Friday, 20 April 2012

Protecting The Winning Ticket

Life's Lottery: How far would you go to protect the ticket that guaranteed you vast amounts of wealth and power? What wouldn't you do to protect your winning position?

IT’S TIME FOR THE RICH to come clean. We’ve given them the benefit of the doubt for far too long. We’ve assumed that, fundamentally, they’re not really all that different from the rest of us – just wealthier. We’ve taken at face value their protestations that the policies they promote are for everybody’s benefit.

None of it is true. Never has been. Never will be.

You’re sceptical, I understand that. And it’s good that you are, because it proves you’re a decent person. It shows that you’re uncomfortable with attributing evil motives to people you don’t know; and that, generally speaking, you prefer to look for the good in people.

Fair enough, you need to be convinced.

Okay, here’s a little story from the news. It’s about a couple, living in the Red Zone in Christchurch, who won Lotto. The prize was $5 million, and they had the winning ticket. But, they were living in Christchurch. At any time there could be another big earthquake. The ticket could get lost. What did they do? Well, according to the news reports, they put the winning ticket in a Ziploc bag and they tacked it to their bedpost – just in case.

It’s a charming story, and we all congratulate the lucky couple (especially since they’ve been doing it hard since the big quakes struck). But it is also a very illustrative story. It shows to what lengths people will go to make sure they do not lose their winning ticket.

Most of us protect our tickets by working hard, paying our taxes, paying the mortgage, paying our insurance premiums, obeying the law, and trying to be good friends and neighbours. But, that’s about it, because, given the size of our prize, our ticket just isn’t worth any extra protection.

But, just imagine your ticket is worth not five million, but fifty million dollars. What would you do to protect that winning ticket? Hell, what wouldn’t you do!

You certainly wouldn’t be in favour of a capital gains tax, or death duties, or a highly progressive income tax. And you certainly wouldn’t support any political party, or social movement, that promised to impose them. To be truthful, you’d probably have a pretty jaundiced view of the entire democratic process. After all, there are a great many more voters who don’t have $50 million than there are voters who do. What’s to stop them from simply using their votes to accomplish the transfer of your wealth to their pockets?

And speaking of transferring wealth: what about trade unions? Obviously, they’d be for the chop. Nobody stays wealthy for very long by sharing the profits of their enterprises with the people who actually work in them. These are, after all, businesses they running - not charities!

Let’s recap. You’re rich, and you want to stay that way. So, to protect your ticket; to safeguard your $50 million prize; you need to find a way to eliminate, or at least minimise, the threats posed by taxes, unions, and democracy. What’s your strategy?

Essentially, there’s only one winning strategy. It requires you to convince all those who are not wealthy that whatever status and security they do enjoy is the result of your own superior imagination, risk-taking and skill. You have to paint yourself and your fellow millionaires and billionaires as a “wealth creators” and, more importantly, “job creators”. You have to convince your fellow citizens that any attempt to restrict or redistribute your wealth will not only put their jobs at risk, but that society as a whole will become poorer.

If you can convince people of these things, then they will, perfectly democratically, eliminate wealth taxes, truncate workers’ rights, and reconfigure their entire political system to favour the tiny minority fortunate enough to hold the multi-million-dollar winning tickets.

But wait, there’s more. Because, as The Spirit Level shows, grossly unequal societies are beset with all manner of social pathologies. And, because these pathologies encourage political debate about the fairness and sustainability of economic inequality, there’s one more thing the wealthy must do. They must convince us that, if we’re losers, it’s our own fault. We’re just too stupid and/or lazy to be winners.

It’s what the Rich will never come clean and admit: that they’ve turned us into the Ziploc bags that keep their winning tickets safe.

This essay was originally published in The Otago Daily Times, The Waikato Times, The Taranaki Daily News, The Timaru Herald and The Greymouth Star of Friday, 20 April 2012.

20 comments:

Brendan said...

Chris

No doubt some people inherit considerable wealth, and in that sense, they have 'won lotto', but who of us begrudges someone winning lotto, either by purchasing a ticket, or through inheritance?

It's a good question to ask, because the left appear to applaud the first and despise the second, when both have been beneficiaries of circumstances largely beyond their control.

That said, a good number of Kiwi's have become wealthy, not through lotto, not by means of inheritance, but by that good old fashioned hard work, persistance and entrepreneurial activity.

Yes, they employ people, of course they do, and thank God for that. If we didn't have employers most Kiwis would live in abject poverty.

For the most part, the rich are no different to the poor. There are similar numbers who are aspirational and hard working, there are similar numbers who are lazy and indolent.

The best way to close the gap between rich and poor in New Zealand is for the left to put as much energy and thought into wealth creation as they do into agitating for wealth transfer.

Now there's a thought.

Len Richards said...

Brendan, Brendan, Brendan ... they have got very rich because they employ others to do the work and they reap the surplus over and above the wages they pay created by those that work for them.
I don't actually see Mr Downer out there tar-sealing the roads - but it is Downer that is getting rich from the work of the poor sods who actually do lay down the tar.
And of course then there are the financial speculators (like John Key) ..... don't get me started ...

bushbaptist said...

The problem NZ faces is that we are a small country in the back of beyond.

With a 'Free Market' economy, we finish up with duopolies, triopolies and cartels. None of which are good for our economy.

There are many ways that we could help the poor in particular without resulting in Taxpayer support.

Building more state houses is one way, especially if we go back to the tried and tested methods of the past.

Most importantly those new houses must be made of products produced only in NZ.
Secondly, only NZ workers could work on building them. To finance them the Govt. prints the money and then writes it off as the rent comes in. The old Social Credit Plan.

The wealthy won't go along with that as there is nothing in it for them (as it should be) and would block such a programme from getting off the ground.

How would you or I like a business where we just create a product out of nothing then rent it to people at an enormous amount? Be great wouldn't it! Banks are doing just that.

Tiger Mountain said...

Brendan’s comment at first glance seemed to slot into the ‘self pleasuring’ category, but ultimately galloped home to place highly if indeed not win, the Trotter Stakes. Enjoy your ziploc.

Brendon said...

Chris I think you should write about this

There is a famous experiment in behavioural economics where a person in the first group is partnered with a person in the second group, they are given a sum of money, say $10 and they must decide to how much to keep and how much to give to there partner. There is no contact between them except the note with the offer.

The catch is the second person gets to choose whether to accept or reject the deal and if they reject it both partners get nothing. At some point when the offers become too miserly, I think from memory about the $7 for me $3 for you level the offers are rejected.

This experimented has been repeated many times in different places with similiar results. The conclusion of this experiment is that humans have a strong belief in fairness and are willing to defend this belief even to there own cost. They do not believe in absolute equality nor do they believe in the winner taking all.

Note this experiment is not a repeated game theory experiment where one partner `punishes´ the other to ensure better outcomes in the future. This experiment is a one off with no communication between the participants except the offer and the decision to accept or reject.

Think what this means in countries like the US where 90% of worker productivity improvements and the resulting increase in the countries GDP goes to the top 1%. This is why the 99% versus the 1% movements are gaining ground and why the 1% are desperate to promote myths that maintain the current unfair division of economic growth.

Even more interesting is that countries which have less inequality have stronger economies. So we do not have to choose between fairness and growth. Fairness is a legitimate growth strategy.

Anonymous said...

That is one of the best analyses I have seen of the so called "neo con" or "libertarianz" economics.

Congratulations for succinctness!

Victor said...

Brendan, mon ami

You write:

"The best way to close the gap between rich and poor in New Zealand is for the left to put as much energy and thought into wealth creation as they do into agitating for wealth transfer."

Surely you mean:

The best way to close the gap between rich and poor in New Zealand is for the RIGHT to put as much energy and thought into wealth creation as they do into agitating for wealth transfer.

Brendan said...

Hi Victor

You will need to enlighten me about wealth transfer in terms of it's directional flow and how you see it working as it is diametrically opposed to my experience.

I am (thankfully) a member of an ever diminishing elite group of Kiwi's who are net tax payers.

That is to say, both I and my businesses pay far more tax than they or I receive back from the Government by way of benefits or State services.

While the appalling levels of waste and stupidity demonstrated by both Local and National Government at times upsets me, I'm generally happy to be a net contributor to the public purse.

What I don't understand is your comment about the Right agitating for wealth transfer (from the poor). Can you please expand on this?

Oh and Len, yes employers often do get rich through the margin the place upon the services performed by their employees, and the good news for you, is that they usually pay a lot of tax along the way. However, they just as often go broke, loose their homes, and their health in the process.

If being an employer and getting rich was easy more people would be doing it.

Anonymous said...

Brendan, you need to stop. You don't understand any of this stuff, and keep making a fool of yourself.

As a business owner, you benefit from welfare programs that the rest of us pay for. I for example, have to pay a higher interest rate at the bank, as does every New Zealander, in order to offset the institution of bankruptcy.

Bankruptcy is nothing more than a welfare program that promotes the formation of businesses, by lowering the risk to the prospective business owner. Nevertheless, it costs money because all of us have to bail out those that go bankrupt, and so the banks have to increase their interest rates. Like most New Zealanders, I do not own a business, and that means that I am part of a group who is paying to lower your exposure to risk. Nevertheless, I support this welfare program, because we need to give people incentives to start businesses.

The point is that there are thousands of types of redistribution, most of which people don't notice (like bankruptcy laws) because they just don't think about it. Many of these redistribute the other way Even the one that you are complaining about (the wealthy giving money to the poor) has its own rationale that I would happily explain if you weren't so wrapped up in your own self righteousness. It's embarrassing. You literally have no clue.

Brendon said...

The first step in overturning an unwanted political economic system like neo liberalism is to expose the ideas and myths that support it. Websites like this one are doing a great job in this.

Once we see the `zip-lock bag´ for what it is, then as a society we can move on to something fairer and more effective.

Because the issue is not some simplistic determination of how much income to redistribute from the `wealth creators´. It is about looking at how our society is run and how it responds to events with new eyes, untainted by these neo liberal myths. Then we can demand fairer rules and institutions.

Take the rental crisis in Christchurch. The government says leave it to the marketplace to resolve itself. The ziplock bag is tight around our government ministers eyes.

Families are losing there homes because they cannot afford the rent increases from greedy landlords. What could be done, there could have been a rental price freeze for existing tenants, tenancy rental price increases could be public information, so greedy landlords could be exposed to the public. The government could have built more temporary housing.

We become powerful as a society when we remove the ziplock bag from our eyes and realise the market place is just a tool that bends to us.

Victor said...

Hi Brendan

To spell it out (do I really need to?):

The Right is currently obsessed with slashing government budgets. That's virtually all it ever talks about.

This will involve a degree of financial loss for the poor and a rather larger degree of financial gain for the rich.

All of this has stuff all to do with solving our real economic problems or with creating more wealth for the nation as a whole.

Of course, there's always the Cycle Way!

Kay said...

Chris you have articulated the problem brilliantly.

Any thoughts on the solution because it seems that NZers have taken the bait hook line and sinker?

Brendan said...

Dear ' Anonymous' @ April 21, 2012 2:55 PM

Always happy to be called 'clueless' by those who admit they have no business experience.

Who do you think gets hurt most by bankruptcies?

It's those companies who have extended credit to the company (or individual) who has gone bankrupt.

You mention one potential creditor, the bank, but typically there are dozens of other creditors, usually other businesses who loose money when bankruptcy occurs.

Guess what else happens. The banks stand first in line to receive the proceeds from any asset sales are made by the official assignee from the bankrupt company.

Often, banks get paid in full, but other business creditors end up with nothing, or just a few cents in the dollar.

Banks are always, always secured creditors.

Have you read any bank annual reports recently? Do you know what percentage of their loans are considered to be at risk of not being repaid?

No, I thought not.

ANZ 2010 results show 0.5% of loans 'at risk' of not being repaid. I would guess other large banks are similar.

So, if you are being asked to pay interest on that default value, it would be (say) 6% of 0.5%. That is not a very big number, and would hardly qualify as corporate welfare.

Furthermore, it's quite likely that approximately half of that 0.5% 'at risk' loan portfolio is not to businesses at all, but to home owners with mortgages they are struggling to repay.

In reality, you pay nothing by way of increased interest charges at your bank, because of business bankruptcy. The number is so small as to be exceeded by the $5.00 monthly bank charges on your statement.

Your assertion is little more than boiler plate rhetoric, lacking in research and substance.

What other examples of corporate welfare do you have?

Brendan said...

Hi Victor

Slashing Government budgets and reducing taxation (for the rich) are not necessarily the same thing.

To my knowledge we are still borrowing a billion dollars a month to cover our taxation shortfall. Surely we can agree that this is unsustainable long term.

Therefore, a responsible government has no choice but to cut its expenditure if we are not to go the way of Greece and Spain, and the like?

Who is hurt most in Greece as a result of their running continued deficits? The poor are hurt the most as they have the least resources to get through times of hardship.

Therefore, cutting Govt. expenditure now could be reasonably argued as the kindest thing the Govt. could do for the poor.

Sure, we could raise taxes on the rich, although I doubt that would raise another billion dollars a month, and most likely it would only serve to turn the river of brightest kiwis going to Australia into a flood.

Our greatest loss right now, is human capital moving to Australia. This will hurt us much more than budget cuts moving forward, and no amount of 'taxing the rich' policies will fix it.

Olwyn said...

What do you mean Brendan! People go to Australia largely escape low wages, precarious employment and ridiculous house prices and rentals in relation to wages. All the result of the machinations of the rich! People are in fact taxed more in Australia than here.

A government can surely either tax the rich or demand that they keep their side of the bargain and invest in job rich, living wage generating enterprises, rather than continually feather their own nests by investing in housing and necessary infrastructure.

As Mélenchon has said, "Look, we have to smash this prejudice that the rich are useful just because they're rich."

Brendan said...

Hi Olwyn

Some of what you say is true about the migration from NZ to Australia.

However, I have children living in Sydney. They didn't go there to escape low wages in NZ or high house prices. They are both University qualified, capable, and had good careers here in NZ. What they discovered as part of their OE, living in Sydney, is that the level of opportunity for someone with ability and initiative, is many times more in Sydney than it is in NZ, higher taxes and housing costs not withstanding.

And yes, housing is more expensive in the major Aussie cities relative to wages than here in NZ, unless you want to live more than two hours drive away from the CBD!

The best we can expect from a democratic system of Government, is open access to education, secure property rights, both intellectual and physical, an open banking system, access to capital, and the rule of law.

Sure, freedom of speech, and expression etc, but I'm speaking regarding the politics of economics here.

Countries who have this prosper, and their citizens do well, even their poor. Both NZ and Australia are in this select club.

Pretty much everything else in our prosperous western economies is background noise, and this is why there is no real traction for the 'revolution' that I see discussed occasionally in this blog. Even the poor in NZ know that they are better off than most of the world's population.

Our problems in NZ are primarily attitudinal rather than structural. I see a lot of energy expended in the 'politics of blame' by the left. "Its the rich, the Right, my circumstances etc etc etc, that's the problem."

Blame and self pity are two negative emotions and attitudes that cripple human endeavor and rob us of confidence and opportunity.

If we can put those aside, and focus on what we have in our hand to do, and not what we have been supposedly 'robbed of' by others, then life looks very different indeed.

We need to embrace the pioneering spirit once again, and abandon this debilitating 'notion of entitlement' that now pervades our culture.

Maybe it's the climate, but the Australian's have this attitude to life - you can see it in their sports teams and in their economy - and for some reason, we don't.

Changing our attitude is the first step towards changing our circumstances.

Victor said...

Brendan

At a ratio of just 29% to GDP, I would have thought our level of state indebtedness to be eminently affordable. Greece's debt to GDP ratio is 166% which really does put its problems in a rather different league.

Our problem is not the size of this debt but our inability to grow our economy and our consequent need to import the capital required to fill the gap,.

This further inflates our much more worrying total international indebtedness, which is essentially the product of private profligacy.

I do, however, agree with you that retail banking customers are way down low on the list of those who suffer when companies go bust, as many well run and innovative ones have done over the last few difficult years.

Anonymous said...

@ Brendan

"Always happy to be called 'clueless' by those who admit they have no business experience."

Given that your calculations are obviously deficient (I especially liked how you just assumed an equal rate of delinquency among business and private borrowers), I'm not sure you've done yourself a service here.

There's also the completely obvious point that personal mortgage lending is inherently less risky, since the lender gets to sell the house if the mortgage is not repaid. If a business goes bang, there is no assurance that you'll get anything, let alone the proceeds from an asset which is likely to be worth more than the outstanding loan. That would seem to be an obvious and relevant difference.

Anyway, I would have thought a card carrying righty such as yourself would be advocating a return to debt slavery for those businesses that cannot repay their debts.

Anonymous said...

"All the result of the machinations of the rich!"

My monocle almost fell out when I read that...

Sparky said...

There is no 'Right and Left' in politics now just variations of Centre.

As some-one, now retired, who was on a comfortable 6 figure salary for some years, I was paying less tax than some-one on the minimum wage.

Even the wealthy are happy to use all the infrastructure that is supplied by taxpayers and the ongoing costs of maintenance are burdened on the taxpayers too.

Tax cuts for the rich has never generated more jobs as they simply invest in China and elsewhere.

Paying down debt is very noble but in times of financial depression what is needed is expenditure not cutbacks. The cuts just lengthen the depression and drive it deeper. That in turn, makes things much harder for the poor especially those at the bottom.