Author Topic: Causes of wealth inequality?  (Read 5153 times)

SharperDingaan

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Re: Causes of wealth inequality?
« Reply #40 on: January 25, 2019, 08:16:39 AM »
You might want to re-think ....

Every year your friendly central bank expands the money-supply 1-2%, to support 'growth'. Assume 1.5%.
The more money SPENT in circulation = more activity = more taxes = better standing of living, etc. Hard to argue against.

Problem is ..

More money chasing the same quantity of assets, just inflates the nominal value of those assets; the $1,000,000 nominal asset now values at $1,015,000. It also reduces liabilities by the same amount; the $1,000,000 loan is now repaid with a dollar worth $1.015, reducing the obligation to $985,000.

So if you had a $1,000,000 asset, with a $1,000,000 loan against it; that 1.5% increase in the money supply will literally give you an additional $30,000 ($1,015,000 - 985,000) of wealth, for doing absolutely SQUAT. Guaranteed helicopter wealth that ONLY accrues to those who already have wealth (the $1M) - and not those living hand-to-mouth. The rich get richer, the poor get poorer, and  the higher the target growth rate (1.5%), the faster the rich get wealthier.

There is a reason why the Chineese wealthy are SO wealthy (5%+ growth rates, versus 1.5%), why the 'property ladder' is seen as a 'road to wealth'; and it has NOTHING to do with hard work.

If you want to make 'real money' from taxation, tax inflation

SD





« Last Edit: January 26, 2019, 12:09:56 PM by SharperDingaan »


Cigarbutt

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Re: Causes of wealth inequality?
« Reply #41 on: January 26, 2019, 05:25:29 AM »
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?
So, just to pretend that you actually talked about the argument instead of your ad hominem. 

My comment was a reply to the argument that somehow poor people are poor because of their choices and rich people are rich because of their choices. I provided examples of how that is not necessarily the case.

On the macro, as I have noted, high inequality distorts competition, on the extreme can destroy the markets and lead to unfavorable political choices, i.e. Trump or a mirror candidate from the left suggesting high taxes (same cause).   

It's not a hypothetical discussion and that's why I care, I want my kids to have a better world and it's not going in the right direction.
We all want a better world for our children.  A better world includes a much larger economy with an increase in total wealth.  The populism isn't a result of wealth inequality, it is a result of voter ignorance on topics such as wealth inequality.  Trump was elected (putting aside how awful Hilary is) due to the vast majority of people not understanding the theory of comparative advantage and thus "thinking" with their emotions/prejudices about free trade and immigration.  Likewise the support for people like Bernie or Alexandria Ocasio-Cortez is a result of complete economic ignorance on the part of the electorate who do not realize that wealth is created, not just moved around in a zero-sum game, and have no idea how markets work.  I hope someone out there right now is starting a company that will  increase our standard of living so much, create so many jobs, and expand our economy so much that he builds a Trillion Dollar fortune for himself.  In fact I hope there are 50 or 100 such people. A better world includes massive income inequality, a better standard of living, and more wealth and opportunities for all.   Reducing wealth inequality is actually making a future that is worse off for both your children and mine.  Giving into voter ignorance/envy isn't helping anyone.
Sidenote:
This is an investment Board and I often wonder about the relevance on my posts in the politics section and the above Camus quote has been a guiding light but, for the first time in 52 years, there's this ominous feeling that simply won't go away.
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There is an implicit assumption about linearity or quasi-linearity in the argument above.

By raising tax on the "rich", for those who support it, there is the assumption that revenue from taxes will raise linearly, in correlation to the tax increase, which is a flawed assumption (common sense, analysis and historical evidence).

Globally, it's been shown (convincing evidence) that rising inequality has a tendency, especially when certain levels are reached, to slow down or even reverse standards of living. Countries have responded in various ways to this incredibly complex and multi-variable situation and the global correlation is not perfect but, in the US, the evidence shows a much higher and rising inequality and a much higher correlation to levelling standards of living with many components of those standards declining for a large and growing swathe of Americans. This is not a linear correlation and, in fact, likely to be an inverse correlation with higher inequality, reaching the exclusive growth category when prosperity is no longer shared.

I just re-read The Economic Consequences of the Peace, written by Mr. Keynes, and what strikes me is not that he was right but that he was ignored among the growing divide.

I admire Mr. Seth Klarman because of the way he manages money and also because of his character. Some suggest that his motivations are self-serving. I would submit that he does not need to do what he does in the public sphere.

From a recent letter:

"We would also argue that social cohesion is essential for those who have capital to invest. Businesses need a long-term horizon to plan, and social unrest makes planning more difficult. It can't be business as usual amidst constant protests, riots, shutdowns, and escalating social tensions. It is not hard to imagine worsening social unrest among a generation that is falling behind economically and feels betrayed by a massive national debt that was incurred without any obvious benefit to them. If things get bad enough, we could see taxes once again raised to confiscatory levels. We should all be rooting for (and acting to support) social cohesion and a renewal of the American dream."

To the question: "Does this matter? We think it does." I do too.

I just hope we can come together on this but, today, I'm just a guy who needs to shovel snow and make a passageway in order to have propane gaz delivered to my house.

Have been reading on PG&E, VMD and even Mimedx and should be able to show some work soon.
« Last Edit: January 26, 2019, 07:01:42 AM by Cigarbutt »

SharperDingaan

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Re: Causes of wealth inequality?
« Reply #42 on: January 26, 2019, 08:41:56 AM »
It's useful to look at Western Europe by way of comparison.
Historically, their 'normal' state of affairs has been instability and war.

Country X invaded country Y, killed off a large portion of their combined 'younger' demographic (soldiers/civilians doing the dying), and raised to the ground a large part of their joint infrastructure in shellings, bombings, etc. A 'winner' is declared, war's over, capitalists get rich 'financing/rebuilding' the infrastructure, and labour gets rich as there's lot of work for the fewer able-bodied remaining. Works great for a time, the 'war' cycle repeats, and there is a new 'distribution of wealth'. Wealth through war/industrial revolution, 'redistributed' every 100 years or so, and the familiar 'rags-to-rags in 3 generations' repeating itself.

Stop/Slow-down the 'redistribution', and what happens?
The UK experience is social immobility, land held 'permanently' by the ruling class, and decay via in-breeding; modern-day feudalism.
- Best/brightest move 'outside' the core to manage the 'empire', as the best 'opportunities' are no longer 'at home'.
- Accumulation of disenfranchised who 'cannot/will not' move elsewhere, as their standard of living would be lower.
- Outlets for the disenfranchised to 'vent'; the 'classic' example being the 'Yobo', and the weekly violent football match.

Collectively we've dialed back the 'war thing', but the cost has been higher 'social immobility'
- The 'rich' have become progressively more 'entrenched', and disenfranchisement has risen accordingly.
- And the 'vent' outlet has become 'social media', violent protest ('Yobo's) - and the push for change (Brexit, Trump, etc).
Charming.

Peace is a great experience, but a fragile one.
Unfortunately, until we find something for the collective disenfranchised of the world to do, it's probably also temporary.

There is a reason why the folks raising the alarm are all 'old'.
They were 'there' the last time this happened, and survived it to tell the tale.

SD




« Last Edit: January 27, 2019, 07:31:31 AM by SharperDingaan »

meiroy

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Re: Causes of wealth inequality?
« Reply #43 on: January 26, 2019, 04:49:13 PM »
rkbabang,

I think we pretty much agree on everything, other than that I see high-inequality as anti-capitalistic in the real world due to its inherent market distortions and corruption.


I also think that Trump being elected at the same time that you get Brexit and populism in Europe is not a coincidence and not a result of "bad choices" or "ignorance".

There is a large section of the population that has been impacted for the past few decades for various economic reasons.

These people can vote. It has consequences.








Spekulatius

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Re: Causes of wealth inequality?
« Reply #44 on: January 27, 2019, 07:24:14 AM »
We have nuclear weapons, there is no need for 900 military bases in 153 countries.

Then when something like 9/11 happens what do you do? Drop a nuke on Afganistan?

The people who did it were dead. They were after one other guy. Put a price on his head sufficient to bring him in. We spent 7 trillion dollars on the war on terror, a $5B price would have been a bargain and his head would have been on the President's desk in a month. Ron Paul actually suggested this, but Americans were too busy beating the war drums like savages to hear.

EDIT: http://ronpaulquotes.com/chapters/2001-100.html

The war on terror was a huge mistake. You can fight terrorist with an army. Same with the war on drugs. Osama bin Laden was inconsequential after 9/11. If anything, he was a huge liability for Al Kaeda. Putting a price on his head or forming a Kidon unit like the Mossad would have been a more effective, albeit very un-American way to fight terrorists.
« Last Edit: January 27, 2019, 09:09:17 AM by Spekulatius »
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shalab

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Re: Causes of wealth inequality?
« Reply #45 on: January 27, 2019, 09:03:09 AM »
There are many reasons but it is instructive to see what is going on in Canada vs USA

Canada has higher median wealth and income than the median American. The median wealth is significantly higher in Canada compared to the United States. It is a very interesting case study.

https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult

Some of the reasons are as mentioned by DTEJD where people don't have or follow an investment plan.

Then we have the US system working against its own students:

https://www.nytimes.com/2019/01/24/technology/computer-science-courses-college.html

If there is more demand for CS as opposed to middle eastern history, there should be more focus on CS. However, the Universities have many quotas and don't want to invest to help the citizens. The interested candidate can't get to do what they are interested in.

Jamie Dimon also weighed in on it:
https://www.youtube.com/watch?v=BNY0syGEoyY
« Last Edit: January 27, 2019, 09:21:14 AM by shalab »

LC

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rkbabang

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Re: Causes of wealth inequality?
« Reply #47 on: January 29, 2019, 09:16:58 AM »
We have nuclear weapons, there is no need for 900 military bases in 153 countries.

Then when something like 9/11 happens what do you do? Drop a nuke on Afganistan?

The people who did it were dead. They were after one other guy. Put a price on his head sufficient to bring him in. We spent 7 trillion dollars on the war on terror, a $5B price would have been a bargain and his head would have been on the President's desk in a month. Ron Paul actually suggested this, but Americans were too busy beating the war drums like savages to hear.

EDIT: http://ronpaulquotes.com/chapters/2001-100.html

The war on terror was a huge mistake. You can fight terrorist with an army. Same with the war on drugs. Osama bin Laden was inconsequential after 9/11. If anything, he was a huge liability for Al Kaeda. Putting a price on his head or forming a Kidon unit like the Mossad would have been a more effective, albeit very un-American way to fight terrorists.

It's un-modern-American, but it is very traditional American.  Unlike nation building and bombing countries we aren't even at war with, it is a power given to congress in the U.S. Constitution.  Madison used this tactic against the British Navy in 1812.

U.S. Constitution (Article I section 8): “The Congress shall have the power…to declare War, grant Letters of Marque and Reprisal.”