What LOTR and The Hobbit tells us about economic theory.

In a nutshell, it’s all about churn.

Tax breaks for the rich have much the same economic benefit as giving gold to Smaug. Smaug gets richer, but never spends any gold as he already has far more gold than he can possibly spend for his needs or even for his future needs, so it just sits there doing nothing except being dragon bedding. Likewise giving people who already have too much money than they can possibly spend on their needs more money just results in the money sitting there doing nothing. Taxing that money and using it on infrastructure and social programs results in that money being churned through the economy and growing the economy so that the rich still get the same amount of money, it just has to pass through a few more poor people’s hands before the rich get it, making everyone a little richer.

In order to stimulate the economy you have to develop churn, putting the money in as many hands as possible so that it then passes through as many hands as possible and creates growth. Savings that just sit in a bank or under a mattress don’t create any churn, and “investments” barely ruffle the surface of the water in creating churn. What has been shown to make churn on the federal level has been Food Stamps and infrastructure projects. Food Stamps go from the recipient to the grocery store and pay for the employees at the store as well as the people who transport the food (and other things) and the people that create the food. There are at least 4 stages of economic churn created by Food Stamps that can be easily identified and tracked.

Tax breaks for people who already have more money than they can spend on their needs or even on non-need items like TVs and computers (although I would put computers in the “need to work” category because I use one for work every day) is not the way to grow the economy. I mean how many new cars can one person buy in a year? How many boats? Unless you are out there spending money, you are an economic dead weight no matter how big your checking account is. Rich people don’t create jobs, poor people with jobs create jobs because they are the ones out there spending most of their money. Aldous Huxley had the right idea when he coined the term “conscripted consumption” in the book Brave New World . If you have a consumer economy, you have to get people consuming things to grow the economy.

And because I am not an economist by trade (I am a technical writer who translated jargon into plain English so that people in other fields can understand it) I will let real economists pick it up from here. Go for it guys.

PSA, Opus the Poet

Advertisement

S&M and a fair(er) tax structure on a Wreck-Free Sunday

I know where some readers’ minds went with that headline, and you’re only partially right. The current tax structure is like a master/slave relationship gone toxic, rife with abuse. But the S’s and M’s in this discussion have only technical meaning, not that kind of meaning.

What I came up with is a tax structure based on making things vs. making money. I am of the opinion that making things contributes to the overall good of society, where (just) making money has come perilously close to destroying the economy at least twice in a century that is not quite 13 years old. I am basing part of my tax structure on the “Six Degrees of Kevin Bacon” game. People and businesses would be classified on a 6 step scale based on how far they were from a sellable product. S0 people and businesses would be the actual products themselves, people would pay to watch these people or companies working. Examples would be musicians, athletes, actors and actresses, performing artists of all stripes for the “people” side of the formula, and the venues they perform in for the companies side. Texas Stadium and Charlotte Motor Speedway would be examples of S0 companies. At the other end of the scale you would have S5 people and companies that exist only to make money by moving money around, like your typical Wall Street bank CEO and the banks they run.

The M in this case stands for Minimum wage and multiples thereof. This would be used to determine tax brackets in the various categories, with M1 being a person making minimum wage 40 hours a week and never getting a week off, roughly $15k at today’s minimum wage. The top tax bracket is M250, the person in this bracket makes as much in a single day as someone on minimum wage makes in an entire year. Depending on your S classification the marginal tax rate at this level would be anywhere from 50% to 99% when all the taxes are added together. Currently people in the M1 bracket pay 15.3% with no deductions in the form of SS and Medicare taxes, and I don’t see that changing either. If the Social Security tax goes up the income tax would decline the same amount, and not just at this level but all tax brackets.

Now how this would work in the real world is where the going gets squidgey. At the ends it’s quite simple, S0 and S5 persons and companies are easy to figure out. It’s the S3 and S4 companies that are difficult to classify. S1 are people and companies that make actual physical products, the kind that take lots of investments of capital to create the workspace and education and effort on the part of the worker to create the product. Engineers and designers and assembly line workers are S1 people, and I think it’s pretty obvious what the S1 companies are, the Fords, Trek Bicycles, any farm, any restaurant, any grocery store… S2 companies would be the transportation companies, trucking and shipping firms. They can have S1 employees like truck drivers and loaders and longshoremen, but the company is still 2 degrees removed from the actual product. Still vital to the economy, but not actually making things so taxed slightly higher than the people that make things. It all works out in the end as other taxes on companies like this would be reduced because the income taxes would be covering their external costs better. S2 people would be managers and supervisors, people not actually on the line but who interact with the people on the line. S3 people are the supervisors and managers of the people that supervise and manage the people on the line that actually make the products. As the distance between the product and the person grows, so do their taxes. It’s the current money-making champs that have me confuzzled, the mining and extraction companies. These companies make huge financial gambles on if the stuff they are looking for is at the location they are looking in. But at the same time these efforts have high external costs that are not currently being borne by the companies but rather are forced upon the people that live nearby or in some cases get their water from the area being mined. These companies would be in the S3 and S4 status. They don’t actually “make” the product, but they aren’t that far removed from the product. And I guess the refining process would have to be classified as S1, but with the external costs assessed at the extraction point of the raw materials. Moving on recyclers and waste collectors and processors would also be S1, dealing directly with the product but on the other end of the life cycle. Recycling and waste processing are messy but necessary parts of the economy, and as bad as they are things would be much worse without them. Think ecology, without carrion eaters of all sizes we would be up to our butts (and beyond) in deceased critters. Recyclers and waste processors do the same thing for the economy. Retailers would also be an S1 classification with most of the supply chain being S2. They don’t make it or sell it they just move it and store it between the makers and the sellers.

And most if not all upper management of any company would be the S5 workers for the company, people 5 or more levels removed from the actual product design or manufacture. The decider would be time making vs time telling people what to make and deciding where to make it, if you spend more than 50% of your time at work actually making things then you would be S1, so line supervisors who actually run machines as well as do work schedules and deploy workers to their work stations would be S1, but line supervisors that just walk up and down the line rarely if ever touching the product or the machines that make the product would be S2, and the supervisor for either one would be S3 as there would be two people between him and the product. Again the squidgey part is the person at the bottom of an S5 company, as they don’t have an actual product but don’t supervise anyone either. Just on General Principle I would say anyone at an S5 corporation is an S5 worker, to discourage people from wanting to work in S5 corporations.

And that’s how things would be if I was running this popsicle stand.

PSA, Opus