There is a lot of press lately about income inequality, economic growth, and how they are related. Some argue that we need more progressive taxation to get better growth. That may be true, I don't know enough about it. They point to a very long correlation between high marginal tax rates on the wealthy, and economic growth. Referring to this graph: Top Tax Bracket, the argument goes, the golden age of solid growth and a large middle class occurred in the years 1935-1980 or so. The years outside that range, with lower top tax rates, had larger income inequality, and presumably less stable economics. Notably, the 1929 market crash, as well as the 2000 tech bubble bursting and the 2008 financial crisis, all occurred when the top tax rate was below 45%.
I only have two thoughts about this. 1) Correlation is not causation, and 2) it may not be as big a problem now as it was in the past. The reason for point 2) is that, with each recession, or worse, even though the myriad of news sources will make it to look like the worst thing ever (after all, they are selling advertising, and competing for advertiser dollars, and hence readers or viewers), we have still had much technological progress in the intervening years. And people seem to like that. After all, they are buying cable TV broadcasts, smart phones, automobiles, refrigerators, washing machines, etc. As I've read somewhere, we are all living better than John D. Rockefeller ever did. So, at least as far as US culture (and of course Europeans like to say we have none), technology carries us along and apparently makes being in a low income level quite satisfactory. The only reason one might not be satisfied, is that we are constantly comparing ourselves to our peers or nearby social groups, and hence we are motivated to have a newer smart phone, a bigger or better car, more travel stories, etc., etc.
And that is the link to the Cooper Model (it's a lot easier to call it this, than the Darwinian competitive circulatory flow economic model). Any good economic model has to start with a competitive individual who has more than just a marginal utility function of financial gain. Quite probably, this basic competitive individual has a set of values, known or unknown, and is competing to achieve the highest rank in all categories. Sure, there might be some down time, taking a rest from all that, but even holidays and vacations are a point of competition among those who can afford to take them. (I expect several calls from friends about their great trips, just because I've written that;) It may be eventually shown, that we all have a multi-strategy game going on in our heads, and we continually assess potential behaviors in terms of how we can win that game (quite probably winning will involve a combination of serotonin and dopamine, and other feel-good brain activity).
All that micro-behavior adds up to a social / economic model as shown in Ch. 9 of Dr. Cooper's latest book. I think that picture should include lending / borrowing in addition to taxation as a way to keep the flow from the top to the bottom of the pyramid, but that is more about money flow than wealth flow. In any case, the analysis starting on p. 161 explains that part of the process very clearly. The recent press mentioned above is all about modifying taxation as a way to increase the circulatory flow of wealth in the economy. And that might work, it's true. I'm all for better circulation, no matter where in the pyramid I fall. Cooper's description of Quantitative Easing, as a way to increase the borrowing and lending portion of the flow, sounds accurate. QE probably is just short term help and a longer term hurt as far as economic growth. But I remember reading Paul Krugman's "Depression Economics", which I believe had the story of the Washington D.C. babysitting coop, where simply printing more coupons and distributing them to people who would use them, led to a re-start of the tiny model economy. So I cannot help but ask the question, why aren't we trying that? If the Fed is going to print money through QE, why give it to the banks to lend to people at low rates? Especially after the borrowers have all been hit with a "debt sucks" brick in the last 5 years.. Why not just print the money, and give it to those people directly, and let them spend it? I would call that QF, Quantitative Flowing. Let's see if it creates inflation; after all, it appears that we need some of that. It would almost certainly be a good test of the Cooper Model. Maybe it will be tried after the next banking crisis, which according to Hank Paulson's documentary on the last crisis, is certain to occur.
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