The 1% Solution

Today's Week in Review features essays by Volker, Friedman, and Rich. They are all required reading. What they miss, individually and in toto, is the essence (not of Emeril). The playing field has been tilting regressively worse since Reagan.

C-SPAN has been rerunning an interview with the authors of "The Forty Years War: The Rise and Fall of the Neocons, from Nixon to Obama", Len Colodny and Tom Shachtman. I haven't read the book, but their presentation, along with the Q&A, demonstrates an understanding of the rise of right wing divisiveness to the body politic.

Taken as a whole, the op-eds and the book describe how it is that the playing field has become so tilted toward the top 1%. What none does is offer up a proposal for an answer. Herewith a Modest Proposal.

We need to start with the obvious cause of recessions and depressions, the lack of purchasing power in the hands of the majority. It is not a coincidence that recessions and depressions follow from periods of income concentration. Obama has to find the stones to make this obvious fact obvious to under-educated classes (I saw recently that Obama's highest approval was, in the words of the article, among the "over-educated", as if there really is such a thing).

The root cause of any economic calamity is a twisting of incentives from doing productive work to doing non-productive work (well, then it really isn't work, now is it). As I have mentioned a few times during the course of this endeavor, I first became aware of incentive twisting while building my senior thesis on Uruguay, way back in 1971. The Right Wingnuts have twisted the incentives toward simply "making money"; banking, financial services, and the like. It is no wonder that they now rail against any hint of "inflation", since in a fundamental economy, money has no intrinsic worth; it is merely a conduit for barter of real goods and services. In 2007, 40% of corporate profit was from financial services, not production of physical goods. Put another way, these corporations wouldn't exist in a real economy.

Let's start by *increasing* the capital gains tax. Since capital gains are purely financial, not productive, the incentive to put fiduciary capital into CDOs and other instruments decreases relative to real investment in plant and equipment. Let's go further and raise the tax rate on foreign produced goods sold by corporations in the USofA.

Let's, in general, tilt the playing field away from money manipulations to production of real goods and services. We will, thereby, re-create a middle class which not only takes most of the national income, but also produces and consumes what is produced. Recessions and depressions happen when aggregate demand drops below aggregate production, and that happens when those that work don't earn enough to buy that which is produced. In our time, the situation is worse in that much of what we "produce" has no intrinsic value, only some monetary number. Those that "produce" these services have a strong vested interest in preserving the status quo: the harried cry of "inflation is coming, inflation is coming". Japan has been through, is currently re-visiting just such a deflationary spiral, and for the same reason, the placating of its 1%.