Next Show: ...loading...

Working People are Engines of the Economy. Not the Super-Rich [CNBC]

July 19, 2010

The article below was published by CNBC:

Ordinary Americans are the Engines of the Economy, Not the Superrich


On CNBC’s “The Call” today, I appeared with Ben Ferguson to discuss the wisdom of extending the Bush tax cuts. Like President Obama and the Democrats, I believe in continuing the Bush and Obama tax cuts on the 98% of Americans who earn under a quarter of a million dollars. I think ordinary Americans need the money, along with Government infrastructure spending, to spur us out of the Bush/Wall Street Recession. Ben, in contrast, supports the Republican plan of borrowing $678 billion from the Chinese and your social security taxes to extend massive income tax breaks to the super-wealthy.


Ben argues that America must go deep into debt to give rich people oodles of cash because it will spur economic growth. But I argue it’s the 98% of Americans that received Obama’s middle-class tax cut — giving us the lowest tax burden since 1950 (thank you, President Obama!) — that are the engines of the economy.


Who’s right? As a matter of logic, economics, and history, is it the superrich or the other 98% of us that make the American economy grow?


Let’s start with logic first. Let’s say you’re part of that superrich and you own a factory that makes cars. There is demand for 10,000 cars and you make $100 million a year. Under the Republican plan, the Government borrows money so you make $200 million a year, but there’s still only demand for 10,000 cars. Will you hire more people because you’re richer? Nope. You already have enough workers to make the cars. Will you pay your employees more? Nope. They’re already making 10,000 cars at the salaries you pay them. Will you increase your personal consumption? Well, you already own two yachts and four cars and a $20 million house. Maybe you’ll add gold faucets to your toilet, but that won’t help the economy very much. You’ll stock the money away and hoard the cash, just as businesses are doing now.


Now let’s discuss a Democratic plan with the same amount of money: say we divide the $100 million and give $10,000 each to 10,000 people in the American middle class. Will they spend it? As Sarah Palin might say, “You betcha!” They might use it on rent; they might use it on groceries; and they might just use it to buy a second car so that the wife doesn’t have to drop the husband off at his job every day before she drives to hers.


Cut to the businessman. He still only makes $100 million a year, but given the Democratic plan’s stimulating the need for cars, now he has demand for 15,000 cars. An increase of 50%. He needs to hire more people pronto. Oh and he needs more car-making equipment. Oh and he probably needs to increase the salaries of his workers to make up for the increased demand ’cause they’re working overtime. And those workers and those car-part people, flush with money, will go out and buy groceries and new cars too. Which increases demand to 18,000 cars. Gotta hire more people pronto. And those people now have the cash to buy toys and better clothes for their kids too. Toy and clothing manufacturers rev it up. Retail store workers get hired to deal with the increased demand. And before you know it, the economy is humming along like nobody’s business.


But wait. Doesn’t the business owner need money to pay his employees and new car parts? He does. But he has it. As Larry Kudlow pointed out on the show today, businesses are flush with more cash than they’ve had in decades. And if they didn’t have it, they’d borrow it. Interest rates are close to zero, the lowest they’ve been in decades, and any decent entrepreneur will borrow money at these low rates to make a substantial profit.


Have I convinced you yet? Don’t just take my word for it. Look in any economics textbook for the “multiplier effect.” You’ll see that a dollar spent on poor or middle class people can add seven or eight dollars to an economy, while a dollar spent on the superrich might add only pennies. The reason is clear: if you’re struggling to buy toys for your kids or a car for your spouse and you get some extra cash, you’ll use it. But if you already have the seven yachts inherited from Great Grandfather, Earl of York (without any estate tax if he died in 2010 under Republican policies!), the extra cash will be pretty meaningless to ya.


Don’t like logic or economics? Try history. Bush spent eight years squeezing the middle class and giving their hard-earned money to America’s well-heeled millionaires. And we ended up eight years later with half a million fewer jobs than we had when the Supreme Court annointed Bush President in 2000. Under Clinton, we spent eight years at the same tax levels Obama wants for the supperrich. (Obama wants significantly lower levels for the other 98% of us). What happened? The rich got richer under Clinton. But the middle class got richer too! Even the poor were better off. Millions of jobs were created. And we had the best economy America’s ever seen.


Stimulus works. Under the Obama stimulus package, we went from losing 700,000 jobs a month to staying even and even creating some jobs. We would have had an even bigger stimulus to the economy if the Republicans hadn’t voted to cut down Obama’s middle-class tax cuts and aid to the States. But it’s not enough to do tax cuts. They have to be targeted effectively in order to stimulate the economy. And if we care about job growth and a roaring economy, that stimulus has to be focused on the 98% of us who need the money and will spend it, rather that the 2% who don’t need the money and won’t spend it (because all their needs and wants are already met).

Sorry, the comment form is closed at this time.

  • Mark T. July 22, 2010 6:07 pm

    Linda, Don’t you think Sarah Palin would just “refudiate” everything Mark Levine says?

  • Linda Knapp July 20, 2010 6:45 pm

    Excellent! So eloquent that we liberals can appreciate it, yet so simple Sarah Palin should be able to understand it.

  • Mr. L July 19, 2010 6:02 pm

    Mr Levine,
    I have had the pleaure to hear your comments on occasion on several different issues on the Fox News Channel, which I sometimes find very interesting . I’m sure you are an educated man but I believe you are gravely mistaken on the economic outcomes during the FDR years, I’ve heard you bring up during disscusions that we should spend more in down times and less in good times. As unaltered history has shown now, it doesn’t work, long term anyway. Of course when you are indoctrinated by the liberal professors in our great colleges, its no wonder your history has been slanted and skewed.

    Unemployment was in the double digits throughout FDR’s presidency, its quite obvious to me that the massive spending of the New Deal didn’t do much to stimulate the economy. In fact, FDR’s own Secretary of the Treasury came out in 1939 and stated, and I quote,”We have tried spending money. We are spending more now than we ever have and it does not work. I want to see this country prosperous.I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this Administration we have just as much unemployment as when we started. And an enormous debt to boot!” These are the words of Henry Morganthau Jr. Secretary of Treasury 1934 – 1945.

    Do your homework, the New Deal was actually a great failure. Government spending at an economic downturn does not work, history is already repeating itself, as many economists had expected. All it does is increase public sector jobs, ones we cannot afford. History tends to repeat itself, hopefully in November we can turn things around, with a bit of fiscal responsibility.

    When its the progressives that have written the economics textbooks, its no wonder they make the New Deal out to be a success. You should really do some homework on Presidents Harding and Garfield during the roaring twenties, I bet you never heard of the Depression of 1920 have you? It worked like Reaganomics worked, cut taxes and let the free market do what it does best.

  • Mark Levine July 19, 2010 12:41 pm

    The reason businesses aren’t investing is solely because there’s insufficient demand. Because the middle class and poor who are the engines of the economy are too poor after 8 years of Republican policies of robbing 98% of us to give money to the top 2%.

    Businesses have more cash now than they’ve had in fifty years. You could give rich people a billion dollars and it would barely move the economy. But if every-day Americans (those of us with needs) had money, we’d spend it and demand would increase.

    And businesses would even borrow if they had to, to grab that demand.

  • DomenicV July 19, 2010 12:38 pm

    Re: your comments @ CNBC The Call today about The chicken and egg economic argument. The reason that rich people and corporations are ording money right now is because of the economic uncertainty created by the Obama administration. In a more friendly economic environment entrepreneurs and businesses would be more than happy to invest money and thereby creating jobs and putting money in the hands of the spending public. Mr. levine you need to brush up on history and economic theory and practice instead of sticking to your rigid leftist arguments.