The Dirty Secret of a Great Economy [View all]
In a society money moves around, changes hands, is used for goods and services, and for our purposes, lets call that its economy. Imagine an economy where very little money changes hands, and in which few people are involved. This small economy occurs when there are just a few very wealthy people and the vast majority of people are poor. Very little money flows in this kind of small economy because 1) the majority of people dont have money to spend on their demands and 2) the rich, who have money, have relatively few demands. Their demands have already been met, and their wealth represents excess buying power which they arent using.
Small economies, because of the way their wealth is distributed, are unhappy places in which to live. For the vast majority, there is no way to meet their demands for housing, clothes, food, medical care, education, transportation, and entertainment. Even the rich, with all of their wealth, have to protect themselves and jealously guard their situation, and they have to live in a world where most of their cohorts are poor, badly clothed, unhoused, uneducated, sick, and unsatisfied. Injustice, corruption, and exploitation flow from small economies.
In contrast, consider a large economy in which lots of money changes hands, and in which lots of people are involved. There are still rich people with excess wealth in this large economy, and poor people who take in and spend very little money, but in general the poor take in enough money to meet their demands. They can afford to feed, house, transport, heal, and educate themselves.
Life in a large economy is a much happier place. Everyone can meet their needs, rich and poor. Because even the poor have income, a portion of the economy orients itself to meet their demands. The rich, whose demands are always met, get to live in a society where their fellow humans are much more secure.
There are many examples of large and small economies in the world today, but consider just two examples from the history of America in the last century. The problem with The Great Depression is that Americas economy suddenly got very small, in contrast to the large American economy in the decades after World War II.
Moving from a Large Economy to a Small Economy
How does a large economy become a small economy? Unfortunately, that change is a natural tendency in a capitalist system. It is captured in the folk wisdom of sayings like The rich get richer and It takes money to make money. Rich people can turn their wealth into mechanisms for making more money. This is capital. Poor people generally only have their time and effort to exchange for money. This is labor. In capitalism, money gravitates naturally to the already rich, making the economy smaller and smaller and life worse and worse. With no intervention, the money that is flowing around in a large economy gets vacuumed up by the rich.
Moving from a Small Economy to a Large Economy
Because a large economy is both desirable and short-lived in a capitalist system, another mechanism is required to maintain or grow an economy. This is where the government comes in. The way the government creates larger economies is by taking rich peoples money, and giving it to poor people. Government has a number of ways to do this. It can take rich peoples money directly and redistribute it to the poor as foodstamps, healthcare, subsidized housing, public transit, public education, etc. It can also, by supporting organized labor and legislating minimum wages, facilitate larger transfers of wealth from rich to poor in exchange for labor.
The Dirty Secret of a Good Economy is that Rich People have to give Poor People Money
Wealth redistribution, taking money from the rich and giving to the poor to spend, is the way that economies grow, become responsive to all the members of society, and create a better society. And putting money into the hands of the poor creates new opportunities for the rich to try to get that money back. Getting the money back also makes the economy bigger. There is no way to do this through capitalism, it is almost purely a governmental function. It is why government putting money into the hands of the poor, through foodstamps or welfare or any other way, has a huge multiplier effect on the economy, whereas giving the rich tax breaks to keep even more of their money out of circulation has relatively small beneficial effect.
The relatively healthy American economy in the 50s, 60s, and 70s, has been shrinking over the last 35 years starting with the Reagan tax cuts. By drastically slowing the taking of money from the rich, Reagan began the process of shrinking the economy. This is why George H. W. Bush called Reagans tax plans voodoo economics in the Republican nomination race of 1980. Bush knew that cutting taxes on the rich would take money out of circulation and shrink the economy. The shrinking of the economy has been masked somewhat by allowing the working class to borrow large amounts of money and spend that to cover their needs, but this just pushes the problem of the shrinking economy into the near future. Changes in the law have allowed the rich more and more power to change the rules (and the goals) of government, to the point where governments function has been perverted to give money to the already rich, which will shrink the economy further.
The Golden Goose
By weakening the governments redistributive power, the already rich have made themselves vastly richer, shrinking the economy, and making America an increasingly unpleasant place to live. Instead of enjoying the fruits of a large economy, they are sitting on top of a horde of wealth in a smaller and smaller economy, while the needs of their fellow Americans go more and more unmet. There are only three ways out of this trend. The first is revolution, a dangerous, deadly, and uncontrollable force. The second is stagnation in a very small, feudal economy, rife with injustice and unmet needs. The thirds are FDR-like reforms, where the government begins to redistribute wealth and make the economy larger. By leveraging more and more power and wealth to themselves, the already very rich shrink our economy, and kill the golden goose of a large American economy.