debt-to-gdp

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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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Taxation Nation

Is it true that Americans are paying too little tax?

The short answer is no.

Current levels of overall taxation are close to the historical norm. So what’s changed?

Well, far less of the money is coming from corporations, and far more from payroll taxes. That means that a lot of the burden has been switched from corporations to their workers. That puts the power to invest into increasingly fewer hands. The middle classes, who pay the overwhelming majority of payroll taxes are left with less to invest. That means, broadly, that more money gets invested in big business and large corporations and less in small enterprise, who are the greatest job creators in America:

From the Economist:

Research funded by the Kauffman Foundation shows that between 1980 and 2005 all net new private-sector jobs in America were created by companies less than five years old. “Big firms destroy jobs to become more productive. Small firms need people to find opportunities to scale. That is why they create jobs,” says Carl Schramm, the foundation’s president.

So while I agree that the top 1% should be taxed more, and the bottom 99% less, what the above graph reveals is that America right now has is a spending problem, and not a tax problem.

Here’s spending as a percentage of GDP:

It is spending that is climbing well-above its historical norm. The difference really adds up:

The next American President and Congress will face a stark choice as they seek a balanced budget — do they raise taxes or cut spending?

Well, it’s an open question. Other nations spend far more than America, but they also tax more. 52% of French GDP, 37% of Japanese GDP, 47% of British GDP, 18% of Thai GDP, 32% of Swiss GDP, 78% of Cuban GDP, 27% of Indian GDP and 17% of Singaporean GDP is government spending.

Most interesting by far  is “communist” China. Only 20% of Chinese GDP is government spending. 

That’s quite a wide range. But to spend more you have to tax more, and that will be unpalatable to many Americans.

America is really at a crossroads. Growth would be a panacea. But with the economy in a Japan-style depression, generating sustained growth will be difficult.

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Why the Debt Ceiling is a Dead Issue.

The Elephant in the Room?

I spent the last three days writing blog posts on economics without ever mentioning the “hot button” issue of the day: the United States Treasury running out of juice, and having to yet again raise its debt limit. For those with a short memory, or a lack of interest, here’s a figure of the U.S. debt, first in absolute terms:

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