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As capitalism matures, it's clear to anyone with a thread of financial literacy that most wealth is created through capital gains rather than salary. We're appr

by volgo 9y ago

As capitalism matures, it's clear to anyone with a thread of financial literacy that most wealth is created through capital gains rather than salary. We're approaching a state (at least in developed countries) where productivity is so high, that you can literally park your money in 500 of the biggest businesses and you're almost guaranteed a 7% annual return (if you hold stocks for the long term). Using the commonly accepted safe withdraw rate of 4%, if you inherit $3 million (which is not even that much), you can safely collect $120,000 of capital gains/dividend income every year without doing anything. This also frees you up to work on other things that will acquire you even more wealth. People whose parents didn't leave them a large inheritance have to rely on salary, which is taxed at a higher rate and more difficult to earn. In effect, late stage capitalism becomes the anti-thesis of the spirit of capitalism - devoid of competition, free innovation, and upward mobility. In an ideal capitalism society, the most talented should earn the most, but the compounding effect of capital makes it so that whoever holds wealth the longest earns the most.

regulation_d 9y ago
In principle, I agree with you. But setting the capital gains rate is a bit of a balancing act. If the rate is too high, then this disincentivizes people from putting their money in the market, which is also not what we want.
Danihan 9y ago
I agree with much of what you said, yet I just don't see it as all that bad of a situation. I still think there is a lot of upward mobility even in that scenario -- the smarter people I know earn good salaries and have nice lifestyles. Nicer than their parents, in most cases, mainly because consumer technology constantly gets better and cheaper. And there is still opportunity for risk takers to start their own companies, and it's really not all that hard with some traction to get acquired by a bigger player. Of course, people with a lot of capital get rewarded for holding onto it / being conservative with it, but that's just common sense, not throwing good money after bad. It's like we're all supposed to say, "Yeah! Late stage capitalism is so awful!" and nod along, but it doesn't feel awful to me at all. I have a 2016 Mazda that cost $18k and it's just awesome for the price. I bought a brand new iPhone SE for $150. I bought a 50 inch TV on black Friday for $200. My parents as kids didn't have running water in their houses. I'm not all about materialism, but I'm really at a loss for what exactly I'm supposed to be feeling outraged about. I don't even really make that high of a salary, just average middle class.
- deleted 9y ago
  [deleted]
- kbenson 9y ago
  The question is, how much of the status quo your describe is because we're not in a self contained system, and actually outsource a lot of the problems to developing countries? If the system you describe was constrained to just the United States, and no goods or capital could enter or leave, would we expect a similar system? Because scaled up, that's the world in X decades. Unless we decide, and rely on, various insurrections, rebellions and regime changes to change the system in some countries such that there's always a third world economy to take advantage of. Even if that's the reality of the future (which I think is morally repugnant to rely on), there's no guarantee that cheap external labor won't be extremely constrained in the future, even if it's not entirely gone. (Unless we specifically cause it to be so through political maneuvering and war, but I like to think that's crackpot territory...).
  - CodeMage 9y ago
    > Unless we decide, and rely on, various insurrections, rebellions and regime changes to change the system in some countries such that there's always a third world economy to take advantage of. > (Unless we specifically cause it to be so through political maneuvering and war, but I like to think that's crackpot territory...). When you look at the history of the world and consider current geopolitical situation, what leads you to believe that's crackpot territory?
    - kbenson 9y ago
      I'm not sure. I'm hoping it's not some combination of wishful thinking and denial. :/
- dbingham 9y ago
  We're already in this situation and the data do not entirely agree with your anecdotes. Social mobility is quantifiably dropping. And that's a problem. [1] https://www.theatlantic.com/business/archive/2016/07/social-mobility-america/491240/ https://www.theatlantic.com/business/archive/2016/07/social-...
oconnor663 9y ago
> We're approaching a state (at least in developed countries) where productivity is so high, that you can literally park your money in 500 of the biggest businesses and you're almost guaranteed a 7% annual return (if you hold stocks for the long term). I think this has been true for a long time. Maybe even the whole 20th century, if you average out the Depression. I think the main difference in the last 20 or 30 years is that the instruments for making that investment have gotten dirt cheap, in percentage terms.
autokad 9y ago
you seem to have growth all mixed up. The previous historic rate was 10% growth. That was revised down to 7% (you seem to indicate its grown). going forward, we are probably looking at 5% growth going forward. developing countries have much higher rates of return. its true you can collect a lot off interest if you have 3 million $. but if that is all you do, inflation is going to tear you apart. you might be fine, but the next generation you leave everything to wont be so well off. a few generations and its nothing to write home about. so if you want growth in a developed economy, you need to be entrepreneurial, and you need to take risks. thats the spirit of capitalism.
antisthenes 9y ago
> In effect, late stage capitalism becomes the anti-thesis of the spirit of capitalism - devoid of competition, free innovation, and upward mobility. The notion that competition, free innovation, and upward mobility have ever been the spirit of capitalism is not based in any historic evidence. It was evident as far back as Adam Smith's Wealth of Nations that the true spirit of capitalism is the eventual concentration of wealth, formation of mono- and oligopolies and creating barriers to entry through influencing regulatory agencies (government) with wealth. The 3 notions you stated are mostly an idealistic lie sold to the naive, young, and temporarily impoverished millionaires. My view may be a tad biased, since I'm only alive as a product of communism (without all the freebies my parents received, as far as education, free housing and benefits, I would likely not exist right now)
jonas21 9y ago
None of these things are inherent to capitalism -- they're a result of current policy decisions, and could be fixed with different policy decisions. Want to reduce the incentive to inherit money and do nothing? Increase the estate tax and lower the threshold where it kicks in. Want to reduce the disadvantages of earning a salary? Increase taxes on capital gains and dividends and decrease taxes on earned income. Want to make it easier for everyday folks to take risks and increase innovation? You can start with a comprehensive safety net, and things like universal health care. Unfortunately (at least in the US) the party currently in power is going in the opposite direction. But it doesn't have to be that way.
- rvern 9y ago
  Taxes on capital gains are harmful and don't make sense. It would be more efficient to tax consumption and have no capital, estate, income, or corporate taxes. Scott Sumner has written many excellent articles about taxes on capital gains: - http://econlog.econlib.org/archives/2017/07/do_you_really_w.html http://econlog.econlib.org/archives/2017/07/do_you_really_w.... - http://econlog.econlib.org/archives/2014/04/theres_only_one.html http://econlog.econlib.org/archives/2014/04/theres_only_one.... - http://econlog.econlib.org/archives/2015/09/our_bizarre_sys.html http://econlog.econlib.org/archives/2015/09/our_bizarre_sys.... - http://www.themoneyillusion.com/?p=26636 http://www.themoneyillusion.com/?p=26636 Unfortunately sensible economic policies aren't politically feasible. This is partly because of the economic illiteracy of most voters and the lack of incentive for politicians to adopt economically sensible policies, but also because economists themselves often misunderstand economic theory.
  - danmaz74 9y ago
    Do you realize that taxing only consumption means taxing the poor a lot, and the wealthy almost nothing?
    - rvern 9y ago
      Who ultimately pays a tax burden does not depend on who sends the check to the government; it depends on the relative elasticities of supply and demand. The tax paid by people, wealthy or not, comes either out of consumption or investment. When people consume goods and services, the labor and materials used to produce them cannot be allocated to produce goods and services for other people. The same is not true of investment, which is why you want to tax consumption and not investment. If the government taxed 90% of Warren Buffett's wealth, Warren Buffett wouldn't consume less, he would just have less investments. The government would have more money, but if it spent the money on giving food to the poor, the food would have to come from somewhere, and it wouldn't be from Warren Buffett whose consumption was already modest. If the tax doesn't reduce your consumption, someone else is paying the tax, not you. Taxing 90% of Warren Buffett's wealth and spending it on welfare programs wouldn't make the poor better off, it would mainly make capital markets less efficient (which would make everyone, including the poor, worse off). Capital income does make Warren Buffett richer if he makes wise investment decisions that make markets more efficient, but as long as he doesn't consume the gains it changes nothing, and as soon as he or his heirs consume the gains they would be taxed by a consumption tax. Income taxes have the same issues as wealth taxes, so you want to tax only consumption. And a tax on estate is just an additional tax on future consumption by heirs. It makes no sense to tax future consumption at different rates than current consumption, so it's better to just increase the consumption tax than to add an estate tax.
adventured 9y ago
> it's clear to anyone with a thread of financial literacy That's argument from intimidation and not a valid form of argumentation. > In effect, late stage capitalism becomes the anti-thesis of the spirit of capitalism - devoid of competition, free innovation, and upward mobility Fortunately the world isn't in late stage Capitalism, because there is no such thing. As one obvious example, China has only begun to emerge from its backwards Communist shell, it's still in the first innings of its application of basic market economics. It's still doing trial runs market economic structures in things like asset ownership in general (eg equities), banking and real-estate. Its currency and bond markets are in the very early development stage. Other emerging economies such as Vietnam, Nigeria, Brazil, India are similarly going through their own very early stage experiments with market economic structures. In the US, more people are moving up and out of the middle class, than are moving down and out of it. That has been the consistent trend for 50, 30, 15, 10 years. There's zero evidence to support the notion that either the US or the world are meaningfully devoid of competition. It's competetion in fact that is terrifying so many. 20 years ago Google, Amazon, Facebook, Netflix, Apple, Priceline, SpaceX, Airbnb, Oracle, PayPal/Stripe/Square, Cisco, Uber/Lyft, Airbnb, Spotify, Tesla, T-Mobile, eBay, et al. were either non-existent or small compared to established corporate giants. That's just for the US, China has hundreds of business giants that didn't exist 20 years ago at all. There's so much competition coming from the US tech giants, the EU is taking aggressive government intervention steps to begin restraining them from routing European competition. That's the exact opposite scenario of not having competition. Leaders in AI? Not IBM. It's AWS, Google, Microsoft, etc. Leaders in vehicle automation? GM had to buy its way back to the table, Ford is still running far behind. Companies like Google, Tesla, Uber, and dozens of smaller SV companies, have led the charge. Leader in electrification of vehicles? Tesla has overwhelmingly led the charge, most everyone else (except perhaps for Nissan and partially GM) is running from years behind. ULA for the future of space launch? No, it's SpaceX and Blue Origin. GE? Dying. Exxon? Dying. IBM? 21 straight quarters of revenue decline. Alcoa? Who? US Steel? Who? Sears? Dead. Walmart? Mortally terrified of a company that didn't exist in 1993. JC Penney? Dead. KMart? Dead. Pfizer & Merck? Say hello to Celgene, Biogen, Gilead, Amgen, Regeneron, Vertex, Genzyme, et al. Banking? Welcome to the online, payments, crypto revolution. Ant Financial is moving more money every year than most of the US financial giants; it didn't exist in 2003. Square, Stripe, PayPal, Ant, Google, Facebook, Apple, Samsung, et al. are setting the stage, not JP Morgan or Bank of America. Travel? Priceline is more powerful than most airlines or large hotel chains. Ditto Airbnb. Taxi industry? Largely dead, destroyed, bankrupt. Million dollar medallions? Gone. Say hello to Lyft, Uber, Didi, et al. Food delivery etc? Booming. Dominated by Sysco, McDonalds, Procter & Gamble, Kraft Heinz? Nope. Companies like UberEats, Grubhub, Blue Apron, and dozens more. Old media? Dying and desperate. Newspapers? Dead. Old radio giants? Dead. Cable? Bleeding out. Say hello to Netflix, Spotify, Amazon, Hulu, Facebook, YouTube, etc. The list just keeps going.
jrs95 9y ago
Middle class people can take advantage of those investment returns as well. A more interesting question to me is “Why aren’t they?”. A typical middle class person can still achieve significant upward mobility for their children, and yet they often choose not to. Is part of the problem with student debt not just that many parents of the last generation or two wasted their money rather than saving it to put their children through college? I’ve known a few people whose parents wouldn’t even attempt to take out Plus loans for them. The lack of upwards mobility seems to be based more on some sort of social disease than just economics at this point.
- maxsilver 9y ago
  > Middle class people can take advantage of those investment returns as well. How exactly do you define "middle class"? Because by the popular definition of middle class, these folks can not take any meaningful advantage of any sort of investment returns. Generally speaking, middle class people barely have enough money to house and educate themselves (they must take out large barely-sustainable loans to cover either/both of those, at high risk to themselves). The wealthier of the middle class might have a basic retirement account of some sort, which might barely cover basic food+shelter+medical for their own person.
  - jrs95 9y ago
    You're confusing what people can do with what they actually do. I've known people who make close to the median income and support 4 children, own a home, and still had enough savings to buy them all cars and pay for their college tuition. They have some amount of retirement savings as well, though I don't know how much. I've also known people who make nearly 6 figures and just spend all of their money. A more expensive apartment than they need, a more expensive car than they need, eating at restaurants all the time, buying a bunch of what are essentially toys for adults, etc. Although this is in the midwest, the cost of living is much lower here. It's quite possible that you just can't do this on your typical "middle class" income in other places.
    - ABCLAW 9y ago
manigandham 9y ago
How does someone having wealth stop anyone else from acquiring theirs? You may start out with less but there's nothing stopping you. Also all those capital investments are helping the companies and funds they're invested in, one of which could be your very own employer/startup/pension fund, etc.
- ABCLAW 9y ago
  Wealth is, abstracted, control over resources. How does someone else controlling resources prevent you from obtaining resources? Well, because they control the resources. The entire concept of rivalry in economics is about this. Only in the case of resource that are not rivalrous does pre-existing wealth become a non-factor.
  - manigandham 9y ago
    If you just redefine the word then there's not much of an argument. Resources are constrained, wealth isnt. You can create value somehow and generate wealth, regardless of what someone else is doing.
    - ABCLAW 9y ago
      Part A) That isn't a redefinition. Wealth is a measure of assets. Assets are, for the most part, rivalrous goods. Ownership's most fundamental quality is the exclusionary right to prevent others to use or occupy the asset in question. Owning lumber, for instance, has value because it lets you prevent other people from walking off and building their houses with it. Accordingly wealth is exclusionary by nature. Part B) You might think that wealth isn't constrained, but it is. You can't own more lumber than the sum of all of the forests and cut planks in the world. You can't output more human labour than the sum of the population on the planet can provide, and you certainly can't build an object which is composed of more minerals than our race can obtain. Will those limits increase over time? Sure. But that doesn't mean there's no hard top-end limit. Even if we jump to non-rivalrous goods and you say "but I can create intellectual property at an infinite rate - those rights and assets aren't bound to physical constraints" - you'd be wrong again. The capacity to create and define non-tangible assets susceptible to ownership requires human labour. If you wanted to produce ideas for comic books, for instance, you wouldn't be able to produce a database containing the brainstorming of 10 billion people in a year. Because you don't have 10 billion people on the planet. So even at your value maximizing best, applying the best possible combinations of resources, labour and opportunities, you still won't be able to create infinite wealth for all asset classes. If you mean that wealth isn't constrained because you can inflate the value of the denomination it is traded in, that doesn't change the value of the asset itself - that's completely orthogonal.
valuearb 9y ago
In the U.S., your $120,000 of capital gains/dividends isn't taxed at a high rate to you, but is taxed at a high rate. First the company has to earn a profit, and out of that profit pay state and federal income taxes (35% + state). Then it pays whats left to you, where you pay your 15-20%, making the total tax rate usually over 50%. Given that taxes on corporate income is a direct tax in investment, it's counterproductive, it reduces investment, and productivity gains that increase both wages and wealth. It would be far better to have a zero tax rate on corporate income, and tax capital gains* and dividends at personal rates. That restores not just investment incentives, but also progressively of our tax system, so that the person with $1M in dividends and capital gains is paying a higher rate than someone with $20,000 in income. And this would probably raise more tax revenue in the long run. Corporate income taxes are a relatively small part of overall tax revenues, increasing dividend/capital gains rates offsets most of their loss if they are eliminated, and over time more investment will drive higher wages/income and increase tax receipts. * If capital gains are taxed at ordinary income rates, they also need to be indexed to protect from inflation. If they aren't, we risk taxing phantom gains, i.e. if an investment is sold for 20% more than it's purchase price, but inflation was 25% during it's holding period, it was actually a loss, because it lost purchasing power. This is one of the reasons capital gains has special rates, but that's not a good protection. In the 1970s high inflation hurt investments because historical equity returns were money losers adjusted for inflation. Investors preferred high interest bonds to protect their principle.
- volgo 9y ago
  That argument doesn’t make sense because when you receive a salary, the same taxation is passed through the company as well. Companies have to pay corporate taxes before they pay you too. The only difference is the “last mile” tax of when you receive the money from the company. For capital gains it’s 15% federal, for salary it’s 28%
  - valuearb 9y ago
    Nope, they don't. Employees pay is an expense to the company, and always deducted pre-tax.
- 9y ago
eeZah7Ux 9y ago
> In an ideal capitalism society, the most talented should earn the most No: in a capitalist society wealth can create wealth - by definition of capitalism. That means the wealthiest will earn the most.
bluthru 9y ago
>salary, which is taxed at a higher rate and more difficult to earn. The fact that actual productivity is taxed at a higher rate than capital gains is our rulers just rubbing it in our face.

by volgo 9y ago

regulation_d 9y ago

In principle, I agree with you. But setting the capital gains rate is a bit of a balancing act. If the rate is too high, then this disincentivizes people from putting their money in the market, which is also not what we want.

Danihan 9y ago

I agree with much of what you said, yet I just don't see it as all that bad of a situation. I still think there is a lot of upward mobility even in that scenario -- the smarter people I know earn good salaries and have nice lifestyles. Nicer than their parents, in most cases, mainly because consumer technology constantly gets better and cheaper. And there is still opportunity for risk takers to start their own companies, and it's really not all that hard with some traction to get acquired by a bigger player. Of course, people with a lot of capital get rewarded for holding onto it / being conservative with it, but that's just common sense, not throwing good money after bad. It's like we're all supposed to say, "Yeah! Late stage capitalism is so awful!" and nod along, but it doesn't feel awful to me at all. I have a 2016 Mazda that cost $18k and it's just awesome for the price. I bought a brand new iPhone SE for $150. I bought a 50 inch TV on black Friday for $200. My parents as kids didn't have running water in their houses. I'm not all about materialism, but I'm really at a loss for what exactly I'm supposed to be feeling outraged about. I don't even really make that high of a salary, just average middle class.

deleted 9y ago
[deleted]
kbenson 9y ago
The question is, how much of the status quo your describe is because we're not in a self contained system, and actually outsource a lot of the problems to developing countries? If the system you describe was constrained to just the United States, and no goods or capital could enter or leave, would we expect a similar system? Because scaled up, that's the world in X decades. Unless we decide, and rely on, various insurrections, rebellions and regime changes to change the system in some countries such that there's always a third world economy to take advantage of. Even if that's the reality of the future (which I think is morally repugnant to rely on), there's no guarantee that cheap external labor won't be extremely constrained in the future, even if it's not entirely gone. (Unless we specifically cause it to be so through political maneuvering and war, but I like to think that's crackpot territory...).
- CodeMage 9y ago
  > Unless we decide, and rely on, various insurrections, rebellions and regime changes to change the system in some countries such that there's always a third world economy to take advantage of. > (Unless we specifically cause it to be so through political maneuvering and war, but I like to think that's crackpot territory...). When you look at the history of the world and consider current geopolitical situation, what leads you to believe that's crackpot territory?
  - kbenson 9y ago
    I'm not sure. I'm hoping it's not some combination of wishful thinking and denial. :/
dbingham 9y ago
We're already in this situation and the data do not entirely agree with your anecdotes. Social mobility is quantifiably dropping. And that's a problem. [1] https://www.theatlantic.com/business/archive/2016/07/social-mobility-america/491240/ https://www.theatlantic.com/business/archive/2016/07/social-...

oconnor663 9y ago

> We're approaching a state (at least in developed countries) where productivity is so high, that you can literally park your money in 500 of the biggest businesses and you're almost guaranteed a 7% annual return (if you hold stocks for the long term). I think this has been true for a long time. Maybe even the whole 20th century, if you average out the Depression. I think the main difference in the last 20 or 30 years is that the instruments for making that investment have gotten dirt cheap, in percentage terms.

autokad 9y ago

you seem to have growth all mixed up. The previous historic rate was 10% growth. That was revised down to 7% (you seem to indicate its grown). going forward, we are probably looking at 5% growth going forward. developing countries have much higher rates of return. its true you can collect a lot off interest if you have 3 million $. but if that is all you do, inflation is going to tear you apart. you might be fine, but the next generation you leave everything to wont be so well off. a few generations and its nothing to write home about. so if you want growth in a developed economy, you need to be entrepreneurial, and you need to take risks. thats the spirit of capitalism.

antisthenes 9y ago

> In effect, late stage capitalism becomes the anti-thesis of the spirit of capitalism - devoid of competition, free innovation, and upward mobility. The notion that competition, free innovation, and upward mobility have ever been the spirit of capitalism is not based in any historic evidence. It was evident as far back as Adam Smith's Wealth of Nations that the true spirit of capitalism is the eventual concentration of wealth, formation of mono- and oligopolies and creating barriers to entry through influencing regulatory agencies (government) with wealth. The 3 notions you stated are mostly an idealistic lie sold to the naive, young, and temporarily impoverished millionaires. My view may be a tad biased, since I'm only alive as a product of communism (without all the freebies my parents received, as far as education, free housing and benefits, I would likely not exist right now)

jonas21 9y ago

None of these things are inherent to capitalism -- they're a result of current policy decisions, and could be fixed with different policy decisions. Want to reduce the incentive to inherit money and do nothing? Increase the estate tax and lower the threshold where it kicks in. Want to reduce the disadvantages of earning a salary? Increase taxes on capital gains and dividends and decrease taxes on earned income. Want to make it easier for everyday folks to take risks and increase innovation? You can start with a comprehensive safety net, and things like universal health care. Unfortunately (at least in the US) the party currently in power is going in the opposite direction. But it doesn't have to be that way.

rvern 9y ago
Taxes on capital gains are harmful and don't make sense. It would be more efficient to tax consumption and have no capital, estate, income, or corporate taxes. Scott Sumner has written many excellent articles about taxes on capital gains: - http://econlog.econlib.org/archives/2017/07/do_you_really_w.html http://econlog.econlib.org/archives/2017/07/do_you_really_w.... - http://econlog.econlib.org/archives/2014/04/theres_only_one.html http://econlog.econlib.org/archives/2014/04/theres_only_one.... - http://econlog.econlib.org/archives/2015/09/our_bizarre_sys.html http://econlog.econlib.org/archives/2015/09/our_bizarre_sys.... - http://www.themoneyillusion.com/?p=26636 http://www.themoneyillusion.com/?p=26636 Unfortunately sensible economic policies aren't politically feasible. This is partly because of the economic illiteracy of most voters and the lack of incentive for politicians to adopt economically sensible policies, but also because economists themselves often misunderstand economic theory.
- danmaz74 9y ago
  Do you realize that taxing only consumption means taxing the poor a lot, and the wealthy almost nothing?
  - rvern 9y ago
    Who ultimately pays a tax burden does not depend on who sends the check to the government; it depends on the relative elasticities of supply and demand. The tax paid by people, wealthy or not, comes either out of consumption or investment. When people consume goods and services, the labor and materials used to produce them cannot be allocated to produce goods and services for other people. The same is not true of investment, which is why you want to tax consumption and not investment. If the government taxed 90% of Warren Buffett's wealth, Warren Buffett wouldn't consume less, he would just have less investments. The government would have more money, but if it spent the money on giving food to the poor, the food would have to come from somewhere, and it wouldn't be from Warren Buffett whose consumption was already modest. If the tax doesn't reduce your consumption, someone else is paying the tax, not you. Taxing 90% of Warren Buffett's wealth and spending it on welfare programs wouldn't make the poor better off, it would mainly make capital markets less efficient (which would make everyone, including the poor, worse off). Capital income does make Warren Buffett richer if he makes wise investment decisions that make markets more efficient, but as long as he doesn't consume the gains it changes nothing, and as soon as he or his heirs consume the gains they would be taxed by a consumption tax. Income taxes have the same issues as wealth taxes, so you want to tax only consumption. And a tax on estate is just an additional tax on future consumption by heirs. It makes no sense to tax future consumption at different rates than current consumption, so it's better to just increase the consumption tax than to add an estate tax.

adventured 9y ago

> it's clear to anyone with a thread of financial literacy That's argument from intimidation and not a valid form of argumentation. > In effect, late stage capitalism becomes the anti-thesis of the spirit of capitalism - devoid of competition, free innovation, and upward mobility Fortunately the world isn't in late stage Capitalism, because there is no such thing. As one obvious example, China has only begun to emerge from its backwards Communist shell, it's still in the first innings of its application of basic market economics. It's still doing trial runs market economic structures in things like asset ownership in general (eg equities), banking and real-estate. Its currency and bond markets are in the very early development stage. Other emerging economies such as Vietnam, Nigeria, Brazil, India are similarly going through their own very early stage experiments with market economic structures. In the US, more people are moving up and out of the middle class, than are moving down and out of it. That has been the consistent trend for 50, 30, 15, 10 years. There's zero evidence to support the notion that either the US or the world are meaningfully devoid of competition. It's competetion in fact that is terrifying so many. 20 years ago Google, Amazon, Facebook, Netflix, Apple, Priceline, SpaceX, Airbnb, Oracle, PayPal/Stripe/Square, Cisco, Uber/Lyft, Airbnb, Spotify, Tesla, T-Mobile, eBay, et al. were either non-existent or small compared to established corporate giants. That's just for the US, China has hundreds of business giants that didn't exist 20 years ago at all. There's so much competition coming from the US tech giants, the EU is taking aggressive government intervention steps to begin restraining them from routing European competition. That's the exact opposite scenario of not having competition. Leaders in AI? Not IBM. It's AWS, Google, Microsoft, etc. Leaders in vehicle automation? GM had to buy its way back to the table, Ford is still running far behind. Companies like Google, Tesla, Uber, and dozens of smaller SV companies, have led the charge. Leader in electrification of vehicles? Tesla has overwhelmingly led the charge, most everyone else (except perhaps for Nissan and partially GM) is running from years behind. ULA for the future of space launch? No, it's SpaceX and Blue Origin. GE? Dying. Exxon? Dying. IBM? 21 straight quarters of revenue decline. Alcoa? Who? US Steel? Who? Sears? Dead. Walmart? Mortally terrified of a company that didn't exist in 1993. JC Penney? Dead. KMart? Dead. Pfizer & Merck? Say hello to Celgene, Biogen, Gilead, Amgen, Regeneron, Vertex, Genzyme, et al. Banking? Welcome to the online, payments, crypto revolution. Ant Financial is moving more money every year than most of the US financial giants; it didn't exist in 2003. Square, Stripe, PayPal, Ant, Google, Facebook, Apple, Samsung, et al. are setting the stage, not JP Morgan or Bank of America. Travel? Priceline is more powerful than most airlines or large hotel chains. Ditto Airbnb. Taxi industry? Largely dead, destroyed, bankrupt. Million dollar medallions? Gone. Say hello to Lyft, Uber, Didi, et al. Food delivery etc? Booming. Dominated by Sysco, McDonalds, Procter & Gamble, Kraft Heinz? Nope. Companies like UberEats, Grubhub, Blue Apron, and dozens more. Old media? Dying and desperate. Newspapers? Dead. Old radio giants? Dead. Cable? Bleeding out. Say hello to Netflix, Spotify, Amazon, Hulu, Facebook, YouTube, etc. The list just keeps going.

jrs95 9y ago

Middle class people can take advantage of those investment returns as well. A more interesting question to me is “Why aren’t they?”. A typical middle class person can still achieve significant upward mobility for their children, and yet they often choose not to. Is part of the problem with student debt not just that many parents of the last generation or two wasted their money rather than saving it to put their children through college? I’ve known a few people whose parents wouldn’t even attempt to take out Plus loans for them. The lack of upwards mobility seems to be based more on some sort of social disease than just economics at this point.

maxsilver 9y ago
> Middle class people can take advantage of those investment returns as well. How exactly do you define "middle class"? Because by the popular definition of middle class, these folks can not take any meaningful advantage of any sort of investment returns. Generally speaking, middle class people barely have enough money to house and educate themselves (they must take out large barely-sustainable loans to cover either/both of those, at high risk to themselves). The wealthier of the middle class might have a basic retirement account of some sort, which might barely cover basic food+shelter+medical for their own person.
- jrs95 9y ago
  You're confusing what people can do with what they actually do. I've known people who make close to the median income and support 4 children, own a home, and still had enough savings to buy them all cars and pay for their college tuition. They have some amount of retirement savings as well, though I don't know how much. I've also known people who make nearly 6 figures and just spend all of their money. A more expensive apartment than they need, a more expensive car than they need, eating at restaurants all the time, buying a bunch of what are essentially toys for adults, etc. Although this is in the midwest, the cost of living is much lower here. It's quite possible that you just can't do this on your typical "middle class" income in other places.
  - ABCLAW 9y ago

manigandham 9y ago

How does someone having wealth stop anyone else from acquiring theirs? You may start out with less but there's nothing stopping you. Also all those capital investments are helping the companies and funds they're invested in, one of which could be your very own employer/startup/pension fund, etc.

ABCLAW 9y ago
Wealth is, abstracted, control over resources. How does someone else controlling resources prevent you from obtaining resources? Well, because they control the resources. The entire concept of rivalry in economics is about this. Only in the case of resource that are not rivalrous does pre-existing wealth become a non-factor.
- manigandham 9y ago
  If you just redefine the word then there's not much of an argument. Resources are constrained, wealth isnt. You can create value somehow and generate wealth, regardless of what someone else is doing.
  - ABCLAW 9y ago
    Part A) That isn't a redefinition. Wealth is a measure of assets. Assets are, for the most part, rivalrous goods. Ownership's most fundamental quality is the exclusionary right to prevent others to use or occupy the asset in question. Owning lumber, for instance, has value because it lets you prevent other people from walking off and building their houses with it. Accordingly wealth is exclusionary by nature. Part B) You might think that wealth isn't constrained, but it is. You can't own more lumber than the sum of all of the forests and cut planks in the world. You can't output more human labour than the sum of the population on the planet can provide, and you certainly can't build an object which is composed of more minerals than our race can obtain. Will those limits increase over time? Sure. But that doesn't mean there's no hard top-end limit. Even if we jump to non-rivalrous goods and you say "but I can create intellectual property at an infinite rate - those rights and assets aren't bound to physical constraints" - you'd be wrong again. The capacity to create and define non-tangible assets susceptible to ownership requires human labour. If you wanted to produce ideas for comic books, for instance, you wouldn't be able to produce a database containing the brainstorming of 10 billion people in a year. Because you don't have 10 billion people on the planet. So even at your value maximizing best, applying the best possible combinations of resources, labour and opportunities, you still won't be able to create infinite wealth for all asset classes. If you mean that wealth isn't constrained because you can inflate the value of the denomination it is traded in, that doesn't change the value of the asset itself - that's completely orthogonal.

valuearb 9y ago

In the U.S., your $120,000 of capital gains/dividends isn't taxed at a high rate to you, but is taxed at a high rate. First the company has to earn a profit, and out of that profit pay state and federal income taxes (35% + state). Then it pays whats left to you, where you pay your 15-20%, making the total tax rate usually over 50%. Given that taxes on corporate income is a direct tax in investment, it's counterproductive, it reduces investment, and productivity gains that increase both wages and wealth. It would be far better to have a zero tax rate on corporate income, and tax capital gains* and dividends at personal rates. That restores not just investment incentives, but also progressively of our tax system, so that the person with $1M in dividends and capital gains is paying a higher rate than someone with $20,000 in income. And this would probably raise more tax revenue in the long run. Corporate income taxes are a relatively small part of overall tax revenues, increasing dividend/capital gains rates offsets most of their loss if they are eliminated, and over time more investment will drive higher wages/income and increase tax receipts. * If capital gains are taxed at ordinary income rates, they also need to be indexed to protect from inflation. If they aren't, we risk taxing phantom gains, i.e. if an investment is sold for 20% more than it's purchase price, but inflation was 25% during it's holding period, it was actually a loss, because it lost purchasing power. This is one of the reasons capital gains has special rates, but that's not a good protection. In the 1970s high inflation hurt investments because historical equity returns were money losers adjusted for inflation. Investors preferred high interest bonds to protect their principle.

volgo 9y ago
That argument doesn’t make sense because when you receive a salary, the same taxation is passed through the company as well. Companies have to pay corporate taxes before they pay you too. The only difference is the “last mile” tax of when you receive the money from the company. For capital gains it’s 15% federal, for salary it’s 28%
- valuearb 9y ago
  Nope, they don't. Employees pay is an expense to the company, and always deducted pre-tax.
9y ago

eeZah7Ux 9y ago

> In an ideal capitalism society, the most talented should earn the most No: in a capitalist society wealth can create wealth - by definition of capitalism. That means the wealthiest will earn the most.

bluthru 9y ago

>salary, which is taxed at a higher rate and more difficult to earn. The fact that actual productivity is taxed at a higher rate than capital gains is our rulers just rubbing it in our face.