The Rich Get Richer

by Bill Bonner

Why do the rich get richer and the poor get poorer?

Because rich people have capital and capital is mobile, says Lila. Labor can’t move…at least not easily.

The owners of GM shares do not have to accept Detroit-style UAW wage levels. Once the companies’ factories are worn out and their pension plans and health plans groan under the strain of carrying more retired workers than active ones, shareholders can sell out.

They can buy shares in a Chinese auto parts maker or an Indian one.There, the companies have hundreds of millions of workers to choose from – millions more entering the work force every year.They can pay them a fraction of the U.S.-level wages.And back in the USA, what can the workingmen do?They have lost their bargaining power.They must accept declining relative earnings; they have no choice.

This puts the capitalists in a swell position.Their sales go up; but their labor costs do not.Profits rise.People who had money soon have more of it.The rich get richer.Not just rich shareholders in New York and London, but rich factory owners in Shanghai, rich steel producers in Jamshedpur, and rich champagne producers in Reims.And then they flock to London to buy expensive apartments.

But let us ask the question once more, just so we can give a slightly different answer.Why are the rich benefiting so much from globalization while the working classes, at least in the West, are not?The answer is simple.Because the supply of manufactured goods and the people who produce them has suddenly expanded, while the supply of capital has not – at least, not as fast.

People who have only their own labor to offer enter a buyer’s market.People with capital, on the other hand, enjoy a seller’s market… except when they go to spend their money.

There may be billions more willing wage earners in the world economy than there were twenty years ago.But how many more houses are there in Central London?How many more paintings by Cezanne?How much more beachfront property at Malibu or South Beach?How much more oil?How much more gold?These are the assets that belong to the rich.As more and more rich people compete for them, these assets go up in price.The rich get richer.

And that, dear reader, is why it is better to be rich than poor…especially in this new globalized world.

Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

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