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Seems like maybe there are systemic issues with the economy...maybe concentrating wealth in the hands of so few doesn’t make for a robust economy that can handl

by jtdev 7y ago

Seems like maybe there are systemic issues with the economy...maybe concentrating wealth in the hands of so few doesn’t make for a robust economy that can handle some punches.

bravo22 7y ago
Unless they're stuffing their wealth in mattresses that wealth is spread everywhere in economy. Also a lot of that wealth is based on market value of assets which ebb and flow and inflate and crash. It is not based on sucking cash out of the economy. Put another way, the economy is fucked but a small % are able to inflate the market value of their assets.
GuiA 7y ago
This isn’t “some punches”, this is one of the biggest pandemics in living memory and will be an event whose consequences will be felt for the years and decades to come. I’m not disagreeing with wealth concentration being problematic, to be clear.
lainga 7y ago
How does wealth concentration tie into the report's findings? What I saw was that most of the small businesses in the JPM report are operating on margins of a few dollars a day. That might be the consequence of competition, driving down prices; or, maybe broadly high confidence in market stability -- whether reasonable or not -- lowering the level of caution small business owners thought they needed to take. But I'm not sure how it relates to wealth concentration.
- Mathnerd314 7y ago
  As I see, it means small businesses are getting squeezed too, just like poorer individuals who also have small cash buffers. It's possible to interpret this as economic efficiency, but it is efficient in the same way communism is efficient, i.e. efficient at misallocating resources. Tight budgets are like tight rubber bands and if there's enough stress something will break. I think that's enough terrible analogies, you get the point.
clairity 7y ago
yes, slack in the economy (in forms like cash reserves and inventory) provides robustness and resiliency, but our financial sector has mined it for the benefit of the wealthy and to the detriment of the rest of us. it's yet another reason to revise policy to move us (back?) toward a better balance. for instance, we need to allow all kinds of businesses to (live and) die, and also provide a robust safety net so people can try ideas big and small without being left destitute upon failure. then they can pick themselves up and try again. capital then flows to find the best ideas because we're allowed to try more of them. instead we get stupid capital gains & inheritance tax rates that mainly benefit the already wealthy and blunt capital's edge.
ttul 7y ago
Let me illustrate with an example. A colleague operates a company doing about $10M in annual revenue. Due to stay at home orders, his business has completely failed. A very wealthy minority shareholder who lent the company some funding last year is now going to do a debtor-in-possession financing and will end up owning the whole thing. The founder, who is not wealthy, will lose everything. The rich man will gain everything. Once the pandemic is over, the company will return to normal. The rich just got richer, folks.
- cm2187 7y ago
  I think it rather says that the more you leverage, the more risk you take, the less you can survive hard times. Same story with the Private Equity Funds industry.
- lainga 7y ago
  That raises a good question: what proportion of small businesses (SBA definition or JPM's sample definition) have shareholders? Vs. being sole proprietorships or partnerships?
- vsareto 7y ago
  >Once the pandemic is over, the company will return to normal. I wouldn't say that. Your employees who did the work and had tribal knowledge are now gone. If they didn't document something, it may not be found for a good while. Point is, it might take a lot of work to get it back going. Or it's as easy as putting some equipment on firesale and shredding everything else.
- perl4ever 7y ago
  I see this as an inevitable consequence of the fact that most small business owners assign a large value to the intangible of "being your own boss" not to mention the potential for wealth, and this drives everyone to have no margin for downturns. I mean, think about restaurants. Who starts a restaurant because they think it's the easiest way to make a dollar? The very fact that many people want to do something for reasons other than sheer profit means that profit will be driven below normal which will cause pain over time. What can the rich do to prevent this? Unless they got together and eliminated the ability of the non-rich to seek wealth. Sometimes, that's the conclusion elites reach about things; they do it to some extent. Like the way in the US you have to be a "qualified investor" with a certain amount of assets to invest in unregulated securities.
danans 7y ago
This is a real time experiment in progress. People across the globe are watching how the distribution of wealth in each country relates to the economic effects of this. There are a lot of confounding variables, some more related to wealth distribution (i.e. universal healthcare vs not), and some less related (timeliness of local authorities and government reaction). At the individual household level in the US at least, household savings are very low among large segments of the population (because of high wealth disparity), so there is very little to fall back on for most people. Depending on the length and severity of the pandemic, the 2T relief/stimulus bill may not be enough. Overall, this is a huge test for how whether the amount (or lack) of slack in important areas of the system - primarily income and health care, but others too - can cope with this shock.

by jtdev 7y ago

Seems like maybe there are systemic issues with the economy...maybe concentrating wealth in the hands of so few doesn’t make for a robust economy that can handle some punches.

bravo22 7y ago

Unless they're stuffing their wealth in mattresses that wealth is spread everywhere in economy. Also a lot of that wealth is based on market value of assets which ebb and flow and inflate and crash. It is not based on sucking cash out of the economy. Put another way, the economy is fucked but a small % are able to inflate the market value of their assets.

GuiA 7y ago

This isn’t “some punches”, this is one of the biggest pandemics in living memory and will be an event whose consequences will be felt for the years and decades to come. I’m not disagreeing with wealth concentration being problematic, to be clear.

lainga 7y ago

How does wealth concentration tie into the report's findings? What I saw was that most of the small businesses in the JPM report are operating on margins of a few dollars a day. That might be the consequence of competition, driving down prices; or, maybe broadly high confidence in market stability -- whether reasonable or not -- lowering the level of caution small business owners thought they needed to take. But I'm not sure how it relates to wealth concentration.

Mathnerd314 7y ago
As I see, it means small businesses are getting squeezed too, just like poorer individuals who also have small cash buffers. It's possible to interpret this as economic efficiency, but it is efficient in the same way communism is efficient, i.e. efficient at misallocating resources. Tight budgets are like tight rubber bands and if there's enough stress something will break. I think that's enough terrible analogies, you get the point.

clairity 7y ago

yes, slack in the economy (in forms like cash reserves and inventory) provides robustness and resiliency, but our financial sector has mined it for the benefit of the wealthy and to the detriment of the rest of us. it's yet another reason to revise policy to move us (back?) toward a better balance. for instance, we need to allow all kinds of businesses to (live and) die, and also provide a robust safety net so people can try ideas big and small without being left destitute upon failure. then they can pick themselves up and try again. capital then flows to find the best ideas because we're allowed to try more of them. instead we get stupid capital gains & inheritance tax rates that mainly benefit the already wealthy and blunt capital's edge.

ttul 7y ago

Let me illustrate with an example. A colleague operates a company doing about $10M in annual revenue. Due to stay at home orders, his business has completely failed. A very wealthy minority shareholder who lent the company some funding last year is now going to do a debtor-in-possession financing and will end up owning the whole thing. The founder, who is not wealthy, will lose everything. The rich man will gain everything. Once the pandemic is over, the company will return to normal. The rich just got richer, folks.

cm2187 7y ago
I think it rather says that the more you leverage, the more risk you take, the less you can survive hard times. Same story with the Private Equity Funds industry.
lainga 7y ago
That raises a good question: what proportion of small businesses (SBA definition or JPM's sample definition) have shareholders? Vs. being sole proprietorships or partnerships?
vsareto 7y ago
>Once the pandemic is over, the company will return to normal. I wouldn't say that. Your employees who did the work and had tribal knowledge are now gone. If they didn't document something, it may not be found for a good while. Point is, it might take a lot of work to get it back going. Or it's as easy as putting some equipment on firesale and shredding everything else.
perl4ever 7y ago
I see this as an inevitable consequence of the fact that most small business owners assign a large value to the intangible of "being your own boss" not to mention the potential for wealth, and this drives everyone to have no margin for downturns. I mean, think about restaurants. Who starts a restaurant because they think it's the easiest way to make a dollar? The very fact that many people want to do something for reasons other than sheer profit means that profit will be driven below normal which will cause pain over time. What can the rich do to prevent this? Unless they got together and eliminated the ability of the non-rich to seek wealth. Sometimes, that's the conclusion elites reach about things; they do it to some extent. Like the way in the US you have to be a "qualified investor" with a certain amount of assets to invest in unregulated securities.

danans 7y ago

This is a real time experiment in progress. People across the globe are watching how the distribution of wealth in each country relates to the economic effects of this. There are a lot of confounding variables, some more related to wealth distribution (i.e. universal healthcare vs not), and some less related (timeliness of local authorities and government reaction). At the individual household level in the US at least, household savings are very low among large segments of the population (because of high wealth disparity), so there is very little to fall back on for most people. Depending on the length and severity of the pandemic, the 2T relief/stimulus bill may not be enough. Overall, this is a huge test for how whether the amount (or lack) of slack in important areas of the system - primarily income and health care, but others too - can cope with this shock.