INCOME INEQUALITY AND CONCENTRATION OF WEALTH
You have heard a lot about income inequality lately. It is a very serious problem. Most say tax the rich. Well, they are wrong. You have to look at how the rich make their money and accumulate wealth.
There will always be rich people due to a combination of skill and luck or quite often taking advantage of the power of government to take money away from us and give it to them. But the excessive level of income inequality and the concentration of wealth is mainly do to inflation combined with directed globalization. Inflation increases prices while globalization decreases wages.
In the mid 1970s I purchased my first house in Los Angeles for $34,000. The payment was $135 per month, a big step from $80 per month rent for a house. I made $17,000 per year at that time as an engineering lab supervisor.
That same house today in 2019 would rent for at least $2,000 per month and be valued at $600,000 but I do not make anywhere near $300,000 per year. That is what I would be making if wages kept up with inflation.
One would expect, as technology advances the result is increased worker productivity and a steadily increasing standard of living. Until recently it used to be the case that each generation did have a higher standard of living than their parents. However, now it has gotten to the point that children will actually have a lower standard of living than their parents. When I was young, in the 60's, I assumed that I would eventually buy a house. Young people now question if they will ever be able to afford the rent let alone buy a house. This is an unnatural reversal after 300 years of steady economic progress.
There are two major related factors, first Inflation which causes prices to rise and second Directed Globalization which suppresses wages.
INFLATION is the result of an unethical banking system that is able to lend money that is created out of nothing. The employee of the bank literally types in $100,000 into your account and presto an extra $100,000 has been created. This is the original cyber currency and banks make huge profits even at a low interest rates. 3% of $100,000 is $3,000 for a computer keyboard entry! But some of those loans are at credit card interest rates over 20%. WOW! I wish that I could do that. I have to find out how to start a bank.
It used to be that if one wanted to borrow money, the lender would have to find people that had accumulated extra money that they were willing to lend. The interest rate paid to them and the interest rate of the loan were subject to the balance of supply and demand. The present system, however, offers an unlimited supply of money to lend at arbitrarily low interest rates. With an unlimited supply of cheap money, saving is punished and borrowing is usually the only choice for big ticket items like real estate. When fewer and fewer middle income people are able to qualify for the loan on a house, the rich can still buy the house, charge rent, and make money on inflation. With this process, the rich get richer and accumulate more and more property and at the same time the middle class suffers with higher cost of housing.
The same effect of inflation is true for commercial and industrial property. Few business owners can afford to purchase the property where their business is located. The vast majority pay rent and the rent goes up every year and never goes down. That cost is past on to their customers adding to inflation.
Another example of the hyperinflation effect of easy money is student loans. After the government made student loans available with low interest rates and easy approval, the cost of collage went through the roof.
Along with that, homelessness has become a serious problem. An increasing percentage do not have mental or addiction problems. PBS recently had a feature on homeless college students living in their cars.
The rich can easily get richer on inflation. What we now have is the richest 5% own 66% of the wealth and the bottom 20% have more debt than assets.
The typical bureaucratic solutions are social programs like minimum wage, welfare, medicare, and Social Security that do nothing to solve the problem. The larger government debt and higher taxes required to support them actually make income inequality worse.
Even if wages kept up with inflation, the worst problem with inflation is the inability to save for retirement. When I first started working in the early 70s I made less than $3 per hour. Money saved then would not contribute significantly to my retirement now. That motivated the establishment of a Social Security system that requires present taxes to pay benefits for the retired. However, that presents another huge problem because of the baby boom demographic. When I was young, there were 10 people working for every one retired. When all of the baby boomers retire, the ratio is predicted to be 2 to 1. How can that possibly work?
My suspicion is that the real estate boom and Great Recession bust was caused on purpose. Since most baby boomers had their house as a major part of their retirement, if that value is destroyed, then retirement has to be postponed for many. Problem solved.