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"You cannot multiply wealth by dividing it."

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This is a spin-off from gsprofval's post: 5 Truths You CANNOT Disagaree With

in which 'truth' #4 is:

You cannot multiply wealth by dividing it.

If you have $100 then it makes no difference whether you keep it in a single account, or if instead you divide it, so you have $50 in one account and $50 in a second account.

If we now allow time to pass, and the interest rates on the accounts varies depending on how much is in the account, (for example, if you earn 5% on balances over $80, but only 2% on balances under $80), then it will make a difference.  However, as long as the interest rate is positive (and above the rate of inflation), your wealth will still be multiplying, even if you have divided it.

A better example than dividing it between different bank accounts in the same bank is moving half to a different bank, or putting half into the stock market.   If you do this correctly, you can get a higher return for the same level of risk (or a similar return, but for a lower level of risk).  Dividing wealth is often the sensible prudent thing to do.

On a different level, the same thing happens in families.   You could give all the wealth to the person you think it best at investing, but in the long run using that strategy it only takes one mistake and the entire dynasty's wealth is squandered.  A safer route is to divide the wealth among different family members, letting each increase the part of the pool they are responsible for, as best they can.  Some will fail, and some will do fantastically; and if you don't have a family full of fools, when it comes to divide things out among the next generation, the total wealth of the dynasty will have increased.

We can take this reasoning a step further.  It doesn't make sense, on a national level, to leave 80% of the country's wealth in the hands of only 20% of the population.  You'll get a better rate of return by spreading things out sufficiently for most people to stop living hand-to-mouth, buying things that are cheap rather than things that are efficient.

NOTE 1:

A $10 pair of shoes that lasts 1 year is cheaper than a $20 pair of shoes that last 5 years, but the latter is a more efficient use of money.

NOTE 2:

I made up the 20%:80% figure, because I can't remember the correct numbers off hand.

by on Feb. 8, 2013 at 3:33 PM
Replies (21-30):
Clairwil
by Gold Member on Feb. 9, 2013 at 11:26 AM
Quoting JakeandEmmasMom:
Quoting Clairwil:
Quoting DSamuels:

Quoting Clairwil:

It doesn't make sense, on a national level, to leave 80% of the country's wealth in the hands of only 20% of the population.  You'll get a better rate of return by spreading things out sufficiently for most people to stop living hand-to-mouth, buying things that are cheap rather than things that are efficient.

How do you think that should be changed?

Don't abolish inheritance tax.  The lower the inheritance tax, the greater the tendency for the wealth of a nation to concentrate in fewer and fewer hands, over several generations.

 What is an acceptable inheritance tax in your view?  I can't imagine that you are opposed to generational wealth.

Set it at a level that stops the GINI index getting worse over time.


Clairwil
by Gold Member on Feb. 9, 2013 at 11:28 AM
3 moms liked this
Quoting finnbar:
Quoting Clairwil:

It doesn't make sense, on a national level, to leave 80% of the country's wealth in the hands of only 20% of the population.  You'll get a better rate of return by spreading things out sufficiently for most people to stop living hand-to-mouth, buying things that are cheap rather than things that are efficient.

stealing is alway wrong and does not build up a society.

Tax isn't theft, because you gave your consent to be taxed when you agreed to obey the laws of the country as part of being a citizen of that country.

It is the social contract.

JakeandEmmasMom
by Gold Member on Feb. 9, 2013 at 12:01 PM

 

Quoting Clairwil:

Quoting JakeandEmmasMom:
Quoting Clairwil:
Quoting DSamuels:

Quoting Clairwil:

It doesn't make sense, on a national level, to leave 80% of the country's wealth in the hands of only 20% of the population.  You'll get a better rate of return by spreading things out sufficiently for most people to stop living hand-to-mouth, buying things that are cheap rather than things that are efficient.

How do you think that should be changed?

Don't abolish inheritance tax.  The lower the inheritance tax, the greater the tendency for the wealth of a nation to concentrate in fewer and fewer hands, over several generations.

 What is an acceptable inheritance tax in your view?  I can't imagine that you are opposed to generational wealth.

Set it at a level that stops the GINI index getting worse over time.

 

 Do you think it is possible to get people who are newly wealthy to agree to that?  In the US, it is already difficult for families to maintain their wealth past two or three generations.  But maybe on a macro-level that isn't necessarily a bad thing?

Clairwil
by Gold Member on Feb. 9, 2013 at 12:44 PM
2 moms liked this
Quoting JakeandEmmasMom:

In the US, it is already difficult for families to maintain their wealth past two or three generations.  But maybe on a macro-level that isn't necessarily a bad thing?

Correct.   If people had perfect equality of opportunity, then the child of a poor person would be exactly as likely to end up rich as the child of a rich person.

Perfect equality of opportunity probably isn't desirable, since being able to give your children an unequal (ie above average) opportunity is a useful motivating factor, but it is vital to avoid having a lobster-pot like poverty trap that only those with great skill, luck or determination can escape.

autodidact
by Silver Member on Feb. 9, 2013 at 12:48 PM

no, this refers to the 50's when the taxes were actually high.


Quoting pvtjokerus:

 I completely disagree with this.  Taxes have been climbing higher and higher for the middle class and small business and these people are hunkering down and not spending their monies like before.  Look at the holiday sales.  They were down.  Look at economic growth now.  It is down.


Quoting autodidact:

Expanding a business and hiring more people is a tax write off. No business owner uses an after tax write off to expand a business, but uses it to buy a boat, second house, send the kids to college, play in the stock market, or buy real estate, that inflates prices for everyone else. But when taxes were high businesses invested in themselves and used their money productively in the economy, hiring more people. Investing in their business increased the worth of that business when sold at a low capital gains rate.

http://www.thomhartmann.com/users/dan4liberty/blog/2012/08/californias-golden-age-high-taxes-and-greatest-growth








autodidact
by Silver Member on Feb. 9, 2013 at 12:51 PM


Maybe because she doesn't need your permission to post

Quoting finnbar:


oh really? which one?

why is she harping on the subject if she already has it?

Quoting Carpy:

She already lives in one of them.

Quoting finnbar:


the problem with your position is, stealing is alway wrong and does not build up a society.

just examine the OTHER countries who have tried this "wealth distribution" route, then do us a favor and MOVE TO ONE OF THEM

Quoting Clairwil:

This is a spin-off from gsprofval's post: 5 Truths You CANNOT Disagaree With

in which 'truth' #4 is:

You cannot multiply wealth by dividing it.

If you have $100 then it makes no difference whether you keep it in a single account, or if instead you divide it, so you have $50 in one account and $50 in a second account.

If we now allow time to pass, and the interest rates on the accounts varies depending on how much is in the account, (for example, if you earn 5% on balances over $80, but only 2% on balances under $80), then it will make a difference.  However, as long as the interest rate is positive (and above the rate of inflation), your wealth will still be multiplying, even if you have divided it.

A better example than dividing it between different bank accounts in the same bank is moving half to a different bank, or putting half into the stock market.   If you do this correctly, you can get a higher return for the same level of risk (or a similar return, but for a lower level of risk).  Dividing wealth is often the sensible prudent thing to do.

On a different level, the same thing happens in families.   You could give all the wealth to the person you think it best at investing, but in the long run using that strategy it only takes one mistake and the entire dynasty's wealth is squandered.  A safer route is to divide the wealth among different family members, letting each increase the part of the pool they are responsible for, as best they can.  Some will fail, and some will do fantastically; and if you don't have a family full of fools, when it comes to divide things out among the next generation, the total wealth of the dynasty will have increased.

We can take this reasoning a step further.  It doesn't make sense, on a national level, to leave 80% of the country's wealth in the hands of only 20% of the population.  You'll get a better rate of return by spreading things out sufficiently for most people to stop living hand-to-mouth, buying things that are cheap rather than things that are efficient.

NOTE 1:

A $10 pair of shoes that lasts 1 year is cheaper than a $20 pair of shoes that last 5 years, but the latter is a more efficient use of money.

NOTE 2:

I made up the 20%:80% figure, because I can't remember the correct numbers off hand.











susan115
by on Feb. 9, 2013 at 1:19 PM


I am sorry to tell you those numbers are skewed.  This started way before Reagan.  In the 1960's.  and no the top 1% maybe taking more, but so has the middle and bottom.  Many americans have made it into the top earners and many people from the bottom have made it into the middle and top.  If you go back further the top 2% have owned the majority of the wealth since the 1400's.  Now, the pie does get bigger when more people create wealth.  Example, is healthcare, healthcare is so much better today than it was in 1978.  Why, science got better, innovations kept improving, people got rich, yes poor people and middleclass, people lived longer and longer better healthcare.  Look at computers, many people became rich with different software designs, and all the technology. Hardwork brought people out of povery.  The vacuum cleaner was designed for the working people, look how it made your life easier, again made for the working, not the rich.  Reagan was a great president who had a vision for the country.  His vision "Government is not the solution"  Obama's statement in 2004 "the constitution does not state what the government can do".  The middle class and poor will do better with politicans who work for them, not themselves.  Lately, all we have are people who are jealous of what others have achieved and not willing to do the work to succeed.  How, did Obama become a millioniare?  He started out poor. 

Quoting mommom2000:

The facts are that this country does have a problem with the redistribution of wealth, and the rich are kicking everyone's ass in that war. It's not stealing to try to revive the middle class, policies can be changed that helps everyone in the economy, not just the top 2%.  It's policies since Reagan and the 80's that have allowed the rich to sky rocket while the middle class to decline. Since 1980 the top 1% have went from having 9% of all the wealth to 20% of all the wealth. The bottom 50% have 1% of the wealth..  When the top 1% keep increasing their share of income,  everyone else loses purchasing power.   In 1950 manufacturing use to account for 29% of GDP and financial services accounted for 11%. Now manufacturing is less then 12%, while finance is 20% higher then manufacturing, health, wholesale and retail combined. The richest 2% own 51% of the wealth. 691 people in the world now hold 51% of the worlds assets. With these staggering numbers policies should be helping the middle class, not the top, they don't need it.  With this economic model they are making out like bandits. Trickle down economics has been a huge success for the wealthy, and a failure for everyone else, yet the conservatives keep buying and selling this myth.  The numbers and facts don't lie, this theory has hurt 90% of the people in this economy.



autodidact
by Silver Member on Feb. 9, 2013 at 1:28 PM
2 moms liked this

pvtjokerus
by Gold Member on Feb. 9, 2013 at 1:29 PM

 So you are saying that this does not apply to now?


Quoting autodidact:

no, this refers to the 50's when the taxes were actually high.

 

Quoting pvtjokerus:

 I completely disagree with this.  Taxes have been climbing higher and higher for the middle class and small business and these people are hunkering down and not spending their monies like before.  Look at the holiday sales.  They were down.  Look at economic growth now.  It is down.

 

Quoting autodidact:

Expanding a business and hiring more people is a tax write off. No business owner uses an after tax write off to expand a business, but uses it to buy a boat, second house, send the kids to college, play in the stock market, or buy real estate, that inflates prices for everyone else. But when taxes were high businesses invested in themselves and used their money productively in the economy, hiring more people. Investing in their business increased the worth of that business when sold at a low capital gains rate.

http://www.thomhartmann.com/users/dan4liberty/blog/2012/08/californias-golden-age-high-taxes-and-greatest-growth

 

 

 

 


 

autodidact
by Silver Member on Feb. 9, 2013 at 1:29 PM


No I'm saying that when I posted refers to a period of time when taxes were actually high

Quoting pvtjokerus:

 So you are saying that this does not apply to now?


Quoting autodidact:

no, this refers to the 50's when the taxes were actually high.


Quoting pvtjokerus:

 I completely disagree with this.  Taxes have been climbing higher and higher for the middle class and small business and these people are hunkering down and not spending their monies like before.  Look at the holiday sales.  They were down.  Look at economic growth now.  It is down.


Quoting autodidact:

Expanding a business and hiring more people is a tax write off. No business owner uses an after tax write off to expand a business, but uses it to buy a boat, second house, send the kids to college, play in the stock market, or buy real estate, that inflates prices for everyone else. But when taxes were high businesses invested in themselves and used their money productively in the economy, hiring more people. Investing in their business increased the worth of that business when sold at a low capital gains rate.

http://www.thomhartmann.com/users/dan4liberty/blog/2012/08/californias-golden-age-high-taxes-and-greatest-growth












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