It’s not common sense, it’s how you’ve defined your argument so that you get the conclusion you want.
If it’s a state of mind how the hell do you propose to know the state of mind when a guy loses $40million? You act as if he’ll just brush it off and look for the next swamp land to buy. Joe Schmoe might be just fine losing that $4000, it’s entirely specific to him and him alone. To him it might just be his never ending string of bad luck that he brushes off.
I’m willing to believe that that was true in the past, possible as recently as the 60’s or 70’s or so. I don’t think that it’s true any more. I think that the system has been adjusted in such a way that the rich now have a basically zero chance of actually losing their fortune and being forced to quit their lifestyle.
You also mention lottery winners, and in that case it’s certainly true that they can and often do lose it all. The same is true for others who get their wealth by some means other than the corporate system. However, I think it’s safe to say that the blogger I linked to and others making that sort of argument are not referring to lottery winners, football players, and M.C. Hammer.
Here’s 5:
http://www.mademan.com/mm/list-5-billionaires-who-lost-it-all.html
Divorce, debt, debt, corporate take over, and the last is kind of funny:
Robert L. Johnson. Johnson became the first African-American billionaire when he sold his BET (Black Entertainment Television) to Viacom for close to $3 billion in 2001. Viacom also assumed the $570 million in BET’s debts, and Johnson received $1.5 billion in Viacom stock. However, his fortune started to dwindle with an extremely expensive divorce from his wife and BET co-founder. Also, Viacom stock declined and his investments in real estate felt the recessionary nightmare. He tried to develop an airline but was thwarted by the FAA. He became the principal owner of a Charlotte, North Carolina, basketball team that began playing in 2004-2005, but it will take a lot of favorable conditions to make that into a profitable franchise.
So there is a guy, like in your OP that had billions and pissed it away on two failed investment ventures.
Unless they are total idiots, the risks the rich take are not of the level that losing means they don’t eat, or even have to move out of their mansions. But they do take the risk of looking stupid by losing, and of losing prestige with the other rich.
Now, as for the quote, those who say 1) should think about the guy with lots of credit card debt. Taking on some freelance work beyond his regular job may not pay off all the debt, but I bet conservatives would call him a bum if he didn’t do it. Taxing the rich a bit more may not pay off all the deficit or the debt, but it helps - and with probably less economic damage than throwing more government employees out of work or cutting unemployment benefits.
As for 2), the minor tax increases being proposed are hardly enough to remove the rewards for taking risks. We compute expected benefits by seeing if the reward times the probability of success is greater than the investment, taking the discount rate into account, of course. While increasing the tax rate may decrease the rewards somewhat, the uncertainty in the probability of success is so great that it far outweighs any effect of a higher tax rate.
Anyone making a decision where the return is so close to the break even that the tax rate matters is fooling him or herself. In real risky situations you either lose (where a higher tax rate means your writeoff is worth more) or you win, where the return will be great enough that it won’t matter.
It is also safe to say that they are not defining “risk” how you are. Safe to say that you are also making some big presumptions on what matters to whom.
It is furthermore also safe to say that the blogger and others who make that argument are wrong for other reasons.
So, we’re not really talking about rich people at all, then, since you seem to agree that there are plenty of rich people who can still go bankrupt. There’s nothing about having money that makes it impossible to lose. Some people have personal and family connections that they can rely on to avoid sleeping in the gutter. Are you just upset about cronyism and nepotism? I don’t deny that it exists, but how has it fundamentally changed in the last few decades?
I think that list of 5 would be relevant to the discussion only if they were destitute after “losing it all.”
Someone who’s able to purchase a basketball team doesn’t sound “destitute” to me.
I would think it’s evident that the quote which I used to started the discussion is referring to the class of businessmen, investors, and lawyers who make up the bulk of the rich, and that the very small number of lottery winners, athletes, singers, and such who happen to be rich are irrelevant to the discussion. I don’t think that Tom Cruise and Allen Iverson are investing enough in America’s future that they’re going to tip the balance one way or another.
I’m actually in full agreement that many of the fiscal policies of the government in recent years have been folly; read by comments in threads about TARP if you want to verify that. However, this thread isn’t intended for tackling that issue. It’s for tackling the specific issue of the specific argument against taxing the rich that one blogger raised. I claim that by the law of diminishing returns, the rich feel little if any pain if they lose their investment money, and hence are experiencing little if any real risk.
Now you said this:
It is, of course, true that my scenario was grossly oversimplified to make a point. Broadly speaking, though, I don’t think your objection matters too much. If we’re look at the investors who actually matter, such as investment companies and “angels” and the like, we’re talking about people who have a lot of money that they can invest safely. They’re also likely to split their money across many different investments rather going all-in on one big one.
Absolutely accurate analysis. This is why it’s important to preserve a strong middle class and to have a good social safety net to help the poor … because society benefits when people are in a position to take risks, not just the extremely wealthy who can take risks with no fear of destitution, but the middle class people who might take the risk of going to a better or higher paying job when they get burned out on their old job instead of sticking with it and doing it half assed. Or when they can take the risk of going to school to become more economically viable/useful. Or even take the risk of starting their own company. If you’ve been paying any attention at all you’ve heard many stories about people staying in jobs they hate because they fear losing insurance or their ability to make money. That’s a social loss. We are experiencing these losses because of the destruction of the middle class. And it is Republicans and conservatives, the people who CLAIM they love entrepreneurship, education, etc., who are driving the social forces that are making us lose it.
The rich are as mottled a class as the poor are. There is no representative of the rich. It includes bankers and financial pros, people who inherited wealth, people who got lucky in computer programs and aps, lotto winners and thieves. Nobody can predict what they will do.
Some make and lose fortunes . Some sit tight not willing to risk their security. They are people.
But that’s not the analysis that matters.
Let’s say John Dewey is rich because he owns a company (worth $60million) that makes diesel engines. The company has done really well allowing him to amass $40million in cash. He’s thinking about putting that $40million back into the company to expand production, research, and advertising in order to gain more market share leading to more profit.
Problem is, a huge chunk of his sales are to the yacht industry. He’s looking at his books and notices that when the top marginal tax rate went up, yacht sales went down. When Bush cut taxes yacht sales went up.
He also knows that yacht sales are heavily tied to the health of the overall economy, if it looks like the markets are going to tank, rich people might not be as likely to need a new engine.
Again I want to make the point that it has very little to do with the actual taxation, but with the general direction of the economy and the level of incompetence of those in charge.
If “taxing the rich” was able to eliminate the deficit there wouldn’t be this issue. Many of those opposed (and not investing) are looking past the tax increase at entitlement plans (including the military) that will continue to cost more, and hence require more taxes. It’s this reason why Clinton’s tax policies improved the economy and Bush’s tax policies destroyed it. We can’t “go back to the Clinton era” because the deficit is that much worse.
You were so close to having it all, and it’s precisely that which is killing the left in this country.
Social safety nets aren’t for the poor, they are for the middle class. They include things like employment insurance, FDIC, mortgage insurance, and universal health care. The point of social safety nets are to prevent the middle class from becoming poor. That the poor benefit is a happy side effect, but are not the reasons for those programs.
Even programs like Medicare and Social Security and meant for the middle class. They pay into them throughout their careers, then get it back in retirement. It just so happens that poor people also benefit from those.
It’s been funny/sad watching friend in the US unable/unwilling to change jobs because of health care. With all the unemployment right now, there are millions of people that want to leave their jobs but can’t. I personally know of 5 women that recently had children and wanted to say home to raise them, and another that wants to have kids but is waiting. They stay in their jobs because their husband’s job doesn’t provide health insurance.
The rich don’t really take risks. they eliminate risks they encountered on the way up. They heavily insure themselves and their assets and employ expensive lawyers to maintain their positions . They diversify their holdings to eliminate disaster. All this insurance costs money but it is a write off anyway.
It the middle income guy who takes the big risks to get to the top. Failure on his part could land him with debt, no assets at all, and no income, an unenviable situation that most of us haven’t been in for some time.
The original social safety nets were for the poor. Welfare, food banks, homeless shelters, and the like are the obvious examples. As time has gone on, American society has shifted away from those things towards programs geared towards the middle class. Now we also appear to be shifting away from those towards programs geared towards the rich.
No, those aren’t social safety nets. The original safety nets were things put in after the Great Depression that helped people who had become poor.
The point of a social safety net is to catch people on the way down, not to help those that are already down and have no intentions of moving back up. They do help those people, but that’s not the point.
Not to say you can’t have programs that simply help the poor be poor, but what’s the point?
Well, if you go back far enough there wasn’t middle class, it’s a reasonably new creation. Hence, the point of social safety nets helping to prevent the middle class from falling into poverty. Those programs also catch the rich that should find themselves cast out on the street. Unless of course you don’t want to help rich people that become poor?
There is no question the rich do things to mitigate their risk, which begs the question “why doesn’t everyone else?”
The poor guy in the OP could haven’t avoided a bunch of risk by getting a car with a warranty. Costs a bit more, but protects from the potential downsides. He could also make sure he’s got enough insurance so that an accident doesn’t ruin him.
Your point is sound, but does nothing to alter the essential point of my post, which is that risk taking by middle class people is good for society too, in fact, as you point out, a strong social safety net helps them not just the poor, which also encourages risk taking. So, my point is redoubled in force here … I’ll accept that.
Yes, it is a good point. We need people to be able to take risks; nothing ventured nothing gained.
What you are describing is upward mobility, and what people are uneasy to admit is that programs that help the middle class get richer also help the rich get richer. Which leads to a lot of liberals shooting themselves in both feet because they want to stick it to the rich while trying to help the poor. In between the two are middle class wage earners that our society depends on. They need real social safety nets that don’t have a ton of conditional constraints, that means some rich people will get them. They need fewer regulations that hamper business transactions, but that helps the rich.
We need policies that let people get richer, and stop them from getting poorer.
I’ve nothing against the rich getting richer so long as it is not at the expense of the middle class, which it arguably is right now. I’m neutral on the rich: I don’t oppose their getting wealthier, but I think in a capitalist society wealth confers so many huge advantages that helping the rich is rather pointless. Hauling coals to Newcastle, really.