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On April 24 2014 19:58 Crushinator wrote:Show nested quote +On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:On April 24 2014 19:19 Crushinator wrote:On April 24 2014 18:59 WhiteDog wrote:On April 24 2014 18:45 Crushinator wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 14:56 zlefin wrote:
That seems rather disingenuous, to let one side use compound interest, but refuse to let the other side use it as well by investing some of the income it earned.
After factoring in inflation, returns of more than 3% aren't that likely in most economies these days; maybe up to 5%, past that there's a lot of risks.
what are you allowing to qualify as "labor"?
Really it seems like there's a lot of flaws with that argument as presented green. In fact, what he didn't take into consideration, and what completly change the picture, is that the rate of return on capital investment is - obviously - bigger for big portfolio than for small one. So the problem is not that, after 25 years, it is better to just get an inheritance than to work - which is an obvious fact - but that the rate of return for high portfolio today is around 4 to 5 %, way higher than growth and way higher than the rate of return on small portfolio (my washing machine is a capital and doesn't give me a 5% rate of return you know) which result in a rising inequality (until when ?) between labor and capital, the second taking most of the wealth created for itself and with higher and higher concentration. But I'm not inventing anything, it's basically the pitch of Piketty's book, that we talked about already. Not to mention {CC}StealthBlue posted a really good interview about it a few pages ago. [ I don't understand. The size (im assuming you mean number of assets) of a portfolio is unrelated to its rate of return, you can have an arbitrarily large expected return with just 2 assets, going long in one and short in the other. Also the returns on market portfolios are around 8% (systemic risk premium is 4-6%). No it is not because, as I said, most of the capital possessed by "average" people has a low rate of return - talking about washing machine (who gives a service), television, car and small house those are capital you know, the kind of capital you invest in when you start your life. There is a difference between that and an "investment" on capital market. Rate of return on market portfolio are around 8% big with a higher risk. The average rate of return is 4 to 5 % (and was 2% fifty years ago, back then economists thought it was the law). And if you talk only about financial market, with a bigger portfolio you can diversify and thus mitigate the risk, pay a good trader to maximize your profit, etc. The things you mention are considered consumed and not invested, this is confusing to me. I know you can consider things like a car and washing machine investments since they save time that can then be put to productive use, but I really don't see the relevance, also in that sense you could see those investments as potentially having very large rates of return. The reason average people have a lower rate of return on the financial market than rich people and financial institutions is that they differ in their degree of risk aversion, expertise, liquidity preference and ability to mitigate transaction costs through scale advantages. Joe the plumber is more likely to prefer to put his couple thousand on a savings account because he might decide to buy a new washing machine tomorrow and needs money right away, is unlikely to to know anything at all about financial assets, is likely to have to pay fees to brokers that partially offset higher returns on stock protfolios, and is more likely to prefer to be certain to have a couple thousand instead of risking large losses in return for higher returns. I agree that these differences will, in the end, result in large and impossible to justify wealth inequality in the real world, but this discussion is very confusing. Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves. When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine). What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math.
That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it).
But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$.
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On April 24 2014 20:01 WhiteDog wrote:Show nested quote +On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:On April 24 2014 19:19 Crushinator wrote:On April 24 2014 18:59 WhiteDog wrote:On April 24 2014 18:45 Crushinator wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 14:56 zlefin wrote:
That seems rather disingenuous, to let one side use compound interest, but refuse to let the other side use it as well by investing some of the income it earned.
After factoring in inflation, returns of more than 3% aren't that likely in most economies these days; maybe up to 5%, past that there's a lot of risks.
what are you allowing to qualify as "labor"?
Really it seems like there's a lot of flaws with that argument as presented green. In fact, what he didn't take into consideration, and what completly change the picture, is that the rate of return on capital investment is - obviously - bigger for big portfolio than for small one. So the problem is not that, after 25 years, it is better to just get an inheritance than to work - which is an obvious fact - but that the rate of return for high portfolio today is around 4 to 5 %, way higher than growth and way higher than the rate of return on small portfolio (my washing machine is a capital and doesn't give me a 5% rate of return you know) which result in a rising inequality (until when ?) between labor and capital, the second taking most of the wealth created for itself and with higher and higher concentration. But I'm not inventing anything, it's basically the pitch of Piketty's book, that we talked about already. Not to mention {CC}StealthBlue posted a really good interview about it a few pages ago. [ I don't understand. The size (im assuming you mean number of assets) of a portfolio is unrelated to its rate of return, you can have an arbitrarily large expected return with just 2 assets, going long in one and short in the other. Also the returns on market portfolios are around 8% (systemic risk premium is 4-6%). No it is not because, as I said, most of the capital possessed by "average" people has a low rate of return - talking about washing machine (who gives a service), television, car and small house those are capital you know, the kind of capital you invest in when you start your life. There is a difference between that and an "investment" on capital market. Rate of return on market portfolio are around 8% big with a higher risk. The average rate of return is 4 to 5 % (and was 2% fifty years ago, back then economists thought it was the law). And if you talk only about financial market, with a bigger portfolio you can diversify and thus mitigate the risk, pay a good trader to maximize your profit, etc. The things you mention are considered consumed and not invested, this is confusing to me. I know you can consider things like a car and washing machine investments since they save time that can then be put to productive use, but I really don't see the relevance, also in that sense you could see those investments as potentially having very large rates of return. The reason average people have a lower rate of return on the financial market than rich people and financial institutions is that they differ in their degree of risk aversion, expertise, liquidity preference and ability to mitigate transaction costs through scale advantages. Joe the plumber is more likely to prefer to put his couple thousand on a savings account because he might decide to buy a new washing machine tomorrow and needs money right away, is unlikely to to know anything at all about financial assets, is likely to have to pay fees to brokers that partially offset higher returns on stock protfolios, and is more likely to prefer to be certain to have a couple thousand instead of risking large losses in return for higher returns. I agree that these differences will, in the end, result in large and impossible to justify wealth inequality in the real world, but this discussion is very confusing. Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves. When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine). What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$.
Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere.
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On April 24 2014 18:28 WhiteDog wrote:Show nested quote +On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies".
"Pacific" with a capital "P", as in the ocean :-)
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On April 24 2014 20:49 kwizach wrote:Show nested quote +On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-)
Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation.
On April 24 2014 20:29 Crushinator wrote:Show nested quote +On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:On April 24 2014 19:19 Crushinator wrote:On April 24 2014 18:59 WhiteDog wrote:On April 24 2014 18:45 Crushinator wrote:On April 24 2014 18:28 WhiteDog wrote:
[quote]
In fact, what he didn't take into consideration, and what completly change the picture, is that the rate of return on capital investment is - obviously - bigger for big portfolio than for small one. So the problem is not that, after 25 years, it is better to just get an inheritance than to work - which is an obvious fact - but that the rate of return for high portfolio today is around 4 to 5 %, way higher than growth and way higher than the rate of return on small portfolio (my washing machine is a capital and doesn't give me a 5% rate of return you know) which result in a rising inequality (until when ?) between labor and capital, the second taking most of the wealth created for itself and with higher and higher concentration.
But I'm not inventing anything, it's basically the pitch of Piketty's book, that we talked about already. Not to mention {CC}StealthBlue posted a really good interview about it a few pages ago.
[ I don't understand. The size (im assuming you mean number of assets) of a portfolio is unrelated to its rate of return, you can have an arbitrarily large expected return with just 2 assets, going long in one and short in the other. Also the returns on market portfolios are around 8% (systemic risk premium is 4-6%). No it is not because, as I said, most of the capital possessed by "average" people has a low rate of return - talking about washing machine (who gives a service), television, car and small house those are capital you know, the kind of capital you invest in when you start your life. There is a difference between that and an "investment" on capital market. Rate of return on market portfolio are around 8% big with a higher risk. The average rate of return is 4 to 5 % (and was 2% fifty years ago, back then economists thought it was the law). And if you talk only about financial market, with a bigger portfolio you can diversify and thus mitigate the risk, pay a good trader to maximize your profit, etc. The things you mention are considered consumed and not invested, this is confusing to me. I know you can consider things like a car and washing machine investments since they save time that can then be put to productive use, but I really don't see the relevance, also in that sense you could see those investments as potentially having very large rates of return. The reason average people have a lower rate of return on the financial market than rich people and financial institutions is that they differ in their degree of risk aversion, expertise, liquidity preference and ability to mitigate transaction costs through scale advantages. Joe the plumber is more likely to prefer to put his couple thousand on a savings account because he might decide to buy a new washing machine tomorrow and needs money right away, is unlikely to to know anything at all about financial assets, is likely to have to pay fees to brokers that partially offset higher returns on stock protfolios, and is more likely to prefer to be certain to have a couple thousand instead of risking large losses in return for higher returns. I agree that these differences will, in the end, result in large and impossible to justify wealth inequality in the real world, but this discussion is very confusing. Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves. When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine). What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere.
You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water).
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On April 24 2014 21:04 WhiteDog wrote:Show nested quote +On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. Show nested quote +On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:On April 24 2014 19:19 Crushinator wrote:On April 24 2014 18:59 WhiteDog wrote:On April 24 2014 18:45 Crushinator wrote:
[quote]
I don't understand. The size (im assuming you mean number of assets) of a portfolio is unrelated to its rate of return, you can have an arbitrarily large expected return with just 2 assets, going long in one and short in the other. Also the returns on market portfolios are around 8% (systemic risk premium is 4-6%). No it is not because, as I said, most of the capital possessed by "average" people has a low rate of return - talking about washing machine (who gives a service), television, car and small house those are capital you know, the kind of capital you invest in when you start your life. There is a difference between that and an "investment" on capital market. Rate of return on market portfolio are around 8% big with a higher risk. The average rate of return is 4 to 5 % (and was 2% fifty years ago, back then economists thought it was the law). And if you talk only about financial market, with a bigger portfolio you can diversify and thus mitigate the risk, pay a good trader to maximize your profit, etc. The things you mention are considered consumed and not invested, this is confusing to me. I know you can consider things like a car and washing machine investments since they save time that can then be put to productive use, but I really don't see the relevance, also in that sense you could see those investments as potentially having very large rates of return. The reason average people have a lower rate of return on the financial market than rich people and financial institutions is that they differ in their degree of risk aversion, expertise, liquidity preference and ability to mitigate transaction costs through scale advantages. Joe the plumber is more likely to prefer to put his couple thousand on a savings account because he might decide to buy a new washing machine tomorrow and needs money right away, is unlikely to to know anything at all about financial assets, is likely to have to pay fees to brokers that partially offset higher returns on stock protfolios, and is more likely to prefer to be certain to have a couple thousand instead of risking large losses in return for higher returns. I agree that these differences will, in the end, result in large and impossible to justify wealth inequality in the real world, but this discussion is very confusing. Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves. When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine). What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water).
I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly.
The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments.
I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns.
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On April 24 2014 22:09 Crushinator wrote:Show nested quote +On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:On April 24 2014 19:19 Crushinator wrote:On April 24 2014 18:59 WhiteDog wrote:
[quote]
No it is not because, as I said, most of the capital possessed by "average" people has a low rate of return - talking about washing machine (who gives a service), television, car and small house those are capital you know, the kind of capital you invest in when you start your life. There is a difference between that and an "investment" on capital market.
Rate of return on market portfolio are around 8% big with a higher risk. The average rate of return is 4 to 5 % (and was 2% fifty years ago, back then economists thought it was the law).
And if you talk only about financial market, with a bigger portfolio you can diversify and thus mitigate the risk, pay a good trader to maximize your profit, etc. The things you mention are considered consumed and not invested, this is confusing to me. I know you can consider things like a car and washing machine investments since they save time that can then be put to productive use, but I really don't see the relevance, also in that sense you could see those investments as potentially having very large rates of return. The reason average people have a lower rate of return on the financial market than rich people and financial institutions is that they differ in their degree of risk aversion, expertise, liquidity preference and ability to mitigate transaction costs through scale advantages. Joe the plumber is more likely to prefer to put his couple thousand on a savings account because he might decide to buy a new washing machine tomorrow and needs money right away, is unlikely to to know anything at all about financial assets, is likely to have to pay fees to brokers that partially offset higher returns on stock protfolios, and is more likely to prefer to be certain to have a couple thousand instead of risking large losses in return for higher returns. I agree that these differences will, in the end, result in large and impossible to justify wealth inequality in the real world, but this discussion is very confusing. Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves. When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine). What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns.
Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value....
I'm writing on my phone so i can't really develop.
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On April 24 2014 22:13 WhiteDog wrote:Show nested quote +On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:On April 24 2014 19:19 Crushinator wrote:
[quote]
The things you mention are considered consumed and not invested, this is confusing to me. I know you can consider things like a car and washing machine investments since they save time that can then be put to productive use, but I really don't see the relevance, also in that sense you could see those investments as potentially having very large rates of return.
The reason average people have a lower rate of return on the financial market than rich people and financial institutions is that they differ in their degree of risk aversion, expertise, liquidity preference and ability to mitigate transaction costs through scale advantages.
Joe the plumber is more likely to prefer to put his couple thousand on a savings account because he might decide to buy a new washing machine tomorrow and needs money right away, is unlikely to to know anything at all about financial assets, is likely to have to pay fees to brokers that partially offset higher returns on stock protfolios, and is more likely to prefer to be certain to have a couple thousand instead of risking large losses in return for higher returns.
I agree that these differences will, in the end, result in large and impossible to justify wealth inequality in the real world, but this discussion is very confusing. Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves. When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine). What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop.
Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low.
The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups.
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On April 24 2014 22:41 Crushinator wrote:Show nested quote +On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:On April 24 2014 19:42 WhiteDog wrote:
[quote]
Because you're not talking about capital but money. A capital asset can be a bond or a loan certificate but it also can be a machine used throughout production. As I said, it's all element of patrimony used throughout production - savings are no capital by themselves.
When you consume a good, it is destroyed or transformed while capital last for several production cycle (like washing machine).
What I'm saying is that, when you think about the rate of return on capital investment, we are also talking about someone investing X in a machine and the return he will get on that investment. I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups.
Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision.
You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most - it is not because you have better decisions. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent.
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On April 24 2014 15:47 GreenHorizons wrote:Show nested quote +On April 24 2014 15:26 JonnyBNoHo wrote:On April 24 2014 14:37 GreenHorizons wrote:On April 24 2014 11:48 JonnyBNoHo wrote:On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn!  ) So then when walmart employing 2.1 million people and seeing $15billion profits, $7.5 billion from that year would be divided between the 2.1 million, granting them all a $3kish bonus that year. (Less than the $5k I said earlier but I'll backtrack on that - I think split in half is better and more achievable.) If the company had a negative year, then obviously no bonus - and maybe even downsizing. I also think this system would grant workers a feeling of if not ownership then accountability, where their collective efforts would directly correlate with their pay. And if I understand it correctly (and as would be my goal) it would alleviate the problem of return of investments being greater than the return of labor. But I might be mis-thinking some here. It's not unusual for a company to have a profit sharing plan. I think Walmart does to an extent as well. Typically that doesn't add a whole lot, and it kind of can't because you'd have to take it back in a down year, and employees generally don't want to be exposed to that kind of volatility. I'm not sure how you'd calculate a rate of return on labor. I imagine it would far exceed a rate of return on capital. I may be wrong but I think this is more or less what he is getting at. We can run a quick thought experiment. What is worth more, ones ability to labor or, ones access to capital? Let's have someone inherit $1 million and invest it all at once, while not spending any of the money or adding outside funds for 50 years at various interest rates (using a basic compound interest calculation). We will have someone else work full time for 50 years not spending or investing any money. + Show Spoiler +![[image loading]](http://i.imgur.com/aVE6Wy1.png) Looks pretty obvious to me that having capital is much more profitable than working. It might be a bit harder to see with a $1 million inheritance so here's the results for $5 million ![[image loading]](http://i.imgur.com/EzELjgg.png) If you inherit $5 million it's almost impossible to make less than the top of the labor field, for simply having an investment in your name (even if you never work a day in your life). Said another way. No matter how hard you work your labor will essentially never be more profitable than someone who inherits $5-10+ million. Some people think it's a bit ridiculous to think someone who never works a day in their life could 'make/earn more money' than the most skilled laborers in the world. I guess some prefer it that way? Apples to oranges math. One is compounding, the other isn't. You can't have one side compound and the other not, when both sides have access to compounding. Not to mention that you should be getting a raise after 25 years. Seriously... Labor doesn't compound... And if you think the laborer investing will close the gap more than allowing the investor to labor it just reaffirms the original point. As for the raise the logical presumption is that they wouldn't make $300,000 for 50 years (that would put a 20 y.o. neurosurgeon at 70 yo still practicing)either. I figured you guys would have the sense to realize most people would probably be in between 2 salaries maybe 3 over a 50 year career. So calculating the raises would actually skew most of the wage numbers lower not higher. 50k is probably the most representative number as even if you end up making over 100k a year, chances are you didn't spend 50 years there. When you think about the years spent earning a lower annual salary it would probably average out closer to 50-75 k #'s. The 20 and 30k numbers are primarily to illustrate how someone who is too 'lazy' to get better employment or too 'ignorant' to invest, compares to a 'trust fund baby' who 'earns' their money while potentially never working a day in their life.
You're assuming the first person saves 100% of their money and reinvests 100%. You're then assuming the second person saves 100% of their money, but invests 0% of it.
Apples to oranges and atypical of real life.
A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker.
And yes, having a $1mm inheritance is better from a financial standpoint than not having one. You don't need excel to prove that 
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On April 24 2014 23:15 WhiteDog wrote:Show nested quote +On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:
[quote]
I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent.
A small investor can have a diversified portfolio pretty easily.
Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates.
I'm not sure how that nets out, but it could very well be in favor of the small investor.
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On April 24 2014 23:28 JonnyBNoHo wrote:Show nested quote +On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:
[quote]
My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor.
Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities.
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On April 24 2014 23:51 WhiteDog wrote:Show nested quote +On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:[quote] Very direct at the end here, which has angered China quite a lot. [quote] The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:
[quote]
I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities.
Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter?
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On April 24 2014 23:15 WhiteDog wrote:Show nested quote +On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:On April 24 2014 13:52 coverpunch wrote:President Obama is in Japan and did this interview supporting Japan:President Obama: America is and always will be a Pacific nation, and at my direction the United States is once again playing a leading role in the region, in close partnership with allies like Japan. We seek security, where international law and norms are upheld and disputes are resolved peacefully. We seek prosperity, where trade and investment leads to broad-based economic growth and nations play by the same rules. We seek respect for fundamental freedoms and universal human rights, because we believe in the inherent dignity of every human being.
Our strategy is a long-term commitment to this region and its people, and I’m proud of our progress so far. Our alliances, including with Japan, are stronger than ever and we’re modernizing our defense posture across the region. Our trade is growing and we’re working to complete the Trans-Pacific Partnership. We’re deepening our ties with emerging powers like China, India and Indonesia. We’re more closely engaged with regional institutions like ASEAN and the East Asia Summit. We’re standing with citizens, including the people of Burma, as they work toward a democratic future.
With regard to China, the new model of relations we seek between our two countries is based on my belief that we can work together on issues of mutual interest, both regionally and globally, and that both our nations have to resist the danger of slipping into conflict, which is not inevitable. For example, both the United States and China have an interest in the global economic recovery, the denuclearization of North Korea and addressing climate change. In other words, we welcome the continuing rise of a China that is stable, prosperous and peaceful and plays a responsible role in global affairs. And our engagement with China does not and will not come at the expense of Japan or any other ally.
At the same time, the United States is going to deal directly and candidly with China on issues where we have differences, such as human rights. I’ve also told President Xi that all our nations have an interest in dealing constructively with maritime issues, including in the East China Sea. Disputes need to be resolved through dialogue and diplomacy, not intimidation and coercion. The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands. Very direct at the end here, which has angered China quite a lot. Q: The Abe administration is attempting to revise its interpretation of the Japanese Constitution to exercise the right to “collective self-defense,” which would enable Japan to support U.S. military activities when it comes to Asian security. How would you evaluate the policy change in terms of its contribution to the U.S.-Japan alliance?
A: Decisions about the Japanese constitution, of course, belong to the people and leaders of Japan. I would simply say that the United States has the greatest respect for the service and professionalism of the Japanese Self Defense Forces. Our militaries train and exercise together and we’re both stronger for it. Our forces worked together as part of the humanitarian efforts after the typhoon in the Philippines. Japanese peacekeepers serve with courage in United Nations missions around the world. The world is better off because of Japan’s long-standing commitment to international peace and security.
That is why we have enthusiastically welcomed Japan’s desire to play a greater role in upholding international security. I commend Prime Minister Abe for his efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense. We believe that it’s in the interest of both our countries for Japanese Self Defense Forces to do more within the framework of our alliance. Likewise, U.N. peacekeeping missions would benefit from even greater Japanese participation. We very much appreciate Tokyo’s outreach to other nations, including sending officials to foreign capitals to explain Japan’s evolving defense policies. In fact, Japan’s efforts are a model of the transparency and dialogue with neighbors that we need more of in the region. The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:On April 24 2014 19:58 Crushinator wrote:On April 24 2014 19:52 WhiteDog wrote:On April 24 2014 19:47 Crushinator wrote:
[quote]
I'm not talking about money, I thought I was very clear, but whatever, I don't know how to express it any better and I have no idea what your point is. My point is basically that when you start your life, the rate of return you will get on your capital investment will not be the same as someone who invest a million dollar in something. I agree but for reasons that seem to be very different from yours. I would think the rate of return on a washing machine would be enormous. 500$ for a washing machine, if your time is worth just 10$ an hour, and a washing machine saves you an hour each time you run it, well, you do the math. That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it). But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most - it is not because you have better decisions. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent.
Well, diversification is not directly related to expected return. It is a way to minimize volatility for any given desired expected return. Like I said before you can construct a portfolio of an arbitrarily large expected return with any 2 assets that differ in expected return by taking a long and short position, the tradeoff is volatility. The little guy can easily gain diversification in exchange for broker fees, but it is more costly due to a lack of scale advantages. I didn't overlook this did I? It was pretty much what I thought I was talking about; transaction costs.
It is a pretty serious problem that the little guy must bear more volatility for any level of expected return, especially considering that the little guy is likely to be more risk averse in the first place. Don't think we are in disagreement there.
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Cayman Islands24199 Posts
i thought you guys were talking about wage vs capital returns how did it become big vs small portfolios
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On April 25 2014 01:22 oneofthem wrote:
i thought you guys were talking about wage vs capital returns how did it become big vs small portfolios
Nah the discussion was clearly about which washing machine is the best capital investment
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On April 24 2014 23:18 JonnyBNoHo wrote:Show nested quote +On April 24 2014 15:47 GreenHorizons wrote:On April 24 2014 15:26 JonnyBNoHo wrote:On April 24 2014 14:37 GreenHorizons wrote:On April 24 2014 11:48 JonnyBNoHo wrote:On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn! ) So then when walmart employing 2.1 million people and seeing $15billion profits, $7.5 billion from that year would be divided between the 2.1 million, granting them all a $3kish bonus that year. (Less than the $5k I said earlier but I'll backtrack on that - I think split in half is better and more achievable.) If the company had a negative year, then obviously no bonus - and maybe even downsizing. I also think this system would grant workers a feeling of if not ownership then accountability, where their collective efforts would directly correlate with their pay. And if I understand it correctly (and as would be my goal) it would alleviate the problem of return of investments being greater than the return of labor. But I might be mis-thinking some here. It's not unusual for a company to have a profit sharing plan. I think Walmart does to an extent as well. Typically that doesn't add a whole lot, and it kind of can't because you'd have to take it back in a down year, and employees generally don't want to be exposed to that kind of volatility. I'm not sure how you'd calculate a rate of return on labor. I imagine it would far exceed a rate of return on capital. I may be wrong but I think this is more or less what he is getting at. We can run a quick thought experiment. What is worth more, ones ability to labor or, ones access to capital? Let's have someone inherit $1 million and invest it all at once, while not spending any of the money or adding outside funds for 50 years at various interest rates (using a basic compound interest calculation). We will have someone else work full time for 50 years not spending or investing any money. + Show Spoiler +Looks pretty obvious to me that having capital is much more profitable than working. It might be a bit harder to see with a $1 million inheritance so here's the results for $5 million If you inherit $5 million it's almost impossible to make less than the top of the labor field, for simply having an investment in your name (even if you never work a day in your life). Said another way. No matter how hard you work your labor will essentially never be more profitable than someone who inherits $5-10+ million. Some people think it's a bit ridiculous to think someone who never works a day in their life could 'make/earn more money' than the most skilled laborers in the world. I guess some prefer it that way? Apples to oranges math. One is compounding, the other isn't. You can't have one side compound and the other not, when both sides have access to compounding. Not to mention that you should be getting a raise after 25 years. Seriously... Labor doesn't compound... And if you think the laborer investing will close the gap more than allowing the investor to labor it just reaffirms the original point. As for the raise the logical presumption is that they wouldn't make $300,000 for 50 years (that would put a 20 y.o. neurosurgeon at 70 yo still practicing)either. I figured you guys would have the sense to realize most people would probably be in between 2 salaries maybe 3 over a 50 year career. So calculating the raises would actually skew most of the wage numbers lower not higher. 50k is probably the most representative number as even if you end up making over 100k a year, chances are you didn't spend 50 years there. When you think about the years spent earning a lower annual salary it would probably average out closer to 50-75 k #'s. The 20 and 30k numbers are primarily to illustrate how someone who is too 'lazy' to get better employment or too 'ignorant' to invest, compares to a 'trust fund baby' who 'earns' their money while potentially never working a day in their life. You're assuming the first person saves 100% of their money and reinvests 100%. You're then assuming the second person saves 100% of their money, but invests 0% of it. Apples to oranges and atypical of real life. A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. And yes, having a $1mm inheritance is better from a financial standpoint than not having one. You don't need excel to prove that
Your critique is pointless?
A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker.
What? How do you figure?
The point is to illustrate regardless of personal decisions with just the raw numbers inheriting money makes you more money than working.
The one who inherits could work and invest too but the person without an inheritance can never catch up investment wise even if they never spent a penny.
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Nevada rancher Cliven Bundy, who was involved in a tense standoff with federal rangers in a dispute over grazing rights, didn't hide his racism in an interview with the New York Times published Wednesday.
The Bureau of Land Management claims Bundy has let his cattle graze on federal land without paying since 1993, saying he now owes more than $1 million in grazing fees. When federal agents came to confront Bundy about the fees, they were met by an armed militia, a move that has fired up conservatives.
Bundy is attempting to use his newfound fame to spread more than just his views on grazing rights, telling the Times he planned to hold a daily news conference. During Saturday's conference, Bunday shared his views on "the Negro":
“I want to tell you one more thing I know about the Negro,” he said. Mr. Bundy recalled driving past a public-housing project in North Las Vegas, “and in front of that government house the door was usually open and the older people and the kids — and there is always at least a half a dozen people sitting on the porch — they didn’t have nothing to do. They didn’t have nothing for their kids to do. They didn’t have nothing for their young girls to do.
“And because they were basically on government subsidy, so now what do they do?” he asked. “They abort their young children, they put their young men in jail, because they never learned how to pick cotton. And I’ve often wondered, are they better off as slaves, picking cotton and having a family life and doing things, or are they better off under government subsidy? They didn’t get no more freedom. They got less freedom.”
Bundy's comments, published Wednesday, led Republican lawmakers who had previously shown their support for his cause to back down. A spokesman for Sen. Dean Heller (R-Nev.), who had previously hailed Bundy and his supporters as "patriots," rebuked the rancher's racist remarks, saying the senator “completely disagrees with Mr. Bundy’s appalling and racist statements, and condemns them in the most strenuous way.”
Source
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On April 25 2014 00:18 JonnyBNoHo wrote:Show nested quote +On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:
[quote]
The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:
[quote]
That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it).
But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter?
Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify.
Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional.
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On April 25 2014 01:37 GreenHorizons wrote:Show nested quote +On April 24 2014 23:18 JonnyBNoHo wrote:On April 24 2014 15:47 GreenHorizons wrote:On April 24 2014 15:26 JonnyBNoHo wrote:On April 24 2014 14:37 GreenHorizons wrote:On April 24 2014 11:48 JonnyBNoHo wrote:On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn! ) So then when walmart employing 2.1 million people and seeing $15billion profits, $7.5 billion from that year would be divided between the 2.1 million, granting them all a $3kish bonus that year. (Less than the $5k I said earlier but I'll backtrack on that - I think split in half is better and more achievable.) If the company had a negative year, then obviously no bonus - and maybe even downsizing. I also think this system would grant workers a feeling of if not ownership then accountability, where their collective efforts would directly correlate with their pay. And if I understand it correctly (and as would be my goal) it would alleviate the problem of return of investments being greater than the return of labor. But I might be mis-thinking some here. It's not unusual for a company to have a profit sharing plan. I think Walmart does to an extent as well. Typically that doesn't add a whole lot, and it kind of can't because you'd have to take it back in a down year, and employees generally don't want to be exposed to that kind of volatility. I'm not sure how you'd calculate a rate of return on labor. I imagine it would far exceed a rate of return on capital. I may be wrong but I think this is more or less what he is getting at. We can run a quick thought experiment. What is worth more, ones ability to labor or, ones access to capital? Let's have someone inherit $1 million and invest it all at once, while not spending any of the money or adding outside funds for 50 years at various interest rates (using a basic compound interest calculation). We will have someone else work full time for 50 years not spending or investing any money. + Show Spoiler +Looks pretty obvious to me that having capital is much more profitable than working. It might be a bit harder to see with a $1 million inheritance so here's the results for $5 million If you inherit $5 million it's almost impossible to make less than the top of the labor field, for simply having an investment in your name (even if you never work a day in your life). Said another way. No matter how hard you work your labor will essentially never be more profitable than someone who inherits $5-10+ million. Some people think it's a bit ridiculous to think someone who never works a day in their life could 'make/earn more money' than the most skilled laborers in the world. I guess some prefer it that way? Apples to oranges math. One is compounding, the other isn't. You can't have one side compound and the other not, when both sides have access to compounding. Not to mention that you should be getting a raise after 25 years. Seriously... Labor doesn't compound... And if you think the laborer investing will close the gap more than allowing the investor to labor it just reaffirms the original point. As for the raise the logical presumption is that they wouldn't make $300,000 for 50 years (that would put a 20 y.o. neurosurgeon at 70 yo still practicing)either. I figured you guys would have the sense to realize most people would probably be in between 2 salaries maybe 3 over a 50 year career. So calculating the raises would actually skew most of the wage numbers lower not higher. 50k is probably the most representative number as even if you end up making over 100k a year, chances are you didn't spend 50 years there. When you think about the years spent earning a lower annual salary it would probably average out closer to 50-75 k #'s. The 20 and 30k numbers are primarily to illustrate how someone who is too 'lazy' to get better employment or too 'ignorant' to invest, compares to a 'trust fund baby' who 'earns' their money while potentially never working a day in their life. You're assuming the first person saves 100% of their money and reinvests 100%. You're then assuming the second person saves 100% of their money, but invests 0% of it. Apples to oranges and atypical of real life. A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. And yes, having a $1mm inheritance is better from a financial standpoint than not having one. You don't need excel to prove that Your critique is pointless? Show nested quote +A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. What? How do you figure?
$1,000,000 * 5% = $50,000 per year.
$50,000 should be treated the same (i.e. used the same way) when making your comparison, otherwise you're looking at the difference between how the money is used, rather than where it comes from.
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On April 25 2014 01:47 RvB wrote:Show nested quote +On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:
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"Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:
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Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional.
Benefits of dollar hegemony
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EPT
