Monday, March 11, 2013

The Rich Get Richer Part 2.: A More Fair And Natural System

This presumes you read part 1.

This is the second story mentioned in “The rich get richer” post. This one removes the forces of money, interest and capitalism. It instead focuses on the labor part of the equation. Where the version of the story concentrated on an auction outside the bakery, this time we concentrate on the inside workings of the bakery. It shows how, when that is removed, a more natural driving force of creativity and invention results. It is a much shorter story where charts won't be required. (But I could if you really want one.



Back at the bakery

So, we return to our bakery. The same set up as in the previous post. A baker makes bread for a community of 10 families. All 10 have a single provider, and require one loaf of bread a day. The 10 people are exactly the same in every way. In this case though, the baker needs 5 people to work for one feverish hour every day. The work is hard and draining, but everybody is capable of doing it. He pays a loaf of bread to every laborer who works. The baker has a short term memory problem and can never remember from day to day who worked for him. (This is to remove an prejudicial treatment or cronyism from the equation.) So every morning, he opens up the back door and has all 10 pick numbers from a hat. The first 5 come and work for their bread. The baker represents all the possible employment in the system. The bread represents the basic needs to have a socially acceptable “humble” lifestyle in the community. Those who are strong and motivated will get picked the next day or the next day, just so long as they are there.



Innovation in a capitalist system you say?

US style capitalism is great for solving a problem once. (Take a gas engine or A/C current for example.) After that, even if you come up with a better idea, the buy in is so overwhelming. People who are profiting from the old system are motivated to make that truth even more so. The options for powering our vehicles are numerous, the ability to power our house with wind and solar are available, but they are too costly from most people. Plus, we have been conditioned to believe using them makes us different, weird. “That guy is driving a hybrid.. what a pussy!” “I don't want to see my neighbors windmills from my house!” or “ you want to live in a smaller house or on a boat and work a few hours a week to provide your needs?” Capitalism will not suffer this mentality, It needs to germinate consumers and overly reward the competitors.



The “innovation” in a natural system comes from the people who didn't get picked. With an extra hour and an extra incentive, they distract themselves from their hungry belly. Or it comes from those who did, but with free time and a passion, they used the other 23 hours to invent an airplane, light source, telephone in their garage. They have their bread, they have their strength, they just need some meaning in their life. The community prospers, evolves, and moves forward as one.



Disability

Any inequality is provided by nature. It sucks, that is the reality, but if you are born with no arms, you are not going to be able to pick a number. You will probably remain a burden on your family or taken care of by the community for the duration of your life. That is a true disability. (In our culture the inability to contribute even with some normally crippling disadvantages has been reduced.) A just and fair culture will have to decide what to do with their physically and mentally disadvantaged. That is what makes us human and not like the other animals. Though I look around and wonder if that is true these days.



Welfare system for the unlucky, not the lazy.

Currently the capitalist welfare system rewards people for making bad decisions. Make no mistake that it is because places like Wal-Mart and McDonald's benefit from that situation. Likewise China is raking in the US wealth because of it. There wealthy have always found benefit in keeping slaves and indentured servants. It doesn't not (more do the people that opposed it) discern between the lazy and the unlucky. US capitalism does not recognize that a kid being born to a crack head mother in the projects has not the same advantages as the one born to a hotel chain mogul. It is one thing to allow nature to make sure that doesn't happen in the first place and provide disadvantages when it does, a completely different thing when the government encourages it with payment.



As in the disability system so is the welfare system geared towards what is natural. It is good to help you neighbor who has had a run of 3 or 4 days without bread. That is just unlucky in the context of this thought experiential. Bad luck is minimized by equality and humanized by compassion. So, it is good to help, but when you neighbor stop showing up and expecting you to just give him part of yours, that is immoral. The community will have to allow that family to suffer the consequences. Somebody recently said to me, “Starvation is a powerful motivator.” I tend to agree for the most part. If the human mind perceives no hope of getting out of a situation, it will resolve to starvation as a form of suicide.



Who controls the wealth disparity?

So who controls the wealth in this version? The baker? No, not really. If he gave less than a loaf, his community would starve and become too weak to help. Then he too would starve. They would either eventually turn on him or leave to find another baker. The individual laborers, do they set the gap? No, they just show up, and with a statistical advantage, they pick from the hat. But they have to show up. The natural system set the price. There is no need or use for bread beyond your basic needs. There is no way to get a second loaf. No way to extort the money for it from your neighbor. This version works more like a family. What was that thing they call a large family of people who support each other. I think the original inhabitants had such a community.



The perfect system is one that isn't perfect

In a perfect system, there would be a need for 10 laborers and 10 loafs of bread would be produced. But that is in contrast to human (or any living thing) nature. That would be stagnant. Another family would move in. Then slight unrest would begin this system as described. The reality is that it is healthy for a community to have just under its perfect amount of resources, as it will drive innovation. Just under is important. There needs to be hope, a way to envision making the system better, a way for a family who is unlucky to see a way out. Too much disparity (as shown in Part 1) causes “despair” and people just give up. There must be hope. Expecting the bread maker to make more or set up another bakery is silly. You are relying on his desire to take his excess time and solve something that isn't a problem to him. He might, sure. He has the knowledge, that is true. But that is only part of the equation.



“What isn't natural is artificial. What is artificial consumes finite resources. What isn't natural isn't sustainable. What isn't sustainable, eventually collapses. It has to.” - (Paraphrasing something said over a few different conversations with my buddy Pete Cammarata.)




Tuesday, March 5, 2013

Petition on wage reform and minimum percentage idea

The White House offers a service that they will address any issue that can get first 150 people through email and FB alone and then it is opened to the public for 100,000 people visiting the website.  If nothing else it would be nice to have it addressed by Obama himself.  For those not familiar I have long advocated forcing a company to pay its lowest paid employee at least just 1% of its highest paid employee.  You pay your CEO $10,000 then pay your janitor 1% of that. He has to be worth at least 1% of your CEO's efforts.  
vote for it here.  Also Please forward it to people you think might be supportive of this idea!

Minimum Percentage Petition to White House web tool

If they really wanted to Ballance the Budget

Sunday, March 3, 2013

The Rich Get Richer. The Futility Of Being Poor In The Capitalist system.


   Let’s call it “The Alice in Wonderland principle”. Sometimes while trying to understand and explain something small, one stumbles upon something much bigger.  This happened to me writing this post. I set out to explain how in a community where there is no money, Only the barter system to acquire needed goods and services, people are truly equal.  What I found was a way to graphically represent the mechanics behind the fact and statement “The rich get richer”.  This is true and in the following text and spread sheet is how I arrived at that conclusion using nothing more than math. 


 Some Basic Economics Laws. 
 First, “Value” is defined as the highest price of a good or service that a consumer has both the desire (willing) and resources (able) to pay for it. Imagine everything you buy at a store, online, or from a private citizen is a giant auction.  For one single Item, the highest bidder takes the “widget”.

 “Equilibrium Price”- The state in which market supply and demand balance each other and, as a result, prices become stable. Generally, when there is too much supply for goods or services, the price goes down, which results in higher demand. The balancing effect of supply and demand results in a state of equilibrium.

The Equilibrium Price is found in a market where there are multiple consumers and multiple providers using the “Law of Supply and Demand” (that is right, they are natural “Laws”, not merely suggestions).   There are 4 of them.

1.If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
2.If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
3.If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
4.If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.

“Thought Experiment”  - The Baker and his daily bread.
“Thought experiment” - "the most ancient pattern of mathematical proof". Thought experiments have existed before Euclidean mathematics, where the emphasis was on the conceptual, rather than on the experimental part of a thought-experiment.”  “Schrödinger's cat” is one of the most famous. As with all experiments, the idea is to isolate just one control.  The use of analogies and figures to represent something larger is common.  People attempting to disprove or reject the conclusion of a "though experiment" often try to parse these generalizations.  Sometimes they are accurate to do so and point out an important constraint that actually changes the results.  Others try to re-expand the simplification that called for a use of an analogy. For example, In this example could say, "But people can change their earning".  Which A) forced one to consider deeper and more complex economic principles that were by designs meant to be simplified and B)  minimizes the fact that the graph shows that unless you make giant changes in your income it doesn't matter.   This intentional attempt to cloud the point is to the thought experiment what somebody saying to B.F. Skinner "but humans are not rats".  The math and the principle are sound no matter what levels you wish to apply them at.

Analogies, Where Things Mean Different Things
In this experiment we have a few “figures”.
 “Baker”- equals the sum of all the employers in the economy and every job available.

 “Bread” or “Loaf” – The Sum of all the basic needs of any given family unit. It has been proven that the there is a point where people would feel an overall sense of well-being and earning more money loses its “return”.  A point where those things, such as a warm, well kept, and secure living space, adequate nourishment, and the fear of external threats are minimal can be determined by assessing those places within 100 miles of one’s birth and looking at property values, school district graduation and college grad rates, crime type and rates, teen pregnancy, single parenthood, per home medical costs, and ownership to mortgage ratio.  Take the average of the top 10 with the most favorable ratings, and average their “food shelter and clothing rates.  That “quality of life” is symbolized by “Bread Loaves”.

“Top %” is meant to symbolize the wage breakdown.  The reality is that the disparity between the top and bottom wage earners in the US is much much greater. 

"Day" is a time period of income. Could symbolize a week, a year, a lifetime.

All The World Is Indeed a Baker’s Auction
  This was originally the 2nd version of a story I will re-post later. I meant for it to show how those at the top control the choices available of those at that bottom. I used a sample of 30 people in that version to demonstrate some other unique points.  In this version, I will use 10 to represent 10% breakdown in income brackets.

  The Set up.: There is a community, remote and undisturbed by any other outside force.  There are 11 families in this town including the Baker. In this town, there is a bakery that has the capacity to put out 7 total loaves of bread.  (However, that equates to only 6 available since the baker takes one for himself every day.) Because of the location needs and the cost to build, there is no other way to build another bakery.  However, to maintain an acceptable standard of living and quality of life, each family must have 1 loaf of bread per night.  The 10 other families all earn 10 different wages from $10 per day down to $1 per day.  Every morning the baker opens his doors and starts the bidding. Like any auction, the guy with the most money to buy with sets the price.  (In an auctioneers voice) As the bids come in, “$1, then 2, $2 then 3, Now $3 give me $4, got $4, can I get $5, Now $5, who will give me $6… Anyone..  Anybody give me $6?  Sold to ‘Top Ten’ at a price of $5. How many do you want?”  That first day, the top 6 people get their loafs of bread at a rate of $5.  The bottom 5 go home.  But the next day, everything changes.  This graph shows that The price goes up.  The rich always get bread and always save.  I went on to extrapolate this data out.  At day 9, a turning point occurs in this example.   On that day, the “Ten” has enough money to buy 2 loaves at the current price. The poorest “hundred” were finally going to get a loaf that day, but instead, it was snatched from them.   What “Ten” chooses to do with that money and loaf can send ripples and effect the choices of all those involved.  Does he sell it the next day adding supply and driving the market down?  Does “10” offer the loaf to a family who doesn't have the money that day, for an interest payment spread out over the next few days?  Any way you look at it, the most wealthy take control of the entire economy at that point. Everybody’s liberty and happiness is based upon what they chose. BUT, they are removed from acknowledging it by saying, “I am just buying stuff at market price.  Everybody has the opportunity to buy at the same price I do.”  Below is the graph of the first 9 days. 

A final thing to be noted here is that the poor don't actually save the money they don’t spend.  In reality, if they have enough income to buy 40% of the total needed to sustain, then they spend it on 40% of a loaf. They continue to play the "catch up" game.

Continue The Experiment Yourself
 Now apply some of the most common "conceptual beliefs" about an auction based economy to this.  (I will send anybody my spread sheet if they request it.)  Here are some questions to ask

What happens if we tax everybody equally? add a "0" to the end of the wages, and tax them at 10%.

What if we let the "investors" keep more of their money? 

What happens if another bakery is opened and the top earner wins the bid and buys as much as he wants?

What happens to the overall income of the baker if you introduce another bakery and set his operation costs at $30 per day?

What if loans take place?  The poor guy on "Day 9" is offered the bred snatched away from him by the rich guy for $10.  He will have to pay the next 2 days wages to "Ten"? 

Last, the point I was trying to make, what would have to happen to in order for "Hundred" to just get to "Fifty" and what happens to "Fifty" when he gets there?





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