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Causes of wealth inequality?


DTEJD1997
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Hey all:

 

I'm going to suggest that ONE of the biggest causes of wealth inequality in the USA is due to education and "educators".

 

In that, there are 2 things that are causing problems.

 

1). A dearth of business/finance/economics in grade school/high school.  This perhaps even the case at some colleges?  I generally went to good primary/high schools and received ALMOST no education in regards to the stock market, banking, personal finance (balancing a check book, insurance, savings, investments, living within your means, etc.).  There was some discussion of differences in capitalism/socialism/communism and such, but not a lot.

 

90% of what a person needs to know regarding personal finance can be taught reasonably well in 1 semester to anybody with a 6th grade understanding.

 

This is generally not being done. 

 

So if people don't know/understand how the system works/operates, then is it any wonder that they have limited opportunities and financial problems?

 

2). A lot of educators are engaged in "scams" to get money and funding for their class/program/school.  This is endemic and going on all over the place.

 

Look at the problems with Detroit Public Schools.  Simply shocking and a disgrace.  Generations of children are sold down the river, but the teachers/admins make out like bandits (which they literally are a shocking percentage of the time).

 

Then you've got colleges putting out false/distorted employment statistics trying to induce young people to take out mortgage levels of debt to get an education.

 

I would posit that if the education system were corrected, opportunity in America would increase quite a bit.  It certainly would not solve everything, but it would be a great way to get started!

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I would add that the last three decades of falling and or artificially low rates have benefited the wealthy and those in finance far more than those in main street.

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One problem with your theory DTEJD is that when wealth inequality was lower they still didn't teach business/finance/economics in grade school/high school.

 

That very well may be...BUT not teaching certainly does not help.

 

Conversely, where would we be if it were taught starting in 6th grade?  A little at first, then more every year.  When you graduate high school, you then have a very basic knowledge of economics, finance, and ESPECIALLY personal finance.

 

You would have a lot more business start ups...more people saving/investing for their retirement, less credit card debt, less vehicle leasing, less student loans, better health care insurance, and on down the line.

 

Heck, I would go so far as to further suggest that you would have MUCH better tax rates and even government policies!

 

Maybe I'm just KRAZY though...

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I agree with that low rates plays a huge factor. I'll also say that globalization plays a big piece too.

 

Yes, offshoring of industry/business certainly plays a part.

 

Education reform is simply on BIG component.  Fix that and you solve/make better a bunch of things/outcomes...but it is not the ONLY part of the solution. 

 

A solid start to fixing things though.

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Wealth inequality goes far far beyond school curriculum. Right now we are kind of observing a combination of 1) the transition from a industrial to an information/service economy and 2) the effects of decades of failed government policy.

 

Offshoring is a big deal. But how do you fix it? Well, for starters, you'd have to give companies an incentive to pay more to keep workers here. But when you do that, the deadbeat liberals just whine about handouts for big, wealthy corporations... Can't win.

 

Capitalism, in its purest form, is naturally going to optimize labor and equipment to make the corporation as efficient as possible. It seems like both sides of the aisle agree that unchecked capitalism is not going to work for the country. Both sides are essentially calling for some form of intervention on the capitalist machine. Examples:

 

- "give incentives to companies" (from above)

- mandate benefits (time off, minimum wage etc.)

- Tariffs (current administration) 

- Regulation (environment, financial etc.)

- Tax rate

 

In the 1930's the country reacted to the financial depression by creating a social safety net. Rather than mandating the benefits provided by corporations, the government took on the roll of taxing and paying for the "layer of protection".

 

In order to protect the interests of US capitalism and individual citizens the country spends money on defense and infrastructure.

 

The left and right are arguing about where to spend money and intervene in order to optimize our capitalist economy:

 

The Right: the dream is to grow the economy to the point where the individuals at the bottom have an acceptable quality of life. One aspect of this is to limit the number of individuals at the bottom to make it easier to bring the quintile along (ie cut immigration). Cut regulation and tax rates to make the machine grow faster. This sounds like a good strategy, but the system has been set up to reward those in the upper two quintiles at a higher rate than the bottom three quintiles of the population, so wealth inequality continues to increase. 

 

The Left:  wants to help the individuals at the bottom by mandating the corporation provide a certain level of pay and benefits. If all else fails, they want to maintain the social safety net. This is all paid for by taxing the corporation and the individuals with money in the top quintiles. This sounds alright as well except for it slow the growth of the machine. Those with means protect their wealth to slow transfer to those at a lower rung and we see stagnation. 

 

If the country wants to reduce the wealth gap, our capitalist system has to be allowed to grow while at the same time allowing those in the lower quintiles of the economy to gain at a higher rate than those at the top. It is going to be some tough medicine for those making 100k+ and it's going to take some ideas from both sides of the aisle because neither has a proven solution.

 

 

 

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The person in the homeless shelter doesn't understand basic finance? The women hooking for crack doesn't understand finance?

Or is it more that if your kid doesn't understand basic finance - it's because you (& not someone else) didn't teach it to them?

And if this education wasn't occurring, you still chose to do nothing about it?

Rags to rags in 3 generations is still alive and well.

 

The same thing occurrs around anti-vacination.

Until you've seen someone die, or become crippled, from the disease that you are protesting about; you really have no idea.

Too much bubble-wrap.

 

SD

 

 

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

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Discussing inequality with a European once, I was told that a typical American will not feel envy when seeing a luxury car passing by because he can visualize himself in that car.

I guess that's true up to a certain degree of inequality and given a certain mobility.

At some point though, one may end up hating the driver in a populist kind of way, especially if there is both relative and absolute stagnation.

 

Here's a mostly visual summary that seems relevant and balanced and lists inequality drivers on page 3.

https://www.db.com/newsroom_news/Inequality_Jan2018.pdf

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If everyone is doing better, what does it matter that some people have much much more. <yawn> this is a big non-issue. Don't spend your life filled with greed and envy worrying about what someone else has.

 

Because:

1. Not everyone is doing better. Trump would not be president if everyone was doing better.

2. Even if they were, at a certain point inequality impacts the real economy.  I will give a simple [extreme] example: if you make the minimum wage, you will be spending 100% of your income. It will go 100% back to the real economy. If, on the other hand, you just made another billion yesterday, on top of your gazillion billions that you already have, it is unlikely to go into the real economy.  At a certain point, this becomes an issue.

3. In a democracy, people can vote.  They can vote for someone that would screw them even more just because this person knows what to say, happens. So, you don't want too many people being unhappy it will get worse even for the rich.

 

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

 

I know quite a few households where the kids are doing well not because of any bright choices but because the parents have significant wealth.  I'm not even talking about better health care, better education and the *choice* to take risks, the freedom to take risks, because they have nothing to fear if they fail.  I'm talking about having easy and ready access to supply chains because the dad has leverage or how they get large chains to hold their products because they make money off the dad's products and so on. Significant wealth brings competitive advantages that can pass through the generations.  This can be easily seen in Europe, where some families maintain their wealth over several centuries.  A rich kid can make plenty of dumb choices but still end up on top because of their family's wealth.

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

Rasputin, I generally agree with what you're saying. Except the part about legislating away dumb choices... we won't be able to do that.

 

Some wealth and income inequality is good and it should be that way. People that make bad choices should obviously have a worse life than the ones that make good choices. In my opinion that's not in dispute.

 

What I think is in dispute is the degree on the disparity. People have been making bad choices regarding money since the world was young. It's not that it's a recent phenomenon. But making bad decisions should not be a capital sentence. As you say, some people decide to be a waitress or bartender. But it is obvious that the world needs waitress, bartenders, janitors, etc. Since they are a requirement they should still be able to live a life. That means earn enough to pay rent, eat, and raise their kids. Furthermore their kids should have a good to decent chance to make a better life for themselves. Otherwise what you have created is a feudal class system of aristocracy and serfdom.

 

I'm also not entirely sure that the economy would work if everyone were to make good decisions. For example: Buying a used car is a good decision. But someone would have to buy/lease that new car so you can buy it used.

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

Rasputin, I generally agree with what you're saying. Except the part about legislating away dumb choices... we won't be able to do that.

 

Some wealth and income inequality is good and it should be that way. People that make bad choices should obviously have a worse life than the ones that make good choices. In my opinion that's not in dispute.

 

What I think is in dispute is the degree on the disparity. People have been making bad choices regarding money since the world was young. It's not that it's a recent phenomenon. But making bad decisions should not be a capital sentence. As you say, some people decide to be a waitress or bartender. But it is obvious that the world needs waitress, bartenders, janitors, etc. Since they are a requirement they should still be able to live a life. That means earn enough to pay rent, eat, and raise their kids. Furthermore their kids should have a good to decent chance to make a better life for themselves. Otherwise what you have created is a feudal class system of aristocracy and serfdom.

 

I'm also not entirely sure that the economy would work if everyone were to make good decisions. For example: Buying a used car is a good decision. But someone would have to buy/lease that new car so you can buy it used.

 

Great post.  8)

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

Rasputin, I generally agree with what you're saying. Except the part about legislating away dumb choices... we won't be able to do that.

 

Some wealth and income inequality is good and it should be that way. People that make bad choices should obviously have a worse life than the ones that make good choices. In my opinion that's not in dispute.

 

What I think is in dispute is the degree on the disparity. People have been making bad choices regarding money since the world was young. It's not that it's a recent phenomenon. But making bad decisions should not be a capital sentence. As you say, some people decide to be a waitress or bartender. But it is obvious that the world needs waitress, bartenders, janitors, etc. Since they are a requirement they should still be able to live a life. That means earn enough to pay rent, eat, and raise their kids. Furthermore their kids should have a good to decent chance to make a better life for themselves. Otherwise what you have created is a feudal class system of aristocracy and serfdom.

 

I'm also not entirely sure that the economy would work if everyone were to make good decisions. For example: Buying a used car is a good decision. But someone would have to buy/lease that new car so you can buy it used.

 

Different choices may be the right choice for people at different times and stages of their lives.

 

For example, I almost always buy used cars/vehicles. The one time I bought a new vehicle it was a work vehicle, used exclusively for business.

 

For the foreseeable future, I will continue to buy used vehicles. 

 

If I were to ever to get a wife/child.  I very well might buy a NEW vehicle for them.

 

OR perhaps 20 years in the future, when I am finally a big success...I very well might buy a NEW vehicle simply because I just don't want to fiddle around and want what I want.  If you are worth $3 or $4 MM+, why fiddle fart around with a $50k vehicle?  If you really want it, just buy it and move on.  Enjoy your life/time.

 

To have much better outcomes in society...you don't need 100% participation and better behavior.

 

I've heard that something like 75% of households are operating pay check to pay check.  What if in 5 years, that figure drops down to 25%?

 

Or what of retirement savings?  Fidelity reports that the MEDIAN retirement savings of people in their 40's is only $63k.  What if in 5 years that were to go up to $100k?  Wouldn't make the problem solved, but American society would be in a BETTER position than it is today.

 

If American society can improve through better education/values, it would be a good thing.

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I'll also say that globalization plays a big piece too.

 

Globalisation temporarily causes inequality within countries, because entire areas can see jobs flood overseas. However in a free market this shouldn't be a permanent effect because either lower wages should attract investment or people should move. When that doesn't happen it's usually because of unions or government benefits, IMHO.

 

However globalisation is a driver of wealth equality between countries. It's often forgotten that inequality between countries has dropped fast over the last 30-odd years as the developing world has caught up with the developed, and a lot of that is down to globalisation driven by the developing world opening their economies and embracing free markets.

 

To put it another way: for every job lost in the developed world, it seems to me that 3 or 4 have been created in the developing world.

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

 

I know quite a few households where the kids are doing well not because of any bright choices but because the parents have significant wealth.  I'm not even talking about better health care, better education and the *choice* to take risks, the freedom to take risks, because they have nothing to fear if they fail.  I'm talking about having easy and ready access to supply chains because the dad has leverage or how they get large chains to hold their products because they make money off the dad's products and so on. Significant wealth brings competitive advantages that can pass through the generations.  This can be easily seen in Europe, where some families maintain their wealth over several centuries.  A rich kid can make plenty of dumb choices but still end up on top because of their family's wealth.

 

And how does that make you feel? Envious?  Like you deserve to take what they have?  How is any of what someone does for their children your business? 

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Discussing inequality with a European once, I was told that a typical American will not feel envy when seeing a luxury car passing by because he can visualize himself in that car.

I guess that's true up to a certain degree of inequality and given a certain mobility.

At some point though, one may end up hating the driver in a populist kind of way, especially if there is both relative and absolute stagnation.

 

Here's a mostly visual summary that seems relevant and balanced and lists inequality drivers on page 3.

https://www.db.com/newsroom_news/Inequality_Jan2018.pdf

 

Ha, I only hate him if he cuts me off or tailgates me.

 

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Guest Schwab711

I'm going to suggest that ONE of the biggest causes of wealth inequality in the USA is due to:

 

It's stock compensation being favored by the US tax code.

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In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

 

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

 

knowing the right thing to do vs actually doing it...

 

I know quite a few households where the kids are doing well not because of any bright choices but because the parents have significant wealth.  I'm not even talking about better health care, better education and the *choice* to take risks, the freedom to take risks, because they have nothing to fear if they fail.  I'm talking about having easy and ready access to supply chains because the dad has leverage or how they get large chains to hold their products because they make money off the dad's products and so on. Significant wealth brings competitive advantages that can pass through the generations.  This can be easily seen in Europe, where some families maintain their wealth over several centuries.  A rich kid can make plenty of dumb choices but still end up on top because of their family's wealth.

 

And how does that make you feel? Envious?  Like you deserve to take what they have?  How is any of what someone does for their children your business?

 

I am fine with rich children getting advantages from their parents. A successful parent should be able to do whatever they want with their money, including giving their children a safety net, sending them to the best schools etc.

 

I would like to see the playing field leveled though. Let's just ignore all the lower tax brackets and look at the top 2 and look at marginal tax rates for families:

 

200k: 15%

400k: 21% (+40%)

600k: 26% (+24%)

1.2M: 32% (+23%)

2.4M: 35% (+9%)

4.8M: 36% (+3%)

6.5M+: 37% (+3%)

 

The numbers above are for wage earners, and some posters would say they are fair (definitely not RK though!). I mean, by the time the government is taking more than a third of my paycheck they can leave the rest alone regardless of how much I make right?

 

This breaks down though when you consider most individuals earning 1M+ are taking advantage of the favorable treatment of capital gains and/or dividends where those making 425k+ are taxed max rate of 20% effectively pegging them at the same marginal tax rate as a family bringing in 350K a year.

 

What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

 

I would imagine this example captures a lot of the members on this forum; many members are probably paying a higher effective tax rate than someone earning 2-3x their income.

 

 

 

 

 

 

 

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What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

 

I agree with you there.

One group shouldn't be paying 22% while others pay 30% it is confiscatory to the extreme, we should be advocating bringing those who pay more than 22% down to the levels the rich pay.  Then focus on bringing everyone down to <10%.

No individual, family, or business of any type should ever pay more than 10%.  Preferably 5%.  In a perfect world 0%.  And by that I mean all taxes to Fed+state+local governments combined should be <= 10%.

 

A 10% tithe is more than enough, even god never asked for more than that.

 

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What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

 

I agree with you there.

One group shouldn't be paying 22% while others pay 30% it is confiscatory to the extreme, we should be advocating bringing those who pay more than 22% down to the levels the rich pay.  Then focus on bringing everyone down to <10%.

No individual, family, or business of any type should ever pay more than 10%.  Preferably 5%.  In a perfect world 0%.  And by that I mean all taxes to Fed+state+local governments combined should be <= 10%.

 

A 10% tithe is more than enough, even god never asked for more than that.

 

I have read your opinion about pure anarcho capitalism. I would be a little worried that capitalism in its purest form results in serfdom at best and slavery at worst. I don't want nuclear power plants dumping waste in rivers etc, so there has to be some sort of central authority right? Paying for a professional military is probably still a good idea right? I'd hate to see Buffett buy a dozen F22s and take over the central midwest, let alone an invasion by the Canadians ;-) 

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What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

 

I agree with you there.

One group shouldn't be paying 22% while others pay 30% it is confiscatory to the extreme, we should be advocating bringing those who pay more than 22% down to the levels the rich pay.  Then focus on bringing everyone down to <10%.

No individual, family, or business of any type should ever pay more than 10%.  Preferably 5%.  In a perfect world 0%.  And by that I mean all taxes to Fed+state+local governments combined should be <= 10%.

 

A 10% tithe is more than enough, even god never asked for more than that.

 

I have read your opinion about pure anarcho capitalism. I would be a little worried that capitalism in its purest form results in serfdom at best and slavery at worst. I don't want nuclear power plants dumping waste in rivers etc, so there has to be some sort of central authority right? Paying for a professional military is probably still a good idea right? I'd hate to see Buffett buy a dozen F22s and take over the central midwest, let alone an invasion by the Canadians ;-) 

 

I can see the arguments for some government, especially at the local/city level.  I think there are good arguments against it, but I'd be willing to admit I could be wrong.  But there is no question in my mind that 95+% of what the federal government does is unnecessary/harmful.  Spending should be cut 95% and taxes of all types cut 80% until the debt is paid off, along with selling all federal lands/buildings outside of D.C. to help pay off the debt, then taxes cut to allow for a balanced budget.  We have nuclear weapons, there is no need for 900 military bases in 153 countries.  I don't know how many military bases is sufficient, but they should all be in 1 country.  If the Canadian military crosses the border on horseback or whatever it is they do, I think many Americans would be happy to grab their rifles and help stop them.

 

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