Scott Walker, Zombie Killer

The 1%, the zombies and the rest of us...

How about that Dow? Up 286 points yesterday. And gold up $17. Markets are counting on their hero, Mr Benjamin S Bernanke, to come to the rescue. They can practically hear the printing presses warming up and smell the fresh $100 bills rolling off.

And where does all the money go? Long time passing...

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Where does all the money go? Long time ago...

Where does all the money go? Gone to rich people every one...

When will they ever learn? Oh when will they ever learn?

But nobody seems to make the connection. Only here at the Daily Reckoning will we give it to you straight: The working classes made substantial gains until the 1970s. Then, wages went flat for the next 40 years.

Wealth was shared out fairly evenly too until the 1970s. From Wikipedia: "... data from a number of sources indicate that income inequality over all has grown significantly since the late 1970s, after several decades of stability

"A 2011 study by the CBOfound that the top earning one percent of households gained about 275% after federal taxes and income transfers over a period between 1979 and 2007."

What happened in the 70s that changed things? Take a guess. The feds changed the money. From a money that was limited because it was connected to gold the new money would stretch as far as the feds wanted to pull it. In the event, they used it to increase US credit outstanding 50 times since the 60s. Total US credit didn't exceed $1 trillion until 1964. Over the next 43 years it rose to over $50 trillion.

Where did this new money go? Well, to lots of people all over the world. But more of it went to rich people than to anyone else.

And now everybody's gunning for the rich, for the 1%. And what was their crime? Didn't they just get lucky?

But the complainers act as though they did something wrong. As if making money was wrong.

And even if that were true, it doesn't address the real issue: how come the 1% got to make so much money?

Even very rich people themselves don't know. And very smart people, such as Nobel Prize-winning economists seem to have no curiosity about it. They just think it's time for the rich to give back':

The 1 Percent's Problem

By Joseph E. Stiglitz, Vanity Fair

Let's start by laying down the baseline premise: inequality in America has been widening for decades. We're all aware of the fact. Yes, there are some on the right who deny this reality, but serious analysts across the political spectrum take it for granted. I won't run through all the evidence here, except to say that the gap between the 1 percent and the 99 percent is vast when looked at in terms of annual income, and even vaster when looked at in terms of wealththat is, in terms of accumulated capital and other assets. Consider the Walton family: the six heirs to the Walmart empire possess a combined wealth of some $90 billion, which is equivalent to the wealth of the entire bottom 30 percent of U.S. society. (Many at the bottom have zero or negative net worth, especially after the housing debacle.) Warren Buffett put the matter correctly when he said, "there's been class warfare going on for the last 20 years and my class has won".

That's about as close as Mr Stiglitz comes to analysing the situation, as if it were the result of class warfare'. He doesn't seem to realise that Buffett was joking. Or should have been.

Instead, he goes on to describe how wealth inequality is a problem: because people without money can't consume... because it leads people to become zombies (rent seekers rather than producers), because it is 'unfair' and because it creates mistrust in the society, leading to dysfunctional institutions.

Then, he offers a solution. He pitches it to the 1% in terms of self-interest: "When invited to consider proposals to reduce inequality by raising taxes and investing in education, public works, health care, and science put any latent notions of altruism aside and reduce the idea to one of unadulterated self-interest. Don't embrace it because it helps other people. Just do it for yourself."

He doesn't explain how getting 1% of the voters on your side would make much of a difference in a general election. Presumably, the electorate or its representatives must approve these proposals. Nor does he bother to tell us how spending more money, or "investing" as he puts, on more education, more boondoggles and more health care will cause wealth to move from the 1% to the 99%. After all, the feds have been lavishing money on those programmes for the last 30 years just as income equality increased!

Nowhere did they spend more money than in the Zombie City itself, Washington, DC. For every dollar Washington pays in taxes it gets back $5 from taxpayers elsewhere. And nowhere is there greater income inequality than in Washington.

More news

Well here's a little good news.

The zombies were dealt a setback this week. Wisconsin's governor, Scott Walker, beat back the public employees' unions in a recall election.

We don't usually touch politics here at the Daily Reckoning. We don't have a pair of rubber gloves thick enough. But when a politician balances a state budget without raising taxes it is noteworthy. It is even more noteworthy when he has cut back on zombie expenses and then is able to hold his own when the zombies counterattack!

It might even lead some observers to imagine that Mitt Romney might win the presidential election and that he might turn out to be a zombie-killer too. Others go so far as to think the tables have been turned against the zombies, generally.

We'd like to believe it. But history is a long, sad tale of strong leaders doing the wrong thing, not the right thing. If they did the right thing there wouldn't be so much history. No big wars, no great revolutions, no economic catastrophes.

If history can count on leaders to do the wrong thing, so can we.

Mitt Romney is no threat to the zombies. In fact, he's already pledged to give them more fresh meat. That's right, he says he'll send more resources to the US military the biggest zombie organisation on the planet. Why does Mitt think the Pentagon is a little short? Because some of the most powerful lobbyists and biggest campaign donors say so! What more proof could you want?

As to the unarmed zombies, we haven't seen Mitt declare himself one way or the other. He seems to have no fixed positions; he'll go where the zombies push him. Just like Barack Obama.

But it probably doesn't make any difference. For every successful fight against the zombies, such as the one just won by Scott Walker, there are hundreds or thousands of skirmishes, ambushes, and pitched battles where, when the dust settles, zombies are the only ones still standing.

Yesterday, we sat in our local Ford dealer's office while our truck got serviced. Keeping an eye on the TV screen in the waiting room, we noticed no fewer than three zombie ads within a 15-minute period. Two of them were for lawyers. One at 1 800 299 HURT offers to sue someone for you if you were in a traffic accident or a victim of medical malpractice. The other, at 1,800 THE FIRM, said that if you were injured on the job or in a store, there was a good chance that the business was responsible.

The third advertisement appealed directly to the zombie instinct. It was for a company that calls itself "Disability Associates," a group that makes a business out of getting people firmly into zombiedom, where they are fully supported by the rest of us.

Don't miss Bill's next Daily Reckoning. To receive the next article straight into your inbox as soon as he's written it, sign up to the email list here .

Information in The Daily Reckoning is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision. Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. The Daily Reckoning is an unregulated product published by Fleet Street Publications Ltd. Customer services: 020 7633 3600. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. https://www.fsa.gov.uk/register/home.do FSA number: 1152 34