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.
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Voodoo Economics 101
Saturday, January 17th, 2009Voodoo Economics 101
by
David Schlecht
Voodoo economics, also referred to as Supply Side Economics is one of the primary causes of our current financial disaster and many of the state governors are intent on using this same Voodoo to get us out. Nonsense!
In short, Supply Side Economics is built on the premise that “If you build it, they will come.” In other words, directing money at the wealthiest fraction of people and corporations will provide more jobs. Let’s see how this plays out.
Imagine that you’re a multi-billionaire and the US taxpayers give you an additional million dollars. You already have just the right number of employees in your corporation. What would you do with your extra million? Hire more employees? Of course not, you already have the right amount. Would you pay your employees more? Don’t make me laugh. Would you provide more benefits or a better work environment for your workers? Of course not. If they’re content to work under the existing conditions, you wouldn’t waste a million dollars changing it.
So, what would you do?
The same thing our ultra-rich have been doing with their increased revenue, speculating. Over speculation in technology sectors was the primary cause of the dot-com bubble and burst. Speculation is the cause of last year’s oil price spikes.
In conclusion, Voodoo Economics causes no benefit to the economy by way of citizens buying more things and stimulating the economy, but cause devastating bubbles and bursts.
Is this starting to sound familiar, yet? It should.
We all know that economies are driven by supply and demand. The supply must balance the demand. When there is more supply than demand, prices drop and businesses go broke, laying off workers. When there is more demand (from increased middle-class wages, unemployment benefits, higher minimum wage…) than there is supply, prices go up and new businesses open up to provide more product, thereby causing the supply-demand dichotomy to balance and prices to fall back to normal.
So, if you were a governor in a state where the economy was failing, what would you do? Reduce the spendable income of the average person or increase it? What are the governors doing in the US? Many are cutting wages and laying off people. What is this going to do to the states’ economies?
Simple.
Next post, let’s talk about demand-side economics and see if this will really save us from the next Republican Great Depression or is it too late? What’s in store with our economy?
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