Income Mobility: Rich or Middle Class?

Discussion in 'Politics' started by Dragon, Dec 13, 2011.

  1. Dragon
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    Dragon Senior Member

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    Something that people don't really understand (because it's not intuitive) is that moving from a working-class to a middle-class income is a very different process than moving from a middle-class income to a rich one.

    As a working-class person, you work at a lowish-income job. As a middle-class person, you work at a higher-paying job. In both cases, your income is derived from pay for your work.

    As a rich person, in almost every case (pop stars, movie stars, TV stars, and sports stars aside), your income isn't just higher but derived from a different source. Rich people derive most of their income from investments, not from pay for their work. It's either from profits of businesses which they own (outright or, more often, partly own in the form of stock), or from interest and capital gains on financial instruments.

    What this means is that there are two types of income mobility: moving up in job pay, which can turn a working class person into a middle-class person, and moving from paid work to profit income, which can turn a middle-class person into a rich person. These are completely different processes.

    What's more, these two types of income mobility are antithetical. In order to make it easier for people to move up from the working class into the middle class, we need high-paying jobs in abundance, and easily-affordable education so people can prepare themselves to do those jobs. But in order to make it easier for people to move from the middle class to true riches, we need high profits on business and high returns on investments, together with low taxes on upper income levels, all of which are hurt by the exact things that make moving into the middle class easier.

    So in the end, we have to choose which kind of income mobility we want. Do we want to make it so as many people as possible can live a middle-class lifestyle? Or do we want to make it so as many people as possible can become truly rich?

    We can't do both.
     
  2. imbalance
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    imbalance Senior Member

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    Income mobility for any 'class' can be accomplished via excercising a degree of impulse control and actually saving money. It may initially suck to spend years limiting your spending to things you need and cut out things you simply want but if it were easy everyone would do it.
     
  3. auditor0007
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    auditor0007 Silver Member

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    For the most part, people become rich when the middle class is strong and has better upward mobility. If we lose the upward mobility into the middle class, then the truly rich will begin to lose their wealth also.
     
  4. Dragon
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    Dragon Senior Member

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    You are talking about the things an individual can do to improve his own circumstances. I am talking about the things that government can do to make it easier or harder for individuals to accomplish this. We are talking past each other.
     
  5. imbalance
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    imbalance Senior Member

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    Yeah you're right. I reread the OP after posting and realized my post was neither here nor there lol
     
  6. Skull Pilot
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    Skull Pilot Gold Member

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    Over a lifetime even one with a modest income can live off his investments eventually

    Lets say a horribly average guy makes a horribly average income of 45K for his entire life. We'll assume no raises and that he works from age 22 to age 67

    If he saves 20% of his gross income every year and makes an average return of 8% ( not outrageous over a 45 year span) he would have saved 4.375 million dollars

    If he then earns 5% after age 67 and lives on 3% he will have an income of nearly 11K a month and his nest egg will still grow every year by 87,500 dollars.

    And he did it all on 45K a year.

    So you see wealth and multi-generational wealth is not out of the reach of the so called middle class.

    And there are endless possibilities here. Let's say he retired when his nest egg was 2 million. If he withdrew only the 45K a year and still earned our assumed 8% not only would he be living off his investments which would make him rich by your definition but his nest egg would still be growing by about 6% a year.
     
    Last edited: Dec 13, 2011
  7. Dragon
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    Dragon Senior Member

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    No, I don't think that's true; in fact that's what I'm saying here. Because upward mobility into the middle class and upward mobility into true riches (say the infamous 1%) are such different processes, they are not really compatible. Increase one and you decrease the other.

    If we have many jobs at high wages, we will increase labor costs, which will reduce the profit margins of businesses. We will also tie up an increased amount of the nation's income in consumption spending, which means we will have less capital available; contrary to right-wing propaganda that won't hurt investment in job-creating activities, but it will hurt investment in rapid-payoff financial instruments and rent-seeking.

    But lots of high-paying jobs are what we need to increase upward mobility into the middle class. So if we do that, and see a stronger, healthier middle class, we will also see it become harder to enter the ranks of the truly rich. We will have fewer millionaires. In the end, we're going to have to choose between them. We can't have both.
     
  8. The Rabbi
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    The Rabbi Gold Member

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    You're an idiot.
    People often become wealthy by working at a job, then starting their own business doing the same thing. Then building that business. Eventually they derive income from investments. But for most entrepreneurs, their only investment is their own business. It makes sense: they know their own business better than any other, and they are probably making a better return than they would get from other investments.
     
  9. The T
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    The T George S. Patton Party Supporting Member

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    How about government getting the fuck outta the way?
     
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  10. imbalance
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    imbalance Senior Member

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    Well that would then make so many in government obsolete and self-preservation is a powerful instinct.
     
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  11. Dragon
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    Dragon Senior Member

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    No, actually only about a third of millionaires ever own their own small business, and even among them that's not necessarily how they became rich. Most successful small businesses provide at most a middle-class income to their owners. But that's not the most common way to enter the middle class, either.

    Most millionaires made their money by investing, not by starting their own business. (Contrary to stereotype, most millionaires did not inherit their fortunes, although of course that's the easy way.) But either running a business or investing is a very different activity than working at a job. Most people who enter the middle class do so by working at a high-paying job, not by starting their own businesses or by investing. And most people who become rich do so from a middle-class starting point.

    Here's some information on the subject of how rich people get rich: HowStuffWorks "Investments and Compound Interest"
     
  12. The T
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    The T George S. Patton Party Supporting Member

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    Indeed...we might even begin to look like the limited government enterprise that the Founders intended where the people by thier activities are in charge and government protecting that liberty.
     
  13. Dragon
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    Dragon Senior Member

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    It's not possible for the government to "get out of the way." The government MUST have policies in certain areas that favor either high wages or high investment income at the expense of the other. These include tax policy, trade policy, immigration policy, labor policy, and regulations on business (especially the financial industry).

    Take immigration policy for example. If the government allows large numbers of immigrants into the country (openly or covertly), that draws down wages and makes it harder for people to enter the middle class, but increases profit margins in many businesses and makes it easier for people to become millionaires. If the government allows few immigrants into the country, the opposite happens. The government can't do both, and it can't NOT set immigration policy.

    Same calculation applies to labor policy. Strict enforcement of labor rights with high penalties encourages unions which pushes up wages. That makes it easier to enter the middle class, but also increases labor costs and makes getting rich harder. Lax enforcement (such as we have now) does the opposite. Again, the government can't NOT set labor policy.

    And so on.
     
  14. The Rabbi
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    The Rabbi Gold Member

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    You are clearly wrong.
    The Guide to Get Rich: The Millionaire Mind...
     
  15. Dragon
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    Dragon Senior Member

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  16. The Rabbi
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    The Rabbi Gold Member

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    I've already shown you. Wealthy people get that way largely by owning their own businesses, not by investing in stocks and bonds.
     
  17. waltky
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    waltky VIP Member Supporting Member

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    Upward mobility gettin' harder to accomplish...
    :eusa_shifty:
    Harder for Americans to Rise From Lower Rungs
    January 4, 2012 - Americans enjoy less economic mobility than their peers in Canada and much of Western Europe
     
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  18. The Rabbi
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    The Rabbi Gold Member

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    This is why millions of immigants are flocking to Sweden, right?
     
  19. DaGoose
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    DaGoose VIP Member

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    You're dwelling in dreamland. The only way a person could save 20% gross of $45k is by living at the YMCA, never get married and never have a family.
     
  20. DaGoose
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    DaGoose VIP Member

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    Don't leave out that many, if not most, simply inherit it.
     

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