An alternative to progressive redistribution of wealth

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An alternative to progressive redistribution of wealth

Postby phonon266737 » Sat Apr 10, 2010 5:49 pm UTC

There has been quite a bit of talk on the board lately discussing various "isms". Libertarianism, Socialism, Communism, Anarchism, Capitalism, etc. I realize that some on this board are far more versed in social history and theories than I and I’m open to feedback and criticism.

I entitled this thread "an alternative" to progressive redistribution of wealth because my goal is to accomplish the same goal - in a sense, what can be done by the poor to hinder the development of a wealth gap. Many, perhaps all currently proposed solutions require either a violent revolution or forced government coercion through taxes, elimination of inheritance, high costs of emmigration, etc.

Certainly there can be no question that in the unrestricted free market, the natural tendency is for a wealth gap to form, where the wealthiest X% represent Y% of the total income, where X is small and Y is big. However, it seems that we do not discuss the nature of this forcing, simply that it exists and the options are A: do nothing, or B: Heavily tax the wealthy and redistribute in some fashion.

Given the lack of violent coercion, this natural forcing can be the result of only one thing: the proportion of personal revenues that the lower class voluntarily sends up the chain is less than the proportion of revenues that the upper class voluntarily sends down.

So, as an alternative to government redistribution of wealth would be modify the natural forcing of lower-class people to send their money up the chain.
An example: Wal-Mart, due to its size, provides goods at a lower price than many "Mom'n Pop" stores. Thus it is of short term benefit for the lower class citizen to shop there - I can buy my toys for less, therefore I am saving money. However, Wal-Mart is not going to give those profits back. I just traded ten dollars for a Chinese plastic widget. I could have bought it for $12 at a local toy store, but I didn't.

Taking a microeconomics view, my shopping at Wal-Mart benefits me $2. But if we zoom out to the macroeconomic birds-eye view, I just sent my money up the chain, and the only way to get it back is to vote for a legislator who will take it and give it back to me.

No, spending the extra $2 at the local toy store is not going to benefit me in the short term. But neither will raising the taxes on Wal-Mart - that is likely to spurn layoffs and closing of just-barely-profitable stores.

I imagine some sort of viral internet campaign education lower class consumers about the long-term benefits of shopping in their class could be cheap and quite effective.

Some examples off the top of my head of things that lower class people need to try to avoid doing. I myself am relatively low class, wealth-wise (Still in college and working at a lab making far below poverty level) and I avoid (and plan to coninue avoiding) doing almost all of these things. (Not that being a poor college kid makes me special in any way.)

Buying new cars (Purchase and maintain an older vehicle instead!)
Renting from large realtors instead of middle class, 2-3 home owners.
Expensive jewelry/weddings/honeymoons at resorts/country clubs/jewelers/dress shops
Paying lawyers (getting divorced!)
Shopping at big chain stores

I'm sure the list could grow. There's probably an economics PhD in here. I haven't done a lot of analysis on this, but I figured I'd throw it out there. So, uhh, there it is!

So, in general, accumulation of wealth can only happen when that is a long term goal. Decision that support that goal are not always the most beneficial in the short term. I propose that the wealth gap exists because of an aggregate of decisions to value short-term benefit over other, more abstract benefits. Without awareness of these benefits the wealth gap will always exist
So in a society of voluntary exchange, is it possible that the poorer, in a very general sense, can be educated to avoid growing the wealth gap? Or do the wealthy possess an unbreakable monopoly on goods and services such that there are no alternatives but to "voluntarily purchase" from an upper class entity?
Last edited by phonon266737 on Sat Apr 10, 2010 7:37 pm UTC, edited 2 times in total.

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Re: An alternative to progressive redistribution of wealth

Postby Lazar » Sat Apr 10, 2010 6:01 pm UTC

phonon266737 wrote:Buying new cars (Purchase and maintain an older vehicle instead!)
Renting from large realtors instead of middle class, 2-3 home owners.
Expensive jewelry/weddings/honeymoons at resorts/country clubs/jewelers/dress shops
Paying lawyers (getting divorced!)
Shopping at big chain stores

I don't think that new car purchases, extravagant weddings/honeymoons and lawyers' bills are the biggest problems afflicting the poor, and avoiding large national businesses could be borderline prohibitive. I'm not seeing a path to a new egalitarian future here, more like "a few barely useful suggestions to mollify the fact that you're getting hosed".
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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Sat Apr 10, 2010 6:10 pm UTC

"a few barely useful suggestions to mollify the fact that you're getting hosed"


If you have identified paths that the upper class use to get the lower class' money, please share them!

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Re: An alternative to progressive redistribution of wealth

Postby Lazar » Sat Apr 10, 2010 6:20 pm UTC

phonon266737 wrote:If you have identified paths that the upper class use to get the lower class' money, please share them!

Deregulation, neoliberal tax policy, corporate subsidies, predatory lending, monopolistic business practices. Most of the developed world has found that the path to greater equality and general welfare is progressive taxation, strong business and labor regulation, and a healthy social safety net - I see no need to reinvent the wheel.
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Re: An alternative to progressive redistribution of wealth

Postby Game_boy » Sat Apr 10, 2010 7:52 pm UTC

I don't think the wealth gap is the great evil here. If almost everyone is materialistically well off with enough free time to take advantage of it, then to me that's 'worth' the price of having 5% of the population extremely rich.

The goal should be making sure no one (who is able to work and is working, or is unable to work) is below that standard. And to that end, sacrifice the possibility of equal wealth. Because a free market plus social safety net is the best way to achieve the former.
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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Sat Apr 10, 2010 9:48 pm UTC

These responses make it sound like the poor have absolutley no control over being poor. As Lazar pointed out, the poor are poor because the wealthy take advantage of them. While sure, the easy solution is progresive taxes and social safety nets

I feel that, as a class, the non-wealthy would be much better off by performing less financial transactions with entities of significantly greater wealth, even though in the short term it is slightly more costly. Look at section 8/housing subsidies/etc. A 30 billion annual injection of funding that's being "redistributed" down, paying rent for the poorest group. Add in the 15 billion that these people spend out of their own pocket, and you have 45 billion in housing funds channeling through 4.5 million households. That means the poorest 5% spending the same amount for housing as the average american - $10,000 per year. The difference is the "Average american" is earning 60k per year and is spending that 10k per year on land/purchasing their house. The poorest 5% is paying rent, likely to an large agency that specializes in providing section 8 housing. Considering the average home price in many section-8 communities is well under $100k, if that housing aid was actively being re-invested in the community, then a great number of them would own homes very shortly!

So, to solve this issue, we can just heavily tax any large commercial entities making lots of money off of section 8. But it's still 30 billion dollars of revenue, and the outlays are minor, so big guy will push his prices down anyway to keep the buisness. We could have the government tell the low income people who they can and can't spend their housing subsidy with, restricting their freedoms and empowering the government (because, getting your name on that list of approved section 8 renters is big $$). Or they could just rent from people who are struggling to get by with mortgages. Maybe you have to squeeze 2 families into a not-quite-big-enough house for a few years (less short-term benefit - you're not renting an $800/month cookie cutter apartment, you're sharing an older house with another family), but it keeps your neighbor from losing his home (long term benefit of owning a home). If your neighbor makes his mortage payments on time, then regional statistics work in your favor of being able to get a normal mortgage if/when you decide to purchase a home.

Note that the poorest 5% spend more than 75% of their income on housing if you include subsidies (>50% if subsidies are not included). You think that spending on housing within your economic class is a "barely useful suggestion that mollifies the fact that you are getting hosed" ?

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Re: An alternative to progressive redistribution of wealth

Postby Aetius » Sat Apr 10, 2010 11:20 pm UTC

phonon266737 wrote: As Lazar pointed out, the poor are poor because the wealthy take advantage of them.


But is that true? In the absence of the wealthy, would the poor be any more materially well off?

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Re: An alternative to progressive redistribution of wealth

Postby Cleverbeans » Sun Apr 11, 2010 1:22 am UTC

phonon266737 wrote:Or do the wealthy possess an unbreakable monopoly on goods and services such that there are no alternatives but to "voluntarily purchase" from an upper class entity?


Unfortunately this is the case because of money-lending, as it inherently favors those who already have wealth. Also, economies of scale come into play when you have a large base of existing capital to take advantage of it, so you're able to leverage that position for greater profit. Consider too that when you're already wealthy you're able to take larger risks with your money as the consequences are less sever. Losing your vacation to the alps hurts less than watching your children starve to death.

Personally, I think the idea of a non-tragic resolution to the class gap is unlikely. It will either require violence, or incredibly suffering as the rich resist the rise of reasonable labor valuation. So many rich people are killing people every day for thousands of years for profit, I find it hard to believe they'll stop any time soon.
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Re: An alternative to progressive redistribution of wealth

Postby roflwaffle » Sun Apr 11, 2010 10:57 am UTC

Aetius wrote:
phonon266737 wrote: As Lazar pointed out, the poor are poor because the wealthy take advantage of them.

But is that true? In the absence of the wealthy, would the poor be any more materially well off?

That depends on the specific situation. Someone could be wealthy because they have provided a concept and/or service that benefited the society as a whole, but someone could also be wealthy because their aim is simply to obtain more wealth and this can unfortunately be done at a detriment to society as a whole. Ideally we should have policies that encourage the former and discourage the later but since by definition the wealthy have more resources they tend to also have a disproportionate ability to shape policy compared to those who aren't wealthy. Generally speaking the societies that are the most successful are those that limit the ability of the wealthy to shape policy in a detrimental way while still leaving enough incentives/wealth to encourage those (wealthy or not) who could have a positive impact to do whatever it is they want to do.

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Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Sun Apr 11, 2010 3:28 pm UTC

phonon266737 wrote:Certainly there can be no question that in the unrestricted free market, the natural tendency is for a wealth gap to form, where the wealthiest X% represent Y% of the total income, where X is small and Y is big. However, it seems that we do not discuss the nature of this forcing, simply that it exists and the options are A: do nothing, or B: Heavily tax the wealthy and redistribute in some fashion.
From the bat, I question your premise. I assume you mean "wealth", not "income," since the terms are very different.

First human society: 50-150 people, run by a chief. Chief officially owns everything, practically owns most things. .7-2% of the population represent 100% of the wealth. Even if you go to the practical side of things, the wealth of the chief will probably be several multiples of any other tribal member. The first non-food profession is military/political leader (chief), the second profession is religious/medical leader (witch doctor), and then the third profession is generally a specialist who makes pretty things for the chief and possibly witch doctor- feather headdresses take a lot of time to put together. The chief will generally have more wives than any member of the tribe, the best food, the most power, and so on.

As the tribal society becomes the feudal society, and the feudal society becomes the capitalist society, you don't see a wealth gap forming- what you see is the wealth gap lessening, or at the very least starting to serve society instead of just satisfying the wolf pack. The difference between the wealth gap that made Versailles and the wealth gap that made Bill Gates's house is that the French people earned Versailles and Louis XIV enjoyed it, while Gates earned Xanadu 2.0 and he enjoyed it. It bears repeating that until the rise of the mercantile class, the way to get power and wealth was to kill people en masse.

Wealth gaps always form. The question is what causes that gap- is it the violent control of people and land? Is it superior piety in a monastic commune?* Is it the ability to mobilize democratic support? Or is it the ability to manage personal resources to produce the most? Modern developed countries are a combination of the last two- the market produces wealth, and then the political system takes some of it to give to politically powerful classes. The politically powerful classes are distinct from economic classes, and come from all of them- doctors pay higher taxes to subsidize farm-owners, and poor working black men pay rich non-working white women.

*Wealth in a monastery is piety, not gold- and there are definitely gaps in that.

phonon266737 wrote:Given the lack of violent coercion, this natural forcing can be the result of only one thing: the proportion of personal revenues that the lower class voluntarily sends up the chain is less than the proportion of revenues that the upper class voluntarily sends down.
What is a loan?

phonon266737 wrote:So, as an alternative to government redistribution of wealth would be modify the natural forcing of lower-class people to send their money up the chain.
An example: Wal-Mart, due to its size, provides goods at a lower price than many "Mom'n Pop" stores. Thus it is of short term benefit for the lower class citizen to shop there - I can buy my toys for less, therefore I am saving money. However, Wal-Mart is not going to give those profits back. I just traded ten dollars for a Chinese plastic widget. I could have bought it for $12 at a local toy store, but I didn't.
What? Either you don't understand what Wal-Mart is, or you don't think the Chinese are people.

Shopping at Wal-Mart is the epitome of sending money down the chain. Yes, the Walton family is rich- but of every dollar that Wal-Mart receives, 3.3 cents are profit, and 75 cents go towards paying for the goods you bought (2009 numbers). Much of that will be going to China- and of that, much of it will go towards paying laborers. And Chinese factory workers are definitely lower-class than the American working classes, and I would suspect many Chinese factory owners aren't better off.

phonon266737 wrote:I imagine some sort of viral internet campaign education lower class consumers about the long-term benefits of shopping in their class could be cheap and quite effective.
But the whole point of classes is that they're different and they're necessary. In order to get goods in your hands, someone has to own the capital to produce them, someone has to use that capital, someone has to ship them, someone has to stock them, and someone has to ring you out. Why require all those steps to be done by the same class for each class, so we have an Alpha economy, and a Beta economy, and a Gamma economy, all duplicating expertise and effort? Even then, there will be gaps within those economies- some will be successful, and some will not.


[edit]The best advice you can give anyone about accumulating wealth is "earn rich live poor." When it comes to the wealth gap, all you can do influence where you end up.
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Re: An alternative to progressive redistribution of wealth

Postby Zamfir » Sun Apr 11, 2010 5:21 pm UTC

Phonon, there are at least two clear mistakes in your proposals to have poor people save money.

The first: renting is not in fact more expensive than buying. During the housing bubble, for most places just the interest on a mortgage would be higher than the rent, let alone the extra maintenance cost you have as owner. It's also true that owners pay on average less for the same housing than renters. But that's because the group ofowners include large groups of people who have repayed a large share of their mortgage, or who for other reasons own their house fully.

But you shouldn't compare someone with a mortgage-free $200,000 house to someone who rents. You should compare him to someone who rents and also has $200,000 in a mutual fund. if you make that comparison, renting is pretty similar, and sometimes cheaper, than owning. The point is not that owning saves you money in the long term, but that saving/repaying a mortgage does. However, both saving and repaying are easier when your income is high than when it is low.

The second mistake Vaniver already pointed to: if you buy something in a smaller, more expensive shop, the extra money doesn't go to the shopkeeper. It's spend on the relative inefficiencies of a small shop, and no one profits from them. The benefits of economies of scale are shared between the customers and the shareholders, and the exact division depends on the competiveness of the business.

If there are many firms with similar economies of scale, those benefits are largely passed on to customers who can always move to another firm if someone tries to keep to much of the benefits for themselves. Supermarkets used to be one of such businesses. Walmart changed that, in the US at least: it's so big that it can keep a relatively large share of the scale benefits for its shareholders, while still being cheaper than the competition. The same is of course even more true for Microsoft. If you look at a list of the very richest people, you'll find a lot of people who managed to manoeuvre their company in such a dominant position.

But note that this is not necessarily a bad thing for the customers. If Walmart was replaced by multiple cut-throat competing firms, their cutthroat prices might still be higher than Walmarts current prices, because they would lack its enormous scale.

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Re: An alternative to progressive redistribution of wealth

Postby Goplat » Sun Apr 11, 2010 6:31 pm UTC

Vaniver wrote:Shopping at Wal-Mart is the epitome of sending money down the chain. Yes, the Walton family is rich- but of every dollar that Wal-Mart receives, 3.3 cents are profit, and 75 cents go towards paying for the goods you bought (2009 numbers). Much of that will be going to China- and of that, much of it will go towards paying laborers. And Chinese factory workers are definitely lower-class than the American working classes, and I would suspect many Chinese factory owners aren't better off.
This is obviously false when you consider that the price of Chinese-made goods in China is something like 1/10 of the price of Chinese-made goods in America, even at Wal-Mart. So the bulk of the money making up the American price can't be going to the workers - that's mathematically impossible.

Most of it is going to the owners of the multinational corporations who have rigged the rules of international trade to guarantee themselves massive profits - they only need to sell their products for a little less than what an American company would have to sell them for, since the huge barriers to entry in becoming a multinational corp pretty much make them all monopolies or at least oligopolies. Whenever someone in America who has to work for a living buys Chinese, his class simultaneously gains a tiny bit in lower prices, and loses several times that in lost jobs.

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Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Sun Apr 11, 2010 7:42 pm UTC

Goplat wrote:This is obviously false when you consider that the price of Chinese-made goods in China is something like 1/10 of the price of Chinese-made goods in America, even at Wal-Mart. So the bulk of the money making up the American price can't be going to the workers - that's mathematically impossible.
How about, instead of "something like," you find some numbers? Even if only a tenth of the cost to Wal-Mart of an average Wal-Mart good was in labor, the fraction of a Wal-Mart dollar of revenue going to Chinese laborers would be twice the fraction going to profits.

Goplat wrote:Most of it is going to the owners of the multinational corporations who have rigged the rules of international trade to guarantee themselves massive profits - they only need to sell their products for a little less than what an American company would have to sell them for, since the huge barriers to entry in becoming a multinational corp pretty much make them all monopolies or at least oligopolies. Whenever someone in America who has to work for a living buys Chinese, his class simultaneously gains a tiny bit in lower prices, and loses several times that in lost jobs.
Wrong, on both counts. The profits are pretty low (Wal-Mart's profit margin of 3%, for example, is high for the retail industry, but entirely unremarkable in the context of corporations as a whole) and the lower class benefits far more from the gain in living standards than it suffers in the loss of jobs. As well, increased mechanization is the primary factor in loss of American manufacturing jobs, not outsourcing- but while people can mobilize against uplifting the downtrodden foreigner fresh off the farm, mobilizing against machinery and progress is a little harder since the end results are more transparent.

If the rules of international trade are rigged, it's a mercantilist move by the Chinese government, not the owners of multinational corporations.
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Re: An alternative to progressive redistribution of wealth

Postby Le Téméraire » Mon Apr 12, 2010 9:23 am UTC

Aetius wrote:
phonon266737 wrote: As Lazar pointed out, the poor are poor because the wealthy take advantage of them.

But is that true? In the absence of the wealthy, would the poor be any more materially well off?

No, it is not true at all. Social scientists make a distinction between different kinds of poverty, just like there is a distinction between different kinds of unemployment. There is poverty caused by alcoholism, drug addiction, poverty passed through different generations, poverty of life opportunities, poverty caused by lack of a education, etc. To fight all this different kinds of poverty, a country needs a very diverse set of measures.

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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Mon Apr 12, 2010 2:39 pm UTC

Vaniver wrote:As the tribal society becomes the feudal society, and the feudal society becomes the capitalist society, you don't see a wealth gap forming- what you see is the wealth gap lessening...

Wealth gaps always form. The question is what causes that gap- is it the violent control of people and land? Is it superior piety in a monastic commune?* Is it the ability to mobilize democratic support? Or is it the ability to manage personal resources to produce the most? Modern developed countries are a combination of the last two- the market produces wealth, and then the political system takes some of it to give to politically powerful classes. The politically powerful classes are distinct from economic classes, and come from all of them- doctors pay higher taxes to subsidize farm-owners, and poor working black men pay rich non-working white women...
Why require all those steps to be done by the same class for each class, so we have an Alpha economy, and a Beta economy, and a Gamma economy, all duplicating expertise and effort?...


Excellent points Vaniver. I suppose that while it's quite a difficult question to weigh the efficiency of socially-disparate economies to the present day efficiency of government redistribution, the possible efficiency of a unifed redistributive system is much greater. And this bit "Doctors pay higher taxes to subsidize farm-owners, and [url=http://en.wikipedia.org/wiki/Social_Security_%28United_States%29]poor working black men pay rich non-working white women" Is a good example of problems with the current system. Especially as government expenditures (State/Local/Federal) approach 50% of GDP, It is easy to doubt the efficacy of a system where sucesses is a popularity, rather than profit, contest. If Walmart can be used as a scapegoat - efficiency does not earn you popularity points.

Zamfir wrote:The first: renting is not in fact more expensive than buying. During the housing bubble, for most places just the interest on a mortgage would be higher than the rent, let alone the extra maintenance cost you have as owner. It's also true that owners pay on average less for the same housing than renters. But that's because the group ofowners include large groups of people who have repayed a large share of their mortgage, or who for other reasons own their house fully.

Housing is a perfect example of short term vs. long term benefit. If I live in a neighborhood where the average rent for a house is $800 per month, A 30 yr mortgage at 10% interest and no down payment would buy me a $60,000 and save me $100/month . It's quite likely that the $60k home will not be as nice as my old apartment. I also can't acess the pool of rent subsidies. But let's just say I make it happen. My kids can live in this house for ~ $2000 / year -without any additional money of my own, I managed to reduce my child's monthly housing expenditures by 80%.

Now cleary, we tried this and it didn't work. Why? Because the banks screwed everyone over with predatory ARM's and screwed themselves over by thinking they could insure themselves against the foreclosures that would result when interet rates jack up, and in the end it screwed over a lot of people. The banks knew that people would be foreclosing on these loans. Why didn't the people signing themselves into bankruptcy?

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Re: An alternative to progressive redistribution of wealth

Postby Aardvarki » Mon Apr 12, 2010 9:04 pm UTC

phonon266737 wrote:Now cleary, we tried this and it didn't work. Why? Because the banks screwed everyone over with predatory ARM's and screwed themselves over by thinking they could insure themselves against the foreclosures that would result when interet rates jack up, and in the end it screwed over a lot of people. The banks knew that people would be foreclosing on these loans. Why didn't the people signing themselves into bankruptcy?

Because the American Way (tm) is to buy, buy, buy, as long as you can afford it. And the predatory lenders are going to convince their customers that they CAN afford it. And if the nice man helping you buy a house promises that this 5-year Interest-Only ARM with a full Balloon payment due at the end of the term is the most affordable product he sells and if you go with that one, you can afford a $600,000 house instead of that cheap, crappy $500,000 one, well then why the hell not!?

I bought my house two years ago (at age 24 no less) when I felt the housing market was at its lowest. I was pre-approved for a ridiculously large mortgage that would have drained my bank account to the dregs (and when I was laid off six months after buying the house, I would have had to sell). When my real estate agent tried to show me houses near that price range, I stopped her right away and gave her my own price range. I made the wise choice of purchasing a significantly less expensive house with a 15 year FRM at an attractive rate. I did my homework, knew all of the available options, and refused to be suckered in by anybody's sales pitch. When I'm done paying off my house (at the rate I'm going this will be in less than 8 years) I'll have only paid 30% of the home's value in interest.

Unfortunately, the average American consumer doesn't do their homework. They want to keep up with the Joneses and will try to buy the most expensive house they can afford, even if they can't actually afford it (a house is a status symbol after all!) With the predatory lenders coming up with tricks to sell more and more expensive houses with riskier and riskier loans, eventually it had to go bad. Honestly, to me it seems that no one has learned their lesson, so fortunately the government is stepping in and regulating it (how sad is it to think that without the government stepping it to put a stop to this, that it would have just happened again and again?)

However, every penny you pay in interest on a loan is basically free money to the people who already have tons. I read a while back (don't know if it's still true or if it was bogus, but it is believable and makes sense to me) that the average American spends $1.06 for every $1.00 they earn. That, right there, is the problem. People should be paying off their debts rather than spending money they don't have!
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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Mon Apr 12, 2010 9:42 pm UTC

Aardvarki wrote:if the nice man helping you buy a house promises that this 5-year Interest-Only ARM with a full Balloon payment due at the end of the term is the most affordable product he sells and if you go with that one, you can afford a $600,000 house instead of that cheap, crappy $500,000 one, well then why the hell not!?


What % of the blame would you put on the banker, and what % goes to the person signing the papers.

It's needless to say that "Banks" have a monopoly on lending. But this is a realy good example where education can make a hell of a lot of difference in just how much money a lower class person sends "up the chain" - and how lack of it can, and will be, taken advantage of by those in more powerful positions. While certainly we should legislate and regulate against the most egregious offenses, if predatory lending is a significant cause of the lower-class being stuck there, then lenders should be on the hook for a large portion of a nation's social safety nets / welfare, shouldn't they? It's hard to write laws that prevent people accidentally giving their money away.

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Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Apr 13, 2010 12:08 am UTC

phonon266737 wrote:Why? Because the banks screwed everyone over with predatory ARM's and screwed themselves over by thinking they could insure themselves against the foreclosures that would result when interet rates jack up, and in the end it screwed over a lot of people. The banks knew that people would be foreclosing on these loans. Why didn't the people signing themselves into bankruptcy?
phonon266737 wrote:It's needless to say that "Banks" have a monopoly on lending.
Oh? Have you heard of Fannie Mae?

The mortgage market in America has been heavily influenced by government policies for some time. Data suggests home-owners are better citizens; a number of politicians on both Left and Right wanted to encourage home owning as a way to produce better, more committed citizens, and to put the "American Dream" in the reach of everyone.

Unfortunately, buying a house is more than just getting a home. It's an investment; it's a liability; it's often a giant loan. As well, it may be that good citizens are more likely to want to buy or be able to buy houses, not that owning a house changes someone for the better.

The reason why banks were willing to make loans that people would default on (one anecdote recounted in The Ascent of Money is that people buying cars from General Motors dealerships bristled at having to supply detailed information for their car loan- they hadn't needed to supply that information to get a home loan from GMAC, the same lending source!) was because they weren't going to hold them- they were going to sell it to someone else. The securitization of loans was a brilliant idea- if you have a model for a group of risky objects, you can split up the risk so that someone will get their money 99.9% of the time and earn appropriate interest, another will get their money 99.5% of the time and earn appropriate interest, and all the way down. The problem was that the model missed out on systematic problems- mortgage defaults on ARMs made to people who could barely afford the teaser rate don't follow a normal distribution, and pretty soon the people "guaranteed" their money ended up with nothing.

It should also be noted that the majority of the home loan problem was not people buying new homes, but refinancing their previous mortgage to get more money out of their home- a lot of which was spent on improving their home, both to live in a more luxurious home and to boost the resale value. Here, the teaser rates were all you would pay- because you just refinance again in a few years, and your home is worth more money now! But prices don't only move in one direction.

Now, an alternative model is the Savings & Loan Thrift- you may recall that those crashed and burned a few decades back. Those were depositor-owned organizations which made home loans for houses within 50 miles of their home office. The problem was that their liabilities were short-term savings accounts, and their assets were long-term home loans- when interest rates increased, people wanted their money from the S&L so they could put it in a bank earning higher interest, where the S&L just had low-interest mortgage payments coming in. The political solution was to deregulate them in a particular way, which ended horribly for most involved. But the lesson remains that both it is dangerous for the lender to not own the loan, and for the lender to only own a particular type of loan.
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Re: An alternative to progressive redistribution of wealth

Postby resistenz » Tue Apr 13, 2010 3:25 am UTC

Wealth gaps always form. The question is what causes that gap- is it the violent control of people and land? Is it superior piety in a monastic commune?* Is it the ability to mobilize democratic support? Or is it the ability to manage personal resources to produce the most? Modern developed countries are a combination of the last two- the market produces wealth, and then the political system takes some of it to give to politically powerful classes.


That's somewhat misleading. You're right to say that there has always been a wealth gap, but your explanation falls a little short. Your enumeration of things that cause the gap omits the most important factor : the ability of the ruling class to appropriate part of the wealth created by the lower classes. The chief exerts control on his tribe by his superior charisma and physical prowess, the feudal lord controls the peasants by offering them some measure of protection and the bourgeoisie controls the masses through democracy and a shroud of universalism. But none of this creates wealth.

The tribal chief takes what he wants from the artisans who work for him. The feudal lord collects a tithe. The market does not magically create wealth. Until recently (if you consider human history as a whole), wealth had always been the result of someone's labor time applied to a material object. That labor time transforms the object and confers it greater value. In this way a club was worth less than a fine sword, because the club was easy to make while the sword would require many hours of skilled labor. The same applies to the production of goods today. Now we also have financial capital, but if it seems to magically reproduce itself in Wall Street, it is still always somehow connected to real-world wealth. I'm sure I don't need to tell you that the value of stocks largely depends on a firm's ability to create material wealth (although in the case of banks it can depend on it's ability to create financial capital). The capitalists own the means of production and pay out the smallest wages possible while extracting the largest profits possible. It is the appropriation of all this wealth by the ruling class that create wealth gaps. Although the means employed for the actual appropriation have varied, it has always been through this process that the ruling class has grown richer while the working class was kept in poverty.

I'd write more, but I've gotta go be off to bed. Before you mention it, I know that's pretty marxist :twisted:

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Re: An alternative to progressive redistribution of wealth

Postby Aardvarki » Tue Apr 13, 2010 4:09 pm UTC

phonon266737 wrote:
Aardvarki wrote:if the nice man helping you buy a house promises that this 5-year Interest-Only ARM with a full Balloon payment due at the end of the term is the most affordable product he sells and if you go with that one, you can afford a $600,000 house instead of that cheap, crappy $500,000 one, well then why the hell not!?


What % of the blame would you put on the banker, and what % goes to the person signing the papers.


Well, call me a cynic, but I say 100% of the blame (for having their house foreclosed on) is on the head of the person signing the papers. If people weren't stupid and didn't fall for stupid marketing tactics like this to try to buy things they couldn't afford, the problem would never have been a problem in the first place.

People want to blame 'the banks' for selling bad mortgage plans, but don't realize that those bad mortgage plans would never have taken off if people did their homework and weren't suckered in by the promise of "you can afford* a bigger house if you get this special mortgage!"

* by "afford" we mean until the rates go up or your balloon payment comes due, then you're screwed. Sucks to be you!

However, the fact that the banks hire actuaries to calculate the risk/return ratios of these subprime loans and yet still sold more of them than they could afford losing anyways, even knowing that more people would default and that they would go under, THAT is 100% the bank's fault.

To sum it up: Bank foreclosed on your house because you didn't understand your mortgage? 100% your fault. Bank goes under because it had to foreclose on 15% of its houses? 100% bank's fault. Thus, the whole housing collapse? Bank's fault. Economic shitstorm caused by ridiculously reduced spending as a result of many people having their mortgages foreclosed on and no public faith in the economy? People's fault.

If the bank had factored in the high foreclosure rates and yet still had some means to stay above water while foreclosing on tons of houses, then the high foreclosure rates would fall entirely on the idiot populace who fell into marketing traps. Unfortunately, in this case, neither the people nor the banks acted intelligently, and both parties got screwed.

I'd like to summarize the economic turmoil of the U.S. in what I would like to call "Aardvarki's First Law of not Fucking Everything Up":

DON'T BE STUPID.

Interestingly, this law applies to subjects other than just Finance - I strongly recommend finding as many practical applications for my first law as you possibly can and applying it to everything you do! Ah, the possibilities!
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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Tue Apr 13, 2010 4:43 pm UTC

I think the problem was that the banks, knowing it was bad, bought insurance. Then another entitity buys a shitload of these insured, supprime loans, because, hey, they're insured! Turns out that the insurance for super risky mortgages is basically funded from the general treasury. Oops.

I like your rule, though.

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Re: An alternative to progressive redistribution of wealth

Postby Czhorat » Tue Apr 13, 2010 9:47 pm UTC

Aardvarki wrote:Well, call me a cynic, but I say 100% of the blame (for having their house foreclosed on) is on the head of the person signing the papers. If people weren't stupid and didn't fall for stupid marketing tactics like this to try to buy things they couldn't afford, the problem would never have been a problem in the first place.


OK. You're a cynic. And your view, while it does have a certain populist charm, strikes me as a bit simplistic. The fact is that not only are most average people are NOT comfortable understanding the complexities of a mortgage, and they often misunderstand their relationship with their mortgage broker. They see the broker not as as salesperson trying to sell a loan for the bank and earn a commission, but as their agent trying to help them secure the capital to purchase a home. The seller has most of the power in terms of capital, knowledge of the product, and perceived power. With adjustable rates, bankers are required to disclose that the rates could go up, but they often say it with a nod and a wink; I have to tell you that it might go up, but look how low this rate is! And look how long it's been trending downward. You draw the conclusion...

It's easy to decry stupidity; harder to make sure everyone has the tools to make an informed and non-stupid choice.

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Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Apr 13, 2010 9:58 pm UTC

resistenz wrote:That's somewhat misleading. You're right to say that there has always been a wealth gap, but your explanation falls a little short. Your enumeration of things that cause the gap omits the most important factor : the ability of the ruling class to appropriate part of the wealth created by the lower classes. The chief exerts control on his tribe by his superior charisma and physical prowess, the feudal lord controls the peasants by offering them some measure of protection and the bourgeoisie controls the masses through democracy and a shroud of universalism. But none of this creates wealth.
I don't omit it- that's the first factor that I mentioned.

resistenz wrote:The tribal chief takes what he wants from the artisans who work for him. The feudal lord collects a tithe. The market does not magically create wealth. Until recently (if you consider human history as a whole), wealth had always been the result of someone's labor time applied to a material object.
But even cavemen traded things over hundreds of miles, as evidenced by the presence of seashells hundreds of miles from the shore in caveman archaeological finds (and other things). If wealth is made by labor, what is the point of trade?

The answer is that labor makes goods and services- but happiness comes not from the existence of those goods or services, but the consumption of those goods and services to satisfy desires. Trade is the mechanism by which those who have are matched with those who want. Without trade, almost all of the world's production would be wasted, and most of its wealth would disappear. There is 'magical' creation of wealth- when Anna trades apples to Bob for bananas, both people are better off without any new goods entering the world.

resistenz wrote:The capitalists own the means of production and pay out the smallest wages possible while extracting the largest profits possible. It is the appropriation of all this wealth by the ruling class that create wealth gaps.
But, what if the means of production are skills? The lawyer owns his degree, license to practice law, and knowledge, as well as the time that he expends in practicing law. Is he a capitalist, or a laborer? Or both?

The belief that goods come from labor has grasped but a small fraction of the total concept of the production of wealth. Each contributor to the production of wealth is rewarded according to the price of their contribution- and their price depends on both the value that they add and the scarcity of supply. People who lend money to banks to manage, or who buy stocks, or who buy bonds, all contribute to the production of wealth in some way, and are all rewarded according to the price of their contribution.
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Re: An alternative to progressive redistribution of wealth

Postby resistenz » Wed Apr 14, 2010 5:13 am UTC

I don't omit it- that's the first factor that I mentioned.

Sorry, I didn't exactly understand it that way because it seemed to imply the need for violent control.

If wealth is made by labor, what is the point of trade?

To distribute the fruits of that labor from producers to consumers. The fact that the actual wealth or profit springs up at the moment of the transaction between buyer and seller doesn't change anything. If Anna buys boots from Bob, the value of those boots depends chiefly on the time and effort that Bob has put into them (assuming he made them, of course). Without that labor time, Bob could only be selling the raw materials to be used for the making of boots, and obviously at a significantly lower price.

Without trade, almost all of the world's production would be wasted, and most of its wealth would disappear.

That's correct.

There is 'magical' creation of wealth- when Anna trades apples to Bob for bananas, both people are better off without any new goods entering the world.

They are ''better off'', but not wealthier. By trading apples for bananas they satisfy their needs, yes, but this does not create any wealth. New goods did enter the world, but at the moment that they harvested the fruit. This stage was already complete at the time of the transaction. Assuming a fair trade, they merely barter X apples for Y bananas, X and Y being of equivalent value with respect to the required harvesting labor time. For example they could agree on 35 bananas for 45 apples because apples are easier to harvest, but this doesn't make them wealthier. What surplus value is created originates from the act of harvesting the fruits, and by bartering like this they exchange equivalent amounts of each other's labor time. In other words, the wealth is contained within the item that is being traded and does not - cannot - magically arise from the act of trading it.

But, what if the means of production are skills? The lawyer owns his degree, license to practice law, and knowledge, as well as the time that he expends in practicing law. Is he a capitalist, or a laborer? Or both?

He owns no material means of production and provides a service instead. Services have value in a way similar to goods. It roughly depends on the amount of skilled or unskilled labor time required to provide that service (but also on the scarcity of that service). Getting the tires changed on your car at the end of the winter is a fairly cheap service because it takes two unskilled workers something like twelve minutes to do it. Obviously in the case of a lawyer we're talking about a very skilled worker, but a worker nonetheless, albeit in a more intellectual sense. [Edit : I was re-reading that... Some lawyers are capitalists : the ones who own the law firms. In doing so, they own the ''means of production'' of the service and employ ''workers'' to provide it.]

Each contributor to the production of wealth is rewarded according to the price of their contribution- and their price depends on both the value that they add and the scarcity of supply. People who lend money to banks to manage, or who buy stocks, or who buy bonds, all contribute to the production of wealth in some way, and are all rewarded according to the price of their contribution.

This is very much in line with what I've been saying. Coming back to our simplistic barter scenario, both Anna and Bob are rewarded equally because they have contributed equally. The value that they added was just the act of harvesting the fruits : labor time applied to commodities grants them value. Only then is that value adjusted according to the scarcity of supply.

Hope that makes sense. I'm not actually trying to convince you, obviously we don't see the world the same way and probably never will. I've always liked a good debate, that's all.

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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Wed Apr 14, 2010 1:44 pm UTC

Trade also allows us to specialize - for example, my training is in engineering, but what I personally am good at, is fixing things. Generally it's focused on energy/heat/etc - coming up with an inexpensive way to modify an old system an make it more efficient, and if I worked for a company, I feel the way I could help their bottom line the most, is consulting the management on what equipment gets repaired, and what gets replaced - my experience in dustry shows that far, far too often, the managers go with "replace"

Keeping something out of the scrap heap generates wealth, so does cooking food. Lawyers help overcome obstacles to the generation of wealth - without them, the obstacles would probably win.

I wish there was a good graphic visiualizing the flow of money around the country, between corporations and social classes and international, etc. Though that would require someone knowing!

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Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Wed Apr 14, 2010 11:47 pm UTC

They are ''better off'', but not wealthier.
If you can be better off without being wealthier, is that a complete or fully useful definition of wealth?

In other words, the wealth is contained within the item that is being traded and does not - cannot - magically arise from the act of trading it.
Is value subjective, or objective?
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Re: An alternative to progressive redistribution of wealth

Postby Me321 » Thu Apr 15, 2010 4:36 am UTC

The easiest way to not be in the lower class is to not spend money on things you do not need, I have seen several lower class families, that have just as many new cars, tvs, expensive cell phones, and go out to eat every night, as I myself (and my family did when I lived with them, we are a middle class family) but if you make less money and do those things you have a problem, by spending less on stuff you dont need the lower class can always bring themselves up even while making less money.

The one thing the richest people have in common is that they do not spend needlessly and if they do they are usualy not rich for long.

Basicly what i am saying is wealth is what you make of it, if you have a job there is almost no reason why you should be so poor that you require any government aid.

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Re: An alternative to progressive redistribution of wealth

Postby Outchanter » Thu Apr 15, 2010 6:19 am UTC

Have you heard of food deserts? People in poor areas who don't own cars often don't have access to cheap, nutritious food that can be cooked at home. If they're forced to rely on unhealthy take outs, that increases their food costs, their risk of developing diabetes or becoming obese, and ultimately their medical bills.

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Re: An alternative to progressive redistribution of wealth

Postby jakovasaur » Thu Apr 15, 2010 9:27 pm UTC

Me321 wrote:The easiest way to not be in the lower class is to not spend money on things you do not need

Nah, the easiest way is definitely to be born as a non-lower-class white male. I didn't even have to DO anything, and it worked for me.

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Re: An alternative to progressive redistribution of wealth

Postby Lazar » Thu Apr 15, 2010 9:37 pm UTC

jakovasaur wrote:
Me321 wrote:The easiest way to not be in the lower class is to not spend money on things you do not need

Nah, the easiest way is definitely to be born as a non-lower-class white male. I didn't even have to DO anything, and it worked for me.

That's exactly what I did. :shock: Is this a coincidence, or are we on to something?
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Re: An alternative to progressive redistribution of wealth

Postby NumberFourtyThree » Thu Apr 15, 2010 10:17 pm UTC

Shopping at small businesses instead of large national ones won't hinder the formation of a wealth gap. Large national companies aren't owned by a single extremely wealthy people, but by a large number of shareholders, some of which won't be much richer than someone who owns their own business. Besides someone who owns their own business is much richer than a truly poor person anyway.

Plus as has been said, most of what you pay at a store isn't directly converted to profit for the business owner, but most of it goes to their expenses and suppliers, which in the case of a large business may include many much smaller businesses.

Walmart may be bad for small business owners who run local retail stores, but small business owners are not the poor.
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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Fri Apr 16, 2010 1:01 am UTC

I know I started this thread out on that note, but walmart isn't the main sticking point, it's housing. I don't know where to get the data for the wealth gap between landlords and tenants, but given that a large portion of households (15% or so) spend mor than 50% of their gross income on rent...where's it going?

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Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Fri Apr 16, 2010 3:56 am UTC

phonon266737 wrote:I know I started this thread out on that note, but walmart isn't the main sticking point, it's housing. I don't know where to get the data for the wealth gap between landlords and tenants, but given that a large portion of households (15% or so) spend mor than 50% of their gross income on rent...where's it going?
Owning a home is, financially speaking, not that much better than renting, and avoiding debt / investing capital that you do have places where it generates higher returns. Recent events show that encouraging home ownership, particularly among those who can barely afford rent, has significant negative side effects.
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Re: An alternative to progressive redistribution of wealth

Postby Griffin » Fri Apr 16, 2010 4:56 am UTC

I've found, as far as home ownership goes, the best way to handle it financially is to get a van.

Its a home for a fraction of the price, it actually belongs to you (not to be underestimated psychologically and functionally), it is much easier to save up for and buy up front than a house on land, and you can follow the jobs.

Since you might need to pay for parking/gym membership, and WILL need to pay for gas if you take it around much (which you shouldn't be doing, if you're doing it right), the costs ends up higher than you might think, but still less than many of the alternatives.

I do wonder what people would be like if more of them were less attached to physical spaces and owning actual land...
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Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Fri Apr 16, 2010 12:56 pm UTC

Vaniver wrote: Owning a home is, financially speaking, not that much better than renting, and avoiding debt / investing capital that you do have places where it generates higher returns. Recent events show that encouraging home ownership, particularly among those who can barely afford rent, has significant negative side effects.


I believe you mean purchasing a home is not much better than renting. In fact, aside from maintenance and upkeep, the only other cost of home ownership are property taxes, which could easily be adjusted for income (and may be already). And yes, encouraging poor people to buy a house that they can't afford has negative side effects for everyone. In general, if you want to buy a house, and keep the mortgage payment equal to your rent payment, it will not be as nice of a home as the one you are renting now.

But lets think of an imaginary neighborhood, your stereotypical "Projects", 40 relatively run down townhouses. The rent here is cheap : $600 per month, and it's owned by your stereotypical "Slumlord". His costs for the entire block are probably 50k a year. And his revenue is $288,000 a year. That's $238,000 in savings that the poor neighborhood is losing, annually. And if you try to increase their subsidies, well, he can just raise the rent a little bit. It's by far the cheapest in town.

The best option, IMHO, is changing credit scores to reflect rent payments and income. If someone has, without subsidy, paid their $600/mo rent on time for 3 or 4 years straight, then they should qualify for a 10-15 year mortgage that will have a payment of the same magnitude. (I've probably got a really bad credit score becuase I just save up to buy anything I want, and then buy it in cash, and don't use any credit cards because I don't need them. ) And I'm reading now that taking out a loan (at higher interest rate) to pay off my student loans, is a good thing for my score? Paying them off early, is bad? wtf? This system needs changed.

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Re: An alternative to progressive redistribution of wealth

Postby Azrael » Fri Apr 16, 2010 1:24 pm UTC

phonon266737 wrote:But lets think of an imaginary neighborhood, your stereotypical "Projects", 40 relatively run down townhouses. The rent here is cheap : $600 per month, and it's owned by your stereotypical "Slumlord". His costs for the entire block are probably 50k a year. And his revenue is $288,000 a year. That's $238,000 in savings that the poor neighborhood is losing, annually.

Even acknowledging the basic assumption that the slumlord isn't doing any maintenance, and that you've approximated the property taxes, water and sewer bills correctly (which from experience, I doubt you have), then you've also made the assumption that a) the buildings don't have a mortgage themselves or b) the landlord does not deserve a return on his original investment.

Sure, you can create a labyrinthine scenario where one individual (or company) is ripping a bunch of people off entirely, and even find an example or two where it's actually happening. But you can't make the generalization across the entire housing market. You just can't assume that every rental property is not only paid off, but has been paid off long enough to pass some arbitrary ROI threshold. Someone has to make money off of renters, or else there's no point (and thus no supply) of owning rental properties.

As far as credit scores go, they are an industry developed measure of risk. If you don't demonstrate that you can act responsibly with credit, no one wants to give you credit. The basic concept is pretty simple -- think about what a college admissions board is going to say if you apply with no test scores or transcript. Yes, there are comparisons that can be made to insurance actuary tables, which estimate risk based on group wide statistics, but loans aren't about group risk, they're about individual risk. A decent measuring stick would be automotive insurance rates which include group risk factors (i.e. age, gender) but are much more heavily adjusted based on individual performance.

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Re: An alternative to progressive redistribution of wealth

Postby Jimmigee » Fri Apr 16, 2010 3:07 pm UTC

Azrael wrote:As far as credit scores go, they are an industry developed measure of risk. If you don't demonstrate that you can act responsibly with credit, no one wants to give you credit.


While it is a measure of risk, I feel that this doesn't quite make the full extent of it clear. Companies can make a lot more money out of someone who is going to be in debt to them longer. If you own a credit card, for example, and pay it off fully every month then you're a lot less profitable than someone paying just the minimum amount and racking up interest.

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Re: An alternative to progressive redistribution of wealth

Postby JBJ » Fri Apr 16, 2010 3:28 pm UTC

Jimmigee wrote:
Azrael wrote:As far as credit scores go, they are an industry developed measure of risk. If you don't demonstrate that you can act responsibly with credit, no one wants to give you credit.
While it is a measure of risk, I feel that this doesn't quite make the full extent of it clear. Companies can make a lot more money out of someone who is going to be in debt to them longer. If you own a credit card, for example, and pay it off fully every month then you're a lot less profitable than someone paying just the minimum amount and racking up interest.

Credit card companies make plenty of money in other ways. It's not just interest. They wouldn't care if you paid it off each month as long as you used it. American Express does pretty well on annual membership and merchant fees, seeing as how they require you to pay off your balance each month (or face stiff penalties).
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Re: An alternative to progressive redistribution of wealth

Postby resistenz » Fri Apr 16, 2010 4:12 pm UTC

If you can be better off without being wealthier, is that a complete or fully useful definition of wealth?

A lot of people I know who are not particularly wealthy (in a material sense) consider themselves better off nonetheless because they are socially integrated in a lively community (good friends, etc) and they simply aren't concerned about the creation or the accumulation of wealth... Not everyone makes it a life goal to pile-up a fortune. But then again there can be many ways to define wealth. One could say that material wealth is all that counts, while others might object that social or emotional considerations can be seen as wealth too. I've also heard of societal wealth in the sense that its accumulation has enabled society to offer free services (health care for example) to everyone. None of these is perfect, yet none is completely wrong either. The way we define things like that is mostly a matter on how you choose to view society as a whole.

Is value subjective, or objective?

Value, however, should be defined in stricter terms. Obviously that's just my opinion but I claim that value shouldn't be seen as a subjective thing that varies for each individual. As I've already said, the value of a commodity depends on the amount of effort required to make it and of the value of the raw materials it contains. These raw materials are in turn dependent on the effort required to obtain them, and on the free market all these values are adjusted in relation to their scarcity or abundance. Implying that value can be subjective would mean that - for example - if Anna really liked apples a lot, she will be willing to accept an unfair trade. In this way she ends up incurring a loss for no other reason than the fact that she prefers apples. Subjectivity of value opens the door to exploitation. One can then use this to take advantage of another's personal preference to profit more, while not having to work harder at all.

I'm aware of the fact that things sometimes do work out that way and that value isn't always objective. This the ideal definition I would give it if I had to, with respect to keeping things as fair as possible.

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Re: An alternative to progressive redistribution of wealth

Postby Charlie! » Fri Apr 16, 2010 9:25 pm UTC

NumberFourtyThree wrote:Shopping at small businesses instead of large national ones won't hinder the formation of a wealth gap. Large national companies aren't owned by a single extremely wealthy people, but by a large number of shareholders, some of which won't be much richer than someone who owns their own business. Besides someone who owns their own business is much richer than a truly poor person anyway.

Plus as has been said, most of what you pay at a store isn't directly converted to profit for the business owner, but most of it goes to their expenses and suppliers, which in the case of a large business may include many much smaller businesses.

Walmart may be bad for small business owners who run local retail stores, but small business owners are not the poor.

But shareholders are unlikely to suddenly liquidate their shares and start spending. While local business owners will probably put their money right back into the local economy.

You seem to be thinking that the important part is that the local owner is a "worthier" person to give your money to. This is not the case. What's important is that when you give your money to the local owner, they're much more likely to turn around and spend it on something in the local economy, which then benefits you if you have a job in said local economy.
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