Darwin, Lincoln and Diamond:

The first two of these men were actually born on the same day 200 years ago this year. Both men shook society to its very foundation. Darwin by his observation of natural science and Lincoln by changes he made to a social order. More will be said about Dr. Jared Diamond later in this essay.

Charles Darwin’s seminal work “On the Origin of Species” has stood the test of time and is no longer debated within the scientific community. Among the lay public his ideas still are a source of controversy. I finally heard a good reason why this is so. Essentially the reason folks oppose this idea is because it removes the idea of direct divine intervention in the creation of the human species. No longer can we envision God kneeling in the dust and molding man out of inanimate materials. As warm and fuzzy as that idea may be it is sadly misguided. As long as people want to believe an idea there will be followers of that idea.

When we come to Lincoln the problem is slightly different but Abraham Lincoln was no less of an agent of change than was Charles Darwin. I will not try to compete with the huge number of scholarly essays on this America’s greatest president. Lincoln forever changed the relationship between American citizens. Dred Scott v. Sandford resulted in a ruling that stated “… people of African descent imported into the United States and held as slaves, or their descendants—whether or not they were slaves—were not legal persons and could never be citizens of the United States, and that the United States Congress had no authority to prohibit slavery in federal territories. This ruling was rendered in 1857. The first emancipation proclamation was made in September of 1862. The union was committed to ending slavery.

I would like to think that Lincoln’s ideas are widely accepted however there are still people that cling to the belief that all races other than the white race are inherently inferior. Jim Crow laws did not fall in much of America until the 1960s. Indeed Martin Luther King was shot and killed in 1968 by a man called James Earl Ray. This caused James Earl Carter to run as Jimmy Carter. So odious was the first two names. Lester Maddox was elected as governor of Georgia from 1967 to 1971 largely based on his pledge to refuse service to blacks in restaurant he owned.

Lastly we come to the third member of this group. The seminal theory that Jared Diamond proposes is that the elite and rich of a society must share the pain of change or real change simply will not occur. He illustrates this by what has happened in New Orleans. He contrasts the levy system with the system of dykes protecting Holland. The reason that the dykes work in Holland is that if the dykes fail the rich will suffer as well as the poor. The rich in New Orleans live on the high ground and were largely immune to the flooding in the rest of the city. Failure of the levies caused no discomfort to the wealthy of New Orleans. This necessity that the rich must have their well being at risk seems to apply to the changes needed in America today. If the rich do not suffer from the change then it can be argued that real change has not occurred.

The Forgotten Man and the Economic Stimulus Bill:

For those of you who did not read the book mentioned in the title of this essay I refer you to the reviews with this Google Search. While well researched the author rather misses the point when she states that it was World War Two that ended the depression not FDR spending. How exactly does she think world war two was funded? Surely she does not think that war bonds and stamps paid for it. The Second World War was funded by borrowing and spending by the government.

America is now facing a second great depression that may in fact be far more persuasive than the one of 1929 to 1933. Will we work our way through this one as we did through the last one? I think we will but there will be great suffering. Already people are dying because they cannot afford medical treatment. At the moment there are hungry Americans living in cars because they have been foreclosed out of their residence. I am unaware of any American starving to death but frankly I expect that too will happen.

I do not think there will be the horrors of the Second World War such as German death camps and the Battle of Stalingrad to say nothing of the deaths caused by the American bombs dropped in the final days of the war. Yet to say we will avoid this kind of blood bath is slight comfort. The best guess estimate of the cost of the Second World War can be found here: Google Search.

Now I think what we have to ask ourselves is: are we prepared to spend the trillions needed to bring prosperity back to America? And if we are how will we invest such that our own bankers do not cause a third depression. I think that what we must do is invest in the country itself in the form of health care and energy independence. It may be that we can no longer continue to expand our sphere of influence as we have tried to do with our overwhelming but largely target less military.

We can start this process by acknowledging that it is going to cost huge sums to turn this crisis around. The other thing we have to realize is that governmental deficit spending was responsible for the beginning of the end of the depression as well as the final victory that went hand in hand with our victory over German and Japanese military.

Wealth Balance:

During the past 90 days many Americans have come to realize how little control they have over their financial destiny. This has come as a horrible shock to many who should have known better. Money and the wise use of money frankly seems more than many folks can understand or handle. So let us review some basic facts.

In science we talk about the half life of an isotope. What that means is what period of time must elapse before ½ of the radioactive atoms have decayed into something that is no longer radioactive. This same concept can be used to look at borrowed or loaned money. If we have any kind of loan there are three parameters to that loan: the amount, the rate of interest and the payment. These three factors go into determining the life or half life of the loan. When a rate of 30% is charged as it is on some credit cards the time to repay the loan becomes very long indeed.

Let’s look at several examples:
Repayment Calculator

Loan A is for $3,000 at 30% with a payment of $100 per month.
That means the loan will be paid in 4.8 years (58 payments) total interest cost = $2,614

Loan B is for $3,000 at 30% with a payment of $50 per month.
That means the load will be paid in 10 years (112 payments) with a total interest cost = $6,487.

Cutting our payment in half increased the term of the loan by a factor of two but our interest costs went up by a factor of 2.8 times. What is most distressing is trying to figure out exactly where we will be financially in ten years time. Today’s worker stays at a job for an average of 3 years.

If we consider the loan for a house and look out 30 years we have some even more astounding figures:

Loan C is for $187,000 at 5% for 30 years gives a payment of $1,004 and an interest cost of $174,387. That is our interest costs were almost equal to the amount borrowed.

Load D is for $187,000 at 12% for 30 years gives a payment of $1924 and an interest cost of $505,448. That is our interest costs are some 2.7 times the value of what we borrowed in the first place.

Now consider what has happened in the past 365 days where the value of the average home has fallen by 30 percent or more. The loan amount has not changed but the value is now $130,900 and so your interest cost becomes 3.86 times the value of the home.

How did this happen. In my judgment it happened because too few hands controlled the wealth of this nation. Because too few people made the decisions on these matters they could be convinced to think the same way. Take for example the idea that wealth creates new businesses. And contrast that with the number of jobs that have been sent overseas where labor costs are a fraction of what they are in America. Is this what is meant by job creation? An autoworkers wage of $25 per hour results in a gross income of $52,000 and that is before taxes and insurance and union dues. Contrast that with the CEO who makes $5,000,000 in salary and bonus. The ratio is some 96 times. And that is before the autoworker pays any taxes or health insurance or union dues at all. Contribution to his 401k plan will reduce his available income still further.

Yet I still hear folks saying the wages are fair in America, and that a minimum wage of $6.55 currently or some $13,624 annual gross income is enough. Poverty line for a family of 4 is $19,350 or some $5,726 dollars above this person’s income. Let us say it another way this worker is not paid even what the government has determined to be the minimum required amount. Is that fair? Add to this his credit card debt and you begin to sense how totally hopeless and helpless these folks feel. I say with all due respect to the folks in Houston’s River Oaks fix this problem or this problem will bring you mansion down around your head.