[image: Galileo/biography.com]

The Road to Economic Prosperity

This essay deals with the economics of poverty, why it exists, and how to change it so that everyone benefits—the poor, the middle class, the wealthy. The solutions offered are based in solid economic principles and in facts that can create greater GDP, more jobs, higher incomes, greater tax revenues, lower deficits and debt, and more prosperity for all.

No rational person could possibly be against all those outcomes especially when they could be realized with little or zero costs. The only persons who might object to all of them are those with excessive wealth; or those who have a need for power and control over others; or who love to see squalor in the lives of others so they can feel a greater sense of well-being; or who have a connection to a mysterious force in the universe that only they know about. Some also could be mentally disturbed, some are puppet legislators, and some are both. I can only deal with the economics of these issues.

Few people think of economics as having much of a connection to teen pregnancies, or to murder rates, or to suicides. They don’t make a connection between economics and life expectancies, or to imprisonment rates, or to mental health issues, or to illiteracy rates, or to obesity rates, or to crime, or to social mobility.

There is a very specific underlying factor that is common to all the above social ills. It is not race, or religion, although I am certain each has a correlation with them. Education is also related to many of them. Family values are related to them. A positive work ethic plays a role. Laws play a role. Self-esteem is highly associated with most of them.

But only extreme inequality of wealth and incomes are highly related to all 10 of them. And this relationship persists across time and location anywhere in the world. It is pronounced in 23 of the most industrialized countries around the world. The United States has the highest correlation with them among all other nations. We also have the most wealth as well as the highest inequality of that wealth among all nations.

The mathematical relationship between the social ills and inequality is very high and is expressed as a correlation coefficient. The probability that it is false is approximately .001, or 1 chance in 1,000 of being there by factors other than inequality. But the probability that every one of them is highly related to inequality is .000,000,000,000,000,000,001, or 1 chance in a sextillion. That is because the total relationship number is the cross-product of all the individual relationships. No DNA relationship associated with any suspect and any crime scene has ever approached that level of certitude.

So, what do these probabilities tell us apart from having the tiniest chance under the sun that I could be wrong? They mean I am not merely citing statistics. And I am not dabbling in abstractions or theories. They are facts that are about as close to the absolute truth as science can take us. And that should give rise to the next question: Why?

Extreme inequality means that the wealthy are excessively wealthy, and the poor are excessively poor. Those relationships may be further identified by numbers: The wealthy have about $75 trillion of wealth, while the poor have close to zero. Another way to look at this issue is this: Poverty is what exists when you take away nearly all the wealth and leave behind no way for those who must live in poverty to raise themselves up. The cause/effect relationship is absolute: Excessive wealth causes excessive poverty.

Now, do not get ahead of me. I am one of the very few progressive economists who does not advocate taking wealth or money from the rich and giving it to the poor. The reason is because that solution has never worked and probably never will. Try driving through any poverty-stricken neighborhood while handing out $100 dollar bills. You will soon be attacked, robbed, or killed. Mailing out checks will probably stop most of the killings, but not the attacking or the robbing.

No. Not even the well-intentioned programs of the Great Society put much of a dent in poverty. Indeed, almost every program designed to take from one group and give to another has failed. And the reasons are many. Those who must live in poverty typically do not understand the uses or the limitations of wealth or money—things they want but do not have. We certainly could not make wealth managers out of those who have no wealth, or have never seen it, or lived with it. Psychologically many have not advanced high enough on the human needs scale to have garnered much self-esteem. Crime and drugs are survival acts, not inherent evils. Respect for self, for others, for their belongings, and for the law are low to nonexistent but inevitable where squalor exists. They comprise a tough cycle to break.

Still, there is plenty of wealth in America, and even more that comes into existence every day. What we need to do to eliminate poverty without taking from the wealthy is to redirect a portion of the source of new wealth to the underlying factors that can allocate wealth in a measured, intelligent way. Here they are:

Education: This is the best investment we can make. As a nation we need to make education available to everyone. That is a must. We can no longer afford to educate all of the wealthy, most of the middle class, but just a small portion of the poor. Latent abilities are distributed approximately uniformly throughout our population. They can be tapped and developed. Anyone who does not believe that education pays should think about the cost of its opposite: ignorance. It will take time, but an educated population is one with goals, and dreams, and drive. They will find their way out of poverty. Or they will die trying.

Jobs: We need thousands of new small businesses throughout the land. Small businesses account for 60 to 70 percent of jobs. New businesses can survive when they are linked socially and geographically and have the support of the communities in which they are located. Additional funds via M1 injections (money in circulation) from the Fed that are directed through the Small Business Administration, through community banks, and through credit unions are the answer. Such injections would have a huge multiplier effect as each new dollar creates more and more GDP, more new jobs, new incomes, and new taxes. The effect today is $6 of new GDP for every new dollar injection. Here is an example: $1 trillion injection leads to $6 trillion in new GDP, $5.1 trillion in new incomes, 7.9 million new jobs, and $2.4 trillion in new tax revenues at all levels of government, of which $1.96 trillion would be new federal tax revenues. Double the $1 trillion injection, and all of these numbers would double.

Too Big to Fail. No bank, no corporation, and no business can be treated better than individuals. Anti-trust laws need to be enforced, mergers and acquisitions need to be curbed, competition among sellers needs to be encouraged, and we need more oversight of those activities that create too much wealth concentrated in too few hands in the world of business.

Corporate Taxes. Taxing corporations is self-defeating. Approximately one-half of such taxes show up in higher prices. And higher prices hit the poor heavier than any other group. A cut in this tax will have the immediate effect of lowering tax revenues, but those losses will be recovered in more sales, at lower prices which lead to more profits, more jobs, more income, and more taxes. Everyone benefits, but especially the poor. Lower corporate tax rates will also make our corporations more competitive in international trade, thus helping to reduce our trade deficit with other nations. Higher rates tend to drive some businesses to locate overseas and to keep their profits overseas. We need to repatriate those profits with a one-time relatively low tax on all dollars brought back to our shores. The present corporate tax is a “no brainer” that simply cannot be justified on any grounds. Bring it down.

Inheritance Taxes. This is a contentious tax that is at the heart of extreme wealth. The government currently collects only about $50 billion per year on inheritances of more than $800 billion. This tax is too low and it must be raised. It is so low, in fact, that it is the main source of new wealth—but only for the inheritors who did nothing to earn it. It builds dynasties of enormous wealth. And enormous wealth is the cause of immense poverty. Consider this: My research shows the Walton family (inheritors of Sam Walton’s wealth—the founder of Wal-Mart stores) inherited $23 billion in 1993. Today their wealth is estimated to be $140 billion. And what did they do to earn any of this wealth? Nothing. Basically, Sam left them a huge number of shares in Wal-Mart stock that has continued to grow and grow. I doubt if anyone begrudges his children their wealth, but what could be fairer than having them pay something (they currently pay no tax on their wealth) to ease the tax burden on the rest of us? Now multiply this example by 5,000 or 10,000 and the issue mushrooms into an enormous problem. It stifles economic growth, causes higher unemployment, lower incomes, lower tax revenues, and massive poverty. Raising this tax from 6 to 15 percent of inherited incomes would generate an additional $75 billion per year.

As you can see inequality is the fundamental cause of poverty, but it also restrains what everyone can achieve economically. We do not need to take from the rich except in those instances where they are paying little or nothing. Reducing corporate taxes benefits everyone. Creating new smaller businesses benefits everyone. Getting our kids off the streets and back into schools for job skills and advanced training has a huge pay back for everyone. The benefits to be realized in reducing the 10 factors associated with poverty would reduce the costs of poverty in lower food stamp costs, lower welfare payments, the costs of income credits, and they would compound and show additional prosperity for everyone over time.

The entrenched members of Congress who spout false rhetoric about the causes of poverty, and about how to fix our economy are a huge obstacle to overcome. Ignorance at any level, however, is still ignorance. It is the antithesis of enlightenment. Too often it is merely favoritism that is being bought by a handful of wealthy persons. This cozy arrangement can be obfuscated by rampant ramblings that are false, yet repeated at such a high rate that too many residents begin to believe in it. Brainwashing is a separate subject that I have written about previously.

I will not end this essay by asserting that I am the way, the truth, and the light. I am much too humble for that kind of pandering. I am merely a lad who has spent a lifetime with my nose in books, and my body in the workplace, who has travelled far and wide, who has conducted research, worked in large and small organizations, and who has listened to my favorite teacher—Galileo Galilei who said: “I cannot believe that the same God who has endowed us with sense, reason, and intellect intended us to forego their use.” He is reported to have whispered those words when he was forced to recant all his knowledge of the universe or face the horrors of death by being burned at the stake.

I do not face his inquisitors or his fate, so I will simply paraphrase my mentor and say as loudly as I can: “God gave me a brain, and he expects me to use it.” I just did.