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The Top 1% is Stalling the Economy


cybercoma

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It's a myth that income inequality doesn't matter. Supply-side economics harms the economy and takes money away from demand. With little demand to signal production, job creation, and industry expansion, the top 1% just sits on their money and invests it in fiscal shell games, using their money to make more money instead of jobs and goods.

This article highlights some of the problems: http://www.juancole.com/2013/12/hogging-holding-economy.html

Here are a couple highlights from the article.

-> Adjusted for inflation GDP rose on average 3.8% per year from 1950-1980. From 1980, and the introduction of supply-side economics, until 2010 the GDP has only risen 2.7% per year on average. Since 2010 GDP growth has been even worse. This lack of growth is despite a sharp incline in productivity thanks to modern computing and other significant technological advances since 1980. In other words, the rise in income inequality over that time was not associated with a rise in GDP, as some fiscal conservatives have argued (i.e., "Income inequality doesn't matter when everyone is better off").

-> Some European countries have higher inequality than the US and worse unemployment. Those with greater income equality actually have less unemployment than the US.

So why is this the case? People (99% anyway) were initially able to borrow to make up for the decline in growth and their share of the growth declining. That worked ok for awhile, until bills came due. Not literally of course, I just mean we came to a point where too many people were borrowing too much and not actually able to get out of debt. There was a time not so long ago, i.e., the 1970s, where people didn't have credit cards, didn't want credit cards, and didn't need credit cards. Today credit cards are artificially masking the real problems in the economy.

Corporate enterprise has lost sight of the Fordist Compromise. Ford understood that his employees were consumers. He knew that if he paid his employees a higher wage that they would be the ones buying the products that he was selling; therefore, he could sell more cars. His employees were paid well and in exchange, they would not disrupt production. That's all gone today, as industries offshore production to countries where people are paid pennies a day for their labour. North American families cannot compete with someone living in a shack with nothing but a bag of rice to their name, working 12 hours a day on a factory line with no health and safety regulations.

The cynical long-view on this is that the top 1% don't need the Fordist Compromise any more. Production labour is no more in North America and they don't care if we're not buying products. The Top 1% isn't making their money on productive capacities these days. They've taken their fortunes and are using them to make more fortunes through speculation and other non-productive enterprises that essentially amount to a fiscal shell game. In other words, they made their money off the back of labour and are now making their money off their own money. They no longer need labour and therefore no longer need the Fordist Compromise. Meanwhile, the middle class, the vast majority of people in the US, who were reliant on wage labour are stuck without means.

IMO, I don't see any way out of this situation any time soon. Corporate interests have bought their way into government and are, sometimes literally, writing legislation in their favour. We're at a turning point in history and the only way things are going to return to the benefit of the average family is a violent and tragic crisis. In this way, perhaps it's ironic that the interests that have bought our politicians are trying to strip away the social safety net, so they can keep more of their money and others will have to fend for themselves. This will undoubtedly expedite the crises that will be their undoing. When people are hungry and broken with nowhere to turn, they will look to tear it all it down. Those who are desperate will do drastic things. When that happens, the irony will be that those at the top are digging their own graves.

Luckily, we're not quite there yet and there's time to ensure that this doesn't happen. However, it has been an entire generation of deterioration that needs to be reversed before the economy can bounce back.

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IMO, I don't see any way out of this situation any time soon. Corporate interests have bought their way into government and are, sometimes literally, writing legislation in their favour. We're at a turning point in history and the only way things are going to return to the benefit of the average family is a violent and tragic crisis.

Everything you wrote is accurate, but don't fall into the trap of predicting the future. There are always things that can go wrong for the "safe bet"... those who have everything to lose. For one thing, buying votes works because of a unique configuration of media being easily purchased, provided one has a LOT of money. That situation will be gone in 20 years.

If the system that this generation has inherited doesn't work, then they will reject it and we could be back into the mid 20th century pattern of reduced work weeks, negotiated labour agreements and so on. ( We don't have those anymore because the prevailing wisdom is that we need to keep taxes and costs low in order to attract high paying jobs. How is that going for us ? )

When people are hungry and broken with nowhere to turn, they will look to tear it all it down. Those who are desperate will do drastic things. When that happens, the irony will be that those at the top are digging their own graves.

I don't see a French Revolution 2 coming around before the scenario I described. The social upheavals of the 1930s were settled in part because the ruling class saw what was happening. ( I think Conrad Black talked about this in his book on FDR )

Luckily, we're not quite there yet and there's time to ensure that this doesn't happen. However, it has been an entire generation of deterioration that needs to be reversed before the economy can bounce back.

If trends continue, then yes it would happen - that's just math. At some point the graph goes to 100% of the resources owned by 1%.

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There is no such thing as income inequality because there is no such thing as income equality. Income is based on several factors. Education, type of job, type of industry, hours worked,etc. Money isn't hogged, it's earned.

This is absolutely true, depending on how you defined 'earned'.

For example, you would have to define 'earned' to include 'inherited'. As in "Baby Forsythe III" earned his birthright by being born into such a worthy and well-earning family.

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The cynical long-view on this is that the top 1% don't need the Fordist Compromise any more. Production labour is no more in North America and they don't care if we're not buying products.

It doesn't matter if employees are working on production lines or in other capacities, employees in the West still need to make money Fordism-style in order to buy the products the owners/CEO's/1% produce.

Owners/CEO's also thought they'd make more money by shipping "expensive" jobs to developing countries like China, but this is backfiring since unemployment has risen and people in the West can less afford to buy these Asian-assembled products. I think it's true that the rich and the 99% would probably all have more more wealth if the 1% managed economics better.

Frankly, we (the 99%) need to re-design the system to where vast wealth concentration is mostly eliminated, but still maintain incentives (economic or otherwise) for people to still want to work hard, innovate, and achieve.

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It doesn't matter if employees are working on production lines or in other capacities, employees in the West still need to make money Fordism-style in order to buy the products the owners/CEO's/1% produce.

No...this is false, as the global mobility of capital and labour have changed the game and made for better and more afFordable products for all. The growth in service sector jobs just compliments more productive/efficient manufacturing.

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"Backfiring" ? Why do they care about what people in the West can afford ? They exist for profits.

How is that going ?

http://www.economonitor.com/dolanecon/2013/09/26/us-corporate-profits-at-all-time-high-as-gdp-growth-holds-at-2-5-percent/

Just Google 'Corporate profits' 'all time high' and see:

https://www.google.ca/search?q=record+profits&oq=record+profits&aqs=chrome..69i57.1711j0j7&sourceid=chrome&espv=210&es_sm=122&ie=UTF-8#es_sm=122&espv=210&q=Corporate+profits+%22all+time+high%22

All the articles are from 2013 and 2012

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It doesn't matter if employees are working on production lines or in other capacities, employees in the West still need to make money Fordism-style in order to buy the products the owners/CEO's/1% produce.

They're not making their money producing anything. That's the problem. They don't care if nobody is buying what they're selling because they're not selling anything. They're gambling on markets to make more money.
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Many businesses are cutting back on hours workers work and if you are only making 10.25 hr. you are in sad shape. Even if one wants to work at two part time jobs, some may have a problem because some jobs require that person at the same working hours. I know many people don't like unions but in today's society, workers need someone to help them because the company and the government sure aren't there.

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Everything you wrote is accurate, but don't fall into the trap of predicting the future. There are always things that can go wrong for the "safe bet"... those who have everything to lose. For one thing, buying votes works because of a unique configuration of media being easily purchased, provided one has a LOT of money. That situation will be gone in 20 years.

If the system that this generation has inherited doesn't work, then they will reject it and we could be back into the mid 20th century pattern of reduced work weeks, negotiated labour agreements and so on. ( We don't have those anymore because the prevailing wisdom is that we need to keep taxes and costs low in order to attract high paying jobs. How is that going for us ? )

I don't see a French Revolution 2 coming around before the scenario I described. The social upheavals of the 1930s were settled in part because the ruling class saw what was happening. ( I think Conrad Black talked about this in his book on FDR )

If trends continue, then yes it would happen - that's just math. At some point the graph goes to 100% of the resources owned by 1%.

Middle-class jobs are getting outsourced by the thousands and now the new trend is bringing in cheap labour to do the work within many different sectors.

With a shrinking middle-class a "French-Revolution 2" is inevitable and I don't see any signs that things will change for the better. Things are just getting worse, if anything as the 1% is able to get away with it more and more.

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Frankly, we (the 99%) need to re-design the system to where vast wealth concentration is mostly eliminated, but still maintain incentives (economic or otherwise) for people to still want to work hard, innovate, and achieve.

There are certain things that will be true about every system we set up:

1) The system will depend on a relatively small group of people to "set the rules"

2) The people who "set the rules" will manipulate the rules for their own selfish advantage.

We saw this in communist systems where the party faithful had access to benefits that no one else did despite the egalitarian rhetoric that underpins communism.

We see this in every capitalist system where the rule makers seek to stifle competition and protect incumbents. In capitalist countries with a socialist leaning the system is rigged to protect heavily unionized sectors. In countries with a less socialist leaning the system is rigged to protect large corporations.

The only thing that changes is how the system is rigged and who benefits and loses.

IOW - I don't see a system that protects large unions and their jobs as something that is better for the majority. It only benefits the minority who have jobs with those protections. The backbone of a capitalist economy are small business entrepreneurs that create new jobs and helping these people requires less regulation that protects incumbents and increases the cost of doing business - not more.

Edited by TimG
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Middle-class jobs are getting outsourced by the thousands and now the new trend is bringing in cheap labour to do the work within many different sectors.

Not that new, and in fact the first jobs that went are no longer going offshore. The point it that the trend won't continue forever.

With a shrinking middle-class a "French-Revolution 2" is inevitable and I don't see any signs that things will change for the better. Things are just getting worse, if anything as the 1% is able to get away with it more and more.

I don't think it's inevitable, as we're discussing... there are forces that will bring the trend to an end at some point and I think democracy will have a hand to play in that.

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Middle-class jobs are getting outsourced by the thousands and now the new trend is bringing in cheap labour to do the work within many different sectors.

Meh....many Canadians were just fine with American manufacturing and call center jobs being exported from the U.S. to Canada. Swiss firm CIBA is going to shutter another plant in Ontario and move production to an existing Texas plant. Thank you Ms. Wynne and those Ontario Liberals !!

With a shrinking middle-class a "French-Revolution 2" is inevitable and I don't see any signs that things will change for the better. Things are just getting worse, if anything as the 1% is able to get away with it more and more.

Nope...at least try to get the math right....more like the upper quintile able to get away with more and more.

In the U.S. (seemingly the favorite example around here):

From 1970 to 2010, income inequality rose between the top and bottom quintiles from 39% to 47%, but real gross domestic product expanded briskly from $4.3 trillion to $13 trillion (Figure 4). In other words, the size of the pie kept growing, which allowed everyone to share the wealth created. Once the distribution of the pie becomes a concern, then policymakers may enact policies that will stifle economic growth and reduce the size of the pie, reducing everyone's income. Thus, growing the size of our economy should be the emphasis of government policies, not the distribution of income.

Edited by bush_cheney2004
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It doesn't take much to change things. Last February movie production facilities in Vancouver were empty and there were demonstrations that the Provincial government had to do something to lure the big studios back. The government refused. Since then the CAD has dropped 6 cents and there was a segment on TV the other day that they are now so backed up with work they can't handle it all.

Edited by Wilber
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Goes to show why it is mistake for government to get involved in such things.

It goes to show that government needs to be careful what it gets involved in. In this case the issue was taxes. No shortage of business types complaining about them. Guess it depends on who's ox is getting gored as to whether government involvement is good or bad.

Edited by Wilber
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In this case the issue was taxes. No shortage of business types complaining about them.

This issue in this case was not about taxes - it was about subsidies - the government already pays about 33% of the wages in the industry and they wanted it raised to 40% to compete with Ontario. Edited by TimG
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Not quite. These are tax credits, not direct subsidies.

No - they are **refundable** tax credits which means the company gets the full value of the credit even if the company pays no tax. That makes them direct subsidies (i.e. money going from the taxpayer to the company no matter what).

Economically speaking these credits are the same as a wage subsidy.

Edited by TimG
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