<p>I remember depictions of old life as farming, TV, Car, money less. How is it that today, there are millionsssssss living the life, tv, blinging car, house, perhaps living better than the richest of the richest of the past?</p>
<p>What happens when we keep getting to point of "rich enough"? Who's gonna janitorize? Or will they be rich too?</p>
<p>There will always be "bad" jobs like garbarge man but how hire a garbage man if he's happy with what he's got</p>
<p>jobs aren't inherently "good" or "bad." it's all relative to the other jobs available. remember, in third world countries working in a sweatshop is considered a really good job. if we're all really rich, then the jobs we think of as "good" will suddenly become "worse than your neighbor's job and therefore awful".</p>
<p>Since WW2, the number of white-collar jobs has gone up quite a bit while the demand for plumbers, mechanics, farmers etc. hasn't gone up as much. Most anybody with a college education, which is the majority of Americans these days, can get a fairly well-paying job. Not everybody enjoys these benefits at the same rate, and so you don't have millionaire janitors; rather a widening gap between rich and poor.</p>
<p>Well I don't care about how close the poor are the rich.</p>
<p>The poor should be glad that they have blazing dvd burning 2gb pcs for just $400 these days when about 8 years ago it would have been a 128mb cd pc for $1000.</p>
<p>So yeah...I don't understand the structure of the economy where wealth is made. I used to think that mroe money came from govt jobs, like teachers being payed with money being printed but nah.</p>
<p>Credit cards allow people to live beyond their means, as well as other forms of loans. This borrowing of money allows banks to charge interest. When interest is given back to the banks, more money is created. When more money is created, banks can give out MORE loans. The cycle continues. Of course, the macroeconomic discussion of money supply and wealth is more complex than my simple explanation due to outside forces like government banks, etc.. </p>
<p>Another reason is innovations in mass production. When better methods of creating goods are made, using less resources and time and thus money, profit margins increase at companies. In order to sell more than their competitor, they will drop their prices to less than their competitors just to get an edge. Other companies will follow, developing technologies to make their products more efficient, reduce profit margins to a point where they can outsell their competitor. This cycle continues until the supply for the consumer good has increased at all price levels, shifting the supply curve, and making a lower equilibrium price.</p>
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The poor should be glad that they have blazing dvd burning 2gb pcs for just $400 these days when about 8 years ago it would have been a 128mb cd pc for $1000.
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<p>That sounds a bit condescending.</p>
<p>condescending? It's the truth</p>
<p>another example, 50in tvs used to be like 6k, now like 2k.</p>
<p>"Credit cards allow people to live beyond their means, as well as other forms of loans. This borrowing of money allows banks to charge interest. When interest is given back to the banks, more money is created. When more money is created, banks can give out MORE loans. The cycle continues. Of course, the macroeconomic discussion of money supply and wealth is more complex than my simple explanation due to outside forces like government banks, etc.."</p>
<p>Oooh we're getting somewhere... So let's say there is 500K spread amongst 5 people. 1 person wants a loan of 50K. They pay the bank 60K. Now, that 500K is now 490K (kind of since the item the loan got is an asset). And bank now has 10K. nahhh man gimme more deepness</p>
<p>would the economy collapse if people stopped borrowing?</p>
<p>Because we're free riders on the intellectual/technological development of the past, obviously.</p>
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condescending? It's the truth</p>
<p>another example, 50in tvs used to be like 6k, now like 2k.
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<p>No, not the example of cheaper goods... but it sounds like you put yourself in some elitist class that controls prices, and then you're like "well, they should be GLAD that it's cheaper." IDK, it came off that way to me when first reading it.</p>
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Oooh we're getting somewhere... So let's say there is 500K spread amongst 5 people. 1 person wants a loan of 50K. They pay the bank 60K. Now, that 500K is now 490K (kind of since the item the loan got is an asset). And bank now has 10K. nahhh man gimme more deepness
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</p>
<p>No, that's not how it works. People deposit their money into banks as savings, checking etc.. Banks reward you with interest, dividends, and the like for having money in the bank. </p>
<p>Let's take that 500K example. A bunch of people put 500K in, let's say, Small Town bank. The banks deposits are now 500K. The Federal Reserve says they must keep a reserve of 10% in case people want to take money out of the bank. So, they are required to keep 50K of the 500K in reserve, and can loan out 450K.</p>
<p>Now, someone wants to buy a care for 5K, at 10% interest (we'll skip compounding interest to keep it simple). Let's say for the remainder of that loan, no other loans are made. The treasury creates more 1s, 5s, 10s, 20s, etc and distributes them through several large companies (Wal-Mart). People get these new notes through change, pay, etc.. This new money gets circulated into the economy. The guy who took out the loan gets paid. At the end of 3 years, his loan is finally paid off, +10% interest. The bank has just made $500. Now that the money + interest is returned, the bank has $500,500, which is more than the initial 500K it started out with. It can now make more loans with this new money, and the cycle continues. Individuals can obtain more wealth (which isn't income, but the accumulation of resources and capital that can be used when there is no income), in things like stocks, bonds, real-estate/homes, gizmos, gadgets, what-have-yous, etc..</p>
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would the economy collapse if people stopped borrowing?
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<p>Yes. It would implode into a great depression. No, not really.</p>
<p>But, what we consider "average" in our economy (buy a home when you have kids, getting a car on loan, buying that new set of golf clubs when you don't have the money, etc.) probably wouldn't be as high. People would live in apartments instead of homes, as homes would be too expensive for those with low incomes or no wealth to fall back on. No loans means you would have to pay for the home in full. Also, home ownership from loans allows you to have collateral for when you need to send kids to college, with things such as equity loans to give you cash to finance education, or other monetary needs. If you have no credit card, you'll have to save for an item, and you will be less willing to buy items that you wouldn't use everyday. That's how things were before the introduction of GI Loans after WWII and credit cards.</p>
<p>Other things can be insinuated from this argument.</p>
<p>runningcircles, it all kinda made sense,, til you said treasury spreads money to comps like walmart</p>
<p>Wealth in a capitalistic sense is generated by the surplus labor exploited through the works of the proletarian. :)
Rich is a relative term, you could be a king in ancient Babylon, or a beggar among billionaire. People are never rich enough simply because it is a socially constructed concepts that changes over time. So, in a sense, you are never rich, you are constantly becoming, or accumulating your precious capital. </p>
<p>And you guys talk about banks, let me remind you that the freaking interest rate is lower than the inflation rate, which implies that you are losing your dollar everyday, in a long term, your dollar in dat bank would be worthless. The best way to earn money is to spend it on purchasing capitals and producing new capitals. Only idiots would save their money in the bank~~~ Saving is way over rated.
If people stop borrowing money, our state of economy would collapse. There will be no jobs no nothing to support future development, nor incentives to do so. If people stop borrowing money, the purpose of money would be meaningless, say we stop borrowing money tomorrow, dollar will be like toilet papers. lol</p>
<p>I know an important factor for development of wealth in the economy is education. So to sustain it the government would need to make sure education is easy to access and challenging.</p>
<p>To answer the original question, wealth is created by deferring present consumption for investment (e.g. capital).</p>