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Life Health > Health Insurance > Your Practice

On the Third Hand: On Income Inequality

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Depending on your point of view, wacko rabblerousers in Oakland, Calif., are rampaging around causing mischief, or, police officers with taped-over name badges are attacking peaceful protesters with rubber bullets and making up stories of mayhem to justify the attacks.

Or, it could be that both versions of reality are true, or that neither is.

Similarly, one day, I emerged from a subway station to find annoying protesters chanting loudly, right in front of my neighborhood farmer’s market, about how I should hate the richest 1% with a passion, while I was trying to buy my humble tomatoes and broccoli. And, at the same time, about 200 police officers with noticeable guns and noticeable, giant batons who looked as if they were just dying to crack those annoying protesters on the head.

On the one hand, in a cartoon, where cracks on the head don’t really hurt, I can understand why some might want to respond to the protesters in a less than polite fashion.

On the other hand, in the real world, cracks on the head with batons do hurt, and some of those annoying protesters were friends and neighbors, and the children of the farmer’s market vendors were running around the protesters and heavily armed police officers playing tag.

I’ve also received a well-written, free op-end written by a regular guy, out of the goodness of heart, who thinks that people should stop beating up on billionaires, noting that most billionaires started out without much money.

Well, sure. I love billionaires, especially when they hire readers to handle their finances, or if they hire me to, say, sit around a pool and look decorative.

But the truth is that many billionaires are billionaires, at least in part, because of all sorts of government-granted monopolies, government contracts, and other types of government intervention.

Bill Gates, for example, is a billionaire partly because he’s a smart guy who was in the right place at the right time. But he’s also a billionaire partly because of government patent and copyright laws, government contracts with IBM, and the many different government contracts and research projects that helped give rise to the modern computer industry.

Similarly, Buffett is a billionaire partly because of his own drive and talent, but also partly because of the tax provisions that have helped the insurance and investment fund industries over the years and partly because of government-imposed barriers to entry in the insurance industry.

Gates, Buffett and many other billionaires also have benefited greatly from the fact that the United States has been a country with a huge, voracious middle class.

Gates is rich because ordinary Americans started buying computers.

Buffett is rich because ordinary Americans have been able to afford to buy cars, car insurance, disability insurance, furniture, and the many other products and services provided by the businesses in his company’s portfolio.

Life and health insurers generally depend heavily on the existence of a large middle class. The countries in Africa and South America that have a few very rich people, massive slums, and just a few people in the middle class have historically been lousy markets for life and health insurance.

My personal experience is that actual rich people understand all of this much better than the Occupy the Known Universe protesters. The Occupy Everything protesters just know that they’re angry; rich people often know what a “Gini coefficient” is.

Most of the rich people I know have no philosophical objection to the idea that they ought to pay their fair share of the cost of keeping the country going. If they object to paying more taxes, or want to pay lower taxes, the reason seems to be more a question of whether the government is spending the money on the right things or spending the money, not because they enjoy seeing middle-income people sink into desperate poverty.

Even Ron Paul is just talking about holding U.S. Department of Health and Human Services spending steady at $69 billion per year, not immediately zeroing it out.

But a lot of rich people also did pretty well in math class, and they know that, if the Cost of a Wonderful, Important, Noble Thing increases about 10% every year, and world or U.S. gross domestic product rises about 3% every year, eventually, people will run out of the capacity to buy that Wonderful, Important, Noble Thing, no matter how wonderful, important and noble that thing is and no matter how much everyone would like to buy that thing.

Right now, some of the important, noble things in question are retirement benefits, care for acute medical conditions, and long-term care.

In October, for example, New Scientist published a report on the research of systems theorists at the Swiss Federal Institute of Technology in Zurich.

The Swiss theorists studied the relationships between 43,000 transnational corporations in a big database and discovered, to the delight of conspiracy theorists everywhere, that 1,318 companies own or control about 60% of world public company revenue.

The theorists kept crunching the numbers and found that 147 companies control about 40% of the transnational corporate network.

The list of the top 50 “superconnected companies” includes such companies such as AXA, Allianz, TIAA-CREF, Old Mutual, Aviva, Sun Life Financial, Standard Life of the United Kingdom, MassMutual, ING and AEGON.

Most of the other companies on the list are big banks, brokerage firms or mutual fund companies.

The theorists’ reaction was: Wow, a few companies really control the corporate world.

My reaction is that most of the companies on the list are the companies that have pledged to try to cover the cost of feeding, clothing, housing and attending to the acute and long-term health care needs of the baby boomers as the boomers enter retirement.

The private companies have amassed enormous, conspiracy-theory-fueling pools of wealth to meet their obligations to the boomers, and yet the size of those pools seems pitiful when compared with the likely future demand.

We’ll probably need the equivalent of, say, a quadrillion 2011 dollars to keep retiring boomers comfortable over the next 40 years. What do the most connected 147 companies control? Maybe $150 trillion. Maybe $300 trillion if you squeeze them hard.

In the long run, income inequality is interesting and important but not all that critical. If Warren Buffett is rich but most of the rest of us can still afford milk and cable, eh.

What matters is increasing real, physical GDP that you can eat and heat your home with.

We have to be able to find the extra minerals, generate the extra energy, grow the extra food, transport the extra goods and provide the extra services needed to sustain all of those boomers who can’t work, can’t find work or can’t find work that does much toward making the economic system sustainable.

Paper increases in income inequality may correct themselves in the long run or may turn out not to matter as much as some fear.

Failure to educate our children Class of 2021and equip them with the tools, public institutions, private companies and other infrastructure they need to be extremely productive clearly will matter, because the most critical graph is not the income inequality pyramid graph, but the graph that shows age distribution transforming from a tall, skinny pyramid into a vertical egg.

The generational egg will be sitting on our children, and on the harried money managers trying to work miracles at the 147 most connected companies over the next 40 years, and those folks will need all the help we can give them.


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