Will Tax Cuts and More Federal Borrowing/Spending Fix What’s Broken?

Not to rain on the new administration’s parade, but one question needs to be asked of any new administration: will tax cuts and more federal borrowing/ spending fix what’s broken in the U.S./global economy?

The short answer: if tax cuts and more federal borrowing/ spending were the cure for what ails the economy, we’d have reached Paradise long ago. Stripped of partisan politics and rah-rah, tax cuts and more federal borrowing/ spending–on infrastructure, education, defense, healthcare, you name it–have been the de facto status quo policies of both parties for the past 70 years.

Despite decades of these centralized, standard-issue Keynesian “fixes,” the economy’s structural ills are only getting worse. I outlined five of the most critical issues in What Have the “Experts” Gotten Right? In the Real Economy, They’re 0 for 5(December 20, 2016).

Ultimately, two dynamics will dominate everything else: the paid work/earnings of non-elites and the transition from wasteful, debt-funded “growth” to a sustainable “Degrowth” economy.

45 years of Keynesian “stimulus”–tax cuts and federal borrowing/ spending–haven’t stemmed the decline of labor’s share of the economy (GDP). As these charts reveal, if labor’s share of the economy was still at 50% rather than 42%, households with earnings from work would be getting an astounding $1.35 trillion more per year.

This equates to an additional $10,800 per household, per year (there are roughly 125 million households in the U.S.) or about $100,000 per household per decade.

Would you be better off if your household had been paid an extra $100,000 in the 10 years since 2007? I am guessing the answer is “yes.”

Is it mere coincidence that while labor’s share of GDP declined by $1.35 trillion, corporate profits rose from $400 billion annually to $1.8 trillion? Garsh, do you reckon there’s a connection?

Another factor is the top 5%’s rising share of earnings. I call this the since I’m doing well, the economy is swell syndrome. The top 5% dominate the managerial class in the media, government, think tanks, foundations and corporate America, and from their perch high atop the centralized pyramid of wealth/power in America, things look just grand.

Things look considerably different from the bottom of the pyramid.

The Powers That Be have three basic fixes for every systemic ill:

1. Concentrate even more power and wealth in the central state

2. Borrow and blow a couple more trillion dollars

3. Guaranteed minimum income for the bottom 95%, which is a politically correct code phrase for:

We’re tossing you on the trash heap of society, making sure you have just enough cash to get to the dollar store or Wal-Mart and enough to scrape by so you won’t rise up against your “betters” who own all the wealth and income streams.

Sorry, but I think we can do better. In terms of aligning social-economic policy with the emerging economy, I think the real solutions are:

1. Decentralize / devolve power to regional metro areas, cities, towns, communities and neighborhoods. I explain how this works in my book Resistance, Revolution, Liberation: A Model for Positive Change.

I’m not alone in seeing this as the only solution that aligns with the emerging economy. Consider The Most Disruptive Transformation in History: How the clustering of knowledge lays bare the need to devolve power from the nation-state to the city.

2. Align our educational system with the emerging economy and reduce the cost of higher education by 90%. Yes, I know, it can’t be done, blah blah blah, we need our buggy whip industry, we’ll perish without it, Baumol’s Disease, etc. etc. etc.

I explain how to revolutionize education in my book The Nearly Free University and the Emerging Economy.

3. Transform our sick, centralized culture of consumption to a vibrant healthy culture of productive entrepreneurism. As you have probably guessed, I lay out how to do this in my book Get a Job, Build a Real Career and Defy a Bewildering Economy.

4. Create capital and opportunity at the bottom of the pyramid where the 95% live rather than in the apex of the pyramid inhabited by the top .1%. I explain how this would work in my book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.

5. Limit the power of privilege by creating multiple pathways from the low-opportunity disadvantaged class to the abundant-opportunity advantaged class. If you reckon I wrote a book on this, bingo: Inequality and the Collapse of Privilege.

If you suffer from since I’m doing well, the economy is swell syndrome, I suggest taking a look at Why Our Status Quo Failed and Is Beyond Reform.

Solutions abound, but not within our centralized state-cartel neofeudal system.“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” R. Buckminster Fuller

Join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

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  • NO! Dec 20, 2016 IPOs had Worst Year since 2003. And the Dow at 20,000?

    There’s only one thing that has pumped up this market. Stock indices are frolicking in record territory. The S&P 500 is up almost 11% this year, though the gains came after the election. The Dow has been titillating the entire world, day after day, with the prospect of finally, finally hitting 20,000 after being just a hair shy of it for two weeks. So it would seem that the IPO market would be hot. But for IPOs, 2016 has turned out to be a fabulously terrible year.

    http://wolfstreet.com/2016/12/20/2016-ipo-worst-year-since-2003-reveals-sick-stock-market/

  • Josh Stern

    Those are great charts you have there.

    As far as “solutions” go, I suggest the following alternatives, re-jiggered into revenue neutral forms (i.e. lowering or raising overall revenue collection rates so the total amount stays the same):

    1) Eliminate the current practice of taxing wage income at a much higher marginal rate than passive income. The wage earner pays payroll taxes first (but only up to an upper middle class wage…then it’s no payroll tax for the top brackets – huh??) and the wage earner pays a higher rate of Federal & sometines State income tax on wage income compared to passive income (that is income from investments).

    2) Eliminate itemized deductions…high income earners can usually take advantage of them, while middle class income earners usually cannot or gain much less advantage.

    3) Eliminate the cost advantage of “unsafe” foreign labor. It is one thing to offshore because more of the same work can be done for less $$$, and a different thing to offshore because you aren’t taking any responsibility for the health/safety of those factory workers. American’s who don’t want to be killed/maimed in the workplace – and have no choice about OSHA compliance in any case – are operating at an unfair disadvantage in the current system.

    4) Try to counteract true examples of foreign mercantilism – e.g. when a foreign govt. is trying to rapidly gain market share by heavily subsidizing the cost of their mfg.

    5) More govt. support for high quality certification of work skills. The opportunities for low cost education nowadays, via the internet, videos, online courses, low cost text books, etc. far surpasses what was available even 20 years ago. But individual employers do not have a way to certify competence, so they still rely mostly on traditional resume credentials – like prestige university degrees. The govt. could do a lot to step in and change that situation, and also to help fund these very, very low cost forms of education for motivated people.

    6) End politically motivated corporate welfare for industries that do not need it to survive.

    7) Provide more mandatory financial eduation at the HS level. Early lifetime savings and avoidance of credit debt is one of the most powerful methods to increase standards of living in modern Western societies. Understanding the financial implications of buying an excessively expensive car (including upkeep/insurance costs) or home are important too.

    8) Subsidize convenient *basic* heathcare for everyone and let the market compete to provide that and justify out of pocket or employer subsidized expense for services above convenient & basic.

    9) Increase investment in mass transportation for high traffic areas. These investments tend to pay good long term dividends for both the economy and quality of life in the affected areas.

    10) Stop wasting enormous sums of money on “national security” boondoggles, and stop the national security apparatus from using the money it has to subsidize propaganda in favor of more national security boondoggles. The list of waste and fraud and nonsense in this category is almost endless.

    11) The FCC should take a much more consumer oriented and pro-active stance towards the services that wind up re-occurring in regular people’s monthly bills – cell phone, cable tv, etc. Companies should be required to provide al la carte options with charges proportional to their actual cost of service, and there should always be compeitive alternatives in every market area.

    12) Subsidize child daycare for all working parents. It’s a good investment all around.

    • Clark

      Trump = Putin’s useful idiot + China’s perpetual serf-debtor

      Trump was SELECTED to become the next president simply to preside over the BANKRUPTCY OF THE UNITED STATES.

      End of story

      • Josh Stern

        Was that comment intended specifically as a response to something I wrote??

        As far as Trump being selected goes, I felt that the powers that be had a preference for HRC.

        I agree that Trump doesn’t give any sign of being healthy for (revenue – spending).

    • Wendytpatterson

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