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Saturday, August 1, 2015

But what is middle class?

Working through my own explanations for important things in our world is something I enjoy doing, which I think helps my understanding. And sharing really seems to help me clarify things as if putting it out public gives more focus, and I like to think my musings useful, as long as it is clear these are opinions.

And I've posted several times recently including this recent post where I noted that years ago I also thought it a good idea to come up with ideas for a new political party with a middle class focus. But what is middle class?

To me when you talk about middle class where naturally my focus is on the United States you mean people who are not on direct government or other charitable assistance, who feel comfortable in their community, and feel in control of their lives, for the most part.

Money I think gives a certain amount of freedom.

Pushing on to wealthy I think requires that a person be able to purchase things not necessary for a comfortable life which then are luxuries.

So to me in general differences between middle class and wealthy are about scale, like a middle class household may have from two to four cars, while a wealthy man may own a dozen classic cars.

Or with a home, a middle class family may want as much space as needed. While a wealthy person may occupy a huge mansion.

Yet a person with a great deal of assets--including vast amounts of money--may occupy a middle class home. And in my opinion can be functionally middle class. To me wealthy presents at the point of luxury.

The functional perspective is where I think it gets interesting, as a middle class family occupies I think that optimal place where their efforts in terms of their community are on balance greater than or equal to what they receive.

Then an impoverished state from the community perspective would mean that while a part of a community you have needs which require help from others to a degree greater than you have given by the standards of that community.

May sound convoluted but for example you may have invested a lot in the people within your community where I will not try to define that and they may readily help you as you age without it being considered a debt on your part. In that case I would say if you are comfortable then you are middle class regardless of what money is involved.

Take it from me, being impoverished means loss of comfort and control. Which is to cover when someone is deliberately uncomfortable, like out camping with limited amenities when it is by choice versus really being irritated by uncomfortable things when there is no choice. For instance one of the problems for those who are homeless can be as basic as finding a bathroom to use.

And that's it. My opinion on the middle class is not necessarily how others might see it.

Like you can check out the Wikipedia on the American middle class.

Not surprisingly I think healthy communities want people with choices, able to pursue their interests in ways that help the community, without requiring much if any assistance from others. While members of such a community will assist each other greatly providing services for each other.

So how does money change things?

In my opinion ALL that money does is allow strangers to do things for you under social contracts that limit trust needed.

For example you can go to a coffee shop and have a complete stranger make you coffee, which is a fun experience I often enjoyed. Contrast with making it for yourself or having someone in your close community like a spouse make it for you.

By limiting social trust, society allows SO much more to be done between peoples and lets them share favors with money. Which is what allows modern society to function.

Then millions can support each other in a nation.

Notice though we still have deep social trust at the larger scale of the nation.

So yes, politicians can send young people off to defend their nation knowing that some will likely be killed, which is as huge a sacrifice as these brave young people can give.


James Harris

Monday, July 27, 2015

My opinion on money, risk and stagnant wealth

Found a need to talk out my opinions on money in various posts, and mentioned stagnant wealth in a post where I speculated that it can be a key component in generating unemployment. To me that's just fascinating to consider, but if I go back to some of my thoughts for my idea of money as an abstract enumeration of a favor, there is the wonderful question I've not yet tried to answer, how does money get created?

Trying to find a simple explanation for money, I came across the notion that it is really just a social IOU, where your society promises to pay you back for some favor you did some other entity, but how does that entity get the money in the first place to give you?

Seems simple enough if I think about banks. Let's say a person with lots of valuable things goes to a bank and has them keep some of those things in a vault, like say, piles of gold bullion. The bank hands what was for a time called bank paper to that person, and off he goes and uses it in a way we would associate with money. But it's NOT money.

In the United States, long ago, a federal bank was created, and banks were pushed to using federal reserve notes instead of always issuing their own bank notes as their notes were more risky--if the bank failed their notes were worthless!

But the federal reserve notes are backed by the federal government of the United States of America and are money. So money removes most risk, so that the entire nation has to fail versus some bank for it to be worthless. That's much better, now isn't it?

So the money flows through collateralized loans. Easy. Federal Reserve System loans federal reserve notes to banks, which loan to other entities through collateralized loans, and the money flows into the system, which most of us just call the world. Technically the flows are into the nation, but reality is the currency of the United States travels the planet. Other flow is through salaries to federal employees, of course, but that's negligible compared to the loan flow.

Now on to how wealth can be stagnated. Imagine a well-known and successful individual in a community needs someone to do something but for the moment has nothing but an IOU to give in return! The other person agrees, does the favor, and accepts the IOU. And imagine these IOU's from this high status individual are used in a way we might associate with money. And the person with the IOU gives it to someone else in exchange for a favor. And this goes on indefinitely, but eventually someone decides to call it in. And the trustworthy high status person gives something in return as promised, in exchange for the IOU. But what if at some point in this process some person just sits on it? Then there is no return on the favor. Someone did something without getting anything back for it.

Notice plenty of people can get a return on favors as the IOU travels, but the last person to do something, for some reason sits on it, and the original person has to pay nothing in return, even though he would. The original favor stagnated.

So something like money can be created very easily and people generate IOU's to each other routinely. For instance I think of corporate paper, where I found out just now with a search there are corporate bonds which are long-term and others with shorter terms called commercial paper as an example where there is a HUGE market. But it's still NOT money. What makes money is the IOU is from society itself with a guarantee from that society, so the risk is lessened greatly.

Now imagine some wealthy person does enough favors to gather a lot of money, and sits on it. For instance puts piles of actual cash money all in a vault.

The social IOU's are not fulfilled and are removed from the monetary system. That is stagnant wealth.

Notice if instead the wealthy person buys gold bullion with the money and puts THAT in a vault, it's not the same thing, as the favor was repaid. That is, if you do someone a favor, and they give you money, and you buy some gold with it, then the favor was repaid. You can do what you want with the money as long as you do SOMETHING. If you do nothing with it, then it stagnates.

Money is to be used. And society has to see that it gets used.

Notice that savings are use of money as long as the money is saved in a bank or with investments, as the bank loans the money out, or the investments are a loan in and of themselves.

Without banks you can't have a modern monetary system, as then there is no bulk way for the government to inject new notes into the system. That new money flows out from the banks through collateralized loans only.

There is no way to get the bulk of monetary flow to the people without banks.

Loans are critical to the modern monetary system in getting money into that system in the first place and in maintaining liquidity of the monetary instrument.

Wow that sounded fancy, but I'm no expert. But I like writing things like that here and there.

When money dries up, people have less money with which to pay strangers to do services as explained with my idea of limited social trust. So they may instead turn to close community or do without some services. For instance, you might rely on a close family member to fix something--or try to fix something--versus taking to a repair person. Or build a garden in your backyard to allay costs in shopping at the grocery store.

That pulls more money out of the system and maybe the repair person is no longer employed, or someone working at the grocery store gets laid off, and the impact expands outward causing higher unemployment.

Flush with money though the middle-class which drives most economic activity can hire someone to do repair work. Shop at the grocery store. And may even get pedicures. I've never had a pedicure, but I find them fascinating to contemplate. To me pedicures explain so much about why you need a robust money supply for a healthy economy where most people are gainfully employed.

In the modern era you can collapse an economy easily--just convince enough people to be prudent, do as much as they can without money, like grow gardens for their food, and eliminate expenditures like pedicures. You can crush an entire nation that way.

Money is a powerful tool, but it comes with consequences.

A healthy economy in the modern world requires that we depend on others and have a much larger community in many ways than at any other time in human history. That's a great thing.


James Harris

Wednesday, July 15, 2015

Transparency and community

Considering two of my recent posts I find myself wondering about the decision to reveal certain things where the relevance is worth discussing, and the word "transparency" is used a lot lately, but to me it's just letting people know of things they need to know.

But why would anyone need to know about any of my mother's issues? And will note I reflected up to about 19 years ago. So there is that 19 year gap up until the present day. And things have changed, and should say that she is much better now. And my stepfather is, as far as I know, much better behaved. Watching the situation as best I can.

Reality though is that my Mom was more of a public figure than she might think: a woman with recognition across much of South Georgia, selling World Book encyclopedias, with three gifted sons who would show up in the town newspaper the Tifton Gazette, now and then.

Regardless of what may or may not have ended up in the town paper, as I'm not really sure, as don't remember well, there were remarkable things around us, like when I went to Duke University for two summers as part of their Talent Identification Program.

For a region many see as racist, though it's more complicated than they may realize, there is no way we weren't significant: Black people asking for nothing, dominating almost unconsciously within our sphere, standing out on merit alone.

Maybe if she had been so inclined she could have been a political figure, but for many reasons including her religion that was not an ambition, I'm sure.

And so much changed.

Public figures for whatever reason find different rules, and reality is, I already know it's better for my Mom with community support, which is greater when people understand issues like these better. Which is true at many levels.

When transparency is discussed on the national or the international level, reality is, we need to know enough about people to be sure about them. And knowing certain things is necessary to understand what they are doing, or not doing.

That need to know is not an invasion of privacy when someone has made choices where their community has a legitimate interest in such things as guess what? They impact that community.

When your actions and words can make a difference in people's lives do not be surprised when they need to know more about what moves you. And for that, transparency is key.

Hiding too much doesn't help you or others. For all of us, community requires balance with what you share. While for public figures, figuring out where the line of privacy should be drawn is yet another indicator of how good you are at what you do.


James Harris