One of the more fascinating arguments used by right wingers to justify their continued belief in the ridiculous concept of supply-side economics, or "trickle-down" as they like to call it, is the truly hilarious argument that "private investment in markets created your job."
Yeah, I know. The concept is pretty laughable. The only thing that's been "trickling down" to the masses is the urine from the rich, who are pissing all over you as they laugh themselves silly.
But to a typical right winger, this is an airtight argument. And why wouldn't it be? I mean, if you’re somewhat addled, mentally speaking, then it makes sense to think that, if no one invests in a company, it might not be able to pay its bills, and it won't be able to make any money, right? Keep in mind, these are the same people who have argued for years that the best way to go after al Qaeda was apparently to lure them into Iraq, where we would be able to attack them with huge Halliburton and Blackwater contracts.
In basic capitalist economic theory, this is how investment is supposed to work:
Joe’s company invents a widget. Joe then forms a company, which manufactures widgets. If Joe’s company is able to demonstrate a market for widgets, by selling a warehouse full of them. In order to meet market demand, Joe sells stock in his company, and raises money to expand its widget factory, so that it can make and sell more widgets. As Joe sells more widgets, he pays the stockholders a portion of his profits, as a reward for their support during his expansion.
See, first comes the research, development and manufacturing, and then comes the investment, which should facilitate economic growth. That's how investment in this country actually worked for many, many years.
Then Ronald Reagan was elected, and the neocons hit the fan. Since then, the whole concept of investment has been bastardized, and the notion that “investment creates jobs” is now patently absurd.
Over the last 28 years, "invest in business to make the economy grow" has morphed into "invest in securities for the sake of investment." The mere act of investment became the end game. It’s no longer about investing in GM, so they can make more cars and trucks; it’s now about GM doing everything it can to attract investors to its stock, and keeping the price high. We now have an economic model in which companies are discouraging revenue expansion in favor of cutting expenses in order to make their bottom line look better for investors. In other words, a huge portion of the economy is about saving money, and is no longer about increasing revenues. Many large companies have stopped investing in themselves, and are now investing in other companies in order to make money.
And you have to hand it to neocon Republicans, because they became masters at figuring out ways to funnel money into the investment mechanism, so investors could make money just for investing. They encouraged us to open “retirement accounts,” and assured us that, with a constant stream of investment, the market could keep going up and up forever. This, despite the fact that more and more good jobs were being replaced by lower-wage jobs. This despite the fact that Americans were taking on more and more debt. This despite the fact that our manufacturing base was largely disappearing, and investments were becoming more and more precarious.
Think about this. Fewer good-paying jobs; wages that were stagnant for a generation; and a manufacturing base that was disappearing. What exactly was driving the economy during all of those “record peacetime expansions” Republicans and Bill Clinton were bragging about? The answer is, nothing. Absolutely nothing. The markets became the economy. Essentially, folks, when we were putting our hard-earned money into our 401(k)s, we were investing in air.
Do you realize the Dow Jones Industrial Average didn't even hit 1000 until December 1972 (although it hit 995 once in 1966), and it didn’t stay at that level until well into Reagan's first term?
In other words, during the greatest economic boom period any country has ever had in world history – the period between the end of World War II in 1945 to 1972 — the Dow struggled to move from about 150 to 1000. Then, during the period from 1973 to late 1982 — the longest period of hyper-inflation in our history, the Dow stayed below 1000 and even dropped below 600 several times. If the markets are reflective of the economy, shouldn’t inflation alone have moved the markets up at least a little bit?
Are you with me so far? It took the most prolific boom in the number of jobs and the amount of individual wealth in the history of this nation, and possibly the world, to move the Dow to about 1000 in late 1972, and it took another decade for the Dow hit the 1000 mark again to stay. This is a very important point.
So, in 1982, 37 years after the end of World War II, after one of the most intense economic expansions in the history of the world, followed by the worst period of inflation in our history; a period in which we became the world’s foremost economic superpower, and in which more jobs were created than at any time in our history, the Dow only went from 160 points to 1000 points. Based on right wing logic, such as it is, shouldn’t the markets have reacted with geometric increases in value? Yet, it didn’t.
But strangely, the market only took off when the economy slowly disintegrated under neocon rule.
It only took four more years to go from 1000 to 2000, only three more years to get to 3000, and only four more years to get to 4000. How is that possible, if the market is an economic indicator? The economy was shedding good jobs like crazy, and replacing them with lower-paying service jobs. Whereas it was once possible, in a good economy, to pay for a house and raise a family relatively comfortably with one income, it was becoming impossible to do so. Families and individuals were taking on more debt than at any time in history, and so was the government. By the dawn of the 1990s, we had gone from a creditor nation to a debtor nation, and our trade deficit began to skyrocket.
This should have worried someone, but it didn't. It was "easy money." We were all essentially turned into Ralph Kramden. All we had to do was throw our money into a retirement account, and it would be invested, and we’d all be millionaires. As long as there was a steady flow of money into the markets, no one could lose, they said. To that end, Republican neocons were very clever at making sure there was always a steady flow of money into the market. In essence, there were supposedly so many players in the market that many thought the markets could never drop. Books were written,in which "experts" declared it possible for the Dow to go above 20,000, even 100,000 points, because of the constant flow of investment money.
Of course, “easy money” inevitably draws crooks; assholes who think they deserve a bigger piece of the pie than everyone else. And “easy money” tends to draw morons, as well. This time, the crooks and morons (this time, the neocons) got together and decided that a 20% annual return, while unsustainable to those of us with brains, was “chicken feed,” and could be turned into a 40% annual return on investment, just by creating a few new “instruments” and devices designed to siphon off as much of that steady flow of money as was humanly possible. And the so-called “economic experts” bought them, hook, line and sinker. As long as numbers could be manipulated properly, to make it look as if people were making lots of money, anything – and I mean anything — became fair game.
How is it possible that almost no experts saw warning signs as they appeared?
The Dow went from 4000 in early 1995 to 11,800 by late 1999, and the NASDAQ went even higher, soaring from 1000 to 5000 in a matter of months, because of the "tech bubble." During the "tech bubble," people were investing in companies that essentially existed only on paper. Yet, there were few warnings, and the so-called “experts” gleefully touted “tech stocks,” because THEY were making money on our ignorance and gullibility.
Sure, there were some legitimate companies in there, like Microsoft, Apple and Amazon,. But a lot of our investment money was going to crap, too. For example, did the “experts really think there would be a huge Internet market for pet food and pet toys that could be purchased at the local grocery store for a couple of bucks? Why did the “experts” think investments in IPOs were smart, when those companies actually had no product to sell? The so-called “experts” were making money, so they simply didn’t care that such a market was unsustainable. None of the “experts” seemed to take a cue from the fact that our markets were soaring at a time when personal debt was sitting at record levels, bankruptcies were increasingly common, and the only
people getting richer in the economy were people who ran what were essentially shell companies, that weren’t actually making anything except investments in other shell companies.
So-called “experts” were telling us to buy stock in companies with P/E ratios in the hundreds, because they actually believed the market could never go down. Surprisingly, these same “experts” never asked us to invest in Santa, the Easter Bunny and the Tooth Fairy.
In short, if you believe in supply-side economics as valid economic theory, then you are probably gullible enough to believe that a little angel can shoot an arrow into someone’s ass and make them fall in love with you.
By the way, if you're a wingnut who believe this shit; I have this great big bridge in New York City I can sell you for a song…
The smoke and mirrors didn’t end with the bursting of the tech bubble, either. No, we seem to have learned nothing. That bubble was accompanied by a "corporate accounting" bubble, in which companies were playing with the numbers, and reporting revenues and profits that weren’t really there, thus inflating the value of their stock, so they could cash in personally for a while. Then Enron went belly-up, and Sarbanes-Oxley was passed. Basically, corporations were required to be more honest with their financial reporting, so that bubble burst.
Not to worry, though, because the crooks and morons could point to the mortgage securities market and make that bubble, as well. That made a whole lot of companies look like they had a healthy bottom line, as they invested in these securities, no questions asked. Mortgage brokers were giving mortgages to anyone who could sign their name, and banks were letting them. They were creating instruments that didn’t make sense, and they were foisting them on people who couldn’t possibly have understood them. And no “experts” caled them on it; as long as they were making money in the short term, no one gave a shit about the long term health of the economy. Phony mortgages were used to sell homes, which made the banks look like stars, mortgage brokers made their commissions, home builders were selling and building homes, construction companies were making money…
But it was all phony. The mortgages were phony. The money supporting the mortgages wasn’t actually there. The homes were sold to people who ultimately couldn’t afford to pay for them, and the banks were selling the mortgages to a secondary securities market that had been made up out of whole cloth, and featured securities that had nothing backing them. Essentially, some “experts” created securities that represented a portion of a pool of mortgages, but the geniuses forgot to assign an actual value to them,. Of course, that wouldn't have been necessary if the markets always went up, but contrary to neocon belief, no market always goes up. And now, there are trillions of dollars worth of securities out there, and no one knows what they’re worth. Banks and other financial institutions invested heavily in these things, and now have no idea what their own net worth is. That’s what caused this problem; it’s impossible to tell which part of a bank’s assets are secure, or what their investments are actually worth, which makes it impossible to lend or borrow money.
I know this is complicated, and I’m probably putting people to sleep now. But here’s the bottom line in all of this;
If you invest in a company that doesn’t actually make anything, but instead turns around and invests that money into other stocks, and then that company turns around and invests that money in another company — which is why the stock market has been bubbling for years — how many jobs were created with those investments? From the looks of the economy for the last eight years, you'd have to say zero.
The investment markets don’t create jobs. In a properly regulated investment market, investments can make it possible for providers of goods and services to sell more, and create jobs that way;. But the act of investing for the sake of investment is just plain crazy; only a neocon would believe such a thing was possible. Providing goods and services to consumers creates jobs, not investment.
Supply-side economics doesn't work, no matter how many right wingers wish it so. They really should get this nonsense out of their heads; it's silly, and it’s killing us, economically speaking.