I have been thinking about this for quite a while (and mentioned it in a few posts), but this article has prompted me to finally write a post that focuses on it:
Welcome to the 1 percent recovery
That elite sliver reaped 93 percent of the post-recession income gains. Is extreme inequality America’s new normal?
http://www.salon.com/2012/03/05/welcome_to_the_1_percent_recovery/singleton/
First, full disclosure: my personal goal is to have more money than sense. That I haven’t achieved that exhaulted state is a source of frustration to me (in my teens I blithely stated I would be a millionaire by 25 and billionaire by 30). Having said that, while I expect to enjoy being wealthy (presuming, naturally, I am ever able to achieve that goal), it will come as a side effect of achieving my business goals of building a mega corporation focused on establishing a series of permanent space stations (not the joke we have now, but big enough to hold thousands and eventually 100’s of thousands of people). Yes, I am a few eggs short of a dozen (perhaps as many as 13 ;-)), but because of my goals I have thought about what it means to be wealthy, how to influence people in power, the greatest good for the greatest number, etc. So, with that as perhaps unnecessary background, on to my point…
Most rich people (everyone talks about the 1%, but it really is the 0.1% and the 0.01% that are the really rich and even at that level there is a wide degree of variability) are in a state where they have to engage in a long string of really stupid actions in order to ever become not-rich. The sort of things you see football and basketball players doing all the time: buying brand new Porches and wrecking them each week, things like that. Generally first generation rich had to bust their asses to get the money so they tend to be thoughtful about it and generally don’t buy useless things (this is not to say they don’t gamble (or, in their words, “make aggressive business decisions”), just that they don’t buy stuff they don’t need). Often second and subsequent generation rich are focused on maintaining their wealth and generally become quite risk averse as they have never lived ‘poor’ and have an exaggerated sense of the privation involved (I have been homeless and destitute because of my “aggressive decisions” and while it sucks it actually gave me a lot of free time to think about things; with the help of some good friends I was able to recover and I expect most people who aren’t total assholes (I am only partly an asshole) have good friends that will help them out during periods like that). When I say rich people have more money than sense, I am not necessarily saying that as a bad thing, because if you aren’t rich and you aren’t sensible about your money, then you get to live like a troll under a bridge because you are homeless and destitute. Lets say that there is a minimum level of money necessary to live, sort of like a minimum level of calories is needed to survive. Once you have that minimum then having more acts as a reserve against future bad times. Since bad times can be very bad indeed, what would be a necessary reserve? In food you might expect it necessary to have at least a year’s worth of calories squirreled away because one bad crop and you are dead. For best planning, you probably ought to have several year’s worth of food (money) prepared because sometimes there can be long periods where crops just don’t do well. At some point, though, the amount of food (money) you have banked for bad times becomes more than sufficient for any plausible bad scenario and any more just becomes a way to ‘keep score’ against your neighbors.
So, lets imagine that, unlike food that has a shelf life and is quite bulky, money stored can actually grow more of itself, meaning that once you have a certain minimum amount of money (food), your survival needs are completely covered by the interest that is returned on your stored money. So, if there is a total crop failure and even if that crop continues to fail indefinitely, you really can’t be motivated to give a damn because your food needs are completely covered by the ‘interest’ on your stored food. In fact, you might look down on your not-so-lucky fellows and consider them idiots because they weren’t smart enough to be born to parents whose family was fortunate enough at some point in their history to get enough surplus food that they could live off the interest on that food. Perhaps not an excellent analogy, but hopefully you can see my point I am trying to get across. Once someone has enough resources that generate resources, they no longer are incentivised by bad economic situations like someone who hasn’t got those stored resources.
Now, lets add in some psychology… People of privilege (and not just those with money, but those in power or even those who were endowed by nature/nurture with what is perceived as personal advantages (imagine again, if you will, football/basketball players)) tend to develop a sense of superiority because they have something that the average Jill or Joe lacks. Couple that with the generally inevitable societal worship that is given to people with privilege and it becomes pretty easy to see that people in this state begin to believe that they are indeed better off than their fellows. A lot of people are insecure, though, and believe (rightly in many cases, in my mind) that their privilege depends on the worship of their less fortunate fellows, as opposed to anything intrinsic that they have in their personality. It is easy to imagine that people in this situation would develop paranoia about losing their station in life and actively and aggressively work to ensure that they will never have any risk to their stature. Thus, even when a proposed stimulus to the economy might increase their wealth, it is understandable that if that stimulus has any possibility of endangering their status quo they would resist it. They already have more money than they need, their money is already invested so conservatively that anything short of a global catastrophe ensures that they will continue to be wealthy and they are deeply paranoid about losing their status because they know they haven’t anything intrinsic within them to stand out once that money has been taken away.
I have attempted to outline my argument that the wealthy have no incentive to bolster the economy as a whole. Instead, they actually have negative incentive to see that the poor get enough resources to cause a massive upward spiraling economy because then they risk being supplanted in their position as uber rich. For those of you who think this is a blanket condemnation of wealthy people, take a breather and just think about it for a moment. All rich people are not the same, just like all poor people are not the same. The different classes, do, however, share certain drives (as a group) and their behavior (as a group) is subject to some prediction once those motivations are revealed. Poor people are motivated by their need to find their next meal and as such they are rarely in a position to think long-term. They _cannot_ consider putting their money in a 401K or IRA, etc. because they are faced with decisions like “eat now or die”. Once you climb out of the gutter into the middle class and are able to enjoy decisions like “shall I eat this expensive meal or put my money in a 401K and stick with Ramen Noodles” then you have the potential to consider long range decision making. Lots of middle class people tend to make short-term decisions (e.g., I would rather have this 50 inch TV now then let that money grow and be able to retire young enough to enjoy myself), but say you have enough green to buy that TV AND fully fund your retirement account. Now we are approaching my ‘more money than sense’ area where people have opportunities to do something with their money besides self preservation. Some people at that level do good deeds for society (Bill Gates), but lots of people tend to only take the excess interest that they can’t figure out what to do with and do good deeds with it. And of course there are people who do good deeds in their own way (my ‘good deed’, were I to achieve my goals, would be to give the human species insulation from a global catastrophe by having stable breeding populations off-planet (ultimately I would want to insulate the species from a catastrophe to our solar system by spreading throughout the galaxy)) that might not even seem like good deeds. There are a few, I am sure, that just don’t give a damn and don’t see that their lofty success is absolutely due to the society they live in, but I believe those are the minority.
In a society where wealth is polarized I think you inevitably get stagnation. I believe one of the reasons why the Chinese feudal system was so stable for so long, despite producing virtually every single invention of note that lead to the industrial revolution, was because the upper class had no incentive to change anything due to having ‘more money than sense’. When Europe replicated the same sort of feudal society there was a long period of stagnation, but when the plagues ripped through and there simply weren’t enough laborers any longer, a middle class was created via the lords bidding wars to get labor. I believe it was that substantial middle class that was the trigger to the industrial revolution that lead to the exploding economies that had the side effect of making everyone vastly more wealthy (and as a consequence, made the difference between the richest and the poorest the lowest level in centuries, perhaps millennia, possibly ever). However, when wealth gets polarized I see pressure for the feudal system to reassert itself. I strongly believe that is what is happening now in the US. Europe, through its rather draconian progressive tax system, is maintaining a lid on the extremes of wealth accumulation, but there seems to also be a lid on the incentive to develop something transformative. Their economy does grow, but at a more sedate pace, and it is less likely to be floored by shocks (or at least less likely so far, this Greek thing might really put my theory to the test). The US, with its oligarchy in near absolute control over the government, is moving toward the feudal system that will squash any incentive for anything transformative. On the whole, unless I was rich already, I think I would rather live in the European system, at least I wouldn’t have to worry about feeding myself since ‘big brother’ is taking on the challenge of having enough food (resources) saved for a string of bad crops. I would rather live in the US as long as there is a realistic chance for someone to have vertical mobility, but my strong impression is that potential is quickly ebbing, if it hasn’t already vanished.
