Culture

THE NEW WAY TO LOOK AT EDUCATION

The Paradox of Wealth

CJ Westerberg, November 13, 2013 11:38 AM

wealth.jpg

"But what is overlooked in all the shouting is that paradoxically,
the people who
have the most to gain from insuring some measure of
economic equality and social justice
are the wealthy.
"

The Paradox of Wealth

by Joseph Ganem, Ph.D.

Imagine that you are by far the wealthiest person in the world. Your net worth tops that of
Bill Gates and Warren Buffet combined.  You have used your vast resources to fulfill a life-long ambition---become the first person on Mars. 

Strapped into your custom built rocket, the engines ignite and your journey into space begins.  Your co-pilot, seated next you, has also dreamed of this journey.  He has worked in aviation
all his life for middle class wages, and has a net worth that is a tiny fraction of yours.  What will it be like when you arrive on Mars?  Will the vast wealth disparity cause problems because you and your co-pilot will expect different standards of living?  It is easy to see in this scenario that
it will not. Once you leave planet Earth, your differences in income and accumulated wealth
will become meaningless. You and your co-pilot will be economic equals on Mars for the
simple reason that there will be no goods or services to purchase.

Wealth is entirely a social construct. It is not possible for an individual to be wealthy. When
we say that someone is wealthy, we mean that person has greater access, relative to other persons, of the goods and services that society produces. If there is no society to produce
the goods and services, then the concept of wealth has no meaning.  In the current acrimonious economic and political climates, this simple fact seems to be forgotten. 

A prevalent attitude is that the wealthy earned their good fortune, and the less well off should work harder if they want more money, instead of complaining about rising levels of economic inequality. But what is overlooked in all the shouting is that paradoxically, the people who
have the most to gain from insuring some measure of economic equality and social justice
are the wealthy.

In modern times wealth depends on a functioning society in which all members have some minimum level of well being and life satisfaction, because most wealth is contractual in
nature. People no longer "possess" the majority of their assets as they might have in the
past. In biblical times when wealth was measured in acres of land, or sacks of grain, or
heads of cattle, the wealthy possessed their assets. Today ownership of land is granted by a deed filed at the county courthouse, and few people use their land to produce their own food.
Bank and brokerage accounts have become digital creations. Through direct deposit and
online bill pay services, the exchange of wages for work, and money for goods and
services is accomplished by toggling bits inside computers. Stock trading is entirely
electronic. Companies don't even bother issuing paper stock certificates as was done
in the past. What is called "cash" is nothing more than pieces of paper issued by the government that are no longer redeemable for precious metals. Even gold, a so-called
universal currency is traded on the expectation of what goods and services it can buy.
Few people have any practical uses for the shiny yellow metal.

Without a society that recognizes, honors, and enforces all these contracts, most of what we call "wealth" would vanish.

What wealth buys is also contractual in nature and depends on a functioning society. Many
of the most sought after goods and services require the combined and coordinated efforts
of millions of people to produce, operate, and maintain. Consider smart phones, automobiles, or airplanes. None of these devices can be conjured out of the ground from their elemental constituents by a single person. No single person even knows or understands all that is required to build and make these devices work. All require the sustained efforts and expertise of millions of people in order to even use. In fact, without a vast infrastructure in place the devices themselves would be completely useless.

"For the body is not one member, but many. If the foot says, 'Because I am not a hand, I am not a part of the body,' it is not for this reason any the less a part of the body. And if the ear says, 'Because I am not an eye, I am not a part of the body,' it is not for this reason any the less a part of the body. If the whole body were an eye, where would the hearing be? If the whole were hearing, where would the sense of smell be?"
--  I Corinthians 12: 14-17

What good would a smart phone be without a network? What use would an automobile have without roads, gas stations, and mechanics? Where would an airplane go if there exists only one airport in the world?

Service networks require millions of people, who need to be fed, housed, and cared for
when sick. In communities where disparities of wealth have become extreme, it becomes problematic to provide basic services. In Santa Clara, California the starting salary for
teachers in the Unified Elementary School District is $45,000, but the median price of a
home is $540,000. In order to employ teachers, the school district built apartments on school-owned land and rented the units to teachers at 40% below market value.

Schools in San Francisco, where the average one-bedroom apartment costs $1500 per
month, have a similar problem, and are also considering developing housing units for
teachers on school-owned land. It is difficult for school districts to hire and retain excellent teachers when the teachers cannot afford to live in the communities that they serve.

High housing costs in places like San Francisco and New York City exist because these
are attractive vibrant communities for people to live and work. But that vibrancy, and with
it the investments in home-ownership in these cities, will be threatened if the people providing basic services go away. Home prices have always depended on the neighborhood much
more than the size or condition of the house. But a neighborhood is a community of people, not a location on a map.

The recent housing bust has painfully illustrated this fact. Neighborhoods with high rates of foreclosures are places that attract squatters, not middle class families. In surroundings filled with overgrown yards, fetid swimming pools, and unmaintained homes, those left behind because they can afford their mortgage payments find that their homes are worthless anyway. Many who can afford to stay, walk away, which further exacerbates the destruction of the community. In many instances banks have foreclosed on homes, evicted the owners, and then abandoned the properties once it became apparent there was no re-sale value. Bank "walk-aways" have become a source of blight in many cities and towns.

What can happen on a micro level with neighborhoods can also happen on a macro level
with entire societies. By all measures income inequality in the United States has increased since the 1970s, a circumstance that is virtually unique among developed countries.
Economist Timothy Smeeding summed up the trend in 2005 when he wrote:

"Americans have the highest income inequality in the rich world and over the past
20-30 years Americans have also experienced the greatest increase in income inequality among rich nations. The more detailed the data we can use to observe
this change, the more skewed the change appears to be... the majority of large
gains are indeed at the top of the distribution."

---Timothy Smeeding,  (2005). "Public policy, economic inequality, and poverty: The United States in comparative perspective." Social Science Quarterly, 86, 956-983.

Testifying before Congress in 2005 Alan Greenspan stated when asked about growing income inequality:

"As I've often said, this is not the type of thing, which a democratic society - a capitalist democratic society - can really accept without addressing."

That testimony, and Smeeding's comment, occurred before the collapse of the housing
market and onset of the recession, events that have made income inequality greater. In September 2011 the U. S. Census Bureau reported a record 46.2 million Americans living
in poverty, the highest number in the 52 years that the Bureau has published these figures.

Greenspan is of course concerned because history is rife with examples of extreme economic inequality preceding social catastrophes. Consider monarchist France prior to the French Revolution, the southern states in America prior to the U. S. Civil War, the Weimar Republic
in Germany prior to the rise of the Nazis, Zimbabwe prior to Robert Mugabe's dictatorship.
In all these cases the poor did not benefit from the ensuing social and economic collapse,
but the wealthy lost everything.

The fact is rising income inequality threatens the income, assets, and well being of the
wealthy. There are no societies without wealth disparities, but there are limits as to how
much inequality can exist before the society ceases to function.

We would be wise not to test those limits.

###
Joseph Ganem, Ph.D., (JosephGanem.com) is a professor of physics at Loyola University Maryland, and author of the award-winning book on personal finance: The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy. It shows how numbers fool consumers when they make financial decisions. For more information on this award-winning book, visit TheTwoHeadedQuarter.com.

###

UPDATE: May 20, 2013:

Stigliz on Education via The Daily Riff

The Limits of Education by Joe Ganem via The Daily Riff -
"Knowledge is necessary for sound decision-making, but it is not sufficient.
Not every societal problem can be solved by forcing students to sit through another class and pass another exam.
"

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