The economics of the under-wealthy
Why are so many people so angry? The answer is that our economy is broken in ways nobody is talking about. Economics is a tough subject. So simple answers get a lot of acceptance. This just makes the real problem harder solve.
But what is broken? The reason so many people are unhappy is because other people get things that we think is unfair. Seriously, that’s it. Undocumented aliens getting jobs, taxes being too high, criminals going unpunished, unfair trade issues, entitlements being distributed unfairly… the list of problems goes on-and-on. The underlying message is that policies and resources are benefiting the wrong people.
That might sound trite or even racist. But look again. When you look deeply at the US economy and really look at the people who are not doing well in it you will find some troubling structural problems. Wealth is sucked up to the top (NYT article) leaving nearly half of Americans only $400 away from a liquidity crisis (Fed report). Even the loss of a well paying job or a stint in the hospital can lead to paying your mortgage with a credit card. After a several months of that you can be facing the loss of your home.
Living on the edge of financial security is how too many Americans live. In the past, support networks like families and churches would help you get back on your feet. These days if you fall behind you get left in the dust. This produces anxiety, fear, frustration, anger, and a search for available options.
The available options are limited. Some of the reasons for this are based on politics, some are based on economics, and others are based on belief systems. Millennials seem to be facing this more than older workers (Forbes article). Whatever the reasons, they all work to limit opportunities and that is hurting a lot of people.
A simple solution would be to hand everyone in the US $100,000. This is preposterous as it would cost $32.6 trillion dollars, piling on Government debt, and would lead to unimaginable inflation. But it would solve a big problem for all the people living paycheck to paycheck. It would liberate them from their toil long enough to look around and plan for their future. This is a luxury that would generate new entrepreneurs and stimulate stagnant neighborhoods.
We can achieve a similar result over time with policies that help local economies to thrive. A dollar spent and kept in a community is likely to be spent again in that community. The more times a dollar is spent every year, the more the money supply and GDP increase without causing debt and isn’t as inflationary. This means Joe pays Judy and Judy pays Jane and Jane pays Jim instead of Joe just putting his money into bonds. Bonds are important. That dollar will also earn Joe 4% per year. But if Joe spends his money at Judy’s place, Jane, and Jim also get to spend it and that makes their community richer.
When money is distributed locally it behaves like an apple tree dropping enough fruit to feed an ecosystem. Here are some ideas to get the apples dropping in local communities:
- Lowering the tax on labor — this might require a tax on wealth. But that is a good trade-off.
- Lowering the burden on starting and running a small business — Regulations are necessary but should be proportionate to the size, nature, and age of the business, and encourage future employers.
- PPP programs that revitalize downtowns and make use of vacant spaces — Government resources in partnership with local businesses and national platforms can turn idle property into an attraction instead of an eyesore.
- Coordinating resources for the poor to include lodging, training and helping the community — Research on this abounds. Its a tough problem but one that doesn’t disappear when you ignore it.
- Promoting community trade programs that take advantage of idle human and capital resources — Take for example, Rising Sun Energy Center.
- Promoting local businesses — Lowering sales taxes in revitalization zones and buy local campaigns.
These are not original thoughts. But neither Republicans or Democrats are talking about these ideas as a way to stimulate growth and economic well being in local communities. They fight at the national or State level. We must work together at the local level.
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Many thanks to the original thinkers who brought us these ideas. Here are some resources:
- http://www.civiceconomics.com/indie-impact.html
- https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/the-rising-advantage-of-public-private-partnerships
- https://www.washingtonpost.com/news/inspired-life/wp/2015/05/06/meet-the-outsider-who-accidentally-solved-chronic-homelessness/?utm_term=.f18c95a27ce1
- https://www.economist.com/economics-brief/2017/08/19/pigouvian-taxes
- https://www.independent.co.uk/news/obituaries/professor-ronald-coase-economist-who-won-the-nobel-prize-8800872.html
