Updated: "Who Rules America - An Investment Manager's 2014 Update on the Top 1%"

[Chuckanut]

I've had very similar discussion with colleagues who claim IT workers in India are "stealing" our jobs. I have trouble coming up with a reason that being born on this side of a geopolitical boundary made me own the job more than the person on the other side.

I have to agree with you. They have as much right to a job as we do.

OTOH, I have big problems when jobs go overseas to sweatshops and/or businesses that pour pollution into the environment. There is no way the American worker and American business can compete with workers who work in unsafe, hostile conditions, and with factories that can pour nasty substances into rivers and the air and onto the land.

 

[ajs56]

My apologies but I call BS on the premise of that article. I am certain that many posters here have achieved membership in the top NW percentages by virtue of LBYM and patient not panicked diversified low cost investing over a long period of time from adequate but not exorbitant salaries - not by minimum earnings far in excess of $400K a year as seems to be the requirement as I understand the article.

+1. I could not agree more or have said it better.

 

[ERD50]

I have to agree with you. They have as much right to a job as we do.

OTOH, I have big problems when jobs go overseas to sweatshops and/or businesses that pour pollution into the environment. There is no way the American worker and American business can compete with workers who work in unsafe, hostile conditions, and with factories that can pour nasty substances into rivers and the air and onto the land.

Agreed, and this is a little tricky, IMO. I don't think we have any right to demand they have the same standards we have in all cases. But there certainly is a level of 'sweatshop' work, safety, and environmental issues that should meet some minimum standards. And I would not want to buy from a company that was below some basic standards.

I don't care so much about transparent issues - I don't think we should dictate wages for example, the workers there can decide for themselves if X wage is attractive or not. But safety, pollution, etc are not so transparent, and need to be regulated and monitored and enforced at some level.

-ERD50

 

[Chuckanut]

I think American companies have gotten around the higher cost of manufacturing in the USA by simply moving the manufacturing component to these countries. Hopefully, they pay a better wage and and more environmentally sensitive than the sleazy operators, but I would be shocked if they meet all the laws that would apply in the USA or Canada, for example.

Wages are an entirely separate matter, IMHO. I remember reading about a 17 year old girl who lost her job (but not her life) when the building collapsed in Bangladesh. It seems she was providing over 50% of her family's income from that garment job. Her father, mother and younger brother together did no earn what she did. Pay is relative.

 

[Independent]

Of course, the "US standard of living" isn't the same for everyone.

Let's suppose that one important factor has been moving unskilled work to China.
1. Maybe there's somebody with capital (say, Sam Walton) who saw a way to make money on that shift, and made a lot (and then left it to children who weren't part of that decision).
2. Then, there are some upper income workers whose jobs aren't outsourceable, but who benefited from lower prices.
3. Next, we have the unskilled workers who lost jobs, saw their wages drop by half, and didn't begin to buy enough Chinese stuff to offset their loss.
4. And, the Chinese workers who earn somewhat more now than they had before.
5. Finally, the Chinese factory owner, who has the political "contacts" to get the appropriate permits, who makes a lot of money by connecting those workers with American buyers.

I happen to be in group 2.
Note that group 3 was the only one that lost, everyone else gained, some of them owe their gains to group 3's loss.
So, if I applied your statement to myself, I'd have to say "I'm fine with lowering some other American's living standard so that I can live better, and some other people (including some very poor Chinese) can also live better."

Saw an error in an earlier post, and it was too late to edit it. So I quoted to make the correction.

 

[Independent]

1) I'd say some of the factors that are cited as protecting worker pay (e.g. strong unions) might be an important factor in the abject failure of some public schools (and school systems).

2) There's probably a lot of mingling of causation. It's very likely that attitudes and "poor life choices" are behind a lot of this.

3) Because workers in the US still have many advantages gained by being here compared to being in most less developed nations. Political and social stability, efficient capital markets, reliable physical infrastructure, a functioning legal/court system, relatively low political corruption, a well funded social welfare system, etc. A business (and, consequently, its workers) gains a lot of productivity advantages from operating in the US.

4) Thus the "but not sufficient" clause. Compensation won't go up if there's a surplus of available workers at the present wage.

5) The title of the thread is interesting. Warren Buffet is rich, but a lot of folks who make a lot less money have a bigger hand in "ruling the U.S." But, I guess it sells books.

I don't really understand 1.
I agree with 2 in that causation goes both ways. But again, my real interest here is the median worker, not the lowest income workers.
Good points in 3. I'll note that they are all gov't related. Other countries are trying to close those gaps.
5 - some people use their money to influence gov't in their favor, some give it to charity.

4 is the real issue to me. US GDP per worker has gone up over the last 30 years. Presumably, workers are getting more productive. Somehow, wages aren't keeping pace. What's the point of "more productivity" if all the gains end up the in pockets of the top 0.1%?

 

[Independent]

My apologies but I call BS on the premise of that article. I am certain that many posters here have achieved membership in the top NW percentages by virtue of LBYM and patient not panicked diversified low cost investing over a long period of time from adequate but not exorbitant salaries - not by minimum earnings far in excess of $400K a year as seems to be the requirement as I understand the article.

Right, I think he made multiple errors when he tried to do the numbers.

He assumed a one income family, that's not the typical case anymore.

He assumed an investment return of zero. The people who did okay on this board got more than that. 4% would double his money in 35 years, 6% would triple it.

He gave the average net worth of the top 1% as $3 or $6 million. Then, he treated that number as the minimum needed to cross the line.

Then there's the whole LBYM issue ...

 

[haha]

What's the point of "more productivity" if all the gains end up the in pockets of the top 0.1%?

Ford motor company loves it; more millionaires to buy Ford F150s.

Ha

 

[samclem]

I don't really understand 1.

Some people believe that the worker protections provided to teachers have had a very high cost to some public school students. In a related note, a Superior Court in Calif today has found a large chunk of these teacher protections (tenure, etc) to be unconstitutional.

What's the point of "more productivity" if all the gains end up the in pockets of the top 0.1%?

I don't know if "all" (or even "most") of that is going to the top 0.1%. Anyone who owns equities, including most of the people on this board, are benefiting, too, and most are well short of the top 0.1%. There's no doubt that putting capital to work has been very advantageous, and will probably continue to be. People who spend every dime they earn (whatever the reason) won't be able to take advantage of that. Again, there are cultural/behavioral issues that cloud the picture.

 

[marko]

Anyone who owns equities, including most of the people on this board, are benefiting, too, and most are well short of the top 0.1%. .

Yeah, I always find it interesting when the people complaining about "Wall Street" seem to have no clue that even the blue collared 401K/IRA and pension funds also depend on Wall Street doing well.

But then, if there is a 10% gain, they don't say "10%" they say: "Mr Wall Street made $600K this year on stocks", when at the same time Mr. Bluecollar made 10% too, just a smaller dollar amount. And somehow, this isn't 'fair'.

 

[explanade]

Forget about whether it's fair that a small segment of the population has a big chunk of the wealth or income.

Does such a distribution of wealth promote the best chances for economic growth? Will the small number controlling a lot of wealth spend or invest as much as a larger group controlling the same amount of wealth?

Can 1% controlling x billion or trillion spend as much as 20% of the population controlling the same x billion or trillion?

 

[samclem]

Folks get angry because the rich have too much money to spend. Others are sore because they spend too little. Geez.

They ain't burying it. It is either being spent on things (good for the economy) or being invested in businesses (good for the economy).

 

[explanade]

No if they were spending it all, they wouldn't be accumulating them as fast.

If you give a 10% additional rebate on tax returns, studies have consistently showed that people with lower wages will spend that rebate while those with higher incomes are likely to bank it, because the wealthier people were already spending at a higher level and they're not all buying additional cars or luxury goods.

 

[Texas Proud]

I have to agree with you. They have as much right to a job as we do.

OTOH, I have big problems when jobs go overseas to sweatshops and/or businesses that pour pollution into the environment. There is no way the American worker and American business can compete with workers who work in unsafe, hostile conditions, and with factories that can pour nasty substances into rivers and the air and onto the land.

Not only that.... but I also have a problem with a country that has significant barriers for our companies to enter... as an example that I did not know, but I think went away was car sales in Korea... import duties were high and the US firms could not compete...

 

[ERD50]

No if they were spending it all, they wouldn't be accumulating them as fast.

If you give a 10% additional rebate on tax returns, studies have consistently showed that people with lower wages will spend that rebate while those with higher incomes are likely to bank it, because the wealthier people were already spending at a higher level and they're not all buying additional cars or luxury goods.

But 'banking it' doesn't mean burying it in the back yard or making their mattress lumpy. It is invested, and it becomes available for loans, start-ups, etc.

I'm not saying that having it spread out more would not be better, on the face of it I think it probably would be, but I don't know . But I think it distorting the issue to phrase it as if it is 'dead money'.

-ERD50

 

[explanade]

That was true of Japan, with which we had trade deficits for the longest time.

It's also true of China, called a mercantilist with respect to trade policy.

 

[NW-Bound]

It was one link out of millions of sites and articles on poverty issues in the U.S. Here is another -

4 in 5 in USA face near-poverty, no work

The article opens with this introduction:

Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.​

Near-poverty? That's me, back when I was in school. Yes, for part of my life like the article says. I struggled, yes, but I enjoyed that time of my life too.

 

[explanade]

But 'banking it' doesn't mean burying it in the back yard or making their mattress lumpy. It is invested, and it becomes available for loans, start-ups, etc.

I'm not saying that having it spread out more would not be better, on the face of it I think it probably would be, but I don't know . But I think it distorting the issue to phrase it as if it is 'dead money'.

-ERD50

Not dead money but not as efficient as if it would be spent, since 70% of the GDP is from consumption.

If I got an extra $1000 from the IRS, I wouldn't spend $1000 more than what I was already spending. I wouldn't necessarily buy a new camera or other expensive gear because I can afford to buy those things at any time.

But someone who has half or even less in disposable income is more likely to spend the windfall.

Now my saving that $1000 or buying more Wellsley does put the money to work. But there is no shortage of money going into financial assets these days. What is needed is more to contribute to aggregate demand.

 

[ERD50]

...
Now my saving that $1000 or buying more Wellsley does put the money to work. But there is no shortage of money going into financial assets these days. What is needed is more to contribute to aggregate demand.

Or... maybe those investments will fund the next big thing that helps create jobs in the US, and then everybody benefits? Or more generically, the investments do help to build existing businesses and create jobs. Sure, w/o demand those businesses don't need to grow, but the easier it is to grow, the more likely they are to grow.

I really can't say one way or the other, I just don't think it is so cut and dried.

I think the US could do more to make this an easier place to do business, w/o going all wild-west.

-ERD50

 

[explanade]

That money comes from venture capital, if you're talking about the next big thing in technology.

I don't think VC funds are directly open to people because they probably have a high minimum and/or you need to know people.

Maybe some of the VG funds invest in VC, I don't know.

No shortage of capital for investing in things.

 

[ERD50]

That money comes from venture capital, if you're talking about the next big thing in technology.

I don't think VC funds are directly open to people because they probably have a high minimum and/or you need to know people.
...

So you are making my point for me (although I'm not declaring that it is a valid point, I'm just saying it is worth considering).

The 1 % 'ers can invest in a VC/hedge fund because they 'have the high minimums and know people'. But if we split that money up across a much larger population, far fewer (no one?) can meet those requirements.

We might lose out in terms of innovation. Then we will be outsourcing the low end and the high end jobs.

I dunno, maybe there is a place for a really rich 1% - you get things like the Gates Foundation, libraries, etc. Maybe having money in the hands of people who know how to create it and grow it isn't such a bad thing overall?Just a thought.

-ERD50

 

[explanade]

1% may be investing in VC but they probably have way more invested elsewhere, probably in more conservative investments.

But we'd been talking about a hypothetical additional $1000 to either spend or invest, for people with middle-class and lower disposable incomes.

I would not be investing that $1000 directly in VC. Nor would the people making a lot less than me. They might splurge on other things or pay off longstanding bills.

I don't know how much VC is responsible for innovation though. Their game is to invest in a startup most likely to get a big IPO. So what have been the biggest IPOs in the last decade or two?

Facebook, Visa, Netscape, Twitter, LinkedIn, etc. Certainly many of these have become multibillion dollar businesses employing thousands of employees. But are they innovative or contribute to making the world better?

Maybe, maybe not. Twitter helped facilitate revolutions in Egypt and elsewhere but is mostly a time-wasting bit of entertainment.

Maybe Amazon? Well they changed the ways we shop, probably killed a lot of retail businesses.

Google probably got VC money. Well they brought advertising to the web in a big way, helped commercialize the Internet. Again, ambiguous if that was a good thing.

 

[daylatedollarshort]

The article opens with this introduction:

Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.​

Near-poverty? That's me, back when I was in school. Yes, for part of my life like the article says. I struggled, yes, but I enjoyed that time of my life too.

I think if you Google terms like wealth inequality, return to gilded age, poverty in America, who were the winners and losers in the last recovery and disappearing middle class, you will find and abundance of articles and statistics on the issue, similar to the findings from Merrill Lynch / Bank of America analysts' review of Piketty's book. The issue isn't whether or not you agree with some of the wording in a single article - the issue is the real life problem and the metrics used to document it by economists and think tanks world wide.

 

[marko]

Not dead money but not as efficient as if it would be spent, since 70% of the GDP is from consumption.

If I got an extra $1000 from the IRS, I wouldn't spend $1000 more than what I was already spending. I wouldn't necessarily buy a new camera or other expensive gear because I can afford to buy those things at any time.

But someone who has half or even less in disposable income is more likely to spend the windfall.

Now my saving that $1000 or buying more Wellsley does put the money to work. But there is no shortage of money going into financial assets these days. What is needed is more to contribute to aggregate demand.

Anyone remember the "Yacht Tax"? Yeah, we're gonna hit those rich folks in the pocket, alrighty!

Who got hurt? The hourly people who were building those boats all got laid off bc the rich stopped buying!

That was a really good idea....

Now the rich are building boats and mansions...construction, electricians, pavers, real estate agents, caterers, florists, etc etc all get jobs.

 

[haha]

Folks get angry because the rich have too much money to spend. Others are sore because they spend too little. Geez.

They ain't burying it. It is either being spent on things (good for the economy) or being invested in businesses (good for the economy).

It really isn't about the economy. It's all about envy. Numerous studies show that a majority of people would rather have less themselves, if they nevertheless had more than their neighbors, than have more with neighbors who had even more.
It reminds me of the grade school game king of the mountain, where one boy stands on higher ground and tries to repel all challengers.

Ha