The ever widening gap between the rich and poor

[Axulus]

My remarks were related to the recent report, which I've quoted, that nearly 50% of the worlds wealth is in the hands of the top 1% - therefore it necessarily includes the upper middle, middle, lower middle and those living in poverty. Everyone below the top 1% is included in that figure.

How would taking away their wealth and thereby reducing the wealth gap in any way help those in the DRC? Given his philanthropic efforts, it is more likely to harm them than anything else.

I didn't say anything about talking away anyone's wealth. The situation is grossly inequitable, so my suggestion was that we should be working toward a fairer wealth distribution system. How that is structured is up for debate.

I have made the same kind of remark many times and I am always attacked as a heretic. If these right wingers want their overall system to survive, it is going to have to become fairer than it presently is. The charge these guys use is..."how will taking a rich man's wealth away make things any better for the poor?" Unaugmented wealth at any time becomes only a temporary situation...even according to Loren. We are not talking about MAKING A WEALTHY MAN POOR AND HOMELESS AND HUNGRY BY SEIZING ALL HIS ASSETS. I have long advocated that it merely be a change in how business is done going forward, placing upper limits on rents and unearned profits. Simply adjust the rules and place some upper limits on FUTURE WEALTH ACCUMULATION BY THOSE WITH SUPERNUMARY WEALTH. If the money that is taken from transactions is used to sponsor public projects then there will be an improvement on the side of social responsibility, which has gone begging to no avail for the last forty years. I am not advocating eliminating the presence of wealthy people...only making it a fairer place and exchange, one that promotes circulation of money in the economy and disallowing rampant inflation. How this is accomplished is open to debate, but I am hearing from some capitalist utopians that we are already living in the best possible world and I don't buy that for a second.

Imagine a scenario where someone or some family dynasty hoards financial assets forever but never spends it. This means that society's resources that would've been used up (on yachts, fancy mansions, fancy cars, etc.) never get built, meaning that those resources are available for everyone else to be used to make other things and satisfy the needs and wants of other people.

Isn't this the best outcome for everyone? As opposed to massive resources being spent to satisfy the frivolous desires of an elite few?

 

[DBT]

Much the same lines that I've been considering. It can be argued that these mega rich individuals remove wealth from the greater economy through hoarding of assets, etc, therefore provide a negative impact upon the economy.

How does the "hording of assets", when those assets are made available for the rest of society to use (via loans and capital investment), have a negative impact upon the economy and society at large?

Mansions in multiple locations, yachts in the marina, private jets, private art collections, business transactions that mostly benefit those in the highest income brackets, jewelry, plastic surgery, etc .... enough wealth to build and service hospitals, build infrastructure, public housing, etc, to benefit a whole community of people.

 

[Axulus]

How does the "hording of assets", when those assets are made available for the rest of society to use (via loans and capital investment), have a negative impact upon the economy and society at large?

Mansions in multiple locations, yachts in the marina, private jets, private art collections, business transactions that mostly benefit those in the highest income brackets, jewelry, plastic surgery, etc .... enough wealth to build and service hospitals, build infrastructure, public housing, etc, to benefit a whole community of people.

So only certain kinds of hoarding are negative? The kind that can be classified as consumption and not savings and investment? If so, I agree. What about the kind that is saved and/or invested?

 

[DBT]

Mansions in multiple locations, yachts in the marina, private jets, private art collections, business transactions that mostly benefit those in the highest income brackets, jewelry, plastic surgery, etc .... enough wealth to build and service hospitals, build infrastructure, public housing, etc, to benefit a whole community of people.

So only certain kinds of hoarding are negative? The kind that can be classified as consumption and not savings and investment? If so, I agree. What about the kind that is saved and/or invested?

Yes to the former (up to a point). Depends on the nature of the investments in regard to the latter. The investments that are made by the mega rich may benefit those in the upper brackets with very little trickling down to 'underclass'

Just found this article, which paints quite a picture:

The rise of the super rich;
“The richer you are, the less of your money you give away,” says Keltner. “A study we did for the Psychological Science journal showed that, on average, the wealthy give away 2.7 per cent of their money, while the less wealthy give away 4.2 per cent. It’s because there are two powerful triggers to empathy: the need to rely on someone else, and being under threat. The richer you are, the less you experience these triggers.''

“In the past century, the number of the super-rich has suddenly risen twice: in the Twenties and the 2000s. Both led to collapses. The collapse of 1929 led to a reinvention of economics — the super-rich took a battering and didn’t bounce back until the late Seventies — but after 2008’s crisis it was business as usual and they’ve more than bounced back. While the workforce’s pay is frozen, executive pay and banking bonuses are at near-record levels. This widening gap is unsustainable. If it doesn’t change, we face an almost permanent recession.”

 

[arkirk]

So only certain kinds of hoarding are negative? The kind that can be classified as consumption and not savings and investment? If so, I agree. What about the kind that is saved and/or invested?

Yes to the former (up to a point). Depends on the nature of the investments in regard to the latter. The investments that are made by the mega rich may benefit those in the upper brackets with very little trickling down to 'underclass'

Just found this article, which paints quite a picture:

The rise of the super rich;
“The richer you are, the less of your money you give away,” says Keltner. “A study we did for the Psychological Science journal showed that, on average, the wealthy give away 2.7 per cent of their money, while the less wealthy give away 4.2 per cent. It’s because there are two powerful triggers to empathy: the need to rely on someone else, and being under threat. The richer you are, the less you experience these triggers.''

“In the past century, the number of the super-rich has suddenly risen twice: in the Twenties and the 2000s. Both led to collapses. The collapse of 1929 led to a reinvention of economics — the super-rich took a battering and didn’t bounce back until the late Seventies — but after 2008’s crisis it was business as usual and they’ve more than bounced back. While the workforce’s pay is frozen, executive pay and banking bonuses are at near-record levels. This widening gap is unsustainable. If it doesn’t change, we face an almost permanent recession.”

An economic system need to circulate in order to be considered a working economic system. Hoarding of capital attenuates the circulation and produces not an economic system at all, but a condition of capitalistic constipation.

 

[Togo]

Imagine a scenario where someone or some family dynasty hoards financial assets forever but never spends it. This means that society's resources that would've been used up (on yachts, fancy mansions, fancy cars, etc.) never get built, meaning that those resources are available for everyone else to be used to make other things and satisfy the needs and wants of other people.

Isn't this the best outcome for everyone? As opposed to massive resources being spent to satisfy the frivolous desires of an elite few?

Not really, no. The saved money is only 'available for everyone else' at a steep rent, which provides both a barrier of entry for investment, and creams off much of the benefits of having the capital. Worse still, the longer the model lasts, the worse it gets, with a higher and higher proportion of 'available' assets being concentrated in a few hands, and more and more of the world economy being devoted to providing rents to people who have no real incentive to be personally productive.

Better would be to tax the rich, and cut out the rent seeking, which provides no obvious benefit to the economy. Moreover, there are no benefits of leaving money in the hands of the rich that
can't be matched by transferring those same assets to government. The only difference, apart from not paying rent, is that decisions on how to spend the money are made by rich people, rather than politicians and technocrats.

 

[Loren Pechtel]

Much the same lines that I've been considering. It can be argued that these mega rich individuals remove wealth from the greater economy through hoarding of assets, etc, therefore provide a negative impact upon the economy.

They stick tools under their mattress?????

Reality: Money put in the bank means the bank has it available to loan to somebody. It *IS* put to work!

- - - Updated - - -

How does the "hording of assets", when those assets are made available for the rest of society to use (via loans and capital investment), have a negative impact upon the economy and society at large?

Mansions in multiple locations, yachts in the marina, private jets, private art collections, business transactions that mostly benefit those in the highest income brackets, jewelry, plastic surgery, etc .... enough wealth to build and service hospitals, build infrastructure, public housing, etc, to benefit a whole community of people.

That's consumption, not hoarding.

 

[ksen]

Reality: Money put in the bank means the bank has it available to loan to somebody. It *IS* put to work!

Not necessarily. Depends on the purpose of the loan.

 

[Axulus]

Imagine a scenario where someone or some family dynasty hoards financial assets forever but never spends it. This means that society's resources that would've been used up (on yachts, fancy mansions, fancy cars, etc.) never get built, meaning that those resources are available for everyone else to be used to make other things and satisfy the needs and wants of other people.

Isn't this the best outcome for everyone? As opposed to massive resources being spent to satisfy the frivolous desires of an elite few?

Not really, no. The saved money is only 'available for everyone else' at a steep rent, which provides both a barrier of entry for investment, and creams off much of the benefits of having the capital. Worse still, the longer the model lasts, the worse it gets, with a higher and higher proportion of 'available' assets being concentrated in a few hands, and more and more of the world economy being devoted to providing rents to people who have no real incentive to be personally productive.

Better would be to tax the rich, and cut out the rent seeking, which provides no obvious benefit to the economy. Moreover, there are no benefits of leaving money in the hands of the rich that
can't be matched by transferring those same assets to government. The only difference, apart from not paying rent, is that decisions on how to spend the money are made by rich people, rather than politicians and technocrats.

The more that is "hoarded" and not spent, the lower the rent is for someone to borrow those resources since the available supply has gone up. Simple supply and demand. Furthermore, until the money is spent by the owner of the wealth, it just represents digits in a computer (and a claim on future resources). All of society's real, physical resources are still available to be used for everyone else, regardless of what the person who is the owner of the account with those digits does with it, so long as it isn't spent on their consumption. You don't seem to be getting this point.

 

[Jayjay]

You seem to be out of touch with the level of global income inequality, if you think only the bottom 10% are the real poor. It's closer to bottom 50% being the poor, and top 1% being extremely rich. Your idea of enacting global redistribution isn't a bad one but even then it should be progressive rather than a flat tax.

And yet just 30 or 40 years ago, the bottom 75% was poor. Doesn't sound like the increase in global income/wealth inequality has come at the expense of the poor as is often asserted.

Not yet anyway.

 

[Axulus]

And yet just 30 or 40 years ago, the bottom 75% was poor. Doesn't sound like the increase in global income/wealth inequality has come at the expense of the poor as is often asserted.

Not yet anyway.

And why would that change considering that there is still a lot of catch up growth left for the developing world?

 

[DBT]

They stick tools under their mattress?????

Reality: Money put in the bank means the bank has it available to loan to somebody. It *IS* put to work!

Not amongst the lower 50% of the population....hence the ratio: Nearly 50% of the World's wealth is in the hands of 1% of the Worlds population.

The point being: This wealth is not freely circulating throughout the economy, it is in the hands of the few.

 

[bilby]

They stick tools under their mattress?????

Reality: Money put in the bank means the bank has it available to loan to somebody. It *IS* put to work!

Not amongst the lower 50% of the population....hence the ratio: Nearly 50% of the World's wealth is in the hands of 1% of the Worlds population.

The point being: This wealth is not freely circulating throughout the economy, it is in the hands of the few.

Yup, that's the problem. The idle rich use their money to fund increases in productivity on the part of the poor, that generate profits for the idle rich. The money circulates, but little of it accumulates at the bottom, and lots at the top.

When a hyper-rich person buys a Lear Jet, perhaps half the money goes to buy materials; of the rest, upper middle class avionics engineers get some of the money in wages; a little goes to the working class janitor who sweeps the hangar; but the lion's share goes to the directors of Bombardier, Inc. Perhaps some of the cash goes to dividends, and gets paid to the shareholders of BBD, who are overwhelmingly either wealthy, or at least upper middle class. Some might go to blue-collar pensions, but like the janitor's salary, this is not a big fraction of the total.

The money spent on materials mostly goes to specialist aerospace parts manufacturers; Most of these guys spend a fraction on materials, and the rest goes to middle class engineering types and the directors and managers.

All the way down the supply chain, the amounts that go to shareholders, directors, managers, and white-collar professionals is the bigger share; the janitors don't get anything like as much (of course - because any fool can sweep a floor).

So the vast majority of the cash that flows out from the top of the system tends to head back towards the top, rather than trickling down.

And that cash that does make it's way down to the bottom of the stack? It gets spent on food, or rent, or transportation. It doesn't pause - poor people spend their cash as soon as they get it. And when money is spent on rent, it goes up the chain to the landlord - not to other blue collar workers. Money spent on food goes in small part to the grocery store clerks; but in large part to the Walton family and their ilk.

At every level, most of the money goes up the chain, and - apart from small amounts of blue collar income, and variable amounts of tax distributed as welfare - very little trickles down.

Now this is not a complaint; This is exactly how the system is meant to work, and it works that way regardless of moral or ethical questions. But as not many people want a Lear Jet, and even fewer can afford one, the bulk of the economic demand needs to come from the large number of people who need food, rent, and transportation, not the small number who need luxury yachts and Lear Jets. The only way that that demand can exist though, is for people not only to want food, a car, and a roof over their head; they have to be able to afford these things.

So in order to keep the cash circulating effectively, those blue collar wages need to be fairly high; and/or taxes need to be used to provide welfare at the bottom of the economy. Too little of both, and the supply of cash at the bottom of the pyramid dries up; and with it, the demand for goods and services from the largest fraction of the population.

You can, to some extent, run the top part of the economy without too much care for the lack of cash recirculating to the bottom - at least for a little while. But as with circulation of the blood, if the extremities are starved for too long, you get gangrene, and that can kill the whole system. Paying low wages and low taxes ultimately results in crime, riots, and revolution. Keep up a healthy circulation of cash to the bottom of the pyramid, however, and the rich can stay on top indefinitely.

But they may have to take a rain-check on that third Lear Jet.

 

[DBT]

A good summary, bilby.

 

[arkirk]

They stick tools under their mattress?????

Reality: Money put in the bank means the bank has it available to loan to somebody. It *IS* put to work!

Not amongst the lower 50% of the population....hence the ratio: Nearly 50% of the World's wealth is in the hands of 1% of the Worlds population.

The point being: This wealth is not freely circulating throughout the economy, it is in the hands of the few.

It is being put to work in the distinguished field of Wall Street Speculation. (Thanks to the Clintons and Senator Gramm.) There is more than one reason why nobody has a savings account....the banks pay no interest on it. This is extremely harmful to those who are retired and could use some return from their funds. I suspect that the actual efficacy of banks is reflected in this less than 1% interest banks pay on savings.

 

[Togo]

Profit margin on retail banking is about 40% or so.

 

[ZiprHead]

So only certain kinds of hoarding are negative? The kind that can be classified as consumption and not savings and investment? If so, I agree. What about the kind that is saved and/or invested?

Yes to the former (up to a point). Depends on the nature of the investments in regard to the latter. The investments that are made by the mega rich may benefit those in the upper brackets with very little trickling down to 'underclass'

Just found this article, which paints quite a picture:

The rise of the super rich;
“The richer you are, the less of your money you give away,” says Keltner. “A study we did for the Psychological Science journal showed that, on average, the wealthy give away 2.7 per cent of their money, while the less wealthy give away 4.2 per cent. It’s because there are two powerful triggers to empathy: the need to rely on someone else, and being under threat. The richer you are, the less you experience these triggers.''

“In the past century, the number of the super-rich has suddenly risen twice: in the Twenties and the 2000s. Both led to collapses. The collapse of 1929 led to a reinvention of economics — the super-rich took a battering and didn’t bounce back until the late Seventies — but after 2008’s crisis it was business as usual and they’ve more than bounced back. While the workforce’s pay is frozen, executive pay and banking bonuses are at near-record levels. This widening gap is unsustainable. If it doesn’t change, we face an almost permanent recession.”

I was making a bag delivery in Bay City MI in an area known for having so many lumber baron mansions that have been restored to their former glory. Many of the homes didn't have address numbers but I happened upon a USPS woman delivering mail to help locating the location. She pointed me to the right location and I commented on the lack of addresses. She said she'd been delivering in this neighborhood for years and that these people living in these million dollar mansions are the cheapest people she had ever met.

 

[ZiprHead]

How does the "hording of assets", when those assets are made available for the rest of society to use (via loans and capital investment), have a negative impact upon the economy and society at large?

Mansions in multiple locations, yachts in the marina, private jets, private art collections, business transactions that mostly benefit those in the highest income brackets, jewelry, plastic surgery, etc .... enough wealth to build and service hospitals, build infrastructure, public housing, etc, to benefit a whole community of people.

That's consumption, not hoarding.

Inefficient consumption.

 

[Axulus]

Not amongst the lower 50% of the population....hence the ratio: Nearly 50% of the World's wealth is in the hands of 1% of the Worlds population.

The point being: This wealth is not freely circulating throughout the economy, it is in the hands of the few.

Yup, that's the problem. The idle rich use their money to fund increases in productivity on the part of the poor, that generate profits for the idle rich. The money circulates, but little of it accumulates at the bottom, and lots at the top.

The majority of the rich aren't idle. Leisure time studies have shown that they work more hours than your typical middle class family.

Additionally, what is the problem if the people at the bottom choose to spend all their money instead of letting the money accumulate?

When a hyper-rich person buys a Lear Jet, perhaps half the money goes to buy materials; of the rest, upper middle class avionics engineers get some of the money in wages; a little goes to the working class janitor who sweeps the hangar; but the lion's share goes to the directors of Bombardier, Inc. Perhaps some of the cash goes to dividends, and gets paid to the shareholders of BBD, who are overwhelmingly either wealthy, or at least upper middle class. Some might go to blue-collar pensions, but like the janitor's salary, this is not a big fraction of the total.

The money spent on materials mostly goes to specialist aerospace parts manufacturers; Most of these guys spend a fraction on materials, and the rest goes to middle class engineering types and the directors and managers.

All the way down the supply chain, the amounts that go to shareholders, directors, managers, and white-collar professionals is the bigger share; the janitors don't get anything like as much (of course - because any fool can sweep a floor).

So the vast majority of the cash that flows out from the top of the system tends to head back towards the top, rather than trickling down.

Your last statement doesn't follow. The "vast majority"? Can you back that up with data rather than a story? How are you defining "the top"?

And that cash that does make it's way down to the bottom of the stack? It gets spent on food, or rent, or transportation. It doesn't pause - poor people spend their cash as soon as they get it. And when money is spent on rent, it goes up the chain to the landlord - not to other blue collar workers. Money spent on food goes in small part to the grocery store clerks; but in large part to the Walton family and their ilk.

How are you defining "the bottom"? Also, Wal-Mart's net profit margins are ~3.3%. Of that 3.3%, the money is taxed again when sent to the "Walton family and their ilk", so the shareholder net is closer to 2.5%. Is that really a "large part", especially considering how many billions Wal-Mart has tied up in assets to generate those meager margins?

At every level, most of the money goes up the chain, and - apart from small amounts of blue collar income, and variable amounts of tax distributed as welfare - very little trickles down.

Wouldn't this depend on who the customers are? It can only go up if you are towards the bottom, and it can only go down if you are towards the top.

Now this is not a complaint; This is exactly how the system is meant to work, and it works that way regardless of moral or ethical questions. But as not many people want a Lear Jet, and even fewer can afford one, the bulk of the economic demand needs to come from the large number of people who need food, rent, and transportation, not the small number who need luxury yachts and Lear Jets. The only way that that demand can exist though, is for people not only to want food, a car, and a roof over their head; they have to be able to afford these things.

And the things also become more affordable when prices decline. Wal-Mart is a good example of a company that was able to lower prices for customers, allowing them to buy more stuff (although the gains they generated have generally already been realized - the lower prices are more of a one-off welfare improvement).

So in order to keep the cash circulating effectively,

What do you mean "effectively"?

those blue collar wages need to be fairly high; and/or taxes need to be used to provide welfare at the bottom of the economy.

Or prices of things sold to those at "the bottom" need to decline. You completely left that one out of your analysis. Also, how are you defining "fairly high" - what's your threshold?

Too little of both, and the supply of cash at the bottom of the pyramid dries up; and with it, the demand for goods and services from the largest fraction of the population.

If supply of cash "dries up" (which I assume you mean incomes), then prices of the goods and services they buy will decline as well.

You can, to some extent, run the top part of the economy without too much care for the lack of cash recirculating to the bottom - at least for a little while. But as with circulation of the blood, if the extremities are starved for too long, you get gangrene, and that can kill the whole system. Paying low wages and low taxes ultimately results in crime, riots, and revolution. Keep up a healthy circulation of cash to the bottom of the pyramid, however, and the rich can stay on top indefinitely.

Would you say that trends of less crime and fewer riots is a sign that the blood is currently in healthy circulation?

 

[Jayjay]

Not yet anyway.

And why would that change considering that there is still a lot of catch up growth left for the developing world?

Pessimism has never failed me thus far.

(And when it does, it will probably do so in a worst possible way.)