Since the days of Ronald Reagan, we've been privy to sermonizing on
trickle down economics, more aptly phrased as the Gospel according to St. GOP. The theory (aka spin): tax cuts will spur economic growth. Those with wealth and means will use this additional disposable income to invest in business expansion thereby creating jobs and opportunities for Americans of all economic strata. The reality: wealth is the only force on earth that defies gravity. Instead, the elite class has acted like a vacuum, sucking up the tax cuts to pad their financial security. Our boy Dubya, whose religious sentiment is more attuned to this gospel than anything spoken by the
philosopher(?) Jesus, is a modern day prophet and prestidigitator of wealth's gravity defying thaumaturgy.
One of today's headlines reads,
Savings Rate at Lowest Level Since 1933, those being the years just following the tragic market crash of 1929. This really highlights how we are living not only on borrowed money, but borrowed time.
The Commerce Department said Monday that consumer spending rose by 0.9 percent in December, more than double the 0.4 percent rise in incomes.
To finance the increased spending, Americans dipped further into their savings, pushing the savings rate for all of 2005 into negative territory at minus 0.5 percent. That was the lowest annual savings rate since a decline of 1.5 percent in 1933, a year in which the country was struggling to cope with the Great Depression.
Economic growth is strongly tied to consumer spending, and we're spending wealth we don't have. Given the recent changes in bankruptcy laws, the vast majority of Americans are, in fact,
indentured servants. We have mortgaged away our future. "A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases."
The evaporating quality of middle and lower class wealth is reflected in the
gap between wealthy and poor that continues to widen.
By the early 2000s, the average income of the top 20 percent of families in 32 states was at least 6.4 times higher than that of low-income families. That's a big change since the early 1980s, when no state had a "top to bottom" ratio exceeding 6.4.
...
In dollars and cents, average incomes of those in the top 5 percent rose between $80,400 to over $153,000. Increases for the bottom 20 percent in those 11 states, meanwhile, didn't exceed $4,000.
Compared with our great-grandparent's generation, we are certifiably nuts. Every December we celebrate a holiday centered around giving that has morphed into an orgy of extravagance. The majority of gifts are bought on credit because we feel pressured to spend recklessly every year. Is this true generosity?
Here's the irony. Those who beat their breasts the loudest about the decline of family values hail from the same political party that is leading our descent in to economic and social madness. They are ripping apart the very social values they so cherish. "Robert Frank, an economist at Cornell University, for instance, found that in counties with the widest income gaps, rates of personal bankruptcy and divorce rates were higher than average."
The cause?
He also notes that when wealthier families see their incomes rise at a faster pace than everyone else, their spending can create what he calls an "expenditure cascade." That is, the demand for bigger and better homes or safer cars can create new standards for those lower down on the economic scale.
But since their incomes aren't growing as fast, they have a hard time keeping up, leading to what Frank calls "welfare loss." For example, as home prices rise, it becomes harder to afford a home in a neighborhood with good public schools.
And when the majority of households come under financial stress to provide a solid life for their families, voters will be less inclined to pay for public services such as bridge and highway maintenance, port security and food inspection.
This craziness cannot continue indefinately. When the majority of Americans have no more credit, no more of their future they can mortgage, spending will plummet and the economy will suffer a devastating collapse.
Lets turn off our TVs, cut up our credit cards, and spend only what we need. The alternative isn't pretty.
Crossposted at my personal blog Spiral.