What happens when you have "too much"?

"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

Was Henry Ford a Socialist?

I recently read an interesting piece about Henry Ford, the person who almost singlehandedly put America on wheels and introduced manufacturing to the "moving assembly line".  He was an innovative thinker for sure.  

Consider this:  In 1914 the average daily wage for a blue collar worker (in high-wage Detroit) was $2.34.  Henry Ford was having difficulty with employee turnover at his car factory (300% annually) so he addressed it by raising the wages of (almost all) his workers to $5.00 a day.  In other words, he took money out of his pocket (and his investor's pockets) and put it in his employee's pockets.  WHAT?  Without being coerced by government or a union?  Was he NUTS?   Some might call that a massive transfer of wealth.  I wonder what his Board of Directors had to say about it at the time?  Was Henry a closet Socialist?

But in reality here's what happened:  His Model T sales went from 250,000 cars in 1914 to 472,000 in 1916.  How?  All those now-well-paid employees could afford to buy the cars they were building.  Plus increases in productivity dropped the price of his basic Model T by approx. 50% to $360.  And to keep their employees motivated other automakers had to follow Ford's lead, and most of them (both the workers and the owners) prospered greatly also.  But it was Henry Ford and his company and his family who prospered the most.  Well-to-do before, the Ford's became wealthy beyond their wildest dreams when his workers prospered, too. 

Well....was he a Socialist?*  Was Henry a "re-distributor of wealth" or just a "pump primer"?  Is there a difference?  Could his example have any relevance for us today?  That's a tough one.  A policy to tax the rich like that being carried out today by Socialist French President Francois Hollande (with a top tax rate of 75%!) seems to be more vindictive than based on business logic.  But as Henry Ford demonstrated, a more balanced income distribution across the board can yield huge positives for workers and entrepreneurs alike.  It's all just a numbers game....unless a thriving middle class can afford to buy what entrepreneurs are offering, businesses stagnate or fail.  

It seems to me the trick is walking the fine line between a vindictive Socialist "share the wealth" money grab and finding that ideal "pump priming " point.  Do the ends ever justify the means?  Semantics aside, was Henry Ford's social experiment a good idea or not?

Thoughts anyone?  

S

*Henry was NOT a "card-carrying" Socialist.  In fact he was outspokenly anti-Socialist, anti-Communist, anti-union, and unfortunately anti-Semitic, too.