History Lesson 101 / Economics 101

The elections are behind us now and it’s time to commence problem solving. Unfortunately the failed policies of President George Bush and the Republicans are still with us and will be with us for a while yet.

The Republican economic policy of trickle down economics is based upon the thesis that by making the rich more rich they will create an economic environment that is more stable and conducive to the creation jobs and wealth.

The last eight years of trickle down economics has shown us that is not the case. Human nature demands that we look out for number one first and that of course requires us to hoard resources.

For eight years we have let the economic gap between the haves and the haves-not widen to never before seen proportions. Government policies have allowed the CEO’s of medium to large companies amass huge salaries and benefits while requiring more and more of the common worker‘s resources be invested back into the system.

The recent bailout is not a cure. It is not even close to treating a symptom of the crisis that is destroying our great society. It is in fact, adding to the problem. The bailout is a trickle down solution proposed by the Republicans. It is designed to protect the elite status of wealthy investors.

In order to solve the financial crises we must first define the root of the problem. The real problem is not that wealthy investors are losing money. The problem is not the real estate market. It goes much deeper than all that. The real problem is that the middle class can no longer support the wealthy elite with the meager resources allocated to them.

When a company starts to lose money their first action is to cut a few jobs from the bottom of the company. As the company loses more money, more jobs are cut from the common labor force. If a company continues to lose money, whole divisions or factories are shut down. The purpose of making the cuts from the bottom up is to preserve the incredible salaries of the executives which can sometimes reach over 100 million dollars ($100,000,000.00) a year.

Note that the bailout does not require executives to take a cut in salary. Much to the contrary, the bailout enables the executives to continue getting an obscene salary and living the lifestyle they have become accustomed to at the expense of the taxpayers.

Further more, the bailout does not require companies to hire more employees or even to offer to lend more money. Thus the companies take the money and create nothing of benefit for society. Their only purpose is to maintain the status quo of the executives.

BOTTON LINE we, the common man (taxpayer), are paying over $1,000,000,000,000.00 (one trillion dollars) just to keep a few company executives happy.

THE REAL SOLUTION is to define the problem truthfully. Re-capitalizing

banks and other financial institutions is like giving a painkiller to a man with appendicitis, eventually the appendix will burst and kill the man. Treating the symptom without treating the underlying cause is a formula for disaster.

Banks and other financial institutions are under-capitalized. That is to say they are really short of cash. Other large business are also feeling squeezed. But the problem is not that they are under-capitalized. The problem is not that consumers are lacking in confidence. The real problem is that the wealthy elite have amassed their small fortunes while creating nothing of value. In order for trickle down economics to work the wealthy have to invest heavily in society. That has not been the case during the eight year reign of the Republicans.

Banks and other financial institutions receive money from three sources, stockholders (investors), borrowed money, and operations (sales). Stockholders and lenders will not offer up their money without some sort of compensation (interest and profits). That does not appear to be the problem at this point. Operations is the activity that the institution conducts in the normal course of business. For banks and other financial institutions it is the loaning of money to the common citizen. When a large portion of the common citizens cannot afford to repay the loans, the institution will suffer a drop in cash flow. Further more, all other business will also suffer because the common citizen will be financially unable to purchase other goods and services.

What causes the common citizen to not make the required payments on a loan? The vast majority of citizens pride themselves in paying their debts. However, as the wealthy elite require more and more of the company’s cash resource there is less and less to “trickle down” to the point where many citizens end up with no job. The average citizen will allocate his resource with the following priority: food, shelter, transportation, medical, disposable income (the extras in life). For many of our citizens without a job, food is as far as they get in their list of priorities.

This is not an isolated never before seen problem. The United States and indeed even the world has been through this type of problem before. The Great Depression in the 1930’s and to a lesser extent once more during the 1970’s.

Every time the cure was to lessen the gap between the haves and the have-nots. Through government intervention during the financial crises the middle class is partially restored and the economy tends to right itself. It has always been the middle class that carries the social burden. The upper elite cannot contribute because it is beneath them to do so. The street and homeless people physically and mentally cannot carry the burden. Therefore it is the middle class that must support and sustain our fragile economic system.

In the 1930’s FDR proposed the New Deal. With thousands out of work he proposed the formation of the WPA (works progress administration). Anyone wanting a job could have one even if the government had to create one for him. However the government jobs were far from welfare. The WPA built hundreds of government building, some of which are still in use today. The WPA created thousands of miles of highways, hundreds of bridges were built. Even artists were commissioned to create works of beauty for the federal government. The government not only gave jobs to the middle class but more importantly it grew the infrastructure of the nation. It created something of value. And in the process gave back to its citizens the self respect they so richly deserved.

The early seventies (1973-1974) also witnessed the collapse of the stock market not only here but world wide. Our own markets lost over 45% of their value. And at the same time the oil crises reared its ugly head. Unemployment shot up, interest rates were beyond belief, and long lines formed at the gas stations.

Again the government intervened, not by flooding the elite with money, but by bailing out the middle class who in turn bailed out the elite and the economy as a whole. The WPA was revised under the name of “The Comprehensive Employment and Training Act (CETA). This program provided training and retraining for the hard core unemployed and also summer jobs for the nations youth.

History reminds us that we are a strong nation. That we are a capable nation. And that most of the time we the people act in concert for the good of the nation.

The Republican answer to the financial crises at hand is the $1,000,000,000,000.00 (one trillion dollars) bailout of inept and possibly corrupt executives of major corporations. The only real requirement for this handout is that you be one of the elite and that your ridiculously obscene salary be in jeopardy.

The bailout creates nothing of value. The businesses receiving the funds are not required to hire staff. They are not required to put the money into operations. The businesses receiving the money are not required to create anything of value. In fact, the companies can just accept the money and use it any way they see fit, such as continuing to pay ridiculously obscene salaries to inept or corrupt executives.

VERY INPORTANT points here. Any company asking for help from the government should be required to agree to the following rules:

1) No executive shall receive compensation in excess of 10 times the wages of the lowest paid employee. 2) All tax dollars invested in companies shall be used, 100%, in the company’s operations.

Just these two rules alone will insure that the bailout benefits those it was intended for - our nation as a whole.

The new President and the new Congress should be made aware that it is we the people that need bailing out, not the rich elite. It is the middle class that bears the burden/responsibility of taking our nation into the future.

If and when every person that wants a job has one, there will be no home foreclosures. If and when every person that wants a job has one, factories will run double shifts. If and when every person that wants a job has one, car makers will put a new car in every driveway. If and when every person that wants a job has one, banks will lend consumers money at reasonable interest rates. If and when every person that wants a job has one, the profits of the big corporations will again support the ridiculously obscene salaries paid to inept or corrupt executives. If and when every person that wants a job has one, we will once again enjoy the self respect we so richly deserved.

Authors note: You have my permission to send this essay to President Elect Obama and more importantly to your Congressperson.


Pancho Villa - a bleeding heart liberal Revolutionary.

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