by Jack Campitelli | October 25th, 2010
It’s actually pretty easy to hate rich people even if you don’t actually eat them. They do such amazingly stupid things to antagonize those of us who are not rich. And envy IS one of the seven deadly sins.
Dostoevsky wrote in Crime and Punishment that “Behind every great fortune is a great crime.” As I age I believe this is truer than I would have liked to believe in my youth. But it is not always true. At least I hope it’s not always true. I guess it depends on your definition of crime, huh?
The damned thing is that democracy doesn’t really work. The poor just vote to take everything from the rich. And then it all falls apart. Aristocracy doesn’t work. They just keep everything for themselves as their God-given right. Communism doesn’t work because, as it turned out, it fomented power and greed of “upper management” and a total absence of work ethic of labor (why work hard if you don’t get paid for it?). Anarchy doesn’t really work. Without the rule of law there is just a mess. Turns out the Kleptocracy in Russia that followed Communism worked better than Communism but is not pretty to watch. Capitalism “works” but it tends to get carried away and concentrates both power and money rather quickly in rather small sectors. The managers of capital become the new lairds of the realm — reducing us to the same serfs we were under the aristocracy. And pissing us off.
So we end up with “righteous sounding” Marxist-think socialism sold to us to get our votes to elect a democratic government to keep this-here “capitalism” under control while making sure there is plenty of slop in the feeding trough for all us voters. Boy is that giving the fox the key to the hen house or what? Or as Benjamin Franklin said it:
When the people find that they can vote themselves money, that will herald the end of the republic.
The history of the world is largely comprised of masters and slaves, lords and serfs, bosses and labor relationships. The haves and the havenots. The pendulum of the universe always swings. Shiva always dances. Everything changes. Somehow in some places a “middle class” emerged which acts as an inspiration for the lower class of what hard work will get you and a foil for the rich who point to the middle class as “on their way to riches; keep up the hard work, boys!” And it’s all a crock and we all know it.
Still we have to eat and this is the world we’re born into. As you’re reading this and as I write it, we exist in the upper 5% of humanity who can even do these things. And still we feel out of sorts. There really IS something wrong but the “fix” is just not leaping out at us.
The expression “first against the wall when the revolution comes” I first read in the Hitchhiker’s Guide to the Galaxy but it seems like something out of some bygone revolutionary period — as in Shakespeare’s “First you kill all the lawyers.” Being a lawyer, I’d substitute bankers and Wall Street “financiers,” if it’s all the same to you. In Gilbert and Sullivan’s The Mikado there’s a clever song sung by the Lord High Executioner “I’ve got you on the list”. This list of those set for the executioner’s block and the wall are the same. Hell, I’m not sure who should be on the list. I mean somehow we managed to let this happen. That probably should put us all on the list.
As to “Eating The Rich,” the question is how you incentivize someone toward inventiveness, daring, toil, uncommon management skills or uncommon insight, eating a bottle of Tums a day, and reward them. And then how do you incentivize capital to back the play of the smart entrepreneur. So far, allowing such folk to reap the harvest of their accomplishments while giving you jobs seems to create the best atmosphere for all of us to work in. Sometimes they take advantage and sometimes they don’t.
Let’s say you’re suddenly a billionaire. You’re looking at the check in your hand. First thing you do is deposit it into a bank you trust while you figure out how your going to “invest” it – which may just be a better word than just “blowing it.” As it sits in the bank it may pick up a bit of interest income for you but largely the bank tries to get it in circulation by loaning it overnight or over monthly to other banks or governments and picking up a few shekels for itself but few for you.
Meanwhile you’ve picked out your new home. You’re either going to extensively remodel it or build it from scratch. Boost to the construction industry. You’re going to need a few high ticket cars. Boost to someone’s auto industry. Someone’s going to decorate your house. That’s a boost to . . . hell, I don’t know. The new yacht can boost the boating industry. Servants and assistants get jobs. You decide to invest in a few key industries. You choose wisely. They grow and make jobs. You get richer. You choose poorly and the money goes down the same sewer as the monthly maintenance on the yacht. In a few years you’re either richer or poorer. Your investments and extravagant spending actually seemed to make jobs. And you paid taxes.
Now re-read the same story with three variations: one, the check came from the federal government or it came as a “bonus” from your bank’s boss who got it from the federal government who just printed the money for the “stimulus”. Does it make a difference? Or say you got the check from your aunt’s estate in Ohio. Did all your spending and investing add real jobs? Or just pass the same money around as when your aunt had it? What if the money came from your grandfather in China? Does THAT grow real jobs as you spend and invest it?
Are you an evil person because you got the “found” money? Probably not. Just as a rich person who “earns” a billion dollars is not evil and has the same investment problems as you: what the hell do you do with the money that will at least keep its value?
Say, for example, you, not-a-rich person, has $100,000 in an Individual Retirement Account. You’re smart enough to have earned it, saved it, and now don’t want to watch it go bye-bye as inflation hits and wipes out, say, 70% of its value. As you watch Wal-Mart prices go up 10% a week, you probably realize that leaving it in a CD at 1% a year at your local bank is not a good plan. If you play this “what if” game, which may be real for all too many of you, your big challenge is not just how to make money on your money it’s how not to lose the purchasing power of your $100,000 so that in ten years it’s worth at least $100,000 in today’s dollars. At expected inflation values your $100,000 would have to be worth at least a half-million dollars in ten years. Hmmm.
This is a game everyone with anything is playing. And you need to think about it carefully. There are NO easy answers and the FIRST things the “answer givers” want to tell you is “invest” with THEM and you’ll have a rosy future. Guaranteed.
Here’s the new rule: ONLY INVEST IN SOMETHING YOU PERSONALLY MANAGE OR AT LEAST UNDERSTAND AND HAVE A PADDLE IN THE POT SO TO SPEAK. If you lease a septic tank pumping truck for your business, this is the time to buy it – even if it’s used. If you know where you take “the stuff” you might want to “invest” in partial ownership of the dumpsite or start your own. Or buy out your competitor who bought stuff on credit and is upside down. THIS is the only kind of investment you should make.
Here is another type of investment: you’re a waitress. You’ve got $10,000 in your IRA. Your boss, the restaurant owner, needs a new ventilation system that costs $20,000 and he’s having trouble getting a loan from the bank or anyone else. Say he’s got $10,000 of his own money. If you believe in the restaurant and the owner/manager, you talk to this person. First, you can negotiate a very nice return. You may be able to get a lien on the restaurant equipment. And you sure as hell will have a contract that you have a job as long as the restaurant is open.
Next example: you work in a cube farm. If your whole building were to disappear tomorrow, no one would notice. That kind of job. You, too, have an IRA. It, too, used to be worth twice as much as it is now, but you still need to preserve your capital. This kind of investment decision is 1) the toughest to make since you don’t have a “real” job; and 2) you are the easiest target for everyone who knows that and wants your money and know all they have to do is make the right promise to you and they’ll get it. This is the play you have to short-circuit and it’s going to have to take some re-thinking on your part. You likely live in a flat or condo. Maybe a suburban house with a big house and small plot of land. Nothing you can really do something with. Besides that, you have no idea how long your cube farm job will last. And you’re not getting any younger. First idea: look around your extended family for someone with a successful real job that is likely to withstand a recession. If not actually family add friends. If you have no one that fits the category, start researching local successful operations. Everyone needs money and no one can get it. Believe me, within a mile of where you live or work, there is some person driving a used Chevy who is a millionaire and whose business nets $250,000 a year in profits. You have avoided this person your whole life. Now you’ve got to find him and “have a talk”.
Last example: this is more dicey but still in the sane category. Your IRA savings can be used to buy real estate so long as there are no mortgages. There are pockets of “foreclosures” of which condos are always at the top of the list – right after “time shares”. The hardest hit city in the United States is Las Vegas. Condos there are practically “free”. Condos have monthly association fees, so keep this in mind in the event you don’t have solid renters. But look, ten years is going to see a difference in everything. Choose wisely and your condo will eventually rise in value. Not anytime soon, but eventually. As inflation hits, eventually rents will climb even though they’ll lag behind the cost of living index. So really your rent has to cover property taxes, real maintenance, property management and the association fee. That means you can offer rent lower than others. Or take Section 8 renters. If there’s something left over as “profit” that would be great, but if you hold your own and wait for rents to go up or property values to climb, in ten years, you’ll be ok. You may be able to do this in your own area. All of this comes with risk and probably some real work on your part. It also makes the trip to Vegas tax deductible, I think.
What you should do with savings that can survive just about anything. I’m not an investment advisor and I have a devil of a time deciding things in my own life, but you’d better think about this. Many of you who believed the hype that the stock market was going to save your future, watched 50% of all your savings disappear, never to return, a few years ago.
Eating the rich may be a fun parlor game to play but you’re nuts if you think we’re anywhere near to being out of the economic mess that the president keeps telling you we are. It hasn’t even started yet. When George Bush left office I quipped to a friend that whoever inherited his job was going to find a nuclear bomb in the basement of the White House – by which I meant the enormous overspending to keep the economy alive as he fought two unpopular wars on credit. President Obama is sitting on that time bomb. The longer it takes to explode, the easier Bush (and a Republican Congress) can lay it off on Obama. Obama’s mission has to be to see if he can pass it on to the next president before the bomb goes off. Obama has added an additional bomb in the basement by continuing to fight wars we can’t pay for and starting social programs for which he has to print funny money to fund.
All the governments of the world know about ‘the bomb problem”. They have tacitly “agreed” (I speculate) on “the way out” and that way is to let inflation gradually pay off all the debts. That means all debt, over time, will be repaid in currency worth 90% less than what was lent. Given the level of the mess, this is not a bad plan. But it’s a long ways from a good plan. But there is no good, as in no risk and no pain, plan. (You DO understand that means that YOUR money will be worth 90% less, too, right?)
Some say, just let it collapse and let’s get it over with and start re-building. Others like the absence of sudden pain and prefer gradual change. I’ve got mixed feelings. Pulling off the scab to clean the wound so it can start healing is clearly the rational course of action. The four year old in us doesn’t like the pain of the repair job and the 40 year old “parent” inside us is not sure how the family would eat next week with the scab pulled off. And I am like that person. However, the rational adult in me understands that by letting it all go to hell fast, we probably rid ourselves of a chunk of government that desperately needs to go. The problem is that just shutting them down doesn’t burn all the over-regulation rules and the unconstitutional rules they’ve “passed” over the last 100 years by virtue of an economic collapse. And we desperately need to rid ourselves of these. And just letting the bomb go off kills the economy but not the cause of how it got that way.
Please keep in mind, however, that lots of major historic disasters happened from amazingly simple causes. So-called “black swan” events or chaos theory events. The Great War, World War I, was set off by the assassination of a no-nothing duke in Serbia of all places. And the whole world erupted and millions died for not a damned thing. That’s not completely true. Due to incompetent politicos, they died to set the stage for the terms of surrender that set the stage for Hitler and World War II. Never let it be said they died for nothing. They died so that another 20,000,000 or 30,000,000 could die a few years later. And all that was caused by one unexpected assassination. Sixty years later it could be a simple bank failure than led to a domino effect. Of a fed bond auction that failed and started a panic. We have put ourselves in such a precarious position that almost anything can take this down and the “inflation fix” many not have a chance to work and the “scabbed pulled” off may be done by a complete stranger.
We need to get back to a place where the law of the land fits in a few books that we all know by heart by the time we leave high school. And that most of the “do good” programs happen at a local level because our culture has gotten back to “take care of your neighbor” not because some federal government took the money from us at the point of a gun and spread it around where it got the most votes. Oh, I mean “did the most good.” And a culture where the “neighbor” actually put his shoulder to the wheel.
And while you’re pondering that, does anyone know how this country survived so long without income taxes yet NOW our taxes can’t even pay the interest on the public debt, let alone do any good?
What Bernie Madoff did with his Ponzi scheme is nothing compared to what lawfully elected government officials are doing to all of us. If you or I did this, and got caught, we’d get life term prison sentences. Why elected officials don’t “get this” is one of the untold stories of our history. Or maybe they DO get it.
Are they ALL whores or ALL stupid or ALL corrupt? Or just a simple majority of them?
So many questions. So few answers.