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As a “numbers guy”, there is one cliché for which I have always held the utmost contempt: “statistics can be used to say anything”. This is literally a half-truth in that the actual truth is that statistics can be abused to say anything – primarily because the general public is so utterly clueless about the rules of statistics that they rarely notice when those rules are violated.

Worse still, the majority of statistical “abuses” do not involve violations of the (extremely) technical rules which govern all statistics, but with simply a failure of logic and/or common sense. In this respect, it would be hard to name another statistic which has received such utterly abysmal treatment by “experts” and media talking-heads alike than the U.S. savings rate.

Many people are aware that in the previous decade the U.S. savings rate plummeted into deeply negative territory for the first time since the Great Depression. However, when the “savings rate” surged back into positive territory, all of these media pundits have made the logical/statistical error of concluding that “Americans” are saving significant sums of money again.

The error here comes from treating a number which is nothing but a simple average as if it was broadly applicable to the entire population. A hypothetical numerical example will illustrate this mistake.

Let us assume that the “U.S. population” was comprised of fifty individuals: one billionaire (who managed to save $50 million dollars last year), and 49 poor people – who all saved nothing. The “savings rate” for this population would be (on average) $1 million/year. Does this mean that all of the poor people in the U.S. became “millionaires” last year? Obviously not.

Similarly, it is an utterly meaningless number to state that the “U.S. savings rate” was 5% or 6%, when all of that “saving” is being done by the fat cats at the top. We know that this is unequivocally true from all of the other empirical evidence around us.

Ten’s of millions of Americans have lost their jobs, or been forced into part-time work. Ten’s of millions of other workers have seen their wages falling. Meanwhile (in the real world) Americans are being ravaged by high inflation (such as the 59% annual increase in health insurance payments in California). Yet we are supposed to believe that despite falling incomes and rising expenses that the “savings” of these individuals has suddenly spiked?

Such a conclusion would be possible – if Americans had significant “discretionary income” that they could now choose not to spend. However, one of the primary reasons that the U.S. savings rate had turned negative in the first place is that Americans as a whole had leveraged themselves into so much debt that they have no discretionary income.

If Americans had no discretionary income to save before the U.S. economy collapsed, it is absurd to pretend that they could have conjured-up such discretionary savings as their wages plummet and prices spike.

Many commentators have ‘invented’ a category of pseudo “savings”, which these pundits claim is just as good as “real savings”: Americans are defaulting on their debts. Yes, it is true that someone who was using $2,000 out of every month’s earnings to make a mortgage payment will be able to “save” that money if they decide to stop making mortgage payments (or credit card payments, or auto loan payments, or student loan payments).

However, this phantom “savings” disappears the moment that a creditor takes action to collect on the debt owed. This would be like a homeless person duping a bank into lending him a million dollars, and then shouting from the roof-tops “I’m a millionaire”. The million dollars held by the homeless person is neither real “savings” nor real wealth, since the homeless person must set aside the entire million (plus interest) for repayment – or is immediately insolvent.

Even if a debtor is fortunate enough not to be pursued by a creditor, and thus can hang onto the funds which were supposed to be used to retire a debt, that “savings” is obviously totally offset by a loss to the creditor. With real savings, the accumulation of savings by one party is not totally and directly offset by the loss to another.

Even in a society of mathematical morons, surely our intellects haven’t deteriorated to the point where we cannot tell the difference between “debt default” and “savings”?

In fact, if we look at what is really happening with U.S. savings, it is much, much worse than if there was no “saving” taking place at all. Understand that in the U.S. “consumer economy” what this desperately anemic patient needs more than anything else is a “transfusion” of spending.

Those on the bottom have nothing left to spend. Conversely, those on top were already piling up hoards of wealth at the most rapid rate in 200 years before the collapse of the U.S. economy took place. What this economy needs more than anything is for the very wealthy to “loosen their purse strings”. Conversely, what the U.S. “savings rate” tells us is that instead of these greedy misers doing what is best for the nation – and “buy, buy, buy”, they are hoarding their wealth at a much greater rate.

Can anyone remember George Bush Jr. telling Americans it was “patriotic to spend” after “9/11”? It seems that ordinary Americans were quite happy to do their “patriotic duty” – and indebted themselves even more. Meanwhile, those on top just got fatter and fatter.

And now, after those on the bottom have exhausted their wealth being “patriots” and the nation is forced into “massive sacrifices” (or bankruptcy), what do the rich think are the right “sacrifices” to make? To slash spending on ordinary Americans who now have nothing – so that they can have their big, fat tax windfall to add to their hoards of wealth.

That’s right, after a recent period where the rich got richer and the poor got poorer at the fastest rate since the Great Depression, the “solution” advocated by the rich is to make those on the bottom suffer even more – anything other than the rich paying their “fair share” of taxes.

I continue to tell all who will listen that there is an undeclared “class war” which the very wealthy have inflicted upon ordinary people (since the beginning of civilization). Sadly, the inability of both media talking-heads and “experts” alike to properly interpret a very simple statistic is making it much easier for the ultra-rich to conceal their undeclared war.

It is certainly nothing new for the wealthy to control the media, by one means or another – which is why the endless class-warfare instigated by the very wealthy is very easy to hide, for a very long time. This is also why (historically) by the time those on the bottom finally realize how totally their wealth has been plundered by those on top that the economic devastation is so complete there is nothing left to do but pull out the guillotines – and ‘shorten’ some of the very rich by about a foot.

Certainly this appears to be a particularly bad time to place any bets that the very wealthy will be getting “taller” in the future.

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written by Jeff Nielson, January 12, 2011

Lol Earl!

It REALLY bothers me when I see the ultra-wealthy steal a dollar, and then expect applause when they (loudly) give back a dime.

Here's my example. The article noting that the Fed had made an $81 BILLION dollar profit (from printing up scraps of worthless paper) made a point of mentioning how it "remitted" $78 billion to the Treasury Department. What is the Treasury going to do with MOST of that $78 billion? It's going to use it to buy more of the Fed's scraps of paper!!

As for the Florida governor, is HE the one who turned Florida's COURTS into foreclosure mills (where retired judges rubber-stamp fraudulent foreclosures), or was that his predecessor?

By the way, our Conservative government ALSO had a plan to "just let the wealthy pay for things". They introduced a bill to BAN all public financing for campaigns - so that the wealthy (and large corporations) could LITERALLY buy their candidate of choice.

As you probably know, the U.S. has essentially already done this - by allowing INFINITE campaign spending by the wealthy and corporations, and having the audacity to call that "free speech".

This makes it IMPOSSIBLE for a third party to EVER compete in a U.S. election (unless it's backed by billionaires - lol), since the wealthy have TWO parties that they own (and all the machinery) as an advantage, even before they start to deploy their wealth. This gives the two-party dictatorship a PERMANENT "lock" on the U.S. government, ending all pretense of being a democracy.

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written by Earl, January 12, 2011

Newly elected governor of Florida, Republican Rick Scott, ran a ‘Tea Party’ campaign promising to slash property taxes by 18% and to generate 700,000 jobs in the state of Florida, while eliminating the 'entitlement addicts'. As a “successful” CEO in the medical field (hospital chains), he spent 74 MILLION dollars of his own money to win the election.

He has now announced, in his first press release (Jan 6th), that he will be selling both the state owned airplane & jet. He will be using his own private jet at HIS expense to conduct Florida state business, and thus, will not be releasing any ‘flight plan’ when conducting such business.

Is this not a true testament of why the wealthy should continue to get tax breaks? Is this not an example of how they use their ‘government protected wealth’ for the good of all? This ‘noble’ man is willing to pay and use his own private jet, and once again, he spent 74 million dollars of his own money getting elected.

He was obviously a successful business man, and we are lucky to have such a leader.

While CEO, he over saw his company commit the largest Medicare fraud in U.S. history. While his company paid 1.7 Billion dollars in fines, he was given 300 million dollars to resign. A former lawyer, who used his 5th amendment right 75 times during the deposition.

I believe the State of Florida is lucky to have such a generous, and “giving” individual, who claims to be an “outsider” from the ‘politics as usual’ in our state capital. Florida will show the other states how to “end the RULE of the entitlement addicts” that are bankrupting our nation state by state.

Obviously, it IS best to have the wealthy in control. Not because of the fact that people are gullible but, (as it was pointed out to me), WE are just plain stupid.

Rick Scott for president in 2012...HE will put an end to the heath care debate and show that the wealthy are working for the good of every man, woman, and child.

There is no ‘class war’, only a few in power looking out for the good of all.

In the oligarchs we trust.

Earl

ROTFLMFAO

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written by Null, January 10, 2011

Jeff, I wasn't suggesting that the US today has free markets. I was referring to the US's heyday many decades ago when it did have something resembling free markets. My point is that there is no such thing as a sustainable free market because without regulatory oversight, free market forces inevitably lead to greater and greater centralization of power into the hands of a few market players, who then become so large that they influence the government policy makers for their own benefit. And then you no longer have a free market, and this came about ironically because the original free market was not effectively regulated. Those regulations were not enforced back then out of ideology and the belief that a completely hands-off approach is the best way to allow an economy to sort itself out. This started the downhill spiral of corruption.

The end result is what we now have in the US; the complete opposite of free markets. I agree that the current Republicans and Democrats are merely puppets and in practise they resemble nothing of what their original founders espoused. That's my point.

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written by Jeff Nielson, January 10, 2011

Null I agree with much of what you say, with a couple of exceptions. The very wealthy ALWAYS bring about their own demise, and MUST do so again - since when the economy crashes, the masses have two choices TAKE the hoards of wealth from the wealthy or die. That has ALWAYS served as sufficient motivation in past economic catastrophes.

The longer the very wealthy can postpone the realization that THEY are the root of all evil, the more heads that will be lopped of when revolution occurs.

Also, I reject that this has anything to do with ideology. Republican ideology SUPPOSEDLY represents "fiscal restraint" and "libertarianism". Instead, they are the world's most reckless spenders, and wholly support the fascist machinery of the U.S. government.

The Democrats are supposed to represent "the left". Instead they are stuffing huge wads of cash into the pockets of the richest Americans.

These politicians aren't ideologues, they are SERVANTS, who do whatever their wealthy masters tell them to do.

Similarly, saying that U.S. policies have anything to do with "free markets" makes no sense, since the U.S. hasn't had anything remotely resembling "free markets" for decades.

In fact, the U.S. has the exact opposite of free markets: the most corrupt, rigged markets in human history.

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written by Jeff Nielson, January 10, 2011

Navderek, whether you want to refer to the "problem" as wealth or greed is just semantics. The obsession with increasing one's wealth is a disease, just as is the obsessive lust for power. Both corrupt.

Yes, ordinary people can suffer from a lack of purpose, but it's not AUTOMATIC with them as it is with the very wealthy. For the vast majority of people, it's a daily struggle for survival, and once survival is assured, then there is the striving for goals. The very wealthy have no such motivations in their daily lives

A TINY minority of the very wealthy make philanthropy their goal, with that insignificant fraction being the proverbial "exception which proves the rule".

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written by Null, January 10, 2011

The more I contemplate the wealth tax the more sense it makes. I think most people would initially react to it as some kind of communist conspiracy but really it is anything but. It won't steal the wealth of everyone and turn them into communist slaves, it would simply gradually eat away at people's excessive wealth if they don't do something productive with it and reinvest it back into the economy. Sounds fair to me. You can still make your money. You just can't sit on it for years and years with no taxation.

Jeff alludes to the wealthy becoming shorter after the economic collapse and the masses discover what has happened, but I don't know if things will be that crystal clear to people, especially if the wealthy continue to control the media and can create any scapegoat they wish. Because of all the hyped up right wing anger pervading the US media, it seems that the popular scapegoat for the economic problems is the "liberals" or the "socialists". There is currently a dangerous and frightening wave of right wing hate sweeping across the US and I can only see that getting worse after the collapse. This is of course a very similar situation to what led to Hitler's rise to power.

It is not "the socialists" who are the problem. In socialism, or in its extreme, communism, individuals work for the benefit of the collective. In the US, the collective now works for the benefit of a few, the super rich who control the media and the government.

I think the point Navderek is missing is that the wealthy are now rewriting the system themselves, for their own benefit! So yes they should be blamed! In my opinion the collapse of the US is the ultimate failure of free market capitalism. Out of ideology, US leaders have always resisted regulating markets. They have some quasi-religious faith in that only free markets can be just and pure. In the end, no matter what happens, the free market will sort it all out they believe ..... even Greenspan said so of the banking crisis a few years ago. Leave the corruption alone and it will sort itself out. Yeah, sure, by bringing down the entire country! Of course, the free market utopia has never materialized, and after decades of corporate mergers and snowballing as bribed regulators look the other way, those corporations have become so large that they now control the government. How many industry lobbyists are there for every politician? Do we even need industry lobbyists anymore? It's all the same thing, isn't it?

A fair and balanced economy would have a private sector and a public sector each doing what it does best -- the private sector innovating, finding price discoveries, and providing the bulk of the economy's employment. The government would be there to regulate the markets to make sure that they don't externalize their true costs onto other people or the environment (like oil spills because the enforcement of regulations became lax), ensuring fair competition, and massaging the free markets with strategic taxes such as the carbon tax to more fairly and efficiently allocate capital (private industry does not care about anything beyond a 5 year time horizon so it is up to governments to regulate that into free markets to be more efficient). The public and private sectors need to be separate, and each must hold the other accountable.

Unfortunately the US corporate machine has destroyed all this, yet the average angry poor person in the US is blaming "the socialists" and I presume would argue that the solution is to deregulate industry to an even greater degree, in some misguided belief that this will somehow stimulate economic activity. All this will do is allow the corporate oligarchy to achieve even greater control.

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written by navderek, January 09, 2011

Jeff, perhaps I wasn't being clear, or I went off on a tangent there, but I do agree with your position. It's just that what you said here didn't jive with me. Maybe I took it out of context...

It's VERY simple: those who are fabulously wealthy suffer from a lack of "purpose"

Just because you're wealthy doesn't mean you're evil or have no purpose. Someone with little wealth and opportunity can also have no purpose if he/she so chooses. There are many examples of people in society who came from having almost nothing to being extremely wealthy based on their own hard work. Likewise there have been many who have squandered untold amounts of wealth which they inherited and have lost everything. Other wealthy people have done great things for the world...So a man or woman should not be judged by their wealth, but rather their actions.

What I have a "problem" with is when a small group of aristocrats buy off government to create laws which PERMANENTLY stack the deck in their favor.

I definitely agree with you there. But the root of the problem is not wealth, but rather the actions of the parties involved and also the system in which our society functions (Wealth = Power). Wealth was the catalyst, and until the power of wealth becomes reduced, we will always see this corruption.

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written by Jeff Nielson, January 09, 2011

Navderek, surely you don't think the very wealthy are those who "just happened to rise to the top" as a result of fair competition? LOL!!!! I've got absolutely nothing against people prospering from their LABOURS.

That's one of the reasons I'm AGAINST income taxation and in favor of wealth taxation.

What I have a "problem" with is when a small group of aristocrats buy off government to create laws which PERMANENTLY stack the deck in their favor.

It's very easy to see who the hypocrites are here. As everyone knows, I've come out in favor of a "flat tax", what the wealthy have ALWAYS claimed was the only "fair" form of taxation - a flat WEALTH TAX.

It's really simple with a wealth tax, Navderek: if you really ARE better and more productive than others then your wealth keeps growing - and good on you! And if you're NOT "better" than others, but got everything you have through position and privilege, then your wealth hoard slowly shrinks over time.

Unless you're in favor of going back to the time of kings and queens and "lords" and "ladies", where having "noble blood" entitled you to ALWAYS be treated better than everyone else, then I don't know why you have a problem with my position.

My position is all about BOTH "fairness" AND "competition".

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written by navderek, January 09, 2011

Still...the wealthy cannot be blamed. We don't live in a perfect world where everyone is helping each other out and we never will. Death is certain just as selfishness is certain. Life is certain just as generosity is certain. The good and bad will always be present and we cannot continually just blame the bad for our problems. We must rather take good ideas (such as your wealth taxation idea, and others) and apply them to reduce the bad and restore the balance.

Laying blame on the evils of our society does nothing to change it, except to bring it into focus. Observations are worth nothing without reaction.
You've done an excellent job of giving insight into the great imbalance we have in our society between the rich and the poor. You've also done a good job of showing how we could possibly change this. But blaming the rich for the policies set by society is not the correct thing to do since they are simply playing by the rules set out by the "system". The system is what should be blamed.

Ever play monopoly? Ever play so well that you are controlling the entire game and everyone bows down to your wealth and power? If in this situation, how many of you would start giving your money and properties to the other players to re-balance the game? Then what would be the point of the game? There would never be a winner, and not much interest in playing for that matter.

On the other hand, life is not a game and although we can draw parallels between monopoly and real life, we come to see that life only has 2 rules. Either you're alive or you're dead. Other than that, all the other rules were created by us and we should work towards aligning them to provide the greatest benefit to all who are living so that they are not robbed of the quality of this life before they die. Currently the rules are imbalanced to give more to the ones who carry more "paper" but I don't blame them for playing by the rules.

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written by Jeff Nielson, January 09, 2011

Sorry, Navderek, I'm going to totally disagree with you. Class-warfare transcends ALL political and economic ideology. It's VERY simple: those who are fabulously wealthy suffer from a lack of "purpose".

They have no interest in helping any of "the little people" - since they consider themselves so much BETTER. They have nothing to strive for in that they were BORN with more money than they could spend. So, their only "purpose" for existing is to simply become richer and richer and richer.

It is the life of a parasite: blood-suck every day of your existence, with no goal other than to get as fat as possible.

Imagine yourself being rich beyond comprehension, and then ask YOURSELF what you would do for motivation.

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written by navderek, January 09, 2011

Another great article Jeff.

I think that the "war" between the rich and poor is one that originates from national policies. I don't think the rich intended to hurt the less wealthy, nor do I think that the rich and conspiring together in a way to protect their wealth. What has actually happened is that because of the way taxes are setup, it doesn't hurt the wealthy to hold their money, and in these uncertain times it only makes sense to hold onto whatever wealth you may be lucky to have! I would certainly be doing the same thing if I was wealthy, wouldn't you?

So what I'm saying is that the wealthy shouldn't be blamed. It's the system that has failed us and as you've mentioned in previous articles, a new form of wealth taxation is what it will take to correct the dilemma we face. Otherwise, even with the fiat collapse or any other monetary system we may try, we will still encounter an environment where we have FEW wealthy people and MANY poor people.

Cheers.

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