Thursday, October 25, 2012

Will Voters Choose Less Generational Income Mobility?


The other night I was watching an episode of the History Channel's fascinating--albeit extremely elitist-oriented-- series, The Men Who Built America. I tuned in just when they were talking about one of the most abhorrent of America's avaricious robber barons (widely acknowledged the most hated man in America), Henry Frick-- kind of a David Koch/Mitt Romney of his day-- who was vilified for an utter lack of morality. Founder of the notorious South Fork Fishing and Hunting Club in Johnstown, Pennsylvania, Frick demanded the earthen damn holding back Lake Conemaugh be structurally weakened to allow the widening of a road that would allow his extra-wide carriage to pass more comfortably. That led directly to the Johnstown Flood of 1889, the worst man-made disaster in American history until 9/11. It was awesome for Frick's carriage but 20 million tons of water was released in a storm and the city of Johnstown was virtually wiped out. 2,209 people were killed and although it was clear at the time that Frick and his fellow robber barons from the South Fork Fishing and Hunting Club (which owned the damn) were guilty of manslaughter, they all managed to avoid any punishment at all. I couldn't find the History Channel portrayal of Frick online yet but up top is a History Channel documentary on the Great Flood itself which does make reference to whether it was the robber barons from the South Fork Fishing and Hunting Club who caused the disaster or if it was "a gift from God."

Today, Johnstown is part of PA-12 and represented by corporate whore Mark Critz. Some people never learn. And it isn't just the folks in southwest Pennsylvania who haven't learned the lessons of plutocracy. Yesterday I ran across Charles Hugh Smith's blog, OfTwoMinds, where I found Generational Wealth and Upward Mobility, making the point that advanced democracies have lost upward mobility... something sure to accelerate if Romney and Ryan are elected and their agenda enacted.
Both capitalism and democracy promise the opportunity for upward mobility. Capitalism offers upward mobility to anyone with a profitable idea or productive skillset and work ethic. Democracy implicitly promises a "level playing field" of meritocracy, where talent, drive and hard work open opportunities for advancement.

Crony capitalism offers wealth to the class that already possesses it. Feudalism bestows "rights" to wealth to a favored few. In a way, upward mobility is a real-world test of a nation's economic and social order: if upward mobility exits in name only, then that nation is neither capitalist nor democratic. Stripped of propaganda and misleading labels, it is a feudal society or a crony-capitalist economy masquerading as a capitalist democracy.

...Most people who don't have physicians in their nuclear family or close circle of friends think that an M.D. is the ticket to upward mobility. In many cases, this is an exaggeration. I just received an email from an M.D. who stated that adjusted for inflation, his highest earnings were 30 years ago, in 1981. Others write to tell me that the hundreds of thousands of dollars in student loans that those without wealthy parents must borrow to attend medical school take many years to pay off, even with salaries that most people consider generous.

This is an example drawn from what most assume is the top-level "surefire ladder to wealth." We could look at non-Elite graduates of Ivy League universities (i.e. the non-Elites accepted in the name of diversity) and see how they're doing in terms of wealth accumulation that can be passed down to their kids. Sure, they're "doing well" in most cases, making a comfortable living, but are they making enough to pay off their student loans, own a home that isn't 90% owned by the bank and accumulate enough savings to not only pay their children's education in cash but also help them buy their own home with at least 25% down in cash? If not, then they're not really accumulating wealth that can be transferred, they're simply consuming it.

...Correspondent Chris Sullins added transferable generational wealth to my short list of "what makes someone middle class": Priced Out of the Middle Class (June 28, 2012). How many American households can pay for their children's university education in cash and then fund their purchase of a home?

Here are the eight "threshold" characteristics of membership in the middle class:

1. Meaningful healthcare insurance
2. Significant equity (25%-50%) in a home or other real estate
3. Income/expenses that enable the household to save at least 6% of its income
4. Significant retirement funds: 401Ks, IRAs, income property, etc.
5. The ability to service all debt and expenses over the medium-term if one of the primary household wage-earners lose their job
6. Reliable vehicles for each wage-earner
7. Hard assets and cash that can be transferred to the next generation, i.e. generational wealth.
8. Ability to invest in offspring (education, extracurricular enrichment activity, etc.).
How many households meet these criteria? Not many. This is now a list for the upper-middle class, the top 10% who earn in excess of $150,000 a year. But even households with significant incomes and inheritances from their parents are losing items on this list.

What I am seeing, once again anecdotally, is the consumption of family wealth as America "eats its seed corn." Families with savings are "investing" them in $120,000 per child college educations that may not qualify the young person for a job that pays enough to duplicate their parents' purchasing power--or a job at all.

Having lost their corporate job, they're burning $12,000 to $15,000 annually buying their own health insurance.

Having drunk the debt-is-cheap Kool-Aid, they're heavily indebted, and much of their income goes to debt service and taxes.

Families that had significant cash wealth in 2000 are burning through that cash at an alarming rate. By the time the children are all educated and back living at home or in their own apartments, then Mom and Dad have to buy them vehicles, pay their dental bills, etc. because Junior doesn't earn enough to actually support himself.

The wealth that could have been transferred to the next generation has been consumed supporting a "middle class" lifestyle and providing the next generation with what was once the basis for advancement: a university education, healthcare insurance, a reliable vehicle, etc. Now that jobs are hard to find and compensation is low, the next generation still needs the accumulated wealth of the household to get by.

That is not upward mobility, it is downward mobility, on a vast and largely unnoticed scale.

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