Pyramid Economics: A Treatise on the Current Economic Situation of America

This is the result of about an hour of thinking this morning. It is an economic model which I feel represents the current situation of American, western, and world-wide economies. Using a pyramid, and a few fundamental assumptions, we can model an economy with ease.

Disclaimer: I have no formal economics background. I'm just a guy with moderate intelligence and way too much time on his hands.

More below the fold ...

This started when I was searching cafepress for a bumper sticker that had a stick figure labeled "Corporations" on a stick figure labeled "Workers." I'll leave it to you to figure out what they were doing. Anyways, I thought this model of the big guys up top screwing the little guys on the bottom worked well as a model of our society. With a little tweaking, I found this could create a convincing model of our economy. So, without further ado ...

Pyramid Economics: A Treatise on the Current Economic Situation of America

Behold, the holy pyramid ...



OK, I know the first thing you're thinking is so what. So let's take our pyramid and give it some description.



This pyramid represents Western Economics very well, I doubt anyone will disagree with me on this. Here we have the lower class, blue-collar workers, with the middle class, white-collar managers above them, and the elite, business (not small) owners, corporate executives, C-class workers (CEO, CFO, CIO, etc) and so on.

The pyramid isn't interesting by itself. But when we look at how the pyramid changes over time, we'll start to see the cyclical nature of Western Economies, and the underlying patterns that cause this. However, first we must lay out how rules for how the pyramid changes over time.

• The economy of an isolated system is a zero-sum game. This will be referred to as Conservation of Wealth. Wealth is neither created nor destroyed, it only changes hands. A perfect example is how inflation works. When the government prints more money (increasing the total wealth in dollars) inflation kicks in, lowering the actual wealth of each dollar.
• In a free-market economy, wealth tends to move to the top over time. This is known as "the rich get richer, the poor get poorer." To prove this, let's take a corporation. It's job is to make money. To do this, it takes in money from customers and pays out money to its workers. If the company makes a profit, it's taking money out of the hands of those on the bottom, and giving them back less. The remainder is moved up higher in the pyramid.
• Top heavy pyramids are insustainable. They form bottlenecks at the middle class which seperate the haves and the have-nots. This leaves an economy vunerable to "tipping over in the wind" or crashing. Also possible is a full scale revolt by the lower classes, but that hasn't happened in America, so we won't deal with it.

Terms note: I've used money and wealth interchangably up until now. But true definitions are needed. Money is just that, money. Wealth is what you can do with that money (i.e. purchasing power)

OK, given the three postulates above, we see that over time, wealth tends to move to the top. (Postulate 2.) Since wealth is conserved (Postulate 1), this means that the wealth that's going to the top has to come from some where else, namely the middle and upper-lower (oxymoron) classes. These classes are pushed down (because they no longer have wealth) to join the lower class at the bottom. What happens is that the pyramid becomes a wierd shape with an incredibly wide base, which slopes up to form a bottleneck around where the middle class used to be, and then expands into a bubble at the top. Such an economy is top heavy and (by Postulate 3) unstable, which leads to recession, depression, or full scale economic collapse.

A post collapse economy has everyone at the bottom, then the most talented and successful indivuals form businesses and develop products which begins to move wealth upward, and reforms the upper and middle classes.

I believe that this model can show us what is happening now. Namely, the Great Depression, the last great collapse, brought nearly everybody to the bottom. From there, people rose again, rebuilding the pyramid. After the pyramid was rebuilt, the wealth still continued to migrate upwards. Now, we are approaching another economic collapse. The bubble that is being formed by the migration of wealth upward is forcing the middle class down. This is consistent with real-world information. Real wages (ie wealth) have been steady or declining for most Americans. The top 1% of America own as much as the bottom 95% do. Bill Gates alone has as much wealth as the bottom 40% of America. We're poised for another collapse of the pyramid.

Obviously that's bad. The problem is that everything tends to move to the top of the pyramid. What is needed is an inhibiting force which can push the wealth back down the pyramid. What is it? You've probably already guessed.

Taxes are the inhibiting force. By taking money from the top, the government can put it back down at the bottom and create a stable economy. My philosophy is that the economic role of the government is first and foremost to insure the stability of the pyramid. This philosophy can be easily translated into legislation.

• Policy I: Implementation of a Exponential Tax Curve
  The premise behind this is simple. As you make linear increases in the wealth percentile, you make exponential increases in the tax rate. For example, the lowest 20% pays 7% taxes. The next 20% pays 13%. The next 20% pays 22%. The next 20% pays 35%, and the last 20% pays 56%. The first two were chosen, the next three work (roughly) by taking the difference of the previous two brackets, multiplying it by 1.5, and adding it to the tax rate of the previous bracket.
• Policy II: Government Revenue Goes Primarily to the Bottom
  Simple. If the government is taking money and giving it to the top (corporate handouts, etc.) it is not fulfilling its assigned economic role. Government money should be spent primarily on programs to benefit the bottom (ie Head Start, Subsidized Housing, Education, Welfare, etc.)
• Policy III: Elimination of Corporate Interests in Government
  Government exists to benefit those on the bottom, not those on the top. Corporations should be regulated by the government, not the other way around.
• Policy IV: Government Must Set Tax Rates to Balance Interest Rates
  OK, this one probably didn't make much sense, but the tax rates must be balanced with interest rates. Interest on loans is one of the greatest, if not the greatest force moving wealth up the pyramid in America. Taxes must be brining the wealth down from the top just as fast to preserve the pyramid structure.

The reforms that my views call for are hardly socialism or class warfare. They intend to preserve the economic structure of America, the pyramid, by retarding the forces that have lead to its destruction in the past.