Wealth Gap 101

Fox News and Republicans (Rand Paul, Ted Cruz, Rick Perry, Marco Rubio, et al.) are trying to re-brand the GOP as the Party of the middle class.  They are desperately blaming the policies of Barack Obama for the great disparity in wealth between the top 2 or 3 percent of our population and everyone else.  Blink twice, click your heels or click on Bushed, and return to... ah, how about reality!

Let me remind you that President Obama was first elected President on Nov. 3, 2008 and assumed office on January 20, 2009. As you can see from the Vulture Chart the wealth gap was huge well before President Obama was even elected.

So how do you create a wealth gap?

1. Starve the beast:

• In a 11/20/2012 New York Times article entitled “The New Republican Tax Policy” Bruce Bartlett wrote: “Although it is commonly believed that the Laffer curve – the idea that tax cuts pay for themselves – is the core Republican idea about tax policy, this is wrong. The true core idea is something called starve-the-beast – the idea that tax cuts will force cuts in spending precisely because they reduce revenue. But there are slight indications that some conservatives have awakened to the reality that not only does starve-the-beast not work, but it also leads to higher spending.” I presume that by “some conservatives” Mr. Bartlett was referring to real conservatives as opposed to the mindless reactionaries that are driving so much of the Republican Party's agenda.

• The problem is that the Republicans are very selective in the government spending they want to limit. Their real goal is to cut spending on the safety nets and earned benefits programs while increasing spending on the things they favor.  In a Feb 22, 2011 article entitled Infographic: Tax Breaks vs. Budget Cuts, Donna Cooper at The Center For American Progress showed who benefits from the things Republicans favor. Her analysis and chart of the cost of the Republicans' proposed tax breaks for the wealthy vs. the Republicans' proposed cuts in safety-net programs is a real eye opener. (See DailyKos Comparison)

• I know some of you are saying “yes, but that chart reflects what was happening clear back in 2011.” All right, so lets look at the Republicans' most recent budget proposals. Here is what Paul Krugman said about them in his March 20, 2015 New York Times article entitled : Trillion Dollar Fraudster.

“… the just-released budgets from the House and Senate majorities break new ground. Each contains not one but two trillion-dollar magic asterisks: one on spending, one on revenue. And that’s actually an understatement. If either budget were to become law, it would leave the federal government several trillion dollars deeper in debt than claimed, and that’s just in the first decade.

… Some of those spending reductions are specified: There would be savage cuts in food stamps, similarly savage cuts in Medicaid over and above reversing the recent expansion, and an end to Obamacare’s health insurance subsidies. Rough estimates suggest that either plan would roughly double the number of Americans without health insurance. But both also claim more than a trillion dollars in further cuts to mandatory spending, which would almost surely have to come out of Medicare or Social Security. What form would these further cuts take? 

… Think about what these budgets would do if you ignore the mysterious trillions in unspecified spending cuts and revenue enhancements.  What you’re left with is huge transfers of income  from the poor and the working class, who would see severe benefit cuts, to the rich, who would see big tax cuts. And the simplest way to understand these budgets is surely to suppose that they are intended to do what they would, in fact, actually do: make the rich richer and ordinary families poorer.”

• In a post entitled “Why do Republicans Really Oppose Infrastructure Spending?” Daily Kos shows us just how greedy and destructive the Republican Party has become in its quest to enrich the rich.

“While Republicans continue to refuse to raise revenue necessary to fund infrastructure spending (traditional Starve the Beast), the latest application - Starve the Beast 2.0 - looks to hold hostage any and all necessary spending for cuts to other, unfavored, government spending.  In that sense, you have to understand the crucial (even threatening) need for infrastructure spending as identical to the "debt ceiling."  For Republicans, the hundreds of billions to trillions of unmet infrastructure spending represents a massive, annualgolden opportunity to extort draconian cuts to social, regulatory, non-defense spending.  That is why Republicans also reject deficit-financing for infrastructure spending (at historically low interest rates) or alternative proposals like a private-public infrastructure bank.  The goal here is not to invest in the country, but to seize upon any vulnerability to "drown the government in a bathtub."

…In sum, the question of why we cannot enact needed, common-sense infrastructure spending is truly mystifying . . . so long as we ignore that the Republican party is hyper-partisan, engaged in a destructive Starve the Beast agenda, wants to privatize public infrastructure, promotes an increasing "financialization" of the economy, and is ideologically opposed to labor and environmental laws...”

* It is not a great secret: the few examples I have just given tell you that when Republicans say they will “fix or reform entitlements” they mean they will deprive you of the benefits you have earned so they can make the rich richer. The Republican Party also opposes raising the minimum wage and actually brags about busting unions. They do this even though they know the minimum wage and labor unions have a positive impact on real wages and job creation. (See Minimum Wage Mythbuster and Unions and Wealth)

So how do the Republicans justify enriching the rich at your expense? With the trickle down theory hypothesis of economics, of course.

2. Does Trickle Down Work?

• From 1954 to 1963 the top marginal tax rate was 91% with an effective rate of 86% (See Top Marginal Tax Rate ). If the Republicans were right about all the horrible things that happen when you tax the “job creators,” the jobless rate should have gone through the roof and the economy should have spent the entire decade spinning in the toilet. But that did not happen! In only three of those nine years ( 1958, 1961, and 1963) did the unemployment rate rise higher than 5.5%, and it did not reach 7% in any of those years (See Employment Statistics).

• Even the International Monetary Fund has concluded that Trickle Down Does Not Work, and the IMF is just one of many organizations and/or individuals who say the data does not support the Trickle Down hypothesis.

See the page entitled “About Important Links” on this blog to discover links to other sites containing information about economic myths such as Trickle Down.

* The Bottom line is that the Republican Party is distributing the wealth upwards! Justifying this enrichment of the rich at your expense by citing the fallacious trickle down hypothesis is analogous to pissing on your head and telling you it's raining!

3. What about trade agreements?

• Trade agreements are a cause of the wealth gap that both major political parties would rather not discuss because they are both to blame for those agreements. Bad trade agreements are destroying our industries and depressing our wages! Those agreements are also causing deficits that are far more dangerous than our federal budget deficits. It is only a matter time before the trade imbalances or trade deficits undermine confidence in our ability to meet our obligations and cause large increases in the amount of interest we are paying for the money we are borrowing! (See Trade deficits Widen)
  
  Some have said we are entering into bad trade agreements for military reasons. If this is true we are fools. Military power without economic power cannot be sustained. The collapse of the Soviet Union was just the most recent and spectacular example of this. Did we learn nothing from it?