Are the Rich Really Getting Richer while the Poor Get Poorer?

Are the Rich Really Getting Richer while the Poor Get Poorer?

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Dr. Steve Horowitz says “No. This is just a myth.” Here’s his explanation.

It grates me when one behaves as if he or she is clearing something up but he or she doesn’t make the distinctions required to indicate just what it is that needs to be cleared up in the first place. Statements like “the rich are getting richer and the poor are getting poorer” are ambiguous, but not necessarily myths. In the context of argumentation, a myth is a statement that is a generalization that is untrue or lacks a sufficient basis to be treated as true, but is treated as true nonetheless. An ambiguous statement, on the other hand, could mean a number of possible things. For instance, “the rich are getting richer…” can mean:

A) The rich make more money now than they did in the past, while the poor make less.

B) Real income of the rich has risen over time while real income of the poor has dropped over time.

C) The purchasing power of the rich has grown over time while the purchasing power of the poor has declined over time.

D) The real income ratio between top earners and bottom earners has grown larger over time.

It’s not necessary that all of these are claimed when one says “the rich are getting richer…,” and not all of these are myths. Indeed, right at the beginning Dr. Horwitz noted that (D) is true. If all one means by “the rich are getting richer…” is (D), then it’s not a myth, pure and simple.

But what about (A-C)? Let’s reflect on these claims a bit (we don’t need hard data for this, per se, but we can discuss those in the comments, if necessary).

The point of Dr. Horwitz’s argument was to show that these are untrue. It’s obvious that (A) is untrue. The poor have a larger dollar amount listed on their paychecks now than they did in the distant past; but this is largely uninteresting, since what’s important is not merely how much money one has (i.e. it’s largely worthless by itself), but its value as a means of exchange for goods and services. That is, what’s most important is the purchasing power that money provides. With greater purchasing power comes greater ability to relieve oneself from dire conditions. (C) is the interesting claim, but unfortunately, Horwitz focused only on (B).

Is (B) untrue? Well it depends on whether we’re talking about households or individuals. Horwitz’s argument essentially boils down to this: 1) real income has risen for everyone over time and 2) most of those who start off poor end up rich, therefore 3) the the poor are getting richer. If we’re talking about real household income, the argument is unproblematic. But the number of single income households has declined drastically since the 70’s. Adding another income stream to a household (which also happens when people get married) will increase real income for that household, even if real individual income remain stagnant, which is precisely what has happened over the last forty years. In other words, households have a higher real income, but it has also required more hours worked per household.

But what is omitted from the presentation is the most telling. Purchasing power is dependent not only on how much one earns, but also on the cost of goods and services. While some goods have come down in real price over the past forty years (e.g. computers, and certain foods), others have risen quite rapidly (e.g. housing, education, gas & electricity), leading to an overall higher real cost of living. On top of that, credit was introduced as a means of enabling those whose wages plateaued to have at least the sense that their purchasing power was growing. We all know how that turned out, though. The real cost of goods & services purchased with credit went through the roof after compounding interest paid on those goods & services. What’s the result? At best, the working class has endured purchasing power stagnancy; at worst, they’ve suffered a decline. On the other hand, rich households (i.e. households who own large shares of a company or companies) made far more money as a result of stagnant working class real wages (less or stagnant wages = less overhead = greater profit) and investment in the booming credit/financial industry. (C) is pretty much true.

So if one means (A) or (B unqualified) when one says “the rich are getting richer…,” then, yes, it’s a myth. But if one means to claim something like (D), (C) or (B – with the proper qualifications), it’s not nearly as easily dismiss-able .

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Pick Yourself Up

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After reading this, I couldn’t help but laugh a little to myself. While I can certainly appreciate some part of Palin’s message about providing a positive message to young women caught in such a difficult situation, and I share the desire that something as awful as abortion could someday find its way back out of our society, I can’t help but wonder how someone like Palin can’t see her own hypocrisy.

It would be nice if we lived in a world where a young woman who has a child can continue, under the difficult circumstances so prevalent among single mothers, to properly care for her child while pursuing her own ambitions or even more modest aspirations of a better life for herself and her child through education  and consequently better employment opportunities.

The hypocrisy comes from the conservative attitude about providing access to these institutions for the poor. From one side of their mouth, they preach the “she can do it” mantra, while on the other side they take away all the help and support. This is a typical paradox of conservative thought; consistently seeking to put the onus of responsibility on the individual while failing to provide equal access to the basic institutions of social mobility.

Would that we lived in a world where the financial means of your parents wasn’t the greatest indicator of your own chances for success, I myself would adopt a great deal more interest in placing accountability on the individual. We fail to provide a fair means of overcoming the hardships of poverty, however, and still there are those that want to punish the stragglers of society.

Seems that fault and responsibility are important right up to the moment that someone actually has to assume responsibility; then all that ever matters is fault.

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The “Moral Hazard” of Insurance

In the insurance industry, the idea that the protection insurance offers the consumer promotes a more reckless attitude on the part of said consumer is referred to as “moral hazard”. Apparently, since we have the material possessions in our homes insured against burglary, we are less likely to lock our doors for example. While I consider this an issue of contention, I do see competitive insurance as a for profit endeavor to be a serious moral hazard.

All forms of insurance seek to achieve the same end. Take a catastrophic event like a fire in your home; The goal is to spread the risk of suffering a loss among a larger number of people. Essentially, we each contractually pay into a shared savings account. In the event of a fire, the burden of recovering from this fire is paid for by the shared account. The insurance company would rather it be said that you pay a premium in exchange for the company assuming the risk rather than you. This is not the case; effectively we are insuring each other against fire, theft, car accidents, flood, dog bites, and the like. So what does the insurance company actually do?

Well, the insurance company takes all that premium money and invests it. Then they make profits off the interest. They don’t really provide any sort of service. They actually sell us all our own money back to us at a profit. I call that a “moral hazard”.

To make matters worse, excepting legislation to protect the consumer (gee, wonder why that had to happen), the insurer is the arbiter of who gets insured, at what rate, and what benefits they are entitled to should a claim be made. This offers the insurance company the opportunity to control risk. You can see the power of abuse inherent in such an oversight of the basic function of insurance when you consider the pre-existing condition exclusions that are at the center of our national health care debate. This is another great example of a real “moral hazard”, and its not you and I failing to lock a door.

Allowing ANY exclusion or variance based on social characteristics (high theft neighborhoods have higher home and car insurance premiums for example) does not properly serve the interest of the consumer and is itself a near-certain moral hazard. Sure, if my home costs 2,000,000 to replace and yours costs 95,000, I would expect to have a proportional premium. Allowing geography to play into it, however, is punitive and a disservice.

Taking away the ability of an insurance company to assess risk, however, removes all purpose from the enterprise. Insurance companies, unlike other businesses, cannot control the supply of their service (Blue Cross can’t add more doctors to Summa) or otherwise add value. Instead, they must either reduce the quality of the actual service provided to the consumer (HMO’s and “Recommended Collision Repair Centers) or take advantage of statistical (but not certain) data about the social and behavioral characteristics of certain consumers. Both, clearly, are ripe for hazard of the moral kind.

All this makes insurance a unique “product” that’s very nature renders it unsuitable as a private enterprise. If being in the business of making money off the fact that suffering and misery WILL happen, but maybe to somebody else, isn’t a moral hazard, I don’t know what is.

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Immigration

I think my feelings on illegal immigration have at last reached critical mass. Arizona’s new social travesty masquerading as a Law is akin to punching Lady Liberty in the bread box. I am ashamed to share a nationality with these people.

No illegal immigrants are taking jobs from “us”. There is no “us” and “them”. There are millions of PEOPLE living here, fancy papers and skin color aside, that work, go to school, buy food, see movies, mow the grass, raise children, and even pay taxes. These PEOPLE are US.

If the good citizens of Arizona were really interested in curtailing immigration they would rally federal support for accountability of American enterprises operating in Mexico. They would urge Congress to enforce a minimum wage on those companies and insist they honour environmental laws. But that’s not what its about.

Hiding behind the noble banter of “Rule of Law” and “Illegal” lurks the insidious secret of the right: They hate these brown bastards. Pure and simple.

This law doesn’t just compel Arizona Police to ferret out working class people and treat them as criminals. If that’s all they were after they already had that power available. Rather, it gives not only the power but the obligation to demand proof of citizenship “where reasonable suspicion exists that the person is an alien who is unlawfully present in the United States”. Guess what guys, they sure ain’t going to reasonably suspect Little Johnny Irish of being here illegally. That honour goes to the brown people of Arizona; apparently automatically guilty, and required to prove themselves innocent.

I’m sure that this law will not last long, as it violates the Constitution(Article 1, Section 8, supported by numerous Supreme Court cases as giving Congress the power to govern entry into the country). The real issue here is how misled the whole thing is and how disheartening it is to watch what are otherwise good people succumb to hate.

I’ll leave you with the poem on the Statue of Liberty:

Not like the brazen giant of Greek fame,

With conquering limbs astride from land to land;

Here at our sea-washed, sunset gates shall stand

A mighty woman with a torch, whose flame

Is the imprisoned lightning, and her name

Mother of Exiles. From her beacon-hand

Glows world-wide welcome; her mild eyes command

The air-bridged harbor that twin cities frame.

“Keep ancient lands, your storied pomp!” cries she

With silent lips. “Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!”

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Healthcare Law Henceforth


I propose a new law that will empower all people. It is called the Health Care Reform Amendment Act 2010 and will henceforth be called The Law, with all the weight and profundity so implied.

Past reforms have proposed ridiculous ideas such as giving all people free health care managed by the government, while others have proposed forcing individuals to buy health care. These are all ridiculous and untenable. How can one imagine a resource distribution model that circumvents the market place? I call such nonsense flatly un-American. This is, above all things, a deeply principled nation after all.

I propose a new free market approach. First, company HR departments will be prohibited from buying insurance for their employees. This will empower individuals to research and purchase insurance based on it’s merits and price.

Second, we will circumvent the Hippocratic Oath by prohibiting individuals from going to the hospital if they do not have insurance. It will now be a crime punishable by fine and imprisonment.

This will empower individuals to make their own decisions about healthcare. Smart, shrewd individuals will be rewarded, while those who make bad decisions will be punished with death in the street at the scene of a car accident. More important than rewarding good decisions, The Law must assuredly punish bad ones. Its the American way.

These changes are necessary America. Without them, we will continue to give away health care and promote moral hazard in it’s most dastardly form and individuals will be crushed under the force of bureaucracy and government. I am sure you all agree no fate is worse than that dealt at the hands of government; even an identical or markedly worse fate at the whim of the American privateer.

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Poor and Minority Effects on the Subprime Crisis & The Economy as a Whole

This supposed link between minorities and the sub-prime crisis has bothered me for quite some time. Many conservatives are making the argument that illegal immigrants, minorities or the poor along with their Democratic allies have somehow created this sub-prime crisis. My fundamental argument is that the poor and minorities don’t control enough wealth to have the impact that conservatives are implying.

Let’s start with some basic numbers and do some basic arithmatic. The estimated value of the stock market in the USA in 2008 was 36 trillion dollars. The value of all real estate owned by households was in the range of 20 trillion. Insurance companies held 6.3 trillion, while the US GDP was 13 trillion. Commercial banks held about 10.8 trillion. Even with massive overlap in the asset classes that puts us up to at least 65 trillion in trade-able assets. The sub-prime was estimated at about 1.4 trillion in 2007, which makes it about 2%.

It gets a bit harder to discern what percent of the 1.4 trillion in subprime loans were made to minorities, illegal immigrants, and poor people, but one can estimate that if they were able to get loans at a rate similar to whites, then the percentages of loans should be similar to their percentage of the population.

That gives us the following.

  • 9.4% Black Subprime = 132 Billion = 2/10ths of a percent value of US tradable assets
  • 10.4% Hispanic Subprime = 146 Billion = 2/10ths of a percent value of US tradeable assets

Out of these numbers, what percentage could be illegal immigrants? Let’s estimate high and say that 25% of Hispanic, subprime loan customers are illegal. That gives us the following

  • 2.6% Illegal Hispanic Subprime = 36.5 Billion = 1/20th of a percent value of US tradable assets

Honestly, what effect could 1/20th of a percent have on our economy. It just sounds like rhetoric.

Links

  • http://www.180people.com/2008/November/The-Sub-Prime-Loan-Crisis-and-the-Illegal-Immigration-Link.htm
  • http://en.wikipedia.org/wiki/Demographics_of_the_United_States#Race_and_ethnicity
  • http://en.wikipedia.org/wiki/Homeownership_in_the_United_States#Race
  • http://www.nytimes.com/2008/08/03/realestate/03mort.html?_r=1&scp=4&sq=sub%20prime%20loans%20minorities&st=cse
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