Friday, November 1, 2013

Take from the Poor

Buy low, sell high. This age-old advice is as good now as ever. It is as easy as letting water flow downhill. The trick is that you have to take what you bought in the cheap market and sell it in the expensive market. That is called "arbitrage." It takes long arms to reach from one market to another like that. That is one of the advantages of the rich – they have the long arms to make it work.

Michael B. Sauter and others reporting on recently listed the U.S. states in order by median household income. See Richest and Poorest States. The richest state by median household income is Maryland at $71,122 per year. The poorest state is Mississippi at $37,095. The difference is $34,027. Quite a difference. Median Marylanders earn close to twice as much as median Mississippians.

Some might say that this difference is unfair; that it is an injustice. The cost of living may be lower in Mississippi, but for many things Mississippians must pay the same global prices in the global markets that the rest of us do. They also pay the same percentage of their earned income for Social Security and Medicare taxes that Marylanders do. That means that most Mississippians have to do the opposite of good sense. They have to buy high and sell low. (That is, they have to sell their labor low in the local markets but then pay national or global prices for what they need.) The poor pay a price for not having the reach of the rich.

Mississippi does receive some compensation from the federal government because its poverty rate is over 24%. However, this is offset by the fact that income inequality in Mississippi is very high, ranking third in the nation. That is behind only New York and Connecticut. What this all means is that neither the "free market" nor government programs are working very well for Mississippi. The fact that non-capitalist transfer payments are required just to keep Mississippi in the national economy demonstrates how our allegedly-capitalist system has broken down.

Free flow of capital is supposed to be a good thing because capital is supposed to flow to places where it will do the most good (from an economic standpoint). One might therefore be deceived into thinking that money will flow from the places where it is concentrated to places where there is less of it, like Mississippi. That is, one might think that money will move from high-cost locations to low-cost locations. The example of Mississippi compared to Maryland or New York shows that that is clearly not true. Money does not work that way. The truth is that in unrestrained capitalist systems, money becomes more and more concentrated. What arbitrage really seems to do is take from the poor and give to the rich.

It should be obvious at this point that the markets in Mississippi are already quite different from those in Maryland. It should also be obvious that the main reason why capital leaves poor Mississippi to go to rich Maryland is that the currency is the same. The capital flows freely. With exclusive currencies, the markets would really be separated and the capital flow could be controlled. The earnings of the poor would not so easily be transferred into the pockets of the rich.

If we really want to do something about poverty, we need to build up capital in the poor markets. That means that we have to do something about capital flowing away from the poor and concentrating too much in the pockets of the rich. If the rich cannot own the currency of the poor, then the capital flows can be controlled. That is a major part of the program. For more information, read

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

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