QUESTION: when did people start buying company stock as a means of making their money work for them, and what would happen if companies no longer had stockholders? With so many people that make so little money that buying stock is simply not priority (got to be in it to win it) than it seems like it largely benefits the rich, and inflates what is necessary for an average person to retire?
Also what about increasing minimum wage at the rate of inflation would cause hyper inflation?
ANSWER: Low income earners have extremely high marginal propensity to consume (MPC, which is the percentage of total income spent), and can spend up to 100% of their total income on subsistence, or even with lower-middle class, subsistence and a scarce few comfort goods. Nothing, or nearly nothing, is invested. Nothing, or nearly nothing, can be saved. The marginal propensity to save is the proportion of total income retained, and this is generally 0 or nearly 0 for the vast majority of people. On the other hand, high income earners tend to have extremely low marginal propensity to consume. Despite their sometimes ludicrous lifestyles (One of the Trump women was just saying how her 7yr old gets a nightly full-body rub with a caviar moisturizer), these expenditures still compose just a small amount of their total income. As a result, it goes into investments, savings, etc. and left to accumulate and generate even more income. This lack of income diversification by many leads them to be put into positions where they are entirely reliant on a single employer, and especially during a recession, will fight with each other over jobs that don't even pay a living wage simply because they don't have any other options, decreasing the negotiating power of workers in the labor market, and resulting in stagnant or negative real wages (wages adjusted for inflation) throughout post-industrial society. Generally, it doesn't take any more work for the average person to retire simply because real wages have remained stagnant. As prices have gone up, so have wages, and about the same pace. Since 2008, however, real wages have gone down despite high corporate performance, increased executive packages and bonus programs, and national economic growth.
There's not a whole lot that the average person can do to change the overall economy, but there are a few things that contribute to the lack of financial growth that the average person experiences, which can be managed.
a) Lack of investment in oneís self. When you work for a company, you are creating value for someone else: your employer. Now, thatís what companies do, right? They provide value to a customer, isnít the employer just your customer? Well, compare that to a self-employed person. Everything they do is creating value for their own company, or self-employment career. In a study done by The Economist, they showed that corporate executives only make about half their annual income from their wages, while the remaining half (about) came from self-employment via consulting, book writing, and other services that develop their own, personal, brand. Self-employment is a bit more difficult, since you need to figure out how to operate the business end of things (marketing yourself, business finance, possibly human resources, etc.), instead of just offering the product or service, but you are not only earning income, but youíre also building equity. This equity pays value in the long-run, but if youíre an employee then that equity goes to your employer.
b) Financial management. First, investing, and not necessarily stocks or bonds, but simply being more involved in short-term investments as well. If you have even just a few hundred in a bank account that you know will be there for a long time, and that you donít risk needing it to pay bills, then thereís no reason that money should be in a bank account instead of CDs, T-bills, or any of a various type of low-risk bonds, or other products that generate higher returns. Money loses value over time, as inflation diminishes the ability of a fixed amount of money to purchase things. You need at least be keeping up with inflation if you want to break-even. Unless you are making sure that every dollar you own is working for you instead of just sitting there, you are not meeting your income potential.
Second, spending. Some people simply try to live beyond their means, thatís true, but not the only case. There are some people who really just try to live a lifestyle they canít afford. In the other case, there is an extremely large variety of financial products available, and the vast majority of them are far too complicated for the average person to be able to understand. Theyíll accept a loan or investment from a salesperson (who also doesnít fully understand what theyíre selling because theyíre salespeople, not analysts) that they canít even calculate, much less project future economic conditions and rates on variable-rate products. These products have a use, thatís true, but theyíre often niche products intended for a narrow customer-base, and not appropriate for a broad market. As a result, they enter into bad investments, or loans they canít afford (particularly if their job is at risk in a coming recession or bubble burst that they didnít know how to predict).
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QUESTION: I'm not sure if you covered my question in here. When were stocks first issued, and what would happen if there were no stocks and nothing to gain from other than hard work? Would the classes begin to have vary greater instead of a few at the top, and very little between them and most at the bottom?
And how does minimum wage kept at rate of inflation cause hyper inflation?
ANSWER: I'm not sure there's any real clear first stock issuance. The concept goes back to at least the ancient Greeks. Removing stocks would actually be quite harmful to the economy as a whole. Stock is just a representation of ownership in a company. When someone wants to start or expand a company, they can either use debt or equity. Debt means, of course, to borrow money, either through a loan or by issuing bonds. Equity means to use your own, personal assets - like cash. If the person doesn't have enough assets on their own, they can sell ownership to other people to raise that money. Without stock, we would be severely limiting our ability to fund start-ups and expansions, and economic growth would slow dramatically.
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QUESTION: Isn't economic growth relative to how business is handled in other countries? If no country used stock, or at least had its worth determined by assets the company has and not on what someone hypes up as being the companies' potential, wouldn't everyone be on equal ground, and perhaps governments would make it so companies can borrow more at better rates, and tax them less as an equalizer? Also don't most startups start as simple sole propriatorships or partnerships and don't always incorporate?
Minimum wage with inflation?
The reason that maintaining minimum wages contributes to hyperinflation, if continuously adjusted, is that increasing wages contributes to inflationary pressures. They increase the cost of production, which must then increase price, which then contributes to increased wages. This is illustrated with continuous inflation over the decades, with real wages (wages adjusted for inflation) remaining stagnant. The socioeconomic disparity does need to be managed, that's true, but minimum wages are ineffective for anything except a short-term stimulus strategy that will correct itself through inflationary pressures once the market moves past its "sticky" period, and responds to the increase in wages.
Economic growth results from increased production per person. This can be accomplished with improvements in the factors of production: land, labor, capital, and entrepreneurship. Better land means either expanding the usable land, or improving the resources available that come from the land (e.g.: higher farm production per acre, cleaner water, etc.). Better labor means better educated labor (e.g.: able to work more productively, more/better skills, make better decisions, able to innovate and invent). More capital means better technology that can produce more efficiently (e.g.: machines). Better entrepreneurship comes from investment markets in which entrepreneurs can cheaply and easily give their resources to those who need capital for start-ups or expansions. Whether a company or nation is competitive will depend entirely on how much value they can produce using equivalent consumption in those factors of production. China, for example, has massive amounts of labor, making the price of that labor very cheap, so they can produce a lot of value using very little value consumption of labor.
Most start-ups do start as proprietorships or partnerships, that's true, but they still need capital. Investments are more than just stocks - there's bond markets and other debt markets, venture capital, silent partnerships, and so forth. All these things improve their efficiency utilizing the same general investment market structure.
In order to properly manage the socioeconomic disparity while providing solid economic growth (that doesn't result in massive amounts of debt, regardless of whether you favor more or less spending), I recommend those methods listed in the following link.