5-04-09, 8:45 am

Last autumn (in 2008) we witnessed the owners of wealth change their tune from laissez faire capitalism to one of unprecedented government intervention in our financial system. After more than half a century preaching the Chicago brand of economics, the rich performed an ideological volte-face towards a government bailout.

Up until very recently a proposal for a trillion-dollar intervention in the US economy would have been a nonstarter among the wealthiest of Americans. These Americans were comfortable in the notion that less government was better government.

Only the recent precipitous fall in financial markets induced the wealthy class to identify government as a means to supplement income from these markets. While the wealthy preach self reliance to other social classes when coping with economic distress, they instead rely on their advantage of disproportionate influence over our government to engineer transfer payments (i.e., welfare) to themselves. This influence exists because of the overwhelming need by both major political parties to raise campaign funds to compete in elections; given such a need, it is no surprise bipartisan support emerged last autumn to bail out the wealthy class.

This bipartisan support of a bailout made possible a legislative proposal to transfer income from the lowest four fifths to the highest fifth of earners. Support solidified behind the Troubled Asset Relief Program (TARP), which after only little real debate became the law of our land.

A little analysis of the economic data is sufficient to illustrate clearly the transfer payment to the wealthiest Americans. In 2006, the latest year of relevant data reported by the Congressional Budget Office, the highest quintile of earners paid just under 70 percent of federal taxes but earned over 90 percent of investment income. [1]

What these two statistics together reveal is that under the TARP there is a massive transfer payment to the rich, courtesy of the remainder of the overwhelming majority of Americans. In plain terms, the highest earners of income in America have taken income from the rest of us to offset their capital and/or financial losses. Here the conservative estimate is $150 billion, or 21.4 percent, of the $700 billion authorized for the TARP by the Emergency Economic Stabilization Act of 2008. [2] As the transfer rate is approximately 21.4 percent (90.9 percent minus 69.5 percent) of any money doled out to financial institutions, talk of the bailout reaching $2 to $3 trillion produces a range of $428 to $641 billion transferred to the wealthiest quintile.

As there is little understanding of the economics surrounding this TARP by everyday Americans, there has been little informed opposition to it. Both political parties felt free to support a policy that is extremely popular among the richest Americans. There is little need to state that such support comes with the expectation of future financial and electoral support from the wealthiest Americans.

Without education in these matters the wealthy, through their control of American media outlets, will continue to center attention on recent measures of the Obama administration that stimulate spending through more equitable measures.

Workers, small farmers, and the lower middle class must demand from their government that measures to bail out the richest Americans, who already have received a larger and larger share of America’s output over the past 25 years, cannot be the law of our land. These social classes must unite in message to denounce the wealthy interests that produced today’s economic crisis and the unfair transfer of their income to the richest Americans.

Charts:

NOTE: Investment income defined as sum of income from interest, dividends, and capital gains








































SOURCES: http://www.cbo.gov/publications/collections/tax/2009/income_by_source.xls http://www.cbo.gov/publications/collections/tax/2009/tax_liability_shares.xls