The Widdershins

Goldilocks was right…

Posted on: March 21, 2014

Afternoon Widdershins.  I hope you survived St. Patty’s Day and are basking in the first glimpses of spring.

Quite fortuitously, a couple of new reports surfaced this week that nicely dovetail with Tuesday’s post.  My apologies for nerding out yet again so soon on an economics post, but these reports are important.  They will arm you with a silencing rejoinder for any wayward soul crossing your path spouting the typical Tea Party tripe associated with know-nothing, coffee klatch economics.

First, there is the report of the Organization for Economic Cooperation and Development (OECD).  Thirty-four developed nations are a part of the OECD and once again, the United States leads in economic inequality while at the same time we are the fifth highest with 17.4% of our population falling into poverty.

Graph Share of Income for the 1 percent

A few data points as you are looking at the OECD graph.  Most importantly, NO investment income is included in these numbers.  That’s right — these numbers are exclusive of any capital gains.  The top 10% are closing in on 50% of the economic pie leaving the 90% of the rest of us to divvy-up the remaining 50%.  The pre-tax income going to the top 1% has more than doubled since 1980 when we replaced sound economic principles with political sloganeering.

There are two other data points I want you to consider.  Look at the meteoric rise since 1980s and then compare where we are today as opposed to the last Gilded Age of 1920.  The wealthy have surpassed their previous high watermark!  Simply put, it is a great time to be rich!

But not such a great time to be poor.  The poor have not bounced back at all since the economic ravages of 2008.  The number of Americans reporting they are unable to afford food for their families has risen by 50% since 2008.

This is what income inequality looks like in Sao Paulo...

This is what income inequality looks like in Sao Paulo…

You are probably thinking, I already know all this — old Prolix has harped on this issue for years now.  This is where the new information comes, but first, I need to clear up some definitional remnants — the words entitlements and redistribution.  I hate, hate, hate, and abhor those words.  They are words most likely spawned from the satanic synapses of Frank Luntz — chosen not for their accuracy, but for their visceral emotional impact.

Both entitlement and redistribution are pejorative words for the way one person sees another person’s expected largesse.  Whether it is a single mother receiving food stamps for her children or a hedge fund manager being taxed at the special and reduced rate of 15% for carried interest, they are both governmental entitlements and redistribution.

Whether it is an earned income tax credit for the working poor or an international corporation paying an effective tax rate of 12.6% (less than the working poor), both are instances of governmental redistribution.  Whether it is a senior citizen receiving social security and Medicare or a venture capitalist larding up an otherwise profitable company with monstrous management fees to just put the company in a debt death-spiral as a tax strategy, they are both government sanctioned acts changing the otherwise status quo.  Both are entitlements and redistribution.  To mix metaphors, all that matters is when the music stops someone else is dancing with a gored ox.

That little definitional interlude leads us to the second report.  This one was released by the International Monetary Fund.  As you might know, the IMF is anything but a “librul-leaning” organization.  It is heavily skewed toward business and economic development — growth is their stated and implicit goal.  That fact alone is why I was surprised their report didn’t get any play whatsoever in the press.

Out of a Himalayan mountain of data and research, the IMF report challenges the old saw and conventional economic wisdom that redistribution undermines growth.  The report proves just the opposite, if anything, right-sized redistribution enhances and supports faster and more durable growth.

Conversely, income inequality hurts, hampers, and hamstrings economic growth.  Simply put, as inequality increases, growth declines.  Here are two graphs demonstrating the point.

Inequality a drag on the economy

Of course this type of unconventional counter-intuitive thought is sure to ignite a maelstrom on the right.  Why would anyone in the One-percent crowd dare to engage in fact-based self-awareness when they have emotionally charged sophistry in which to drape themselves?

Speaking of the total lack of self-awareness in the moneyed class here’s a great illustration.  In his most recent prison interview, that bastion of free-wheeling capitalism Bernie Madoff said, “I’m not a great fan of redistribution of wealth.”  I guess Bernie prefers the old-fashioned private sector type of redistribution — plain old theft and fraud.

The IMF research contains recommendations such as needs testing Social Security by phasing out high wage earners, improving educational access — particularly college, improving access to health care, and reforming the tax code to make it more progressive thereby eliminating exemptions and deductions.  The research finds by appropriately modulating redistribution it results in a win/win situation — faster, long-term, durable growth while meeting the needs of the less fortunate.

The big takeaway is this:  Redistribution is a good thing for economies when right-sized and moderated.  Both too much redistribution and too little redistribution are bad for any economy.  Just like Goldilocks, if it is just right, everyone is better off since we all do better when we all do better.

This is an open thread.

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28 Responses to "Goldilocks was right…"

Whoa! I had to rub my eyes after looking at the IMF scatter plots.

One thing also for anyone looking at the OECD info: It has a pulldown menu for comparisons. You can compare, say, the OECD as a group, to the U.S. or you can compare OECD to another country or you can compare country to country.

or an international corporation paying an effective tax rate of 12.6%

But the right wing never lets that number out. They are always throwing out the meme that the U.S. has the highest corporate tax rate in the world.

@2, that is the big scam — the right grousing about the “highest” tax rate in the world. It simply isn’t true. Comparatively speaking, the U.S. tax rate is competitive and falls in the lower mid-range for developed economies.

When you are raking in billions of dollars as a multi-national corporation, and pay no taxes, yet get a refund, it is just indefensible and the right knows that.

And moreover, those are effective rates on only revenue that has been domestically declared — nothing is paid on the expatriated revenues of almost $2.0 Trillion parked overseas.

nothing is paid on the expatriated revenues of almost $2.0 Trillion parked overseas.

Prolix, didn’t the admin have a plan to “bring your money back home” deal where they were going to cut corporations some type of break if they brought those overseas funds back?

I thought I read something about some idea like that.

I’ve just been following an argument on facebook between two friends about how amazing Exxon Mobile is by paying more taxes than any other corporation!

@4, there have been all kinds of ideas floated. Nothing is even close to being enacted. Here’s the rub:

The repatriated money will most likely be used to either buy back stock (increase share value), pay some outrageous dividends, or leverage some deals with more debt. The actual mechanics of any repatriation are at play given when and at what rate it would be taxed. The Repubs want no strings attached to the repatriation (hear the Chamber of Commerce sucking sound) and the D’s want a hiring incentive attached.

When you essentially use the money to increase the value of the corporation or put it in the pockets of inside shareholders and executives, there’s no policy impact for the good of the overall economy, but then again, when did these people ever think of the overall good of the economy as they are always chasing quarterly earnings in order to hike up their annual bonuses.

Not to get too technical here, but here’s how it might work in these corporations: Repatriate the money — big hit to the bottom line — triggers big bonuses for execs — under deferred comp plans, they get stock — repatriated money buys back outstanding shares, execs deferred comp just skyrockets to outrageous sums. Who benefits? Shareholders of record and the sniveling execs who have done nothing to make the company more profitable, think of a new idea or product, and they hire not one new worker. Great work if you can get it.

@5, you are a much better person than I am — were I to follow that debate, I would find myself turning my laptop into a not-too-good Frisbee.

Prolix@6: Ah, naturally there’s always a catch.

@DYB: And we are celebrating (?) the 25th anniversary of the Exxon Valdez spill.

Prolix, while we’re here. To embed a link in a comment here’s what to do:

Mouse over “The Widdershins” (at top left) and you’ll see a drop-down menu. click on comments. You’ll then get a screen with..all of the comments. you can hit “reply” to the last comment and you’ll get a composition screen much like when writing a post. You click on link and get a pop up and paste your link in there, then click on add link at the bottom of the popup and it’s embedded in your comment. Type in whatever you want and hit the reply button.

if you want to try it while I’m here, go ahead.

. . . or not.

@10, thanks for this Fredster, but I don’t have the dealio at the top. All I have is the banner “Widdershins” — methinks it is because my computer doesn’t get along with wordpress. Let me switch over to IE and see if it’s there.

@12: that sounds like you aren’t logged into the blog. Try this:

Go to wordpress.com, see if you are signed in there. If not, then sign in at wp.

Next come back to TW and see if you have the the W in a circle, the globe and The Widdershins next to it. If you are signed in, you should have those.

Still don’t have anything — are you talking about the stuff in the black banner across the top. If so, the black banner won’t load for me in Chrome, IE, or Firefox. It is so frustrating!

Yep, the stuff in the black banner. At the bottom where you type in comments, below that is it showing your avatar and does it say “You are commenting using your WordPress.com account and below that in paren, (Log Out/Change) ?

Okay, I logged in to the WP account, but all I have down here is the stock avatar and the email account I use to comment as Prolix.

I use Chrome, and have a black banner………

do you have the Log Out/Change below that?

Okay, I got it to work by going through the main page. Fredster, you have the patience of Job — I wouldn’t put up with my ignorance like you have. Oh, and I found the link button finally.

Let’s just entitle this whole thread: Prolix: Stupid or just plain ignorant? You decide…

chat, that means you’re signed in. Somehow things are syncing for Prolix and I’m not sure why.

Chat, sorry about doing another econ post — did I give you the swimmy head?

@19: So you have the banner and all, with the CircleW, globe/The Widdershins? If you do, do not log out or change anything in the reply area.

You should now be able to get to the comments screen, see all the comments, embed a link in your comment and and have the comment post.

Okay, that’s where I am now. If I had been leading the Donner Party, I would have led them directly to the big sushi bar.

Interesting..it was Match Day today, and more than 25% of the LSU students (forgot # for Tulane) are going into primary care.

Fredster, you have the patience of Job

Nah, I actually like doing stuff like this. 😉

@21: They are excellent. Unfortunately, I am one of those people that has to call the bank line daily and do mad calculations in order to keep my checkbook straight,

Okay, figure this out just in time for me to have to run.

Everyone have a great evening and an even better weekend.

@27: Okay, keep in mind, don’t sign out from TW. If you don’t see what you finally did today, go back through the WordPress process and you should be okay.

You have a good one Prolix.

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