Personal Consumption by Income Quintile
In response to my request for suggestions on lowering prices a regular commented proposed
Raise taxes, cut government spending, and raise interest rates.
The question remains how? I’ve already made my remarks on interest rates which I believe the Fed governors are moving in the wrong direction.
The pie chart at the top of the page illustrates the personal consumption expenditures by income quintile. As you can see the topmost quintile is responsible for a disproportional amount of that. “The rich” are responsible for nearly half of all retail sales. Taxing their income means they will buy and invest less.. Since our economy is overly dependent on consumption (more than any but the poorest countries), it will have the perverse effects of increasing unemployment and reducing production.
Furthermore, “the rich” already pay a higher proportion of their income in taxes than those in lower quintiles. There is also the risk that there is some degree of effective taxation that will impel the ultra-rich to leave the United States, possibly taking their companies with them.
If taxes are increased on corporate income it will have much the same effects.
The Trump Administration’s “Department of Government Efficiency” experiment has illustrated how difficult it is to cut spending. By some accounts despite all the hoopla and agonizing (depending on your political beliefs) the actual results that DOGE produced were pretty limited—a spit in the ocean compared to what’s needed.
The reality of the federal government is that most of the federal budget is devoted to interest on the debt, Social Security retirement benefits, defense spending, and healthcare spending.
Defaulting on our loans (not paying interest on the debt) will have serious adverse consequences so that’s off the table. We are in the process of increasing our defense spending rather than decreasing it. The effect of trimming SSRI will be disastrous to those dependent on it and they vote. That’s off the table, too.
That leaves healthcare.
The ACA was always seen as a first step. There are a number of things we could do to at least further decrease the rate of increase like we have already done and get it below general GDP growth. However, I think things will have to first get worse. Health care just isn’t an issue for the GOP. They are willing to cut Medicaid spending. Lots of those are brown people and poor people who arent using their bootstraps properly. However, the GOP wont go after old people, they actually vote, so they wont really go after the third of Medicaid that goes to old people or Medicare. Private health insurance costs grow faster than public and they never address private insurers.
That leaves the Dems. While they did, apparently, focus enough on costs in the ACA that we have had an extended period of slowdown in spending, their focus has always been on expansion of access. The actual health care policy and health care economists on the left focus very much on costs but policy is generated by politicians so I am skeptical much of that gets through.
As an aside, as I understand listening to the proposals with Japan and Korea Trump is going to be making all of the final decisions on what Japan and Korea will be allowed to build in the US. If Trump is going to have this much control of our economy, pretty much unopposed since we have no effective means to limit him, why doesnt he just order everyone to cut prices?
Steve