Millionaire Goggles: Why Romney has no clue about the American Dream

Recent polls show that income disparity is increasingly a  concern across all sectors of the population (including Republicans).  However, 43 percent of respondents said that the rich became wealthy ”mainly because of their own hard work, ambition or education.”  The belief that being rich is transitory by nature is part of the fabric that makes up the American dream.  People think if the rich became rich by their own efforts, perhaps they can get rich too.

Unfortunately, although we cling to this romantic belief, it is becoming less true every day.  The reason this part of the American dream is becoming a thing of the past is directly linked to the income disparity caused by the concentration of wealth discussed in previous articles.  As we become more aristocratic, more or our wealthy are born into wealth, rather then becoming wealthy based on their own efforts.  Inheritance tax not withstanding, the trend of more and more of the rich inheriting their wealth as opposed to earning in on their own is an undisputable  consequence of the concentration of wealth.

It is perhaps even more unfortunate that many of our political elite come from such a background because in a sense it separates them from the rest of us.  They simply have never faced the everyday challenges that the majority of the population experiences.  Do you think George H.W. Bush ever had to bus tables at a local diner to pay for his college education?  Did he ever need a paper route in order to buy baseball cards for trading?  I doubt it.  I would suspect that he never would have owned a major league baseball team if not for the high level oil executive job he was able to get right out of college.  Were you offered such a position just after graduating from college?  These are just some of the privileges enjoyed by the wealthy upper class.

Perhaps today’s most concerning example is presumed Republican presidential nominee Mitt Romney.  Recently he tried to connect with voters by saying that there were times he worried about getting a pink slip.  He was trying to say that he know what it felt like to be worried about getting fired.  I seriously doubt it!

Let’s run some numbers.  Romney’s net worth is reported to be $250 million.  Let’s assume a safe conservative investment return of 5%.  (Note:  In 2012 5% is a pretty optimistic expected rate of return for the average non-wealthy individual.  However, historically it would be considered a conservative assumption.  Also, if you are worth $250 million, you can afford some pretty high end money managers using “absolute return” strategies and almost guarantee a rate of return at least that high.)  So on $250 million, Mitt Romney can safely expect to earn $12.5 million dollars per year on his investments alone.  That is equal to $34,246 per day.  That is over $34,000 per day, every day, without working a day.  Now, if you had that kind income derived solely from existing  wealth do you think you would worry much about losing your job?

The average American worries about losing a job because that means he might not be able to pay his rent or mortgage!  There certainly must be a substantially higher level of fear for that person.  I seriously doubt that Mitt Romney has EVER experience this type of fear and uncertainty.

It’s true that Mitt Romney was not always worth $250 million dollars.  The manner he earned much of it was by what Newt Gingrich recently called “vulture” rather than “venture” capitalism (most likely the subject of a future article).  But he certainly was born into money.  My favorite quote about Bush (43) was when Ann Richards said “he was born with a silver foot in his mouth”.  Today columnist Reuben Navarrette said of Romney, “it’s one thing to be born with a silver spoon in your mouth, and it’s another to have been saddled with a 20-piece set of sterling flatware.”

So Mitt Romney got rich by being born into the wealthiest segment of our society.  If a big part of the American Dream is that anyone can get rich by their own hard work, then Mitt Romney certainly doesn’t have a clue about that.

Class Warfare? Of course it’s Class Warfare

Last August President Obama became less conciliatory and started directly attacking the Republicans for protecting the Bush Tax cuts which overwhelmingly benefit the wealthiest members of our society.  Immediately, the right-wing politicians and pundits began to accuse the President of using “class warfare” to divide rather than to unite the nation.  The expression became a fixture of Republican “talking points” and remains that way today.

Instead of deflecting criticism from those using this seemingly divisive term, I wish the President had embraced it and adopted it as a tool in the coming election battle. The following speech is one that I wish Obama had delivered back in September, and that I still hope he will give sometime during this election year.  He is welcome to use this essay as a basis for such a speech.

President Barack Obama’s Speech to the Nation (undetermined date):

My fellow Americans, I have been accused of inciting “class warfare” for my criticism of Republicans for their uncompromising support of the Bush Tax cuts. Is this class warfare?  OF COURSE THIS IS CLASS WARFARE!  I suggest that, in fact, almost all of politics is class warfare.  Certainly in a representative democracy with a free market economic system, politics is about class warfare.  That is the whole point.  That is how it is supposed to be.  Instead of fighting real wars and killing each other in a state of anarchy, we elect representatives to argue out our disagreements and formulate laws to keep the system running in a peaceful manner.  Politics is our peaceful means of conducting class warfare so that we don’t actually have to fight real violent wars over economic disparity.

Economic disparity, by the way, has and always will exist.  This too, is as it should be.  It is a natural element of a free market economy.  It is endemic to the system of capitalism which has made this country great.  I am a free market capitalist and I fully believe in this system, even with the economic disparities it inevitably produces.  And, I am profoundly proud that we use our democratic political system to manage affairs in our market economy and continue to keep our country strong and functioning well.

So with regards to the Bush Tax cuts, let’s call them what they are.  They are single battle in the perpetual class war that is part of the social fabric of this nation and of our economic and political systems.  This particular battle has been won by the rich.  In fact, the rich have been winning almost ALL of the battles for the last three to four decades!  Since the 1970′s, the wealthiest in our society have continued to control a larger and larger proportion of the total wealth of this county, while the middle class and the poor control much less.

When Ronald Reagan endorsed Supply Side or Trickle Down economics he believed that a rising tide would lift all boats.  This phrase has been used repeatedly since that time.  It sounds nice.  It even sounds logical.  But to date, it simply has not happened.  The policies put in place to support this philosophy have so far increased only the size of the yachts for the very richest among us.  The middle class has been left to get by in ever smaller and fragile dinghys.  Recently, the unequal size of these metaphorical boats created a tsunami that literally swamped the tiny boats of the middle and lower classes.  Many people are drowning or barely staying afloat.  It would seem a rising tide does not in fact, lift all boats, at least not equally!

This same economic philosophy tells us that the wealthy are the job creators.  The Bush Tax cuts were supposed to create more economic activity that would result in the creation of thousands and thousands of new jobs.  This too simply did not happen.  During the years after the Bush Tax cuts and before the beginning of the Great Recession, our economy effectively added no new jobs.  The number of jobs did in fact increase during this period, but that was primarily due to increased government hiring as the nation added to the ranks of security, intelligence, and defense employees from the federal level down to the local level.  If you remove government hiring from the numbers, the economy did not produce a significant amount of new jobs as a result of the Bush Tax cuts.

So how long are you willing to wait?  It has been thirty years since we began this “supply side” experiment.  It has been more than a decade since we tried the Bush era tax cuts for the wealthy.  The promised results have simply not come to pass, at least not yet.  Once again, how long are you willing to wait?

In fact, the opposite has happened.  The wealthiest among us have continued to get richer and richer.  So of course it is class warfare, and guess what?  If you are not part of the tiny wealthy class, then you are losing the war, and you have been for decades.

I believe that our economy is more healthy, and the country is stronger when more of us posses and control a greater proportion of the huge wealth that the country is capable of producing.  The rich will always be there, and the rich will always be rich.  That’s OK.  But I believe it is time to turn the tide of the “war” and win a battle for the rest of us.  The first step is to repeal the Bush Tax cuts!

Republican Myth #2 The Myth of “Job Creators”

Just because you say something over and over again, does not make it true.  Political pundits have been “spinning” common terms to suit their political bias for many years.  In the Bush (43)/Karl Rove era, the practice reached new heights.  Reluctantly, I have to admit that the Republicans have been very effective over the past decade.  Again “reluctantly” I must admit to a certain amount of admiration for how disciplined party members have been at sticking to the prescribed “talking points” and repeating them over and over.

(One example:  Over 60% of voters that re-elected Bush in 2004 still believed that Saddam Hussein had direct ties to Al Queda and the 911 attacks, even though it had been widely disproved by then.  Certainly carefully worded and often repeated talking points contributed to this misconception.)

This election year has produced a number of new Republican created idioms in an attempt to “spin” common terms to their political advantage.  Today’s beef is the use of the term Job Creators to replace “the wealthy”.  Using the term Job Creators when unemployment rates are still high during the worst recession since the Great Depression is most likely a smart move.  The year 2012 will prove if it is also effective.  Unfortunately, it’s just misdirection!

The truly wealthy are not the true job creators in this economy.  The entrepreneurs are!  That is to say, it is the small business owners just starting to grow that create the new jobs.  Once they get wealthy, they make their money by using their money to make more.  In the past, there was a strong argument that using their money, or “investing” it, actually did create jobs.  However, over the past 15 year’s more money has been “created” on Wall Street via speculation and creative derivative products which have not produced true goods or services, and thus NOT JOBS!  In other words, “investing” can create jobs, but “gambling” does not.

Employment/Labor costs are typically the highest cost in operating a business.  The large corporations have trimmed down to very lean levels and out-sourced a lot of labor.  They are efficient, and corporate profits are at historic highs and have been for the last few years of “recovery”.  Yet, unemployment remains stubbornly high.  Think about it.  If CEO’s can produce a dividend and rising stock prices, they get bigger bonuses.  They are not interesting in “creating jobs”.  Employees cost money!

The “Bush Tax Cuts” went predominantly to the wealthy.  If you don’t believe this fact, you don’t understand the difference between INCOME and WEALTH and why the capital gains rate is so critical to this entire argument.  (Future postings will expand on this topic.)  However, if you exclude government jobs, the number of jobs in the U.S. economy remained essentially flat during the entire Bush presidency.  Where are the jobs?  How can you call the wealthy job creators?

We tried that approach in earnest with the 2001 tax cuts.  It didn’t work.  No matter how many times you say it, you can’t replace the word wealthy, with the words “Job Creators”.  It’s a myth!

 

Republican Myths #1 Supply Side Economics

I am not an economist.  I recognize that Ayn Rand and John Maynard Keynes pursued economics academically and came to substantially different theories.  I don’t know which, if any, is the most correct.

Here is what I do know.  For more than 30 years wealth in the U.S. has concentrated.  There are many ways to express wealth concentration through statistics, but no matter how you describe it, the U.S. has had a concentration of wealth for the past three decades.  This is a fact, not an opinion.  It can not be argued or spun.  It is simply the case.

What happened 30 years ago?  Ronald Reagan introduced “supply side” economics and the Republican party adopted it is as orthodoxy.  (The term “voodoo economics” is often used to demean the theory.  I love the irony that the term came to prominence when Gorge Bush ["41"] used the term to deride Reagan during the 1980 presidential campaign!)  Even before Reagan, tax rates on the wealthiest had been cut and they have continued to be lowered ever since (most recently under Bush ["43"] in 2001).  Rush and Fox don’t talk about it, but tax rates overall at currently at historic lows (even though we are supposed to be “at war”).

Supply side economics promises that a “rising tide lifts all boats”.  However, for more than 30 years now that simply has not happened (see wealth concentration in the second paragraph).  How long do the middle and lower classes have to wait before the tax cuts for the rich “trickle down”?  I was 15 in 1980.  Now I am 46, and it is getting harder and harder to deny that I am now middle aged.  Quite frankly, I am tired of waiting!

Once again, I don’t claim to know which economic theory is correct.  The issue seems to be based more on belief than on fact.  But the facts of my adult life have proven that trickle down supply side economics have simply not worked as promised in the U.S. of today (or the past 30 plus years).  Supply side economics is a MYTH!

Coming soon, other “Myths”:
-The Myth of “Job Creators”
-The Myth of “Government spending hurts the economy”
-The Myth of “We need business men to run the country”, and a few more after that!

Notes:  As noted, concentration of wealth can be expressed in many ways.  Anecdotal statistics were intentionally left out of the second paragraph above so as not to detract from the argument, because no educated informed person can deny the preponderance of fiscal evidence.  It’s a fact, wealth has been consistently concentrating in the U.S. for more that three decades (with the exception of one single year in the early 1990′s).  My two favorite “examples” are as follows.

-In the 1970′s the average CEO pay was 40 times the pay of the average worker.  Today that number is closer to 400.  (Can they work 400 more hours?  Be 400 times smarter?  Take 400 times the risk?)

-Today, wealth distribution in the U.S. is closer to that of Zimbabwe’s then to any other developed nation.  Way worse than traditionally aristocratic England.  Wow, the U.S. is more aristocratic than the country from whom the colonies declared independence.  That is tough one to swallow!