The Truth About The Economy In Two Minutes

[_w_]

What you are describing has happened time and time again and as you point out it is very mechanical and there is very little choice in it.

I dont blame liebour or the tories, it doesnt matter what colour tie they wear because they all get their strings pulled by the rich and truly powerful.

This is what you describe and what is happening today, it was written about the collapse of Argentina some years ago...

It happened 4 years ago, almost a year after the December 2001 crisis. It was a social studies class and this teacher, don't remember if it was a he or a she, was explaining the different kinds of social pyramids. God! Now I remember more! We even had a text book with those darn, cruel pyramids! The first pyramid explained the basic society. A pyramid with two horizontal lines, dividing those on top (high social class) those in the middle (middle class) and the bottom of the pyramid (the poor, proletarian). The teacher explained that the middle of the pyramid, the middle class, acted as a cushion between the rich and the poor, taking care of the social stress. The second pyramid had a big middle section, this was the pyramid that represents 1st world countries. In which the bottom is very thin and arrows show that there is a possibility to go from low to middle class, and from middle to the top of the social pyramid. Our teacher explained that this was the classic, democratic capitalist society, and that on countries such as Europeans one, socialists, the pyramid was very similar but a little more flat, meaning that here is a big middle section, middle class, and small high and low class. There is little difference between the three of them.

The third pyramid showed the communist society. Where arrows from the low and middle class tried to reach the top but they bounced off the line. A small high society and one big low society, cushioned by a minimal middle class section of pyramid. Then we turned the page and saw the darned fourth pyramid. This one had arrows from the middle class dropping to the low, poor class.

"What is this?" Some of us asked.

The teacher looked at us. "This is us"

"It's the collapsed country, a country that turns into 3rd world country like in pyramid five where there is almost no middle class to speak, one huge low, poor class, and a very small, very rich, top class."

"What are those arrows that go from the middle to the bottom of the pyramid?" Someone asked.

You could hear a pin drop. "That is middle class turning into poor"

I read that piece too. Very poignant but that was just one blip although I wouldn't put it that way to an Argentinian. This process is global.

I don't think giving up or ignoring the existence of this process is the answer though. I haven't looked at it in any detail yet but am beginning to suspect we went through the exact same phenomenon in the late 1800s - early 1900s and the result was, among other tasty things, communist Russia and the great depression (which in all probability wasn't solved until the advent of WWII).

A lot of good that did us.

Very few people describe this process for what it is as it is usually tainted with political ideology but the message should spread.

Edited June 16, 2011 by _w_

[Stay Beautiful]

A banker, a Daily Mail reader, and a benefits claimant are sitting down having a cup of tea together. They order a plate of biscuits and the waitress brings twelve Hob Nobs. The banker takes eleven of them and turns to the Daily Mail reader, "watch out for the benefits claimant" the banker says "he's got his eye on your Hob Nob".

Lovely

[scottbeard]

This is going to be a long night.

I'm with you here. He's saying the root cause is that the rich were sucking up all the wealth and not paying taxes on it. For a while it was papered over by the middle class borrowing, but now the papering has stopped so the cracks are appearing.

Yes because if I am a 'super rich' living in London and the top rate of tax gets jacked up to 75% I will gladly pay that.......

For about 15 minutes before I f@@k off to Monaco and take my spending and investment and in all likelihood jobs creation with me.

Yes, if you tax too much you shoot yourself in the foot (see: Laffer Curve). But no, that doesn't mean we need to design the whole economy around a super rich class who pay little tax.

If the "super rich" guy heads off to Monaco we take a short term hit, but if the gap in the market is filled by growing UK small businesses in the long term that is even better.

[_w_]

I'm with you here. He's saying the root cause is that the rich were sucking up all the wealth and not paying taxes on it. For a while it was papered over by the middle class borrowing, but now the papering has stopped so the cracks are appearing.

Thanks for that, sometimes I miss points completely and it's nice to get a confirmation.

[sleepwello'nights]

Perhaps you need to follow your own advice. But before you do that real hard thinking just look at history, all the answers are there.

Is this the history that led to events like the French and Russian revolutions?

[wonderpup]

For about 15 minutes before I f@@k off to Monaco and take my spending and investment and in all likelihood jobs creation with me.

I don't see investment in job creating ventures- I see money mating with money and it's progeny being ever more abstract claims on a shrinking base of real wealth.

Contrary to the belief of many, debt- which is a claim on wealth- is not, in itself, wealth. Wealth is that which all those tax paying 'little people' create when they go to work every day.

And it's also worth noting that sinking huge amounts of capital into slowly decaying piles of brick or concrete- otherwise known as property 'investment'- is not creating wealth either.

[Number79]

I read that piece too. Very poignant but that was just one blip although I wouldn't put it that way to an Argentinian. This process is global.

I don't think giving up or ignoring the existence of this process is the answer though. I haven't looked at it in any detail yet but am beginning to suspect we went through the exact same phenomenon in the late 1800s - early 1900s and the result was, among other tasty things, communist Russia and the great depression (which in all probability wasn't solved until the advent of WWII).

There is a lot to discuss there.

There was a depression in 1893 and something called the Great War.

Hoover and his wage policies, keeping workers wages high, is widely blamed for causing the great depression. Quick google that covers it http://www.voxeu.org/index.php?q=node/4105

Also, Roosevelt didnt end the depression - his fantastic policies likely extended it by 7 years. World War 2 didnt end it either, another quick google http://www.realclearmarkets.com/articles/2009/06/world_war_ii_did_not_end_the_g.html

[Number79]

Is this the history that led to events like the French and Russian revolutions?

yes, this is history that has repeated itself time and time again since before Rome.

Nothing new to civilization just new to us right now.

[iamdamosuzuki]

No.

He is clearly laying the blame for the current recession/depression on the fact that the middle class are unable to consume because they are unable to borrow as they had before.

He is advocating more debt based growth, and is therefore a moron.

Utter rubbish. He clearly blames it on flat wages, and borrowing taking up the slack. At no point does he advocate more debt.

You don't like him? fine.

[_w_]

There is a lot to discuss there.

There was a depression in 1893 and something called the Great War.

Hoover and his wage policies, keeping workers wages high, is widely blamed for causing the great depression. Quick google that covers it http://www.voxeu.org...php?q=node/4105

I have a slight problem with this, for the simple fact that people were buying on credit like never before (I am writing about what led to the depression BTW, not what happened after it started). The 'keeping wages too high' argument sounds like the same BS we've heard since the 70s.

Also, Roosevelt didnt end the depression - his fantastic policies likely extended it by 7 years. World War 2 didnt end it either, another quick google http://www.realclear..._end_the_g.html

I'm not too keen on the googling debates but my remark about WWII was not related to WWII spending but with post WWII reconstruction. WWII destroyed global overcapacity, the reconstruction led to strong and capital forming economic growth. As an anecdote, I think taxes were around 90% on highest incomes back then and the US was doing pretty well.

Edited June 16, 2011 by _w_

[_w_]

yes, this is history that has repeated itself time and time again since before Rome.

Nothing new to civilization just new to us right now.

I don't understand you.

First you say the guy is talking rubbish, now you say it's all pretty normal nothing to see here.

[cashinmattress]

Replying to The Truth About The Economy In Two Minutes...

(Us little people are the white cat...)

[scepticus]

The video is spot on, and so is _w_ in this case.

The primary reason for large deficits is the inability of nations to tax multinational corps, and this is what has enriched the top.

It really is extremely simple.

[Number79]

I don't understand you.

First you say the guy is talking rubbish, now you say it's all pretty normal nothing to see here.

The mechanics of it are there but he is missing globalisation, having a middle class that can consume wont save the US or us.

What is happening is a transfer of wealth from West to East, something that also isnt new. Focusing on the US provides no answers, they cant change what is happening.

[Number79]

The video is spot on, and so is _w_ in this case.

The primary reason for large deficits is the inability of nations to tax multinational corps, and this is what has enriched the top.

It really is extremely simple.

are you sure it isnt because they are spending too much?

besides which what else would one expect? Turkeys dont vote for christmas.

[_w_]

The mechanics of it are there but he is missing globalisation, having a middle class that can consume wont save the US or us.

What is happening is a transfer of wealth from West to East, something that also isnt new. Focusing on the US provides no answers, they cant change what is happening.

Globalisation happened as a result of the saturation of production capacity in the West from the early 70s. It was a consequence of already excessive capital accumulation and the need for new markets with decent investment returns.

I am writing about the root causes here, not secondary effects and their consequences.

Edited June 16, 2011 by _w_

[wonderpup]

The video is spot on, and so is _w_ in this case.

The primary reason for large deficits is the inability of nations to tax multinational corps, and this is what has enriched the top.

It really is extremely simple.

Yet those Corporations are creatures of the state- their 'incorporation' itself being an expression of state backed legal structures. Which implies this inability to tax them is of the 'bad back' variety so often attributed to dodgy invalids claiming benefits.

[Number79]

I have a slight problem with this, for the simple fact that people were buying on credit like never before (I am writing about what led to the depression BTW, not what happened after it started). The 'keeping wages too high' argument sounds like the same BS we've heard since the 70s.

Yes, ok, that was sloppy.

There are six depressions in American history that are thought to be the worst since detailed records of economic data started to be kept (around 1867), 1873-79, 1893-97 (actually two contractions separated by an incomplete expansion), 1907-08, 1920-21, 1929-33, and 1937-38.

The FED was set up in 1913 in response to the earlier depression and bank failures. Throughout the years preceding the wall street crash the FED increased the money supply by over 60%. People were buying on margin and over extended themselves in the stock markets but it was hoovers policies of intervention and propping up wages and prices and introducing tariffs that led to the depression rather than allowing prices to fall and let the markets find their own clearing prices.

Credit expansion is the problem and Reich is saying that the problem is that the middle class can no longer borrow as they could before so no longer have the purchasing power to get the economy going again - consumerism. People over extending themselves and borrowing is what leads to depressions not fixes them, what fixes them is credit being stopped and prices falling.

[Injin]

The video is spot on, and so is _w_ in this case.

The primary reason for large deficits is the inability of nations to tax multinational corps, and this is what has enriched the top.

It really is extremely simple.

Right....annnnd....

The reason for the inability to tax multinationals is the public trying to fix social problems using the state, and then comes the tax avoidance and regulatory capture. It always will, with a state.

[_w_]

Yes, ok, that was sloppy.

There are six depressions in American history that are thought to be the worst since detailed records of economic data started to be kept (around 1867), 1873-79, 1893-97 (actually two contractions separated by an incomplete expansion), 1907-08, 1920-21, 1929-33, and 1937-38.

The FED was set up in 1913 in response to the earlier depression and bank failures. Throughout the years preceding the wall street crash the FED increased the money supply by over 60%. People were buying on margin and over extended themselves in the stock markets but it was hoovers policies of intervention and propping up wages and prices and introducing tariffs that led to the depression rather than allowing prices to fall and let the markets find their own clearing prices.

Credit expansion is the problem and Reich is saying that the problem is that the middle class can no longer borrow as they could before so no longer have the purchasing power to get the economy going again - consumerism. People over extending themselves and borrowing is what leads to depressions not fixes them, what fixes them is credit being stopped and prices falling.

Ah, I'm beginning to get it.

The question is credit if I understand you correctly. As an aside, Reich is not saying he wants more credit, he is saying he wants higher wages.

Credit enables accelerated economic growth which in itself is not necessarily a bad thing. It also enables accelerated accumulation of capital (in the early stages, unless the process becomes ponzi like and destructive) which has been the problem. If you want your accelerated development then you need adequate redistribution mechanisms that avoid excessive accumulations. The middle class can then consume by spending their income rather than by borrowing.

Are you saying we should do without credit?

<Edit to add: my definition of depression only applies to the period 1929-1945 which we only got out of because we destroyed three quarters of the world and then got a chance to rebuild it.>

Edited June 17, 2011 by _w_

[Injin]

Ah, I'm beginning to get it.

The question is credit if I understand you correctly. As an aside, Reich is not saying he wants more credit, he is saying he wants higher wages.

Credit enables accelerated economic growth which in itself is not necessarily a bad thing. It also enables accelerated accumulation of capital (in the early stages, unless the process becomes ponzi like and destructive) which has been the problem. If you want your accelerated development then you need adequate redistribution mechanisms that avoid excessive accumulations. The middle class can then consume by spending their income rather than by borrowing.

Are you saying we should do without credit?

It's a little more dangerous than that - the assumption is that a middle is something that can be crafted from on high, instead of something which occurs naturally and which everything else is deviant from.

[Number79]

Ah, I'm beginning to get it.

The question is credit if I understand you correctly. As an aside, Reich is not saying he wants more credit, he is saying he wants higher wages.

Credit enables accelerated economic growth which in itself is not necessarily a bad thing. It also enables accelerated accumulation of capital (in the early stages, unless the process becomes ponzi like and destructive) which has been the problem. If you want your accelerated development then you need adequate redistribution mechanisms that avoid excessive accumulations. The middle class can then consume by spending their income rather than by borrowing.

Are you saying we should do without credit?

Thats what hoover believed but his policies led to increasing prices and supporting high prices which bought on the severe depression rather than letting prices fall. He had high wages frozen rather than allowing them to fall in proportion to the deflation.

Higher wages are not the answer, lower prices are.

Higher wages are the start of a familiar vicious circle.

[Guest tbatst2000]

I'd take him more seriously if he wasn't using the same set of half truths as the people he's objecting to. Whilst the top rate of federal tax may well be 35% (I haven't checked in a while), the total tax rate, including state and city taxes, in New York and California is well above that. All in, anyone earning 300k+ and living or working in New York City, for example, will pay more or less half of their income in tax.

[billybong]

Reich more or less described the keeping up with the Joneses economy in 2.37 minutes.

[winkie]

....the rich rely on debt as much, if not more than the poor.....when the poor can't spend or pay taxes the rich will suffer, it is only in their interest to keep some money in the poor pockets to enable them to spend.........

........debt is wealth..........no growth without debt.........debt that can't be re-payed is defaulted on.

...it is all a matter of balance, having more and more that can repay....what we are getting is more and more that can't repay.

Edited June 17, 2011 by winkie