"Why do the poor stay poor and the rich get richer?"

[BRUTE]

My two primary addictive vices are sugar and sex, neither of which is very financially expensive for me.

7Wannabe5 can quit. brute believes in her.

[Riggerjack]

BTW, brute, if you want to start another thread on free will, I'm happy to tell you how wrong you are...

[vezkor]

...most people in my college tend to emphasize the system in which individuals live as more important than their agency. I imagine the answer is somewhere in between. Interestingly enough, it's ironic that most of the complainypants comments in mainstream MMM or ERE snippets are "the system is this, this, and this, and it's so hard" and "this specific person had this, this, and this, and that made it easy." It seems that both systematic and individual arguments are used to propagate the idea that it is impossible to become wealthy/fit/successful/etc., except for a special few. What gives? Why can't we all achieve a moderate to high level of success--whatever that means to us individually? Is deep inequality simply inherent in humanity? Is it tied to our IQs, upbringings--what?

The strongest correlation, IMHO, between personal success and personal ruin seems to be whether or not an individual has a generally internal locus of control:

https://en.wikipedia.org/wiki/Locus_of_control

In personality psychology, locus of control refers to the extent to which individuals believe they can control events affecting them. Understanding of the concept was developed by Julian B. Rotter in 1954, and has since become an aspect of personality studies. A person's "locus" (Latin for "place" or "location") is conceptualized as either internal (the person believes they can control their life) or external (meaning they believe their decisions and life are controlled by environmental factors which they cannot influence, or by chance or fate).

Observations in my own life (because we all love anecdotes ) tend to reinforce this psychological concept as the one with the strongest correlation. Especially in America, where dynastic wealth has a way of evaporating (and accumulating) unusually quickly compared to other places on earth. I try to maintain an internal locus of control. When I'm stuck in bad traffic... I think "why the hell am I driving at this time of day! I know better".

[Sclass]

I would argue (and have) that most members of this forum still are middle class; if there are those here with net-worths I would consider to be breaching the wealthy class (e.g. 8 or 9 figures, not 7), they keep their heads low. IMO, ERE as a practice and ERErs as a group are both solidly middle class by definition.

I think people like Jacob are of the wealthy class. Just my definition. He uses money to get money. The absolute value means less than his expenses to asset ratio. He has more in common with the wealthy class (8 to 9 figure?) than regular folk who live on his annual expenses. He acts more like an owner than the owned. There is a big difference in my mind. Maybe not enough for me to say he's "rich" but somehow the word wealthy comes to mind.

I don't know anyone personally who is nine figure. Wait, I do know a couple but they don't talk to me much anymore.

[Spartan_Warrior]

@Sclass: Yeah, I've had this debate here re: mindset vs. bank account. If you want to put it that way I might concur that ERErs have the mindset of the wealthy class, but still the bank accounts of the (upper) middle class, and when it comes to defining wealth in a socioeconomic sense, I think the bank accounts are paramount. Really, I think it's the political influence that is really the difference in kind rather than degree, but that political influence is a result of the bank account, so...

As a socioeconomic class (e.g. in terms of income, wealth, and expenses as well as position/influence in society) and even behaviorally, I don't think the average FIRE person is all that different from the average middle class retiree except in age/savings rate. I'm sure there are exceptions, but generally speaking...? I know I don't consider myself wealthy, and won't when I retire. Maybe that's my belief in determinism/lack of agency playing tricks.

"I don't know anyone personally who is nine figure. Wait, I do know a couple but they don't talk to me much anymore."

Yeah, me neither. IMHO, I think that's another good indicator of what class you are. Birds of a feather...

[BRUTE]

The strongest correlation, IMHO, between personal success and personal ruin seems to be whether or not an individual has a generally internal locus of control

of course, the correlation could also be due to everybody being correct, and people not having control being unsuccessful

in other news: playing basketball makes humans tall.

[Sclass]

@Sclass: Yeah, I've had this debate here re: mindset vs. bank account. If you want to put it that way I might concur that ERErs have the mindset of the wealthy er...

Mindset. That's the right word for it. Well said.

[jacob]

Bank accounts are paramount by construction of the socio-economic scale ... but only someone from the middle-class cares about the socio-economic scale. That's how you recognize the middle-class ppl

My dislike for travel---in the geographical sense, at least when it comes to places reachable by airports---is somewhat notorious. I often remarked that all developed countries are more or less the same and that you can learn more about the human condition [in the developed world] by travelling a few miles across town from 'University Campus' to 'Government Facility' and then to 'Trailer Park' or from there to 'Financial District' and from there to 'School Teachers and Firemen' or 'Military Families' than you can by flying across the world to hang out with your own kind at the local cuisine offerings while talking about the "'istory, culture, food" as spoken in some self-important travel-blogger accent.

In regards to "anthropological studies" in the developed world, I think I'm rather very well "travelled", much more than most. I find it [this kind of travel] interesting and have kind of made of life mission out of it. This is partially what made the ERE book possible. Basically, I think have a good idea about "the territory". I know a nine-fig and few eight-figs [in USD]. I know a DC lobbyist. I know people in high science. Or top google-ranks (that's a thing now) ... I've also been to "trailer trash funerals" and invited to a wedding where most guests belonged to a gang and mostly talked about taking falls and going to prison. (That was weird ) Not really intended to start a d*-measure-contest here but more to point out that I've been "places" and that my Kevin-Bacon numbers both in the direction of the supreme top whether it's politics, finance, academia, not art though, ... or rock bottom, where people are barely scraping by, is quite low, at most 2 degrees: In all likelihood, I know someone who knows the [kind of] person you want to talk to.

Point being, I've covered most of the territory within a 2-sigma distribution. I might have some clue about how the developed world works in terms of "classes" or maybe rather that I have more of a clue than most but that the problem is extremely complex, so I might be wrong (even if that's hard to believe )

Feel free to disagree. I might learn something. But here's how I see it ...

First, most people/academics/theories only consider a single idiosyncratic dimension of the territory, e.g. income. Basically most theories presume to explain everything by some kind of intersection along a single dimension. I think this is misguided. I see multiple different kinds of "capital". In particular, different people focus on different kinds of that capital.

The socioeconomic poor focus on favours and tribe. "I'll mow your lawn. No, definitely don't pay me. Maybe you'll watch my dog for me some day." "Of course I'll do that. You're in my tribe. Don't mention it." (Most important kind of capital: Social/tribal)

The socioeconomic middle class. "You gave me some tomatoes or watched my dog. Now I feel obligated to reciprocate so as to even out the balance, maybe I give you a cake [of equal value] or pay you $100 or whatever the going market rate is. At work, if I do something quantifiable, like, I work really really hard, then you'll obviously reciprocate and promote me." (Most important capital: money/metric scores)

The socioeconomic upper class. "Don't worry, I know some people. They're great people. I'll connect you to them. We'll make a deal." (Most important capital: information) [No, not all of them talk like Trump But Trump is a great example of the upper class. Notice how he doesn't give a fark about supreme middle class values such as being educated/informed/consistent/... that's because his life/values haven't been built up around the idea of being a good professional drone, unlike most people who vote D or most politicians who speak "middle class" (that's the job of politicians by the way; it's why the upper class pays them!). Incidentally, if you want to dispute this, please start another thread!!!]

The ERE class. Very different. Has certain values in common with all groups. It's intentionally designed this way.

In many ways, the middle class is special. It's an exception or an aberration. Whereas the upper class is quite like the lower class but with lots of money + the vocabulary to impress the middle class. After all, the middle class has been well trained to worship money and education as a metric.

Now, each group has their own methods for maintaining group coherence. For the underclass, it's crab mentality. For the middle class, it's debt, "education" (especially the kind that's taught at 'liberal universities') and careerism. For the upper class, it's surnames, tradition, and family. The upper-class sends their offspring to Harford, not for the superior education (I have it on reliable sources that it's not) but in order to hook up with the offspring of other families. The goals are different.

This is entirely separate from the observation that any kind of capital tends to grow where it's treated well... but please consider how different kinds of capital are treated in different kinds of places. Then it should be obvious that the question why the poor remain poor and the rich remain rich is an oversimplication and also why it's a fact.

[Dragline]

My dislike for travel---in the geographical sense, at least when it comes to places reachable by airports---is somewhat notorious. I often remark that all developed countries are more or less the same and that you can learn more about the human condition [in the developed world] by travelling a few miles across town from 'University Campus' to 'Government Facility' and then to 'Trailer Park' or from there to 'Financial District' and from there to 'School Teachers and Firemen' or 'Military Families'. In regards to "anthropological studies" in the developed world, I think I'm rather very well "travelled", much more than most. I find it [this kind of travel] interesting and have kind of made of life mission out of it. This is partially what made the ERE book possible. Basically, I have a good idea about "the territory". I know a nine-fig and few eight-figs [in USD]. I know a DC lobbyist. ... I've also been to "trailer trash funerals" and invited to a wedding where most guests belonged to a gang and mostly talked about taking falls and going to prison. (That was weird ) Not really intended to start a d*-measure-contest here but more to point out that I've been "places" and that my Kevin-Bacon numbers both in the direction of the supreme top whether it's politics, finance, academia, not art though, ... or rock bottom---people who are barely scraping by---is quite low, at most 2 degrees: I know someone who knows the [kind of] person you want to talk to.

There is another book here -- it will be "Hunter S. Thompson"-esque. "Fear and Loathing in Anywhere USA", maybe.

[Spartan_Warrior]

@Jacob: For the most part, I agree with your post, except one critical difference of opinion (or definition?): You say the most important capital of the wealthy is "information", but I would characterize it as "access/influence", which your Trump-talk example actually exemplifies. "I know someone. I have connections. I have (socio-political) power and influence. (And the reason I'm having this conversation is probably to gain more of it.)" To me that is what epitomizes the wealthy class. Maybe I'm wrong.

I only brought up the class issue because, personally, my answer to Olaz's question might differ* depending on whether "the rich" means "the rich as a socioeconomic construct" or "the upper middle class/early retirees/anyone with above average wealth".

*Only slightly; I still think the primary reason people with money end up with more money is the nature of money to compound and grow. With "the rich", it's a much bigger factor IMO. The other big factor for them being their ability to influence politics in their favor to accelerate and/or remove hindrances to that natural tendency of money to pool. On the other hand, with "the upper middle class/ERErs/etc", I would say things like spending habits, staying out of debt, having valued skills, etc, would be more important factors to "getting richer".

Basically, I x2 this:

"This is entirely separate from the observation that any kind of capital tends to grow where it's treated well... but please consider how different kinds of capital are treated in different kinds of places. Then it should be obvious that the question why the poor remain poor and the rich remain rich is an oversimplication and also why it's a fact."

Also, x2 Dragline.

[jacob]

@Jacob: For the most part, I agree with your post, except one critical difference of opinion (or definition?): You say the most important capital of the wealthy is "information", but I would characterize it as "access/influence", which your Trump-talk example actually exemplifies. "I know someone. I have connections. I have (socio-political) power and influence. (And the reason I'm having this conversation is probably to gain more of it.)" To me that is what epitomizes the wealthy class. Maybe I'm wrong.

Trading information is how you build up the "access/influence" capital. People go to the Ivies to learn how and who (the children of other well-connected families) to trade such information with. Similar to how the underclass sends their kids to "college" to get a shot at the middle class---in the sense of lifting 50 pounds and managing a few people; the upper class sends their kinds to Ivy to maintain the "aristocracy"---it's like going to court and playing Machiavelli. What's unique about the US system is that the "aristocracy" actually allows for middle class phenotypes to enter it if they figure out how to play they game. You don't have to be born into it (genetics) unlike most other countries. The US system is actually superior in this sense because it attempts to gain the best of both worlds. It allows for stability through the interconnections of the ruling class but on the other hand it mostly selects for merit (over a timespan of 2-3 generations) while rooting out stupidity. Of course, sometimes this process is not fast enough However, it's not nearly as bad as a traditional monarchy and it has more stability because everybody in principle has a shot. See what I did there?

Another example of the information asymmetry is how the middle class mainly dabble in the secondary markets: they trade in stocks, bonds, etc. The upper class dabble in the actual economy of businesses... power... the primary market. If a business is highly profitable, they keep it for themselves (private equity). If it sucks or becomes too big, then it's sold to the middle class who'll happily accept it because they believe they're "investing" when they're mostly eating ... well ... crap. Also known as an IPO, the middle class actually thinks these are good things. They're not. However, before anyone gets their panties in a twist, consider that crap with a ROI of 6-10% is still pretty yummy. It's just not same as the 25-50% ROI that the informed and consequentially connected people enjoy.

Now, if you'll excuse me, I need to go dip myself in bleach and have a drink

[tommytebco]

the question is posed as axiomatic. IN FACT IT ISN'T ALWAYS. Some poor people migrate to better circumstances. Some Rich scions piss it away.

In my opinion, the80% median seem to stay in the status that they were born into.

So that "thus is has been, and so shall it always be" is more or less statistically true. But, the stories (good and bad) were written based on truth. Horatio Alger stories happen some of the time. The robber barons were real, if not as evil as portrayed. And some scions were given a sense of purpose to share the wealth (Rockerfeller family for one).

[Locke]

Another example of the information asymmetry is how the middle class mainly dabble in the secondary markets: they trade in stocks, bonds, etc. The upper class dabble in the actual economy of businesses... power... the primary market.

Jacob,

Your ideas are always enlightening. Your quote above goes against my intuition... Many investors attempt to create a primary business, though only about 1 in 30 succeed...Many fortunes have been destroyed through primary ownership of unprofitable businesses (See professional athletes for examples). Whereas, the ownership of index funds (mostly middle class owners) seem to have much lower risk and a large chance for success. Serendipity plays an important role in the creation of upper class wealth through profitable primary ownership of businesses...At the end of the day, you're right that primary ownership is the key to substantial wealth; however, those of us working on early retirement have a greater chance of finding it with help from the secondary ownership than taking a chance with primary ownership.

On a related note, I was quite surprised to see a lawsuit from the faculty at MIT and Yale, who believed that they had too many options for their retirement plans...In one case, the complaint alleged that there were over one hundred funds to choose from. Apparently, the brightest minds in the world (MIT and Yale professors) have not taken the time to become financially literate! I would have been excited to see so many options.

Locke

[thrifty++]

But Trump is a great example of the upper class. Notice how he doesn't give a fark about supreme middle class values such as being educated/informed/consistent/... that's because his life/values haven't been built up around the idea of being a good professional drone, unlike most people who vote D or most politicians who speak "middle class" (that's the job of politicians by the way; it's why the upper class pays them!). Incidentally, if you want to dispute this, please start another thread!!!]

The ERE class. Very different. Has certain values in common with all groups. It's intentionally designed this way.

In many ways, the middle class is special. It's an exception or an aberration. Whereas the upper class is quite like the lower class but with lots of money + the vocabulary to impress the middle class.

I have experienced this during the rare occasions I have been in the company of the upper portion of the upper class> Upper upper class"? Multi millionaires in any event. A few people I have met have had terrible manners. Would eat with their mouth open, swear, spill their food, be inconsiderate and rude. One lady of such class I had dinner with along with another friend was virtually indistinguishable from homeless people on the street. I was so embarrassed. She also did a cheers and said "to the one percent".

I think the rich behave with bad manners because they think they are too powerful to lose and the poor behaves with bad manners because they think they have nothing to lose.

[BRUTE]

maybe they're both right

[Spartan_Warrior]

@Jacob: "...everybody in principle has a shot. See what I did there?"

Took me longer than I'd like to admit. But, yeah... pretty much.

"Another example of the information asymmetry is how the middle class mainly dabble in the secondary markets..."

Thinking on this more... isn't this still an access/connections issue, though? I'm thinking of the thread I made a few weeks ago regarding investing in potable water, for instance. It appears that big money investors are buying up farm land with water rights as part of this play. As a middle class investor, I can't get close to that kind of trade. Is that for lack of information or lack of access? Granted, lack of information can be seen as part of it--I don't necessarily know the exact details in how to invest in farms--but that seems far less insurmountable an issue than my simple lack of access to those kinds of deals, due to my lacking the (presumably tremendous) capital required to do so. It's not that I'm unaware of the primary markets or even what play to make (information asymmetry), it's that I just don't have access to the primary markets.

I definitely get that trading information is how you build the access--especially if we're considering social capital as a kind of information, e.g. "Who you know". Maybe I'm quibbling.

[BRUTE]

@Jacob: "...everybody in principle has a shot. See what I did there?"

Took me longer than I'd like to admit. But, yeah... pretty much.

brute's analysis indicates that a joke has been made by jacob and understood by Spartan_Warrior. brute requests explanation as it went completely over his head.

Thinking on this more... isn't this still an access/connections issue, though?

brute suspects that what Spartan_Warrior means by "access" and jacob by "information" is almost the same thing in this case. having really valuable, really scarce information is akin to having access, and access, if not defined by the physicality of a key or what not, is a type of information ("who does brute have to talk to").

everybody's a winner

[Spartan_Warrior]

@BRUTE: Homophone pun, principle vs. principal. Compare "everyone in principle has a shot" to "everyone (with) principal has a shot".

[BRUTE]

jesus F. christ

thanks. brute will go back on his humor medication.

[jacob]

Nooo! God, no! That's not it at all.

The key difference between classes(+) is Orwellian in nature. Mostly in lenses (frameworks), but also in words and values. The frameworks are entirely different. Even if the words (e.g. "investor" or "wealthy") that are used are the same, they invoke entirely different concepts in the minds of people of different classes.

Controlling vocabulary, values, and frameworks is an extremely effective means of human mass-control. I wrote the ERE book trying to do some deprogramming of the middle class salary man(*). Plato's Cave for starters. A meta-framework to indicate what if anything you're missing. This was done mostly in labor-financial terms (salary, work, business, renaissance) as it was aimed at "normal people" or at least anyone who could be reached by such levels of abstraction.

(+) I didn't say _the_ classes, because how do you know that your classification is accurate. Like, how do you know you aren't being unconsciously (as in "unconsciously incompetent"---stage 1 of the stages of competence) controlled by unquestioningly accepting the standard framework as being handed down to you by .. who? (Key-point: Most people have never considered this. They are not aware of their own prejudices.)

(*) Just as an example of the depth of which this widespread inability to think outside the box went, I was almost immediately attacked by a few people because I said "man" and not "person". These, uh, persons had been trained to realize that some [women] wouldn't realize that "man" also applies to "woman", whereas in my mind/framework (growing up in a country about 3-5 decades ahead of the US in terms of social liberty evolution), those two terms are interchangeable. So keep that metaphor in mind when considering other kinds of classes. Are you oblivious to a class distinction? Or are you extremely focused on the distinction? Or do you think it should be obvious to everybody already?

What I didn't do (in the ERE book) was to go into politics and government at a similar "why it works and this is what you're missing". A strong test for middle class is if you think that "left-right" (D/R) matters or that the difference between rich and poor is money. It's not. That distinction only holds within the middle class to distinguish upper and lower middle class.

Anyhoo, what "I just did there" [in what was not intended as a joke] was to sell you the dream of progress (a middle class concept) by strictly using words and arguments that ONLY the middle class would find appealing: _education_ is good; education is a way to get _ahead_; making it possible to get ahead creates _stability_. In other words, I made an argument for the current system using middle class values which I underlined for your convenience. I added some oomph by taking advantage of the widespread belief [based on exceptionalism] that the _US_ system is the _best_. (The best at what, you should ask yourself?!(&)) Did it work...hook, line, and sinker?

(&) Not meant rhetorically. It's certainly better at certain things than other systems.