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Capitalism at it's finest. (1 Viewer)

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Footballguy
Joking but it is an interesting read. 

https://boingboing.net/2016/08/23/bill-gates-net-worth-hits-9.html

When Thomas Piketty published his 2013 book Capital in the 21st Century, he said that capitalism's primary beneficiaries aren't those who make amazing things that improve the world (as its proponents claim) -- rather, it favors those who have a lot of money to begin with.

One of Piketty's sharpest examples is a comparison of three fortunes: that of L'Oreal heiress Liliane Bettencourt (who has literally not worked a day in her life), Bill Gates the entrepreneur (when he was running Microsoft), and Bill Gates the rich guy (after he quit). Capitalism theory predicts that the greatest rewards will accrue to the second person: Entrepreneur Gates, who founded the world's most profitable company and revolutionized the world.

But the reality is that Bettencourt saw her fortune grow by just as much as Entrepreneur Gates, over the same period, despite the fact that she contributed absolutely nothing to the world's prosperity in that time. What's more, Investor Gates's fortune grew to eclipse that of Entrepreneur Gates, despite the fact that all that growth was made by moving money around, rather than making things that made the world better.

Not long after Capital in the 21st Century's English publication, Bill Gates reviewed the book, saying nice things about it but rejecting its core thesis.

Today, Investor Gates has comprehensively trounced Entrepreneur Gates in receiving reward for capital allocation instead of creation -- it's hard to ask for a neater rebuttal of Gates or affirmation of Piketty. I'm sure Gates is crying into his $90B breakfast cereal.


All large fortunes, whether inherited or entrepreneurial in origin, grow at extremely high rates, regardless of whether the owner of the fortune works or not. To be sure, one should be careful not to overestimate the precision of the conclusions one can draw from these data, which are based on a small number of observations and collected in a somewhat careless and piecemeal fashion. The fact is nevertheless interesting.

Take a particularly clear example at the very top of the global wealth hierarchy. Between 1990 and 2010, the fortune of Bill Gates -- the founder of Microsoft, the world leader in operating systems, and the very incarnation of entrepreneurial wealth and number one in the Forbes rankings for more than ten years -- increased from $4 billion to $50 billion. At the same time, the fortune of Liliane Bettencourt -- the heiress of L'Oréal, the world leader in cosmetics, founded by her father Eugène Schueller, who in 1907 invented a range of hair dyes that were destined to do well in a way reminiscent of César Birotteau's success with perfume a century earlier -- increased from $2 billion to $25 billion, again according to Forbes.

In other words, Liliane Bettencourt, who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working. Once a fortune is established, the capital grows according to a dynamic of its own, and it can continue to grow at a rapid pace for decades simply because of its size. Note, in particular, that once a fortune passes a certain threshold, size effects due to economies of scale in the management of the portfolio and opportunities for risk are reinforced by the fact that nearly all the income on this capital can be plowed back into investment. An individual with this level of wealth can easily live magnificently on an amount equivalent to only a few tenths of percent of his capital each year, and he can therefore reinvest nearly all of his income. This is a basic but important economic mechanism, with dramatic consequences for the long-term dynamics of accumulation and distribution of wealth. Money tends to reproduce itself.

-Thomas Piketty, Capital in the 21st Century


 
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I don't get the criticism.

Gates' investments benefited those he invested in. 

So the money he acquired in growing Microsoft was used to grow a myriad of other companies - apparently successfully.

That's bad?

 
Andy Dufresne said:
I don't get the criticism.

Gates' investments benefited those he invested in. 

So the money he acquired in growing Microsoft was used to grow a myriad of other companies - apparently successfully.

That's bad?
Click to expand...
Capitalism's primary beneficiaries aren't those who make amazing things that improve the world (as its proponents claim) -- rather, it favors those who have a lot of money to begin with.

 
Andy Dufresne said:
I don't get the criticism.

Gates' investments benefited those he invested in. 

So the money he acquired in growing Microsoft was used to grow a myriad of other companies - apparently successfully.

That's bad?
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This depends.

Funding start-ups, buying bonds and investing in IPO's yes.  Trading stocks and bonds, no.

There is a lot of money made simply by obtaining interest and dividends on previously issued securities that benefits no one but the investor and the entities that facilitate those trades.  Most of the money made from financial activities isn't the result of any kind of true production, but the simple moving around of money from different investment vehicles.  Honestly, it is a black hole for resources that I'm not sure can ever be scaled back.

 
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I would also say that investing in a company that e.g. produces an app to make funny videos about yourself might not actually make the world richer, even if it is a start up/IPO etc

 
FatUncleJerryBuss said:
Capitalism's primary beneficiaries aren't those who make amazing things that improve the world (as its proponents claim) -- rather, it favors those who have a lot of money to begin with.
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He's kind of playing loose with the term "primary" though, isn't he? Is there really a way to quantify the benefit he's receved versus the benefit provided and put it on a scorecard?

Taking the extreme outlier and using it as an indictment of the entire system seems like gaming the argument.

 
A tiny number of extremely rich people don't have to work in capitalist economies.  I will grant that perhaps that ought to go on the "con" side of capitalism.  Seems pretty trivial though.

 
IvanKaramazov said:
A tiny number of extremely rich people don't have to work in capitalist economies.  I will grant that perhaps that ought to go on the "con" side of capitalism.  Seems pretty trivial though.
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One of the biggest supposed advantages of capitalism is meritocracy (and thus class mobility). If there is a permanently entrenched upper class, not so much

 
IvanKaramazov said:
A tiny number of extremely rich people don't have to work in capitalist economies.  I will grant that perhaps that ought to go on the "con" side of capitalism.  Seems pretty trivial though.
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I don't think it's trivial when half of the office holders in this country think we should abolish estate taxes because they are "unfair."  

 
fatguyinalittlecoat said:
There's a huge difference between some guy with a million dollars in assets and the  heiress to the L'Oreal fortune.
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Sure. But just because the millionaire isn't a billionaire doesn't mean there isn't class mobility. See my article liked above about the churn in the ranks of billionaires.

That's not to say that class mobility at the lower levels isn't an issue but it's not the discussion we're having here.

 
Plenty of my friends are self made millionaires, and few if any could have had that success in any other country.

The socialistic trends in this country sicken me and will be the demise of our country's greatness...to some extent it has already started.

 
Andy Dufresne said:
Sure. But just because the millionaire isn't a billionaire doesn't mean there isn't class mobility. See my article liked above about the churn in the ranks of billionaires.

That's not to say that class mobility at the lower levels isn't an issue but it's not the discussion we're having here.
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It's all connected.  Rich people earn a lot of money just by being rich.  Poor people lose a lot of money just by being poor.  That's true whether or not you were responsible for your financial status in the first place.

 
TripItUp said:
Plenty of my friends are self made millionaires, and few if any could have had that success in any other country.

The socialistic trends in this country sicken me and will be the demise of our country's greatness...to some extent it has already started.
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:lmao:

 
Jayrod said:
:wall:

Read the article.
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Well I was addressing FUJB and the snip he took, not Pickety or the article.

- eta - do me a favor (seriously) and help me out with a subtext, I know I suck at the internet talk thing, so please just spell out the point.

 
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fatguyinalittlecoat said:
It's all connected.  Rich people earn a lot of money just by being rich.  Poor people lose a lot of money just by being poor.  That's true whether or not you were responsible for your financial status in the first place.
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I agree but that's not the original argument that started the thread - at least as I understand it.

The argument that because capitalism a) REALLY benefits a few people then the concept b) doesn't actually benefit a lot of other people to a great (but much less than the greatest) extent just doesn't follow.

 
Andy Dufresne said:
I agree but that's not the original argument that started the thread - at least as I understand it.

The argument that because capitalism a) REALLY benefits a few people then the concept b) doesn't actually benefit a lot of other people to a great (but much less than the greatest) extent just doesn't follow.
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Are you talking about the blurb from Piketty's book?

 
fatguyinalittlecoat said:
My understanding of it was just pointing out that it's easier to accumulate wealth just by starting with a lot of wealth than it is to accumulate wealth by, you know, doing stuff.
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I was focusing on this "capitalism's primary beneficiaries aren't those who make amazing things that improve the world (as its proponents claim) -- rather, it favors those who have a lot of money to begin with."

Sure it's easier to make money when you already have it. But wealth accumulation isn't capitalism's only feature/benefit.

 
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fatguyinalittlecoat said:
I don't think it's trivial when half of the office holders in this country think we should abolish estate taxes because they are "unfair."  
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I do.  Estate taxes don't affect many people and are a pretty trivial policy issue.  There's a very good economic argument to be made in favor of taxing estates more heavily, and there are good philosophical arguments on either side.

And besides, large estates and self-sustaining fortunes aren't unique to capitalism.  (They'll certainly occur in capitalist economies, but they certainly aren't foreign to countries like Russia, for example).  And of course you can have estate taxes in a capitalist economy if you want.  This is sort of orthogonal to capitalism as an economic system.

 
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Andy Dufresne said:
I was focusing on this "capitalism's primary beneficiaries aren't those who make amazing things that improve the world (as its proponents claim) -- rather, it favors those who have a lot of money to begin with."
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I haven't read the book so I don't know whether that line is faithful to what Piketty said overall.  The quoted blurb doesn't say "primary".

 
IvanKaramazov said:
I do.  Estate taxes don't affect many people and are a pretty trivial policy issue.  There's a very good economic argument to be made in favor of taxing estates more heavily, and there are good philosophical arguments on either side. 
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I think the example articulated in the original post tends to undermine most of the philosophical arguments in favor of abolishing estate taxes.

 
Andy Dufresne said:
Sure. But just because the millionaire isn't a billionaire doesn't mean there isn't class mobility. See my article liked above about the churn in the ranks of billionaires.

That's not to say that class mobility at the lower levels isn't an issue but it's not the discussion we're having here.
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Numerous studies make it clear that class mobility is in very big trouble in the US especially in comparison to the rest of the G8 which is largely socialist.

 
IvanKaramazov said:
A tiny number of extremely rich people don't have to work in capitalist economies.  I will grant that perhaps that ought to go on the "con" side of capitalism.  Seems pretty trivial though.
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Agree IK, extremely rich don't make up a large chunk of the population BUT they control a very large chunk of the money. 

 
As far as estate taxes go yes they should be taxed. Of course they should. It makes no sense for someone to get their wealth tax free because they popped out of the right ######.

I subscribe the opposition to estate taxes to poor deluded Americans who think one day that will be my fortune. No it won't. The odds say it is very unlikely that most of us on this board will ever achieve a level of wealth where estate taxes are even a thing. Chet excluded of course and there are plenty of ways around them or to at least mitigate them. I am sure Chet is aware.

 
NCCommish said:
As far as estate taxes go yes they should be taxed. Of course they should. It makes no sense for someone to get their wealth tax free because they popped out of the right ######.

I subscribe the opposition to estate taxes to poor deluded Americans who think one day that will be my fortune. No it won't. The odds say it is very unlikely that most of us on this board will ever achieve a level of wealth where estate taxes are even a thing. Chet excluded of course and there are plenty of ways around them or to at least mitigate them. I am sure Chet is aware.
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Besides, by the time it is taxed, you are dead

 
fatguyinalittlecoat said:
My understanding of it was just pointing out that it's easier to accumulate wealth just by starting with a lot of wealth than it is to accumulate wealth by, you know, doing stuff.
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Yes, and how did the ones that have been entrenched there from the beginning to get that status.   Sure it was all on the up and up.   Finally how much wealth does the top one tenth of one percent own?

 
NCCommish said:
As far as estate taxes go yes they should be taxed. Of course they should. It makes no sense for someone to get their wealth tax free because they popped out of the right ######.
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But someone else can lay claim to it because they didn't?

 
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Andy Dufresne said:
But someone else can lay claim to it because they weren't?
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Actually the capital that was built up on the backs of many people is redistributed by the government to build infrastructure, provide training, even give people money to spend so that new people can build a fortune. The horror of it all.

 
NCCommish said:
Actually the capital that was built up on the backs of many people is redistributed by the government to build infrastructure, provide training, even give people money to spend so that new people can build a fortune. The horror of it all.
Click to expand...
"Built on the backs"...you're so dramatic sometimes.

 
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