When Rolls Royce (motors) are announcing record profits and Tesco are loosing market share to Lidl, at the same time, you know there is a problem.
The problem is this – in this economic crisis the rich have got a lot richer and the poor (and most of the middle) have got poorer. The wealth gap has grown. It may not seem this way, but this is at least as much of a problem for the rich as it is for the poor.
The problem is that there is not enough money in circulation. There is plenty in existence, but not enough of it is moving about in the right places and here is why:
If we share 10 million pounds, euros, yuan or dollars between 10 rich people they will be most likely to invest it in getting richer, which would be fine, except that they will probably invest it in things like, gold, bonds, property and hedge funds. The problem with investing in these things is that the money is not doing anything really useful. It is just sitting around speculating. What our 10 rich people don’t invest they might choose to spend – on Rolls Royces, Superyachts or other luxury goods.
If we shared our 10 million with 10,000 poor people, 1000 each, they will spend it, on normal things like clothes, food and so on.
The difference is that our rich people cannot really consume much more of the normal stuff, food, clothes etc than anyone else, so their wealth goes either into creating marginal markets for luxury goods or taking the money out of circulation altogether, through investment. Whereas our poor people and those in the middle create markets that are useful to normal people and sustain those kinds of businesses.
The problem for rich people is that as society becomes poorer relative to the rich and as the businesses that serve and employ normal people go bust, while at the same time businesses that serve the rich are flourishing. Luxury goods start to have a magnetic effect on the market. Luxury goods becomes the only thing to invest in and the only sector to find work, attracting a disproportionate share of human and financial capital. At some point a top heavy market and society, that lacks solid foundations, is destabilized.
In 18th Century France this kind of wealth gap lead to the French revolution and in 20th century Europe a similar expansion of the wealth gap contributed to causing the Second World War. Neither of these types of scenario are particularly desirable.
The point is that our businesses and our society depends on people. Money is just a human invention designed to facilitate the exchange of energy of various sorts. The evolution of society to a better, more peaceful, more fulfilling, more sustainable place for everyone is the objective, not simply the accumulation of wealth.
The solutions are fairly simple. If you are rich enough to be investing in something (including a pension), see if you can shift some of your investment to small businesses and start ups offering mass market services. The most effective solution to this economic crisis is entrepreneurialism and, right now, start up businesses are finding getting funding harder than ever.
If you work for or own a business that is profitable, see how you can increase the pay of your lowest paid workers. We need to be spending money in ways that build the foundations of the economy, to stop it falling over, and it is normal working people who spend their money on the foundations of the economy.
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PS – Wishing a very happy birthday to my wonderful wife 🙂