Trickle-Down Theory (small business, income, investing, job)

[user_id]

Originally Posted by plaidmom

S
So, for the lower and middle classes: WHERE IS THE MONEY???

The lower and middle classes have been receiving tax cuts, they also received a stimulus payment when Bush as still president.

Anyhow, the picture you are trying to paint isn't accurate. Many businesses went bankrupt during the recession, the fact that some of them are doing okay now is based in part on the fact that some of their competitors no longer exist.

Originally Posted by plaidmom

I suppose I visualize(remember I am visual by nature) this "wealth block" in much the same way. How can WE (US citizens) free that capital up? What needs to be moved or poked or pushed downstream? What "stick" or other tool do we need to break up that "dam"

Capital isn't blocked, there is plenty of capital.

[user_id]

Originally Posted by djmilf

Interesting isn't it that the examples you chose all came from upper middle class or better backgrounds (except of course for those who are not applicable to the 21st century).

Most "promising" businesses are created by people from middle-class to upper middle-class backgrounds. There is good reason for that, on one hand they have access to the appropriate education and information and on the other hand they have low opportunity costs as they aren't being handed a silver spoon.

The upper-class tend not to create businesses and when they do it is usually a way of leveraging their capital. The upper-class are rent seekers, they aren't really contributing to the real economy.

I can think of only one business that was created from a member of the upper-class, namely Fedex. The founder was rather wealthy even before the company was created.

[slackjaw]

Originally Posted by djmilf

Jeff Bezos (founder of Amazon.com)...a maternal grandfather who was a regional director of the US Atomic Energy Commission and a step father who was an engineer for Exxon.

Reach much?

Another way to put it would be Bezos' grandpa was a government bureaucrat, he was born to a teenage mother in Albuquerque who's marriage lasted less than a year, she remarried to a Cuban immigrant five years later who had migrated to the United States at age 15.

No doubt dude is smart but he's hardly an example of some extraordinary advantageous upbringing.

[Z3N1TH 0N3]

Originally Posted by user_id

Capital isn't blocked, there is plenty of capital.

An interesting little blurb to follow this:

As you can see, the cash-to-assets ratio more than doubled between 1980 and 2004. The rise between 2004 and 2010 -- which was really a recession-driven drop followed by a rapid recovery -- just puts it back at trend. Which suggests that businesses aren't insecure in a particularly historic way. They're not hiring more and not spending more because they don't see a reason to.

Ezra Klein - Corporations not hoarding cash

Capitalism and trickle down aren't necessarily the problem, though they may play minor roles. Ideally, these systems should work well, in that they would reward hard work. I believe the problem/issue the OP is referring to rests within the labor market.

Improved efficiency: Companies have found ways to improve efficiency. One person can do the job of two or three people due to automation and technology.

Offhoring to cheap labor markets: Why pay union man John $25/hr to put a bumper on a Jeep when Puneet and Wang Lee will do it for $5/hr? (Bye bye manufacturing) Furthermore, why pay Jack $30/hr. to troubleshoot this LAN issue when Tahsin can do it from Bombay for $9/hr.? (Bye bye certain IT fields)

Importing cheap labor: Juan and Miguel will bust their humps for us for a cheap wage just to avoid deportation. Sure beats having Dave and Steve complain about low wages and lack of benefits each year.

It's labor market manipulation at its best. Companies simply don't need to hire, because they've found ways around it. If you flood the labor supply with cheap labor, guess what happens? You drive wages down. Yay for more profits! The people who have and will continue to feel the brunt of this change will be those whose skillsets are easily reproduced. These people risk being in direct competition with others who can afford to do the job at wages that are not sustainable in this country. Additionally, if the work doesn't require an on-site presence (in other words, can be done remotely), you're in an even worse situation. Think call centers.

We, as a whole, need to decide if this is how we want to continue living. Do we want the system that results in massive and frequent fluctuations in the economy and the possibility for large gains or large losses or do we want the system that results in more evenly balanced and less frequent fluctuations in the economy with the possibility of fewer large gains or large losses. Think about it like you would your 401k, if you happen to have one anymore. Do you want the risky strategy, or do you want the more conservative strategy?

[manderly6]

This is only a small sampling, but I know a lot of my friends and family who had raises and bonuses eliminated the last few years are seeing them again. I guess that is kind of a trickle down.

[Mircea]

Originally Posted by Java378

Also, I notice this board is friendlier to the unemployed than the actual Work & Employment board. Hmmm

I am the least friendly.

Sure, some people get caught with their pants down, but the simple fact is, if you don't know you're going to be unemployed 2-3 months before it actually happens, that's your own fault.

People will spend 80 hours month surfing the web, but won't take 8 minutes to see what's happening in their industry/field, or with their company. Just like here, everyone knew a year before Ford closed their transmission plant they were going to close the plant. Ford even said so. Everyone knew, except the Ford employees who worked there. They acted like it was a big shock.

Originally Posted by X14Freak

Here is a quote from an article I read in the Atlantic:

The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

Actually the CEO was quoting me. Maybe a year ago someone said the rest of the world needs America, and I said their sense of self-worth is over-inflated because the Chinese Middle Class was equal to the US population and I pointed out that when the Chinese Middle Class doubles in size and the Indians have 300 Million in their Middle Class and there's 300 Million in South America and Africa, no one will give a rat's ass if the US exists or not.

Originally Posted by newenglandgirl

plaidmom, REAGAN (or, more accurately, the Reagan administration) cooked up the trickle down theory and sold it to the gullible masses.

And Clinton had 8 years to put an end to it and he didn't. Clinton thought it was peachy too.

Originally Posted by LeavingMA

Except it even started before Reagan. JFK mentioned it quite a few times and believed in "trickle down", but most democrats don't want to mention this.

They also don't like to mention that JFK left his wife and kids at his inaugural ball to go to a party at Peter Lawford's house and was making out with Angie Dickenson before he had a ménage à trois with two prostitutes.

And they don't like to mention that he was the big top dog in the British Politician Sex Scandal (and he isn't even British -- how sad is that?).

They don't like to mention the Cuban Missile Crisis was his fault either. Eisenhower told him a dozen times (even called JFK at the White House) and told him not to deploy the Thor and Jupiter missiles until he resolved the situation in Cuba (which he made worse).

Originally Posted by radraja

It's true that wealthy people accumulate wealth, but I'm interested in why you think that they don't do anything. Typically, a person has to either have a highly demanding job (i.e., CEO, surgeon, top attorney) or have done something pretty special with his life in order to become wealthy in the first place. Correct?

I can bat .206 and make 28 errors a year.

Originally Posted by radraja

The average millionaire is nothing like Charlie Sheen. Most people who make that kind of money are business leaders who happen to be incredibly good at what they do.

Um, according to the Democrats, there are only 315,000 people in the whole of America who earn more than $1 Million per year of which just over 400 are "billionaires."

Of the people in the US who earn more than $1 Million/year the majority are athletes and entertainers.

Originally Posted by radraja

Do you really think that the children of corporate business founders don't end up taking over for their parents and working their asses off to maintain the company? (Look at the Trump kids, etc.)

The majority run the business into the ground or end up selling it as quick as the can for the money.

Except Du Point. He shot a woman on his front lawn and went to jail.

Originally Posted by CosmicWizard

It has been transferred, in the greatest heist in history, from the workers and consumers to the banks and the portfolios of the uber-rich. Today just 400 Americans have more wealth than half of all Americans combined.

And who transferred the wealth? The Stupid Class.

$250,000 with 0% down at 6.5 % for 30 years down the Stupid Class pays $318,000 in interest.

A smart person would put 25% to 35% down and pay only $79,956 in interest.

The smart person would then take the $238,905 in interest payments saved and put it into a savings account. At the end of 30 years, they would have saved up $762,505.35

If you retire at 65 and die at 85 then $762,505/20 years is $38,000 per year, plus your Social Security, plus your pension, plus your 401k and any other investments you have.

See the difference between the Stupid Class and those who have wealth?

The Stupid Class is so stupid they will buy a $1,700 Plasma TV and then pay $1,973 in interest because they're stupid.

The smart person will set a budget, save up enough to pay cash for the Plasma TV and save $1,973 which they will spend on something else like going to Europe for an anniversary, or taking a cruise, or purchasing a used car instead of being stupid and getting trapped in perpetual life-time car payments. You should be buying a new car every 8-10 years, not every 2-3 years.

So let's tell the truth, the Stupid Class willingly gave away all their money so they could satisfy their infantile urges now.

Originally Posted by Z3N1TH 0N3

Capitalism and trickle down aren't necessarily the problem, though they may play minor roles.

How would Capitalism play a minor role? Capitalism is merely a theory about the ownership of Capital. Anyone can have Capital.

If you'd quit crawling around on your hands and knees stuffing your money into the pockets of wealthy, you might be able to save up enough money to buy a server and a computer and start your own on-line business (um, the computer and server would be Capital).

Life is about Choices. Do you want the new car and the 6 meter Plasma TV now, or are you willing to wait a year or two and use the money to acquire Capital to start a business, and then you can have 5 cars and three 6 meter Plasma TVs when your business is successful?

The majority of people make very bad choices.

Originally Posted by Z3N1TH 0N3

Offhoring to cheap labor markets: Why pay union man John $25/hr to put a bumper on a Jeep when Puneet and Wang Lee will do it for $5/hr? (Bye bye manufacturing).

You're going to ignore the fact that you've had a Trade Deficit for how many decades now?

Your facts are wrong too.

You refused to buy the things that union man John made and preferred to buy those things Long Wang made, even though they were only $0.03 cheaper.

What does that tell any person with a brain?

It tells them they had best move their company to China where they can hire Bang Dong to make things for $5/hour, before their company goes out of business and they end up in the street.

It also tells the people with brains that if they don't move to China and start operating now, then Francois, Hans, Guido, Esteban, Pytor, Ion, Bjorn and others will get there first and set up shop and the brainy people will get shut out of the market, or the cost to enter that market will be so high they'll take losses for years before they get even 1% of the market share.

Global position is very important in a global economy if you want global market share, or at least regional market share.

Originally Posted by Z3N1TH 0N3

It's labor market manipulation at its best.

No, it's smart business. Business does not revolve around you the laborer.

Go back to 1999 and see what the Futurists were saying about the US. They projected that the US will experience mass emigration. If you are 25 and under and you are not planning on leaving the US to seek employment, you're wrong. In order to have any semblance of the current life-style, you'll have to go to another country and work. If you have a skill set few others have in a developing country, you'll have a job. Oh, wait, they've been brain-washed by the liberals. They'll balk at getting paid $8/hour. Too bad they don't understand that $8/hour in many other countries is equivalent to $45/hour in the US (in some countries even more).

Originally Posted by Z3N1TH 0N3

We, as a whole, need to decide if this is how we want to continue living. Do we want the system that results in massive and frequent fluctuations in the economy and the possibility for large gains or large losses or do we want the system that results in more evenly balanced and less frequent fluctuations in the economy with the possibility of fewer large gains or large losses.

No such system exists.

Every system and theory that exists now and has ever existed has been subject to massive and frequent fluctuations.

[Z3N1TH 0N3]

@Mircea. I really don't think we are in disagreement on anything. You just expanded on things that I did not include in my post. If I were writing a book on the subject, I probably would have. Anyways, thanks for responding to my post and adding some things that I missed.

[radraja]

Originally Posted by djmilf

Steve Jobs, Bill Gates, Mark Zuckerberg, Warren Buffet...spawn of upper middle class parents.

Larry Page (a Google founder) spawn of two college computer science professors. Sergey Brin (the other Google founder)...spawn of a mathematics professor and a NASA research scientist.

Jeff Bezos (founder of Amazon.com)...a maternal grandfather who was a regional director of the US Atomic Energy Commission and a step father who was an engineer for Exxon.

Andrew Carnegie, Cornelius Vanderbilt and John D Rockefeller...from the 19th century.

Interesting isn't it that the examples you chose all came from upper middle class or better backgrounds (except of course for those who are not applicable to the 21st century).

Yes, a few people come from poverty and become billionaires...Oprah Winfrey is the first person I can think of who fits your pattern. But just a very few make it...Horatio Algiers is a fictional character.

Okay, sure. You're correct. But I fail to how any of this contradicts with what I said. I never said that business leaders didn't come from middle class or better backgrounds, and I never said anything about people rising up from poverty. All I said was that most business leaders actually work very hard and that it's unfair to stereotype them all as lazy people who sit on their asses and do nothing all day. The fact that many of them came from middle or upper-middle class parents doesn't invalidate their work ethic.

[radraja]

Although, for what's it's worth, I was able to find this statistic:

"An amazing fact: 80% of millionaires are first generation millionaires; they have made their money on their own, in their lifetime."

The 7 Top Ways Millionaires Become Wealthy (http://www.money-zine.com/Investing/Investing/The-7-Top-Ways-Millionaires-Become-Wealthy/ - broken link)

[djmilf]

Originally Posted by slackjaw

Reach much?

Another way to put it would be Bezos' grandpa was a government bureaucrat, he was born to a teenage mother in Albuquerque who's marriage lasted less than a year, she remarried to a Cuban immigrant five years later who had migrated to the United States at age 15.

No doubt dude is smart but he's hardly an example of some extraordinary advantageous upbringing.

My point is that Bezo's family environment included high achievement, even overachievement in the case of his stepfather.

Aside from what you might believe, the US Atomic Energy Commission wasn't a simple government beaurocracy, it was established in 1946 to take over the military nuclear programs and devoted to developing both nuclear weapons and civilian nuclear power. Think of it like NASA back in the 1960's...only the best and brightest made it.

I didn't say that it was impossible for a poor person from a limited background to rise to a high level of wealth, just very, very rare for it to happen.