roundtable: "Economic Ignorance" with commentary by CITS

roundtable: "Economic Ignorance" with commentary by CITS

"Economic Ignorance" with commentary by CITS

W. Curtiss Priest (BMSLIB@mitvma.mit.edu)
Fri, 20 Oct 95 10:17:21 EDT 

Message-Id: <9510201422.AA24648@a.cni.org>
Date:         Fri, 20 Oct 95 10:17:21 EDT
From: "W. Curtiss Priest" <BMSLIB@mitvma.mit.edu>
Subject:      "Economic Ignorance" with commentary by CITS
To: Cyberspace Society List <cyber-soc@READNS1.READADP.COM>,


ECONOMIC IGNORANCE


October 20, 1995
CITS Observations on attached article:
Dr. W. Curtiss Priest

I never heard of Molly Ivins or the Fort Worth Star-Telegram.
But here is a gem of an article that someone on the editorial
staff of the Boston Globe had the sense to pick up.

Seeing Alice Rivlin's name and the title made it, for me, a must read.
Rivlin is good and is reasonably insulated in the CBO so she can
tell the truth.

I hope, no matter what your politics are, you will find some wisdom
in this piece.

As background keep this in mind.  For every dollar in the GNP, there
are two dollars of debt.  Sixty percent of Americans today have
a negative net worth.  For every dollar that is loaned by banks,
there are only 5-10% in reserves; i.e. over 90% of the money in
circulation as loans has no backing.  The FDIC which insures
savings up to $100,000 was nearly zeroed out from bank failures
in the late 80's and could not withstand another round.  And
while we focus on the federal debt, that represents only 20% of
the nation's total debt.  The rest is debt incurred by consumers,
municipalities, states, and businesses.  Total domestic debt is
over $11 trillion dollars.  And most of this debt was not for
productive purposes (loans that bring returns greater than their
carrying costs) but for consumption.  Debt of this kind is simple
dead weight.

As I write this, Clinton and Gingrich are playing a game of
Russian roulette with the debt ceiling.  The Feds have
reduced the amount of treasuries they sell (revolving federal debt)
to give a few more days before the country reaches the legislated
debt ceiling at which point the country could actually default on
its federal debt.

I had thought that the $260 billion the Republicans were scraping
out of social payments was to reduce the federal debt, but find
that it is just equal to the proposed federal tax cut.  A
tax cut, as you will see below, is one of the greatest transfers
of wealth from the poor to the wealthy.

Oh, my.



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Economic ignorance
Boston Globe
October 20, 1995, p. 19

MOLLY IVINS

Molly Ivins is a columnist for the Fort Worth
Star-Telegram

AUSTIN

Baaaaad public policy. Dumb, wrong,
guaranteed to make things worse.
The Republicans are marching
militantly in the wrong direction
with economic plans  that will aggravate ex-
isting problems.  They seem impervious
to evidence and common sense.  This is pain-
ful to watch.


The scariest trend in America is the
growing gap between the rich and the rest of
the. country. That gap is already the size of
the Grand Canyon and getting worse fast.

It is not just that the rich are getting
much richer but that the poor and the middle
class are getting poorer as well. If, as in the
old Reagan bromide, the rising tide were lift-
ing all boats, we would all be merry as grigs.
But it turns out that most of us are in the
drink without so much as a life jacket. Con-
servatives are struggling mightily to deny
the reality of the growing gap; watching
them twist the numbers and stretch the ex-
planations is becoming a minor spectator
sport these days. In the current issue of The
Washington Monthly, Paul Krugman does a
masterly job of exposing some of the pathet-
ic shifts they are using, several of them in
House majority leader Dick Armey's mis-
leading book "The Freedom Revolution."

Alice Rivlin, the White House budget di-
rector, has earned a reputation as one of the
straightest shooters in Washington on eco-
nomic figures. When she headed the Con-
gressional Budget Offiice, her numbers were
so widely respected that Republicans accept-
ed and used them as readily as Democrats.
She's a deficit hawk as well and has been
preaching a balanced budget for longer than
House Speaker Newt Gingrich has been in
Congress. So when Rivlin came out with the
figures last week on what the Republican
budget-plus-tax-cuts would do to redistrib-
ute wealth in this country, all the smart folks
listened up. It's grim.

-- The richest 1 percent of families will
each receive almost $19,000 a year in tax
breaks. The $21 billion that they would re-
ceive is 42 percent more than the total tax
relief for all families that earn less than
$50,000 a year - more than 61 percent of
American families.

-- The poorest 20 percent of families with
children will each lose an average of more
than $1,500 in income and nearly $1,700 in
health coverage.  These cuts are so large that
a $500 child tax credit - that many of these
families will not even get - cannot come close
to undoing the damage.

-- Tax breaks for the richest 5 percent
are $37 billion - almost as large as the total
of income and health-coverage cuts hitting
all families with children.

The only way to read this sucker is that
tax cuts for the wealthy are to be financed by
benefit cuts to middle- and low-income fam-
ilies - a massive redistribution of wealth. It
is profoundly dumb. As Rivlin pointed out
during a news conference, her numbers are
actually conservative concerning the extent
to which the Republican plan redistributes
wealth from the poor to the rich, since she
did not include all the benefit cuts that the
Republicans are planning.

Nancy Folbre, an economist for the Cen-
ter for Popular Economics, points out in a
Chicago Tribune piece that the average US
household with income under $10,000 re-
ceived an estimated $5,700 from the govern-
ment in 1991; the average household with an
average income above $100,000 collected
$9,300.

We don't usually think of rich folks get-
ting government money, so this is worth
looking at. One tax break for the rich is the
home mortgage interest deduction - the
more you spend, the bigger the tax break
you get. People who buy million-dollar-plus
homes get the biggest breaks. Farm subsi-
dies, sugar and tobacco price supports, cor-
porate subsidies and the savings and loan
bailouts are other examples of government
spending that go to the rich.

The Republicans are once again touting
their old shibboleth, the capital gains tax cut.
How proudly they claim John Kennedy as a
capital gains tax cutter (another example of
the R's well-known penchant for lionizing
dead Democrats). How happily they boast
that when the rich are given this gigantic
boon, they will promptly invest it in job-cre-
ating schemes to the general benefit of us all.

This is another example of ignoring the
evidence. You don't even have to read all the
economic studies that show that cutting cap-
ital gains doesn't improve investment - just
remember back to the 1980s. What did all
the newly rich do with their gelt? They paid
for gold-plated bathroom fixtures and then
used the rest to buy other companies that
then bought other companies that then
bought other companies, leaving the whole
corporate structure riddled with debt. Bil-
lions of dollars were spent, but not one addi-
tional widget was produced by anybody.

The trouble with Republicans and eco-
nomics is that they don't think - they be-
lieve. Faith is a wonderful thing, but not
when it is so glaringly misplaced.

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