Sacred Cods and Holy Mackerals

Trickling down to China
November 25, 2008, 8:34 pm
Filed under: Uncategorized | Tags: ,

The idea behind allowing readers of blogs, online journalism, etc. to post comments was the belief that the writer either doesn’t know all, or is indeed fallible, and may need to be correected from time to time. It was to create a second dimension. Instead of the writer writing and the reader reading, comments sections allow the reader and writer to interact, and further the conversation.

That was the INTENT, anyhow. In reality most comments sections are just virtual battlefields for demogogues dominated by the simple-minded and borderline illiterates (see: comments section, Boston Herald).

One in a while, however, a poster actually adds something of value. So is the case today with the Boston Globe editorial entitled “Were All Keynesians Now.”

So says John P:

This is so simple and nobody gets it.

The problem is not entirely vertical in nature (trickle down). It is a horizontal shift share problem. We are now a consumer nation sending our wealth to emerging nations. If the citizens of our nation send the money that trickle downs to them over seas, the investor class will follow the money and invest overseas. Viewing this thing as vertical makes the poor feel less responsible and guilty, but the fact remains that if you borrow money to China to give to people that will in turn buy products from China, all you’ve done is accelerate the problem and increase the trade deficit and national debt.

If you Google the “inverted pyramid of liquidity” and Wikipedia the “money supply” or “m3” you’ll see that 75% of liquidity is in the form of derivatives and very little is cash. Part of the reason why trickle down economics didn’t work was of course the siphon of emerging markets and us being a consumer but also the expansion of derivatives. This outward expansion of this derivatives atmosphere kept the liquid in a gaseous state and we never got the pressure of the vapor to form the rain drops to fall on the crops below.

John is, of course, DEAD ON both in his comments on the failures of trickle-down economics, as well as this ridiculous idea that a world economy doesn’t weaken our own economy.

The inherent flaw with trickle-down is the assumption that the subsequent spending eventually will make it down to the lower and middle-classes through increased employment, salaries, wages, and overall prosperity. The problem is that The Rich spend their money in a manner that makes it impossible for much of this liquidity to trickle down. The Rich don’t spend their money, generally, at Wal-Mart, on American-made cars, or at local craft fairs. They buy expensive foreign-made cars. They take trips overseas. And most importantly, they reinvest their money in companies and investment houses operated by their rich friends, thereby perpetuating their own wealth.

More and more American money is leaving the nation and benefitting foreign nations. The biggest owner of CitiGroup is foreign. Stop & Shop is foreign owned. The nation’s biggest creditor? China!

I don’t agree with all that John P. writes. For instance, he says social programs such as the Community Reinvestment Act and federally-guaranteed student loans are bad things because they drive up the cost of homes and college tuition. And I can  see his point particularly when it comes to the cost of attending colleges. But the point is that programs like these give MIDDLE-CLASS people opportunities to succeed and advance their economic standing. And its the MIDDLE-CLASS that really drives this nation’s economy, not the rich.  

3 Comments so far
Leave a comment

Nice Site layout for your blog. I am looking forward to reading more from you.

Tom Humes

Comment by Tom Humes

Ben Franklin is my homeboy.


Comment by John Pesa

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: