The U.S. National Debt is Peanuts: the Myth of "Trickle-Down" Economics

In listening to the various pundits and news reports--and I follow as many news sources as I can, including the pseudo-news on Fox--about our current economic situation, it seems to me that the most important points are missing from the discussion. For the most part what is talked about is job-creation, or the lack thereof; but rarely is the quality of those jobs addressed. The economy created so many jobs in the last quarter et cetera, but nothing is said about what kind of jobs they are. The avoidance of this point by the pundits is curious, if not dishonest, because therein lies the most basic and fundamental problem facing the U.S. economy; namely the disparity between rich and "not-rich." The exponential widening of the income-gap in this country is the ultimate problem, and every honest economist knows it. Why do we hear so little about it?

     The lion's share of new jobs created by this economy in recent memory are not good ones; mostly menial, low-paying jobs with no benefits or retirement plans. These are jobs that, 30 years ago, would have been difficult to fill; now there are a hundred applicants. A high unemployment rate is actually very good news for business, because it drives down wage-rates. That is Economics 101. All of this is rapidly eroding the middle-class; it not far out to say that in perhaps a decade, there will be no such thing as a "middle-class", but merely haves and havenots.

     Even America's economic guru and foremost apologist for free-market capitalism, Alan Greenspan, is alarmed by the fast growing income-gap, calling it a "national crisis" (see the article by Freeland in the Atlantic Monthly from January/February of this year if you don't believe me). It can be reasonably argued that the huge gap between rich and not-rich was a primary cause of the Great Depression in the 1930's. It certainly is not unreasonable to argue that the same is a primary cause of our recent/current recession. (See Paul Krugman's The Great Unraveling and Return to Depression Economics, J.K. Galbraith's The Predator State, and Robert Schiller's Irrational Exuberance for more on this.) 

     The rich get richer and the poor get poorer; that, of course, is not new. The process, however, was given a shot of adrenaline by an economic theory known as "trickle-down," or "Reaganomics," back in the 70s and 80s, whereby the wealthy and corporations are given dramatic tax-cuts on the assumption that they will then invest more heavily, thus creating jobs for the non-rich, and thus wealth would trickle down to everyone, creating a Plutocratic utopia. The idea originated on the right-wing, and gradually by means of powerful propaganda--little short of brain-washing--has nearly become mainstream. The Bush tax-cuts are the most recent and glaring example. Thus the middle-class pays a larger percentage of their income in taxes than most large corporations and the rich. 

     The almost total failure of this economic theory to create that utopia is being systematically ignored; witness that the Dow is touching record levels again; witness the rich and super-rich, routinely displaying their outsized wealth, blatantly exploiting their huge political influence (mostly in the republican party, but it certainly crosses party-lines often enough), while the vast majority of Americans are living paycheck to paycheck, struggling to hang on to what little comfort they still have. The American Dream--if there ever was such a thing--has plainly become a fantasy for my generation. It simply is not going to happen.  

     The fact that so many, particularly on the right, persist in believing the myth of "trickle-down" economics strikes me as dishonest; it is more thinly disguised self-interest than genuine belief. Anyone worth less than, say, 1 million, who insists on the righteousness of this economic theory, and supports those in power who wish to use it to guide the country's economic policy, is in essence cutting their own financial throat.

     The ongoing debate in Washington about how to solve the government's debt crisis has become little more than a circus, because powerful forces behind the scenes have managed to convince so many Americans to cut their own throats. According to a study by the Deloitte Center for Financial Services and Oxford Economics, U.S. millionaires collectively will go from $39 trillion to $87 trillion in wealth by 2020. The national debt stands at $14 trillion. Peanuts. The idea, again mostly but not completely from the right, that the only way to pay this debt is through deep cuts in the various social programs (e.g. medicare, social security etc.) is absurd, and ultimately dishonest. If the wealthy and large corporations want to operate on American soil, let them pay their fair share. And yes, it is fair; even though they pay more in raw dollars than does the average tax-payer base, they pay a smaller proportion of their income than does the average tax-payer. (Don't be fooled by this inverted statistical trick; remember Samuel Johnson's injunction: "There are liars. There are damn liars. And then there are statistics.")

     The counter argument to this, of course, is that raising taxes on corporations will cause those corporations to take jobs overseas; and raising taxes on the rich will discourage investment, thus hurting the overall economy. The problem with this argument is that corporations are already taking jobs overseas, for various other reasons, and will do so whatever the tax laws may say. The overall economy--such as it is--was in far better shape before the Bush tax-cuts; it would be hard to argue otherwise, although some will. Further, though it seems counter-intuitive, wealthy individuals are not a very large piece of the "investment pie"; rather it is the 401Ks and various different kinds of funds, shares in which are owned by everyday working middle-class people, that makes up the majority of investment; so that the loss of some amount of investment by the rich would make little difference.

     This is not to say that some cuts in spending are not going to be necessary. Governments are bureaucracies, and bureaucracies are inherently wasteful. If we want to solve the so-called debt crisis, some belt tightening is going to be necessary. The republicans in congress, still claiming to believe the myth of "trickle-down" economics despite the mountain of evidence that the theory is bad news for all but a tiny fraction of the population, want the middle-class to make all the sacrifices; deep cuts in government programs that middle and lower income Americans rely on, while further cutting taxes on corporations and the rich. I have to question their honesty and integrity. It all smells a bit fishy to me; as Will Rogers said, "We have the best politicians money can buy."

Why We Write

Here we are, authors, serious and otherwise, making our way through the yawning haze of American culture, fighting through the muck of popular ambivance, slashing at the fabric of public ennui, all scribbling our footnotes to Plato, and taking a dose of hemlock for our troubles. Why do we do it? Why do we write? For me, at any rate, I do it because there seems no alturnative. I fight on because I cannot do otherwise. Credo: I must write to shore-up the good and beautiful, the true and possible; I must write to expose the frauds, to undercut the resounding hubris and bullshit we are surrounded by these days; I must write to give courage to friends and unknown comrads, and to frustrate our common enemies. I write to restore faith in humanity, to restore faith in the future, and to turn arwy those currents in the drift of history which seek to destroy both... Author's, take courage!

Excerpt from chapter 13 of Trouble in Paradox

For all our Western liberal democratic traditions and individualist rhetoric, we are a collectivist, Gnostic people who long ago swallowed the horse-pill of Marxist determinism and chased it with a vial of structuralist poison, causing an ugly growth of confused moral relativism. We no longer trust ourselves, we no longer trust what we see, convinced that appearance is illusion and that there lurks below the surface some absolute but discoverable structural system. With no genuine faith left in the moral conscience or the freedom of the individual will, with no belief in our transcendent ability to direct the currents of history, and with a latent mistrust of empirically demonstrable surface facts, we are a people who walk blindly along a predetermined cultural and biological path, following the invisible mandates of a theoretical substructure, as revealed to us from the high-bully-pulpit of the social sciences--psychology, sociology, anthropology, economics, demographics etc. Psychology and sociology decide how we will behave; economics, geography and demographics determine where we will live and what we will do with our time; anthropology informs us of who and what we are.

     Like all forms of intellectual utopianism, this variety implies the kind of inevitable social engineering that killed untold millions in the twentieth century. And it contains another, more personal and ultimately more dangerous undercurrent: by it we have turned a collective cold shoulder to all thought of human possibility; the easy assumption that human activities and attributes are governed by strict natural laws--analogous to the physical laws which govern the inanimate world--essentially amounts to a complete abdication of our individual humanity, and an absolute loss of hope. The bedrock of tomorrow is eroded away, the field of the future laid with mines (which are, of course, predestined and unavoidable)...

About the Author

My name is Aaron and I’m an alcoholic—by choice. I live in Colorado Springs, Colorado, with my memories. I have been walking the wrong way down a one way street for most of my life; living out on the fringes and testing the edges to see what I can see—and writing about it. I spend most of my time buried in books, wandering the wild outdoors, scribbling in my journals, or drunk on a barstool. I am 32 years old, work a futile and tedious part-time job, and sporadically take classes at the University of Colorado, purely for the sake of interest (almost ten years in college and no degree on the horizon—but I try to remain modest.) I have been called many things: a redneck intellectual, a vulgar poet, a shrewd fool, a bigoted liberal, a closet moralist, a hopeless romantic, a cynical idealist, an honest liar, and (my favorite) the weeping comedian. Slightly neurotic with a painfully average libido, I am subject to a lust for dive bars, cheap cigars, classical music, desolate deserts, pretty girls, and long moonlit walks off short planks. Though I have been writing for years, Trouble in Paradox is my first coherent, book-length piece—first of many. My ambitions lean toward literary fiction, and my first novel is currently fermenting in my febrile head.