The Weiner Component #73 – The Problem of the Distribution of the National Income

Manhattan Panoramic View, NYC

One of the greatest misnomers to come out of the 2008 Real Estate Debacle was that the CEOs’ large compensation packages and the massive spending by the general public were closely interrelated.  The spending affected the extent of the salaries but it was separate from them.  The bundling of mortgages caused the Real Estate Bubble.  Going back to the last two decades of the 20th Century many individuals and families began to add their home equity to their incomes in order to enjoy all the comforts possible.  With the continual rise of real estate values over a thirty plus year period this seemed infinitely possible.  With the ever-growing demand for major and minor items by the general property owning public the country was in a period of immense profit for all types of retail concerns.  People bought cars, boats, bigger houses in better neighborhoods.  They frequented restaurants, bought new clothing, TVs, almost anything.  As corporate profits increased CEOs demanded and got greater and greater bonuses and overall compensation packages.  There was full employment; banks were earning greater and greater profits.  The country, the world was living in a sort of fairyland that would presumably go on forever.

And then, at the tail end of 2008, the bubble burst and hard reality set in.  Property values dropped, in many cases, well over fifty percent.  Demand for products fell and there was massive unemployment.  People could not meet their bills.  Many owed far more on their homes than they were worth.  Everyone, including the CEOs faced disaster.  Then the government jumped in with $900 billion worth of loans and saved both the banking industry and the country from a massive depression.

The CEOs were very frustrated.  They had gotten these phenomenal salaries and now they were gone or practically gone.  For some bonuses had been cut in half.  The CEO of Bank of America was very upset particularly after President Obama had insisted that no bailout money be used to pay bonuses.

In addition corporate profits dropped significantly at the end of 2008.  The country was in unbelievable economic pain.  By 2010 the economy was expanding again.  This continued through 2011, 2012, 2013, and 2014.  During 2011 Congress slowed growth with the Debt Ceiling crises.  The next year the fiscal cliff held the economy hostage, again reducing job growth.  By 2013 many workers had left the labor force, because of constant inability to find almost any kind of work, supposedly reducing the unemployment rate.

In 2008, with the crash, the Gross Domestic Product was $14,720.3 trillion.  The GDP per capita was $48,951.  The following year it dropped to $14,417.9 trillion with the per capita level at $47,041.  In 2010 it slightly exceeded the 2008 level and in 2011 it was $15,533.8 trillion with the per capita rate at $48,282.  By 2012 the country was in the $16 trillion level and by 2914 it has reached $17 trillion with the per capita level also rising.

The unemployment level increased significantly from the end of 2008 on rising to 9.9% of the workforce and then gradually dropping by 2013 to about 6.7%.  Keep in mind that this percentage does not include those that are underemployed or who have given up looking for work.  We can only guess at these numbers.

Of course the irony of all this is the level of the per capita income which would give a family of four if it existed in real life a little under two hundred thousand dollars a year.  What exists is a wide distribution of incomes with the bulk of the $17 trillion going to a very small percentage of the population.  For example a person working at Wal-Mart for $7.25 an hour with a family of four would have to apply for food stamps and other government aid in order to survive while the CEO of any giant corporation would be earning about a million dollars a month or more.  If I remember correctly the CEO of Hewlett Packard received about $15 million in 2013.  The general compensation for CEOs could be more or slightly less.

Interestingly in cases like that of Wal-Mart it is the taxpayer, who generally is earning a lot less than the per capita level of income, that pick up the difference needed for the Wal-Mart worker’s family to survive through the various entitlement programs the federal and state governments provide.

Wages, salaries, compensation packages vary greatly.  Only a very small percentage would reach the actual level of the per capita income.  And a much smaller percentage would be above it.  And still a much smaller number, perhaps a hand-full, would have their income in the millions of dollars.  There are even a few in the billion dollar category.

President Franklin Delano Roosevelt, during the Great Depression and again during World War II, stated that a person could only spend so much during a year or during a lifetime.  There was no need for them to earn that much more.  He wanted to tax excess profits.  Congress in neither case would go completely along with him.

Currently the tax system is set up so that anyone earning over $140,000 a year pays a fixed rate on everything earned over this amount.  The more he earns over this the smaller is the percentage of his income that he pays in taxes.  This means that the average family earning under $140,000 a year, which is most of us, pays a greater percentage of their income in federal taxes.  In essence the rich can store endless barrels of money for countless future generations or use some of the money to buy elections while everyone else can do without and just generally survive, with some people not even really surviving.  In the case of corporate subsidies, this money can be used for lobbying and political campaigns to buy influence in the federal and state governments even though it is indirectly paid by the taxpayer.

Obviously there is something wrong with this system.  Something in the way of reform has to be brought about or eventually tragedy will occur.  People will accept a lot of inequities but eventually these inequities become so blatant and their misery so great that they will violently be objected to.

The rich seemingly have endless amounts of money.  They are using some of it to influence the general public in elections.  In essence they are buying influence in government which is being used for their own benefits.

 

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The Weiner Component #53 – My Book: Economics in the 21st Century

Forex Money for Exchange in Currency Bank

If you have enjoyed and/or found my articles useful there is a book that I have written that deals with all these subjects in much greater detail and depth.  It’s called Economics in the 21st Century.  The work was published in 2012 in Kindle and can be downloaded on either a Kindle or any computer for a small fee.  You go to Amazon.com, scroll to Kindle and follow the instructions for locating and downloading the book.

The work begins by examining the Real Estate Fiasco of 2008, its origins in the 1970s, its successful growth and insane collapse toward the end of 2008, thirty-eight years later.  It provides an analysis of what brought about the 2008 economic boom and crash, the results and scenarios for change.

The book looks at popular but misguided economic (values) beliefs and common misperceptions that arise from them.  It shows how Microeconomics – the so-called common sense economics – that deals with business functionality, local and state taxes, and household budgets is now perversely interpreted and used as the basis for entire societies to operate; that is the governments of the United States and Europe.  It explores how Macroeconomics, the way that nations should operate, has been overlooked and usually ignored.  The fact that governments largely control their money supply (the amount of money in circulation) because they can print currency as needed.  This look at economics from an historical perspective provides a broader and deeper comprehension of today’s crisis and gives possible scenarios for the future of this century.

The study examines the current economic ongoing recession in the United States, minutely investigates the 2008 Real Estate Debacle from its beginnings, tracing it from the 1970s to the present.  The work concludes that the monetary increases over the years were necessary for a growing economy but utilized faulty means for the needed monetary increases.

The book’s underlying premise is that the prosperity of the nation is based upon the amount of money in circulation and its distribution among the general population.  The bundling and sale of mortgages from the 1970s on massively increased the amount of currency in circulation without causing any real inflation.  The Real Estate Debacle at the end of 2008 significantly reduced that amount.  People had been using their homes as bank accounts, many constantly refinancing them.  With the sudden decrease in property values the country fell into a recession that could have easily become a depression far worse than 1929.  We should note that the bottom twenty percent of the population did not share in this prosperity.  They were renters and had no houses to use as bank accounts.

In 2008, when Barak Obama was elected President of the United States, he got in on a campaign that stressed “Change.”  But the economy had been so damaged by prior Administrations that most of the first two years were spent in recovery and in passing the Affordable Health Care Bill.  In the 2010 Midterm Election the Republicans were able to take control of a number of states.  Because it was a census year they gerrymandered those states in their favor.  Having also taken control of the House of Representatives they were able to maintain that control for two more years, even though the popular vote favored the Democrats by 1.4 million votes.  From 2011 on they passed no legislation that would favor any additional employment.  Actually they further exacerbated the problem of unemployment in the nation by shrinking necessary government employment and further limiting the money supply in circulation.  What has kept this country economically afloat has been the creative Monetary Policy of the Federal Reserve, adding 85 billion dollars to the economy every single month.  This has countered the restrictive actions of Congress but has not been enough to bring about full recovery.  We still have slightly over seven percent unemployment.

Historically the work examines other economic crises and their causes, particularly the Great Depression of 1929.  It shows how the National Cash Flow, the amount of money in circulation in the nation determines the level of prosperity or hardship in the country.  International trade and money are handled from totally different viewpoints than those traditionally taught and/or widely believed.  The reality of the National Debt is questioned and explored in terms of private and public debt.  Public Debt is held directly by the Federal Government and its agencies.  Private Debt is that held by outside entities such as individuals, companies, foreign nations such as China and Japan.

Can the Federal Government, which owns fifty percent or more of its own debt, owe itself?  The contradictions in our economic system are examined.

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