THE BLOG
06/30/2010 11:37 am ET | Updated May 25, 2011

It's not the Debt, It's the Distribution

(No, I'm not an economist. But I figure I can't really do much worse than they've done)

So let me get this right. There used to be a savings crisis. Americans didn't save enough --unlike those industrious Chinese. In fact, the Chinese were so thrifty compared to us that we ended up in hock to them up to our keesters.

But wait a second, where did all the money the Chinese saved come from? It turns out, from us, from our inexhaustible purchases of their exports. Much of that was paid for with illusory housing bubble wealth -- but that didn't stop the Visa from going through at the Best Buy for that flat screen TV. Money that didn't just go to the Chinese. The TV had to be unloaded in port, and trucked to the store. Then there were the salaries of the store clerk, the manager, and the company execs, not to mention the fees of the advertising agencies who came up with the commercials to sell the TV on the TV, and so on.

Now, we're told, saving is part of the problem. When we save too much, we don't spend enough. And everybody knows, consumer spending is the engine to full employment. Not that this means we should incur more consumer debt. Debt bad. Spending good. No spending, no jobs. No jobs, no recovery.

That leaves the government to do the spending, and by extension, to incur the debt. But since debt is so "bad," Obama could barely get a wholly inadequate stimulus package through Congress. It was just enough to produce an anemic recovery, while plenty enough to add a lot to the deficit. The big evil deficit.

So we're spending a trillion plus more a year than we're collecting in taxes, borrowing prodigious amounts to do so. Where is all that borrowed money coming from? Banks. In other words, us. Our deposits. Our tax-funded bailouts. (It also comes from the Chinese, but that's money we give them too.)

So to whom, finally, do we really owe all that money?

Ourselves.

Banks, incidentally, love the national debt. They never want the principal repaid, because they can live on just the interest forever. And live very well, thank you very much.

So what would happen if all the interest that has been paid on the national debt was declared applied to the principal? (I can't find that calculation anywhere, but I'm pretty damn sure the national debt would no longer be the subject of giant digital clocks in the trillions.) It seems hard to believe I'm the first person to think of this, but I don't know why it can't get some serious discussion even if I am. As far as I can tell, the only people who'd lose out are the bankers.

Don't be intimidated by the economists and the deficits hawks. The problem is not debt -- not when you owe it to yourself, as depositor and taxpayer and employer of Chinese workers. The problem is distribution. Google "income inequality," and read for a while. Not one article -- even from the right -- claims that there hasn't been a huge increase in the wealth of the top quintile over the past decade, concentrated in the richest one percent. According to Professor Emanuel Saenz at Berkeley, (cited by Professor Richard Wolff in this graph) our income inequality is exactly where it was in 1932.

2010-06-30-graph.png

The problem is not that Grandma gets her medical care for free. The problem is not the lack of consumer spending, or even the deficit. The problem is that a few people have a lot more than they need, so a lot of people (including the government, i.e. all of us) have a lot less than they need. It's not rocket science, it's simple math.

At the very least, we should return to the level of taxation under Clinton--a level that produced surpluses. If Clinton is too liberal for the Republicans, we might propose going back to the way things were under Eisenhower. I was born in 1958, and my Dad not only supported 4 kids and a wife selling encyclopedias, but bought the house I was born in on that salary.

There were plenty of rich people in 1958 too -- they just had a proportionate sense of wealth. Three houses--not thirteen. First class travel -- not private jets. An understanding that a 91% maximum tax bracket was God's way of saying you had too much money, and that paying it was indeed, one of the most patriotic things an American could do.