George Will’s column on Obama’s recent interview with Chris Matthews is good in all kinds of ways, but I think his remarks about Obama’s trickledown economics are especially important for people to grasp. I’ve been trying to explain how the economy works (to exploit the poor and middle class) for awhile now. Will summarizes one essential feature of it in way that is easy to understand.
Obama’s speech denounced “trickle-down ideology” and deplored growth that “has flowed to a fortunate few.” But the monetary policy he favors — very low interest rates, driving money into equities in search of higher yields — is a powerful engine of inequality. Since the Dow closed at 7,949 on Inauguration Day 2009, it has doubled , benefiting the 10 percent who hold 80 percent of directly owned stocks. The hope is that some of this wealth will trickle down.
I have tried to explain how this works before, most notably here and here, but I think Will does a better job. If a tenth of the people own four fifths of the directly-owned stocks, then Quantitative Easing and Below Zero interest rates are a way of directly dumping money into their pockets.
This not only transfers prosperity from Americans who don’t own stock to those who do, it also kills working- and middle-class pensions. As interest rates go lower, pensions have to pursue risk as well to try to meet their obligations. But once they are in riskier investments, any correction in the stock market, will make the pension even worse. So we have the rich getting richer as the poor get poorer and pensions become bankrupt.
Granted, the wealthier are taxed more, a lot more, than anyone else. But that doesn’t do anything to change the inequality. As CNBC reported on taxation and income,
That’s not to say the rich are going broke. Hardly.
According to the CBO, the wealthiest 1 percent of Americans saw before-tax income grow more than 16 percent from 2009 to 2010, which isn’t such a surprise since the stock market was coming off the bottom. Most of the rest of the country only saw gross incomes grow about 1 percent.
This was not because the wealthiest were all that productive. It is because of the Federal Reserve’s policies. Rather than wealth being created it was extracted and redistributed to the wealthiest.
This entire process is a form of plunder. Will is right to criticize Obama for it. But George W. Bush—with Alan Greenspan and then after selecting his successor, Ben Bernanke—engaged in the same practice.