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Investment Manager Explains Why 99.5% Of Americans Can Never Win

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  • Investment Manager Explains Why 99.5% Of Americans Can Never Win

    somewhat exaggerated title aside, this is a very good read of how the 1%, and the 0.1%, are similar/different from each other, and from the rest of the population.

    An Investment Manager's View - Business Insider

    Investment Manager Explains Why 99.5% Of Americans Can Never Win

    GUS LUBIN

    Beyond the charts and warnings from economists and investors, perhaps the most disturbing commentary on income inequality in America was written by an investment manager in 2011.

    "In my view, the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability," the manager wrote in an email to Professor G. William Domhoff of the University of California at Santa Cruz.

    The manager, who asked to remain anonymous to protect his relationship with wealthy clients, expresses his frustration with a financial system that is rigged to help the elites at the cost of everyone else.

    Domhoff posted the letter to his site, alongside his own commentary from more than 60 years of research on income inequality and the power elite. With his permission, we're publishing the full letter here:

    An Investment Manager's View on the Top 1%
    I sit in an interesting chair in the financial services industry. Our clients largely fall into the top 1%, have a net worth of $5,000,000 or above, and if working make over $300,000 per year. My observations on the sources of their wealth and concerns come from my professional and social activities within this group.

    Work by various economists and tax experts make it indisputable that the top 1% controls a widely disproportionate share of the income and wealth in the United States. When does one enter that top 1%? (I'll use "k" for 1,000 and "M" for 1,000,000 as we usually do when communicating with clients or discussing money; thousands and millions take too much time to say.) Available data isn't exact, but a family enters the top 1% or so today with somewhere around $300k to $400k in pre-tax annual income and over $1.2M in net worth. Compared to the average American family with a pre-tax income in the mid-$50k range and net worth around $120k, this probably seems like a lot of money. But, there are big differences within that top 1%, with the wealth distribution highly skewed towards the top 0.1%.

    The Lower Half of the Top 1%
    The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well. Everyone's tax situation is, of course, a little different. On earned income in this group, we can figure somewhere around 25% to 30% of total pre-tax income will go to Federal, State, and Social Security taxes, leaving them with around $250k to $300k post tax. This group makes extensive use of 401-k's, SEP-IRA's, Defined Benefit Plans, and other retirement vehicles, which defer taxes until distribution during retirement. Typical would be yearly contributions in the $50k to $100k range, leaving our elite working group with yearly cash flows of $175k to $250k after taxes, or about $15k to $20k per month.

    Until recently, most studies just broke out the top 1% as a group. Data on net worth distributions within the top 1% indicate that one enters the top 0.5% with about $1.8M, the top 0.25% with $3.1M, the top 0.10% with $5.5M and the top 0.01% with $24.4M. Wealth distribution is highly skewed towards the top 0.01%, increasing the overall average for this group. The net worth for those in the lower half of the top 1% is usually achieved after decades of education, hard work, saving and investing as a professional or small business person. While an after-tax income of $175k to $250k and net worth in the $1.2M to $1.8M range may seem like a lot of money to most Americans, it doesn't really buy freedom from financial worry or access to the true corridors of power and money. That doesn't become frequent until we reach the top 0.1%.

    I've had many discussions in the last few years with clients with "only" $5M or under in assets, those in the 99th to 99.9th percentiles, as to whether they have enough money to retire or stay retired. That may sound strange to the 99% not in this group, but generally accepted "safe" retirement distribution rates for a 30 year period are in the 3-5% range, with 4% as the current industry standard. Assuming that the lower end of the top 1% has, say, $1.2M in investment assets, their retirement income will be about $50k per year plus maybe $30k-$40k from Social Security, so let's say $90k per year pre-tax and $75-$80k post-tax if they wish to plan for 30 years of withdrawals. For those with $1.8M in retirement assets, that rises to around $120-150k pretax per year and around $100k after tax. If someone retires with $5M today, roughly the beginning rung for entry into the top 0.1%, they can reasonably expect an income of $240k pretax and around $190k post tax, including Social Security.

    While income and lifestyle are all relative, an after-tax income between $6.6k and $8.3k per month today will hardly buy the fantasy lifestyles that Americans see on TV and would consider "rich". In many areas in California or the East Coast, this positions one squarely in the hard working upper-middle class, and strict budgeting will be essential. An income of $190k post tax or $15.8k per month will certainly buy a nice lifestyle but is far from rich. And, for those folks who made enough to accumulate this much wealth during their working years, the reduction in income and lifestyle during retirement can be stressful. Plus, watching retirement accounts deplete over time isn't fun, not to mention the ever-fluctuating value of these accounts and the desire of many to leave a substantial inheritance. Our poor lower half of the top 1% lives well but has some financial worries.

    Since the majority of those in this group actually earned their money from professions and smaller businesses, they generally don't participate in the benefits big money enjoys. Those in the 99th to 99.5th percentile lack access to power. For example, most physicians today are having their incomes reduced by HMO's, PPO's and cost controls from Medicare and insurance companies; the legal profession is suffering from excess capacity, declining demand and global outsourcing; successful small businesses struggle with increasing regulation and taxation. I speak daily with these relative winners in the economic hierarchy and many express frustration.

    Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits. Most of those in the bottom half of the top 1% lack power and global flexibility and are essentially well-compensated workhorses for the top 0.5%, just like the bottom 99%. In my view, the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.

    The Upper Half of the Top 1%
    Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

    Recently, I spoke with a younger client who retired from a major investment bank in her early thirties, net worth around $8M. We can estimate that she had to earn somewhere around twice that, or $14M-$16M, in order to keep $8M after taxes and live well along the way, an impressive accomplishment by such an early age. Since I knew she held a critical view of investment banking, I asked if her colleagues talked about or understood how much damage was created in the broader economy from their activities. Her answer was that no one talks about it in public but almost all understood and were unbelievably cynical, hoping to exit the system when they became rich enough.

    Folks in the top 0.1% come from many backgrounds but it's infrequent to meet one whose wealth wasn't acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a "paper" asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO's wealth comes from stock, not income, and incomes are also very high. Last year, the average S&P 500 CEO made $9M in all forms of compensation. One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company. The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

    I think it's important to emphasize one of the dangers of wealth concentration: irresponsibility about the wider economic consequences of their actions by those at the top. Wall Street created the investment products that produced gross economic imbalances and the 2008 credit crisis. It wasn't the hard-working 99.5%. Average people could only destroy themselves financially, not the economic system. There's plenty of blame to go around, but the collapse was primarily due to the failure of complex mortgage derivatives, CDS credit swaps, cheap Fed money, lax regulation, compromised ratings agencies, government involvement in the mortgage market, the end of the Glass-Steagall Act in 1999, and insufficient bank capital. Only Wall Street could put the economy at risk and it had an excellent reason to do so: profit. It made huge profits in the build-up to the credit crisis and huge profits when it sold itself as "too big to fail" and received massive government and Federal Reserve bailouts. Most of the serious economic damage the U.S. is struggling with today was done by the top 0.1% and they benefited greatly from it.

    Not surprisingly, Wall Street and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America's top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don't repatriate their profits, they pay no U.S. taxes. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled. In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another "tax-repatriation" window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Ordinary working citizens with the lowest incomes are taxed at 10%.

    I could go on and on, but the bottom line is this: A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules. I am not optimistic.

    Addendum from the investment manager (not Domhoff), added January 2012
    A few blogs and emails have disagreed with the views presented in this article. I'll address two of them here:

    A New York Times article (Economix, 1/17/12) agrees that the threshold for being in the top 1 per cent in household income is about $380k but states that, based on Fed data, the 1% threshold for net worth is $8.4M. The figure I use is around $1.5M and comes from the IRS. The Fed uses a simple formula based on assets and liabilities at a broad level of analysis with little detail. Using Fed data, about 8% of US households have a net worth exceeding $1M and the median net worth of the top 10% of US families is $1.569M. The IRS uses the estate multiplier technique to calculate the data, a more complex measure based on tax returns, capitalization of earnings power, and other factors. The estate multiplier technique has been around for decades, is more widely used, and in the opinion of many, is the more accurate number. Where the true threshold is located is impossible to determine with accuracy, but my observations in managing money support the lower number or something close to it.

    One reader opined that my analysis regarding the bottom half and top half of the top 1% is incorrect and that many business people can amass $20M. Based on my experience with at least a thousand high net worth folks over the last couple of decades, I disagree. The folks in the top 0.5% and particularly the top 0.1% are in my experience very likely to have been the recipients of largesse in the investment industry or banking industry, and this includes those at the top of corporations where compensation is tied to options and stock or those who have careers near the top of the banking and investment industry. There are exceptions, of course.

    Let's make the assumption that someone who has an income in the top 1% would reasonably be expected to retire in the top 1%. Everybody's tax situation is a little different, depending upon the state they live in and the deductions they can make. Someone making $380k gross will likely pay about a third of that in Federal and State taxes, leaving about $250k after taxes. Generally, someone making $380k will want to live fairly well, certainly not at the level of the average dual working couple with an income around $55k. Let's say they spend $150k/year, hardly a high end budget in most of the US. That leaves about $100k per year to invest. It is unlikely that even with investment success they are going to amass $10M or $20M by the end of their careers. This fits my observations working with many physicians in many different specialties, and it is generally getting harder to make money in medicine than in the past. Older physicians are retiring today with around $3M to $8M, with just a few above that. Younger physicians are making between $200k and $400k annually with a few specialties above that and their typical annual investment contributions run between $50k and $100k.

    The bottom line here is that I think it is very difficult to create a net worth in excess of $10M from income alone. Yes, sports stars, entertainers, and some business people do -- but they are rare. Those with a higher net worth tend to acquire most of their net worth from capital gains, not income that has been saved and invested. Large capital gains tend to come when private businesses are acquired by private or public companies with stock or when executives are paid directly by options or stock. Wall Street and the banking industry are frequently involved, either directly or indirectly.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

  • #2
    No surprise to me. About a year ago I had a fellow in my exam chair, who I have known awhile, and we were killing some time waiting on dilation. He packages securities and takes them to Wall Street as a investment portfolio. Necessitates that he go out to dinner with those above 0.5% for marketing. He came right out and told me that Wall Street is skewed so that only they can win and even he, with inside knowledge, can't win. Pretty much the same coin, but maybe flip side, with the article above and capital gains as a way to wealth.

    Comment


    • #3
      A nice summary of some well known facts with one big misdirection at the heart of the thesis:

      "In my view, the American dream of striking it rich"
      Really? I thought the American dream is to work hard earn a good living and get a happy life for you and your family. Last I checked that required about $75,000 a year for the average American, not $10M.

      If the dream is to be richer than %99.5 of your fellow Americans, then by definition, 99.5% of people won't achieve it. :slap:

      If the dream is to be happy, then it seems most of us are within striking distance, at least financially:

      GDP per capita for the US is about $50K. Not bad, don't you think as that includes the old and the retired.

      Some people (cough liberals cough) love to talk about the top X% or the 0.X% as it apparently stands now () because they better at class warfare than coming up with solutions that move more and more American families to $75K per earner and think it's hopeless anyways because Americans are stupid ().

      Let's see what's really driving our widening inequality: The economy is in a tough transition, regulations are overblown, banking policy is unleashing a torrent of money but regulations make it hard to invest in productive activity. Guess what, under those circumstances money will flow into equities and inflate valuations. Management seeking to justify valuations without good ways to increase productive activity will instead seek "efficiency". The richest fraction then get richer and employees with less in demand skill have their livelihoods jeopardized.

      So what's the liberal prescription? Increase taxes? The problems leading to our current situation will remain. The extra money will disappear into the morass of government, and even as the rich try to offshore their money, we will start to find out exactly how "substantial" those trillions of dollars the Fed conjured out of thin air and injected into the markets are when moved to government coffers.

      What we need to do as a country is come together and solve the fundamentals, not more of this 1% or 0.5% or 0.1% folly.
      Last edited by citanon; 04 Dec 14,, 01:50.

      Comment


      • #4
        citanon,

        Last I checked that required about $75,000 a year for the average American, not $10M.
        well, i agree with you that the "american dream" doesn't really equal to $10M (of course, even $75k/yr is 50% more than what the average american makes).

        i think a better definition is, do my kids have a better standard of living than i do. and right now, that definition would be true in the long-term technology sense rather than economic sense, because of the massive cost inflation in what we would consider middle-class standards of housing, education, and healthcare vis-a-vis wage stagnation. i don't know about "within striking distance" seeing as how the median income has stagnated for 20+ years.

        Some people (cough liberals cough) love to talk about the top X% or the 0.X% as it apparently stands now () because they better at class warfare
        frankly given the growth of the 1%, and even more so the 0.1% in the last 20 years, if there's any class warfare involved it's pretty clear who won ;)

        i mean, even -liberals- have largely conceded this fight. as i've pointed out before, -richard nixon- was economically to the left of every single democrat today. i suppose bernie sanders, the socialist, might be more left.

        Let's see what's really driving our widening inequality: the economy is in a tough transition, regulations are overblown, banking policy is unleashing a torrent of money but regulations make it hard to invest in productive activity.
        eh, if that were true, why has inequality grown across both republican and democratic administrations? why did it -accelerate- under the Reagan Administration?

        frankly inequality at its basis is driven by the massive growth in the labor pool, caused by both the way modern technology creates a far less labor-centric economy, and by the end of the cold war/globalization.

        capital is now much more valued than labor as a result, and thus it is no surprise that the 1% have reaped most of the growth from the vast improvements in economic/labor efficiency in the last 30 years. this would have already been true without them wielding/influencing political power.

        even as the rich try to offshore their money, we will start to find out exactly how "substantial" those trillions of dollars the Fed conjured out of thin air and injected into the markets are when moved to government coffers.
        still waiting for that massive inflation spike. how many years have inflation hawks been screaming about this now?

        What we need to do as a country is come together and solve the fundamentals, not more of this 1% or 0.5% or 0.1% folly.
        the most important issue facing the US is really political in nature (gerrymandering, for instance). the rest would follow, as that would force moderation. that's actually another way of saying how the country would come together, because otherwise it most certainly wouldn't.

        on the other hand i don't think that even "coming together" would solve all of our economic problems, simply because there would be so many politically unpalatable things-- at least in my version of "were i king for a day".

        for instance, a much more free immigration policy would attract millions of immigrants, thereby solving US demographic issues. i gather that would not be very popular. massive reform of health insurance; elimination of employer-based insurance as everyone transfers to a far more efficient single-payer system. thus ending the much hated Obamacare in one swell foop...along with the US healthcare insurance industry.

        elimination of all agricultural tariffs, complete free trade. a form of graduated sales tax, and eliminate the income tax (and the hated IRS).

        eliminate most of our welfare agencies, and instead implement a guaranteed minimum income.

        a huge national infrastructure investment bank run on a combination of public-private funds instead of Congressional pork.

        hell, throw in mandatory PhDs-medical/law degree equivalents for teachers.

        etc etc.

        and as you see, all of them would be politically toxic to the core-- to both sides!-- despite the end result being a FAR more streamlined but efficient bureaucracy.

        seeing as how that's not going to happen, it's more important to see how and why the current political-economic system works the way it does. note how the article doesn't just talk about the political benefits of being in the 0.1%, it also talks about the inherent benefits that the 0.1% garner just from the economic system alone, given the way financial instruments can be set up to protect/increase wealth in a way that very, very few in the rest of the salary-earning population could match.
        Last edited by astralis; 04 Dec 14,, 02:50.
        There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

        Comment


        • #5
          Originally posted by tbm3fan View Post
          No surprise to me. About a year ago I had a fellow in my exam chair, who I have known awhile, and we were killing some time waiting on dilation. He packages securities and takes them to Wall Street as a investment portfolio. Necessitates that he go out to dinner with those above 0.5% for marketing. He came right out and told me that Wall Street is skewed so that only they can win and even he, with inside knowledge, can't win. Pretty much the same coin, but maybe flip side, with the article above and capital gains as a way to wealth.

          have you looked at high frequency trading on dedicated fiber optic networks?

          Basically you place an order for X stock at Y price but they get a chance to buy it first making your actual price Y+ their profit as they sell it to you. Unless you have your own dedicated fiber optic network you are always buying at Y+ or selling at -Y.


          Flash Boys - Wikipedia, the free encyclopedia

          Comment


          • #6
            Originally posted by citanon View Post
            So what's the liberal prescription? Increase taxes?


            Originally posted by astralis View Post
            and as you see, all of them would be politically toxic to the core-- to both sides!-- despite the end result being a FAR more streamlined but efficient bureaucracy.
            Depends on perspective. What that proposal basically is is mixing up the extremes from both ends. Wouldn't work of course. There's places that have all of that; Switzerland in particular comes to mind*. You can see the result of such measures in those countries.

            Capitalism would simply raise price levels to where the guaranteed minimum income is just the new welfare level; the move from income to sales tax only serves to redistribute effective income to the rich who place statistically more into savings; mandatory PhDs for certain professions breeds a new elitism, and brings those who can't shoulder this investment to a lower level; the free immigration policy would serve as merely a means of getting cheap labour; the single-payer national insurance would soon only cover a certain spectrum, with the real health industry moving into top-up insurance schemes; the national infrastructure investment bank would simply become the new pork barrel where you place your lobbying agents.

            *- the national infrastructure investment bank is a more German than Swiss idea though.
            Last edited by kato; 04 Dec 14,, 07:01.

            Comment


            • #7
              kato,

              Switzerland in particular comes to mind
              the which is not exactly a hell-hole...

              Capitalism would simply raise price levels to where the guaranteed minimum income is just the new welfare level;
              there might be SOME inflation involved but not significant amounts; the effect would be to take all the disparate welfare streams and force it down to a few. it'd also dramatically reduce the number of serving agencies, freeing up more money.

              the move from income to sales tax only serves to redistribute effective income to the rich who place statistically more into savings;
              many ways around it; a progressive sales tax or alternatively a progressive consumption tax.

              mandatory PhDs for certain professions breeds a new elitism, and brings those who can't shoulder this investment to a lower level;
              don't mind- teaching should not be a work program. i would like to model an education program after the scandinavians, at any rate.

              the free immigration policy would serve as merely a means of getting cheap labour;
              not just people low on the economic totem pole but people higher up. the current US system is an excruciatingly inefficient mess, driving away people who came here for education.

              the single-payer national insurance would soon only cover a certain spectrum, with the real health industry moving into top-up insurance schemes;
              single payer health care, not insurance. if people want they can certainly pay for extras-- the rich in every country already do, from private clinics to in some cases personalized drugs and DNA testing.

              the national infrastructure investment bank would simply become the new pork barrel where you place your lobbying agents.
              again, harder to do if they come from the bureaucracy vice a politician.

              ===

              in any case, i completely recognize what i wrote is an utopia, in every meaning of the word. i'm sure there is SOMETHING that would make my system economically untenable, despite my words above. :)

              however, what i am getting at is that the way the global economy is set up, along with current technological trends, vastly favors the wealthy. it's not an accident that global inequality has been increasing, not just in the US.

              this is bad not just in terms of fairness but just in simple economic efficiency: there's a greater limit on what the rich can spend (they, too, only have 24 hours in a day), along with the liquidity of the global finance market, means regulations that work on a national level can be avoided...or influenced away.
              There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

              Comment


              • #8
                Originally posted by astralis View Post
                the which is not exactly a hell-hole...
                From a European or an American perspective? :whome:

                Originally posted by astralis View Post
                there might be SOME inflation involved but not significant amounts;
                In Switzerland both average and median income is 60% higher than in Germany. Living costs match this disparity almost exactly. In fact, with the same level of education and job, you're quite often worse off in Switzerland. Especially as an immigrant.

                Originally posted by astralis View Post
                the effect would be to take all the disparate welfare streams and force it down to a few. it'd also dramatically reduce the number of serving agencies, freeing up more money.
                We actually did that in 2005, combining about four different welfare streams (of various levels, and for various purposes) under a single moniker and with a single ruleset. Half a year later the government who pushed it through resigned.

                Originally posted by astralis View Post
                many ways around it; a progressive sales tax or alternatively a progressive consumption tax.
                How do you calculate a progressive consumption tax without an instrument even mightier than the IRS?

                Originally posted by astralis View Post
                the current US system is an excruciatingly inefficient mess, driving away people who came here for education.
                Compared to other countries the US higher education system actually has a rather high retention rate of graduates.

                Originally posted by astralis View Post
                single payer health care, not insurance.
                That'd lead to something like the British NHS, which isn't exactly considered a role model... which, okay, might look different from the US angle where the primary concern nowadays is the exceedingly high cost of treatment.

                Originally posted by astralis View Post
                again, harder to do if they come from the bureaucracy vice a politician.
                A national investment bank would always have a political angle. Usually because in the end it would become a subset of the finance or economics branch of the government. If it didn't - at the start - then it would soon gain one as both sides begin fighting over its control.

                Originally posted by astralis View Post
                however, what i am getting at is that the way the global economy is set up, along with current technological trends, vastly favors the wealthy.
                Any capitalist economy favours the wealthy - it creates a world after its own image. That's never been different, and is effectively the core tenet of capitalism itself. There's someone who wrote something about it 170 years ago. Much of it is still true, despite that man even underestimating the adaptability of the bourgeoisie.
                Last edited by kato; 04 Dec 14,, 18:25.

                Comment


                • #9
                  kato,

                  How do you calculate a progressive consumption tax without an instrument even mightier than the IRS?
                  The progressive consumption tax: A win-win solution for reducing American economic inequality.

                  Compared to other countries the US higher education system actually has a rather high retention rate of graduates.
                  US colleges are doing quite well, actually, in no small part due to the flood of money and the strength of our immigrant population in S&T.

                  elementary-high school education has not done well for some time. there's been some improvements but they're localized given our system of local control.

                  That'd lead to something like the British NHS, which isn't exactly considered a role model... which, okay, might look different from the US angle where the primary concern nowadays is the exceedingly high cost of treatment.
                  eh, UK isn't too bad. not the best, but not bad. certainly better than the former US system. i'm hoping the current US system, which is similar to switzerland, will begin to approach switzerland's quality/cost ratio, which is close to what the UK has now.

                  for the world-beaters, i'd like to see our system be equivalent to that of France or Japan's.

                  Any capitalist economy favours the wealthy - it creates a world after its own image. That's never been different, and is effectively the core tenet of capitalism itself. There's someone who wrote something about it 170 years ago. Much of it is still true, despite that man even underestimating the adaptability of the bourgeoisie.
                  i don't MIND a system that favors the wealthy-- that's capitalism in a nutshell.

                  what i do mind is where there's a collapse of all countervailing trends to further concentration of wealth. the last time this happened, yes, about 170 years ago....there was a remarkable explosion of labor/capitalist violence.

                  even adam smith recognized this as poor economics; as he said:

                  But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin.
                  There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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                  • #10
                    That wouldn't get rid of the IRS ;)

                    Originally posted by astralis View Post
                    elementary-high school education has not done well for some time. there's been some improvements but they're localized given our system of local control.
                    Our state-control system - which mandates the equivalent of a Master's degree for teachers btw - isn't faring much better actually at that level.

                    Originally posted by astralis View Post
                    switzerland's quality/cost ratio, which is close to what the UK has now.
                    Quality/cost ratio is always just a ratio. The Swiss have a 60% higher per-capita cost on health expenditure than the British (in PPP). To say they have the same quality/cost ratio would mean that the British health system is simply abysmally bad.

                    Originally posted by astralis View Post
                    even adam smith recognized this as poor economics; as he said:
                    I was aiming closer to home, for good old Karl. ;)

                    In this regard:
                    The modern labourer, on the contrary, instead of rising with the process of industry, sinks deeper and deeper below the conditions of existence of his own class. He becomes a pauper, and pauperism develops more rapidly than population and wealth. And here it becomes evident, that the bourgeoisie is unfit any longer to be the ruling class in society, and to impose its conditions of existence upon society as an over-riding law. It is unfit to rule because it is incompetent to assure an existence to its slave within his slavery, because it cannot help letting him sink into such a state, that it has to feed him, instead of being fed by him. Society can no longer live under this bourgeoisie, in other words, its existence is no longer compatible with society.

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                    • #11
                      Conversation is good. But this article is pointless. Big question: why is he writing this article? What's the context? What's he trying to prove?
                      Context: "We are the 99%!"
                      Response: "Most of the 1% isn't that bad!"
                      Who the fuck cares? There isn't enough money in the top 1% to fix our budget problems. There isn't even enough money in the top 5%. Those doctors/etc in the bottom half of the top 1% are still going to have to pay more taxes, no matter how you cut it, and dancing around that does no one any favors.
                      Playing "hot potato" with populist outrage does not fix our problems. It only makes things worse as we each spend 15 minutes in limelight for our obligatory public humiliation.
                      "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

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                      • #12
                        GVChamp,

                        i'm not sure that the point of the article is that "most of the 1% isn't that bad". as the author puts it:

                        A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules
                        he even notes that this is true even if you are a highly skilled salaried professional in the top 1%-- you are still unlikely (vice vanishingly unlikely for the other 99%) to ever amass the wealth to be in the 0.1%, or the power, or the influence. there is a big disconnect between work, abilities, and pay-off.

                        and he's not writing this in terms of "fixing our budget problems", nor as some limelight for public humiliation. the main danger he outlines is:

                        I think it's important to emphasize one of the dangers of wealth concentration: irresponsibility about the wider economic consequences of their actions by those at the top.
                        and again, this seems quite true to me. we're only NOW recovering, employment wise, from the devastating effects of the Great Recession, and that was with an unprecedented 10 months of extremely good hiring.

                        meanwhile Wall Street recovered quite a long time ago.
                        Last edited by astralis; 05 Dec 14,, 16:48.
                        There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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                        • #13
                          If that's not his point, why does he spend half his column explaning why the "bottom half" of the 1% are actually hard-workers and don't have access to the halls of power? Why even introduce the concept of the "1%" at all? Why not the top 2%, or the top 5% or...
                          To me this looks like a piece to score political points. I don't really disagree with him, but there's a reason he's using those points as rhetorical anchors and that reason is called "Occupy Wall Street."
                          "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

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                          • #14
                            Seems like the "investment manager" has a serious case of client-ities.

                            Originally posted by astralis View Post
                            he even notes that this is true even if you are a highly skilled salaried professional in the top 1% -- you are still unlikely (vice vanishingly unlikely for the other 99%) to ever amass the wealth to be in the 0.1%, or the power, or the influence. there is a big disconnect between work, abilities, and pay-off.
                            Mmm... should the "highly skilled salaried professionals" even be in the top 1%, let alone the top 0.5%? The last time most of them took a major financial risk was probably when they took out a student-loan; their work-products are usually non-scalable; they wall themselves up professionally with ever-higher barriers of entry... how - no, why - do they expect to be in the top 0.1%? Who ever built a great empire hidden behind a fortress?

                            The United States is a free-market, capitalistic society -- it should be trying to repopulate the top 5% with more entrepreneurs and risk-takers; not worrying about the wealth prospects of the very people who form the richest 0.1%'s supporting cast of "very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers", the middle-management who run their companies, and the physicians who take care of their healths.

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                            • #15
                              Cactus,

                              One of the major points he is making is that the wealthiest 0.1% are making money relatively risk free from capital gains. They're -not- taking major financial risks (at least not on a personal level, although the financial industry as a whole did, and does)- primarily because they don't need to and secondarily because there's significant protections for them. Especially for the folks inheriting the wealth, they need to be neither particularly intelligent, nor hard working, nor risk taking, to generate enormous sums.

                              The other point he is making is that most salaried professionals simply cannot amass the amount of money needed to boost themselves into living on capital gains, despite being at least familiar with the methods by which the 0.1% make their money. Note that he addresses small businessmen into this category as well- the real risk takers, not just the salaried professionals putting their savings into the stock market for the increased return.
                              There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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