Tax Cuts Are Irrelevant

Arguing politics on Facebook is usually a very bad idea, but I have one old friend who is an avowed socialist (probably more of a Peronist fascist in reality) with whom I engage. He recently posted some twaddle by Krugman about tax cuts for the wealthy and blah blah blah. I responded with this.

Guys, tax cuts are nothing compared to interest rates when it comes to enriching the wealthy. The Fed is holding rates low, allowing the 1% to borrow $$ at trivial rates and invest in the market where they make plenty. Borrow at 1%, invest at 10%. It's free money for wealthy people. Tax cuts may bring them a few million, but the low rates bring them tens or hundreds of millions.

The Fed has to keep rates low because the government has so much debt that they can't service it if rates were at historic levels, say 5% or so for long-term debt. If the government had to pay 5% on our treasuries, it would blow multi-hundred-billion-dollar holes in the budget. We've spent ourselves into a corner and now have no choice but to follow economic policies that serve the ultra-rich.

Hilariously, it's the fascist economics of people like Reich and Krugman that got us here. No surprise there as this is where fascist economics always leads. The government grows and grows and the wealthy and powerful take advantage of it. Then the lapdogs of the ultra-rich like Reich and Krugman weave fairy tales about how the massive government that they support (at great personal profit) is going to protect you, the little guy, so you keep voting the right way.

It reminded me of The Rise and Fall of Bear Stearns about which I previously said this.

Throughout the book, Greenberg proudly talks about his trading strategies. It's all about avoiding losses so he can maximize profits. He rarely talks about his investments in real terms. That is, the investments are just financial transactions where he scrapes off his fee, they aren't vehicles for helping companies build homes, factories, or consumer goods. It's all just a pile of poker chips and he'll dump you as fast as he picked you up.

Alan Greenberg, the author of that hideous tome, never sweats things as trivial as tax cuts. Making gobs and gobs of money is all about interest rates, leveraging and rates of return.

While they mattered in the past when government wasn't the leviathan it is today, right now, tax cuts and tax increases are just a ruse to keep voters in line while the government and the ultra-rich loot our children. That's true from Japan to Germany to France to the US as we've all borrowed and spent our way into having to do what makes the Alan Greenbergs of the world rich beyond the dreams of avarice.