The Economic Benefits of Fairness to Wage Earners

 ChumForThought, Political Commentary, Politics, USA 2012 Elections  No Responses »
Jan 312012
 

I read the article in “The Daily Beast” – The Path to Victory in November for Barack Obama and the Democrats by Michael Tomasky. One of the comments pointed out that President Obama doesn’t get credit for all the changes that he has made to support America’s recovery and that he doesn’t spend enough time explaining the economic benefits of focusing on fairness to the wage-earners, just the social benefits. Here was my response:

“Yeah, I thought the connection was more intuitively obvious. Perhaps the dots need to be explicitly connected.

When businesses or investors get more money, they tend to take it out of circulation; they save it (Apple is now sitting on about $100 Billion) or buy things like bonds, mutual funds, or other companies. When businesses or private equity firms buy a business, they often take it apart, sell some pieces, and lay off employees as they squeeze operations for fast profit.

When private citizens get more money, they tend to spend it on products and services. This money continues to circulate multiple times as the people they give it to also spend it on products and services. Eventually, companies and/or taxes reduce the circulation. When the government gets more money it also tends to spend it on products and services. There is no truth to “trickle-down economics;” there is only “bubble-up investments.” However, if you let private citizens and progressive governments spend, you stimulate the virtuous cycle of a recirculating self-reinforcing economy.

There is an exception in the case of some conservative governments. Although a war can stimulate the economy through increased manufacturing and payrolls (as in WWII), It can also damage the economy if its costs are funded by printing money (as in Bush’s Iraq/Afghanistan). Plus, at the end of such a war investment, there is no significant tangible domestic benefit such as improved infrastructure.

Thus, President Obama is right to shift the emphasis from the last 30 years’ trend that favors robbing from the wage-earners (who make money by working) and favors making it easier for businesses, banks, and investors to make money from moving money. He is right to shift the emphasis from hoarding the fruits of American’s labors to planting, growing, nurturing, and replanting what we earn in ways that help more people to work and more people to earn more.”

Bill Clinton on the U.S. economic meltdown

 ChumForThought, Political Commentary, USA 2012 Elections  No Responses »
Dec 292011
 

Source: Back to Work: Why We Need Smart Government for a Strong Economy by Bill Clinton
Abstracted from pages 4-6

How do we ensure America’s economic, political, and security leadership in the more competitive, complex, fragmented, and fast-changing world of the 21st century? The 2010 election involved inflated rhetoric and ferocious but often inaccurate attacks that shed more heat than light. The attack proved to be very effective in the election, but I thought it was all wrong.

First, the meltdown happened because banks were overleveraged. In other words, there was not enough government oversight or restraint on excessive leverage.

Second, the meltdown did not become a full-scale depression because the government acted to save the financial system from collapse. Of course, the stimulus didn’t restore the economy to normal levels. It wasn’t designed to. You can’t fill a several-1,000,000,000,000-dollar hole in the economy with $800 billion. The stimulus was designed to put a floor under the collapse and begin the recovery.

Third, according to most economic studies, the stimulus, along with the rescue and restructuring of the auto industry, succeeded in keeping unemployment 1.5 to 2% lower than it would have been without it.

In other words, the crash occurred because there was too little government oversight of and virtually no restraint on risky loans without sufficient capital to back them up; the recession was prevented from becoming a depression because of a government infusion of cash to shore up the banking system; and the downturn hurt fewer people because of the stimulus, which is supplemented wages with a tax cut, saved public jobs, and created jobs through infrastructure projects and incentives to create private-sector jobs, especially in manufacturing.

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