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Trading Lessons

Winter In America Gets Colder : Why We Choose Poverty

Politics / Social Issues Oct 19, 2013 - 10:49 AM GMT

By: Raul_I_Meijer

Politics

Broadly speaking, if we look at what has happened to the world's rich economies from 1945 to today, we can say that in the first 30 years, 1945-1975, real wealth - as expressed in standard of living - across the board, for the vast majority of people, increased.

Over the next 30 years, 1975-2005, the standard of living still seemed to rise, but if we look behind the numbers and between the lines, we see that much of the wealth increase over that period is illusional, because it was increasingly based on credit, i.e. it was borrowed from the future, while at the same time, the costs of "really big ticket" items such as education and health care were moved away from governments and towards citizens, where they began an unstoppable ascent (and we paid for them with credit).


There are umpteen different ways to define standard of living, but it seems quite reasonable to say that, as societies, we hit the top of our wealth in the mid to late 1970's, although valid arguments can be made for an even earlier date.

And then from about 2005 onwards, we have entered payback time. A fast increasing part of our budgets started to go towards continually rising costs for education, health care etc., AND interest payments on what we borrowed in the previous three decades AND interest payments on what we borrowed to both make those payments and keep the illusion of (increasing) wealth alive. In a glaring example, housing prices went up not because people got richer, but because they could borrow more.

In another example, across the western world, coming out of WWII, many if not most countries were dedicated to providing equal (and therefore necessarily free) access for everyone to the best health care and education available. And look at us now ...

Today, in 2013, debt numbers all over are at levels that nobody would have believed possible only 30 years ago. Household debt, national debt and corporate debt hang around our necks like so many nooses, and all we can do to prevent ourselves from suffocating is to borrow more. And so, inevitably, debt levels rise further. And just as inevitably, more and more people fall by the wayside; they can't keep up anymore. They are either too much in debt already, or they can't find a job that pays enough - provided they find a job at all - or both. In the process, we have become, the vast majority of us, entire societies of debt slaves, living in constant fear of losing a job and/or a home, and/or contracting a disease.

And it's not just paying back their own debt which people find ever harder: much of the debt from the financial - and overall corporate - sector has been transferred to the public sector, first becoming national debt and then trickling down into household debt through taxes and cuts to services.

This is a choice we make as - members of our - societies. It may be advertised to us as some kind of law of nature, but there's no such law, it's simply a choice. The only possible way to improve our societies, so we are told, is through economic growth. In the same vein, we are told that we actually do have economic growth again today, just not enough. That's not really credible either, although some growth faithful might claim that it all depends on which data you use. The S&P hit another record, so all must be well.

It is a choice, and it is an ongoing trend that is far from being finished. Those who do have wealth today are not going to voluntarily take a step back and say I have enough. A few individuals may, but the vast majority will continue to look for more. In the absence of actual growth, and in the presence of increasing debt, they can and will only achieve that by pushing the poor deeper into poverty. That is the real choice, even as faith in eternal growth makes it easy, if not necessary, to deny that such a choice exists.

Or to put it in different words: we continue to live with the idea of recovery, which in our minds equals a return to what we had, plus added growth. For some of us that may come true, but for a very rapidly increasing number amongst us, it will not. Because, and it's high time we acknowledge this, at this point in time, the only way the upper echelons of our societies can achieve some level of growth is to take it away from everyone else. And those upper echelons, mind you, demand exponential growth, which means, in a society that cannot grow, that the numbers of poor people will rise exponentially as well.

The incessant repetition of the "recovery is just around the corner" mantra has a hugely distorting effect on people's behavior in that even those who would be inclined to listen to appeals for redistribution of wealth and income will tend to turn a deaf ear if they are convinced no such redistribution is needed because those who are poor today will soon, any moment now, be made rich(er) by the recovery. This also makes it much easier to label redistribution of wealth as, just to name a term, communist.

And that's a very twisted picture that can exist only because we have such poor memories, especially when it suits us. Because in reality, we are of course already seeing a huge redistribution of wealth today, only this one increases inequality instead of decreasing it. Which means all those dreams about equal access for everyone to the best health care and education available are long gone. If we would only redistribute wealth in such a way that it would see us return to the level of inequality that existed when those dreams were relevant, 60-odd years ago, much of our poverty conundrum would be solved. It is really as simple as that.

It's ironic that one of the undoubtedly most capitalist countries on the planet, Switzerland, appears to take wealth redistribution more serious than any other, with a slew of referendums (yes, they have actual democracy) aimed at decreasing income inequality. In March, one such referendum forced public companies to give shareholders a binding vote on executive compensation. In November, there's a vote on the 1:12 initiative, which stipulates that executives can't make more than 12 times the salary of the lowest-paid employee. Which somewhat perversely means executives have a very good reason to raise that lowest salary: they themselves can get 12 dollars for every single dollar they give the employee, so an extra $1000 per month for the latter translates into $144,000 extra per year for the bosses.

Another referendum, to be held at an as yet unspecified date, calls for everyone in Switzerland to receive an unconditional income of 2,500 Swiss francs ($2,800) per month from the state. That initiative, though it may have many great - liberating - consequences, will probably not make it, because it makes people think that it induces laziness.

The Swiss are not the only people considering a basic income rather than a minimum wage (Beppe Grillo wants it in Italy), and it's a bit of a shame that no-one actually tries it for their country, just so we can see what happens. For one thing, those who want to see a smaller government apparatus should jump on the basic income idea; much of what governments do these days is linked to all sorts of benefit programs, and these could disappear almost entirely. Isn't it just absolutely hilarious in that light to realize that those most opposed to big government are also most opposed to a basic income? Talk about having your cake and eating it too.....

Meanwhile, the growth mantra is so deeply imbedded in our minds that no-one deems it necessary to answer a question I've long been asking: What Do We Want To Grow Into? . The need for eternal growth is simply accepted as a given. That is as much a pity as it is definitely not smart.

Still, if nobody wants to answer that particular question, maybe we should turn it around a little, and ask slightly different questions, like:

1) Given the numbers on poverty and unemployment cited below in this article, how likely do you think it is that your economy - as a whole - is actually growing (i.e. expanding)?

and:

2) Do you feel it's desirable to live in a society where, even if there would be growth, it can apparently only be achieved by throwing ever more of your fellow citizens off and under the bus?

not to mention:

3) How long do you think such a society can last?

Questions like these will easily be thrown upon the commie heap, and even be labeled unpatriotic, but they're really just a bunch of simple questions, which seamlessly lead to yet another question: what kind of society is unable and unwilling to answer such questions about itself?

Why don't I inundate you with some random data, and when you feel it gets a bit much please realize that this is only a small sample, and on any given day I could make it 10 times more:

Herald Extra:

Poverty stuck at 15% - record 46.5 million Americans

The nation's poverty rate remained stuck at 15% last year despite America's slowly reviving economy ...

More than 1 in 7 Americans were living in poverty, [up from the] 46.2 million of 2011 ...

[..] For the past year, the official poverty line was an annual income of $23,492 for a family of four.

Poverty remained largely unchanged across race and ethnic groups. Blacks had the highest rate at 27.2%, compared to 25.6% for Hispanics and 11.7% for Asian-Americans. Whites had a rate of 9.7%.

Child poverty stood at 21.8%.

CNS News:

Census on Obama's 1st Term: Real Median Income Down $2,627; People in Poverty Up 6,667,000; Record 46,496,000 Now Poor

In 2008, according to the Census Bureau, there were approximately 39,829,000 people living in poverty in this country. In 2012, there were 46,496,000. That is an increase of approximately 6,667,000—of 16.73% - from 2008 to 2012.

In 2008, the year Obama was elected, people in poverty represented 13.2% of the national population. In 2012, they represented 15.0% of the population.

Economic Collapse Blog:

They Denied That We Were In A Depression In 1933 And They Are Doing It Again

90.5 million working age Americans are considered to be "not in the labor force".

The labor force participation rate is the lowest it has been in 35 years.

516,000 Americans "left the labor force" . That was a brand new all-time record high.

The number of private sector jobs dropped by 278,000 [in august 2013].

77% of the jobs that have been "created" so far this year have been part-time jobs.

Approximately one out of every four part-time workers in America is living below the poverty line.

New American:

The Real Unemployment Rate

The nominal unemployment rate is still high, but the real jaw-dropping fact is the number of working-age Americans who are not working. Today that is 100,000,000 Americans out of a total population of about 310,000,000. Demographically, about 80,000,000 Americans are minors and about 40,000,000 are age 65 or older. That leaves approximately 190,000,000 Americans who are adults of working age. About half of those do not have a full-time job.

When those "Not in the labor force" are added to those "Unemployed," then those who are not working is growing: 99.5 million in April 2011, 100.3 million in February 2012, 100.5 million in March 2012, and 100.9 million in April 2012. When counting both those "Not in the labor force" (though in the age in which most Americans work) and "Unemployed" as a single group, then those who are not working, but are in the age group in which Americans normally work, has remained steady and high: 41.6% in April 2011, 41.5% in February 2012, 41.5% in March 2012, and 41.6% in April 2012.

Zero Hedge:

While the Establishment survey data was ugly due to both the miss and the prior downward revisions in the NFP print, the real action was in the Household survey, where we find that the number of people not in the labor force rose by a whopping 516,000 in one month, which in turn increased the total number of people outside the labor force to a record 90.5 million Americans.

Michael Snyder:

In America today, only 47% of adults have a full-time job.

According to one recent survey, 76% of all Americans are living paycheck to paycheck.

At this point, one out of every four American workers has a job that pays $10 an hour or less.

The U.S. economy continues to trade good paying jobs for low paying jobs. 60% of the jobs lost during the last recession were mid-wage jobs, but 58% of the jobs created since then have been low wage jobs.

Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

 

At this point, an astounding 53% of all American workers make less than $30,000 a year.

According to a study that was released by the Center for Economic and Policy Research, only 24.6% of all jobs in the United States qualify as "good jobs" at this point. [..]

... the three criteria used to define what a "good job" is are:

1 The job must pay at least $18.50 an hour. According to the authors, that is the equivalent of the median hourly pay for American workers back in 1979 after you adjust for inflation.

2 The job must provide access to employer-sponsored health insurance [..]

3 The job must provide access to an employer-sponsored retirement plan. [..]

The St. Louis Fed:

A record 28 million Americans have part-time jobs ...

Washington Post:

Low fast-food wages come at high public cost

[US] taxpayers are spending nearly $7 billion a year to supplement the wages of fast-food workers, even as the leading fast-food companies earn billions of dollars in annual profits, according to a pair of reports released Tuesday.

More than half of the nation's 1.8 million "core" fast-food workers rely on the federal safety net to make ends meet, the reports said. Together, they collect nearly $1.9 billion through the earned income tax credit, $1 billion in food stamps and $3.9 billion through Medicaid and the Children's Health Insurance Program ... [..]

LA Times:

Most Americans expect to work during 'retirement'

More than 4 in 5 older Americans expect to keep working during their latter years, a sign that traditional retirement is out of reach for vast swaths of society, according to a new survey.

Among Americans ages 50 and older who currently have jobs, 82% expect to work in some form during retirement, according to the poll by the Associated Press-NORC Center for Public Affairs Research. In other words, "retirement" is increasingly becoming a misnomer. The still-sluggish economy, battered 401(k) retirement plans and inadequate savings are upending traditional notions of retirement.

Add in an expected increase in lifespans and the result is a generation of workers facing dim financial prospects for what used to be known as the golden years. Excluding pensions and homes, 39% of survey respondents said they have $100,000 or less saved for retirement. Nearly one-quarter have less than $10,000.

And despite conventional wisdom, people can’t count on simply working until they drop. One-third of retirees say they didn't have a choice in the decision to leave the workforce, the survey found. In other words, many were pushed out by ill health or layoffs. Among retirees younger than 65, the figure is 54%.

Pittsburgh Post Gazette:

Extreme poverty on the rise for older women

An alarming number of women over the age of 65 joined the ranks of the extreme poor last year, according to a new report by the National Women's Law Center titled "Insecure & Unequal," which analyzed recently released data from the Census Bureau.

The retirement picture for nearly 1 million older women in America whose income fell below extreme poverty levels last year -- $5,500 or less in annual income -- is anything but golden. They never have enough to cover the cost of food, medicine and housing, and are forced to make tough choices each day on what sacrifices they must make to survive. [..]

Pro Publica:

The Expendables: How the Temps Who Power Corporate Giants Are Getting Crushed

In cities all across the country, workers stand on street corners, line up in alleys or wait in a neon-lit beauty salon for rickety vans to whisk them off to warehouses miles away. Some vans are so packed that to get to work, people must squat on milk crates, sit on the laps of passengers they do not know or sometimes lie on the floor, the other workers’ feet on top of them. This is not Mexico. It is not Guatemala or Honduras. This is Chicago, New Jersey, Boston.

The people here are not day laborers looking for an odd job from a passing contractor. They are regular employees of temp agencies working in the supply chain of many of America’s largest companies – Walmart, Macy’s, Nike, Frito-Lay. They make our frozen pizzas, sort the recycling from our trash, cut our vegetables and clean our imported fish. They unload clothing and toys made overseas and pack them to fill our store shelves. They are as important to the global economy as shipping containers and Asian garment workers.

Many get by on minimum wage, renting rooms in rundown houses, eating dinners of beans and potatoes, and surviving on food banks and taxpayer-funded health care. They almost never get benefits and have little opportunity for advancement.

Across America, temporary work has become a mainstay of the economy, leading to the proliferation of what researchers have begun to call "temp towns." They are often dense Latino neighborhoods teeming with temp agencies. Or they are cities where it has become nearly impossible even for whites and African-Americans with vocational training to find factory and warehouse work without first being directed to a temp firm.

In June, the Labor Department reported that the nation had more temp workers than ever before: 2.7 million. Overall, almost one-fifth of the total job growth since the recession ended in mid-2009 has been in the temp sector, federal data shows. But according to the American Staffing Association, the temp industry’s trade group, the pool is even larger: Every year, a tenth of all U.S. workers finds a job at a staffing agency.

[..] The temp system insulates the host companies from workers’ compensation claims, unemployment taxes, union drives and the duty to ensure that their workers are citizens or legal immigrants. In turn, the temps suffer high injury rates, according to federal officials and academic studies, and many of them endure hours of unpaid waiting and face fees that depress their pay below minimum wage.

Christian Science Monitor:

Suburban poverty across the country grew 53% between 2000 and 2010, more than twice the rate of urban poverty, according to a recent report by the Brookings Institution. For the first time, more poor people live in the suburbs than in cities. "I think suburban poverty is here to stay," says Alan Berube, one of the authors. "It's not going to revert back to the cities."

CNBC:

... the 400 wealthiest Americans now have more money [over $2 trillion] than the poorest 50% of all Americans combined.

US News:

A Different Type of Poverty

Even though we don't have starvation, we do have an amount of poverty that leads to malnutrition, that leads to a series of diseases that we don't tend to associate with First World countries, that leads to massively truncated life expectancy, and all but guarantees that from one generation to the next, poverty is going to be transmitted.

There are a lot of people with an awful lot of money, but there are an awful lot of people with absolutely nothing. And then there's a lot of people in the middle who, as the economic recession deepened in 2008-10, experienced downward mobility. Maybe that's one of the differences. In the 1960s, the country was clearly on an upward trajectory.

New York Times:

House Republicans Pass Deep Cuts in Food Stamps

House Republicans narrowly pushed through a bill on Thursday [Sep 19] that slashes billions of dollars from the food stamp program, over the objections of Democrats and a veto threat from President Obama.

[..] Republican leaders, under pressure from Tea Party-backed conservatives, said the bill was needed because the food stamp program, which costs nearly $80 billion a year, had grown out of control. They said the program had expanded even as jobless rates had declined with the easing recession.

[..] even with the cuts, the food stamp program would cost more than $700 billion over the next 10 years.

Washington Times:

One in four kids in poverty, despite U.S. gains

The White House may be touting a message of an improved economy — and claiming on its website that President Obama is all about helping those of lesser financial means — but meanwhile, nearly one-quarter of America’s youth are struggling in poverty, a new report reveals.

Nearly one in four children lived in poverty in 2012 [..]

New Hampshire’s childhood poverty numbers rose significantly in just a year’s time — and what’s worse, the state bragged on the lowest child poverty rate in the entire nation for a full decade. In 2011, the rate of poverty for that age group was 12%. A year later, it rose to 15.6%. And in all the years from 2007 to 2012, that figure jumped more than 75% ...

Meanwhile, around the nation, 16.4 million children were reported to be living in poverty in 2012. Of that, six million are aged 6 and younger. That comes in comparison to 2007 numbers, when the national poverty rate for youth stood at 18%, or 13.1 million children, UPI reported.

The researchers used the federal definition of poverty — a family of four with less than $23,283 a year.

On the White House website, Mr. Obama is described as a "lifelong advocate for the poor" ...

And it's not as if America is the only place where the inequality process plays out. Even if we leave southern Europe alone for the moment, a country like Britain is pretty bad, for example, with a government that invites rich foreigners to buy up the nation's assets while it leaves its own citizens in the cold, often literally, as the Guardian reported yesterday:

British Gas raises energy prices by 9.2%

British Gas will raise energy prices by an average of 9.2% next month, piling further financial pressure on 7.8 million households and reigniting the political row over soaring gas and electricity prices. Parent company Centrica became the second of the big six energy firms to announce a price rise after SSE raised prices last week. The average annual dual-fuel bill with British Gas will increase by £107 to £1,297 ($2,100).

Centrica blamed the above-inflation hike on higher costs for wholesale energy and delivering gas and electricity to homes, and government's "social and environmental programmes" which are paid for through customers' bills.

Also from The Guardian this week:

Food poverty is an attack on society

[UK] food banks are now helping three times as many people as they were a year ago. Oxfam and the Red Cross are both supporting food programmes. Another British charity, Save the Children, has launched a UK campaign expressly to raise awareness of the issues behind the steep rise in numbers of young people caught up in poverty. This cannot be what David Cameron's "big society" was supposed to look like.

The government is in denial. Ministers talk of chaotic families, of individuals making bad choices. They suggest the underlying reason for the trebling of the numbers receiving food parcels from the Trussell Trust in the six months to September – to an astonishing 355,000 people – was a spread in the number of food banks. Of course, each of these is a factor. But even taken together, they don't begin to account for the surge of desperation represented by the figures.

People on the ground tell a different story. Roughly a third of their clients are driven to desperation by delays in benefit – no change in proportion, only in the numbers. The new factor is the impact of changes in benefit, as the bedroom tax and sanctions bite, and councils get to grips with ever tighter budgets and smaller crisis funds. That now accounts for a fifth of those entitled to food parcels (which are only available to those with a formal referral).

And even in Germany, the one remaining - western -stalwart of growth fanatics, it's the people who pay the price. from Al Jazeera:

Does Germany have a poverty problem?

"It's a fact that differences between those who have lots and those who have little have been growing wider," Templin Mayor Detlef Tabbert, a member of the Left party, told Al Jazeera in his office. He blames German tax policy and employers who pay wages "that are below the level of dignity" for the gap.

The gap between the haves and have-nots is more substantial if one looks at wealth instead of income: A government report published earlier this year found the richest 10% of German households own about 53% of the country's wealth - with the bottom half holding a scant one%.

Unlike most European countries, Germany has no national minimum wage. Instead, there's a complex patchwork of about 480 minimum wages, depending on the type and location of the job. These can vary from 7.50 euros ($10) to 13.70 euros ($18.50) an hour.

This development, this process, is not going to go away by itself, inequality in wealth and income will keep increasing, and ever more people will end up under the bus. It's a choice we make as a society. Even if we do somehow achieve a period of real economic growth, it will make little difference anymore for the poorer: it will be swallowed up whole by the demand for growth embedded in the richer parts of society.

The desire for growth has become a sort of auto-immune disease, in which the body, the society, in the absence of external food sources, preys upon itself. We need to consider the potential consequences of this, and ask ourselves if they add up to the kind of society we wish to live in, and we want our children to grow up in. Right now, we're choosing poverty, and we should ask ourselves why we do that.

There are millions of Americans who've been unemployed so long they no longer even count as unemployed. There are millions more working jobs that don't pay the bills. This can and will not simply be undone by a growing economy. Many are scarred for life, and that certainly goes for the huge numbers of children growing up in poverty and now seeing their food stamps cut to boot. Leaving aside whether we see rising inequality as a good or a bad thing, we need to realize that it is a choice we make for ourselves and others: there is no need for 25% of our children to be too poor to function well, there is enough wealth in our societies to provide for them. We would just need to redistribute that wealth, and to limit inequality to the levels we had when our economies were doing better than they ever have, before or since. Would that really be such a bad thing? Are we truly better off creating this fake Darwinian jungle we have today? Just asking.

And then of course there's that last remaining question: "How long do you think such a society can last?"

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2013 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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