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7 charts show how trickle-down economics doesn’t work

In 1974, an obscure economist scribbled some thoughts on a napkin that served as the engine for the most influential presidency of the past three and a half decades and the most unequal economy America has experienced since the Great Depression. 

The napkin notes — written by Arthur Laffer and later embraced by Ronald Reagan — contained a figure illustrating the logic of “supply-side” economics, which translates to lowering taxes and regulations on corporations and the affluent to stimulate growth and have wealth “trickle down” to the rest of society.

That theory turned out to be wrong.

5 Years Later, We’ve Learned Nothing from the Financial Crisis

No.

Five years ago, Lehman Brothers, AIG, and the global financial system were not blown up by subprime mortgages, collateralized debt obligations, or credit default swaps. They were not blown up by greed or fraud, alone. The financial crisis that left millions of people still out of work was caused by an idea: the idea that unregulated financial markets are always good and that we can rely on the self-interest of bankers to improve all of our lives.

The ideology of free financial markets gained sway in the 1990s, with Alan Greenspan at the Federal Reserve and Robert Rubin at Treasury, and was not seriously contested in Washington before 2008. It was a Wall Street-to-Washington consensus that spanned bankers, lawyers, lobbyists, journalists, college career counselors, legislators, regulators, and the highest reaches of the Clinton and Bush administrations. It gave us derivatives non-regulation, consumer non-protection, the end of Glass-Steagall, creative capital accounting, regulatory arbitrage, and, ultimately, tens of thousands of empty houses rotting in the desert. Ultimately it delivered a financial shock from which the world has still not recovered.

For a brief moment, when it seemed the economy could grind to a halt, it was unthinkable that we would ever return to business as usual. At a low point, even Greenspan admitted that he had made a mistake. Five years later, however, the ideology of financial deregulation is back. And while not completely uncontested, it appears to be comfortably ensconced everywhere that matters.

Read more. [Image: Reuters]

If you want to know why you’re making less money now than you were five years ago, it’s because the recession replaced good jobs with low-wage jobs. 

The NELP report finds that mid-wage jobs, paying between $13.83 and $21.13 per hour, made up about 60 percent of the jobs lost during the recession. But those mid-wage jobs have made up just 27 percent of the jobs gained during the recovery to date. By contrast, low-paying jobs have constituted roughly 58 percent of the jobs gained since 2010. (x)

Mid-wage jobs are being lost, and the jobs that are gained in their place are either low-wage or high-wage jobs. 

The middle class is literally being squeezed out of the economy.

Take a look at the breakdown of the low-wage jobs with the highest growth in the new economy:

The jobs that are on the lower-end of the scale, like food preparation and retail work are experiencing higher growth, while the higher end jobs, like construction work and manufacturing work, hasn’t grown quite as fast. 

(source)

Now, there have always been people claiming that there’s no such thing as involuntary unemployment, that anyone can find a job if he or she is really willing to work and isn’t too finicky about wages or working conditions.

The classic answer to such people comes from a passage near the beginning of the novel “The Treasure of the Sierra Madre” (best known for the 1948 film adaptation starring Humphrey Bogart and Walter Houston): “Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn’t know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows of the world.”

—  Paul Krugman, End This Depression Now!
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On the false idea that money is a resource.

By Lisa Wade, PhD

I am so pleased to have stumbled across a short excerpt from a talk by Alan Watts, forwarded by a Twitter follower.  Watts makes a truly profound argument about what money really is.  I’ll summarize it here and you can watch the full three-and-a-half minute video above if you like.

Watts notes that we like to talk about “laws of nature,” or “observed regularities” in the world.  In order to observe these regularities, he points out, we have to invent something regular against which to compare nature. Clocks and rulers are these kinds of things.

All this is fine but, all too often, the clocks and the rulers come to seem more real than the nature that is being measured.  For example, he says, we might think that the sun is rising because it’s 6AM when, of course, the sun will rise independently of our measures.  It’s as if our clocks rule the universe instead of vice versa.

He uses these observations to make a comment about wealth and poverty. Money, he reminds us, isn’t real. It’s an invented measure.  A dollar is no different than a minute or an inch.  It is used to measure prosperity, but it doesn’t create prosperity any more than 6AM makes the sun rise or a ruler gives things inches.

When there is a crisis — an economic depression or a natural disaster, for example — we may want to fix it, but end up asking ourselves “Where’s the money going to come from?”  This is exactly the same mistake that we make, Watts argues, when we think that the sun rises because it’s 6AM.  He says:

They think money makes prosperity. It’s the other way around, it’s physical prosperity which has money as a way of measuring it.  But people think money has to come from somewhere… and it doesn’t. Money is something we have to invent, like inches.

So, you remember the Great Depression when there was a slump?  And what did we have a slump of?  Money.  There was no less wealth, no less energy, no less raw materials than there were before. But it’s like you came to work on building a house one day and they said, “Sorry, you can’t build this house today, no inches.”

“What do you mean no inches?”

“Just inches!  We don’t mean that… we’ve got inches of lumber, yes, we’ve got inches of metal, we’ve even got tape measures, but there’s a slump in inches as such.”

And people are that crazy!

This is backward thinking, he says.  It is allowing money to rule things when, in reality, it’s just a measure.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Why Obama’s Regulators Let Wall Street Bankers Off Easy

If there’s anything more maddening than the sheer scale of the financial fraud that sent America and the rest the planet spiraling into the economic abyss in 2008, it’s the fact that no Wall Street bankers have gone to jail for causing the mess. As in zero, zilch, none at all.

So at his farewell party last month to celebrate a lengthy career at the Securities and Exchange Commission (SEC)—the US regulatory agency that supposedly keeps Wall Street in check—James Kidney, a trial attorney who had been hamstrung for years by indifferent bosses, broke his silence and went off on an awesome rant about how no one in the financial sector fears the body supposedly policing their behavior. The SEC, in essence, is a joke.

Describing it as “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors,” Kidney told an audience of fellow employees that they had dropped the ball because of a revolving door of corruption between the SEC and Wall Street megabanks. “I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket. They mouthed serious regard for the mission of the Commission, but their actions were tentative and fearful in many instances,” he said.

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