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Where Has All the Money Gone?

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Message Jerome Richard

Most historians and economists agree that what ended the Great Depression was World War II. For example, in The Great Depression, Robert S. McElvane writes: "The military buildup of 1940-41 did more to revive American industry and reduce unemployment than had any New Deal program." (p.320) Think of it this way: it ended thanks to a huge government stimulus program. Suddenly, the government was buying planes, tanks, uniforms, and all the other paraphernalia of war. In addition, the draft put thousands of unemployed people (as well as thousands of employed people) to work in the armed forces.

So, why haven't the wars in Iraq and Afghanistan stimulated the economy? Part of the reason is that, unlike the circumstances surrounding World War II, taxes were not raised and bonds were not sold to finance these wars. They were, and are, being paid for largely by borrowing, which has run up the deficit and made stimulating the economy now when it needs it much more difficult.

The Roosevelt administration attempted to stimulate the economy throughout the 1930s with programs such as WPA, TVA, and others, but it was not enough. McElvane describes those efforts as timid. The Obama administration attempted to deal with today's Great Recession with a stimulus program that was modest compared to Roosevelt's efforts, yet some critics called it wasteful. It would certainly increase the deficit, but the Wall Street Journal and others warned that the stimulus was too large and would lead to inflation and steep interest rate increases. Neither has happened.

Paul Krugman, among others, described the stimulus as much too small. The fact that it has led to only modest job gains bears them out. So, why wasn't the stimulus more robust? The rancorous atmosphere in Washington had the Republicans opposed to any proposal from the Democrats, and it became fodder for the Tea-partiers who were convinced that pain later -- when the deficit would have to be paid back -- was worse than pain now with its high unemployment. Instead of educating the public about the need for a vigorous stimulus program, Obama sought to placate the opposition with a program that did not achieve his own objectives and did nothing to satisfy his critics.

Governments, especially at the state and city levels, are trying to cope with the reduced revenue by laying off hundreds of employees. This only exacerbates the problem as the out-of-work employees, like those laid off from the private sector, now have less money to spend. As a result, they are paying less in taxes, which reduces revenue even further. How to get out of this vicious circle?

For government at all levels, there are only three ways to increase revenue, making it possible to institute job-producing projects, or at least avoid laying off employees. One would be to get into a profit-making business, a proposition too controversial for this time and place. Another would be to borrow, but that drives up the deficit. The third is taxes.

Actually, borrowing, even though it increases the deficit, is not such a bad thing. Failure to do so was one reason the Great Depression was so deep and so long. But what would be the most help with the least harm would be to get some of the idle money back into circulation. That can be accomplished by taxing the super-wealthy.

Not fair, some people will say. What is not fair is a disparity in the distribution of wealth that threatens to bring down the economy, casting the middle class into the waters of poverty while leaving a few high and dry, wondering what to do with their money.

According to the latest Social Security Administration statistics, the top 72 wage earners made as much as the 19 million lowest-paid people combined in America last year.

The average compensation for all wage earners in 2009 was $39,054. (The median was $26,261.) The average for the top 72 wage earners was $84,132,717. And the gap has been growing wider. Since 1992, the bottom 90% of wage earners saw their incomes increase 13% (and actually drop .97% last year) while the top 400 earners garnered an average 399% increase. No amount of skill, hard work, or expertise justifies such a disparity.

Does it matter? Former U.S. Supreme Court justice Louis Brandeis said: "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."

The argument against a proportionally higher tax on the super-wealthy is usually that it would be bad for the economy because the very rich create jobs by establishing or expanding businesses. But any money they use for that purpose is already tax deductable as a business expense. What would be taxed is surplus money that is essentially sitting idle or being spent extravagantly.

Such use does help the economy, but not as much as rehabilitating our infrastructure. Fixing our roads and school and upgrading our railroad system would put people back to work in a way that is good for our country.

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Jerome Richard is the author of the novel The Kiss of the Prison Dancer, and editor of the anthology The Good Life. He presently works and lives in Seattle.
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