Yesterday I began some thoughts concerning economics. As I stated, I have been listening to some of the political discussion concerning the "fiscal cliff" and the potential "solutions" offered to fix our national problems. As I have listened, it is becoming clear that neither political party (at least their leadership) wish to really work to promote the welfare of our country. Yesterday I argued that the political gamesmanship is more about power than economic solutions.
Today I wish to continue my thoughts.
On both sides of the political divide is a desire to "help the middle class." Both claim that their concern is with keeping middle class taxes down. The political left demands that the rich pay more. The political right argues that taking money from these folks will shrink spending and investment in the private sector. In turn, this will harm the middle class by shrinking the amount of jobs.
Both sides are killing the middle class by not dealing with the issues. I would argue that the middle class, the lower class, and the upper class are all paying at least 10% more in "indirect taxes" over the past 5 years (probably much higher).
How? Inflation is eating away at the income of all people. The lower and middle class feel this inflation the most, but it impacts all of us.
In the past four years, we have printed out of nothing at least 6 trillion dollars. This money was printed to give the financial system more liquidity. That way the banks stay open, they have money to loan in every direction, and we do not have economic collapse. Or so we are told!
As an individual, have you tried getting a loan for a home or to refinance, to purchase property, or buy anything else? Where is this easy credit? It is found in the American banks, in the international banks, in the central banks of anyone who has a printing press, and in the world's stock markets where all this "free" money has pumped up the indexes.
Who benefits from all this liquidity? I can assure you it is not the lower or middle class. No, instead the rich got richer. Those companies picked by the government to receive "stimulus" also benefited. Of course these companies were hand picked by the government because they supported the government, but why should the press cover such "crony capitalism."
In fact, the unintended, or intended, consequence of all this liquidity is that paper money is worth less and less. Commodities (like oil, food, gold, etc.) are purchased worldwide. The value of these hard assets is not constant in terms of dollars it takes to purchases them. If an oil sheik can purchase less of what he wants because the dollars are worth less, he will charge more dollars for the same oil. If we do not wish to pay, the Chinese or Indian government will use their resources to purchase the oil. So, we pay more and count ourselves lucky to get it.
Thus, inflation enters the worldwide market for oil. As it goes from oil to gasoline, the price increase is passed along. Finally, at the pump we now pay $3.30 a gallon and remark how much the price has decreased! We forget that gas settled at $1.84 a gallon four years ago after a brief price hike, and that it was around the same 8 years ago ($1.88 a gallon in 2004. It was $1.03 in 1998!).
The same goes for food. With globalization, food grown in America is sold around the world. There is only a certain amount of food grown, so the highest bidder gets it. As dollars purchase less and less, the price goes up and up. This tendency has really been more pronounced because the governmental ruling that corn must be used to enrich our gasoline. This ethanol has decreased mileage, increased the cost of grain for farm animals, and thus greatly increased the cost of food around the world.
I have a good friend who purchases the same exact items each week for lunch to combat his diabetes. In the past four years, his purchases have gone from $20, to $25, to $29, to $34. The same exact items cost that much more.
Now I ask, have lower and middle class wages gone up in proportion to these prices increases? Heavens no! In fact, the average family has seen their income decrease around $3500 since Obama became President.
Higher costs and lower pay because there are less jobs caused by less business. The lower and middle class are already paying for our governmental debt, even though are politicians are "protecting" us!
How can this be? Have we not heard that inflation is manageable? That it is only 2% or less. Friends we have been lied to. Statistics are being used as part of the shell game to divert attention.
Examples? Unemployment continues to go down even though the jobs created each month do not keep up with population growth. How? According to official government statistics we now have less people in the job market than we did 30 years ago. While this is practically impossible, it is mathematically used to prove an improving labor market due to lower unemployment figures. In addition, 73% of the jobs created in the past five month are government jobs! Even if you have only limited common sense, do these factors add up to lower unemployment? No. It is a shell game!
How is inflation kept under 2%? Anything that points to higher inflation is eliminated from the figures because it is too volatile to be mentioned. Thus, food prices and energy are not counted.
How come I have such an increasing amount of my income going to food and energy? Can I just stop counting it?
How does this work? A couple of years ago, our President pointed to the technological changes. He commented that we can purchase an iPad 2 for the same price as an original iPad, which demonstrates the lowering of inflation since the iPad 2 was more technologically advanced.
Here is a confusion of economic principles. As something becomes more widespread, it often becomes cheaper. Why? The market becomes saturated. Thus, new technology is expensive, but as more is made to meet the market demand, the price often decreases. In other words, the amount of technology is not constant, but it can be raised rapidly to meet the need. As the need is met and there are less people buying it, the price decreases. Furthermore, in our dynamic world, it does not take long for something new to take the place of year old technology, which drives the price of the older technology much lower because demand shifts to the newest, fastest, and best.
Because of this process, electronic prices should truly be seen as too volatile to be counted in the inflation figures! Why? Electronics and technology adapt to the market and with each technological advance comes rapid price fluctuation.
Meanwhile the problem with energy and food is that these commodities are fairly constant in their amount. As need increases, the price increases as people fight (through bidding) over the limited commodity. The price increase was particularly acute because our dollars were worth less around the world. The result has been much higher energy costs in every segment of society and much higher food prices. Eventually, all of these costs are paid for by the consumer!
(Just a brief aside. In terms of energy, the rising costs and need drove people to find new sources of energy. The government backed through stimulus dollars solar power and wind. Both proved to be market losers with high costs and low energy generated. Most of these hand-picked companies have spent the money and then they went out of business. The private sector looked for more gas and oil. In the past four years we have discovered that America has the greatest oil and natural gas reserves in the world! Yet, the government regulations have tried to keep businesses from getting to these resources in the name of environmental protection. Another shell game or part of the same shell game?)
In the end, real inflation has been at least 8% or 10% per year for the past four years. Real income, which is our actual wages minus actual inflation, has decreased greatly. The squeeze to your checking account it not imagined. Those playing the shell game just hope you do not notice.
How do they do this? The real problem is all the millionaire and billionaires, which ironically make more than $200,000 a year for a single filer and $250,000 for a married couple.
Such talk is nothing more than political rhetoric. I am amazed it works! Yet, it does. I hear all the time folks who "do not like the rich." All I can ask is who are these rich? I think they are made up, fictional creations of our historical imagination. We do not like Scrooge, Gordon Gecko, or the bastards who drive $250,000 super cars to work. All those rich folks cannot relate to us!
I think most folks do not realize that a millionaire in 1990 would have to have 2.6 million to have the same purchasing power today. What does this mean if put inversely? A person with a million dollars now has the same purchasing power as a person with $384,000 in 1990. For our discussion, that means a family making $250,000 today has the same purchasing power as a family making $96,000 in 1990!
What evil rich people they are! Yes, they are doing well, but are they evil, greedy folks? I would suggest that this includes many people just like you and I. They have a marketable skill that gives them good pay because of the demand for what they do. Often the family has two such people who are employed, and they wish to help their children go through college.
Moreover, as I cut through the rhetoric, taxing these rich people as the administration wishes will raise 80 billion dollars a year. Our deficits have ran between 1.1 and 1.4 trillion dollars a year. In other words, this new fair and balanced tax will raise 7% of our projected deficit.
Mark my words, you as the middle class are already paying for our deficit through inflation, and the tax man will be coming for you very soon because more revenue is needed if our spending stays the same without rapid economic growth across the economy! The signs do not point to this growth, so the tax man will be coming soon. After all, it is only fair!
In the end, all of us are already paying and we will continue to pay more because our political class is willfully deluding the American people to maintain and increase their own power. May the Lord have mercy upon us.
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