Tuesday, September 09, 2014

Income Inequality, Working Poor, Wealthy, The Party

This is a topic that I run into in my personal life, and one which I see articles on that claim to be causes, but are actually effects. "Jobs moved overseas" is a great example -- companies don't move jobs overseas because they somehow "hate American workers", they move them there because American workers have become non-competitive due to policies of the government or decisions that the workers have made.

I suspect this topic will take more than one blog post, and I'll be looking for articles in support, but I'd like to get a start at the big picture framework -- my order or precedence may well change as I move through the topic (sometimes I change my blog posts after they have been posted).

My top level simple summary is that we have vast income inequality and working poor because runaway consumption fueled by debt and orchestrated by politicians seeking to buy votes from an ever larger dependent class creates few winners and many losers. 

Those that provide the consumables, the credit (usually backed and/or aided by the government in one way or another) and orchestrate the politically favored wealth transfers become wealthy, while those that borrow and consume become poor -- so poor that even though they typically have a house, a car, smartphones, flat screen TV, internet, eat out regularly, gamble, etc, they are so cash strapped that they have to resort to payday loans, food pantries, etc to cover the most basic of needs at times.

They are marketed and sold a lifestyle that they are supposed to be "entitled to", taught nothing of delayed gratification and thrift, then further lied to with assurances that their problems are due to "the wealthy", "the 1%", etc. and will be "solved" by some version of government transfer payments.

That is the simple sound-bite answer, now for a tiny bit more depth on specifically how we got here.
  1. The Consumer Society -- During the latter half of the 20th century, America became a country based on CONSUMPTION. There are lots of things a country can be focused on -- excellence, personal responsibility, independence, learning, beauty, cleanliness, godliness, future generations, thrift, competitiveness ... the list is endless, but the US managed to make a very clear choice, and with the advent of radio, TV and finally the internet, this choice became so ubiquitous that most Americans are like fish in water relative to it -- not aware they are wet. We used to be a nation of fiercely independent hard workers with pride in quality output, now we are a nation of "consumers".

    Entertainment is part of that consumption. Americans have next to zero attention span these days, which makes any sort of understanding of any issue by any significant number of them to be nearly impossible. The vast bulk of people have arrived at the state where life involves constant entertainment -- sports, music, TV, web surfing, smart phones, etc, all of which is laced with sophisticated advertising telling them to buy, buy, buy. "Work" if they do it, is a nasty necessity where many of them want to stay plugged in to at least music, if not continued web surfing or other distractions while they bide their time at a job that they see as a "necessary evil". Working is seen as an obstacle to constant entertainment and consumption.

    Our nation is focused on a vicious cycle of advertising laced entertainment encouraging more buying that consumes more of the life of the "consumer" -- Americans have largely been converted to 24x7 consuming devices rather than people.

  2. Credit -- Shakespeare says "Neither a borrower or a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry". America is sad proof of that maxim, and our knowledge of "husbandry", or wise use of resources, is so dull as to be non-existent. Not only have we been told to consume, consume, consume, but the primary means for that consumption is borrow, borrow, borrow -- as individuals and as a nation we are awash in debt and show no signs of any ability to extricate ourselves.

    Indeed, given the consumptive base of the economy, it is hard for most to even visualize an alternative. Mortgage, auto, consumer debt always flirt with new all-time highs, and Americans borrowing and spending more is considered "good news". Local, state and federal government run up ever more massive debt in numbers too big to even really fathom -- hundreds of billions a year, trillions a year, 17 trillion in debt, 60 trillion in unfunded liabilities for FICA, Medicare, and now BOcare. The total red ink hemorrhages to levels where it makes us sick to even consider it -- so we don't, and "nobody can explain" why we have "income inequality" and "working poor".

    The most basic reason is because the folks providing the consumables and the credit to the "consumers" build wealth,  while the consumers get "stuff" (soon worthless) and debt. Anyone who consumes all they make are effectively "the working poor", those that consume MORE than they make (debt) are even poorer. No matter how high the income, they are a paycheck away from financial disaster, and no matter how big their home, shiny their car, large their TV, etc, they are actually poor. The typical dual income "good job" US family is a microcosm  of how our government operates -- over extended with ever ballooning payments due.

  3. Government -- The big daddy in all this is bloated government at all levels. Government is an EXPENSE. It produces nothing on it's own, and right now the layers of government in the US are taking something around 40% of our GDP and rising. Most of our population has consumed itself into being working poor, and the government that is somehow supposed to "fix this" is poor as well.

    Ah you say, the government is the "only friend of the average American". Well, yes if you consider the pimp, the pusher and the loan shark to be "friends" of those that believe themselves in "need"  of those services. In fact, when I was watching TV as a child in the '60s Dragnet, Streets of San Francisco and such often arrested guys "running the numbers" -- today, the states "run the numbers" in lotteries as one more way to fleece their citizens.

    The primary business of government in the US today is the transfer of payments from the pockets of one set of people (mostly the young) to another set of people (mostly the old) -- entitlements are 75%+ of current US government "spending" -- which is essentially calling what Jessie James and Billy the Kid did "spending" rather than stealing. Stealing is taking money from one person by force and allowing another person to decide what to do with it. The purpose of government transfers is to buy votes for the ruling party (TP "The Party, Democrat), so the allocation of the funds is random to completely adverse to actual productivity. Productivity which would build capital, lower prices and provide the hope of an actually better future is replaced by an economy of buying more power for TP.

    The price of everything purchased is increased by government -- regulations, fees, taxes, licenses, permits ... each is a cost and each is added to the cost of the product. One of the larger lies of government is the constant direct or indirect promise of a "free lunch" -- as in raising the minimum wage. When the wage is increased, the price of the product goes up, labor is reduced by automation or less service, or the production moves offshore ... most likely some combination of all three.

    What about the businessman making less profit? Very unlikely -- most small businesses are largely based on the idea of building up equity in a going concern. The dream that they can work hard, not take much income out, plow profits back into improving the business and build a better future. Government is certainly fine with killing that dream and putting another entrepreneur out of business ('you didn't build that"), but for those that had the gumption to go into business in the first place, it is a hard dream to kill -- they will try to raise the prices or increase efficiency.

    It works no better for the large business. Increase the cost of production in the US, tax profit, etc and first the jobs leave the US, and eventually the entire business (see Burger King moving to Canada, Medtronic and many others). The government policies make the US a poor place to invest, so the business goes elsewhere and the US has less jobs. Another win for TP since DEPENDENCE ON GOVERNMENT is what the TP agenda is all about!

     Prior to FDR, a common view of financial life for a person in the US was "work hard, spend less than you make, and invest the difference in something that goes up in value". Such a view is likely to create largely successful people and a largely successful nation over time, which makes it a hated view for TP.  TP grows in power by the creation of ever more dependence and resentment in a greater and greater percentage of the population. That is their bread and butter in building their majority and power.

    Replacing "work hard, control spending and invest wisely" with "join a union, spend everything you make, and the government will take care of you when you are old" was and is the core brilliance of TP in gaining power. As unions and government priced the American worker out of the world market with ever higher wages, more benefits and more restrictive work rules, TP faced a challenge. Their solution has been brilliant -- ever increasing unemployment benefits, re-training payments, "disability" payments and out and out income support for less and less output (Earned Income Credit). Over 50% of our population is now receiving a government payment of one sort or another -- the TP voting bloc is ever more secure.
I see those three legs of the stool of dependence, debt, poverty and eventual economic collapse as being the main aspects that need to be understood in approximately that order -- one could argue that government is #1, and that 1 and 2 are EFFECTS of the designs of TP as well, I'm not really that concerned about the order, because all three legs have to be basically repudiated for the nation to move forward, and they are all very much linked ... and largely unknown to the average constantly entertained "consumer", more and more afraid and "bitterly clinging" to the supposed safety promised by their keepers -- TP, and it's wealthy elite. 

Who and where are "the wealthy" in all of this? The favorite bogymen of TP? In general, they are quite happy members of TP -- unless you are a VERY brave wealthy person, you nearly have to be lest the IRS, Environmental Protection Agency, OSHA, one of the myriad of anti-discrimination agencies, or some other in the alphabet soup of TP enforcers takes you down -- HARD! So the Gates, Buffets, lawyers, finance and entertainment types play the TP game -- let "the marks", the consumer debtors believe that TP is somehow "hard on the rich" if it makes them feel better. There are only 1% of them anyway ... they have control of education, the media and largely the political discourse except for FOX news, talk radio and some renegade bloggers, so it is very easy to control the story line that the typical low information voter is indoctrinated with.

The way out of this morass is simple, however the hole that has been dug is massive. As individuals and as a nation we need to work hard, consume less than we make and invest the difference in things that go up in value. At a basic level, I believe we all know this -- it is one of the reasons that the constant distraction of the media machine is so critical to the continued power of TP.

TP and it's supporters will naturally scream "well, EVERYONE CAN'T do this" ... Indeed. Much as the old joke of the two folks facing a bear when one guy starts putting on tennis shoes. The other says "You don't really think you can outrun that bear do you?" The guy with the tennis shoes says "I don't have to outrun the bear, only you!"

How cruel you say. Indeed, it is a joke of course, but the message is that winners and losers are inevitable. Right now TP and the 1% are the ever increasing winners and the 99% are being eaten by the bear. Break the stranglehold of TP, consumption and debt, and something like 80-90% of the population and the nation as a whole become far wealthier, the future begins to look like prospects of ever increasing wealth, and the US becomes ever more competitive against "the bears" on the world stage. The BIG loser is TP and the current 1% -- who will be replaced by a different set of 1, 10, 20, 30%ers with far more wealth than the current concentration enjoys.

Ah, but what about "the bottom"? As Jesus said "the poor will always be with us", BUT, rather than 40, 50% and much more of the population living from hand to mouth and demanding help from TP and it's minions, 10 or 20% will still be at food pantries and needing support -- there will just be a lot more REAL resources (not borrowed) to provide them with true basics -- not continued consumption and dulling mindless entertainment to be "consumed".

Much like what it used to mean to "grow up", being an adult in a non-TP America would mean focusing on responsibilities vs "rights".  We have lost our way, but the way out is actually far more meaningful and conducive to human happiness and growth than the false narrative that has been sold to most of us by TP in it's drive to destroy the fabric of America to be replaced with their own raw power. 

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