Sunday, November 14, 2010

A Randian Fairy Tale

Perhaps no one has encapsulated the new Republican ethos better than Kentuckian Rand Paul, whom Talking Points Memo quotes as saying shortly after his election to the U.S. Senate

We all either work for rich people, or we sell stuff to rich people. So just punishing rich people is as bad for the economy as punishing anyone..... We're all interconnected. There are no rich, there are no middle class, there are no poor. We're all interconnected in the economy.

This is becoming a common theme of the elitist right but as Dave Johnson of the Campaign for America's Future explains:

A job is created when demand for goods or services is greater than the existing ability to provide them. When there is a demand, people will see the need and fill it. Either someone will start filling the demand alone, or form a new business to fill it or an existing provider of the good or service will add employees as needed. (Actually a job can be created by a business, a government, a non-profit organization or just a person doing the job, depending on the nature of the good or service that is required....

Many people wrongly think that businesses create jobs. They see that a job is usually at a business, so they think that therefore the business "created" the job. This thinking leads to wrongheaded ideas like the current one that giving tax cuts to businesses will create jobs, because the businesses will have more money. But an efficiently-run business will already have the right number of employees. When a business sees that more people are coming in the door (demand) than there are employees to serve them, they hire people to serve the customers. When a business sees that not enough people are coming in the door and employees are sitting around reading the newspaper, they lay people off. Businesses want customers, not tax cuts.

Businesses have more incentives to eliminate jobs than to create them. Businesses in our economy exist to create profits, not jobs. This means the incentive is for a business to create as few jobs as possible at the lowest possible cost. They also constantly strive to reduce the number of people they employ by bringing in machines, outsourcing or finding other ways to reduce the payroll. This is called "cutting costs" which leads to higher profits. The same incentive also pushes the business to pay as little as possible when they do hire. (It also pushes businesses to cut worker safety protections, cut product quality, cut customer service, "externalize" costs by polluting, etc.)


This goes a long way toward explaining the war on the middle class waged by some of the benevolent rich and their Republican enablers. Perhaps when Paul claimed "there are no rich, there are no middle class, there are no poor." he was thinking about the America of the 1960s, as this graph (from Center for Budget and Policy Priorities, which Piketty and Saez based on IRS data) indicates:






Or as demonstrated by this graph from wordpress.com from IRS data:





The largesse we have provided the wealthiest among us has not been extended to the middle class, as Jacob Hacker notes:

The Congressional Budget Office, using these income tax statistics, calculated that in 2005, the top 100th of one percent, the richest 11,000 households -- had an after-tax income that averaged $24 million a year. That was up from a $4 million average for this group back in 1979. That’s a remarkable change. In contrast, the middle fifth, the middle 20 percent of Americans, saw their incomes over this 1979-2005 period go from $41,000 a year to $50,000 a year. The concentration of income at the top is remarkable and sustained, and over the last 30 or 40 years, it has resulted in relatively little trickle-down to those lower on the economic ladder.


Obviously, Rand Paul's comment is of more than academic interest. For at least two decades now, the younger generation has been fed the myth that the Social Security trust fund is unstable, it's running out, and benefits won't be there for them to retire. Only then, the thinking of the perpetrators ran, can we convince young and middle-aged people to accept cuts to the program in the guise of raising the retirement age, changing the means by which benefits are calculated, means-testing, or, most radically, through partial privatization.

Social Security, while benefiting even the wealthy somewhat, is even more critical for the lower and middle classes. But if we are all the same- "no rich, no middle class, no poor"- there is little need for social insurance. And there is no reason not to extend tax cuts for the middle class to the wealthy- because, of course, they are really just like us, equally deserving of relief. It is extraordinarily dishonest, obviously, and turns F. Scott Fitzgerald's maxim on its head.



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