Wednesday, December 11

Oh shut up, Barry

The weather is not good in Punditaland, literally and figuratively. Days of glop here in Washington -- snow and sleet and rain and fog and drizzle. Meanwhile I've had a devil of a time getting a writing about Swarm Theory into final form. To top it off --

Financial Illiteracy

America's Windbag-in-Chief wasted 49 minutes of air last week in portraying "income inequality" as the defining issue of our time. Actually the defining issue is that the vast majority of Americans don't know anything about money, much less wealth creation and preservation. This point came home to a number of U.S. state governors after the 2008 financial crash. So they set up what they called "financial literacy" programs for seniors in public high schools in their states -- programs that quickly became mired in controversy.

While something is better than nothing, from what I've read about the programs they aren't going to get Americans far in an understanding of money. And while financial gurus such as Suze Orman are trying to educate the American public about money, much of their advice works out to making prudent investment decisions. That plus 50 cents won't move the needle much on Americans' catastrophic ignorance about money.

If Barry or anyone else asks what use is to know about money if you don't have a job that pays a decent wage: most of the Americans who tell their sad stories to Suze on her weekly show are not only employed, they're also making a good salary -- either as single or two-person family earners. Many of them earn a single or combined income of $100,000+ a year -- a figure that outside a handful of cities in the USA is considered upper income. Yet all of them are deeply in debt, maxxed out on lines of credit, and many are facing eviction from their homes because they can't keep up the mortgage payments. In addition, most are carrying crippling loan payments on debt they racked up to pay for college.

In the USA if you play your cards right you can pull in $40,000/yr in government benefits -- nothing to sneeze at when the benefits include 'affordable' housing. So why bother with a job? And what use it to get a good-paying job when the money you earn slips through your fingers because you don't know anything about money?

Tell me the use, Barry. Go ahead, talk more trash. I would especially enjoy hearing the rap that America is a capitalist society. The American banking system was destroyed, converted to a tool of "monetary" policy. So how can you have a capitalist system after you've killed the banking system? Explain that part to me.

And how can you have a capitalist society when all but a handful of its citizens don't know about money on account of the education system -- public and private -- never taught children about money? Not even at the college level is money a required course in this country, which explains why so many American MBAs lost their shirts in the 2008 financial crash after they fell prey to investment schemes that were barely legal versions of the Ponzi scheme -- or they were outright Ponzi schemes.

Capitalist society, my ass.

A Worker Society, Not a Capitalist One

The United States of America is not a capitalist society. It's a worker society. Taking a shot in the dark, I'd guess that might be a major reason the nation's education system hasn't taught children about money all these generations: if we teach children about money, they'll get rich when they grow up, then they won't want to work, then who will fill all the job slots in the country?

If that was indeed the reasoning, it was based on a fallacy -- the same kind of fallacy Bernard de Mandeville sent up in his "Fable of the Bees" and Paradox of Thrift. I've talked so much this year on my blog about the paradox I'm sick of the topic. But in one sentence, the fallacy is that when left to their own devices everyone in a society will do the same thing with his money. Only by divine fiat, as Mandeville pointed out, could there exist a society in which everyone hoards money to the point of self-destruction.

The same principle would apply to any argument that economically well-off people won't want to work. Many Americans who win lotteries in the millions of dollars continue working at their jobs. Most people enjoy working, and even many filthy rich people work themselves ragged organizing charity events and overseeing philanthropic organizations.

It's Supposed to be a Pool of Menial Jobs, Not an Underclass

That said, it's true that the poorest people are the most willing to do the kind of work that the better off refuse. But what is that saying, when translated into an analysis of America's present financial woes? That you can't educate American children about money because the country needs a permanent underclass of the poor to provide a labor pool for menial jobs?

I believe that is also saying that you need to keep shooting yourself in the foot to improve your health. I believe that's also tripe, given that many of the most menial jobs, such as trash collection, pay good money in the United States because they're unionized. And because America is stuffed with immigrants, legal and illegal, who will fill jobs that better off Americans won't take.

But it's a funny thing about those immigrants. While I lived in New York City decades ago I noticed that many immigrants who flooded into the city had an odd habit of not staying very long in the underclass. They worked at menial jobs, pinched their pennies, pooled their pennies with immigrants of the same background, started small businesses, then larger businesses, then moved to the suburbs and sent their kids to college.
There is a big difference between a permanent pool of menial jobs and a underclass. The pool should be fluid -- watered by new arrivals in the country and those just starting to earn money, such as teenagers, and those Americans who can't afford to start out in the workforce with a college education. But as the experience for many immigrants to the USA illustrates, there is no need for Americans to form a permanent underclass of the poor.

I realize this leaves the problem of how to sell socialist political agendas if there's no underclass to use as a marketing tool. I'll leave that vexing problem to the political pundits.

As for America's self-termed capitalists who preach more capitalism as the solution -- first raise the U.S. banking system from the dead. Then blither to me about capitalism saving the USA.

Capitalist society, my ass. Yes I know I already wrote that. I tend to repeat myself when I reach my limit for listening to tripe.

Let's see, what else before I close out this rant?

Sleight of Hand

For those who don't believe that most Americans don't know the first thing about money -- I'll prove it, right now. Let me ask American readers this: Do you have an insurance policy? A mortgage? A college loan? How about a retirement fund?

If you answered 'Yes' to all or any of those questions, you don't understand money. All those terms -- insurance policy, etc. -- are actually different types of an investment. If you can really afford those investments; i.e., if you've paid into them after all your expenses are met, what you've done is convert monetary wealth to an investment.

If you show me pieces of paper documenting that those investments are part of your wealth, no they're pieces of paper documenting that you've made an investment. Once any part of your wealth is converted to an investment, that part of your wealth ceases to exist. Yes, you can borrow against the pieces of paper and even draw income from some of them. But unless you cash out on the investments the wealth you plowed into them is gone.

To understand why this is so: first realize that wealth, monetary wealth, is not a number, such as million dollars. It's an abundance. It's what money you have left over, after all your expenses including taxes are paid. And no, your savings for a rainy day are not part of your wealth. That money is a projected expense. But if you've already saved, say, six months of salary for the expenses you'd have to meet if you had no income for that long a period, then what you've saved over and above for the rainy day fund is your monetary wealth.

This is why it's perfectly possible for a person in the lowest income bracket to be wealthy, whereas someone in the highest bracket can have nothing but piles of paper instead of wealth.

Yet if people don't understand the meaning of wealth, their wealth are is easy prey for every kind of investment scheme, and outright fraud, that promises to make them wealthy.

All investment frauds operate according to the same verbal sleight of hand: 'Give me your savings to invest, and I'll make you wealthy' -- or wealthier. Time after time the scam works, even with intelligent people. But these people are unaware that if they have money to fork over for investment above all their expenses, they are actually converting their wealth to an investment.

Victims of Ponzi or "pyramid" schemes rarely see more than pennies on the dollar of their investment when the scheme collapses. As to the legitimate investment schemes, some of them are barely legal and several are unethical. I would count college student loans in the latter category. I see little difference between a fraud and a scheme that says, 'You take out a loan against your earnings when you graduate college.' Not unless the student has a legal document stating that on X date he will be hired at X salary by X company. Because there is no company stupid enough to give such a guarantee, any child (and his parents) that signs onto the college loan investment scheme is being misled.

Yet the child isn't even told he's gotten involved in an investment scheme; he's told that he's taking out a loan. He's actually taking a huge financial risk, more an outright gamble than an investment. And yet as an adult he will be held legally responsible for the debt he incurs from the scheme -- even if he fails to find employment or can't bring home a salary that's enough to cover the loan payments. But because the scheme is legal nothing much can be done until Americans wise up about money.

Income inequality, eh? How about talking first about knowledge inequality?


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