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How the Rich Got Rich

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Re: How the Rich Got Rich

#111

Post by malandrew »

michaelochurch wrote: post #46
DanielBMarkham wrote: post #38

Earlier quoted context omitted.

Your analysis prompts a bunch of knee-jerk reactions from me which I'm going to attempt to squelch. :) First, property as a result of superstition? Really? This is the first I've ever heard of this. In fact, most primitive societies have no concept of property -- this is why they are primitive. "Culture Cult" does a great job expanding on this argument. Second, a dichotomy between energy and property? Really? So you…

"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…

The terms you're probably looking for are "land rent" and "money rent". Both of which are well discussed in Adam Smith's The Wealth of Nations. The text may be old, but it is remarkably thorough.

Re: How the Rich Got Rich

#112

Post by cynicalkane »

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...

In theory it'll work like this: all investments and savings are tax-deductible, all withdrawals are taxed at the ordinary rate. The practical implementation would probably to designate tax-protected accounts, similar to how IRAs work nowdays. The top tax rate would probably need to be increased.

There will need to be tax treatments for potential loopholes, like shifting consumption under a business you own or own in part, or time-shifting withdrawals, but overall economists think this would be far more elegant and simple than income taxation.

Re: How the Rich Got Rich

#113

Post by cynicalkane »

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…

Investment is planning for future consumption. Taxing one affects the other. In tax incidence, there's no free lunch.

The point is to tax in a way that's most useful. There's no point in progressively and compound-ly taxing people for having large investments. There is a point to progressively taxing people who consume many times more than average.

Re: How the Rich Got Rich

#114

Post by eli_gottlieb »

justinmk wrote: post #109
eli_gottlieb wrote: post #90

Earlier quoted context omitted.

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?

You convert capital into ordinary purchasing power by using the money to buy something. This shifts the money from the column labeled "aggregate capital stock" to "aggregate demand for goods and services."

Re: How the Rich Got Rich

#115

Post by eli_gottlieb »

einhverfr wrote: post #103
eli_gottlieb wrote: post #62

Earlier quoted context omitted.

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.

This is exactly the conclusion Henry George came to when he investigated these phenomena: a land-value tax. I, personally, would couple it with a rebate/"prebate" for a certain value, as society's way of saying, "If you use less than $X in land/commons value per year, that's fine." The X would be set so that the fat middle of the bell curve of single-family residences would fall within X.

Re: How the Rich Got Rich

#116

Post by eli_gottlieb »

tluyben2 wrote: post #44
dmix wrote: post #7

The Rockefeller quote is interesting "If your only goal is to become rich, you'll never achieve it." But I've always felt Citizen Kane's was more accurate: "It's easy to make a lot of money, if that's all you want to do is make a lot of money."

I think if your goal / all you want to do is make a lot of money you have a pretty sad life. However it's not very hard. I don't know in what context the Citizen Kane quote was used. A lot of money varies a lot from where you are and what kind of insane thoughts you picked up from the internet. A lot of money can be $1 million in a lot of countries, $10 million in most countries, $100 million in all countries, $1 bil…

So if it's so easy, how do you make your first million?

Re: How the Rich Got Rich

#117

Post by eli_gottlieb »

einhverfr wrote: post #101
eli_gottlieb wrote: post #65

Earlier quoted context omitted.

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 cr…

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?

Which would, in my mind, be a Good Thing. At the very worst, we should be decreasing housing prices down to 2x or 2x annual income, which would put mortgages back in the 5-year or 10-year range rather than 30-year.

A normal family taking out a mortgage to buy a house should be able to look forward to paying off their mortgage.

Re: How the Rich Got Rich

#118

Post by tluyben2 »

eli_gottlieb wrote: post #116
tluyben2 wrote: post #44

Earlier quoted context omitted.

I think if your goal / all you want to do is make a lot of money you have a pretty sad life. However it's not very hard. I don't know in what context the Citizen Kane quote was used. A lot of money varies a lot from where you are and what kind of insane thoughts you picked up from the internet. A lot of money can be $1 million in a lot of countries, $10 million in most countries, $100 million in all countries, $1 bil…

So if it's so easy, how do you make your first million?

'So easy'? Well, you don't want to hear this, but HN is not a reflection of reality. Most millionaires get to their first million over 55 years of age. Not the 25 y/o millionaires/billionaires you see passing the homepage here. The Citizen Kane quote was done in the context of someone who spends all his money rather than saves it. That's the clue here; if you live frugal and save all you can of your wage, you'll be a millionaire around 60 without effort. Remember; all you want to do is make a lot of money so you don't want to spend money on fun stuff, kids, family, vacations etc. In the area from the Netherlands I came from (and this goes for other parts on earth too i'm sure) all old farmers are millionaires. They NEVER spent $0.01 they didn't absolutely had to spend.

So, again (and this is the reason why most people are not automatic millionaires after a certain age) IF getting a lot of money is ALL you want to do, you will sacrifice things; you will move to a cheap place, you will eat and live cheap. So yes, it's easy, but maybe not what you wanted to hear.

I don't want to wait that long so I have the next easiest thing; software services. Works great, no competition. It's much harder than the above, but it's also much quicker.

Re: How the Rich Got Rich

#119

Post by eli_gottlieb »

tluyben2 wrote: post #118
eli_gottlieb wrote: post #116

Earlier quoted context omitted.

So if it's so easy, how do you make your first million?

'So easy'? Well, you don't want to hear this, but HN is not a reflection of reality. Most millionaires get to their first million over 55 years of age. Not the 25 y/o millionaires/billionaires you see passing the homepage here. The Citizen Kane quote was done in the context of someone who spends all his money rather than saves it. That's the clue here; if you live frugal and save all you can of your wage, you'll be a…

Sarcasm, bro. My remark was intended to point out that most people simply never will make a "first million", and doing so is quite difficult.

Re: How the Rich Got Rich

#120

Post by Evbn »

malandrew wrote: post #110
ef4 wrote: post #39

Earlier quoted context omitted.

"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…

The libor scandal was giving extra LOW interest rates to retail borrowers.
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