About Inequality…

There are various complex models for this, but the general explanation is fairly intuitive: Modern economies are built on a mass market. But if the great majority of people don’t have much (or any) disposable income, then there is no mass market, and it’s harder to start a business relying on any kind of mass sales. And with weak consumer spending, existing businesses have little reason to invest in growth, and instead disgorge their profits to shareholders, exacerbating the trend. In the end, you get a hollowed-out, bifurcated economy, where low-grade goods are sold to the broke masses on razor-thin margins, while incomprehensible sums slosh around weird luxury markets.

SOURCE: What Democrats get wrong about inequality – The Week.

The words above do the best job I have seen lately explaining how prosperity happens.  It is no secret that when Henry Ford started paying a living wage to his employees the birth of the middle-class started in earnest. If he had paid the then current minimum wage his workers and others like them could never have afforded the cars they make. Mass markets depend on a large customer base to be successful. That is as the article says is fairly intuitive.

There is a reason the Walmarts of the world are displacing so many local vendors and that is because with their mass marketing potential they can get their products at a lower cost than local competitors.  Paying wages that are not livable wages is the logical result of Walmart’s success.

I am a “car” guy in that I enjoy watching all the car fix-it shows on satellite TV especially the Velocity channel.  There seem to be hundreds of companies that take 40 – 50 year old cars and renovate them for their nostalgic  customers. Most often the price of these cars are from $80,000 to as high as several million. Obviously the customer base for these companies are the upper 5% or so of the population.  It is great that companies can earn a good living from these business but there are only so many people who can afford the products they produce.  as the article says incomprehensible sums slosh around weird luxury markets.

It seems like our downfall as a middle-class nation is the result of not providing enough people an income that will allow any kind of discretionary spending. The national minimum wage has remained stagnate for more than a decade due to GOP resistance. In fact some in that quarter want to even abolish the minimum wage entirely and leave it up to individual companies to determine what they pay. There is said to even be some house bills to that effect.

They say statistics show that the income inequality is the worst it has been since the robber-baron years of more than 100 years ago. But we don’t, like we did a hundred years ago, seem to have a person with the character of Teddy Roosevelt to get us out of our most recent downward spiral. I don’t know what it will take to turn it around this time? But I do know that if it continues as is it currently going we will drive ourselves into an almost third-world status. I’m sure China will be more than happy to take over as the world economic leader if we falter.

Buying a Thousand Pillows…

Yeah. So it is true that rich people can spend more money than middle class people, but there’s this upper limit on what we can spend. I drive a very nice car, but it’s only one car. I don’t own a thousand, even though I earn a thousand times the median wage. I have a few jackets, not a few thousand. My family can afford to go out to eat more than most American families, but not more than three times a day. We can’t go out 3,000 times a day.

So if you concentrate wealth in the hands of a very few people, you break down this feedback loop between customers and businesses. My family, among other businesses, owns a pillow company, and the pillow business is tough because fewer and fewer people can afford to buy pillows. Again, I may earn a thousand times the median wage, but I don’t sleep on a thousand pillows.

You need everyone to be able to afford a pillow every year in order to have a successful pillow business, and concentrating wealth at the top essentially creates a death spiral of falling demand.

 

SOURCE: Why capitalism has nothing to do with supply and demand | Making Sen$e | PBS NewsHour.

To me it just seems common sense that if you want an economy to thrive you put money in the hands of people who will spend it. Putting it in the hands of those who will simply stash it away with an already absurd bank account does nothing for the good of the country or its citizens.

Trickle down is still the mantra of many in the GOP, especially Mr. Ryan. If they get their way all social services would cease to exist and everyone would be left to themselves. Ayn Rand, who is Mr. Ryan’s hero, believed that altruism, that is caring for humanity, is a weakness and not a strength and it needs to be driven out of any truly successful society. That mentality seems to permeate those who are at the very conservative margins of our country now days.

It seems there are basically two distinctively different types of people in the U.S. There are those who love and care about everyone at least on some level and this  includes people they don’t know. Then sadly there are those who care seemingly only care about themselves and maybe their immediate families. Everyone else is to be feared on some level or simply of no or little consequence to them.

Trickle down does not nor has it ever worked. Raising the minimum wage and giving workers their fair share of the rewards benefits everyone, even those who believe in trickle down.

Raising The Minimum Wage….

But the problem is we have structured our economy in this sort of death spirally way, where huge profitable organizations like Wal-Mart pay poverty wages to a million workers, and then taxpayers make up the difference in social services programs like food stamps and Medicaid and rent assistance, and so on and so forth.  It’s as morally repugnant as it is economically inefficient.

It’s a fact that Wal-Mart earned $27 billion in profit last year. They could afford to pay their bottom million workers $10,000 more a year, raise all of those people out of poverty, save tax payers billions of dollars, and still earn $17 billion in profit, right.

It’s simply nuts that we have allowed this to happen. And the only way you can change things is to raise the minimum wage. Certainly the people that run Wal-Mart will not do this on their own.  The idea that businesses will go out of business if they pay workers more is just not true, even though I understand the sort of visceral fear that some of them feel about this change.

SOURCE: Why capitalism has nothing to do with supply and demand | Making Sen$e | PBS NewsHour.

These quotes above drive home what I believe is a very basic reason our economy is still in the state that it is. We just give too much power to the most avid capitalists among us. In other words we give too much power to those few who control most of our nation’s wealth. I am a firm believer in the idea that government’s role in a democratic/capitalist society is to reign in the greed that naturally comes with capitalism.

Unions used to have some control over this wage vs established wealth issue but that is just no longer the case. As is typical of these sort of thing unions themselves became too powerful and as a result too self-focused and corrupt to continue to hold the influence they once had. Unfortunately there was nothing there to replace the void left by the extinction of unions so it is necessary for our government to step in. But even that is another tragic failure in this very disjointed country.

With the almost total breakdown of the ability to govern, especially at the national level, this dichotomy between wages and wealth has gone unabated for a couple of decades now. Our economy is almost totally based on consumer spending but if consumers are stripped of any sense of discretionary income it seems like that is a natural spiral that we will not escape from. The richest among us just don’t eat out 10,000 times a month to replace those who can no longer afford such luxury.

We depend on our government to reign in the excess of our capitalist system and that is just not happening in today’s world.

Dual Income Requirements…

We know that the majority of households now require both spouses to work outside the home. That fact has contributed significantly to the number of seniors in nursing homes and other assisted care facilities. Simply put there is just no one at home to care for aging parents or grand-parents anymore. As a result more seniors are institutionalized than ever before.

Of course this is just another example of the problem with the gross income inequality here in this country and even around the world to maybe a lesser degree. Just when our population above 65 starts to explode there are fewer and fewer of us who will be able to stay with our families.  I know from personal experiences with my parents, nursing homes are very expensive. They quickly zap whatever wealth might have been accumulated. After that personal wealth is gone then Medicaid often takes over the expenses and that of course raises taxes for all of us. That seems to be the major Catch-22 of this early century.

When a mother is required to work outside the home she often only adds a small percentage increase to the family income since her children are now forced into childcare outside the home. That eats up much of the income gained. I wonder if anyone has ever done an economic analysis of these type situations?

I suspect that we are actually doing more damage to our society by continuing to squelch income at the bottom end of the scale.  While history shows us that when we raise the minimum wage the threat of losing a significant number of jobs does not materialize, that argument continues to be made today. I realize that raising the minimum wage is not an answer to all our problems but maybe it solves more problems than are realized.  Raising education levels to meet the requirements of 21st century jobs is also an important part of the solution. But then again, there will always be the need for someone to do the things that are now minimum wage jobs. Those jobs will not suddenly disappear with an educated population or be replaced by a robot. Minimum wage jobs will always be part of our world. We need to make sure that anyone who is working full time has at least the minimum income to sustain sustenance.

Pragmatism vs. The Silver Bullet Syndrome…

I know I swore off politics as a whole but that does not mean I can’t weigh in on some of the issues once in a while. 😉

The issue I want to discuss is the pragmatism of the president vs. the “Silver bullet Syndrome” of the Republican controlled House.  I must admit that I didn’t watch the “State of the Union” speech but I did see a few of the responses to it on the Internet.  It seems that the president is going to do piece meal what he can’t get the congress to do  in any form.

When the president announced that he would raise the minimum wage on all contractors doing business with the federal government there was a wave of rants that followed that “this won’t solve the problem as it is in the future and does not affect any present contracts”.

It certainly is true that this limited action won’t solve all our current jobs problems but at least it is a start. I am a pragmatist and I know that sometimes you just have to do something that you know will help but is not a total solution. Is there really ever such a thing as a total solution anyway?  It seems that our congress will not act on any solution unless it alone solves the entire problem, in other words a silver bullet.  But maybe that is because they know there is no  Lone Ranger or silver bullet and they don’t really want to do anything anyway.

Congress Ignores America’s Poverty Crisis

“The Ryan budget kicks 12 to 13 million people off of nutrition assistance, cuts off pathways to opportunity, slashes job training and education, and makes draconian cuts to Medicare, which serves a majority of the disabled and the elderly,” said Boteach. “That’s how House Republicans have outlined their priorities.”

Among those who voted for Ryan’s budget: Rep. Hal Rogers (R-Ky.), the chairman of the House Appropriations Committee, whose district has a roughly 28 percent poverty rate and 38 percent child poverty rate; Rep. Rodney Alexander (R-La.), whose district has a roughly 26 percent poverty rate and 37 percent child poverty rate; Rep. Paul Gosar (R-Ariz.), whose district has a roughly 17 percent poverty rate and 25 percent child poverty rate; Rep. Ted Yoho (R-Fla.), whose district has a roughly 16 percent poverty rate and 19 percent child poverty rate; and Rep. Tom Rooney (R-Fla.), whose district has a roughly 16 percent poverty rate and a 26 percent child poverty rate.

Source:  ‘Missing In Action’: Congress Ignores America’s Poverty Crisis.

I am a strong believer in our representative form of government. It is what has made us strong over the centuries. But the recent problem has been that many who go to Washington as our representative end up clinging to a party line rather than doing what is best for those they represent. To me it is shameful to see so many of the strongest backers of the GOP/Ryan budget coming from areas that have the highest rates of poverty.

It is a hard fact for me to face but the reality is that poverty in this country just doesn’t have much of a priority when it comes to our government processes. The poor simply don’t have the political power or lobbies that many other things have. Because of the power brokers in the country our military establishments drain so much of the resources away from programs to help the least of these. It seems if they have a choice of making another $50 million war plane or helping 100,000 rise above the poverty level they always choose the former.  I know the Republican party is trying desperately to re-brand themselves in to something that shows they have compassion but given the latest Ryan budget their actions simply don’t live up to their re-framed rhetoric.

One of the easiest ways to help the poor in this country is to raise the minimum wage. It has not even come close to keeping up with inflation in the last 30 years. Of course raising the minimum wage has some very fierce advocates among the GOP. They, like they always have throughout my 60+ years on the earth vehemently claim that raising the wage will result in millions of jobs lost.  To me that ancient rhetoric has been disproved so many times in the past as to have lost all credibility but there are still millions of conservatives around today that  parrot those words.

Lets be clear that the majority of the 46 million who are now living in poverty work, do not lie back and expect life to be given to them. Most are working at  minimum wage jobs, often time more than one.  If the Republican party is really serious about taking on the mantel of being “compassionate conservatives” as Mr. Bush futilely tried to label himself so many years ago they need to recognize that until the minimum wage is raised to something at least remotely resembling what it should be poverty will continue to have a strangle hold on millions of households in this country.

We are almost reaching a third world status when it comes to the number of our citizens living in poverty. Shame on us!!!