Wealth is Inequality, Pt. 3

Bill Perkins said:
"So let me see if I understand your position: (1) Millions of people are unemployed; (2) Manufacturing jobs are the best way to employ those people; (3) Wealth is a fixed commodity, and the wealthy hold it all and are content to do so; (4)following your "logic" this country's problems are created by the wealthy because they won't use their wealth to create manufacturing jobs, pro bono I guess. Am I right? If not that, what's your point? What is your solution? Is basic economics and free enterprise to be set aside and taken over by a dictator? The "Arab Spring" certainly demonstrates that doesn't last. How about a nationwide commune? Either you respect property rights and try to put in place economic incentives and regulations that support the private sector, which supports EVERYTHING we do including this bloated government, or we continue to down the path of our European friends. But maybe that's your objective. Christ, even Canada has figured out high taxes hinder jobs, whether service or not. So what is the answer you propose?"

Excuse me for the formatting, but this is the run-on way that TypePad apparently forwards comments.

The above is a message I received about my Wealth is Inequality articles, and I answered him personally on this site, but I then thought about it, and if I can end up with these questions from him, then I obviously am not doing my job at communicating correctly.

I have no problems with someone becoming rich, and that has never been my point.

So in case I didn't make my case, I'll say it outright.

The problem isn't with wealth.  The problem is that we have all of the wealth concentrated in just a few hands.  I thought I had made that clear, but I'll go through it again and hopefully not make the same mistakes in communications so that one won't ask " Extending this to its "logical" end, implied is that you believe it would be only right and fair for the government to confiscate the wealth and create manufacturing jobs."

I don't advocate any confiscation of wealth to create new jobs.  I don't have a problem with taxing wealth in order to continue to give those adversely affected by unemployment some small vestige of self respect and help move them onto the roles of the employed.

And the reason is pretty clear, at least to me.  In the quest for wealth, wealth becomes the only priority and thus eliminates the human factor.  And that elimination of the human factor becomes rote in the terms the wealthy use to dismiss such an inequality.

Unemployed Americans are not lazy people as the Republicans such as Senator Kyl have suggested.  They are people with community ties, religious affiliations, children to care for, and often are those with the greatest needs because of their forced social position.  Positions, by the way, which they were not in just two and a half years ago.

So I want to negate the idea that I'm suggesting anything other than posing a problem that America needs to have solved, and with the Republicans playing the game they are playing, the government has no power to solve.

That leaves the solution to those who have the ability to solve the problem to step up and solve the problem.  And those with the ability are the wealthy.

The problem with that is we only have so many wealthy people, and that wealth is something they take for granted since most of it is a generational inheritance.  It isn't possible for them to be concerned for some small class of people they've never met nor even actually seen, so how are they supposed to recognize the need they aren't fulfilling?

In times of great peril to America in the past there have always been men of distinction who have risen to the challenge, and often made even more money in doing so, but it doesn't appear that we have much of that sense of responsibility anymore.  I ascribe that directly to the fact that in those times the wealthy were actually creating that wealth and jobs at the same time.

Now it is easily possible to continue to create more wealth without it having any advantages to the economy at all.  The facts are in the numbers, not just my head.  What is in my head is the picture of a fat cat standing tall and looking good whilst all around him are small little people;  bugs, really, doing their little bug things and not worth a second look unless the bugs start crawling up their legs.

Now whether this is a correct vision of the current circumstances or not, I don't know.  I'm not wealthy and I don't have the motives the wealthy do to maintain their wealth.  I still look down when I walk in case I might see a quarter on the parking lot.  I don't pick it up, but I'll point it out if a person asks me for spare change.  Sorry people, but I don't have "spare" money.  I pretty much know where all of it is going to go.

And I'm quite aware that more of my money is going to go to the wealthy than I'd like because the system is gamed that way.  In fact it is moving that way so seriously that Americans were numbed by the rape of American treasure that totally dwarfs the Trillion dollars and counting costs of the wars in Iraq and Afghanistan.  By the best estimates a total of Three Trillion dollars was taken onto the books of the Federal Reserve to maintain the global economy.

Only the wealthy benefitted from such a level of effort.

So whilst politicians point you towards your contributions to social programs that benefit the nation by saying that they are leeches on society, remember what they are trying to do.  They are pointing at the most unfortunate Americans to dissuade you from looking at the billions of dollars being sucked up by the vast vacuum of the wealthiest people getting tax cuts and subsidies.

Now I'll admit, Medicare and Medicaid are costly programs, but unless you want dead people lying in the streets, there are some levels of governmental requirements that need to be met.

Ronald Reagan used the scare tactic of the "welfare queen" riding around in a pink Cadillac with 15 children in the back as proof that social programs were being taken advantage of by the people.

Any real study of social programs shows that fraud is not committed by the people, but by corporations created to take advantage of the loopholes created by social programs.

So one has to question whether the social programs work for the people better than the cost of those willing to game the system.  If so, then the idea is to create a system which cannot be gamed but still allow access to those in need without adverse rules and regulations.

We find the same thing in the creation of new technologies that might have a grand impact on the way America does business or creates energy or whatever.  This is just as much of a social program as Medicare, but on a larger scale in terms of economics.

The economy of the United States is severely invested in new technologies, but as these new technologies become the norm, the subsidies that helped develop them continue on as if they are permanently ensconced and become a part of the profit factor.  Technically these subsidies should be tied to performance, and when an industry becomes mature enough, the subsidies should stop.

The biggest point to shore up this argument is when corporations accepting subsidies pay stockholders dividends with those subsidies.  The subsidies become part of the corporation's profit.  At the least, if a company makes profit sans the subsidies, then the subsidy should not apply.

And how does this play a part in the wealthy today?  A lot of corporations have played around with moving from private corporations to publicly traded corporations and then moved back to private corporations, based on just how they might be able to utilize subsidies as a part of their bottom line.  In fact a whole industry during the 1990s was based on doing just this.

By moving corporations back and forth, the corporations play the game to garner the greatest advantage of using taxpayer money in whatever form it takes.

In other instances, certain types of corporations are equated with "small business" yet are anything but.  Bechtel Corporation is a Sub "S" corporation, which means that it is owned by individuals.  This places the tax burden on the individuals, who then pay taxes based on profits, etc.

Bechtel is one of the largest corporations in the world.  It is hardly a small business, and when the Republicans talk about the damage to small businesses due to tax increases and rules and regulations, you can bet they are thinking Bechtel.

All of this is part of a system, part business and part political, to move money up the totem pole out of the poor people's pockets.  It doesn't matter if all they can move is a nickel from each person's pocket per day, because that is 15 million nickels a day.  That is seven hundred and fifty thousand dollars per day without even trying, and 274 Million dollars per year.

Perhaps that is not enough to recharge the economy, but the poor sure could use that money to buy milk.  But no, the game is to get that money and other money through government programs designed to continue and grow the flow of money to the wealthy when they do not need it.

And this brings me to where the fault lies with the vast wealth involved with such few hands.

It is not possible to put all of that money to work and create jobs.  It takes 2 million public employees just in the Federal government to keep the business of being America going.  Four hundred wealthy people could not manage such a vast empire.  But since they have more money than the next 150 Million people, they have a responsibility to help keep the rest of America alive and healthy, educated and fed, and offer opportunities for the people's advancement.

Fourteen million Americans are out of work, at the least.  Without the Affordable Health Care Law, some 50 million people would be without health insurance.  Fifty-five million Americans are on Social Security and Medicare.  Forty-seven million Americans live below the poverty line.

And nothing is getting better.  It is not getting better because there is too much money concentrated in too few hands to be effective in any level of economic recovery in America.

I applaud the efforts of Bill Gates and Warren Buffett in garnering the promise of many of the wealthy to not pass their wealth on to a new generation of well-to-does, but to place that wealth in trusts that will have positive advantages for many people.  But this is simply not enough.

The money held by the vastly wealthy needs, in some manner or form, to be spread around the country like fertilizer, growing new businesses and new technologies that will bolster the economy.  Who knows, the benefits may be a world that has plenty of power, plenty of clean air, and able to sustain the increase in population by billions of people in the next one hundred years.

Or, maybe not.

Comments

[Bill Perkins]

Roger,

1. Glad to learn you don't mind people making or having money.
2. "we can't operate as a country without government spending". Well, I certainly agree the government has many necessary functions and that certainly means spending. However, that doesn't mean government spending is as productive as private spending.
3. Military security aside, I think a critical function of government is to create an environment in which the private sector can flourish in a sound manner. Take the cause of the current financial collapse--which I consider to be the government's interference with private lending practices, resulting in an unsustainable housing value bubble which burst when the underlying "AAA" collateral was found to be supported by sub-prime loans with sub-prime default rates. An international panic ensued, and the resulting real estate value spiral devastated not only those holding these CDO's, but the value of most individual's primary investment, their home. Many argue that all this was Wall Street's fault, but I find it hard to argue that the mortgage lending boom, and therefore the building boom, etc. would have collapsed if all those new loans had been good solid conventional loans with traditional due diligence. Therefore the cause of the collapse is whatever impaired lending practices to accept this trash in the first place. That was the result of almost 25 years of laws and regulations since the S&L debacle trying to give everyone the so called American Dream.
4. Investment vs. demand is a debatable "chicken or the egg" issue. I believe the entrepreneur has to foresee demand that may or may not presently exist before he will invest to create a new product or service, or expand on an existing product line. Further, and this is the critical part if the entrepreneur reports to others (banks, stockholders, etc.)and is not just risking his own money, he must have reasonable expectations of success with known variables. That includes cost of materials being predictable, business entry hurdles such as regulations or licensing being understood, taxes at federal state & local levels being stable, etc. So I don't think actual demand leads the way to investment, it's perceived present or future demand, the satisfaction of which can predictably result in a profit that has to be seen. This is the entrepreneurial risk that we all weigh in business ventures. You've been there too it sounds like.
4. The Obama administration was dealt a very difficult hand from the preceding administrations, with emphasis on Clinton and Bush2. But almost every action BHO has taken was not to fix the private sector problems but to favor his constituencies, particularly unions and greens. Either by Executive Order, by regulation, by legislation, by demagoguery, the list is endless. And I don't think I have to list them for you.
5. The net result is an unpredictable business environment. Some of the states, realizing their desperate situation if they can't retain, much less attract potential employers to their jurisdiction, are finally doing something about this at a state to state competition level. But that's largely just shuffling the deck chairs. The federal government has to do this same because we're not competitive against other countries.
6. As I stated in my prior post, I believe all wealth is created at the private level, not the public. Private business start ups and expansions must be nurtured, not beat down by the NLRB. Corporate taxes must be lowered to attract and compete with foreign capital. If BHO would follow his bi-partisan Commission findings, he could be assured of re-election.
7. By the way, exports in 2010 are back at the $1.3T 2008 level, which was the highest ever to that point, so "virtually no exports" is just incorrect. Private investments are also picking up, but at a very slow pace. New money is selectively hitting the multi-family real estate market as well. It's just at a pace that doesn't support significant job growth. Also, manufacturing output has continued to grow since the 1980's despite the migration of unskilled and semi-skilled jobs elsewhere, but with fewer jobs and more automation. Our productivity per worker is the best in the world still as a result. That's part of why corporate profits are hanging in there despite high unemployment.
8. I could also argue that money held by the wealthy is in fact being utilized because few of the truly wealthy have it buried in the back yard. That money is in banks, stock funds, hedge funds, commodities--you name it. It's not all idle by any means. More liquid and arguably more productive is the $1T to $2T held by American corporations here and abroad. There is a lot the administration could do to release that, which is the act in the play on which they need to focus. But the BHO administration is clearly not inclined to do so.

[Bill Perkins]

Roger,

This post was actually drafted for Pt 2 but for some reason it wouldn't let me post another comment. Not sure why if it works here.

[Bill Perkins]

Now that I've read part 3, I think I better understand your angst, but using your own number of $3T from your prior post as the wealth in the hands of the "wealthy" it's clear that's not enough to solve many problems in our $15T annual economy or to pay off the national debt owed to 3rd parties. IF you tax everybody 100% in the top 1% bracket, you still don't get the country to breakeven.

I don't understand how you can complain about the generosity of the country in assistance to the poor and the unemployed quoting your own numbers in Pt 3. People house and feed themselves with that assistance, but somehow it's really going to the wealthy?

Your last statement that "The money held by the vastly wealthy needs, in some manner or form, to be spread around the country like fertilizer, growing new businesses and new technologies that will bolster the economy." I agree with totally. So why doesn't the administration in fact do something that leads to that? All it knows is binding the private sector for political motivations for re-election.

[Bill Perkins]

"The problem is we have all the wealth in a few hands."

True, the last study I saw through 2007 indicated 85% of the net worth was in the hands of the top 20%. The top 1% held 34.6% of net worth, which is an increase of .8% since 1983. So things haven't really changed that much in that 24 year period with the top group. The next 19% gained 3% in that time frame, which of course came from the bottom 80%.

But look objectively at where their wealth lies. The top 20 on the Forbes billionaires list have the bulk of their wealth in active companies: Microsoft, Berkshire Hathaway, Oracle, Walmart, Diversified, Bloomberg, Google, Dell, Amazon, Cox Enterprises, etc. How many millions do these companies employ? Other than hedge fund guys, which are hard to figure, how many of the U.S.'s 390 billionaires (per Forbes) are not tied to ongoing active businesses. Very few. Many inherited these ownership interests, but many of those beneficiaries have expanded, grown or at least maintained their companies. I'm sure they control significant financial assets separately too, some of which is no doubt invested in other enterprises. And if you read their bio's, you'll note many sponsor significant charities and other beneficial society organizations, such as scholarship programs.

I value a country where ideas and innovation can be created, nurtured and expanded, benefiting millions of employees. The result is a standard of living, even for the bottom 25%, that many other countries envy.

[Roger W. Norman]

Mostly I'd like to reply to the Trillions held by corporations, which is much too large of a buffer because it is not making real money in the economy. It is tied up in investments, as you have noted. Microsoft, whilst employing many people, is only an investment for others which bolsters their particular stock, but not in the sense of money doing real work.

It's kind of like having a thousand horses roaming around a really large field of nice high green grass. Whilst they have the potential of being a thousand horsepower, that only applies if it gets something done other than eating all the grass.

The first point I really noticed that the inequality had become big enough to talk about is when George W. Bush started talking about multiples of Billions of dollars in such things as bailing out the airline industry after 9/11, and then the floodgates were opened. Everything became billions (sorry, I use Billions for emphasis when talking about dollars, but billions when talking about concepts).

The net effect was that we, the American people suddenly became enamored with the concept of spending Billions of dollars and then the spending began.

It also seems to me that the Republican party has a particular motive to spend like crazy when they are in office, which is to demand cuts in services and social programs when they are not. I don't know why anyone would say that the fundamentalist Muslims could have a 50 year plan and yet not think that the Republicans could do the same thing.

Sometimes reality steps in, such as Ronald Reagan having to raise taxes multiple times after cutting taxes to the tune of $1.2 Billion, along with killing retirement programs by the inclusion of the 401(k) retirement savings item.

Generally what I suggest is that we have to maintain a certain level of knowledge about history to understand where we've been so we know how we got here. Hopefully that would mean we wouldn't make the same mistakes, but we have and apparently will continue doing so time and time again.

Such as Billions of dollars in tax cuts for the wealthy as they supposedly will enhance hiring instead of applying that extra money towards more personal things like their own wealth. This applies to corporations, too, who just recently went to Congress and want to get a 5% tax on the $1+ Trillion dollars they have outside of the United States.

The last time we did such a deal in 2005, I believe, they spent the money in consolidation, dividends and extra bonuses, so I wonder just how altruistic their motives are.

And it couldn't hurt to have a little extra burden placed upon the business community, which has the wealth and ability to gain access to the politically powerful while most of us couldn't get the time of day from a Senator on the street.

I take it you may get the gist.

Roger

[Roger W. Norman]

In reference to your last post about the number of wealthy and the slight change in percentage, first I'd suggest that obviously as I had said before, that gaining that "wealthy" status is not something which many people achieve.

But when you talk about percentages, even if they don't go up, the dollar value does when the economy's value rises. It is the antithesis' of more people becoming wealthy, which again brings forward the far more prevalent situation where people are more likely to become poor than become rich, much less wealthy.

You see, there is even a "class war" between the wealthy, who don't actually acknowledge that they have such wealth, and the rich, who become American celebrities because of their example.

No one cares about the millions of people who fail every year by the unfair advantage which corporations have over the normal person making an average wage, and this is what makes my butt pucker (hey, I'm not on the NYTimes right now, this is MY space)!

Mostly I've had a lucky life and have been able to make my avocations my vocations. My interests have gone from opening and running a number of video stores in the early days, even to developing a multimillion dollar corporation with 4 locations and millions of dollars in revenues, to 8A contract work with multiple federal agencies doing some pretty important work.

I currently own a recording studio and enjoy working in music finally even as I was learning to play guitar with Roy Clark and playing in bands in the early 60s.

So I don't come at this from being someone whom hasn't actually seen good years throughout my life. But I've seen more personal devastation of individual capabilities to make a decent living, the loss of retirement programs, the handing out of taxpayer money to Chrysler, the S&Ls, then to GM and Chrysler, the pharmaceuticals on Medicare Plan B, and the financial institutions which only supported the few.

I'm sorry, but I've seen the rape of the American taxpayer for the past 30 years and I don't agree with you assessment of the advantages, nor does most of America see this as a positive.

Roger