What I know about economics would probably fit in a thimble, with room to spare. Still, it doesn’t take a genius to figure some things out. What follows are some of those things.
Supply Side Economics doesn’t work. I offer the previous 38 years as proof. Two-thousand and nineteen, minus one-thousand and eighty-one, equals 38. Put another way, in 1981 we began our experiment with Supply Side Economics, and it doesn’t work...for everyone.
We Don’t Have to Tax the Rich More. But we’re going to need a heck of a lot more of them if we don’t. I had an epiphany of sorts. The super-wealthy are not all bad. I know it’s tempting to say that President Trump is bad, except, one, he’s not super-wealthy and, two, he’s a lot worse than bad. Getting back to my point, many of the wealthy have their pet charity, as well as other charities that have nothing to do with Cocker Spaniels. And they donate large sums of money and contribute their time and creativity. Unfortunately, the things needing lots of attention, and even more money, far outnumber the wealthy philanthropists, or misanthropes for that matter, willing to take on a lost cause like...our public education system. Which reminds me of another problem with our current economic model.
Beggars Can’t Be Choosers, But Givers Can. And they do choose. As we’ve decreased the revenue flowing to the states, the shortfall has been covered (in some cases) by wealthy benefactors. In this scenario, one person decides where the money should be allocated and, in some cases, I would imagine, decides for what the money should be used. Sort of the reverse of the way resources are allocated in a democratic system. Exacerbating the problem is that the wealthy really are just like the rest of us; they’re human. Humans respond to the problems, issues, threats, and dangers that most closely affect them. When funding for the high school arts program in an affluent neighborhood dries up, the affluent residents rush in to fill the vacuum. When funding for the high school arts program in an economically depressed area dries up, mice rush in to the fill empty space in the unused viola.
Economies of Scale Are Great for Factory Owners. Terrible for national economies. As producers produce more of each item, and become more efficient in doing so, unit cost goes down and profit goes up. Good for the manufacturer, good for the consumer. But at the national level, having many consumers spending and many different manufacturers selling may not be efficient, but it produces a healthier economic environment than when the spending funnels to just a few big suppliers.
A Rising Tide Lifts All Boats. But if you live on a yacht that’s dry docked, you really don’t care about the tide. And that’s why laws mandating a minimum wage are necessary. Such laws might also make it possible for employers wishing to pay a living wage to do so, without fear of being undercut by a less scrupulous competitor.
Something Ain’t Right. That is the feeling among far too many. It remains to be seen what it will take to convey the message embedded in that sentiment to those with the insight, power, and political will to enact meaningful reform. Billionaire tears – Marie Antoinette would consider that a bargain.
| Copyright © 2019 by James Knudsen |
James, bravo! Last night we watched the most recent episode of the drama “The Morning Show” (with Reese Whitherspoon), and during some terrible fires in southern California, the show’s wealthy owner hires his OWN firefighters, so that his property is protected while surrounding neighborhoods are consumed. This reminded me of your sentences: “Exacerbating the problem is that the wealthy really are just like the rest of us; they’re human. Humans respond to the problems, issues, threats, and dangers that most closely affect them. When funding for the high school arts program in an affluent neighborhood dries up, the affluent residents rush in to fill the vacuum. When funding for the high school arts program in an economically depressed area dries up, mice rush in to the fill empty space in the unused viola.”
ReplyDeleteAnother example? Yesterday afternoon, my wife and I enjoyed a live HD broadcast of the NY Metropolitan Opera’s performance of Philip Glass’ Akhnaten, made possible, in large part, through the philanthropy of the Neubauer Family and NY Mayor Bloomberg.
DeleteJames, I ran your column by the eyes of a professional economics historian, who commented:
ReplyDeleteThe basic idea of supply side economics is that taxes hinder work effort, employment, and production. One extreme version, the Laffer Curve (which James Knudsen shows President Reagan pointing to on a graph), argues that cutting taxes will actually increase tax revenues because the cut would substantially increase work effort, employment, and production.
But this was not the case under Reagan and the first Bush. On the contrary, Clinton raised taxes, tax revenues, employment, and economic growth. Trump's recent tax cut has not improved business investment. The Laffer Curve has been dumped into the intellectual dust bin by most economists.
James, here’s another take on your “Economies of Scale” paragraph, from “ The Life and Death of the Local Hardware Store,” in Sunday’s NY Times:
ReplyDeleteOn Ninth Avenue in Manhattan, not far from where I live, there’s a small neighborhood hardware store called Chelsea Convenience Hardware, which is distinguished by its unlikely display of dozens of Russian nesting dolls in the storefront window. Inside, tools and supplies are piled to the ceiling, and when you enter, the owner, Naum Feygin, an immigrant from Boris Yeltsin’s Russia, looks up to ask you what you need.
The “convenience” in the store’s name is no misnomer, for the place is extraordinarily efficient. It is cheaper and faster than ordering from Amazon and offers expert advice that reduces the risk of buying the wrong thing. It is all too easy on Amazon, for example, to buy halogen bulbs that don’t fit your lamp base; Mr. Feygin has spared me many such headaches. And the store’s small size is a virtue: Unlike at Home Depot, you can be in and out in 10 minutes.
Nonetheless, Chelsea Convenience is set to close at the end of November, another casualty of rising commercial rents and competition from e-commerce. The closing is of no great economic significance, other than to Mr. Feygin. But it is a microcosm of the forces reshaping the United States economy, often paradoxically and for the worse. Why is a less efficient, less personalized and more wasteful way of buying screws and plungers — ordering online — displacing the local hardware store?
Three more paragraphs from the NY Times article:
DeleteBoth phenomena contribute to the same regrettable outcome: In today’s economy, returns on investment have shifted away from the individuals like Mr. Feygin who take personal risks. Instead, wealth is being routed to large middlemen, national monopolies, property owners and shareholders.
So Chelsea Convenience is scheduled to shut down on Nov. 30, not because of a recession or poor business decisions, but because of what amounts to a fundamental change in American capitalism. Mr. Feygin played by the rules as they were in the 1990s, when success in business mainly meant selling goods above cost. But that isn’t enough anymore.
The fate of Chelsea Convenience shows, in its small way, that business and capitalism can be at odds — that the drive for immense capital gains can drain the life out of human-scale business. For entrepreneurs, the American economy, with its extreme centralization, is becoming more like the Soviet economy Mr. Feygim left behind.