The greatest tragedies to emerge from the Great Recession and its aftermath are the accelerating destruction of America's Middle Class and the swelling ranks of the poor. This tendency was well underway in the decades leading up to 2008, but the recession cemented the deal. It's A Great Time To Be Rich, says Business Week, but there's never been a worse time to be anything else.
Those in the media and the government always refer to "The Economy" as a monolithic entity in which we all participate. That's the Great Lie, for there are two economies in the United States, one where the wealthy or well-off live and another where everyone else struggles to survive. I have called this America's New Gilded Age. 77% of those living in the "Main Street" economy live paycheck-to-paycheck, but you would never know it listening to glowing reports about November's retail sales numbers. As I demonstrated in A Tale Of Two Christmases, it is spending by the rich that is driving those numbers.
Extending unemployment benefits is said to be a great "stimulus" to "The Economy" because the jobless tend to spend every penny they get. No kidding! Therefore these so-called transfer payments are said to boost spending, or in economist-speak, they have a high multiplier effect on "The Economy" ($1.64 in the chart below).
On the other hand, permanent tax breaks are said to have little stimulative effect on "The Economy" (>$0.50). The multiplier is particularly low for the rich, who don't spend the extra money they receive. They don't spend it because they're already spending what they want to spend. Giving them more money is not likely to change that, although its always possible some hedge fund king may want to swap out that smaller, inferior yacht for a much roomier, glitzier one they've had their eye on.
But of course this is all complete nonsense. There are two economies, not one. In the "Main Street" economy where 90% of Americans live, preventing some of those people from falling into abject poverty by offering them unemployment insurance will naturally have a high "multiplier" effect. Temporarily increasing food stamps to prevent those citizens from starving has an even higher effect ($1.73). In the other economy where the rich folks dwell, giving them more money they don't need has little or no effect on those living on Main Street.
It is good to know that standard economic thinking has decided it is better to prevent people from starving to death or living under bridges in cardboard boxes than it is to bulldoze more money to the very wealthy. Still, the standard view is a bad joke and the joke's on you. Disregarding commonsense and any remaining vestige of human compassion, the Great Lie that says there is one economy—we're all in this together—must be maintained at any cost. Conveniently for America's elites inside or outside of government, the Great Lie covers up the fact that most Americans are increasingly down and out.
And that is why we have trickle-down economics. This Original Lie asserted that giving more money to the rich would eventually help everyone else—the "benefits" would trickle-down to poor schmucks like you. This "theory" was simply a justification for giving more money to the rich emanating from those who had been paid (bribed) to direct more money to the rich. Bush the First called this view "voodoo economics." It is said that hardly anyone believes this obvious nonsense now—we're far too sophisticated to swallow such a transparent excuse for further enriching the wealthy.
But now in 2010, it's all trickle-down all the time because when we refer to "The Economy" instead of talking about America's two economies, the implicit assumption is that spending, no matter where it comes from, is good for everybody. GDP goes up, and that's what we all want, right? It doesn't matter that almost all increased spending is coming from the rich, whereas subsistence spending supports the rest. It doesn't matter that many of the latter have impossible debt loads. It doesn't matter that what happens in one economy has little effect on what happens in the other.
So the next time some airhead on NPR or CBS or wherever refers to "The Economy", remember what I told you here. This is America's Great Lie. To paraphrase Charles Dickens, who knew a thing or two about these matters, for the Rich, it is the best of times. But for everyone else, it is the worst of times.
Bonus Video — Polanski's version of Dickens' Oliver Twist (2005). Please, Sir, I want some more.