A Different Gulf Disaster?

For ye have the poor with you always, and whensoever ye will ye may do them good: but me ye have not always. — Mark, 14:7

A basic principle of physics and engineering is that there must be a difference in energy levels for an engine to function, a heat sink to cause “work” to happen.  This is no less true in economics.  There have always been both rich and poor.  If everyone were rich, who would make the beds?  I see this as one of William Blake‘s “contraries” which applies to economics.  But can the gulf between the classes be too great?  I submit that it is becoming so.

Right now, as the nation and the world teeter on a knife-edge of fiscal uncertainty, the contrast between the haves and the have-nots has peaked again.  It was high in the nineteenth century, the time of the robber barons and the second industrial revolution, and in the Roaring Twenties.  Companies and large banks are flush with money, but are loath to commit it to expansion and jobs.  Compensation for top executives has soared, but wages for the bottom 90% are stagnant.

Columnist Dale McFeatters, not known to be a leftist writer so far as I know, writes in today’s Joplin Globe about how the Bush II tax cuts have contributed to the growing gap between the classes.  (I would provide a link, but can’t find one.)  He begins this way:

This week is the 10th anniversary of passage of the first round of the Bush tax cuts, one that tidily disposed of that year’s modest $128 billion budget, ending four straight years of surpluses and setting the country on a downward deficit spiral.

McFeatters relates that a bipartisan blue-ribbon panel, the Committee for a 

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Responsible Federal Budget, is grappling with the ramifications of keeping these tax cuts.  They conclude that, because of the cuts, the Treasury will be some $2 Trillion dollars (for the arithmetically challenged, that’s two thousand billions of dollars) lighter than it otherwise would have by the time they are set to expire in 2012, and that we are looking at another $4 Trillion to be added “on the nation’s credit card” if they are retained.  GOP leaders insist of course that the retention of the tax cuts, including for those making over $250,000, is non-negotiable.

Non-negotiable.  Am I the only one who thinks this an unsupportable position?  I have yet to hear anyone advance a cogent argument to support it, other than it would be bad for business because it would make the wealthy less likely to expand hiring.  But businesses aren’t expanding as it is, despite the availability of money.

McFeatters says, pointedly,

The problem with spending cuts is that sooner or later they run up against reality, both political and arithmetical.  Spending can only be cut so far, both because of the law of diminishing returns and voter resistance.

So, what does the blue-ribbon panel recommend?  Other than implying that renewal of the tax cuts would be bad, they want reform of the tax code.  But, as McFeatters says, “Now, how do we go about doing that?”  My answer:  we don’t.  The tax code is the tool Congress uses for tinkering with political capital and power – no way are they going to give that up.  I sure don’t know the answer, but I do know that seismic pressures are building up in the gulf between the haves and the have-nots.

“Of all the preposterous assumptions of humanity over humanity, nothing exceeds most of the criticisms made on the habits of the poor by the well-housed, well-warmed, and well-fed.”  — Herman Melville, US novelist & sailor (1819 – 1891)