Home » Posts tagged 'Wealth'

Tag Archives: Wealth

A Best of Times, Worst of Times Economy

by Brian T. Lynch, MSW

How is it possible that the investment economy is booming while the economy of ordinary citizens is still in such a slump? Stock prices are at an all time high and big time investors are getting high rates of returns while worker wages have declined and are just starting to rise. The raises in wages so far is still not keeping up with inflation. It seems like there are two separate economies not entirely connected to each other. Right?

To understand what’s happening we have to begin by acknowledging that most of the richest billionaires today have gotten much of their wealth increases at the expense of lower wages for the rest of us. This trend is more than thirty years old now in the United States. There is plenty of evidence supporting this fact for those who care to look. And this wage suppression is a global phenomenon, not just a U.S. feature.In order to increase consumer spending while wages remained flat we have had to make a series of changes, beginning with mothers entering the workforce, longer work hours followed by layaway plans, credit cards and then home equity loans to pay for spending beyond our means. These have run their course and the long hard pay down of personal debt (including college loans) means that consumer spending will be sluggish for the foreseeable future.

The impact on the economy of stagnant wages is ever slower consumption of goods and services over time. There isn’t as much money to buy things. This slower rate of consumption suppresses demand. Lower demand means fewer jobs and even lower wages for the rest of us. This is the cycle were we find ourselves today.

The consumption of goods produces the profits from with owners of capital collect returns on their investments. Lower demand due to suppressed wages would normally also lower returns on capital investments but for the factors that have kept consumption afloat. Now there are no hours left in a day, fewer household members available to work, no more capacity to borrow against future earnings. Now the impact of low wages has come home to roost and lower sales means less profit to be made.

Before the 1970’s this situation would right itself when owners shared a portion of their wealth by offering productivity raises to reward their workers. Productivity wages are based on growing productivity and are separate and above cost of living increases. Productivity raises, along with cost of living adjustments, allowed the labor/consumers to increase spending and boost demand. Increased demand would spur on manufacturing and stimulate the whole economy.

But today’s billionaires have found another way to profit without sharing their wealth with wage earning consumers. They spotted the growing ownership stake of many in the middle class and created an opportunity to take it all back. It is hard for most of us to see in our lifetime, but this is the first time in history of the world that the middle class (upper-middle mostly) has accumulated a significant stake in capital ownership. Many of us have retirement accounts, money market funds, etc. People in the upper-middle class, doctors, lawyers, middle-managers etc., have become mini-investment capitalists. Prior to the vast destruction of property caused by the world wars in the last century, wealth was concentrated at the top as is happening again today. Middle class gains in the 20th Century directly correspond to capital losses by the wealthiest owners during the two world wars.

Billionaire capitalists, the “true heirs” to wealth ownership, have responded to middle-class ownership of capital by creating a massive financial investment casino filled with elaborate new investment vehicles. The object is to entice new wealth owners to play in the billionaire’s casinos. Mortgage backed securities and swaps are just two small examples that nearly bankrupted the economy in 2008.

These new and incomprehensible investment products has spawned a whole new class of hucksters, like Bernie Madoff, who use these bewildering new instruments to create slick ponzi schemes. But the bulk of these new investment opportunities are just a big casino games in which the house (billionaire owners) always wins. Billionaires are quickly siphoning away middle class ownership stakes in capital through high finance games of chance. In this way they can boost returns on investments and entertain themselves without sharing their wealth through higher wages.

Because these billionaire owners, who make up less than .01% of the population, control the investment odds, they are sure to win back all the capital they lost in the war years of the last century. Middle class gains in the 20th Century correspond to capital losses by the wealthiest owners during the two world wars. This now explains why the stock market and investment economy seem to be booming while the economy on Main Street slumps. Billionaire capitalists don’t have to share wealth to make wealth like they use to. There are enough small investors with an ownership stake willing to gamble what little they have in this new investment casino to keep billionaire fortunes growing.

If you, the reader, are still with me at this point let me assure you that the geometrically rising gains by the wealthiest owners of capital are not an inevitability. There are difficult but concrete steps we can take to bring capitalism back into balance for everyone. A discussion of these solutions does require a much deeper understanding of problems that I can provide here. I firmly believe it is in our best interest to arm ourselves with a much better understanding of the forces creating our two economies; Forces that are threatening our democratic institutions. For a fuller understanding I recommend Thomas Piketty’s excellent book, Capitalism in the 21st Century. I encourage you to strike up conversations with others and share your thoughts and questions.

_______________________________
Image Credit: (and recommended site) http://oxfamblogs.org/fp2p/is-doing-something-about-inequality-just-a-choice-between-bash-the-rich-v-tackling-poverty-some-thoughts-for-blog-action-day/#prettyPhoto-img/0/

Inequality on a Global Scale (literally)

The cartoon below is from the great editorial cartoonist Stuart Carlson. It highlights with humor a very serious global economic condition, growing wealth inequality.

http://www.gocomics.com/stuartcarlson/2014/06/20#.U9Zns_ldXfJ (Go and enjoy his other cartoons.)

Allow me to breakdown the math for you. These figures work out to an average of $486 per poor person vs. $20 billion per rich person. This is not a measure of income but a measure of wealth, or capital.

Another important math fact from this illustration: If you have $20 billion in capital and earn an average return on investments of 4% a year, and if you lavishly spend $1 million per month on your lifestyle, at the end of 50 years you will still have $140 billion left for your children to inherit. That’s right, if you have seven children they would each get close to the 20 billion that you started out with.

This is the crisis of capital that we face. This fact is among the findings of economist Thomas Piketty in his recent book, Capital in the Twenty-First Century. Within just a few generations almost all the wealth on the planet will be handed down from parents to children. Almost no new fortunes will be made through the earnings of those who have to work for a living. We will effectively return to a feudal system even here in the United States and abroad. The phenomenon is global. The quicker national and global population stabilize or decline the faster wealth will concentrate among the wealthy.

All we have to do to return to a feudal society is… do nothing.

Someone on facebook asked me, “Is it really the zero-sum game that these breakdowns of wealth distribution always seem to imply?”  Good question! Is it the case that the growing wealth of the wealthy must come at the expense of growing poverty Or, doesn’t the growth of capital lift all ships?

When you look at national and global income-to-capital averages you see what looks like fairly stable ratios. Growing capital wealth and growth in income seem to balance. But look a littler closer and you see that more of the population falls into poverty as the value of capital grows at compounded rates. So yes, there is more national income, but there is an ever larger percentage of income coming from capital investments and going to the wealthy.  As capital becomes the main source of income, the real earnings of wage earners stretches and collapses at the lower end of the economic scale.  For the middle class, it is like being caught between the gravitational fields of two black holes… one created by poverty and  the other by capital wealth

The Worthy and Unworthy Rich

By Brian T. Lynch, MSW

How should sensible people respond to divisive attacks on the poor and vulnerable? Should we begin making similar distinctions between the worthy and unworthy rich? Should we affirm those who earned their great wealth and provide social benefit but rescind all advantages given to those who use their inherited wealth to squeeze the people and their government for still more?

It should be obvious that social polarity is not between Democrat and Republican, or between liberal and conservative, but rather where it has always derived, between rich and poor.

http://aattp.org/gop-senate-candidate-republicans-must-turn-poor-against-each-other-video/#comment-190804


GOP Senate Candidate: Republicans Must Turn Poor against Each Other (Video)



Watch N.C. House Speaker Thom Tillis explain: .What we have to do is find a way to divide and conquer the people who are on assistance,” 

Tillis said. “We have to show respect for that woman who has cerebral palsy and had no choice, in her condition, that needs help and that we should help. And we need to get those folks to look down at these people who choose to get into a condition that makes them dependent on the government and say at some point, ‘You’re on your own. We may end up taking care of those babies, but we’re not going to take care of you.’ And we’ve got to start having that serious discussion.”

 ATTP.ORG

 

Prologue To Wealth Inequality Awarness

By Brian T. Lynch, MSW

Before I had a blog, before the Wall Street “privateers of equity” crashed the economy, and long before the Occupy movement occupied anything, there were seemingly crazy folks like me trying to sound the alarm on our economy. I wrote Letters to the Editor in local newspapers and sent copies to every newspapers across the country for which I had an email addresses. What disturbed me back then was that no one in the media, or even in academia, seemed to be paying much attention. Event have consequences, and the crash in 2008 caught us flat footed.

It is unknown how social problems that exist for years suddenly become public issues to be solved. No one knows what triggers these tipping points. Even when a single individual is clearly associated with a change or a movement or a discovery (Einstein, for example), that person is responding to what ever came before. Sometime it is the consequential event rather than any alarm bells that finally get our attention. The firmament that precedes public cognition before a disastrous event remains a mystery to me.

My wife just came across one of my old letters. What startled me is that I could have written this same letter today, except the statistics are far worse now.

Here below is my Daily Record Letter to the Editor published on Christmas Eve, 2006.

DailyRecLtrEditor 12 2006

Four Graphs on What Hurts the Working Class

We never hear any reference to the working class these days. The media and our politicians only speak of the “middle class” as if that covers everyone who isn’t either poor or wealth. Even references to the poor are scarce. The working class exists. They are sandwiched between the poor and the middle class and they are being squeezed into poverty. It is cruel to ignore them and the terrible pain they are suffering. What has happened to them, aside from being ignored can only be touched on by the four graphs that follow. These were presented in a conversation I had with conservative friend of mine who has forgotten the working class exists. There are many factors hurting the working class. This conversation was only about four factors, wage suppression, the upward redistribution of wealth, working class decent into poverty and declining upward mobility. Post this is my way of addressing what I believe is the most hurtful factor of  them all… public silence.

Q:  I always thought of the owners as the producers of the jobs that the workers have. You say that it is the workers who are the producers. Have you ever been employed by someone on welfare?

A:  Owners coordinate the workforce, but it the employees who do the work that makes the products or services. So in a real sense, the workers ARE the producers. And this has nothing to do with welfare at all.  Jobs are not a product. Stuff is a product. Things to sell or trade is a product. Workers are key to making stuff or offering stuff yet when they want a fair share of the value they create they are treated like thieves. Read this and you will know what I am talking about even if you don’t agree:

http://aseyeseesit.blogspot.com/…/fair-wage-for-days…

hourly GDP vs Wage graph

I also just ran across this table (below) that shows were all the Hourly GDP wealth has gone since the mid-’70’s.

CEO Compensation

Source:  https://scontent-a-lga.xx.fbcdn.net/hphotos-prn2/1480602_10200873563747333_1576469932_n.jpg

Q:  Why should it matter how much a C.E.O. makes if their workers remain on the job? It’s one of the great things about this country. You can work where ever and for whom ever you want.  Someone please explain to me why it is greed for C.E.O.’s to make deals to be paid as much as the market will bear but it is ok for workers to make deals to make as much as the market will bear.

 A:  It may not matter to you at all, but anyone who wonder why they can’t have collective barganing while the CEO is making 400 times their salary might have questions, especially since this is strictly a feature of the US economy and others around the world are paid better than we are relative to their economies.

Don’t forget, almost  40% of people who work full time are poor. I’m not sure what percentage of the poor they account for, but it is clear when we speak of the poor we are not speaking only of people who are disabled, elderly, retired or unemployed.

Working and Non working Poor bar graph

http://upload.wikimedia.org/wi…/en/7/74/Pov_crossnatl.jpeg

Note here that in the US, the number of working poor (blue bar in right hand column) is twice the number of non-working poor. So when you and I talk about the poor, you are defining it as welfare recipients while I broadly define it as everyone living below the poverty line, the majority of whom work full time. That’s partly why we have a disconnect on this topic. In my understanding, most poor people work.

Q:  I wonder how many of the poor who are now C.E.O.’s would agree with you? Or would they say : “Work hard towards your goal, as I did, and you can achieve anything.”.  Isn’t this what made our economy great?  Not people who wanted a wage so they could be comfortable in the position they have today?  Flipping burgers at McDonalds is not supposed to be a permanent career goal. Even the management at McDonalds wants people to move up. Or am I wrong about incentive and ambition?

A:   There are 17,000 companies with 500 employees or more. There are 43 million poor. If 20% of CEO’s started out as poor children that would mean there are only about 4,200 CEO openings for 43 million potential applicants. It’s a safe bet that far fewer than 20% of CEO’s come from poverty. In fact, less than 20% of children born to poorest families will make it into the middle class in their lifetime. Less than 8% will make over $140k/year, which is approximately the income line where the richest fifth starts. Of those at the top, only the smallest fraction will become a CEO. I believe that if you really understood the economic situation in America you, of all the folks I know, would be a big supporter of the working class.

Upward Mobility bar graph

source: http://www.pewtrusts.org/…/Eco…/PEW_Upward%20EM%2014.pdf

As for incentive and ambition, a good paying job that makes one economically self-sufficient is the highest motivator.  But a self-sufficient wage for a single earners is over  $30,000/year whereas the median wage for a single earners is less than $26,000/year. In other words, the incentives are less than optimal in today’s economy, and no amount of hard work or individual effort will make a difference for most people until even low wage workers receive a fair wage for a days work.

Does Philanthropy End Up Hurting the Poor and Vulnerable?

What follows is my response to an open discussion about the role and social value of philanthropic  foundations.  It is my response to the lead article by Dr. Rob Reich, which can be read in its entirity at the URL below.

BOSTON REVIEW

http://www.bostonreview.net/BR38.2/ndf_rob_reich_foundations_philanthropy_democracy.php#c5t_form

MARCH/APRIL 2013

Lead Essay:
What Are Foundations For?

Rob Reich

This article leads off our debate on philanthropy, with responses from Stanley Katz, Diane Ravitch, Larry Kramer, and others.

Graham Smith

Judge Richard Posner, one of the foremost American jurists outside the Supreme Court, once observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.” Why, he wondered, don’t we think of these foundations as “total scandals”?

If foundations are total scandals, then we have a massive problem on our hands. We are now living through the second golden age of American philanthropy. What Andrew Carnegie and John D. Rockefeller were to the early twentieth century, Bill Gates and Warren Buffett are to the early twenty-first century.

The last decade of the twentieth century witnessed the creation of unprecedentedly large foundations, such as Gates’s. The assets of the Gates Foundation and a separate Gates Trust, which holds wealth donated by the Gates family and Buffett, together total more than $65 Billion. If the combined entities were a nation, it would be 65th on the world GDP list. And it’s not just billionaires and their mega-foundations that command attention. Record wealth inequalities might be a foe to civic comity, but they are good for philanthropy. The boom in millionaires has fueled unprecedented growth in the number and assets of small foundations as well.

So foundations have seen explosive growth. But why are they a scandal?  Read the Full Article.  http://www.bostonreview.net/BR38.2/ndf_rob_reich_foundations_philanthropy_democracy.php#c5t_form

My Comments:

In setting up his essay on philanthropic foundation in this “second golden age”, Reich offered the following:  “Let us dismiss quickly one common and intuitive thought: that foundations exist because they are remedial or redistributive, responsive to the needs of the poor or disadvantaged.”

He goes on to identify public goods this way: “It has long been understood that the commercial marketplace does not do well at providing what economists call public goods. These are goods that, like a well-lit harbor, are available to everyone if they are available to anyone; and that, like clean air, do not cost more when they are consumed by more people. “

After three decades in the field of child welfare, this was a startling and insightful dismissal.  In debating whether America’s philanthropic foundations are worthy of the tax exempt status conferred on them in 1937, Reich excludes consideration of their value relative to public services that reduce human misery but carry a cost per use.  In other words Reich’s definition of public goods includes only passive public services, like street lights, but not active public services, including child welfare.  This certainly explains why foundational giving for public needs is so small a percentage of their activity.  Yet we are asked to judge whether their social contribution is worth their $53 billion in tax exemptions each year?  How much good could that revenue do to support and strengthen our most vulnerable citizens?  Don’t ask!

To characterize social services as remedial “or redistributive” of wealth, is offensive to me.  When used to characterize government spending on the general welfare, “redistribution” is a code word to frame partisan arguments in our muffled debate over distributive justice.  Taxing the more successful citizens to promote the general welfare, except for military spending, is considered an unfair redistribution of wealth, yet any discussion on  the fair distribution of profits between workers and business owners is considered out of bounds.

The context for this discussion on foundations is the social value of philanthropy at a time when wealth disparity has never been greater.  When a growing number of wealthy foundations are extracting ever more revenue from an already dwindling federal revenue stream,  excluding consideration of their impact on public services makes this discussion itself a plutocratic exercise.

The pros and cons of whether foundations generate valuable diversity and innovation were well explored by the forum’s other contributors, but none of their essays addressed underlying assumptions.  Foundations actually do play an outsized and often deterious  role in how community social services are structured, funded and distributed. None of the contributors picked the scab off  this wound to consider the broader picture.  Financially speaking, foundations are in direct competition with public social services and the vulnerable populations served. I was disappointed.

Ruppert Murdoch, Ayn Rand and A Sociopathic Economy

Rupert Murdoch, chairman and CEO of News Corp., and one of the richest men on the planet, recently claimed that free markets are morally superior to more social based ideas of morality and fairness.  “We’ve won the efficiency argument,” he claimed.  Now he hopes to persuade us that free markets are morally superior and that socialism fails because of its “denial of fundamental freedoms.”  In Murdoch’s world the idea that market success is based on greed is a false characterization that creates confusion. He believe that markets succeeds where governments fail, not because of greed, but because people are given “… incentives to put their own wants and needs aside to address the wants and needs of others.”

It sounds great!  But before you buy into this idea you should know he goes on to say, “To succeed, you have to produce something that other people are willing to pay for.”

Therein lies the rub.  To succeed you must “produce.” For Murdoch, distributive justice is the natural outcome of these purely commercial transactions.  He quotes Arthur Brooks at the American Enterprise Institute who defines fairness as, “… the universal opportunity to enjoy earned success”. The key words here being “earned success.” Accordingly, producers are entitled to all they earn because if their product wasn’t successful, consumers are free to not buy their product. This is a cruel argument to make in the face of an elderly person having to choose between buying food or medicine, of course.  Nevertheless, in this view every sale in a free market system automatically results in a fair distribution of wealth. No other social factors should apply.  In fact, to take from producers what they’ve earned to support the lives of less successful or non-producing human beings is immoral, in Murdoch’s view.

“What’s fair about taking money from people who’ve earned it and giving it to people who didn’t,” Murdoch asks.

But Murdoch’s whole notion, which closely mirrors that of Ayn Rand, ignores the whole complex social economy in which commerce and every other human activity actually takes place.  It rejects the wisdom that markets only exist to serve societies needs.  Markets are manmade entities and not a natural phenomenon, but Murdoch’s narrow view treats markets as natural entities that are morally superior to society. It limits the meaning of production to that which has a monetary exchange value.  It assigns social value to the creators of products according to their market success, measured in material gain.  It does not account for the material contributions of the public domain in making commerce and stable markets possible. Even though the monetary value of a product is co-dependent on a consumers’ willingness to pay, it does not assign any social value to the consumer.  Only the source of a buyers money gives them any social status.

This leaves open the question of how, or even whether, to assign social value to those not immediately involved in commercial production. These folks include children, the disabled, the elderly, the unemployed, those who care for children, woman on maternity leave, all government employees, military personal, clergy, law enforcement, etc.  Murdoch’s view begs the question; What is a person worth when their value to society cannot be directly measured by their market place success?

Murdoch’s views are shared by many of today’s corporate elite.  It is the makers vs. takers mentality.  It is a view that can only be described as anti-social at best, sociopathic at its extreme. It opposes all government interventions in the market place and opposes most government regulations.  It is a philosophy designed to restricts the ability of ordinary citizens (i.e. government) to assure that our markets and commerce works for the good of society and not just for the benefit of the economically powerful. It implicitly confers ownership and control of the markets to the most powerful market makers while failing to acknowledge the corrupting effects of power on financially successful human beings.  By denying the humanity of markets it denies the vulnerability of markets to human weaknesses. This puts society at risk and cripples humanity from solving some of the really big challenges we face as a species.  How we chose to define distributive justice is arguably the most important economic question of our time. How we ultimately marshal our economic resources to solve our really big problems depends on how we ultimately organize our economy.

[Ruppert Murdoch’s views as expressed can be found at the following URL: http://nation.foxnews.com/rupert-murdoch/2013/04/22/rupert-murdoch-op-ed-case-market-s-morality?utm_source=feedly&utm_medium=feed&utm_campaign=Feed%3A+FoxNation+(Fox+Nation)]