Wednesday, November 20, 2013

Is Income Inequality that Serious a Problem?

OK, I have been trying to fix this post a couple times now. I am just not doing justice to the problem. Do you have a helpful suggestion? Income equality is destroying our national vitality- one person, one family, one community at a time. Yet that is still bloodless and abstract prose. If you have a personal reflection in your own life, feel free to add your thoughts or suggest a link to someone more articulate. This issue is so important.

Extreme income inequality is dangerous ground for America. A robust economy is based on a broad middle class making a good income where they can afford to purchase, not only to cover their needs but their desires for entertainment and comfort and personal style. Small businesses in each of their communities cater to this middle class selling goods and services and hiring staff when they need to- to meed demand.

The 1% buys a lot of stuff but it cannot keep communities all across America robust because they are only 1% of Americans. And they can't spend billions on their own desires. Many millions maybe, but not billions...

Make sure you get an accurate perspective on how serious our income inequality problem is. Most Americans do not understand the extent of it. But right here we are going to attempt to gain a perspective on how serious a problem this is.

Now, make sure you see the conversation on the causes of this huge inequality. There are all kinds of reasons for income inequality- structural, political, philosophical... but the situation is not sustainable as it is. We all need to grasp the seriousness of the predicament and get engaged and elect politicians who understand these issues- who are ready to think deeply and act decisively to move towards a better balance of wealth and income in America.

A vibrant economy depends on a growing demand for goods and services. Make sure you understand the basic business cycle. A thriving economy requires a broad array of people spending money to make it work. A vibrant economy cannot work when enclaves have absurd levels of income, and vast patches of the rest of America have shrinking incomes, and a diminishing demand for goods and services. This creates instability and heightens risk of economic collapse.

Continuing inequality is not good for America. It is corrosive to the American dream.  When the middle class is strapped for money and opportunity to make money- they cannot afford to spend and less spending caused businesses to fold- employees to get laid off and even less money in the hands of people to spend. I am talking small business here- and, specifically, small businesses right here in North Texas. Have you noticed how many restaurants have gone under in the last few years. I have always had a tender spot for Chinese all-you-can-eat. All of the ones I enjoyed are now closed.

We really do not understand the unintended consequences of a burgeoning income inequality and the shrinking of opportunity in America for middle and aspiring middle class. People hungry for new opportunity for wealth and income- participated in a home equity bubble that promised new wealth as home prices skyrocketed. They took advantage of low interest adjustable rate mortgages to extend their ability to pursue the American dream- and then the bubble burst. ARMs came due- interests rates went up and people could not sell because the bottom had fallen out of the market. People quit spending, demand fell for goods and services, people lost jobs, they lost their homes and the Wall Street bubble- built on toxic assets, blew up.

Ok, my point here is not to write a history, but to draw a circle around the point of how much of all this happening was a result of unintended or unanticipated consequences. People reacting to a diminishing ability to find jobs, make a living and maintain their standard of living as wages dropped and opportunities dried up, were ready to grasp at a bubble because it promised income- a way to make money but in fact the bubble bursts and leaves them much worse off. And the problem which originated in a steady capture of wealth and income in America becomes a faster trickle up to the 1%. 

The net affect of the bust was big banks were bailed out, but people were not. This was a huge shift in wealth as capital moved back into these depressed markets and picked up homes for dimes on the dollar waiting for recovery. They net affect was and will result in even more concentration of wealth in America as the housing market returns to a new normal.

The point here is the trends causing the shrinkage of the middle class, fueled the housing bubble and the housing bubble exacerbated the income inequality crisis and even as the housing market returns to a new normal- good or bad- depending on how much capital you have- how much income you have- which side of the income inequality gap you ar on- all these events have just made income inequality worse- making the economy more unstable and put our fellow citizens at more risk with less income, and fewer visible opportunities  to make things better.

So loss of income, more time spend unemployed or underemployed leave cash strained Americans with cars falling into disrepair- homes waiting for structural repairs- leaving people with more incuberances standing in the way of them striking out for new horizons- ready to take a risk. And now rampant income inequality is impacting the spirit of America- hindering the paths to upward mobility for Americans. Once this was a great strength for America. Not again until we solve our dilemma with income inequality. 

Inequality and economic hardship over a period of time harms people's spirits.. American success is build on risk takers. Ready to quit a job and strike out with  a new idea. Ready to pack the bags and move to a robust area of the country.. Well, this phenomenon in America has greatly slowed. Exceptions are in areas where fracking is bringing in new sources of oil, or where industry is moving towards less expensive labor. These paths do not mean robust income growth for Americas even as these endeavors improves return on capital. Fracking and new oil and gas energy is commodity development in a boom and bust growth cycle. This is not long term growth that adds to the long term foundation of American success. Industries moving to take advantage of lower wages is, in aggregate, a loss of income for Americans.

There are hotspots of entrepreneurial activity around high tech in rarified parts of the country, but while these generate great wealth, the number of people involved are small and the result of the new tools are even more human productivity- which means more wealth, and fewer people needed to create that wealth. Understanding technology and robotics is critical to understanding how we got here and why we need to change some serious attitudes about income and work in this nation.  as much as it once did.  This factor is exacerbated by income inequality even as the loss of mobility causes great problems with income inequality.

People are frustrated and angry. Opportunists are happy to take advantage by instilling fear and inciting rage.  How many Americans understand what is happening to this economy? How many have time to stop and study what is going on- what with two or 3 low paying jobs to try to make ends meet? What will racing around and trying to keep the head above water? 

Americans are long suffering, and full of optimism and hope, but they do have eyes and ears, they do watch televisions, and pay attention to social media, and they do not have infinite patience. There is a lot of anger and frustration in America. Anger can be displaced and misdirected. There is a whole myth industry that obfuscates truth and distracts from the real structural issues. We have to understand and deal with our real challenges or our situation will only become more difficult to solve.

American's patience can snap. It has in the past. It can happen again. We do not even realize the unintended consequences of such inequality. Our government and economy work on trust and common interest. People cooperate and things work. Grocery trucks show up in the early morning and our shelves are full. Our smooth running society runs on cooperation. We must realize that we are playing with fire, to screw with people's lives, to not provide opportunity for young people.

High levels of inequality is more in the nature of a banana republic. I hope that name still means something. A wealthy elite in charge and a large and restive populous dependent on the graces of the wealthy elite is not a good situation for growth or stability in society. While it might feel really good to be sitting at the top- when you start a game of king of the mountain, you can get tossed off. History tells us what happens when wealth gets really cozy at the top- when it loses empathy or understanding of those at the bottom. Americans are a warlike people. We are happy doing our own thing, but when we rise up in wrath, we are tenacious, creative and have been very successful warriors when needed.

So I hope everyone gets a pretty good idea that a continuing trend of wealth collection at the top in America is not a healthy thing. I know I missed many reasons why this is so bad. Feel free to add your thoughts. And also tell me why so many people are ambivalent to this situation now? Like an earthquake- civil unrest is calm until it isn't. We really need to do something serious about income inequality. Lets discuss what we can do here.  So what are you going to do? What would you like to add?

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