It seems from the article that the writer wants to at least give the implication that this portends something inherently unfair:
“According to analysis by the Pew Research Center released Monday, younger Americans have been left behind as the oldest generation has seen wealth surge since the mid-1980s”
Just look at some of the statistics on these greedy elderly people:
Households headed by adults younger than 35 had a median net worth of $3,662 in 2009.
Households headed by adults ages 65 years and older had a median of $170,494 in 2009.
The net worth in the less than 35 age bracket declined 68% since 1984.
The net worth in the 65 and older bracket increased 42% in the same time frame.
Is this really a story?
CNNMoney is comparing 2 separate things at the same time and getting them muddled.
First, instead of pitting the two age groups against each other, it should serve as an example of how the American dream is still achievable – you can be better off tomorrow than you are today! People, on average, tend to be better off financially as they move through life. This is a good thing. They accumulate more assets and less liabilities – their net worth improves. Comparing younger and older people in this sense is like saying that older Americans are less young than younger Americans. it may be true, but it’s a pointless comparison.
Secondly, comparing these segments to similar segments from 1984 is wildly inaccurate. Here’s why:
The economy in 1984 was on an upswing after the brutal recession of 1980-82, while the economy in 2009 was still in the midst of the Great Recession.
Housing prices were hardest hit in the 2008-2009 recession. Most homeowners in the under 35 age set had recently purchased their homes at high prices and had very little or no equity, in contrast to the over 65 age set who had held homes for longer (on average) and not lost as much equity. This skews the net worth towards the older set.
Simple demographics are different. People are working and living longer in 2009 than they were in 1984, giving them longer to accumulate more worth.
Children were deferring there entrance to the workforce longer in 2009 than they did in 1984, staying in school longer and accumulating student loan and credit card debt when they would have been earning a salary and likely saving some money or buying assets like houses.
Maybe I’m cynical, but it seems like this CNNMoney piece is just meant to contribute to the sense of class warfare out there and lead people to assume this ” 47-to-one wealth gap” is the result of unfair tax policies, or greed, or Halliburton or whatever. Then again, maybe it’s just a poorly written, minimally researched piece to fill some deadline for the writer.
Judging by some of the comments on the original article, quite a few are taking the story as a justification for class envy, which is just a sad state of affairs.
Much of the coverage of the Occupy Wall Street protests has focused on whether there is a single, overall point or purpose to the movement and even whether it is a movement at all.
It’s hard to argue that a gathering – be it a movement or simply a protest – is successful if no one can come to a consensus as to the what it’s all about.
The folks at NPR’s Planet Money went down to see what the OWS protests were about, and they concluded that it is more of a “venue” than a movement. It seems that the OWS group is a loose conglomerate of disparate interests – at least on the surface.
“We went downtown this week to talk to the protesters at Occupy Wall Street. We asked people why they were there. We heard lots of different answers.”
But delve a little deeper and you find that it’s a platform for launching a whole new society. One based on Participatory Economics. More on that in a minute. First, the General Assembly.
The General Assembly.
At the heart of the OWS gathering is what the organizers call the “General Assembly” It takes place nightly, and it’s where everyone goes to discuss topics important to them.
For example:
“Should we buy some sleeping bags? What if we just buy fabric and make our own sleeping bags? How will we keep the sleeping bags clean?”
But in the midst of such discussion, a challenger arises to question the authority of the “facilitators.” Asking if they alone grant the power to be heard – without the general consent of the group body – can they be consider legitimate themselves? That’s right, before the meeting can be facilitated the very framework must be agreed upon and legitimized by the group body!
This led the Planet Money team to conclude that:
“It’s not a movement; it’s a venue. Standing around, talking about what everybody wants — this is a model of how the protesters want society to be.”
But could this ever really work? Could you base a society on this model and have it function better than the current society?
It turns out that an economics professor has been dreaming up such a system for the past 40 years and he calls it Participatory Economics.
Participatory Economics (ParEcon): A Theoretical Alternative to Capitalism
Participatory Economics is the brain child of economics professor Robin Hahnel. Hahnel, a self proclaimed “libertarian socialist” (you figure it out, because I can’t), has spent 40 years developing a new model for economics that is more democratic than capitalism.
The basic theory is that the best system of economics (and society in general) is one that is based upon group participation. In Hahnel’s world, there are no owners, no bosses and everyone is equal. In Participatory Economics, people gather in groups to do business as a worker group.
Businesses would be run by the employees, broken down by committee. There would be a committee to determine what kind of product to make, in what styles. Compensation would be determined by peer review and have little bearing on success of the company.
Supply and demand would be managed by a national network of these worker groups coming together to make requests for more goods and services. Some other committee would employ a computer algorithm developed by Mr. Hahnel that seeks to optimize utilization of resources.
Besides sounding like a plot for some cautionary sci-fi apocalypse tale, it’s likely to fail utterly when dealing with shocks to the system like a natural disaster destroying a food crop or other “unexpected” demands of the supply. In fact, when questioned about this Professor Hahnel admits that his system “may be a little weak” in such situations. He essential goes on to say that it would be worth such problems in the end because it’s a more fair system overall.
This is antithetical to the society the founders created for America and the basis of free market capitalism. The framework which the founders created grants the power to the individual, not groups. Once the power and control moves to groups, the individual is lost. In free market capitalism, supply and demand is managed by the price mechanism which has proven itself to be the fastest and most efficient way to manage the consumption of scarce resources with alternative uses.
In essence, the protestors want a society in which an idea is floated by an individual but everybody gets a say in whether that idea is accepted or not, and to what degree it is accepted. Rule by committee in it’s most benign form, rule by the mob in it’s malignant form.
History shows this is folly.
NPR asks, “But is this effective?”
No. Of course not. In fact, even one of the protestors himself – a former facilitator no less – when interviewed by NPR admitted it’s not effective. But that’s not the point he says. The problem with effective governance is that “some people will feel disenfranchised and that their feelings are not being heard”.
It sounds like the individual is first and foremost, but by structuring decisions based by committee or group quickly absorbs the individual into the collective.
Like the 1825 failed socialist experiment New Harmony of Robert Owen, this model is destined to fail.
Josiah Warren (original participant in New Harmony) wrote:
“It seemed that the difference of opinion, tastes and purposes increased just in proportion to the demand for conformity. Two years were worn out in this way; at the end of which, I believe that not more than three persons had the least hope of success. Most of the experimenters left in despair of all reforms, and conservatism felt itself confirmed. We had tried every conceivable form of organization and government. We had a world in miniature. –we had enacted the French revolution over again with despairing hearts instead of corpses as a result. …It appeared that it was nature’s own inherent law of diversity that had conquered us …our ‘united interests’ were directly at war with the individualities of persons and circumstances and the instinct of self-preservation… and it was evident that just in proportion to the contact of persons or interests, so are concessions and compromises indispensable.” (Periodical Letter II 1856).
Participatory Economics. Mutualism. Socialism. Call it what you like, it amounts to Collectivism and it doesn’t work. It aims to replace an imperfect system (Capitalism) with an even more imperfect system.
No system is perfect. The best we can do is devise a system that provides the individual with the most latitude and freedom to make of his own life what he wishes (provided he does not harm others in the process).
That’s capitalism. Not the crony capitalism of Washington D.C., but free market capitalism.
The founding fathers new such collectivist systems were doomed to fail. They considered many forms of government throughout history and after careful deliberation and much spirited debate settled upon a representative republic as the surest way to promote prosperity and preserve liberty and freedom of the individual. Pure democracy devolves to mob rule (Greece, anybody?) and monarchy is dictatorship by a different name. At either end of the spectrum, individual liberty and freedom cannot exist.
The founding fathers knew that there was no single, perfect system. It’s why the preamble of the constitution states:
“We the people of the United States, in order to form a more perfect union, ..”
It’s a more perfect union, not a perfect union.
Collectivism fails every time it’s tried, and the Occupy movement is no different.
The saddest part of this whole episode is that it is fueled by people who are frustrated with the current system as they see it, and feel the only solution is to riot for revolution. While the solution already exists and has been hiding in plain sight.
Perhaps if their education had been a bit more complete and less radical, they would focus their efforts on occupying the voting booth instead of everything else.
It’s a common misbelief that many of the wealthy in America inherited their money. In fact, most of the wealthy in America are entrepreneurs. Warren Buffett and Bill Gates are two of the most well known and celebrated self-made men of modern times.
Still, you would think that the children of such successful entrepreneurs would increase the other side of the statistic, and over time more of the wealthy would be those who had inherited their wealth. Why doesn’t this happen?
Well, I came across this article today that does a good job of highlighting some of those who’ve inherited their wealth, and what typically happens to them.
It’s about Patricia Kluge who has filed for bankruptcy. She “once hosted parties for ‘royalty, corporate chieftains, celebrities, and literary figures.’ She lived in a 23,500-square-foot mansion, owned a winery and, by all accounts, lived the good life.” Sounds like the picture of success, right? So what happened?
Like every person who inherited their wealth, she never earned it! It seems she was famous for being “the wealthiest divorcee in history.”
Inheriting your wealth is a lot like winning the Lottery. You wake up one morning and BAM! you have more money than you know what to do with. But since you didn’t have to work hard to earn it, you don’t know how to properly manage it and how precious it is.
The article also mentions Barbara Hutton, heiress to the Woolworth fortune. She was involved in a string of serial marriages (including actor Cary Grant!) and lost everything due to poor money management, and bad advice to die at the age of 66, with $3,500 to her name.
Johnson and Johnson heiress Casey Johnson also lost everything by the time she died, cut off from the family fortune and owing more than $100,000 .
Athletes and entertainers also belong to this group, though at first glance you’d think they don’t since they didn’t inherit their fortunes. But does anybody seriously believe for a minute that the M.C. Hammer’s, Michael Jackson’s and Lady Gaga’s of the world earn the money they make? Are they really worth that kind of wealth? Of course not. They simply hit a fad in the right place at the right time and became mega-stars. Next thing they know, BAM! a pile of money falls into their lap.
But they too lack perspective on creating wealth, have little to no clue how to manage money and often go broke soon after hitting their peek.
This, my friends, is the future of Paris Hilton as well.
As for Kluge, one final piece of irony: she is now employed by the winery she once owned. Maybe now she’ll learn a thing or two about earning and managing money.
Long time readers of this blog know that ING and I go way back. I became a loyal customer of theirs back in 2004. I’ve shared countless referrals to new customers for a free $25 bonus since this site began, but here’s something that has me rethinking that relationship with ING Direct.
To be honest, I’ve been a little wary since 2008, when ING received a bailout from the eurozone.
Truth be told, I haven’t actually seen any downside to that bailout as a customer, but it seems that one of the conditions of that bailout was that ING sell its U.S. online banking division. I won’t pretend that this condition makes any sense, since it seems a profitable arm of the conglomerate and it was likely the mortgage division, marketing no money down, interest only ARMs that got them in trouble in the first place. The problem is that Capital One looks set to acquire the ING Direct operation.
I’ve had a credit card with Capital One since the dawn of time, or very nearly. I have to say I haven’t had a problem with them in that capacity (certainly not as much as I have had with BofA), but I can’t get past the feeling that the famously simple and straightforward ING savings account is going to become bloated with 27 pages of fine-print disclaimers and hidden fees. Time will tell, and I plan on canceling my accounts at the 1st sign of such a downturn in service.
On the flip-side, this is probably great news for shareholders:
“Following the acquisition, Capital One — a McLean, Virginia-based bank which is best known for its credit card unit — will leapfrog two places up the rankings of the largest U.S. banks to become the nation’s seventh-largest bank by assets, according to SNL Financial, a financial services data firm.”
But isn’t this backwards? Where’s all that regulation we’ve heard touted by the administration? Shouldn’t banks be getting smaller, not bigger? After all, the mortgage-based banking fiasco at the heart of the 2008 meltdown became as big as it was in part due to those toxic mortgages being concentrated in relatively few, very large banks.
The banking system should either be a much larger network of smaller banks, to diversify the risk of failure or maybe we should have 2 different kinds of banks: simple, traditional banks (offering fixed rate mortgages, car loans, checking, savings accounts, CDs, etc..) and very large investment banks specializing in credit default swaps, toxic mortgages and other risky, black arts kinds of investments.
I don’t know. I’m no expert, and maybe that just makes too much common sense to ever be enacted.
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