U.S.A. -- Election 2016: The activist voter and Econ 101

About four months ago Jeb Bush, former governor of Florida and brother to and son of past Presidents of the United States of America, kicked off the contest for the 2016 presidential election by announcing that he was interested in the job.  Mr. Bush is still not an officially declared candidate, but a half-dozen other Republicans are, and also two Democrats -- Hillary Clinton and Vermont Senator Bernie Sanders.

What does all this activity starting a year-and-a-half or more before the election mean for the typical voter?



If we get lucky, there will be some entertainment that comes from this.  Mostly, though, it means eighteen months of being increasingly bombarded by the candidates' ideas of what they think is best for you and for me and for the country.

For those who are interested in the election, here's a better way of making this whole process into something useful:  Become an activist voter.  Tell the candidates what it is that you want to hear.

I'll get this started.  Here's the first thing on my list of important national issues that I want to hear about from the candidates:  Tell me what you learned in Economics 101.  That's the basic college course in economics.

Jobs, job security, earnings, wealth, employment opportunities, income and wealth inequities are all high up on most people's list of national issues that need action, if the public opinion polls are to be believed.  Put all those pieces together, add in the thing called capital--in its various incarnations of investment and debt--and you end up with the economic system of market-based capitalism that seems to suit us so well and to be so successful at employing people and generating wealth.

Unfortunately, it seems to be working in a lop-sided way now:  the rich have gotten richer, and almost everybody else has fallen behind.

We see this in a lot of ways, but one way is particularly striking to me:  When I was a young career professional in the late 1970s and early 1980s, the average corporate CEO annually earned about thirty to forty times the yearly pay of the average employed worker.  Now, that ratio is horribly skewed to the point where it is about 340 to 1.  In other words, a CEO is now paid about 340 times what the average worker is paid.

This is where Econ 101 comes in.  Basis economics tells us that a marketplace balances supply and demand to achieve stability or equilibrium.  That equilibrium changes when one, or both, supply and demand changes, and that's when the economy either grows or contracts.  You have probably seen the chart that describes this:  two sloping, intersecting lines, one representing supply and the other representing demand.  Where they intersect is the point of equilibrium.

No economy will grow without an increase in demand.  A growing economy means more jobs and better pay. We all want a growing economy.

Unfortunately, we are not pushing the demand part of that chart as hard as we could be, and so the economy is not growing like it could.

There is no one reason that is entirely to blame for creating this environment of tepid demand, but the increasing concentration of income and wealth is at least partly to blame.  Here's why.

One person who earns 340 times what another earns does not spend 340 times as much money to live a very fine life.  Put it another way:  a typical worker earning about $50,000 per year spends just about all of that money (after taxes) on the necessities of life.  A CEO--or any high earner, it doesn't have to be a CEO--earning millions or tens of millions per year has to make some major efforts to spend a few million a year for life's necessities; the rest of the earnings (again, after taxes) are saved or invested in some way.

There's nothing wrong with saving and investing, but those millions of dollars that are saved and invested are doing nothing to increase demand in the economy.

In fact, it's just the opposite.  Demand is reduced by squirreling-away all that money.  (If the average Jane and Joe had some of that excess, wouldn't they find it pretty easy to spend at least some of it?  I think so.)  As more income and wealth is concentrated in the very small numbers of high earners in the country, there will be less demand for goods and services than there could be.  Therefore, there is less demand for average workers, too.

With less demand, there's nothing pushing hard on that Econ 101 chart to cause growth in the economy.  That's a problem.

I can think of a few solutions to that problem, but I'm not running for president.

Do those who are running for president have solutions to offer?  Let's hope so.

But if they want an activist voter to listen to them, their solutions had better show that they learned something useful in Econ 101.