Absolute Income - Money and Class

This is part two in a discussion of the roll of tax cuts in the economy.

Conservative economists, the uninformed (that is most of) the popular media and a sad proportion of mainstream and even radical economists (even Marxists) put all investment in the same pot and count savings by the working, middle and upper class in the same pot as well. They also show concern for list economic activity due to tax increases. Economic cycles and crises are seen through the lens of consumption. Marx had no idea how wrong he was. Neither did Keynes. Hayek may have had hints, but if he did, he was not honest about them. This brings us to a small detour to monetary policy.

The Federal Reserve creates liquidity, aka money, based on government bond holdings in member banks and manipulating how much can be leveraged from those holdings. It also trades currency and buys junk bonds to stabilize liquidity. It does not, however, write down loan balances when it does so, which would cancel the money). Government borrowing (federal, state, educational and municipal) provides safe assets to backstop retirement accounts and mutual fund speculation.

All asset valuation is considered equally in official statistics and common usage. If Wall Street assets recover, depressed working class asset destruction goes uncounted, even though depressed prices (especially underwater loans) for such assets should be the operative definition of an economic depression. Hyperinflation is the opposite. It is when money is so devalued that you cannot afford bread, but could write a check for your mortgage. Sadly, most borrowers buy the bread first because they are hungry. Maybe preppers have the right idea. Holding gold, however, is not one of them.

You cannot eat gold. Eating through having gold only works if you are willing to trade it for something. In hyperinflation, where the supply of goods and services declines as the supply of money rises, gold buys less too. Goods and services, asset values and income dynamics must work in harmony.

Money is is not only a medium to exchange goods. It is also a decision tool to exchange power. Power is the ability to demand resources and labor. Capitalism seeks to consolidate this power into the hands of the owners of capital. Socialism seeks to distribute this power to society, using common action to do so. State capitalism and state socialism are the same thing, with modern mixed economiess consisting of private capitalism and social democracy. Cooperatives do combined action with neither governments or capitalists. Their exchanges are essentially labor based on a smaller scale.

The essential fact in any system that uses money is that money buys work from people. Since work is a function of time, as our lives, money essentially buys people.

Another way to look at money and savings  is through class analysis. Savings is the power to make others work without working yourself. When realized, savings purchase essentials and luxuries. Of course, even poor people deserve some level of luxury. In an unbalanced economy, the working class do not even receive the essentials.

Scarcity in essential goods is the incentive used to compel work. Inadequate income is used to compel work on a consistent basis. The argument against guaranteed income is that if work can be compelled, hyperinflation and shortages result. If toilet paper is unavailable, we are in a condition of scarcity. This is why I call SARS-2, the new official name of COVID-19, the Cornholio Virus.

Income tax data can help draw the lines between classes. Economic data show that purchasing power is in consistent decline for the bottom 90% of households. These include the poor who depend on transfers, the lucky poor who spend down assets as well and the working class. The middle class get more purchasing power from work each year and include the next nine percent. They are not wealthy because they must still work. They still experience scarcity and save for future income only. The top one percent do not work. They consider themselves the supply side.