Sunday, January 1, 2012

Our Concentration of Wealth

The increasing concentration of wealth by the top 1% in the US has been talked about and was the subject of the Occupy demonstrations on Wall Street and elsewhere and summarized nicely in this video presentation.  But does it really make much of a difference to our prosperity as a whole?  I believe it does.

To start with, let’s show an example of the difference of wealth in the hands of ordinary middle class people as opposed to the wealthy.

Say we have 100 families each with a yearly income of $50,000.  This allows each of them to buy or rent somewhere to live, buy at least one car, a TV, a cell phone, food at the supermarket and occasionally a restaurant and perhaps a vacation among other things.  These are purchases that keep the economy going.

Now if we take that same $5 million away from those families, perhaps from outsourcing their jobs and give that money to the CEO who runs the company, what happens?

For one thing, the families now without a steady income will start to severely curtail their spending which puts a strain on the businesses trying to sell to them.  In the meantime, the CEO who gets the $5 million is not likely to spend much of it because he already has everything he wants.  Even if he wanted to spend it, he has no need for 100 houses, cars, TVs, etc. that the 100 families would buy which greatly decreases demand.

And make no mistake about it.  The high unemployment we are going through is mainly about lack of demand for goods and services.  Although corporations are making handsome profits, it is not resulting in the hiring of workers because there is no need for additional capacity due to the lack of demand.  This blows a hole in the label of “job creators” given to the wealthy.

In addition to its contribution to our present unemployment, there are a few other adverse effects that this concentration of wealth has brought us.  One is that the wealthy have far more control over our elections than in past years.  Yes, money has always been part of elections, but with the Supreme Count decision Citizens United, unlimited amounts of money can go into political advertisements and the source of the money doesn’t even have to be revealed.

Another is that it is difficult to run an effective campaign for Congress without already being wealthy which most of our Congressmen are.

It is not difficult to understand why voters feel that members of Congress don't understand or, even worse, don't care about their concerns. How could lawmakers with wealth, based on their own cushy circumstances, have similar feelings to ordinary Americans on jobless benefits, inheritance taxes, bank bailouts and income taxes?

Perhaps worst of all is the class disparity we are now dealing with between the haves and have-nots.   Most Americans have had positive feelings about the wealthy because they envisioned themselves as possibly becoming rich themselves.  After all, this was America, the Land of Opportunity where as former presidential candidate Herman Cain was quoted as saying "If you're not rich, blame yourself."

But an interesting essay in Esquire, We Are Not All Created Equal had these words about what it calls a new reality.

The Great Outcry that has filled the country with inchoate rage is the bloody mess of this fundamental belief in the justice of American outcomes crashing headfirst into the new reality. The majority of new college grads in the United States today are either unemployed or working jobs that don't require a degree. Roughly 85 percent of them moved back home in 2011, where they sit on an average debt of $27,200. The youth unemployment rate in general is 18.1 percent. Are these all bad people? None of us — not Generation Y, not Generation X, and certainly not the Boomers — have ever faced anything like it.

And if it’s that difficult for young people coming out of college, what is it like for older workers who have always had a more difficult time in the workplace dealing with age discrimination?

The fear here is that the huge concentration of wealth by a few is making it more and more difficult for everybody else to enter and stay in the middle class.  What can we do?

There are solutions that we can try but needless to say, those politicians who are supported by the wealthy will be opposed to them.  But here goes anyway.

First, we need to repeal the Bush tax cuts for the wealthiest Americans.  Our treasury needs that revenue.

Secondly, we need to stimulate the economy by spending money on our decaying infrastructure.  This puts people to work and like in the example above with the 50 families, they will spend money that puts others to work.  With interest rates being so low, it will never be cheaper.

And finally, what can we do to bring at least some of our manufacturing back to the US?  Admittedly, it’s difficult to compete with the salaries in China and elsewhere.  But would the cost in labor make such a huge difference in the end cost of the product?  Or put another way, would US consumers pay a little more for something that is labeled as ‘Made in the USA’?  I think the answer is Yes.

Sam Walton proudly displayed ‘Made in the USA’ goods at his Wal-Marts when he was alive.  But since then, it has used its significant buying power to force manufacturers to close plants here and source in other places like China as detailed in this PBS Frontline Documentary  Is Wal-mart Good for America?

While these practices to lower prices made Wal-Mart grow, mass retailers like Wal-Mart and Sears have not been doing so well lately (as opposed to upscale retailers such as Nordstrom).  Perhaps there will be a realization that low prices are only so good until too many of their customers lose their jobs as a result.

But some of the jobs outsourced to China are actually coming back to America.  But it’s a good news, bad news scenario as detailed in the NYT article U.S. Manufacturing Gains Jobs as Wages Retreat
Some manufacturers are hiring again in America, softening a long slide in factory employment. But for a new generation of blue-collar workers, even those protected by unions, the price of employment is likely to be lower wages stretching to retirement.
The wages for the new hires [at General Electric], however, are $10 to $15 an hour less than the pay scale for hourly employees already on staff — with the additional concession that the newcomers will not catch up for the foreseeable future. Such union-endorsed contracts are also showing up in the auto industry, at steel and tire companies, and at manufacturers of farm implements and other heavy equipment…
So much for the belief in greedy unions causing our problems. With the threat of moving production back to China, GE has its workers over a barrel.  They either accept a job whose pay doesn’t allow a middle class lifestyle or go without a job.  Meanwhile, the CEO, the Board and stockholders at fabulously profitable GE enjoy the profits while the workers are squeezed out of every dollar possible.  Another example of wealth going to the top.

What we take from all of this is that we cannot have a strong economy without a strong middle class to provide enough demand for our goods and service.   The wealthy can only spend so much.  After all, how many houses or cars can one person use?  And those at the bottom can only spend at a subsistence level which does not make produce enough demand. 

With many in the middle class struggling, 2012 is an important election year for the wellbeing of our people.  Right now there is a battle going on for control of our government.  On one side are the Republicans who are representing the interests of the wealthiest 1% who already have an inordinate amount of power.  On the other side are the Democrats who (usually) tend to look out for the interests of the other 99% of us.  When President Obama and the other Democrats are running for office this year, all they have to do is ask the voters whether they want someone looking out for the interests of the 99% or those of the top 1%.  That should help a lot of those undecided voters make up their minds! 

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