As usual, I like the Warren Buffett approach
I want to leave my kids enough money so that they can do anything; but not so much that they can do nothing.
One of the great statistics being bandied about in the great inequality debate is that the Walton family have more wealth between the four siblings than the bottom 40 per cent of Americans do in total. Apparently this is something most shocking – and, of course, something must be done. I would argue that there's nothing very …
"... by the time it gets down to the great-grandchildren, someone, somewhere along the line, will have managed to piss it away... "
I used to work for a perfect example of this. The current owner's grandfather founded the business with two like-minded friends and did moderately well, acquiring a reputation for high quality work in the process.
The next generation bought out their partners and built up the firm and workforce with careful investments in the quality, production and relevance of their products. They deservedly made a substantial amount of money in the process.
The current owner seems to be swayed by the "fad of the moment" and has invested in vanity projects, advisers and his lifestyle. The firm now has a new, bespoke HQ, has outsourced most production overseas, and the quality of its products has dropped noticeably. The factory site was recently sold off for housing.
His children think they are going to inherit a money mine and behave accordingly.
It most certainly is not true of the Rothschilds. Eventually a certain level of wealth and power is accrued that makes it simply impossible for you to lose, outside of total societal collapse. For the family previously described this point was reached sometime before the end of the 19th century.
It most certainly is not true of the Rothschilds
You've picked what are very much the poster family for passing on wealth and influence. For many families it only takes one or two children to overdose, crash their learjet, or turn their latest Ferrari into wreckage to bring about an end of their family line.
Concentrating wealth becomes progressively harder the more children you divide it between. Once the four john-boys die, they'll have left their estate to > 4 people, effectively diluting themselves.
Moving wealth down below the grand children is exceptionally hard - see the Hilton family. Their last best hope is ......
It seems to me that there are only two strongly justifiable rates for inheritance tax: 0% and 100%; everything in between is a compromise. Corollary: anyone who thinks an intermediate value is more appropriate does believe in some degree of wealth redistribution.
If you are right, Tim, and the money only stays in the family for a few generations, then I suppose it makes little difference that the wealth is temporarily concentrated in such a small area; it does eventually get redistributed by the market when a descendant 'pisses it away'. But what worries me is that the current trend in wealth inequality shows no signs at all of abating.
The problem is when wealth distorts democracy --- big fortunes, whether personal or corporate, are now increasingly used to affect legislation directly (through lobbying and campaign funding) and indirectly (through media ownership used to affect public opinion). This leads to a circle (virtuous for them, vicious for us) which accelerates and buttresses the inequality.
It is also starting to get to the point where you actually have to start with money to make money. Take a particular bugbear of mine: unpaid internships. Even in a society where, by and large, the concept of a minimum wage is accepted. it still seems acceptable for wealthy organisations to place a filter on the workforce to ensure that brains and hard work are not sufficient, you need wealth to start with. I'm not sure I find that acceptable, either on an individual or societal level.
>Take a particular bugbear of mine: unpaid internships. Even in a society where, by and large, the concept of a minimum wage is accepted. it still seems acceptable for wealthy organisations to place a filter on the workforce
I the book 'Freakanomics', that scenario was used to describe why most drug dealers are poor. Even though they could earn more by working in McDonalds, they unrealistically believe they could be the big man who is earning tens of thousands a month... just as thousands of young people work as interns in the fashion industry but only a few become famous and wealthy head designers.
The way the USA does unpaid interns is at least fair.
From the student's pov its just an extention to the course, without fees, to be added to their loan. From society's pov it saves the company money, in the same way as offshoring a job, and reduces costs to the consumer.
Back in my day (1980s) the UK had a similar system for law degrees, you had to do a 1 (2?) year unpaid apprentiship at a law firm for which you couldn't get a grant or loan. So it made sure that only the right sort of people could afford to become lawyers - which kept the price to the consumer up.
"that scenario was used to describe why most drug dealers are poor."
For those that haven't read it, its not _quite_ as cut and dried as that.
An economist got friendly with, and got to study how a "drug gang" operated. This consisted of the "boss" and his "workers". The operation ran quite a lot like a franchise, where the workers got (effectively) minimum wage plus worker benefits. These benefits where legal and medical help for those in the gangs area of control, and functioned much like civic taxes (from an economical standpoint). The boss did actually make quite good money, and once he'd been running the group for a few years making good returns for the parent organisation, he got promoted.
So not too dissimilar to standard corporate practice, worker bees and taxes get paid at about the same rates, owner-managers get a few years at slightly better wages, then get a promotion to middle management.
I went a read some of the study that the book used, and it didn't seem so much that McDonalds paid better, the main difference was in fact the benefits (especially the medical) and that some people got the benefit before joining the gang.
Like with all work, doing it yourself is a mugs game, organising others too do it and getting some points on each productive hour/sale is the way to go.
"If you are right, Tim, and the money only stays in the family for a few generations, then I suppose it makes little difference that the wealth is temporarily concentrated in such a small area; it does eventually get redistributed by the market when a descendant 'pisses it away'. But what worries me is that the current trend in wealth inequality shows no signs at all of abating."
Well, yeah, but. Wealth concentration and wealth concentration in the same families are not actually the same thing. When amongst the richest residents of the UK we have names like Abramovich and Mittal then we're not in fact talking about the same people inheriting the wealth. If it were only De Waldens and Grosvenors, those families who inherited land in London and didn't sell it, then OK, that would be different. Note there's some weight on "only" there.
I'm cool with more taxation of those inheritors (specifically, land, let's have an LVT) but "wealth concentration" and "the same people being wealthy" is not the same thing.
"Take a particular bugbear of mine: unpaid internships. Even in a society where, by and large, the concept of a minimum wage is accepted. it still seems acceptable for wealthy organisations to place a filter on the workforce to ensure that brains and hard work are not sufficient, you need wealth to start with. I'm not sure I find that acceptable, either on an individual or societal level."
One of the things I like (among the many, of course) about our hosts here, El Reg. Internships? Sure, everyone's got to start somewhere. Pay? Yes. Proper pay.
So, there's an economic argument that concentration of wealth does some economic good in that the wealthy folks provide benefit to the economy. I can see that - economies of scale, etc...
On the flip side, there are various studies out there that claim that greater wealth inequality brings about greater unhappiness in the general population, and that all the signs are pointing to an ever more disjoint society with fewer and fewer people controlling more and more of the wealth - should that skew the analysis the other way?
Wealth inequality increasing unhappiness. Well, yes, although it's rather more academic than factual. Just this morning I've seen figures showing that American happiness (ie, number of Americans who say they're happy) has risen since 2009, while we all know that wealth and income inequality have risen as well. So, while the link might be there it's not entirely obvious that it is.
Contented people tend to be unproductive. Unhappy people tend to be motivated to change things. The problem is, we've got too many sycophants telling the unhappy people they can't be happy so they should riot instead. This tends not to work out well for either the rioters or their targets who both wind up with less than they had before.
Who is telling them to riot? Give us examples, dates, times. I can't think of the last time I saw Socialist Worker placards held by anyone.
BTW, sychophants are not agitators (or whatever you meant to say), they are suckers-up to people with power or money or both, so why would anyone suck up to unhappy people? What's in it for them? Or do you not know what the word means?
If you can't think of any, that means you're one of them. Anyone who cares to observe with unbiased eyes will see plenty of examples on both sides of the pond.
Yes, the agitators are all sychophants. The sychophant part is more important than the agitator part which is why it is the focus. Someone in power mutters "will no one rid me of this troublesome _____" and the sychophants set out to do so.
It is also starting to get to the point where you actually have to start with money to make money.
Tell that to Brin, Page, Gates, Ellison, Zuckerberg etc etc etc....
My father was a factory worker all his life. Minimum wage came as a payrise.
I work in the City. I'm not a desk head or MD on billy big bonus, but I get by. It would allow me, at a stretch, to give my child the sort of start in life any of the above were gifted.
Sure, it may have taken my family two generations to "catch up" with the starting point of the self made uber wealthy, but it's certainly not impossible. Arguably, if I spent less time writing this shit and more time thinking up the next technology bohemoth, I could short cut that by an entire generation.
Never let anyone tell you that you have to come from money or you can't win the game. It's bullshit.
Not sure about the others but Bill Gates Sr was already a millionaire before Bill Jr dropped out of university. I'm sure that must have helped him a bit.
I'm sure you're right, but I don't see how that invalidates my point. By the time my children are old enough to drop out of university, I'll already be a millionaire too. Perhaps Bill Snr was a coder? If he was, it'd be news to me. Jr had an ambition, saw an opportunity, and seized it. Again, take the Hiltons: For all grandpa Hiltons wealth and connections, Paris will always be most famous for a home made grumble flick. Bill Jr deserves, in my opinion, most of the credit.
I've had more factory jobs than I have professional ones, though admittedly, I've spent a lot longer doing professional work than I ever did doing factory work. Life is what you make it, and while I'll not pretend everyone can rise to the level of their competency, I certainly haven't yet, they can rise to the level where they can give their children the same opportunities that todays self made uber-rich kids had.
The flippant way you post that shows an abysmal appreciation of history. The assertion that we ought to all rise to our own level of competence, and that rulers or those tightly connected to them shouldn't benefit would be laughed at in almost any other age. In fact, I'd wager it still is laughed at in most places outside of the UK and the US. Even in Greece they've been showing a penchant for that belief here of late.
Having known a couple of people that have gone on to make themselves very wealthy and knowing a few people who were already wealthy by the time I met them I'm fairly confident in saying that having a huge wodge of cash to leave their children/grandchildren never entered their minds AT THE TIME of setting out to become wealthy. For most, it became a concern AFTER they were already pretty wealthy (actually, one of them doesn't want his kids to inherit the money having seen what selfish pigs it has already turned them into). So I'm not sure massively taxing inheritance would really be much of a disincentive to entrepreneurship. The problem with massively taxing inheritance is largely that those it hits hardest are in the best position to move to another jurisdiction with less onerous taxation and so you actually end up taxing the middle-income or those unfortunate enough to die late enough to have accrued some wealth but too early to have spent it during their retirement.
How onerous inheritance taxes are depends quite a bit on the type of business. The prime and possible only example of this currently is farming. While science can do a lot to advance the productivity of a given plot of land, you still need a lot of it for farming. Which means farmers tend to wind up with a lot of wealth, but not necessarily a lot of income. Hitting them with high inheritance tax usually means selling off the land. Maybe it stays as a farm, maybe not.
Lots of talk of external benefits, not much talk of external costs.
I'm not sure the "wealth is a motivator" argument holds true at all points on the curve. From what I've seen of CEO behaviour in general, the fun is in the winning, the dollars are just how you measure the winning. I suspect that's a quote but I don't remember from where.
I'm all for productive labour, but when 30% of your white goods are made by prisoners - is that slave labour? Does it drive law enforcement policy and/or implementation where it shouldn't go? What about tax incentives offered to the large companies to locate in a particular area, that's essentially moving money from people's pockets to the company via the tax system - is that being offset against the general "good" being calculated? Savings can only be offered by cutting costs - is Walmart doing things more efficiently in terms of process or are they just paying less? If they are only paying less, that's just shifting wealth from the workers to the customers and owners - there's no net gain.
Efficiency of process increases wealth. You get a new computer and one person processes twice as many orders in the same time period. That's good. You cut your staff's pay by 10% - that isn't increased efficiency unless you only think about ROI. You've reallocated wealth, but you haven't increased it.
Yes, external factors are hard to account for. Some of them are covered in confidentiality, like agreements with suppliers. It's not a secret that big retail operations tend to leech their suppliers pretty hard. Tax incentives are usually semi-transparent - public authorities do not like to advertise them, but cannot bury that information completely.
But there is a lot of external factors, for example a number of competitors and local producers leaving the business, that are not directly attributable nor measurable. It may well be that some of the perceived savings are covertly coming from someone else's pocket.
So by pricing theory, music piracy is good for the economy.
Instead of spending their hard earned pocket money on overpriced CDs where the money goes to offshore accounts of record companies, they download the music for free and spend their consumer surplus in the local alcohol and herbal markets.
They should be rewarded by tax breaks for music downloading.
From what I've seen of CEO behaviour in general, the fun is in the winning, the dollars are just how you measure the winning. I suspect that's a quote but I don't remember from where.
Depending on the exact quote it's either Gordon Gecko, from Wall Street, or JR, from Dallas.
Think of any big cheese CEO or money man. At home they're just dad or hubby. Their wife is probably banging the tennis coach or her yoga instructor, maybe both; while their kids will be as obedient and respectful towards them as anyone elses are... Come to work, however, and it's game on - they say jump and everyone jumps.
I have no problem with inherited wealth or making money.
The problem lies when these billions of dollars are hoarded and kept in bank in the Caymans instead of the money being used. I don't care that much whether the money is donated to charity* or pissed away on purely vanity projects such as building luxury housing or just buying luxury items, or used to invest in other companies - they all bring benefits all the way to the blue collar workforce simply by creating work.
*Charity actually doesn't bring that much benefits since in the US people seem to just deduct them (up to 50%) in income taxes, and which percentage of the money is actually used to help people in need?
"The problem lies when these billions of dollars are hoarded and kept in bank in the Caymans instead of the money being used"
Except that the money isn't just sitting in a vault doing nothing. The bank can only afford to pay interest on deposits if it first lends out that deposited money at even higher interest rates. Most money is just a number on a computer anyway and those numbers move around all over the place as investments. You want to hide your ill-gotten gains in a Caymen bank? Great! They'll invest it somewhere else.
Charity actually doesn't bring that much benefits since in the US people seem to just deduct them (up to 50%) in income taxes, and which percentage of the money is actually used to help people in need?
After being on the Board for a number of years of a medium-sized but respected charity, I came to a regretful conclusion: Stop tax relief on all charities. That includes relief on donations and on charities' operations.
Most charities are run as a "business". They are not. They almost always seem to morph away from their core purpose and to increase their overheads by expanding the number of paid staff that they have (Volunteers are much harder to manage), or they subcontract their core activities to real businesses.. After a while, to ensure reliable revenue, they tend to expand to encompass more work that is done by a "real business" which does not have the tax break; or they do work that was previously done by governments, often with public money.
Large donations are often used to drive the donors' personal, political or business agendas. This can be potentially even more damaging when the charity is set up by wealthy "philanthropists".
Alternatively, if we are going to allow tax relief, how about relief being dependent on the charity being wound up after, say, 5 years - Any excess monies being directly given to the beneficiaries - Failure to comply would cause a full audit and any tax deficit to be paid by the directors...
Totally agree. Smaller charities turn themselves into pretzels to get funding and so kiss their starting principles and purpose goodbye. I saw it happen twice. Left twice. Big charities start seeking to be power-bases. Both Oxfam and WaterAid have decided to put at least a third of their energy (and money) into influencing and educating governments. That is, little in an African country's capital in an air-conditioned office spreading 'talking-money' around in the expectation that the dictator-in-chief* will find his heart touched and help poor people get help -- something these dictators have clearly never, ever been interested in. The charity now can get out of the field, where the work is hard and thankless, but where the local people get direct help, and get to 'walk the corridors of power'.
Every time I see a charity moving into the 'political influence' game, I stop donating to them. I am not interested in donating to a dictator's next swimming pool.
* I am using African countries as my example, as I am referring to Oxfam and WaterAid, who have a big focus there. But it could be anywhere, with any sort of corrupt government that exists.
Dear god, so many of the clientele are FAT. Slovenly blobs who can barely dress properly shuffling around with carts full of snackfoods in giant portion sizes. I think that's what Walmart appeals to - not price (since it's not really as cheap as some may think), but pure laziness. It pushes buttons in people who want to buy a gallon of milk, a giant pizza, a super wide toilet seat and a pair of stretch pants all in one shop.
If you're the sort of person who expects a supermarket to serve lots of fresh meat, veg, fruit, bread and other produce then you'll seriously depressed here. 80% of what it serves falls strictly into the junk food category.
"80% of what it serves falls strictly into the junk food category."
Although to be fair, that applies to pretty much any chain of supermarkets. Some will have a better selection of "raw" ingredients than others, but 80% or more is ready-prepared, ready-to-heat'n'eat food full of artificial colours and preservatives, not to mention sugars and, in the US at least, huge amounts of corn syrup.
"Although to be fair, that applies to pretty much any chain of supermarkets."
Visit a Walmart and say that! So much of what they sell is a snack, or a ready meal, or an "EZ" style meal (e.g. Rice-a-roni, Mac-n-cheese, Chef Boyardee etc.). Aisle upon aisle of it. No UK supermarket comes anywhere close. Nor most other US supermarkets for that matter.
Pure prejudice from someone who has probably never actually set foot in a Walmart.
The last time I was in a Walmart (admittedly some time ago) they had plenty of fresh vegetables and meats in and open format section of the store instead of the aisle format. The meats and cheeses are typically along the outer wall, so tend not to look as large as two or three rows of boxed goods. My friends and I tend to stop for the prepared fruit, cheese, and vegetable trays before heading off for a weekend get together (usually a proper US football game in Beaver Stadium).
"Pure prejudice from someone who has probably never actually set foot in a Walmart."
Straw man noted. I've set foot in plenty of them. And their fruit / veg / meat / "deli" sections are best described as perfunctory and small compared to the size of the food section.
Lots of people feel rich, because they have their own home, which increases in value year on year, and can afford their monthly mortgage payments due to the low interest rates, with increase speculation and cause the cost of a home to rise further. If those interest rates ever go up, we're going to end up with a lot of people, who thought they were well off, suddenly neither well off or wealthy by any measure you care to apply. I wouldn't care to place a bet on when that house of cards collapses, or even a solution.
As for the Walls..... Well I do have a problem with any entrepreneur who's creativity and talent doesn't stretch more further than ******g over employees and suppliers. On the other hand, Wallmart jobs used to be part time jobs for American Moms, in very different times. Same for a lot of the so called zero hours contracts in the British economy.
As for the Walls..... Well I do have a problem with any entrepreneur who's creativity and talent doesn't stretch more further than ******g over employees and suppliers. On the other hand, Wallmart jobs used to be part time jobs for American Moms, in very different times. Same for a lot of the so called zero hours contracts in the British economy.
This can be said for many family owned businesses that fall into the hands of the heirs. Sam was pretty shrewd. He paid his employees fairly, had benefits including discounts. He moved into areas that were largely rural with cheap land and little competition. He used local (American) suppliers whenever possible. His kids... got their business degrees and instead of being involved in the business, turned to the beancounters. Within years, the suppliers were being outsourced to China, wages cut, benefits cut. The bottom line became the golden grail.
The worst case I've ever seen was McDonnell-Douglas. After Old Man Mac (I use that with respect as I met him several times but that's a different tale) died, the kids took over and sucked the place dry. It was so bad, that Boeing had to buy them out (I suspect with some help from the Feds).
It's probable that Wally World is headed toward failure also unless the corporate and ownership mindset changes.
I don't waste my hard earned buying cheap chinese crap at inflated Wall mart prices - I head over to dx.com (other source of cheap chinese crap are available) and buy for the same wholesale price that most high st stores are paying.
I have de-middle man-ed the transaction, increased efficency and liberated consumer surplus. I have also freed lots of people from working in low skilled retail jobs and allowed them to follow their dreams of becoming billionaire entrepreneurs themselves.
So instead of a section on tax form to list out-of-state purchases and volunteer to pay the tax, I should get some sort of reward for these economically efficient measures.
Ah, but those nice Waltons have just generously increased the wages of the
peons workers to bring them *above* the American Minimum Wage for the first time since the Banking Crisis.
The fact that that represents about 1% of their annual revenue (not the 1% that usually gets talked about!) and that, of course, during that time, the Waltons didn't have problems putting food on the table makes no odds...
Just another thought. They make 1.5%. You and I can get 1.6% on an instant access ISA.
So the sensible thing for them to do would be simply to put the money on deposit.
By not doing so, however, they keep 2.2 million people in employment directly, plus all of those in their suppliers, logistics etc. And pay billions in rent and rates on stores, employment taxes, pensions and medical insurance.
Without Walmart every American (and Brit, because of ASDA) would have to pay more tax.
And don't forget the trickle down. Their employees have money to spend.
Logically the bottom half of the FTSE, Dow Jones, S&P, Nasdaq etc should all close their businesses and put the money into a tracker fund.
I don't know how deep in your cheek your tongue was when you hit Submit, but actually, seriously: this is not silly or absurd at all.
If (when - whatever) the "bottom halvers" do what you suggest it will create an opportunity for others, because these guys presumably do something useful and if they close shops there will be a supply deficit of whatever they produce. Whoever fills the vacuum will enjoy better returns than the current crop - for a while. Eventually supply will balance the demand, on average, etc. On the other hand the "tracker fund" won't make any return unless the (presumably large amount of) money is actually invested either in the "top halvers" or in similar - highly correlated, "tracking" - companies (the "top halvers" will not be eager to sell their hot property stock under those conditions, but there will be eager newcomers who will see investors' demand). That will create oversupply of the stuff that those "top halvers" make, and their margins will go down... So the investment will be risky - a different risk than one associated with producing stuff (or not producing stuff, as the case may be).
In reality, the system is usually efficient enough to react this way to much smaller fluctuations that do occur. And when you make a move you win some, you lose some. And occasionally bubbles get blown out of all proportion and then go POP.
What annoys me most about the financial system is that it expects - nay, demands - that I die with a great lump of wealth, specifically my house. If I could spend that wealth *now* and die with a zero balance instead of a large credit balance, then I could actually afford to stay alive.
I've worked out that if I could pay off my mortgage and start drawing on my pension, I'd still be £30 a week short of being able to stay alive, and the very presence of my pension would bar me from getting any unemployment benefit, so, in the absence of anybody prepared to get off their arse and pay me to work, I would just have to find a lender that would allow me to sink further and further into debt for another 15^W 20^W 22 years until my state pension starts paying out.
Not sure if the same thing is available in blighty, but here in Oz we have products called Reverse Mortgages. Basically, the lender gives you the money now for a stake in your property, then when you kick the bucket, they take a proportion of the proceeds from your house sale to cover the loan and accrued interest. Can go spectacularly wrong if you don't set it up right (like the lender turfing you out before you die because the loan equals the equity in your house), but can be good if set up correctly. Quite popular with older people who have substantial capital tied up in their home, but little superannuation to draw on (a lot of baby boomers are in this situation due to the housing price bubble in Australia over the last 20 years).
The French actually have a private system that does this. As a speculation you write a reverse mortgage for, say, some little old widow. Government approves the price. So, you pay € 500 a month (or whatever) for life to the widow, you inherit her apartment when she pops her clogs.It's actually a popular speculation among the bourgeoisie, the lawyers, accountants and doctors.
It does have a problem associated with it. The price is obviously set at actuarial rates. How long do we expect the average 75 year old to live? But actuarial rates depend upon risk pooling. That widow might pop her clogs next year, might live for decades.
As happened to the lawyer who entered such an agreement with a certain Jeanne Calment. Who went on to be the world's oldest person, dying 40 odd years (a guess, the real number is on her Wiki page) after the contract was signed. To the point that the lawyer himself was dead and his widow made the last few years of payments before inheriting the apartment.
People pool risks for a reason......
For one I think you should add ASDA to your story.
I certainly applaud anyone who can make a fortune. Those four Waltons didn't make anything.
Was it daddy Sam's prerogative to give it to them? Sure it was.
Should they be taxed more than 33% for it? Absolutely. The costs of maintaining society so that the unwashed masses don't break down their gates and take everything is, at a guess, certainly much higher than what they're paying.
Those 1%ers who complain about high taxes now should be glad they not paying the top rate during the Reagan, Eisenhower, or Hoover administrations. (Republicans all, in case you don't know.)
And it's Scrooge, not Scrouge, McDuck. Check your Dickens.
I am not sure I like this argument. It sounds too much like a protection racket. Pay 30% tax or the great unwashed chavs will rise up and storm your castle, put you to the guillotine and hand the castle to a Robespierre.
Revolutions never eliminate tyrants from society. Revolutions simply replace one tyrant with another tyrant.
If you look historically, revolutions actually do reset the imbalance but it builds up again. We are overdue another one, if people don't deal with the problem of inequality voluntarily, people will get desperate enough to force a change.
I'm not paying 30% or 35%, but it sure as hell feels like a protection racket all the same. In addition to federal and state tax, I pay the equivalent of your council tax. In exchange I get roads, schools, police, and fire department. My federal and state taxes give me prisons, judges, and an army, among other things.
The police and the army are there for what, exactly, if not to keep the chavs from breaking in and taking my stuff.
It's all about how much I pay, or should be paying, for the service, right?
Gratuitous Galactica quote - "There's a reason you separate military and the police. One fights the enemies of the state, the other serves and protects the people. When the military becomes both, then the enemies of the state tend to become the people. "
The army are not there to stop Chavs breaking in and taking your stuff, they are there to stop the Russians/Argentinians/French(traditionally)/Germans(also traditionally) from taking all of our stuff, as well as being "Diplomacy of last resort".
So a family overcharging in their stores and paying very poor wages to their staff (the combination that gives them these EXCESSIVE profits to dispose of in the first place!) are actually good for us? Who ARE you trying to kid? Next you'll be trying to tell us that trickle down economics works when it has been proved not to - in both theory and practice!! Oh wait, you HAVE tried that already ........
" A 3% net profit margin is excessive now?"
I too have run businesses, I would be more interested in what sort of return the principals were actually getting - You know the ones that include "salaries", "fees", "rentals" "charges" etc.
Before I had a company where I was the main shareholder, I ran a high-tech business for a banker who could always adjust the books by paying himself a very large salary whenever the net started to look too high. He also charged the business for the rentals on a Mercedes 600 saloon and a coupe, etc. Just before I left he sold it, but removed these charges so the net look a lot bigger...
A 3% net profit margin is excessive now?
Oddly enough, Walmart has, upon the very briefest of inspections, returned about 10.5% compound annual growth. Taking that 2,379 USD "saved" by each american family and investing that into Walmart stock, should produce roughly 8,000,000 USD over 60 years. Literally every American family could make their children rich by doing nothing more than recognising their Walmart gain and reinvesting it to ride the gravvy train, rather than buying an extra $49 of crap each week.
Percentages actually mean nothing, do they - and can be "adjusted". The scale of these profits - given that many Walmart "colleagues" are reduced to also having to claim welfare etc. - are obscene. The Walton's have no real care for their workers (didn't they even close a store rather than have recognise a union?) they are just in it for their greed .....
Mr Worstall first argues, somewhat correctly, that Walmart creates value to the American retail business. It is clear to anybody that large distributors can be a lot more efficient than the local grocery. Still, their monopsonistic business practices are well documented and are causes of concerns.
Then the author puts an equal sign between the fairness of the company to earn 3% of $136b / year (fine with me) and the fairness of 4 individuals to own 50% of the company shares, when the company employs 2.2 MILLION people. They had 50% when the company was 100 people big, and they still have 50% when the company got to 22,000 (00s) people. Is their contribution to the company 250,000 times larger than another employee's? Who can argue that in good faith? Fixed equity is the cornerstone of inequality. It is absurd to measure their contribution to the company using a measure 50 years old.
And, most probably, they also inherited this fortune by paying a pittance in tax. Inheritance tax should be exactly the same, if not larger, to normal income tax.
One of the reasons the rich are getting richer is that the 1% really work at it.
I remember the Economist did an article on this about two years back. If you are a kid in the 1% life consists of being rammed into a 'top' nursery school, then rounds of private tutors and extra classes until you can get into the kind of university that gets you a valuable degree and contacts among the 'best people'. Then its on to a high-pressure life in management, lawyering or finance.
The rest of us tend to have a slightly more laid-back attitude, allow kids to more or less develop at their own pace, take gap years and so on. In short, the rich work harder at getting and staying rich than the rest of us. Given that they have more practice, the right funding and contacts, they succeed more often too.
The author points out the current financial benefit that we see due to the existence of Wallmart. However, I think it is important to consider that Wallmart has and will continue to extend its reach and product offering. As such, it could, eventually, find itself in the position of not having to be satisified with 3% - as its competitors disappear and it approaches near monopoly. The habits and tastes of owner offspring, not keen on building an empire, might inspire them to take advantage of their enviable position at that point.
Another way to put this is that consumers benefit by 50 cents from every dollar they spend at Walmart. Without Walmart, prices would be twice what they are. And what's the benefit that the Walton family get from this? Well, on a 3 per cent profit margin and they own 50 per cent of the company then it looks to me like they get 1.5 cents out of every dollar. And consumers getting 50 cents on the dollar, the entrepreneurs getting 1.5 cents looks pretty close to our Schumpeterian result of the entrepreneurs getting 3 per cent or less of the total value created.
Surely the Waltons enjoy 51.5¢ of savings for every hypothetical-pre-walmart-dollar (HPWD) they spend? They too benefit from the downward pressure on prices, plus they still get their half of the 3% profit margin.
I'd like to see the supposed benefits of Walmart to the US economy graphed against a hypothetical one that existed without Walmart's influence. For example, without Walmart the resources it now uses would have beeen spread out over a wider group of companies and individuals rather than being concentrated in Walmart and the Walton family. Spreading those dollars out amongst more people's pockets (eg: that is, whatever businesses that would have sold the things and stuff had Walmart not existed) would have meant more people would have had more to spend. And by your own assertion they would have been spending twice the money which would generate 2x more tax revenue for the State and local communities leading to better public services (roads, schools, etc.) Higher prices can also support higher wages which could have created more jobs in the US manufacturing sector in a virtuous cycle, with wages linked more closely to productivity.
There's probably some bit of economics knowledge that refutes everything I just wrote; I am keen to hear it if so.
A lovely way of pointing out one of my original points, that "trickle down economics" does not work .....
The only problem with this, of course, is that trickle down economics self evidently does work. Or at least less worse than every single other system ever tried by man.
Your 80's rich man had to spend the equivalent of four of my house to buy a car that can keep pace with what I can buy for the cost of a kitchen.
Your 40's rich man couldn't fly direct between London and New York at any price (see the origins of Irish Coffee for details), where as it costs less than £400 now - less than a couple of weeks minimum wage.
If you can't look after yourself, or more likely simply choose not to, the state will house, feed, and educate you, and provide near limitless healthcare. 9/10ths of the world would change places with you in a heartbeat. Tell me again, how the wealth that funds all of that has not trickeled down? The person in that situation sure as shit didn't earn it for themselves.
Refuting trickle down economics is a lovely way of making the rest of us aware that you know nought about economics. Perfect it may not be, but there's no better system.
....when it shifted from net wealth to the ability (and desire) to buy Chinese-made tchotchkes.
Perhaps, to compare apples with similar fruit, we should compare what the Waltkiddies will have as disposable wealth when they retire with what the workers or unemployed in the lowest n% will have --- which would be, as you imply, a fairer comparison. I contend it would be worse than the current comparisons, given the inability of most working Americans to save anything for retirement beyond their Social Security income benefits, which were taxed out of their paychecks (and which the wealthy, if they pay at all, only pay on the first $117K or so of earned income). Why do they have no savings? They wanted their kids to go to university, and all universities use a federal formula for determining who "needs" financial aid.
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