Wednesday, August 10, 2011

Jeremy Grantham is calling Republicans clueless

Jeremy Grantham is out with his August investment letter.

As always, Jeremy is making a number of astute observations.  But the overall theme of his letter is how Republicans screwed America.  They screwed us by ignoring the housing mess,  which is primarily responsible for this current economic crises.   And they continue to screw us further by channeling the vast majority of economic benefits in our country to the top 10% - a point I continue to hammer on in this blog.   Our primary economic problem is the lack of consumer demand.  We are NOT going to solve this problem with the solutions proposed by you and the current Republican leadership.  Our problem of soft demand will only get resolved by channeling economic resources away from the top 10%,  and buffer the other 90%.  That takes tax increases at the top,  and lower taxes at the bottom.

Senator, you are simply clueless,  as are the vast majority of today's Republican Politicians.  This hard line of "no tax increases" is just insane.  It gets us nowhere,  accomplishes nothing.  To address the need for further demand,  we need tax fairness.   And it is just NOT fair when the super wealthy pay income taxes are net effective rates LOWER than middle class Americans.   Wake the heck up Senator.  Get this fixed.

The key paragraph in Jeremy's letter:

"Personal income progress is very modest. Productivity has been very high – remarkably so compared to the rest of the developed world average – but the U.S. continues its odd and long history of flowing all economic gains to corporations and the very rich and basically none to the average hour worked. Therefore, it should come as no surprise that we are facing weak demand. For 30 years to the year 2000, consumers compensated for their lack of progress in hourly wages partly by working harder and longer and in greater numbers and partly by borrowing. But in the 10 years after 2000, the participation rate in the workforce has dropped dramatically and hours worked per person has flattened so that the only way for individuals to grow their consumption more recently was by borrowing even more and, to some extent, by speculating in housing. Rising house prices provided the (apparently) real backing for more debt and, even where that backing did not exist, the ingenuity (and, we must admit, greed) of the financial system still supplied the debt. And all of that has gone. And since creating and destroying illusions seems a wretched way to proceed, we can hope (non-mortgage brokers anyway) that it does not return. Today the artificial sugar-coating of increasing debt has been removed and we must live with the reality that an average hour’s work has not received a material increase for 40 years. Without increased debt and without gains in hourly wages, how can there be sustained broad gains in consumption? Only Chanel suits, Hermes scarves, BMWs, and their ilk have very strong sales, and these top-end items are just too small a fraction to carry the day. If we want to dig out of our current morass, don’t we have to change this equation and isn’t the most direct way of doing this to divide the pie more evenly? That would mean lower income and sales taxes for the bottom 75% of earners and higher taxes for the top 10%! We have allowed the vagaries of globalization and the plentiful supply of cheap Chinese labor to determine our income distribution, which has become steadily steeper, to the point where we have become one of the least egalitarian developed societies. Wouldn’t it be better for us to decide deliberately and by ourselves that income distribution which creates the best balance of social justice and incentive to work? I am not suggesting that we become some goody two-shoes Scandinavian country. But how about going back to the levels of income equality that existed under the Presidency of that notable Pinko, Dwight Eisenhower. And don’t think for a second that this more equal income distribution somehow interfered with economic growth: the 50s and 60s were the heyday of sustained U.S. economic gains."

North Carolina deserves better than Republican Senator Richard Burr.

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