“The boom years were the dream. Hard work and tighter belts are the new reality.”

Jolly little thought via Gerard O’Neill:

For decades workers, faced with exploding global competition, were compensated by governments with cheap goods, early retirement and welfare on credit: a dream of affluence for life to replace jobs for life. Now the competition is as intense as ever, societies are ageing and their nations are poorer than they thought only a few years ago. The boom years were the dream. Hard work and tighter belts are the new reality.

Which is fine, if all things are to remain the same. But from this point of view there’s more than governments that may have to embrace a different form of austerity, from Nick Hanauer an early investor in Amazon.com (via Alex Evans), in a Ted speech that has yet to be made public (by Ted at least):

Since 1980 the share of income for the richest Americans has more than tripled while effective tax rates have declined by close to 50%. If it were true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment is at record highs.

Another reason this idea is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the median American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, we go out to eat with friends and family only occasionally.

I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or cars or enjoy any meals out. Or to make up for the decreasing consumption of the vast majority of American families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.

And he concludes:

So here’s an idea worth spreading.

In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class, is the single smartest thing we can do for the middle class, the poor and the rich.

  • andnowwhat

    Off topic, I know but I did love Christine Lagarde’s report today. After giving Gideon a little pat on the head, she then went on to criticise his policies and basically promote Labour’s on such issues as lowering VAT, investment in infrastructure, more borrowing and a policy of growth.

    I’m sure that Millbank will have Lagarde’s comments spun beyond recognition but Ed Milliband is going to have a very easy day at the office come tomorrow’s PMQs.

  • Alias

    “In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class, is the single smartest thing we can do for the middle class, the poor and the rich.”

    To use his own logic, ‘If it were true that spending money would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment is at record highs.’

    Comsumers borrowed a few trillion of cheap eurosystem credit and spent it, and the result isn’t record job creation and wealth in the EU but record debt and unemployment.

    Looking around for other folks to pay your debts (tax the rich) is just another way to avoid reality – and that reality is that you shouldn’t spend money that you haven’t earned.

  • Tomas Gorman

    Alias,

    Perhaps the reason why joe the plumber didn’t have the money is because industrial wages have been pushed down since the eighties while executive pay has accelerated upwards; the pie is being sliced evermore unevenly.

    The point that Haneur alludes to re lack of demand in a consumerist economy due to this squeezing of income, resulted in an effort by the finance sector to issue credit recklessly to stimulate demand from the middle/lower classes. We all know how the western economy built on buying crap they didn’t need with credit rather than solid salary income turned out.

    The crappy thing is, those who benefitted, stay rich while those who were carrying what was ‘normal’ economic activity at the time are being put through the grinder. Worse still, as governments have bought up a lot of these bad debts, the welfare budgets for those most vulnerable are being taken away. So even those who couldn’t get credit when it was being thrown around are being screwed.

    I think more upward blame rather than horizontal and downward is in order.

    Moreover, a simple way out of this bullshit is to set much higher minimum wages and a maximum wage as well as pushing usuary finance to the perimeter rather than the centre of the economy.

  • Alias

    Tomas Gorman, if the argument is that the lower paid recycle a greater percentage of their income in the domestic economy than the higher paid, then the facts are on your side. It follows that taxing the income of the lower paid harms the domestic economy, with government essentially squandering a large part of any taxed income it spends on pet projects, overpriced contracts, and repayment of nationalised eurosystem debt (which will cause circa half of all taxed income to be exported from the domestic economy). It is better for the real economy if the state allows the lower paid to reinvest their own income in it rather than acts to undertake this function of their behalf in its own inimitable way.

    I don’t have any problem with the state taxing the income of the higher paid since that group is not to be conflated with the wealth-creating group who reinvest their earnings in creating more wealth for the economy and would not be able to do so if the state taxed and duly squandered their wealth. Doctors, lawyers, dentists, politicians, landlords, managers, et al, do not create wealth – they just earn it. The tax burden could be placed on them without impacting on the amount they spend in the domestic economy.

    I hold to supply-side economic theory here and not the proffered demand-side. So, the argument that you can create wealth by spending it is shown to create debt, not wealth. Yes, it creates a lot of goods and services while you are spending the borrowed money but the demand ceases when the borrower’s attention focuses on servicing his debt – or, more accurately, when the lender’s attention focuses on it. Essentially, this just brings future purchasing power into the present, leaving less purchasing power for the future – which, of course, is now. The core problem is debt. Creating more debt just digs a deeper hole, making the core problem worse.

    The other point to remember about Keynesian guff is that it is only marginally effective within a closed economy, but it is disastrous in an open economy. If you look at the Irish government’s fiscal stimulus for the motor industry as an example you’ll see that it was effective means of boosting car sales at the taxpayers’ expense. However, Ireland doesn’t manufacture cars so all that the Irish government’s fiscal stimulus did was boost the manufacturing industry of Germany and France, and cause tens of tens of wealth to be exported from the economy. Indeed, all government contracts over a specific amount (I think it is 100k) must be put out to tender and available for all EU member states to fill. That’s why Keynesian guff doesn’t work for the member state that implements it.

    The EU is kaput, and so is Ireland if it remains within it as a servile debt slave. No tinkering around with the tax bands (of which sovereignty will soon enough be lost) will stop that fate.

  • Old Mortality

    ‘Another reason this idea is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the median American, but we don’t buy hundreds or thousands of times more stuff.’
    In which case they’re saving an awful lot, (unless they’re giving it away which is encouraged by US tax law). It would have been more helpful if Hanauer had told us what he does with his savings. He might well be investing a good chunk of it in high-tech start-ups. On the other hand he might bet it all on property as his Irish counterpart almost certainly would.