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View Diary: Morning Feature: Animal Spirits, Part II - Recession, Banking, Unemployment, Inflation (94 comments)

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  •  There are really three "classes." (5+ / 0-)

    At the top are the wealth-earning class, who are born to wealth and needn't (really) work unless they want to.  Their social contribution is renting access to their wealth (investing for profit) so others have the necessary capital to develop ideas into products and services.

    Next is the self-investing class.  Not born to wealth, they have to work for a living.  But unlike the subsistence class (below), the self-investing class must produce much more than they consume, both to provide the profit for the wealth-earning class and to save for their (modest) retirements.

    At the bottom are the subsistence class.  They have to work for a living, and consume less than they produce to support the wealth-earning class, but with incomes near the subsistence level, they can't save enough for even a modest retirement.  In theory, programs like social security provide them a subsistence-level retirement.  In practice, they work somewhere like Wal*Mart, even in retirement.

    When the overall economic risk level is fairly low, that can (almost) function well enough.  When the overall economic risk level is higher, too many of the self-investing class are wiped out by ordinary bad events and drop into the subsistence class.  If that happens, there's little incentive for those not born to wealth to self-invest - in education so they can get better jobs, and curbing consumption so they can save for retirement - and you get the dystopic system we have now.

    •  Excellent explanation (3+ / 0-)
      Recommended by:
      Orinoco, NCrissieB, FarWestGirl

      Thanks for the clarification.  There is definitely a class warfare going on in that the Average Jane doesn't want to pay more taxes that go to wealthy conglomerates, can't afford to pay more for schools etc....

      Definitely a dystopic system.  And I'll be the first to say I don't know how to shove it back to a healthier course.

      "No man is my enemy, my own hands imprison me, love rescue me." -- Love Rescue Me/U2

      by winterbanyan on Thu Jul 09, 2009 at 06:48:13 AM PDT

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      •  We have to reduce risk. (3+ / 0-)
        Recommended by:
        Orinoco, winterbanyan, FarWestGirl

        That's what the health care debate is all about, as an economic issue.  (There are moral issues too.)  A quality, universal health care system reduces many of the most common risks - self-investors aren't wiped out by ordinary illnesses, etc. - and that restores the (rational) incentive to invest in your education, to contribute to our full potential, and to keep our consumption at reasonable levels so we can save for a modest retirement.

        There are some other essential "safety net" programs, but health care is the biggie.  Unfortunately, it has a downside in that some in the wealth-earning class see it as a "gateway policy" to socialism.  They have no incentive to invest in a socialist economy, as they won't profit by that investment.  If Akerlof and Shiller's theory is true, that's partly why credit markets are still tight.

        •  The aristocracy (1+ / 0-)
          Recommended by:

          aka the investing class, used to also be the ruling class. So our great American experiment in effect removed the burden of running a government (defending the country, stockpiling for droughts and famines, building public infrastructure) from the wealthy, but left them the right to invest and profit.

          As a member of the self-investing class, I naturally have a predilection to support that class. I suspect the government could take on the major part of the wealthy's investing for profit functions (Small Business Administration loans, scholarships, funding research and development programs) and with a broad enough safety net, convince many in the subsistence class to join the self-investing class (even if the university is paid for or a scholarship is offered, obtaining the skills to be more productive is definitely a self-investment.)

          I wouldn't mind a policy that tried to make the wealthy class small enough to drown in a bathtub. Not that I'd advocate that, though, but I do think the country would be much better off with more people investing in themselves rather than just scrambling to make it to next week, and fewer people with the option to be parasites, with someone else managing grandfather's bequest and the most strenuous required work is clipping coupons and occasionally signing a tax return.

          "The problems of incompetent, corrupt, corporatist government is incompetence, corruption and corporatism, not government." Jerome a Paris

          by Orinoco on Thu Jul 09, 2009 at 09:43:18 AM PDT

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