The ever widening gap between the rich and poor

[Loren Pechtel]

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.

Who put it circulation. Just because it's through loans doesn't change the fact that it's circulating.

Most dollars in the economy are through loans.

 

[Loren Pechtel]

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

Using return on equity as the yardstick:

I don't see 40% here: http://finance.yahoo.com/q/ks?s=WFC
Higher, but still not 40%: http://finance.yahoo.com/q/ks?s=C
Far from 40%: http://finance.yahoo.com/q/ks?s=BAC
This one is close: http://finance.yahoo.com/q/ks?s=JPM
Again, nowhere near it: http://finance.yahoo.com/q/ks?s=GS


That's the 5 biggest banks in the US. None reach your 40%, only one is even half it.

 

[ksen]

"Return on equity" is not "profit margin".

 

[lpetrich]

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.

What "work"??? As if someone stands around pointing a gun at them to make your heroes do that "work". As if mansion payments and yacht payments and the like are some crushing economic burden on them.

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

Axulus, do you REALLY think that poor people can easily stop buying food and paying rent and the like? Seriously.

 

[Axulus]

What "work"??? As if someone stands around pointing a gun at them to make your heroes do that "work". As if mansion payments and yacht payments and the like are some crushing economic burden on them.

Why would a gun be needed? You are going off the deep end again.

Axulus, do you REALLY think that poor people can easily stop buying food and paying rent and the like? Seriously.

When I hit "Control + F" and type in "easy" or "easily" - I'm not getting any result in my post. Can you please point me to the part my Chrome browser is unable to find?

 

[ksen]

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

lol, "choose".

You're on a roll today buddy!

 

[Axulus]

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

lol, "choose".

You're on a roll today buddy!

If you look at how he is defining "the bottom" based on the context of the post, you'd realize how silly you look.

 

[bilby]

lol, "choose".

You're on a roll today buddy!

If you look at how he is defining "the bottom" based on the context of the post, you'd realize how silly you look.

No, he's right; I LOLed too.

If you are unsure of how I am defining things in my posts, you can always ask; assumptions based on context may be coloured by what you want to read, rather than by what is written.

Indeed, you did ask; so presumably you were less certain in your initial response (which I have, sadly, not gotten around to addressing before now) than you are now, despite no new information becoming available.

For your edification, but 'the bottom' I mean 'the poorest people', and by 'the top' I mean 'the wealthiest people'. I am conducting a thought experiment where people are ranked by net worth, to form a pyramid with the many poor at the bottom and the few rich at the top; and then imagining how wealth flows within that structure.

Unsurprisingly, the wealth tends to circulate in such a way as to accumulate at the top of the pyramid; This is obvious from the fact that the people at the top are rich.

As society gets richer, the pyramid lifts very slowly at the bottom, and much faster at the top, so it stretches out and becomes taller and thinner. I am advocating measures to accelerate the improvement at the bottom, because I consider it likely that if the pyramid becomes too elongated, society will break down - as it has before in historically similar situations.

That the acceleration of gains at the bottom must come at the expense of slowing the gains at the top is, I believe, inevitable; but the choice for those at the top is to accept a slowing down of their rate of increase of wealth, or to prepare for the dramatic fall in wealth that would result from societal collapse.

Note that I am not calling for absolute equality - the flattening of the pyramid to a disc, where every person in society has the same degree of wealth - but rather for moderation of the rate of increase in inequality. And I am not calling for this because I care for the poor, while disdaining the rich; Rather I am calling for this because I believe it will provide the optimum outcome at all levels in the pyramid.

 

[Axulus]

If you look at how he is defining "the bottom" based on the context of the post, you'd realize how silly you look.

No, he's right; I LOLed too.

If you are unsure of how I am defining things in my posts, you can always ask; assumptions based on context may be coloured by what you want to read, rather than by what is written.

Indeed, you did ask; so presumably you were less certain in your initial response (which I have, sadly, not gotten around to addressing before now) than you are now, despite no new information becoming available.

For your edification, but 'the bottom' I mean 'the poorest people', and by 'the top' I mean 'the wealthiest people'. I am conducting a thought experiment where people are ranked by net worth, to form a pyramid with the many poor at the bottom and the few rich at the top; and then imagining how wealth flows within that structure.

Unsurprisingly, the wealth tends to circulate in such a way as to accumulate at the top of the pyramid; This is obvious from the fact that the people at the top are rich.

As society gets richer, the pyramid lifts very slowly at the bottom, and much faster at the top, so it stretches out and becomes taller and thinner. I am advocating measures to accelerate the improvement at the bottom, because I consider it likely that if the pyramid becomes too elongated, society will break down - as it has before in historically similar situations.

That the acceleration of gains at the bottom must come at the expense of slowing the gains at the top is, I believe, inevitable; but the choice for those at the top is to accept a slowing down of their rate of increase of wealth, or to prepare for the dramatic fall in wealth that would result from societal collapse.

Note that I am not calling for absolute equality - the flattening of the pyramid to a disc, where every person in society has the same degree of wealth - but rather for moderation of the rate of increase in inequality. And I am not calling for this because I care for the poor, while disdaining the rich; Rather I am calling for this because I believe it will provide the optimum outcome at all levels in the pyramid.

Ok, but I've known some Mexican day laborers who worked their ass off to save up enough to purchase a brand new Ford F-150. Did they have a choice in accumulating enough wealth for an F-150, or would they not fit your definition of "the poorest" even though they were earning around minimum wage and working 50-60 hrs/week?

 

[bilby]

No, he's right; I LOLed too.

If you are unsure of how I am defining things in my posts, you can always ask; assumptions based on context may be coloured by what you want to read, rather than by what is written.

Indeed, you did ask; so presumably you were less certain in your initial response (which I have, sadly, not gotten around to addressing before now) than you are now, despite no new information becoming available.

For your edification, but 'the bottom' I mean 'the poorest people', and by 'the top' I mean 'the wealthiest people'. I am conducting a thought experiment where people are ranked by net worth, to form a pyramid with the many poor at the bottom and the few rich at the top; and then imagining how wealth flows within that structure.

Unsurprisingly, the wealth tends to circulate in such a way as to accumulate at the top of the pyramid; This is obvious from the fact that the people at the top are rich.

As society gets richer, the pyramid lifts very slowly at the bottom, and much faster at the top, so it stretches out and becomes taller and thinner. I am advocating measures to accelerate the improvement at the bottom, because I consider it likely that if the pyramid becomes too elongated, society will break down - as it has before in historically similar situations.

That the acceleration of gains at the bottom must come at the expense of slowing the gains at the top is, I believe, inevitable; but the choice for those at the top is to accept a slowing down of their rate of increase of wealth, or to prepare for the dramatic fall in wealth that would result from societal collapse.

Note that I am not calling for absolute equality - the flattening of the pyramid to a disc, where every person in society has the same degree of wealth - but rather for moderation of the rate of increase in inequality. And I am not calling for this because I care for the poor, while disdaining the rich; Rather I am calling for this because I believe it will provide the optimum outcome at all levels in the pyramid.

Ok, but I've known some Mexican day laborers who worked their ass off to save up enough to purchase a brand new Ford F-150. Did they have a choice in accumulating enough wealth for an F-150, or would they not fit your definition of "the poorest" even though they were earning around minimum wage and working 50-60 hrs/week?

55 hours a week at $7.25/hour = $398.75/week before taxes. If there are adults in your society who have less than Mexican day labourers who earn this level of income (and there are), then no, they are not "the poorest". But they are still pretty damn poor compared to the vast majority of Americans.

How many of these labourers do you know; and did they pay for their F-150 outright, or did they just save enough for a down-payment? Is this level of saving typical of people who do day labour for $7.25/hour, or are these acquaintances of yours atypical? Are these guys harder working, or just luckier, than their peers who spend their 50+ hours a week looking for paid work, rather than actually working?

 

[DBT]

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.

Who put it circulation. Just because it's through loans doesn't change the fact that it's circulating.

Most dollars in the economy are through loans.

The wealth of the world's 1% is not not necessarily sitting in bank accounts. As I said earlier, yacht moored in Marinas, Private Jets, Mansions in multiple locations, lavish lifestyles. etc, is not a good recipe for wealth redistribution: building hospitals, schools, public housing and other infrastructure that is useful to society as a whole.

 

[Loren Pechtel]

"Return on equity" is not "profit margin".

I picked the one with the highest %. The assertion is even more busted if you pick a different yardstick.

- - - Updated - - -

Who put it circulation. Just because it's through loans doesn't change the fact that it's circulating.

Most dollars in the economy are through loans.

The wealth of the world's 1% is not not necessarily sitting in bank accounts. As I said earlier, yacht moored in Marinas, Private Jets, Mansions in multiple locations, lavish lifestyles. etc, is not a good recipe for wealth redistribution: building hospitals, schools, public housing and other infrastructure that is useful to society as a whole.

And it's still consumption, not hoarding.

 

[DBT]

And it's still consumption, not hoarding.

Wealth and consumption that is not accessible to a large portion of the worlds population, wealth that easily gravitates upwards but only a creatively small trickle downwards....

Warren Buffett;
''Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.''


''Billionaire investor Warren Buffett made that remark more than three years ago and it still holds true today — only the gap between the richest and the poorest has gotten even wider.

Here's how bad it is: Oxfam now calculates that the 85 richest billionaires on the planet, including the likes of Carlos Slim, Bill Gates and Mark Zuckerberg, have as much money as the 3.5 billion poorest people.

And for all the talk about the urgent need to address income inequality, the mega-rich just keep on getting richer.''

 

[Loren Pechtel]

And it's still consumption, not hoarding.

Wealth and consumption that is not accessible to a large portion of the worlds population, wealth that easily gravitates upwards but only a creatively small trickle downwards....

Warren Buffett;
''Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.''


''Billionaire investor Warren Buffett made that remark more than three years ago and it still holds true today — only the gap between the richest and the poorest has gotten even wider.

Here's how bad it is: Oxfam now calculates that the 85 richest billionaires on the planet, including the likes of Carlos Slim, Bill Gates and Mark Zuckerberg, have as much money as the 3.5 billion poorest people.

And for all the talk about the urgent need to address income inequality, the mega-rich just keep on getting richer.''

I'm aware of the issue but you're still not making the case about hoarding.

 

[DBT]

Wealth and consumption that is not accessible to a large portion of the worlds population, wealth that easily gravitates upwards but only a creatively small trickle downwards....

Warren Buffett;
''Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.''


''Billionaire investor Warren Buffett made that remark more than three years ago and it still holds true today — only the gap between the richest and the poorest has gotten even wider.

Here's how bad it is: Oxfam now calculates that the 85 richest billionaires on the planet, including the likes of Carlos Slim, Bill Gates and Mark Zuckerberg, have as much money as the 3.5 billion poorest people.

And for all the talk about the urgent need to address income inequality, the mega-rich just keep on getting richer.''

I'm aware of the issue but you're still not making the case about hoarding.

The figures on wealth distribution demonstrate the hoarding of wealth: nearly 50% of the worlds wealth is in the hands of 1% of the worlds population, and the gap is still growing.

The ratio of wealth ownership makes its own case. If a certain individual owns 20 houses in prime locations around the world, yacht in the marina, jet on call in the hangar, a billion dollars in company stocks, this wealth is not circulating amongst the general population. The average Joe has no access to it, you or I have no access to it. mostly just the top layers of society get a slice of the pie, advisers, partners, etc.

 

[Loren Pechtel]

I'm aware of the issue but you're still not making the case about hoarding.

The figures on wealth distribution demonstrate the hoarding of wealth: nearly 50% of the worlds wealth is in the hands of 1% of the worlds population, and the gap is still growing.

The ratio of wealth ownership makes its own case. If a certain individual owns 20 houses in prime locations around the world, yacht in the marina, jet on call in the hangar, a billion dollars in company stocks, this wealth is not circulating amongst the general population. The average Joe has no access to it, you or I have no access to it. mostly just the top layers of society get a slice of the pie, advisers, partners, etc.

You still can't tell the difference between hoarding and consumption.

That billion in company stocks is money that others are getting the use of!

 

[Jason Harvestdancer]

There is a rich-poor gap in this country, but if you look critically you'll see that every time the problem gets worse it is actually a government-nongovernment gap that appears as a rich - poor gap. It is that way because when the gap increases, it is those in the government class using political power to accumulate greater wealth at the expense of those in the economic class. And then those in the government class play class-warfare to convince the rubes that it is actually a rich-poor gap in order to convince the rubes to grant greater power to the government to fix the problem.

Like using more cyanide to treat cyanide poisoning.

But that analysis relies on something factual but rejected in this forum, a recognition of the difference between political power and economic power. When you see the share of wealth accumulating in even smaller portions of the population, that is political power in play. Which is why the dominant economic theories in this forum won't work - they address the symptom by by exacerbating the cause.

 

[lpetrich]

There is a rich-poor gap in this country, but if you look critically you'll see that every time the problem gets worse it is actually a government-nongovernment gap that appears as a rich - poor gap. It is that way because when the gap increases, it is those in the government class using political power to accumulate greater wealth at the expense of those in the economic class.

Whatever the "government class" and the "economic class" are supposed to be. Including how one finds people's class membership. How would someone be able to tell whether or not someone is a member of the "government class"? The "economic class"?

 

[Jason Harvestdancer]

The Rise of the Praetorian Class

Much attention has been paid to the “disappearing middle class” and the “vanishing American Dream.” While the observations are largely accurate, they are also misleading. The traditional three-tier model of the upper, middle and lower class broadly categorizes people according to income and net worth. One significant problem with this model is that membership in any particular class is very much in the eye of the beholder. One man’s “scraping by” is another man’s “opulent living.” This subjective and arbitrary grouping and boundary assessment inevitably gives rise to the simmering class warfare that is starting to rear its ugly head in many Western countries. Such categorization is therefore meaningless at best, if not outright deceptive as it conflates a variety of economic actors.

The chief fallacy of this model rests in the fact that it focuses on how much those actors are compensated, as opposed to how and why they are compensated. A far better perspective is perhaps gained using two classes, the Political Class and the Economic Class, with a third class emerging.

The Butcher, the Baker, the Candlestick Maker – The Economic Class

The Economic Class, at least in the United States, has historically been the numerically dominant group, although in recent decades its dominance has noticeably waned. The economic class would traditionally be called the Private Sector, but even that term has become misleading for reasons we will delve into later in this article.

Members of the Economic Class provide goods and services that are voluntarily sought by consumers and paid at rates that the market will bear. In an unfettered environment, the economic class would count farmers, engineers, coal miners, artists, physicians, janitorial staff, security guards, merchants and company executives among its membership. They participate freely and competitively in the market place, using the economic principles of Division of Labor and the Law of Comparative Advantage to increase the wealth of society as well as improve their personal position. Capital, entrepreneurial and human resources are brought together collaboratively to meet the needs of the market place. This is standard Economics 101 fare and hopefully generates little controversy among the readership. The important factor defining Economic Class membership is not the amount of money a person earns but rather their participation in the free and open market.

The Lazy Highwaymen – The Political Class

Like the Economic Class, members of the Political Class are not properly defined by their wealth but rather by how they exert influence in the market place. Whereas members of the Economic Class engage the market openly and voluntarily, members of the Political Class employ coercion and deceit to achieve their economic objectives. The coercion and deceit may either be exerted directly or, as is increasingly observed, through a variety of proxy agents. The most obvious members of the Political Class are, unsurprisingly, politicians. This group includes elected individuals at every level of government as well as various appointed officials.

In addition to this primary membership category, a second distinct group exists within the Political Class. It consists of various advocates including lobbyists, influence peddlers and miscellaneous other supplicants of government cheese. These creatures exist to serve as envoys for the third distinct group, which is made up of a patchwork of commercial entities that have learned that employing a politically well-connected pitch man replaces the need for an effective sales and marketing organization and in some cases even the requirement to have a desirable product.

Furthermore, it is commonly observed that members of the Political Class routinely migrate between the three aforementioned groups. An unfortunate consequence of allowing these economic actors to “cut in line” is that the rewarded event becomes the prevailing trend. Because of that, there is virtually no industry that has opted out of the rent-seeking game. From the military-industrial complex to agricultural subsidies, to the utterly corrupt banking system, the Political Class is inexorably claiming an increasing share of the world’s economic activity, a highly disturbing trend indeed.

Subsidized inefficiency, intentional destruction of productive assets and confiscation of property are but some of the effects that are observed when the Political Class employs force to serve those that are “more equal than others.” The arrangement can be summed up by saying that economic activity within the Economic Class places the bargaining power in the hands of the buyer whereas the economic activity within the Political Class places the bargaining power in the hand of the seller. This gives rise to dislocations in the free exchange of goods and services as well as widespread misallocations of capital as businesses adjust their practices based not on the normal mechanics of supply and demand but rather based on the dictates of the Political Class. Over the years, the scale of the intrusions of the Political Class into economies around the world, and very definitely here in the United States, has grown to the point where truly free markets are now the exception and not the norm.

Because the Economic Class operates in the realm of voluntary exchange whereas the Political Class employs force to achieve its objectives, many of which are anathema to the Economic Class, it follows that a significant amount of resources must be dedicated by the Political Class to the enforcement of their objectives. This role has traditionally fallen on the wide array of military and law enforcement organizations as well as numerous regulatory agencies and departments.

From the US military’s role in protecting the Political Class’s global interests and the IRS keeping the Treasury full, to the FDA serving “Big Pharma” and various law enforcement agencies maintaining a low-level chronic fear in the populace, the level of physical control that the Political Class needs to extend over productive resources is staggering. And in lockstep with the virtually unchecked growth in the Political Class, so has grown the size and scope of the enforcement branch deployed to protect its interests.

 

[bilby]

The figures on wealth distribution demonstrate the hoarding of wealth: nearly 50% of the worlds wealth is in the hands of 1% of the worlds population, and the gap is still growing.

The ratio of wealth ownership makes its own case. If a certain individual owns 20 houses in prime locations around the world, yacht in the marina, jet on call in the hangar, a billion dollars in company stocks, this wealth is not circulating amongst the general population. The average Joe has no access to it, you or I have no access to it. mostly just the top layers of society get a slice of the pie, advisers, partners, etc.

You still can't tell the difference between hoarding and consumption.

That billion in company stocks is money that others are getting the use of!

Really? How?

If I buy stocks (other than in an IPO), then the cash I spend on those stocks goes to the person who is selling some of his shareholding - and despite what Mittens Romney might have told you, poor people typically don't have a lot of shares to sell. Transferring cash between wealthy people in exchange for assets that have a value based on the best guess at future profitability doesn't seem to achieve anything much for the economy, or for the poor. People don't sell Microsoft and buy food; they sell Microsoft and buy Apple. Neither company sees a red-cent; they just change the address to which they send the dividend cheque.