The horizon is not so far as we can see, but as far as we can imagine

Knowing your interests

Are the rich just like us? In one sense they are – they eat, sleep and defecate just like everyone else. They love, cry and die – just like everyone else. But when you’re dealing with policy – no, they aren’t just like everyone else. It’s fashionable (one of those evergreen fashions) to argue that the policies that benefit the rich, benefit everyone. There are certainly policies that benefit everyone, but there are few policies which primarily benefit the rich which are to everyone’s interest. Let’s run through this in a bit more detail.

Most rich people get most of their money from investments – also know as unearned income. So when investment income is taxed at a lower rate than earned income (what you get on your paycheck), which it is – then those who rely primarily on earned income are being taxed at a higher effective rate. This is a deliberate policy choice.

When jobs are outsourced, the profits still flow back into the hands of US investors. While many people own stock and bonds (especially through pension funds) this disproportionately benefits the rich because the rich (as noted above) disproportionately receive their money from unearned income.

When the domestic economy does badly, but corporate and general investment profits are up – the rich do fine because the cost of things they want (like servants) goes down as supply goes up. Those few people they do deign to employ cost less.

When tax changes are made that are less progressive (moving to fees or flat taxes, for example, and away from income tax) it benefits the rich – because they earn more money and regressive taxes benefit those with more.

When estate taxes are gotten rid of – it benefits the rich (or rather their children).

When public schools are defunded it benefits the rich. Their kids aren’t going to them anyway, and now they don’t have to pay for your kids to go there.

When capital flow laws are relaxed it benfits the rich. Do you need to move a million dollars out of China in a few minutes to get an extra .1% overnight return? No?

When the spread between inflation rates and the interest rate is high it benefits the rich, because most of them are creditors. It hurts the middle class and the poor – because they are debtors.

When bankruptcy laws are tightened it hurts the poor and the middle class and helps the rich.

The Middle Class

When jobs are plentiful, it benefits the middle class. But if you’re already middle class and you keep your job, but others are losing theirs, you can win relatively – especially if prices are dropping relative to your salary.

When jobs pay well and are keeping up with inflation, it benefits the middle class.

When house prices go up it benefits the middle class – because they have the majority of their money in their houses – that’s their savings account. It hurts the poor, because they can’t get housing and it hurts the subset of the middle class that doesn’t yet have a house, because they can’t get one.

When medical care prices increase it hurts the middle classes because their employers stop paying for it, pay for less or leave the country to a domicile where either the government provides it (Canada) or they don’t have to provide it.

The Poor

When rent, food or fuel costs go up it hurts the poor because they spend most of their income on those three things. It hurts them disporoptionately compared to the pain to the rich.

When the economy doesn’t produce new jobs it hurts the poor because they then can’t get jobs, especially the long term poor who are only hired when those with more recent experience are used up.

When medical care becomes more expensive it hurts the poor, because they can’t afford it. So they live in pain, or with chronic diseases and get treated only when it’s close to mortal and they can’t be turned away.

When mandatory sentencing for blue collar crime goes in it hurts the poor because more of them commit crime and it takes away their husbands and their sons.

When some drugs are made illegal while others with psychoactive effects are legal but prescribed only to those who can afford both price controlled drugs and doctors scripts it hurts the poor.

Yes Virginia, the rich are different…

not because they are better or worse than us, not because they are bad people, but because they have different interests and different incentives and they live in a world that is different from the one the middle class or the poor live in. Policies that enrich them could enrich everyone. There are policies and economies that help everyone. From 1945 to around 1970 the rising economy made everyone better off equally – the rich, the middle class, the poor. Everyone prospered together.

It can be that way, but it doesn’t have to be. You can make the pie bigger – or you can make your slice larger. Over the last thirty years Americans have fought over the pie. Warren Buffett once noted that if there was a class war then his class was winning. There is a class war and the rich are indeed winning – and it is one of the things that is slowly destroying the United States.

As Stirling has said in the past – everyone can be prosperous. But everyone can’t be rich. Choose what sort of society you want – or have others choose for you.

(Another repost from BOP. 2004. This is basic class and policy analysis stuff.  I would make some changes to the definition of rich these days, to make sure the the managerial capture class was unambiguously included.)




The Bill of Indictment


  1. Lex

    Prosperous. I choose prosperous for myself and my neighbors and all the people i’ve never met. I’d much rather be not rich than rich and know that somewhere a mother is having to decide between feeding herself or feeding her children because she simply cannot feed the whole family.

  2. b.

    Having spent formative years in the fiefdoms of the tenured, I disagree. I suspect that the psychology of the rich (esp. that of inbred wealth) is, eventually different. I believe this is due to the fact that, above a certain threshold of perceived safety (purchased with abundance of disposable income), the human mind believes, rightly or wrongly, to be exempt the feedback loops that the members of “the herd” suffer. Tenure has a way of bringing out the worst in many an academic: those that control the grants still have a gating influence on ambitions and behavior, but existential threat is removed. Those perceived as powerless are handled with impunity – a constant in primate conduct.

    If tenure – the guarantee of a lifelong moderate income and a modicum of status in a societal niche – can do this to a “scholarly” mind, then what does actual wealth – dozens of millions, if not billions, of dollars, ownership of vast properties, control of resources, the presence of servants, retainers, sycophants- do to the mind of the greedy? If the pursuit of wealth requires pathological personality traits to begin with, what is the impact of relieving these personalities from what they no longer consider “peer” pressure?

    The rich might (pace medical science) be as mortal and fragile as all of us, but their human brain is also just as ill-equipped to deal with probabilities, risk, humility as ours. They, too, will die, but it is much easier for them to deny reality than it is for the masses of us down in the dirt. Theirs are lifes adrift, solitary enough to let them reject anything “nasty, brutish, and short” – including us.

    Quantity has a quality all of its own. This is especially true of money.

  3. If you hang out with rich people, you quickly learn that the goal is “financial independence.” Rich people know that there are basically two avenues to this, that is, if you aren’t really good at sports, aren’t attractive enough to become a celebrity, and aren’t really cut out for crime.

    The first is to hire people and pay them as little as possible while working them as hard as you can. You can also leverage their productivity through investment in technology. This means using “OPM” by getting financing. Getting financing at a favorable cost is all about structuring the deal and negotiating it successfully.

    The second is by putting money to work through rent-seeking. This means that you really need to understand how to use leverage to maximize your capital at risk without unduly risking so much on any single venture that you could go broke.

    To become rich and stay rich, you have to be really interested in money. Most people who are really interested in money think a lot about money. Too much. They become consumed by it, and it becomes their idol. Life spent worshipping at the altar of idols with clay feet is wasted in the end, because it is wasted in the beginning and middle, too.

    Someone once famously said that it is harder for a rich person to enter “the kingdom of God” than it is for a camel to pass through the eye of a needle (the proper translation of the passage). He also said that the kingdom of God is all around but people just don’t see it. Those who are busy chasing idols exclude themselves from realizing their birthright — the peace that the world cannot give.

  4. b. I have spent some time with the super-rich and have concluded that for many people who inherit gobs of wealth, perhaps even most, it is a curse. One either becomes a dilettante or else strives to prove oneself in a world one could never hope to reach on one’s own steam. As you say, it can be pathological. I think it probably explains a lot about Bush 43.

    The few who do make it seem make it OK are chiefly those who get hands-on involved in philanthropic work, where they can really do some good with their money. If someone is really well-adjusted, one would never know that they have money because it just isn’t a big deal to them. They have a life.

  5. S Brennan


    When I used Jesus’s prognostication on Angry Bear and on Linda’s blog a number of posters took deep offense, saying that what Jesus really meant was [rationalization here].

    When I defended the notion that Christ meant what he said and the rationalizations to the contrary were riduculous, as royalty had the Bible translated, if it was false, then surely it would have been excised by people who’s interest were directly counter to the interpretation. For my effort, Rdan, Linda subsequently did not allow my posts. I take comfort that those folks thought Obama the second coming…sota like A-bloggers except they weren’t around to lend their support to to the Iraq invasion.

    The fact of the matter is, the central tenent of Christianity is not taught in any meaningful way. Christ spoke more about greed, an overt interest in material things than almost any other subject…certainly more than gays (he was surrounded by them), abortion (people knew how to terminate a pregnancy back then), or Drugs (I’ll make you some wine…K?).

    It’s funny to watch Friedmanites [let’s remember, most of the center and “left” have signed on to this theology] react in predictable ways to the notion that”neo-liberal” economic thought is the epitome of Christ’s admonitions against the devils temptations. Friedmanites do their best to wash away in denial, obscuration’s and rationalizations that they embrace a message that is anti-Christian.


    “The eye of a needle” is part of a phrase attributed to Jesus by the synoptic gospels:

    …I tell you the truth, it is hard for a rich man to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.

    The parallel versions appear in Matthew 19:23-24, Mark 10:24-25 and Luke 18:24-25.

    The saying was a response to a young rich man who had asked Jesus what he needed to do in order to inherit eternal life. Jesus replied that he should keep the commandments. To which the man stated he had done. Jesus responded, “If you want to be perfect, go, sell your possessions and give to the poor, and you will have treasure in heaven. Then come, follow me.” The young man became sad and was unwilling to do this. Jesus then spoke this response, leaving his disciples astonished.

    Some commentators[who?] have found it incredible to speak of a rich man’s chance of being saved as being harder than threading a camel through a literal sewing implement. Consequently the phrase has inspired various interpretations.

  6. Lori


    I don’t know if you take requests, but if you do….

    it would incredibly helpful to a lot of us online if you could document the extent to which wealth is inherited rather than earned. There are a lot of young politicos out there who genuinely believe that the vast majority of wealthy people get up and go to work everyday at a business that they created themselves. Not their dads. Not their granddads. Not their great-grandads. They have very little awareness of how much of our nation’s money has been coraled in private banking accounts for generations.

    Next, I’m trying to read up on how inflation impacts middle and lower income families, but I’m not getting very far. I was a young mom married to an engineer and I recall that the late seventies were manageable. Employed people got raises of 10-15% per year. Now, I read that administration is terrified of inflation rearing it’s head. I know that it decreases assets for the wealthy, but I really would like some kind of wholistic understanding of what inflation means to average people.

  7. Ian Welsh


    big topic, I’ll try and tackle at some point. The short answer on inflation is that what was done over the last 35 odd years is that whenever it looked like wages would rise faster than growth, they were systematically strangled. You had more disposable money in the 70s as a percentage of income, odds are.

    What happened is that massive asset inflation was allowed, while retail inflation was not allowed, and wages were kept down. Since the vast majority of assets (about 90%) are owned by 1% of the population (iirc) that asset inflation meant that relative to costs for ordinary things, the rich became vastly richer.

    Inflation hurts people on fixed incomes. It helps people who owe money, and it hurts people who are owed money. What you need for people to feel good is for wages to be rising faster than goods inflation by a fair chunk.

    Instead people have become house-trapped. Because the only major asset most people own is their house, asset inflation along with wage stagnation has meant that real increases in median household wealth have come through increases in housing prices. Thus, taking out loans against the house for consumption, because that’s the only way people could either keep up or could increase consumption.

    But since housing prices are ultimately backed by the real economy (a house is worth something because you can get a job nearby), and since the real economy is backed by real wages, housing prices at even these post collapse levels are not sustainable, and are a competitive disadvantage to the economy. The exert a real drag on disposable income (which is what matters most after necessities are met) and on competitiveness.

    Hopefully that’s a decent sketch. I have two major editing/writing projects going on right now, so I probably don’t have time to write a major essay for at least a couple months.

  8. Ian Welsh

    As I understand it, the eye of the needle was a very narrow gate into the city. To get through it you had to remove all packs from your mule/donkey. A rich man can get into heaven, if he gets rid of all the material things holding him back from doing so.

    Or, as my Mum liked to say “you can’t take it with you”. And the more attached you are to it, the more likely it is to hold you back.

    Agreed on “to get rich you have to think about money all the time.”

  9. S Brennan, Ian is right. I had a senior moment and said exactly the opposite of what I meant to say. It is the “eye of the needle” that is wrong because, as Ian observes it misses the real point. George Lamsa, an Aramaic speaker who comments on the Bible, corrects this misapprehension the original meaning of the analogy.

    Ian, I’m impressed. In my experience, few people are aware of this. You are a man of many talents.

  10. A simple way to think of inflation is this: Inflation occurs when nominal aggregate demand exceeds real output capacity of goods and services. Then prices rise because supply cannot meet demand and so either prices rise or shortages occur. The opposite is true in deflation. Nominal aggregate demand falls below the level required to purchase all the output of good and services at full capacity. Then, either production is cut back and employment rises, or prices fall to meet reduced demand. Price stability results when nominal demand is in equilibrium with real output capacity at full employment, allowing for frictional unemployment (temporary job transfer or postponement)

    There are three types of inflation: asset inflation, price inflation, and wage inflation. The monetary authorities officially recognize and are only concerned with the latter two. However, the first kind of inflation that occurs when the economy is ramping up is asset inflation. This favors people with assets and speculators. It is called asset appreciation instead of asset inflation, even though asset prices rise excessively across the board in relation to measures of real value and historical norms. Wealth further multiplies in periods of asset inflation through the use of leverage.

    Monetary authorities allow a certain degree of price instability, writing it off to “volatility,” but they react with a vengeance to wage inflation, because that directly cuts into profits and affects asset values.

  11. Ian Welsh

    One man’s wage “inflation” is another man’s “pay raise.” Wage inflation lower than productivity increases does not concern me. In fact, on occasion, it’d be nice to see it higher than productivity increases. Profits are too high in the wrong industries, and have been for some time.

  12. Ian Welsh

    I’m with Gandhi. “I like your Christ. Your Christians, not so much.”

    I often wish I was a believer, so I could become a liberal firebreathing preacher. Alas, perhaps another life.

  13. jo6pac

    financial independence

    Maybe the above is just a mind set, I have this because I don’t need all the trapping that others think they might need. I always called them the Golden Handcuffs. I have the few thing needed roof over my head (rent) food, and few tools to earn a living. It’s interesting when others find how I live they are suprised by the comfort level.

    Thanks Ian and commentors for the thoughts and Ian this is one my heros if could learn to Lie.

  14. S Brennan

    “Unfortunately for those seeking to evade a divine poverty edict, the story of the gate is a myth. Tracing back the tale of the little gate shows that the story first appeared in the Middle Ages, as a kind of sop for those who weren’t ready to dispense with all their wealth (but who might have been inclined to share some of that wealth with the established church). Though it’s a commonly told story today, and has been for centuries, there’s no indication “the eye of the needle” was ever the name for any pass, gate, path or portal during the first century. There’s no getting around it, the needle in Jesus’ story was of the sewing kind.”


    “The original Greek tells not of a camel, but a rope (kamilos ). When it was translated into Latin, kamilos was confused with kamelos ( camel). This translation error has been perpetuated into almost every language in which the Scriptures has been printed. The Scriptural statements are almost identical to each other in English. There is some variation in Greek. The needle in MattithYAH [Matthew] and YAHchanan Mark [Mark] is a rafic. In Luke it is a belone. Both refer to needles used in sewing. There are a few variations of the following. The usual explanation of the meaning of the text, is as follows:

    There was in a Jerusalem city wall, a narrow gate known as the “eye of the needle”. It was very difficult for a camel to pass through this gate. Either the camel would have to be unloaded or pass through on its knees.There is a slight problem with this explanation, in that there is no evidence there ever was such a gate.

    In the fifteenth century, some theologians presented the notion that the “eye of the needle” was to mean a small gate entrance to a city. Apparently the architect designing the gates, forgot about all the camels that needed to get inside the city!

    Luke clears this up, by carefully using the Greek word for a surgeon’s needle, nullifying this interpretation.
    YAHshua selected the eye of the needle because it was the smallest opening. The rope because it was an impossible situation.

    “… Again I tell you, it is easier for a rope to go through the eye of a needle than for a rich man to enter the Kingdom of Yahweh.” When the disciples heard this, they were greatly astonished and asked, “Who then can be redeemed?” YAHshua looked at them and said, “With man this is impossible, but with Yahweh all things are possible.” – Bam Bam


    “In an illustration pertaining to entry into the Kingdom, Jesus Christ said: “It is easier for a camel to get through a needle’s eye than for a rich man to get into the kingdom of God.” (Mt 19:24; Mr 10:25)

    Some have held the needle’s eye to be a small gate through which a camel, if relieved of its load, could pass with difficulty. However, the Greek word for “needle” found at Matthew 19:24 and Mark 10:25 (rha·phis′) is drawn from a verb meaning “sew.”

    Also, the Greek word appearing in the parallel passage of Luke 18:25 (be·lo′ne) is used to refer to a literal surgical needle. Regarding these Greek terms Vine’s Expository Dictionary of Old and New Testament Words notes: “The idea of applying ‘the needle’s eye’ to small gates seems to be a modern one; there is no ancient trace of it. The Lord’s object in the statement is to express human impossibility and there is no need to endeavour to soften the difficulty by taking the needle to mean anything more than the ordinary instrument.”—1981, Vol. 3, p. 106.

    As a hyperbole, the illustration emphasized how difficult it would be for rich men not simply to begin serving God but actually to enter into the Kingdom.—1Ti 6:17-19; Lu 13:24. – Rick G

    Links are the next post:

  15. S. Brennan, check out George Lamsa.

    Lamsa’s analysis of the Aramaic he claims is the most ancient New Testament extant is published in Gospel Light: Comments on the Teachings of Jesus from Aramaic and Unchanged Eastern Customs. Philadelphia: A.J. Holman, 1936.

    His views are admittedly controversial.

  16. Mark Holbrook

    Ian you have a gift for breaking things down to their essential components, reverse engineering cultural, political and economic memes. If I had the money, I’d take out a full page ad in the NYT with this.

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