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How the Federal Reserve and Government Policies Make the Rich Richer and the Poor Poorer
Raymond Richman, 2/25/2015

The Federal Reserve Board and the Obama Administration are chiefly responsible for the creation of two economies in the US, one for the rich and upper middle class and one for the poor and lower middle class. The Fed by its quantitative easing widened the unequal distribution of wealth by causing the prices of corporate stock and commercial real estate to rise to unprecedented levels. Obama’s countercyclical policies gave us the $18 trillion federal government debt which only hyper-inflation will pay-off. Obama’s support of the minimum wage have denied lower-class blacks jobs keeping them poor and dependent on government handouts. And Obama’s and the Republicans’ free trade policies and his permitting US corporations to our-source factories abroad and import their goods free of tariffs have cost American workers millions of jobs and the manufacturing sector of the economy to stagnate.

The Fed is largely responsible for the real estate bubble and its bursting and the ensuing financial crises that engulfed the world in 2008. It was put in charge of   administering the Community Investment Act which told the Fed to keep mortgage standards high but it did nothing to prevent unqualified persons from obtaining mortgages.

By artificially keeping interests low the Fed caused huge increases in the wealth of those who own business assets like corporations and office buildings, hotels, and commercial real estate. The price of an income-earning asset is the capitalized value of the income expected from it. Capital value is expected income divided by the appropriate interest rate. For example, a building yielding $100,000 per year is worth $1 million at an interest rate of 10 percent but $20 million at an interest rate of 5 percent.

The federal and state governments have subsidized and continue to subsidize inefficient wind and solar electricity-generating plants. The benefits go to millionaires and many foreign owners of wind and solar plants. Breitbart who maintains a popular blog estimated that $154 billion has been spent on renewable energy subsidies.  Subsidies go to the manufacturers of electric and hybrid autos, millionaires like Musk of Tesla and shareholders in GM and other auto manufacturers. One estimate has it that Chevrolet Volt received subsidies of $50,000 to $200,000 per auto sold. Buyers of electric and hybrid vehicles receive subsidies, and since the vehicles aren’t cheap, those subsidies go to the rich. The World Bank subsidizes wind and solar plants and the IMF has complained that fossil fuel producers are subsidized by governments. Both institutions are substantially financed by the US government. They never mentioned that wind and solar plants are highly subsidized and pay no income taxes unlike fossil fuel producers who pay huge amounts of taxes.

It is time to reverse these policies which make the rich richer and poor poorer. 

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]