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How the Rich Got Rich

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Re: How the Rich Got Rich

#101

Post by einhverfr »

eli_gottlieb wrote: post #65
einhverfr wrote: post #55

Earlier quoted context omitted.

It comes from the same people trying to distract us. Steven Keen has shown that there is no public debt crisis. The real issue is a drop in private debt (the international credit crisis) which means a drop in consumption, which leads to recession, which leads to less lending, which leads to a drop in private debt......

I agree that the real problem is the recession of the nonfinancial economy based on consumption and production. I disagree that the problem is a drop in private credit. The problem is the decoupling of productivity from broadly construed returns (on assets and on labor). The problem is that productivity has become unable to outgrow debt service. We need private debt reduced as close to zero as possible, and we need t…

Well, what Keen points out is that consumption drops because people aren't spending as much. He also points out that the sources of spending are income and credit.

Basically he picks up on Minsky's idea of credit cycles and uses this to explain both the current economic problems and the Great Depression. He also points out that private debt is much greater than public debt.

I don't know if he sees the reduction in credit as a bad thing or just an inevitable thing.

As he points out, the way banks work is that they lend money, create deposits in the process, and look for reserves later.

As for private debt being reduced to zero, wouldn't that require a drop in housing prices by something like 90% so one could just buy a house without a bank loan?

Re: How the Rich Got Rich

#102

Post by einhverfr »

eli_gottlieb wrote: post #54
einhverfr wrote: post #45

Earlier quoted context omitted.

Way back in the day, Cicero wrote Des Republica, which is really belongs with Aristotle's Politics on the bookshelf. Cicero argues that being pro-property (and anti-theft) is simply necessary for people to live together in cities. People can't live together in cities if the means they use to make a living can be taken by their neighbors and they have no recourse. That's a pretty good point, and it means that non-urba…

Structural fixes are indeed better, but Chestertonian distributism has a slight difference from what you've been talking about: it prefers to actually minimize the size of enterprises and assign ownership to families. It's very British, in that way. It does, however, seem to actually work, which is far more than we can say for state-socialism.

Just one more point on re-reading both of these.

The end-result of Chestertonian distributism is an economy of tradesmen and small farmers. In other words, it is an economy of the self-employed. The US still has 20% of the work force that is self-employed and only 1/4 of those are doctors, lawyers, and others offering professional services. Anything which enables others to become self-employed moves us in that direction.

Any distributist approach cultivates the possibility and mentality of self-employment. Whatever form that takes is OK with me, even if that is the paradox of self-employment as a member of a larger firm.

Re: How the Rich Got Rich

#103

Post by einhverfr »

eli_gottlieb wrote: post #62
michaelochurch wrote: post #46

Earlier quoted context omitted.

"Property" is quirky word, and I now wish I could think of a better word to represent what I'm talking about, because the points you've raised are valid. Property rights are a great thing in moderation. There's a social need for people to have the right to own the products of their own labor. Where property becomes a systemic disease when property relations persist for longer (and allowing larger concentrations than…

You seem to be getting at the distinction between possessions and property. Proudhon would be proud. Possessions are things you own (in the sense of being the exclusive user) because you made them and you're the one who uses them. You make a flint and then a wood carving, these are your possessions. Property , however, is what we get when you start having exclusive usage rights to things you don't actually use. So a…

One useful thing would be an excise tax for land rentals. This would drive up the cost of renting (but probably not the price, since rentals are competing with purchases) in comparison to owning in terms of both one's own home and productive property (farmland, office space, etc). This means less incentive to be a landlord. Ideally the home should be productive property but all too often it isn't.

Re: How the Rich Got Rich

#104

Post by Evbn »

lifeisstillgood wrote: post #20
cynicalkane wrote: post #17

Earlier quoted context omitted.

Two things: 1) Buying capital is much, much riskier than earning wages. If we suppose people who are good at being capitalists are also approximately as good at earning money, the economic equilibrium will tend toward capital being then much more profitable. Us being "awash" in capital is a red herring; in your garden variety market equilibrium model it's the incentives that matter. The returns are exponential, which…

Sorry - progressive consumption tax - the more you spend the greater the % of sales tax? So buying a toy boat hits me for 8% but a 200ft yacht gets 80% added on. Surely, that will really really encourage tax jurisdiction shopping I still prefer focusing taxation on companies - if you want to base yourself in cayman islands that great. You just can never ever do business in any of these western countries...

You just mentioned jurisdiction shopping and then proceeded to ignore it.

Re: How the Rich Got Rich

#105

Post by Evbn »

rdl wrote: post #28
rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

There's risk and there's also inflation embodied in the capital gains. If you invest for 20 years, inflation can be a big percentage of a gain. It gets taxed as capital gains, which is one of the stronger arguments for a lower rate for capital gains than annual income. (of course, sometimes annual income is ALSO the result of deferred compensation. Say a doctor spends 8 years making $30k/yr when she could have been m…

Non-carryover of annual earnings is one is of the huge flaws in US tax system, that punished people with bursty or deferred+balloon income.

Re: How the Rich Got Rich

#106

Post by einhverfr »

eli_gottlieb wrote: post #65
einhverfr wrote: post #55

Earlier quoted context omitted.

It comes from the same people trying to distract us. Steven Keen has shown that there is no public debt crisis. The real issue is a drop in private debt (the international credit crisis) which means a drop in consumption, which leads to recession, which leads to less lending, which leads to a drop in private debt......

I agree that the real problem is the recession of the nonfinancial economy based on consumption and production. I disagree that the problem is a drop in private credit. The problem is the decoupling of productivity from broadly construed returns (on assets and on labor). The problem is that productivity has become unable to outgrow debt service. We need private debt reduced as close to zero as possible, and we need t…

Actually Keen's proposed remedy for this is quantitative easing except that the money goes to people. Everyone gets, say, a $50k voucher. If you are in debt, you have to use it to pay down your debts. If you are not in debt, you can deposit it and use it to buy things.

Re: How the Rich Got Rich

#107

Post by rdl »

roguecoder wrote: post #60
rdl wrote: post #33

Earlier quoted context omitted.

I'd even be fine with a flat consumption tax, with a personal exemption of $50k or so. Generally the investments made by the rich have more social benefit than their consumption, so it's ok that a billionaire only spends 30% of his annual income, while a well-paid engineer might spend 80%. Maybe combine it with a wealth tax, particularly on non-productive assets. Raising the cost of certain kinds of goods should actu…

Investments made by the rich have less social benefit than consumption. Consumption is, after all, the point of it all. Taxing utility and not non-utility is a great way to have a society where assets are employed in the least useful way possible. Consumption is central because it is information . It is how capitalism works: the choices made by consumers tell capital what to invest in. Unfortunately, inequality cause…

Consumption has less external benefit than investment. Due to scale effects and diminishing marginal utility, consumption by the poor wins over consumption by the rich, and investment by the poor (i.e. a founder investing $10k into his own company) is more useful than investment by the rich (taking Apple's market cap from $500b to $500000010000). There are sound economic arguments for each.

I don't know if there's an economic argument for consumption by the poor being more economically efficient than investment by the rich, or for consumption > investment in general.

Re: How the Rich Got Rich

#109

Post by justinmk »

eli_gottlieb wrote: post #90
justinmk wrote: post #30

Earlier quoted context omitted.

> capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble That tends to happen when the central bank dumps false signals (ie, low interest rates) on the market.

It also happens because capitalists make "more money than they know what to do with". Scare-quotes because they think they know what to do with it: invest it! However , if they all have lots of profits and all invest looking to make additional profits... you get the problem that more and more money goes chasing the same amount of productive assets/investments. The supply of capital has increased versus demand, which…

> returning wealth into the economy as something other than capital. This would reduce the oversupply of capital

How does one return capital as something other than capital? And how would that decrease the aggregate supply of capital?

Re: How the Rich Got Rich

#110

Post by malandrew »

ef4 wrote: post #39
rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

"to drive down the price of capital?" But that's exactly what we do see. Interest rates are absurdly low. Interest rates are the price of capital. The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

But near as I can tell it's only getting that cheap for a very very small number of individuals. While this does bring down the cost of capital for end users, it is my impression that the retail cost of capital doesn't drop nearly as far and as fast as the commercial cost of capital for financial institutions (The recent Libor scandal seems to support this speculation). It'd be interesting to see retail rates plotted versus treasury rates.
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