This is a complex question and controversial, but a couple of recent things I read that were interesting:
-A paper from the economist Brad DeLong (it’s actually from 1998) about the economic history of billionaires in the US. It primarily questions the utility of “billionaire creation” in spurring broader economic growth. But one interesting tidbit is the level of control over the economy that Wall St. had in the WWI era, lasting until the onset of the Depression. JP Morgan, through their business expertise and their dominant market position, had a lot of say over where the nation’s investment dollars were deployed.
-Mark Cuban, on his blog, penned an interesting piece on the decline of the IPO market. He argues that IPOs used to generate a trickle-down effect to the workers of those companies, as their stock options vested. But tech companies today tend to stay private and get bought up by larger companies, and the workers are finding their options rendered worthless while the upper management make out like bandits.
I’m of the opinion that Wall St. has abdicated any role in guiding investment dollars into productive channels because they’ve found it’s easier to make quick windfalls through trading and financial engineering. I think that’s a major contributor to our economic stagnation.
I would also note that when we talk about inequality, it’s not just about differences in compensation. If job growth is sluggish and limits opportunity, I consider that a form of income inequality.
401ks are as risky as you want them to be. No one is stopping you from buying T-Bills if you want (essentially) zero risk and a defined benefit.
I think there’s a few things driving income equality:
(1) Globalization is leading to bigger companies. The bigger the company the bigger the impact of the CEO. By that, I mean if a good CEO makes employees 1% more productive, then the raw number of productivity increase is greater if the company is 100,000 vs 10,000. So it’s natural that if CEOs are creating more value now that they will capture more value for themselves.
(2) Technology is driving out small businesses. Take taxi companies, for example. The US probably had 100s if not 1,000s of small taxi companies. The owners of those made a decent to semi-rich living. We are on our way to having 2 taxi companies in the entire US in Uber and Lyft. Those companies are starkly split between the very well paid programmers and stupidly rich founders vs the very badly paid drivers.
(3) Technology is also creating a stark divide between skilled and unskilled work. Take Uber as an example again. You have very high skilled programmers and essentially unskilled drivers. Very different productivity will lead to very different compensation.
I’m in the 5%. It seems silly to put me in the same category as the Donald Trumps and Mark Cubans of the world.
I don’t own a business.
I don’t run a large corporation or even a major division of any corporation.
I can’t influence policy at the local, state or federal level.
My financial decisions have little impact on other people’s lives.
See when I think of “rich” I think of the guys who own and run the companies, earning tens or hundreds of millions a year. Not guys like me shleping our laptop bags back and forth to Wall Street every day making $200k a year.
I think they might also want to be able to go to a doctor when they are sick and to be able to afford to educate their children.
According to this site’s calculator, he would need to be making over $325,000 a year to save 10% of his salary in order to have 1 million dollars after 20 years.
Actually, I’ve seen studies that show that companies that lay off workers underperform in the long run. (In the short run they do get a bounce.) That’s because they lay off workers because they are in trouble, and layoffs are an easier solution than fixing the business and getting out products customers want.
I think there is a fairly wide consensus that the 401K experiment was a failure, given the amounts saved. It wasn’t a failure for you and for me, but that you (and I) have financial advisers is exactly why. 1., we have enough money to get one and 2. we can get advice about not doing stupid things - like selling on the bottom. Which lots of people did. Or not contributing enough.
Wall Street loves 401Ks - plenty of fees there, not giant pension funds who can negotiate deals (while some are stupid also.)
The point of pensions and Social Security is not to beat the returns that a reasonably skilled investor could get, but to guarantee retirement income for the guy who thinks a hedge fund is a savings account for landscaping.
Well, perhaps a term like “wealthy” or “comfortable”?
It seems the term rich carries too strong connotations, especially on the Dope. It seems if you’re not being carried around on a golden throne, you’re not “rich”.
When I earned $75,000 a year I already felt very comfortable, and money effortlessly piled up in my bank account. I had to develop an internal voice to tell me “You shouldn’t be driving that old car / renting a house / wearing a suit that’s not tailored” because I was just earning so much more than my appetite for spending.
While that’s a long way off being a millionaire, I’d say it’s closer to that than someone struggling each month to pay their bills, living hand-to-mouth. Because much of my income was disposable income and I had money to invest.
Sure, but I think it would be more silly to put you in the same category as people struggling to pay bills, and basically living hand-to-mouth.
When I earned $75,000 a year, I already felt very comfortable. I had to try to develop more refined tastes, because I was only spending a fraction of my income and felt like I wasn’t making the most of my hard work. Let alone earning nearly 3 times as much.
I don’t know whether those who had the means, motive and opportunity to manipulate the system to promote inequality have done it or not, but even if they have the answer to the question in the OP is not “yes”, in my opinion, because the Executive, Legislative and Judicial branches had the responsibility to find out what was going on and act on behalf of the citizens they represented, which they didn’t.
I think you are missing the point. The point is this narrative that you will get “rich” just by saving all your money is bullshit. Yes, you should save more than you spend. That’s just common sense. But the average person does not make enough money to squirrel away enough of it to become a millionaire in any reasonable timeframe. Most don’t earn enough to save for a down payment on a house or a college education.
Rich people and the “comfortable” people who kowtow to the rich like to believe their own narrative that they became wealthy through their own hard work and ingenuity. That if Elon Musk could live off of $1 a day and become a billionaire, then all those struggling poor people out there can do it too.
The more complex question is “what should those actions look like”?
Some inequality is good, even necessary. We want a world where people with exceptional abilities are rewarded for them. However the system does not provide everyone the same opportunity to use their abilities to their full potential.
However, if you watch Fox News, they present this narrative where any attempt to level the playing field or protect the middle class is “socialism” and that it is largely “lazy Liberal losers and no-account colored people” looking to steal handouts from the working and middle class. And the working and middle class largely buy into this narrative, thinking that their interests are aligned with the billionaires and mega rich.
This culture manifests itself in a number of ways to create income inequality. Weakening regulatory oversight on banks. Tax breaks for people who don’t need them. Lack of investment in education and infrastructure. Being tied to a outdated health care system that leaves millions uninsured.
In other words, Wall Street is symptomatic of an overall American cultural mindset of “if you’re rich, you rock and we don’t really want to know what you are doing, but if you are poor, you’re a dumb loser so go fuck off”.
I suppose simpleminded people feel more comfortable if there is a specific group or individual (A.K.A. “The Man”) who is ultimately responsible for everything wrong with the world. It makes it easier to point fingers and say “if only they did this that and the other thing, the world would be perfect”.
To what extent can one justify the bad practices in a field by invoking the existence of a general cultural mindset instead of analyzing the behavior and decisions of the moral agents who should see to it that no such bad practices are promoted in that particular field?
And I don’t suppose you bothered to scroll down the page of that article to the graph showing that while the median income was rather flat across the 2000-2014 time range, the wages of top earners has risen and the wages for the bottom earners has fallen? But please tell us again how the system isn’t rigged in favor of those at the top.
The assertion was made that wages had not kept pace with inflation, which is false.
The system isn’t rigged in favor of those at the top. The system isn’t rigged at all - some people earn more than others. Those at the top pay a disproportionate percentage and amount of taxes, and on average, more people have to pay in than receive benefits. That’s how the tax system works.
It’s already been demonstrated that you can retire a millionaire through savings/investment. The reasonable time frame is not twenty years as you tried to slip in as a qualifier.
kowtow to the rich? Now you sound like Mao Tse tung. How is saving money kowtowing to the rich?
Believe it or not there are people out there with real jobs who don’t spend money on cable TV, new cars, iphones and eating out every day. They put that money in their retirement fund. Lets look at the numbers. $80 for cable a month, $400 eating out each month, $200 extra cost of new car payment per month, $60 phone cost each month. That’s $740 a month of unnecessary spending. I’m not even trying here. That’s an extra mortgage payment. People who save their money pay their house off early. Instead of 30 year mortgages they have 5-10 year mortgages. that’s 20 years without a mortgage added to retirement. Instead of spending $300 on clothes for work they go to 2nd hand stores and spend $10. Instead of $34,000 cars they buy $8,000 used cars. That’s a savings of $26,000 over 5 years. In a 45 year work span that’s $234,000.
The “system” isn’t supposed to provide people with jobs. The actions are pretty simple. Don’t have children you can’t afford to pay for or have the skills to properly raise. That’s the entire problem in one sentence. We have 50% drop out rates in large cities and the ones who do graduate are borderline illiterate burdens on society.
We are now competing on a world wide basis. The days of stumbling out of high school and working in a factory making big bucks are over. That only existed for a very short time period following WW-II when the United States retained all of it’s manufacturing facilities while the rest of the industrial world rebuilt itself from the rubble. Those old enough will remember a time when the words “made in Japan” meant poor quality merchandise. Times have changed.
putting your played out Fox News rant aside, there is no such entity as “Wall Street”. There is the world of business which has to compete against China, India and all the smaller 3rd world countries. Any leveling of the playing field starts by competing with their labor force and tax laws.
Nobody is sitting in a room thinking rich people rock and poor people are losers. They’re thinking they have to produce a product at a total cost comparable to other companies around the world. If you drill down to the hiring manager level you will find them struggling to find qualified people to operate machinery on a competitive level.
I can tell you first hand this is a problem. When I was between jobs I worked at a factory. there was nothing particularly high tech about the products but like any product the tolerances needed to be maintained. The test I took to get the job was painfully easy. Far easier than tests I took for other jobs. The hiring person was amazed I got everything right. It was literally all 3rd grade math. She said the person before me got almost all of it wrong. I pressed her for more information and she said this was a huge problem for them.