On-line Opinion Magazine…OK, it's a blog
Random header image... Refresh for more!

Kill This Meme

Digby read this fairy tale in the New York Times about the “plight” of the obscenely wealthy in the GOPression. As always they attached the totally bogus argument that the rich are important because they finance new businesses and expansions.

The old money rich, as a group, don’t spend their money, and they damn sure don’t risk anything on new ventures.

This is the justification for all the tax cuts, to spur investments, but it doesn’t happen because the old money stay rich by minimizing their exposure to risk.

If an entrepreneur strikes it rich, they might enter the world of venture capitalism, like Richard Branson of Virgin and Paul Allen of Microsoft, but the old line families use other people’s money, not their own if they perceive any risk at all. That’s how they get to be old money.

New businesses are started by people mortgaging everything they own and borrowing money from friends and relatives. If they are semi-successful they can then get small business loans for their first expansion. If the success is sustained, or they have been successful in an earlier enterprise, they can then cut a deal with a venture capitalist. If that goes well, they will have an initial public offering and get money from the sale of stock.

The IPO rarely funds any major growth, and is normally done to pay off the venture capitalists.

The stock market and old rich don’t invest in new businesses, they suck the life out of businesses with a proven record of success. The only exception has been the tech bubble, which was a ponzi scheme, and old money wasn’t really affected because they don’t do “new”.

I went to college with old money, and I had them as clients. They are the cheapest people on the planet, and the slowest paying. They never carry a wallet, and don’t pay for anything, because they don’t have to.


1 Steve Bates { 10.04.09 at 12:11 am }

I’ve been told (firsthand) that the old rich don’t tip waitstaff very well in restaurants, and I can tell you from personal experience supplying dinner music at a high-end restaurant in Houston for several months that they don’t tip musicians worth a good damn.

Indeed, as far as I can tell, the whole notion that the old rich contribute significantly to any aspect of the ongoing economy is just plain bogus. The new rich may share a bit, and people whose income depends on tips may themselves tip a bit better, but the old money keeps its money. Don’t believe it if someone tells you otherwise.
.-= last blog ..Going Drogue =-.

2 Steve Bates { 10.04.09 at 1:47 pm }

“The fact that he does not do as well as he thinks he should by way of tips perhaps tells us that his musical abilities are on par with his economic ones!” – DD

The old rich in Houston are legendarily cheap. You don’t have to take my word for it. I’d like to hope that you, DD, are dependent on them someday for your livelihood. That would be about what you deserve.

Oh, and just how would you have even the least idea what my musical abilities are? As always, and apparently on every subject, you make assumptions without doing research. Why am I not surprised.
.-= last blog ..Tabitha’s Status =-.

3 Bryan { 10.04.09 at 1:47 pm }

Sorry, Mr. Duff, but the rich are not covered by Econ 101, the appropriate course is Tax Accounting 455. They are heavily invested in government bonds, which are tax free, and various tax free shelters. Real investing involves risk, and they don’t tolerate risk.

They buy assets, they don’t build them, and then only long-term hard assets, like buildings, established art works, precious metals, and gems.

The rich are scavengers feeding off the investments of time, money, and innovation of those who are actually creative.

As for tipping, I’ve never seen them actually pay a tab. If you go to lunch with them they assume you are paying, so they don’t get involved with tips.

High end restaurants are created for business [tax deduction] and others trying to impress their dinner dates. Old money will almost never eat at a restaurant where they might encounter common people, or have to wait for something. The old money have undocumented immigrants who know their place, to serve them, and you don’t tip employees.

Anyone who thinks that the real world actually works like they were told in Econ 101 has a rude shock awaiting them. The whole raison d’être for tax accounting and many accounting rules is to ensure that the principles learned in text books don’t work. The whole purpose of corporations, limited liability, short-circuits major assumptions.

The old rich offer no benefit to society in general. I’m not advocating their elimination, only that the government stop giving them special privileges.

If Congress wants to do something at least minimally useful with tax policy, they should work on reducing the taxes on small businesses, not on corporations. I would actually prefer that government stop trying to affect the economy through tax policy. A level playing field would help everyone.

4 John B. { 10.04.09 at 6:14 pm }

Have to side with Bryan on this one, only more so. Apart from a few well known world examples to the contrary, most of the old rich I have encountered got theirs through probate — or, more commonly these days, through a trust.

Over the decades I have known a good many of the old filthy rich in four different sections of the country. Especially along the Gulf coast, the striking thing was how many of them were complete idiots: very poorly educated, totally unread (unless you count romance writers), largely inarticulate, terrible grammar, impaired thinking, huge gaps in basic knowledge about anything that wasn’t on daytime TV or in advertising circulars, and lousy taste in art. But they can gossip,a nd when they do to my observation it’s almost always about who has how much.

Most of them just draw a check every month from some distant trustee and have come to assume they must have done something to deserve it. As for banks, bonds, and Treasuries, bonds these people couldn’t invest their spare change in a piggy bank. They are trust fund babies, and nothing more.

To suggest, as Duff does, that the economy depends upon them is ludicrous. If anything, they are true freeloaders — contributing nothing, sucking up what was willed to them by generations past.

5 cookie jill { 10.04.09 at 8:29 pm }

If you really want to know about how “cheap” the uber-old monied folks are, might I suggest asking some caterers. I know many a friend in the biz who has horror stories of working for some of the “big names” here in Santa Barbara.

These folks, with all their money, will nickle and dime everyone. They take, take, take, take, take, because they feel they are entitled to. They aren’t the “hired help.”
.-= last blog ..Fabio Viviani signing my book =-.

6 Bryan { 10.04.09 at 9:13 pm }

It seems, in general, that the people who actually build wealth, don’t have a problem spending, but those that just inherit, don’t actually know what a dollar is worth, and think everyone is trying to steal from them.

I wondered if the children of the wealthy don’t suffer from never having to struggle. Their lives really are pointless.

7 Badtux { 10.05.09 at 1:24 am }

I was sitting next to an out-of-work construction worker at a concert today. He asked how to get into the computer industry. I told him don’t bother, it’s all being outsourced now to China and India, and the only Americans they’re hiring are those with 10-20 years experience to lead their teams of outsourced engineers. He seemed shocked. Why is it all outsourced? Well, I explained to him, the problem was that wealthy Americans wanted immediate returns on their money. They weren’t willing to invest large sums of money into something that was going to take three years to design and build, then another three years to become profitable. They wanted returns quickly, as in, next quarter. Only the Indians and Chinese take the long view and are willing to invest in high technology today, and one condition of taking their money is that you hire Indian or Chinese engineers in outsourced development centers in India or China. So now if you’re a young American graduating from college with a degree in Computer Science, good luck with that… you’ll be working a technical support call center, most likely, for the next ten years until you finally give up and go to work selling real estate to other call center workers or whatever the bubble is at that time.

Our elites here in the United States have utterly forgotten how they built their wealth in the first place, and their short-sightedness is killing us economically. Giving them more money to use in misplaced ways such as creating real estate bubbles is not the answer. Taking that money away from them via higher taxes and using it for something productive (like, say, fixing all these crumbling roads and bridges, and providing health care!) is the answer. But the moment you start talking about that common sense fact, the Villagers fall upon you with shouts of “heretic!” and “socialism!”, sigh!

8 Bryan { 10.05.09 at 12:23 pm }

Government bonds are the only long-term investments left, everything else has become gambling. Good companies are bought up with borrowed money, all of their assets are mortgaged, the cash is taken out by the buyers, and the impoverished remnant is left behind – no modernization, no research, no new products, just a process of draining all that is worth anything from what was built by real investors, entrepreneurs, and creative people in the past.

American workers are actually paid less that workers in Japan or Germany, which is why German and Japanese manufacturers have built factories here. They moved to the lower labor-cost area and saved production and transportation costs.

Ayn Rand’s books should be printed on softer paper to make them more suitable for their best use. She managed to convince a promising Jazz clarinetist and saxophone player to return to economics and become the prime enabler in the current global crisis. Her perverted vision of the world is what we are currently dealing with – all greed and no substance. It is unfortunate that she didn’t take her own advice and “go Galt”, so we wouldn’t have to be stuck in this mess caused in no small degree by her acolytes.

9 Steve Bates { 10.05.09 at 10:28 pm }

“even if the grumpy pianist in the cocktail lounge fails to get much in the way of a tip” – DD

I was neither grumpy nor a pianist. It isn’t that difficult to find my musical career on the web, and making comments like that without even resorting to Google is very close to slander. DD, you are what you spew, and what you spew is shit.

As a computer contractor, I was gradually replaced by English-speaking contractors in the Pacific rim and the Indian subcontinent, until my clients found them unmanageable across an ocean and a net, and hired me again… for a while. After that, the Magic of The Market took over and left all of us stranded in a variety of ways, wherever we lived. I await the day when software companies discover they cannot stay in business without someone to craft software… but that won’t bother DD and his Econ 101 crowd a bit; they’ll just leverage the framix with the widget until the buyout fraxles the whadyacallit and they all can retire rich. Right, wingnut?

10 Steve Bates { 10.06.09 at 9:56 am }

“I will, if you insist” – DD

Only if you insist on casting aspersions on me based on no information at all. (“Aspersions” … that’s what one calls the brown stuff you’re throwing, right?)

“… my theatrical career – wonderful isn’t the word!” – DD

Tell me all you wish, as long as you can tolerate my flinging poo at you the way you did at me. Um, DD… you were on a university theatre faculty, right? I mean, if we’re going to play the whose-performing-career-is-longer game, you ought to start out at least nominally on my level…

As to my googling your name, DD, Texas will freeze over in mid-July before I’ll do that. Hey, if the world approaches global climate change the way you do, it could happen.

11 Steve Bates { 10.07.09 at 10:54 am }

DD, don’t be sensitive when I say that with such a military career, you don’t have a lot of room to be advising Bryan on larger military matters. There’s no shame in being a grunt… my late uncle was one, as he repeatedly reminded my father, who was an officer… but there are good reasons that grunts don’t make the strategic decisions.

Remember how we got here on this thread: you felt compelled to toss in a completely gratuitous slur on my musical skills, a slur that had nothing to do with my competency (or lack of same) on the economic matter that was the topic of the thread. In economics, I have opinions but no certifiable expertise. Music is another matter… yes, I really did hold an adjunct position on a university music faculty for a couple of decades, meanwhile participating in and managing an independent performing group through four successful subscription seasons, and yes, I’m rather proud of my musical career (alas for you, undeniably professional). If I’m “touchy” (your word, not mine), it’s about the gratuitousness of your insult, not its content or severity.

12 Badtux { 10.07.09 at 11:43 am }

David Dunce: The money is going overseas to the Indian and Chinese investors who create. It isn’t staying here in the United States, because the U.S. elites refuse (absolutely refuse) to invest into innovation. They want something “safe”. For many years that was real estate until they drove real estate up into the stratosphere and caused a bubble and collapse. Now it’s government bonds, driving real interest rates for government bonds into the negative territory, which I suppose is indirect taxation of a sort. But really, they’re not using the money for anything productive, they’re just sitting on it as lumpy mattress stuffing. Economic history supported by economic theory explaining that history mathematically teaches us that money that is lumpy mattress stuffing might as well not exist insofar as its contribution to an economy is concerned, and that the correct and proper thing to do is promulgate economic policies which encourage that money to move out from under mattresses and start doing things. The Indians and Chinese don’t need that kind of stimulus to do the right thing economically, they have brains and know what they want to do. But our U.S. elites have become so inbred and stupid (sort of like the British royals in that, eh?) that they deserve to have it taxed away so that people who *do* know what to do with money can put it to some productive use.

In short, you are an economic ignoramus who has not the slightest idea what the “v” is economic activity money equation (hint: VELOCITY) and why the U.S. plutocrats sitting on their money rather than using it for funding innovation, production, or consumption basically makes that money useless. And if you are upset at the gratuitous insult, fine. You’re the moron who came on this board and started insulting people.

13 Badtux { 10.07.09 at 2:26 pm }

Two words for the investment strategy of the American elites: Bernie Madoff. Ponzie schemes which rely upon trading worthless “assets” rather than investing in productive enterprises that add innovation and products and services to the economy are little more than mattress stuffing insofar as their contribution to the economy is concerned.

And if people don’t have jobs, it doesn’t matter how cheap the Chinese crap is at Wal-Mart, they can’t afford it. Duh. Not to mention the social implications. People do *NOT* willingly starve to death regardless of how much people like you tell them that it’s their duty to starve to death in order to preserve your precious religious theology called “capitalism” (a theology which is entirely faith based because it has never — *EVER* — worked in real life, all actual working economic systems have large dollops of socialism in order to handle externalities, crap we even wrote socialism into our Constitution by mandating that the U.S. government provide post roads and post offices). If people cannot obtain what they need to survive via legitimate means, they *will* turn to illegitimate means, or even turn against their elites and string them up from the nearest oak tree. Our elites here in the USA seem to have forgotten that lesson. They should ask the French nobility what the implications of your attitude of “let them eat cake” is. Oh wait, they can’t, because the French nobility all lost their heads in the reign of terror after the French Revolution, my bad! But our elites here in the USA have been so comfortable for so long that they have not the slightest idea what it is like to be hungry, or the dire things that people will do in order to obtain food when they’re hungry. They’re morons, pure and simple. Otherwise Bernie Madoff could have never took them for so many millions for so long.

– Badtux the Snarky Penguin

14 Badtux { 10.07.09 at 7:24 pm }

Uhm, in case you haven’t figured it out, nobody on this planet has proposed the notion that a Soviet-style planned economy should substitute for a mixed economy as is typical of Europe. Matching inputs and outputs in an economy cannot be done mechanically because it is inherently a chaotic system due to the quantum fluctuations in the neurons of its components, thus it must be done organically via a a trainable neural network system trained by tokens (we call the tokens *MONEY* and the components of the neural network system PRODUCERS and CONSUMERS). The question is the proper set of rules for setting up that neural network system to meet the goals of providing the best outcomes for the majority of the people of a nation, not whether there should be one. There is no more Soviet Union, and your red baiting is noted as further evidence of intellectual bankruptcy.

1) The end result of outsourcing government functions has been measured, and privatizing government functions has been provably shown to be more expensive than providing those services directly. Privatized prisons are more expensive than government-run prisons. Privatized commissaries for our soldiers are more expensive than government-run commissaries. Privatized municipal water systems are more expensive than government-run water systems. And so forth.
2) The effective result of reduced wages is debt inflation. Your fancy theory doesn’t account for debt, or the fact that the effective bottom for reducing wages is starvation for large numbers of people. Your fancy theory dismisses hunger as not being an economic issue, or as incentive to work for less money (and how can you buy more food for less money? Only in ivory towers!). Perhaps it’s not an economic issue, but it is certainly a biological issue. Biology trumps economics. When theory runs into blunt reality that people will not willingly starve to death when incapable of earning sufficient wages to buy sufficient food to survive because wages have been driven through the bottom, it is blunt reality that wins.

Check out my comment on Another Victim of Greed regarding how changes in the U.S. tax code since the election of Ronald Reagan in 1981 have led to rent-seeking behavior seeking to extract gains from short-term transactions, rather than investment behavior seeking to maintain value via long-term investments. The actual economic data supports my assertions, and does not support your assertions, you are talking blue-sky ivory tower BS and I’m talking reality, i.e., what’s actually happened and still happening in real life as vs. your theoretical natterings. Your fancy theoretical natterings sound good, but have only worked in fictional universes where cotton candy grows on trees and unicorns are real. Actual real live human beings simply do not behave in the manner that you describe, you are as deranged as the Soviet Central Planners who assumed that their workers would behave as idealized Perfect Soviet Workers. Reality simply *IS*, and you cannot dismiss it with smug hand-waving and bullshit theories. Just ask the Soviets about that. Oh wait, you can’t, because they’re *GONE*.
.-= last blog ..Quote of the day =-.

15 Bryan { 10.08.09 at 2:46 pm }

Exactly what liberty is lost by prosecuting fraud and theft?

The purpose of the US government, as stated in the Constitution, is to promote the general welfare.

You are advocating for liberty, you want either anarchy or privilege, neither of which is really conducive to elevating the level of liberty. Rand, and other fiction writers seem to believe in enlightened self-interest as a control on excesses, but it doesn’t work, and has never worked, because most humans are greedy. That’s reality – deal with it, or die.

16 Kryten42 { 10.09.09 at 8:53 am }

But… Bryan… Rand and all the other assorted elitist propagandists want the multitudes of poor dumb bastards to believe in enlightened self-interest because it makes them feel all warm and tingly to believe that the elites are good, honest, hard working people rather than the lying, selfish, lazy scumbags they actually are. 🙂 I wouldn’t trust the average human to tell me the time accurately, let alone trust them with my life and livelihood.

People are so stoopid! *SIGH*

“When you see a rattlesnake poised to strike, you do not wait until he has struck before you crush him.” –Franklin D. Roosevelt

Ehhh… what they hey… one more for the road! 😉 Let’s see…

“They that can give up essential liberty to purchase a little temporary safety deserve neither liberty or safety.” –Benjamin Franklin

Ooooohhh… There are sooooooooooo many! 😉 LOL

Oh, but for most people, the best is: “Ignorance is bliss!” LOL (BTW, that is often misquoted and was originally from the 18th century English poet, Thomas Gray. “Where ignorance is bliss, ’tis folly to be wise.”

So so true!! 😛

17 Kryten42 { 10.09.09 at 9:01 am }

PS… I *HAVE* to quote another quotation from Ben Franklin (that i actually prefer to the one that is usually quoted above):

“Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote!” –Benjamin Franklin

And Ben was a pacifist! 😉 😆 But he was a realist first and foremost. Definitely nobody’s fool. 🙂

Ahem… back to work (been off sick most of the week) *shrug* So much to do… so little time… 😉

18 Bryan { 10.09.09 at 4:01 pm }

Ben was a Quaker, if a not particularly observant one, but he understood people and their weaknesses. Theories are great in a perfect world, but we have to live in a world with humans, so perfection isn’t an option.

Economic theories depend on rational models and people are not always rational. You really have to wonder how many times we have to have tax cuts for the wealthy to fail before people admit that they always fail.

19 hipparchia { 10.09.09 at 7:52 pm }

“Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote!” –Benjamin Franklin

i’ve always liked that one. thanks for the reminder!
.-= last blog ..Game on! =-.

20 Kryten42 { 10.10.09 at 3:20 am }

My pleasure Ma’am! 😉 As you know… I like quotes and have many! 😀

How about this one:

“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.” -Abraham Lincoln

Who knew he was a prophet? I guess the name ‘Abraham’ might be a clue… 😉 😀

People of the World would do well to listen to John Adams:

“Never trouble trouble till trouble troubles you. I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce and agriculture in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain.” –John Adams

A wise man indeed. Isn’t it a curious dichotomy that the human species is the only species that devolves (or just becomes dumber) as the generations increase, science not withstanding! 🙂