Class Warfare Blog

July 24, 2010

Recession Economics, er Politics, uh . . .

The axiom needed is “follow the money.” If we look at our stagnant economy, we tend to blame the politicians for it, but are they to blame? The two-faced Republicans claim on one hand (face?) that it is not government’s role to manage the economy, that if we just left things to the supposed “free” markets, things would take care of themselves, and on the other hand excoriating the Democrats because they are doing nothing to “create jobs.” Pundits are filling the airways with predictions that voters will “punish” the Democrats in the mid-term elections because of the poor economy.

Let’s just imagine for a moment that the Republicans are correct, that the economy will take care of itself. At the same time let’s keep the axiom “to follow the money” in mind. Right now, private enterprise is sitting on somewhere between 1.5 and 2 trillion dollars of cash (estimates vary). This immense amount of money could be used to run those businesses, but apparently it isn’t needed right now. Inventories have been sold down and . . . well, what are they waiting for to hire a few more workers and expand production, even if just a little? The pundits say they aren’t acting because of uncertainty. The Republicans say they need more tax cuts. Let’s follow the money instead.

There are two major incentives for business to sit on their hands right now. The first is that labor costs are going down. People desperate for jobs are willing to settle for less money to obtain one. Those with jobs are desperate to keep them, which means they are willing to take small pay cuts (unusual), produce more for the same wages (very common), or temper wage increase requests (also very common). Whenever labor is in oversupply, businesses benefit from the costs of labor going down. So, there is no rush to expand production right now for that reason. There is another reason and it is political. If they do the American thing and increase employment as a service to America (within reason, of course), there may be an actual recovery and the Democrats could hold onto Congress and the White House longer. But, if the recession drags on, a “throw the bums out” attitude on the part of voters could put the Republicans back in control, and that would be very good for business (they think).

Throughout this whole scenario, the middle class is continuing to take a beating. If you look over the last fifty years, you can clearly see that the productivity of American workers has increased astronomically. (We are the most productive workers in the world, not the Germans, not the Japanese.) The wages of American workers, though, when corrected for inflation have been basically unchanged over that same period. Even the Republicans say that workers should benefit from productivity improvements (but don’t seem to be too upset when we aren’t).

Just look at what happened during the Little Bush years: everyone knows by now that the federal government was running a surplus when G.W. Bush became president. Setting aside the stripping of environmental protections and business regulations from the books, just look at what the Bush tax cuts of 2001 have done. Here is a graph of the federal government’s income tax receipts per capita from 200-2009:

In 2001, income tax receipts to the government dropped significantly and then again in 2002 and 2003. Apparently, even though the economy was very, very good, people didn’t pay as much in the way of taxes. This alone threw us into a deficit situation (ignoring the two wars that were never budgeted for). Realize that the bulk of the tax savings went to rich folks and that the percentage of the savings going to the wealthy kept increasing as time went on! A study released by Citizens for Tax Justice and the Children’s Defense Fund revealed who stood to benefit from the Bush tax cuts. Among the key findings were that over the ten-year period, the richest Americans (the best-off one percent) were slated to receive tax cuts totaling almost half a trillion dollars. The $477 billion in tax breaks the Bush administration targeted to this elite group averaged $342,000 each over the decade. By 2010, when the Bush tax reductions were fully in place, an astonishing 52 percent of the total tax cuts go to the richest one percent, whose average 2010 income will be $1.5 million. Their tax-cut windfall in that year alone will average $85,000 each. Put another way, of the estimated $234 billion in tax cuts scheduled for the year 2010, $121 billion will go just 1.4 million taxpayers.

So, it is clear that the rich were getting more and more benefit from that legislation over this period, but it you take another peek at the graph you can see that tax receipts per capita went back up in 2004, 2005, 2006, and 2007. (By 2008 the recession had kicked in and income tax receipts plummeted from that.) My point is this: if the rich were getting ever increasing tax relief over this period and income tax receipts were going back up, where was the money coming from? I’ll tell you. It was coming from middle class people. The poor pay little to no income taxes and the Bush administration made sure they took care of themselves and their rich friends. Who else was there to pick up the slack?

The Democrats want to keep the meager tax relief the Bush legislation provided to the middle class but repeal the tax provisions for those earning over $250,000 per year. The Republicans are dead set against this (all of whom make over $250,000 per year, of course). So, the question is: as appallingly ineffective as these politicians are, which would you rather have in power over the next few years?

Only an idiot would think the Republicans are better for the middle class. But we may have to wait out businesses who are stalling the economy for their own ends. (This is what happens when we worship profit as if it were a god.) Why don’t we send them a message instead: they supposedly want stability, so let’s send a few more Democrats to Congress to make them understand that what we have right now is stable and what they are going to have in the next few years. They can afford to sit on the sidelines until the mid-term elections, but do you think they will be willing to do so for another two years after that?


1 Comment »

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    Comment by KeYaRzsx — August 4, 2010 @ 10:42 am | Reply

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