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Greed is not for the Greater Good - Part V

The humble carrot may be the undoing of the Middle Class

Moving on from Part III and Part IV of this essay, one key point which I think needs some careful analysis, and which you mention towards the end of your letter, is the collapse of the middle classes and the possible return to serfdom. This point was brought home to me recently when I read there will likely be a further third wave of housing foreclosures in the USA. Based on discussions with people in my networks, this is a global issue. These so called "good credit" risks are now being pushed into the "bad" risk categories. After having lost their jobs which supported their good credit ratings, these individuals are now likely to lose their credit ratings as well. It is likely that this will depress housing and asset prices further, and delay a recovery as people with bad credit ratings are less likely to obtain credit in future. I would not be surprised if many of those that will suffer this fate in the next 6 - 12 months are demonstrably part of the Middle Class, subject of this Part of the essay.

I have held this same thought for the past ten years now and have often talked with the children about this, especially since we had from time to time some headaches with their academic progress. For me it is essential that any society retains a vibrant and thinking middle class of substantial proportion, to ensure the civil liberties and the thoughts of our founding fathers are preserved. It is interesting to note that those founding fathers were all well educated and broadly so, being able to hold a conversation on just about any topics. Consider Benjamin Franklin and his interest in physics and experimentation, and all his colleagues such as Thomas Jefferson, whom I referred to in Part IV, both in the USA and in Europe with similar wide and varied interests, enabling them to see a holistic picture and analyze how different issues interacted. This would have resulted in much more considered decision making, which is why the essential bases of our nations in the form of the Constitutions are basically robust and relevant to this date.

The biggest rise of the Middle Class has, however, its origins in the post war period and is therefore somewhat of a mirage in my opinion. As you well expressed using several examples, the material and economic progress we have made in society, mostly in the Western World, has to a large extent been driven by consumerism and borrowing on credit as well as increased social welfare support systems. The rise of the Middle Class may therefore be founded on false premises. I perceived it as a great way to ensure our collective future generations obtained the necessary education and qualifications to maintain this level in the future, something I still hold as essential.

The reason why that thought came to me is based on careful research over the past 20 years into the origins of my family as noted in other parts of our website, and still very much a work in progress. To this date, two branches of Balfoorts exist in Holland, descended from two brothers in the late 1700's. One brother chose to educate himself with the support of his father, then a successful merchant trading with the Baltic States. The other didn't. The result reverberates to this day, as the branch descended from the more educated brother is fewer in number, but counts amongst it a significant number of thinkers, musicians, artists, doctors and so forth. The other branch is much more numerous, but has few more educated and progressed individuals ie Middle Class. Although this is only one, and personal, example, it seems to me that, based on the 300 years since the two brothers made their individual decisions, the concept of the sins of the fathers being visited upon the children, the grandchildren and following generations finds an interesting echo in this.

In essence, in parallel with a sense that disease was effectively neutralized through the discovery and invention of antibiotics, the leaders of post war generations believed that never ending consumerism would in the end radically reshape the age old social stratification, which, before the war, still saw a minority of any population holding most of the wealth of any nation, with a small middle class muddling along, and a majority of working class on the edge. I would argue that, just as the belief that we had finally tamed nature with our sophisticated medical solutions, this was a historical aberration of no longer than 60 years duration. It is my belief that the current crisis will be seen in future as the end of a social experiment that was unsustainable. I had been waiting for it, but had not expected it as soon as it has happened which is a pity in a way. The baby boomers were and are still the mad purveyors of this impossible dream, denying the essential fact that resources are not unlimited, which supported the consumerism that you mention, and the political reactions such as trade-in credits for perfectly sound vehicles, just to kick start the next cycle of consumerism, up, up and away.

I cannot help but think that the Middle Class itself lost its way in the pursuit of the good life. The books by Daniel Goleman well explain this phenomenon, which was driven by increasing participation of both sexes in the work force and a vacuum at home that left the children to be babysat by television, at that time also an ascendant force, and by a short term shortcut to parenting called the reward system, which has also been widely written on. With an absence of energy and time available to explain right from wrong to the children under our responsibility, increasing numbers of parents resorted to a stick and carrot approach. In other words, if you do that task I will give you a lolly. If you don't perform that task you can't watch the A Team tonight. By consistently tying each action of a child to a reward or a punishment we develop the parts of the brain that deal with self gratification, a basic emotion, which can cause a lot of damage in society where we also know it as Greed.

At home we have consistently untied any rewards or punishments from the children's actions before any such actions occurred, to pre-empt this type of motivation developing, with exceptions where necessary. Clearly punishment is sometimes required to emphasize certain behaviour is inappropriate. As a result our eldest children are motivated and confident to develop without awaiting a monetary or other reward for their actions. They thereby gain a perspective on the Greater Good rather than Greater Greed, through the effective use of logic and reason in rearing them. Reason and logic take time, something we generally have a short supply off in this day and age.

I can't escape the feeling that many of the aberrations I have written about elsewhere, including cheating during exams (it is indeed rampant even at higher levels of education as I am finding out from my children) and insider trading, all designed to get us individually ahead to receive the next carrot, are at the core of the problem, not a lack, or a surfeit, of regulations.

A good exposure on the financial markets and how they operate is to be found on http://www.youtube.com/watch?v=nUapLR2d7ac&feature=related. After discussions with my network some have some doubt about the motivations of the author of the book, which I can not blame them for. However, based on my experience, the resulting feedback on the interview which you will find interesting, is all very true and factually correct. In case you find that hard to swallow, note that I have in my twenty years experience been closely involved in auditing, investigating or blowing whistles on around US$ 75 million worth of fraud, insider trading, breaches of laws and regulations and so forth so I think I have a reasonable base from which to make this call. A lot of these frauds and irregularities were perpetrated in the pursuit of improved annual financial results and the attendant bonuses of the executives implicated in those schemes.

A final mention of the carrot approach in the business world, which we will find in hindsight another nail in the coffin of the pursuit of greed, is the current development for banks in the USA to get out of TARP. I believe that their decisions are premature, considering a likely third wave of misery amongst the Middle Classes. I also strongly suspect that the banks are eager to get out of TARP because they are limited in executive compensation decisions, something which must surely be an affront to the average senior executive so used to living the good life.

One might assume that this third wave of misery has not been fully captured in the bank's calculations to determine their liquidity which they were asked to do by the Fed. Especially as the carrot dangled in front of them is a release from the aforementioned restrictions on exec comp, one might assume some creative accounting is at work. I finally include the following link http://www.bloomberg.com/apps/news?pid=20601087&sid=aRxoLknWun0w which gives us a further confirmation that decision making at the levels in which we put our misplaced trust is not at all for the Greater Good but more than likely for the Greater Greed.

The next Part VI of this essay will look at historical developments in a chronological order to ensure the history of how we got in this serious mess is clear, and therefore the possible solutions to get us out. It is entitled "Wobbly pillars can be relevant in this day and age".

Click here for PART IV

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