The Poor in a Democracy

One issue that is finally coming to public notice is the issue of inequality. When the virus started to make an impression, Jeff Bezos’ net wealth increased by tens of billions of dollars and that was effectively a free result of the increased significance of Amazon. Yes, Bezos did very well to set it up and he deserves a life of wealth, but that much? At the same time, a very large number of small businesses around the world were going bankrupt, workers were being fired, and in lands of plenty, very large numbers of people cannot afford a proper place to live, they struggle to buy enough food and electricity, and their children are hampered because they do not have the money to use internet technology for their learning. 

Let’s forget the virus. Before that, if the nation’s GDP went up, the lower incomes remained stationary; if there was a recession, the poor’s net wealth, if they had any, gets obliterated, and if they get sick they are in real trouble. The State makes policies that favour the rich, the bankers, and so on, and it is the poor who pay for it. How does this happen in a democracy? That it happens is shown by India, the world’s largest democracy. It is now a middle-income country, according to statistics, but it has the world’s largest number of extreme poor and the third largest number of billionaires.

A recent article on democracy in the journal Science used water as an example of 

a resource in limited supply. Suppose there is just enough for everyone to drink and wash. Now the rich can pay for huge private swimming pools so they make political donations, they get their water, and the poor get rationed through water meters and charging. The costs are trivial for the rich, but the poor cannot pay for the cost of the meter and the bureaucracy associated with charging and have enough income left over to pay for children’s education. So why did this situation occur? Essentially because the politicians permit it. The simple answer would be to ban swimming pools, but the rich will never permit that, and their power lies in the fact they fund the politicians’ election programs. There may be sufficient voters to have the overall power, but they cannot organise that advantage.

Further, politicians and parties become weaker if information flows improve. One of the first things you find out about governments is they seldom come clear with what they are doing. Politicians make grandiose generalized statements that sound good, but seldom show what is really occurring with any accuracy. That comment is sparked by the fact that New Zealand is having an election soon, and one thing that happens is there are TV slots in which senior politicians are asked questions from the public. Very seldom is a question answered properly. If you think that is just New Zealand, consider the debate (??) between Trump and Biden last night. Trust me, the NZ debates shine very brightly compared with that chaotic fiasco.

Nevertheless, when the word inequality was raised here, it got swiftly deflected. A recent question related to the effect of low interest rates. Strictly speaking, our government has no say in these – they are set by the Reserve Bank, but nevertheless the argument produced was that lower interest rates means less is paid on mortgages, and hence the poor get the benefit of easier accommodation, with money left over to buy food, etc. 

Yeah, right! Lower interest rates tends to lead to an increase in house prices. First, those with money see less return on bank deposits so take the money to buy assets. Accordingly, you get a booming house market and stock markets have record highs, even though thanks to the virus, businesses are not necessarily doing better business. That means house prices rise, so anyone buying simply pays a similar fraction of their income to the bank in interest, but their capital debt is higher. Because house prices rise, rent rises. The poor have just as little money to spend, or even less, business does not turn over better, while the rich stock up on assets, and probably work out ways to get tax relief for them. Thus lower interest rates are yet again another way to transfer wealth from the poor to the rich. Those who have houses tend to benefit, but they are not the poor.

We also have parties promising lower taxes. The poor would get enough to buy the odd extra loaf of bread a week, while the rich get serious increases because these tax reductions tend to be proportional to the tax. Rent/housing costs increase and that extra loaf of bread is gobbled up by the bankers, plus a lot more. Worse, we have quantitative easing. Either that has to be paid back (and that will not be paid by the rich, even though they are the only ones to benefit) or it will inflate the currency, at which time again the poor lose because the rich have their wealth tied up in assets. If you don’t believe the rich don’t pay tax, see the recent fuss over a certain Donald Trump.So why do the poor put up with this? There seem to me to be two reasons. The first is the poor cannot get themselves organised. They tend to be the ones who don’t vote. They say no party cares about them, but if they are not going to turn up and vote, guess why the parties concentrate on those who will vote. Another interesting point is that parties that nominally favour the poor usually have politicians who are quite wealthy. Getting elected by the poor might be easy, but getting nominated for a party with any show is hideously difficult. Parties pick candidates that will be trouble-free. Donors must not be upset. Which ends up with getting politicians whose major skill lies in getting elected. Asking them then to do something creative, as opposed to doing what the lobbyists want, is too much. Asking for a conscience is just plain silly. It ain’t goin’ to happen any time soon.

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