Oh sure, she seems harmless now...

Oh sure, she seems docile now…

Hello again friends.

Stay strong, times are hard.

And while we all agree that the reason why they are hard is because politically connected rich people gambled so heavily on the stock market that it destroyed the world’s economy there is much disagreement about what to do now.

It is an article of faith in conservative politics and ‘neo-liberal’ free market economics that the way to get the economy moving again is by bailing out ailing companies, lowering taxes on the rich, and giving wealthy people “greater incentives to invest” (i.e. free money).

But after thinking about this for some time I’ve decided that this isn’t just wrong it’s actually the opposite of the truth.

And I may have worked out why as well.

But first I need to make a tiny little detour because while researching this article I’ve discovered that the Intertubes are badly clogged with people who think that “neoliberalism” has something to do with being a liberal.

It doesn’t.

Ain't nobody sufficiently disinterested in modern economics for that!

Ain’t nobody sufficiently disinterested in modern economics for that!

In fact the two ideologies are often bitter enemies.

“Neo liberalism” basically means the same thing as “globalisation” with all the positives and negatives that come with that term. It is only “liberal” in the sense that it wants to provide freedom and liberty to rich people and the corporations that they own.

No, seriously. Look it up.

It would be more accurate to refer to it as “neo-libertarianism”. It’s the same free market ideology that conservatives like the Republicans are constantly banging on about.

They just don’t call it “neoliberalism” because they are allergic to that word.

Anyway, in order to understand why someone would believe that the best way to help the poor is by giving free money to the rich you need to get a handle on what I call the ‘Employment Money Cycle’.

I deliberately used Comic Sans in the title to annoy people who care too much about crap like that.

I deliberately used Comic Sans in the title to annoy people who care too much about crap like that.

Economists probably have a real name for it so anyone who has a handle on that shit please post in the comments section.

It’s fairly straightforward: employers hire people, so those people get money, then they spend their pay, so other employers make money off them and use that money to invest in new businesses that hire more people.

And so it goes.

When one takes the time to have a look at this one realises that the idea of bettering everyone by helping the rich isn’t actually that crazy at all.

People need jobs. In fact unemployment is one of the main factors inhibiting the economic recovery (the other one is Angie Motshekga) and the fact is that it’s mostly the wealthy who have the means to start new businesses or expand old ones, increasing the number of jobs that are available.

So making sure the the rich have more money makes sense right?

Well, it’s not that simple. I mean the thing about cycles is that they’re all like, cyclic, and stuff.

In theory you could take action at any of those 5 steps listed in the picture above and it would have a positive effect on the entire cycle.

George W. Bush actually did this when he asked everyone in the country to go out and buy something that they normally wouldn’t buy. And people did it, and it really did give the economy a little kick.

But John Maynard Keynes who was one of the world’s most influential economists argued that the best way to boost this cycle was by helping the poor, not the rich.

So who was right?

It was Keynes. Keynes was right.

You can stop reading now.

Just to make up the time you would have spent reading further.

Just to make up the time you would have spent reading further.

But in case you’re interested here’s how I think it works.

I find that things often become clearer if you view them as a philosophical argument because in philosophy each step has to follow logically from each previous step.

And if we go back to the cycle we see that there is a major flaw in the first step on the chart:
Who the hell says that the rich will invest in new jobs if we give them more money?

See this step is based upon the thoroughly uncontroversial claim that rich want to get richer. Of course they do, pretty much everyone does  (sadly).

But anyone who thinks that the only way someone can make money right now is by expanding their businesses has not been paying attention.

It’s hardly shocking to say that the wealthy have put a large amount of their money into the stock market instead of into things that, you know, exist. And whether one believes that the stock market’s insane expansion over the past 20 years is a good thing or a bad thing I think we can all agree that the theoretical chain linking Wall Street to the creation of new jobs is not exactly straight forward.

How big has investment in the stock market gotten?

Well, according to this report from Deutsche Borse Group derivatives trading has a total, global ‘notional’ value of 450 trillion Euros.

And even though the trades on those values are only worth a percentage of the total we are still talking about hundreds of billions of dollars.

This picture makes more sense than that figure.

This picture makes more sense than that figure.

Let that shit sink in for juuuust a moment.

So the idea that more money for the rich automatically means more jobs is simply false. It just isn’t how money works these days.

But there is a second problem: bottlenecking.

I mean think about it. If you want to boost the economy by starting a new business then you’re going to run into a massive problem: there isn’t anyone who can buy your products. 

Because the people who normally would buy your products are the people who don’t have jobs right now.

Now maybe you are sufficiently wealthy and sufficiently stubborn that you will just stick it out while the economy recovers but most people aren’t.

So what will they do with their money? Probably invest it in the damn stock market that’s what.

A free market enthusiast may of course turn this around and claim that giving money to the poor will lead to a similar bottleneck.

To which I would reply: how exactly? What are the poor going to do, not spend their money? They can’t do that. Because you see they’re poor!They have no choice but to spend whatever they get.

The worst thing that could happen is that they use the money to pay off their debts in which case the cash will be funneled directly to the wealthy via the banks.

So it would be exactly like the free market position except the poor people also get to reduce some of their debt!

Shit got me so heated goddamn.

Shit got me so heated goddamn.

In general terms this is the point that Nick Haneur is trying to get across in this extremely cool Ted Talk.

Summary: he is a millionaire venture capitalist who believes that millionaires need to pay higher taxes to pay for programs that will uplift the poor, because this is the only way to get the economy moving.

And there is a third problem: systemic disempowerment leading to wage stagnation.

You see friends when times are hard it is the poor and middle class who are always hit the hardest (duh) and many employers take hard times as an excuse to freeze or even lower wages.

After 9/11 many workers in the airline industry had to accept lower pay because the industry was really struggling.

Fair enough.

But the fact that 10 years later some airline pilots have to work unreasonable hours or even hold down a second job just to make ends meet is pretty fucking ridiculous. And downright dangerous.

Unfortunately, when people are in debt and desperately reliant on their pathetically poorly-paying jobs they typically lack the financial resources necessary to fight for decent pay. So wages stagnate or even go backwards.

And I’m pretty sure that many large businesses know this which is why Walmart automatically fires anyone who strikes for better pay or tries to form a union.

And this is even though Walmart pays so badly that many of its workers are eligible for food stamps!

Giving these evil fuckers more money (and thus more power) is absolutely not going to help.

Because economies are not driven from the top, they are driven from the bottom

-TTB

Wow those artists from the middle age sure knew how to... umm... whatever this is.

Wow those artists from the middle ages sure knew how to… umm… whatever this is.

[Standard Disclaimer: this post was entirely my own opinion and was not paid for in any way, directly or otherwise, by anyone or anything that stands to gain in any way from the ideas expressed herein.]

Related Posts: