Dr. Susmit Kumar, Ph.D.

Since the mid-1990s, the US government has been decreasing taxes for the rich. Apart from this, the Wall Street, in collusion with economists and MBAs, compel firms to show profit every quarter to be given to the shareholders, the majority of whom are ultra-rich. In general, socialism has come to mean that the government takes money from the rich to give to the poor. The last four decades of the US economy have seen the opposite, i.e. the US government, in the garb of “Reaganomics”, and Wall Street have transferred massive amounts of money to the ultra-rich from all others (please see Table 1 and Charts 1 to 7 below).

“Reaganomics” stands for widespread tax cuts (income tax, sales tax, corporate tax, custom tax, etc.), decreased social spending, increased military spending, and deregulation of domestic markets. “Reaganomics” policies are being religiously preached by nearly all US economists/MBAs and Wall Street.

Wall Street is taking money out of the system and is not adding anything to the national wealth. Yes, it creates money, in terms of share prices – paper value that evaporates when share markets drop sharply. For an example, miners dig minerals from earth to sell it to the factories at a price. This process adds value to the minerals, which were otherwise just lying buried in the earth. Then factories manufacture items from those minerals, a process that increases the value further of what were once minerals. Wall Street is squeezing the juice out of the fruits (the general economy) and we all know what it is that is left in a fruit (i.e. in general economy) after the juice is taken out. Brilliants, including Nobel Prize winners, are flocking to Wall Street, instead of embracing scientific research, to make money for the ultra-rich and of course for themselves too.

At the onset of the 2008 recession, the economies of the East European countries were on the verge of collapse. In an October 2008 speech, Romanian President Traian Basescu pinned the blame on “corrupt” outsiders. He said, “There were smart guys coming to Romania, who had studied at Harvard and Oxford, and they invented how to increase the value of one’s shares without actually having money.” (Craig Whitlock, “Financial Crisis Leaves Romania Reeling,” Washington Post, November 5, 2008.) His statement describes in brief the how Wall Street works.

As per US economists, the trickle-down economy is the best - i.e. tax cuts, mainly for the rich would create jobs as they would invest in creating new firms and technologies. This is however a completely bogus theory. Let us consider the following three cases. If you give one crore rupee to:

(1)   to a rich (one crore), he or she may buy a Ferrari car.

(2)   to 10 middle class persons (each 10 lac); they may buy 10 houses or 10 cars for investment and further earnings.

(3)   to 100 poor people (each 1,00,000 rupee) who may spend it in the consumer retail markets, such as on food, clothing, school/college, doctor/medicines, a family car, kids, holidays, etc.

Now you can calculate how many jobs would be created in each of these three scenarios.

Due to the Wall Street pressure, a CEO must squeeze the firm at every place to find money for Wall Street every quarter otherwise his job may be gone. Therefore, despite having profits, a CEO has to even lay off workers to increase the profit. In the US, you will always hear the phrase “two-third of the US GDP depends on consumer spending.” They are however missing an essential factor, “earning.” They forget that a consumer can spend only after s/he earns. Hence, the US has been witnessing "jobless growth" since 2000s (please see Chart 8).

Till now the US has been surviving due its over-valued dollar. When the US dollar goes down to its Purchasing Power Parity (PPP) value, there will be a complete collapse of the US economy, akin to the Russian economy during 1990s. In PPP terms one dollar is 10 to 11 rupees only, i.e. the US dollar is six times over-valued vis-à-vis the Indian rupee. Right now, even after massive loss of manufacturing jobs, the living standard of even an American hourly wage is very high as compared to the rest of the world. Once China pulls the carpet underneath the US dollar, the US median household income, standing at around $56,000 annually as per 2016, would go down to less than $10,000 a year in terms of purchasing power. Half of US households would then be homeless and would find it hard to even survive as all their money would be good only for food with nothing left for housing and health care.

In an op-ed article, published in the New York Times, William Grieder, a bestselling author, wrote (“America's Truth Deficit,” New York Times, July 18, 2005):

 

“For years, elite opinion dismissed the buildup of foreign indebtedness as a trivial issue. Now that it is too large to deny, they concede the trend is "unsustainable." That's an economist's euphemism which means: things cannot go on like this, not without ugly consequences for American living standards. But why alarm the public?”

According to Lou Crandall, chief economist at Wrightson ICAP, which analyzes Treasury financing trends (“U.S. Debt Expected To Soar This Year,” Lori Montgomery, Washington Post, January 3, 2009): 

 

While the current market for [US] Treasuries is booming, it’s unclear whether demand for debt can be sustained. There’s a time bomb somewhere, but we don’t know exactly where on the calendar it’s planted.

China has the time bomb to destroy the US dollar and US economy. It is up to China to decide the date to detonate it (please read my article China Does Not Care For US Credit Rating Agencies).

Chart 1. US Income Growth Rate in 1980 and 2014 for Various Income Groups (source: “Our Broken Economy, in One Simple Chart,” David Leonhardt, The New York Times, August 7, 2017)

 

 

Chart 2. US Income Growth Rate in 1980 and 2014 for Various Income Groups (source: “Our Broken Economy, in One Simple Chart,” David Leonhardt, The New York Times, August 7, 2017)

 

 

Chart 3. US Income Growth Rate in 1980 for Various Income Groups (source: “Our Broken Economy, in One Simple Chart,” David Leonhardt, The New York Times, August 7, 2017)

 

 

Chart 4. US Income Growth Rate in 2014 for Various Income Groups (source: “Our Broken Economy, in One Simple Chart,” David Leonhardt, The New York Times, August 7, 2017)

 

Chart 5. US Family Real Income Growth Rate During 1947-73 (source: Casino Capitalism, Susmit Kumar, iUniverse, 2012, p 100)

 

Chart 6. US Family Real Income Growth Rate During 1973-2000 (source: Casino Capitalism, Susmit Kumar, iUniverse, 2012, p 100)

 

Chart 7. US Family Real Income Growth Rate During 2000-05 (source: Casino Capitalism, Susmit Kumar, iUniverse, 2012, p 101)

 

Chart 8. US Job Growth During 1940s-2000s (“Aughts were a lost decade for U.S. economy, workers,” Neil Irwin, Washington Post, January 2, 2010).

 

Table 1

 

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