Monday, October 31, 2011

Mr. Quarter Opins on the Cause of Income Inequality

Much is made of the percentage change in the wealth of the upper 1% over the past decade. I suspect that if one examined wealth or income gains for the various quintiles of the US population this trend would be evident over the past 30 years. So is someone to blame? Can we point the finger at a specific group, individual or condition that has led to the inequality of wealth in the United States?

Mr. Quarter has held forth in this space previously pointing out that the constitution of the United States. while providing for equal opportunity for all, does not guarantee a right of equal outcome. However, the media and the OWS gang continue to howl over the supposed unfairness of the accumulation of wealth by the financial industry and associated investment industry. I recently reviewed an article citing IRS statistics that suggested that a full third of the wealth created or acquired in the past ten years could be found within these areas. But no one ever asks the fundamental question of why there?

The answer is obvious. Time and again over the past thirty years have there been lamentations in the media of the decline of manufacturing and the transformation of our economic base to services industries. We all know that it's true. Our economy no longer creates wealth by making goods and selling them as the foundation of our GDP.

Unions demand more in wages and benefits and the employers move their operations overseas. So what jobs remain? How can you earn a living? Low paying service jobs paying minimum or near minimum wage or high paying service jobs such as consulting, medicine, sales, IT, financial services, investing. Then we have the parasitic economic activity like litigation, real estate sales. Think about it and name a vocation in the US that actually produces a significant amount of wealth and is not a service oriented activity. In this country, what we do is sell services to each other, receiving payment for creating nothing.

So we subsist by providing services to each other. One need only take a casual drive through the rural areas of the nation and look at the businesses in small towns. All oriented toward selling some service to the local populace - which provides all the human capital to deliver the service.

But not all services are equal in value. You pay less to have your lawn mowed than you pay to have your malignant colon removed. You pay more to your bank for the privilege of using a debit card to withdraw your own money than for the coffee you bought at 7-Eleven. You pay more to the real estate agent to sell your home than you paid for the furniture in the house you just sold. And on and on - the more abstract the service, the more it costs until you get to the ultimate service - Wall Street investment.

So if we are mad, and many are, the anger should directed be at ourselves. We created this economy where we asked for more and more until it was cheaper to take the business elsewhere. We created a nation where your livelihood and wealth depends on the value of the service you can provide rather than the tangible wealth you create by laboring.

Incidently, while the OWS gang bellyaches about being part of the 99%, they are living in a dream. The fact is that they are part of the 1%. You read that correctly, they are part of the 1%. The fact is that poverty level income in the United States is still greater than the income level of 99% of the rest of the world. I wonder whether they are all willing to forfeit some of their income, no matter how meager, for redistribution to the other 99%?

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