Chapter 7 – Absurdity #3 – Concentration of Wealth

Have you noticed that, for the vast majority of people in the United States, they generally work for some modest wage doing some task that our society needs? 90% of the households in the United States make less than $160,000 per year [ref], with the average being $32,000 per year [ref]. These are the “normal people”: the firefighters, school teachers, nurses, cashiers, construction workers, truck drivers, etc. that fuel America’s economic engine. America would grind to a halt without these people. We need these people to do their jobs in order for society to function normally. Take away all of the firefighters and police officers and truck drivers in America, and suddenly we have starvation and total anarchy. These people are essential.

But then, for some reason, there is a small number of people who get paid $10 million per year, or $100 million per year, seemingly for doing little or nothing of any real value in the economy. If we eliminated this tiny group of people, it is quite likely that no one would notice. In fact, things would actually get better in several different ways, as we will see in this chapter. These huge sums of money are being stolen from consumers, and if they were not being stolen, prices would fall across the board for everyone in society. Also important:

  • “The top 0.1% of American households hold the same amount of wealth as the bottom 90%” [ref]
  • “World’s 8 Richest Have as Much Wealth as Bottom Half, Oxfam Says” [ref]

The idea that an economy produces a handful of billionaires, while the majority suffer in poverty, is absurd. Obviously, any reasonable economic system designed for the well being of all of the humans on Earth must solve the glaring problems that the concentration of wealth creates. This statement must be true in any new economic system:

The concentration of wealth must be impossible in the new economic system, both to eliminate the theft that it represents, and to eliminate the corruption that the concentration of wealth enables.

Let’s take a moment to look at how bad the concentration of wealth situation is on planet Earth today under capitalism.

How Corporations Concentrate Wealth

Walmart is a great example of the problem. If you think about it, Walmart is a completely boring, established technology. There is no need for anyone to get rich off of Walmart. A Walmart store, fundamentally, is a big building full of shelves, along with a supply chain that keeps the shelves stocked with the items for sale. People have been shopping and working in stores like this for hundreds of years, so there is no magic here.

Yet Walmart extracts a gigantic amount of money from the economy:

  • Corporations like Walmart are typically ruthless with their workers. Corporations pay workers as little as the market will bear. If we take Walmart (America’s largest employer) as an example, employees are paid so little that many of them are on food stamps [ref].
  • While the workers are impoverished, the executives at Walmart receive astronomical sums of money. The CEO of Walmart receives $25.6 million per year, for example, roughly 1,000 times more than the average worker. If we were to go back in time 30 years, the disparity would be 1/100th of that, but over the last 30 years executive pay has skyrocketed. There are hundreds of other executives at Walmart (vice presidents, directors, etc.) who are being paid similarly astronomical sums. Where does the money for these immense salaries come from? Walmart simply increases its prices and extracts the money from the pockets of every American who shops at Walmart.
  • Meanwhile, Walmart pays a gigantic amount of money to its shareholders each year. The shareholders, by and large, are doing literally nothing to receive this money. They buy shares of Walmart stock and, in return for doing nothing, they receive money for free from Walmart. Walmart is paying roughly $6 billion per year in dividends. $3 billion of it goes to 5 people – the children of Walmart’s founder. Again, this $6 billion comes from raising prices and extracting the money from the people who shop at Walmart.
  • And so on…

And don’t forget executive bonuses, over and above salaries that are already inflated:

Securities industry profits on Wall Street jumped by one-third to $12.3 billion in the first half of 2017 versus $9.3 billion in last year’s first six months. As a result, Wall Street pros are seen taking home bigger bonuses after hauling in an average of $138,210 last year, according to New York’s chief fiscal officer… The average bonus earned by traders, brokers and other industry employees last year is more than double the $59,039 income in 2016 for the median U.S. household [ref]

The Concentration of Wealth then Creates Corruption

Then something perverse happens with these large corporations through the concentration of wealth. The executives amass great wealth, and the corporations amass gigantic wealth and resources, and then together they use this wealth and power to work against normal citizens. Corporations and their executives have armies of lawyers and lobbyists. They have superPACs and campaign donations.

  • They pay influential political figures $200,000 for a 30 minute speech in order to buy access.
  • They can run millions of dollars in ads to influence public opinion.
  • They buy the government through donations and lobbyists, and the government stops listening to rank and file employees.

Through these mechanisms and many others, capitalism has turned America into an oligarchy, where the wealthy few control the government instead of the voters [ref]:

“the wealthy few move policy, while the average American has little power.”

Because of all the lobbying and corruption fostered by these executives and corporations, the minimum wage stays low. Efforts to unionize are squashed [ref]. Workers are moved from full time to 30 hours per week to avoid health care laws. Contractors are used instead of employees. Competition is stifled – It is difficult to compete with Walmart, because of its size and ubiquity.

Not only that, but the same thing is happening at the product level as well. If Walmart (or similar store) sells a pair of Nike shoes, or an Apple iPad, or a box of Kraft macaroni and cheese, all of these products have the same extractive executives making their millions of dollars and paying their billions in dividends as well, to people who are doing nothing of value in the economy.

And then companies like Nike, Kraft and Apple buy their parts and buildings and equipment from companies with the same thing happening. And so on. A tiny slice of the human population – today we call them “the elites” or “the 0.1%” – is stealing trillions of dollars from everyone else in the country, and there appears to be no way to stop them because, through capitalism, they have bought the government and completely corrupted it.

Prices Rise Across the Board, at Multiple Levels

Think about it this way. If you buy a product made by XYZ company at Walmart, do you have any interest as a consumer in paying for any of these added expenses?

  • The huge salaries of Walmart’s and XYZ’s CEOs?
  • The huge salaries of all the other executives at Walmart and XYZ?
  • The huge bonuses the executives receive.
  • The immense costs of the private jet fleet at Walmart and XYZ? (Walmart for example has 22 private jets [ref])
  • The immense costs of the lavish hotels, lavish meals, entertainment, limousines, etc. enjoyed by the executives of Walmart and XYZ?
  • The huge dividends paid to the shareholders of Walmart and XYZ? (Walmart pays $6 billion in annual dividends)
  • The atronomical sums spent on stock buybacks to further enrich shareholders (Walmart spent $9 billion on stock buybacks in 2016)
  • The giant advertising budgets?
  • The giant lobbying budgets?
  • The corporate parties, golf tournaments, retreats, junkets, etc. for corporate executives?
  • And so on?

No one wants to pay for all of this overhead, because it has nothing to do with the production of the product. And this does not include all of the overhead at the credit card company when you paid for the item, or all of the overhead at the bank you used when you paid the credit card bill at the end of the month, and so on.

What difference does it make? What if all of this overhead and extraction for executives and advertising and parties and jets and lobbying and dividends is just the way it is? It matters because the extraction is happening throughout the economy at every different level. The extraction of wealth happens at so many points in the economy that is adds up to gigantic overhead that must be supported by everyone else on the planet. It is theft, plain and simple, and it is happening throughout the capitalistic economies of the world for no reason. This theft is also increasing. Executive salaries rise inexorably [ref]. Walmart’s dividend has increased every year for 43 straight years. And so on.

No Escape

The whole process is insidious, and is hurting nearly everyone on planet Earth. All of the wealth being siphoned off by the top 1%, “the elites” as they are now called, the oligarchs, the plutocrats, represents a gigantic amount of money, and gives the executive-class a huge amount of power/control over every aspect of the world’s governments.

If you live inside the American economy today, you have no way to escape from these executives, who are extracting their trillions of dollars.

  • If you are buying a product at Walmart, it automatically means that the executives at Walmart extract their billions, and the executives at the product manufacturers extract their billions, and the executives at the parts suppliers for the manufacturers extract their billions. Then the credit card company and the bank take their tolls as well.
  • Want to fly to Orlando for a vacation? The executives at the airline extract their billions, and so do the executives at Boeing, and the executives at the fuel company, and the executives at the theme parks, and the executives at the company that made your luggage, and the executives at the different clothing companies that make the clothes inside your luggage, and so on.
  • If you use your car to drive anywhere, the executives at the car company have extracted their billions. The executives at the fuel company (Exxon, Shell, BP…) have extracted their billions when you bought gas. The executives at the car insurance company extract their billions with each insurance payment. The executives at the bank extract their billions through your car loan. And so on.
  • Want to use your smart phone to make a call? The executives at Apple or Samsung extracted their billions. And the executives at Verizon or AT&T extracted their billions, etc.
  • If you get sick and need to go to the hospital, it is the same situation. The executives at the hospital extract their billions, as do the executives at the drug companies, and the executives at the medical equipment companies, and the executives at the insurance companies….

It is a huge, ridiculous economic load that the executives force all of us to bear whenever we participate in the economy in any way. And then, once the executives extract all of this wealth, they buy the government so that even more wealth can be extracted at the expense of everyone else in the nation.

Verizon is an interesting case and provides an example of just how bad it gets [ref]:

“Verizon did a $5 billion stock buyback last year to boost its stock price, on top of an already generous dividend. If that money had instead been divided among 180,000 workers, it would have come to $28,000 per person — showing that there’s plenty of profit to be shared across the company.”

The case of the Walton family provides another example [ref]:

“Meet the Waltons. They inherited control of Walmart. With over $150 billion, they are by far the richest family in America… Every day, the Waltons collect $8.5 million in Walmart dividends ($3 billion per year). That is enough money to buy an average American house every hour.”

The Waltons receive this money for no reason other than the fact that they are the children of Sam Walton. Meanwhile, many Walmart workers use SNAP (food stamps) because Walmart wages are so low. [ref]

Mylan, the maker of Epipens, where the price rose from $100 to $600 for no reason, is another great example [ref]:

“Last year, furor over the skyrocketing price of Mylan’s life-saving EpiPens hit a fever pitch. Lawmakers seethed, parents broke into tears at pharmacy counters, regulators opened investigations, competitors raced to come up with cheaper alternatives, and Mylan’s stock tumbled 29 percent. Nevertheless, Mylan chairman, Robert Coury received compensation of $97.6 million in 2016. And that doesn’t include an additional $66.3 million in other retirement benefits and payments that Coury received last year as part of a transition from executive chairman to a “non-employee chairman role.” Coury will continue to receive a $1.8 million per year “cash retainer” as part of a deal made with Mylan last year.”

Tim Cook’s situation at Apple is another case [ref]:

“Mr. Cook’s total 2016 compensation dropped to $8.75 million for the year… but the number is somewhat misleading because of the big restricted stock grant he received in 2011. Last August, 1.26 million shares vested and were valued at about $135 million. Mr. Cook has an additional 3.5 million shares that haven’t vested and are worth about $413 million based on Friday’s stock price. About 560,000 shares will vest each year between now and 2021, and the 700,000 remaining shares will vest in 2021.”

The absurdity of this situation is indescribable. Tim Cook could die tomorrow (just like Steve Jobs did), a successor would instantly take his place, and Apple would not miss a beat. In a company with 100,000+ employees, the contribution of any single human being is minimal.

Why has this process, wherein the executive class is extracting trillions of dollars from consumers at every turn, become so out-of-control? The executives extract this money because the government and legal system allow it. The capitalistic system on planet Earth today is designed to allow and promote this extraction of wealth. The government has stopped caring about “normal people” and only listens to the executives today [ref][ref]:

“American democracy is an illusion. The people do not govern. Politicians respond almost exclusively to the desires of special interests and the wealthiest citizens.” [ref]

The new economic system that replaces capitalism must eliminate this insidious concentration of wealth, and the accompanying poverty it creates for everyone else. We must eliminate enormous executive salaries and the idle wealthy class, along with their extractive and impoverishing techniques. Another goal must be to treat everyone – all humans on the planet – equitably, perhaps for the first time in human history. No longer will there be people living in near-slavery conditions making the shoes, while the executives at the shoe company take home tens of millions of dollars and pay shareholders billions of dollars. Everyone will share in the rewards of the new economic system.

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