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Income Disparity

Recent calls from the President to the Pope have highlighted the increasing disparity between the haves and the have nots. I recently read this article, which highlights some of the negative impact of this disparity:

http://finance.yahoo.com/news/wealth-gap-guide-why-matters-083657223.html

What is unclear at this point, however, is exactly how to reverse the trend. It's easy to say that people should work harder, to become more educated, or to try to better their situation somehow. But with so much of the scale skewed in favor of the existing wealthy retaining their wealth, it's unclear how an education will help. Shucks, an education may be only what is necessary to survive, not get ahead.

What we're seeing, then, is a trend towards an increased concentration of income in a few folks, at the expense not of the poor, but of the middle class. And as any good revolutionary will tell you, there's nothing more dangerous than an educated, disadvantaged proletariat who recognize the oppression of the wealthy.

Inflammatory? Indeed.

But what's particularly interesting about all of this is not just that the middle class and poor are decrying what is happening. We're starting to see the wealthy and the economists saying something about it. Of course, I've been saying it for years. A capitalist economy is strengthened by the FLOW of capital, not the ACCUMULATION. Accumulation leads to stagnation, inflation, and impoverishment. Accumulation - perhaps counter-intuitively - leads to diminishing returns. It's ultimately unsustainable. The reason is this:

While it's true that the rich buy very expensive things - yachts, private jets, expensive villas, companies, etc - and while it's true that these places employ people - sometimes at very high wages because the skill set required to make a yacht, for example, is a desirable and difficult thing to achieve -one can only have so much before the market becomes saturated. Even the very rich cannot want to have many more yachts. Or private jets. I mean, eventually even the rich stop buying - not because they can't, but because there's no need. One private jet is probably enough.

So as the pool of folks who can actually afford a private jet decreases, so also do the jobs building these jets. Then these folks who started out with a good-paying job find themselves out of work because the market for their services dried up. The rich guy holds on to his private jet. The price of jets becomes more expensive because fewer people are building them. And it continues to escalate.

Jets are perhaps an easy example. The same could be said of cars. Of smaller boats. And eventually, even other things like clothes and food. Which is really scary, because a person has to eat and be clothed. I am truly afraid to think about what would happen - what may inevitably happen - if the price of oil starts to rise due to production shortages. Without any reserve in the family income, things like clothing and other important items may become too expensive to fit in to the budget. And then what? People stop buying. And then you get 1929.

Because ultimately, the Great Depression was not because of a lack of capital, but a lack of confidence. People - especially rich people - did OK. They just stopped investing. The flow of capital stopped. And the markets crashed, just like flipping a light switch stops the flow of electricity and turns out the light.

Conversely, a more equitable distribution of the wealth provides a buffer against the excesses of the few.

It also ensures that the wealthy do not control all of the power in government. Which is a very scary proposition, indeed. So maybe another Boston Tea Party is in order...

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