Universal Health Care and Renewable Energy will Save Our Economy

     This is a piece about the economy and I am not an economist.  It is then, an              opinion piece, and I would welcome your comments on it.  I have been thinking      about this for quite some time.

Universal Health Care was a plank in the platform of Teddy Roosevelt in 1912, and the need to invest in clean, renewable energy has been a political football of sorts at least since the Oil Embargo of 1973.  These are not new ideas.  But, in the wake of the de-regulation of the banking industry, the disastrous trade agreements from NAFTA and CAFTA to the TPP, the mortgage industry meltdown and now, the revelation from the Panama Papers of how easy and de rigeur it has become for the wealthy individuals of this world to cheat their own national taxmen, our crumbling economy necessitates that bold changes be made to save our country from further economic collapse.

Economic collapse?  But, but the government just said….  Yes, the government is routinely telling us that the economy is improving.  It has gotten to the point where the government’s proclamations echo the reports from the Front in Orwell’s 1984.  Charts and graphs and numbers backed by plenty of zeroes, yet the wallets and bank accounts of most middle and working class Americans continue to grow thinner.  The Economy, it would seem, only applies to the wealth at the top of the mountain.  We are standing here, open mouthed and waiting for the trickle down, but it ain’t trickling. 

(for more on Trickle Down Economics, see our prior article, Time For Some Trickle Up Economics)

Perhaps it is that we have been looking at the economy from the wrong end.  Economists are well schooled, well paid folks, who often treat the rest of us as though we haven’t been taught the secret handshake.  The tendency is to look at the economy in vast numbers, too large for mere mortals to comprehend, and cloak all discussion in a form of econo-babble  which explains little, guarantees nothing and leaves plenty of room for shrugs and head scratching later on.  For real people, this is no way to understand the Economy.  Looking at the Economy from the top down does us no good when we are at the bottom looking up.

The Economy is not a matter of GNP set against National Debt as reflected in a Provisional Budget subject to Line Item Veto.  The Economy is the sensation that  spreads up your spine just before you open your most recent credit card or heating bill.  The Economy is deciding between feeding your children and paying your mortgage.  The Economy is not national or global, it is intensely personal.  And, in that sense, it is readily understandable to all of us.  Economists?  We don’t need no stinkin’ economists.

You see, the Economy, for the vast multitude of us, is as easy as pie.  Your Economy is what you earn, plus what you have (assets), divided among what your financial obligations are.  In that sense, your wealth is a pie and everything on which you need to spend that wealth are pieces of that pie, wedges if you will, of varying sizes.   

I thought this article was about how universal health care and renewable energy will save our economy?  It is.  To see it, we need to embrace three essential ideas about our Economy.

At the core of this understanding is the first simple precept; the pie is the pie.  What you have is what you have.  If your income is not growing, your pie remains the same size.  For many of us, if we look at our incomes in adjusted dollars, we are actually earning less than we were thirty years ago.  Our pie is not getting bigger.  As a result, no matter how many ways we slice it, we never end up with more pie.  Unless we are doing fairly well, we seldom end up with leftovers.

Within this first aspect of understanding our Economy lie two other simple concepts, necessary vs. discretionary spending.  In my view, there are five things that we have no choice but to allocate our financial resources toward:

Housing – rent or own, you need a safe place to get out of the elements

Food – we can not yet outsource eating – we have to do it ourselves

Energy – we need to heat and cool that shelter, plus get ourselves to and from work, for  most of us either by car or public transportation – all of this requires energy

Health Care – for ourselves and our families, our good health goes a long way to make life worth living

Education – education is the key to making ourselves better able to increase the size of our own pie and make all other expenses easier to bear

We could argue that this is a simplistic view of our necessary spending, but there is an important unifier to these five items.  Unless you own your own home or are purchasing it under a fixed rate mortgage,  each of these expenses can, will, and is increasing without your ability to control it. 

What we have to pay for food, energy, health care, and education has been rising steeply, for most of us, outpacing earnings.  In one way of looking at it, if we considered those five items as the entire pie, we would see the wedges for food and energy increasing in size modestly, and health care and education increasing in size substantially.  The wedge that we would label housing, would of necessity be getting smaller.  We used to call this robbing Peter to pay Paul.  When the housing bubble burst and the market crashed, it was revealed that mortgage companies had been engaged in what has come to be known as predatory lending, one aspect of which was that mortgages were being granted to people who lacked the financial resources to pay for them.  That is the effect of the shrinking pie wedge.  It is also the reason that the home you own will be losing value rather than gaining it, until the majority of people start to see an increase in the size of their pie.

Of course, our pie can not be cut just five ways.  We have many other expenses as part of our daily lives, many of which we feel we can not do without, but which for the time being we will label as discretionary.  Now, if you are reading this in your home, take a look around at all of the things that you have purchased: furniture, clothing, books, televisions, cooking utensils, cds, dvds, even your pets.  The list could go on and on.  All of these things are discretionary spending.  For the purposes of this exercise, let us imagine five elements of discretionary spending: car maintenance, haircuts, restaurant dinners, remodeling and a new toaster.

As costs rise on our necessary expenditures, the pie changes shape and the wedges for our discretionary spending grow smaller.  Every time you celebrate a birthday, your health insurance costs tick up a notch.  Every time the market price for a barrel of oil rises, you pay more at the pump.  Every year, the tuition at your college increases.  Every time you head out to the grocery store, you wonder why the milk is getting more expensive.  You can not change this world and you can also not reject this world out of hand.  You inhabit this world and are committed to paying the price of it. 

So the discretionary wedges get smaller.  In our exercise, what does this mean?  Perhaps you decide that you’ll live with the dent in your front quarter panel or the long scratch along the passenger side of the car.  Maybe you’ll cut back on trips to the hair salon and only go every other month.  Much as you’d like to, you’ll opt to eat in more often and save restaurant outings for very special occasions.  The deck out back will have to wait until next year.  And the old toaster, well it still warms the bread, so you’ll limp along with it.  These are decisions each of us make every day.

But here is the second essential idea; your discretionary spending is the filling in someone else’s pie.  When you skip a haircut, the stylist does not get paid.  That is an easy to understand, one for one transaction.  When you don’t go out to dinner, the restauranteur, wait staff, chef, line prep people and bus boys take a financial hit.  When you hold off on building the deck, the carpenter and his helper don’t get paid, and the lumber yard doesn’t sell wood and screws.  When you steer away from the body shop, the mechanics don’t put in their hours and the replacement parts sit in stock.  And when you don’t buy the new toaster, the hardware store owner loses a sale and the manufacturer has one less reorder to fill. 

The direct result of a growing loss of your discretionary spending is for other people in your own community to see their pies growing smaller, while their necessary expenditures continue to rise.  As a result, their allotted wedges for discretionary spending shrink as well, and the ripple effect through the community and the nation spreads.  In some cases, a factory that makes auto parts or toasters we’ll say, the shrinkage of pie as experienced at a corporate level creates loss, which must be offset by a cutting of costs.  One of the easiest costs to cut is labor, and another job is outsourced overseas.  Now, that person who was making quarter panels or toasters has a pie that consists only of assets, not earnings, and it shrinks to nothing before their eyes.

Within the broader picture of the national Economy, those institutions that comprise our necessary expenditures continue to grow and, as a result, the economic forecast looks good.  The health insurance industry, the fossil fuels industry, corporate agribusiness and big-education continue to gain traction.  But more of the people in our communities are employed in thousands of smaller fields, which fall within the parameters of discretionary spending.  There, the cuts in our discretionary pie wedges are resulting in a loss of well paying jobs or the demise of entire industries.

Whether we choose to think of it as a Local Economy with feedback loops or as an outpost in the Global Economy, it is easy to see that our own, personal Economy, is entwined with everyone else’s.  For our Economy to grow, others must contribute to our pie filling, as we do to theirs.  And, when the wedges shift out of balance, all of our pies are subject to having a bite taken out of them.

For this reason, it is my contention that we need to shift part of our economic focus to creating universal health care and an energy system that is based on clean, renewable sources of energy.  A reapportionment of pie wedge sizes will revitalize our economy.

Of course, we could make other, simpler arguments for these two items.  Since we have the capability of providing fine health care to people in all stages of their lives, and since we function as a nation under the supposition that each of us is created equal, it stands to reason that each of us should by right have equal access to that fine health care (and at an equal cost).  In the rest of the industrialized world, universal health care is the norm and is paid either through taxes or private health insurance, but in the latter case, the health insurance companies operate on a not-for-profit footing.  The costs are substantially less than our own and the health care outcomes tend to be better because people feel more economically able to take advantage of what their systems have to offer.

Similarly, we could look at clean, renewable energy as a necessity as we own up to the reality of climate change.  Carbon emissions must be cut now.  Polluting of our waterways and our air must be curtailed now.  Non-renewable energy is by its very definition unsustainable, yet we have already determined that energy is essential.  We need a better plan.

Appeals to the morality of our energy providers and our health insurance carriers have fallen on deaf ears.  They are not inclined to do what is right because it is right, not while a profit remains to be made.  So, it is to our government that we must be able to turn, to do what is right because it is truly for the greater good.    

Consider that by taking two of our necessary expenditures and shrinking their wedge size, all of the other wedges would have a little more breathing room, a little more room for expansion.  In fact, if a universal health care system could bring the costs Americans pay for health care into line with that borne by people in other industrialized nations, that wedge of the pie would shrink to one half its current size. 

Almost ten years ago, scientists in the solar energy field determined that an array of solar panels one hundred miles square (most likely in the western desert), could provide all of the energy needed by the entire country.  Other industrialized nations, such as Germany, have already embraced solar technology as the energy of the future, and are putting up panels everywhere they can.  Wind, water and geo-thermally produced power might even make us an exporter of clean energy.  In many calculations, the United States remains the world’s largest consumer of energy.  As such, we could do much to curb the rate of climate change, and provide our people with an energy system whose costs would decline over time, rather than rise.  Again, a wedge of the pie would first be stabilized and then it would shrink.

The result would be a more balanced pie, with leftovers.  The last essential idea is simply this: economic growth depends on leftovers.  This is a Demand Side, rather than a Supply Side concept.  Starting from the vantage point of the consumer, rather than the provider, the leftovers are the key to growing the Economy.  After all, what do you do with leftovers?  You consume them.  The leftover sections of our pie are unspent wealth and that wealth is what would wind up in the filling of ours and our neighbors’ pies.  Either by spending the money directly at the hair salon or body shop, investing it in the parts manufacturer or toaster factory, or contracting with the carpenter, the discretionary spending of those leftovers would pass through the pies of each of us, growing the size of our own pie, making the expenses we have to meet more bearable while allowing for economic stability and growth.

In the end, growth means a bigger pie for those of us who have waited too long for the trickle down.  Growth, when viewed against a reduction in necessary spending, creates greater and greater degrees of discretionary spending.  Greater discretionary spending (Demand) creates jobs.  Growth means that the value of your home, the single largest asset that most middle and working class Americans possess, can rise again. 

Universal health care and clean, renewable, sustainable energy, are essential components of our personal economy.  They are a requirement, not just for the rebuilding of the wealth of the middle and working classes, but for the well being of the planet.  Teddy Roosevelt saw this in 1912.  The rest of us, waiting in line at gas stations in 1983, knew this day had to come.  It’s here.

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Time For Some Trickle Up Economics

Once we enter the general election season and its culmination in November’s selection of our next President, the rhetoric will turn, as it always does, to the economy.  At that point, we will be down to just two viable candidates, and it is important that the American public have the opportunity to decide from two different points of view on how best to grow that economy.

We can all see this one coming.  The establishment politicians, particularly those on the right (and one Wall Street backer on the left), will call for a lessening of taxes on corporate America, because corporate leaders create jobs and Americans need jobs.  Nonsense.

As they have since the Reagan era and what was then referred to as Supply Side Economics,  the corporate establishment have lobbied for an ever lessening tax burden on the assumption that lower taxes on big business would allow said business to produce at greater levels, thus creating the room for a larger workforce and better pay.  The wealth then, that would be consolidated in the upper echelon of corporate America, would trickle down to everyone below it.  Those of us who have been running back and forth with our buckets to try to gather up this trickle, know otherwise.  Trickle down economics has never worked and is built upon a basic economic fallacy.

While the establishment wants us to believe that wealth creates jobs, that jobs are created from the Supply side, nothing could be further from the truth.  Jobs are created from the Demand side.   

Imagine for a moment that there is a person who has grown up with a great love of history.  Now, when he reaches adulthood, his real estate mogul father gifts him with a few billion spare smackeroos.  This enterprising young lad decides then to go into business and, following his love of history, opens a factory producing authentic Roman War Chariots.  These are the finest war chariots in the land, made of the finest materials available.  His factory starts up and employs one hundred craftsmen.  So far, so good for Supply side economics.  There is just one problem.  There is no Demand for authentic Roman War Chariots, with or without Corinthian leather appointments.  He is instantly overstocked with a lifetime supply of a product no one wants, the factory has to be closed, workers laid off, and a bankruptcy filed (whew, at least there is a tax write off).

Jobs are not created by Supply, they are created by Demand.  Yes, Henry Ford revolutionized American industry with the mass production of the automobile, but it was America’s demand for the automobile that rationalized mass production in the first place.  Had the Demand not been there, Henry Ford would be remembered as a fine craftsman of a limited line of a particular luxury item, manufactured in his three bay garage.  Instead, that Demand made possible the growth of Detroit into a major economic power and put hundreds of thousands of people to work there, and millions more across the country in related fields. 

Of course, like any field of endeavor into which the government steps, Supply Side Economics was further crippled by a series of horrifically bad trade agreements, starting with NAFTA and continuing today with the Trans Pacific Partnership.  These deals allowed for the wealth at the top of the economic food chain to be trickled down, not to American workers, but to workers in foreign markets, because the same amount of goods could be manufactured there, that much more cheaply. 

It is long past time to abandon Supply Side Economics and embrace Demand Side Economics.

Do Americans need jobs?  No.  Americans don’t need jobs, they need good paying, meaningful  jobs.  They need jobs on which they can feed their families.  They also need jobs which give them a sense of purpose within their communities, a sense of having an impact on their communities and on the lives of others within those communities.

Right now, the stagnation of our economy has become something of a death spiral.  When consumers, the Demand side, have less money to spend, they have fewer opportunities to express Demand and influence the growth of Supply.  Look at the growing job sectors in America.  What are people buying?  Fast food, cell phone apps and cheap housewares.  When Wal-Mart is the largest employer in America, selling cut-rate junk products from third world manufacturers and paying starvation wages to part-time employees, it is easy to see that there is increasingly limited opportunity for Demand to influence Supply.  Demand is struggling to make ends meet, to keep the lights on.  Right now, Demand hasn’t the capital to create jobs and Supply knows that its customers can only support a meaningless, low-rent service economy.

If, instead of consolidating the wealth at the top of the ladder, we spread it out among the lower rungs, the consumer would do what consumers have always done, spend that money as an expression of Demand.  Then, the enterprising young lad with the Chariot backlog, could retool his factory to produce the products or deliver the services that people actually want.  And, since people have different tastes and different needs, the more money that is put in the pockets of consumers, the more varied a Demand will be created.  This is what led to the rise of American industry in the first place, an insatiable demand from a populace with more money to spend than was required to meet their basic needs.

So, how do we turn the tables on the economy and shift to a Demand Side economic model?  Abandon the trade agreements which have consigned our workforce to meaningless jobs in a Wal-Mart paradise.  Support middle and working class Americans with legislation for better wages and with a lessened tax burden, so they have more money to spend.  Close tax loopholes for the large corporate concerns and put that money into creating good paying jobs which can’t be outsourced (like rebuilding our infrastructure).  Create incentives for American corporations to stay at home, paying American workers to build quality goods and provide quality services.  Educate our young people so they can perform in better paying fields of endeavor.  And yes, provide affordable health care to all Americans, so that the out of pocket costs of their health care are minimized.  They will gladly allow that extra cash to burn a hole in their pockets, exercising their Demand and creating the need for an increased Supply.

This fall, we will have a choice of two candidates to lead this country.  We all know the level of economic stagnation in which the middle and working classes have been struggling for close to forty years.  We also know that one political party will back a nominee who will work to continue a failed system of Trickle Down Economics.  We can not afford to have two nominees embracing that same nonsensical ideal.

Put the People first.  Put the economy in the hands of those people.  Demand will show us the new industrial models.  Supply will still make money if it is smart enough to recognize the Demand.  Better jobs and healthier communities will follow.  And don’t worry, Corporate America, the wealth will trickle up to you.

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Putting Some Perspective on Income Inequality

A number of different campaign strategies have evidenced themselves during this presidential election cycle.  Among the Republicans, much, if not most of the campaigning has been focused on the need to undo everything President Obama has done, and to insult anyone who holds a different idea or who may have smaller hands than yourself.  For Hillary Clinton, her primary strategy has been one of touting her years of experience, while distancing herself from what she actually said and did during those years of experience. 

Bernie Sanders, on the other hand, has spent a great deal of his campaign energy on the issue of income inequality in America and its impact upon the middle and working classes of this country.   He has expressed a number of plans for the country, chief among which are implementing a single payer health care system, creating a massive infrastructure rebuilding program to put many Americans back to work in meaningful jobs, and creating a program whereby our young people could go to state colleges and universities, tuition free.

Many pundits and the Clinton campaign have gone out of their way to say that Sanders’ ideas are unworkable, and on the surface it is very clear that they would indeed be costly.  So, as a matter of gaining some perspective on this, it is illustrative to actually break down some numbers and see how some aspect of his ideas could be made to work.

In a recent campaign video from Bernie Sanders on the nature of income inequality in America, he pointed out that the wealthiest fifteen people in America have seen their wealth increase by a combined total of $170 billion dollars in just the past two years.  Let us come to a deeper understanding of that.

For starters, who are these people?  According to Forbes Magazine, the wealthiest people in America are, in order: Bill Gates (Microsoft), Warren Buffet (Berkshire Hathaway), Larry Ellison (Oracle), David & Charles Koch (energy interests), Christy, Jim, Alice and S. Robson Walton (Walmart), Michael Bloomberg, Jeff Bezos (Amazon), Mark Zuckerberg (Facebook), Sheldon Adelson (casino mogul), Larry Page and Sergey Brin (Google). 

Did they really see their wealth increase by $170 billion dollars?  According to Statista.com, yes they did.  We think of their increase in wealth, rather than in earnings, because “earnings” has the suggestion of wealth gained through work.  For people in this income bracket, their money comes from many sources, most of which are outside of what we would traditionally think of as “working for a living.”  Essentially, their net worth as reported in 2013 was set against their net worth in 2015 and the difference was a gain of $170 billion dollars.

Now, you might think that these people pay out a tremendous percentage of their net worth in taxes, but, according to Forbes Magazine, their Fortune 400 pay on average about 22.9% of their income to the IRS.  That is less than the income tax rate on a single person earning $38,250 per year (remember when Warren Buffet said that he pays less by percentage in taxes than his secretary?).

For the purposes of discussion, let us look at this in a different light altogether.  First, we’ll divide that $170 billion dollar figure in half and call it one year’s earnings, $85 billion dollars.  Then, let’s imagine that we are taxing that income at a rate of 90%.

If we taxed $85 billion dollars at a 90% rate, the tax collected would be $76.5 billion and the amount retained by the wealthiest fifteen people in America would be $8.5 billion.  Divide that evenly among the wealthiest fifteen and each would see a net increase in their earnings of just $565 million. That is quite a chunk of change, lost to the taxman.  How would the wealthiest fifteen survive?

Well, if Bill Gates or Alice Walton or Charles Koch were to go into full on panic mode, and determine that he or she might never be able to work again, that $565 million could be stashed in one of the safest investments going, a United States Government Treasury Note.  Now, these notes pay only a very modest return, but they are backed by the federal government and as safe an investment as you can get.  Currently, they have a yield of 4.625% interest per year.  So, if $565 million was stashed in your name in a Government T-Note, and you were to live on the interest from it, never adding another dime to your savings, what would you get per year?  The answer is $26 million, 131 thousand, 250 dollars per year, every year.

Could you eke it out on $26 million a year?

The first part of putting income inequality into perspective is this.  If we took from the fifteen wealthiest people in America 90% of their earnings and forced them to survive on the interest alone from the investing of the 10% left to them, they would each still earn more in a year than the overwhelming majority of Americans could dream of earning in a lifetime.

Now, what of that $76.5 billion in tax that was collected?

In a simple equation, let’s assume that every penny of it was to be spent on providing free college tuition to students attending public (rather than private) state colleges and universities.  In 2015, the average cost of tuition and fees to in-state students at public stage colleges and universities was $9,410 per year.  The cost for same to out of state students was $23,893.  If we divide the tax collected by the cost of the tuition, we get the number of students who could attend college, free of charge.  In this example, those “in-state” students would number 8 million, 129 thousand, 649. 

So, the second part of putting income inequality into perspective is this.  If we as a nation determined that it was in the best interests of the country to educate our young people as fully as possible, so that they might take on leadership roles in business, science, medicine, education, government and the arts (!), and through their leadership, better support the rest of us as we slip into middle and old age, we could send over eight million of them per year to college, tuition free, on the taxes levied against just fifteen people.

Think that a 90% tax bracket is too high?  Remember the lyric to George Harrison’s song from 1966, “Taxman”:

“Let me tell you how it will be, there’s one for you, nineteen for me”

One for you and nineteen for me (the Taxman), is a tax rate of 95%, what the Beatles were paying in England in the mid 1960’s.  AND THEY STILL GOT RICH!

In fact, in the United States, the wealthiest income bracket between the years 1944 and 1963, had a tax rate which vacillated between 90% and 92%.  And what was the cut-off point?  Two hundred thousand dollars.  So, if you earned $200,000 in 1960, your tax liability was $180,000 of it.  That would leave you with just $20,000, but in 1960, $20,000 was roughly four times what an average school teacher earned per year, and three times what your average NFL star earned.  In other words, you would still be very well off.

In 1964, that tax rate dropped to 77% (still on $200K and up) and then to 70% as a top tax rate on the $100K and up bracket from 1965 until 1981.  In 1981, the tax rate for the wealthiest Americans dropped to 50% and it has continued to decline until today, where it stands at 39.6%.  Of course, that tax rate is on W-2 reported earnings, not on dividends, and it is set against various write-offs and tax havens.  This is why Forbes reports that the wealthiest four hundred people in America only pay about 23% of their earnings in taxes.

In the illustration of what taxing the wealthiest members of our society would do to provide for free tuition to public colleges, we looked at just fifteen people.  Bernie Sanders refers to the top 1% of our income earners, a group of people who collectively earn more than the bottom 90% combined.  If we get our priorities straight and make the wealthiest people in America pay their FAIR share (and it need not be as much as 90%), they would still be rich beyond our wildest dreams, and our country would be able to provide for its citizens and our own future.

Disregard the rhetoric; look at the candidates’ records.  And by all means, do the math.  That is why we send you for a free public education.

The Richest People in America:

http://www.statista.com/statistics/201426/the-richest-people-in-america/

How Much the Richest People in America Make:

http://money.cnn.com/2015/12/31/news/economy/richest-americans/

Information on T-Bonds, T-Notes and T-Bills:

http://www.thesimpledollar.com/making-sense-of-treasury-securities-treasury-bills-notes-and-bonds/

Cost of a College Education:

http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064

Federal Tax Rates by Year:

http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets

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