19. VELOCITY OF CIRCULATION: TRICKLE UP OR DOWN?
Two anti-inflationary tools of the politicians and necronomists have been examined and rejected: unemployment and tight money. Both actually increase inflationary suffering for the majority of Americans who are supposed to be helped since neither help the middle class. Similarly, another anti-inflationary tool can be rejected which involves the use of the tax system to decrease net income for the poor while increasing net income for the rich. This tax-dependent tool is the essence of Reaganomics, and, as with both unemployment and tight money, it intensifies the inflationary cheapening of human time.
Very clearly, the time of the poor is cheapened by reduced income and assistance; their increased inflationary suffering is well-documented. Equally documented, but unexplained is the growing losses of the middle class, e.g., unemployment, home foreclosures and continued inflation. Under Reaganomics, the naive middle class is actually affected more than the lower and middle classes by reduced government support. The corrective lenses for this deficient vision is "velocity of circulation."
The Achilles Heel of Reaganomics is the constriction of money in the lower classes through budget cuts. Previously, this money "circulated" among not only the poor but among the middle-class whose lifestyle depends on the economic health of the poor. This lifestyle dependence involves providing most of the goods and services to the poor, and it involves the availability of products common to both classes which the poor fund through government assistance, e.g., hospital, transportation and food costs.
If the government provides direct tax supports to the poor, the middle class benefits more than if the government provides the same amount indirectly through tax-exemptions to the well-fixed. In other words, the middle class income depends more on the velocity of circulation among the poor than the amount of money circulating among the rich. Decreased support for the poor cheapens the time of the middle class taxpayers whose livelihood depends on business with the poor. Look at the mom and pop business failures: How many of them voted tax concessions for the wealthy who never frequented their business? Or, how many ended up with a loss of business in exchange for a five dollar tax cut as a result of Reaganomics?
Not only do the tax-payers depend on the poor for their livelihood, but they depend on some common goods and services which they share with the poor: medical care, groceries, transportation. The middle class may aspire to the status of tax-exempted riches and may readily identify with the jelly-bean, jet-set mentality; however, they should keep their feet on the ground and recognize that they have more products (goods and services) in common with the poor than the rich.
Does the middle class benefit when the wealthy increase demand for Caspian beluga caviar and Russian sable coats? Or, does the middle class benefit when the poor stimulate the local supermarket, hospital, and bus line so as to keep these public necessities viable? How many of the middle class fail to recognize that many of these businesses depend on the poor for the added income that constitutes profitability?
Reagan's budget cuts have eliminated the profitability in these businesses common to the poor and middle class. As a result, the middle class faces higher costs or elimination of these services. Their time has been cheapened; they are victims of inflationary suffering.
The middle class taxpayers would not have backed Reaganomics if they had understood "velocity of circulation." If no money circulates among the poor, there will be no money to circulate among the middle class who depends more so on the poor than on the rich. If the money supply increases among the poor, it will eventually circulate up through the middle class. It is wrong to think that increased money for the rich will benefit the middle class. Besides, would the middle class prefer to work for the poor as proprietors or to slave for the tax-exempted rich as servants?
Fishing Pond Analogy
The effects of where money circulates through tax actions (tax-supports or -exemptions) can be seen in the following fish analogy. Consider a pond composed of small, medium and large fish and consider how, on a daily basis, a certain amount of nutrients flow into the pond. Suppose the medium-class fish could control the size of the nutrients. Analogously in America, the middle class is more numerous and can determine the tax orientation of government as occurred in the 1980 vote for supply-side tax-cuts in person of Ronald Reagan.
Would the middle class fish be better off to specify nutrients large in size that only the big, fat catfish could eat, e.g., frogs? Or, are the average fish better off when there is an increase in the nutrients that feed the small fry, e.g., mayflies?
Of course, if you asked the lazy, fat, catfish, they'd argue that the pond would fare better if they didn't have to work so hard. By restructuring the nutrients to increase the incentive to grow fat, they'd say, more morsels would trickle down to the medium fish. They'd probably even say that the small fry are too big and consume too much of the available resources. Sound familiar?
This analogy should awaken the average taxpayer to the futility of Reaganomics. At any one time, there is only so much economic stimulus in the economy. Should the middle class back a packaging of the limited economic nutrients into fat incentives for a fewer few? If they do, they should not expect a thriving economy, for the middle class symbiotically feeds upon the poor, not the rich.
If the velocity of circulation decreases among the small fry, the source of livelihood for the middle class will dry up. Wealth, like nutrients in a pond, trickles up, not down. Neither an economy nor a pond will thrive if the economic nutrients are packaged to benefit a few at the top. An economy will not thrive if the incentive for the next meal of million poor folk is sacrificed to provide marginal incentives for the rich man's next million. And that is what Reaganomics is all about: To hear Reagnites tell it, America is suffering because the poor have too much money while the rich do not have enough. Reagan's budget cuts and tax cuts amount to cutting the incentives for the poor in order to fatten the incentives for the rich. A similar absurdity would be an actor promising to solve our problems if given the leading role as our Fuhrer.
The middle class bought and supported this absurdity, and they are paying for it: Standards of living have been declining. If given a choice between increasing the velocity of circulation among the poor or the rich, the middle class should opt for the former. Reagan chose the latter when he cut the budget for the poor while increasing the exemptions for the rich. The results are a collapse of the middle class which depends more on the health of the poor than the wealth of the rich.
Cutting the budget that helps the poor in order to further tax-exempt the rich hurts the middle class. As with unemployment and tight money, budget cuts are not a tool for fighting inflationary suffering. This is not to say that budget support should be increased for the poor. The corrective solution is productive employment of the poor. This employment, like government support, will provide the funds which the middle class can benefit from as the wealth circulates and trickles up.
In summary on Reagan's tuning of the tax system, Reaganomics decreases money circulation among the poor and middle-class while the tax-cuts temporarily increase circulation among the wealthy. For the average American, their inflationary suffering has increased. Only for a few can an affirmative answer be given to the question: Are you better off now than you were when Reagan took office?
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