# Profits are a tax on labor **URL:** \ **Category:** Great Debates\ **Created:** [July 12, 2013, 3:07am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283 "2013-07-12T03:07:25Z")\ **Posts on this page:** 20\ **Page:** 13
**Author:** ![bldysabba](https://avatars.discourse-cdn.com/v4/letter/b/ecccb3/32.png) [@bldysabba](https://boards.straightdope.com/u/bldysabba)\ **Post date:** [July 22, 2013, 6:13pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/241 "2013-07-22T18:13:35Z")
> [@SlackerInc](#): > > And Kerala? Kerala owing its ‘success’ to communism/socialism is a fucking terrible example. Unless you’re using it as an example of the _post hoc ergo propter hoc_ fallacy. The state owes most of its high social indicators to a head start over other Indian states, and, ironically, private property. This head start was provided by enlightened monarchs(the Travancore family) who encouraged land ownership by peasants and several resulting reform movements(Narayana Guru et al), meant by the time the British left India, indeed by the time socialism was even invented, Kerala already had among the richest peasants and most advanced social structures anywhere in India. In fact, the post-independence turn to communist parties (which btw later alternated quite frequently with India’s big tent party - Congress) meant that it became much more difficult for private enterprise to flourish there, and resulted in a huge displacement of Keralites. The Keralite diaspora is famous and respected throughout India(and also widespread in the middle-eastern oil economies) - but I think it’s a shame that so many of these educated, healthy people were driven from their home state by an ideology that actively hampers economic growth. For a long time, much of Kerala’s economy ran on remittances sent by the diaspora, and things are only now changing. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [July 23, 2013, 12:09am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/242 "2013-07-23T00:09:51Z")
> [@Mijin](#): > > I appreciate all that. What I am saying to you is that you’re repeatedly dodging the issue of how the factory owner came to be a factory owner. To get that wealth he had to trade it for wealth (or build it himself). > > Calling that “pure profit”, and repeatedly implying they didn’t earn it, is as misleading as saying that someone who owns a Bugatti Veyron with a full tank of fuel gets to travel quickly “for free”. What difference does it make how I got the money? Suppose I got it curing cancer. If my pay for curing cancer is $1 million, and I use it to buy a factory with a $100k profit margin, the $1 million is for curing cancer, and the $100k is for owning a factory. If, instead, I got it scamming widows and orphans, the million is for scamming, and the $100k is still for owning the factory. Wherever it came from, the profits are still unearned income, and everyone else must work a little more, or consume a little less, to pay for it. I’m not saying I didn’t earn the million. I may or may not have. I’m saying I didn’t earn the profit. ---
**Author:** ![Trinopus](https://avatars.discourse-cdn.com/v4/letter/t/2bfe46/32.png) [@Trinopus](https://boards.straightdope.com/u/Trinopus)\ **Post date:** [July 23, 2013, 1:14am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/243 "2013-07-23T01:14:00Z")
You’ve been answered only a hundred times or so! Yes, you do “earn” your profit, according to our traditions and our laws. If you want a new set of traditions, go create your own civilization. You aren’t persuading anyone; you’re just repeating crap over and over, and pretending that this is a form of debate. If I buy some stock in General Motors, and they pay a dividend, I’ve earned it. That’s the way the economy works in the real world. If you don’t like it, strive to change it. But don’t go around crossing words out of the dictionary and imagining that this will make any kind of effecting world change. See, even if you were right…so fucking what? Would General Motors stop paying dividends? Would all the factories close? Would we go back to the middle ages? Is that what you want? ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 23, 2013, 1:42am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/244 "2013-07-23T01:42:45Z")
Some children in elementary school have trouble with counting. They can count two apples plus two apples. That’s concrete, and so they can wrap their minds around it. But when the teacher takes the apples away, and asks 2+2, these children have a problem. They’re being asked to consider something abstract, instead of something concrete. The apples are tangible objects, but what is 2, seriously? What is 2 by itself, outside the context of an object? The abstraction is too much for the children to handle. > [@LinusK](#): > > Wherever it came from, the profits are still unearned income, and everyone else must work a little more, or consume a little less, to pay for it. > > I’m not saying I didn’t earn the million. I may or may not have. I’m saying I didn’t earn the profit. “Earned vs unearned income” is a metaphor. You’re taking a metaphor and treating it as if that’s a serious argument. It’s not. It remains a metaphor, and your argument remains as superficial as it has been from Post 1 in this thread. Owners produce things. Owners make things. Not tangible things, not concrete things. The production of an owner is not as easy for a child to see and understand as a construction worker pounding the nails into the frame of a house. Owners make abstract things, but that doesn’t mean the owners’ contribution isn’t important. It is vitally important. It is one of the pillars of our society. Just because we’ve entered a more abstract realm of production doesn’t mean that the production doesn’t exist. It does exist, and their subsequent profit is “earned” just as genuinely as workers earn their wages. The metaphor is just a metaphor, not a useful description of the world. Owners make _decisions_. That is their production, and it is the fact that they have some incentive to make _good decisions_ that has led to the world as we currently experience it, where we all have the marvelous ability to communicate across the world by typing into little machines that we personally own. It’s not just a matter of doing nothing and taking rent. It never has been. It’s always been a matter of _making the decision_ of which “tenants” might most reliably contribute the most rent. Sometimes they get the decision right, and sometimes they don’t. And yes, sometimes the decision is fairly easy, and they earn a lot for what appears to be a simple choice, such that it doesn’t look “earned” to people who can’t handle abstraction. It is nevertheless a decision. Maybe good and maybe bad, but nevertheless a decision that no one else is as qualified to make. Sometimes an owner truly wants to make an easy decision where they believe they’re free from any further burden, but there’s never any guarantee of that. The decision can still be horrifically risky if [the market subsequently tries to screw them over](http://www.fastcompany.com/3012591/marlin-steel-metal-baskets). Owners make decisions, abstract production. That the production is abstract does not mean that it does not exist. It does exist, and it is important, and the resulting profit is just as justifiably earned as any other kind of income. ---
**Author:** ![Mijin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mijin/32/9369_2.png) [@Mijin](https://boards.straightdope.com/u/Mijin)\ **Post date:** [July 23, 2013, 3:02am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/245 "2013-07-23T03:02:14Z")
> [@LinusK](#): > > What difference does it make how I got the money? None. How you got the money is entirely besides the point, and nothing to do with what I was saying. I was saying to own a factory, you must trade wealth for it. You must risk something. You keep basically saying “OK, so I have a factory, and I can use it to generate revenue. If I don’t make any money, I still have my factory” (paraphrased). You need to rewind to before that. How did you come to have a factory? ---
**Author:** ![Human\_Action](https://avatars.discourse-cdn.com/v4/letter/h/ac91a4/32.png) [@Human\_Action](https://boards.straightdope.com/u/Human_Action)\ **Post date:** [July 23, 2013, 12:17pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/246 "2013-07-23T12:17:56Z")
> [@LinusK](#): > > What difference does it make how I got the money? > > Suppose I got it curing cancer. If my pay for curing cancer is $1 million, and I use it to buy a factory with a $100k profit margin, the $1 million is for curing cancer, and the $100k is for owning a factory. > > If, instead, I got it scamming widows and orphans, the million is for scamming, and the $100k is still for owning the factory. You understand that there’s no law guaranteeing that $100,000 annual profit, right? That overnight that profit can dwindle to zero, or the factory can operate at a loss, or decline in value such that the owner can never get his million dollars back out of it? > [@LinusK](#): > > Wherever it came from, the profits are still unearned income, and everyone else must work a little more, or consume a little less, to pay for it. A profitable business is creating new wealth, it’s not a loss that demands subsidy, it’s the _exact opposite_ of that. ---
**Author:** ![bldysabba](https://avatars.discourse-cdn.com/v4/letter/b/ecccb3/32.png) [@bldysabba](https://boards.straightdope.com/u/bldysabba)\ **Post date:** [July 23, 2013, 12:23pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/247 "2013-07-23T12:23:44Z")
I’m a little amazed that you guys are still trying. ---
**Author:** ![MrQwertyasd](https://avatars.discourse-cdn.com/v4/letter/m/9d8465/32.png) [@MrQwertyasd](https://boards.straightdope.com/u/MrQwertyasd)\ **Post date:** [July 23, 2013, 3:56pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/248 "2013-07-23T15:56:02Z")
Wow, never seen so many rubbish replies to any forum post. ---
**Author:** ![Human\_Action](https://avatars.discourse-cdn.com/v4/letter/h/ac91a4/32.png) [@Human\_Action](https://boards.straightdope.com/u/Human_Action)\ **Post date:** [July 23, 2013, 4:02pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/249 "2013-07-23T16:02:37Z")
Should we use your post as a model for improvement? No content, no debate, just drive-by snark? ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [July 23, 2013, 4:30pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/250 "2013-07-23T16:30:56Z")
> [@LinusK](#): > > I’m not saying I didn’t earn the million. I may or may not have. I’m saying I didn’t earn the profit. Ok… how about this? If you’d bought the company with the 100k profit, just how WOULD you go about earning that profit as the owner? I’m really curious to see how you articulate that in light of all the things everyone’s said so far. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [July 23, 2013, 4:31pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/251 "2013-07-23T16:31:03Z")
OK, there’s this carpenter. He works for a year and saves $100. He uses that to buy a power saw. This power saw enables him do three times as much work as before, and next year he makes $300. How could he make $200 extra without taxing someone for it? You earlier stated that you understood how a worker, with new tools, could be more productive than before. And so it is obvious that a worker who owns a tool can create wealth that did not exist before. Now imagine that the worker didn’t save money to buy a power saw. Instead, a capitalist loaned him the saw. The worker makes the extra money, and pays back the capitalist, plus extra. Did the capitalist steal the extra money? Did everyone else have to have a lower standard of living? No, everyone has a higher standard of living, because extra work was done. Oh, but why couldn’t the worker have got the saw for free? BECAUSE SOMEONE HAD TO MAKE THE SAW. It is a curious business model to make power saws and hand them out to carpenters for free. The power-saw maker can sell saws to workers, it can rent saws to workers, it can sell saws to capitalists who rent them to workers, or it can sell saws to employers who pay workers to use the saws. In all these cases the saw-maker stops being the owner of the saw WHEN THEY SELL THE SAW. I guess you’re like the goblins in Harry Potter, who think the maker of an object owns in perpetuity, and is therefore entitled to all the proceeds from the use of the object. If you make an object and own it, then yeah, you’re entitled to the proceeds from the use of the object. But what “selling” it means, is you’re giving someone else the rights to the proceeds from future use of the object in return for a lump sum payment now. Of course this happens all the time, people rent things, or buy them and let other people use them. A worker who uses a power-saw owned by their employer is the obvious example. The worker who uses a power saw didn’t make the power saw. So why is the worker who uses a power saw entitled to the surplus value created by the power saw? Shouldn’t the worker who built the power saw be entitled to that surplus value? But the worker who built the power saw didn’t mine the ore or smelt the steel or fashion the screws or build the lathe. Shouldn’t the workers who mined the ore therefore be entitled to all the proceeds? But the worker who assembled the raw steel and screws into a saw created value. Why does the miner get all the surplus value of the saw? The carpenter who built a deck created value. Why does the saw maker get all the surplus value of the saw? In real life people sell products, or rent them, or allow others to use them. And through this complicated economic chain we construct the modern world. Doing it your way–no selling–is appropriate for a hunter-gatherer society where everyone hand makes their own goods. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [July 23, 2013, 7:29pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/252 "2013-07-23T19:29:06Z")
> [@Blake](#): > > Untrue. You took a risk simply by buying the land. The land could have turned out to be valueless, in which case you would have lost our money. > > If you believe so strongly that there is no risk associated with buying land, then can you please explain how anybody ever loses money on real estate? If you accept that people do regularly lose money on real estate, then you accept that buying land is a risk. > > If someone pays you to look for oil on your land, it is compensation for the fact that you took the risk of buying that land for its value, and they did not. > > And what do you think would have happened if you had bought the quota for Alaskan King Crabs, and people had stopped eating crab? DO you think that somebody would have given your money back + interest? > > If you don’t believe that, then you understand that there was a risk involve din the purchase. That fact that you \*could \*sell it today and eliminate that risk does not change the fact that if you keep it until tomorrow, it may become valueless. > > Wrong. they are valuable in large part because they are risky things to produce. 99.99% of all patents are worthless and never make the owner a red cent. So how the hell can you say that producing a patent is risk free? > > What you don’t understand is that the very act of acquiring ownership is a risk. If the real estate market collapses, or their is a mercury scare in seafood, or you patent turns out to be unworkable, then you have lost your investment. The profit fr ownership is realised precisely because acquisition of ownership represents a risk. OK, so I guess my question is, then: is it those particular examples you have a problem with, or do you dispute that there is any such thing as a risk free return? Because if you don’t like them, what about Treasury bonds? FDIC-insured savings accounts? Certificates of deposit? Money market accounts? Anyway, I don’t want to get lost in the weeds. Suppose you’re right: suppose there’s a risk in every transaction, no matter how safe it seems. So what? Are you arguing that confers a moral right to owners to profit? Because if you are, that’s one thing. But I don’t know if that’s what you’re saying. > [@](#): > > The same place that any right comes from: the human brina. > > You do realise that rights are an entirely subjective human construct, right? You understand that you can resource the universe to quarks, and you won;t find a single molecule of a “Right to Free Speech” or “Right to Profit From Risk”? Those thinsg are created by, and exist in, the human brain. > > That is where they come from. Not sure what you’re arguing here. Are you saying there’s no such thing as rights? Or that morality is subjective? Or what? > [@](#): > > It’s not written anywhere in a free market economy. Each and every one of us, including the soldier and the rich man, make that decision on a daily basis. > > The US has a volounteer army. If a poor man doesn’t think that it is worth the risk to enlist in the army for the compensation he receives, then he doesn’t have to. He is the one who decides what compensation he requires for the risk to his life. > > And in exactly the same way, a rich man can decide whether the risk he takes when he purchases land or a crab licence or a patent is worth the compensaion being offered for losing the use of those things. Again, not sure what you’re saying: that a poor man has the same right to buy a factory as a rich man? > [@](#): > > Where does this absence of a right to get paid for taking risks come from? … ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [July 23, 2013, 8:02pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/253 "2013-07-23T20:02:57Z")
> [@Mijin](#): > > All of that ignores the points I just made, and have been made many times in this thread. > > The notion of “pure profit” as you put it, is a fantasy. > > To own something I have to earn it – I have to accumulate the capital to buy it somehow. > Then, if that something is not an end in itself but a means to accumulate more capital, then I’m taking a risk. > I’m risking my investment being worthless, or, at the least, I’m tying up capital that could have been used for something else. > > You’re deliberately leaving out the issue of how the factory owner came to be the owner of a factory. If by pure profit we’re talking about risk-free profit, I’d argue it certainly does exist. The US government, for example, pays out a couple of hundred billion dollars of it every year. But whatever. Let’s say it doesn’t. Let’s say whenever you own something, there’s always some risk you could lose it. I mean you could die, for instance. When you die you lose everything. Why is it so important? Does risk provide a moral right to profit? A practical justification? Or something else? To own something you don’t have to earn it. It could be given to you, you could inherit it, you could win it, you could get lucky, you could steal it, etc. etc. etc. I’m leaving out the issue of how the owner became the owner because it’s not important. Whether he got it curing cancer or saving the world from terrorists, or spamming people’s email, or by running liquor doesn’t matter. Once he becomes the owner he gets paid for being the owner. How he got there doesn’t matter. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [July 23, 2013, 8:09pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/254 "2013-07-23T20:09:00Z")
> [@LinusK](#): > > Are you arguing that confers a moral right to owners to profit? Because if you are, that’s one thing. But I don’t know if that’s what you’re saying. No one has a “moral right” to a profit. But if we don’t allow private capital investment, what will happen? Will we like the results of what will happen? If we don’t like the results from outlawing private capital–that is, everyone will be a lot poorer–then maybe we shouldn’t outlaw private capital. Very few people argue that all forms of publicly provided capital are immoral. Public schools, public roads, public health insurance, public old age pensions, public electrical systems, and on an on, all created through public capital. We don’t ban these public capital systems on the grounds that some private person has the right to profit from them. > [@](#): > > Not sure what you’re arguing here. Are you saying there’s no such thing as rights? Or that morality is subjective? Or what? He’s saying that if we human beings want rights, we human beings have to act to protect those rights. Human rights are not provided for by any supernatural entity or law of nature. They are just things that human beings decide on, because we prefer to live our lives that way. If tomorrow we choose to deny that there is such a thing as the right to free speech, or freedom of religion, or freedom from self-incrimination, what will happen? We will live in a society without those rights, we’ll have to live with the consequences, and no entities other than other human beings will be there to help us. ---
**Author:** ![bldysabba](https://avatars.discourse-cdn.com/v4/letter/b/ecccb3/32.png) [@bldysabba](https://boards.straightdope.com/u/bldysabba)\ **Post date:** [July 23, 2013, 10:33pm UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/255 "2013-07-23T22:33:33Z")
> [@LinusK](#): > > If by pure profit we’re talking about risk-free profit, I’d argue it certainly does exist. The US government, for example, pays out a couple of hundred billion dollars of it every year. If what you consistently call “risk free return” is US short term treasury notes, then the interest rates on those are typically lower than inflation. Which is a negative real return, so no. That’s not a profit. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 24, 2013, 12:54am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/256 "2013-07-24T00:54:00Z")
This comment has already been pointed out, but I’m going to repeat what **bldysabba** said because it’s such a ostentatious mistake, and it is the exact same category of mistake as “unearned income”. > [@LinusK](#): > > If by pure profit we’re talking about risk-free profit, I’d argue it certainly does exist. The US government, for example, pays out a couple of hundred billion dollars of it every year. There is no such thing as a literal risk-free rate of return. It does not exist. Yet again, this is another metaphor that is being treated like a literal truth. But in this case, the literal meaning is self-evidently untrue. We use the words because we need some label to describe the situation, so most often we settle on a substandard term for historical reasons. It’s just a label. Placeholder. Shorthand. Term-of-art. Taking the label literally is an equivocation. Every asset in the world has risk. US Treasuries have risk. Those “risk-free” Treasuries often have a negative rate of return. The US government has often borrowed money, and then charged its lenders a fee. A nice business, if you can manage it. The borrower earns interest instead of the lender. In countries with massive inflations, government bonds will lose almost all their value, and even in the US, it remains an open possibility that Treasuries could lose almost their entire value in a sufficiently bad situation. It’s not likely, but it’s possible. > [@LinusK](#): > > I’m leaving out the issue of how the owner became the owner because it’s not important. Whether he got it curing cancer or saving the world from terrorists, or spamming people’s email, or by running liquor doesn’t matter. Once he becomes the owner he gets paid for being the owner. How he got there doesn’t matter. The owner gets paid for their decisions as owner. Choosing to maintain ownership of a particular asset is a decision. Selling it is another decision. Owners could easily sell all their various businesses, dig a hole in the ground, dump the cash in, and bury it. That is a perfectly valid decision an owner can make. How safe would that be? Not very. They could buy US bonds. Would that preserve the value of their investment? No guarantee of that, as already noted. Money market mutual funds were specifically designed to try to maintain at least the nominal value of the accounts. “No risk.” But when Lehman fell, the Reserve Primary Fund broke the buck, and a supposedly safe fund lost value. This caused a massive run on all the money markets, which put even more stress on the system. The government felt they had to bailout the money markets to prevent a broader catastrophe. Even in supposedly no-risk and low-risk situations, risk is everywhere we look. People can become owners through luck. But after they’ve become owners, they must still decide _what they want to own_. That’s always a risky decision, even if the owners are blissfully unburdened with the knowledge of how risky it is. ---
**Author:** ![Human\_Action](https://avatars.discourse-cdn.com/v4/letter/h/ac91a4/32.png) [@Human\_Action](https://boards.straightdope.com/u/Human_Action)\ **Post date:** [July 24, 2013, 2:18am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/257 "2013-07-24T02:18:52Z")
> [@LinusK](#): > > If by pure profit we’re talking about risk-free profit, I’d argue it certainly does exist. The US government, for example, pays out a couple of hundred billion dollars of it every year. > > But whatever. Let’s say it doesn’t. Let’s say whenever you own something, there’s always some risk you could lose it. I mean you could die, for instance. When you die you lose everything. > > Why is it so important? Does risk provide a moral right to profit? A practical justification? Or something else? Both, but morals are a personal thing. The practical justification has already been provided to you: if people are prevented from making a profit from the capital they own or investments they make, they will simply stop owning capital or making investments. This is a Bad Thing. This isn’t unique to ownership of capital, either. Look at the labor side. If you capped all wages at some level thought to be roughly break-even for food and lodging (in other words, no “profit”, just enough to live), how would workers respond? > [@LinusK](#): > > To own something you don’t have to earn it. It could be given to you, you could inherit it, you could win it, you could get lucky, you could steal it, etc. etc. etc. > > I’m leaving out the issue of how the owner became the owner because it’s not important. Whether he got it curing cancer or saving the world from terrorists, or spamming people’s email, or by running liquor doesn’t matter. Once he becomes the owner he gets paid for being the owner. How he got there doesn’t matter. What you’re leaving out is that ownership in itself is a risk. How many warehouse owners in New Orleans lost their warehouse to Katrina? How many people that didn’t own warehouses lost warehouses to Katrina? No one ever lost money on something they didn’t buy, or an investment they didn’t make. ---
**Author:** ![bldysabba](https://avatars.discourse-cdn.com/v4/letter/b/ecccb3/32.png) [@bldysabba](https://boards.straightdope.com/u/bldysabba)\ **Post date:** [July 24, 2013, 8:17am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/258 "2013-07-24T08:17:38Z")
> [@Hellestal](#): > > In countries with massive inflations, government bonds will lose almost all their value, and even in the US, it remains an open possibility that Treasuries could lose almost their entire value in a sufficiently bad situation. It’s not likely, but it’s possible. I think you’re wrong here, if you’re talking about the risk free rate. If you invest your money at the ‘risk free’ return rate in US treasuries, which \*\*LinusK \*\*seems to be talking about, you’re _certain_ to lose their entire value given enough time. And the time wouldn’t be too long either. I’d say 10-20 years at most. (And if I hadn’t forgotten all the finance classes I ever took, I would have happily calculated just how much time. Maybe someone else will step up? [Here](http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield) are the real yield rates. **LinusK** , notice the long column of negative numbers? People lose money by investing in short term US securities.) So in a sense, the US ‘risk free return’ rate is actually risk free. There is no risk at all of you making anything other than a massive loss. ---
**Author:** ![Mijin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mijin/32/9369_2.png) [@Mijin](https://boards.straightdope.com/u/Mijin)\ **Post date:** [July 24, 2013, 8:31am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/259 "2013-07-24T08:31:33Z")
> [@LinusK](#): > > Why is it so important? Does risk provide a moral right to profit? A practical justification? Or something else? You may as well talk about what my moral justification is for having brown hair. If you have wealth, and you choose to invest it you may generate wealth. As you haven’t taken anything from anyone, there is no need to try to morally justify it. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 24, 2013, 11:17am UTC](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283/260 "2013-07-24T11:17:11Z")
> [@bldysabba](#): > > I think you’re wrong here, if you’re talking about the risk free rate. If you invest your money at the ‘risk free’ return rate in US treasuries, which \*\*LinusK \*\*seems to be talking about, you’re _certain_ to lose their entire value given enough time. Maybe my post was unclear, but this wasn’t the main thing I was talking about. > [@bldysabba](#): > > So in a sense, the US ‘risk free return’ rate is actually risk free. There is no risk at all of you making anything other than a massive loss. I was taking a more theoretical turn. The ideal with a risk-free rate is that there is no other chance of loss involved. It’s a floor. You will gain a risk-free rate of return, even a negative return, _but no lower_. This is to say that if you’re knowingly buying with rates at -1%, you’re not supposed to get surprised with a -2% return. There is no risk of that happening, as far as the theory goes. Of course, this is bollocks. Crazy shit can always happen. So I’m not arguing the evidence that T-bills won’t keep up with the current inflation rate. Yes, we’re certain to lose money over time if real yields stay negative (although keep in mind that real rates might eventually recover). My point is that even if you’re rolling over the T-bills you hold every 30 days, you still have a legitimate chance to lose _even more_ than you expected to lose. Given a very sudden and unexpected inflationary shock, you might risk losing, for example, -2% in real terms instead of -1%, so your “risk free” asset can still potentially return less than it had promised. This is the potential outcome I was trying to explain, which undermines any literal interpretation of the risk free rate as a guaranteed return. There is no way to dodge risk. The safest assets can have a negative real rate, and even if we accept that when we purchase them, we still risk that we will suffer a negative yield even larger than expected. [Previous page](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283.md?page=12) [Next page](https://boards.straightdope.com/t/profits-are-a-tax-on-labor/663283.md?page=14)