The Unnanounced Class War

[Pliny]

There is another interesting lawsuit going on right now involving Goldman Sachs.

-k

Goldman Sachs is one company they should not have been bailed out.

Edited May 10, 2013 by Pliny

[Argus]

So in a recent study The Economist magazine says 95% of the gains in the recovery have gone to just 1% of the population. The rich are getting richer, and the middle class is getting the boot. Income mobility is down again, and is already well below most European countries. Meanwhile the gap in test scores between rich kids and the poor kids is 30%-40% wider than it was just 25 years ago due to deteriorating public schools.

http://www.economist.com/news/leaders/21586578-americas-income-inequality-growing-again-time-cut-subsidies-rich-and-invest

And in a new book, economist Tyler Cowan says America is headed for a future in which perhaps 15% of the population live well, and everyone else lives a dull hand-to-mouth existence at a series of low paying, no benefit jobs.

http://www.economist.com/news/united-states/21586581-economist-asks-provocative-questions-about-future-social-mobility-american

[kimmy]

But remember, if we keep shoveling money into the hands of the heroic Job Creators, they might hire more peons.The benefits of their wealth will flow, or at least trickle, down to the rest of us.

-k

[Argus]

But remember, if we keep shoveling money into the hands of the heroic Job Creators, they might hire more peons.The benefits of their wealth will flow, or at least trickle, down to the rest of us.

-k

Yeah, that's the theory, except for the most part, due to the way the wealthy and corporations have maniuplated the tax codes its more profitable to just invest in things which are hardly taxed at all, even if they don't produce any jobs.

Came across this little article at the Bloomberg site earlier today about the Heinz company, recently taken over by Warrne Buffet. Buffet requires a 9% dividend payment for this (if you don't know much about dividends I'll tell you that is an enormous payoff compared to normal dividends. The result? A highly profitable company is goign to have to make more, and that means, yes, firing people, and making life miserable for the remainder.

http://www.bloomberg.com/news/2013-09-18/buffett-s-9-heinz-dividend-means-3g-cutting-jobs-mini-fridges.html

“There’s class warfare, but it’s my class, the rich class, that’s making war, and we’re winning.” Warren Buffett

[Bonam]

Meanwhile the gap in test scores between rich kids and the poor kids is 30%-40% wider than it was just 25 years ago due to deteriorating public schools.

Public school funding is higher than ever. Deteriorating public schools are because of bad ideas being implemented by school boards and teachers, not because of a lack of funding for schools. Private schools are not obligated to follow the hairbrained ideas of bureaucrats like our local poster "socialist" and so do better, unsurprisingly.

And in a new book, economist Tyler Cowan says America is headed for a future in which perhaps 15% of the population live well

Define live well. By global standards, even "poor" Americans still live like kings. This is the age of globalization, and expectations between the majority of people around the globe are equalizing, that means lower expectations for people in developed countries and higher ones for people in developing countries, until they come close to equilibrium. The benefits of economic growth are going to the rich, yes, but also to the rapidly emerging middle classes in the developing world, where hundreds of millions of people are being lifted out of poverty. Massive rapid globalization (and immigration) is a choice that all mainstream parties in both Canada and the US support, and there's no going back. As global GDP/capita gets closer to being equal, economic growth may start to benefit the middle and lower classes in Western countries again, but I expect we have about a two decade wait until that starts to happen.

All that being said, anyone who wants to be a part of that 15% (more like ~40% at this point) can choose to do so, just get a technically oriented education, whether university or trade school. A skilled tradesperson does not need to be particularly smart, doesn't pay high tuition fees or rack up a lot of student debt, but easily makes $100k+. The real problem in America is people expecting to get paid well for fluff jobs that don't actually produce anything. Not gonna happen anymore.

[eyeball]

As global GDP/capita gets closer to being equal, economic growth may start to benefit the middle and lower classes in Western countries again, but I expect we have about a two decade wait until that starts to happen.

Okay, so we tax the shit out of the 1% until then. Surely it'll be easier on everyone if only a few wealthy people suffer the consequences of globalization than the hundreds and hundreds of millions of other human beings you mentioned.

I'm betting most of the above mentioned 40% will soon be joining the ranks of the barely surviving making it 16% (mostly government workers) vs the rest of us.

It probably goes without saying that most of the government workers by this time will be cops and soldiers.

Edited September 22, 2013 by eyeball

[Michael Hardner]

Okay, so we tax the shit out of the 1% until then. Surely it'll be easier on everyone if only a few wealthy people suffer the consequences of globalization than the hundreds and hundreds of millions of other human beings you mentioned.

Not without putting up national firewalls preventing money from leaving. And then you won't have money in the country.

Are we at that point ? I don't think so. A large resetting of expectations, services, and responsibilities is due - if only because of the amount of time that has passed since we designed this system.

How will that resetting happen ? Well, of course, our government representatives will calmly sit down and determine the most prudent, and equitable course of action taking into account all factors and ...

Sorry. I can't keep this up...

[Michael Hardner]

All that being said, anyone who wants to be a part of that 15% (more like ~40% at this point) can choose to do so, just get a technically oriented education, whether university or trade school. A skilled tradesperson does not need to be particularly smart, doesn't pay high tuition fees or rack up a lot of student debt, but easily makes $100k+. The real problem in America is people expecting to get paid well for fluff jobs that don't actually produce anything. Not gonna happen anymore.

I agree with most of your post up until the last sentence. "Fluff jobs that don't produce anything" are actually a major part of our economy in the form of 'marketing'. The so-called 1% invest in cool brands, spend money in other ways and many such jobs involve fluff, albeit a new kind.

[Michael Hardner]

But remember, if we keep shoveling money into the hands of the heroic Job Creators, they might hire more peons.The benefits of their wealth will flow, or at least trickle, down to the rest of us.

-k

I am also suspicious of such arrangements. Let's look at a recent one:

http://www.ctvnews.ca/business/ford-investing-700-million-in-its-oakville-ont-plant-1.1461293

While the investment doesn't create any new jobs, it will secure those of the 2,800 employees currently at the plant.

Anthony Faria, an automotive expert at the University of Windsor, said Ford's level of investment means those jobs should remain safe for at least 10 years, but that new product would have to come into the factory for new positions to be created since the vehicles currently built at Oakville aren't big sellers.

Read more: http://www.ctvnews.ca/business/ford-investing-700-million-in-its-oakville-ont-plant-1.1461293#ixzz2fd90pT9k

Looks like the province and feds kicked in $140M.

I'm not an economist, but I'll start with a back-of-envelope estimate on some things and wait for one of my knowledgeable colleagues on MLW to help me out, ie. correct me.

2,800 positions for ten years would be 28,000 person-years worth of taxes, assuming full time. The break even point for the government to get that revenue back is $5K per years in taxes from each worker. That seems workable to me. Of course, these things aren't guaranteed by Ford, either.

[dre]

The real problem in America is people expecting to get paid well for fluff jobs that don't actually produce anything.

The fluff jobs pay the best! Many of the top earners these days do nothing but shuffle paper and move money around.

[Argus]

I agree with most of your post up until the last sentence. "Fluff jobs that don't produce anything" are actually a major part of our economy in the form of 'marketing'. The so-called 1% invest in cool brands, spend money in other ways and many such jobs involve fluff, albeit a new kind.

In point of fact the largest pool of wealthy people have jobs which produce nothing for the country. Stock brokers and investment banks don't contribute anything of value to a country's economy. If they all disappeared overnight the country wouldn't miss them.

[Argus]

ILooks like the province and feds kicked in $140M.

I'm not an economist, but I'll start with a back-of-envelope estimate on some things and wait for one of my knowledgeable colleagues on MLW to help me out, ie. correct me.

2,800 positions for ten years would be 28,000 person-years worth of taxes, assuming full time. The break even point for the government to get that revenue back is $5K per years in taxes from each worker. That seems workable to me. Of course, these things aren't guaranteed by Ford, either.

You appear to have forgotten the time element in your calculations. You need to consider how time and inflation effect the future value of today's dollar. Perhaps you could examine a 'new math' text for instructions.

[eyeball]

Not without putting up national firewalls preventing money from leaving. And then you won't have money in the country.

Just print some more or invent a new type of currency. I bet in the case of the latter the 1% would soon be climbing the firewalls to get back in on the action.

In point of fact the largest pool of wealthy people have jobs which produce nothing for the country. Stock brokers and investment banks don't contribute anything of value to a country's economy. If they all disappeared overnight the country wouldn't miss them.

Our governments would be lost without them.

[Michael Hardner]

You appear to have forgotten the time element in your calculations. You need to consider how time and inflation effect the future value of today's dollar. Perhaps you could examine a 'new math' text for instructions.

It's a simple calculation, as I said. As time goes by, salaries and tax revenue will increase so ... And I'm not sure if you're saying my estimate is too high or too low.

[Michael Hardner]

Just print some more or invent a new type of currency. I bet in the case of the latter the 1% would soon be climbing the firewalls to get back in on the action.

Now, you're talking. Sitting on piles of cash that deteriorates in value due to inflation would surely encourage them to do something with it.

[Topaz]

I read an article online and I wish now I had bookmarked it, but it was about the 10 riches families in the world that are the elite. Their family businesses are into everything possible, they are Americans, English, Canadian, that I can remember. I will look for it and post it here.

[dre]

You appear to have forgotten the time element in your calculations. You need to consider how time and inflation effect the future value of today's dollar. Perhaps you could examine a 'new math' text for instructions.

The real problem is that he assumes those workers would pay zero taxes if the government didnt put up this 140 million. Even if they all got laid off, most of them would find work again... the unemployment rate in Ontario is about 7%. So all of them but roughly 2000 would have ended up paying taxes anyhow.

So really... Michael would have

[dre]

Now, you're talking. Sitting on piles of cash that deteriorates in value due to inflation would surely encourage them to do something with it.

You guys could not be more wrong. Inflation is extremely regressive. The people hurt the most by it are the people that spend their entire paychecks on food, gas, rent, and groceries, and people who are on a fixed income. Most wealthy people have almost no currency at all... they have enough to service their next few weeks worth of transactions and the rest is invested in their own businesses, or other businesses or other assets.

And look at where most inflation comes from... monetary expansion. The money supply is expanded by loaning more money into existance. Who do you think gets to use that capital?

Income and wealth disparity has grown in lock step with monetary expansion. Inflation is not going to prevent wealth concentration it will do the exact opposite.

[Michael Hardner]

You guys could not be more wrong. Inflation is extremely regressive. The people hurt the most by it are the people that spend their entire paychecks on food, gas, rent, and groceries, and people who are on a fixed income. Most wealthy people have almost no currency at all... they have enough to service their next few weeks worth of transactions and the rest is invested in their own businesses, or other businesses or other assets.

There are, today, huge amounts of cash sitting offshore though. That's particular to the current situation.

And look at where most inflation comes from... monetary expansion. The money supply is expanded by loaning more money into existance. Who do you think gets to use that capital?

Income and wealth disparity has grown in lock step with monetary expansion. Inflation is not going to prevent wealth concentration it will do the exact opposite.

Yes, this is true but monetary expansion has also increased with growth, global trade and a host of other economic factors. It's an ecosystem and even economists acknowledge we're in unprecedented territory.

[Argus]

It's a simple calculation, as I said. As time goes by, salaries and tax revenue will increase so ... And I'm not sure if you're saying my estimate is too high or too low.

You are basically using a calculation which suggest the present value of X is equal to the future value of X, and it simply isn't. The future value is worth considerably less than the present value.

[Argus]

Now, you're talking. Sitting on piles of cash that deteriorates in value due to inflation would surely encourage them to do something with it.

They ARE doing something with it. They're investing it in a way which brings very low taxable returns. For example, as in the 9% dividend Warren Buffett will get out of Heinz. No matter how many tens of millions that amounts to its only taxable at a 15% rate, and of course, Warren can apply the entire cost of the interest of the loan used to buy Heinz against that to lower taxes still further, as well as draw in various other business costs to ensure he continues to pay much lower taxes than his secretary.

[Michael Hardner]

You are basically using a calculation which suggest the present value of X is equal to the future value of X, and it simply isn't. The future value is worth considerably less than the present value.

Ok, well then $5K may be a higher break even number than actually required. $5K in 2013 dollars is more accurate.

[Michael Hardner]

They ARE doing something with it. They're investing it in a way which brings very low taxable returns. For example, as in the 9% dividend Warren Buffett will get out of Heinz. No matter how many tens of millions that amounts to its only taxable at a 15% rate, and of course, Warren can apply the entire cost of the interest of the loan used to buy Heinz against that to lower taxes still further, as well as draw in various other business costs to ensure he continues to pay much lower taxes than his secretary.

That's one example. The fact is that cash reserves are near all time highs, correct ?

[GostHacked]

There are, today, huge amounts of cash sitting offshore though. That's particular to the current situation.

It's not cash, it's all digital now. And this is all mainly corporations and their board members. Many wealthy do this. Bringing it back wont do anything at all. It's how money is created that is the real issue here.

Yes, this is true but monetary expansion has also increased with growth, global trade and a host of other economic factors. It's an ecosystem and even economists acknowledge we're in unprecedented territory.

Where does this money come from for expansion?

Cash reserves are near all time high?? Really? Where are those cash reserves?

[Michael Hardner]

It's not cash, it's all digital now. And this is all mainly corporations and their board members. Many wealthy do this. Bringing it back wont do anything at all. It's how money is created that is the real issue here.

It won't do anything ? That doesn't seem to follow as we're talking significant amounts.

Where does this money come from for expansion?

Cash reserves are near all time high?? Really? Where are those cash reserves?

The money is borrowed, to give a shorthand explanation, by governments.

Cash reserves (ie private cash) are in cash accounts offshore and elsewhere.

Edited to add link:

http://www.ft.com/intl/cms/s/0/de66970a-1ddf-11e3-85e0-00144feab7de.html#axzz2fjYGOoU0

Cash held on balance sheets of largest companies at record high

By Alison Smith, Chief Corporate Correspondent

The amount of cash held on the balance sheets of the UK’s largest companies by market value has reached an all-time high to stand at £166bn, according to analysis by Capita Asset Services....