Too Many Americans Don't Understand Economics

The chart above is from a Harris Poll done for The Guardian. It was done between May 10th and 12th of a nationwide sample of 2,119 U.S. adults. 

Sadly, it shows that a huge segment of the U.S. population doesn't seem to understand economics (and that misunderstanding crosses party lines). About 67% of Republicans, 53% of Independents, and 49% of Democrats say the United States is currently in the middle of a recession. IT IS NOT!

Just the opposite is happening - the economy is booming!

I understand that too many Americans are being squeezed by high prices and low wages. But your inability to keep up with the rising prices doesn't mean the country is in a recession. It means you wages are too low thanks to an unfair economy instituted and maintained by Republican officials.

Republican economic policy allows the rich to hog most of the rising productivity and corporations to price-gouge consumers. 

Don't blame President Biden and Democrats. They tried to raise the minimum wage, make it easier to unionize, help with childcare, and reduce poverty - but all those initiatives were killed by Republicans (who only want to keep funneling more money to the rich).

The country is not in a recession and inflation is coming down. But neither helps in an unfair economy. The economy needs to be fixed to benefit all Americans instead of just the rich. But that won't happen as long as Republicans have enough power to block all changes.

People Know The Economy Is Good - And Know It's Unfair

The chart above reflects the result of the newest Monmouth University Poll - done between February 8th and 12th of a nationwide sample of 902 adults, with a 4.1 point margin of error.

Right-wing news sources have been telling Americans the economy is bad. Major media sources have been reporting the economy is good. Which is it?

The major indicators (GDP growth, Unemployment rate, inflation rate, etc.) are all good. In fact, the U.S. economy is doing better than the economies of any of our friends (in Europe and Asia).

Note on the chart above though that the economy is not necessarily good for everyone. Only 33% say their family has benefitted some or a lot from the good economy. About 64% say the opposite. Why, if we have such a good economy, are most people not benefitting from it?

It's because a good economy doesn't mean it's a fair economy, and the U.S. economy is very unfair. The top 10% (and especially the top 1%) are doing very well in this good economy. But most of the bottom 90% of Americans are not. They are struggling to keep up with inflation (even though the inflation rate is falling).

Why is this? It's because the Republicans have had the power to control economic policy since about 1980, and they have a very simplistic economic viewpoint. They believe the key to a good economy is making sure those at the top can make more. They believe the rich will then share their new wealth with everyone else. Unfortunately, that view doesn't consider one important ingredient - GREED.

This GOP "trickle-down" theory of economics has never worked. Those at the top have seen their bank accounts fattened immensely, but they have not allowed much, if any, to trickle down to the masses.

Before 1980, the economy was much fairer. Rising productivity was shared between the wealthy, middle and working classes. Everyone benefitted. But after the GOP policies were enacted, the economic playing field was tilted to benefit the rich (to the detriment of everyone else).

Democrats have been trying to tell voters that the economy is good. They need to stop saying that, because the economy is good only for a few. They need to concentrate on how unfair the economy is, and explain to voters how they can make the economy more fair for everyone. After all, for someone not benefitting from a good economy, it's not a good economy.

 

The Economy Is Great For The Rich But Not For Most Others

Al indicators show the American economy is doing very well. Inflation is down, unemployment remains very low, the Gross Domestic Product is high, the Stock Market is nearing an all-time high, and sales are brisk in this holiday season.

But poll after poll has shown that a significant majority of Americans say the economy is bad. Why the disconnect? Are U.S. citizens just too ignorant to recognize a good economy? Not at all!

The truth is that the economy has reached an epic stage of unfairness. The economy is good for the rich, and great for the super-rich. But the bottom 90% is not feeling the benefits of the good economy. They still struggle with even the low inflation. They have trouble with rising child care and medical/drug costs. And their salaries are not keeping pace.

The real problem is not a bad economy, but an unfair economy -- an economy that only benefits the rich. The gap between the top 10% and the bottom 90% has grown enormous -- surpassing the unfairness of the pre-Depression Gilded Age.

Rep. Ro Khanna is right. It is a mistake for Democrats to just try to convince Americans that they are wrong about the economy. They know better. Instead, Democrats must recognize the unfairness of the economy, and convince voters that they have solutions for that unfairness. If they don't, then voters will do what they normally do in a bad economic situation -- punish the party that occupies the White House.

That would be a mistake, because it's the Republicans that have created the unfairness with their "trickle-down" economic policy -- a policy that promised everyone would benefit from policies that gave more money to the rich. They said it would trickle down and make life better for everyone, but that did not happen. The rich got richer, but no one else benefitted.

Democrats must convince voters that they can make life better for the bottom 90%. And they do have solutions that would do that. 

* They would raise the minimum wage above the current poverty wage (putting upward pressure on all wages). 

* They would save Social Security and Medicare by fully funding them -- not cutting them as Republicans want to do.

* They would help working families by helping to pay child care costs.

* They would make it even easier for Americans to get and keep heal insurance.

* They would make sure the rich pay their fair share of taxes, while refusing to raise taxes on the middle and working classes.

* They would fight the monopolization of businesses, which allows unfair price-gouging.

There are solutions to the unfairness of the U.S. economy, but Democrats must convince the voting public that they have the solutions. If they don't, they could lost in 2024, and that would just make things worse for most Americans -- because the Republicans are still invested in their "trickle-down" version of economics.

Democrats would be making a mistake to just boast about a good economy. They must convince voters they could make the economy fairer and better for everyone.  

The Economy Has Improved - And Become More Unfair

The U.S. economy has improved under President Biden. But most Americans are feeling it, because the rich have sucked up most of the improvement, leaving the rest of Americans to struggle. Robert Reich  (pictured) explains:

We learned last Thursday that the U.S. economy grew at an annualized 2 percent rate in the first quarter of this year. That’s well above economists’ expectations of around 1.4 percent. 

But if you didn’t get this news, you’re not alone. Good economic news doesn’t make it through the negative sludge of Fox News or Newsmax. It almost doesn’t get through the mainstream media, either.

 

There’s more good news on the economy. In the four years of Donald Trump’s administration, total spending on manufacturing facilities grew by 5 percent. During the first two years of Biden’s administration, manufacturing investment more than doubled. And about 800,000 manufacturing jobs were created.

These remarkable results are the outcome of Biden policies — the Inflation Reduction Act and its green technology provisions, the infrastructure bill, and the CHIPS Act.

What about inflation? Biden’s stimulative spending did boost inflation. But the news that’s not getting through to most Americans is that inflation is dropping. It has declined significantly from its mid-2022 highs above 9 percent. Consumer prices are now rising by about 4.9 percent annually — still a problem, but not nearly the problem it was. Inflation in the United States is now well under the levels in European nations that made no comparable efforts to stimulate their own economies.

I continue to believe that much of the remaining inflation is due to the outsized profit margins that many major businesses have seized for themselves. Even the IMF recently found this. I wish Biden would make an issue of those profit margins. They’re enriching those at the top while imposing a big penalty on everyone else. 

And wages? For a while, real (adjusted for inflation) wages really were falling, and many economists were worried about rapidly rising unit labor costs. But now that inflation is subsiding, unit labor costs are moving in the opposite direction, and real wages are picking up again. 

So why do so many Americans continue to think the economy is awful? According to the Gallup economic confidence index, Americans haven’t felt this bad about the economy since the global financial crisis in 2008 and 2009. In an NBC News survey conducted a few weeks ago, at least 74 percent of Americans said the country is on the wrong track. The University of Michigan’s Consumer Sentiment Index is also pessimistic. 

Given all this, it’s not surprising that Joe Biden’s approval numbers have been stuck at around 43 percent. 

That’s bad news for an incumbent president running for reelection. History shows that presidents tend to lose reelection bids when about 70 percent of Americans think the country is on the wrong track. They tend to win when fewer than half of Americans think that.

So the obvious question is, why are Americans are feeling so bad about an economy that’s relatively good?

One reason, I think, is a general sense of dread — centering on Trump, DeSantis, and Republican lawmakers in Congress — that seems to affect everything else. (I don’t know about you, but I sometimes have difficulty getting to sleep, worried about the rise of authoritarian fascism in America.) A recent study found that headlines have grown starkly more negative, conveying anger and fear. 

Then, too, there’s a kind of national pandemic-related PTSD from which many of us are still suffering. 

But I think the deeper reason Americans don’t feel very good about the economy is that is that the vast population of working non-college grads — some two-thirds of Americans — are still bogged down in dead-end jobs lacking any economic security, while struggling with many costs (such as housing, child care, and education) that continue to soar.

 

In other words, the economy is getting better overall — but overall has become a less and less useful gauge as the rich get richer, the poor grow poorer, and the working middle is under worsening siege.

U.S. Has Returned To The "Gilded Age" (& That's Not Good)

Thanks to the Republican Trickle-Down economic policies, that favor the rich over everyone else, the U.S. has returned to the "Gilded Age" -- a very unfair economy!

Here is how Robert Reich describes it:

American families have been relying on three coping mechanisms to maintain their standard of living despite stagnant real wages since the start of the 1980s.

First, wives and mothers have gone into paid work. For many women, this has been a blessing. Yet according to a 2021 survey, more than half of married mothers would prefer to have one parent in the home full-time with children aged 5 or younger. 

Second, everyone has put in longer hours. On average, Americans now devote more hours to their jobs than workers in any other rich country. 

Third, Americans have gone deeply into debt. Americans held $599 billion in consumer debt in December 1985. By December 2022, it was $4.8 trillion. 

Through it all, the American economy has continued to grow — yet its fruits have been going to a smaller and smaller number at the top. 

Economies aren’t zero-sum games where the rich can do better only at the expense of everyone else, of course. But power is a zero-sum game. The more of it at the top, the less anywhere else. And great wealth easily morphs into great power.

After a tweet that Elon Musk posted during Sunday’s Super Bowl game failed to achieve as much engagement as a tweet from President Joe Biden, Musk (who purchased Twitter last October for $44 billion) reportedly demanded that Twitter change its algorithm to artificially inflate Musk’s tweets by a factor of 1,000. (Many who do not follow Musk are also being served his tweets in their feed through the “For you” tab of the app’s homepage.) Last week, Musk fired a principal engineer at Twitter who told him that the reason his tweets had lost viewers is that interest in the erratic CEO is waning. Musk is also allowing the return of previously banned accounts like that of Donald Trump.

Is it a problem that the richest person in the world buys one of the biggest megaphones in the world and then alters it so his words are seen by more people than those of the president of the United States, and unilaterally decides to allow back a former president who attempted a coup?

American capitalism has returned to where it was at the turn of the 20th century, when most of the gains went to a handful of “robber barons” who wielded nearly unlimited power over the economy and politics. 

It is well to remind ourselves of the warning by the progressive Herbert Croly, who wrote in 1906 (in his great The Promise of American Life):

Americans are just beginning to learn that the great freedom which the individual property-owner has enjoyed is having the inevitable result of all unrestrained exercise of freedom. It has tended to create a powerful but limited class whose chief object it is to hold and to increase the power which they have gained; and this unexpected result has presented the American democracy with the most difficult and radical of its problems. Is it to the interest of the American people as a democracy to permit the increase or the perpetuation of the power gained by this aristocracy of money?

 

 A candid consideration of the foregoing question will, I believe, result in a negative answer. A democracy has as much interest in regulating for its own benefit the distribution of economic power as it has the distribution of political power, and the consequences of ignoring this interest would be as fatal in one case as in the other. In both instances regulation in the democratic interest is as far as possible from meaning the annihilation of individual liberty; but in both instances individual liberty should be subjected to conditions which will continue to keep it efficient and generally serviceable. Individual economic power is not any more dangerous than individual political power—provided it is not held too absolutely and for too long a time. But in both cases the interest of the community as a whole should be dominant; and the interest of the whole community demands a considerable concentration of economic power and responsibility, but only for the ultimate purpose of its more efficient exercise and the better distribution of its fruits.

What do you think? Is it time for a wealth tax, or even something more drastic? 

Economy Should Be Fair To Everyone - Not Just Billionaires

The following article by former Labor Secretary Robert Reich is fairly lengthy, but it should be read by everyone. In it, he explains how our economy became so unfair -- with the rich prospering (especially the super-rich), which everyone else struggles just to keep up. He writes:

Elon Musk’s wealth has surpassed $200 billion. It would take the median U.S. worker over 4 million years to make that much.

Wealth inequality is eating this country alive. We’re now in America’s second Gilded Age, just like the late 19th century when a handful of robber barons monopolized the economy, kept wages down, and bribed lawmakers. 

While today’s robber barons take joy rides into space, the distance between their gargantuan wealth and the financial struggles of working Americans has never been clearer. During the first 19 months of the pandemic, U.S. billionaires added $2.1 trillion dollars to their collective wealth and that number continues to rise. 

And the rich have enough political power to cut their taxes to almost nothing — sometimes literally nothing. In fact, Jeff Bezos paid no federal income taxes in 2007 or in 2011. By 2018, the 400 richest Americans paid a lower overall tax rate than almost anyone else.  

But we can not solve this problem unless we know how it was created in the first place.

Let’s start with the basics.

I. The Basics

Wealth inequality in America is far larger than income inequality. 

Income is what you earn each week or month or year. Wealth refers to the sum total of your assets — your car, your stocks and bonds, your home, art — anything else you own that’s valuable.Valuable not only because there’s a market for it — a price other people are willing to pay to buy it — but because wealth itself grows. 

As the population expands and the nation becomes more productive, the overall economy continues to expand. This expansion pushes up the values of stocks, bonds, rental property, homes, and most other assets. Of course recessions and occasional depressions can reduce the value of such assets. But over the long haul, the value of almost all wealth increases.

Lesson: Wealth compounds over time.

Next: personal wealth comes from two sources.The first source is the income you earn but don’t spend. That’s your savings. When you invest those savings in stocks, bonds, or real property or other assets, you create your personal wealth —  which, as we’ve seen, grows over time. 

The second source of personal wealth is whatever is handed down to you from your parents, grandparents, and maybe even generations before them — in other words, what you inherit. 

Lesson: Personal wealth comes from your savings and/or your inheritance.

II. Why the wealth gap is exploding

The wealth gap between the richest Americans and everyone else is staggering. 
In the 1970s, the wealthiest 1 percent owned about 20 percent of the nation’s total household wealth. Now, they own over 35 percent. 

Much of their gains over the last 40 years have come from a dramatic increase in the value of shares of stock. 

For example, if someone invested $1,000 in 1978 in a broad index of stocks — say, the S&P 500 — they would have $31,823 today, adjusted for inflation. 

Who has benefited from this surge? The richest 1 percent, who now own half of the entire stock market. But the typical worker’s wages have barely grown. 

Most Americans haven’t earned enough to save anything. Before the pandemic, when the economy appeared to be doing well, almost 80 percent were living paycheck to paycheck.

Lesson: Most Americans don’t make enough to save money and build wealth.

So as income inequality has widened, the amount that the few high-earning households save — their wealth — has continued to grow. Their growing wealth has allowed them to pass on more and more wealth to their heirs. 

Take, for example, the Waltons — the family behind the Walmart empire — which has seven heirs on the Forbes billionaires list. Their children, and other rich millennials, will soon consolidate even more of the nation’s wealth. America is now on the cusp of the largest intergenerational transfer of wealth in history. As wealthy boomers pass on, somewhere between $30 to $70 trillion will go to their children over the next three decades. 

These children will be able to live off of this wealth, and then leave the bulk of it — which will continue growing — to their own children … tax-free. After a few generations of this, almost all of America’s wealth could be in the hands of a few thousand families.  

Lesson: Dynastic wealth continues to grow.

III. Why wealth concentration is a problem

Concentrated wealth is already endangering our democracy. Wealth doesn’t just beget more wealth — it begets more power. 

Dynastic wealth concentrates power into the hands of fewer and fewer people, who can choose what nonprofits and charities to support and which politicians to bankroll. This gives an unelected elite enormous sway over both our economy and our democracy.

If this keeps up, we’ll come to resemble the kind of dynasties common to European aristocracies in the seventeenth, eighteenth, and nineteenth centuries.

Dynastic wealth makes a mockery of the idea that America is a meritocracy, where anyone can make it on the basis of their own efforts. It also runs counter to the basic economic ideas that people earn what they’re worth in the market, and that economic gains should go to those who deserve them.

Finally, wealth concentration magnifies gender and race disparities because women and people of color tend to make  less, save less, and inherit less.
The typical single woman owns only 32 cents of wealth for every dollar of wealth owned by a man. The pandemic likely increased this gap. 

The racial wealth gap is even starker. The typical Black household owns just 13 cents of wealth for every dollar of wealth owned by the typical white household. The pandemic likely increased this gap, too. 

In all these ways, dynastic wealth creates a self-perpetuating aristocracy that runs counter to the ideals we claim to live by.

Lesson: Dynastic wealth creates a self-perpetuating aristocracy.

IV. How America dealt with wealth inequality during the First Gilded Age

The last time America faced anything comparable to the concentration of wealth we face today was at the turn of the 20th century. That was when President Teddy Roosevelt warned that “a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power” could destroy American democracy.

Roosevelt’s answer was to tax wealth. Congress enacted two kinds of wealth taxes. The first, in 1916, was the estate tax — a tax on the wealth someone has accumulated during their lifetime, paid by the heirs who inherit that wealth. 

The second tax on wealth, enacted in 1922, was a capital gains tax — a tax on the increased value of assets, paid when those assets are sold.

Lesson: The estate tax and the capital gains tax were created to curb wealth concentration.

But both of these wealth taxes have shrunk since then, or become so riddled with loopholes that they haven’t been able to prevent a new American aristocracy from emerging.

The Trump Republican tax cut enabled individuals to exclude $11.18 million from their estate taxes. That means one couple can pass on more than $22 million to their kids tax-free. Not to mention the very rich often find ways around this tax entirely. As Trump’s former White House National Economic Council director Gary Cohn put it, “only morons pay the estate tax.”

What about capital gains on the soaring values of wealthy people’s stocks, bonds, mansions, and works of art? Here, the biggest loophole is something called the “stepped-up basis.” If the wealthy hold on to these assets until they die, their heirs inherit them without paying any capital gains taxes whatsoever. All the increased value of those assets is simply erased, for tax purposes. This loophole saves heirs an estimated $40 billion a year.

This means that huge accumulations of wealth in the hands of a relatively few households can be passed from generation to generation untaxed — growing along the way — generating comfortable incomes for rich descendants who will never have to work a day of their lives. That’s the dynastic class we’re creating right now.

Lesson: The estate tax and the capital gains tax have been gutted.

Why have these two wealth taxes eroded? Because, as America’s wealth has concentrated in fewer and fewer hands, the wealthy have more capacity to donate to political campaigns and public relations — and they’ve used that political power to reduce their taxes. It’s exactly what Teddy Roosevelt feared so many years ago.

V. How to reduce the wealth gap

So what do we do? Follow the wisdom of Teddy Roosevelt and tax great accumulations of wealth. 

The ultra-rich have benefited from the American system — from laws that protect their wealth, and our economy that enabled them to build their fortunes in the first place. They should pay their fair share. 

The majority of Americans, both Democrats and Republicans, believe the ultra rich should pay higher taxes. There are many ways to make them do so: closing the stepped up basis loophole, raising the capital gains tax, and fully funding the Internal Revenue Service so it can properly audit the wealthiest taxpayers, for starters. 

Beyond those fixes, we need a new wealth tax: a tax of just 2 percent a year on wealth in excess of $1 million. That’s hardly a drop in the bucket for centi-billionaires like Jeff Bezos and Elon Musk, but would generate plenty of revenue to invest in healthcare and education so that millions of Americans have a fair shot at making it. 

One of the most important things you as an individual can do is take the time to understand the realities of wealth inequality in America and how the system has become rigged in favor of those at the top — and demand your political representatives take action to unrig it. 

Wealth inequality is worse than it has been in a century – and it has contributed to a vicious political-economic cycle in which taxes are cut on the top, resulting in even more concentration of wealth there – while everyone else lives under the cruelest form of capitalism in the world. 

We must stop this vicious cycle — and demand an economy that works for the many, not one that concentrates more and more wealth in the hands of a privileged few.