http://www.businessweek.com/investor/content/sep2010/pi20100927_440820.htm

Yet what about strengthening the Main Street economy for the longer term? It's underappreciated, but America's dramatic three decade-plus rise in income inequality was a fundamental economic force behind the 2007 though 2009 implosion in the economy and financial markets. For instance, after remaining relatively stable for much of the postwar period, the share of total income that went to the wealthiest 10 percent of households rose from 34.6 percent in 1980 to 48.2 percent in 2008. Raghu Rajan, economist at the University of the Chicago Booth School of Business, calls income inequality one of three major factors that still threaten to keep the economy unhealthy and crisis-prone in his 2010 book, Fault Lines: How Hidden Cracks Still Threaten the World Economy.

Novel concept... explore ways to prevent the cycle of boom/bust from happening yet again
Put somewhat differently, "we need to start focusing on the long-term solutions now," says Rajan. "I would like to get out of this recession in a way that is sustainable, that does not merely pump up growth in the short term, only to see it collapse later."

The rise in income inequality is well-documented. Median income began stagnating in the early 1970s, and income inequality started to surge in the early 1980s. The benefits of America's economic growth since then have mostly gone to a wealthy minority, while the majority of workers have seen their earnings stagnate at best and decline at worst. The long-term trend is toward a small group of financiers, chief executives, professional athletes, entertainers, and other earnings titans pocketing much of the wealth generated by society.

"I would like to get out of this recession in a way that is sustainable, that does not merely pump up growth in the short term, only to see it collapse later." Are you implying that only rich people did that?

Because it was poor people doing that that caused the housing market to crash.
Median income began stagnating in the early 1970s, and income inequality started to surge in the early 1980s. The benefits of America's economic growth since then have mostly gone to a wealthy minority, while the majority of workers have seen their earnings stagnate at best and decline at worst.Hmm.

http://upload.wikimedia.org/wikipedia/en/thumb/a/a7/United_States_Income_Distribution_1967-2003.svg/800px-United_States_Income_Distribution_1967-2003.svg.png

I'm implying nothing, merely quoting the article.

Certainly the gap between the wealthiest people and everyone else has been growing by leaps and bounds.
The rise in income inequality is well-documented. Median income began stagnating in the early 1970s, and income inequality started to surge in the early 1980s. The benefits of America's economic growth since then have mostly gone to a wealthy minority, while the majority of workers have seen their earnings stagnate at best and decline at worst. The long-term trend is toward a small group of financiers, chief executives, professional athletes, entertainers, and other earnings titans pocketing much of the wealth generated by society.

...

To take the reading of another measure of the trend, average inflation-adjusted, or real, income per family grew from 1993 to 2008 at a 1.3 percent annual rate—an increase of about 21 percent over 15 years, according to data compiled by Emmanuel Saez, economist at the University of California, Berkeley. Remove the top 1 percent from the calculation, and average real income growth falls to 0.75 percent, an increase of only 12 percent over 15 years.

About credit
The trend had one unfortunate side effect: Households took on more and more debt even as their incomes stagnated to keep up living standards. Policymakers found it easier to embrace the "democratization of credit" rather than address the factors behind income stagnation. The motivation wasn't bad. After all, three decades ago it was much harder for median-income families, low-income workers, single women, and minorities to borrow than it is today. Credit that once was limited to the well-heeled became steadily offered throughout society.

"It has been a policy, a public policy in this country, to make more credit available to lower- and moderate-income people, to people starting out, to minorities," says Edward L. Yingling, head of the American Bankers Assn.

The cumulative net result of the loosening of credit, however, was catastrophic. The credit epicenter to offset the consequences of income inequality was housing, but the loan window was open for anyone with a pulse. Credit cards, auto loans, and student loans saw dramatic expansion as well. By the time the consumer credit bubble went bust in 2007, the household-to-GDP debt ratio had reached its highest level since the onset of the Great Depression. Put somewhat differently, household debt hit a record 133 percent of disposable personal income by the end of 2007, a sharp increase from the average debt burden of 90 percent only a decade earlier.

I'm not sure what Real Median Income means, versus Median Income. I'm assuming there's a difference.

A simple model:
I make 10.
You make 20.

Inflation is 10% per year. Wage increases cause inflation, and inflation cause wage increases. So just for a simple model, let us say that wages and inflation are both 10% per year.

Year 1
I make 10.
You make 20.
The gap is 10.

Year 2
I make 11.
You make 22.
The gap is 11.

Year 3
I make 12.1
You make 24.2
The gap is 12.1

Year 4
I make 13.31
You make 26.62
The gap is 13.31

Etc, and so on, year after year.

Do you see the pattern?

As both wages increase the same percentage per year, the actual gap increases apparently disproportionately. The gap widens, the difference increases disproportionately. But the actual percentage increase for both you and I stays the same, which is tied pretty close to inflation. Raising wages to meet the extra cost of living entails, and causing inflation in the costs of goods and services at the same time.

This is how the rich get richer, and the poor get poorer.

What you want is something like this.

I make 10
You make 20.
Gap of 10.

I make 11.
You make 21.
Gap of 10.

I make 12.
You make 22.
Gap of 10.

It doesn't work that way. For if a hundred years ago, I am a plumber making 10, and you are a doctor making 20. After a hundred years, I will be making 110, and you, the doctor will be making 120(gap of 10). It doesn't work that way.

It is very simple, and yet simply ignored by studies or conclusions such as those you post or bring up. It does not take a PhD in Economics to know how this works.



This human group behavior is one of the underlying causes of the housing collapse.

If I buy a house for 100,000.
And real estate goes up in value 10% per year, after a year I have increased my wealth by 10,000.

But if I speculate, and buy another house for 200,000.
After the same year, at 10%, I have increased my wealth by 20,000.

This motivation(greed), helped cause people to buy the biggest most expensive homes that they could just barely afford. Thinking that they could sell the house in the future(speculation), for a much greater net amount, even though the percent increase would have been the same for a smaller more affordable home.

Again, a PhD in Economics is not required to understand or predict this behavior. It is simple math tied to a simple motivation(greed)>

And because there are many many more people making 10, than there are who can make 20(at the start), after any given time, the median wage will apparently NOT increase at the same rate as those who are making 20(at the start). Even though the percentage increase is going to be the same.

Another thing to remember is how small of a group the top earners are.
We may mention the great salaries that the CEOs of the Fortune 500 companies make. And think it unfair.
But remember, that is only 500 people. Out of 300+ million. Most CEOs of the vast majority of companies don't make a whole lot of money(or at least relatively to those Fortune 500 CEOs), it is not uncommon for some workers or sales people to make more than the owners or CEOs in a very large group of companies.

One of my first bosses, third boss actually, was very blunt and truthful when he told me, "I want my top salesman to make more than me. And he often does. That way I make more money." He is still in business, in a very very cutthroat ruthless business.

The trend had one unfortunate side effect: Households took on more and more debt even as their incomes stagnated to keep up living standards.Exactly. Poor and middle class people keep wanting to raise their living standards even though the value of their labor doesn't increase.

The main debt for a middle class family is their home, so they kept buying bigger and bigger houses, hoping they would always increase in value and act as a tax-advantaged ATM machine.

No one put a gun to their head and forced them to buy the most expensive house they could just barely afford, and then to walk away when things went sour. (The houses they buy today, incidentally, are far bigger than the houses much larger middle class families bought in the 1950s and 60s.)

They, not the rich people, created the situation out of their own greed and irresponsibility. The main sin of the rich people who lent them that money was to hope that they would actually pay it back as they promised.

The long-term trend is toward a small group of financiers, chief executives, professional athletes, entertainers, and other earnings titans pocketing much of the wealth generated by society.And who generates that wealth?

For example, Steve Jobs is filthy rich. But he was responsible for creating the company that is now the second most valuable in the world, right behind ExxonMobil. Just by thinking up ideas for new gadgets and convincing people that they need them.

I don't see how Steve Jobs being rich hurts the average middle class family, who now live in more comfort than a larger family in the 1950s did, with a bigger house, more cars, and more comforts including iPhones and iPads.

I also have news for the poor/middle class people. One share of AAPL stock cost under $100 just a couple of years ago, but at this very moment it's worth $287.50.

Instead of buying the latest $99 consumer gadget during the recession you could've bought a share of AAPL stock, and made $200 profit which would've been taxed at only 5% if you're poor.

Instead of whining about how much more money Steve Jobs makes compared to you, you could've let him make your money for you, for the cost of 10 seconds of clicking.

Thanks, Steve Jobs, for making me richer.

Investing in a single stock is not a smart move for a poor person to make. It's gambling.

A person who starts his or her own business is investing in a single stock.

Would you say that someone starting his or her own business is making a poor move?

If you believe that a company will do well, that it is well founded, that it has a good product, and good management. Investing in that company is not a bad idea.

For example, I believe that RIM, an Apple competitor, is going to be a company of the future. Or Google Droid, as well.

I predict that both of these companies are going to grow and do well. They do already. And fill spots in the same market that Apple chooses not to fill.

Who is to know, exactly. Apple itself was next to in 1996, or went through(started) bankruptcy.

"An lutenit Dan, he bout me sum stok in sum fruit company, called apple. An Jenny tol me, she yelled, Sell Forest, Sell." "An I was sellin".

Investing in a single stock is not a smart move for a poor person to make. It's gambling.
If you believe in the company, know that the product or service has a future market...

A poor person is stupid not to invest, to become a part owner of that company.

That is what investment(in a stock) is, you are becoming a part owner of a company.

When those facts are forgotten, that is when it is merely gambling. Might as well take your money to some Indian slots and flush them down the drain. Which is what millions of Californian poor do every day.

I don't agree with Tudamorf ever. I have agreed with him twice today. To the point, that I think he is going to jump out and spring a, "ah Ha" on me.

Investing in a single stock is not a smart move for a poor person to make. It's gambling.I didn't say only buy one stock and nothing else.

I said, here is an example of how an average person can tap into the same wealth generating power that Steve Jobs has.

You don't have to be as rich, or as smart, or as talented as he is.

You don't even have to do the work that he does.

All you have to do is click a few buttons and he does it for you.

Exactly. Poor and middle class people keep wanting to raise their living standards even though the value of their labor doesn't increase.
You're suggesting then that value of someone wealthy who increases their wealthy by leaps and bounds every year somehow keeps improving the value of their labor (if they actually do any).

You're suggesting then that value of someone wealthy who increases their wealthy by leaps and bounds every year somehow keeps improving the value of their labor (if they actually do any)."If A, then B" does not logically suggest "if B, then A".

For example, I can make money through passive investments, which takes very little effort. Your beloved proletariat can too.

However, that does not make it reasonable for them to believe that the value of their labor should increase simply on account of the passage of time.

This discussion is focussing on the wrong issue.

The problem is not in absolute versus percentage (though that is easiest to discuss and discredit).
It is in the fact that an small percentage owns an increasingly large portion of the pie as this leaves less for everybody else. This is not so much of a problem as long as the pie is growing more quickly than the biggest eater gobble up their increasing share and that is why first the governments have been encouraging loans and second why we now have a problem.
Loans have the same effect as heating air in bread. It makes the bread look bigger but it does not actually add any substance. Putting lots of loans in the hand of people makes them able to buy things, but it does not actually make them richer, because eventually the money has to be paid back, with interest, and the only way the vast majority of people can do that is by getting more loans to pay off the earlier debts. It is easy to blame the people who bought houses they could not afford, but the fact is that in many cases this was the only way they had to make their bank account keep up with the increasing expenses when their income was steadily falling behind the growth curve. And banks made it very very easy for them to do so.

If the numbers I read last week are correct in 2009, the year that almost everybody lost a lot of money the 400 richest americans had their total possessions increase by some 10 pct and now collectively own 1 trillion dollar worth of assets. Much of that is in the forms of shares in companies, but it is indicative how much of the wealth generated by the entire population goes to a tiny fraction of it. These are third world economy patterns and it will lead to money and influence increasingly concentrating in the hand of a few families. After all they will want to keep their wealth (and the power it buys) in their own hands. Unless this development is checked the logical outcome is a new form of feudalism with a small international elite owning and controlling almost everything and a vast majority of people subsisting on their suffering.


Eri

Well said, Eri. It is a modern day sort of feudalism.

I'm not at all for communism, as someone stated. I just think things are out of hand when most of the wealth is concentrated into a tiny % of people. It's like the days of the robber barons all over again. A strong, growing middle-class is what this country has always been trying to achieve, at least for as long as I can remember, but how can you do that when the rewards only go to the top? A good college education is becoming ever further out of reach of the middle-class, not to the mention the poor, and that's only going to stratify things further.

Productivity is measured by what the people at the bottom do far more so than the people reaping the greatest rewards.

Giving the workers more money and the elite less also has a stimulatory effect on the economy. Is it more than the other way around? I don't know, I suspect it might be. If you don't have much, you tend to spend almost everything you get. If you have a lot, you tend to hoard it, perhaps invest it. In the former, you could alleviate a lot of misery, the later, you just make a very rich person that much richer for no really good reason.

10 workers are making a boat.
They make 10.
The boat costs 100 to make.

Give the boatmakers double.
They make 20.
The boat costs 200 to make. It is the same boat.

Give all workers double.
Everything will double in cost.
Including things that workers buy.
You have moved no where.

Giving more money to workers does stimulate something economic, inflation.

If the numbers I read last week are correct in 2009, the year that almost everybody lost a lot of money the 400 richest americans had their total possessions increase by some 10 pctThe very beginning of 2009 was the low point of the market, so almost anyone investing in stocks made money that year. (Although, if they had bought those stocks just a few years prior, they probably still lost money on the deal.)

You don't need to be one of the 400 richest Americans to do that.

I don't know where this notion, that you have to be rich to invest in companies, comes from, because in America the very poor are given the largest tax incentive to invest.

If they're too stupid to take advantage of that opportunity, then that's their problem.Much of that is in the forms of shares in companies, but it is indicative how much of the wealth generated by the entire population goes to a tiny fraction of it.When Steve Jobs took control of Apple (again) in 1997, its shares were selling for about $4 and the industry had generally written off the company as dead.

Apple's shares are now worth $287 and it's the second most valuable company in the world.

The janitors and secretaries at Apple did not generate that wealth. Steve Jobs did.

And he didn't do it by taking wealth from the janitors and secretaries either. In fact, he created wealth for them by hiring many more of them.

Just as he created ~$260 billion in wealth for all of Apple's shareholders, rich or poor, out of thin air.

You're telling me that that's a bad thing, that you'd rather that wealth had never been created, just because Steve Jobs himself is a significant beneficiary of it?

A person who starts his or her own business is investing in a single stock.

Would you say that someone starting his or her own business is making a poor move?
I can only say "it depends" because that is an entirely different situation, one where the person has substantial control over the business's performance, as well as complete information on how sound the business is.

Anyone else investing does so with incomplete information, and so accepts some risk. Generally the smart way to manage that risk is to diversify: invest in a number of different companies that you believe to be sound, rather than putting all your eggs in one basket.

And of course the more expendable income you have, the more you can ignore risk in favor of expected return.

A strong, growing middle-class is what this country has always been trying to achieve, at least for as long as I can remember, but how can you do that when the rewards only go to the top?Only?

You mean when you're employed, you don't get a salary and benefits? Which you can then use to buy your house, your car, your fancy clothes, your computer, your iPhone, and so on?

You also missed the part about it being relative.

A Mexican looking at the average American's wages would say, "damn that rich American is hoarding all the wealth."

And a Rwandan looking at the average Mexican's wages (while dodging machetes and trying not to starve) would say, "damn that rich Mexican is hoarding all the wealth."

Does that mean we should evaporate all the wealth until we're down to the Rwandan's level and everyone is equal?If you don't have much, you tend to spend almost everything you get. If you have a lot, you tend to hoard it, perhaps invest it.Stupidity is why many poor people stay poor while others become rich.

You're telling me that that's a bad thing, that you'd rather that wealth had never been created, just because Steve Jobs himself is a significant beneficiary of it?
You're overstating Steve Jobs' contribution to society. It's not like he, or anyone at Apple, invented the mp3 player or smartphone, or even innovated much in those areas. Apple's primary contribution is marketing them to the masses. (I will concede that it is beneficial for an increased number of people to be running a Unix-based operating system, though, and credit is deserved for making it relatively user friendly, something Unix is not known for. For that he deserves some wealth certainly, though I would argue a greater portion should have gone to the people who made it happen.)

Tuda worships Steve Jobs, Palarran. Maybe when he dies he'll get 72 iPads in paradise.

http://freakonomics.blogs.nytimes.com/2010/09/09/the-magic-income-number/

and so accepts some risk
Yes.

Panamah stated, as most communists do, that when one invests in shares of a company, and makes money that it is relatively undeserved.

But what they make is in correlation to the risk that they take.

For example, my 10 boat makers example.

There is risk in building boats.
They can catch fire before being sold.
They can sink.
The best boat maker may die while making the boat.
They can have no buyers of their boat.

Shares spread out that risk. And spread out the profit. But the profit made is directly tied to the risk involved. Profit is only available if there is risk.

I could try and sell you blades of grass.
But there is no risk in that.
You could go outside your house and collect all the blades of grass you want. Losing nothing in that venture.

A venture only gains profit, when there is some risk.
Modern communists dismiss this risk, and say that it does not matter.
And that those who profit, had no risk in the first place. They just exploited the poor. Our recent downturn in the real estate market, and the Stock Market were very cogent reminders that risk is very real for those who invest. Anyone who denies that is a ****ing retard. And has no business in discussing economics, or if they do they should be laughed at.

And of course the more expendable income you have, the more you can ignore risk in favor of expected return.
You can never ignore risk.

Even Steve Jobs, Bill Gates, and Warren Buffet worry about risk.

http://www.youtube.com/watch?v=G2zpWw_0Er4
http://www.youtube.com/watch?v=tgbZzgyHZgI&p=6EA67237A8E90917&playnext=1&index=5
http://www.youtube.com/watch?v=VTFmUuJlTZY&feature=related

Etc.

Risk.
Bill Gates states that Apple was on the verge of collapse(lost money) until Apple acquired Next, bought it, with risk. And brought Jobs back in. As is stated above by Bill Gates.

The money that Apple shareholders, that Tudamorf mentions, did NOT come magically. It came from people putting their hard earned labor, and the money from that labor, at risk. To make the profit, in increased value to that company that Apple does.

I previously thought that Tudamorf was the commie, and Pan was the sensible capitalist. Here to come to find out, I had them reversed.


How many of you bought a Next computer? I didn't.
I only know one person who did.
His name was Tim Berners Lee.

And he invented the VERY first www webserver software on it, and wrote http on it.


ps, I'm still waiting for Tuda to jump out and yell "Oooga Boogaa, Gotcha".

You're overstating Steve Jobs' contribution to society. It's not like he, or anyone at Apple, invented the mp3 player or smartphone,No. He just invented the the successful ones.

Anyone remember the Newton?though I would argue a greater portion should have gone to the people who made it happenLike who?

The people who made the Newton happen?

They are mostly fungible. Steve Jobs proved that he isn't.

Tuda worships Steve Jobs, Palarran.I'm citing him as an example of a very rich person who earned every penny of it.

He's not the only one.http://freakonomics.blogs.nytimes.com/2010/09/09/the-magic-income-number/Try living in San Francisco on a $75K salary. I assure you, you'll be much happier with $750K.

I can only say "it depends" because that is an entirely different situation, one where the person has substantial control over the business's performance, as well as complete information on how sound the business is.Public companies are required, by law, to publish this information.

And it is a federal crime to invest based on information that's hidden from those publications.

A fundamental principle of our markets is that you're allowed to make money based on skill (or luck), but not based on disparity of information.

A poor person buying one share of AAPL does so based on the same facts that Steve Jobs has. And the poor person takes much less risk than Steve Jobs does, does far less work, and gains more profit (relative to his investment) than Steve Jobs does after the work is complete.

And it is a federal crime to invest based on information that's hidden from those publications.
You're assuming the publications aren't fraudulent themselves. Have people who invested in Enron based on those been properly compensated yet? What about Lehman Brothers?

When you start your own business you're going to have much more intimate knowledge of the business's soundness than that of any publicly traded company. And I claim that that's arguably a justification for not diversifying investments the way most people should.

When you start and run your own business you also bear 100% of the risk.

And you the business owner may not know what all of the risks are until you meet them.

You're assuming the publications aren't fraudulent themselves. Have people who invested in Enron based on those been properly compensated yet? What about Lehman Brothers?If you want to talk about criminals, there are plenty of poor ones as well as rich ones. That's a whole other topic.When you start your own business you're going to have much more intimate knowledge of the business's soundness than that of any publicly traded company.Quite the opposite: when you start, you really don't know anything about how sound it will be, but as it becomes more established, you gain a clearer picture.

Investing in a new, unproven business is a big gamble, full of unknowns.

Investing in an an established publicly traded company is a well calculated gamble based on a wealth of data.

The main reason entrepreneurs don't diversify is that they physically can't, because starting a new business is very demanding.

I think a lot of people make the automatic assumption that because someone is wealthy they were smarter and worked harder. They forget there's a bunch of other attributes that can go into that: unscrupulous, greedy, short-term thinking for short-term gain, good at salary negotiations, criminal, exploitative, born into wealth, and others.

I think a lot of people make the automatic assumption that because someone is wealthy they were smarter and worked harder.That's a ridiculous assumption that no one shares.

However, smart people who work hard rarely stay poor.

So it's reasonable to assume that people who stay poor are either stupid, lazy, or content to stay poor.unscrupulous, greedy, short-term thinking for short-term gain, good at salary negotiations,Are you implying that those qualities are inconsistent with being smart and working hard?

If you're good at negotiations and manage to become rich (legally) in the short term, it's probably a combination of being smart and working hard, or being extremely lucky.