Still Not Spreading the Wealth Around

Obama has always claimed to want to spread the wealth around. Yet, as I stressed this June (and in my first ever blog post way back in July 2011!) that’s the exact opposite of what he has achieved.

And it’s getting worse, not better.

Wages-as-a-proportion-of-GDP just hit another all-time low:

WASCUR:GDP

And corporate-profits-as-a-proportion-of-GDP just hit another all-time high:

cp:gdp

Obama might throw a lot of rhetoric about fighting for the middle class.

But the reality has been the opposite. America today is all about the enrichment of big banks, financial corporations and the military-industrial complex, while the working class has rotted.

The truth of Obama’s policies (and successive administrations prior to Obama) is more concentrated wealth within the financial elites and Wall Street. Banks get bailed out. Campaign donors get stimulus money. And the middle class and future generations pay for it in taxation and the Cantillon Effect.

The Obama reinflation is a rotten bubble built on rotten foundations. Trying to reinflate the economy from a starting debt ratio of over 350% of GDP through crony corporatism and helicopter drops to the rich is an absurd notion that is doomed to abject failure.

And the growing gap between the rich and the poor is steadily beginning to resemble neofeudalism.

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41 thoughts on “Still Not Spreading the Wealth Around

  1. Aziz – good article! Missed commenting on your Canada post, but here’s what one blogger said:

    “I’m sorry to say that Canada is following in the US and Australian footsteps. We have “The Thieves of Bay Street” to thank for much of the corruption in the marketplace. That’s a book by Bruce Livesey and the review here covers its subject matter ( http://arts.nationalpost.com/2012/05/18/book-review-thieves-of-bay-street-by-bruce-livesey/ ).

    Recently, the PM finally confessed that the banks in Canada were bailed out to the tune of $114 billion (more per capita than TARP). He refused to admit the money was a bailout calling it “liquidity support.” Well, when government gives money to banks because they will fail otherwise, that is a bailout. ( See: http://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/04/Big%20Banks%20Big%20Secret.pdf )

    Our government is in austerity mode (cutting 10% from public services and 19,000 public service workers) and is planning some great privatizations in the future. Woe, woe woe!

    We have to admit that corruption is a world-wide phenomenon because all the big banks and corporations are intermingled.

    On my worst days, I believe that capitalism has run its natural course and I wonder what will follow.”

    Canada? Just another cookie-cutter U.S.-type government. The governor of the Central Bank of Canada, Mark Carney, another Goldman alumnus, is off to the U.K. to further strangle Europe.

    Our banks were bailed out more per capita than the U.S. banks. People are heavily in debt. “There has been nothing supporting the real estate balloon in major Canadian cities since 2009 but cheap money, lax lending standards, a growing wall of debt and self-promoting hyperbole from the housing lobby.” And much, much help from our Canadian government, extending amortization periods from 25 to 30 to 35 to 40 years.

  2. Trickle down:

    There’s a good graph in this article showing the average tax rates for the highest-income taxpayers going back to 1945 – for the 0.1 and 0.01%. In 1945 they were around 55 to 60%; now they’re down around 25%.

    “A new study by the non-partisan Congressional Research Service (CRS) using data from the past 65 years found that there is no correlation (PDF) between top tax rates and economic growth. But it doesn’t stop there. The study also found that there is a correlation between the reduction in top tax rates and the increasing concentration of wealth toward the top of the income distribution. The report, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, is also clear that this is not only about tax rates on regular income, and points out (PDF) that “changes in capital gains and dividends were the largest contributor to the increase in income inequality since the mid-1990’s.”

    This has to be just about the last nail in the tax-cutting, supply-side coffin. CRS is a bunch of smart people at the Library of Congress whose mission is “providing comprehensive and reliable legislative research and analysis that are timely, objective, authoritative, and confidential, thereby contributing to an informed national legislature.” And while the study has earned volumes of media coverage, it’s worth noting that even the Wall Street Journal report didn’t quibble with the study’s finding that “tax cuts for the rich don’t seem to be associated with economic growth…. [but] can be linked to a different outcome: income inequality.”

    No trickle down from tax cuts for the wealthy, it seems.

    http://www.ctj.org/taxjusticedigest/archive/2012/09/its_official_cutting_top_tax_r.php

  3. Oh, and re Canada again – another factor in our housing mania has been the inundation of corrupt Asian money fleeing China and trying to find a place to hide. Multiple homes and condos were purchased, sitting empty, in hopes of appreciation. Shell corporations were set up in China, money advanced from the banks, and then said money quickly skipped town. Understandably, this pushed prices into the stratosphere, squeezing Canadian citizens.

    Following the money again, who benefited from this?

    • Same thing happening in Australia!

      I am pushing for 100% Taxation of the 1%. Then redistribution of share ownership to the bottom 80%. The poor will get their dividend cheque and capital appreciation. It is akin to Nationalisation but the business is still run without Government bureacrats.

      I have an uphill battle because the main stream media is owned by the 1% and the Editors fear for their jobs. THE MSM IS INCESTIOUS!

      Our 1% are building Casinos to attract high net worth gamblers,mostly Asians, Russian while our Politicians argue about trivial matters of national importance. Our Politics is trashy and reflects our soap opera world. Our 1% are not promoting grand visions. The Politicians listen to the 1%, not voters, we don’t matter. It is about time the 1% direct their “staff” to sort things out before the system breaks down and they lose the lot.

      Only when people reach the peak of pessimism, that they open their eyes. But remember the Government will print toilet paper to keep the armed forces, Police at their beck and call. The worse excesses of the Cantillion effect!

      • I commend your efforts in trying to push through the idea that the 1% should get hammered, as there are beacons of light such as yourself in all countries. The corruption of politicians, bankers and the 1%, is in every country. There are no bounderies for “them.” Unfortunately, as a soon to be pauper due to a new tax law (Greece) to be enstated, 45% taxation of income for anyone with income above 26,000 annually, i feel there is nothing i can do. Classically people seek refuge in negotiating everyday purchases by not paying retail tax and negotiating cheaper prices, which balloons the black market. But i believe this is also a part of “their” plan as to assure targets are not met by the government as so they instill more economical measures.

        I am a big reader of history and in my readings i have pietied the poor and the middle classes of our past societies. Whether it be ancient egypt, greece, rome, Japan, medival, the creation of America and modern 20th century history. Now am I am only realizing that I am no different from them. We are now in a new period of where the leash is being shortened. from time to time, power centers leave the leash loose as to give the idea of Freedom, but it is not actual.

        As an American and a Greek, i believe that my forefathers of the USA, were a beacon in a dark period fo struggle. They sought out to get the average person away from these “power centers.” I commend their heroic efforts and their struggles and are beacon of light in a struggle against power. That eventually was destroyed. Now this power center is completely global.

        So i ask you Buddy, as we have nowhere to run off too, obviously the masses are in pessemistic delusion “that everything will turn around,” and there is no clear enemy to rebel against, as we are not fighting a state or organization, how do we fight?

        I have found this blog as one of the most insightful and knowledgable sites. Opening my eyes and informing all of this site. I see alot of great minds here with the one of the best that i have seen AZIZ himself. My question is how do we fight? How do we help our societies understand and learn as to what is truely going on and counter strike?

        I sometimes feel that society is a large field of chess games going all at once and even the king and queens are not a part of the power centers but are a part of us. The 1% power centers are in the stands watching us fight each other and creating instigations as so we fight and blame each other. I do not want to fight my brotherin 99% whether he or she is German, Chinese, Greek, American and so on. How do we fight a opponent whom is not in the game itself?

        My greek forefathers, dialogued under olive trees in the agora of the past to seek knowledge of thought threw exchange idea. This site is that olive tree of ancient times. Your continued dialogue may help us shine some light on what we can do.

        …….

        • Thanks for the kind words. You said “we have nowhere to run off too, obviously the masses are in pessemistic delusion “that everything will turn around,” and there is no clear enemy to rebel against, as we are not fighting a state or organization, how do we fight?”

          1. Protests must be conducted in very good dress. Suits. Professional Banners. You must not give them ammunition to ridicule you like they did with the “Occupy” Protests. The young must be vocal but disciplined. Only when they see the “middle” vote protesting, will they fear.

          2. Look at the top shareholders of each listed company. This is publicly available. Work backwards until you find beneficial ownership. Appropriation of all shares, then owners must reapply. Only those with assets or net worth within the redistribution parameters are given back. The rest is confiscated by the State. Note the State must reduce in size so that this wealth is not destroyed by nepotism, corruption. The key is capital must be recirculated but not wasted.

          3. Remember the French Revolution collapsed because of Napoleon and his violence. The Police and Army today are very well armed. Protests must be non violent. If possible recruit Police and Army into your Political organisation.

          4. Nationalise Monopoly Industries and appoint Managers that will be assessed on Key Performance Indicators. You need to redistribute these Monopoly profits to the 99% but maintain the economies of scale and efficiency.

  4. The question is, where is this system’s breaking point, and how will it break? What can we do to prepare, as individuals, families, groups, and communities, to get through what will probably be a rather rough period, considering we will probably also have to deal with other serious problems like climate change? The time to start preparing is now, because while our great leaders may see to their welfare, they’re sure not going to bother with ours.

    • Anar-c, it has already happened. The system has been broken for the past century. And this is how it always it, that is, by the time most people realize what’s going on, “it” is long gone.

      The only thing left now is in the removing of the dead wood.

  5. “Dissent is unpatriotic everywhere”

    We got no way of understanding this world, we got about as much sense of it as birds flying in they sky, and there’s a whole lot that a bird don’t know, but that don’t change the fact that the world is happening all the same, you know. I mean, what I’m trying to say is, is that the course of your life, it’s changing and you don’t even see it.

    “Though the slave must know the master, and the master cannot fool the slave, the slave can fool the master because the master wants to be fooled”

  6. Niccolò Machiavelli wrote: “With a people equally controlled by Law, as those Kings were, we shall find in that multitude the same good qualities as in those Kings, and we shall see that such people neither obey with servility, nor command with insolence”

    [Aziz if you get annoyed my number of posts, just say the word, wouldn’t want to piss off my favourite blogger ;-)]

  7. Wow, how nice of you both to say :-)

    In that case, here’s another cool tail, about…

    The name Salmon P. Chase…who is barely known …and whose career is largely forgotten. In the below paper, the author aims to revive his memory by tracing the arc of Chase’s career from antislavery lawyer, to antislavery politician, to Chief Justice of the United States.

    In addition to explaining why this is a career worth both remembering and honoring, the author offers some possible reasons why his remarkable achievements have largely been forgotten.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2136974

    • Alister, I agree, you post some pretty good stuff, but feel free to put your own feelings out there too. And don’t be afraid to take chances and explore something you are not that certain about, because [really] nobody knows what they are talking about [it’s just that some bs better than others, especially me :) ].

      What is real can not be written or even spoken, but is available everywhere, anytime you want it.

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  11. Thanks for your focus on the Cantillon effect. I didn’t know about Cantillon until you sparked my interest. He seems to be quite a thinker about financial mechanics.

    I believe that the Cantillon effect, mathematically works like this:

    Money supply growth in a non-fiat economy is due to interest accrual which is

    dm/dt/m = (FV-PV)/FV = iT = 1-u , i is annual interest, T is loan term. Since businesses borrow only what they can afford to T = 1/V where V is the rate at which the inventory is turned over, (velocity).

    u = PV/FV is what Goodwin calls the wage share,

    Regrouping, then, i = V(1-u) so that V = i/(1-u). This is an equilibrium (time independent) relation. Dynamically ,

    di/dt = – (i(t) – V(1-u)) says that i(t) converges to V(1-u) by market arbitrage. Also, in a non-fiat economy,

    Also, since, di/dt = -(i – r) where r , real interest, is real money demand, so that one can see also that

    r = V(1-u) as well

    r is also Q’/Q = a’/a+n’/n+d+E’/E is real output growth rate where

    Q is real output, a’/a is productivity growth rate, n is population growth , d is capital depreciation, and E is employment percentage.

    p’/p = inflation/deflation = i – r Price level goes up or down depending on whether i is too high or too low.

    The introduction of fiat currency changes everything since then

    m’/m = i + g where g is net money created by government spending. (g is reduced by taxation)

    Now, p’/p = i+g – r

    and di/dt = -(i+g/s-r) where g/s is the fraction of g that is invested. While this extra g/s does boost employment, i now converges to r-g/s which is less than r, meaning that while there is inflation in the price level, there is a dearth of investment in the real economy, a sort of simultaneous inflation and deflation.

    Also, in a natural non-fiat economy, V is either constant or slowly changing. However in fiat land, since V =i/(1-u), and i is continuously declining, so also is V.

    dV/dt = -(V-i/(1-u)) which explains your WASCUR/GDP chart where V has been declining since 1981. (Actually, V has been declining since before 1940 except for an interlude where the Fed Funds rate was raised to the sky)

    My computer model shows V hitting 1 and i hitting 0 more or less in 2014.

    Another way of getting at it is to write QTOM as

    p’/p+Q’/Q = m’/m+V’/V IF, ceteris paribus , Q’/Q = 0 (constant real output),

    THEN, since p’/p < m'/m, V'/V < 0 which is why fiat systems always collapse.

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