6 Myths About Money

May 20, 2015 Carol 2 comments

I once thought that economics was a boring, useless subject. I was wrong. Its purpose is to measure the success or failure of societies, and to help determine the factors that go into those successes and failures. It’s not that money, per se, is important — but our relationships toward money and our attitudes toward money can mean the difference between a thriving planet and a dying planet.

So the purpose of my post is to examine our relationships and attitudes toward money. The quiz questions are intended to help dispel myths about money. Take the quiz and read the answers.

The Money Quiz

Questions

Mentally mark each statement below either True or False.

  1. Money can make you happy.
  2. We should consume more to help our economy grow.
  3. Gross Domestic Product (GDP) is the best measure of a country’s prosperity.
  4. There has always been a wide gulf between the richest and the poorest.
  5. Trickle-down economics works for everyone. The richer the rich get, the better our economy does.
  6. I want to live in a world where the 1 per cent own more than the rest of us combined.

Answers

1. Money can make you happy.

A: This one has some truth to it.

Although money cannot buy you happiness, the way you spend it could.

However, lasting happiness comes from living a good life. Authentic happiness depends on things like mindfulness, conpassion, altruism, and gratitude.

Authentic Happiness Map

2. We should consume more to help our economy grow.

A: False!

The Forbes article Think Consumption Is The ‘Engine’ Of Our Economy? Think Again. offers a good explanation. As Forbes contributor John Papola explains, “If the economy were a car, consumer preferences would surely be the steering wheel, but real savings and investment would be the engine that drives it forward.”

However, the real question should be: “Do we want our economies to grow?” Check out the Common Questions page on Post Growth Institute’s website. Here is an excerpt:

Because the earth has biological limits, it is both physically impossible and an unacceptable risk for humanity as a whole to pursue growth indefinitely. For our own security and safety, we need to move beyond the widely accepted belief that we can continue to grow our economies, our populations and our consumption of material resources forever.

3. Gross Domestic Product (GDP)is the best measure of a country’s prosperity.

A. False!

Writing for the Boston Globe, Michael E. Porter explains why GDP is not the best way to quantify national success.”GDP is not bad — it just measures what it measures, and what it measures is limited. The social malaise that resulted in the Arab Spring in many “prosperous” Arab countries is a sign that economic measures alone are inadequate measures of society’s success. The unrest and protests in Brazil, a country that has registered strong economic growth in recent years, tells us the same thing.”

Porter goes on to describe “the Social Progress Index, “the most inclusive and ambitious effort ever attempted to measure social progress comprehensively.” “The Social Progress Index defines social progress according to three broad dimensions: Does a country have the capacity to satisfy the basic human needs of its people? Does a country have the institutions and conditions in place to allow its citizens and communities to improve their quality of life? And does a country offer an environment in which each citizen has the opportunity to reach his or her full potential?”

4. There has always been a wide gulf between the richest and the poorest.

A: True, but the current levels are dangerously high, and growing wider.

If you live in the United States, here are the facts:
  • The top 10 percent of earners took more than half of the country’s overall income in 2012, the highest proportion recorded in a century of government record keeping.

top income shares grow

  • In Paul Krugman’s review of Capital in the 21st Century by Thomas Piketty, he mentions these stats from the US Bureau of Labor Statistics: “Real wages for most U.S. workers have increased little if at all since the early 1970s, but wages for the top 1 percent of earners have risen 165 percent, and wages for the top 0.1 percent have risen 362 percent.” (Krugman calls those “supersalaries.”)
3rd Street Blackout
Photograph: Andrew Mendelson.

Helen Waters, Ideas Editor at TED. asked an international group of artists, designers, photographers and activists to provide one image that encapsulates what inequality means to them — and to explain their selection. To read about the photo above, and to see the other selections, see Gallery: What inequality means to me.

If Americans want to live “ the American dream, they should go to Denmark.
— RICHARD WILKINSON CO-AUTHOR OF THE SPIRIT LEVEL

The global picture is even worse.

Credit Suisse’s Global Wealth Report estimates the net worth — both financial and “real” assets like housing — for all the world’s adults. In 2014, Credit Suisse researchers estimate, individuals holding over $1 million in wealth — the richest 0.7 percent of adults globally — held 44 percent of global net worth. – See more at: http://inequality.org/global-inequality/#sthash.e3FtAgO3.dpuf

global inequality

A recent report from Oxfam,  Wealth: Having it all and wanting more, deserves our full attention.

Global wealth is increasingly concentrated in the hands of a small wealthy elite. These wealthy individuals have generated and sustained their vast riches through their interests and activities in a few important economic sectors, including finance and insurance, and pharmaceuticals and healthcare. Companies from these sectors spend millions of dollars every year on lobbying to create a policy environment that protects and enhances their interests further. The most prolific lobbying activities in the US are on budget and tax issues; public resources that should be directed to benefit the whole population, rather than reflect the interests of powerful lobbyists.

This briefing explains Oxfam’s methodology and data sources and updates key inequality statistics, such as Oxfam’s frequently cited fact in 2014: ‘85 billionaires have the same wealth as the bottom half of the world’s population’.

5. Trickle-down economics works for everyone. The richer the rich get, the better our economy does.

A. False!

Nick Hanauer is an American entrepreneur and venture capitalist. He is a co-author of the book called The True Patriot and speaks and writes nationally on inequality, the economy and democracy. He wrote A Wealthy Capitalist on Why Money Doesn’t Trickle Down for The End of Poverty, the Fall 2014 issue of YES! Magazine. Here are a few key points:

  • A thriving middle class isn’t a consequence of growth — which is what the trickle-down advocates would tell you. A thriving middle class is the source of growth and prosperity in capitalist economies.
  • By 2040, it is estimated that 48 percent of all American jobs will be low-wage service jobs. What proportion of the population do we want to live on food stamps? 50 percent? Does this matter? Should we care?
  • Our economy can be safe and effective only if it is governed by rules. Some capitalists actually don’t care about other people, their communities or the future. When Wal-Mart or McDonald’s or any other guy like me pays workers the minimum wage, that’s our way of saying, “I would pay you less, except then I’d go to prison.”
  • The danger is that economic inequality always begets political inequality, which always begets more economic inequality. Low-wage workers stuck on a path to poverty are not only weak customers; they’re also anemic taxpayers, absent citizens and inattentive neighbors.
  • An economic arrangement that pays a Wall Street worker tens of millions of dollars per year to do high-frequency trading and pays just tens of thousands to workers who grow or serve our food, build our homes, educate our children, or risk their lives to protect us isn’t an expression of the true value or economic necessity of these jobs. It simply reflects a difference in bargaining power and status.

6. I want to live in a world where the 1 per cent own more than the rest of us combined.

A: If you care about your own well-being and/or the  well-being of others, your answer should be “False.”

"Blessed are the meek, for they shall inherit the Earth" Opposite Haji Ali Masjid, Mumbai
“Blessed are the meek, for they shall inherit the Earth”
Opposite Haji Ali Masjid, Mumbai

I have been fighting inequality my whole life. Where grew up in Uganda, my family did not have much, but we were among the better-off in our village. My best friend and I went to school together every day. I had one pair of shoes, she walked barefoot. I did not understand why then, and I still don’t now. Inequality must be fought, every step of the way.
— Graça Machel, Founder Graça Machel Trust

Extreme disparities in “ income are slowing the pace of poverty reduction and hampering the development of broad-based economic growth.
— KOFI ANNAN AFRICA PROGRESS PANEL, 2012

No society can sustain this “ kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out.
— NICK HANAUER US BILLIONAIRE AND ENTREPRENEUR

The Oxfam report Even It Up: Time to End Extreme Poverty offers an excellent discourse on extreme poverty, including a discussion of its harmful effects on societies:

Extreme inequality corrupts politics, hinders economic growth and stifles social mobility. It fuels crime and even violent conflict. It squanders talent, thwarts potential and undermines the foundations of society. Crucially, the rapid rise of extreme economic inequality is standing in the way of eliminating global poverty.

Extreme economic inequality has exploded across the world in the last 30 years, making it one of the biggest economic, social and political challenges of our time. Age-old inequalities on the basis of gender, caste, race and religion – injustices in themselves – are exacerbated by the growing gap between the haves and the have-nots.

The potential benefit of curbing runaway wealth by even a tiny amount also tells a compelling story. Oxfam has calculated that a tax of just 1.5 percent on the wealth of the world’s billionaires, if implemented directly after the financial crisis, could have saved 23 million lives in the poorest 49 countries by providing them with money to invest in healthcare.17 The number of billionaires and their combined wealth has increased so rapidly that in 2014 a tax of 1.5 percent could fill the annual gaps in funding needed to get every child into school and deliver health services in those poorest countries.

These are the key points:

  • Extreme inequality is a barrier to poverty reduction.  New research from Oxfam has shown that in Kenya, Indonesia and India, millions more people could be lifted out of poverty if income inequality were reduced.19 If India stops inequality from rising, it could end extreme poverty for 90 million people by 2019. If it goes further and reduces inequality by 36 percent, it could virtually eliminate extreme poverty.
  • Extreme inequality undermines economic growth that helps the many. There is a commonly held assumption that tackling inequality will damage economic growth. In fact, a strong body of recent evidence shows extremes of inequality are bad for growth. In countries with extreme economic inequality, growth does not last as long and future growth is undermined.25 IMF economists have recently documented how economic inequality helped to cause the global financial crisis.26 The ‘growth’ case against tackling economic inequality clearly no longer holds water.
  • Economic inequality compounds inequalities between women and men. Studies show that in more economically unequal societies, fewer women complete higher education, fewer women are represented in the legislature, and the pay gap between women and men is wider.
  • Economic inequality drives inequalities in health, education and life chances.  The latest national Demographic and Health Surveys demonstrate how poverty interacts with economic and other inequalities to create ‘traps of disadvantage’ that push the poorest and most marginalized people to the bottom – and keep them there.
  • Inequality condemns the poor to stay poor for generations.  In countries with extreme inequality, the reality is that the children of the rich will largely replace their parents in the economic hierarchy, as will the children of those living in poverty – regardless of their potential or how hard they work.
  • Inequality undermines the foundations of society. A growing body of evidence has also demonstrated that economic inequality is associated with a range of health and social problems, including mental illness and violent crime.

And, just in case you think that you are exempt from the harmful effects of economic inequality, watch this video.

Your Two Cents?

How did you answer the quiz questions? After reading my answers, would you change yours?

Do you see the value of understanding economics?

2 Comments on “6 Myths About Money

  1. I got them all right but that won’t help us. The world will be better when everyone has an opportunity to better themselves. All the wealth at one end of the graph is unsustainable and the pitchforks will eventually come out.

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