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PROSPERITY: Economic Policy | July 6, 1992


UNDERSTANDING & CORRECTING

OUR ECONOMIC WOES

An Unpublished Letter to Los Angeles Times

Regarding our economic woes, your editorial asks: "Oh, Boy, How Did We Get Into This?". I'm no Nobel Laureate, but the problem -- and its solution -- are painfully obvious to me.

When we say our economy is "slow" it means that there is not enough money in circulation purchasing our goods and services. All wages, salaries, repayments of loans, investments in research and development, taxes, and profits ultimately come from sales (as any kid with a lemonade stand can testify): Most of the Gross Domestic Product (about 2/3) is retail sales. In short, the economy is inherently demand-sided; and Bush was right 12 years ago in condemning supply-side economics as "voodoo economics".

That's the problem in a nutshell, so what's the solution? Well, in order to get more money into circulation we can 1) print more money (leading to hyper-inflation, as in pre-Nazi Germany), 2) borrow more money (the "solution" of the '80s), or 3) redistribute the money already in our economy.

With the Cold War over (at least as long as Russia remains "stable"), we can shift much spending from military to domestic needs; and because the "multiplier effect" of social spending traditionally is higher than that of defense spending, we should "get more bang from our buck".

In addition, as you have reported, something like 90% of the wealth of our country is in the hands of 10% of our people. Because richer people can save most of their income while we poorer people (including the middle class) must spend most of our income, a "top heavy" distribution of wealth not only causes hardships and resentments (as flared up in the Los Angeles riot) but also a net decrease in spending, the lifeblood of our economy.

Thus, the current trend towards reducing progressive income taxes for the rich while increasing regressive sales taxes and users fees -- and decreasing public services -- for the poor and middle class courts not only social upheaval but also economic disaster.

An economy is built from the ground up...not "trickle down".

The false prosperity of the Roaring '20s likewise produced the Great Depression of the '30s (and the World War of the '40s). Unless we learn from history...well, you know.

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