Demand-Side Economics

Demand-Side Economics
by
David Schlecht

Revisiting the previous post, Supply-side, or Voodoo Economics is the Trickle-down disaster that our world is currently suffering through.

When money is directed at the top of society in the hopes that it’ll trickle down to the rest of society, the economy suffers a reduction in spendable wages, thereby causing recessions and bubbles and bursts from speculation.

Viewing economies from the perspective of demand, the more spendable income the spenders (lower and middle class) have, the more money that goes through the economy. When the greedy get in power, they start taking more and more of the spendable income from the other classes until the system melts down.

That’s were we are, today.

Where do we get enough money to give to the spending classes to reinvigorate the economy? Before saying, borrow it, realize that in America, every single working family pays on average, $3,000 in taxes to pay for nothing more than the interest on the deficit spending of the prior three Republican presidents, Bush, Bush, and Reagan. Borrowing another trillion dollars will only cause greater problems as less money is spendable since more has to go to pay the interest.

The only way to correct the imbalance is to correct the distribution of wealth. While the rich have been getting richer off the backs of the workers, they’ve been giving less and less for their work. Repaying the debt to the working class is the only way to get the economy back on track. This means the corporations must not only start paying a living wage ($40,000 minimum wage) but pay back what they’ve stolen from the workers through immediate tax increases. We need to return to the 90% tax rates from before Reagan.

Another available source of revenue which won’t add to the interest burden is to increase tariffs. This will help raise the wages of the spenders while bringing in tax dollars to help with the works projects.

Sure, this is painful, but fair, and furthermore, the only real solution to this disaster. Roll back the wage distributions and repay the money stolen from the workers.

So, what is in store for our world economy? A lot of short term pain and suffering, but within a year or two things will start to turn around, given the right decisions by our leaders. In the short term, the governments will find difficulty in getting credit for further deficits and interest rates will climb considerably.

This increase in interest rates will hurt those who have maxed out their credit cards and maxed out their mortgage lines of credit. However, most people have quit borrowing for everything and so the interest rate increase will not affect them as much.

Since governments won’t be able to borrow more money, they will have to resort to printing more money (or issuing credit to the lending institutions). This will add more to the interest rate increases.

Is Obama up to the task? If not, then what should have been a 1-2 year turnaround will become 4-5 years. That’s an eternity living out of your car.