Thursday, August 08, 2013

The Rich Are Hoarding Cash And It's Making Us A Lot Worse Off

From the Huffington Post:

America's wealthiest households are increasingly squirreling away their cash in a trend that could pose a threat to the economy at large and exacerbate already high levels of income inequality, according to two recently published reports.

America's top 1 percent saved their money at a rate of 37 percent last quarter, according to a recent survey from American Express Publishing and the Harrison Group highlighted by CNBC. That means that during that period, wealthy Americans put away about 37 cents for every dollar they earned, which is more than triple their savings rate in 2007. In addition, a Bank of America study cited in the CNBC report found that more than half of millionaires have a "substantial" amount of cash on hand and of that group, about 60 percent said they didn't plan to invest it in the next two years.

As the recovery struggles to gain solid ground, the findings indicate that even while America's wealthiest households are taking home a larger share than ever of the income pie, they're doing little to put that money to productive use in the economy, experts say. One possible solution: raising taxes on the rich.


That increased concentration of wealth in the hands of a few, combined with the effects of the Great Recession and the slow recovery, has meant less money in the hands of low- and middle-income Americans -- who are more likely to spend it -- decreasing demand for goods and services, according to Sam Pizzigati, an associate fellow at the Institute for Policy Studies and the author of The Rich Don't Always Win. The lack of demand makes wealthier Americans more hesitant to spend, keeping the cash concentrated in their hands.

"There's a bit of a vicious cycle," Linden said. 

More here.

Just another reminder among many that everything you think you "know" about economics is wrong.  I'm assuming, of course, that what you "know" about economics comes from what the ruling establishment, mainstream news media, and various businessmen, who think that running a business is the same thing as being an economist, all tell you.  You know, conservative economics, Reaganomics, supply side economics, neoliberalism, "classical liberalism," whatever you want to call it.  All wrong.  

In this case, I'm talking about the cherished notion that cutting taxes for corporations and the rich somehow grows the economy because the recipients of all this free money are wise and invest in growth-positive ways--by extension, I'm also talking about the always-daft notion that cutting taxes results in increased tax revenue, which it doesn't.  Actually, we've known for some years now that tax cuts for the rich don't increase investment.  After all, we've been cutting taxes for the rich for decades, and economists study this shit.  Instead, the rich stick it all away into savings, where it does nothing.  

Well, to be fair, not "nothing."  As economist Richard Wolff has observed, the money in those savings accounts is, in the grand scheme, essentially loaned back to the government, which has become cash strapped because of all those tax cuts.  So we have a really weird situation here.  We cut taxes for the fabulously wealthy, ostensibly in order to grow the economy, which it doesn't, but this massive loss of tax revenue does result in deficit spending, which the government must cover by borrowing the money it used to have by way of taxation.  It's a big scam, to be honest, and it's a testament to how utterly dysfunctional our politics have become that the rich are able to get away with it decade after decade.

That is, I can solve the deficit/debt problem right now and very easily: massively raise taxes on the rich.  Because it's what they OWE.

But, as the linked article observes, it's not all about the deficit.  The wealth inequality caused by such a lax tax policy is destroying what drives the economy in real life, consumer demand.  That is, what's really happening is the exact opposite of the conventional wisdom.  The rich don't create jobs: rather, consumer markets create jobs.  Without consumer demand, there is no need to hire people, no need to expand business, no need for rich people to do anything but sit their fat asses on top of their fat piles of money and laugh because they're screwing us all over.  In stark contrast, however, when the government takes that money as taxes and turns it into important social services that make life easier and less expensive for average ordinary Americans, we all end up with more disposable income, which must necessarily result in higher consumer demand, which, you know, is what creates jobs and grows the economy.

We could end this Second Great Depression RIGHT NOW.  If we wanted.  Instead, we seem to be totally content to let the rich get richer, while education, employment, quality of life, a future for our children, hope itself, all decline for everybody else, because...well...I don't know why.  Fuck the rich.  They're destroying this country.  And a lot of us are helping them do it.