You may have been hearing that the Dow Jones Index is at an all-time high. It’s true. However, it is only 16 percent higher than the day George Bush came into office. By comparison, when Clinton left office the Dow was 320 percent higher than when he came into office.
It’s a very rough measure of course, and there are many others. But by that measure, during the Clinton years investment in America’s leading business had grown more than three times over. Under Bush it’s only grown 16 percent in six years. Since the consumer price index is up 18 percent over the same period, when the new all-time high is adjusted for inflation, growth is effectively below zero.
How can there be a “recovery” in which not even businesses grow?
The administration did that with spending on pharmaceuticals, homeland security, and a couple of wars. But their most important weapon of choice was tax cuts for the rich, especially on unearned income, capital gains, inheritance, dividends, and interest.
This was sold, and accepted, on the myth that the rich—the investing class—are the most creative and daring members of our society. Just unleash them and they will march off into the wilderness—actual, urban, or cyber—with sacks of cash over their shoulders and they will build things!
Factories! Airlines! Housing! Toys! Computers! Undreamed wonders! Entire new civilizations! With jobs! jobs! jobs! Like an Ayn Rand novel!
But that’s not what happened.
Because a shortage of cash was not the problem. The country, the world, is awash with cash.
The good, old, risk for rewards version of capitalism – the burghers invest in a daring sea captain sailing to the Indies - still exists. In recent years, it’s given us FedEx, Wal-Mart, Apple, Microsoft, and Google.
But alongside it, over the last 50 years, the economy of credit has grown up.
You own a house. It’s worth $100,000.
Someone buys the house, no money down. They borrow that money. Let’s say it’s a straight-line 8 percent, 30-year mortgage. Forget closing costs, points, and any other complications—that’s a $220,000 debt. It goes on the bank’s books as an asset.
Now you have $100,000. The bank has $220,000 (on paper). The buyer has a house worth $100,000. The bank has a lien on it, but the buyer will be gaining equity, plus he can get a second mortgage and home-improvement and other loans on it.
Again, this is a vast oversimplification, but that transaction has “created” something like $420,000 that is now “in play,” as part of the economy.
No “thing” has been created—no new business, no product, no jobs, no idea, no intellectual property, no entertainment.
But money has been created.
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