00:00 Speaker A
If you look at the aggregate, if you look at the big numbers, if you look at GDP, GDP is good and it doesn’t necessarily require all consumers to participate. That’s what we’ve seen historically, right? Um, and not only that, but enterprise spending is making a bigger slice of that pie as well in part because of AI. So, from a purely economic and non-human eco point of view, how concerned should we be about the realities of people being stretched in this way?
00:50 Speaker B
You know, Julia, it’s a great point. and I often direct people to this, you know, general observation. When we think about a number like GDP, most of us who are listening to this type of program will have taken introductory economics classes in which we are learning about the production possibilities frontier, the combination of technology and capital and labor that allows us to generate that GDP, and measuring GDP as potential GDP and realized GDP. The simple reality is that there is no single frontier of production possibilities. It’s not like there’s a giant, you know, national production possibilities frontier. This is shorthand for aggregating the production possibilities frontier of each individual household. And that’s where the breakdown is happening. In fact we are seeing more and more families who are not able to remove that limit for participation in the modern economy. This means that they are either moving to much lower and much lower cost regimes in which they do not have access to the kinds of jobs that are developing. It also means that those companies do not have the employees in the right place, so they will not be able to produce fully. Almost every analysis I have seen or done myself at this point on the impact of inequality of income distribution, wealth, access to capital, access to jobs, etc., suggests that our economy is operating well below potential due to these constraints.
02:35 Speaker A
So, okay, that tells us what the potential economic risks and implications could be. Um, what are the remedies, which are more on the political side as you alluded to? Like, what do you do about it all?
02:53 Speaker B
Well, the simple answer is, and this was what the third part of the substack was about, is that we have largely been sold a lie about the distribution of taxes in this country as a member of the upper income cohort. I tell you what we’ve been told all the time is that the richest Americans pay 50%, 1% of America pay 50% of income taxes. This is true in a very technical sense, isn’t it? Because I’m isolating it with income taxes, but if you look at your paycheck, the biggest income tax you’re paying that doesn’t really differentiate between the two is actually the FICA taxes that are paying for social security and Medicare. Those are the largest components of most people’s taxes and those are capped so you don’t pay taxes on those above $168,000. So if you actually go through the math as I did in my last piece, what you discover is that the last 50 years have seen an extraordinary tax cut for the wealthiest Americans and an extraordinary tax increase for those in the 20th to 80th percentile. Ignoring this is really at the heart of the matter and refocusing people on honest discussion and debate about tax burdens and how the US government is funded is really what is needed at this point.
04:31 Speaker A
Is anyone having that conversation?
04:34 Speaker B
I’m certainly trying to tell you that the fascinating thing for me was the reaction to my first piece was this outrage about the 140,000 that overall people actually came back. I mean, one of my favorites is someone who says, well, the average cost of child care isn’t 32,000, it’s $26,000. Okay, like fine. So it’s not 100%, it’s 90% of the government’s poverty line. Um, the pieces that start talking here is what we want to do, it was actually very interesting to see the think tanks disappear. Because at the end of the day, think tanks understand that they are funded by those who are among the wealthiest and highest income Americans. And that’s just the conversation they don’t want to see the light of day with. And so, you know, that’s really the question. Will we start talking openly and honestly about real solutions rather than the platitudes we have given so far?