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How do the Rich Get Richer and the Poor Poorer?

March 28, 2014

How do the Rich Get Richer and the Poor Poorer?

Reports from economists around the world continue to post data about the widening gap in income or wealth between the “richest” and the “poorest” people. A measure of income or wealth (IW) is the standard of living or access to material goods that range from the basics of food and shelter to the luxury of multiple homes and the finest cars. My writing today explores the factors that affect the “gap” in IW that has developed within many different societies and forms of government.

While this topic plays well in the current mass media, the history of man has always included a high standard of living for the few kings and lords who ruled over the peasants and the tribal chiefs who had more than the average Indian. Dominance in the form of mental power or personality power and manipulation or propaganda was used to shape the society in favor of the royal class. Unlike the modern elected democracy, there was no pretense of equality and fairly shared resources. The over throw of the kings by communists or socialists or revolutionists was led for the most part by leaders with the power of personality to stir the masses and drive the change.  While many of the wealth holders were stripped of their land and other resources, the new leaders usually took good care of themselves and their inner circle.

If today’s economists were able to construct the wealth distribution graph, the government over throw scenario would be like an earth quake in shifting the names on the biggest bank accounts and the owners of property. Unfortunately, the group with the least wealth would still be the same people who might get a hand out but their “increased wealth” would be temporary.  If the over throw resulted in less total production, due to the loss of the king’s management skills, the new socialist leaders could live like kings and the peasants could actually have less.

In a democratic society, some of today’s most wealthy citizens/political leaders want to cry “socialism” when government programs are branded as “wealth redistribution”.  They argue that taxes which flow into social programs hurt economic growth and jobs for everyone, even the poorest who could work and support themselves. The argument goes that higher taxes on the wealthy will lower total production and create unemployment with less for everyone.  How does that work? If the marginal tax increase resulted in an equal reduction in wealthy citizen’s re-investment to grow jobs and production, the argument might hold. On the other hand, if the tax increase hurt this wealthy person by preventing his purchase of a fifth home, the only loss would be in the jobs to build his new (empty) home, not in his job creation and business growth.

The Man Climbing the Wealth Mountain

So I said this is about getting richer or getting poorer.

If I am rich and own many resources, like land, oil fields, even just bunches of stock, my climb has little or no slope. I just have to use these advantages and “get richer”. Of course, government policy can have a great impact on my path. The tax on my income from these assets could make my continued assent on Wealth Mountain, a bit slower. It will certainly be worth paying for the services of a lobbyist and keeping guys in elected office who help me, but I have lots of money for that. The rich man’s decision to spend some marginal income on staying wealthy is much smarter than risking a fall from the mountain, or even a slowed assent to the top. This premise is based on my observation of the huge TV ad campaigns that bombard the public with comments about health care reform, the value of particular industries, and the need to elect certain candidates to save the democracy, really “keep me wealthy”.

If I am not rich, no big deal, follow the American Dream, work hard, spend wisely, and you too can climb Wealth Mountain. So “work hard”; early on “get an education”. So the poor man’s path is via public schools and most urban public schools do not appear to educate hardly anyone! The rich man’s path is via private schools which stay in business by measured success in educating. Now arrives the public charter school; a hope for a school form that matches the private model in “educate or close”. More correctly, the charter school is run by capitalists seeking revenue from winning a charter and having a few years to show that education is happening.

Here in New Orleans, I am still hopeful about charter schools; nevertheless, thousands of poor students have passed through the doors of charter schools that failed to educate them and the school managers lost their charter. So much for getting an education; maybe some on-the-job training will get you on the path to climb the mountain.  More likely you are poor and will get poorer as jobs will pay you very little due to an oversupply of you uneducated dummies. The great society birth rate continues high for the poorest, so the oversupply of low wage labor from failing public schools will help the rich owners of the pizza chains to get richer from the work of cheap labor.

Now let’s say you got into a good public school district and worked and borrowed money for college and graduated and are well prepared to climb the Wealth Mountain. You even got a degree in a tech field. If you were really poor you can become much richer. The poor getting rich scenario; not exactly, you will get less poor. You will not have funds to hire lobbyists and own several houses as long as you work for corporate owners who control the labor market. It will be more than a one-in-a-billion chance that you join the top 1%, who control 35% of the wealth. Still many people can join the middle class even though that wealth level is declining. One-in-a-billion can become self-employed in a field, usually law, which allows the assent maybe to the top 10%. Then there is Oprah.

Two ways to get much richer: 1. Make a much bigger pie and eat your share, 2. Work through policies, laws, rules so you can eat a bigger share of the existing pie. Bill Gates and his early team built software that led the PC to improved productivity in all business endeavors. His fair (monopoly driven) share of the pie was measured in billions. Like Bill Gates, many of the 1% wealthiest earned their way to the top. Bernie Maddoff entered into a complex financial world and found a con to steal funds from some wealthy and some just rich. Bernie became wealthy while it lasted. Other legal players in the complex financial markets found their way to the top of Wealth Mountain by designing and then exploiting the fine points of investment banking. Their climb was all legal, but did it make a larger pie or allow them to eat a larger slice of the existing pie via banking regulations? Many of the climbers reaching high on Wealth Mountain are in field where the rules effectively provide them with passage ways to the top.

Maybe I should take this narrative back to Africa. With the right organization I can become a dictator, hire and arm troops who get paid and live relatively well by keeping the poor as working poor, while I am standing in line cashing in on the mineral resources they are mining and conspiring with the foreign minerals buyers to trade minerals for guns and grow my personal wealth.

Alternatively, you can become the lord of your own drug empire right here in the USA, arm yourself with the smartest public school dropouts, and get legal support to stay out of jail and banking deals to launder the money. Your fair (monopoly) share of this big pie will lead you well up Wealth Mountain at least in high lifestyle, if not the biggest foreign bank account. Of course do not expect to match Bill Gates or Oprah, but you will in financial terms, “out-perform” the tech college graduate who went from poverty to the middle class.

Are There Solutions in Africa, Russia, Mexico, USA?

I hope the limits of my words do not suggest that one country has a monopoly of “wealth mountain excursions”. The US model shows that democracy does not lessen the disparity in wealth within a country. Fundamentally, all countries have very wealthy people who are skilled at preserving and growing their wealth. In terms of government policy and fair taxing, policy needs to prevent clever players from eating more and more pie without creating more productivity.

Some particulars are tort reform, banking reform, tax loopholes, and all kinds of regulation that beget more need for legal action and a bigger piece of pie for those who serve these “society balancing” roles versus working to grow the economy.

In terms of education, I have a dream that one day white and black children will attend urban public schools that are non-violent and educate all of them. Education needs to begin at home and parental responsibility needs to be an enforceable public policy.

In preserving the democracy, some cap on funding for lobbyists and propaganda TV ads needs to be put into the constitution.  TV ads which seek to win approval for a candidate or the passage of a bill must disclose where these vaguely named organizations get funded. If we cannot track the cash flow of drug money in an international drug market, how can we prevent foreign millionaires from getting their chosen candidates elected to keep them rich?  Does Saudi Arabia put money into some TV ads? Present law says we are not allowed to know.

 

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