Saturday, July 4, 2020

Life Isn't Fair

It's Unfair! They're all picking on me - Crying Baby | Meme Generator
Bad things happen to good people.   Can we legislate this away?   Perhaps not.

A reader writes that our financial system is unfair, because those who have money can make more money.   I have pointed this out before.   When I was young, irresponsible, and stoned, I would bounce checks at the bank and get nicked for a $15 bounce fee.   Today, they call me a "platinum customer" and waive many fees (of course, I never bounce checks or pay interest anymore) and actually pay me more interest and amplify cash-back bonuses over that of more plebeian "silver" customers.

The less you need the money, the better the deal they offer you.  I have no need to borrow money, but if I did, I could get a great deal with an 830 credit score and money in the bank.   Meanwhile, the poor working slob (hey, that used to be me!) gets the worst offers and the highest interest rates.  He needs the "deal" the most, and I the least.  Yet I get the more advantageous deal and he gets the shitty one.   It ain't fair, is it?

Worse yet, the banks (or worse yet, payday lenders) will offer him deals that will likely bankrupt him - high interest rate loans and the like.   Today, with bankruptcy reform, there is more money to be made ruining a customer financially than in establishing a long-term banking relationship.

I talked before about the snowball effect and how it works both ways.  Once you get into debt, it is easier to get further and further into it, until you end up broke.   But once you start saving money, you start making more and are offered better deals.   You are the guy with cash when your friend decides to start a bank and offers you stock. You are the guy with cash (or at least good credit) when a foreclosure property comes on the market at an advantageous price. Well, that's at least what happened to me.   I missed many, many other opportunities in life because at the time I was mired in debt for cars and credit cards.

The reader is right - the system isn't "fair" by a long shot.  Those who have money have an easier time making money.   He opines that margin trading only enriches the very rich, which is somewhat true - although some very rich people have ended up broke by margin trading, going from millionaire to nothing overnight.   And that is why I say to never get into derivatives, which are little more than gambling on the price of a stock or commodity.    Particularly when you have no idea what you are doing, you are basically blindly wagering.   People end up killing themselves over this.

I've noted before that the 1% didn't "take away" our money, but rather we gave it to them willingly.  People invest in gold or bitcoin or some "hot stock" touted on the Internet, and when it all goes horribly wrong, they cry, "unfair!" like the fellow I mentioned in my previous posting, who lost over  $50,000 in margin trading, but somehow it wasn't his fault.   Meanwhile, my "boring" investments go up in value.  I made money buying a house and fixing it up (myself, with my hands) and selling it.  Not sexy stuff, but you do make money over time.

But it does take time.   When that snowball rolls down the mountain, it starts off very small and very slow.  You put $100 into an IRA and it doesn't turn into a million overnight - and you get discouraged.  Meanwhile, a guy who used to run a sports betting gambling parlor online tells you that the same $100 could be worth thousands in a matter of days!   Sounds too good to be true!  And $100 later, you find out it was too good to be true.

People do strike it rich, of course, on occasion.  But not from gambling.  Usually they have a business plan, they scrimp and save and they put their effort into a business that takes off.  It is luck in part, hard work in a larger part.  Jeff Bezos quit his job and borrowed money from his parents to sell books out of his garage.  Sam Walton lived on pennies and drive old pickup trucks as he built up his Walmart chain.   Is it fair that his children inherit all that wealth?   Well, that is a good question and why we have (or had) a gifts and estate tax.  If you decry unfairness in the world and vote Republican (or don't vote at all) then I can't help you.   Because it is quite clear which party is in favor of inherited wealth and which is not.  And one party has succeeded in pushing their agenda through.

(A Note to all you Mother Jones readers:  The story of Sam Walton is not a "myth" - yes, he drove a ratted-out pickup truck long after he made his millions.   But he also drove it before then, when he was struggling to start up his business.   He spent long hours studying what people bought and took risks - and often failed - before he was wallowing in wealth.  But long after he became wealthy, he kept his stingy habits.   The very rich don't need or want fancy things - only lottery winners, sport stars, and celebrities blow money on mansions and jets - and they often go broke.   There is a lesson in there, somewhere).

And they will keep pushing that agenda through, so long as "Antifarts" throw Molotov cocktails, which will just insure a Trump victory.  Nothing will change so long as people believe "there really isn't much difference between the parties - they are all insiders!"   And nothing will change so long as people believe Russian propaganda they read on Facebook or whatever.

But getting back to the point, is life unfair and can we legislate fairness?  Life is unfair in a number of ways.  For example, where you are born is not something you get to choose.  I was fortunate to be born in the United States - a wealthy Western county.  And born in a certain time, too - too young for Vietnam, too old for Desert Storm. Folks in other countries and other times are more or less fortunate.  Born in China during a famine?  Bad luck.   Born in the last 20 years?  A different story.   But it illustrates why so many people are trying to migrate, worldwide, to better-off countries.  Where you are born is a big stroke of luck for most people, and if you aren't born in a wealthy country, one can't be blamed for trying to migrate to one.

And of course what family you are born into is not something you have a choice about. Is your family wealthy or poor?  Do they value education?  And some wealthy families do not.  Consider the idiot kid who killed all those people with his pickup truck and claimed "affluenza" - not a real brain trust in that family.  I think his Dad ran a plumbing supply company or something - illustrating that in America, you don't need to go to college to become wealthy.   You may need some intellect to keep your money, however.

But beyond that, there are strokes of good or bad fortune that you have no control over - your health for example.   A friend of mine has been diagnosed with leukemia at age 55.  Rotten luck.  My Sister was diagnosed with breast cancer in her 30's and died 20 years later.  How on earth is that fair?   But it illustrates how life is indeed fundamentally unfair.

Farmers plant crops, and for some it rains and for others it does not.  One is ruined, the other is well-off.   It is one reason why we have commodities futures trading.

Which brings us to economics.  Can we legislate fairness in the world?  Should we?   As I noted before, there is a tension between freedom and fairness.   The freedom people think it is just swell that someone should accumulate a lot of wealth (often at the expense of others who are foolish with their money) and pass it on to their family members in a dynastic fashion - perpetuating unfairness (at least for a while).   The fairness people think all the money should be divided up by the number of people in the world (an increasing number every day!) and thus everyone is Even-Steven.

Sadly, neither system works in the absolute. If you have dynastic wealth, you end up with a system like South Korea where a few family dynasties control vast sums of wealth.   The best a worker can hope for is to pledge their life to one of these companies and do modestly well.   On the other hand, in North Korea, everything is "fairly" distributed under Communism, and everyone starves. As bad as the system is in South Korea, few attempt to defect to the North, while many in the North risk their very lives to go South.  That should tell you something right there.

Economics are not something we can legislate - or something we can legislate very much.   It is a natural force like the wind and the rain that, while you can attempt to control or divert to some extent, inevitably finds their own level. For example, in Communist countries, they try to control markets and set prices. Almost immediately a "black market" arises for goods, where prices are much higher.  This really isn't a "black market" per se but just the real market where goods are exchanged for what they are really worth. You can say the official price of bread is ten cents a loaf, but if you have to wait in line for three hours and end up with no bread, you'll pay $3 to get one.

But we try anyway.  As I noted before, we have (or had) a progressive tax system.   Over the years, Republicans have tried to dismantle it, while Democrats have tried to increase it.   The GOP has done a good job of convincing people that tax cuts for the wealthy will "trickle down" to them.   And people believe it and vote Republican - and then blame Democrats when the Federal coffers run dry and taxes have to be raised.   At one time in this country, marginal rates were over 50% and it was a Democrat - Kennedy - who signed a major tax cut bill.

You see, both sides know that if you tax someone enough, you end up killing the goose that laid the golden egg.  Either people give up on trying to make more money, or they can afford to move assets offshore to avoid taxes - or they move themselves offshore to do so.   You laugh, but at one time, they had marginal rates as high as 70% or more in the UK.   If you are a rock star and are doing stadium shows, you start to wonder why you would bother to do another one, if the net result was zero dollars (or pounds) in your pocket.   You might decide to move to France instead - despite liberal political pronouncements.

The Gifts and Estate tax - derisively referred to as the "death tax" by Republicans, is another example of trying to legislate fairness.   By taxing inherited wealth - pretty extensively - you can prevent or attenuate dynastic wealth.   Of course, as I noted before, dynastic wealth dissipates pretty quickly, as each generation has more heirs, and each gets a smaller and smaller piece of the pie.   Maybe that is why in Jollye Olde Englande they left all the money only to the eldest son.   Maybe. 

But as I noted before, the GOP has targeted the Estate tax and convinced people living in trailers that they will be taxed upon death and that their trailer will not pass to little Bubba and Lurleen.   There is at least a $5M exemption from this tax - we little folks have nothing to fear from it.

Do these sort of taxes insure fairness?  No, of course not - they just attempt to divert the stream a bit, to make things a little bit fairer.   Both sides of the aisle realize that if you try to make everything Even-Steven you eventually wreck the economy.  And if you look at the economies of communist countries, you see that happening.   Once economic "reforms" take place and people are allowed to keep their own money, make their own money, and buy things on an open market, their economies take off.   China is a perfect example - not an entirely free economy, of course, but one that is much less top-down directed than before.   Is life "fair" there?  With some making billions while others slave away at FoxConn factories?   No, but life is a lot better than it was under Mao.

There are, of course, other ways to insure fairness.  In the stock market, regulations can prevent insider trading, insure transparency, and prevent or at least attenuate malfeasance. Back in the 1920's, it was a free-for-all, and people were floating stock issues that were designed from the get-go to be fraudulent.  We enacted new banking rules - my Grandfather helped to draft them.  Republicans have been systematically trying to dismantle them ever since. Obama succeeded after the last meltdown in enacting stricter standards.   Trump has torn them apart.

Under Obama, a consumer protection agency was formed - to protect people from shitty loan deals and credit card ripoffs. Again, the Republicans have been trying (and succeeding) in gutting this agency, to make it toothless, so their friends in the payday loan business have nothing to fear.

But even with a powerful SEC and a reconstituted CPA, people will still invest with Bernie Madoff or take out a payday loan.  There reaches a point where you have to give up on trying to protect people from their own follies.   If someone wants to put down a deposit on a non-existent car, what can you do?   The SEC investigated Tucker, they gave Elio a pass.   Both never had realistic expectations of making cars.

You can try to legislate fairness, just as you can try to clean out a hoarder's house - the next week you'll come back to find out they've filled it back up again with junk, taken out a payday loan, and "invested" in Bitcoin.   You can't save people from themselves.

But suppose you want the world to be a more fair and equitable place?  What can you do?  Should you put on a mask and burn down a McDonald's?   Should you protest in front of the White House and chant slogans and look ridiculous?  Should you vote for Jill Stein or Bernie Sanders - neither of whom have any chance of winning?   You could, but then again, that would be like the hoarder I mentioned in the previous paragraph - doing self-destructive things that are to no end.

We have an election this fall, and there is a real choice on the ballot.  You can vote Republican if you are a proponent of Freedom - freedom to screw your fellow citizen out of his last dollar and freedom to keep your money and give it to your kids and create dynastic wealth.   And I am not criticizing that viewpoint, either.  There is a certain logic to it - you work hard, make money, why should it be given to drug-addled layabouts?  Myself, I could not open a payday loan store, but I've met others who have, and they have no qualms about it.  Are they evil or are others just stupid?  You decide.

On the other hand, if you value Fairness and improved opportunity, then you might want to vote Democratic.   No, the Democrats are not promising free ponies, other than AOC, and she isn't really a Democrat (and Bernie clearly isn't by his own admission).    Things may not change overnight - they rarely do, and when they do, they rarely work out well.   But we will see more fairness as a result - a fairer tax system, a fairer estate tax, fairer regulations and better institutions - oh, and by-the-way, a functional government that doesn't see itself as the enemy.   So then there's that.

Those are the two choices.  Throwing rocks isn't one of them, unless you want four more years of Trump. Whining about unfairness isn't an option, either - it accomplishes nothing.  You have to make the best of the cards you are dealt, rather than trying to change the rules of blackjack.  But you can vote - it isn't noisy or glamorous or dramatic.   But it makes a real difference.

Sadly, in America, most people don't even bother.