Thursday, February 14, 2013

Permanently Poor

Rich people are by definition good with money.  If you have money and you suck at handling money, somebody out there will separate you from your money sooner or later.  So does that mean that all poor people are bad with money?  I think there are two types of poor people out there: the first will remain poor their whole lives and pass this culture on to their offsprings.  Doesn't matter if you blame this on the shitty schools or crappy living environment, the fact remains.  This type of poor do not understand compounding or the importance of capital.  Any second money is made, the money is spent, whether through necessity or desire.  But then again there is your second type of poor people, the temporary poor.  They understand the magic of compounding and how given enough capital, one can escape this lifestyle.  Every penny is scrounged and although he might not make it, the sense of moving up in the world is ingrained to his children.  He teaches them to go to college, to save, and ultimately, be successful.  Sooner or later, they will join the capitalist class.  It may take a few generations, but that mindset is paramount.

Granted most people are not at either extremes. but my point remains.

Then this gets me thinking some more.  What happens if we start teaching in elementary school that this is how rich people make money?  That they just stay home, buy stocks and bonds and watch the dividends roll in?  Wouldn't everyone want a piece of that?  So they go home, tell their parents to stop buying useless shit and open a brokerage account.  Would America work if everyone just saved and invested instead of consumed?  Would this just be Japan LOL?  Because on the micro side, financial planners tell people to stop spending so much and start saving more, as we see from all those seniors that can't retire because no savings.  But on the macro side, the powers that be want our society to consume and then borrow and consume some more by lowering interest rates to nothing and running perpetual deficits, making sure each dollar is worth less as every day rolls on.  How do we reconcile that?  Fucking capitalism, how does it work? 

Maybe capitalism works because it's such a great self-correcting force.  If everyone takes their money after buying necessities and saves it, then the lack of demand will drive prices of goods and services lower.  They get low enough and the desire to consume now rather than later increases, which puts a floor on how low consumption can go.  Maybe that's what's happening now.  We are on the other side of that cycle where we want to save rather than consume.  But since politicians need a strong economy to get elected, they try to artificially shit on saving mechanisms, ie interest rates, to incentivize people to spend. 

I guess I'm old school, but I like balance.  I don't like extremes where all people do is consume or all they do is save.  Suppressing a natural part of human tendencies can't be without long term deleterious effects, like those priests who aren't allowed to pleasure themselves.  I sure hope it was worth it to get another term in office.