Tag Archives: wealth inequality

Sniffs from a Schiff…

(Originally written March 7, 2012.  Part of Great Upload of 2013.)

A colleague once showed me a book by Peter Schiff, in which the author and investment-house CEO purported to explain how the US got into the muddle they’re in.

Like so many textbooks I left it unread, but according to Wikipedia, Schiff believes a lot of the US’s problems would go away if people just saved more money.  (Oddly enough, there’s no mention of drastically-higher taxes on high-income earners like himself.  Go figure…!  ;)  )  As is typical for people in the financial sector, he finds a way to blame government.  :)

So it’s hilarious that his brother and coworker Andrew Schiff is saving so little from his $350k salary that he’s worried about the effect a smaller-than-average bonus would have on his lifestyle!  (It’s all over the web, so you may well have been pointed to it already.)

Schiff, 46, is facing another kind of jam this year: Paid a lower bonus, he said the $350,000 he earns, enough to put him in the country’s top 1 percent by income, doesn’t cover his family’s private-school tuition, a Kent, Conneticut, summer rental and the upgrade they would like from their 1,200-square- foot Brooklyn duplex.

“I feel stuck,” Schiff said. “The New York that I wanted to have is still just beyond my reach.”

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The malaise is shared by Schiff, the New York-based marketing director for Euro Pacific Capital, where his brother is CEO. His family rents the lower duplex of a brownstone in Cobble Hill, where his two children share a room. His 10-year-old daughter is a student at $32,000-a-year Poly Prep Country Day School in Brooklyn. His son, 7, will apply in a few years.

“I can’t imagine what I’m going to do,” Schiff said. “I’m crammed into 1,200 square feet. I don’t have a dishwasher. We do all our dishes by hand.”

Welcome to the club, Schiff — may I suggest cucumber-scented Method dish detergent?  It’s “aromatherapeutic”!  ;)

And a note to my fellow 10-percenters

Not that we should snort too loudly of course; if any of us 10-percenters [most folks on I emailed this to, being fellow engineers or other professionals, are probably among the top 10% of individual income earners in Canada] were to complain about the lifestyles we strive for being just out of our reach (thanks to the hedonic treadmill), there’d be people a-plenty across town, let alone across the world, justly ridiculing us for our own fiscal profligacy and distorted lifestyle expectations!  :)

How Libertarians brought America Big Religion and Bigger Lawsuits…

(originally written Nov 2010; uploaded Aug 21, 2012 as part of my Great Upload of Musings…  for balance, I’ll soon post the follow-up which praises some portions of libertarian philosophy which are very dear to my progressive heart.  Politics makes for strange bedfellows, and I’m not above shacking up with occasional allies.  :)  )

 

It looks like the Democrats are going to get clobbered in the [2010 midterm] US elections. Economic malaise tends to do this to governing parties, which is one reason currency devaluation is the policy-du-jour: if country A can make its currency cheaper, it becomes more competitive and can export goods (and unemployment!) to countries B, C and D, whose currencies remain more expensive. It’s this kind of race to the bottom which has given gold aficionados their current decade in the sun. Of course, though Hemingway never lived to write about it, the sun also sets… :)

The Tea Party’s emergence has been an interesting but predictable phenomenon. The stagnation in American incomes for the past generation has finally hit a boiling point (what took so long?). Increased prosperity has largely been confined to the top 1% — and even then mainly the top 0.1% — of income earners in the population; those nice folks whose job titles begin with “Chief” and end with “Officer”. :)

In many cases, union-busting concessions levied in the name of improving competitiveness went straight into C-suite compensation: “trickle-up economics”, as it were. I don’t have the American numbers handy, but here are some Canadian ones. Perhaps one day, left-leaning parties will realize that they’ll get more support if they confine talk of tax increases to the very, very topmost folks. Noblesse oblige, and all that.

 

The anti-government stance of the — ugh — “Teabaggers” contrasts spectacularly with the strikers in France. The French were striking over a government plan to increase in the retirement age (from 60 to 62), to address pension costs. In other words, they were striking for more government (services, spending and so forth). Meanwhile, in the US, the Tea Party is agitating for less government.

One wonders if this different outlook comes from the two countries’ respective revolutions. In France, the French aristocracy was overthrown by the downtrodden masses, whereas in America, the British nobility was overthrown by a homegrown one. This is a simplification, but is reflected in the voting rights that resulted: every man in France had the right to vote as of 1792. (Revolutions, counter-revolutions, empires and monarchies made this a bit dicey for a few decades… ;) ) In the US, until about 1840, you couldn’t vote unless you were a property-owning white guy. So it was really a democracy of the rich. Not unlike today, really… ;) The rest of the XY club got to vote one Civil War later, vote-suppression campaigns notwithstanding. To give the US some credit, women’s suffrage arrived there in 1920, beating France by a quarter-century.

 

The Tea Party’s anti-government stance traces back to heavy funders the billionaire plutocrat Koch brothers, who have that libertarian streak common to the ultra-wealthy, and the clueless rubes who believe they’ll join those ranks if only [X] gets out of their way. The brothers Koch, building on decades of conservative dogma, have cunningly equated [X] to government; and specifically, a government that gave tax cuts to the bottom 98% of the population as one of its first orders of business.

As a quick recap, libertarians want minimal state interference in their daily lives. Most oppose motorcycle helmet laws as unnecessarily restrictive, but the hardliners — the few, the lucky few, that band of brothers — are still fighting… seat belts. And income tax. And public schools! Mind you, all groups have their flaky enthusiasts. ;)

Libertarianism has cast a large shadow over the American experience, and can be argued (weakly or strongly, you decide :) ) to be responsible for two standout features of American society: its litigiousness and its religiousness. This is ironic, because lawsuits are about the only thing that can cut the ultra-wealthy down to size… and because by and large, the only things libertarians abhor more than government services, are religious services. (Pun intended.) If you think governments are fussy about personal liberties… ;)

 

Putting my “Freakonomics” hat on, the litigious aspect of American society comes out of rational self-interest. If someone gets hurt — at work, in traffic, or elsewhere — and there’s a 1% chance a million-dollar complication will result later in life, very different results occur if you’re part of a universal healthcare system or not. In the former case, you won’t pay anything out-of-pocket: you’ll be subsidized by your fellow citizens. Unless there’s a matter of punishing gross negligence, you don’t have an incentive to sue. Besides, litigation is time-consuming, expensive, and stressful.

But in the latter case, medical complications could very well bankrupt you. (Medical costs are perennially the leading cause of bankruptcy in the US.) As such, litigation becomes a matter of self-preservation. Instead of one out of a hundred victims receiving a million dollars of medical intervention at some point in the future, all hundred will be in the courts to get the money that could save them from bankruptcy, up-front. That’s a hundred million dollars cash; an enormous drag on the system. All thanks to the paradigm shift from a country of millions, to millions of fiefdoms of one. :)

 

In recent centuries, the welfare state (in rich countries) has expanded into roles religious communities have traditionally paid — caring for the ill and infirm, minding children, and so forth. The reason churches and temples provided these services instead of business people, is that it’s tough to profit from these activities. (The current setup in most places, where houses of worship can provide such services alongside the public sector, is probably a good thing all in all, because a little competition keeps everyone honest.)

In the US, though, the paucity of public social spending means religious communities have retained a tremendous influence; they’re the only groups who will consistently provide the social services non-multimillionaires will depend on at one point or another in their hopefully-long lives! As such, being part of a faith community is a matter of rational self-interest for the average American; in addition to the spiritual nourishment they hopefully provide, they usually offer support / safety net services when there’s no publicly-funded game in town…

Central planning – not just for the communists anymore

(written Aug 22, 2011; uploaded Aug 8, 2012 … but still valid, I think!     :)  )

(also, Jesse was kind enough to post a lightly-adapted version on his blog, last year)

It’s been a rough few weeks for the capitalist system, which bestrides the globe like a teetering colossus. Not only has there been stock market turmoil worldwide, and the temporary threat of a (temporary) US default on its debts … but an esteemed, very well-to-do economist suggested that Karl Marx was right! In the Wall Street Journal, no less!

That would be Nouriel Roubini, whose claims to fame came from timely warnings about the US housing bubble (2005-ish) and subsequent US stock market collapse (2008-ish). Now, it’s important to note that he only said that Marx was right in that capitalism could collapse on itself. Not that it actually would. A slight distinction lost on many a lefty website in the past couple weeks. ;)

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Most people are familiar with the spectacular failures of central planning in Communist regimes. According to the resurgently-fashionable Austrian school of economics this is because an economy is too complex to be managed by one expert, or even one committee of experts, regardless whether the clubhouse door reads “Politburo” or “Dragon’s Den”. Rather, society’s fastest path to prosperity consists of allowing every person to decide what’s in their best interest. It’s basically the “million monkeys at a million keyboards” approach. :)

A biological analogy comes from flocks of birds, schools of fish, and ant colonies, among others. These swarms function extremely well, despite being composed of simple critters following simple rules, and despite the anarchic lack of a leader directing things. Our own “simple critter rules” in modern society are probably along the lines of “try to get a higher paying job, and pay lower prices for stuff, within the laws of the land, and without making too many enemies”.

A business analogy comes from Toyota. Their quality went from hopeless to fearsome by training every employee to be competent enough to figure out how to do their own job better, and then allowing them to do so. If their management tried to dictate how each task was to be done, they’d’ve topped out at early-80’s American carmaker quality levels. ;)

In a similar way, they decided not to try to predict the right production levels for each model, colour, and trim level. Rather, they would pre-build enough cars to fill dealership inventory… and each time a customer purchased a vehicle, they’d build one more of that exact model, in that colour, at that trim level. (In economic nerdspeak, they responded to that “market signal”.) So if 5% of Corolla drivers wanted a green car with deluxe extras, in the long run 5% of Corolla production would consist of deluxe green vehicles.

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Since the flaws of central planning / benefits of distributed decision-making occur in the public sector, the private sector, and even in biology, we can generalize that the USSR’s economic problem was ultimately that a small group of people would decide how to (mis)allocate most of the country’s resources. (The little people, after all, could still choose whether to wait in line for an hour for bread, or wait in line for an hour for shoes…)

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Let’s move on to capitalism, now. In the past thirty-odd years, there’s been an immense concentration of wealth — particularly in Anglo-American countries (the US, UK, us, the Aussies). The US is at the leading edge of this trend, with the top 1% owning 42% of the wealth, or about six times as much as the bottom 4/5 of the population. And this means that in recent decades capitalism has moved towards the central planning ideal of a few people in charge of all the resources. This narrowing of perspective has in turn led to policies progressively more disastrous for the moved and the shaken… which was exactly the Soviet denouement.

I wish I’d come to this insight on my own, but I have to credit the thoughtful blog of a well-to-do American serial entrepreneur and, uh, military theorist. (I try to keep my reading varied. ;) )

Capitalism’s path back from central-planning roulette will require a more equitable (or at least, less inequitable) distribution of wealth, by which to rebuild the middle class. This in turn generally starts with higher taxes on the extremely wealthy. So one-time world’s-richest-man Warren Buffett’s recent New York Times editorial is timely; he asked why he paid 17% in taxes on his $40,000,000 of income last year, while his staff (earning probably one-thousandth as much) paid an average of 36%. Which is what Roubini was complaining about, in saying that too much wealth was being redistributed from labour to capital.

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There would be a terrible irony if Marx was right and unchecked capitalism destroyed itself by evolving the self-crippling features of a communist economy, and one does hope that we can reform our current market systems before things get worse. I wouldn’t mind a future that leans Swedish: for all their semi-socialist tendencies, the Nordic smorgasborgers still manage to regularly create free-market titans.* That’s a combination which could conceivably appeal to both the Conservatives and the (now-post-Layton) NDP. Don’t fear, though, I’ve become benumbed to vain aspirations… ;)

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* among them Ericsson, H&M, IKEA, Metro (the free commuter papers), Saab and Volvo, Tetra-Pak, and even BRIO, makers of those beloved wooden train sets of my youth.  Sure, some of them may now be on their last legs, but no doubt there are other emerging Swedish entrepreneurs to fill the gaps…