An Ounce of Action

John McCain provided the world with another gaffe yesterday. He said "I think our economy, still, the fundamentals of our economy are strong." This comment came on the day that investment bank Lehman Brothers filed for bankruptcy.

In addition to the Lehman Brothers fiasco, the Treasury Department took control of mortgage giants Fannie Mae and Freddie Mac and Merrill Lynch agreed to a buyout by Bank of America. Furthermore, shares of Washington Mutual, the nation's largest savings and loan, have plunged due to growing concerns that it too would have trouble raising necessary capital and the Treasury Department is considering loaning American International Group (AIG), the nation's largest insurer, tens of billions of dollars. This has all happened in the last nine days. These are the nation's headlines and John McCain, even though he backpedaled from these comments with a lame line about the American worker (Rah!), seemingly does not see what is visible to the rest of America and the world. Our economy is crashing.

"Who has been the captain at the helm for the last eight years that's driven us into this god-awful economic mess at home and abroad? It's been the Republicans, the philosophy that John [McCain] has adhered to that's driven us in the hole," Democratic Vice President Nominee Joe Biden told CNN on Tuesday. "And when you have a doctor that's committed malpractice, you don't hire him for the second operation."

Blame for these economic hardships is irrelevant. The question is who is going to do something about it?

McCain has proposed a reduction in corporate tax from 35% to 25%. Aside from a few tax breaks for research and development and a bounty for who can create a more efficient battery, this is the only economic plan that he has put forth. His plan is simply the Reagan plan of "Trickle-Down" economics. Although there are many proponents of this brand of economic stimulus, most of them wealthy, it has a very sketchy track record. The following is an example of "Trickle-Down" economics that I borrowed from http://www.rationalrevolution.net/:

"Trickle-Down" can never really trickle down, and I'll expose the logic that was used to trick Americans into supporting the idea that freeing up money for the wealthy could somehow benefit the poor and middle class.

I'm going to use a very simplistic example to demonstrate the principles of "Trickle-Down" economics. No, this is not a 100% accurate model of our economic system, and it assumes that "all other aspects of the economy are equal," but the major principles are represented. I will give "Trickle-Down" the benefit of the doubt and assume that it actually does create jobs in my example.

We have a room with 5 people in it. The total value of all the money in the room is $10.00. The money is apportioned below:

Jim has $4.00, 40% of the total.

Susan has $3.00, 30% of the total.

Tom has $2.00, 20% of the total.

Amy has $1.00, 10% of the total.

Bill has $0.00, 0% of the total.

Sam enters the room and says that he has $10.00 that he wants to give to Jim. This makes everyone else unhappy of course and everyone says that they will beat Jim up if he takes the money. Sam then proposes a solution. He says that if everyone allows him to give Jim $6.00 he will give $1.00 to everyone else in the room. This sounds pretty good to everyone so they agree to let Jim receive the money. So, after Jim gets the money and everyone gets a dollar this is what the monetary breakdown of the room looks like:

Jim now has $10.00, 50% of the total (up 10%).

Susan has $4.00, 20% of the total (down 10%).

Tom has $3.00, 15% of the total (down 5%).

Amy has $2.00, 10% of the total (same).

Bill has $1.00, 5% of the total (up 5%).

As you can see, due to inflation most of the other people in the room either lost value or saw no real gain. As you can also see the size of the "economy" did in fact grow as the theory of "Trickle-Down" proposes, but the growth only benefited one person, Jim, and arguably Bill. Even though the economy grew overall most of the people in the room saw a loss of value. This is because the value of money is relative. It's relative to many factors, but one is how much money is in the system. If you have 1 dollar out of 10 then its worth more than 1 dollar out of 1,000. How wealthy you are in terms of dollars is not measured by the number of dollars you have, it is measured by the share of dollars that you have out of the total number of dollars in the system.

Now, your opinion of Sam and Jim can be one of only two options.

1) Jim and Sam were naive and actually thought that they were going to be helping everyone with their actions; the fact that the actions had a negative effect on everyone else was an accident.

2) Jim and Sam knew that taking the $10.00, keeping $6.00 of it, and giving $1.00 to everyone else wasn't going to help anyone but Jim, and they tricked everyone for the purpose of self gain using the $1.00 "gift" to the under-classes as a "Trojan Horse" to support the action. As in the example above, there are three basic possibilities for economic growth (and many variations in between). One, Growth of the economy can be spread equally among everyone. Two, the growth of the economy can be shifted towards the bottom of the population in which case the poor see a rise in relative value, becoming "less poor." Three, growth can be shifted toward the top in which case the rich see a rise in relative value, becoming "more rich."

The general economic policy of "Trickle-Down" that was put in place by Reagan has gone fundamentally unchanged since it was adopted by the country in the 1980s. The claim of Reagan was that "all boats would rise" by giving huge tax cuts for the wealthy. This did not happen. The majority of boats stayed the same or sank, while only between 5% and 1% of the boats actually rose.

The effects of "Trickle-Down" policy are evident. As would be expected from the policy, the largest beneficiaries of the "Trickle-Down" system have been the wealthy. There is no realistic way for "Trickle-Down" economics to work to increase the income of the working classes of America. In fact, I am certain that the developers of the theory of "Trickle-Down" economics were fully aware of this and that "Trickle-Down" has in fact worked as intended. This means that the intent behind implementing "Trickle-Down" was to benefit the wealthiest Americans at the expense of working class Americans. "Trickle-Down" hasn't failed, as many modern economists have suggested, it has succeeded in its goals, which is the increase of economic inequality and the shift of a greater portion of America's wealth into the hands of the wealthiest Americans.

McCain's chief economic advisor, Carly Fiorina, former CEO of Heweltt-Packard and the woman responsible for the for HP's market value crumbling by nearly half and heavy American job losses, says that McCain would like to see more transparency on Wall Street. Great! President Bush said the same thing in 2002 and nothing has changed, as evident from the recent disasters.

I simply cannot vote for John McCain. The policies are doomed to fail and we will not get out of this recession. The wealthiest Americans will increase their net worth and they may spend more money. This could lead to new jobs, but the poor of this country will only be marginally better off than they were before.

Regarding a comparison of Obama and McCain tax proposals, the Chicago Sun-Times put together its figures in June, 2008. By their estimates, for example, a person with taxable income of:

$19,000 or less would pay $597 less under Obama and $19 less under McCain.

A person with taxable income of:

$19,000 to $38,000 per year would pay $892 less under Obama's plan and $113 less under McCain's.

A person with taxable income between:

$112,000 and $227,000 would pay $2,300 less under Obama and $3,200 less under McCain.

A person with taxable income of:

$227,000 would pay $23,000 more under Obama and $15,000 less under McCain.

Obviously there are large differences here, and depending on your taxable income level, you can judge who has your best interests in mind. Friedrich Engels said "An ounce of action is worth a ton of theory." I prefer any action to a theory that does not work.