Why Concentrated Wealth Is an Eventual Recipe for Financial Disaster


Picture 2It is being reported that there is going to be a major realignment of retail and store closures.  People don’t have the money to spend – ordinary people, like you and me.  But, the wealthiest among us have more money now than they ever have.

It all boils down to refrigerators, or cars, or even widgets.  It’s about going out to dinner, going to a movie, and buying a new pair of shoes. According the latest stats, over half the wealth in the world is controlled by 85 people.  That’s EIGHTY-FIVE PEOPLE.   I don’t want to destroy those people.  I don’t wish poverty on them.  I do wish they would be required to spend a couple years living the way so many of us have, living on almost nothing, forced to do without all but the basics of life, and then not even some of the basics.

“…The New York Times reported in October 2012 that, “Income inequality has soared to the highest levels since the Great Depression.” This is not class warfare, however, this redistributing of wealth so that the few rich have it all and everyone else has nothing. And this IS a redistribution of wealth…”

Once again, I must reiterate that there is absolutely nothing wrong with having lots and lots of money.  I aspire to it on a daily basis. I also think those who are wealthy should be required to live by the same rules we are, paying miserably high taxes that threaten to ruin small businesses.  They should be shelling out nearly 40% in income taxes, paying their ‘fair’ percentage rate – paying the same percentage rate as everyone else.  That alone would do a heck of a lot to equalize things, no matter how much Rush Limbaugh cries about the rich paying their ‘fair’ share, which they are not.

Their extreme concentration of wealth is allowing them to purchase power in ways never before seen in this nation.  As in New Mexico, if you are wealthy enough to make large donations, things go your way.  You own politicians and you control the nation in a way the founders never envisioned.  Only the wealthy now have access to power, and are using that access to become even wealthier at our expense.

There are two things at play here.  First, when only the wealthy have access to power, the nation changes, for the worst.  No longer are all of us created equal.  Most of us are unequal, basically disenfranchised.

Secondly, when there is a truly massive amount of disparity in wealth, bad things, really bad things, like revolutions happen.  People get enough.  Those who have no hope, at all, and nothing to lose decide to take control – and good innocent people die.

Thirdly, absolute wealth cannot survive.  There’s a simple reason for this.  Like I said, picture the humble refrigerator.  If only the ultra wealthy can afford new refrigerators, how many can be sold in a year?  The answer is not that many.  But, if the rest of us can afford a new refrigerator, then more refrigerators are needed.  Manufacturers need to hire people to make new ones.  Stores need to hire more people to sell them.  They need to hire people to deliver them.  They need to hire people do dispose of the old ones.  Advertising agencies need to hire people to promote the glories of different models.  The rich dude, who owns the refrigerator company and decided to go against the libertarian mind-set, and pay his employees more money, suddenly finds that he is even richer.

But, when you have the refrigerator company where the owner decides to put his employees part time, not pay their health care and not pay good wages, he kills his own business.  Even the people working for him as executives can’t afford to buy his product.  When people can’t afford to buy the product, then he lays off employees.  When he lays off employees, they no longer have money to buy stuff to go in the refrigerator, so other people lose their jobs, and so forth and so on.  Suddenly, no one can afford to purchase his refrigerator.  He goes out of business.  Maybe he won’t go broke, but given the way of the world, he’s over-leveraged.  He loses everything.  His family loses everything. His investors lose everything.  Soon, other companies have the same problem.

Our once ultra wealthy dude who owns the refrigerator company is now on the street, absolutely broke, just the way he broke the people who worked for him.  You have some guy who once worked for him, who managed to get two cents together and eventually decides he has a better idea for a refrigerator.  He builds a company and becomes ultra wealthy.

What will he do?

It’s a parable about life.  It’s nice to be ultra wealthy, not pay one’s taxes, and cheat people who are working for you.  You have a great life.  The problem is, one of these days, people are going to be so poor, they can’t afford your product.  When they can’t afford your product or service, you lose it all.  When you lose it all, then the market becomes the great equalizer, doesn’t it?  No one is going to lift a finger to help them out of the gutter.

Common sense capitalism says you pay your employees fairly.  You take care of them, and treat them decently.  When people make a half-way decent living, they have enough money to go out to dinner a couple times a week.  A new restaurant opens with people getting new jobs.  You can afford to go to a movie once in awhile, so a new theater opens up, with people getting new jobs.  You can afford a new car, so many more people get jobs.  When more people do better, people have more money to spend, even the wealthy.  When people don’t have money to spend, even the ultra wealthy are eventually going to lose everything they have – one way or another.

What is tragic is that ultra liberal financial policies don’t work.  Neither do far right policies.  Libertarian theory looks great on paper, but is a total disaster.  The only thing truly works is moderation and common sense.  It is something we are totally lacking these days.