Crumbs

Nancy Pelosi is at it again.  I originally planned to pen (or type) this post a couple of weeks ago, but I got pre-occupied.  Now, Pelosi has resumed her attacks on tax reform, calling the tax bill "unpatriotic," hearkening back to when President Obama said that paying more taxes was "patriotic." Like it's not our flipping money to begin with.

Pelosi also said that the tax bill is "undermining" our democracy.  To which I can only ask, how the heck do you support that assertion?  I'd like to think our democracy is about more than just paying taxes.  Maybe it's not, to her, someone who's spent most of her adult life on the public dole.

Last month, Pelosi referred to the bonuses companies are paying their employees as a result of the cut in the corporate tax rate - proof that supply-side, or "trickle-down," economics works as intended - as "crumbs."

So Pelosi is saying that a $1,000 to $2,500 bonus to an hourly-wage worker is a "crumb."

Okay, I get that it's a one-time stimulus, and as such it won't provide direct long-term stimulus to the economy.  However, let's examine this in light of how the economics of money flows actually work.

When it comes to money, velocity matters.  And the velocity of money tells us that as money is placed in the hands of those who spend it, they do just that.  And that spending picks up speed, coursing through the economy to produce additional transactions that provide economic benefit.

Some plain English is in order.  Let's say you pay a bunch of people a one-time bonus of $1,000 to $2,500.  Most of the people who receive those bonuses view them as "found money," and found money tends to get spent, not saved or invested (which isn't necessarily a good thing, but Pelosi and her ilk aren't interested in that nuance, so I'll save it for another post).

So I get a $1,000 bonus.  I spend it at Best Buy, purchasing an Xbox and an iPhone 8.  Now, multiply that by the three million or so workers who got such bonuses as a result of the tax bill.

Suddenly, Best Buy is hiring more workers, maybe giving raises themselves, because their sales are increasing significantly.  Microsoft, which makes the Xbox, also has to hire more workers, and maybe gives raises.  So does Apple, as iPhone 8 sales increase.

Those workers go out and spend their "found money" - in the form of those raises (or increased spending from the new workers hired) on meals at Olive Garden (owned by Darden Restaurants), stuff at Target, and clothes at J.C. Penney.  Those companies see an increase in sales, so they hire more people and give more raises.  And on and on it goes.

Plus, those companies' stock prices increase.  "But that only benefits the rich!" the Pelosians cry.

Really?  I'm not rich, and my family owns stock in Apple, Darden and Target.  Yes, only about half of the population participates in the stock market through 401(k) plans.  But still, that's half the population.  And other Americans participate in the stock market through IRAs and defined-benefit pension plans, which also invest in the stock market.  And some retirees invest in the market through taxable accounts.

So as companies' stock prices appreciate, and they increase their dividends, all of these Americans benefit.  As the retirees' income increases, they're willing to spend more.  And as our retirement funds grow, we're more confident, and thus more willing to spend and borrow (that's called "the wealth effect").

As we borrow, the banks become more profitable.  And as we spend, the companies that sell us stuff become more profitable.

So they hire more people.  They give more raises.  And so the velocity of money accelerates.  See how this works?  The more people earn, the more they spend.  The more they spend, the more the companies they patronize earn.  The more those companies earn, the more 1) they hire and increase wages, leading to more spending by their employees, and 2) the more their stock prices rise, leading to increased spending and borrowing from the wealth effect, which leads to 3) more spending, etc.

Back to Nancy Pelosi.  It's little wonder that she views a $1,000 bonus as a "crumb."  Her family's net worth (most of it resulting from her husband, because Ms. Pelosi is a leech who lets him make the money while she cultivates the perks) is about $100 million.  And her constituency is solidly in the 1%.  A whopping 53% of the households in her affluent district have incomes in excess of $100,000, and nearly a quarter of them have incomes of $250,000 or more.  The median household income in her district is nearly twice that of the U.S. overall.  And since the U.S. median includes districts like hers, that means incomes in her district are dramatically higher than those for most Americans.

It's no wonder that Pelosi views a $1,000 bonus as "crumbs."  She's so out of touch with the reality most Americans face that she can't possible fathom what it's like trying to provide for a family on the U.S. median household income.  For that reason, if for no other (and there are plenty of others), she has no business serving in the House of Representatives, much less as its minority leader.