"Those who ignore history are doomed to repeat it."
I recently saw an interesting chart that brought home to me exactly how history repeats itself. It showed what happens when too much wealth is concentrated in the hands of too few:
During the first part of the 20th Century the United States practiced "Laissez-faire" capitalism....pretty much "anything goes". Since "those who have the gold make the rules", by 1928 the wealthiest 1% controlled 23.9% of total pre-tax income. (See chart.) Remember what happened right after that? The economy went off a cliff in what later became known as "The Great Depression". By the early 30's the government instituted new regulations, particularly affecting the financial industry, and our economy eventually bottomed out and slowly improved, helped along by the full employment brought about by WWII.
Beginning about 50 years later those who had the gold once again made the rules (thanks to their friends in Congress) and by 2007 they controlled 23.5% of total pre-tax income. (See chart.) Remember what happened right after that? Our economy went off a cliff in what later became know as....well, it hasn't been named yet, but we'll call it The Great Depression II for now.
Apparently 23% is the magic number beyond which The Consuming Class (the middle class) doesn't have enough wealth to continue buying things in the quantities needed to keep industry humming along. It seems counter-intuitive, but too much money in the hands of too few actually hurts the few, as they are the ones (the vaunted "job creators") who own the companies that can't sell enough to make a profit. Sort of like "killing the goose that laid the Golden Egg".
Make sense?
This isn't about confiscating money from the 1% and re-distributing it to others. That's wrong in a whole other way. What I suggest needs to happen is that we need to scrap our entire tax code and re-write it so that it is fair to all and not tilted in any special interest's favor. And close regulatory loopholes, end subsidies, and closely watch the financiers, too. A level playing field will naturally undo past inequities and put money in the pockets of The Consuming Class AND in the pockets of those who own the businesses that sell to The Consuming Class.
The chart suggests that "sweet spot" should be where the wealthy control between 10-15% of income. Entrepreneurs who make a superior product or offer a better service can and should still get rich, but then their wealth would be merit-based instead of crony-based as it sometimes is today.
How bad do things have to get before our politicians admit what we're doing now isn't working, face historical facts, and build a fairer system that is sustainable?
S
Our financial system is certainly in a mess and I don't disagree with anything you said except you didn't mention greed. How much is enough is a better question. How much wealth do you need to live well? Do millionaires really need to be billionaires to live well? How many houses do you need? How many planes and yachts? Does a family of four or five really need a 32 room mansion? Once you have attained a certain level of wealth, you are no longer making money through your own efforts, your money is making the money and then it's hoarded. When you have more money than you can spend in your lifetime, then that's too much. what's the point beyond being able to claim you have it? You raise your kids in wealth so that they need never expect to have to work, leave them fortunes that they didn't work for that engenders some sense of superiority in them and makes them sneer at people who do actually have to work for their money. I have no problem with people getting rich through their efforts but people who's wealth makes money for them are parasites. Well, not all for example, the Gates. they pay their employees well and donate millions to charities on a regular basis. the Waltons however, won't even pay their employees a living wage much less benefits. Tell me again how it is they deserve their wealth? or even earned it?
ReplyDeleteAs you quoted,"Those who ignore history are doomed to repeat it." I can't fault what you're saying. If you broaden the historical perspective you'll find that ALL societies eventually collapse when wealth is concentrated into the hands of a select few. This is why Rome fell and why we aren't all speaking Latin today.
ReplyDeleteAnd the solutions is??????? How much is enough? Who determines? If it is say 10 million and you make that in your business by June do you shut down the business till next January? What is the incentive to keep it open? (Read Ann Rand's "Atlas Shrugged")
ReplyDeleteI agree about stopping government from picking winners and losers (Ethanol). If you think Bill Gates and the Steve Jobs estate has too much money use linex based computers. Stop buying iphones.
No Scott...my point is you should be able to make as much as possible WHILE PLAYING ON A LEVEL FIELD. I suspect things got out of whack because the field had been manipulated and seriously tilted. Fix the field and things should more or less right themselves.
ReplyDeleteI agree with Scott and I agree with Scott.
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