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Sunday, April 09, 2006

How not to Build an Economy

The employment numbers came out friday and for a while, I wondered why they put them out on trash day - the numbers were up. Quotes courtesy of Mohave Daily News.

"President Bush, coping with low job-approval ratings in a congressional election year, said the job figures provided ‘‘evidence of an economic resurgence that is strong, broad and benefiting all Americans.'' The president said his tax cuts were central to the resurgence and called on Congress to make them permanent."

See, unemployment dropped to 4.7% - the lowest point in four and a half years. In addition, wages were up 2%. Economists were expecting 3%, but that's not all that huge a variance. Here's the thing - no where in that report will you see a word about inflation. That's why the friday dump.

Right now, we have a rate of inflation of 3.6%, according to The wage gains do not keep up with inflation. Worse, the expected gains of 3% wouldn't have done the trick either. In the best case scenario, there would still be a decine in real wages.

This means that, in constant dollars, the average clockpuncher - i.e., the vast majority of americans - is losing money, since wages aren't keeping pace with inflation. At this rate, in order to keep pace with inflation without the raise in wages, they'll have to work 1.6% longer; 33.28 hours a year - nearly an extra week's wages.

Like they say, the rich get richer and the poor get poorer. But it doesn't have to be that way. Wealthy people tend to save, while poorer people tend to spend. Bill Gates didn't look at his taxes and say, "Gee, now I can finally get that new fridge I've been needing." If you want to build a strong economy, you build it like a house - from the ground up. Try building a house from the top down and you'll find it just ain't gonna work.

And that's the problem with supply-side economics - what Reagan called the 'trickle down theory'. The wealthy don't trickle. And there's no reason why they should or for anyone to think they would. If you got a raise, would you start offering to pay the cashier more for groceries because you've got more money to spend? Likewise, there's no reason for an employer to start paying more because they have more to spend.

If you want good numbers, you need to abandon the top-heavy tax cut scheme and retool it to be weighted more toward the bottom. Money moves in a healthy economy and, if you want to get money to move, you get it to people who need it - because you know for a fact that they're going to spend it.

The fact that it's the right thing to do anyway is just bonus.

(Keywords: politics, economy, jobs, capital, President Bush, keynesian economics, taxes )
(correction: I've been told that the jobs report always comes out on friday. Sorry for the mistake.)