Article

THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA

Posted In:Politics, National, Opinion | From Issue 728 | By: | 30th June, 2011 | 1

THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA
THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA
THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA
THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA
THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA
THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA
THE CONCENTRATION OF WEALTH versus MIDDLE AMERICA

“It was the best of times, it was the worst of times.”  With one of the most famous opening lines in literary history, Charles Dickens helped ensure this eternal pairing – misery with prosperity.  Good times with bad.  If someone was winning, it meant someone was losing.  It’s a principle that makes sense to us.  Simple.  Fair.  Balanced by karma over time. 

Recently, if one gained most of their worldview through the newspaper or evening news, it would seem that this balance has been broken.  These are reportedly hard times.  Times that will require us to buckle our belt and pull up our bootstraps.  To work a little harder and have a little less to show for it.  It’s called a ‘shared sacrifice’.   Time to pay for years of largess.  A malaise.  An opportunity to rebuild.

There are compelling signs of the worst of times:  Historically high unemployment.  Record foreclosures.  Painful cuts to education and services to the general public.  Paychecks stretched.  Bank balances eroded.  American dreams delayed. 

But this “glass half full” view of our plight contradicts what we have learned from our great thinkers, Dickens, Ghandi and Greenspan.  If the losers in today’s economy are so obvious, it can’t be that hard to find the winners, can it? 

Competing Organizing Principles

Recently I heard an expert on the radio make the comment that “of the top 500 self contained economic entities, half are corporations and not countries.”  On quick reflection, this is one of those throw away statistics that doesn’t mean a lot.  For instance, there aren’t 500 countries, so some form of organization has to make up the bottom third of the list.  But, I admit, the comment did make me think.

The issue is there is too much overlap in these competing organizing structures to assess them separately.  Corporations cross borders.  Nations maintain responsibility for regulation, commerce and the public trust within their borders. 

Rather than a mixed up list, where GE ranks somewhere between Serbia and Sri Lanka on the economic power table, it reminds me of one of the horrors of 1990’s business – matrix management.   In a matrix organization, many employees have two bosses.  Imagine the joy of reporting to both the global product line director – who wants a plan for China – and the regional manager for the US – who would like to remind you were the company’s historical profits have been generated.  As you would imagine, it often led to competing priorities, wasted efforts and many, many arguments about who was in charge.  And, for what its worth, two completely different, completely legitimate ways for measuring the success of the organization.

To some degree the US acts like a matrix organization, with two competing structures.  In the tradition of shady organizations everywhere, there is more than one way to assess an enterprise. 

One way to look at the US would be in terms of the Federal Government.  It’s a good thing that government gets judged by its own standard, because, if it was a business, it would be bankrupt.  Over the course of 40 years we have accumulated roughly 4 times the debt of the previous 200 years.  If the US is “we the people,” it would appear the people are actually broke.

But then there is America “the market.”  Similar to the upbeat global product manager balancing the dour predictions of the regional director, we can take a different view of situation.  Our various financial indices, from Dow Jones, to Nasdaq, to the S & P 500 offer both a picture of past performance, but through their inherent speculative nature, a rough prediction of the future.  If up is good, our friends at Dow Jones paint pretty positive pictures of both our past and future.

Its almost like the performance of the stock market is the photonegative of the national debt.  Each year shows economic growth, with all trends pointing toward cyclical, but continued, growth.  To a market, this represents value.   It is a stark contrast to the dim financial picture painted by our accumulated national debt.

This is not to suggest that there is a direct cause and effect between the accumulation of the National Debt and the soaring prospects of Wall Street.  It might not be a stretch, however, to suggest some correlation.  Even if some governments aren’t deemed “pro-business,” it is pretty clear the business is “pro government.”  The government is a good customer.  The $200 hammer or $1 billion missile?  The study on the reproductive habits of moths?  All provided by private entities and paid for with public funds.  Public funds controlled by a government, which is willing to create as much money as “necessary” through deficit spending. 

So which is it?  Are we still experiencing the American economic miracle, as the Dow Jones might indicate?  Or are we flat broke, living on our old money reputation and legacy lines of credit, as one might conclude from assessing our public debt.  Or is it possible that both are true at the same time.  The best of times and the worst of times. That probably depends on your point of view.

Winners and Losers

On a recent trip to Ann Arbor, I picked up one of the many street newspapers distributed around Southeast Michigan.  The headline story concerned a Duke University study on the distribution of wealth in America.  On first glance, it seemed rather anti-climatic:  “Newsflash – Rich People Have More Money Than Poor People.”

On closer examination, the article actually proved to be quite interesting.  The Duke researchers had conducted a study on the distribution of wealth amongst Americans of varying income brackets.  Each person was asked what their ideal distribution of wealth would be and what they believed was actually going on in the US.  The results, along with an estimate of the actual distribution of wealth are presented in the three graphs below.

True to our Puritan roots, Americans have an innate sense of fair that is most often coupled with a relentless sense of optimism.  The charts depicting the results of the Duke study are both simple and telling.

For instance, where those polled believe that the richest 20% of Americans control around 58% of our nation’s wealth, they believe it would be ideal if the upper class actual owned closer to 32% of all assets.  The reality is that this most successful quintile lays claim over 80% of our net worth.  (46% of that by the Top 1% alone.)

On the other end, the survey indicated that people believed that the poorest 40% of Americans would ideally have rights to approximately 32% of all assets.  They believe truth is a little more bleak, with this group enjoying access to only 10% of all assets.  The reality is the bottom 40% hold only around 1% of our financial assets, almost all of those in cash.  We like the idea of taking care of the huddled masses, but, in America, poor is really poor.

Add in the fact that the top 10% of all earners also control 85% of the equities traded on the stock market, 75% of all real estate and 70% of all precious metals, the disparity becomes even more stark, if not structural to our system.  If shared wealth and equality of opportunity is part of the American model, we have evolved to a very skewed version of the American dream.

It Pays To Be Rich

To some degree, financially disparity has been part of the American story since the beginning.  The founding fathers were largely men who had made their fortune in the New World and who were looking for ways to secure it.  Waves of immigrants, including those whose families made it here as servants, slaves and common laborers, meant there was a steady supply of “have nots.”  But there was still the dream.  The idea that everyone could get ahead in America.  For some, this proved to be true.

For most people, their financial worth is reflected in their weekly paycheck.  It’s both a measure of our own hard work and the engine of our power as consumers.  For many people, it’s also an exercise in creativity and elasticity, their income stretched as costs rise and raises become increasingly rare.  The cultural of “just getting by” isn’t just an emotional response to tough times, it is borne out in data that shows real wages (in 2000 dollars) have changed little over the last 30 years.

In sharp contrast to the flat salaries experienced by most workers, those that rise to the position of CEO have experienced unprecedented financial success.  In addition to the perks and benefits of the office, we have seen the average CEO salary rise from a little over $260,000 a year in 1980 to nearly $6 million annually in the most recent fiscal year.  This rise is before any adjustment for inflation.  If it has appeared to you that the rich keep getting richer, it’s because it’s true.

Some might look at the rise in minimum wage as an indication of some progress, but best guess it would be the opinion of someone who doesn’t try to live on it.  More striking is that we seem to be moving toward convergence between “average” and “minimum” wages.  It’s a two tiered system, as there is little room for a middle class in this model.

You Get What You Pay For

By any number of measures, the 2010 elections can be considered a disaster.  If rumors and recall petitions are any measure, there is a growing consensus for this opinion.  Looking back on the election, the discontent isn’t surprising. 

The most fundamental right in a democracy is the right to vote and voters by and large waived this right last November.  For those close to the election, it was clear early on that turnout was going to quietly be the key issue at the polls.  Conservatives believed their committed core of voters would show up to support their agenda.  And they did.  Liberals were concerned that the groundswell of new voters who had swept Barack Obama into office two years earlier would stay home.  And they did.  Based on the opinions of 44% of all eligible voters, the election produced landslide victories and successful candidates armed with mandates poured into the halls of power.

In Michigan, the headline election for governor wasn’t close.  Based on a combination of Tea Party activism and a general disgust with eight years of malaise under the Democratic administration of Jennifer Granholm, it was obvious early on that Rick Snyder would easily outpoll his Democratic adversary Virgo Berno. 

One result of this disparity was that it allowed Snyder to be truly conservative in his campaign strategy, revealing few specifics on his plans for Michigan.   Whatever mandate Snyder had on election day seems to be eroding as his legislative and budget agendas appear to contain features that alienate both vocal adversaries – like teachers, parents and students who feel proposed cuts to education funding are too severe – and critical supporters – like seniors who were surprised by his intention to increase the taxable portion of pensions.  As the details were revealed, the calls for recall ramped up, leaving us the potential for a long hot summer of political dissent.

The other issue of significance that weighed on the 2010 election was the Citizens United decision by the Supreme Court.  Based on a combination of the ever-expanding concept of ‘corporate personhood” and the assignment of free speech rights to large Political Action Committees, 2010 saw an unprecedented influx of money into the campaign process.  Some $300 million of PAC money flowed into federal, state and local elections, with little requirement to reveal its source and, apparently, even less responsibility to tell the truth.  Independent assessments of campaign ads aired during the cycle found that more that 80% of them contained glaring inaccuracies.  Despite a bias that was obvious even to casual voters, most observers indicate that the ads worked.  They cememted the opinions of the core voters on each extreme and swayed opinion despite their unnerving frequency and transparency of purpose.  Like Karl Rove used to say, “if you repeat it often enough, it becomes true.”

By all accounts, 2010 was just the beginning of the corporate influence on elections.  The PAC’s, though well financed, were relatively new organizations and everyone involved needed to get an understanding of the boundaries.  It turns out they are pretty broad. 

So we got our CEO governor.  And we got our corporately funded Congress.  And we started hearing about cops and pensions and teachers and tenure and average salaries in the public sector.  And, despite the fact that all of these targets are part of the humble majority that controls less than 20% of our country’s wealth, we began to hear how we were going to scrimp, save and sacrifice our way out of this mess.  No real mention of the rich and how they might offer a bit of their 80% plus to help, but a plan nonetheless.

“But I Don’t Follow Politics”

During the 2010 election, there were two sentiments expressed more than any others as I spoke to potential voters (including those that had no intention of voting).

The first of these was “I’d vote for X, but …”  The “but” usually being an outcome they simply couldn’t palate.  “I really like the Libertarian candidate, but I am afraid the Democrat will win if I vote third party.”  I quickly came to the conclusion that most people vote against candidates and proposals, rather than for their preferred option.  It’s why the attack ads and the PAC money are so effect.  It’s easy to create a political bogeyman.

The other thing I would hear on a daily basis is “I don’t really follow politics.  I don’t really care.”  I’d usually follow this up with a question: “Well, what do you care about?”

The answers were often quizzical.  “I care about my electricity bill.”  “I care about making my mortgage.”  “I care about my retirement savings.”  “I care about my kid’s education.”  “I care about my paycheck… But I don’t see how that relates to politics.”  A quick look at our most recent State and Federal budgets and the ensuing media coverage might help answer that question.

It’s quite a puzzle.  Our country is broke, but our businesses continue to enjoy unprecedented profitability.  There aren’t any raises to be had, unless you are the boss.  The Henry Ford principle that he wanted to pay people enough so they could afford his product is quaint, as any new jobs that get created seem to pay a fraction of those they replace.  It lacks balance.  It’s not fair.  The problems seem obvious; the solutions less so.

So What’s Next?

Regardless of how we got here, this is our starting point.  It looks unfortunately familiar, with parallels to the decline of every empire.  Concentration of wealth.  Debtor nation status.  An aging population.  Imbalance in trade.  Declining literacy.  Disproportionate military spending.  It’s a recipe for change.  But what does that change look like and how do we organize for “what comes next?”

There is a great quote that translates roughly to “the king of the last revolution will never be the prince of the next revolution.”  Basically, change comes from the outside.  At this point, we should realize that the solutions we need are probably not going to come from the broken systems that created our current set of challenges.

The Review has committed this space for this purpose - to discuss the issues of politics, business, money and social change.  One of the great things about this region is that it has always had a thriving counter culture, a beautiful fringe of artists, entrepreneurs, musicians, academics and thinkers.  It’s a group of outsiders that just might hold the answers we are looking for.  It’s a group that needs a voice.  And that’s what we are going to try to do.

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I always like this guy\'s articles. He makes sense and seems to have good ideas. It\'s amazing how we have let the reverse Robin Hoods take what little we have left and they are still looking for more.

01st July, 2011 | 14:30:00 | Ron Usall

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