Sunday, October 3, 2010

How to be Rich!

TatangREtong: You want a better income distribution? Finish high school. Go to college. Finish college. Don't diddle-daddle. Get a job in an industry that pays you money. Don't go into jobs that will not pay you anything. Don't go into a job for the "love" of a job . Don't say "I don't need all that money" and then complain years later when you are not making money. That's how you get better wealth distribution. Oh, learn how to save and invest money! DUH!

One other thing. Don't blame rich people because you did not have a plan, made monumental mistakes and screwed your life. At the very least, be honest with yourself.


Americans Like Wealth Distribution Like that of Sweden


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RB: I have trouble with this article, because the article cites that people like the results of Swedish wealth distribution, not necessarily the system. Nevertheless, the current income inequality in the US definitely strains our democratic system, and I don't think the simple mantras of "get better work skills" or "save and invest" alone will change that. If that were true, the richest people in the world would be PhDs and the best investors. While some are, many aren't.

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TatangREtong: Nope, nope. Getting a PhD (piled high and deep with sh*t) will not teach you how to save or be rich. I've been there and done that. Being smart does not have anything to do with being rich. The premise is wrong, so the argument falls apart.

Being rich is a skill that can be learned. But just like math, it can be hard to learn because it requires dedication. Being rich also requires sacrifice.

Very easy calculation.

Learn to be Rich Way #1

Learn to be Rich Way #2



The key is no one is going to do it for you. YOU have to do it for yourself. The choices you make today affect your tomorrow.


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RB: The trouble with that logic is that a nation's economy is generally a closed system. If one person saves and gets rich, that money has to come from someone else. If the assumption that if people learn to save and invest, then money from the rich will go to those who save. But if the rich are also saving and investing well, then they won't lose money. Which means the money has to come from the middle class and poor people, but that only exacerbates the inequality. While the government shouldn't impede the market, it should play a role in regulation and assisting in proper wealth distribution.

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TatangREtong: There are two ways to be rich. Save money in a bank. Invest in bonds or stock in a company. In the current system, the redistribution of wealth is occurring in two ways. First, banks lend money out to small businesses. Second, the money invested in companies go out in the form of dividends or reinvestment into the company. This circulates the money to the whole economy.

The error in analysis is that the rich don't lose money. The money is not lost as it is recirculated. Money that is stagnant does not help anyone. That is why everyone keeps citing Reagan's revolution of cutting taxes from Carter's years. In addition, interest rates went from a crazy 17% to the lows of 1990's and 2000's of 5-7%.

And I would have doubts about a close economy. Just looking at how imports and exports can affect the US economy, I would have to disagree on this statement.

And in the final analysis, the government will penalize the rich (people who can save and invest) because the poor and middle class can't save. With that logic, the rich will begin investing in other companies from other countries. Then, you are left with the poor and middle class. You see this already with athletes who live in other countries for tax purposes. Imagine doing this in world wide scale.

The key here is to get the rich to invest in America. Not to drive them away.

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JVC (friend from high school): abolutely right!


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RB: If our goal is to eliminate wealth inequalities, then a combination of two things have to happen:

1) The poor must increase their wealth, and
2) The rich must decrease their wealth.

If we are making the assumption that the rich are rich because they subscribe to saving and investing, and therefore will not lose wealth, then option #2 comes off the table. So the poor must increase their wealth without the rich losing theirs.

How would saving, creating small businesses, and investing help the poor gain wealth if the rich don't lose it? If it's not the American rich, then the money must come from foreign investment, as you stated.

But now we get into foreign trade, where the discussion gets more complicated. Essentially, when foreign investment comes in, the host country's currency increases in value due to higher demand. However,this also means exports become more expensive. This depresses the demand for exports (which the poor would rely upon to gain wealth). This would then cut down the amount of foreign investment, the currency would drop in value, and export demand would increase, repeating the cycle. [For a better understanding of this principle and how it applied to Mexico in the 80's and early 90's read http://www.pkarchive.org/trade/company.html]

Assuming that the poor increase their wealth during periods when foreign investment is strong, would this strategy alone close the wealth gap to a respectable level in, say, 30 years? And could foreign investment make a strong enough impact on a wealth gap as large as the Americans have? It could make a difference, but without help from government intervention to support improved schools, more affordable health care, better financial regulations, and (as much as you hate hearing it) taxes to pay for it all, I doubt foreign investment alone could solve the wealth gap problem.

I'm not saying that saving and smart investing are poor strategies for individual wealth. On the contrary, I strongly encourage all my friends and family to make smart decisions with their money, to spend less than they make, and to use the money they save to invest wisely. But when we try to espouse individual mantras as solutions for systemic problems, the extra constraints and variables within the system limit that mantra's effectiveness, no matter how well it may have worked for the individual.

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KT: There are basically two reasons for why Sweden is wealthy. First, during the latter half of the 19th century beginning around 1860s-1870s, Sweden saw industrialization and deregulations coming as a relief in the economy. Now and up until the turn of century many Swedish inventors and entrepreneurs successfully started firms and companies that exist still today. Sweden was in a latter "wave" of the industrialization, meaning they could look at industrialized countries and learn from their mistakes, which made the progress much faster. Jumping ahead in time, after WWII most of Europe lay in ruin, and so was the majority of the European economies. Sweden, which was officially neutral during the first and second world war, could now with a perfectly viable industry produce many goods that were needed throughout Europe as many countries needed repair. This production from Swedish companies to help the European economies stand on their legs lasted until the 1960s-1970s.
So it was industrialization and deregulation in the latter half of 19th century and the distribution of goods and commodities to the European countries after WWII.

It's a similar story for the US but with a twist. Before the US entered WW2 it massively focused on production of goods, especially goods needed for the war, and sold them to the world until Japan dragged us into the war. The US was in a good economic position to go to war at that time, they also had built the infrastructure needed for a massive war effort, and they did not really fight the war on local US soil and thus did not suffer the destruction of Europe and Asia. By wars end the US had all of its factories and infrastructure in place. The US made the best quality goods and in the most abundance. Like Sweden it was a production and export machine.

While there are many factors that have changed the US economy since then first and for most is that years without viable competition allowed many Americans to become accustomed to a way of life which provided by fantastic economic prosperity. As soon as other nations rebuilt and returned to production there was an opportunity for them to gain economic strength. Globalization became a two way street, and American consumers were attracted to what they belied to be quality and value which was not necessary made in the USA.

American manufactures either did not respond to this, or they found ways to cut labor costs. More jobs that pay the equivalent income to have the American dream of the 50's today require more education, and the demand of education drove up the cost of getting it. Before you even consider the notions of "good debt", credit cards and how minimum wage did not keep up with inflation, just consider what US industries export the most over seas and what is the nature of what it is they export and where is it actually produced. That is why we have a huge income gap, everything just made it much worse





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TatangREtong: "RB: If we are making the assumption that the rich are rich because they subscribe to saving and investing, and therefore will not lose wealth, then option #2 comes off the table. So the poor must increase their wealth without the rich losing theirs. "

There is a fatal flaw in the 2 statements above. We know from public records that the rich can become poor really quickly. 1929 market crash. Madoff ponzi scheme. A scion's failure to take care of business. Because of the fatal flaw, the subsequent statements are false.

"RB: How would saving, creating small businesses, and investing help the poor gain wealth if the rich don't lose it?"

The answer has always been innovation and technology.

Wozniak & Jobs: Apple Computer, currently #2 company in world

Gates & Allen: Microsoft

Larry Ellison: Oracle, 28th riches person in the world

Li Ka Shing: richest East Asian man in the world, #14 overall (plastics, banking, construction, etc)

Henry Ford: Ford Motor Company, the Big One which did not file bankruptcy
Gates & Allen: Microfsoft

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TatangREtong: ‎"RB: But when we try to espouse individual mantras as solutions for systemic problems, the extra constraints and variables within the system limit that mantra's effectiveness, no matter how well it may have worked for the individual."

Without the ability to control one's mind with respect to desire and fear, one will never succeed in life. This is a not-so-well-kept secret from all the ages. This applies universally to all the poor people out there.

Any system that has tried to resolve poverty in wide scale has failed. The key is that people have not tried to understand it through root cause analysis. You can solve poverty if you remove free will and free choice from people. Reference USSR. There was no poverty there. But was living there worth it? No. It fell apart.

In the end, I don't really care about world-wide poverty. I will leave that to Bill Gates and the billionaires. I know the solution. I would rather not implement it like the USSR.

What I do care about are the individuals out there who are seeking a path to prosperity and being rich. 25 years ago, when I was searching, I had a hard time finding the way. I aim to share with everyone one way. Tuhan's way.

1 comment:

TaurenChieftain said...
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