Wednesday, January 25, 2012

When is Money Good Money?

Several years ago a story in the Readers Digest's Life's Like That, was a perfect anthem to the American Dream.

The young man who had sent in the story, was attending business school, and in the summer worked at his father's restaurant, a busy local eatery.  With his new found knowledge, he found himself frustrated with the way that his father did his bookkeeping.  Receipts were put on one memo spike and invoices on another.

Finally, in exasperation, he asked his father how he could possibly conduct his business like that.  "How do you know how much your profit is?"

His father's reply was priceless.  He said that he had come to the United States with nothing but the shirt on his back.  He now owned a business, completely paid for; a house and furniture, completely paid for and had put three children through college without having to borrow a dime. 

"I figure that, minus the shirt, is my profit."

That is what the American Dream was all about, but that kind of dream is now illusive to most Americans.

After many requests, Mitt Romney finally made his financial statements public.  It was learned that he "earned" $21.6 million in 2010.  To give that some relevancy, the median gross income in the United States is  $33,048.  Romney made that in less than a day.

$7.4 million of his annual income came from earned interest.  Money on money, not on hard work.

When we look at past "millionaires" and now billionaires, most did become rich through hard work and innovation.  We loved the stories of Henry Ford tinkering with motors on the kitchen counter, his wife with her sleeves rolled up as his assistant.  Or Gerber turning a failing food processing plant into a baby food empire and Howard Johnson selling his first flavoured icecream from a small wagon, when he was barely a teenager.

No one resented them because they were the true inspirational success stories.  But Romney didn't make his money with his sleeves rolled up and grease on his shirt.  He made it by swallowing up small businesses, which often meant ruin and unemployment for those not terminally rich.

He uses Staples as a success story for creating jobs, but what's the average salary of a Staples employee?  Are they living the American dream?

In fact, recent statistics have shown that Americans now rank 10th in social mobility. The citizens of nine other countries, now have a better chance of going from rags to riches, than the country that invented the notion.

One in five children live in poverty in the U.S.  One in five Americans is unemployed or underemployed; one in eight mortgages are in default or foreclosure; and one in eight Americans is on food stamps.  Newt Gingrich's solution to that is to reduce the number of food stamps issued, which will only make the statistic, one in eight Americans died from starvation.

Neoconservatism is turning the U.S. into a Third World Country.

But before we pat ourselves on the back, we are not doing any better.  According to the OECD, Canada has fallen from sixth to 24th place in infant mortality, meaning that babies are more apt to die in this country, than in 23 others, most without our wealth.
The numbers were “shocking” — a word used by half a dozen prominent commentators, including the Conference Board of Canada. We had slipped from sixth place in the world to 24, a virtually unprecedented fall for any country. We are now just above Poland and Hungary, with 5.1 deaths per 1,000 live births of infants less than one year of age. The actual tragedy beyond the percentages: 1,181 infant deaths in 2007.
The Conference Board of Canada also cited another statistic: 
Canada gets a “C” and now ties the U.K. for 15th place out of 17 peer countries. Its infant mortality rate is shockingly high for a country at Canada’s level of socio-economic development.
In a larger study, the U.S. ranked 41 out of 45 nations.

Conservatives like to take the moral high ground over the abortion issue, but as Gloria Steinem once said, for them "life begins at conception but ends at birth".  They want to save a fetus but do nothing to save a child.  They tout "family values" but are determined to keep most families living in poverty.
"These proposals included cries for billions of new money for social assistance in the name of “child poverty” and for more business subsidies in the name of “cultural identity”. In both cases I was sought out as a rare public figure to oppose such projects.” (Stephen Harper, The Bulldog, National Citizens Coalition, February 1997)
The Canadian Centre for Policy Alternatives just released it's figures on the top 1%.  By January 3, most corporate executives had earned the same amount that the "average Joe" will make working a full year.  Yet the Harper government just lowered the tax rate for the wealthiest corporations, while raising it for the "average Joe" who will now pay about $150.00 per year more in taxes.

The last two decreases in personal taxes took place in 2001 when the tax rate fell from 17% to 16%, and in 2005, when it was reduced again to 15%.  The Harper government raised the personal income tax to 15.25%, the first increase in decades, but then took it back to 2005 levels, under a banner of "Tories lower personal income tax rate".  They didn't, they just took it back to previous levels.

This means that the Harper government has presided over the largest personal tax rate increases in a generation, not to mention Flaherty's HST.  Stephen Harper and Jim Flaherty have made it easier for the rich to get richer, but have done little, if anything, to help the "average Joe" or the "average Jane".
"Universality has been severely reduced: it is virtually dead as a concept in most areas of public policy... These achievements are due in part to the Reform Party..." - Stephen Harper, speech to the Colin Brown Memorial Dinner, National Citizens Coalition, 1994.
In Arianna Huffington's Third World America, she discusses wealth and the way in which wealth is now created.
We’ve gone from an economy where we make things to an economy where we make things up: Default credit swaps, derivatives, CDOs, and the like have turned Wall Street into a casino ... the promise of upward mobility – that if you work hard and play by the rules, you’ll do well and your children will have the chance to do even better – has been broken. Two-thirds of Americans now think their children will be worse off than they are.
The Canadian banks, who received almost $70 billion in not so much a bailout as a handout, have lowered the interest rates on borrowing, but that also means lower interest rates on savings.  We just renewed an RRSP at 1.3%.   When we bought it we were earning almost 11%.  How can people save for retirement unless they are willing to gamble on the stock market?

And a lower borrowing rate only encourages more debt, and Canada now has one of the highest debt to income ratios in the world. 
Mitt Romney's financial statements should come as no surprise, because they are not unlike most millionaire's or billionaire's today.  The only way to make any real money is to become a vulture, capitalizing on the misfortune of others.
We all know what happens in Third World countries when that attitude prevails.


  1. "In fact, recent statistics have shown that Americans now rank 10th in social mobility. The citizens of nine other countries, now have a better chance of going from rags to riches, than the country that invented the notion."

    I don't know where you got those statistics from, and I'd be interested in whatever citation you have for that if'n you please. It was my understanding that they were dead last in the first world, I got that impression admittedly from a TED Talk (Robert Wilkinson How Economic Inequality Harms Society).

  2. From an Arianna Huffington interview. It was also brought up on either Chris Matthews or Bill Maher.

  3. I think the confusion stems from the way that social mobility is often studied: i.e., with only a select group of highly developed countries. Generally, the Americas represented separately by the U.S. and Canada (which is significantly different from either the U.S. or Europe, and thus, worth studying), the U.K., the Nordics, and several West European countries, (France, Italy, etc..). Within this select group of countries, the two which are usually tied for dead last are the U.S. and U.K.. If you add more countries, the rankings may change, but their ranking within this select group stays the same.

    The identical ranking of the U.S. and U.K. raises the point that both are highly class-bound societies, a fact that does not seem to penetrate through the highly (corporate, Disney) developed mythology that in the United States, you can become a success with only a dream and hard work. It's probably no accident that the American media fawns over the lucky ones who make it though -- Oprah for example -- and now goes so far as to make stars of no-talent nobodies (the Kardashians, Paris Hilton, etc.)

    (Funny isn't it, how the American media for the past 30 to 40 years has played Gotcha journalism with the public sector, basically pummeling it at every opportunity, while it has sugar-coated and over-aggrandize the lucky... )

    But back to social mobility -- the top in social mobility are always the Nordics, with Canada in the second tier.

    Much research has gone into trying to determine what elements distinguish a society with high social mobility. Traditionally, the assumption was good education and universal healthcare, as well as a social support system. I've seen research though which points out that the key factor is the existence of a large merit-based public sector. There are considerable barriers to success in the private sector, where it often comes down to social networks which are difficult to bridge -- those born into wealthy social circles have a much easier time of it than those born into poverty. However, a public sector committed to hiring workers based on objective merit-based measures circumvents the nepotism which is so widespread in the private sector, and makes it possible for those educated and supported by the social safety net to find decently paid middle class work, and thus, rise out of their imporverished beginnings.

    Needless to say, the quasi-government sector boards and agencies managed by titans of the private sector and recompensed at private sector levels -- Ontario Hydro and the like -- are an abomination of this system. They also point out, yet again, that private sector compensation for directors has to be brought into line; it is imperative to do so.

    The attack on the public sector, which as I recall started in the years of Nixon, is in my opinion just another aspect of the neo-con attack on the middle class. Never, but never, does the media point out what good work the public sector does; just the bad. So of course the general public has a very jaundiced view of government workers. Funny that.

    Studies on social mobility are fascinating stuff.