A key truth very few investors and executives want to admit...from The Business Insider.

I'm no economist and I'm certainly not the brightest bulb in the room, but it seems to me that economic growth must come from excess capital. If you're eating oatmeal three times a day because you have no money you certainly can't start a business or improve your lot in life. If you can't access a loan or the capital necessary to start/improve your circumstances and a substantial part of the middle class are in the same situation then the entire economy is in a tar pit and can't get out. Read "The Mystery of Capital" by Hernando de Soto for more on that. All the regulations and licensing requirements we have today (to say nothing of legal liabilities) have the same effect. In essence, those who Have will continue to pull away due to their ability to diversify and ride out bad times while those who Have Not will be left behind. That gets erroneously ascribed to "The rich get richer and the poor get poorer" as an indictment of capitalism. It's not. It's a symptom of a broken system where an ever-increasing burden gets laid on those who initially (30 years ago) can afford it but over time can't afford it (today). Class warfare simply compounds the problem. The article cited in the OP is partly on target in that its assessment of the effect is correct, but I disagree with the cause simply being inadequate wages.

novaderrik wrote:

OHSCrifle wrote: This discussion is a great example of why I appreciate the underlying theme of GRM: you CAN do more with less. Whether you are a pauper or a prince, live below your means and you will be fine. That's the GRM theme, isn't it? LOL

i wonder about this some time- when i see people on here asking for advice on a good "cheap beater" that costs more than any car i have ever owned in the past or will ever own in the future. but i've also seen threads that explain that i don't exactly exist in the income range of the average GRM user/subscriber, so i come at things from a different perspective than some around here do.

I see what you mean. Until my kids are much older, toys are just a dream...

stroker wrote: I'm no economist and I'm certainly not the brightest bulb in the room, but it seems to me that economic growth must come from excess capital. If you're eating oatmeal three times a day because you have no money you certainly can't start a business or improve your lot in life. If you can't access a loan or the capital necessary to start/improve your circumstances and a substantial part of the middle class are in the same situation then the entire economy is in a tar pit and can't get out. Read "The Mystery of Capital" by Hernando de Soto for more on that. All the regulations and licensing requirements we have today (to say nothing of legal liabilities) have the same effect. In essence, those who Have will continue to pull away due to their ability to diversify and ride out bad times while those who Have Not will be left behind. That gets erroneously ascribed to "The rich get richer and the poor get poorer" as an indictment of capitalism. It's not. It's a symptom of a broken system where an ever-increasing burden gets laid on those who initially (30 years ago) can afford it but over time can't afford it (today). Class warfare simply compounds the problem. The article cited in the OP is partly on target in that its assessment of the effect is correct, but I disagree with the cause simply being inadequate wages.

Bravo! There's some real thinking that seems to be beyond the capabilities of the "wages are too low, so let's pass a law raising them" crowd.

Basil Exposition wrote:

stroker wrote: I'm no economist and I'm certainly not the brightest bulb in the room, but it seems to me that economic growth must come from excess capital. If you're eating oatmeal three times a day because you have no money you certainly can't start a business or improve your lot in life. If you can't access a loan or the capital necessary to start/improve your circumstances and a substantial part of the middle class are in the same situation then the entire economy is in a tar pit and can't get out. Read "The Mystery of Capital" by Hernando de Soto for more on that. All the regulations and licensing requirements we have today (to say nothing of legal liabilities) have the same effect. In essence, those who Have will continue to pull away due to their ability to diversify and ride out bad times while those who Have Not will be left behind. That gets erroneously ascribed to "The rich get richer and the poor get poorer" as an indictment of capitalism. It's not. It's a symptom of a broken system where an ever-increasing burden gets laid on those who initially (30 years ago) can afford it but over time can't afford it (today). Class warfare simply compounds the problem. The article cited in the OP is partly on target in that its assessment of the effect is correct, but I disagree with the cause simply being inadequate wages.

Bravo! There's some real thinking that seems to be beyond the capabilities of the "wages are too low, so let's pass a law raising them" crowd.

One HUGE problem with that- without consumers, excess capitol does nothing.

That's one point of having higher minimum wages- all people do at that end of the spectrum is spend money, as they use it all to survive.

This is a consumer based economy- always has been. No consumers = no economy. So every good needs a consumer of some type. Especially at a low level- without people buying cheap toys, there's no company that needs to spend money on stampings or molds. So skilled labor of tool making and tool design is not used.

I think another aspect of the article that wasn't touched on in this discussion is that prior to this period of depression, earnings were spread much more equitably across the citizenry. If the nation's economy grew 10% then the rich benefitted from that growth as well as the middle and lower class. That stopped happening sometime in the 1980's. This trend accelerated in the 90's and into the 00's. Now we are on the other end of that and see that the rich are immensely wealthy and insulated from the effects of this. People who were once comfortably middle class and the engine of the U.S. economy are now struggling to remain in the middle class. Fancy tech, new cars, whatever. All that is ancillary in that the beneficiaries of this growth, i.e. the rich and the ruling class which amount to our politicians, don't see an issue. The vast majority of the country, and it's the majority driving the economy, are seeing and feeling the lack of shared benefit of economic growth. Will we continue to enjoy the economic superiority if our middle class no longer powers our economy? I don't think that's possible....

petegossett wrote: people as consumers will continue to demand more product for less money, *while at the same exact time demand more pay without producing any more productivity from their employer!*

What? Productivity has been steadily increasing since the 70s, while wages have not.

It was early mentioned that regulations are constricting small business owners from being able to compete against large corporations.

While I agree with the premise, I do not think this is a reason to remove all regulation from business as a whole. I support a strong consumer AND labor protection environment, and any easing of regulation should not remove those protections, but anything that would help small business in so far as less taxes, employee healthcare subsidies, or a small business needing to follow the same regulations as those with 100,000 employees.

I think too often the middle class votes against interest in supporting the growth of the highest income brackets. As often obvious in my posts, I advocate for income redistribution, but I do not necessarily believe that taxation (or stealing) is the correct way to promote income equality.

The solution would be convincing the very wealthy the spend more of their income either on paying higher wages, or building stuff that the majority of citizens use. I'd have no problems riding "John Gault Train Service" for free, even it was plastered with all kinds of advertisements. Nor would I complain if the worlds most wealthy individuals wanted to build starships. Sign me up, Weyland Yatuni!

Part of the problem is that it seems wealth congregates with wealth. A super rich dude doesn't go to the local gas stations and buys millions of Tasty Cakes. In some cases, he may be rich without having more than a handful of employees, but all of this employees are investors, financial advisers, accountants, and maybe a few house maids and landscapers.

How do we convince "boring" wealth to create jobs when they don't need a garage full of cars or have expensive hobbies? How do we convince "lazy" wealth to create jobs when his overpaid financial adviser can net him huge profits with a click of a button?

I believe that the poor "lower" class needs to spend less and be more frugal, and the middle class needs similar consumer restraint, but how do we get the most wealthy individuals to spend money on working American adults? Not JUST afterschool programs for disadvantage kids or charity for disabled, but jobs, food, healthcare, housing and infrastructure that the rest of us need to live comfortable lives.

the rich create jobs by investing their money in companies that employ people. they don't have to personally have 10,000 people on their payroll to be helping people get jobs- they just have to have people that put their money into the hands of other people that employ 10,000 people. even money that they have parked away in a bank somewhere isn't really just sitting in a bank somewhere- unless it's something like physical bars of gold or silver or something like that- the banks invest that money and loan it out to people that employ other people to do stuff.

if they have their money invested in property, they pay taxes on that property. they might even pay people to maintain or develop that property.

if they own cars, they pay registration taxes on those cars every year and they pay people to maintain them, as well as paying to insure them.

i guess my point is that money is always moving around, even if it seems like it's just sitting there. sometimes it moves downwards towards the common people, sometimes it moves sideways to other rich people. but it's always moving..

In reply to novaderrik:

That's not neccecarily correct. While many people become wealthy by employeeing a lot of people, it's also very possible to become very wealthy by doing not much at all- at least in actual work.

The whole banking and investing community is that way right now- via a total tax imballance on unearned income, it's put a significant part of the economy into the stock market. Which is a double benefit via cost per transaction... anyway, that sector of the economy should be supporting the part that transforms things into other things to buy- but for the most part they don't.

That's a problem.

One does make money by spending money, sure. But trading on an agreed upon value of a stock does not help companies. And that trading is both 99% of what happens at Wall Street and it gets a tax break if you make money or lose money. Seems like a market that is rife for manipulation.

alfadriver wrote: The whole banking and investing community is that way right now- via a total tax imballance on unearned income, it's put a significant part of the economy into the stock market. Which is a double benefit via cost per transaction... anyway, that sector of the economy should be supporting the part that transforms things into other things to buy- but for the most part they don't.

That is a good point. I know that my working income often gets into the 25% tax range.. but my investments get taxed at 15% no matter how much I make from them.

PHeller wrote: I believe that the poor "lower" class needs to spend less and be more frugal

Tried it, wasn't saving money at a speed relevant to a human lifespan, gave up.

mad_machine wrote:

alfadriver wrote: The whole banking and investing community is that way right now- via a total tax imballance on unearned income, it's put a significant part of the economy into the stock market. Which is a double benefit via cost per transaction... anyway, that sector of the economy should be supporting the part that transforms things into other things to buy- but for the most part they don't.

That is a good point. I know that my working income often gets into the 25% tax range.. but my investments get taxed at 15% no matter how much I make from them.

Regardless of the banking and investment community's tax rate, both are getting rich because the Federal Reserve is pumping vapor money into the economy at the rate of a trillion dollars per annum. That money is loaned at a near-zero interest rate and then goes into the stock market because that is the most stable place to put it and still get a decent ROI.

If the Federal government were to provide a similar stable landscape for business, the wealthy would invest it there and make money the old fashioned way. That's not happening and its' why businesses and individuals are sitting on record cash reserves and have been doing so for the last six years. They need a good reason to spread that wealth around and all they have been getting is squat and jabs from the people who made it ever easier to get richer.

The thing that amazes me is so many employers seem to be willing to try to pay people in the technical positions as little as possible. I mean a business's success is ultimately built on the employees. So why not pay employees that are doing a good job enough to keep them at your place?

Xceler8x wrote: Eric Schmidt Just Revealed A Key Truth About The Economy That Very Few Rich Investors And Executives Want To Admit ...

I have a lot of comments... I'll reserve those for a time when we are having a beer in person...

In the meantime, here is a great counter point: https://www.youtube.com/watch?v=jDIZS4IQlQk

In reply to oldsaw:

Not to add too much to the tanget, but part of my point about the lighter tax rate is about manipulation of the system. Your example of the Fed pumping money into that, where the actual loans are not really happening is a good example. If you could have a way to make a lot of money where the taxes were half that of normal earning, don't you think people would do that?

The wealthy invest their money where they can make the most. Always have, always will. With the tax break, the current area of focus is in capitol gains.

Which, then, focuses a LOT of money in a sector that doesn't actually expand the economy- no money is going toward people transforming stuff into other stuff that consumers buy. That's the real world economy.

BradLTL wrote:

Xceler8x wrote: Eric Schmidt Just Revealed A Key Truth About The Economy That Very Few Rich Investors And Executives Want To Admit ...

I have a lot of comments... I'll reserve those for a time when we are having a beer in person... In the meantime, here is a great counter point: https://www.youtube.com/watch?v=jDIZS4IQlQk

So if people only do what they love, where are we going to find people who do the rotten jobs?

It was posted in this thread that Henry Ford did the $5/day wage to expand the middle class- urban legend. The real reason was that the factory jobs were so bad that the turn over cost Ford a lot of money. To prevent that, he raised the wage enough to keep people on the job. Which- in another way- he raised wages to save money.

It's rare in the world that people really do what they love to do. It's quite common that people get good wages doing rotten jobs so that they can have a good life outside of work. That's a lot more realistic.

In reply to alfadriver:

Did you watch it? It's not about only doing things you love, it is about how you interact with others. It's not titled well, I'll give you that. Try starting here: https://www.youtube.com/watch?v=jDIZS4IQlQk#t=1905

Datsun1500 wrote: Middle class in the 70's was a good blue collar job, small house on a regular lot, cable and A/C were considered a luxury. People think an above average house, 2 cars, cable, cell phones for all, etc. should be considered middle class now, and many don't want to work a blue collar job. That's a big issue. You have people making $100K a year saying "it's not enough"

Quoted for truth.

Housing price are up, which promotes rentals which keeps capital from pooling. This throws things a little akimbo but what exactly is everyone envisioning as middle class. I am in the upper single digit percentages for US income and so is my wife and we have non of the extraneous crap that is now "required" for the middle class that I keep seeing in the media.

BradLTL wrote: In reply to alfadriver: Did you watch it? It's not about only doing things you love, it is about how you interact with others. It's not titled well, I'll give you that. Try starting here: https://www.youtube.com/watch?v=jDIZS4IQlQk#t=1905

No, I heard the start, and didn't think sitting through 42 min of that would be worth my time.

However, I did start listening to what you posted, and got as far as the "shareholder value" part. I'm with him on that, and IMHO, the whole tax break that shareholders get for Capitol Gains is a HUGE part of that equation. Again, the shift in the economy has gone from making and selling stuff to focusing on wall street. Bad idea.

Didn't listen to much but a few min of it. Doesn't seem like a valuable use of my time. A summary chart of his message would be nice.

stroker wrote: I'm no economist and I'm certainly not the brightest bulb in the room, but it seems to me that economic growth must come from excess capital. If you're eating oatmeal three times a day because you have no money you certainly can't start a business or improve your lot in life. If you can't access a loan or the capital necessary to start/improve your circumstances and a substantial part of the middle class are in the same situation then the entire economy is in a tar pit and can't get out. Read "The Mystery of Capital" by Hernando de Soto for more on that. All the regulations and licensing requirements we have today (to say nothing of legal liabilities) have the same effect. In essence, those who Have will continue to pull away due to their ability to diversify and ride out bad times while those who Have Not will be left behind. That gets erroneously ascribed to "The rich get richer and the poor get poorer" as an indictment of capitalism. It's not. It's a symptom of a broken system where an ever-increasing burden gets laid on those who initially (30 years ago) can afford it but over time can't afford it (today). Class warfare simply compounds the problem. The article cited in the OP is partly on target in that its assessment of the effect is correct, but I disagree with the cause simply being inadequate wages.

Being broke is not an excuse for not being able to become successful. The best way to be successful is to overcome any possible excuse. In the early 70’s my in-laws came right off the boat from communist Yugoslavia, spoke almost zero English, had no real education beyond what a normal high school student in the US had. They had two small children and no money and 30 years later were building a 3000+ sq foot house on 30 acres.

The economy sucks, yet it is full of opportunities that don’t require investments other than time.

This is an interesting analysis of the current economic situation in reference to the very wealthy (he was previously an investment manager):

http://www2.ucsc.edu/whorulesamerica/power/investment_manager_2014.html

It is an update to this piece about the very very wealthy (the 1% of the 1%) and what they do with their money (yes, he is a commie pinko Californian professor, but his writing is pretty analytical):

http://www2.ucsc.edu/whorulesamerica/power/investment_manager.html

The sad state of things, as he mentions in the first (follow up) piece, seems to be that as the economy goes through struggles, or the government tries to "help", these just turn into opportunities for the really wealthy to get wealthier. A bit of a "stuck in quicksand" kind of thing.

Another interesting aspect about investing in stocks is that it really does almost nothing for the "economy". It doesn't even really help the company (unless it is in IPO, or the company is selling more stocks). It does help the valuation of the company, but it's effect on company hiring and growth will be minimal (as I understand it at least).

In reply to Rusnak_322:

In the 70's you could still do that. That was still back before the "great degree debate" that now permeates our hiring climate.

Datsun, you sure pack a punch… I’m 4.3 light years to the right of PHeller and still felt the “excuse” hit come in over here.

Anyway, there’s no point in getting worked up over this, I can assure everyone that nothing will change. You’re just being placated with hope; again.

Imnsho The middle class are poor because they choose to be. Yes the top 5-10% are growing the gap but that's because the middle class wastes huge percentages of their income on servicing debt. Their debt traps them in jobs because they don't have the savings to weather job changes. This gives the employers all the power to keep reducing wages. They choose to go into ludicrous debt to get a degree by choosing expensive schools and majors that don't give them opportunity.

They can choose a different path. Don't buy a giant house, only buy cars with cash (and yes if that means you can afford cash to buy new ones you can do that, its fun to confuse new car dealership with checks and tell the finance guy that he has nothing to offer you), and go to a cheap state school and work over the summers to pay for your school career.

I'd say the discussion isn't so much about being poor or indebt. The discussion is more along the lines of equity in progress. At this point the very wealthy to the wealthiest are consuming all the income growth. That means with inflation taken into account that on a long enough timeline all but the wealthiest end up poor.

That is not good for our country. All citizens should benefit from increased productivity as that is what creates a healthy economy for the rich, poor, and middle class.

All this talk of being debt free and making sound financial decisions doesn't account for how the majority of citizens are being left out of any financial growth. No one wants a handout. A good worker does deserve a raise just like the CEO and the stock investor has enjoyed.