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"Although today high levels of inequality in the United States remain a pressing concern for a large swath of the population, monetary policy and credit expansion are rarely mentioned as a likely source of rising wealth and income inequality. [...]
The rise in income inequality over the past 30 years has to a significant extent been the product of monetary policies fueling a series of asset price bubbles. Whenever the market booms, the share of income going to those at the very top increases.[...]
[F]inancial institutions benefit disproportionately from money creation, since they can purchase more goods, services, and assets for still relatively low prices. This conclusion is backed by numerous empirical illustrations. For instance, the financial sector contributed massively to the growth of billionaire's wealth"
Source: https://mises.org/library/how-central-banking-increased-inequality
I'll leave my comments as comments, but note that The Mises Institute is proudly, one might say almost by definition, Austrian School. Both the Institute and the School have had their fair share of criticism. Which of course doesn't mean that individual author is wrong on this particular matter. -- Ed.(FP)
(Score: 3, Insightful) by JoeMerchant on Wednesday August 23 2017, @01:36AM (16 children)
We don't get the crumbs, we bake the bread, we even get a slice of every loaf for our labor. The other 19 slices of course go to others more deserving of remuneration due to their position of ownership, risk of their capital, etc. etc.
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(Score: 0) by Anonymous Coward on Wednesday August 23 2017, @07:05AM (1 child)
Actually for every loaf of labour, the govenment takes a part, directly in income taxes. Indirectly they take some more because the taxes that employers pay mean that employees are competing with government for the rest of the loaf. And the government has the IRS and men with guns.
Eventually when you want to spend it the governments takes sales tax. Oh and you have to pay property taxes. Oh and everything you buy the business selling has to pay taxes on, so they charge you more.
I guess the government walks away with most of the loaf. But sure, blame business. It is much easier to go work for somebody else, who pays better, or start your own company, but you have to immigrate to get a different government.
(Score: 3, Insightful) by JoeMerchant on Thursday August 24 2017, @01:11AM
Yes, after I bake 20 loaves for the company I get a loaf of my own, and I (at my level of income) give 2 slices to the government in taxes.
I feel like I get a lot more for those 2 slices than I do for the 19 loaves that the company invests in other places than my personal discretionary fund.
🌻🌻 [google.com]
(Score: 1) by khallow on Wednesday August 23 2017, @01:45PM (13 children)
So what industry is this where labor gets only 1 part of the profit while the owners get 19 parts? It certainly isn't any sector of industry or commerce I've heard of in the developed world.
(Score: 2) by JoeMerchant on Thursday August 24 2017, @12:36AM (12 children)
Let's talk about my most recent project, R&D morphed an existing product onto a new hardware platform, less than a year of development, and now it has transitioned into sales gathering millions per month in profit (above and beyond the cost of production which includes all the sales and production workers' income).
We, as R&D, baked that bread, put together all the documentation and instruction required to bring it to market, a team of ~15 people working for ~ a year, we received approximately $1.5M in collective income for our efforts, and received shiny stars of appreciation for a job well done. 24 months later, the new product has pulled over $30M of gross income for the company, and is on a growth curve projected to reach several hundred million over the lifetime of the product.
There are other worker bees who do the sales, man the production lines, etc. but, when you shake it all out, labor accounts for less than 5% of the income the corporation is getting. The company is "growing income" by ~10% per year, but they do this by rolling up those profits and buying promising young startup companies that can repeat the pattern. The internal processes of the big company are too conservative to break into new markets, they simply protect their high profit margins (if cost of goods is >20%, we're strongly encouraged to engineer that down), and then re-invest those profits into early-stage growing companies that have taken the risk and demonstrated viable new markets. Something over half of the "bread we bake" ends up in the pockets of the investors in the startup companies while we use those acquisitions to fuel continued growth - all while maintaining a net positive cash-flow.
It's very impressive, and depressing, all at the same time.
🌻🌻 [google.com]
(Score: 1) by khallow on Thursday August 24 2017, @03:38AM (11 children)
So right there, that's 5% just from your small group and you indicate that there's a lot more employees out there than just your group. Not looking like 5% to me!
Moving on, this is the new 100 acres. If we are to take your statements at face value (and assume that your R&D group contributed as much as you claim it did), a business has generated a vast amount of value with a modest initial investment of $1.5 million. I guess things look different when you're the tenant farmer rather than the owner of the 100 acres.
I find your cognitive dissonance interesting. It's clear that you think there's something wrong with society that it doesn't continue to support the 100 acres business plan. But in your example, we see that it does and the return on the investment is quite ample. Now, I don't know how much you desire this scheme, but it seems to me that if you're attached to the model, maybe you should figure out how to do it in today's modern world, rather than complain that old tricks no longer work in a changing world.
(Score: 2) by JoeMerchant on Thursday August 24 2017, @11:42PM (10 children)
If this is the new 100 acres, you're putting it up well above my estimate of 2.5M - into the range of tens to hundreds of Billions.
And what does this mega-capitalized model do with their vast profits? Mostly spend them on new acquisitions which translate to paydays for investors who place large long odds bets. I've worked for a series of these "startups" which the system expect to fail 95+% of the time, in my experience 1 limped along acting not entirely startup-like for 10 years, unable to compete due to lack of capital and unable to attract investment capital without switching to a high risk business plan. Then I spent ~3 years with a very atypical 100M/yr "organic growth" company that only got where they were by attracting a CEO/investor who had personal use for the company's product. Then a series of 5 "high risk" businesses, none of which provided any long term (>2 years) stability for any employees - I don't mind changing jobs, but I do mind having to change towns to get the next job, or spending my life in airports commuting to the work. The last startup I chose got the "golden ring" $100M buyout for the investors who had only put about $10M of seed money into _this_ venture, but easily $90M more into other ventures that hadn't done well - so, now I'm on the other side of the looking glass - in the big acquisition machine.
It feels like the Japanese real-estate bubble, these company valuations are large multiples of projected earnings up to a decade out, and for what? The idea that seems to have gotten traction, lucked it's way past the regulatory minefield and into a decent reimbursement structure.
I find your cognitive dissonance to be a strong tell of Scott Adams fandom. I enjoy _most_ of his humor, but his disconnect from reality has gotten very profound in the last 5 or so years.
What I think is wrong with society is that, while I'm just barely on the comfortable side of the wealth divide, the gap is growing at a crazy pace. Prices I learned growing up in the 1970s have mostly inflated 10x, as has my income, meanwhile the bottom end of the income scale (virtually anyone below me on the job-value ladder) has only grown maybe 3-4x, it's pretty sad for the majority of the population.
🌻🌻 [google.com]
(Score: 1) by khallow on Friday August 25 2017, @01:36AM (5 children)
1.5 million is below 2.5 million and certainly well below tens to hundreds of billions.
(Score: 2) by JoeMerchant on Friday August 25 2017, @02:32AM (4 children)
That 1.5 million is useless in a vacuum, it was a development on existing intellectual property in the context of a system churning billions per year of product sales.
It "takes money to make money" always has, but back in the 100 acres days the amount of "honest work" required to bootstrap up into that realm where you can make money was achievable in a relatively short period - say 10 years of hard work and frugal living. Today it requires multiple lifetimes, or a privileged starting point, or a great deal of good luck along the way. Some people win the lottery, I hear someone won $700M+ recently, but it's not something you can plan your life around - and the odds of business success when starting without a significant stake are getting bad enough to start to feel like hoping for a lottery win. In your "golden years" of the 1960s-80s, $100K or so would buy a franchise on a business that had a high chance of success - the prices are going up and the odds are going down.
The fact that with a multi-billion dollar infrastructure you can turn 1.5M of investment per year into an income stream that nets 100s of millions over a decade is indicative to me that the playing field is too slanted. As you say, it seems like imaginary / insane profit, but I assure you it's real, it's how it's done on this side of the looking glass, and it's how the pointy haired bosses, Wallys and Teds of the world not only survive, but thrive in their crazy niches.
🌻🌻 [google.com]
(Score: 1) by khallow on Friday August 25 2017, @07:37AM (3 children)
So... in other words, your story was bullshit because you deliberately neglected to mention this system and its costs when discussing your contribution to the business's profits. It wasn't 1.5 million dollars made potentially hundreds of millions of dollars. It was 1.5 million dollars, plus the enormous existing labor costs of the business made possible a significant amount of additional income. At this point, I no longer buy your argument that labor costs were a mere 5% of the overall profit of the add on.
You just can't let go of that exploitative scheme. The world doesn't have an obligation to preserve your business model.
Even in December, 1980, $100k would be $280k in today's dollars. Still enough to start businesses. And the 1970s weren't "golden years".
(Score: 2) by JoeMerchant on Friday August 25 2017, @11:29AM (2 children)
Not bullshit, the infrastructure of billions is a sunk cost, existing machine - I work inside that machine and it makes 19x much profit as it shares with me - as you say: I'm the human capital, without me (or an equivalent replacement) it doesn't happen. It's like saying a couple of guys on the deck of an aircraft carrier can sink a fleet of PT boats - absolutely true. And we're letting analogous aircraft carrier groups roam our business arena preying competitively on the small business players.
Sharecropping was certainly an exploitative scheme, but far less exploitative than what's going on today.
Depends on who you ask about the 1970s, people holding real-estate were very happy when their net-worth tripled.
🌻🌻 [google.com]
(Score: 1) by khallow on Friday August 25 2017, @08:19PM (1 child)
No, it's also recurring costs as well. They have to maintain and use that infrastructure. Let us keep in mind this is like claiming that a grocery is making enormous profit off an employee's activities just because the employee as a part of their work stocked up some snacks at the front counters (which are much higher profit spaces than general store placement). Just because there are a few high profit parts doesn't mean that the whole enterprise is similarly high profit.
You've already given a fair number of indications that this statement is false.
(Score: 2) by JoeMerchant on Friday August 25 2017, @11:42PM
You've already guessed that the 19x statement is false a number of times, with even less information to base your guesses on than I have.
Maintaining an infrastructure of intellectual property is largely about retaining the human capital that understands how to exploit it. As I have already stated, labor costs are far less than 5% of gross income. Cost of goods runs in the 15-20% range, and there's some rent to pay. A significant spend is on travel, most employees who travel regularly cost the company more in travel than they are paid in salary. That travel is to some degree necessary to maintain the relationships that keep the sales rolling. But, what's really driving the machine is the ability to sell large quantities of both capital product at ~80% profit margins, and 3-4x that volume (in dollars) in associated disposables at profit margins closer to 95%.
The competition in sales and twisted reimbursement structures make this equipment fabulously expensive, and yet people continue to pay for it, almost entirely via insurance. The whole system could be deflated to 10% of its costs and still deliver the same products and services, but without highly competitive sales forces and fabulously expensive acquisitions driving overall business growth. And we can't have that - must maintain the expected growth rates to keep the shareholders happy - so the machine continues to suck out over 10x more money from the customers than it needs to to simply comply with regulations and deliver safe and effective products to the users.
Pays the mortgage, and funds the 401(k) - I'm not quitting out of disgust with the system, but I do recognize the Koyaanisqatsi - esque nature of it all.
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(Score: 1) by khallow on Friday August 25 2017, @07:17AM (3 children)
What evidence exists for this? I grant that there is wealth inequality and it has appeared to grow somewhat over the past 40 years. But there is no "crazy pace" to it. For example, we have a Pew Study [reason.com] that shows by their measure, the Middle Class shrinking from 61% in 1971 to 50% in 2015. Roughly, 20% shrinkage in 44 years. That's your "crazy pace". Even worse for your narrative, the upper classes grew more than the lower ones as a fraction of total population. So two thirds of the fraction that were no longer middle class were now upper class.
It seems to me that getting basic facts about the economy wrong would be more of an indication of suffering from a disconnect from reality.
(Score: 2) by JoeMerchant on Friday August 25 2017, @05:41PM (2 children)
Facts are largely where you find them. If you want to be told that things are getting better (whatever your measure of better may be), there are always groups who will tell you that.
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(Score: 1) by khallow on Friday August 25 2017, @08:10PM (1 child)
The Pew Study is interesting because they spun it as negatively as they could, that is, the middle class was shrinking and income inequality was increasing.
Sounds like good advice. Perhaps you ought to listen to it.
(Score: 2) by JoeMerchant on Friday August 25 2017, @11:28PM
How many levels of spin are at play?
The recent "pepper spray canister return, rubber bullet to the crotch" news clip seemed like it was being spun up as a big deal to listen to the airtime, etc. Then "astute observers" point out that there are only a few protesters in the shot, and this is "proof" that the news is blowing up the story to be bigger than it is. However, it was a tight cropped shot, the better to see the protester crumple to the ground when shot, police who were obviously present weren't even shown. So, is this shot "video proof" that we have a small band of protesters making big news, or are there hundreds, or even thousands, out of frame? You can't know what you can't know - if you don't have other sources there's just not enough information being provided to know which way this story is being spun - and "observer reports" of crowd size are notoriously inaccurate - in either direction, usually toward the preference of the reporter.
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