Interesting Quote About Our Economy

[Mr. Peabody]

The quote is from 57 years ago, but I find it interesting for it's relevance to our current situation.

Friday night on Real Time with Bill Maher (I know people think he's a pompous douche, but so am I sometimes), they were discussing the growing disparity between the wealthy and the rest of America. Someone (Bernie Sanders maybe) pointed out that so much wealth hasn't been allocated to so few people since just prior to the Great Depression and that the allocation of wealth lead to the Great Depression. Bill Maher said that he once read description of the economy in that era likening it to a poker game where only a few players have all the chips and no one else can play without borrowing. The game ends as soon as the house credit runs out.

I thought it was an interesting description and googled the quote. This is what came up -

This comes to us courtesy of , the Chairman of the Federal Reserve from 1934 1948 — think of him as the Ben Bernanke of his day.

In his 1951 memoir Beckoning Frontiers, Eccles detailed what he believed caused the Depression.

Eccles wrote:

"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nations economic machinery. [Emphasis in original.]

Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers' loans, and foreign debt. The stimulation to spending by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.

It sounds similar to our current situation.

Currently our per capita GDP is around $44,000. That means for a family of four $176,000 of goods and services are created in this country. However, our real median household income is only $50,000. That means that half the households in this is country have the purchasing power of less than a third of what is produced (before taxes). That seems problematic. How do we facilitate demand for our goods and services when we cannot afford our goods and services?

I'll admit, I don't know much about economics. I must be missing something. What am I missing?

[boutons_]

the GDP has not contracted any year under dubya.

productivity has increased, also

but househould income has stagnated or declined, in parallel with an increase in poverty.

I just read an article where real salaries of young people (under 30 years old) in NYC has not improved in 30 years (the time span of the asendance of conservative philosophy). Salaries of young people across the country are worse over the 30 years.

dubya's job creation growth has not kept up with population growth

dubya's sickly GDP boom has been detached from growth in mass wealth.

resulting in an income/wealth disparity which is a great as it was in the boom of the 1920s.

yet, the dumbfucks in this forum continue to suppport the conservative philosophy of concentration of wealth (the very well hidden primary objective of conservatives), by cutting taxes and "free market" bullshit, buying into the conservative philosophy of "all taxes and all government are bad, are socialism"

The "shock capitalism" of the bail out and bank injections is Repugs stealing capital via extortion from the people, their tax $$$, to hand it to the corps and capitalists who created the shock.

btw, dubya's bullshit wars are another "shock capitalism" where the govt creates a bogus war as "shock" and then borrows money to transfer war wealth to the MIC, privatizes the war into to the hands of the MIC.

Watch the stupid, suckered "conservatives" and Repugs in this forum trash the above and me as communist and socialist. Almost none of them will ever accumulate enough capital to be called wealthy, but the suckers continue to support the conservative philosophy they assures their chances of wealth are diminished.

btw, the sicker Americans get, self-inflicted personal "shocks", the more of their incomes are transferred to the corps. Americans getting sick is "good for business"

[101A]

I just read an article where real salaries of young people (under 30 years old) in NYC has not improved in 30 years (the time span of the asendance of conservative philosophy).

So let's spread those NY policies nationwide!!!

[DarrinS]

yet, the dumbfucks in this forum continue to suppport the conservative philosophy of concentration of wealth (the very well hidden primary objective of conservatives), by cutting taxes and "free market" bullshit, buying into the conservative philosophy of "all taxes and all government are bad, are socialism"



If you don't like "free market" bullshit, i.e. capitalism, what do you propose as an alternative?





The "shock capitalism" of the bail out and bank injections is Repugs stealing capital via extortion from the people, their tax $$$, to hand it to the corps and capitalists who created the shock.



The bail out was supported by your candidate and a majority of your party.

[boutons_]

"let's spread those NY policies nationwide"

already done. Young people outside of NYC, across the country, are doing worse over the past 30 years.

[boutons_]

"what do you propose as an alternative?"

regulated capitalism,

transparent accounting (the credit crunch is due to nobody in financial industry lending to anybody else because they don't trust the counterparty's balance sheet),

laws against corp/capitalist money purchasing govt employees.

etc, etc.

Such capitalism made ALL of America better off.

[Mr. Peabody]

Nobody's really answering the question about whether the concentration of wealth among so few is a good thing for the economy?

[ElNono]

Nobody's really answering the question about whether the concentration of wealth among so few is a good thing for the economy?

I don't think it's necessarily bad if I'm the one concentrating the wealth. :lol

[Mr. Peabody]

I don't think it's necessarily bad if I'm the one concentrating the wealth. :lol

:lol
How very conservative of you.

[DarrinS]

"what do you propose as an alternative?"

regulated capitalism,

transparent accounting (the credit crunch is due to nobody in financial industry lending to anybody else because they don't trust the counterparty's balance sheet),

laws against corp/capitalist money purchasing govt employees.

etc, etc.

Such capitalism made ALL of America better off.



So, when the Republicans were calling for more regulation of Fanny Mae and Freddie Mac and the Democrats blasted both the Republicans and the regulator, calling it a "political lynching" of Franklin Raines, were the Republicans right?

[2centsworth]

Nobody's really answering the question about whether the concentration of wealth among so few is a good thing for the economy?

because it's propaganda. The middle class in the country is healthiest in the world. A recent readers digest poll showed about 50% of people from each country around the world believes this country is the land of opportunity. And you know what, it is. You're a small business owner, so you should know. I don't think you're holding anyone back and I don't think you're anyone special.

If you want to help the middle class, focus on energy independence and decreasing the cost of medical care. That's it, no need to redistribute wealth.

[ElNono]

So, when the Republicans were calling for more regulation of Fanny Mae and Freddie Mac and the Democrats blasted both the Republicans and the regulator, calling it a "political lynching" of Franklin Raines, were the Republicans right?

The Republicans had 6 years to implement the regulations. Why did it not happen? Perhaps some Republicans did not want to regulate Freddie and Fanny either? How could that be?

[ElNono]

because it's propaganda. The middle class in the country is healthiest in the world. A recent readers digest poll showed about 50% of people from each country around the world believes this country is the land of opportunity. And you know what, it is. You're a small business owner, so you should know. I don't think you're holding anyone back and I don't think you're anyone special.

If you want to help the middle class, focus on energy independence and decreasing the cost of medical care. That's it, no need to redistribute wealth.

+1

[boutons_]

So comparing the USA middle class to poor bastards in the rest of the world (outside of Europe and Japan) is how Repugs justify the lower 98% getting poorer under dubya while the top 2% accumulate more capital?

[ratm1221]

That's it, no need to redistribute wealth.

I keep seeing this come up. Define your idea of redistributing the wealth. Like as in you make a million dollars and I make 100,000 dollars so you give me 450k? Because I don't think anyone is proposing that.

[2centsworth]

So comparing the USA middle class to poor bastards in the rest of the world (outside of Europe and Japan) is how Repugs justify the lower 98% getting poorer under dubya while the top 2% accumulate more capital?

mr. propaganda machine, even 50% of the French would move here if they had the chance.

[2centsworth]

I keep seeing this come up. Define your idea of redistributing the wealth. Like as in you make a million dollars and I make 100,000 dollars so you give me 450k? Because I don't think anyone is proposing that.

take billions from the top classes and redistribute to the lower classes. That's the Obama proposal. There are way better ways to circulate that money than to confiscate it through the IRS.

[ratm1221]

take billions from the top classes and redistribute to the lower classes. That's the Obama proposal. There are way better ways to circulate that money than to confiscate it through the IRS.

So the better way for them to distribute the money is for them to loan me the money and charge me interest for it?

[Mr. Peabody]

because it's propaganda. The middle class in the country is healthiest in the world. A recent readers digest poll showed about 50% of people from each country around the world believes this country is the land of opportunity. And you know what, it is. You're a small business owner, so you should know. I don't think you're holding anyone back and I don't think you're anyone special.

If you want to help the middle class, focus on energy independence and decreasing the cost of medical care. That's it, no need to redistribute wealth.

I am a small business owner and as such, I'm concerned about the economy. I only make money if other people have it to spend on my services. My livelihood depends on people walking through the door each day with money to give me. It can be a precarious situation to find yourself in during times like these.

But we're not addressing the issue I presented (Reader's Digest poll aside). Mr. Eccles described a situation where the distribution of wealth was so unequal that it created an unstable economy. Again, quite simply, there wasn't enough money around to sustain a thriving marketplace. We see a similar situation in today's economy in terms of wealth distribution. Is this a bad thing? If not, why not?

[2centsworth]

So the better way for them to distribute the money is for them to loan me the money and charge me interest for it?

I've got much better ways, but nothing is wrong with the method you mentioned. of course the dems have an easier method, demonize the wealthy to justify taking from them.

[boutons_]

"even 50% of the French would move here if they had the chance."

no, they wouldn't, nor would most Europeans or Japanese.

America is a great place to visit, and it's fascinating to watch on foreign TV, but the risks of getting destroyed financially by health problems (all other countries have national health insurance), or by violence (MUCH higher in USA vs other industrial countries), or spending your retirement in poverty on shitty pensions (if you can afford to retire voluntarily).

iow, other industrial countries have safety nets. They know there is no safety net in USA. They know you can strike it rich in socially/economically Darwinistic USA, but more often than not, you strike out, sooner or later.

[2centsworth]

I am a small business owner and as such, I'm concerned about the economy. I only make money if other people have it to spend on my services. My livelihood depends on people walking through the door each day with money to give me. It can be a precarious situation to find yourself in during times like these.

cry me a river. the good businesses will survive. If you want a handout vote Obama.



But we're not addressing the issue I presented (Reader's Digest poll aside). Mr. Eccles described a situation where the distribution of wealth was so unequal that it created an unstable economy. Again, quite simply, there wasn't enough money around to sustain a thriving marketplace. We see a similar situation in today's economy in terms of wealth distribution. Is this a bad thing? If not, why not?

propaganda. I'm not seeing a similar thing in my business. There are things we can do to make this economy grow and create more opportunities for everyone, but redistribution of wealth isn't one of them. Doesn't matter what I think, you will have the power and communisim will be that much closer.

[ratm1221]

I'm sorry but no matter how you sugar coat it, when 20% of the population in the United states has 84% of the wealth, leaving only 16% of the wealth in the entire US to be shared among 80% of AMERICAN PEOPLE....

THERE IS ABSOLUTELY NOTHING AMERICAN ABOUT IT. :nope

[2centsworth]

"even 50% of the French would move here if they had the chance."

no, they wouldn't, nor would most Europeans or Japanese.

go to this months issue of Readers Digest. Yes they would, but those polls are nothing compared to your intelligence.




America is a great place to visit, and it's fascinating to watch on foreign TV, but the risks of getting destroyed financially by health problems (all other countries have national health insurance), or by violence (MUCH higher in USA vs other industrial countries), or spending your retirement in poverty on shitty pensions (if you can afford to retire voluntarily).

iow, other industrial countries have safety nets. They know there is no safety net in USA. They know you can strike it rich in socially/economically Darwinistic USA, but more often than not, you strike out, sooner or later.

those blogs are turning your brain into mush.

[2centsworth]

I'm sorry but no matter how you sugar coat it, when 20% of the population in the United states has 84% of the wealth, leaving only 16% of the wealth in the entire US to be shared among 80% of AMERICAN PEOPLE....

THERE IS ABSOLUTELY NOTHING AMERICAN ABOUT IT. :nope

I understand, the man is keeping you down. What's American is to take what belongs to you.

[RandomGuy]

If you don't like "free market" bullshit, i.e. capitalism, what do you propose as an alternative?

We should convert to a system of exchanging silly dances for good and services. Either that or a bartering system based on 3 day old oatmeal.

[ratm1221]

go to this months issue of Readers Digest. Yes they would, but those polls are nothing compared to your intelligence.




those blogs are turning your brain into mush.

This is the problem with most Americans. How many of these countries have you been to? Or do you get all your information about other countries from American magazines? Keep believing that the only people that are happy in the world are Americans and that everyone still wants to be us. That was yesterday, things have changed.

[DarrinS]

This is the problem with most Americans. How many of these countries have you been to? Or do you get all your information about other countries from American magazines? Keep believing that the only people that are happy in the world are Americans and that everyone still wants to be us. That was yesterday, things have changed.


I really don't give a flying fuck if the French or any other Euros would want to live in the US. I only know that I wouldn't want to live there.

[ratm1221]

I really don't give a flying fuck if the French or any other Euros would want to live in the US. I only know that I wouldn't want to live there.

So you've been?

[Mr. Peabody]

cry me a river. the good businesses will survive. If you want a handout vote Obama.

Who said anything about a handout? I make good money. My point is that I don't get a salary and I feel the first effects of an economic downturn. So I do have some concerns about a downturn. I've talked to people who say "Well, I get a salary, so I'll be fine." I don't get a salary. My money comes directly from people wanting to purchase my services and having money to pay for them.


propaganda. I'm not seeing a similar thing in my business. There are things we can do to make this economy grow and create more opportunities for everyone, but redistribution of wealth isn't one of them. Doesn't matter what I think, you will have the power and communisim will be that much closer.

Like it or not, we already distribute wealth. My tax money goes to government contractors for various projects, government employees, and government subsidies and grants.

But again, you are not answering the question. My only question is whether it is an ideal situation in our economy to have so much of the wealth concentrated in so few people? That's all I'm asking. I'm not saying it needs to be redistributed, I'm not advocating for any candidate. Like I explained, I read this quote, found it interesting, and want to know if what it said was true.

[2centsworth]

Who said anything about a handout? I make good money. My point is that I don't get a salary and I feel the first effects of an economic downturn. So I do have some concerns about a downturn. I've talked to people who say "Well, I get a salary, so I'll be fine." I don't get a salary. My money comes directly from people wanting to purchase my services and having money to pay for them.

if you have something of value, they will continue to purchase. energy independence and healthcare reform is where your focus should be. wealth redistribution, though you think it will help you in the short-term, long-term will hurt you.




Like it or not, we already distribute wealth. My tax money goes to government contractors for various projects, government employees, and government subsidies and grants. supposedly we're pooling our money for defense, utilities, and infrastructure.



But again, you are not answering the question. My only question is whether it is an ideal situation in our economy to have so much of the wealth concentrated in so few people? That's all I'm asking. I'm not saying it needs to be redistributed, I'm not advocating for any candidate. Like I explained, I read this quote, found it interesting, and want to know if what it said was true.

you're arguing with natural occurances. take a group of 1000 random people and invariably 20% of them will own more than the rest combined. You're a business man, I'm sure you have heard of the 80/20 rule. Same with the workforce, 20% of your employees will outproduce the other 80%. The only problem I see is that too many people place their value as human beings on the size of their wallets. Money in no way brings happiness.

[Mr. Peabody]

you're arguing with natural occurances. take a group of 1000 random people and invariably 20% of them will own more than the rest combined. You're a business man, I'm sure you have heard of the 80/20 rule. Same with the workforce, 20% of your employees will outproduce the other 80%. The only problem I see is that too many people place their value as human beings on the size of their wallets. Money in no way brings happiness.

The problem is that we're not even talking 80/20. It's more like 90/20 -

Financial Wealth
Top 1 percent Next 19 percent Bottom 80 percent
1983 42.9% 48.4% 8.7%
1989 46.9% 46.5% 6.6%
1992 45.6% 46.7% 7.7%
1995 47.2% 45.9% 7.0%
1998 47.3% 43.6% 9.1%
2001 39.7% 51.5% 8.8%

Again, is this a good thing for the economy? And if it is, why?

[ratm1221]

Money in no way brings happiness.

Tell that to the dude I saw run out the door of the grocery store the other day with cans of.... baby formula?? The dude had to steal to feed his kid.

But f 'em right? It's Social Darwinism. If he was meant to have money to feed his kid, he'd have it.

[Mr. Peabody]

Again, looking at this chart describing wealth allocation for the past 45 years or so - are these developments a good thing for our economy?

http://www.epi.org/images/snap200608232.gif

If this is a positive development, why is it positive? If it's negative, why is it negative?

[Oh, Gee!!]

If this is a positive development, why is it positive? If it's negative, why is it negative?

It's positive because the top 10% are good and kind enough to create jobs for the rest of us slobs. it's called trickle-down economics. Look it up, wise guy.

[Mr. Peabody]

It's positive because the top 10% are good and kind enough to create jobs for the rest of us slobs. it's called trickle-down economics. Look it up, wise guy.

The problem is that nothing is "trickling down." Look at the stats. Instead of trickling down, it's crawling back up.

It's not a stalagmite, it's a fucking stalactite.

http://upload.wikimedia.org/wikipedia/commons/thumb/2/2f/Stalactite_%28PSF%29.svg/180px-Stalactite_%28PSF%29.svg.png

[Oh, Gee!!]

http://upload.wikimedia.org/wikipedia/commons/thumb/2/2f/Stalactite_%28PSF%29.svg/180px-Stalactite_%28PSF%29.svg.png

/end thread

[KenMcCoy]

But again, you are not answering the question. My only question is whether it is an ideal situation in our economy to have so much of the wealth concentrated in so few people? That's all I'm asking. I'm not saying it needs to be redistributed, I'm not advocating for any candidate. Like I explained, I read this quote, found it interesting, and want to know if what it said was true.

I think you would need to adjust the numbers into different categories and compare them to numbers from the past. For example (A) Job Creating Wealthy (i.e. - business people), and (B) Non Job Creating Wealthy (i.e. - actors, athletes, etc.)

I think it is ok for the job creating wealthy to hold much of the wealth, since in their daliy business they are allowing others to live and prosper.

For the non job creating wealthy, if the numbers are large enough I think it might be disturbing since they would actually be an expense (paying to see their films/games) to the normal man instead of a source of income.

[boutons_]

"Job Creating Wealthy (i.e. - business people)"

very simplistic trickle down bullshit. Capitalists have been playing games with debt paper, CDOs, MBSs, DCSs, etc, NOT investing in the "real" economy.

The big picture confirming this that the financial sector of the economy has exploded in last 10 - 15 years as percentage of the economy, while the REAL economy has not, and REAL people have seen their household incomes go down, their household debt reach highest ever, as their productivity went up.

[ratm1221]

It's positive because the top 10% are good and kind enough to create jobs for the rest of us slobs. it's called trickle-down economics. Look it up, wise guy.

How does this work when they are hiring Sandeep, Kelpesh, and Baboo from India? Does that trickle back across the ocean to us somehow?

[BradLohaus]

That statement from Eccles is the ultimate problem. Carroll Quigley also talks about it for a few pages of Tragedy and Hope. It comes from the fact that even though a person from the top 1% consumes more than a person from the bottom 95%, they consume a much smaller ratio of their income than a person from the bottom 95% does. (You can only buy so many toys, and you want to make sure that you and your family remain wealthy.) The stats I see say that the top 1% in America own 40% of the wealth, the bottom 95% own 40%, and the top 2-5% own the remaining 20%. I’ve read in textbooks that the average person in average modern times consumes 70% of their income and saves 30%.

So let’s look at an example where, in a $10 trillion economy, the bottom 95% consumes 70% of its income and saves 30%, the top 2-5% consumes 50% of its income and saves 50%, and the top 1% consumes 30% of its income and saves 70%. (These ratios are surely conservative with respect to the point being made.) I’ll use 4 different wealth distribution ratios, going from more equal to less equal. Numbers are in trillions of dollars.

1% = 1 wealth >> .7 savings
2-5% = 2 wealth >> 1 savings
95% = 7 wealth >> 2.1 savings
Total = savings 3.8 consumption 6.2

1% = 2W >> 1.4S
2-5% = 3W >> 1.5S
95% = 5W >> 1.5S
Total = 4.4S, 5.6C

1% = 3W >> 2.1S
2-5% = 2W >> 1S
95% = 5W >> 1.5S
Total = 4.6S, 5.4C

1% = 4W >> 2.8S
2-5% = 2W >> 1S
95% = 4W >> 1.2S
Total = 5S, 5C

So, because of the different consumption ratios of the income classes, as the ratio of wealth in a country becomes more and more unequal, the ratio of consumption of wealth falls and the ratio of savings rises. So the question is this: How can this ever greater supply of savings continue to find profitable new investments at the same time that the ratio of the consumption of total wealth is falling? The answer is that eventually, it can’t. The total purchasing power (aggregate demand) has been outstripped by the capacity of the system to produce (aggregate supply). The excess savings can be exported as foreign investment, but eventually global purchasing power will be outstripped by the capacity of the global economy to produce; there aren’t a lot of middle class people in the world.

[BradLohaus]

In the short run, people in the bottom 95% can go into debt to buy the products of the system at near-full capacity. (Of course, the top owns the banks, so basically people are borrowing credit from wealthy people to buy their products so that everyone’s savings can still find profitable investments.) This is what is happening today; we’ve had a negative savings rate since 2005 (for the first time since 1932-33). On its face it seems absurd that we should have a problem involving excess savings at the same time that the country as a whole has a negative savings rate, but that is the situation. The question is how this ends.

Theory says that the government should, essentially, take the excess savings from the top and redistribute it from the bottom up, decreasing savings and investment while increasing purchasing power and consumption - shifting the AS curve down and the AD curve up so that they are again in equilibrium at a lower, but not considerably lower, standard of living. In time, the economy will recover with its new purchasing power and fill in the excess capacity and create the jobs that the newly unemployed need, and in more time, the economy will create an even greater capacity to produce than it has today, but this time there will be sufficient purchasing power to consume its products. Until there isn’t, and then the government does the same thing a couple of generations later.

Obviously, we live in a pyramid scheme. But what is it, exactly? Is it capitalism itself? Karl Marx thought it was. He said that because of the way money cycles through markets, eventually wealth will be overly concentrated at the very top, and then the whole thing comes crashing down if the inequality isn’t corrected. He’s actually half right. He identified the problem, but he misdiagnosed the cause. The cause is inflation and the way money is created, not capitalism itself.

The pyramid scheme that is the essential cause of this problem is fractional reserve banking – the fact that banks create almost all of the money by creating credit off of already existing wealth. If you have enough wealth, then you can legally create new money (credit) off of that wealth and lend it at interest. So, our money is created by the top, and lent at interest to the rest. It’s a never ending cycle of payments from the large bottom to the smaller top, all off of the money that the top created from the wealth they had already accumulated. It’s a truly insane system when you really think about it. And when you do, you realize that it is no surprise at all that wealth becomes concentrated more and more at the top, because the top is who creates the money – the system can’t distribute wealth any other way over its life.

Sir Josiah Stamp, a former director of the Bank of England and the 2nd richest man in England at the time of his death:


Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.

He's telling us how it really works.

[Mr. Peabody]

In the short run, people in the bottom 95% can go into debt to buy the products of the system at near-full capacity. (Of course, the top owns the banks, so basically people are borrowing credit from wealthy people to buy their products so that everyone’s savings can still find profitable investments.) This is what is happening today; we’ve had a negative savings rate since 2005 (for the first time since 1932-33). On its face it seems absurd that we should have a problem involving excess savings at the same time that the country as a whole has a negative savings rate, but that is the situation. The question is how this ends.

Theory says that the government should, essentially, take the excess savings from the top and redistribute it from the bottom up, decreasing savings and investment while increasing purchasing power and consumption - shifting the AS curve down and the AD curve up so that they are again in equilibrium at a lower, but not considerably lower, standard of living. In time, the economy will recover with its new purchasing power and fill in the excess capacity and create the jobs that the newly unemployed need, and in more time, the economy will create an even greater capacity to produce than it has today, but this time there will be sufficient purchasing power to consume its products. Until there isn’t, and then the government does the same thing a couple of generations later.

Obviously, we live in a pyramid scheme. But what is it, exactly? Is it capitalism itself? Karl Marx thought it was. He said that because of the way money cycles through markets, eventually wealth will be overly concentrated at the very top, and then the whole thing comes crashing down if the inequality isn’t corrected. He’s actually half right. He identified the problem, but he misdiagnosed the cause. The cause is inflation and the way money is created, not capitalism itself.

The pyramid scheme that is the essential cause of this problem is fractional reserve banking – the fact that banks create almost all of the money by creating credit off of already existing wealth. If you have enough wealth, then you can legally create new money (credit) off of that wealth and lend it at interest. So, our money is created by the top, and lent at interest to the rest. It’s a never ending cycle of payments from the large bottom to the smaller top, all off of the money that the top created from the wealth they had already accumulated. It’s a truly insane system when you really think about it. And when you do, you realize that it is no surprise at all that wealth becomes concentrated more and more at the top, because the top is who creates the money – the system can’t distribute wealth any other way over its life.

Sir Josiah Stamp, a former director of the Bank of England and the 2nd richest man in England at the time of his death:



He's telling us how it really works.

Thanks for explaining this. I don't know as much about economics as you obviously do, but I thought Eccles quote was an interesting one and seemingly relevant to the current state of our economy.

[Purple & Gold]

The original post and the ones by BradLohaus paint a very good picture of how our economy works and why there is no such thing as a true free market country/economy. The whole premise of free market is that the people will decide how much something is worth by what they are willing to spend for it. While this sounds great in theory what eventually happens as Karl Marx pointed out in Lohaus' post is that when money becomes to concentrated at the top, the general population cannot afford to buy products/services and it will massively and unfairly devalue whatever is trying to be sold just because they don't have the money to afford it. This undercuts capitalism in general and will eventually lead to it's destruction if the government doesn't try to step in with programs such as minimum wages, tariffs (to protect a countries goods), short term fix stimulus programs, etc.

This is the main reason why trickle down economics doesn't work because a trickle is exactly what it is. The top can only consume and buy so much, if they hold on to such a large percentage of a nations money then it will undoubtedly have a huge negative effect on tons of goods and businesses. This is where the fallacy of, if the product is good enough they will buy it comes in. If it isn't a necessity what will happen is that they just won't buy it or only be willing to buy it at such a reduced rate that it won't be worth the time to even develop or make it at all because the profits do not offset the time or effort spent in it.

Then this is where banks come in and lend to people which provides the capital to the general population so they can buy and consume, which in turn fuels the economy. Since lending is done for profit and not just good will there again will only be so much money that can be circulated. Unless of course they decide to print more money which leads to inflation and so on. Very hard to try to explain it in only a couple of paragraphs coherently, but this is pretty much what happens and why economies go through so many up and down cycles. Trickle down economic policies will always lead to this because they are undercutting the very group that supports the economy the most.