[Klockan]

> people with lots of money don’t spend it.

They do, they just spend it on buying things like factories, companies and real estate. This is usually called investing and will also get money back into the system since the things you buy when investing were built by workers as well.

[blurbleblurble]

Maybe they'll get money back in the system, but peoples' debts grow exponentially faster than the wages purported to trickle down. And you don't need to have debt personally to pay for it. My landlord, for example, like many landlords, has a mortgage. We pay her interest and her principle. We pay for the debt she locked the house behind.

[Klockan]

I am not saying that this doesn't increase the wealth gap, just that the money isn't being kept out of the system like the article purports.

[conanbatt]

But u have to consider that the house wouldnt be available without the mortgage, and u would pay a higher rent somewhere else, and the owner might still be amassing the cash to buy it.

Mortgages have a low interest rate in comparison to regular credit, so money that is not put on the mort and into the business economy is an exponential gain.

[uoaei]

You're describing a situation where mortgages are alreadu the norm, and have already raised the price of houses beyond an affordable price at cash precisely because it's relatively easy to take out a mortgage to buy a house at the prices we have today. If it were never so easy to take out a mortgage to buy a house, housing costs would be much lower as the market matched demand to supply.

[conanbatt]

They would be lower prices, but there would be less home-owners.

If the final goal were to reduce prices, you just need to pass a law that all housing is worth 1$ for an unprecedented successful policy.

It is always interesting to me how in Real Estate, people are intelectually sensitive to price increases: as if price increments were a sign of things going awry. More often than not its the opposite: job creation in a city raises rents which is a net good (i.e. SF and Seattle). Or people moving out of their parents home earlier.

It is senseless to look at the price of one thing and focus on that as a measure of well-being. After all, a man in the 20's would look at our salaries and say we are all filthy rich.

[cam_l]

> factories, companies and real estate

One of those things is not like the others. Inflating the value of real estate is one of the ways "people with lots of money" use to 1. tax wealth creation, and 2. devalue the wealth of "people without lots of money".

[Synaesthesia]

A lot of the time they invest in companies which they then downsize, or buy back stocks in order to push up the stock price. Namely the opposite of investing in productive capacity and hiring more people, they are hollowing out companies for a quick profit. See economist Michael Hudson's writings for more.

[llukas]

Unless you're very bad at investing you take out more than you put in to the system...

[simonh]

True, but everybody gets more than they had before. The employees get jobs, suppliers get paid on contracts, clients get goods and services. Everybody wins. When an owner cashed out the business isn’t wound up. When Bill Gates pulled most of his wealth out of Microsoft the employees weren’t thrown on the dole and all the businesse’s properties dynamited. His shares and those of other founded and investors were sold as a going concern to new investors. It’s called economic growth.

However there are risks with too much wealth tied up in too small a demographic group. It reduces the diversity among those investing, thus reducing the diversity of investments. This could distort economic development and leave productive opportunities unexplored. It could also lead to political capture by this monied elite.

[zxcmx]

Everybody wins, but the people with the most win the most.

In the limit that means they end up controlling all the things.

You would somehow need "little people" wealth growth (in aggregate) to outstrip "rich people" wealth growth for this not to happen, but it can't because the little people have to spend non-negligible fractions (or all of) their income to stay afloat. Basically, the rich win by not actually spending (proportionally) much money.

Thinking of it in exponentials, assuming you invest everything you don't consume, normal people have a drag on their exponential coefficient which is their cost of living. They also tend to invest less efficiently in aggregate due to not having wealth managers and specialised tax consultants and so on.

In an investment race, highest exponent wins. There is a confounding factor of population growth though.

[ztjio]

Up until relatively recently we had a perfect solution to this problem: 90% marginal tax rates as an acceptable idea, amongst other things.

What the economy needs is for massive wealth accrual to be met with equally massive backpressure. Allowing for much higher taxes at the very high end of income/investment returns acts as a kind of non-Newtonian fluid in the flow of wealth, keeping it all from going away from those who haven't even had the opportunity to get some yet.

[simonh]

Except that raising taxes on those with high incomes doesn't actually increase tax revenue and in fact can lead to it decreasing due to their income being diverted to non-taxable forms and increased use of tax loopholes. That's not a theory, it's a lesson that's been learned in practice time and time again.

[conanbatt]

90% marginal is dumb. It will surely be avoided.

What a catholic idea, that people should commiserate and suffer for the better of others.

Thankfully human kind is resourceful and since time immemorial will always weasel out of situations they dont agree with.

To the very least it would reduce wages and increase stock granting, which making them more obscure it has other negative effects.

[conanbatt]

im not so convinced of this grim scenario. It is often that rich people lose their status. Index funds outperform most hedge funds.

Where difference investment options shine is, as you mention, being able to skirt taxes, or have access to information, or state regulation.

In the tech sector, the requirement of being an accredited investor to be able to invest in startups has the following effects: increases investment returns for investors. Reduce amount of founders and their payoff and lowers wages because they cant trade their stock freely, showing captivity.

On taxes: it is dreamed that better tax policy might nake the rich pay what they owe. But that mindset is what got us here. Id say lower the taxes on the common, and that might not solve it, but would vastly reduce the exponentiality.

On information: in this I part with milton and say that all income of any kind should be public. Society will take a hit on privacy, but this information is too valuable to hide. Knowing that everyone woyld not need to speculate on how the rich make money, and given freedom might even compete with them in the same assets.

Game is rigged, unfortunately, by the people that think they are fixing it.

[makomk]

I don't think that's true of real estate speculation, especially not when it involve housing, because that causes the people with less to have to pay increasingly large proportion of their income to the wealthy in order to have somewhere to live.

[sevenfive]

Take out what, precisely?

[justicezyx]

Wealth

[blurbleblurble]

Work, energy.

[EliRivers]

The majority of investors don't buy any of those things. The first time a share is sold, the company gets some money to spend on things - money to invest in the business in the hopes of creating new wealth. After that, the shares are being passed around. The company isn't seeing any more investment.

[ztjio]

Common misconception. You need to think not of only the initial sale, but, as the entire future ecosystem of that stock's purchase history as a kind of... pressurized plumbing system. If nobody bought the stocks from there on out, the original sale would have no value, it would be like capping a water spout at the spigot. All of that future trading acts as a low pressure vessel allowing the initial purchase to exist at all.

Incidentally, secondhand markets work the same way. When you have no possibility for a secondhand market you get a race to the bottom in value. Need evidence? See software markets, compare physical video game sales vs. mobile app store video game sales. The alternative we got? Consumable nothing. People convinced to spend money on literally nothing. Paying for the privilege to flip bits on a flash drive. Easily one of the worst markets to ever exist.

So yeah, stock sales are good for the initial investment needs.

[pg314]

> If nobody bought the stocks from there on out, the original sale would have no value

That is wrong. The value would be the NPV of all future income from those stocks. Being able to sell them easily increases the value a bit because of the increased flexibility, but the major source of the value of an investment is the stream of future income.

As an example, Warren Buffet has no intention of ever selling his stake in Coca-Cola, yet he is getting more than his original investment in dividends each year. Are you going to argue that his investment would be worthless if he weren't able to share his shares (which wouldn't change anything for him, because he never intends to sell them)?

[averagewall]

That passing shares around is necessary for the initial sale to get them any money. Nobody's going to buy a share they can't sell.

[pg314]

Incorrect. If the net present value of the future dividends exceeds the asking price by a sufficient margin of safety, I'll be happy to buy that share.

[averagewall]

Yes, you're right. I was thinking of no-dividend shares and the part of the value that comes from speculating on the future price.