Wednesday, October 5, 2011


Money belongs in the pockets of the people. -- Thomas Jefferson

Written in 2011.

Paul McCulley did a good job at PIMCO before the economy got stuck in the current liquidity trap. But based on a discussion reported by John Mauldin, McCulley can't really think outside the box. The liquidity trap results from America's 40 year war on the working class. This war solidified the position of the American Plutocracy -- 10% of the people own 90% of the wealth; 37% of the people are living below the poverty line. The result of 40 years of Trickle Down Economics: an endless cycle of boom and bust, along with a continuing series of expensive foreign wars. Right now the bottom of the economic spectrum -- the bottom third of all taxpayers! -- doesn't have enough money to spend.
That is the trap we're in, and it is the swamp from which flow all our other stagnating ills. The solution is Trickle Up Economics: 

1.  The IRS can loan every individual who has filed a tax return in the last five years $20,000 in equal monthly installments to as an advance against future tax refunds -- to be repaid over the next 20 years, all money to be spent on items produced by American labor. 

2.  The minimum wage can be doubled in three increments of 33% over the next 18 months -- or, just double the minimum wage. 

3.  Payouts on all entitlement programs -- Social Security, Railroad Retirement, welfare and food stamps can be doubled, with a requirement to spend the extra money on goods produced by American labor (penalties, with rewards for whistle blowers to be built in). 

4.  The renminbi can be revalued upward to a rational level, and at the same time we can put a substantial tariff on Chinese imports -- this will raise enough money to upgrade our airports and roads.  And put a tariff on all imports from countries that don't have health, retirement and environmental protections -- a tariff sufficient to level the playing field.

5.  All legally constituted operating companies doing business in or producing goods in America, whether corporations or partnerships, that have been in business for at least three years (unless their main business is investing in the stock market), can receive a $1 million dollar loan from the IRS to be repaid over the next 20 years. 

6.  And certainly, the Rich can pay taxes at the same rate as their secretaries, no matter how much they lost at the Wall Street Casino last year.  Will these measures cause some inflation? Let's hope so. We need the money at the bottom -- for small businesses and the people those businesses employ. We don't need more money poured on the top -- that won't stimulate aggregate demand. But Trickle Up Economics will do the job handily. It's time for McCulley to stop flapping his hands and saying "I hope I'm wrong." He's not wrong. The current game is rigged against American prosperity -- which means the prosperity of the working classes. America is prosperous when grocery baggers and assembly line workers can make enough money to live on working one job, and by working two jobs or a job and a half can make enough money to save up to get into a properly-valued house. 

7.  Finally, it's time to tax shares directly -- in kind, at the same rate as real estate is taxed -- on average -- around 2 or 3%. A hundred years from now the dividends on the investments held in trust will pay all our healthcare and infrastructure expenses.  

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