How’s this for a business plan:
I’m a credit card company. Market research shows me that a sizable number of people use credit cards as a convenience and pay off their balances monthly. I make money that way – I charge merchants a fee for each purchase. Merchants are OK with it, as people tend to spend more money when they use credit cards versus cash.
But it’s not enough. I want more. There’s a market niche out there that I need to exploit -kids. I will have my marketing department get hold of the names of all kids graduating from high school each year, and I bombard them with offers. Parents might object, but the kids are 18, legal adults, so screw the parents.
Enough of these kids sign up for cards (I’m bombarding college campuses too), and few of these kids know anything about compound interest. They are on tight budgets … they are young, and I know they are going to do some impulsive spending. I’m going to make it easy for them. Then I’m going to make their minimum monthly payments so low that it’s like a siren song – don’t pay me off… don’t pay me off… Kids will run up balances.
Here’s the hook. My interest rates are so high that most of the minimum payment I charge is interest, so the balances aren’t paid down. Pretty soon these kids will lave large balances, and will be making interest payments to me in the area of 22-29% per annum (usury laws are a thing of the past – I had something to do with that.)
It’s beautiful. I have staked a claim to a portion of these kids’ income now and for years to come. They’ll be working their low-pay jobs, and I’ll be siphoning off a good cut for myself. I’ll spend my idle time thinking up new ways to charge them more – excessive late payment fees, jacking up interest rates if they are late on a phone bill – any way to squeeze an extra buck out of them.
The flow of wealth is upward. I’ve staked a claim to the wealth produced by the lowest wage earners among us.
Congress is timid – I’ve bought most of them. But a few of the more recalcitrant ones might suggest laws that prohibit me from marketing to kids (and the elderly – my other lucrative market). They might even suggest usury laws. I’ll put a stop to that. Thanks be that there are only a few people in congress that I don’t intimidate.
Ah, human weaknesses to exploit. It’s what I do. I love it. Greed is good. It’s a wonderful life.
Education Note: Kids should not leave high school without having learned something about the dangers of credit cards and compound interest. It’s the least they can do for the kids.
Piece of Mindful 
The Reagan Revolution lives on.
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Congress should clamp down on predatory lending by credit card companies for the mere fact that when people default on loans or credit card payments it hurts us all. I understand everyone makes mistakes, but it’s no excuse to be both young and stupid when it comes to money or more illicit stuff.
Sometimes I think about ways to part idiots from their cash. Say, start a pyramid scam or form my own religious cult. But, then the conscience kicks in and I get distracted. Suffice it say, I’m not a rich man… yet.
You’re correct, Mark. Every kid should leave high school able to balance a checkbook and understand how a credit card works. Unfortunately our own government can’t balance its own checkbook. We are poor role models.
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In matters of personal finance you seem pretty…conservative. Good man. Now if we can just get you to see the light in political economy…
After you slay the dragon of credit cards, you can start in on casinos and pawn shops. Bring a lunch.
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And the lottery – a tax on people who are bad at math.
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And the lottery – a tax on people who are bad at math.
Well put. But at least the lottery, credit cards, and pawnshops are upfront about their charges and have some immediate feedback. I’d like to see the federal government try an experiment where instead of withholding tax from paychecks, we paid everyone their full salary and everyone had to mail in their tax liability every month, just like a credit card statement. I suspect the perceived value of government is pretty low. I’ll explain to someone that they are paying 120% at a pawnshop, and they’ll say, “That’s okay. They need to make money, and they provide a service.” But when I point out that so and so is a GS 15 and making over 100 grand a year, they become outraged, “That SOB is dumber than me, he hardly goes to work, and when he’s there he doesn’t do anything productive.”
The flow of wealth is upward.
I don’t find this to be a compelling philosophy. I realize the anecdote of the chairman of Lehman Bros., but in general people are wealthier because they are more productive. The inventions and organizational ability of the few flow down to the rest of uis.
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The lottery and credit card companies play on people’s weakness and ignorance. There’s no “up front. Get real.
True to a degree, and I’ve never denied that. But even from the wealthier, more productive ones, the wealth they create still flows upward. They are smarter than average, and thereby able to grab and keep a larger share of it.
The average wage at Goldman Sachs in 2006 was $622,000. Show me one thing in your house that they produced. Oh, I know, you’ll say they are providing essential services that we cannot taste or touch – what you don’t see is that they are merely reallocating harvested wealth produced by others, repackaging it in exotic paper, and trading it back and forth.
The flow of wealth is upward.
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…lottery and credit card companies play on people’s weakness and ignorance…
Well, if you want to cast it that way. I suppose for that matter all of life plays upon our weakness and ignorance. Obama plays upon our weakness for a Messiah to get elected. Candy companies play upon our weakness for sweets. Women play upon men’s weakness for sex. The deal from lotteries and credit card companies are “up front” for those who care to look, as opposed to the deal we are getting from the Dept. of Energy, where few know where the money goes, and if more knew more would be upset.
The average wage at Goldman Sachs in 2006 was [some huge number beyond what they are possibly worth]
I point out that the wealthy largely drive our economic engine. That doesn’t mean I support everything done by the wealthy. I’ve long been uncomfortable with the structure of Wall Street and their skimming of the financial handle. I’ve likened it to fireman getting a percentage of the building’s value they save: you get more fires and inflated values of the buildings saved.
The flow of wealth is upward.
Part of this depends on how you do the accounting. Let’s say a bridge is built that adds 3 million dollars to the local economy from opening up access between two communities. Who gets the credit? The person who invented bridges eons ago? The people who invented concrete and steel? The engineers who designed the new bridge? The financiers? The workers who actually built the bridge? The businessmen who increased business? The workers in those businesses that did the increased work? If the financiers claim all the credit, the the flow of wealth is downward, since instead of claiming all the money, they let others have it.
Going back to Pareto distribution, we see that the lower quintile of the work force is an economic sink: they cost more to hire, cloth, feed, and service than they produce. (I recently read where 20% of the Swedish workforce is on full disability). The fourth quintile is a breakeven proposition. So right away we have a flow from the top 60% downward. You can maybe begin to make the case that within this top 60%, there is a flow upward, but keep in mind that 20% does 80% of the work, and that 1% pays 50% of the income tax.
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Your first comments remind me of Big Swede – off-topic and only slightly relevant and “that’s all you’re going to get from me, buddy – non sequiturs”.
The wealthy don’t drive our economic engine – they are merely positioned to reap the benefits. Some position themselves through deft maneuvering, understanding the game. Others are schooled into the ruling class, understanding their role is to live in service of wealth. Still more are merely born into wealth, leading to Ann Richards quip – “he was born on third base and thinks he hit a triple”. That’s the Bush family.
You’re right, of course, that the things we produce are a product of many human forces, from creativity to dull repetition to heavy lifting, use of powerful inventions and the vision to even dream of such a thing as a huge expanse of bridge. Your mistake is to attribute it all to a flow from up above, to worship wealth, to prostrate yourself and minimize your own importance. Each contribution has a value beyond which that contribution is paid until … you work your way upward, where you find disproportionate rewards, as those at the very top harvest what is produced below. That’s where Goldman Sachs come in – there’s no way those people are worth anything remotely close to what they collect. They are the economic sink – they are costing us more than a fortune to cloth and house and feed, as their demands are many. Their worth is negligible – they are an aristocracy of arrogant thieves, welfare queens wearing French perfume and sporting Italian loafers. They are why the colonies broke away.
The Pareto distribution is insulting and demeaning, likely invented by someone who placed himself in the upper quintile and spat on those below, who dredged up statistics to serve his advantage. It’s bullshit.
Before you fall back on the income tax distribution, you must add in the other income tax – they payroll tax. You still get a skew, but nothing like what you think. And remember, as you fawn about the problems of wealth, that no one is worth $20 million a year, and that people who collect dividends and interest and rent are not producing wealth – they are harvesting it.
I’m ranting – I find the arrogance and condescension of those who live off of the bounty of those below deeply offensive. These are people of little worth. Unlike you, I do not presume that they are worthy of their lofty perches. I find more human worth and dignity below.
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Pareto distribution isn’t the last word, but it captures something of how the world is delivered to us. We wear 20% of our clothes 80% of the time.
I imagine you would agree that not everyone is equal in talents and abilities. How else do you think it is distributed? I think it is useful to keep Pareto in mind when examining wealth distribution in a nation. If you reward your low achievers too much, the high achievers lose interest and the general good suffers. If you reward high achievers too much, you get revolts and mass emigration.
I find the arrogance and condescension of those who live off of the bounty of those below deeply offensive.
How about those below living off the bounty of those above? As a general rule, half the population doesn’t contribute anything. What claim do they have on those who produce?
The wealthy don’t drive our economic engine – they are merely positioned to reap the benefits.
In some cases. But you can’t make this claim based on a few examples, like Goldman Sachs, who I agree are overpaid. We depend on the inventions of a few, the organizational ability of the few, the leadership of a few. These high achievers probably aren’t the wealthy you are worried about, but in general they are rewarded for their output. A society that squelches the high achievers suffers for it.
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You’ve strung together some false premises and wrong conclusions and made them seem coherent. You’re in my world now. Watch out!
Care to quantify? On this side, we’re talking about a mere living wage – the ability of a working person to have a house and family, health care and savings. Is that too much? Seems it is, as those things are slipping away. These people are working very hard – I’m not talking about that class of lazy leeches. I’m talking about people who believe in work.
And what is too much? I wonder about these athletes who abscond from $60 million in Kansas City because New York offers $80 – what’s the difference? And our class of “entrepreneurs” are people, typified by Goldman Sachs, who destroy companies and have turned our economy into one where goods chase consumers, where we’re constantly yattled at to buy more, spend our earnings on crap. This is not what the Puritans had in mind. This is not good.
I hope, for your sake, that you’re talking about children and the aged. Otherwise, you’re nuts.
Atlas Shrugged? Rand’s mistake (one of many) was to presume that only a few are creative and productive, and that all the rest of us were living off them. Sorry – it’s a collaboration of many forces and millions of people, each contributing as able, some more, some less, but all needing each other. We’re interdependent. Rand was wrong as wrong can be.
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The wealthy don’t drive our economic engine – they are merely positioned to reap the benefits.
You’ve staked out a radical position that invalidates the contributions of wealth. You don’t have to be a slobbering libertarian to acknowledge that wealth has some contribution to the economic engine.
Each contribution has a value beyond which that contribution is paid until … you work your way upward, where you find disproportionate rewards, as those at the very top harvest what is produced below.
Not necessarily true. Many people are paid more than they produce up and down the economic ladder. You are complaining about Goldman Sachs. Fair enough. But there are gold brickers elsewhere. And the “harvesters”? The biggest one is government. They skim off far more than Goldman Sachs. And for what?
Care to quantify? On this side, we’re talking about a mere living wage – the ability of a working person to have a house and family, health care and savings. Is that too much? Seems it is, as those things are slipping away. These people are working very hard – I’m not talking about that class of lazy leeches. I’m talking about people who believe in work.
“Affordable family formation” is something I’m hearing more about. It tends to be easier in the more conservative parts of the country. The liberal enclaves on the east and west coast are more restrictive, with their higher housing and medical costs. The cost of living tends to rise over time. The key to continued prosperity is productivity growth. We’ve had that, but it has been outstripped by the rise in costs of health care and housing (plus a dilution of wages by illegal immigrants, but you don’t want to consider that, so we won’t.) If things are not as you want, I doubt it is because Goldman Sachs executives are hoarding money that would otherwise flow into the pockets of “your side”. If you kill the Kulaks, everyone is worse off. And lazy leeches are part of the equation.
And what is too much?
Chasing money is an end in itself. After a certain point, which isn’t very high, more money doesn’t bring more happiness.
Rand’s mistake (one of many) was to presume that only a few are creative and productive…
That wasn’t quite Rand’s message. Many can be productive and creative, but big creative jumps often come from the few.
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True enough, but the wealthy far overvalue their own contribution because … they can. And don’t forget the aristocracy – it’s not a small sector – inherited wealth, trust babies. I’ve been around enough of them to know that they tend to be overeducated and underproductive.
Best jobs program around? Highways. Government “skims” money and invests in infrustructure, creating jobs and societal wealth that in turn drives our economic engine.
Worst jobs program around? Gambling. Corporations skim money off and bank it, creating low-paying jobs and public health problems.
Rand wrote about concentrations of capital and industrialists, as if one man who owned a factory or a railroad made all the difference. John Galt was a literary device. She had him doing it all by himself. Not hardly. Railroads, for example, were a product of private sector ingenuity and labor and government subsidy. There are, as you say, creative jumps, like the Internet, and jet aircraft, and GPS, and … oh wait. That was government.
Flies all over your ointment.
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“Best jobs program around? Highways. Government “skims” money and invests in infrustructure, creating jobs and societal wealth that in turn drives our economic engine.”
Here’s an old economic jibe: Is it better to build widgets or to build machines that build widgets? Highway programs create work but don’t create sustainable jobs. Just a point.
Secondly, I don’t think you have read much of Ayn Rand. If you define her philosophy (Objectivism) by her fiction you’re way off base. The question that Atlas Shrugged poses is what society would be like if the transformative class went on strike from lack of incentive. It’s a good question. The answer is the Soviet Union.
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Ah contraire – highway jobs are the definition of sustainable. That’s just nuts.
And transformation has usually involved a good deal of subsidy, be it Gates or Hughes – the great inventions came about because of a larger engine that they merely harnessed. And that engine was subsidy, and the creative driving force often enough war, a collective and subsidized enterprise. Heck, there would not even have been a telegraph without grants from government, and computer and aviation technology came from the war enterprise. Collective, harnessed creativity.
In other words, if Gates and Rockefeller went on strike, someone else would step forward. The inventions were already there and only needed to be harnessed by the disciplined businessmen and accountants, who are never in short supply.
Rand got it wrong – she took the engine of prosperity – collective enterprise via subsidy and put it all on the back of a few men. Wrong, wrong, wrong.
The Soviet Union? Interesting place. Did a transformation take place in 1917, or merely a shift from Czarism to military dictatorship with little change in the character of the people. They, like us, built and empire around military hardware. They lacked our mindless consumerism, aka “freedom”. I’m not sure we’re much better than them.
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In other words, if Gates and Rockefeller went on strike, someone else would step forward.
Don’t be so sure.
The inventions were already there and only needed to be harnessed by the disciplined businessmen and accountants, who are never in short supply.
I think you have a simplistic notion of wealth creation. It is not entering numbers on a page.
Fidel Castro hated what he saw as easy, exploitative money in Havana gambling, and he made it a point of the Revolution to get rid of it all, with the vague notion that this wealth would flow to other areas of the economy. He ended up squelching most wealth creation in Cuba, to where they became “poor but happy”. You might like this model, and it works for Cuba, in a way, though there has been real hardship there for many. I don’t think everyone needs to get on board this ship.
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Rockefeller did not invent oil exploration, Gates did not invent the computer. Get real. Their skills were merely organizational.
Re Cuba …. there’s a rule at this website, and I’m invoking it here. You are not allowed to tut-tut the place without frequent use of the word “embargo”.
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Embargo. Every dysfunctional entity needs something on which to blame their problems.
Embargo. Is a token, like our drug laws or immigration laws. We’re Cuba’s fourth largest trading partner. Cuba can trade with any country on Earth. Name something for which they can’t trade.
Embargo. Could be ended at any time if Fidel mouths the right words to some state department bureaucrat. He should have taken some lessons from Yasser Arafat.
Embargo Is a good thing, from your point of view. Otherwise Nike would probably go down there and build a factory, thus exploiting their labor. Better that they stay pure from the taint of capitalism and just pencil in a living wage for everyone, stroll in the park, and play checkers.
Rockefeller did not invent oil exploration, Gates did not invent the computer.
No one said they did.
Their skills were merely organizational.
Precisely.
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Geeeod I love right wingers! Your hypocrisy is your greatest weapon. You believe in free trade. Righto. You believe in freedom of choice. Righto. You believe that countries ought to be able to form their own economic destiny. Righto!
The embargo is illegal, it is enforced – the US Navy patrols shipping routes to the island – they are far more concerned about people trading with Cuba than of the so-called “War on Terror”. And I suppose you’ve never heard of Helms Burton – the law that imposes sanctions on foreign countries that do business with Cuba. That too in enforced.
The embargo is illegal. I don’t suppose you care about that, you freedom lover, you. Half of the Cuban people think it is the main cause of their problems (3% think their problems are political according to a 1994 poll). People laugh at the old cars Cubans drive, yourself included, I suppose, freedom lover. What they don’t realize is that Cuba is not allowed to import cars – if foreign countries export to them, they run into sanctions in the US market.
Anyway, freedom lover, if the embargo ain’t working, like you suppose, then you should join us in efforts to lift it. Your love of freedom will impel you towards the cause of economic justice. Cubans should be able to trade with anyone they want. I know you agree with me on this. Otherwise, you’d be a hypocrite.
Sorry for the outburst, but sometimes you guys are just too much to bear. Good f****** grief.
Rockefeller started out as a bookkeeper.
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I love right wingers!
Thank you.
If you think the embargo is so tight, maybe we should have that crew run the embargo keeping nuclear technology away from Iran.
When Cuba lost their Soviet subsidy, Fidel eventually kicked open some entrepreneurship, and it worked pretty darn well. Later he reeled it back in. To blame everything on the embargo is naive.
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Fine. What I said was that you are not allowed to talk about Cuba here without mention of the “E” word. I trust you’ll abide by that rule. Otherwise, people forget that it’s been there for forty years now.
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Yes, Monsignor. I will include this in my prayers.
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