what you get when too many dollars are chasing too few services. The low inflation we've seen in the last 8 years is a result of too few dollars chasing too much supply. Oh. I guess that's what Reagan meant by supply side economics. So where did all that money go? Well, there's about $2 trillion parked offshore by the richest, largest corporations. In the last 5 years, 95% of all the new growth in the economy went to the top 1%. Where did that money go? It's parked in assets like stocks, bonds and property. That money is not circulating. That would explain the low inflation we have now.

This siphon on our economy has been going on for a long, long time and only accelerated to the point of near collapse in 2008 and it continues today. Without the bailouts, the economy would have corrected itself. With the bailouts, the wealthiest people get the bailouts and everyone else pays the taxes to cover for them. Life is great if you have a really good tax attorney.

It's time to rephrase and reframe the question that Reagan posed. The question that Reagan asked in the debates in 1980 should be rephrased and reframed as follows:
Why is it inflationary for the people to keep more of their money and spend it as they would like, and it isn't inflationary for the wealthiest corporations and people to keep it and spend it the way they'd like?
Because that money isn't circulating when it's parked in assets. This is the reason why our economy is still weak today. This is also the reason why wages are stagnating. The only way we can support the enormous grow in executive compensation is by suppressing wage growth. how is that done?

Through public policy. Who writes public policy? The 1%.
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