Monday, September 03, 2012

Labor Day

Lately, I have been thinking about how there are two basic ways to make money.  One is by working.  The other is by investing.

Working is the more obvious way to make money.  Not all work makes money, of course.  But we tend to assume that peole who have money get it largely by working for it.

Investment, however, is a strange case:  if you have extra money you do not immediately need, you can invest it, and by investing it, potentially get even more money without having to actually work for it yourself.  Even more amazingly, this extra money you do not have to work for is taxed at a lower rate than the money you actually work for.  This means that if you already have more money than you really need, you can use it -- instead of your working -- to make even more money.  The money is still produced by work, but it is other people's work.  Because you are taxed at a lower rate by not working for it yourself, you can then make more money faster this way than if you just worked for it.

The very wealthy have such huge amounts of money that these amounts are almost inconceivable to the rest of us.  I think money just means something very different to them than to those in the middle and lower classes.  For the middle and lower classes, money is largely about survival and a little about access to meaningful opportunities and experiences.  For the very wealthy, I think it other meanings are at play as well, although I am not sure I know what those are, but I think they have something to do with security, status, influence, and maybe also protecting themselves from having to see what poverty and desperation look like.  And I also have come to think that money that goes to the rich does not trickle back down:  those huge amounts rotate slowly in some upper stratosphere largely inaccessible to the rest of us.  The super-rich pay each other, and largely do not touch the economy of the middle and lower classes, except to draw more money away from them and into their own pockets.  After all, the rich are getting richer, and the poor are getting poorer -- obviously it is a "sucking up" economy instead of a "trickle down" system.  If "trickle down" economics worked, the disparity between the rich and the poor would not be growing.

A famous wealthy person about a year ago invested $5 billion in the Bank of America.  Suppose you manage to save $50,000 per year (unthinkable for most Americans).  It would take you 100,000 years to save up enough to do the same!  Even if you could save $500,000 per year, it would still take 10,000 years.  Or, if you could save $5 million per year, it would still take 1000 years.  Even Old Testament Biblical figures did not live that long!

So, my question on Labor Day is why we have created a system that allows some people to benefit enormously from other people's labor, while those who actually labor struggle just to survive?

1 comment:

  1. You might want to consider the contention of a number of significant economic thinkers, most notably Henry George, that there are in principle three "basic ways to make money," not just two.

    Accepting rent on land or other natural respources is itself neither return on capital nor a wage for labor.

    I resisted this thesis for a long time, perhaps just for reasons involving my own ideological blinkers, but I must admit it has grown on me over the years.



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