Supply side economics and the one per cent.

The Gross National income of the US in 2014 is $17,601,119,000,000.

The gross national income (GNI) is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents. (Wikipedia).

One does not have to a brain surgeon like Ben Carson to understand why supply side economics will never work in the United States. The top quintile or 20 per cent of Americans now earn half the income. The the top one per cent rake in 23 per cent of the GNI.

Admittedly the affluent live in better home and drive better cars, travel more and take international vacations, but most of their income is surplus. Indeed, the affluent can take some of this surplus income and convert it to capital by buying stock, bonds and mutual funds. However, the top 10 per cent of Americans own more than 80 per cent of this market already. The top one per cent own more than 38 per cent of he stock and bond market.

As the Motley Fool points out:

Wealthy people don't own stocks because they're wealthy; they're wealthy because they own stocks.

The size of the U.S. bond market is just under $37 trillion, finance professor Torben Anderson at the Kellogg School of Management says in “Volatile Assets” in July 2012. In comparison, the market capitalization of the U.S. stock market is about $21 trillion.

The top decile (10 per cent) of income has a direct participation rate of 47.5% and an indirect participation rate in the form of retirement accounts of 89.6% in the stock and bond market. In the top decile, mean value of all holdings fell from $982,000 to $969,300 in 2007

U.S. corporate bond sales swelled to an annual record as a late-year rush by borrowers to lock in low interest rates pushed offerings for 2014 past $1.5 trillion.

Data compiled by Bloomberg. Internet commerce company Alibaba Group Holding Ltd. which sold $8 billion in bonds in one month, helping push this year’s bond volume past the previous high of $1.494 trillion set in 2013.

In 2014 a lot of mutual funds were converted to bonds and bond sale outpaced stock sales. The point here is that many stock, bond and mutual fund sales are conversions rather than new purchases.

The top 1 per cent of Americans earned $76,526,604,347,826 in 2014. Even if the one per cent purchased $ 5 trillion in stocks, bonds and mutual funds, which represents most of the US securities market in 2014, such a capital investment would represent a trivial amount of the income the 1 per cent received that year.

This is why tax breaks for the 1 per cent or even the top 10 per cent are pointless. Such tax breaks will do little for the economy. These tax break would at best provide packet change to the one per cent. The per cent of annual income the affluent invest in the stock market is not large enough to be stimulative.

The Democratic party uses a more direct approach to stimulate the economy. Programs like unemployment compensation food stamps (Supplemental Nutrition Assistance Program) and school lunches for women, Infants and children (WIC) provide direct aid to the middle class and the working poor.

Any funds these program provide are usually quickly spent. The funds do not sit in US or foreign bank accounts as is the case for many upper income Americans.

The middle calls is the basis of the US economic engine, not the one per cent. As the AFL-CiO noted:

The middle class is the great engine of the American economy, but that engine is sputtering.

As one business man explained it, tax breaks at the end of the years are great, but it's customers that make or break a company. The middle class provides the customers to small and larger businesses that drives the US economy.

Supply side economics is blind to the middle class economic engine with its top down approach. Unfortunately America is hearing that same old supply side song from most the Republican candidates for president.

Sources:

https://en.wikipedia.org/wiki/Gross_national_income

http://www.fool.com/investing/general/2010/11/17/who-owns-the-stock-market.aspx

http://finance.zacks.com/bond-market-size-vs-stock-market-size-5863.html

https://en.wikipedia.org/wiki/Stock_market

http://www.aflcio.org/Blog/Economy/10-Ways-to-Rebuild-the-Middle-Class

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ThinkProgress: 40 Economists Say The GOP Has Abandoned Economic Reality

A survey of forty economists from across the ideological and partisan spectrum has concluded that on some of its most cherished issues, the Republican Party has simply taken leave of economic reality. 


This is why the GOP house should be replaced with Democrats. ideologues and ditto heads who cannot pass the laws the nation needs to progress. The 112th House passed 75 bills, which is far short of the usual 200. It has an overall approval rating of 17 per cent, the worst in the history of the Gallup Poll. 


Yet the GOP is expected to retain control of the House. 


In the Senate, the GOP may gain a one to two seat advantage, too. 


How is this possible? 


No one said Americans are astute about politics as the graphic that follows suggests. 

source: http://www.bostonherald.com/news/opinion/op_ed/view/20220726congress_give_us_a_break/

See 40 Economists Say The GOP Has Abandoned Economic Reality | ThinkProgress:

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The Supply Side Economics Snow Job

Why is the Middle Class hurting? It started with Ronald Reagan.

John Maynard Keynes is still the foundation of international economics. Supply Side economics has never been the foundation of anything except the Reagan political campaign. Most Democrats consider supply side economics to be a politico-economic Trojan Horse.

David Stockman, Director of the Office of Budget Management under Reagan said:

"But the new catechism, as practised by Republican policy-makers for decades now, has amounted to little more than money printing and deficit finance -- vulgar Keynesiani­sm robed in the ideologica­l vestments of the prosperous classes."

When Ronald Reagan started advocating supply side economic, George HW Bush referred to it as "voodoo economics. "

"The supply-side idea is a simple one, and makes a popular political message. However, it is interesting to note that mainstream economists -- even conservative ones -- almost universally reject supply-side theory. In the early 80s, the influential and multi-partisan American Economics Association had 18,000 members. Only 12 called themselves supply-side economists.

In American universities, there is no major department that could be called "supply-side," and there is no supply-side economist at any major department.

This is significant, because academia in the 70s was dominated by conservative economic theory, and conservative economists normally welcome any ideas that make the case against government intervention.

The fact that they scrutinized supply-side theory and rejected it wholesale gives eloquent testimony to the theory's bankruptcy. When candidate George Bush called it "voodoo economics" in the 1980 presidential campaign, he was doing so with the full backing of America's economic community. "

source: http://www.washingtonmonthly.com/archives/individual/2009_09/019851.php

source:

Newsgroups: alt.politics

From: Phil <nos...@nospam.none>

Date: 8 Dec 2010 00:08:21 +0100

Local: Tues, Dec 7 2010 6:08 pm

Subject: The Supply Side Economics Snow Job - Just Another Myth And Fraud Pepetrated By Radical Rightists Who Are Ignorant Of Economics And History

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The Good Ol' Days or the best of times

The best of times

Yes, I remember them well being a Baby Boomer.  After World War 2 there was a tremendous building boom in the US because returning vets used their VA benefits to buy homes. My parents brought their first home in a Huber Community in southern Ohio that sprawled for four or five square miles.

Many also used their veteran's benefits to go to college. College enrollment also boomed.

During this era the Income Tax rate on the most affluent Americans was 90 per cent. FDR used income Tax and the Estate tax to pay for the war and help returning vets restart their lives. At this time only one in 30 Americans was considered wealthy.

Neighborhood schools were embraced by parents and it was considered patriotic to support tax changes to increase schools millages.  I can never  recall a tax amendment that benefited the school system that was defeated.

At that time the power company, the water utility and trash pickup were public and were very low cost.

If you worked for a fair to meddling corporation, you could look forward to a company pension and medical care when you retired. It was the best of times.

The worst of times 

Americans have been sometimes called sheeple because they really are unaware of how much things have really changed.

At this time there is a building collapse that  was caused by decades of Republican deregulation and the Bush Ownership Society. The repeal of the Glass-Steagal Act (1933) and an SEC rule change in 2004 that allowed banks to reduce reserves were the two main culprits.

Colleges are under assault by conservatives for being liberal and many neighborhood schools are being closed due tax shortfalls. Teachers are also being laid off. In Florida there is a supreme irony: Republicans wanted bonuses for the best teachers. These teachers, who make more than the average teachers, are the ones who are being laid off.

Many of these tax problems cause by over zealous Republicans who made tax cuts that would not fully fund government activities. The deficit doubled under the Bush presidency. Bush used the Republican Trojan horse, Supply Side economics. to cut taxes for the most affluent Americans and he was also the only president stated a a war without raising taxes.

After eight years the US deficit was doubled. Bush also suspended the Estate Tax. The income tax rate for top earning Americans in 2009 is now 35 per cent. That is a 55 per cent drop since the Eisenhower era. But wait there's more: Bush dropped the capital gains tax to 15 per cent. Millionaires and billionaires make most of their money with capital gains so the most fortunate Americans actually have a lower tax rate than the average American.

The income tax rate for top earning Americans in 2009 is now 35 per cent. That is a 55 per cent drop since the Eisenhower era. But wait there's more: Bush dropped the capital gains tax to 15 per cent. Millionaires and billionaires make most of their money with capital gains so the most fortunate Americans actually have a lower tax rate than the average American.

Most of the utilities have been privatized and some of these power companies request rate hikes whenever oil prices rise. Oddly, the don't request rates drops when the price of crude drops.

Very few Americans get private pensions anymore because corporations cast them out before they hit retirement age. The Supreme Court has stated that corporations do not have to provide private medical care once a retiree is eligible for Medicare.

The Individual Retirement Account (IRA) is also an interesting phenomena. Congress established the IRAs as a savings program not as a retirement program. Many corporations now only offer the IRA as their 'pension program.' Many corporate IRAs have hidden fees that the IRA fund manger doesn't have to disclose.  Many Americans who became unemployed recently discovered their IRAs had been looted by Mini-Madoffs.

If a corporation doesn't offer matching funds or other financial incentives, their IRA program is valueless.You may be better off settitng up an IRA with a bank.

There you have it. Since the New Deal, many American have lost their homes, the neighborhood school has been weakened or closed, college costs have accelerated,  your utilities now take a bigger bite from you paycheck because of privatization, and most Americans will never see a corporate pension or corporate medical benefits.  Still confused about public health?

This is the legacy of the Republican party and some conservative Democrats who should have known better.

It is the worst of times!

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