Wealth isn’t created at the top. It is merely devoured there

Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they’re sucking the rest of us dry.

• The truth is that we are living in an inverse welfare state.
• These days, politicians assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.
• We may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.
• When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers.
• In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. A growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top.
• There are two ways of making money. The first is what most of us do: work. Tapping into our knowledge and know-how to create something new, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create new wealth.
• There is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit.
• There is no longer a sharp dividing line between working and rentiering. The modern-day rentier often works damn hard. Countless people in the financial sector apply great ingenuity and effort to amass “rent” on their wealth. It’s hardly surprising that they feel wholly entitled to their wealth.
• Our economy as a system shows solidarity with the rich rather than the poor. The clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank for International Settlements have revealed that much of the financial sector has become downright parasitic. Instead of creating wealth, they gobble it up.
• Banks help us gauge risks and get money where it is needed which are vital to a well-functioning economy. Economists tell us that the optimum level of total private-sector debt is 100% of GDP. If the financial sector only grows, it won’t equal more wealth, but less. In the UK, private-sector debt is now (2017) at 157.5%. In the USA, the figure is 188.8%.
• The financial innovation concocted by all the math whizzes working in modern banking (instead of at universities or companies that contribute to real prosperity) basically boils down to maximizing the total amount of debt. And debt is a means of earning rent. So for those who believe that pay ought to be proportionate to the value of work, the conclusion we have to draw is that many bankers should be earning a negative salary; a fine, for destroying more wealth than they create.
• Bankers are the most obvious class of freeloaders.A lawyer and an accountant wields a similar revenue model. Take tax evasion. Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Take the tide of privatizations which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim, earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell, who bought up valuable state-owned assets for song to live off the rent.
• Most rentiers are disguised and not easily identified. They look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking.
• Pharmaceutical companies like GlaxoSmithKline and Pfizer regularly unveil new drugs, yet most real medical breakthroughs are made quietly at government-subsidized labs. Private companies mostly manufacture medications that resemble what we’ve already got. They get it patented and, with a hefty dose of marketing, a legion of lawyers, and a strong lobby, can live off the profits for years. In other words, the vast revenues of the pharmaceutical industry are the result of a tiny pinch of innovation and fistfuls of rent.
• Even paragons of modern progress like Apple, Amazon, Google, Facebook, Uber and Airbnb are woven from the fabric of rentierism. Because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger.
• Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. These companies own a platform that lots and lots of people want to use. First, because they’re cool and they’re fun – and in that respect, they do offer something of value. The main reason why we’re all happy to hand over free content to Facebook is because all of our friends are on Facebook too, because their friends are on Facebook … because their friends are on Facebook. Stripped down to essentials, it’s an ordinary ad agency. In 2015 Google and Facebook pocketed an astounding 64% of all online ad revenue in the US. The bigger such platforms grow the more powerful they become, enabling the lords of these digital feudalities to demand more and more rent.
• Rentier is defined as someone who uses their control over something that already exists in order to increase their own wealth. The feudal lord of medieval times did that by building a tollgate along a road and making everybody who passed by pay. Today’s tech giants are doing basically the same thing, but transposed to the digital highway. Using technology funded by taxpayers, they build tollgates between you and other people’s free content and all the while pay almost no tax on their earnings.
• Why does most of the population work itself to the bone to support these rentiers? Firstly, the modern rentier knows to keep a low profile. There was a time when everybody knew who was freeloading. The king, the church, and the aristocrats controlled almost all the land and made peasants pay dearly to farm it. But in the modern economy, making rentierism work is more complicated. How many people can explain a credit default swap, or a collateralised debt obligation? Or the revenue model behind those cute Google Doodles?  
• “The world’s most powerful investment bank,” wrote the journalist Matt Taibbi about Goldman Sachs, “is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” When current Goldman Sachs CEO Lloyd Blankfein was asked about the purpose of his job, his straight-faced answer was that he is “doing God’s work”. 
• The average rich freeloader manages to masquerade quite successfully as a decent hard worker. He goes to great lengths to present himself as a “job creator” and an “investor” who “earns” his income by virtue of his high “productivity”. Most economists, journalists, and politicians from left to right are quite happy to swallow this story. Time and again language is twisted around to cloak funneling and exploitation as creation and generation.
• The fact of the matter is that feudalism has been democratised. To a lesser or greater extent, we are all depending on handouts. En masse, we have been made complicit in this exploitation by the rentier elite, resulting in a political covenant between the rich rent-seekers and the homeowners and retirees. Most homeowners and retirees are not benefiting from this situation. The banks are bleeding them far beyond the extent to which they themselves profit from their houses and pensions. Still, it’s hard to point fingers at a kleptomaniac when you have sticky fingers too. So why is this happening? The answer can be summed up as: Because it can.
• Rentierism is, in essence, a question of power. It’s no different for the modern rentier. He’s got the law, politicians and journalists squarely in his court. That’s why bankers get fined peanuts for preposterous fraud. The biggest tragedy is that the rentier economy is gobbling up society’s best and brightest. Ivy League graduates are opting for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it’s insane. 
• In a rentier economy, innovation remains just concerned with further bolstering that very same economy. This explains why the big dreams like flying cars, curing cancer, etc have yet to be realised, while bankers and ad-makers have at their fingertips technologies a thousand times more powerful.

Yet it doesn’t have to be this way. Tollgates can be torn down, financial products can be banned, tax havens dismantled, lobbies tamed, and patents rejected. Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society’s biggest freeloaders are at the very top of the pyramid. But such a revolution require a different narrative about the origins of our wealth. All we need to do is to give real hard-working people what they deserve. And they are the waste collectors, the nurses, the cleaners – theirs are the shoulders that carry us all.

Like a parasite stunts a child’s growth,
so the rentier drains a country of its vitality.

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It is expensive to be poor

Most wealthy people believe that poor people today have it 'easy' because they can get government benefits without doing anything in return. This is an infuriatingly obtuse view of what it means to be poor - the soul-rending omnipresence of worry and fear, of weariness and fatigue. This can be the view only of those who have not known or have long forgotten what poverty truly means. 'Easy' is a word not easily spoken among the poor. Things are hard, the times are hard, the work is hard, the way is hard. 'Easy' is for uninformed explanations issued by the willfully callous and the haughtily blind.

• It is extraordinarily expensive to be poor. The less money you have, the more expensive many things are likely to cost. When your income is only just enough to cover your basic living costs, even modest unexpected outgoings can push you into debt. 
• It’s no secret that the poor pay more. The poor pay more by living in food deserts, by having to commute longer distances and stand in longer lines to buy or do just about anything, by not having enough cash on hand to shop when items are on sale, by receiving less efficient. At the same time, prices increase every year, even as wages stagnate. For those who struggle to make ends meet, it means paying for anything takes deeper chunks out of their limited income.
• The more affluent you are, the more likely it is you’ll be able to access credit at low interest rates. Poorest households spend about 25% of their monthly income servicing debts.
• Poor people usually have hard time getting credit. Doorstop lenders and extortionate companies target poorer customers because they are the least likely to have other options. 
• The poor people earnings are more heavily taxed than the earnings of wealthier citizens.
• Minimum-wage jobs are physically demanding, have unpredictable schedules, and pay so meagerly that workers can't save enough to move on.
• Many poor people work, but they just don’t make enough to move out of poverty.
• If you’re earning is just enough to cover rent, food and bills, finding regular extra income can be a struggle.
• Easy credit has been similarly disastrous for households struggling to make ends meet. Government policies have only exacerbated this situation.
• The homelessness and crippling debt are being inflicted deliberately, in an act of sadism.
• The current situation – where people are forced into crippling debt trying to sustain themselves and their families – is a genuine moral catastrophe.
• Low-income households are facing a difficult 2018, with rising prices, frozen benefits and a wage squeeze all putting further pressure on household incomes.
• The poor man's hardships are endless, but the point is: Being poor is anything but easy.

The rich get richer, and the poor get poorer. 

Economic insanity

Theoretically, we should be able to provide for everyone's needs and reasonable wants with in a static economy. The only reason why endless growth is necessary in the capitalist system is simply that it is the mechanism by which the system works. Without growth, capitalism deteriorates. But growth imperative causes serious side effects, one of which is the tendency to confuse both money and debt with wealth.

• If we don't consume or use up real wealth, it perishes on its own. We can't store enough of it to satisfy our lifelong needs. The only way we can make today's wealth fulfill tomorrow's needs is to lend it to others, put them in our debt, and persuade them to pay us back over time, with interest. While debt tends to expand regularly and indefinitely, the wealth it symbolizes cannot.  
• The ruling passion of individuals in a modern economy is to convert wealth into debt in order to derive permanent future income from it. That is the heart of the capitalism. But the idea that all people can live off the interest of their mutual indebtedness is a vulgar delusion on a grand scale.
• In reality, only the minority earns significant interest and the majority pays it. But the difference between what the majority owes and what it is able to pay steadily widens. Debt grows exponentially, but new real wealth which common laborers must repeatedly create new real wealth to pay the interest on their borrowings does not. We can never produce enough actual growth in wealth to keep up the exponential growth of our debts. We just roll them over and end up borrowing to pay up interest on them which is nothing more than a giant, legalized Ponzi scheme.
• The solution to debt crisis is a further dose of growth. The way to grow is to invest, and the way to invest is to borrow. The solution to debt is to increase the debt! How it is believed that new debt will be used productively than the older debt is never explained.
• The resultant explosion of debt will lead to defensive actions by borrowers include inflation, bankruptcy, confiscatory taxation, fraud, or outright theft. These are socially and economically destructive actions and yet they are also the inevitable fruit of compound interest which we deem normal and acceptable.
• Growth in the money supply is the “leading edge” fueling productivity and economic expansion through debt. The logical solution to this dilemma is simple. Since exponential growth of real wealth is impossible, we must tie the money supply more closely to wealth to keep it from expanding needlessly. 
• Exponential growth of money and debt creates unrealistic expectations for similar growth in real wealth which in turn puts immense pressure on short term profits and return on investment. Thus to attract capital, businesses must offer competitive return which often means they search the world over lowest-cost production opportunity. Thus manufacturing gets relocated to countries with lowest labour wages and returns greater.
• Free trade between nations brings only unrestricted capital. But labour stays put which results not in mutual benefit to both the nations but significantly lower wages to the nation that loses capital.
• Balance of trade and capital mobility is the way country borrows in real terms is to import more than it exports. In the last few decades, US has run up staggering trade debt means that immense amount of capital has moved out to other countries. No economist would maintain that this large trade imbalance can continue to expand forever. At some point capital will have to start flowing in opposite direction to bring the account back into balance. For this to happen wages and benefits of US workers have to fall to globally competitive levels. The living standards of US workers will drop significantly. Americans must somehow change course to a limited growth economy—and even accept a no-growth paradigm—or the whole system will explode.
• An economical economy is inherently conservative (not wasteful) in both its production and consumption. In the restorative economy products will require more labour, use less energy and produce less waste. Productivity will go down but employment and profits will go up. This runs contrary to conventional economic logic. Taxation and fees must discourage frivolous, dangerous and dirty products and encourage useful, safe and clean products.
• Such a system will remove incentives for unlimited growth, discourage or deterr formation of enormous, impersonal and capital driven corporations and encourage small, employee-owned, service oriented and environment-sensitive businesses.

There is a sufficiency in the world for man's need 

but not for man's greed ... Mahatma Gandhi

We have far more oil, coal and gas than we can safely burn without global warming. Coal is the dirtiest of fossil fuels produces least amount of energy and the greatest amount of pollution and threatens clean water to drink, clean air to breathe, and a safe climate. In the name of globalization human consumption & wastage has crossed ecologically sustainable limits and piles of waste has proven disastrous to environment. Pollution haunts every city in the world. Enormous burning of oil & gas adds to the woes. While over population is the fundamental cause, other aspects of over consumption and wastage and elimination of unnecessary and dangerous items is in our hands.

The economy of debt

• Economies work best, generally speaking, when people are making decisions based on economic fundamentals, not on tax considerations.
• Debt magnifies risk. If companies or individuals rely on large amounts of leverage, it’s much easier for bad decisions to lead to insolvency, with significant ripple effects in the wider economy. 
• A debt-ridden economy is inherently more fragile and more volatile. Encouraging people to take on debt qualifies as a genuinely bad idea.
• Subsidizing debt seems harmless simply because we’ve always done it. But the fact that you’ve had a bad habit for a long time doesn’t make it less dangerous. 
• All of the debt-created money has to be spent into the economy so it will be available for paying off debt. If that doesn’t happen then there will be a scarcity of money even if enough new loans are made to keep recreating the money that disappears when debt is paid off.
• Money saved is money held out of the working economy. Savings that earn interest, compound the problem because not only is the saved money held out of the economy, it’s acting as a magnet to draw additional money out of the system. The accumulated interest money is generally added to the savings rather than spent, compounding the interest and drawing more money from the system.
• What is real in the real economy is the people, talent, knowledge, technology, infrastructure, resources, etc., and most importantly the good will, industriousness, and positive intentions of the people.
• The working economy is trying to pay huge debt out of those tiny blocks of money. To avoid default, it pays the interest, and borrows more money. The producing economy is suffering from a severe scarcity of money, and it’s working under a system where the only way to get more money into the system is to borrow it. So we have a vicious circle where the necessity to pay the existing debt creates scarcity of money, and the only way to relieve the scarcity is to borrow more money, which aggravates the scarcity, which is only relieved by borrowing more money.
• Essentially it’s operating like a pyramid scheme. In order to stay alive it has to grow, and the only way it can grow is to cannibalize and destabilize itself further. The more it grows the more and faster it has to grow, and the more unstable it becomes. 
• Exponential growth is when something grows by multiplying itself. If something grows by a percentage, eventually it will double. The numbers are becoming completely disconnected from the real world.
• Debt isn’t the only thing forced to grow in the economic model. To feed the expanding debt, the whole economy has to grow. It has to expand whether the people in it need it to or not. Manufacturing must increase, sales must increase, and consumption must increase. Businesses have to expand to stay afloat. Their marketing departments convince more and more people that they need to buy more and more stuff. Stuff that uses valuable resources to produce and then often gets sent to landfills a few years later.
• Since the money scarcity and debt pressure keeps increasing, economic growth becomes more and more of a squeeze play. Businesses in the working economy must grow, but overall they have less and less money to do it with, so they’re continually trying to get more from less. The trend is to cut the work force, cut wages, cut benefits, cut the quality of the product or service, and of course, outsource the labor to foreign countries with low wages and poor labor protection -- anything that can be done to get more out of less.
• In the process of creating more debt we are also creating more money, yet the scarcity of money gets worse and worse. 

WHERE IS THE MONEY GOING?

• Economy ends up with a two-class society—interest payers and interest receivers. The interest payers would be working hard and scrambling to stay afloat. The general trend would be that they work harder and longer and receive comparatively less and less for it. 
• The interest receivers would be accumulating more and more resources, living more and more lavishly, and inventing new games to play with money.
• Financiers and investors of all sorts are essentially interest receivers. That includes pension funds, insurance funds, charitable trusts, and various institutions in many areas of society. 
• People who are paying on mortgages, student loans, auto loans, and credit cards are obviously payers, but many people in the modern world are both payers and receivers.
• Financial progress in the middle class has generally been to work your way from payer to receiver. You start out buying a house and putting money into a retirement fund. You work your mortgage down and your retirement fund and investments up, and eventually you can retire as a receiver.
• Then there are the people who fall out the bottom of the payer class. Sometimes they become a different type of receiver—receivers of charity or receivers of welfare.
• If you yourself have made the transition from payer to receiver, you might hope that your children and grandchildren will be able to do the same. With relentless exponential debt growth, the transition becomes less and less possible.

All progress is precarious, and the solution of one problem 

brings us face to face with another problem ... Martin Luther King, Jr.

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While debt is unavoidable, it is wise to keep to as minimum as possible. While we all have debts, debt ridden entities must take extra care in prioritizing spending, avoiding extravagance and wastage. Under all circumstances frugal living is best and that generates lasting happiness. Economic progress at the expense of ecology in reality is destructive.

Managing money wisely

• Inflation, taxes, government policies, geo-political situations and economic cycles affect all investments. 
• The day you part with your money, you have taken a risk. Bigger the risk the greater scope for higher returns.
• Holding cash is worst form of investment, which depreciates with time in an inflationary economy like India.
• Understanding risk and managing prudently helps protect wealth and generate higher returns. Saving at the beginning of career alone is not enough. What you do with savings that will help staying ahead is more important.
• Bank fixed deposits are fairly safer but its interest rates falls short of inflation rate.
• Debt mutual funds that invest in bonds for short-term goals returns increase as bank FD interest rates fall. The average returns of such funds over a period of five years are around 12-17%. While FD interest is taxable, debt mutual funds held for three years or longer, you can adjust your gains against inflation, with indexation. Any capital loss can also be offset against capital gains on other investments, like shares or properties sold. 
• Debt is not a bad thing, if used correctly. While education or home loans are good debts, credit card debt or a personal loan, to buy something you could live without, is a bad debt.
• Staying debt free is important because debts carry much higher interest burden than what you earn on your investments. As retirement approaches one must become completely debt free to have peaceful retired life.
• Stocks carries considerable risk although liquidity is good. Hence invest that much money which you can afford to lose. Stock or commodities trading, while returns could be high, risks are also higher if traded without research & strategy.
• It is always good to buy blue chip stocks when the markets are down, at a time when nobody is buying and everybody's selling, for long term holding. Investing in long-term equity mutual funds (MFs) is an option. The risk is higher if your holding them is for few weeks or months.
• Overall, the Indian stock markets have returned a good 10-11% compounded annually over a 10-year period, despite the ups and downs.
• Opting for a systematic investment plan (SIP) where you invest a fixed amount of money every month regardless of market fluctuations suits for investing salary surplus amounts.
• The basic principle of investing is to reduce your risk as you get older. A common thumb rule is that individuals should hold a percentage of stocks equal to their age in bonds, government debt and other safe assets and rest in equities. For a 30-year-old, 30% of the portfolio should be in bonds, government debt and other safe assets and rest 70% in equities.
• If you are in your 20s, 30s or even 40s and have years before you retire then "take some risks and opt for more volatile investment that will potentially give you more returns in the long term". However, if you are retiring in the next few years, depending on your circumstances, invest in a conservative manner.
• Always look at big-ticket expenses (child's education or marriage, retirement) that you could incur over the years. Keep aside money for contingencies and have a plan for a fixed monthly income after retirement (through pension, post office or mutual funds monthly income plans, senior citizen savings schemes, FDs and bonds). Not everything will go as per plans, but planning is imperative.
• Insurance is a premium for someone to pay your family a big sum of money, if you die. That premium is just a cost. For peace of mind, it is important to take insurance that covers health, disability, accident, life and property, you should only buy the cover you really need. The life insurance cover's simple thumb rule is to multiply monthly expenses by 300. You may not need life insurance if no one is dependent on you.
• Remember insurance payments are not investments. Insurance is good. Investment is good. Combined into a single product, they make you poorer.
• Real estate, with low risk over long term, is great investment usually with very high returns but with very poor liquidity. Therefore invest into real estate that much money which you may never need it. 
• Investing in rentable properties is a good idea to get some monthly income.
• Spread the Risk. Research carefully and diversify your investments, placing pre-decided amounts in different asset classes: equity, mutual funds, bonds, FDs and property. Rebalancing and realigning your portfolio at definite intervals, according to your goals and risk appetite, is a good idea.
• Invest in tax saving instruments like PPF, ELSS etc for minimizing tax outgo.
• Spend wisely. Overspending is a bad habit. Before you buy anything ask yourself: Am I buying this because I want it or do I really need it? Can I live without it? And, can I really afford it?
  Remember the words of Warren Buffett: "If you buy things you don't need, soon you will have to sell things you need."
• As lifespans lengthen, the need for money between the ages 70 and 85 increases because of medical expenses, medical insurance premium etc increases. At this age, people need house help and insurance doesn't cover everything. The costs involved in maintaining an older person, who is not fit, is much higher than the expenses of an average person.
• Beware of credit cards which are good, if used judiciously. Otherwise small print terms and service charges are bound to make you poorer, in case of reckless spending using card.

Whatever you decide to invest in, do it regularly. Do not watch your investment too often. Do not speculate. Stay invested for the long term. Your money will not only be safe, it will grow many times over. 

Neither a borrower nor a lender be,

for loan often loses both itself and friend ... Polonius

Excess debt is self destructive

When money is free, discipline evaporates and decisions are disastrous

Whatever is free is squandered. Money that can be borrowed for very low interest and in unlimited quantities is essentially "free". Nothing enduringly productive can be built without discipline and a steady focus on the bottom line. What USA has accomplished by borrowing and blowing $9 trillion in additional national debt over the past eight years other than funding medicare and medicaid costs that are largely skims, scams, and fraud? With interest rates near-zero and the credit line of the nation unlimited, Fed has created $3.5 trillion of additional paper money only to buy federal bonds to avoid difficult choices that is, discipline. Politicians are only too willing to borrow trillions from future generations to assure their re-election, and let future taxpayers figure out what to do about the crushing burden of debt we're leaving them? With "free" money, there's no need for justification of the expenditure. With the need for discipline eliminated, there's no motivation not to gamble wildly, fund every special interest group's demand, and grease the palms of every insider, every crony and every oligarch. This is how a great nation will self-destruct itself. The only possible output of a system lacking any discipline is self-destruction.

The same is very true for India and its states as well resulted in many white elephants, massive corruption, crony capitalists, fragile banks, loss making infra companies etc, resulting in wider rich-poor divide and depriving basic amenities to poorer classes. India's rating is near junk with fragile banks and excessive debt.