How to use your stimulus check to stimulate the US economy

[Matts_12GS]

Is that talk radio I smell in here?

[Pilgrim]

He doesn't understand it, either. It's just an ideology that works for him.

 

Mr. Baker, you have an unsuspected brutal core that I just love!

 

Pilgrim

[Whip]

He doesn't understand it, either. It's just an ideology that works for him.

 

Mr. Baker, you have an unsuspected brutal core that I just love!

 

Pilgrim

 

 

What do ya mean by "unsuspected"??????????

 

 

I too enjoy his core......that didn't come out right.

 

 

Whip

[azkaisr]

He doesn't understand it, either. It's just an ideology that works for him.

 

Mr. Baker, you have an unsuspected brutal core that I just love!

 

Pilgrim

 

 

What do ya mean by "unsuspected"??????????

 

 

I too enjoy his core......that didn't come out right.

 

 

Whip

 

I have a different take on Mr Baker's core. But Mama Hoon won't let me use words like that.

[hANNAbONE]

I'm getting four seats for one game at Fenway Park. That, four hot dogs and four drinks. That ought to have it all spent.

 

Fixed it for ya!

 

 

 

 

 

hOW cOME you didn't "fix" my WrestleMania comment?? hmmmm?

[David]

Is that talk radio I smell in here?

 

Touché.

 

Me and the internet don't mix that well. Too many keyboard heroes who wouldn't have an audience in real life but who can sell out day passes to Illogic Seminars in some strange spaceship that doesn't even hover near reality, much less land on it from time to time.

 

Back to the real world, for me, solving real problems, helping people manage well, make money ethically, and actually contribute to the world around them.

 

Thanks for bringing up the Talk Radio quip. I deserved it, for sure.

[David]

I have a different take on Mr Baker's core. But Mama Hoon won't let me use words like that.

 

Go ahead, Tommy. Let me have it. It'll be a good apprentice program for your eventual moderator status.

[Joe Frickin' Friday]

So because I don't make excess amounts of moeny, I'm somehow less sucessful. That's a very arrogant viewpoint.

 

"excess" is subjective. If you're riding around on a late-model BMW motorcycle, most folks would say you yourself are in fact making "excess" amounts of money.

 

As for "less successful," that's perhaps a poor choice of word. But relative to a fella who's making $40K/yr, there's something different about a fella who's pulling in $200K+/yr, and I suspect that whatever word we choose to describe that difference is likely to make the first guy uncomfortable.

 

That's a very arrogant viewpoint. Don't get me wrong, I like capitalism, but any salarie over about 200k is a little excessive... especially when you consider that every dollar earned is in a sense taken from someone who works just a hard for a living, but is getting by on <30k/year.

 

Wealth can't be both earned and taken. A person either earns wealth by dint of hard/smart labor, or takes it by fraud/force. We can take my own Mojo sales as an example. Taken together with my day job, it's not $200K/yr, though I'm not complaining. It's good money, but it's essentially like putting in overtime: I am working hard/smart, earning that money by providing something of value to my customers, and I'm very curious to hear your answers:

 

• What is it about my income that you find to be "excessive?" Am I working too hard? Am I overpaid for what I do? If so, by what measure? Are my customers (and my employer) ultimately wrong about the value of the goods and services I provide for them?
   
  
• In reeling in this excessive annual income, from whom do you believe I'm taking that money?
   
  
• In what sense have I taken that money from them?

You might find this essay enlightening. It's called Mind The Gap, by Paul Graham, founder of Viaweb. A brief excerpt:

 

When people care enough about something to do it well, those who do it best tend to be far better than everyone else. There's a huge gap between Leonardo and second-rate contemporaries like Borgognone. You see the same gap between Raymond Chandler and the average writer of detective novels. A top-ranked professional chess player could play ten thousand games against an ordinary club player without losing once.

 

Like chess or painting or writing novels, making money is a very specialized skill. But for some reason we treat this skill differently. No one complains when a few people surpass all the rest at playing chess or writing novels, but when a few people make more money than the rest, we get editorials saying this is wrong.

 

Why? The pattern of variation seems no different than for any other skill. What causes people to react so strongly when the skill is making money?

 

I think there are three reasons we treat making money as different: the misleading model of wealth we learn as children; the disreputable way in which, till recently, most fortunes were accumulated; and the worry that great variations in income are somehow bad for society. As far as I can tell, the first is mistaken, the second outdated, and the third empirically false. Could it be that, in a modern democracy, variation in income is actually a sign of health?

[steveknapp]

"excess" is subjective. If you're riding around on a late-model BMW motorcycle, most folks would say you yourself are in fact making "excess" amounts of money.

 

Can we add that to the user agreement?

[Joel]

Hey now, all of us who are deemed wealthy enough (by the government's definition) to have no use for the money that a stimulus check would otherwise yield can still stimulate the economy by taking advantage of the higher conforming mortgage loan limits that were promised in connection with the stimulus package, right? The mortgage industry has gotten right on that, right? Mortgage lenders are standing by, with money just burning holes in their pockets, right?

 

Yeah, right. Thank you very little.

[Matts_12GS]

It's all good David. As the old song goes, even Superman gets the blues.

 

Enjoy your day!

[SeanC]

You might find this essay enlightening. It's called Mind The Gap, by Paul Graham, founder of Viaweb. A brief excerpt:

 

[...]

 

Why? The pattern of variation seems no different than for any other skill. What causes people to react so strongly when the skill is making money?

Mitch, don't get me wrong -- I'm one of the last people who'd have a problem with someone earning $200K or $200M for that matter -- but Graham's analogy is very weak, especially as it relates to, say, CEO salaries, where the "pattern of variation" is a helluva lot different. It would be more akin to a chess tournament in which the Grand Master/CEO says, "I'm going to win the next 10,000 games. I've adjusted the rules of play accordingly and have the full support of the board of directors to do so. The rest of you will be playing without rooks, bishops or knights."

 

Now, if Graham were only referring to investors, business owners, professionals (e.g., lawyers, CPAs, NBA players), speculators, etc., his analogy might hold up, but to broadly apply it to the "skill of making money," it breaks apart on many levels.

[Joe Frickin' Friday]

...Graham's analogy is very weak, especially as it relates to, say, CEO salaries, where the "pattern of variation" is a helluva lot different. It would be more akin to a chess tournament in which the Grand Master/CEO says, "I'm going to win the next 10,000 games. I've adjusted the rules of play accordingly and have the full support of the board of directors to do so. The rest of you will be playing without rooks, bishops or knights."

 

I'll have to plead ignorance and admit to being not well-versed in matters of business/corporate management. Can you back us out of the chess analogy and explain what goes on in the real world, and why Graham's simple comparison doesn't hold up?

[motoguy128]

I appologize, i"m not as well read as others on these subjects, and I'm not a business major or economist, so some of my assumptions could be wrong.

 

It's my assumption that the wealthy make their profits ultimately from consumers that purchase goods or services thereby creating real demand. (as opposed to speculation). If you could keep net consumer spending constant, but simple raise the wages of the lowest wage earners and equally lower the wages of the middle and higher wage earners thereby keeping the balance sheets the same, the net result would be no change in revenues of profits, only a more even sharing of profits. In reality, you would reduce available investment capital, but might increase consumer spending. Which will drive growth faster? Which provides more stable growth and more stable markets?

 

Adjusting the distributon of wealth is difficult in a capitalistic market but let me throw out some "what-if's".

 

What if corporate bonuses were a flat percentage of salary throughout hte company. Executives would still get a larger bonus, but porportionally no more than the janitor or basic paper pusher. I know at my company, the bonus system ranges from 10%-50%. So there's much larger incentive for managers to "manage well" and make their numbers, while at the lower levels you're primary incentive is to do just enough keep your job or do extra in hopes of a promotion, or maintain a certian level of personal job satisfaction and pride or because you enjoy what you do. But not becuse the extra 200 hours you put in that year will net you and extra $1000 come bonus time, which is unlikely since you have little direct impact on improving bottom line, but you're still a vital pice of the puzzle in keeping the company running.

 

Well anyhow, this has drifted off topic quite a bit. Its' only relevant becuse some of those with higher income levels were complaining about not getting any stimulus check. Please realize that the wealthy are merely throwing some cash at the middle class and lower class to help appease the masses.

 

It's the equivalent of giving a whiny child some candy so they'll shut up for 15 minutes. There's no lasting impact.

[Dave McReynolds]

I've been the CPA for several very wealthy self-made men. One started by opening a key shop after being discharged from the service after WWII and parlayed that into a billion dollar business. The other started as his protege and parlayed that into his own billion dollar business.

 

I remember one memorable lunch with the first person, more than 20 years ago, shortly after the second person split off on his own. Person #1 was listing off all the problems that person #2 was having, all the ways person #2 had gotten overextended, and all the ways person #1 would have done things differently. But you could sense that the discussion was like a father discussing a son, or a trainer discussing a boxer, thinking ahead of the moves he should make to come out on top (which he did).

 

Both of these individuals are like the chess masters, who keep track of 20 different games at the same time they're asking me a tax question or working out a tax strategy. It's never been comfortable for me to meet with these guys face to face, because I don't work that way. I need to focus on one problem and solve it, and it might take sleeping on the problem before a solution comes into my head. If I hear the superficial details of five deals interspersed with some tax questions, I end up tongue-tied and don't have anything meaningful to say.

 

But one characteristic they seem to have in common is that they tend to stick with people who work out for them, and they know that I will keep coming back until I understand the problem and will eventually come up with some solutions or alternatives. I'm sure they view my CPA services like I view my barber: there are probably plenty of better barbers, but he has always done the job for me so I have no inclination to look elsewhere.

 

Hundreds of people have come to work for these two individuals over the years, many of whom have had ambitions to follow in their footsteps, but none have come close, other than the one protege. Many have succeeded in lesser endeavors, quite a few have made $10 million or so and decided to call it quits at that level, some have carved out nitches for themselves within the organizations the main characters have built, and of course quite a few didn't work out.

 

But it is very very rare person who is successful at that level. Each of the two far surpassed any personal need to accumulate wealth many years ago. Their "fun" is planning deals and business strategies, which I believe they do every minute of every waking hour, and probably when they're asleep too, not in a focused way, like I need to do, but in a multi-tasking way. I would imagine they could be thoroughly enjoying sex with one part of their brain while working out the intricacies of six different deals with other parts of their brain. The only real difference I can see between them in the way they approach business is that the older one likes to perfect a technique and then use it again and again as long as he can keep a competitive advantage, while the younger one likes to continually explore different ways of doing things.

 

They each have a number of children, none of whom have much interest in their Dads' businesses. It's amusing to me that each is equally puzzled about what to do with all the wealth they've accumulated when they die. They certainly don't want to give it to the government, or charities, or their children, feeling that only negative things are likely to happen from any of the alternatives. But both are pragmatic and focused in the "now" and probably don't worry about it very much. Certainly not enough to be the slightest bit interested in any estate planning.

 

Having been associated with these two people for more than 30 years, I have concluded that their accumulation of wealth has been a benefit to our community, by providing jobs and an example for others to follow and aspire to. Both have been willing over the years to hold the door open for others looking for success. I could have walked through the door myself, but discovered that I am the round peg in the round hole doing what I do best, and neither of the two ever questioned my motivations, any more than I would my barber's, I guess.

 

While I have warm feelings about the accomplishments of these two individuals and believe they have been a real benefit to our society, I don't see the same benefit from vast amounts of inherited wealth, or multi-million dollar gamesmanship played in the upper ranks of publicly traded corporations.

 

By the way, I don't think either of the individuals I mentioned is much worried about their $600 tax rebates; at least, they haven't called me to inquire about it.

[velomoto]

"excess" is subjective...

Why are we so wrapped around the axle with "excess"??? I don't believe there are many people in the world who would agree they have or are paid "excess" amounts of $$$.

 

The stimulus check cutoff simply is a line that "someone" (or some group of people) made up based on their own opinion of "need".

 

Sure, it would be "nice" to get a check back from the government but in reality will an extra $600 or what ever make a difference in my lifestyle? No! Will I go out and "create new jobs" with this money? No! Multiply this by 10x and will the answers change? No! Multiply this check by another 10x or 100x and would this make a difference to any of the truly wealthy people in this country? No!

 

If you're not getting a "stimulus check", congrat's to you on being successful and you should count your blessings for your income is in the top few percentage in America. If you are getting a check, hopefully next year will be better for you as I truly expect times will get tougher and the folks with less $$$ will feel this much more so that those at the top of the income ladder.

 

For those who believe that governments should not and do not, create "real jobs" I would suggest revisiting how Reagan turned around America's economy. Hint: he didn't do it by starting a new company in California.

[Kitsap]

Washington State GET, Guarantee Education Tuition, program for my 8 & 12 year olds. The money buys tuition in the future at today's rates at any in state college or university.

[tallman]

Washington State GET, Guarantee Education Tuition, program for my 8 & 12 year olds. The money buys tuition in the future at today's rates at any in state college or university.

 

Always a good investment.

Remember they'll be taxed when it's used, on the difference between the basis (what it cost) and what it is worth at time of use.

Still an excellent way to go, IMO.

[SeanC]

I'll have to plead ignorance and admit to being not well-versed in matters of business/corporate management. Can you back us out of the chess analogy and explain what goes on in the real world, and why Graham's simple comparison doesn't hold up?

Graham likens making money to a skill or talent, drawing analogies to chess, artistic or athletic ability, etc. He then attempts a rhetorical question: No one casts aspersions on the accomplishments of chess champions or successful artists, so isn't it misguided and petty to doubt or question the ability to make large sums of money?

 

The problem is that his analogy isn't strong enough to lead to such a rhetorical question. For starters, a great deal of wealth is made by way of collusion, old boy/gal networks, mutual backscratchery, family connections and outright game rigging. (Note, I'm not referring to cheating, illegal or illicit means here, but rather the commonly accepted practices.) The skill of a chess champion or artist involves none of this. Their talent alone determines their success. A chess player can't control ahead of time the level to which his opponents may rise. The rules are simple and immutable, and to the best of my knowledge, no chess Grand Master has ever attributed any amount of his success to "who you know" or "being in the right place at the right time."

 

That's not so for a CEO. And again, I'm not saying high salaries are bad, but the skill set to achieve them, the "patterns of variation" to use Graham's terminology, are very different from prodigious chess or artistic talent. A more apt analogy would be to compare it to, say, professional wrestling.

 

But lots of people question the accomplishments and talents involved in the WWF, right? The game is rigged. Of course, that's not to say that achieving success in a rigged game doesn't require talent and skill, but success within that game comes with a certain amount of suspicion from Joe Q. Public. I would even say that it comes with the territory and that the suspicion is natural.

 

A WWF wrestler justifies his compensation through ticket sales. A CEO justifies his compensation through sales and profitability. But both must nonetheless justify themselves and their talent, something a chess prodigy, artist or athlete need not do because their talent speaks for itself.

 

Graham is arguing the same holds true -- or should hold true -- for high wage earners, but he needs to rethink his argument on this point because, based on what I've read, it shows very little skill.

[BFish]

Bottomline on the stimulus $$$ is that a majority of those receving it will spend it. That was the intent. I live in an area with a strong economic base. Irregardless, there are some mom and pop type businesses that will see some benefit to the cash flowing through. Those industries I'm involved with that are feeling a pinch now (auto dealers, homebuilders, home services, etc) will not even smell the anticpated cash stimulus.

 

It was a hot topic this tax season with some of my clients. Many assumed they'd receive some bucks, but will not. It was another "distraction" from my perspective. I'm on the fence as to it's benefit. Would make more sense to mail the checks based on zipcode so any geographic economic benefit could be ascertained.

[BFish]

Each of us will NOT be getting a check. Those left out are the ones enabling most of the jobs, for which they are being punished.

I've the other view - I'm not being punished for being successful, others are being rewarded for not.

 

I agree with Samuelson who once said the problem with taxes in this country is that the poor don't pay any. If they did, they'd be a lot less likely to vote for every pandering politico who promises them a free lunch. If you don't pay taxes, no tax rate is too high.

 

Interesting. You seem to be lumping a pretty wide range of incomes and tax liability together. I'd also be interested to know your measure of success--only those individuals who earn more than $75,000.00 per year?

 

 

I tend to agree... with what you're implying. So because I don't make excess amounts of moeny, I'm somehow less sucessful. That's a very arrogant viewpoint. Don't get me wrong, I like capitalism, but any salarie over about 200k is a little excessive... especially when you consider that every dollar earned is in a sense taken from someone who works just a hard for a living, but is getting by on <30k/year.

 

Even with a combined AGI of over 100k, my wife and I sometimes feel a little guily living in excess.... as I type on my laptop while watching Medium on a 47" flatscreen... while someone less than 1/2 mile from me can barely afford their $300/month mortgage payment

 

My wife and I both work. We work our asses off and all of my successful clients work just as hard. Tagging a compensation level like you did makes no sense. I have an office full of employees, contribute to the community and spend. I save and invest a lot as well and pay more income taxes than 99% of my fellow citizens.

 

I'm a happpy fella!

[Matts_12GS]

their talent alone determines their success.

 

Couldn't it be said that the CEO has "talent" in determining which of those specific "old boy/old girl" networking relationships to maintain/foster? Or, trusting their knowledge, instincts and abilities to analyze their markets and take actions they deem appropriate? That is no different than a quarterback knowing when to check down to a different receiver or calling an audible at the line is it?

 

Seems to me that the true "leader" is the one out there playing that chess game with the futures/lives of the people who work for him. In other words, the rooks, pawns, knights and queens all working for the "king" are all living breathing people who are counting on that king to make the correct decisions that will help them realize their own dreams.

 

Or, have I crossed my analogies and metaphors?

[BFish]

their talent alone determines their success.

 

Couldn't it be said that the CEO has "talent" in determining which of those specific "old boy/old girl" networking relationships to maintain/foster? Or, trusting their knowledge, instincts and abilities to analyze their markets and take actions they deem appropriate? That is no different than a quarterback knowing when to check down to a different receiver or calling an audible at the line is it?

 

Seems to me that the true "leader" is the one out there playing that chess game with the futures/lives of the people who work for him. In other words, the rooks, pawns, knights and queens all working for the "king" are all living breathing people who are counting on that king to make the correct decisions that will help them realize their own dreams.

 

Or, have I crossed my analogies and metaphors?

 

...and not everyone can/will be a leader. lots of good, hard working honest worker bees who were born to follow the leader. it's how life is. i'm NOT implying that any individual is better than the other. just have a different talent. just like the armed servcies, sports, etc. someone leads and has justifiably more risk/reward. those that follow or lead "less" have less risk/reward. BTW-not even all of them will be getting a stimulus check!

[lawnchairboy]

well done mitch.

[Aluminum_Butt]

For those who believe that governments should not and do not, create "real jobs" I would suggest revisiting how Reagan turned around America's economy. Hint: he didn't do it by starting a new company in California.

 

I would contend that the government still didn't create any jobs in that case. Reagan simply got the government out of the way so that people and organizations who were capable of creating jobs had more incentive to do so (reduction of the top marginal tax rate from 70% to 50%, and ultimately to 28%).

[steveknapp]

Seems to me that the true "leader" is the one out there playing that chess game with the futures/lives of the people who work for him. In other words, the rooks, pawns, knights and queens all working for the "king" are all living breathing people who are counting on that king to make the correct decisions that will help them realize their own dreams.

 

I'm by no means a King, but I do manage people. What you describe is the toughest part of the job.

 

When you make a mistake with things, you fix it and move on. People are tougher to manage and mistakes on my part can have huge implications. When I left my last job there were a lot of good reasons to leave, but it was tough leaving my team. Even the ones who where probably happy to see me go.

 

Most folks I know don't want to deal with it. They want to do their part and move on. Doing a good job means standing aside and motioning to your team for the cheers, and stepping in front for the jeers.

 

Hence, it seems to fit the description of a "job". Something no one would do for free, but some would do for money.

[Aluminum_Butt]

If you could keep net consumer spending constant, but simple raise the wages of the lowest wage earners and equally lower the wages of the middle and higher wage earners thereby keeping the balance sheets the same, the net result would be no change in revenues of profits, only a more even sharing of profits.

 

Never, EVER assume that this is a zero-sum game. If the "right" people keep their money, they will create new things, new demand, and make a bigger pie for all to share.

 

In this case, "right" is defined as those people who have the skills and guts to build a business.

[David]

I don't care about $600. I just wish we'd not call it a stimulus package, because it's nothing more than wealth redistribution. I dislike lies.

[BFish]

I don't care about $600. I just wish we'd not call it a stimulus package, because it's nothing more than wealth redistribution. I dislike lies.

 

Is it the Robin Hood issue that bothers you? I can understand the wealth distribution scenario considering where the $$ are coming from, but some will trickle back to the treasury, the wealthy and, more importantly, the Dew Drop Inn!

 

Stimulus Package sounds more governmental than Foreplay Package anyway. It's only a name.

[David]

I contributed a disproportionately large portion of it into the treasury in the first place, and then instead of getting a disproportionate part of it back, I get nothing.

 

On top of that, it's money the government doesn't have in the first place. It's borrowed.

 

Both of those things piss me off. Not enough to distract me, of course (note that I did not start this thread). I'm just noting it in passing, while I keep working hard inventing products and services in SPITE of the environment.

 

How any lame, hair-brained elected idiot can really think this will do anything is sadly beyond me entirely.

[SeanC]

their talent alone determines their success.

 

Couldn't it be said that the CEO has "talent" in determining which of those specific "old boy/old girl" networking relationships to maintain/foster? Or, trusting their knowledge, instincts and abilities to analyze their markets and take actions they deem appropriate? That is no different than a quarterback knowing when to check down to a different receiver or calling an audible at the line is it?

 

Seems to me that the true "leader" is the one out there playing that chess game with the futures/lives of the people who work for him. In other words, the rooks, pawns, knights and queens all working for the "king" are all living breathing people who are counting on that king to make the correct decisions that will help them realize their own dreams.

 

Or, have I crossed my analogies and metaphors?

Absolutely it could be said that it requires talent on the part of the CEO to navigate old boy/gal networks, enter into the right deals, know the right people, etc., etc. I'm not saying or even implying that it doesn't. I'm merely addressing Graham's poor analogy. Is that talent anything like that of a chess prodigy or artist, people whose talent and success is never eyed with suspicion by the public at large?

 

No. And for the simple reason their talent does not involve or require a talent to manipulate the system. A very big part of a CEO's success is directly tied to his or her ability to manipulate people and situations. Is it really a surprise to him (or anyone reading this) that people are often suspicious -- rightly and wrongly -- of manipulators? Yet people by and larger are not suspicious of the success of chess champions, painters and similar forms of genius, so...

 

Graham is attempting to argue that we should likewise not be suspicious of those whose talent is making money on the basis the pattern of variation between those talents is no different. But the pattern of variation is a helluva lot different, which I've already shown, and thus his argument fails.

 

Your quarterback analogy, on the other hand, would have been a much better one for Graham to pursue (albeit to a different conclusion). Successful quarterbacking by its very nature involves skills and talents similar to CEO-ing -- manipulation, opportunism, a healthy amount of dumb luck and sometimes outright chicanery -- in addition to the many other specific skills and abilities required by the game/industry.

 

But do people often question the accomplishments of successful QBs, cast aspersions or doubts on their overall value? All the freakin' time! Rightly and wrongly. It comes with the territory. Like Michael Corleone said in The Godfather, "this is the business we've chosen."

 

Much of that doubt is warranted, but in my opinion, most of it is not. Regardless, pollyannaish analogies to chess players and artists isn't going to change any of the negative perceptions or opinions.

[smiller]

How any lame, hair-brained elected idiot can really think this will do anything is sadly beyond me entirely.

I think that most of the lame, hair-brained elected idiots understand quite well that this is nothing but a sleight-of-hand ploy and very poor policy, unfortunately the lame, hair-brained idiot voters seem to just suck this stuff up. In the words of more than one sound-bite interview on the nightly news, "all I know is that I'm getting some cash."

 

Summer gas-tax holiday anyone..?

[Boffin]

How any lame, hair-brained elected idiot can really think this will do anything is sadly beyond me entirely.

 

Sadly David, I have yet to see a politician of any colour who would not see that this move would do something positive from their own specialised point of view; ie win votes.

 

Andy

[David]

Why did you choose the word "manipulation" in your explanation? I presume you are using the term negatively? That's what it sounds like.

 

There's no doubt that many business heads are indeed manipulative in a bad way (I've worked for some of them). But the heart of entrepreneurship is not manipulation, but rather seeing opportunity amid chaos.

[David]

Yeah, I think many of them didn't have the courage NOT to vote for it.

[Joe Frickin' Friday]

It's my assumption that the wealthy make their profits ultimately from consumers that purchase goods or services thereby creating real demand. (as opposed to speculation).

 

Wealth is created and earned by providing to consumers a thing that is of value to said consumers; that thing can be a car, heart surgery, tire-changing tools, legal advice, a Billboard Top Ten Hit Song, pest control, an operating system, whatever.

 

If you could keep net consumer spending constant, but simple raise the wages of the lowest wage earners and equally lower the wages of the middle and higher wage earners thereby keeping the balance sheets the same, the net result would be no change in revenues of profits, only a more even sharing of profits. In reality, you would reduce available investment capital, but might increase consumer spending.

 

In the first place, who says the profits are supposed to be shared evenly?

 

And if they are shared evenly, why would the movers and shakers continue to put out? Take away enough of my Mojo profits to bring my annual income more in line with the national average, and pretty soon I'd say "screw it, it's not worth it;" and suddenly people would have a harder time finding an economical way to change their own tires.

 

In the process of acquiring wealth, the wealthy tend to create jobs and products for other people. Bill Gates has been allowed to become filthy rich, and as a result, almost 80,000 people have a job, and a lot of computers have a common, compatible operating system (save the PC/Mac debate for another thread). Page and Brin are now multi-billionares, and as a result, 20K people at Google have a job, and we all have a pretty cool search engine to use for free. This story is repeated all over the place, for any adventurous person who has dared to start his own business. If these folks are only allowed to earn $40K/year (or even your "excessive" $200K/yr), they would not have taken those big risks, or worked their butts off, to make their ventures successful.

 

What if corporate bonuses were a flat percentage of salary throughout hte company.

 

Why do you suppose it is that corporate bonuses aren't currently set up like that?

[ghaverkamp]

There's no doubt that many business heads are indeed manipulative in a bad way (I've worked for some of them). But the heart of entrepreneurship is not manipulation, but rather seeing opportunity amid chaos.

 

I assume the CEOs to which Sean refers are those of large corporations. There's little entrepreneurship involved when playing with someone else's money, someone else's organization, someone else's lives, all played in a game in which failure pays nearly as well as moderate success.

 

That's decidedly different from the bulk of the CEOs, of course, but I assumed Sean was using the term somewhat colloquially. (Of course, I've never found much of anything Graham's written terribly persuasive, but that's a different topic.)

[velomoto]

I would contend that the government still didn't create any jobs in that case. Reagan simply got the government out of the way so that people and organizations who were capable of creating jobs had more incentive to do so (reduction of the top marginal tax rate from 70% to 50%, and ultimately to 28%).

I would not argue that cutting tax rates (effectively giving people more $$$) helped stimulate the economy, and we could certainly argue discuss what had the greatest impact toward turning around America's economy when Reagan came into office. But if you go back and look, Reagan poured massive amounts of $$$ (read: billions and billions) into defense spending (aka "Star Wars" programs). I was there, I collected a very small portion of this money and used it in turn to create other jobs (bought a house, etc. etc.). Many liberals (Democrats) complained that Reagan's "reckless spending" was going to drive the country into default. Much to their dismay Reagan's spending created jobs, and when combined with several other factors (declining interest rates, solid Fed policy, declining fuel/energy prices, strong growth in Asia and Europe), America's economy rebounded nicely.

[David]

I assume the CEOs to which Sean refers are those of large corporations. There's little entrepreneurship involved when playing with someone else's money, someone else's organization, someone else's lives, all played in a game in which failure pays nearly as well as moderate success.

 

Good point--I was on a different mental track.

[steveknapp]

America's economy rebounded nicely.

 

I can hear it now...

 

"short term gains for long term problems"

"the doom is coming, you just wait"

[SeanC]

Why did you choose the word "manipulation" in your explanation? I presume you are using the term negatively? That's what it sounds like.

Thank you, David. Your comment perfectly illustrates my point. It does sound negative, doesn't it? There are a whole bunch of things that sound negative (and sometimes are negative) involved in the making of large sums of money. Graham ignores that fact.

 

Unlike Graham, I'm not trying to change that perception or make it sound positive. I'm a realist, not a PR specialist.

 

Regarding manipulation, it's but one of many skills. But it is an important one, and if a person has no talent for manipulating people and events, he most likely won't rise to the level of CEO. Whether it's dealing with employees, competitors, customers, vendors, the press, etc., at some point you have to go into the bowels of a sausage factory and convince people of the yummy goodness of Oscar-Meyer Weeners, Ballpark Franks, etc.

 

It's a skill for sure, and a very valuable one, but it ain't like beating Bobby Fischer, painting the Mona Lisa or writing The Wind In The Willows.

[velomoto]

In the process of acquiring wealth, the wealthy tend to create jobs and products for other people. Bill Gates has been allowed to become filthy rich, and as a result, almost 80,000 people have a job, and a lot of computers have a common, compatible operating system (save the PC/Mac debate for another thread). Page and Brin are now multi-billionares, and as a result, 20K people at Google have a job, and we all have a pretty cool search engine to use for free. This story is repeated all over the place, for any adventurous person who has dared to start his own business.

No - Microsoft, Google, Yahoo, Apple and many of these other companies were NOT created by people who were wealthy. They were created by leaders with vision and willing to work hard.

 

Corporations don't create new jobs because the CEO is given more money (via tax breaks or bonuses). Instead corp's create jobs when they thrive and grow. The cost of money certainly affects the rate at which they will grow but this is separate from the question of personal income tax. My job in the military industry didn't happen because the CEO got a bonus - it was because Congress approved and funded a new "program". Read: government gave company lots and lots of $$$ to hire people (ie. create jobs).

 

Regarding other posts I find it more than a little amusing how people refer to a $600 tax refund as "redistribution of wealth". This might cover the heating bill for a few months, but "redistribution of wealth" it is not!

[David]

Regarding other posts I find it more than a little amusing how people refer to a $600 tax refund as "redistribution of wealth". This might cover the heating bill for a few months, but "redistribution of wealth" it is not!

 

Fine. Just change the term wealth to money, and then perhaps you'll be able discuss it with a bit of substance? You got the point--and then avoided it.

[Bud]

They each have a number of children, none of whom have much interest in their Dads' businesses. It's amusing to me that each is equally puzzled about what to do with all the wealth they've accumulated when they die. They certainly don't want to give it to the government, or charities, or their children, feeling that only negative things are likely to happen from any of the alternatives. But both are pragmatic and focused in the "now" and probably don't worry about it very much. Certainly not enough to be the slightest bit interested in any estate planning.

 

I'm surprised. I've known a few folks that would be considered very wealthy. They have all thought about how their estate will be distributed and have legal documents in place to make that happen.

 

I would have no problem paying more income tax if it meant that my income was higher.

[Joe Frickin' Friday]

No - Microsoft, Google, Yahoo, Apple and many of these other companies were NOT created by people who were wealthy. They were created by leaders with vision and willing to work hard.

 

I expressed myself poorly; what I meant to say was that the companies were created because these people were allowed to become wealthy in the process.

 

Corporations don't create new jobs because the CEO is given more money (via tax breaks or bonuses). Instead corp's create jobs when they thrive and grow.

 

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

[Dave McReynolds]

They have all thought about how their estate will be distributed and have legal documents in place to make that happen.

 

Sorry, my statement may have been a little misleading. Of course they have wills that specify how their estates will be distributed. What they don't have are the trusts, family partnerships, CRT's, foundations, and other farkles that people with a small fraction of their wealth often put in place to avoid estate taxes. They may not even have simple A-B trusts to preserve the unified credit of the first to die; I don't know because they won't discuss it with me. It's just not important to them.

[ghaverkamp]

I expressed myself poorly; what I meant to say was that the companies were created because these people were allowed to become wealthy in the process.

 

I don't buy that. The companies were created because the founders saw a market. It's unlikely that Gates founded Microsoft because he was "allowed" to get wealthy. It is unlikely he truly thought he would get wealthy writing BASIC for the Altair.

 

Given the market for home computers in the early 1970s, it is similarly unclear whether Jobs and Wozniak created Apple only so that they could get rich. Given how the company came about, it seems clear that the company was founded more out of interest and money to keep creating than it was to get rich.

 

And Yahoo!? For those of us who were using Yahoo! from its earliest days, it's hard to imagine it was founded solely because the founders could get wealthy.

 

Google's the only one that really fits that. In all other cases, it seems clear that people were pursuing a way to make money -- but not necessarily get rich -- off of their interests and talents.

 

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

 

There are CEOs all over the country making less.

[smiller]

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

Just as it's interesting to note how many companies have fared after paying their CEO tens or hundreds of millions of dollars.

[SeanC]

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

$30K/year seems like an awful lot of money... when you compare it to Steve Jobs salary as CEO of Apple anyway. His salary? A whopping $1/year, the same amount he's been drawing since taking the job in 1997. Of course he did increase his wealth in 2007 by $14.6 million, but only on paper, and only because his stock options were set to expire. But he didn't cash them out or pocket the profit. He simply exercised the options and held on to those 120,000 shares (adding them to the other 5 million or so shares of Apple stock he owns).

[velomoto]

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

Just as it's interesting to note how many companies have fared after paying their CEO tens or hundreds of millions of dollars.

A while back, when Gates was still employed by Microsoft, there was an article in one of the business rags which argued that Gates was the lowest paid CEO. After digging thru the entire article I came to agree that they had a good point as at that time Gates entire compensation over a number of years had averaged roughly $500K annually and at that point in time MSFT had been prospering. Gates had already amassed his fortune in stock which was being liquidated (if I remember my numbers correctly) at something like $20M annually. In other words, Bill wasn't really receiving an income for being CEO.

 

I agree with your implication that it would not be prudent to hire a CEO for a large corporation for $30K per year, but this is not what I was implying or suggesting. Instead my contention is that the wealthy are not necessarily using their money to create jobs.

 

I've heard the argument over and over, that we need to give more money to the wealthy so they will create jobs, but I've never seen any data to support or refute this.