America Is Not Rome: The Wrong Metaphor & Bad Economic Policy

I can appreciate that America likes to compare itself to ancient Rome. After all they both came from humble beginnings, they grew to become economic, political and military power houses through innovation and technological development (aqueducts, standardized parts, roads, airplanes) and they were both (to a degree) republics. Thomas Jefferson was obsessed with the Romans. Much of the architecture around the US capitol is influenced by Roman design. However they are picking the wrong empire to compare themselves to. America is not Rome, America is 17th and 18th Century France. Why am I making this comparison? Simple, America has a tax system that only benefits an entrenched aristocracy just like France did before its revolution. Also the bad foreign policy initiatives, massive debt and military quagmires are similar but mainly the tax system.

In the United States, dividends (the return on investment generated from stock investment) are taxed at only 15%. The argument is that it would be double taxation for a company and individuals that earn a profit. However, many of the wealthiest Americans generate the majority of their income from dividends. So that means the majority of their income is only taxed at 15% while the most people who earn their living through wages are taxed around 35%. This is why Warren Buffet says he pays a lower tax rate than his secretary. How does this compare with France?

The second estate was the French nobility. They compromised roughly 1.5 percent of the population and paid zero taxes. They benefited the most from a system that was skewed in their favor. Essentially it was the old world’s version of Reaganomics. What exists now in America isn’t so much capitalism but rather a post-industrial serfdom. The over emphasis on supply-side economics has marginalized the majority of spenders through the process of gradually taking them out of the equation. After all, last year the average middle class citizen paid more taxes than Exxon Mobile who reinvested their (45.2  billion dollar) earnings overseas and never paid a cent in tax to the United States government. Of course, its not like corporations have the same legal status as people under the law, oh wait, never mind.

This falls into what is called the paradox of thrift. There is a belief that is common among many that what is good for the home is good for the economy. For example, if we cut household expenses it helps us have more disposable income in the long run. However if this is applied on a grand scale to the economy it actually tends to hurt it. The basics are that income/demand must be equal to output just as savings must be equal to investment. So if we decide to cut government income we must also understand that government output will be cut too. Same as if the government allows for a greater level of savings then people should be increasing their overall investments. Unfortunately this is not the case and what we are seeing is the people who have had their saving increased are hoarding their currency rather than investing or spending.

So what happens when you have a situation where people are not making any investment into a country are extracting the greatest return from everyone else? Well the French had some problems with  this exact situation. The results are actually pretty interesting. The high levels of debt, increased taxation and lack of representation caused the professional elements of society to re-frame their society. Most revolutions are successful when the middle class finally has enough and burns down the status quo. This isn’t likely to happen in the United States. America has systematically destroyed their middle class. Chances are we are about to see the return of feudalism. Feudalism with computers, credit cards, drive throughs and cell phones.