Money is no longer tied to any scarce commodity such as gold or silver and all values in all markets from currency to real estate are merely intermeasured against each other. Where in all this do we find any “real” value? The paper money we transact cash business with is essentially no different than a bank’s certified check from the Federal Reserve. It’s even signed by the Secretary of the Treasury and countersigned by the Treasurer of the United States.

Consider deposit banking at it’s simplest. I deposit $1 with you, you lend the $1 to John, and you keep this on your books as $2, one owed to me and one owed to you by John.

Obviously this wouldn’t work if we were the only people involved, but get enough depositors and enough borrowers together and you have a bank which carries both deposits and loans on their books as separate amounts of money. So, in effect, banks actually create money, making $2 where there was $1 before. So which one is real and which one is “mere paper”?

Economists actually have a description of this process called levels of money: M1 is my dollar that I gave you and you lent John. M2 is M1+the extra dollar that magically has shown up to my credit on your books. Because there is enough M1 circulated by the government, deposited in banks, and lent by banks, M2 functions in the economy exactly as if it were just more M1.

When they speak of the Fed “controlling the money supply”, it’s not merely a question of issuing more greenbacks. It’s also a matter of the Fed loaning more M1 to Whosis National Bank to support the M2 that Whosis is carrying on the books against the eventuality that too many depositors will withdraw their deposits at once.

If this “run” on the bank happens, and they can’t pay all their depositors at once, which is the “real” money? The greenbacks that the lucky people at the head of the line got before the vault was empty? The money the bank owes but can no longer pay to the rest of the depositors? The money still outstanding lent by the bank to it’s debtors? Or all of these together?

The same problem occurs with things like common stocks. The value of a stock share on any given day has no relation to any standard of absolute value. It is merely a bid/ask price in a market changing through time, exactly the same way that a cash transaction for goods is a bid/ask price expressed in terms of greenbacks. So what is the difference between these transactions?

If I accept a bid for my share and receive it in the form of greenbacks, is that somehow more “real” than if I accept it as an electronic transfer to my bank account? Does the money I receive in any form become more “real” than the money quoted in the next bid/ask price when the stock share gets sold again tomorrow?

All of these conundrums of “real” and “paper” profits stem from the “just price” theory–the notion that for anything you buy or sell there is a just price determined by an outside standard of “true value” that all transactions can be measured by.

When we operated with “commodity money” where money was tied to the amount of a single scarce commodity like gold, a just price theory was arguable, because the “real” money was gold of a certain purity and weight, the stamping of coins a guarantee of purity and weight by the state, and the issue of paper money was a convenient way to transport and transact value which the state guaranteed could be redeemed in precious metal.

But in a world where all monetary values float against one another, a just price is impossible to determine, and all money is as “real” as we accept it to be and only as we accept it to be.

I guess some think so. My sister, 27, is campaigning for Obama which is fine. She collects disability (instead of working the one job she held down for more than a few months in her entire life) for an accident she has fully recovered from. Doesn’t pay her own rent (my parents pay it for her because she is, thank god, sober). Or her cell phone bills (again, parents). And never went to college even though she is intelligent and had good grades. She’s done nothing. And wants everything.

I think it’s okay to want everything. But I look at my Mom. I look at my sister. And I look hard in the mirror and think NONE OF THIS has to do with life, liberty and the pursuit of happiness. For all her wealth and hard work, my Mom isn’t happy. But come to think of it, my sister is happy. Maybe I should rip up my degrees and loan bills and join the “free” world. Ha ha. Weeee!

2005 was the final year of the great housing boom. In 2006, the market started declining. Those in the financial sectors trading all those derivatives made crazy bank. 2007 was the last year to do that, then the music began to stop. It’s no coincidence that a lot of the bad actors got out then… with big severance packages.

The point is, much of that “wealth” was strictly on paper, just like the wealth in the Clinton years was a result of the Tech Bubble. President Bush has the great distinction of having TWO Bubbles blow up on his watch. Sucks to be him… especially when he didn’t cause them. Both these Bubbles really started in the 90’s.

The deficit did go up in ‘05, and I’m sure that it contributed to the decline in average citizen wealth, as taking money out of investment in industry always slows the real wealth creation. Someone buys that government debt, instead of investing in industry.

That’s why higher taxes has the proven negative impact on the economy. Even Obama admits he may have to “slow the implementation of some of his programs” until better times. (So, if it’s not good to raise taxes and spending in bad times, why is it good in good times? Just sayin’.) When you take excess money away via taxation, you are taking away the investable money.

There are four things that I believe contribute to the disparity in wealth between the top 1% and everyone else:

1) The artifical (paper) wealth. Beyond that discussed above, having Fed interest rates below inflation encourages all kinds of mischief, because it avails “Other People’s Money” on a scale that only the government can provide. That was the biggest enabler of the Housing Bubble;

2) Corporate earnings were actually down according to the info you provided, thus worker earnings were down. Money wasn’t being invested in real wealth creation. This is also the basis for the argument for lowering corporate taxes. More corporate profitability means better wages.

The Pub argument that companies don’t pay taxes, but just collect them is not totally true. It IS to some extent, but they still have to compete in the marketplace. Often, they end up taking some of that revenue-taking on the chin, as the marketplace will not support a full price increase to cover it.

The recent gas crisis demonstrated this. Companies were forced to hold some prices down regardless of the loss, else not have profitable sales at all. What it really means is they can’t give raises, and there are simply NO BONUSES.

3) Illegal immigration. It holds wages down in many ways. They will work for far less, because they’re illegal. They also bring the statistical average down. They increase government overhead, while not paying an equivalent amount of taxes per head. So, they take money from average workers in wages, then take it from them again in increased taxes for services for all these poor.

4) Victimhood. I like what “md” above had to say about his kid telling him that he won’t have what his Dad has, because of the attitudes of his peers. It’s clear to him the contrast in values: work ethic; self-reliance; self-sacrifice; dignity; far-sightedness.

It’s why the under 30 crowd supports Obama. They haven’t learned these fundamentals. They don’t know how wealth is really created. So, they put their hands out for a handout.

Thus, the message of “Joe the Plumber”. He wants to work. He’ll work long hours for his dreams. When he gets there, he wants the reward to be worth the sacrifice. He doesn’t want a handout on the way, because it punishes those who have already sacrificed to make it. If they can make it, so can he, with the same rules. Keep your damned handout. He neither needs it, nor wants it.

That’s the American Dream. You work for it. You earn it. You do it on your own. When you look in the mirror, you feel good because you’ve made the grade. You’ve made something of yourself. You’ve really accomplished something! It is no small thing to be handed out like party favors by politicians.

Thank you all for your intelligent approaches to refuting my views. This is by far the best and most enlightening thread I have participated in on PJM.

I’m a little short of new things to say at this point, since I have presented most of the evidence I can conveniently dig up and given my interpretation of it.

But I can ask this: Could anyone here show corresponding numbers of how much wealth has actually been “created” from 1979-1980? And also whom it went to?

I have not broached the issue of median net wealth compared to the top 1% of wealth in this country, but in 1962 the net wealth of the top 1% was 125 times the MNW. It was 190% in 2004. At the rate of increase of 1,5% yr that these figures imply, the ratio for 2008 would be 196%.

I think that such figures make clear that what new wealth has been created has consistently and increasingly gravitated to the richest among us. This is exactly what you would expect if common stocks are favored over bank deposits by government policy, which they have been.

Also, I would point out that the median increase in after tax income for all of us from 1979 to 2004 has been + or – 50%. This is, in part, the result of the consistent attempts of Republican government to cut taxes, as well as the growth in our GDP. But the top 1% of us have seen a corresponding increase of 176%!

The cost of this tax cutting given inelastic services [and even the most Libertarian among us puts up a fuss when the services they use most are the one's to be cut] has been the balooning of our National Debt.

Now, whether or not there was a “balanced budget”, there is objective evidence that the restraint on government borrowing from 1996 to 2000 resulted in an explosion of new businesses and a general increase in “enterprise” instead of merely the concentrated growth in already established companies and in real estate values which has taken place from 2000-2006.

This suggests very strongly that United States debt is an immense drag on our potential for economic expansion. If so, the huge increase in government borrowing from 2004-2008 maybe one of the major [if undiscussed] causes of the current crisis in our credit markets.

I don’t claim to have a perfect explanation for the figures I have cited, but it would please me greatly if some one [or all] of you confronted the numbers I have been using and tried to interpret them in the light of your own “free market/tax cutting” ideology. You can find them, and access to many more like them, here:

http://www.demos.org/inequality/numbers.cfm

I have pretty much shot my bolt on this one, but I would challenge you to go further [as I think you can] with real numbers to support your views.

Best to all.