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Dustin LindenSmith

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on the wealth gap in the US

Michael Moore delivered this speech to the demonstrators in Wisconsin recently that I heard about from his e-mail newsletter. Regardless of what you think of the guy, it was an impassioned speech and I was touched by his emotion. (I didn't watch the whole thing, but you can see it here if you're interested.)

Anyway, the reason for my post here is actually to draw some attention to this provocative article he posted in that newsletter that describes the disparity in wealth in the US right now. I sent the link to my favourite lefty comedian Jimmy Dore in the hopes he might quote from it in a future episode of his political radio show on KPFK.

Some of my favourite highlights from that article are:

• 400 people have as much wealth as half the US population;
• the top 5% of US families saw their incomes rise by 73% between 1979 and 2008, while the lowest 20% saw a decrease of 4% and the remainder stayed mostly stagnant; and
• in 2007, the richest 1% of US households owned more than 33% of the nation's private wealth, which is more than the combined wealth of the bottom 90 percent.

My great friend and erstwhile physical fitness mentor vyus has been writing some great posts recently about economics, and it strikes me that he might take some issue with this article, or maybe its sources. Anyway, I'm interested in hearing what his or anybody's take on it is. Even if the statistics in this article were inflated by 100%, they'd still be freaking scary to me.

PS: I have a few family members whom I'd consider wealthy or at least extremely comfortable: an successful entrepreneurial uncle by marriage worth probably $15M+ and a few other retirees with holdings probably in excess of $3M. But that's not the level of wealth I'm talking about here. It's the extremely high-income families earning tens or hundreds of millions each year where I think the problem lies. If there were a million multi-millionaires of the former ilk in the US (e.g. with $10M or less in the bank), I believe that trickle-down economics might actually work -- there'd be lots of liquidity and investment and entrepreneurship happening. But I can't imagine that dozens of billionaires are of much constructive use to the economy at all. At least, not for the little guy. Or the middle class worker. Just my $0.02.

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marketing theater

vyus March 8th, 2011
if you factor in inflation, you'll find the middle class in the US is getting poorer. two income households to raise families where, 40 years ago, you only needed one.

the majority of US is definitely getting poorer, but alas, does moore suggest why the rich are richer?

i can't be bothered to read anything of him because he's such a marketeer. he's akin to limbaugh, krugman, o'reilly or anyone else in the entertainment industry. he's busy making money for himself. there's too much information out there to digest, and he's very low in my word-to-value meter.

the super rich are that way because they actively use the government to ensure their streams of income are protected. i.e. government intervention (on their behalf) is exactly why prices keep rising, and the super-rich remain so. this, btw, is hardly limited to the US.

and therein lies the crux. these progressive folk think government is the solution when, in fact, it is the problem. on large and small scales. they continue to set up regulations against small businesses. they continue to press taxpayers to pay for ball stadiums. they continue to press everyone to make bad business deals. there's a couple reasons behind this, and i could rant all day on it. easiest summary are short-term incentives seem to win out over long term ones.

and then people like moore take up the contradictory position that, although they believe government should set prices for medical care, government should not set prices for employees that they hire directly.

this leads to the not-so-surprising conclusion that although democrats/progressives like to say they like government to have power, they only like it when their man is in power. the voters of wisconsin voted republican, and now people from other states barge in telling WI they voted all wrong, etc. it's silly - it means moore isn't keen on democracy. he's only keen on it when he gets his way.

the US government just gave more money to large business - the banks who were primary partners in the current mess, the businesses that defrauded everyone - than ever before in the history of the world.

. . . . . .

any system that does not allow for a slice of the economy to fail w/o taking down the rest of us is going to cause massive depression. all systems will fail -- they must. most people these days get super-rich through borrowing, which is also called leverage.

let's say you get a 10% return on a $100 investment. so, you earn $10.

Well, let's say i borrow $100 and add that to my investment for a 10% return. the investment is $200, and my 10% return yield $20!

except i pay back the loan of $100 plus maybe $5 in interest (5%).

so, i actually got $15 from my $100 investment. so even though the market yielded 10%, my actual return is 15%.

this works great as long as the investment keeps paying off. obviously, if i lose 10%, my loss is greater, too.

but wall street doesn't care about this; they continue to borrow for crazy investments and keep rolling the dice. speculators borrow 150:1 ratios of capital to invest (they borrow $1500 for every $100 of their own money they're investing) and getting 160% return on their $100 investment.

but when they lose -- and eventually the bet loses -- they default on the loan, and the people who lent $1500 are out that money. pension funds, retirement funds are the ones who lend this money.

that speculation has a domino effect on the economy. if the leverage is large enough, it takes down the entire system (see the Long Term Capital Management fiasco of the 90s).

the government allows this. in fact, obama bailed out all these morons who made these bets. mccain would have, as well. the point is that the losses are now put on the shoulders of the average taxpayer, not because republicans are in charge (because this is obama's adminstration and he had a fully democrat congress), but because government removes the firewalls that insulate the rest of the economy from inevitable failure.

the super-rich aren't the problem; they will never be super-taxed because they won't let it happen. the folks who pay are the ones who have no money to influence congress. thus, income disparity.

i refuse to proofread this comment ;)

Re: marketing theater

vyus March 8th, 2011
i just realized i messed up my 150:1 factor, so add a couple zeroes to that return # :) seriously, though, this is what the investment houses do.

Re: marketing theater

iamom March 14th, 2011
I can't believe I've never thought of that basic precept about borrowing to invest. What a great illustration. And what a great illustration of how 2008 happened; the Fed gives the banks tons of very low-interest cash to "incent investment," which they in turn invest like drunken sailors in all manner of speculative bullshit, and then when the bubble bursts the taxpayers step in because in essence, it was Federal money to begin with that was invested.

No proper accountability or regulation in place there. At the time, and in retrospect, I think the banks should have failed. And I also don't understand why none of those fuckers is in jail now, and why they're already pulling down insane bonuses again! Nothing has changed here...

Re: marketing theater

vyus March 17th, 2011
i agree. glass-steagall, which was repealed in 1999 under the clinton govt, effectively had put a boundary between investment banks and deposit banks. the repeal tore down that wall, and let deposit funds be used in speculatory investment.
side note: hank paulson, former goldman sachs CEO, who would later be appointed secretary of the treasury by bush and had a hand in the bailouts, was a key lobbyist to get that law repealed. Also, he helped dismantle an SEC oversight committee in 2004 that was supposed to monitor investment houses under too much leverage.

the banks could've/should've gone under. under FDIC law, most taxpayer funds were guaranteed, anyway, and i bet it would've been cheaper to pay taxpayers directly than support bank balance sheets.

these guys are evil.

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