The Top 1% is Stalling the Economy

[Wilber]

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.

So the government is already involved. If that is good, why would further involvement have been bad? I agree that in this case it wasn't warranted.

Edited December 16, 2013 by Wilber

[TimG]

If that is good, why would further involvement have been bad?

So your logic is government should just pay 100% of wages of people working in the industry because it already pays 1/3? Seems to me a bad policy is not made better by increasing the cost to taxpayers.

[Wilber]

So your logic is government should just pay 100% of wages of people working in the industry because it already pays 1/3? Seems to me a bad policy is not made better by increasing the cost to taxpayers.

No, my question is how involved does government get in order to support an industry? It is easy to say, not at all but that is not the way the world works. Governments compete for business just like companies.

[Moonlight Graham]

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.

Well rich people do make a lot of their money and have a lot of their wealth tied up in investing in other companies. Yes some of it is gambling, ie: hedge funds, but a lot is also legit investing in stocks etc. and those stocks are in companies that are producing goods sold to consumers.

[Moonlight Graham]

"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

Those stats are surprising, I didn't know corporations bounced back so quickly from the recession.

But still, corporations can't make profits unless a large number of people (the 99% or whatever) have money to buy their products. If the middle-class was doing better, not to mentioned poor people, they'd be consuming more and corporations would make even more profits.

Taking it a step further, it's in the best interest for businesses and corporations to eliminate poverty everywhere. If Fordism principles were expanded globally, and ie: Chinese workers could afford to buy the products they were manufacturing, imagine the insane profit increases if billions more people could afford to buy consumer products. Imagine how much more rich ie; Apple/Samsung/Microsoft would be if billions more people could afford to buy the newest smartphones and laptops. On a world scale, the western market (plus a few other well-off eastern countries) are the bulk share of global consumers but represent a small minority of the global population.

[ReeferMadness]

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.

Well, that's what the people who pray before the altar of unrestricted capitalism believe. In fact, what has actually happened is that Corporations pay such pathetic wages that the state has to step in and subsidize them by topping up the incomes of their workers to keep them out of abject poverty.

McDonald’s workers alone receive $1.2 billion in public aid, the study found. This is an industry, by the way, that last year earned $7.44 billion in profits, paid their top execs $52.7 million and distributed $7.7 billion in dividends and stock buyback. Still, “public benefits receipt is the rule, rather than the exception, for this workforce,” the study concluded.

Is this the wondrous efficiency of which you speak? And it's not just McDonalds and Walmart, it's the very industry that created the economic nightmare in 2008.

But it’s not just fast food and Wal-Mart: One in three bank tellers receives public assistance, the Committee for Better Banks revealed last week, at a cost of almost a billion dollars annually in federal, state and local assistance. That’s right: One of the nation’s most profitable, privileged and high-prestige industries, banking, pays a sector of its workers shockingly low wages and relies on taxpayers to lift them out of poverty. In New York alone, 40 percent of bank tellers and their family members receive public assistance, costing $112 million in state and federal benefits.

Please tell us more of this marvelous growth in service sector jobs.

[ReeferMadness]

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.

The article is bang on. The jury is in and, contrary to the claims that have been made, cutting taxes doesn't create jobs or stimulate the economy. It just makes rich people richer.

Having said that, I think that we need to be careful about setting the expectation that the main reason for income leveling is to grow the GDP. The main reason should be to restore fairness and balance and grow a society that isn't deeply divided. Measuring a society on the basis of GDP is analogous to measuring the well-being of a hamster solely on the basis of how fast he runs in his wheel. Someone might be tempted to do something stupid like feed the hamster methamphetamines. Just like all of the stupid things that real world economists propose to speed up the world's economy, believing that it is helping humanity.

[Michael Hardner]

MG - There is a large new middle class in Asia.

[bush_cheney2004]

Well, that's what the people who pray before the altar of unrestricted capitalism believe.

Beats praying at the alter of unfettered socialism or communism. Complainers are just afraid of productivity and competition. They can get into the soup lines paid for by the capitalists.

[bush_cheney2004]

The growing income inequality meme for the U.S. (always the U.S., right ?) fails to survive closer inspection:

[ReeferMadness]

Beats praying at the alter of unfettered socialism or communism. Complainers are just afraid of productivity and competition.

I see you'd rather bleat slogans than respond to the facts. Just keep your head in the sand and whatever you do, don't look at the harsh face of reality.

Fully 52 percent of fast-food workers’ families receive public assistance – most of it coming from Medicaid, food stamps and the Earned Income Tax Credit — to the tune of $7 billion annually, according to new research from the University of California-Berkeley’s Labor Center and the University of Illinois.

Are these people "afraid of productivity and competition"?

They can get into the soup lines paid for by the capitalists.

The modern versions of soup lines are food banks and food stamps. And the they are being frequented by the workers of you capitalist paradise. Bon appetit.

[bush_cheney2004]

The modern versions of soup lines are food banks and food stamps. And the they are being frequented by the workers of you capitalist paradise. Bon appetit.

And who is paying for the food stamps and food banks...the capitalists. Would you prefer that everyone was "suffering" equally ?

[ReeferMadness]

The growing income inequality meme for the U.S. (always the U.S., right ?) fails to survive closer inspection:

Only if you cherry pick your data. But if you look over a longer time scale, the story is different:

But gini coefficient is only one part of the story. Here is a more telling graph.

Up until about 1970, everyone was gaining from those productivity gains. Since then, they've gone almost entirely to the top 1%.

[bush_cheney2004]

Only if you cherry pick your data.

Canadians are also very good at cherry picking U.S. data.

[Moonlight Graham]

MG - There is a large new middle class in Asia.

How many is "large"? And how much do they make a year in US or Canadian dollars?

[Michael Hardner]

How many is "large"? And how much do they make a year in US or Canadian dollars?

Within a generation, the middle class in China will be roughly four times the size of the American middle class population, according to the UN Population Division and Goldman Sachs. By 2030, China should have approximately 1.4 billion middle class consumers compared to 365 million in the U.S. and 414 million in Western Europe. India is next, with its citizens moving up the income ladder and reaching a sizeable 1.07 billion in a little under 20 years.

http://www.forbes.com/sites/kenrapoza/2011/09/05/within-a-generation-china-middle-class-four-times-larger-than-americas/

The explosive growth of China’s emerging middle class has brought sweeping economic change and social transformation—and it’s not over yet. By 2022, our research suggests, more than 75 percent of China’s urban consumers will earn 60,000 to 229,000 renminbi ($9,000 to $34,000) a year.

http://www.mckinsey.com/insights/consumer_and_retail/mapping_chinas_middle_class

The China-U.S. Smartphone Gap Grows Larger AUGUST 30, 2012

martphones are so popular here that it’s difficult to avoid seeing one, and in China, these devices are poised to become even more widespread.

This year, China will account for 26.5 percent of all smartphone shipments, compared to 17.8 percent in the United States, according to a forecast by the International Data Corporation, a research firm.

China has surpassed the United States in smartphone sales in the past. However, only in the first quarter of this year did it become clear that the smartphone gap between China and the United States would become a “long-lasting gulf that won’t be bridged,” said Kevin Restivo, a senior research analyst with IDC.

http://bits.blogs.nytimes.com/2012/08/30/china-smartphone-sales/?_r=0

[bush_cheney2004]

China has surpassed the United States in smartphone sales in the past. However, only in the first quarter of this year did it become clear that the smartphone gap between China and the United States would become a “long-lasting gulf that won’t be bridged,” said Kevin Restivo, a senior research analyst with IDC.

Smartphone gap? Seriously ? Is that like the Cold War "missile gap" between the U.S. and the Soviet Union ? I've been to China...they better start on the toilet gap and pollution gap first.

[Shady]

Well, that's what the people who pray before the altar of unrestricted capitalism believe.

There's no country in the world that practices unrestricted capitalism. Every single economy is highly regulated. Every one.

[Wilber]

And who is paying for the food stamps and food banks...the capitalists. Would you prefer that everyone was "suffering" equally ?

More like middle class tax payers and debt.

[bush_cheney2004]

More like middle class tax payers and debt.

..and who employs the "middle class tax payers" and finances the debt ? The capitalists....hence the name.

[Michael Hardner]

Smartphone gap? Seriously ? Is that like the Cold War "missile gap" between the U.S. and the Soviet Union ? I've been to China...they better start on the toilet gap and pollution gap first.

I specifically brought in that example because MG made the assertion that North American wealth drives electronics sales. But it's not so true today.

[Moonlight Graham]

Within a generation, the middle class in China will be roughly four times the size of the American middle class population, according to the UN Population Division and Goldman Sachs. By 2030, China should have approximately 1.4 billion middle class consumers compared to 365 million in the U.S. and 414 million in Western Europe. India is next, with its citizens moving up the income ladder and reaching a sizeable 1.07 billion in a little under 20 years.

http://www.forbes.com/sites/kenrapoza/2011/09/05/within-a-generation-china-middle-class-four-times-larger-than-americas/

That person did a horrible analysis. Just because China will have 1.4 billion people (and the US 365 mil), that doesn't mean every single one of them will be what we consider "middle-class". China is still a very poor country. Canada ranks 14th in the world with a GDP-per-capita of $42,533, the US is 7th with $49,995, while China ranks #92 with $9,233.

What is considered "middle-class" is relative to each country's economy. In the US: "Sociologist Leonard Beeghley identifies a male making $57,000 and a female making $40,000 with a combined households income of $97,000 as a typical middle-class family. Sociologists William Thompson and Joseph Hickey estimate an income range of roughly $35,000 to $75,000 for the lower middle class and $100,000 or more for the upper middle class."

Meanwhile, in China: "Today, the mass middle class – with annual household incomes of between $9,000 and $16,000 – are dominant, accounting for 54 percent of all urban households." (that's household, not even individual incomes). Also, today China's middle-class population is just over 300 million, not over a billion according to the article you quoted:..but it's growing:

China’s urban middle-class population alone, if considered as a country, is larger than the entire U.S. total population today...And by 2022, China’s middle class should number 630 million – that is, three-quarters of urban Chinese households and 45 percent of the entire population. The rise of the middle class is essentially an urban phenomenon. Average per capita urban income in China is roughly triple that in the countryside.

But, according to many different articles, such as what you and I quoted, China's middle-class and upper-middle class will still be consuming and become powerful players in the global economy. ie: " By 2022, we expect China’s middle class to be consuming goods and services valued at $3.4 trillion – 24 percent of GDP. This has enormous significance for U.S. businesses. It is imperative that companies get to know the new Chinese middle-class consumer in intimate detail."

So while I disagree with your numbers, I'll change my stance a bit and agree with you that the manufacturing jobs that have gone from the West to Asia etc. haven't been a totally bad thing for the Western 1%/corporations. Consumption in China is rising dramatically and helping profits for Western corporations. So your point is mostly correct, that corporations have screwed US/Canadian middle-class but this hasn't hurt their profits much. All it seems to have done is hurt US/Canadian middle-class employment/income (though Canadians have lower consumer prices as a result of cheap Asian labour...though much of those cost savings seems to have gone to 1% profits rather than lower prices).

[Michael Hardner]

That person did a horrible analysis. Just because China will have 1.4 billion people (and the US 365 mil), that doesn't mean every single one of them will be what we consider "middle-class". China is still a very poor country. Canada ranks 14th in the world with a GDP-per-capita of $42,533, the US is 7th with $49,995, while China ranks #92 with $9,233.

What is considered "middle-class" is relative to each country's economy. In the US: "Sociologist Leonard Beeghley identifies a male making $57,000 and a female making $40,000 with a combined households income of $97,000 as a typical middle-class family. Sociologists William Thompson and Joseph Hickey estimate an income range of roughly $35,000 to $75,000 for the lower middle class and $100,000 or more for the upper middle class."

Meanwhile, in China: "Today, the mass middle class – with annual household incomes of between $9,000 and $16,000 – are dominant, accounting for 54 percent of all urban households." (that's household, not even individual incomes). Also, today China's middle-class population is just over 300 million, not over a billion according to the article you quoted:..but it's growing:

I don't think so: "While China’s entire population is expected to be middle class by World Bank standards in 2030, the middle class population will also dominate the American demographic landscape."

There is a World Bank standard, evidently. Also, because China's currency is tightly controlled you can't assume that $40K salary in Canada has the same power as in China.

You seem to acknowledge this, but then seem to quote the $9K number as evidence that China's middle class is not middle class.

So while I disagree with your numbers, I'll change my stance a bit and agree with you that the manufacturing jobs that have gone from the West to Asia etc. haven't been a totally bad thing for the Western 1%/corporations.

Yes, especially because they are all invested over there - in manufacturing, services, and selling things to China as well. It's inaccurate to say that "Asia is beating us" when - for example - about 1/3 of KFC locations are located in China and Japan. The Chinese locations are 100% company owned.

This is why I can be very cynical about patriotism. Money can move across borders, but it's more difficult for people to do so. The same companies that ask us to buy Canadian will buy/sell overseas wherever they can.

All it seems to have done is hurt US/Canadian middle-class employment/income (though Canadians have lower consumer prices as a result of cheap Asian labour...though much of those cost savings seems to have gone to 1% profits rather than lower prices).

By some measures, yes, this is true. I think that the changing playing field on economics needs to be negotiated, but first understood by the public.

[bush_cheney2004]

... All it seems to have done is hurt US/Canadian middle-class employment/income (though Canadians have lower consumer prices as a result of cheap Asian labour...though much of those cost savings seems to have gone to 1% profits rather than lower prices).

Erroneous association...the U.S. and Canadian "middle class" are not the same. Americans pay less and get more because Canada taxes itself to death.

American based corps are making billions in China. GM now sells more cars in China than in Canada. Canada is the only G8 nation without a major domestic car make. Blackberry is already dead.

Canada is on its own...good luck.

[Moonlight Graham]

I don't think so: "While China’s entire population is expected to be middle class by World Bank standards in 2030, the middle class population will also dominate the American demographic landscape."

What's the source for this quote? It's extremely unlikely that "China’s entire population is expected to be middle class by World Bank standards in 2030". There's still a large portion of poor people working subsistence or near-subsistence rural farming jobs, and yes many of those people will continue to move to the cities but certainly not all of them.

What is defined as "World Bank standard" of middle-class?

There is a World Bank standard, evidently. Also, because China's currency is tightly controlled you can't assume that $40K salary in Canada has the same power as in China. You seem to acknowledge this, but then seem to quote the $9K number as evidence that China's middle class is not middle class.

Fair point. The $9000 gdp-per-capita number for China I quoted was adjusted for PPP, but maybe the income numbers I quoted weren't. I'd like to know exactly what individual income range, adjusted for PPP, is considered "middle-class" in China?