If fiscal conservatism were all, would anyone vote for the Republican party? I had a conversation with one of the customers at our small shop who came out in support of the demagogue Trump, and I made the comment that any who made less than $250K a year, who voted for the Republican party, were voting against their own fiscal self-interests. They would be doing so, not because they are self-less -- that would be something -- but because they are distracted by the issues associated with social conservatism. He is an evangelical christian, and couldn't imagine voting for anyone who might be labeled a secularist. He is also applying for disability, but because he had a motorcycle accident some years ago and it left him with a back injury that prevents him from working. On a casual basis, you would not guess that he's disabled, and I doubt frankly that he is in fact significantly disabled, but he's likely to get the benefit because he is a constant user of the prescribed drug oxycodone. His use of an optiate does, likely, disqualify him for most jobs, and so in that sense he is disabled, though he lacks the sense of irony to know that fiscal conservatism of the sort that would pare away the social welfare state leaving only its regalian functions, beginning with welfare proper, then social security, then medicaid and medicare, then ... would very likely pare away the "disability benefit." He said, "oh, I do think some government spending should go away!" The key word being "some," and clearly not those disability benefits to which he feels an entitlement, though others, including me, would question that same entitlement, given the existing rules.
Ostensibly, US social welfare programs are for the poor and needy, but need based programs invite various forms of scamming, and the moral approbation that goes along with scamming, both of which would simply disappear if the social welfare programs were universal. They are not, and the various tests for poverty and need are cumbersome and ineffectual. Having said that, social welfare programs regardless come with costs and those costs are paid with taxes. It is not surprising that "fiscal conservatives" tend to focus, not on the actual need, but on the scamming, when they cry to eliminate such programs. Although resentment is not one of our higher emotions, those who pay do resent those who, so to speak, milk the system as though it were a cash cow, but even so, resentment is only one reason to attack the programs. A deeper reason, of course, is greed at the other end of the scale.
I have been reading Picketty and I find his arguments deeply academic, but persuasive. The so-called "fiscal conservatives," whether intentionally or by default, do tend to aim at policies that would consolidate and maximize the returns on capital, leaving them, for the most part, untaxed. As a consequence their wealth, at the high end of the scale, grows geometrically. I cannot begin to recapitulate Picketty's argument here (in part because I am not qualified to do so) but it is available to those who choose to pursue it, but here's a simplistic way of thinking about it:
Suppose you have an income of, say, $50K, the approximate median income of the US households meaning half are below that, half above. If you "save" 10% of that income per annum, you would have $5K in the bank drawing an interest of approximately 3% or $150. Saving 10% of ones income at the $50K level, of course, begs the question, and I doubt that many Americans do save 10% because the unexpected day to day shocks of life intervene, but for the sake of argument, let just say that at the end of the year one would have had a disposable income of $45K and $5,150 in the bank as savings. What can one do with that? How long would one's savings last in the face of a significant set back, say job loss, a medical issue, or the like? How long would it take to accumulate enough to make a significant "investment" in, say, a home where 20% is required as a down payment? Tomorrow I will touch on the day to day shocks of life, but for the moment, let's get the lay of the land.
OK, same argument at the one million income mark. If you save 10% of that income per annum, you would have $100K in the bank drawing an interest of the same 3% or 3K. Saving 10% of one's income at the one million mark begs the question a bit less, in part because one has a disposable income of $900K left to spend, which would seem to be sufficient to buffer the day to day shocks of life. It is easy enough to see why wealth is divergent. Just using the simple math of savings, the median income person would have $25K with an insignificant amount of compounded interest, the one million income person would have $500K with compounded interest. At the five year mark, the 3% interest alone on the savings of $500K or $15K, exceeds by a factor of three the annual savings of the median income person. Beyond that, it is more likely that the one million income person could live modestly on $800K per annum and "save" 20% or 30%
I have focused on savings, in part because it mimics the real behavior of the rich. I strongly suspect that it is disposable income, not saved income, that contributes to a vibrant economy. Here's the thing. My wife and I live well, but very modestly. What that means, of course, is that we are consumers -- we consume groceries, we consume commodities like gasoline, et cetera -- but we do not consume beyond our means. Our consumption creates jobs for those who produce and those who distribute the goods and services we consume. Less consumption overall means fewer jobs. Again, a simplistic example. Take the iPhone. Let us say it retails for $100 to keep the math simplistic as well. A certain percentage of that cost is materiel costs, the actual stuff that goes into producing the phone as a physical object, which itself requires production. Beyond that, there is the labor associated with its manufacture and its distribution. Manufacture is easier to imagine. It's the line of people working in a factory. Distribution of course is more complex and, well, distributed. It includes all the packing material, the warehousing and shipping, and the retailer costs associated with putting the iPhone in the hands of someone like me, all of which require its own production and distribution. It is a complex web, shifting and dynamic, but simply put the more iPhones sold, the more people are employed throughout the web of its manufacture and distribution, the fewer iPhones sold, the fewer people employed throughout the web of its manufacture and distribution.
Of course, it's not quite that simple, but it serves as a way of visualizing. The actual production of consumer goods creates "work." The wealth kept in savings does not, or not nearly to the same degree. There are, of course, the bankers, but for the most part wealth in savings just sits there. Here's the consumer question. How many iPhones does a median income person need or want? How many iPhones does a wealthy person need or want? The answer is likely to be "1" in each case. The answer might be different for automobiles. The rich person might want and purchase more than "1" automobile, but still there are per person limits to consumption. The rich person will still buy only a finite number of automobiles and not nearly enough to sustain an automobile industry. For that, one needs mass consumption and distribution. Even the likes of Jay Leno owned a finite number of cars, most of them produced in the past. Likewise for food. How much food can a rich person consume? They might eat differently and better than the median income person, and spend more money to do so, but still there are limits to how much they can eat. and it is not nearly enough to sustain an agricultural industry. Likewise for shelter. They might own several homes, and those homes are likely to be more lavish than those owned by the median income person, but the number of owned homes is still finite and not nearly enough to sustain a construction industry.
Of course too, one might say, the wealthy do not just "save" their accumulating wealth, they "invest" it in enterprises of one sort or another. This is not actually true, but assume for the moment that it is true. The wealthy want to invest their "savings" though stocks in enterprises where there is a certain expected return on that investment -- say 5%. The return on their investment turns out to be dependent on the same complex web. If the "enterprise" is, say, Apple computer, then after all is said and done, Apple computer needs to return 5% in profit to its stockholders, and it generates those "profits" through consumer sales. No sales, no returns, no continued investment. There is a certain amount of risk involved in those "investments," but the risk can be spread across several "investment opportunities" and mitigated, and the wealthy tend to "invest" as though they were "saving." Contrary to their own rhetoric, they rarely create enterprises and the jobs associated with them, but simply capitalize on those that already exist, and the rate of return is closer to 10%, not 5%, but either is an improvement on what the normal "saver" can expect to achieve at the branch office of the big bank in a savings account.
So, consider, in the second year of savings, the median income person will have accumulated $150 in interest. The second year interest of 3% on that will be $4.50. The compounded interest is insignificant. For the million dollar investor, however, who can not only "invest" more income and expect greater rates of return, the compounded interest quickly becomes significant. Even at $100K in savings, at 5%, the interest already equals that of the median income savings, and the compounded geometric growth, even with a "modest" fortune of one million, becomes significant. Insofar as it takes considerably less self-discipline, considerably less sacrifice, to save $100K from an income of one million, than to save $5K from an income of $50K, it is not surprising that the rich grown richer and the median income people are at best stagnating.
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