Wealth Inequality - again

[sheehs1]

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Originally Posted by jdw_fire true, similar things could be said about other people too, so they too would illustrate my point. i was just questioning the speculation in the post i was responding to that the disribution of wealth among individuals after the equalization + 10yrs would be the same as before the equalization, i dont think it would be is all.

But do you agree...that it also could be?

[sheehs1]

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Originally Posted by NW-Bound Yes, I often talked to my wife about this irony. We want our children to become independent and being able to make a living. But then, if they are successful, they would not need our money. And in order for them to really need the inheritance, then they will not have been doing well, and we do not want that to happen. So, we compromise by helping them out early in life, and not make them wait until we die. First, we help them with the college tuition, so they start their adult working life debt free. And then, I just helped my daughter buy her first home, a town home, by giving her money for the down payment. Maybe I have just spoiled her again, but she has shown greatly improved financial skills since she was in her own apartment a year ago. From a young woman who ate out all the time, she now exchanges tips with my wife about what grocery store is running a sales.

Well..the reality NW is that they continue to need our help towards independence until they "hit" that independence stride. I don't think you spoiled her by helping her with the 20% downpayment. In my view what you and your wife did...was help set up an environment for her to get her first taste of "real" independence..so she can fly from there. She wouldn't get that if she was still under your roof... not in my humble opinion.

[jdw_fire]

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Originally Posted by sheehs1 Some may not agree with me on this...but I consider that what happened in the housing market a form of redistribution of the so called wealth.

the wealth was redistributed from the middle class (because of higher home prices when they bought due to the increase of demand for homes due to the softening of lending requirements and then the subsequent collapse of the housing market which equals wealth lost) and the tax payers (due to the bailouts, the recession and the artificially low interest rates now) to the high income people that put all those MBSs and CDOs together and sold them and their many bosses, coworkers and related businesses. this has something to do with the increasing of the wealth inequality.

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Originally Posted by sheehs1 To do that, requirements were lowered, Fannie and Freddie turned off their brain, no one had to document their income, down payments were made with credit cards that were supplied thru mass mailings by the credit card companies and approved over the phones, oh...don't worry about paying the principle...we'll set it up as interest only, . There was a massive push by our government to get everyone into a home. Look how well that worked out!

the requirements were lowered because the demand for the mortgages by wall street in the secondary market exploded so that MBSs and CDOs could be created and sold. the people/companies buying these mortgages didnt care how bad the loans were.

[jdw_fire]

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Originally Posted by sheehs1 But do you agree...that it also could be?

from a mathematical perspective a probability exists but in my opinion it is a very small probability

[NW-Bound]

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Originally Posted by Westernskies I'd rather have my kid picking strawberries for minimum wage than collecting welfare.

Yes, welfare should be the last resort, but other than that, I'd rather somebody else's kids pick strawberries, being as selfish as I am.

But, but, but, I am willing to pay more for strawberries, if that higher cost means my strawberry pickers are treated humanely, and get some basic health care. Picking strawberries for a summer job is one thing, but some people may have to do that their whole life.

Well, perhaps that's how food is so expensive in Japan, as they have no illegal immigrants working for peanuts. On the other hand, higher food prices mean these Japanese are so trim, and they live longer too!

What do you think?

Eh, and by the way, some people even go as far as saying that there should not be a minimum wage. Let it be as low as it can get!

[sheehs1]

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Originally Posted by jdw_fire the wealth was redistributed from the middle class (because of higher home prices when they bought due to the increase of demand for homes due to the softening of lending requirements and then the subsequent collapse of the housing market which equals wealth lost) and the tax payers (due to the bailouts, the recession and the artificially low interest rates now) to the high income people that put all those MBSs and CDOs together and sold them and their many bosses, coworkers and related businesses. this has something to do with the increasing of the wealth inequality. the requirements were lowered because the demand for the mortgages by wall street in the secondary market exploded so that MBSs and CDOs could be created and sold. the people/companies buying these mortgages didnt care how bad the loans were.

Without the help of our government (repeal of Glass Steagle and a vote, also by our Congress, with the Derivatives Act to NOT regulate the derivatives market.......as well as massive liquidity coming into the U.S. from other countries (tons and tons of money)) as well as the push by our politicians for
everyone to own a home.....I don't think Wall Street could have done it to the level it was done. And I am one who agrees with our government in going after those that made massive amounts of money at this...to get it back.
Mistakes made all the way around...that we were (are) on the hook for.

But...and think about this....this also could not have happened to the degree that it did....if ...individuals(taxpayers) ...had taken responsibility in determining what they could and could not afford. Instead, they left that decision up to the mortgage lenders who were more than willing to get that fee ...from that bad loan. The customer getting the loan was more than willing to let it happen.
So..in my mind...it was the perfect storm of all entities acting irresponsibly.

Untold amounts of redistribution of wealth.

So...going back to the "if you redistribute the wealth that in 10 years will be back in the same hands" ...statement. Is the above not an example of how that is likely to happen? Mechanisms for wealth distribution were put in place and misused. Seems somewhat clear to me that those not used to handling the money (either outright or in the form of loans)..screwed up....by taking on more debt than they could afford or if one bad thing happened (loss of job) and in other ways as well.

[HFWR]

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Originally Posted by Ronstar But I'm done bashing government spending - I got my tax refund check today.

How nice they let you have some of your money back!

I'm pretty empathetic to the libertarian view, not because I think we shouldn't at least try to have a "plan" to solve problems and adapt to situations, but because both parties tend to bend the rules and exceed any reasonable "power" to reward their constituents, or push their ideologies.

But, frankly, standing on one side of the aisle or the other, calling each of Rethuglicans or Libtards, while diggin in our heals, doesn't seem to be working...

As for a restart, I'm pretty sure the outcomes would be similar; i.e. those who are uber successful now would likely be successful, if not uber successful, ten years after.

[jdw_fire]

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Originally Posted by sheehs1 Without the help of our government (repeal of Glass Steagle and a vote, also by our Congress, with the Derivatives Act to NOT regulate the derivatives market.......as well as massive liquidity coming into the U.S. from other countries (tons and tons of money)) as well as the push by our politicians for everyone to own a home.....I don't think Wall Street could have done it to the level it was done. And I am one who agrees with our government in going after those that made massive amounts of money at this...to get it back. Mistakes made all the way around...that we were (are) on the hook for. But...and think about this....this also could not have happened to the degree that it did....if ...individuals(taxpayers) ...had taken responsibility in determining what they could and could not afford. Instead, they left that decision up to the mortgage lenders who were more than willing to get that fee ...from that bad loan. The customer getting the loan was more than willing to let it happen. So..in my mind...it was the perfect storm of all entities acting irresponsibly.

i dont disagree

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Originally Posted by sheehs1 Untold amounts of redistribution of wealth.

but from the poor and middle class to the wealthy

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Originally Posted by sheehs1 So...going back to the "if you redistribute the wealth that in 10 years will be back in the same hands" ...statement. Is the above not an example of how that is likely to happen? Mechanisms for wealth distribution were put in place and misused. Seems somewhat clear to me that those not used to handling the money (either outright or in the form of loans)..screwed up....by taking on more debt than they could afford or if one bad thing happened (loss of job) and in other ways as well.

no, this wasnt a mechinism for wealth redistribution. it was never intended for the wealthy to lose wealth. it was, at best, an attempt to create more overall wealth, allowing the poor and middle class to participate, but in any event the wealthy would get more wealth. if the whole thing hadnt collapsed the wealthy would make money, both from the MBSs and CDOs created as well as all the profit from building more homes. and as it turned out the wealthy made money from both of the above and then got bailed out to boot.

[rescueme]

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Originally Posted by NW-Bound What do you think?

I don't like strawberries (or any other fruit). It doesn’t matter to me since I'm not contributing to the "product demand" ...

[rescueme]

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Originally Posted by HFWR I'm pretty empathetic to the libertarian view...

Same here. I'm a libertarian at heart, but unfortunally the "big two" don't really support my personal view...

I wind up being a registered Rebublican just to be able to vote in the primary elections, but my heart is not in it...

[pb4uski]

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Originally Posted by Silver My personal theory is that if 100% of wealth were redistributed equally among 100% of living persons, within 10 years the same persons that were wealthy before would be wealthy again, and the same persons who were poor would once again be poor.

+1 You can't fix stupid.

[Ronstar]

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Originally Posted by HFWR How nice they let you have some of your money back!

And it was deposited on the exact date that Turbotax specified - impressive

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Originally Posted by HFWR I'm pretty empathetic to the libertarian view, not because I think we shouldn't at least try to have a "plan" to solve problems and adapt to situations, but because both parties tend to bend the rules and exceed any reasonable "power" to reward their constituents, or push their ideologies. But, frankly, standing on one side of the aisle or the other, calling each of Rethuglicans or Libtards, while diggin in our heals, doesn't seem to be working... As for a restart, I'm pretty sure the outcomes would be similar; i.e. those who are uber successful now would likely be successful, if not uber successful, ten years after.

I'm empathetic to libertarian views also. Sometimes I wonder if the republican-democrat feuds are nothing more than a ruse to convince the public that someone in gov't is fighting for them, when actually both parties are lockstep in their desire to control the public. As for a restart - I agree - the ambitious would once again rise to the top.

[M Paquette]

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Originally Posted by Ronstar I'm empathetic to libertarian views also. Sometimes I wonder if the republican-democrat feuds are nothing more than a ruse to convince the public that someone in gov't is fighting for them, when actually both parties are lockstep in their desire to control the public. As for a restart - I agree - the ambitious would once again rise to the top.

Ditto. I look at the existing political parties, and the first thought that comes to mind is "A difference which makes no difference is no difference."

[photoguy]

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Originally Posted by Mulligan Another part of the question which I don't have the answer is at what point does redistribution through higher taxes works as a disincentive to accomplish anything? I just read an Ivy league business professor saying it's more economically rational to be a plumber than a doctor when you factor in the 10 years of lost wages on top of the mountain of student loan debt (assuming the parents aren't footing the bill). If you throw in an income tax structure that is too high at what point will people decide it's not worth the effort?

I don't think we are anywhere close to those levels. Generally, I think people are motivated by status and relative income earnings. I.e., it's more important that I earn 100k compared to your 50k, than I earn 125k to your 200k. Higher taxes won't change the relative positions of folks.

Also we are at relatively low marginal rates. The top bracket is only 35% and probably could go up a lot more without being a disincentive. I think many folks with ultra-high incomes (e.g., $1M plus) could easily retire if they wanted to but stay in the game for other reasons.

[Independent]

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Originally Posted by sheehs1 But..to the point...that... "if you redistribute wealth it will back in the same hands in 10 years".....some might be and some might not be. But one thing seems fairly certain...for those that don't know how to handle it....it will slip thru their fingers...probably to the fingers of the ones that do know how to handle it.

If the original post had said "If we redistributed all the wealth equally, we know that some of the people getting increases would burn through their windfalls in a short time", I wouldn't have disagreed. The fact that some people can't hold onto money seems clear.

I read the statement as saying that the current distribution in wealth is 100% explained by differences in hard work and good judgement. That's clearly false to me.

[haha]

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Originally Posted by NW-Bound I just had this idea. Why can't we retrain and convert some of the existing public workers to become health care workers, and to send them into needy areas? It's a matter of prioritizing and to put your money where it is most important, the same with government as with individuals, yes?

No problem at all. She used to be a social security paper mis-pusher, now she is a barefoot doctor. Mao did it, why shouldn't we?

Ha

[sheehs1]

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Originally Posted by jdw_fire no, this wasnt a mechinism for wealth redistribution. it was never intended for the wealthy to lose wealth. it was, at best, an attempt to create more overall wealth, allowing the poor and middle class to participate, but in any event the wealthy would get more wealth. if the whole thing hadnt collapsed the wealthy would make money, both from the MBSs and CDOs created as well as all the profit from building more homes. and as it turned out the wealthy made money from both of the above and then got bailed out to boot.

Although I here what you are saying...I'm not so sure. For me...it was a "share the wealth effort" from its' inception. A point to be made here is : Can't be shared unless it is redistributed somehow.

And I don't buy..."the oops" of what happened. If I could look around ...(literally) and see the collapse of the housing market coming down the pike.. ...certainly those is power and those...creating the financial instruments and Wall Street...saw it. In fact they did. John Paulson made a killing on it. And for me...at that point...it became "intentional".

I think we agree that it hurt the people that were the most vulnerable. But it was still a redistribution....perhaps not the way it was first intended but a redistribution effort none the less....in my humble opinion.

[sheehs1]

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Originally Posted by jdw_fire but from the poor and middle class to the wealthy

I'm sure some of the wealthy were hurt in this as well. Don't think it was class specific. I would think it would have depended on what choices or decisions they made at the time. i.e. did they sit tight...or did they go out and buy that 30 million dollar home...now worth 19 million.? They too lost value in their investments. So....don't really think it was a simple as "from poor and middle to wealthy".

In fact ..when I think about it....perhaps it was the lower classes and below...that didn't have a dog in the fight...and stayed where they were (?). Add to that that they probably aren't paying any tax either...so they aren't having to shoulder the tax burden...that presumably the taxpayers are shouldering for bailing everyone out.

So my guess is the majority went from middle and wealthy ...to the extreme wealthy on steroids.

[M Paquette]

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Originally Posted by haha No problem at all. She used to be a social security paper mis-pusher, now she is a barefoot doctor. Mao did it, why shouldn't we? Ha

Oddly enough, that sort of thing is a key item in a recent Joint Economic Committee staff commentary (from one party, ahem!) The paper discusses the idea "Spend Less, Owe Less, Grow the Economy" from a couple of economic viewpoints. Notably, they take the longer term Keynesian and NeoClassical views that lower government spending, with higher private spending, should provide greater economic growth.

There are some, ah, interesting points, though. They take a 'some from column A, some from Column B' approach to their economic philosophy, using only the bits the authors happen to agree with. While using the Keynesian argument that smaller deficits should lower interest rates and improve business investment in the long run, they reject the notion that cutbacks in government spending will have a contractionary short term effect from reduction in aggregate demand. There the authors argue that non-Keynesian effects will dominate and provide an immediate economic boost. (They use several small European countries as examples of this, but don't mention the extraordinary monetary stimulus applied while contracting the government to keep the economy moving.)

The nature and source of that economic boost are of interest to those of us working toward or in early retirement. There are some points of significant interest that I'll go over in a bit of detail.

Starting on Page 6, the paper describes effects on houshold purchases. When the government is running deficits and the level of spending is rising compared to GDP, they argue that households expect the government to raise taxes imminently or in the near future. If the government acts to reduce spending the fear of future taxation lessens, and folks will go out and buy more homes and cars. Hmmm...

On pages 6-7 the authors describe effects on business investment. This is where things get really interesting for us FIRE types.

• If the government reduces it's spending, short term uncertainty about taxes and fear of future large tax increases are reduced.
• Further, fiscal consolidation reduces the number and compensation of government workers.
• This increases the availability and reduces the cost of skilled labor to private firms.
• Since private firms have improved expectations based on reduced taxation fears and lower labor costs, their expected after-tax rate of return rises.
• Therefore, firms boost their investment in non-residential fixed assets in the short term!
• You fool! You fell victim to one of the classic blunders - The most famous of which is "never get involved in a land war in Asia" - but only slightly less well-known is this: "Never go against a Sicilian when death is on the line"! Ha ha ha...

Oh, wait. Ignore that last one. Anyone spot the gotcha in this line of reasoning? Anyone?

Economic activity picks up because... We made the supply of unemployed labor even larger than it already is, so firms can hire and pay even less ("reduce the cost of skilled labor"), which of course means that businesses can sell even more to those (underemployed/unemployed) workers. Hmmm... So all this time when I've been hoping the consumer sentiment survey would rise, I've been doing it wrong. For real recovery, we want it to FALL!

On the 'cutting government spending' side, we have the usual suspects:

• Decrease the number and compensation of government workers. Increases the available supply, lowers labor costs for private firms.
• Eliminate agencies and programs.
• Eliminate transfer payments to firms. Causes forms to cease otherwise unprofitable activities, produces gains in efficiency. Yeah, Koch Industries and Archer Daniels Midland are going to quietly go along with killing the ethanol subsidy right after they've built whole business units and lobbying divisions around it.
• Reforming and reducing transfer payments to households. I'll just quote the author's text here:

Reforming major programs of transfer payments to households, such as government pension and health insurance benefits for the elderly, to make them sustainably solvent in the long term increases the credibility of fiscal consolidation plans. Even if current beneficiaries are exempt from any change, the reforms are phased in slowly, and any short-term spending reductions are very small, the credibility of fiscal consolidation plans will be enhanced. Moreover, reforming government pension and health insurance benefits for the elderly in the future will induce younger workers to increase their current saving, to work more, and retire later, thus boosting real GDP growth.

That'll spiff up the ole FIRE plan. I'm pretty sure 'reforming' doesn't mean giving the elderly more benefits, or a nice COLA. But, yeah, it should be a good incentive for younger workers to increase saving, work more, and retire later. Yay, fear!

[NW-Bound]

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Originally Posted by rescueme I don't like strawberries (or any other fruit). It doesn’t matter to me since I'm not contributing to the "product demand" ...

Can I assume that you do not like veggies either?

Ah, what do I care since it's not my health we are talking about here.

Talk about strawberries reminds me of the time we were on a road trip, driving down the coast of California, some 20 years ago. On a country highway, somewhere around Lompoc, we stopped at a strawberry farm to buy from a vendor stand by the side of the road. There is nothing like ripe strawberry that is picked at its prime, I'll tell you. The strawberries in the grocery stores are picked way too green, so they can be transported. So, we bought some extra to eat later, and to bring home as gift. Much to our chagrin, in a day or two, they turned to mush!

But I digress...

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Originally Posted by haha No problem at all. She used to be a social security paper mis-pusher, now she is a barefoot doctor. Mao did it, why shouldn't we?

Hey, I did not mean retraining fed workers in the literal sense, but rather, less paper pushers should be hired, and more incentive be provided for young people to go into the medical profession and to serve in poorer areas. I don't know how to do this of course, so it is just an idea.

And about Mao, heck he needed no worker retraining of any kind. He would just dispatch butchers into hospitals to replace doctors who were sent into re-education camps. Well, maybe I exaggerate a little, but people who are interested in the Great Leap Forward and the Cultural Revolution pioneered by the "great" Mao would be served by watching the Chinese movie To Live. This movie has a dark humor scene about an experienced doctor being displaced by medical students who did not know what they were doing. I highly recommend it as a movie both enjoyable and educational at the same time to learn about Communism, in the same manner as Dr. Zhivago.