Tuesday, June 26, 2007

Class division, the economy, and public radio stealing my blog entries

This post originally appeared on the now defunct blog, Team Sakib.

One of my favorite shows on NPR is Marketplace, NPR's daily business review. While most business or economics media outlets (like WSJ) target their programming for affluent and powerful businessmen (who, I'm sure, command a strong demand in the advertising sector), Marketplace tends to make that pull a little less. Yes, Marketplace is still economics skewed for the rich, like CNBC, but it makes that assumption that these rich might want to hear a slightly more balanced approach.

Anywho, last night's Marketplace show stole a couple of ideas I had for posts. Or rather, featured other people who had the same ideas that I did, and got the job done fleshing them out much sooner and better. I'll discuss the larger issue one now and save Cal-Berkeley's analysis of Facebook vs. Myspace for later.

The financial gap is everyone's problem

by John Authers, investment editor, The Financial Times

The rich are getting richer and the poor are getting poorer. And that could be a problem — for the rich.

That's not an original observation. It goes back at least as far as Karl Marx, who talked of "two great hostile camps" that could sort out their differences either through revolution or in "the common ruin of the contending classes."

Nobody on Wall Street is advocating revolution. But if UBS, the biggest bank in Switzerland, can say it finds that "low-income Americans have been in a recession all this century" that says something.

UBS believes that inequality is a deepening problem for everyone, and not just the poor.

And Wall Street is right to be worried. First of all, it makes the job of investing harder.

That's because numbers on the aggregate economy become meaningless when you have two separate economies, one built around the rich and the other around the poor.

So, good luck on deciding where to put your money. If you want to lend, look no further than the subprime mortgage debacle. The headlines show the U.S. economy barely slowing down, and yet the subprime mortgage industry is in crisis.

The theory is that diversification will look after you. Mortgages and other loans are now packaged up and sold on as securities. If you buy a security representing a range of mortgates, defaults should stay at a manageable rate.

But that assumes all borrowers are living in the same economy. If they are living in two, one of which is in crisis, such comfortable assumptions go out of the window.

And if you want to invest, luxury goods are a good investment but there is a limit as to how many of those goods the rich will buy. Selling to the increasingly poorer economy looks risky.

Marx said that inequality could be a problem for everyone. He proposed his own solution, which would certainly not go down well with the wealthy. But remember his other option was "common ruin."

Wall Street is taking that more seriously than you'd think.

The economy has been absolutely rosy from my vantage point, the upper class vantage point that is. Yet, it is not hard to believe that as gas prices rise, and with them the price of any basic good that has to be shipped, the price of heat and hot water, and the cost of simply getting to work everyday, that the lower class economy is struggling. It's ironic how it seems that affordable energy is a key element to development--see Iran's struggles with subsidized gas prices as the country regresses from developing third world country (a rare breed) to militaristic economically-stunted third world country (see Pakistan). In the US, we've seen high gas prices the last seven years, and with it we've seen a slow-down in all sectors of the economy, except on the street, where luxury consumer goods seem to be more prevalent now than ever before (I have no citation).

The trend seems to be rather entrenched, and the result imminent, though not through drastic discrete events. Over time, it seems the rich will continue to get richer, the poor will continue to get poorer. More than terrorism, more than the war, more than civil liberties, this should be the foremost concern of American Muslims. Yes or no?