''As inequality grows, ...the poor and rich classes expand.'

The Effects of Inequality on Global Economic Growth*

Gerry Greaves, 

DOI: https://doi.org/10.21203/rs.3.rs-1945712/v1

Abstract  below - full paper here: Effects of Inequality on Economic Growth

Abstract

'Previous efforts to determine the effect of inequality on growth, which relied on comparing growth rates of countries (or the same country over time) with different levels of inequality, have met with limited success. This paper provides a novel economic model that combines a Solow growth model with a closed 3-Equation model which includes the effects of inequality on consumer demand and thus growth. It models consumer demand using four income classes with different tax rates and propensities to consume whose sizes and incomes are determined by the level of inequality. It allows a wide range of inequality to be evaluated. This quantifies the effect of inequality on growth, but it also reveals its effects on interest rates and government spending guiding fiscal and monetary policy.

Among the unprecedented findings are 1) The maximum GDP growth occurs at a Gini coefficient of about 0.66 unless negative nominal interest rates or ongoing deficit spending is allowed; 2) Gini coefficients above 0.66 result in drastically reduced GDP caused by insufficient demand; 3) Below this point, there is excess demand which causes upward pressure on inflation and results in higher nominal interest rates; 4) At the current global Gini coefficient of about 0.62, real interest rates are near zero; 5) As inequality grows, the middle and upper middle classes shrink while the poor and rich classes expand.'

This is a preprint review and has not been peer reviewed.  License: This work is licensed under a Creative Commons Attribution 4.0 International License.  

U.S. Inequality is Stark. The Danger of Violence is Real

Misery is near the boiling point in the U.S. (See below for a few facts) We are near a choice point, namely -  Tax reform to reduce the inequality that is destroying the middle class OR violent revolution to overthrow a profoundly unjust system.

Do you dare imagine you are safe? That fork in the road could be sticking into you. 

For ours and their own survival (and the survival of our American Republic) the moneyed and political elite must cooperate in the non-violent, legal reform of the tax code to correct the inequality that threatens our national security. During the Great Depression, a time of severe inequality and fear of popular revolution, FDR made a deal with the rich to accept their responsibility and allow change. It worked then and can work again. 

How unequal are we? The bottom half of the population owns a mere 2.4 percent of the wealth. The top 0.1 percent (335,000 people) own 12.8 percent of the wealth. A whopping 70 percent of the wealth is owned by only 10 percent of the people. [per statista.com/statistics/]

The top 10 percenters are now responsible for the condition of the country, because only their excess wealth can relieve the misery taking the U.S. on a dangerous downward spiral. 

How miserable are we 335 million Americans? 

Hungry: 34 million, including 9 million children 

Flat broke, no savings: 16.5 million 

Homeless: 582,000 as of 2022 

Mentally ill: 57.8 million 

Incarcerated: 1.2 million 

Can anyone who pays attention say the U.S. is in fine shape and life here is growing more secure and more satisfying?

Why use the tax code to remedy our dangerous inequality? It would be legitimate under public law. Congress and its tax and banking committees do in fact see and fear the danger of violent revolution as the U.S. grows more like a Third World society where the tiny elite at the top own everything for their own benefit, and the public be damned. 

The dangerously unjust system we have now comes from government policies that have been called “Socialism for the wealthy; Capitalism for the poor.” Those who want it that way pay for it with political money that buys a compliant Congress. 

The choice is stark: Give up (or give back) some of that wealth through legal tax and banking reform or face lethal consequences. Any such action of consequence will jeopardize the National Security of the United States. Violent revolution is bad for everyone, even the wealthy hiding in gated communities and underground bunkers.

BONA FIDES

I have been an observer of the public discussions about the National Security of the United States since I began graduate school in 1963. My M Sc. [Econ] work at the London School of Economics [LSE] was to examine the national security challenges posed by the Soviet Union. I do not have a security clearance, so my work is limited to public media.

During the 1960’s and 1970’s our security was challenged by the weapons and philosophy of the USSR. We championed Free Market Capitalism and Liberal Democracy as the better choice than the rigidly planned Socialist State of the Soviet Union. However, the collapse of the Soviet Empire in the 1980’s demonstrated that both national security and economic well-being require markets free from excessive regulation or other market constraints such as monopoly, which can limit innovation.  

U.S. wealth helps support extensive R&D which helps create more wealth. New prosperity often comes from what is new, better or different. Freedom and the Rule of Law promote innovation with a shared agreement to limit the abuses from excess concentration of wealth and power. 

THE LESSONS

Economic strength, not military weapons, is the basis for national security. While a strong military adds to our sense of national security, that strength comes from a strong economy that delivers prosperity to all citizens and residents regardless of their class, race, immigration status or other traits. For example, German industrialization in the decades before World War I created a prosperous work force and a strong military which enabled the Kaiser to boldly plunge Europe into the Great War.

THE RISKS TODAY

Now organized groups in the United States (both visible and hidden) want to eliminate those protective restraints on wealth and power in favor of authoritarian control by the self-serving few. If the authoritarian, anti-democratic forces succeed here, the result will be a world catastrophe. 

Some who are sympathetic or indifferent to the concentrations of power and loss of freedom may imagine that a strong man authoritarian will respect their wealth and position. They may believe they are safe to support any political program as no threat to their personal well-being. 

These people are deluded. Dictators consider all property and business as their own. Since they deem your business their own, they will do with your property as they want. The autocrat may punish your company on a whim. He may fine you, sue you, or install a crony as your boss to force you out. Or like Putin does routinely, kill you.

Those at the top of the economic pyramid must resist any program that further weakens or ends restraints on the concentration of wealth and power in only a few hands. Left in place, this profound inequality poses the real risk of an armed and violent rebellion. Again, the extremely unequal distribution of income and wealth challenges our National Security today.

FDR SOLUTION

FDR faced a similar situation in the 1930s. He inherited the Great Depression together with great inequalities. (Unemployment reached 25 percent in 1933.) He wanted to reduce the general misery and provide people some hope. But the wealthy few did not want to give anything at all to the people. He proposed a deal for the rich: “I’ll raise your taxes to support labor unions, Social Security, rural electrification, WPA and other programs to lift the country out of despair. Then I can prevent a Bolshevik-style uprising in the United States.”

Among FDR’s persuasive arguments: The Russian Revolution was less than 20 years before. The rich few took the deal and allowed Congress to pass the laws installing New Deal programs that gave the people hope. The rich few paid for those programs with higher taxes. 

20TH CENTURY

Taxes stayed high between the 1930’s and the late 1960’s. In those years we fought World War II, which cost an estimated 80 million lives or about 3 percent of the world’s 2.3 billion people in 1940. We used the post-war prosperity of the 1950’s and 1960’s to build the infrastructure of roads, schools and public buildings we have today. 

During the early 1970’s, the rich few balked at continuing to pay high taxes to support social welfare programs. The marginal tax rate was maxed at about 39 percent compared to the top rate of 91 percent as late as 1963. (Marginal tax rates began to fall in 1964 but were still at 50 percent in 1986. The lowest postwar rate was 28 percent in 1988-1990. While the current rate is 37 percent, the tax code is filled with exceptions, loopholes and subsidies that favor those at the top.)

SOLUTION TODAY

The rich few should allow the Congress to adopt the Nordic model of the welfare state. By doing so, they can keep their current wealth, pay some more taxes and forestall the rising authoritarianism and political violence that threatens to sweep them away with other historical elites who believed they would win everything for all time.

 With Dennis Briskin

Billionaires and CEO's Allow Congress to Damage USA Credit Rating

 

Markets Still Weigh the Meaning of a U.S. Credit Rating Cut

By Andrew Ross Sorkin, Ravi Mattu, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni, Aug. 3, 2023, 7:54 a.m. ET, New York Times

White House officials, economists and some prominent Wall Street leaders said the move, which took the U.S. rating to AA+ because of concerns about growing federal deficits and political polarization, was puzzling and wouldn’t have much impact. But others have said Fitch’s move, while largely symbolic, still points to long-term troubles for the nation and its fiscal health.

The U.S. is unlikely to regain its pristine rating any time soon. Richard Francis, Fitch’s primary U.S. analyst, told The Times that a key factor behind the downgrade was America’s intense partisanship, which had led to standoffs on the debt ceiling and forestalls any efforts to reach agreement on taxes or on increasing federal spending.

“There is no willingness on any side to really tackle the underlying challenges,” Mr. Francis said.

But “it doesn’t really matter much,” Jamie Dimon, JPMorgan Chase’s C.E.O., told CNBC yesterday, echoing a common refrain to Fitch’s move. Critics of the move noted that according to criteria laid out last year by Fitch itself, including debt-to-G.D.P. ratio and macroeconomic performance, the U.S. was improving.

Indeed, investors aren’t considered likely to dump their Treasury holdings, given how central U.S. government debt is to global markets. (That’s especially helpful because the Treasury Department plans to issue more debt in the coming months.)

White House officials were surprised by Fitch’s move, believing that they had persuaded the agency’s analysts not to downgrade, according to The Washington Post. The administration scrambled to coordinate a response to Fitch’s move, including noting that the Fitch report dinged the U.S. for governance failures under Donald Trump that, it said, had actually improved under President Biden.

Among Biden administration officials’ worries is that the downgrade could become a political weapon, amid Republican criticisms about federal spending. Indeed, Representative Jason Smith of Missouri, the Republican chairman of the House Ways and Means Committee, said that Biden had “pushed America’s credit rating off the ledge” — even though Fitch said that both parties had contributed to the problems outlined in its report.

Still, some think the points raised by Fitch are valid. Two former Treasury secretaries, Hank Paulson and Tim Geithner, urged Washington to tame growing federal deficits: “Our fiscal trajectory is concerning,” Mr. Paulson told Bloomberg Television, while Mr. Geithner warned that “you want to move the system to act before it’s late and hard.”

And Quincy Krosby, the chief global strategist for LPL Financial, told Bloomberg: “Ultimately, if the deficit isn’t contained, taxes will be raised to the point that the engine of the US economy — the all-important consumer — will have considerably less discretionary income.”

In other Washington news, the hedge fund mogul Bill Ackman said he’s betting against 30-year Treasury notes, a bearish move, believing U.S. inflation will hover around an elevated 3 percent.

Read the Complete Criminal Indictment of D. J. Trump for January 6 Insurrection

Here is a link to the complete criminal indictment of D. J. Trump 

Read the complete indictment here

Elon Musk Compromises the National Security of the United States

There are many ways that Billionaires harm the National Security. Here's one: 

'The tech billionaire [Elon Musk] has become the dominant power in satellite internet technology. The ways he is wielding that influence are raising global alarms.'

By Adam Satariano, Scott Reinhard, Cade Metz, Sheera Frenkel and Malika Khurana July 28, 2023, N Y Times

Click Here StarLink NYTimes to see interactive maps of satellites. May be a paywall.