A Serious Problem With The Two Tier Economic System

If you have been reading this rant, you know that our increasingly two tier economy is a fact and is supported by a wide variety of actual measurements. This "problem" is getting increasing attention. Joe Stiglitz, the Nobel prize winner who thinks if you are unemployed it is because you are incompetent, has written a long piece about it.

I say "problem" because there are those who do not think it is a problem. It is simply the system working the way it is supposed to work and that those who are getting rich deserve their rewards.

So there are a whole lot arguments about the effects of the the two tier system that hinge on fairness, morality, etc.

However, there is one very real argument that hinges on hard edged economics. So let me explain.

We now have had unemployment that is setting records for its length and severity.

Small businesses are the largest source of jobs in our economy, by far. (67%)

Small businesses are not hiring because they do not have the sales to support new employees.

Small businesses do not have the necessary sales because there is not enough "earned" income flowing through the economy because 15 million are unemployed and another 15 million are under employed.

Now you can use whatever cutting points you like, but let's just take 10% and 45% to make the point. So if 10% of Americans take in 45% of the income (wealth) of the country, that leaves 55% for the rest of us.

There is no question that the rest of us spend all of the income we get, less a modest amount for savings. So our 55% is available to small businesses, and to large ones as well. All of our portion of the wealth goes back into the economic system to support it.

But the problem is that the 10% who get 45% of the income do not put their share back into the economy. There is lots of research to support that fact. Paul Allen may actually have two 727 jets, but not many people need two jets, or two yachts, etc.

What seems to happen is that they take the part of the 45% they cannot spend and invest it. Now that wouldn't be bad in they invested it in the U.S. However, the evidence strongly suggests they invest it overseas. Better opportunities? Easier to evade income taxes? Who knows?

But if you want numbers, look at the number of U.S. citizens with bank accounts in the Cayman Islands. And sooner or later, we will get to see the list of our citizens who had secret bank accounts in Switzerland.

So the point here is that our growing two tier economic system is taking money out of our economic system, which could be used to create sales for small businesses, and moving it out of the country.

And the faster the two tier system grows, the weaker our economy gets. The weaker the economy gets, the fewer new jobs that are created. The less tax revenue is generated is then another byproduct of the two tier system.

So you can argue about the morality of the two tier system all you want. But the hard facts are that the two tier system is weakening (destroying?) our economy. And that ain't a good thing.