The Upward Mobility Myth

[arnegrim]

(I'm addressing your previous post as well)

Economic activity involves far more than simply spending money. What it is spent on, who benefits from the purchase, etc.

Unwise business/consumer decisions are not automatically beneficial. Quite to the contrary.

Two unrealistic, extreme examples can illustrate this point:

If the wealthy spent every last penny they owned on diamonds, the economy would collapse. We would end up with a world of starving people, and a bunch of rich people with diamonds.

And what makes you think the diamond market won't collapse making EVERYONE poor?

If everyone hired their neighbor to sing to them each morning, and spent all their money on this, we would have economic activity which included people singing and passing dollars back and forth among each other.

Yes, these are crazy examples, but it illustrates that what is done with the money is important; far more important than just spending it.

And then people would move to listen to a neighbor who could carry a tune instead of the one they have now which would simply create a new capitalistic system based on singing...

 

[arnegrim]

I'm not assigning fault, as you seem to be implying. If I'm not strong enough to lift a certain weight, is it my fault, or is it just a fact of life?

There are certain economic facts that aren't anyone's "fault." It is just a result of the implemented system.

As I stated previously, resources are limited. There is only so much to go around. The wealthy are not only better positioned to compete, but they have control of the very resources that we all compete for.

A simple example:
We have a business owner and several employees. The owner owns the capital. He controls the resources, outside of labor (which he has a huge upper hand over). These employees may wish to own the company themselves, or become part owners, but it is beyond their capability to do so without the owner's participation. The owner has complete control of the situation, and unless he decides to sell, the workers are forced to either accept their position or become unemployed.

This is a simple closed system example to make a point. I realize the reality is much different, but for this example, the workers cannot find other employment. The workers could band together and start their own company, but considering the owner's capital investment represents the equivalent of several lifetimes earnings of all the workers, this is an impossibility.

Resources are limited. We all compete for those resources. Those that control the resources are in a position to not only retain them, but to acquire more.

Very different.

How did that owner come into the capital necessary to start that business? What is stopping the workers from doing the same?

 

[HouseApe]

And they hire captains... yard workers... maids... nannys... construction workers... etc etc etc

The objective is to grow wealth. That is done by providing new products to the market or increasing productivity through technology or improved business processes.

I hope you can see why the hiring of captains, yard workers, etc... doesn't do that.

 

[nvxplorer]

No it's not! Your grandfather had as much opportunity to make that $20 million as theirs did... but he didn't. You have as much opportunity to make that $20 million as their grandfather did... will you?

Its like a 20 year old being upset at a Vietnam vet for having so many medals and they don't... if you want the medals, go out and earn them, don't hold it against those who did it in the past and benefit from it!!!

You're missing the point again. The grandfather is irrelevant. Also, the number of people who earn $20 million in a lifetime is infinitesimal. To say I have as much oportunity as such a person is fallacious. Just because one person made a fortune does not mean everyone can. The number of variables involved in earing $20 million dollars is so great, that any attempt to say any two people have the same opportunity is beyond oversimplification. The only people who succeed with get-rich-quick books are the authors.

Back to the point. If amassing a fortune were a crapshoot, as you are implying, we would see equal numbers of people going from nothing to $20 million as we see people go from $20 million to $40 million. We don't see this. We see the opposite.

Earning that amount of money takes a combination of luck, sound business decisions, and perhaps some unscrupulous behavior, not to mention connections with influential people. It is a fallacy to say every person has these at his disposal. The era, geographical location, economic conditions, governmental regulations; all these play a huge part. THe person who inherits the money has the advantage of being related to this person. He starts out way ahead of the game. How can you say someone with nothing has the same opportunity as someone with $20 million?

 

[nvxplorer]

Very different.

How did that owner come into the capital necessary to start that business? What is stopping the workers from doing the same?

It's irrelevant, arnegrim. You're not following what I'm saying.

What happened in the past doesn't matter. What matters is the present situation. Whether the owner stole the money, earned it or inherited it is entirely irrelevant to my point.

I stated why the workers couldn't do the same. Gather all your friends, count up all your money, and offer that sum for the purchase of General Motors.

 

[nvxplorer]

And what makes you think the diamond market won't collapse making EVERYONE poor?

???

And then people would move to listen to a neighbor who could carry a tune instead of the one they have now which would simply create a new capitalistic system based on singing...

People can't live off songs. That was my point. People need food, shelter and clothing to survive. A system where all people did was sing would see people starving to death.

My point was on how money is spent. Just because someone is passing dollars to someone else does not mean a beneficial economic activity took place.

 

[arnegrim]

The objective is to grow wealth. That is done by providing new products to the market or increasing productivity through technology or improved business processes.

I hope you can see why the hiring of captains, yard workers, etc... doesn't do that.

Here is what was said...

But taking the money and investing it in some new, valuable product creates new jobs and new wealth to be shared by new employers and employees alike.

Hiring workers creates new jobs... new employers... and new employees...

 

[arnegrim]

You're missing the point again. The grandfather is irrelevant. Also, the number of people who earn $20 million in a lifetime is infinitesimal. To say I have as much oportunity as such a person is fallacious. Just because one person made a fortune does not mean everyone can. The number of variables involved in earing $20 million dollars is so great, that any attempt to say any two people have the same opportunity is beyond oversimplification. The only people who succeed with get-rich-quick books are the authors.

Back to the point. If amassing a fortune were a crapshoot, as you are implying, we would see equal numbers of people going from nothing to $20 million as we see people go from $20 million to $40 million. We don't see this. We see the opposite.

Earning that amount of money takes a combination of luck, sound business decisions, and perhaps some unscrupulous behavior, not to mention connections with influential people. It is a fallacy to say every person has these at his disposal. The era, geographical location, economic conditions, governmental regulations; all these play a huge part. THe person who inherits the money has the advantage of being related to this person. He starts out way ahead of the game. How can you say someone with nothing has the same opportunity as someone with $20 million?

Its NOT a crapshoot... I never implied that it was... in fact, just the opposite! If you are willing to do the work, put in the sacrifice, you can earn it. Period.

What does it matter if someone inherits $20 million? That has nothing to do with upward mobility. The person who worked to earn the $20 million in the first place is the example of upward mobility... the person who looks at the rich person and claims an uneven playing field is a refusal to understand the whole picture.

You point at the rich heiress and claim 'foul'... I point at the grandfather who earned it and say 'see... it can be done!'

 

[arnegrim]

It's irrelevant, arnegrim. You're not following what I'm saying.

What happened in the past doesn't matter. What matters is the present situation. Whether the owner stole the money, earned it or inherited it is entirely irrelevant to my point.

I stated why the workers couldn't do the same. Gather all your friends, count up all your money, and offer that sum for the purchase of General Motors.

Start a new auto business.

Build your own GM. It didn't start with millions. Why in the world would you expect to have what they have now without doing what they did to get there?

Ransom Eli Olds, whose ancestry stretched back to Puritan-era New England, was born in Geneva, Ohio, on June 3, 1864. His father, Pliny Fisk Olds, was at various times a blacksmith, manager of an ironworks facility, farmer, and pattern maker before moving to Lansing, Michigan, and opening a machine shop when "Ranny," the fourth of his sons, was in his teens.

 

[arnegrim]

People can't live off songs. That was my point. People need food, shelter and clothing to survive. A system where all people did was sing would see people starving to death.

My point was on how money is spent. Just because someone is passing dollars to someone else does not mean a beneficial economic activity took place.

You're assuming that those to whom the money was passed along to do nothing with it...

 

[nvxplorer]

You're assuming that those to whom the money was passed along to do nothing with it...

Yes.

You're making it too complicated, arnegrim. It was a simple example to illustrate that money can be wasted. Perhaps I should have worded it that way, as everyone understands the term "wasting money."

HouseApe made a good point about economic growth. Simply passing money back and forth does not stimulate economic growth.

 

[arnegrim]

Yes.

You're making it too complicated, arnegrim. It was a simple example to illustrate that money can be wasted. Perhaps I should have worded it that way, as everyone understands the term "wasting money."

HouseApe made a good point about economic growth. Simply passing money back and forth does not stimulate economic growth.

My point is they do.

They hire people who would otherwise not have work... they build houses built by people who would otherwise not have work... they go on vacations to areas that depend on tourists for work... they do not sit on their money and become recluses... they spend it! Many even build businesses... or expand existing businesses... which in turn hire workers...

 

[nvxplorer]

Hiring workers creates new jobs... new employers... and new employees...

Without economic growth, it does not. It simply shifts them. It's too complicated to go into here, but if you're seriously interested, there are many economic primers available on the internet, or you could take a class.

I ask you to trust me and HouseApe on this. It is indeed true.

 

[arnegrim]

Without economic growth, it does not. It simply shifts them. It's too complicated to go into here, but if you're seriously interested, there are many economic primers available on the internet, or you could take a class.

I ask you to trust me and HouseApe on this. It is indeed true.

You want me to believe that a rich person who hires someone to do a job is not creating a job?!? Or that NOT having an 'upper class' will spur economic growth?!?

 

[nvxplorer]

Its NOT a crapshoot... I never implied that it was... in fact, just the opposite! If you are willing to do the work, put in the sacrifice, you can earn it. Period.

What does it matter if someone inherits $20 million? That has nothing to do with upward mobility. The person who worked to earn the $20 million in the first place is the example of upward mobility... the person who looks at the rich person and claims an uneven playing field is a refusal to understand the whole picture.

You point at the rich heiress and claim 'foul'... I point at the grandfather who earned it and say 'see... it can be done!'

I'm not crying foul, and you are indeed implying a crapshoot. You are also ignoring the fact that resources are limited, and we all compete for those resources.

The annual GDP for the US is ~$12 trillion. That's it. Twelve trillion dollars. Without economic growth there will always be $12 trillion worth of economic activity each year. There are 300,000,000 people in the US. Let's say 200,000,000 of them are working age. Simple arithemetic will tell you that all 200,000,000 cannot earn more than $60,000 per year. That is the average, therefore, for someone to earn more than $60,000, someone else has to earn less. Do you see how it works? This is economic fact. It cannot be argued differently.

Now, creating wealth is something entirely different. That is economic growth. There are limits to this growth, however, and if it occurs too rapidly, it can be harmful. A reasonable rate of growth is around 6 or 7% per year. Do the arithemetic, and you will see that even with this growth (which is not guaranteed), it is impossible for everyone to earn $1 million per year. It is an impossibility. It has nothing to do with drive, education, luck, anything else. I repeat, resources are limited. Economics deals with how those resources are distributed. You can't distribute resources you don't have. We all compete. There will be winners and losers.

Try this one:
We have one pie. You and I compete for the pie. The pie has six slices. You can see that there are a limited number of possibilities for how the pie gets divided between us. Regardless of the technique used to compete - brute force, negotiation, rolling the dice - it would be impssible for each of us to walk away with four pieces. Clear? If you got four, and I got two, you can't say, "do what I did and we'll both have four."

I'm sorry if this sounds like an economics lesson, and I'm a lousy teacher anyway, but you're misunderstanding some basic economic principles. I'll leave it here, as we don't seem to be communicating well (my fault), but I advise you to investigate the field of economics if you're truly interested.

 

[arnegrim]

I'm not crying foul, and you are indeed implying a crapshoot. You are also ignoring the fact that resources are limited, and we all compete for those resources.

The annual GDP for the US is ~$12 trillion. That's it. Twelve trillion dollars. Without economic growth there will always be $12 trillion worth of economic activity each year. There are 300,000,000 people in the US. Let's say 200,000,000 of them are working age. Simple arithemetic will tell you that all 200,000,000 cannot earn more than $60,000 per year. That is the average, therefore, for someone to earn more than $60,000, someone else has to earn less. Do you see how it works? This is economic fact. It cannot be argued differently.

Now, creating wealth is something entirely different. That is economic growth. There are limits to this growth, however, and if it occurs too rapidly, it can be harmful. A reasonable rate of growth is around 6 or 7% per year. Do the arithemetic, and you will see that even with this growth (which is not guaranteed), it is impossible for everyone to earn $1 million per year. It is an impossibility. It has nothing to do with drive, education, luck, anything else. I repeat, resources are limited. Economics deals with how those resources are distributed. You can't distribute resources you don't have. We all compete. There will be winners and losers.

Try this one:
We have one pie. You and I compete for the pie. The pie has six slices. You can see that there are a limited number of possibilities for how the pie gets divided between us. Regardless of the technique used to compete - brute force, negotiation, rolling the dice - it would be impssible for each of us to walk away with four pieces. Clear? If you got four, and I got two, you can't say, "do what I did and we'll both have four."

I'm sorry if this sounds like an economics lesson, and I'm a lousy teacher anyway, but you're misunderstanding some basic economic principles. I'll leave it here, as we don't seem to be communicating well (my fault), but I advise you to investigate the field of economics if you're truly interested.

http://www.gherrity.org/gdp.html

 

[mnphysicist]

Start a new auto business.

Build your own GM. It didn't start with millions. Why in the world would you expect to have what they have now without doing what they did to get there?

A lot of folks equate success with luck, and connections. Not so.

The connections are easy, whether it be a CEO, VC, angel invester, or business advisor. I know a 13 year old kid, that impressed the heck out of me. He has no wealth, his family is very poor, he had no personal connections with influential folks, and lives in a small rural community. However, I met him, and we talked for a bit, and I was so impressed, I made an investment in his future. I am not the only one, he now has connections with senators and congressman in Washington DC, and a number of high level CEO's providing far more connections, and financial backing as well. Luck has nothing to do with it. Passion does, and that will drive one to do what it takes, and to accept over 638 rejections before getting one afirmative response. Most folks will quit tryng before they even reach 50 rejections.

Now as far as luck goes. I have another friend, who road out the dot-bomb era and ended up loosing everything. CEO to homeless.... he is coming back with a vengence. He will go far beyond the millions he had years back. It is this persistence, passion, and drive that will bring success to him sooner or later. It may take more failed businesses, and bouts in the street, otoh, if one of his ventures becomes the next Sony, his peers will say it was luck, rather than years of 24/7 hard work, and determination. Its not, its learning from ones mistakes, and continuing to go forward.

As far as GM goes.. unless they change course soon, who knows, a bunch of workers just might be able to buy them out. Otoh, there is nothing to keep a startup car company from surpassing GM. It may take 50 years, and a lot of failure on the way, but it can happen. Just look at Toyota, Honda, and Nissan. They rose from the ashes of WWII, were not taken seriously at all until the late 70's. And now, GM is teertering precariously, while Asian car companies seem to be holding their own, and capturing more market share all the time.

Ron

 

[nvxplorer]

You want me to believe that a rich person who hires someone to do a job is not creating a job?!? Or that NOT having an 'upper class' will spur economic growth?!?

Yes that is a fact. What I said is without economic growth, the jobs are just shifted. I don't understand your second question.

The government publishes job creation numbers each month. Between 2001 and last year(?), not a single new job was created. During that stretch, millions of jobs were in fact lost. Just because the corner store hires a new clerk does not mean he is creating a job - macro-economically speaking. Since many people had lost their jobs during the recent recession, the store may be hiring someone who was laid off. See? The job was just shifted from one company to another. Nothing was created.

 

[nvxplorer]

http://www.gherrity.org/gdp.html

Thanks for the graph, but it only goes to 1993. What is your point in posting it?

 

[arnegrim]

What does that have to do with upward mobility?

BTW... IIRC we are on the positive side now as far as 'job creation' from 2001 on...