give it up or else

Bill Gates, the white knight of African infectious disease, and one-time founder of Microsucks, now sporting respectable jowls, joined his friend, the long-time illusionist and oracle of Omaha, Warren Buffett, to call on all wealthy individuals to give up at least half of their wealth before they die. Or if they should be struck by unexpected death, to do so at the time of their demise.

True to his nature as a second mover, Bill's idea was copied from none other than the queen of mean, Leona Helmsley, who set the example by her generous charitable donation to the welfare of Trouble, the fluffy pooch. Money well spent I might add!

Such is the irony of modern capitalism, that one first has to resort to all kinds of deceit and malice to amass people's sustenance and throw them into poverty so that one can then later come around and rescue them by generous donation. It reminds me of amateur hunters who grow pheasants and other wildlife so they can release them in season and hunt them down.

Surely the eager defenders of capitalism will point out invaluable benefits of this system that has now reduced the wealth over half of our countrymen (and -women) to zero or below. Steve Forbes, whose equally impressive jowls attest to his profound knowhow, has recently come out to teach us how wrong we all are and how unfettered capitalism will ultimately save the day.

Mind you, I have nothing against capitalism. It is, like its cousin democracy, the lesser evil. But like all such things, both natural and man-made, it is a double-edge sword that needs to be kept in check lest it causes more trouble than it is worth. And it is in the latter part -the checks and bounds part- that we have been failing so miserably over the last few decades. We have turned the great engine of wealth creation into an evil machine of wealth-shifting and senseless consumption.

Sooner or later we will all pay the price for this travesty.

why the rich get richer

Capitalism is a funny system. Suppose you all start out at the same time with the same resources. As soon as someone gains a small advantage, their position improves. It becomes easier for them to amass even more resources. At the same time the others struggle more to stay in place. Suddenly, the ones with an advantage are the favored party to amass more.

It is like the little rivulets in the park. I was hiking the other day in an South Bay park and noticed how erosion had changed the trail from my previous visit. There was a section of trail in a wide swooping turn that was angled downward. Throughout little rivulets carried water across the trail into the canyon below. At one point, all rivulets were of nearly the same size and all must have carried about an equal amount of water.  But in my absence something happened. Suddenly one or two of the rivulets became bigger and they "grabbed" the water from the adjacent ones. Now the trail was largely flat with two or three big gullies instead of an undulating surface with 20-30 little streams.

Today it was announced that the Oracle of Omaha, aka Warren Buffett had made an investment of $5 billion into Goldman Sachs. First, we note that Warren has connections to the firm, granting him wide access to executives and information. Second, we note that he got a sweet deal with 10% extra interest and options to buy more shares on the cheap. 

Goldman did not have much choice, they need the money. Also, Buffett knows his way around at Goldman. Thirdly, giving it to Buffett almost guarantees the value will go up. In times of crisis people look for heroes and saviors. And if there was ever a savior of capitalism, Buffett is the man. It is almost a self-fulfilling prophecy. 

The name Buffett makes it so the investment will attract other money and hence go up in value. And with the government poised to follow, Buffett is sure to become a major beneficiary of tax payer money. And nobody will feel he didn't deserve it. I.e. we are going to pay Warren well and rather quickly too. That should ensure him a 40%+ annualized return.

No such luck for the ones who are left behind. They will pay the bill instead. Like the tiny rivulets supplying water to the growing gullies, while drying out themselves, we will make Warren even richer than he already is. That is how capitalism "creates" wealth. It shift resources from the masses to the few. The few who will then put the others to work to create even more wealth -mostly for themselves, mind you.

This system has no internal checks and balances. It keeps flowing until a few rivers are left. Rivers so wide that the trail will ultimately collapse. Unless us smart people intervene to save the day.