David Hines
March 6, 2013
Wealth disparody
By David Hines

Many people complain about the growing disparity between the super-rich and the rest of us. They see the problem, but their proposals for solving it sink to the level of parody.

Some want to soak the rich people whose investments create jobs for the rest of us. But if they're that filthy rich they don't need the extra income. They can take a one-year-long vacation. They can move abroad, and even renounce US citizenship to evade US taxes as several noted persons have done. They can invest the money in foreign countries, increasing the perceived problem of jobs leaving the country. They can hire the best tax attorneys to find new ways of avoiding taxes.

A number of politicians say the issue can be rectified by eliminating loopholes in the tax code. Strange...many of these same politicians call for more tax incentives to stimulate the economy. Do they not know that these are the same thing? Or do they merely count on the belief that the rest of us won't? The difference between "loophole" and "incentive" is whether one is receiving it.

Many think that government can provide money to fund new business, making the wealthy investor superfluous. But where does government money come from? There are not enough multimillionaires to pay for everything government spends already, even if the tax man took everything they have. So the government "investment" must come from the rest of us – those on the bottom end of the wealth disparity.

Unless...unless government merely creates the money. This has thus far been the strategy, euphemized as "quantitative easing." As government "invests" or otherwise spends the conjured money into circulation, every other dollar already in existence loses value. It's Economics 101: the law of marginal utility. Creating more dollars doesn't create more resources; it merely bids up the price of those resources with a plethora of dollars. Those first receiving the new money – government and its "investees" – get to spend before the inflationary effect is completely realized.

The wealthy – subsidized corporations and highly-paid government employees – gain advantage over the rest of us who hold dollars. It is clear that this strategy exacerbates rather than corrects wealth disparity. They buy at cheaper prices than will be in effect when the money trickles down to the rest of us.

It's not merely the super-rich who fund investment. Ordinary people do as well, with money in their bank accounts and pension funds. How does the common guy get ahead? Unless he's lucky enough to buy a winning lottery ticket, he saves. The interest on his savings accrues. But what interest? Conjured money is kept cheap – an effective negative percent interest – to keep down the government's and banks' borrowing cost. The saver's return on his nest egg in a savings account doesn't even keep up with inflation. Saving makes him slightly poorer by the day.

This creates, of course, a moral hazard in telling people, "Don't save for your future needs." It also makes the average guy extraneous to the investment process; his welfare no longer matters in the big politico-economic picture. All investment becomes government investment – fiscal matters decided on the basis of political conceit rather than economic feasibility.

If one wants to correct the growing wealth disparity, what is required is a sound currency, market-priced interest rates, no preferential treatment for "too big to fails," and incentive to save for one's own needs – exactly the opposite of what we're getting from both parties. If it's parody, it's black comedy.

© David Hines

 

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David Hines

Born in a mill town, David Hines has seen work as a furniture mover, computer programmer/analyst, and professional musician... (more)

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