5 Reasons the Rich Are Ruining the Economy by Hoarding Their Money

http://www.alternet.org/economy/5-reasons-rich-are-ruining-economy-hoarding-their-money



1. The money doesn't trickle down.

Of all the failures of supply-side economics, this is the most damning. Conservatives often excuse poor wage growth and high unemployment as part of the global competitive marketplace, saying that everyone needs to tighten their belts. But not everyone is struggling--in fact, the rich are better off than ever. They control half of all the wealth, and the top 10% control almost 9/10ths of it. Corporate profits are at or near record highs, disproving the myth that the middle class must suffer due to competitive pressures. The Dow Jones index is threatening to burst past 17,000. Meanwhile, wages have stagnated since the Reagan era, even though productivity continues to increase. Corporate executives, in other words, are forcing workers to toil longer, harder and smarter than ever, but all the proceeds are going into the hands of the very rich while the people actually creating the wealth are struggling harder than ever to get by. Republicans either wave away this phenomenon as insignificant, or desperately attempt to blame regulation and "crony capitalism." Of course, the last time economic trends were so disproportionately imbalanced against workers was the era before the regulatory and tax increases of the New Deal, nor is there any significant sense (outside perhaps of military contractors favored by the GOP establishment) in which government contracts play a larger role in the economy. Instead, the truth is obvious: corporations don't exist to create jobs but to rake in money, and most rich people didn't get rich by being generous. When you give corporations and the rich more money, they simply hoard it and find ways to make themselves even more money--preferably by employing as few people as possible, at the lowest wages possible.

2. The rich aren't investing almost half of their resources.

This one is almost comical. In concept, supply-side economics is supposed to work by the corporate rich taking money gleaned by tax breaks and subsidies, and plowing it back into investments that theoretically employ people. Now, we already know that the economic life doesn't actually work that way: when wealthy individuals and companies invest, they tend to do it in financialized vehicles, mergers, acquisitions and interest-bearing accounts while employing the fewest people possible at awful wages.

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3. Supply-side economics leads to a bubble economy with bigger and longer recessions.

One of the most dramatic and intentional yet underreported effects of supply-side economics was to convert a stable wage-based economy into an unstable asset-based economy. An economy focused on wage growth and broad prosperity tends to have slower overall growth and is at somewhat greater risk for inflation. It was understandable after the 1970s that some political elites would want to steer far in the other direction. But one of the many downsides to boosting asset growth at all costs is that assets fluctuate in value. Stocks and real estate both tend to rise over the long haul, but in the short term they are subject to bubbles and crashes. And the more money gets thrown into asset markets, the greater is the risk of irrational exuberance, the larger are the bubbles--and the worse are the plunges and panics.


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4. High inequality frays society and reduces trust in institutions.

It is not an accident that trust in major institutions has declined on a linear track with rising inequality. Study after study has shown that trust in our fellow citizens and in institutions at large are dependent on the level of inequality and corruption in society. This stands to reason: people know when they're getting the short end of the stick, even if they can't agree on why. Conservatives wrongly blame government spending and regulation. Liberals rightly blame disproportionate rewards going to the very wealthy. Not surprisingly, then, high levels of inequality also create strong partisanship within society as politicians and pundits alike ratchet up the rhetoric of blame. As both secular and religious institutions seem equally powerless to address increasing economic and social insecurity, the social fabric begins to fray and people tend to self-segregate in many ways, including politically. Economic tension and social tension tend to go hand in hand.