So, why is our stock market at an all-time high, but our real economy — the one that’s about earning our living expenses — is still down? In a speech held at the Commonwealth Club, a speech which makes for a fitting follow-up to last Friday’s article and videos, Robert Reich explained it beautifully: income inequality makes us poor and the corporations rich. The corporations then buy back their stocks thus driving up stock prices which makes them, and the stock market, look good. The Fed meanwhile tries to boost the economy by keeping interests low, but our government’s austerity policies make the economy like a wet noodle the Fed is trying to push on. When government cuts spending and corporations just borrow money to artificially drive up their stocks, we get no economic revival. Well explained, indeed! In essence, our booming stock market is fake. It’s just another market bubble.
Oh, and thanks to Mr. Reich, I finally understand economic terms like the wet noodle. This is another video on economics and politics worth listening to, especially for people who don’t yet grasp the very basics of how our economy is rigged and the money-in-politics problem this rigging produces, only to come back like a boomerang and cause yet more rigging. So, tis is a good speech for people who still need to wake up out of their all-is-well-with-our-system slumber or those who know something is wrong but have no clue what. Reich gives a really good introduction for such folks, and he is funny, too:
(Note: if the video linked above gets deleted, you may search the Internet for the title “Robert Reich: Inequality for All (11/20/13)” and, or that is not sufficient, “Robert Reich”, “Inequality for All”, and “Commonwealth Club”)
Robert Wolff, who tends to go further than Robert Reich, has – in some of his speeches – explained how the dire tax evasion scheme of large corporations works. And, after the above speech by Robert Reich, Wolff’s explanation may be easier to digest and believe. What they do is: they buy back their stocks with money borrowed at near-zero interests from banks while they keep their profits stashed abroad to avoid U.S. taxes until, some day, their lobbyists will get the corporate tax rate to be dropped (or some other tax loopholes opened). Once that happens, they will bring their money back inside of our borders, not to invest into economic growth or pay decent salaries or hire laid-off workers, but to pay back the cheap loans which gave them the equivalent of a near-zero tax rate in the meantime.
The winners: the robber billionaires who own these corporations and the banksters who enable them to evade taxes. The losers: us. The accomplices: the Fed and our government that isn’t ours anymore. The culprits: money in politics and the concentration of way too much money in the hands of a very few. The concentration of wealth makes it so that the privileged super-rich can pump money into politics as an investment that gets them huge returns at our expense. All clear? Or do I need to explain this with a wet noodle? 😉
Reich explains the dynamics of our stalling and shrinking economy by pointing out that when much of our money accumulates in the hands of a few, the many lack the funds to be customers; and when businesses lack customers, they shrink. To make his point clear, he asks (slightly rephrased): Imagine if you were one of those earning $10, $15, or $20 million a year, how hard it would be to spend all that money? It would be a really hard full-time job!
He is right about this, of course. Still, I like to take this a little further and say: Yes, that is why our economy is in decline, all right. The money accumulates and stalls where it won’t be spent, and too few people are left who can afford to pay for their needs and desires. Hence the economy stalls out and shrinks. Our money in this type of economy can be compared to blood that leaves the cardiovascular system and pools in one location of the body. A lethal internal bleeding. However, if I were such a rich person, I could solve the problem of money languishing in my idle assets very easily: I would hire people to work on making our world better. I would instantly have spent my surplus, and I would have spent it not only getting people jobs and incomes, but these people would be using their time and resources to better our world. So, on top of more people now being able to spend money for their needs and spur our economy that way, this approach would also directly influence our society for the better, and those people would have fulfilling jobs; something very different from selling deficient health insurances or overpriced, harmful, inefficient pharmaceuticals; or bribing politicians; or telling establishment-friendly lies and trivialities on TV. It would be a three-prong approach for making the world better and could be done in a heartbeat. Look at me as an example. I do a full-time job writing for a better world, but I have to do it for free. How long can I keep this up? I also can’t pay for many of my needs (and thus be an economy-boosting and jobs-creating customer) while I survive on the scraps of money I have to somehow get on the side in temporary jobs and gigs.
So, yes, we have a systemic problem. But what’s more, this systemic problem stems from people who are either knowingly or unknowingly causing it, and who do nothing to fix it, even though they easily could. All they would need to do is get a lawyer to set up a world-improving foundation (not a mere charity), meet with people like me to hammer out ideas, and then run with them. Easy! There is no justifiable excuse not to do it. And any such rich person would set a great example for his or her peers and children (so the latter wouldn’t grow up as spoiled and sociopathic as they often do). Such a rich person would truly be the hero our warped mindset often falsely declares rich people to be — as alleged “job creators”. She or he would be a real job creator. What a glorious life such a rich person would have. And all the people he or she were thereby empowering and helping would be much better off, too.
It just took a tiny part of my creativity to come up with this solution. I am probably not the first to do so either (which doesn’t reflect well on all the plutocrats who have ignored this idea and either done nothing or merely dabbled in those half-hearted measures we call charities).
Let’s get back to comprehending our economic situation:
A point which has been made and repeated by John Maynard Keynes, Robert Reich, and Robert Wolff (and sometimes me) — and which our country has proved to be absolutely true in the three decades of shared prosperity and rapid economic growth after WWII — is the following: the trick to make our economy better lies in enlarging the circle of prosperity (that’s the most basic, first step, mind you, not all the steps I would recommend). This is so not only because of the direct effect on those who are thereby included in the widening circle of prosperity, but – as you can hopefully conclude by now – also because the economy as a whole receives a boost from the enlarged customer base which grows business opportunities which then create more paying jobs and thereby widen the circle of prosperity even more. It’s precisely what FDR’s famous New Deal did. So, when the rich hoard less wealth and let more people share in our economy’s prosperity, this boosts and grows the economy to everyone’s benefit.
Let’s understand, once and for all, what people like Robert Reich, Robert Wolff, and Nick Hanauer (himself a plutocrat) keep telling us: the people at the top are not the job creators. Customers are!
I’ll give a simple example to illustrate this point. Imagine you own a business that makes chairs. If people don’t buy your chairs (because they don’t have enough money) and those chairs pile up on the street in front of your store, you won’t hire more people to make more chairs, or would you?
If you paid your chair makers a good salary, at least they could afford to buy your chairs. That’s what Henry Ford famously did. Shared prosperity means prosperity for all, which means a flourishing economy.
An interesting segment in the Q&A segment that followed Reich’s speech was his reply concerning the possibility of – and need for – a third party. Even though he apparently had previously argued against third parties as vote splitters, at this time in 2013, Reich agreed that third parties are always useful and needful, and he had now come to realize that the usually low chance of creating a strong new party was at this time improving — because of a kind of civil war raging in both dominating political parties: the Republican Party struggling internally with the so-called Tea Party, and the “Democratic” Party struggling with the Occupy Movement.
Well, I’ll say, things have moved further along in the years since then, what with Bernie Sanders’ ascension and a deep split in the “Democratic” Party between the establishment lords who rule the party and at least half the party’s base. A huge dem-exit has taken place, and more than half of all Americans are calling for a new party. And the organization Draft Bernie for a People’s Party is working on realizing a strong new party that will truly serve the American people by utilizing these events of recent years and the association this sea change has with Bernie Sanders’ name. I have repeatedly published my own thoughts on this possibility. The most popular piece, so far, has been: Is the Time Ripe for a New Party? In short, I am excited about the possibility. This is not to say that taking over the “Democratic” Party through massive infiltration by us, the people, isn’t also a worthwhile try. I like to think that in the foreseeable future, one attempt will prove more successful than the other, and that it doesn’t matter which as long as one of them does achieve full success. Until this happens, I suspect that both approaches together will put more pressure on the party establishment than one would do on its own; and as one movement approaches victory over the establishment, the other will join, since we are all after the same goals and these two approaches are merely paths to achieve them.
To conclude, I shall deliver Robert Reich’s conclusion but also go a bit further: The dice are loaded. The deck is stacked against us. Scapegoating and divisiveness won’t get us out of this. We need to rationally understand the flaws in our system, unite around a common agenda, and use our anger to stand up and fix our rigged country. Once we do, we can become a true beacon for the rest of the world to follow (even as we are currently limping behind some of the world, since the rot is in the rest of the world as well).