Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘personal income’

• International Monetary Fund Blasts ‘Trickle-Down’ Economics

Posted by Ron Robins on June 25, 2015

“A new report from the International Monetary Fund suggests that the widely popular ‘trickle-down’ economics just increases the gap of income inequality, creating injustices in almost every country. The study written by five IMF economists said that if governments want to increase growth, they should focus on helping the poorest 20 percent of citizens… The report analyzed 159 developed and developing economies from 1980 to 2012, searching to see how income is distributed differently in each system. It found that when the income share of the top 20 percent increased by 1 percent, economic growth slows down 0.08 percent in the following five years. Meanwhile, a 1 percent increase for the bottom 20 percent leads to a 0.38 percent increase in the country’s GDP in the following years.”
International Monetary Fund Blasts ‘Trickle-Down’ Economics, by Grant Whittington, June 23, 2015, TriplePundit, USA.

Commentary: Ron Robins
The clear implication from this report is mostly for income redistribution. However, as I’ve previously argued, I believe that though some form of income redistribution could be effected to help close the immediate income gap, but by far the better way — though longer to effect — is for the lower-income groups to benefit financially from corporate stock ownership.

How can this be done? Well, on February 25  I wrote that, “I believe an enlightened approach would be for the wealthy — and for corporations themselves — in each country to entrust a certain percentage of their profits in the form of company stock to a ‘sovereign wealth fund.’ Over time, some of the dividends and stock gains could be cashed and used to directly increase the incomes of the poor. Higher taxes for the rich (which is becoming popular)… could be introduced now but would probably have to be quite onerous to significantly improve the income of the poor.

Furthermore, as it’s proving in France which imposed very high taxes on high incomes, the wealthy become very adept in finding ways to avoid the higher taxes — and many even moving themselves to other jurisdictions!”

The IMF and others have demonstrated in various studies that societies with growing and grossly uneven income and wealth distributions tend to eventually financially self-destruct. However, before they self-destruct, there’s broad recognition of this possibility. Recognition of this offers everyone the chance to expand their awareness and consciousness to develop greater insights into the solutions. And this is what has to happen to all nations facing this issue.

What the wealthy must realize for their own self-preservation — and for even greater financial gain — is that they should take a proactive, optimal approach to solving the income and wealth distribution quagmire such as the solutions proposed here. These, though not new, are the best way forward to an enlightened, sustainable, and affluent future.

Posted in Consciousness/Psychology, Economics, Labour Issues, News, Commentary | Tagged: , , , , , , , , , , | 5 Comments »

• Positive ‘Spin’ Grows U.S. Economy… But For How Long?

Posted by Ron Robins on November 9, 2014

‘Spin’ — “Political hyperbole, especially when intentionally misleading” — The Online Slang Dictionary

American political and economic elites are forever spinning the idea that self-sustaining economic growth is imminent. And this time the spin might be working — but only for a while.

Underpinning the spin are U.S. government economic statistics. Unfortunately — and it seems unknown to even most economists — there are huge methodological and philosophical issues with these statistics, some of which I detailed in Dubious Positive Biases in Revised U.S. Economic Statistics.

In that post I investigated how unemployment rates, payroll numbers, the consumer price index (CPI), savings rates, and gross domestic product (GDP), have seen their statistical philosophical and methodological foundations changed. And these changes almost always make the economy appear in better shape than it would have been by using prior statistical methodologies.

Furthermore, these changed methodologies have not occurred by only wanting to make the statistics more honest. No. In fact, political interference (documented by Shadowstats) is behind most of the major changes so that the government of the day appeared in a better light.

The spin of this ‘growing’ economy has been taken to heart by the richest 20% of families — those who have been able to borrow for next to nothing and invest in foreclosed homes, stock and bond markets. They have invested and seen their investments rise markedly. They are happy.

But for most people — the other 80% — they are neither happy nor convinced of the efficacy of the present government’s economic spin. (See the exit polls of the November 4 midterm elections!) Truly illustrating the difference in economic well-being between the rich and everyone else are the results of a Gallup poll.

In August, Gallup found that, “Americans with an annual household income of $90,000 or more continue to have more economic confidence than those who live in households with less annual income. Upper-income Americans had an index score of -2 in August, up slightly from -5 the past two months. Lower and middle-income Americans, on the other hand, averaged -18, similar to -19 in July.” Recent data from multiple sources indicates this divergence continues to exist.

The difficulty for most working Americans is that according to the Bureau of Labor Statistics (BLS), workers incomes over the past few years are barely matching — if at all —  their rising cost of living as measured by BLS’s own (politically influenced) consumer price index (CPI). But ask most workers and they will tell you their living costs are up much more than the government’s CPI.

This is verified by independent inflation measures such as the Guild Basic Needs Index (GBNI) which includes only food, clothing, shelter and energy (thus covering most of the expenses for the majority of people). Using their latest data points from July 2009 to July 2014, the GBNI rose by a significant 22.8% compared to the 10.6% rise in the CPI over the same period.

Interestingly, while living costs have risen and left individuals with less disposable income, savings rates have increased. It seems the experience of financially difficult times for most people in recent years, including unemployment, severe losses in home equity, and for many the need to save for a fast approaching retirement, has convinced them to save more. Savings rates are now averaging above 5% says the Bureau of Economic Analysis (BEA).

But again, savings rates would be much less if previous methodologies were used. For instance, in 2006 and 2007, savings rates were about -2% but had become +3% after methodical revisions. Savings rates prior to 1985 were mostly above 10%.

Perhaps of even greater concern is that consumer debt is once again growing much faster than incomes indicating the U.S. is on the continuing treadmill to further financial crises. Between July 2011 and July 2014, Federal Reserve data show consumer debt grew from $2,722 billion to $3,233 billion, a rise of 18.8%, compared to personal income gains over the same period of just 11.8% ($13,294 billion and $14,860 billion.)

The real concern with consumer debt was highlighted by Constantine Van Hoffman, writing for CBS Moneywatch on September 11, 2014. She wrote that, “[quoting CardHub] ‘by the end of 2014 U.S. consumers [with about $7,000 each in credit card debt] will be roughly $1,300 away from the credit card debt tipping point, where minimum payments become unsustainable and delinquencies skyrocket.” And this is with ultra low-interest rates. What happens when they rise?

Rapid debt accumulation in excess of income growth indicates people demanding goods and services now no matter the eventual financial cost to themselves. To me, this suggests — barring extreme confidence about their future circumstances — the possibility of deep inner insecurity and lack of personal fulfillment among individuals. Unbeknownst to our political and economic leaders, this mental state is really the central issue that has to be resolved before lasting economic sustainability can be gained. (See, The Missing Ingredient in Economics — Consciousness.)

Government and financial institutions are aware of the harm caused by excessive and irresponsible debt growth and asset valuations. Alan Greenspan, former Chairman of the Federal Reserve, has remarked that central banks are afraid to ‘prick’ asset bubbles for fear of causing market chaos. So, our economic elites believe they must continue to spin the illusion of economic good times no-matter the reality. Eventually, as in 2008, the illusory good times end, and sadly, financial difficulties and ruin occurs for many.

As understanding grows about the spinning of government economic statistics, as increasing savings rates restrain consumer spending, and as consumer debt rises far faster than incomes, it is just a question of time before the spin stops working and a bust ensues. For now though, the spin is working for the 20%. And they are happy.

© Ron Robins 2014

Posted in Consciousness/Psychology, Economics, Monetary Policy, Statistics, Unethical Statistics | Tagged: , , , , , , , , , , , , , | Leave a Comment »

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