(noun, etymology Dutch from ‘boedel’: estate, possession, inheritance, stock.). 1. Crowd, pack, lot, as in ‘the whole boodle.’ 2. a. Counterfeit money b. Money acquired or spent illegally or improperly, particularly when used in bribery for political purposes. 3. Slang for money in general.

The Wealth Conspiracy

Posted on: May. 8, 2012  |  By: Ronnie Kahn  |  Category: General

It’s in your food supply.  It affects your health.  The Fed Chairman does it.  Robin Hood did it.  Dying people must deal with it.  The 1% get their share but so do single Moms.  You can find it in merit scholarships.  It was behind the Cold War.  It pits the old against the young and there is a whole industry in Washington fighting for inclusion or exclusion for their employers.  It puts the middle class at odds with both rich and poor.  It’s passed along to you by cheaters, shoplifters, and free-riders.  It’s the price you pay.  It’s everywhere but yet you don’t really know it is there or it is happening to you.   It creates or maintains the winners and punishes the losers.  Welcome to the insidious world of wealth redistribution.

Money is just a transfer.  I give to you for something in return.  Sometimes money is a transfer of wealth as when a gift is given.  When money transfers to some in one group and not to others, we have what is known as wealth redistribution.  To put it in terms of who foots the bill, when one group pays for something that benefits another group that has not paid for it, we have the driver of all social policy, wealth redistribution.  Every facet of our world is embedded with it from the largest social institutions on down.  The ease of transfers has grown right along with this redistribution as the internet now allows one party to transfer to another without the parties having to be face to face.  Even more unique to transfer and the internet are Cash Mobs which is kind of like buying local and allows a selection of a local establishment where everyone rushes off to support it by buying up gobs of things on the day of so chosen mobdom.  With transfer so easy, perhaps that is why many of us just expect wealth redistribution to be the order of the day.  With the internet, a liberal take on this redistribution definition blurs somewhat similar to TV advertising.  When you surf the web, a website places a cookie on your computer.  That cookie then uses that information to tailor a banner ad specifically around the content or related content gleaned from the original website content.  In a sense, if that target ad triggers a purchase by you than your group of website visitors is subsidizing the other content that all of us view on the web.

My son recently received a few financial aid offers from the colleges he applied to.  Most of the schools started out by showing their Cost of Attendance at the beginning of the letter.  These days you get used to seeing fifty big ones staring back at you.  While you sit with a glazed look in your eye wondering whether this whole college thing is worth it, you continue to read on.  Well, you find out that this Cost of Attendance is what is commonly known as a sticker price, meaning you see grants, loans, awards, scholarships, and work study whittle away at the total cost.  Sometimes though there is not much whittling going on.  One of my son’s prospective schools had something that no other school had on its list of subtractions.  Next to the usual grant given by all the schools was another line.  It was an achievement award, otherwise known as a merit scholarship.  The translation of this line should have read: “we really do want you.”  It was this schools way of competing with the next school by nudging us into a decision offering us more aid money.  Many kids will even end up taking a school up on this merit offer even while that school is not their first college choice.  After all, over four years that little award can amount to fifty, sixty, seventy grand, and so on.  Why does the price of college keep going up so much each year?  Well, here is one of your answers.  For every kid that is offered one of these merit scholarships, the school counts on others to pay closer to the full tuition.  In other words, everyone else pays those awards as the gross cost keeps going up in order to compensate.  The reason gross cost goes up is so they can offer awards to some students while others pay closer to the full fee, in other words, wealth redistribution.

Congress, the president, and the lobbyists that they feed off of make wealth distribution part and parcel of the government’s role to tax and spend.  This obviously creates tax rules providing advantages to such things as homeowners, airlines, and corn subsidies for ethanol.  By using fiat money, meaning the government just issues the stuff and not the gold standard where there is actually something hard backing money, the government can print more money than it has.  This means that wealth redistribution can be redirected in many more and complex ways.  It means that current workers not only pay for retirees on social security but Chinese bond holders do too as government bonds keep getting issued and more debt accrues.  This becomes a source for inflation.  Then the Fed comes in and tries to manage inflation.  This is supposedly done for the economy as a whole but it still creates winners and losers.  For a theoretical example, for all those homeowners that are underwater on their mortgages, allowing high inflation would put their home values higher too while the mortgages remained where they were.  This would get these homeowners off the hook.  Of course, those who have assets while living on a fixed income would be happy too since the interest on their assets pays more, while consumers would be taking it on the chin as they pay more for goods and services.  By the Fed’s keeping interest rates low, the wealth distribution is favoring creditors over debtors.  The Fed’s whole job is basically wealth redistribution.  In the banking crises, the Federal government had to do their “too big to fail” dance to prop up some institutions and not others.  This was wealth redistribution on steroids and was supposedly done for the good of the economy as a whole.

Now that the recession has taken its toll on tax revenues, it has exposed just how much debt and borrowing governments have been doing all these years.  Both Europe as well as each U.S. taxpayer knows fully well that this level of borrowing is unsustainable.  This type of wealth redistribution pays the current generation and their retirees while doing so at the expense of our children.  The debate now rages over whether to make draconian austerity measures to pay down the debt versus still borrowing to stimulate growth.

In my last blog, The Big Buck Theory (April 12, 2012), we discussed that the financial universe expands as big firms naturally keep getting bigger through economies of scale and swallowing up smaller firms with pin factory accuracy.  On the other side, the universe contracts as the invisible hand keeps dragging us back to stability.  At the same time, financial evolution expands the universe as new technology and growth are the new financial engines that keep everything growing.

The problem with wealth redistribution is that money concentrates around power and power buys influence.  This type of “maldistribution” just feeds on itself until it consumes anything and everything with it.  What gets lost in this formula is not only fairness but that the engine of all things financial are the small entities, some that break off from larger ones, which then starts from scratch and drives innovation and development which leads to new jobs, work, and wealth.  In any form of wealth redistribution, we must maintain incentives and avoid a situation where the big just keep getting bigger but are not allowing these smaller entities to provide the conditions to grow, innovate, develop, and flourish.  Without cultivation of this type of development, economies stagnate as new jobs are not created.

When you are fighting for your share of the redistribution or can’t make any sense of fairness or sustainability out of healthcare costs, social security solvency, budgets, taxes, lobbying efforts, energy profits, wealth inequality, interest rates, and those who game the system, you are most likely in “talking to the hand” territory.  Besides the proverbial hand, you are in Invisible Hand territory as well.  Remember the Invisible Hand is supposed to work in a way that those pursuing their self-interest will end up helping society as a whole.  However, the evolution of finance that keeps bringing us bigger pin factories and Invisible Hand wealth redistribution is not an endless cash cow.  There is really only one sacred cow and that is development and innovation coming from the bottom up.  This is what we all should be promoting and defending and encouraging.  It is this side of things that gets left out of these social debates on wealth redistribution. For any society to thrive, you need a culture of risk takers.  If you squelch that part of financial evolution then there will be no wealth left to redistribute.

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