Double Repost: Absurd and What Would Less Absurd Look Like?

Both original posts from January 2013

I watch the budget negotiations in Washington and wonder what planet these guys live on. It sure isn’t this one.

Before I proceed, it might help to point out that the big difference between wealthy nations and Third World nations is the size of their middle classes. Wealthy nations have big ones; Third World nations have a whole lot of poor people and a very few filthy rich people.

I have an unusual question for you.


To get at the question, we’re going to divide the American population into 20% chunks, which is to say fifths, in terms of wealth, top to bottom. So, Upper, Upper Middle, Middle, Lower Middle, and Lower.

Here’s the question itself:

What kind of wealth distribution would be so out there, so over the top, that for the sake of the economy's functioning, for the sake of preventing national unrest, and possibly even in the name of fairness, you’d be willing to say "Let's intervene, even if the government has to help redistribute wealth - this has gone too far" ? Who would have to have so much, who would have to have so little that we're beyond unfair and unworkable and into absurd?

There are some out there who would say: “No such thing. Intervention is wrong by definition.” Really? It would be OK for the top fifth to have 99% of America’s wealth while the other 4/5ths shared 1%? To believe that, you’d have to think of Free Enterprise as a religion and not, incidentally, a religion related to any mainstream Western religion I can think of. That certainly doesn’t reflect Jesus’ attitude toward wealth; quite the contrary. This is the guy who said “It would be easier to get a camel through the eye of a needle than for a rich man to enter the Kingdom of Heaven.” Islam mandates a fixed percentage of everyone’s income be donated to charity specifically to avoid differences in wealth producing dire consequences. Charitable giving is a big part of Judaism, and all three major religions have laws about ethical business conduct, charitable giving, and the avoidance of blatant exploitation.

So, “no such thing” may sound good but there probably aren’t too many Americans who believe it literally. The question isn’t whether intervention is by definition inappropriate, the question is how bad things have to get before we say Enough and intervene.

So, back to the question:

What kind of wealth distribution would be unequal enough to warrant intervention?

Consider your answer,

and, after you do, let me tell you where we are now:

The bottom 60% of the population has, collectively, under 5% of the nation's wealth.

Wait, it gets worse. Way, way worse.

The bottom 40% of the population has approximately 0.3% of the nation's wealth.

That's right, 2/5 population = 3/1,000 %.


Now, let's talk about Entitlements. The thing about entitlements is that reductions in entitlements spreads the burden over the population, but not over the money. At this point in our history, the population has nothing to do with the money, and money is the problem. Congress is operating under the myth that population and money are still linked.

In terms of the numbers, the Democrats are too close to Republicans because whatever they suggest even without Republican opposition still wouldn't be enough, but at least it would be a marginal move in the right direction.

No one is looking at these numbers. The argument the Republicans are making is this:

We need to protect the money of the top 40% of the population because


1. They earned it (BULLSH*T - many inherited it and the Government subsidized a great deal of it, basically welfare for the wealthy, but welfare is only welfare when the poor benefit, even though welfare for the rich is more expensive) and

2. They create jobs with it. Also Bullsh*t. Bush gave them a tax cut and they pocketed it instead of creating jobs with it. That's what Jobless Recovery means.

Really. We need to protect over 95% of America's wealth from the threats posed by the greedy 4.3%. That's what the Republican Party has come to.

Forgetting the fairness of this, and keep in mind that the Republicans think this is unfair, BUT IN THE OTHER DIRECTION, as in that the holders of the 4.3% are moochers,

How the Hell can America's businesses stay open when 40% of the population doesn't have any money?

We're looking at markets in China. The undeveloped market is here. What would Americans consume if the whole population were healthy?

Just so you know, I’ve written about these numbers before. The distribution across quintiles (fifths of the population, 20% blocks) is


Upper 84%

Upper Middle 11%

Middle 4%

Lower Middle 0.2%

Lower 0.1%


Numbers from:

Building a Better America - One Wealth Quintile at a Time
By Michael Norton and Dan Arieli.

http://pps.sagepub.com/content/6/1/9

—————————————————————————————————————————————————

This post is all conjecture; I'll admit that right up front. However, the mechanisms I'm talking about exist.

Looking at my last post, "Absurd," what would a better distribution of wealth look like?

I'll give an off-the-cuff suggestion of a target. Not a target that would strike anyone as communist; in fact, a target that is still wildly inegalitarian. Here it is, divided like my last post into Quintiles (fifths, or 20% blocks of America's population):

Bottom quintile 3%
Lower middle 6%
Middle 12%
Upper middle 24%
Upper 55%

So, we're still talking unequal enough such that no quintile is more than half the size of the one above it. The ratio of top quintile to bottom is 55/3. This is not an egalitarian solution.

What would something even this skewed mean?

The top would take a cut of 29% in terms of percentage of the whole economy, but they'd still be left with well over half the country's wealth for just 20% of the population. Also, unlike any other quintile, they would be more than twice the size of the one below them. Keep in mind that this is cut in percentage of the economy, not an absolute number. This becomes important later.

The results for everyone else:

The upper middle better than doubles in wealth.

The middle triples in wealth.

The lower middle and lower each have their wealth multiplied by 30. Yes, thirty.

Keep in mind that this puts the lower middle quintile at more money than the actual middle has now.

What would this mean in consumer spending? What would it mean for all these extra people to be able to afford (or afford more, better, and in some cases just new):

Cars?
Housing?
Travel?
Restaurants?
Clothing?
Home furnishings?
Consumer electronics?
Event tickets for entertainment (concerts, sporting events, movies)?
College degrees?

Businesses would make fortunes.

Tax revenues would skyrocket, in part because lower income people don't shelter their income like the wealthy do.

Primary and secondary education would actually be paid for without our cutting it to ribbons. We'd end up with educated kids because of improved tax revenues.

Social service spending would plummet. Crime and associated expenses and opportunity costs (like prison) would presumably drop as more people had legal ways to make a decent living.

And here's the kicker:

Businesses would expand by enough that general economic expansion might very well make up for the cuts in the top quintile's share. In other words, 55% of a larger pie might add up to as much money as 84% of a smaller one (84% being the current share of the top quintile). The top end of the population would be less rich in comparison to the rest of the population but might not actually end up less rich at all in absolute terms.

In other words, in the long run, this might not even end up costing the top quintile any money.

Are you beginning to see why policies leading to this kind of polarization are so fundamentally stupid? There are hardly any winners and hundreds of millions of losers.

As I have said many, many times before:

I do not understand why Wall Street and the business community in general tolerate the status quo. They of all people would profit enormously from average Americans having money.

Views: 143

Comment by Maui Surfer on February 1, 2018 at 9:25pm

Despite the fact that America is what it is, the "Dole" is coming. I've heard this straight from the mouth of billionaires like Vinod Khosla in candid discussions with them in Silicon Valley, and, there are experiments in minimum income going on, of course in California, but, everything they do eventually makes to nearly everywhere, never mind Mississippi and Alabama, those poor souls may continue to suffer. Australia already has it, we know about the Brits, but, automation will take the jobs and people will still be here ... it is a given, only politicians will tell you otherwise, there's a reason the "Street" says, "It is what it is ..." because it is what it is and that is it. Now, how long will it take, that will likely depend on civil unrest, not on good solid planned policy. But, it is coming, for sure. Go ahead and argue with Khosla and Musk, like any of us know more than they do ... Ha!

Comment by koshersalaami on February 1, 2018 at 9:53pm

The dole should be coming. It's logical. 

Comment by Ron Powell on February 1, 2018 at 11:30pm

"I do not understand why Wall Street and the business community in general tolerate the status quo."

Because they have all of the money now anyway so they believe rthat the system needs no adjustment.

As I have said over and over again, the rich know how to do two things quite well:

1. They know how to stay rich;

And

2. They know how to keep the next person from becoming rich.

So where's the narrative that exploit  Republican support and maintenance of this economic absurdity?

The only rational answer is that the Democrats are in on it with the Rwpublicans, and are not as uncomfortable with the inequity and disparity as they should be because the bottom 40% is where most, if not all, of the black and brown people are...

Comment by moki ikom on February 1, 2018 at 11:34pm

.

  'I do not understand why Wall Street and the business community in general tolerate the status quo. They of all people would profit enormously from average Americans having money."

When you originally posted this piece this was capitalists' status quo: 

January 18, 2013: 4:25 PM ET  After a mostly flat trading day, the Dow climbed to 13,800 during the last hours of trading to finish the week at highest levels since December 2007.

Now, just five years later:

A Record-Breaking January 

26,186 as of Feb1

The New York Stock Exchange has been the gateway to generations of epic adventures and breakthroughs, helping companies raise the capital that raises the world. When you follow your true calling, greatness is born. Our true calling is to help great companies do great things.  --www.nyse.com

--

That's one piece of art, nearly doubling it's declared value in five years.  Has the doubling  benefited "average Americans"? In other words, what staus-quo are you suggesting "Wall Street and the business community in general" should begin disparaging?

Comment by koshersalaami on February 2, 2018 at 5:19am

What’s supporting the rise? 

Moki,

It was probably a mistake on my part not to edit out Wall Street in the repost. Small and medium businesses are a more logical target for my question. The real difference is whether your business is big enough to get a lot of its money by gaming the system. If you’re in pharmaceuticals, you don’t care, because your industry just manipulates legislation. If you’re a local car dealer, you do care, because what I’m suggesting makes too big a difference in business. 

Comment by Ron Powell on February 2, 2018 at 6:37am

Then there's the old Republican economic stand by shibboleth and the rationale for maintaining the status quo which masquerades as the 'conservative' agenda:
Fear of Inflation

Comment by koshersalaami on February 2, 2018 at 6:55am

Of course they’re afraid of inflation. Inflation reduces debt. 

Comment by Rodney Roe on February 2, 2018 at 2:59pm

The drop in the DOW today 2.5% - 666 points - is the result of investor anxiety over rising wages which should result in debt reduction and inflation.  Also, they think our institutions are falling apart because of Trump's battle with the FBI.

Comment by koshersalaami on February 2, 2018 at 3:12pm

They are falling apart

They’re being taken apart

Comment by Maui Surfer on February 2, 2018 at 9:23pm

RR, they are at least partially, or temporarily, right about both.

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