Economic Stagpression

It’s a pun off of the word stagflation which was short for stagnant inflation.  Stagpression is short for stagnant depression.  It is the most accurate indicator of our economic situation today, and tomorrow, and tomorrow, and tomorrow…

We seem to be in a Depression. but we aren’t.  The Housing market is recouping, jobs are consistently growing, energy costs have dropped,  corporate profits are now at record, higher than just before the 1929 crash, and an all time record high stock market..  We should be booming. But we aren’t.  We still have too high of an unemployment both on and off the books, we still have depressed low wages, we have lost massive wealth within the middle class over this century so far, we have record high student loan debt, we have low consumer confidence,  Hence, one class of America is booming.  The other class is still in Depression mode.  Hence we are in Stagpression….

It is easy to see why.

Here is a chart showing the free cash flow of businesses……

Record highs. See?  Record highs.  We should be growing faster than China, we have so much investment money at our fingertips. But no.

Here is our investment track record…

Ironically as we gave our businesses more and more money with lower taxes, less regulation, tax funded price supports, hand-tied their unions, and made free new technology at our taxpayers expense, despite all these perks and incentives, they invested less.  So what are they doing with their money?   Pick up any financial publication and read the headlines. They all will let you know.

Rather than invest in plants and equipment, businesses are primarily using their funds to repurchase their own stocks in order to boost management earnings and ward off hostile take-overs, pay dividends to stockholders, and accumulate large cash and bond holdings.

None of which help our economy. It is as if we work hard, buy their products, and they put that money into a mattress. Soon, we are going to run out of money. Fortunately the Fed has filled the gap by printing more and giving it to banks for free. It too, filters though the system, and when it gets to the top, it goes into the mattress.

Instead of recycling money, we are letting the tap flow from our printing presses to the top echelon of our society… Now do you get it?

What is missing is a system that recycles the materials back into our economy so we have less money we need to print. If we were talking about paper, we would be saying we need to recycle paper to keep from cutting down more and more trees simply to fill up our landfills….

We need a system to return that money to the bottom so it can rise again and again and again.

Here are the options that have been tried.

• Price and pay freezes.
• Government set and regulated prices.
• Lower tax rates.
• Cash incentives from taxpayers to reinvest.
• Pleas and entreaties from the Oval Office.
• Higher marginal tax rates.

Only one of these has worked.  Can you guess which one?    If you guessed higher tax rates spur reinvestment you are absolutely correct.

Notice the rates of reinvestment climbing in each of these presidencies:  Eisenhower, Kennedy-Johnson,  Carter,  Clinton each time  Congress legislated higher marginal tax rates.  Also notice the drops under Nixon, Reagan, and George W. Bush as Republicans cut the taxes…  The Bush Tax Cuts held through Obama’s first term, and account for today’s sluggish reinvestment. More precisely, the reinvestment turned upwards under Obama  until 2010 when Republicans took over Congress, and has fallen since. I can’t wait to see 2013’s numbers, for I expect to see real investment increase there as well. However those higher tax rates on the top half percent implemented at 2013’s beginning, sent financiers scurrying and bargain empty homes were bought up by investors with lots of cash which brought up the floor of the housing market (perhaps to our future peril).  It also accounts for stocks becoming an area of liquidity to hold cash,..explaining the record highs ….

So we have an opposite relationship:  cutting taxes increases corporate profits which go elsewhere other than reinvestment back into the ecnomy.

Increasing taxes, cuts into the Free Cash Flow, and funnels some of that flow over to reinvestment projects.

Ever wonder how Delaware’s 3 banks lasted for decades and then all disappeared very close to each other?  Bank of Delaware, Delaware Trust, and Wilmington Trust. are now owned  by other entities. (Wilmington Trust had some hand in cutting off its own foot).  Commerce Bank, which was New Jersey based had the same fate.

They lasted for years because big banks never had enough free money to buy them out.  Just think.  In Delaware there are now 3 less bank presidents.  18 less bank officers,  and who knows how many clerical workers are missing because the work goes to the owners headquarters, not located here…. One still wonders if our state could be better off, had MNBA not been bought up by an outside conglomerate.

So giving more money to businesses and corporations in this case, cost us jobs… and destroyed 3 long termed Delawarean corporations…

That was one example.  Across this nation, in every city,  every county, every state are millions more….

Raising the tax rates drives re-investment.  It is the only thing we know of so far that consistently works to drive re-investment.   Everyone who insists on cuts and de-regulation, no matter how they spin it, is pursuing a policy that has been completely disproven by reality and fact and of course, recent history..

Are you better off than you were under Clinton?  Your income level will probably determine your answer…..  Because yes, some people are indeed, a lot better off.   John Carney.  Tom Carper.  Chris Coons,  Jack Markell, to name 4 off the top of my head….  Better off too, are those who these four represent… the 1%.  Much better off!

If you find someone willing to raise taxes, stick to them like glue. They are the ones who will lead us back to prosperity…..

Until then, economic stagpression will continue…. continuing through tomorrow, and tomorrow, and tomorrow….(at a) petty pace that creeps from day to day….