On Income Inequality ...

On Income Inequality: A French Economist Vs. An American Capitalist
by MARILYN GEEWAX, May 11, 2014 5:40 AM ET
Strangely enough, I think they're both right... In the same way each of the proverbial blind-men is right in their description of the elephant they only know by touch.

The healthiest possible economy occurs when 100% of the population feels maximum incentive to risk innovation in the pursuit of happiness (i.e. success).

Because the motivaters of the 1% are mostly in opposition to those of the 99%, maximum prosperity can only be achieved at some point of equilibrium between them. We've been WAY out of equilibrium for about 10-20 years.

The 99% are largely rewarded for their labor. Motivation is driven by seeing the fruits of that labor.

The 1% are largely rewarded for their money(capital). Motivation is driven by success in managing risks to that capital.

Progressive Taxes on Capital vs. Minimum Wage ...

Both are a "cost" to the 1% and "a redistribution of wealth."

However, taxes require a second step in order to benefit the economy... they must be equitably distributed to the 99% through various programs. There-in is the rub for many.

Either taxes+distribution, or higher-wages will be spent ... and re-spent ... and re-spent .. with the 1% making a profit at each step. Eventually, every penny distributed to the 99% comes back to the 1%. In fact, the more wealth is distributed, the more wealth accrues to the 1%.

Henry Ford recognized this and paid his workers dramatically higher wages than his competition. In so doing, his workers could afford to buy the cars they made. So he actually got a lot of those wages right back in profitable sales. The rest, as they say, is history...

SUMMARY (finally) ...

What's "practical"  in the production of goods and services is dramatically greater today and growing rapidly. Until our expectations catch up, a great many people will lack gainful employment. The only way for them to contribute to (and thus "grow") the economy is to spend government redistributed income.

Those who have jobs contribute most by being given more to spend.

So it turns out that, when you look at the entire "elephant" that is our economy, that old moral holds true for hard-nosed money-making too...

... "The more you give, the more you receive."

The Circle of the Life of Money

But does it all end up back in the pockets of the 1%"?

Actually, I would argue, yeah it does. Here's why.

The most important thing I learned in economics class was that discussions of "the economy" don't count money the way you and I do in our everyday lives.

To us, a given dollar is a thing that only one person can have at a time. Absolutely true for us. The economists call this "microeconomics."

However, a "dollar" in any discussion of GNP, GDP, "the economy", etc. is a "macroeconomic dollar" which would be better named a "dollar transaction."

If we start with $1 that you have and you give it to me for some service, to you and me there is still only $1 between us. However, our macroeconomic "Gross Domestic Product" in our economy of two, is actually now $2.

There have been two $1 transactions. The first was however you got the $1, including by your credit-card company or bank creating it out of thin-air in the form of credit. The second was the transaction of you paying me. We have both received $1 of benefit from that original $1.

Back to the U.S. economy...

So, if the health of our economy is measured by transactions, then the more transactions there are, the higher our GDP and the "healthier" our economy.

A key point... If you pay me $1, and then I turn around pay you $1, and you pay me $1 again, we now have a GDP of $4! This is the "money supply circulation."

You may note however, that we haven't necessarilly done anything for that $4 that truely benefits anyone. These transactions could, for example, just be gambling winnings from playing Blackjack with $1 bets. ( I would argue that this is essentially what Wall Street does, writ-large, but that's another discussion. )

So... the faster the money supply circulates (that is, the more transactions there are in a given period of time) the larger the GDP.

If most of the "wealth" is held by the 1%, and "wealth" is the sum of many transactions, then most transactions involve the 1%. Record profits and stock prices tell us that the net effect of those transactions leaves the 1% better off and the 99% worse off.

Thus, for much of the time, most of the money is passing through the hands of the 1%.

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