Relying on the Benevolence of the Rich

Recently it was announced that the top executives of Transocean (the company in charge of the oil rig that caused the worse oil spill in US history) would be receiving salary bonuses for their safety record. Naturally outrage ensued and as a result the executives announced they would be donating their bonuses to the oil rigs victims. Isn’t that kind of them? No really, is it kindness that propelled them to do this. How about the betterment of society? No, it wasn’t either of those things. It was fear; it was fear that public outrage would reach such a pitch that it would initiate legislative changes to executive compensation. Over the last few years as Americans settled deeply into what we knew would be a long recession we’ve been shocked on several occasions by news that executives of large corporations have received huge bonuses despite the catastrophes that occurred under their leadership. But really why should they do anything less, over the last generation and a half we’ve been told that the wealthy make jobs and no one can do the job better then them.
It is called trickled down economics or Reaganomics give the wealthy more money and they will create the jobs. Give Lebron the ball and he will score because that’s just what he does and that’s just what they do. The notion has been if we just reduce the taxes on the rich then they will do the magic voodoo that they do to create jobs and wealth for everyone. By the way it isn’t me who coined that theory as voodoo. No that honor goes to the vice president of the Reagan administration George Herbert Walker Bush. During the republican primaries Bush Sr. lambasted Reagan’s economic theories as completely implausible. But you can’t argue with results can you? Under Reagan the economy grew and his tax cuts are the reason, right? Well for all of Reagan’s government is the problem rhetoric he sure spent a lot of government money. He just didn’t have the decency to pay for it. During his administration the debt grew over 180% the largest expansion in government debt in the last 50 years. He put his expansion of governmental spending on a couple of credit cards, in fact the one he tapped a lot was the social security credit card, because he didn’t believe it should exist anyway so why try to save that money. Over the course of his administration it is hard to say the tax cuts specifically had a positive effect on the economy, but if spending was cut to the levels dictated by the decrease in revenue few would argue that it would have a net positive effect.
My main problem with the cut taxes only policy is it’s reliance on the status quo. The idea is that companies and wealthy citizens need to be enticed into spending their money. We need to make business more profitable for them to invest their money. Implicit in this idea is that the small numbers of rich people in the country are the only ones capable of making a successful business. For most Americans making a million dollars is pretty good deal. But to paraphrase the social network: for the wealthy making a million dollars isn’t all that cool, making a billion dollars is cool. And it takes that much longer to make that cool bil if you have to muddle around paying a capital gains tax above 15%. You see they have so much money why even bother putting any of it out there if it’s not going to triple in value. Literally that is the calculation the wealthy and the largest companies are making. There are trillions of dollars sitting across corporate and wealthy books doing virtually nothing. There are two reasons for this, reason one the companies and people in charge of this money have no good ideas on how to make a profit off of investing that money. The second is if they do have an idea the profit isn’t enough to justify putting that money at risk.
By relying only on the already wealthy to innovate and generate jobs we are leaving 90% of the population out of the advancement of the nation. Sure ten really smart people can come up with ten good ideas but three hundred just smart people will come up with 50 good ideas. What about the stock market some very observant people might say, aren’t they supposed to connect the wealthy with the people with the ideas? Shouldn’t they be the ones capable of making Reaganomics work? Well unfortunately because wages have stayed stagnant for the last 40 years Americans are in greater need of credit to live a middle class lifestyle. Wall Street in turn has found it vastly more profitable creating tons of credit cards and mortgage loans then connecting investors with the production of actually products. In fact growing inequality makes it that much harder to rise on the economic ladder to the point where you could have a viable investment opportunity. In other words the shrinking middle class means there are less people with enough access to resources to turn their dreams into ideas that can be invested in. If you can’t afford your mortgage, how can you afford to spend your time and money on the next garage built gadget to revolutionize such and such industry.
Tax cuts can still be used to induce movement in the economy and the labor force but they should have built in time limits. You know during the tax showdown last year when I wrote shoot the hostage conservatives kept talking about the uncertainty in the tax code was inhibiting investment. I can cotton to the idea that market uncertainty will make people and corporations hesitant to invest, but tax cuts should be viewed like sales in store. There are two reasons a store has a sale. The first is they have an abundance of stock and it costs the store more money to hold on to that stock then it would to sell it at a reduced price. The second reason is that the sale will lure more people into the store. Sure some will only take advantage of the sale, but just having more people looking at what the store has to offer it increases its chance that people will buy something that isn’t even on sale. The most important thing is once a store sells enough the sale ends. The reason is simple while it made more sense to sell the stores surplus for less than to keep it, it was not a sustainable business model to sell at that reduced price.
To digress for just a moment, near my job there is a new fish restaurant. It is a very nice place, the food tasted great and the price was well within my budget. Sadly I doubt the restaurant will survive very long. It has nothing to do with their décor, or even their service, and as I said the food was great, the problem is there was simply too much of it. I was served enough for two meals in fact I ate the meal for lunch and dinner that night. Even though the price was great for me the consumer, it was bad for the business. In order for the restaurant to survive they are going to have to serve a lot more people. If they reduced the amount of food by even a third it would still be as valuable to the consumer and they would need to sell 33% less to break even.
In our little store analogy the American workforce could be considered the surplus product. However if the country is to remain viable at this reduced price they need to have a lot more workers, and each worker is going to have to make a lot less. Some will point out, rightly so, that some people and corporations will wait until there is a sale to put their money in the market. But the solution to that problem isn’t to just make the sale permanent because again that is not a viable strategy unless 90% of Americans think their problems are that they make too much money. No the solution is try to shape the market in such a way that makes it easy to put money in and make a profit and slightly harder to pull your money out. It’s the same model razors, printers, and a whole host of other industries employ to have a sustainable business model.
We as Americans need to look at the tax code for what it really is, a regulator on the flow of money in the country. Open too much as it has been for the last few decades has resulted in a surge of money to the wealthy which acts like flooding your engine with gas, restricted too much will choke out the engine and grind everything to a halt as well. To think that all we need to improve the job market is to give more money back to the wealthy in this country is to rely on the benevolence of the wealthy, and personable I don’t take much stock in that.

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