That’s not how investment works. Corporations were invented to mitigate and diffuse risk. Even single-owner, privately-held companies mitigate risk for their founders. The vast majority are LLCs: Limited Liability Corporations - it’s right there in the name. The owner is only ever out their investment. Only an idiot puts their last dime in their business. When it gets tight, they look for investors.
This is really simple math. A middle-class family puts pretty much every bit of their earnings into the economy. Some have savings, but it’s usually earmarked for retirement, and these days few even have enough to finish retirement with any leftover to pass along. In contrast, billionaires sequester vast sums of money away from the economy. Investment is less valuable to the economy than expenditures, as evidenced by and enabled with the derivatives market.
The massive derivatives market is entirely separate from investing money in companies or people. It’s just a big casino - with the caveat that both the players and the house win. The only way derivative investments win is by skimming off the “real” economy. The biggest example of this is the 2008 global financial crisis. At the end of the day, both the bankers and investors won due to the bailout, while the people who lost their homes and their life savings lost.
Who’s taking a “bigger” “risk,” Elon Musk putting half a zillion of his zillion dollars in a crazy scheme to send pickup trucks to Mars, or somebody weighing whether to buy a bus pass at the beginning of the month and maybe running out of food money before the end?
The whole discipline of economics is a nonsensical pseudoscience
This is an oversimplification on your part. While true that corporations both C-Corps and LLCs were created to reduce risk. They do not altogether eliminate risk. One of the biggest benefits of the LLC and the C-Corp is that if the company goes under and cannot meet its financial obligations, creditors have a much harder time going after owners personal assets. I’ll give you that but nevertheless, money and time invested in any company involves some risk, in some cases it’s more than others. For example, a potato farmer stands the increased risk of his/her/its crop not yielding expected returns, whether that be due to whether, pests, or other than say does a person who goes to work from 9 to 5, who is a lot less likely to lose their paycheck. That does not mean that person working from 9 to 5 doesn’t face any risks either. Risk is the possibility that am undesirable outcome will occur. For a person who goes to work every day to recieve their paycheck there is the risk that they may lose their job, may get injured, or perhaps even get in a wreck that could put them into further or even crippling debt.
All people face risk. Some face more than others.
As for your comments on the derivatives market, you’re looking at people making increasingly more speculative bets and practicing the castle in the air theory of investing. Many of those were driven by greed. To again say that derivatives markets have no economical value is again, I think to broad of a statement. For example, going back to the farmer, who we all rely on to provide us and others with food. If he/she/it is exporting some of their crop to a foreign country, they have to face the risk that foreign exchange will be less favorable than today. To reduce that risk, that farmer will buy a forward exchange contract, setting their future exchange rate. Thus, if the exchange were to become unfavorable in the future, the fast still gets his/her/it’s expected return.
I’m not saying that greed which often runs rampant in the markets is ok. That creates wealth at the cost of others wealth, which is part what we saw in the housing market crash of 2097 & 2008.
Also, I want to first apologize for my grammatical errors. Second, I want to thank those who have been making comments on my comments. I appreciate you critiquing or challenging my ideas and not me personally. I have found this open dialogue to be both informative and helpful in working through these issues. I welcome anymore feedback anyone would like to give me. Thanks again everyone for the cordial replies.
But any person who could afford to lose 99% of their worldly assets and still live out the rest of their life in incredible luxury doesn’t face “risk” in any sense of the word that ordinary people could possibly relate to.
I’m starting to get irritated. What is the difference between that and the time and money the worker puts into their job?
If you’re not familiar with the state of insecurity that most workers in the US face, then you’re REALLY uninformed. For instance, a construction worker in Detroit might work 60 hours a week. But they have to find transportation to the job site on their own, and carry their own tools (not really feasible on the bus). Car insurance in Detroit averages $6000/year. Compare that to the $800/yr national average.
So, I’ll just say bullshit. People who work their ass off live in a constant precarious state, while people who inherited $999,999 proclaim their superiority because they are millionaires.
The derivatives market isn’t the root cause; it’s the symptom. Income from labor has been flat since the late '70s. Rate of return from capital has been higher, but itself started to plateau as typical stock market investment reached diminishing returns. As a result, capital sought a new level of abstraction from the actual make-widgets-and-sell-them economy, and found derivatives. At that level of abstraction, money is truly sequestered from the economy. It’s no longer buying and selling things of value, or even trading markers that represent the buying and selling of things of value, but rather placing bets on the performance of the markers already one level of abstraction from the trade of goods.
All that money just floats around out there while it would be much, much more valuable to the economy being spent by people to buy things. Things made by other people. That’s trade. It puts food on peoples table, as opposed to the wealth of billionaires, floating in an imaginary hedge cloud, being used to keep score.
I don’t disagree with you. At that point risk is a lot less. As an example, I was thinking about building a movie theatre in a town where I thought there was a great opportunity. However, I still have a ton of student debt and would have had to take on millions of dollars of debt. Let’s just say I didn’t get very far into my research before I realized such an investment could destroy us. For billionaires, my risk I was facing would be very minimal or possibly almost zero to their way of life.
I’m only saying this so you know I can understand what you mean. I agree with you.
The key here is, how much extra? The average multiplier of CEO pay compared to their average worker is 300x. I challenge you to find a CEO who earns 300x the value of the average worker of the company.
I’ve worked with engineers and technicians who are true artisans, who not only invent things but invent completely new ways of doing things. They are the only people who do what they do, and provide more irreplaceable value to the company they work for than any Harvard MBA on the planet. The ratio of CEO pay to artisan is still 300:1.
And CEOs aren’t even the worst example. They are plebs compared to the kind of wealth we’re talking about.
That’s the fundamental problem. And it just keeps getting worse.
Also, only the latter are really permitted to take speculative high-reward gambles that offer some degree of investor protection. For venture capital, hedge funds, some REITs, the price of entry is at least $1-million in the bank plus whatever you want to actually invest. This rule is in place for very sound reasons, but it also means that the vast majority of people couldn’t take the risks that their bootstrappin’ risk-taking job-creatin’ heroes do even if they were so inclined (although there’s still plenty of room for them to lose everything they have on other entrepreneurial investments).
You say I don’t know what it’s like. I do. I work close 40 to 60 hours a week. For the money I earn before that I worked my butt off 12 hours a day for a meager wage. If you think I don’t understand you are absolutely wrong. While, I am ok with open dialogue I draw the line when you start attacking me. So this is my last response to you. Be polite. We may have differing views and I am open to your ideas to see if there are flaws in my logic, that doesn’t mean either is stupid.
And yet, you still have time to do pro bono work for people who work less, and get more.
The super-rich have never dedicated 25 hours a day to their pursuits, and you’re also never going to win an hours worked a week contest with someone who really works.
I’m not defending them, necessarily. I am defending the small business and medium business owners who sometimes make it big. I don’t know what to do with Billionaires, I accept that, but it started feeling like people were going after all business owners. I was defending the business owners that provide the majority of the jobs. Small and medium business owners.
Thanks for the clarification. Yeah, I don’t think you’ll hear a whole lot of criticism of mom-and-pop hardware stores here, or even a video game developer who developed a kick-ass game.
But that’s not the topic of the OP, and it’s not at all what R_T was violating the sites’ guidelines over.
The big thing to me, is, there’s nothing inherently more or less valuable about a custodian’s time than a billionaire’s. There’s nothing inherently more or less valuable about their lives. Yet our society doesn’t operate that way; our economy doesn’t operate that way; our justice system doesn’t operate that way; and our government doesn’t operate that way.
That has to change if we make any claim to being just or equal.
Ok. I get that. My misunderstanding. And my apologies. When I feel like someone is calling me stupid I overreact sometimes.
In all honesty I don’t know what to do about the growing gap between the the rich and the poor. I don’t know if a wealth tax is the answer but I don’t have any idea what would be the right solution.
It was already rare and a matter of luck that an SMB would become a large enterprise before we were into late-stage capitalism. These days, billionaire monopolists and predatory investors make sure that it’s even more difficult for that to happen – especially if the entrepreneur isn’t starting out with at least top-decile social and financial capital.
Unless one is willing to abandon the core fantasies sold by neoliberalism (or at least to acknowledge them as fantasies), it’s very difficult for one to understand these hard facts and allow for the fact that no-one needs or particularly deserves to be a billionaire. The sad fact is, though, that a great number of non-HNWI Americans who pale at the thought of Warren’s wealth tax or Sanders’ highest-bracket rate just aren’t that sophisticated about business and finance and economics.
Recognizing that it’s a problem is important. That helps shape who we listen to. Even among the Democratic candidates for Prez in 2020, there’s really only two of them who even talk about inequality as a problem.
