The beautiful and the damned

[darkhorse]

Quote from HowardCohodas:

I have much more faith in the American people than you apparently have.

Quote from William F. Buckley


I am obliged to confess I should sooner live in a society governed by the first two thousand names in the Boston telephone directory than in a society governed by the two thousand faculty members of Harvard University.

The Buckley quote is amusing but utterly misses the broader point.

At the end of the day, all competitive complex systems are driven by evolutionary forces.

Free market capitalism is driven by Darwinism -- survival of the fittest, or the luckiest, or both. And as in markets, sometimes it is more advantageous to be lucky than good.

Ironically, though, socialist systems and top down government oriented systems are driven by Darwinism too. Whatever the system, you always wind up with survival of the fittest or luckiest / some mutated combo of the two -- it's simply that the paramaters have changed.

Consider the supposed communist utopia of the old USSR. In that supposedly more "equal" system, you still had the equivalent of 1 percenters at the top.

Being a top politburo official in the USSR, North Korea or China at various times is the capitalist equivalent of being a top one percenter in terms of material, social and cultural priveleges: a billionaire among starving indigents. How do you get there? Survival of the fittest plus luck -- playing the game in a rotten system.

And so the idea that a powerful government structure could ever be dominated by "two thousand names from the phone book" is silly on its face. Power structures will always be dominated by the powerful, or those who hunger to accumulate power and wield it.

The very implied idea, that maybe some day good and decent men will rise up and do good and decent jobs, is naive.

What is happening right now, basically, is that Americans are reaping the fruits of being permanently lazy and disengaged. The sheep have been fat and happy in their masters' pens for decades, never bothering to ponder the fact that they are sheep. Now harsher reality is coming to light as the masters further exploit the system to extremes, to save themselves at the expense of the sheep.

Many have expressed the opinion that Democracy always ends in disaster, and that capitalism itself is inherently self destructive. To some degree historical evidence bears out this pessimistic viewpoint. The only thing that guards against capitalist systems eating themselves via uncontrolled Darwinist forces creating a tragedy of the commons scenario is vigilance and willingness to act. The only thing that guards against Democracies following the path Alexander Tytler laid out, in which the system drowns itself in debt via largesse from the public treasury, is to have a meaningful culture of restraint (as opposed to just paying lip service to it).

The same thing (ultimate disaster) is true for government power structures and non-capitalist systems -- end result, parasitic implosion. All complex systems fail over time in the absence of enlightened efforts to guide and maintain them.

This stuff we cherish -- capitalism, democracy, free trade etc -- only works because people are vigilant and standards are maintained, just as a jumbo 747 airplane can only keep flying with the proper attention and maintenance day after day. Slack on the vigilance, slack on the maintenance, and the complex system slowly corrodes or self-destructs.

Absent intelligent safeguards, those with vested interest in expanding their power, be it market-based, government-based, or what have you, will metastasize like a cancer. This happens in all realms because the exigencies of self-interest in the short-term overcome any vague considerations of systemic preservation in the long term. Bankers, politicians, union leaders, lobbyists, corner-cutting industrial manufacturers, pork-hungry voters: They all gotta get theirs, while the getting is good.

Unfortunately you are right to say my faith in Americans in low. I find that the average American falls in one of three camps: Either pissed off but not understanding why and not actually motivated to act; still complacent about the encroaching reality of things ("oh, it will all be fine"); or thirdly, likely to spout platitudinous ideals about how righteously free market and success-oriented American society is without realizing those ideals will not defend themselves, that they can be lost and corroded at the margins, and pretending that America will endure no matter what even as serious threats arise.

 

[jem]

Quote from MarkJC:

You have some good points that I would agree with, although bashing the Tea Party at the end takes away some of your credibility. But you're still missing big pieces of the puzzle in regards to income inequality.

For too long, income inequality has been used by the far left to push for more generous welfare programs, but the argument that the poor are remaining poor while the rich are getting richer is fundamentally flawed. The reason is that looking at income changes by grouping the country into income percentiles, ie: the richest 10% and the poorest 10% ignores the fact that people are constantly transitioning from one income group to another.

It doesn't matter if everyone in this country starts out at minimum wage, IF there is the potential for them to become wealthy through hard work and perseverance in a reasonable amount of time. Income inequality metrics do not capture this, but income mobility metrics do. To make this abundantly clear, take a look at the income mobility graph below covering a 10-year span from 1996-2005. Instead of lumping people into income groups and assuming they do not better/worsen themselves over time, income mobility tracks the changes in income of individuals over time. This graph clearly illustrates the facade that liberals have set up to pander to the wealth distribution crowd. The notion that the rich continue to get richer and the poor continue to stay poor is a myth and a lie that is perpetrated by those with socialist intents. The truth is completely opposite as the graph below demonstrates:

From 1995 to 2006, the poorest who were in the lowest quintile (lowest %20 of incomes) had their incomes grow 90.5% over that time span. Those in the 20%-40% quintile had their incomes grow 35%. The richest, however, in the top 20% of incomes, only had their income grow 10% over this time period. The richest 5% actually had their incomes decline -7% over this period, and the big kicker - the richest 1% had their incomes fall a whopping -26%.

Below is another way of showing income mobility. This chart demonstrates it not by raw percent incomes but by the percent of people moving from one income group to another over time. Again, the result is the same and the conclusion is inescapable. Those advocating for wealth redistribution are wrong. These graphs suggest that if anything, our hugely progressive tax system is unfairly punishing those in the top income brackets, making wealth accumulation more and more difficult the wealthier the person becomes.

this is an amazing post. thank you.

 

[darkhorse]

Quote from MarkJC:


For too long, income inequality has been used by the far left to push for more generous welfare programs, but the argument that the poor are remaining poor while the rich are getting richer is fundamentally flawed.

This argument is a red herring in my opinion. It isn't what really matters right now.

Those who are troubled have concern over the rise of what one might call "crony capitalism" or "connected capitalism." This has little to do with fair play in a free marketplace, and the potential fallout is systemic.

Consider what happens if, or rather when, we get another banking crisis. The major money center banks are actually LARGER now, in terms of total assets and potential impact on the system, than they were pre-2008.

These banks are deliberately on an aggressive march to become even more global, as quickly as possible, because added size makes them even more "too big to fail." This march is being aided and enabled by taxpayer funds, government backstops, and backroom lobbying in Washington. The financial oligarchy is entrenching itself, and thus so enabling its ability to take even BIGGER gambles than it did in the past, knowing its political advantages are stronger than ever (heads we win, tails you lose). And so what happens when the next crisis comes?

As for more generous welfare programs, the destructive policies of the Federal Reserve are not killing those who already have next to nothing. They are killing the middle class -- folks who find themselves getting deeper and deeper into debt, slowly strangled by stealth cost of living increases, while still paying taxes. At the rate we are going the middle class will eventually disappear, to potentially devastating effect on the cultural and social fabric.

In short, this isn't about the old school "Robin Hood" politics of bleeding heart liberalism at all. It's about a parasite-ridden system with the potential to self destruct before our very eyes.

 

[darkhorse]

From 1995 to 2006, the poorest who were in the lowest quintile (lowest %20 of incomes) had their incomes grow 90.5% over that time span. Those in the 20%-40% quintile had their incomes grow 35%. The richest, however, in the top 20% of incomes, only had their income grow 10% over this time period. The richest 5% actually had their incomes decline -7% over this period, and the big kicker - the richest 1% had their incomes fall a whopping -26%.


As a side note, just to have some fun with the above paragraph:

Take a second to think about the interesting things that happened between 1995 and 2006. Off the top of my head, at least two events were noteworthy:

-- The dotcom / telecom bubble burst

-- The housing bubble inflated, with an attending massive construction boom (and had not yet burst)

I'd be curious to see how the study defines "incomes" and whether or not the study separates out capital gains versus salary, or how capital gains are treated.

But apart from that, it isn't hard to see how the lowest 20% would have gotten a helluva nice bump from the construction and service related jobs of the housing bubble. And it also isn't hard to see how the top strata, heavily weighted towards capital gains income, would have suffered from the market crash.

There are plenty of ways to slice and dice all this data, but the point is, nothing is really cut and dry. There are lies, damn lies, and statistics.

To clarify, I am not a leftist or a "bleeding heart liberal" of any kind. I'm equally skeptical of ALL party lines, regardless of the party.

And while I do not support blanket boosting of welfare any more than I support corporate welfare for connected corporations, I do tend see studies like these as having something in common with the Ibbotson "stocks for the long run" stuff. Too pat and ideologically crafted for my taste.

But anyway, this is all mostly tangential in the first place. I don't think today's issues can be cast in the politically traditional "rich versus poor" terms anyway. And that's one reason why I'm skeptical the Tea Party will be any more effective than Obama's "Hope and Change" stuff was. The real issues at stake don't fit into a "liberal versus conservative" box or a "Democrat versus Republican" box. They are more nuanced and subtle than that.

 

[Specterx]

It should be obvious that income inequality has increased mostly because of three factors:

1) Globalization and global wage arbitrage, plus immigration

2) Nature of corporate investment in the US (outsourcing)

3) Post-1980 credit bubble

When you add a billion unskilled laborers, manufacturing workers and the like to the global labor pool, while the number of corporate chief executive and top-tier fund manager positions remains the same, what happens to the compensation level for laborers vs. the elite? When you bring in 20 million illegal immigrants willing to work as janitors, farmworkers etc. for peasant wages, what happens to the average wage level for those jobs?

For #2, you have U.S. businesses that have chosen to "invest" by moving factories brick-by-brick to Mexico (immediate short-term boost that can be easily forecast) at the expense of technological improvements, capital efficiency and labor productivity (harder to carry out, uncertain return on investment, duration of investment may be very long, etc.).

#3 feeds in by further boosting the incomes of capital owners, finance types and leveraged speculators. Average people don't own much stock, didn't participate in LBOs or emerging-market investments, and certainly don't collect any fees from corporate restructurings or finance deals. Decades of Fed mismanagement of credit markets, interest rates and the monetary system certainly don't help matters, though it did and does help those at the very top.

The only real question is what you do about all this, and frankly I don't see any solution other than to wait it out. The U.S. went through exactly the same process on a domestic level in the late 19th/early 20th century, you had the emergence of all these giant corporations at the same time that poor laborers were flooding into cities low-bidding each other for manufacturing jobs. Eventually labor markets tightened and we ended up with the relative equality of the 1940s-1970s. Exactly the same thing will happen on a global level as long as the Earth's resources hold out, which unfortunately is far from assured.

 

[Specterx]

Quote from Scataphagos:

It's only Leftists/Socialists who are concerned about inequality of income

This is a false statement and in any case misguided. Societies with massive income inequality tend to have all manner of other social and political problems - crime, poverty, health problems, political radicalism, class warfare and ethnic/racial stress, zero-sum political and economic thinking, latent instability, the list goes on. Just take a look at places like Latin America.

It's really better to have a society where average people can get good jobs, make enough to afford decent housing, food, and medical care, and be able to save enough for a decent retirement. Not everyone can become a Harvard MBA, a Goldman Sachs trader, or a successful business owner. Somebody has to clean the floors, pick the fruit and haul away the garbage. If those jobs are the best you can do, there's no actual reason why you should have to live in squalor and poverty with no real hope for the future.

Of course, the government cannot bring this about - only the market can. But frankly, it's worthwhile to consider whether Globalization and free trade really serve the interests of our society.

 

[schizo]

Quote from Specterx:

The only real question is what you do about all this, and frankly I don't see any solution other than to wait it out. The U.S. went through exactly the same process on a domestic level in the late 19th/early 20th century, you had the emergence of all these giant corporations at the same time that poor laborers were flooding into cities low-bidding each other for manufacturing jobs. Eventually labor markets tightened and we ended up with the relative equality of the 1940s-1970s. Exactly the same thing will happen on a global level as long as the Earth's resources hold out, which unfortunately is far from assured.

The caveat emptor here is "eventually". But only certainty in mind that got us out of Great Depression wasn't the eventual increase in productivity but the rise of Nazis and the subsequent calamities of World War II. First it brought jobs for everyone. Second, it lowered the world population by over 70 million. Folks, that's 70 million less mouths to feed. Third, the precipitation of WW2 led to the downfall of great empires and the start of decolonialization.

 

[1prometheus]

Specterx,

I could not agree more with your proceeding two posts. In my opinion your 100% on target.

Quote from Specterx:

This is a false statement and in any case misguided. Societies with massive income inequality tend to have all manner of other social and political problems - crime, poverty, health problems, political radicalism, class warfare and ethnic/racial stress, zero-sum political and economic thinking, latent instability, the list goes on. Just take a look at places like Latin America.

It's really better to have a society where average people can get good jobs, make enough to afford decent housing, food, and medical care, and be able to save enough for a decent retirement. Not everyone can become a Harvard MBA, a Goldman Sachs trader, or a successful business owner. Somebody has to clean the floors, pick the fruit and haul away the garbage. If those jobs are the best you can do, there's no actual reason why you should have to live in squalor and poverty with no real hope for the future.

Of course, the government cannot bring this about - only the market can. But frankly, it's worthwhile to consider whether Globalization and free trade really serve the interests of our society.

 

[1prometheus]

"Eventually labor markets tightened and we ended up with the relative equality of the 1940s-1970s."

You might consider that during this time the USA had more restrictive immigration policies, and global wage arbitrage was not a possibility in most sectors.

The 1980 on credit bubble is unrecognized as a primary driver in the destruction of American industry: A massive shift in wealth from productive industry to non-producing speculators (more accurately called financial-inflation harvesters) who often actively profited from the destruction of our real, non-bubble economy.

 

[1prometheus]

Excellent analysis.

Quote from darkhorse:

This argument is a red herring in my opinion. It isn't what really matters right now.

Those who are troubled have concern over the rise of what one might call "crony capitalism" or "connected capitalism." This has little to do with fair play in a free marketplace, and the potential fallout is systemic.

Consider what happens if, or rather when, we get another banking crisis. The major money center banks are actually LARGER now, in terms of total assets and potential impact on the system, than they were pre-2008.

These banks are deliberately on an aggressive march to become even more global, as quickly as possible, because added size makes them even more "too big to fail." This march is being aided and enabled by taxpayer funds, government backstops, and backroom lobbying in Washington. The financial oligarchy is entrenching itself, and thus so enabling its ability to take even BIGGER gambles than it did in the past, knowing its political advantages are stronger than ever (heads we win, tails you lose). And so what happens when the next crisis comes?

As for more generous welfare programs, the destructive policies of the Federal Reserve are not killing those who already have next to nothing. They are killing the middle class -- folks who find themselves getting deeper and deeper into debt, slowly strangled by stealth cost of living increases, while still paying taxes. At the rate we are going the middle class will eventually disappear, to potentially devastating effect on the cultural and social fabric.

In short, this isn't about the old school "Robin Hood" politics of bleeding heart liberalism at all. It's about a parasite-ridden system with the potential to self destruct before our very eyes.