Assets and Goods; Why the Economy Is Only Getting Worse
Hey guys, Midas here to tell you why something is awful. Today we're on the economy. Boy, do I have a lot to say about that. Now since we don't have an eternity to spend, I would like to focus on one key issue a lot of people don't know about which I think everyone should. This would be the difference between an asset and a good.
It's simple really. A good is something you buy with the intent of using. An asset is something you buy for the sake of owning (and potentially selling). Goods depreciate, and assets appreciate in value. Got a sandwich? That's a good. It's value is bound to be a lot less once you're done using it. Got a deli? That's an asset.
What I'm saying is: Sandwiches are good.
Now, that's all good so far. You're probably wondering, "Uncle Midas, how exactly is this supposed to fill me with hopelessness and dread?" No worries, kiddo; I'm getting to that. You see, a tremendous disparity in wealth exists in many countries merely because acquisition of assets rises as wealth is accumulated by an individual while acquisition of goods does not. The CEO of a company and the janitor both eat three meals a day but only one of them has a stock portfolio. The Janitor is spending most of his money on goods and the CEO is spending a lot of his on assets.
Pictured: All the money on goods. All of it.
So what's wrong with that? Let me tell you more. It's generally agreed that the health of an economy is largely a matter of where the money goes. Basically, people have to buy and sell things. Otherwise the money just sits in one place and all sorts of bad things happen. This is why goods are good. People buy a diverse range of goods frequently and the activity stimulates the economy. Cool huh?
Assets on the other hand, while having their place in any economy, are doing their level best to destroy ours. Assets, with certain exceptions, are bought and sold infrequently. They tie up a lot of money in very few places. To clarify, if you go and buy a sandwich at the deli, that money you spent goes a lot of places. It's distributed among the owner, the employees, rent, suppliers, and so on Buying goods helps out the economy. Now, shares in Microsoft are assets: they kind-of-sort-of get money and you kind-of-sort-of spend money. The profit from this doesn't really go to anyone but you. The stock (unlike the sandwich) still exists so no one needs to be employed to replenish it and overall nothing really happens.
Now imagine the distribution of land in the US mirrored that of wealth:
I want my slice of red dot, dammit!
And, let's just say that the vast majority of the money belonging to the rich was tied up in assets. That would bring us to another issue which you’re likely more familiar with: good ol’ inflation. So, how does inflation tie into this? How doesn’t it? Inflation, as all you delightful people know, is when a unit of currency depreciates in value. It’s why I used to be able to pay a guy a nickel to let me shoot apples off his head like William Tell and now he wants $60 and spends the whole time crying about student loans.
"Maybe communicate to me what Communications is and we'll see about that internship"
One factor that affects inflation is how much money exists. Say you and your friends get shipwrecked on an island and the lot of you have $500 in cash between you. Now let’s say another guy washes up and he’s got $500 too. His buying power would turn things inside out. If you both want to buy a fish someone caught, he can easily outspend you. He buys the fish for $2 when you can only afford $1. The new price for fish is $2. The fish is still a fish, him coming to the island didn’t make it any tastier. It just made a dollar no longer enough money to buy it. This is a part of how inflation works; units of currency are almost always worth less when there are more of them.
Except anchovies. They're not worth anything no matter how many there are.
So referring back to our map you can see that a lot of money is in the hands of relatively very few people and just by existing it causes the money everyone else has to be worth less. The point of this is not to blame the super-rich. Some prominent members of their ranks like Warren Buffet have criticized the system too. In his words, “Society is responsible for a very significant percentage of what I’ve earned. If you stick me in Bangladesh or Peru, you’ll find out how much this kind of talent will produce … I work in a market system that rewards what I do well – disproportionately well.” The thing is, although Buffet will point something like this out, we can’t expect him and others like him to really do anything about this (although some might). The fact is, they like making money. They like it a lot. They are generally more interested in doing that than they are in repairing a system that is helping them do it.
Should we share our wealth with the poor daddy? Goodness no Sebastian, it'll only give them ideas.
Now you may be thinking, “Well, la-di-da smart guy, what do you suggest we do about it?” You might not be thinking that and that’s fine too. You don’t have to “la-di-ah” if you don’t want to. I would certainly appreciate it, though. Anyway, in case you were thinking that, I would suggest a wealth tax. That’s a tax on assets. See, in the US we primarily tax income. Some countries focus more on taxing what is owned than what is earned. Now to illustrate my point, let’s play the cable news game. That’s where I cherry-pick statistics to further my agenda and/or piss you off. What if we compare the income and net worth of the two top Americans with the median? The median income is about $51K, annually. The highest-earning American is Tim Cook of Apple. He pulls in about $388M per year (which is a crazy outlier. The next guy down makes about a third as much). That means he’s making about 7.6 thousand times as much as the typical American. Tim’s doing pretty well for himself, no? Now, let’s crunch the assets. According to CNN, Americans have a median net worth of $45K. Yes, less than the median income. Now if we stack that up to Bill Gates who’s sitting on $72B (and only has around 123% the next guy’s money) we can figure he has 1.6 million times as much money as the median. Income is not where the real disparity is. It’s in net worth (assets).
In theory, a wealth tax could kick some of that money into circulation. But that's not going to happen since some of the same people who own all these assets own the US Government. The government itself is, I think, primarily a good but that's a topic for another essay.
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