Fiscal policy in a classical failure of effective demand

As Professor Saez has shown, the top 1 percent of the income distribution receives 20 percent of income; the top 10 percent 50 percent of income.  This represents a level of inequality greater than that preceding the Great Depression.  Effective demand is failing because most people don’t have enough money, and many people who would like to work can’t get a job.  The current Great Recession is primarily affecting the folks at the bottom.

About half of Americans, the bottom half of the income distribution, pay no federal taxes other than Social Security.  This is where demand is failing.  A tax cut will do them no good.

Now, other things equal, a simple transfer of ten percent of the top 10 percent’s incomes to the bottom 90 percent would contribute greatly to aggregate demand and production.  Or, a tax-financed infrastructure program paid for by the rich would create jobs and incomes for many in the bottom tiers. 

The problem is, no one trusts our government to do anything right.  The Congress is full of pimps representing their Big Money sponsors.  The President is an appeaser.

It is common to say that we’re suffering because wages are converging to global norms.  But what explains the huge increase in income multiples of the people at the top?  Why should the distribution have widened?

Rather, a global ruling class seems to be making its appearance, giving rise to speculation on neo-medievalism, or as I have called it, neo-feudalism, and Dani Rodik’s worry that

democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full. (link)

My belief is that we let the rich have their way out of a delusion that we would be joining them, and that once that dream is over, the scales fall from our eyes, and we begin actively to shame the rich, that the sheer force of human imagination will restore the balance.

If you don’t believe in the power of thought to affect the world directly, read Lynn McTaggart’s books, The Field and The Intention Experiment.  (I’m not linking so you can choose your bookstore.)

I’ve seen the power of thought in an experiment you can try with friends.  Have one person face away from the group, with arms extended horizontally, facing another who puts their fingers on the subject’s wrists, pressing down.  Let the group signal whether it permits the subject to resist the downward pressure—thumbs up—or not—thumbs down.  I’ve seen this done several times, and every time the subject was unable to keep their arms extended when the group signaled thumbs down.

Direct your thoughts to envision social justice in this world.  It will happen if enough of us get beyond the lies.