Dismounting Our Tiger

Our middle class is shrinking, our GDP is shrinking, budget deficits are soaring and public education is degenerating. Those four things are linked in a downward spiraling feedback loop. However, we can halt the decline and eventually return to widespread prosperity. This post describes the economic challenge, its causes and the first steps to a sustainable solution in a democratic society. It has four parts:

• Class warfare is real and intrinsic
• Tribalism drives class warfare
• Middle-class: the engine of growth, learning and innovation
• First steps to renewed prosperity

Class warfare is real and intrinsic
It isn’t politically correct to suggest that the wealthy, middle class and poor form classes that compete for money and power. It is, however, necessary and accurate to do so. The distribution of wealth among these classes is part of a structural challenge to our economic system, to a healthy GDP, and to the survival of our democracy.

A recent paper by Michael Norton and Dan Ariely shows that, by 2005, over 83% of all private wealth in this country was owned by the richest 20%, while the poorest 40% shared only 1% of the wealth! Another paper by Prof. Emmanuel Saez of UC Berkeley shows that the upper 1 in 10,000 people in 2007 received 6% of total compensation in wages, bonuses and capital gains! Members of Congress and lobbyists, who blatantly represent the wealthy and powerful, either pretend such a lopsided distribution doesn’t exist or accuse others of inventing it to attack the deserving rich.  

The structural challenge is this: if an economy isn’t properly regulated by social structure, then wealth, power and education will continue to centralize, concentrating into the control of fewer and fewer people until ―a handful of relatively wealthy, educated elite are supported by a mass of uneducated poor, living lives of quiet desperation in an economy that is a tiny fraction of todays.

The driving force behind this concentration of wealth is an economic form of the 2^nd Law of Thermodynamics that all unmaintained systems degenerate to states of lower productivity. Economic decay relentlessly centralizes wealth like the constant tug of gravity draws water down to the ocean; unless that water is impeded by physical barriers.

Centralization of wealth isn’t an issue of who’s making day to day decisions. Even if our most talented and socially conscientious people controlled wealth, businesses and governments, the process would still happen unless structural barriers were in place. The quality of leadership merely Continue reading →

To keep their economies afloat, Central bankers, at their annual meeting  in Jackson Hole, once again committed to continue or increase the supply of cheap money.  However, some of them are starting to recognize that the outcome of their efforts is increasingly uncertain; perhaps some of them realize deep-down that they can do little more than make rich people even richer for a little while longer. They wait in vain for a dazed public and zonked out politicians to do what it takes to restore healthy economies and fiscally sound governments, while continuing to supply them their drugs of choice.

Cheap credit and abundant money are drugs, and we are long since addicted; requiring ever larger doses just to maintain a semblance of normalcy. However, these drugs don’t produce real economic health, rather they create a set of winners and a compensating set of losers; just as drugs make pushers winners and addicts losers. The winners include creditor nations like China and those executives who use their bloated compensations to loot the resources (real and imagined) of behemoth banks and corporations. The losers in our country include Continue reading →