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PostReflections on UN Report on US Income Inequality (Richard Hancock, USA, 06/11/18 5:18 pm)
The report mentioned by David Fleischer (7 June) has nothing good to say about the US. The number of poor in the US is certainly a matter of concern to all thinking Americans, but there are conditions that contribute to this problem.
It is difficult to compare the US with countries like Sweden, the UK, Japan and most of Europe because those countries do not have the large diverse population and landscapes that we have. On a visit to Iowa, I found the population to be almost totally white, a condition not found in Oklahoma with our 39 different Indian tribes, an increasingly large Hispanic population, a considerable black population and a white population that includes a large number of "Rednecks" (low-class whites). This diversity is interesting but contributes to difficulty in government.
The UN report focuses on the inequality in the US and recommends that we should tax our upper-class at a higher level. This is a simple solution, but care must be taken in how to accomplish this without diminishing the annual increase of growth, which is now at 3% per annum and could rise to 4% if business conditions improve. I was happy to see our corporate tax level reduced to 22% from 29%, the world's highest rate. The pie must be bigger if everyone is to get bigger pieces. The report makes no mention of the extreme burden that the US provides the world in the matter of defense. I would like to see the UN write a report on why the US is expected to bear the major burden of military defense while many European members make only a slight contribution to this effort.
There was no mention of our growing national debt in this report. This is a matter of great concern and can best be solved by a rapidly growing economy which can provide money for the cure of poverty as well as balance our budget. It may be shocking that many CEOs make many times the amount of the average worker, but we should be careful that concern for this problem does not cause us to damage economic growth.
I will agree with the report on the US prisons that are filled with people that could be served better through other forms. For example, the State of Oklahoma formed Central State Hospital in 1915 to care for mental patients. In 1930, Central State Hospital in Norman was a self-sufficient farm, producing chickens, hogs and milk from a dairy. There were acres of vegetables, an orchard and a vineyard. Patients were employed in all these activities. When Nancy and I came to Norman in 1964, Central State Hospital cared for about 3,000 mental patients. In the late 1960s this place was practically closed and the patients lost their home and care. This facility now serves only about 50 or 60 patients. The land where this organization stood is now dedicated to an extensive park consisting of athletic fields and a conservation area known as the Sutton wilderness.
The closing of this organization went along with the closing of many other mental hospitals in the US. This meant that the number of homeless people increased radically and that prisons eventually took over the task of housing mental patients. There were legitimate criticisms leveled at the mental hospitals, but the answer should have been to improve them rather than to close them. This type of thing happens too often in our country. We often go from one extreme to another without attempting to find a middle ground.
The UN report in my opinion was unbalanced. Its focus on inequality of income as being our main problem is an oversimplification. Our problems are much broader and more numerous than this.
JE comments: There's a common assumption that smaller and homogeneous nations can better lift up their poor, but is there any compelling reason this should be the case? Are we always willing to help people who look more like us? Canada is just as diverse (or more) than the US, but has a stronger safety net. At the other extreme, North Korea is extremely homogeneous and starving.
"Poor" is Relative
(Timothy Brown, USA
06/12/18 6:31 AM)
In response to Richard Hancock, I'm curious. Define "poor." Does that mean unable to feed, house, clothe and clean oneself, à la village life in central Africa? Or does it mean unable to have steak once or twice a week, purchase, own, furnish and maintain a house in which each can have a separate bedroom, a suit or appropriate dress for a social event, take a hot bath or long shower using lots of soap at least once a day?
For what it's worth. I've spent days in northeast Lao and indigenous peasant villages on Mindoro, in indigenous settlements in Mexico and in small farming communities in Martinique, France and Costa Rica. And what is rich and what is poor in a Lao rice farming village, a mountain peasant settlement on Mindoro in the Philippines or the meseta central in Costa Rica? And in every one of those places whether or not one was seen as well off or poor was relative to others within the same society, not comparable to everyone else in the world.
JE comments: Is the traditional, self-sufficient peasant "poor"? When societies and economies break down in the more developed regions, the peasants are the only ones who can take care of themselves. Tim Brown also points out another truth: you don't feel poor when everyone is in the same boat. (Friends and family who grew up under socialism always say this.)
Yes, "Poor" is Relative
(John Heelan, UK
06/12/18 4:57 PM)
Tim Brown (12 June) is correct--"poor" is a relative adjective of feeling. resulting from comparisons one makes with one's neighbours or those substantially less advantaged.
One interesting viewpoint is the following:
There are three types of parents. Rich Parents, Poverty Parents and Middle-Class Parents. Rich Parents teach their kids the Rich Habits and their children grow up to become happy, successful and wealthy. Those who are raised in Rich Parenting households represent about 5% of the population in America. This 5% do not struggle financially, have nice homes, vacation at the nicest places and are generally well educated. Having learned the Rich Habits from their parents, they pass along what they've learned to their children and their children grow up to become happy, successful and wealthy. This cycle of wealth perpetuates itself from one generation to the next and it is the reason the rich get richer.
Poor Parents teach their children Poverty Habits and their children grow up to become unhappy, unsuccessful and poor. Those who are raised in Poverty Parenting households represent about 30% of the population in America. This 30% struggle financially, rent small homes, have infrequent, inexpensive vacations and are generally not well educated. Poor Parents pass along Poverty Habits to their children and their children grow up to be unhappy, unsuccessful and poor. This cycle of poverty perpetuates itself from one generation to the next and it is the reason the poor get poorer.
The third type of parents, Middle-Class Parents, teach their children some Rich Habits and some Poverty Habits. Those who are raised in a Middle-Class Parenting household represent about 65% of the population in America. Here is the middle-class breakdown:
20% are upper middle-class
35% are lower middle-class
10% are middle middle-class
Those in the upper middle-class have slightly more Rich Habits than Poverty Habits and so on.
One of the times we felt poorest was when we were trying to raise four children on a student grant. I recall my personal disposable income at the time was about £2/week. Yet the irony is that we as a family now look back at those times as one of our happiest periods as a family. We did not have to compete on owning worldly goods, we owned our house thanks to the inflation of property prices in the 1970s and were able to survive by my taking on short-term professional jobs, by strict budgeting and bulk buying of necessaries to last the winters. However I am not sure that our children have ever forgiven us for their suffering home-administered haircuts as teenagers. That period of relative poverty gave us great confidence as a family: we knew that we could always survive whatever Life threw at us.
JE comments: I read through Tom Corley's bullet points on "rich" vs. "poor" behavior. Some make little intuitive sense, such as the idea that the rich eat and drink less and exercise more. The rich have addictions just like the poor. Corley's biggest assumption is perhaps the most problematic: are the rich necessarily happier? The poor Heelans did just fine, thank you.
I Grew Up Poor
(Istvan Simon, USA
06/19/18 4:59 AM)
Though there is undoubtedly some truth in the claims of generational preservation of wealth (see John Heelan, 12 June), one should not put too much into these poorly formulated theories.
Take my father as a counter-example. Dad's family was definitely much closer to poor than even lower middle class. My grandfather died when my dad was 10 years old. Their situation, which was already far from comfortable, became nearly desperate. My father at the age of 10 was the only man of the home, with 4 sisters, all older than my father. To help the family survive, my father carried milk jugs on his back at the market at the age of 10.
Then came the Nazis and the horrors that came with it. My father was deported to Oranienburg, where he was starved and used as slave labor in the Henkel aircraft factory. He barely survived, having lost more than half of his normal body weight. Indeed had he perished, I would not be telling this story. Yet having come from such modest background, he got a mechanical engineering degree in night school, and worked at the Ministry of Heavy Industry under communism. When we left Hungary there is not much that we could take with us. My father spoke not a single word of Portuguese. Yet he brought up his three sons and wife in relative luxury compared to the economic conditions that existed in Hungary. All three of us got engineering degrees at the best engineering school in Brazil.
My life has been incomparably easier than my poor father's. Yet I too can be considered a counter-example to these theories. Indeed my father was employed as an engineer at the Ministry of Heavy Industry in Budapest, but nonetheless we were far from comfortable. The first time I saw an orange in my life was in Vienna, after we left Hungary. I have never gone hungry to bed in my entire life, yet I had usually no more than 2 pairs of pants. For the first 10 years of my life we lived in rather modest conditions.
I walked to school from where we lived, a good half an hour walk. So did my father walk to his place of work. We could not dream of having a car, or even taking the bus. We rarely could afford butter. Usually I put lard on bread to eat lunch. Our economic conditions were not altogether that different from the children one would see in Vittorio de Sica's movies with Sophia Loren in Italy about poor folks in Italy after the war. Indeed the contrast between life in Budapest and in Vienna when we finally left Hungary was so dramatic, that it affected my political outlook of my entire life.
We arrived in Brazil in debt. Yet two years later we bought our first car. There is no question that our economic conditions were much better in Brazil than in Hungary. There were plenty of economic upheavals in Brazil while I grew up. But both my older brothers ended up getting PhDs at the best universities. I owned my own home in Campinas, Brazil debt-free. No mortgage. I built it with my own savings. The story of my father's life and my own are both examples of stories of major upward economic mobility. Neither of us was born with a silver spoon in our mouths.
JE comments: I always enjoy WAIS posts on the impact of history on real individuals. Nicely done, Istvan. May I ask an indiscreet question? If your father was enslaved in a Nazi factory, why would he choose to pursue a career in industry after the war? Or did the Hungarian communist authorities "assign" him to engineering, given his wartime work experience?
Generational Preservation of Wealth; from Ric Mauricio
(John Eipper, USA
06/21/18 6:37 AM)
Ric Mauricio writes:
I concur with Istvan Simon (June 19th) that "one should not put too much into these poorly formulated theories" on the generational preservation of wealth.
I have known people who are born with all the advantages, parents who are well-to-do, belonging to the middle class or to the wealthy classes, who go on to fritter away their advantages. In fact, take a look at the Forbes 400. The richest man in the world is Jeff Bezos, the son of a Cuban immigrant, with barely a nickel to his name. The same could be said of Carlos Slim Helú of Mexico, who has gone from poor to the richest man in Mexico. Sure, one can point at Buffett (son of a congressman), Bernard Arnault (dad started the business), or Koch Brothers (father Fred was a successful businessman) and point to their advantages. But a cursory glance at the list will point to mostly self-made billionaires. Of course, there are the Waltons (Walmart) and the Pritzkers, who inherited their billions, but there is only one Rockefeller and no Vanderbilts or Gettys. Keep in mind that the Vanderbilt wealth turned into Vanderbilt University, the Carnegie wealth turned into libraries, and the Getty wealth became the Getty Museum in Los Angeles.
Many trust-fund babies just self-destructed, the partying and drugs their panacea for being born into wealth. Did they learn anything? Obviously not.
But closer to home, my parents were immigrants. My dad's family had nothing, but in one generation, managed to raise themselves to the top 30% of net worth ranking. My dad, the first college graduate in the family (UC Berkeley), unfortunately was killed in action in Korea when I was 5 months old (Silver Star recipient) and couldn't utilize this advantage to help his family. The next generation, of which I belong to, is an interesting study of what to do and what not to do. My two cousins and I were able to leverage our advantage to raise ourselves to another ranking, while other cousins frittered away their advantages. I am trying to make sure that my children and grandchildren do not fritter away their advantages.
This leads me to a discussion on net worth rankings. The bottom 10% have a net worth of negative $1,000 or below. The bottom 40% have a net worth of less than $49k. The next 40% have a net worth ranging from $$49k to $499k. So to break into the top 20%, one must have a $500k net worth. To break into the top 10%, you need a net worth of $1.2M, and to breach the top 5%, the number is $2.4M. The top 1% is $10.4M. That's millions, not billions. The billionaires are .1% of the population.
So why do those with more modest means (or no means at all) succeed where others with advantages don't? Perhaps it's the hunger. Perhaps it is in our DNA to strive for success. Perhaps it is because I did not learn to make excuses or to blame others for my failings. Perhaps it is my ability to not compare myself to others and to not be jealous of others' successes and to throttle any feelings to tear others down because I cannot measure up to them.
Perhaps this is why the President doesn't like Bezos. How can Bezos, the son of a Cuban immigrant, become the richest man in the world, while the President (who started off earlier than Bezos at $200M) is relegated to #276, and perhaps now #300? How can John McCain survive a POW camp and become a war hero, when the President had to deal with bone spurs?
OK, so the President will just destroy the stock market with a trade war and bring the value of all those above him down to his level.
JE comments: We love riches-to-rags stories almost as much as rags-to-riches ones (unless you are the wealthy kid who goes broke). But are the Bezoses and Slims of the world the exceptions to prove the rule?
(We're back at WAIS HQ, Royal Oak, to welcome in the summer. Our nine days in Colombia were unforgettable. A couple of further Colombia-themed WAIS posts are in the pipeline...must write them up before I forget!)
- My Father: From Slave Laborer to Entrepreneur (Istvan Simon, USA 06/21/18 8:43 AM)
John E asked (19 June) why my father would choose engineering after having been enslaved by the Nazis in a factory during World War II.
Though I cannot truly answer for my father--I never asked him this question, so I do not know--I nonetheless can say some things about the matter. First of all even before the war, my father was involved with industry. He worked at a Swiss company that made aluminum products in Hungary. A relative of ours was the managing director of this company in Budapest, and my father was employed as a laborer. He did not yet have an engineering degree at the time, but was a technician. Furthermore, the company sent him for training in Switzerland, one of the reasons why my father was fluent and spoke perfect German. It was therefore natural for him to continue in the same line of business more or less as what he had done all his life. It was also at this company that my father met my mother.
The communists in Hungary did not assign my father to anything. Studying mechanical engineering was his own choice.
My father was an expert on industrial tool making and machining. In fact he wrote and published two books about the subject in Hungary. Later when due to the economic upheavals that rocked Brazil it became difficult for my him to find gainful employment, he opened his own business, leveraging his experience and knowledge in tool making.
This business initially was very difficult to get off the ground, but eventually gave my father a very comfortable living, and he also enjoyed being his own boss. We had a small manufacturing company and had a very extensive list of products in the tool making sector of pre-fabricated tooling components and devices. When my father started this business, this was a major technological innovation in Brazil. It was commonplace technology in the United States, but in Brazil tool making was still done on an artisanal basis, one project at a time in the tool departments of factories.
There was resistance to do it in a more modern and predictable way using these components to assemble a complete tool or complex device used in the manufacturing process. As usual, people liked doing things the way they have always done, and did not want to adopt the less costly and more effective new technology easily. This is why it was very difficult to get his business off the ground. In a very real sense, my father helped Brazil modernize in this area and adopt more efficient and less error-prone methods to assemble tools and devices form components rather than make one-off tools in the tooling departments. Tools are tricky to make, and very costly if designed the old-fashioned way. Oftentimes the tool had to be debugged, until it would work as intended, and this process was very expensive and time-consuming. Designing the tool from prefabricated components was much less error-prone, faster, used much less labor, and so it was better and ultimately much cheaper. But it took education to change the mentality in Brazilian companies.
JE comments: Istvan, have you ever thought of writing your parents' story at greater length? What a fascinating saga of upheaval, suffering, displacement and ultimate triumph over adversity.
- My Father: From Slave Laborer to Entrepreneur (Istvan Simon, USA 06/21/18 8:43 AM)
- Generational Preservation of Wealth; from Ric Mauricio (John Eipper, USA 06/21/18 6:37 AM)
- I Grew Up Poor (Istvan Simon, USA 06/19/18 4:59 AM)
- Yes, "Poor" is Relative (John Heelan, UK 06/12/18 4:57 PM)