Poverty and Wealth in America

"My bills are all due and the baby needs shoes and I'm busted
Cotton is down to a quarter a pound, but I'm busted
I got a cow that went dry and a hen that won't lay
A big stack of bills that gets bigger each day
The county's gonna haul my belongings away cause I'm busted."

- Ray Charles song

Once a month I go with Rotary volunteers to serve breakfast at Brother Benno’s soup kitchen in Oceanside. The doors open at 6:30 am and the line stretches out the door; we serve about 250 people till 8:00 am. Many seem like regular folks, embarrassed to be in the line; they are there to eat something before they go to work because they can’t afford breakfast. Others are senior citizens and families with children. There’s no difference of color or race – they are all poor Americans.

I’ve seen poor in India and other countries. But, somehow this is different. These are people right here in my own backyard. As I help serve breakfast, I wonder how and why this is happening in the world’s wealthiest country. 

Poverty: America's blind spot

In November 2012 the US Census Bureau said more than 16% of the population in America (50 million people) live in poverty, including almost 20% of American children, the highest level since 1993.  ^{(1) (2)}  “The American Dream” is our country’s ethos – this is the American nightmare. ⁽³⁾⁽⁴⁾

Most Americans don't know much about the poor. It's like a giant blind spot. In the big cities, we know about the homeless in the downtown area, but we usually avoid them. And we don't see the poor in rural areas. Among rich countries the US is exceptional in the tolerance of poverty, ranking second highest out of 35 developed countries. 23% of US children live in poverty. Only Romania ranks higher.

War on Poverty

In 1964 President Lyndon Johnson proclaimed, “unconditional war on poverty in America.” This has failed completely. A significant portion of the population is now less capable of self-sufficiency than it was when the War on Poverty began. The latest results show the painful declines during the financial crisis and recession. ⁽⁵⁾

Ratings show that TV dislikes poor people because their appearance is a “downer”; it causes viewers to switch channels. Powerful politicians aren't sympathetic because poor "folks" don't vote.

Meaning of  “poor”

Who are the poor?  About 8% of American whites are poor; with a total of about 70% whites, there are more poor whites than poor African-Americans or Hispanics. The jump in white poverty in nonurban areas accounts for most of the recent poverty increase. It’s a shamefully high number. For the poor, the idea of low-wage jobs' covering the basic expenses is a cruel joke. ⁽⁶⁾

In America, 45 million live below the poverty line, which is more than the total population of Canada (35 million). Think on this: It's like a poor country with more people than all of Canada living inside America. If America's poor were a separate country, it would be the 35th largest country in the world.⁽⁷⁾

According to the Census Bureau, 104 million people – about 33% of the population – have annual incomes below the poverty line, less than $38,000 for a family of three. They struggle to make ends meet. According to the Economic Policy Institute, 50% of the jobs in America pay less than $34,000 a year. The poverty line for a family of four is less than $23,000 annually – 25% of the population earns less than that. Poverty among families with children exceeds 40 %.

Rich get richer

In recent years there’s been growth, but only at the top. A steadily rising stock market with record profits has helped only the wealthy. The poor have been left behind.

Most major US companies have recovered from the recession and accumulated record amounts of cash. Employers substitute increasingly cheap computers and automation for expensive labor. What remains are unskilled, low paying, manual and service jobs. The US has two million fewer jobs than before the downturn.

Wage Dichotomy

Average CEO compensation rose more than 7 times (726%) between the years of 1978 and 2011- more than double the percentage increase in the S&P stock index. Meanwhile, pay for the average private-sector non-supervisory worker increased by a meager 5.7%. 

America has more millionaires and billionaires than any country in the world. But still, there is strong opposition to raising the minimum wage to $ 10.10, claiming that it will destroy 500,000 jobs.

Ultra Wealth

A 2014 World Ultra Wealth report by UBS shows that the world’s ultra high net worth population grew 6% to 211,275 individuals and wealth increased 7% to nearly US$30 trillion. Although these ultra wealthy individuals account for only 0.004% of the world’s adult population, they control almost 13% of the world’s total wealth.⁽⁸⁾

In 1980, the top 1% controlled about 8% of U.S. national income, the bottom 50% shared about 18%. Today the top 1% share about 20%; the bottom 50%, only 12%. How long can this continue?

The Pitchforks are coming

In a TED speech, Nick Hanauer, a Seattle-based entrepreneur and himself a proclaimed plutocrat, says, " The problem isn't that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society."

Nick Hanauer warns his fellow filthy-rich: “You’re living in a dream world. If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality.” ^(9)(10)

Wrong Measurements

Gross domestic product (GDP) has emerged as the dominant concept in our time, the measure of progress.  This has become perverted – measured only in terms of money flow. It tracks the conversion of nature into cash, commons into commodities.

Capitalism is the engine that has advanced mankind in many ways, over past centuries. Socialism and Communism have not contributed comparably. But the current model of capitalism practiced today is premised upon perpetual economic growth. If this continues to be followed blindly, it may ultimately invade all accessible habitats and consume all available resources.

Someone said, “Capitalism is like a bicycle – if one stops pedaling, it falls over.”  Continuous-growth capitalism must eventually breakdown. It is in fact collapsing for the simple reason that finite resources cannot sustain infinite growth. ⁽¹¹⁾

• Nature’s amazing cycles of renewal of water and nutrients are defined as “non-production". A living forest does not contribute to growth – but when trees are cut down and sold as timber, that generates growth. 

• Healthy societies and communities do not contribute to growth; but illness and disease creates growth through expansion of treatment centers and sales of proprietary medications at higher prices. 

• Water, shared freely and protected, does not create growth. But, when Coca-Cola and Pepsi develop factories to fill plastic bottles with sweet water, it creates growth. 

• The commercialization of water, electricity, health and education generates growth and profits. But it also generates poverty by forcing people to spend large amounts of money on what should be commonly available. When every aspect of life is commercialized, living becomes more costly and more people become poorer. 

• The demands of the current economic model are leading to resource wars: oil wars, water wars, and food wars.

Solutions

For advanced countries, economic success should not be based on continuous economic growth. Adequate responses should be generated to combat increasing environmental, social, economic, and financial pressures. 

There must be organized maintenance and acceleration of many already observable environmental trends – example, “green” initiatives. In addition, there must be planned reversal of abrupt, damaging, discontinuous disruptions – no more booms and busts. ⁽¹²⁾ 

Twenty years from now, America will have either successfully transitioned from our current economic growth paradigm to a new model of sustainable capitalism. If not, we will be inevitably be suffering the calamitous consequences of our failure to do so.

Postscript:
During discussions after this blog was published, the solutions I proposed here were considered theoretical and minimal. See the more specific and practical ideas in my follow-on post dated 24 November 2014 (below). Please add your own solutions and ideas via blog comments.

References:

1. Poverty in the United States: http://goo.gl/YKwz7c
2. Hunger and Poverty Fact Sheet: http://goo.gl/RavoIh
3. Pinto editorial - Poverty: America's blind-spot: http://goo.gl/8809cn
4. The American Dream Is Leaving America: http://goo.gl/LaSD5E
5. The War on Poverty After 50 Years: http://goo.gl/UUccHm
6. Your Assumptions About Welfare Recipients Are Wrong: http://goo.gl/teVIR7
7. Poverty in America: Why Can’t We End It? http://goo.gl/1Rsx6y
8. World's 85 richest people own nearly half of global wealth: http://goo.gl/ZV0hi2
9. The Pitchforks Are Coming… For Us Plutocrats: http://goo.gl/JF2EcQ
10. Youtube: Beware, the pitchforks are coming: http://goo.gl/IBmuJs
11. How economic growth has become anti-life: http://goo.gl/RKhzSo
12. Successful Economy without Continuous Growth: http://goo.gl/k0NqrZ

Jim Pinto

24 November 2014

Corruption of Capitalism

Let me state at the outset that I'm a Capitalist, a proponent of Ayn Rand’s Objectivism philosophy ⁽¹⁾. 

I came to America because of the opportunities for growth and success in this country. I started my own company, Action Instruments in San Diego, California. I recognized that ownership is a significant motivator so my company had a significant level of employee ownership. Action was featured in INC. magazine among "companies employees love". Some 30 years later, I sold the company and retired. That was 15 years ago.

At 77, in good health, I write and speak on futures related topics. I have the opportunity to think on things I was too busy to consider before. I think and write about Capitalism as a Capitalist.

It’s clear to me that the rampant spread of plutocracy (wealth rules) over the past couple of decades is the root cause of major problems in my adopted country, America.

Book - Selfish Capitalism

The ultimate tragedy of Capitalism in our time is that it has achieved dominance without being connected to any other metric for human progress. Progress is measured only by growth and profit. Profit is the metric by which the health of society is measured.

This is the subject of a recent book “The Selfish Capitalist” by psychologist Oliver James ⁽²⁾. His view: Capitalism is selfish. It cultivates selfish habits and operates with the rules of selfishness. It represents greed, an ideology of accumulating more - for me and not for you, whoever you are. This generates never-ending competition. It intensifies the struggle for status, access and privileges. It intensifies self-pride and envy.

A year ago before he wrote this book, Oliver James published, “Affluenza: How to Be Successful and Stay Sane”. ⁽³⁾  The book suggests that a modern-day virus afflicts the wealthy elite. It causes obsessive, envious tendencies and makes those who are suffering from this disease twice as prone to depression, anxiety and addictions than others. Perhaps because he didn’t want that book to be too large, “Selfish Capitalist” became a companion volume. 

Wealth creates more and more exclusive institutions and relationships. It applauds selfish competition. It generates ever more complex and artificial means of winning and profiting. It builds excuses that can alleviate its own sense of moral and spiritual inadequacy.

It’s not just that capitalism cultivates selfish habits. It’s that capitalism operates according to the rules of selfishness. Capitalism, in this caricature, is greed in action, an ideology of amassing more and better stuff for me and not for you, whoever you are.

That becomes a nasty, poor, brutish, and never-ending politics of competition. The battle of wants operates on a number of different levels in three interrelated ways. First, it intensifies the struggle for status, access, and other privileges. Second, it intensifies pride. Third, it intensifies envy. ⁽⁴⁾

Spurred by that triple experience, the meritocratic elite creates ever-more-exclusive sets of institutions and relationships. It manufactures ever more complex and artificial means of winning and profiting. And it builds mechanisms that can ameliorate its senses of inadequacy – including moral and spiritual insufficiency – without requiring a transformative corrective to the primacy of selfish competition.

Those outside the wealthy elite, the hangers-on, develop warped imitations of wealth patterns. They become increasingly boastful, aggressive, cynical and amoral. They become “wolves” that worship Hedonism.

Martin Scorsese's movie, "The Wolf of Wall Street" is shameless, exciting, exhausting, disgusting and illuminating; it's an entertaining film about loathsome men. ⁽⁵⁾ Frankly, I watched for about a half-hour and simply switched off in disgust.

Politicians and Lobbyists

Capitalism expects to do whatever it takes to succeed, and if that means bribery, it will happily bribe. It is the government's responsibility to keep business and industry honest and it has failed in that duty. That failure is primarily because politicians have become embedded with lobbyists in all directions. As soon as a politician gets elected, they launch a re-election fund that makes them be beholden to special interests.

The courts have failed to keep government honest because political bribery is legal. It is legal for anyone and everyone to contribute to political campaigns. The bribes don’t formally go to politicians, but to their campaign chests. And this can be done anonymously.

Capitalism’s Health Barometer

In a little more than a decade, the stock market has crashed twice. Americans lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash.  After completely recovering since the peak in 2007, stock indexes keep reaching record highs.

Instead of cheering, we should be very afraid. Sooner or later, stimulated by the Federal Reserve with phony money rather than real economic gains, this latest Wall Street bubble will burst. The Federal Reserve has kept expanding their balance sheet literally by several trillions. But, at the same time, economic output has grown at less than 2% a year; real business investment crawls forward at a snail’s pace; and the payroll job count keeps creeping, with new jobs primarily at low-wage levels.

So, the Main Street economy is faltering while Washington is accumulating a soaring debt burden on posterity, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When this bubble bursts, there cannot be a new round of bailouts like the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth. ⁽⁶⁾

Middle Class and the American Dream

The decades old ideas of Capitalism making America the land of opportunity make people blind to the creeping corruption of the system. Middle America, busy with the day-to-day business of making a living, remains unthinking about what’s occurring.

Those who don’t have the opportunities that wealth provides, take on a fatalistic feeling that life is simply a game that will always be rigged and can only be played by scamming the system. Under harsh conditions, the politics of competition causes the reactive experience of non-elites to spread from the bottom of the socioeconomic ladder to the middle. The poor are despised as people who are too lazy or too stupid to grasp the available opportunities.

Over the past few years, particularly since the bursting of the housing bubble, there have been increasing calls for middle-class Americans to "scale down" from their private homes. Americans would be better off not buying homes and living smaller, for the sake of their own economic situations.

The long-standing American ideal was, "If you work hard anything is possible". But today, the opportunity for social advancement feels increasingly out of reach for more and more people, and for their children.

The prolific writer Joel Kotkin suggests that sparking economic growth presents a challenge. ⁽⁷⁾⁽⁸⁾ It requires a shift in priorities. It is not enough merely to blame the so-called 1%, but to shift the benefits of growth away from the current narrow finance and high-tech sectors, and more towards a broad array of productive enterprise.

If America really wants to confront its growing class divide, it needs to spark broad-based economic growth, rather than simply feathering the nests of the already rich, privileged and well connected.

References:

1. Ayn Rand Institute – Campus: http://goo.gl/gTrV9W
2. Book - Selfish Capitalist: http://goo.gl/wuHw7p
3. Guardian – Selfish Capitalist – Origins of Affluenza: http://goo.gl/T26ZXB
4. Forbes: The Death Of Self-Centered Capitalism: http://goo.gl/RaAabU
5. Roger Ebert’s review of the movie, “Wolf of Wall Street”: http://goo.gl/CahexD
6. The Corruption of Capitalism in America: http://goo.gl/Vp55y7
7. Should the Middle Class Abandon the American Dream? http://goo.gl/ifUzoA
8. Joel Kotkin - Reversing American Decline: http://goo.gl/5WcY2t

Jim Pinto
14 November 2014