Brad Wardell's views about technology, politics, religion, world affairs, and all sorts of politically incorrect topics.

There is an excellent book called Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not!

I highly recommend it to people.  In many discussions on-line, it becomes really apparent that most people don't really understand money. They know what it does but they have no idea how it works, where it comes from, and how to make more of it.

Conceptually, it's straight forward: If I have $1 and my goal is to have more than $1 then I need to invest it in things that will generate a greater than 1.0 rate of return. 

Most people make money by converting time into money -- they trade their labor for money.  It is what they do with that money that determines how wealthy they are going to be.

If the average human being takes $1 and makes $1 back that means there are lots of people who take $1 and will turn it into $.50 just as there are people who can take that $1 and turn it into $2.

People who advocate higher taxes on "the rich" usually don't have much of an understanding of money.  The government, at its best, will take $1 and consume it with it being transferred somewhere else.  So it gets $1 in and $1 out.

That means if it is taking capital from people who take $1 and can turn it into $2 they are, in effect, decreasing the overall wealth of society.  Society never realizes this is happening because they don't know what they're missing. 

Of course, prior to the rise of republican government and private property rights in the 18th century, the wealth of world societies grew extremely slowly because tyrannical governments (kings, queens, emperors, whatever) ultimately controlled all the capital they could get their hands on. 

Soviet Russia was the best modern example where the state had, by definition, all the capital thus its society was effectively in suspended animation while the west profited by having those who could take $1 and turn it into $2 have as much freedom as possible.

Online, you regularly see people argue that the government can take $1 from "the rich" and give it to the "needy" but that should only be done as a last resort and only short term since, by definition, the chronically poor are people who will take $1 and turn it into less than $1. They are, literally, consumers.  Over the past few decades, we have increasingly become a society of consumers as most people know. But we have all still managed to benefit because thanks to technology and economic freedom, there are people who take $1 and turn it into $1000 out there.

Nothing threatens the progress our society makes, however, than when people stop realizing how all this progress occurs. It's not government that does that but free men and women. Citizens.

Governments must tax its citizens to provide basic services, security, and law enforcement. When the government moves beyond this, we all ultimately suffer because every dollar taken from citizens is a dollar that is no longer available to be invested in one form or other. 

That is why, as a society overall, we are better off with the smallest government we can absolutely tolerate.


Comments (Page 1)
3 Pages1 2 3 
on Dec 24, 2008

YOu are probably right about the parents.  For it was not at the knee of a parental unit that I learned about how to grow money, but in an economics course in College.  Even in the day to day world, I find the level of economic ignorance to be simply astounding.  While many use the principals of economics in day to day life (Shopping at Wal-Mart because you can get it cheaper - even though their masters tell them Wal-Mart is BAD), they do not know when they use it, and if you try to explain it to them, they look at you like you are a fool.

And these are not lower income people either, but well off middle class technicians (smart people that can run rings around most on Jeopardy or Who wants to be a Millionaire).  Yet they do not understand the simple time value of money, or that moving a dollar from point A to Point B does not generate wealth, or investment.

Economists are often laughed at and made fun of because, like Meteorologists, they are often wrong in their predictions.  That is because the science of predicting what many people will do is inexact, and their strength is in what happens when emotions are removed from the equation (i.e. taking the human factor out of it).

The one thing I tell most of them is that "The rich did not get that way by being stupid", in other words perhaps you should look to them to figure out what to do.  But then this again is negated (the wisdom, not the facts) by liberals who Point to Lay or Madoff and extrapolate that the rich got that way by cheating and stealing.  Ignoring the fact that the number of millionaires charged with a crime is a lot lower (as a percent) than that of the middle or lower income groups.

on Dec 24, 2008

Hrmm...I get the point about the exchange rate of money (as in the input and output amounts)...but since tehre is a fairly static amount of "wealth" in the world, doesn't that require there to be suckers out there that turn $1 to $0.50 (that is spend beyond their means) so that other people can turn $1 to $2?  (Just so I don't sound like a whiney poor sucker bastard, I don't spend beyond my  means [my means are still low anyway since I'm still in school] and my parents are living nicely). 

*note*I assume their is a static amount of money based on the description in that book since time -> money since there is a finite amount of laborers in the world (if there is a fairly steady rate of people entering the work force and retired people...though I think it's true that the rate of retirees is LOEWR than the rate of people entering the work force...but it seems weird to me to assume that our world has an increase in overall wealth based only on the birth / death rate)?

 

on Dec 24, 2008

And is the $1 to $1000 rate a rough number thown out there by the book to give an idea of the difference between normal spenders and people who create a large amount of wealth or are there people out there that you could relate that too?  I mean, it seems difficult for me to give an accurate number for something like that for example to a jeff bezos since I don't really know the rate of growth of his company so i can convert time to dollars.

 

And also...if I wanted to ask you stuff not related to any blog post, should I send multiple email copies (since you get alot of unique emails from people) or does that just make you say, "wow, a spammer.  I'm going to definitely ignore him now"?

 

-rattasak

on Dec 24, 2008

Hi guys you miss me??! lol i had to redo windows... anyways

 

I am never for taxes, though I do support it when it come to providing basic needs like roads... schools ect. What I dont like seeing is the gov getting bigger by the day, programs that are useless waste of money that are not effective ect ect.

on Dec 24, 2008

Hrmm...I get the point about the exchange rate of money (as in the input and output amounts)...but since tehre is a fairly static amount of "wealth" in the world, doesn't that require there to be suckers out there that turn $1 to $0.50 (that is spend beyond their means) so that other people can turn $1 to $2?  (Just so I don't sound like a whiney poor sucker bastard, I don't spend beyond my  means [my means are still low anyway since I'm still in school] and my parents are living nicely).

Wealth isn't static. If it was, we'd still be living in caves.

The first lesson you need to learn about wealth is that it is not zero-sum.

on Dec 24, 2008

it becomes really apparent that most people don't really understand money.

I can't deny I am one of them and while I have been learning a little lately, it has been a slow process. I still have a lot to learn but I hope I can at least instill in my children that which I did not learn. On the other hand, my father does understand money. Here is a man who has the uncanny ability to make money out of nothing (I don't really mean nothing, you get my point). Why I never learned it's beyond me, it's not like he didn't try but I guess it may have had something to do with how he did it. He was, after all, a loan shark and his method of making money was not what I considered honest. I never liked the idea of duping people into giving me their money for thing they either could not afford or lend them money it was obvious they could not pay without hurting themselves more later on. Perhaps this dislike to abuse people (as coderunner called them "suckers") is what kept me away from learning a valuable lesson.

on Dec 24, 2008

Draginol-

I agree with everything in your article in theory

The practical application however is a different story, and much of it comes down to this-

the west profited by having those who could take $1 and turn it into $2 have as much freedom as possible.

Now, I agree wholeheartedly with this statement. And in "days of old" it took a loooong time to turn 1 dollar into 2 dollars and it was based on real sales. The widget factory would build widgets at cost x and sell for y price with a profit of z, which would gradually accumulate to the point that the owner could expand  his operation and hire more workers, or perhaps buy another factory down the road.

And yes, of course taxes hurt the bottom line for the individual business, but if done properly they can help greater society in a way the ultimately comes back to help the business.

It all depends on HOW the tax dollars are spent. Say for example, that your tax dollars go to build a massive reliable public transit system, making it easier for workers to get to your factory AND easier for potential customers to get to shopping malls to buy the products you produce. That's a benefit that helps you indirectly in several ways. For one, both your workers and potential customers have more money in their pockets as they didn't have to burn through gas getting to and from work and the shopping mall (oversimplified but you get the gist)

Or perhaps the money goes to a better public education system, producing more people who are better educated, therefore providing you the double benefit of having more customers with disposable income to buy your products  and a larger pool of talented labor from which you might want to hire more workers.

Again, directly there's no discernible benefit, but indirectly that can have a massive benefit for you.

Universal healthcare, which seems to be a subject of undying hatred for Americans, actually costs less per capita through taxation and overall produces citizens who have more disposable income to buy your products, as they're not worrying about paying 500 dollars a month for a policy that MAY cover them in the case of illness or injury.

Again, indirectly helping business out as you have more customers who are healthy (and can therefore work, giving them more money) and are happier, since they don't have to worry about healthcare, they then give you the double bonus of having more money in their pocket to spend on your products, AND since they don't have a giant millstone of worry hanging around their necks they're more likely to spend anyway.

So the whole point of taxation of business is that the entire system, if done properly, is reciprocal.

Here's the problem I have with "Wealth Creation" and the concept of turning 1 dollar into 2 dollars-

You have a widget that you build. It costs you say, 50 cents to produce and you sell it for the price of 2 dollars, therefore covering the cost of the widget you just sold, leaving you with another 50 cents to build another widget AND a whole dollar of pure surplus profit sitting in your pocket!

Now here is the question- that dollar of profit that you just made... did you create it?

No, you didn't. It was transferred to you by someone who bought your product. And that's the whole point of our economy. No one actually creates money out of thin air, except for of course the government with a nice big printing press and the exercise of monetary policy.

And this is the big disagreement. One side says

"I created this dollar of wealth I hold in my hands, and so it's mine to do with as I please!"

The other side says

"That dollar of wealth you hold was transferred to you in exchange for a good or service you produced. Therefore, you didn't technically create that wealth out of thin air and it's proof that your livelihood and prosperity is based on others transferring their wealth to you. Therefore, since you are dependant on society greater for your profits, it's in everyone's best interest if that society is educated, happy and healthy!"

you regularly see people argue that the government can take $1 from "the rich" and give it to the "needy" but that should only be done as a last resort and only short term since, by definition, the chronically poor are people who will take $1 and turn it into less than $1. They are, literally, consumers.

The beauty of this is that it depends on your perspective. From the perspective of the poor person, yes, they regularly spend all the money they get. From the perspective of the toothpaste company that the poor will spend his dollar on, they count that dollar as wealth creation. So if anything, the poor fulfill an absolutely essential function in that they are one part of the economy that doesn't hold on to money- they continually cycle it upwards, never holding on to it.

So, since the economy isn't about creating wealth but actually transferring it, looking back at historical trends the worst economic turmoil and misery has always occurred when too much wealth (that some will say has been created) is concentrated in too few hands, thus impeding the cyclical flow of money through the system.

The role that the government is to play, through taxation, is to foster the conditions that allow for money to continue to flow through the system in a cyclical, reciprocal fashion. Otherwise, if they don't tax then everything ultimately flows upwards to the king of the hill, where one way or another it stays there or will come back to him indirectly anyway. Winner takes all and then you get a situation very similar to many south american free market experiments (forced on them by the likes of the IMF and world bank)

What kind of society do you get with minimal taxation?

 1 % of the population live like gods,

 20% live decently as the managers and protectors of that 1 %

Another 20-30 % scrape by in the real economy as the labor (not managers) providing essential goods and services

50% of the population becomes human surplus living in a barrio.

 

on Dec 24, 2008

What kind of society do you get with minimal taxation?

 1 % of the population live like gods,

 20% live decently as the managers and protectors of that 1 %

Another 20-30 % scrape by in the real economy as the labor (not managers) providing essential goods and services

50% of the population becomes human surplus living in a barrio.

I have seen such a society with my own eyes.

It's the high-tax communist system. I saw it in East-Germany.

West-Germany had lower taxes and not only was everyone richer than the people in East-Germany, but the proportion of gods was higher too.

In the 1980s the United States had even lower taxes than West-Germany. And the people in the US were richer than the people in West-Germany still, with an even higher proportion of "gods".

But I have seen the 1% gods, 50% human surplus system.

Where did you get the idea that it had anything to do with minimal taxes? Do you even look at the world and its simple examples before you make statements like that?

I mean, seriously, it is one thing to argue that universal public health care is a good thing or that higher taxes can be beneficial. But it is quite another to claim that the result of minimal taxes is a scenario which we have consistently experienced in countries that had the highest (not minimal) taxes in the world.

 

 

on Dec 24, 2008

What kind of society do you get with minimal taxation?

 1 % of the population live like gods,

 20% live decently as the managers and protectors of that 1 %

Another 20-30 % scrape by in the real economy as the labor (not managers) providing essential goods and services

50% of the population becomes human surplus living in a barrio.

Wow. Can you point to one of these societies?

In the real world, the situation you describe is most commonly found in corrupt socialist countries like in Central America or Africa where the state confiscates nearly everything people produce.

on Dec 24, 2008

Now here is the question- that dollar of profit that you just made... did you create it?

No, you didn't. It was transferred to you by someone who bought your product. And that's the whole point of our economy. No one actually creates money out of thin air, except for of course the government with a nice big printing press and the exercise of monetary policy.

Wow.  

Well, Art, thanks for demonstrating why so few people are truly wealthy.    

History doesn't agree with you, however. Hence why we are discussing this from the comfort of our ever increasing home sizes in ever greater material comfort that would have utterly shocked people from even 20 years ago.

on Dec 24, 2008

Draginol


Wealth isn't static. If it was, we'd still be living in caves.
The first lesson you need to learn about wealth is that it is not zero-sum.

 

You know, I admit I don't know much about economics, but there is only a limited number of hours in the day and it's somewhere in the middle of interests for me.  It'd be nice if a day was longer.

 

But from what I can gather, it seems various factors are used to support a non-zero sum game view of wealth...and that seems to actually include the size of the work force increasing because of life expectancy and faster birth to death rates and larger use of earth's surface for various work...that makes it soundl ike it might reach an equilibrium sometime in the future IF people don't increase the work space to something more than earth's useable surface and if human age limits reach some kind of barrier (there's always space stations and longetivity research).

 

But the interesting thing is...from the various articles I read it sounds like this is still a debated topic....as in there isn't some rock-solid proof that convinces all economists (not that that's something special...alot of theoretical physics is a bunch of conjectures that try to fit reality as much as possible but they also don't all agree.)

 

So I'm asking, as it seems like you have spent more time on this than I have (a cople hours this afternoon), what sources did you read for the supporting non zero-sum game view?  Wikipedia agrees with you (the non-zero sum view) though   But I don't usually use wiki for everything after reading some of the comp sci stuff on there

on Dec 25, 2008

It is amazingly ironic to read some of the arguments against this excellent excellent post.

on Dec 25, 2008

[qjuote]You know, I admit I don't know much about economics, but there is only a limited number of hours in the day and it's somewhere in the middle of interests for me.  It'd be nice if a day was longer.

 

But from what I can gather, it seems various factors are used to support a non-zero sum game view of wealth..[/quote]

Unless you're living in a cave -- literally, you should probably not be arguing that wealth is zero sum.

on Dec 26, 2008

Draginol


Unless you're living in a cave -- literally, you should probably not be arguing that wealth is zero sum.

 

Well...I am living in the a cave in thailand right now...hence the sparse replies from me

 

I'm not asking you your sources to test you.  I'm curious what are some of the books you read that talk about this?  I question pretty much everything, so I hope you don't take it personally. 

I googled creation of wealth or somethiing along those lines and traveled along and read and most seem to support your view but I ended up at some (recent) journal papers that argue against the non zero-sum game.

 

Merry christmas to you anyway.  By the time I am back in the states this may be in the archives.

on Dec 26, 2008

He isn't saying "living in a cave" like "living under a rock" as in "ignorant"

He means that if economics was a zero sum game, and since all humans originally lived IN CAVES (cavemen), and today we do NOT. Than obviously wealth is CREATED, rather than just transfered. People are ALL weltheir than before.

(sometimes wealth is destroyed).

3 Pages1 2 3