From James Galbraith, writing in Mother Jones in 2008, we have this chart from Mark Zandi, chief economist for Moody’s Analytics (ht rjs), depicting estimated stimulus bang per buck based on how the buck is spent:
Where is infrastructure and human capital investment in the current bargain struck between President Obama and Congressional Republicans and why are tax cuts that are net negative the centerpiece of the Republicans' demands?
Nick Krafft at Open Economics sends us to Ed Fullbrook where I deduce one possible answer. Here's an excerpt from a Citigroup report on plutonomy that is no longer available on line (quelle surprise!):
Back in October, we coined the term ‘Plutonomy’ (The Global Investigator, Plutonomy: Buying Luxury, Explaining Global Imbalances, October 14 2005). Our thesis is that the rich are the dominant drivers of demand in many economies around the world (the US, UK, Canada and Australia). These economies have seen the rich take an increasing share of income and wealth over the last 20 years, to the extent that the rich now dominate income, wealth and spending in these countries. Asset booms, a rising profit share and favourable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries...Indeed, David Gordon and Ian Dew-Becker of the NBER demonstrate that the top 10%, particularly the top 1% of the US – the plutonomists in our parlance – have benefited disproportionately from the recent productivity surge in the US.
So the rich are calling the shots. No surprise there. But the above was written in 2006. The "productivity surge" it's referring to is the sub-prime mortgage debacle and the derivatives-based house of cards that put us in this hole and that the financial sector continues to erect:
Global derivatives trading in over- the-counter and exchange-traded futures and options will represent a $700 trillion market with $3.7 quadrillion in annual turnover by the end of this year, research company TABB Group said.
Rules to have central clearing for over-the-counter trading would require additional collateral of as much as $2.2 trillion, Westborough, Massachusetts-based TABB said in a statement on its website, citing a report it completed at the request of the World Federation of Exchanges.
As a reference point, US GDP in 2009 was around $14-15 trillion.
So here's the question my mundane, raised-in-Appalachia, offspring-of-simple-business-men-and-women, forget-the-PhD-in-economics brain keeps asking: What does the financial sector produce, besides economic chaos? Where's the benefit for most of us or for most of the US? And if the financial sector isn't going to provide the service of deploying capital to support investments that benefit the rest of us, who will?
In an ideal world, the US government would. In an ideal world, where most of the populace who would benefit from such investment do not respond to the dog-whistle term "socialist" by forming political groups funded by plutonomists to protect plutonomists, US taxpayer dollars would support investment in infrastructure and human capital that would prepare us all, not just the top 1%, to be productive participants in a 21st century global economy. Instead, our tax dollars have been deployed to no-pain, no-downside bailouts of guys who turned around and awarded themselves bonuses for running us into the ditch. Now, finance and US politics seem committed to sustaining and feeding a casino and fostering an increasingly unstable and unfair plutonomy, instead of rebuilding a nation dominated by a productive, hard-working, ambitious middle class.
This is the most unsatisfying morality play I have ever watched.