What does money buy the ultra rich?
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11-08-2014, 01:10 PM
What does money buy the ultra rich?
I have recently been thinking a lot about income inequality in the United States and abroad. For those who are unfamiliar, the income inequality in the US has risen sharply sense about the mid 1980's. It is estimated that the top 10% of the population own something like half of the United States total wealth, with the top 1% and in particular the top 0.01% owning most of that.

[Image: us-income-distribution.png]

Here is a great paper I found detailing income inequality and growth in the US:

http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdf

The economic data also shows that the real income of the middle class in the US has actually been gradually declining from its peak sometime in the 1960's. The rate of impoverished peoples has remained relatively constant, so it would seem that all of the income growth in the United States, when accounted for inflation and adjusted for real earnings, has only affected the super rich; and while they were at it they took some from the middle class too. This is not news to anybody who has been following these issues, and in general it makes people angry and upset, with words like "tax" and "redistribution of wealth" often coming up in the conversation.

I recently made the observation, however, that income does not equal wealth in goods and services. If you compare the goods and services available to the average american in the United States as compared to other years, by all objective measures American's are in fact richer than they have ever been.

Consider these graphs:

[Image: housing11.jpg]

Percentage of household incomes spent on various expenditures:
[Image: 1900%201950%202003.png]

Food expenditure as percentage of income, and proportion spent out.
[Image: fwk-mcafee-fig04_023.jpg]

Energy:
[Image: percentage.png]

[Image: b2575_chart1600px.ashx?w=600&h=586&as=1]
[Image: b2575_chart2600px.ashx?w=600&h=581&as=1]

Average number of amenities (from charts above) by income group.
[Image: b2575_chart3600px.ashx?w=600&h=478&as=1]

Now consider how many Americans are paying for goods and services that did not exist in the recent past. Cable television, internet providers, cell phones with data plans, and video games; none of which were available , or a significant source of expenditures, in the 1980's or earlier, but now are a considerable proportion of American discretionary spending today. So while real income of Americans has actually marginally declined, the average costs of good and services has dramatically decreased, and Americans are reaping the full benefits of modern technology, with all of the goods and services they have come to offer. Americans do appear to be richer in goods and services then they have ever been, despite the decline in real wage earnings.

So if the average American is doing well with less real wage earnings, how well must the top 0.01% of peoples be doing with a huge increase in real wage earnings? What do the uber rich buy?

It is possible that families that make more than a million dollars a year might spend all of that on goods and services. How about the top 0.001%, what do they spend their money on? These people make tens of millions of dollars a year, do they spend all of that on goods and services? What about the top 0.0001%, or the people that make hundreds of millions of dollars a year, what do they spend their money on? Is it really possible to spend hundreds of millions of dollars a year on goods and services?

The short answer is actually "yes", but that is not generally what they do. The uber rich in america don't spend their wealth on goods, they typically reinvest their wealth. They buy things like hedge funds, mutual bonds, stocks and share, or even whole companies. Some of their income might go into real capital goods, like opening a retail location or a factory or what have you. The ultra rich buy items that will make them yet even richer, and if the data is any indication it seems to be working quite well for them. Then, when they make their record profits, they buy... yet more capital and financial investments, in infinite many making loop creating even larger fortunes.

So to categorically summarise it all the richest americans aren't buying things they are buying economic power and influence. They are using their massive fortunes to buy capital goods for their business, so they can wrestle greater market share away from their competition. They are buying shares and influence in other companies. They are investing in banks with mutual funds. Even if all they do is let their money sit in an account and collect interest the bank is investing their money for them in the form of loans or investments. What the data is showing is that the powers of economics are being consolidated in the hands of fewer and fewer people, and that their reach is growing ever longer and their influence every more ubiquitous. This has the rather benign side effect of making Americans, in particular, richer in goods and services then they have ever been.

I started to ask myself the question though, how is it that americans are getting more things with less "real dollars". What are the other impacts of wealth being so heavily concentrated? In particular, what does this mean for the rest of the world? How is everybody else doing?

As it turns out, not so well. Here are some numbers to describe the growing income inequality world wide

[Image: consumption-inequality-2005-pie.png]

http://bobmckerrow.blogspot.com/2008_10_01_archive.html Wrote:World gross domestic product (world population approximately 6.5 billion) in 2006 was $48.2 trillion in 2006.

The world’s wealthiest countries (approximately 1 billion people) accounted for $36.6 trillion dollars (76%).
The world’s billionaires — just 497 people (approximately 0.000008% of the world’s population) — were worth $3.5 trillion (over 7% of world GDP).
Low income countries (2.4 billion people) accounted for just $1.6 trillion of GDP (3.3%)
Middle income countries (3 billion people) made up the rest of GDP at just over $10 trillion (20.7%).Source 19
The world’s low income countries (2.4 billion people) account for just 2.4% of world exports Source 20

And numbers on poverty:
http://digitalcommons.ilr.cornell.edu/cg...kingpapers Wrote:More than three billion people in the world live in absolute poverty: specifically, 1.4
billion people consume less than 1.25 U.S. dollars per person per day, and another 1.7
billion between 1.25 and 2.50 dollars a day (Chen and Ravallion, 2010).

[Image: poverty-levels-over-time.png]

So an interesting phenomenon is accuring. The poorest nations wealth is growing, although painfully slow. The wealth of the United States and other western countries is steadily growing at a modest rate, and in the United States all of this growth in income is going to the richest americans, with the wealth of the middle class staying relatively constant. In isolation this is not terrible, because like americans poor people could actually be buying a lot more with less money. Is that is what is happening? It is is difficult to get good numbers but I think the answer to that is definitely no.

Let's talk about food. If you are a starving person in the world and you get a little more money, the first thing you are probably going to buy is food and water. Let's look at global starvation rates then, as an indicator for how the bottom 1/6th of the human population are doing:

[Image: Englishy_SOFI_2013_01.jpg]

In just about the last twenty five years global starvation conditions have declined by about six percent, which is good in that at least it is declining. Now compare this to global wheat production and the share of global agriculture.

[Image: world-wheat-production.png?w=490&h=367]

[Image: 300px-Global_aquaculture_production_by_country_2010.png]

Global wheat production in the same time has increased by about sixteen percent.

The majority of people living in starvation conditions are in central Asian and the pacific, despite the fact that the majority of food grown world wide is in the same place. Rates in wheat production in the same time period increased more than two and a half times faster than global starvation decreased in the same time period. Who is eating all that extra wheat?

Live stock:

[Image: gr-meatcomsuptionpercapita-462.gif]

The United States and other developed countries are using more and more domestic grain production to feed livestock, and importing more and more food for themselves to eat. This is just one clear cut example of the peoples of the United States benefiting disproportionately at the expense of the poor. Keep in mind earlier in this post I made the case that Americans are spending less and less on food every year as compared to earlier years. How is that possible to pay less for food whilst eating more meat (note, meat is much more costly per calorie of consumption as compared to cereal grains like wheat and rice)?

The simple and unilluminating answer is "globalization". I want to address this point with an analogy.

Before industrialization currency was used in place of barter to make the exchange of goods and services easier and more efficient. If I were a farmer in ancient times I would grow wheat and trade it with a livestock farmer, or a carpenter, or whomever for what I needed. With a strong currency I could sell my wheat at market instead and buy the same livestock, furniture, ect instead of trading for it directly. In this model of economics, one type of good is indirectly exchanged for other types of goods. The more money you have, the more things you can buy.

This doesn't readily describe our economy today. The majority of money is concentrated in the hands of people who don't buy goods and services. Remember, they invest it in capital assets, they don't buy things but means of production. It is no longer a simple exchange of one type of good for other goods, it the influence of investment giants on how means of production are utilized, and how raw resources like land, water, and minerals, etc are appropriated. This is my theory on how it is has been made possible for americans to buy more things with less "real dollars", at the expense of the poorest peoples in the world.

Imagine a scenario where a big company like Coca Cola opens up a factory in a third world nation. They use local materials, like steel, plastic, and chemicals to build the factory and produce their products. They hire local labor to work in the factories. The local peoples of this third world nation produce millions of bottles of coca cola every year and... then what happens? Nearly all this coca cola goes back to the united states, or other first world nations, to be sold to first world consumers. Note what happened here; third world domestic resources built the factory, third world labor and third world resources created the product, and first world people consumed the product. We payed money for the coke, but third world peoples payed in resource. A subtle, but very important, difference.

The first world, western nations have what is called a "service economy", which effectively means most of us work to serve other americans. We work in fast food, in banks, in retail locations, movie theaters, whatever; we don't produce things - that is the important bit. We have largely import based economies with much lower rates, by comparison, to US exports. The opposite is true of third world nations. They have largely industrial jobs or jobs related to the production of export commodities. This, in a very literal sense, describes the flow of goods out of third world nations into first world economies.

[Image: service_graph-2.jpg]
http://www.economicpopulist.org/files/u1...yrolls.png
http://2.bp.blogspot.com/_oKWxWOEilyQ/Sw...ture+1.png

I believe that the effect of the "rich getting richer" is not in fact bad for the Americans, it is good for Americans at the expense of the poorest peoples of the world. American companies, with huge pockets and incredible means of production and economic influence, primarily create American products for American consumers. They use their economic power to outsource production, reducing costs by incorporating cheap resources and cheap labor, and then bring back the fruits of that labor to America for Americans. If you don't think that is true consider the reverse scenario; what would it take for a central Asian business person to open a factory in the United State, produce products with resources acquired from first world nations for the purpose of exporting these products back to central asia for central asian consumers? I think in this global economic climate, that is next to impossible.

I created this thread to share my ideas and hopefully learn more about the global economic disparity, income inequality, and the other topics I wrote about. What do you guys think about growing income inequality and outsourcing manufacturing? What do you thing might be some solutions to these problems?
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11-08-2014, 01:24 PM (This post was last modified: 11-08-2014 01:27 PM by cjlr.)
RE: What does money buy the ultra rich?
Given exponential growth, it is somewhat inevitable that the rich grow richer (the same compound gain will be far more in absolute terms). But then, most people do not understand the actual mathematics involved (aphorisms like "you've got to spend money to make money" aside).

Once necessities are provided for, the main purpose of capital seems to be to acquire more capital. I'd guess that's a very contextual cultural drive but I haven't seen an in-depth exploration of the idea.

The abstraction of service economies allows for some decoupling of economic growth from raw physical inputs. Although a side effect of that is (potentially) greater volatility.

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11-08-2014, 01:25 PM
RE: What does money buy the ultra rich?
It buys them undue power at the expense of workers.

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11-08-2014, 01:50 PM (This post was last modified: 11-08-2014 03:51 PM by Bucky Ball.)
RE: What does money buy the ultra rich?
"What does money buy the ultra rich?"

Nothing.
They piss and poop like everyone else. They get sick and die like everyone else.
Having sufficient funds can provide access to some things, but the economic concept of "marginal utility" applies, ( http://en.wikipedia.org/wiki/Marginal_utility )
and the marginal utility of another dollar very quickly approaches zero, after a somewhat small number, IMO. Rich people are no different or any more happy than anyone else. Those with a lot of junk have to worry about it, as something is always breaking, or needing fixing, or being ripped off. Then there's the Psychology of "habituation". You get used to anything. http://en.wikipedia.org/wiki/Habituation

There is a reason the "new billionaires" are choosing to live modestly and give it away.

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11-08-2014, 03:20 PM
RE: What does money buy the ultra rich?
(11-08-2014 01:50 PM)Bucky Ball Wrote:  "What does money buy the ultra rich?"

Nothing.
They piss and poop like everyone else. They get sick and die like everyone else.

That is the part far too many, maybe not all, but far too many forget. Like Sagan said, friend and foe, rich and poor, all meet the same fate.

The uber rich of the world are fucking up our planet, and if they keep it up it won't be around even for them.

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11-08-2014, 04:12 PM
RE: What does money buy the ultra rich?
The initial question, "what does money buy the ultra rich" is misleading.

The purpose of being ultra rich is to eliminate the concept of "buying" all together. Once you've reached the point at which you can buy anything that can be bought, you endeavour to secure that position by accumulating more wealth as a sort of insurance.

So the answer really is 'everything.' With the caveat that everything = everything that can be bought.

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12-08-2014, 11:02 PM
RE: What does money buy the ultra rich?
(11-08-2014 04:12 PM)Stark Raving Wrote:  The initial question, "what does money buy the ultra rich" is misleading.

The purpose of being ultra rich is to eliminate the concept of "buying" all together. Once you've reached the point at which you can buy anything that can be bought, you endeavour to secure that position by accumulating more wealth as a sort of insurance.

So the answer really is 'everything.' With the caveat that everything = everything that can be bought.

But than doesn't everything gain a new cost? Time.
If you have all the money in the world eliminating the concept of a price tag, than it just becomes a question of what you can do with the limited amount of time you have on this earth.

ie: If I had all the money in the world I could buy an LFA and drive it around the Laguna Seca to my hearts content.

But this would take up time. I would have to fly over there, I would have to buy the car and have it shipped there and than I would have to invest time in actually doing the activity. This could entertain me for a week or whatever.
This means this activity cost 1 week of my life.

Thus, as I stated previously, the question is becomes not one of what can ultra rich buy but what do they do with their time.
God I can talk out my ass sometimes...

Good to see you back btw Starky. There's an admin position available... just sayin'.
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13-08-2014, 12:49 AM
RE: What does money buy the ultra rich?
With these fuckers greed is its own reward.

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13-08-2014, 03:11 PM
RE: What does money buy the ultra rich?
In this post I tried to make the point that the ultra rich, probably inadvertently, create trade deficits with the poorest countries that ultimately benefits not the rich but average americans (and there seems to be every indication this is going on in other rich nations as well, not just the United States). I also made the point that their continued investments doesn't buy material goods but greater economic power. Any thoughts? Discuss?
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13-08-2014, 06:30 PM
RE: What does money buy the ultra rich?
A while back my brother was hurt at work. I can't remember all of it, but he went to see the Doctors that Workman'sComp told him to, and they said nothing was wrong, and he said his back still hurt (alot). Went to see our family phisician, but he said he didn't want to risk making a diagnosis that differed from that of the Workman's Comp Doctor, blah blah (long story made extremely short).
Not saying any malpractice took place, or that a Doctor paid by Workman's Comp would want to avoid having to announce to his employers that more money would need to be spent to find, and/or fix, my brother's problem, but in that instance, being ultra rich would have been nice. Just so I could have afforded the best care possible, instead of the care they have available for people without enough money to pay.
Meh.
Money may not be capable of buying happiness, but it can pay for the earthmovers required to bulldoze down quite a few of the obstacles, you might come across, that stand between you and that happiness.

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