Great article, stone. The parallels between today and then are striking. Just like then, we have corporations flush with cash, as he calls them, the creditor sections of our economy, and we have the debtor sections of the economy struggling with unemployment and debt servicing costs.
It seems that the general argument is that since every corporation and wealthy businessman acts in their own self interest, by laying off employees, closing factories, and cutting costs in an effort of self-preservation due to a drop in general demand, the government must counteract this instinct towards self-preservation in order to increase the demand side of the economy and in the long run, to increase the wealth of everyone, including the creditor section. They do this through tax increases and spending increases.
We are seeing some concerning parallels. Sales tax in my state has raised from 6.0% to 6.35% just recently. I think a lot of other states are raising sales tax to close shortfalls. Sales tax disproportionately hits the debtor sections, as poor people live on subsistence wages and it is a direct hit to everything they purchase, while wealthy people just save their money and don't buy much. He talks about how increased sales taxes in the early 1930s just made the economy worse, by discouraging spending and consumption.
It seems like the extremely unpopular choice, but the only way out of a debt trap like this, is to tax the corporations and upper tax brackets significantly, causing a redistribution of wealth and boost public spending to create jobs and in effect, migrate capital from the creditor section of the economy back to the debtor section of the economy, where it can be spent and increase the velocity of money.
Great quote from the article:
It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”?; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.
With the current Republican leadership in congress, I see about 0% chance of this happening, so we are destined to make the same mistakes and spend the next decade digging ourselves deeper and deeper into financial hell, until there is a societal change and the people revolt.
