This is the fourth of my series of blog entries on economics.
There are two reasons why the wealthy in America have managed to increase their appearant wealth. First, having massive capital already, they can take advantage of the capitalist system to maintain their high social position. Second, inflation devalues the dollar over time, so that being merely a millonaire is no longer such a big deal. It seems obvious that people obsessed with their personal wealth are not that concerned with merely being well to do, but being richer than someone else. Thus, people like Donald Trump and Bill Gates make themselves ultra-rich by their own egomania rather than out of any need.
Not only does the massive accumulation of wealth in so few hands deprive millions of others of the chance to be as wealthy, but it hinders economic growth by the limiting of cash flow.
Imagine an economy of ten people, all millionaires buying and selling to each other. We may also have an economy of ten people who have $100 each, also buying and selling to each other. Thus, the economic potential of the first economy is about $10 million, while the economic potential of the second one is only about $1000. But if the millionaires hold on to most of their money and refuse to spend it, then the economic activity is much lower than it can be, while the people with only $100 each who spend their money freely produce a great deal of economic activity relative to their limited financial resources. Money that is held in accounts and not used for anything is useless to an economy. It is only used when it is spent or invested.
With so much money being held by the wealthy, the Federal Reserve tries to produce more to keep the economy moving. But this causes inflation, which over time hurts the poor and the middle class. So what is the best solution?
I believe that is exactly why tax rates should be far higher for the wealthy than for the middle class and poor, to liberate that excess money and return it to the economy once the government has spent it. At the same time, the Federal Reserve must stop printing and coining any new money for a long period of time and gradually take out most of the money that is there, releasing some of it only occationally later to replace worn out bill and coins. The less money in an economy, the greater its value becomes and thus the buying power of the lower classes will rise enormously. Prices will fall until pennies will be of value once more and being a millionaire will also have meaning again. And there will be NO billionaires at all!
The minimum wage in the United States is $6.55 per hour. What if a corporate executive is paid about $200 an hour? Doesn’t that sound like a lot? No, not really.
A typical work day is about eight hours long. Thus he’d be paid about $1600 a day.
A typical work week is about five days long. Thus he’d be paid about $8000 a week.
A typical work year might be 50 weeks long. Thus he’d be paid $400,000 a year.
Assuming he works that job for a lifetime, about 50 work years, he earn a total of about $20,000,000.
That’s only $20 MILLION over his lifetime. Not billion. Just 20 million.
So how did we end up with so many billionaires? Because they used the economy unfairly to enrich themselves at eveyone else’s expense. And that limits economic growth. These exectives became parasites on their own companies!
If you cut the pay of these executives to a reasonable limit, then the company will be able to hire and pay more workers, increasing productivity. Profits for the company will actually rise as a result.
And what benefits those companies benefits the rest of us.