Synopsis: I consider myself an intelligent working-class Democrat. The Bush tax cut has resulted in a suppressed Multiplier Effect, causing economic upheaval and loss of concern for moral hazard, so that today we stand on the brink of post-industrial collapse.
Last week I received my $600 tax rebate. I spent it, since I have no debts or savings account at the bank. The people that received that $600 also did something with that same amount of money. By the third degree of transacting that money, it has been pretty much dissolved into the economy, yet very much active.
The repeated use of a given amount of money is called The Multiplier Effect- or just The Multiplier. The speed at which the Multiplier is working is a measure of the effectiveness of the government’s Stimulus Plan, its productivity as an economic tool. Although it is the basest measure of the society when simple money is used as the measure, the original idea was a simple one: a more productive Multiplier means more economic activity, more jobs, etc.
Aside from the fact that spending this money on the infrastructure of the Commons would have been a huge win-win for us all in terms of meeting those simple objectives, the government’s stimulus plan will hopefully raise the level of conversation about the Multiplier. It is a discussion sorely needed to take place, as it is at the heart of the economic disruptions we are seeing in the world today.
The Multiplier’s productivity is affected by how it is spent. We already know how unproductive the Republican tax cuts for the rich and powerful were. Although proponents said the rich would make investments that would result in increased economic activity for all, data has shown (pdf document) that a huge percentage of that money stayed right in the finiancials/equities market. It went into hedge funds. It was used to buy into ownership of business, bought bonds of business, and created demand for exclusive services for the wealthy. Ultimately, it was used to buy debt. The Multiplier associated with the Bush tax cut was contained and targeted mainly within fnancial investment sectors of the economy
Once again, as so often it has done in the past, financial business became an economic entity unto itself. Money was spent on money, and speculation kept it going. Nowhere is this tendency more apparent than in the financial world’s definition of the Multiplier: "The expansion of a country's money supply that results from banks being able to lend." That definition sure doesn't sound like the one I learnt. And like a ball and chain, financial business has again shackled the real economy (called Main St.). Some people had a great time these past few years spending the fruits of other’s labor.
Most people have not shared in the rewards of the Bush tax cut. Instead of stimulating the general activity of the economy, the Bush tax cut resulted in uneven effects. Bubbles started forming. Housing was the most visible, but the biggest bubbles of all formed in the financial market, in the form of high-return derivatives, or credit on steroids. Because unrestricted capital tends to go for the highest rate of return, these bubbles became increasingly popular destinations. But because the money was pulled out of Main St. and into the financial sector (called Wall St.), the Multiplier Effect for Main St., and ultimately the middle working class, was reduced.
This is how Wall St., as it has so many times before, once again decoupled from Main St. And now the government has chosen to squick the US taxpayer even more by electing to backstop the ensuing losses. Generations of ordinary American now face a life of seeing their taxes forced into debt service.
In my opinion, the difference between the Democratic economic agenda and the Republican one must account for the burdening of the Multiplier in the general economy. Commonly referred to as a transfer of wealth from one sector to another, that is, from government to private hands, this suppression of the Multiplier is the real reason we cannot adequately meet the needs of the Commons today. The government has been taken out of the loop.
Who orders sewer systems? Governments do.
Who maintains hospitals’ emergency capabilities? Governments do.
Who supports the public schools system? Governments do
Who allows for proper environmental accounting? Governments do.
Who works the margins with laws, subsidies and entitlements that direct society in a longer-term mindset for positive change? Governments do.
Human economic activity does the work, but the governments have a necessary and rightful place in the economy as the self-evident organization that does the kind of things that not even the largest of corporations care to do. How can these economic activities of the Commons occur by reducing the government down to the point where it can be drowned in a bathtub?
The profitability of lies and distortions has become so huge that now bullshitting people is the biggest bubble of them all. We cannot support this one any more. As Democrats we must attack the illusions formed with lies and promote transparency in governments. People have the right to make decisions based upon what they see with their own eyes and ears instead of having to rely on corrupt blowhards posing as their advisors.
The truth is that had one of two things happened, either the wealthy had churned their tax cut into the Commons or, lacking that, the government had sustained or raised the taxes on the richest people and then shored up the nation’s infrastructure, a healthy, highly productive Multiplier Effect would have ensured that today the richest would still have their cake, but the rest of the nation would have been better off, too.
Next: the well-to-do discover they can get along quite well without a huge segment of the population. Will the moral hazard trampled on Wall St. also disappear on Main St.?
The Democratic message must always be this: America, you’re better than that.