The rich save, and the middle class spends

[nadinbrzezinski]

Ok here's the deal about taxes. If you give a RICH person, not a wealthy person, a RICH person, there is a difference. a tax cut... what they will do, mostly likely, is go down to their investment guy and INVEST it. Here is where the idea that this will create jobs (by Republicans) comes from. In an earlier economy, where companies needed that money to get capitalized to get projects going that was the case. It is still the case... if you are in India, Brazil, China... or a few other EMERGING ECONOMIES. That capitalization money will be used to get jobs in those places since that is where the BEST Return on Investment (ROI) happens to be. But in our modern command economies (Managed by corporations) those jobs are created in places oh mostly East, or South. Why? I can pay a lot less in externalities (environmental laws and taxes for example) than you'd do in the US or the EU. Pay is the excuse but it is less than 20% of this...

Now the middle class will SPEND most of their pay not only in the house, but the toys (produced in these places far afield), and here is where things are breaking down. You and I need to be able to afford to pay for the crap. Hell, today we looked (for five seconds) at an IPAD... and those are quickly leaving the I can afford it department. So if people cannot afford to buy the crap... aka spend, that is fund that 70% of the economy here is where this breaks down. It don't matter that the cost of that factory is cheaper overall in China and your ROI is higher, if people in the first world, not just the US, cannot afford the crap... you will be stuck with the crap...

And this is why tax brakes to the middle classes make sense... insofar as you will encourage people to spend.

And if all we had was a problem with spending it would work like a charm. But what we have these days is systemic. It is not about me being able to afford (or not) that widget... it is about producing that widget where the ROI might be lower, but at least most consistent, and this is what our corporations have forgotten. They need us to CONSUME, and even as they create new middle classes, it will get to the point where they will run out of consumers...

Hell, another example. the other day I was looking at a very high production value gaming (role playing) module. It was soft cover and about 20 pages, and 15 bucks. Well if they chose to... print that thing in a US Plant that would have been easily 25 retail. But you could not sell anybody that for 25 because it is too expensive... aka the expectation is here that we get cheap stuff... but nobody is connecting it to the structural problem. That includes wall street. They have killed the golden goose in search for very good and very short term, rate of investment. The usual 20 to 30 year tern investment has been replaced by at the most five years. And that is the structural problem. Hell more than a few only care for THIS QUARTER. The other, we have an economy where things are created and needs are created. See both the IPAD and this gaming module. None of us needs that, but we are left with the belief that we are... because then we are not among the cool people. So think about it, and yes tax cuts are a good SHORT TERM idea, for the middle class... but we need structural changes and we need to realize we no longer live in a capitalist economy, but a new brand of a COMMAND economy with very tight top down management of supply and distribution networks. Oh and free trade it is not.

Nadin

[OHdem10]

1. The Jobs created by the top Taxpers are in China, India, Asia

Brazil, Poland you name it anywhere but the USA.

When the Republicans yell ''job killing bill" yes
I may be killing jobs overseas but I am working like
the dickens to get jobs here in the U.S.

A great explanation.

Right now taxes have nothing to do with jobs being formed
by small businesses. Even M Zandi, Moodys, explained today
on CBS--Small Businesses and jobs is being over played.
Small businesses must look out for their own interests.
They need customers---people with jobs who can buy their
goods or services.

[nadinbrzezinski]

2. Exactly and free trade pacts

(see NAFTA) are not about the middle class, but ROI for transnationals.

We have (tinfoil moment) the barebones of a world government. No, not the UN you silly wabbit, the WTO, the World Bank, and the IMF. (The last two have been transformed from their original mission into something that is scary and quite the Frankestein)

We really need to wake up, smell the coffee or decide to live under this, or collectively (world wide) organize for change... an International labor movement would help... and of course we need to start somewhere, a national strike would be a good start... it ain't gonna happen in my lifetime.

[SoCalDem]

6. It could also be that millions of "consumers" woke up and realized

that their shopping hobby was mostly to buy stuff pretty much like the stuff they already have at home...and maybe their charge-it mentality was putting their family's future at risk.

It's unfortunate that once so many people started doing this (out of necessity), it had to impact the jobs of their friends, relatives, and perhaps themselves.

We have become accustomed to TOO MUCH/TOO MANY of almost everything, and too many people can no longer tell when something is a need ..or a want..

When the whole country's solvency is dependent on the majority of people running out and buying foreign sweatshop-made trinkets ...on credit...well it's not hard to see that this is a pretty bad idea..

[dkf]

3. That turned on it's head for the beginning of this year.

The top earners had a negative 7% savings rate if I recall correctly and the middle class started paying down their debt and saving. The higher income folk spent us into recovery. Yes it wasn't normal, but that is what happened.

Found some of the data...

http://blogs.wsj.com/wealth/2010/08/27/rich-are-more-sensitive-to-tax-increases-today-zandi-says/

Why are they sensitive? Let us recall the data Mr. Zandi crunched for the Wealth Report earlier this month. It showed that the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments. That is nearly equal to the outlays of the bottom 80% of Americans.

The research also showed that the wealthy had negative savings rates in recent months, meaning they were spending more than they were earning.

So we have an economy that is over-reliant on the over-spending of the rich. That isn’t a sustainable growth model for any country in any period. But for now, it is all we’ve got. And a tax increase could reduce what little spending we have in the economy.

Says Zandi: “With 9.5 percent unemployment–which is clearly going to move higher–raising taxes is a gamble that is unnecessary.”

[nadinbrzezinski]

4. It is structurally broken

and the middle classes started saving because they are afraid they will not have a job tomorrow.

That is why...

As to people not investing... I am sorry but the very rich are STILL investing, and a LOT.

And yes the US Economy (as well as other First World economies to a lesser extent) depend on CONSUMPTION, regardless of the source. No buying of crap, it will grind to a halt.

[dkf]

5. Yes it is structurally broken and so Zandi asserts.

The question is when you understand the current structure would you recommend taxing the spenders we are dependent on at this time or waiting for til another group is healthy enough to take up the slack.

[nadinbrzezinski]

8. And I find it funny that the guy (only guy) saying this

works for Moodys. Forgive me for believing he has a conflict of interest.

[travelingtypist]

7. The middle classes in India and China are booming now.

Hell, the Chinese government is worried about that economy overheating. It will mean a lot of years of a lot of consumption before the populations in those countries are as engorged and fat and unhealthy as the United States. Why would they makers of the crap need us to spend? So much more trash, so much more pollution. The whole world is insane.

[nadinbrzezinski]

9. And like ours it will be temporary

until a new market with higher ROI is found and jobs, middle class jobs, for that society... are exported. Hell India is ALREADY seeing outsourcing of some jobs. So the cycle continues.

The whole system is broken and needs to be reformed from the bottom up.

[travelingtypist]

11. Starting where?

How do you keep people from wanting the next shiny new toy, even if they can't afford it or don't really need it? Or is that the wrong question -- will making the shiny new things ourselves solve the problem?

[lumberjack_jeff]

10. Yes, exactly.

"Giving a rich person a tax cut will create jobs" assumes one of two things:

a) they'll invest the money into business ventures which need employees. This presupposes that hiring people in this economic climate is rational, and the reason they're not doing it is because they simply lack venture capital. That's demonstrably not the case. Their money is parked in the safest investment they can find, patiently awaiting demand.

b) they'll spend the money on us made trinkets and baubles, thus demanding supply from trinket manufacturers. See a). Their money is being hoarded awaiting a demand-driven investment opportunity. That investment opportunity won't happen unless the working class again demands goods. Until the working class has income, they do nothing but keep the old goods functioning and shop garage sales.

The solution is major direct government spending which gets as much money as possible into the hands of US consumers for spending on things which create demand for domestic products. To the extent that financing this spending with deficits is inadvisable, the money should come from the wealthy.