Author Topic: Is it ethical to make money from something you own?  (Read 50346 times)

LibraryGirl

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Re: Is it ethical to make money from something you own?
« Reply #50 on: February 09, 2014, 03:34:11 PM »
I'm talking about the case where the investor doesn't sell the house to his customer but rents it. In this case, the customer just keeps on paying and paying. Eventually he will have covered all your expenses, but it won't stop there. He will continue paying and paying until you die of old age. And then he will continue paying your children. Again - no upper limit. And the loser in this case is the customer. It's basically like a deal - "I make you a house, and then you support me for the rest of my life".

OK, so in real life there will probably be multiple tenants, and the house has some continuous maintenance expenses, but that doesn't change anything. The investor doesn't need to do any work anymore - he can just survive on the continuous income from that little piece work that he did once, 10 years ago.

Are you assuming in this scenario that your investor is paying someone to manage?  Rental properties will always require additional work and they will even require work on the part of the owner even if a property management company is involved.  In fact, I would argue that the longer you hold the rental property, the more expensive it becomes (since older homes tend to require more maintenance, as well as updating to keep them in demand as rentals).

I certainly don't feel like the loser by renting.  Although I'd like to own at some point, having no maintenance costs is pretty awesome.  Looking out my window right now, I feel very glad that I am not responsible for snow removal or dealing with the tree that just fell down.  My dishwasher broke and I paid exactly $0 to have it repaired.  While I could have learned to fix it myself and purchased the part, that would have required an investment of time, energy and money on my part.  Since we have three full-time maintenance folks who work in my complex, it was fixed within hours with nothing more than a phone call.

I'm sure my landlords make a lot of money on this property.  They are a nice couple who own an apartment and townhouse complex with over 180 units.  They are also both here at least 40 hours a week, working.  They hired three other full-time employees, providing good jobs to people.  They also pay a landscaping company to come in once a week, helping to support even more jobs.  They provide 180 families with homes, and we don't have to deal with paying property taxes,, water, sewer, and garbage, or handling landscaping and maintenance.   

For the cost of my rent, I could pay the PITI on a small house in a lousy neighborhood that is further away from my job and the places I like to spend time.  Ultimately, I am willing to pay for the flexibility at this stage of my life.  We have talked extensively about moving within the next three years, and it doesn't make sense to us to purchase at this point.  If we had an opportunity that felt right, we could pick up and move without the worry of selling a home and what the market looked like.  Same thing with downsizing, which is also something we are talking about.  We could get into a smaller apartment simply by calling the landlord and asking what is available.

bikebum

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Re: Is it ethical to make money from something you own?
« Reply #51 on: February 09, 2014, 04:00:19 PM »
The fact that some choose to be owners and some choose to be renters, even if they can afford to be owners, is enough evidence for me that it is a fair system.

In the same line, some choose to be employers and some choose to be employees, and some choose to be self-employed. It may seem like not everyone has a choice, but I think in the US most people do. And there are systems in place to help those who don't. I don't know what it is like in Latvia though.

Psychstache

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Re: Is it ethical to make money from something you own?
« Reply #52 on: February 09, 2014, 04:12:07 PM »
@Knaak - yes, in this case all is fine. You make something, you sell it. Your "investor's" work is not much different from the contractor's work. He did some finite amount of work (organizing things) and got a finite reward.

I'm talking about the case where the investor doesn't sell the house to his customer but rents it. In this case, the customer just keeps on paying and paying. Eventually he will have covered all your expenses, but it won't stop there. He will continue paying and paying until you die of old age. And then he will continue paying your children. Again - no upper limit. And the loser in this case is the customer. It's basically like a deal - "I make you a house, and then you support me for the rest of my life".

OK, so in real life there will probably be multiple tenants, and the house has some continuous maintenance expenses, but that doesn't change anything. The investor doesn't need to do any work anymore - he can just survive on the continuous income from that little piece work that he did once, 10 years ago.

You still can't seem to get over that win-lose mentality.  The customer chooses to trade his dollars to rent a house.  The investor wins by getting a return on his investment.  The customer wins by getting a place to stay.  Still looks like win-win to me.  If the customer thinks the amount being charged is unfair, he is free to shop for another place to rent.  He can also buy a place if he has the means.  The tenant is not being forced to rent from the investor.

"The investor doesn't need to do any work anymore..."  To keep making money, he needs to keep providing value to the customer.  As soon as that value stops (he lets the place get run down so much that nobody wants to stay there, he own a house in an area like Detroit where nobody wants to live anymore, etc), so do his rent payments.

+1

You seem to continue to think about the economy (I'm referring specifically to the US economy, no experience outside that) as a fixed pie, someone-wins-and-someone-loses zero sum system, when multiple examples have tried to illustrate that that is simply not true. There are no winners in losers, only independent agent making choices about how to allocate their capital. Some choose non-investment consumer goods like iPads and handbags, some choose to risk their money in investments in exchange for some profit.

Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #53 on: February 09, 2014, 04:15:22 PM »
(Side note: I apologize if I seem to be stubborn or willfully obstinate. That is not my intention. In fact, this article has given me a lot of food for thought and you have already managed to all but convince me. Thank you all for that! However I continue the debate because I find constructive arguments to be a wonderful way of thoroughly exploring an issue from all it's angles. If you find this offensive, please say so and I will stop).

Ok, I see the point about rental properties. There's quite a bit of service involved there and you don't get money for doing nothing.

Well then... here's the part that I still stumble upon: MMM and others advocate passive income as the only possible path to FIRE and a humane life as such. However it seems to me that this can only work as long as Mustachians are a minority. If everyone would try to base their lives on passive income, the economy would collapse because there wouldn't be anyone left actually making stuff (or, well, they would be a small minority).

What's the counterargument to this?

(P.S. Latvia is pretty much a "western" country. Some details vary, but the principles of economy are the same as in U.S.)

iamlindoro

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Re: Is it ethical to make money from something you own?
« Reply #54 on: February 09, 2014, 04:22:25 PM »
(Side note: I apologize if I seem to be stubborn or willfully obstinate. That is not my intention. In fact, this article has given me a lot of food for thought and you have already managed to all but convince me. Thank you all for that! However I continue the debate because I find constructive arguments to be a wonderful way of thoroughly exploring an issue from all it's angles. If you find this offensive, please say so and I will stop).

Ok, I see the point about rental properties. There's quite a bit of service involved there and you don't get money for doing nothing.

Well then... here's the part that I still stumble upon: MMM and others advocate passive income as the only possible path to FIRE and a humane life as such. However it seems to me that this can only work as long as Mustachians are a minority. If everyone would try to base their lives on passive income, the economy would collapse because there wouldn't be anyone left actually making stuff (or, well, they would be a small minority).

What's the counterargument to this?

(P.S. Latvia is pretty much a "western" country. Some details vary, but the principles of economy are the same as in U.S.)

Ignoring the fact that MMM does not in any way promote passive income as the only path to FI...

http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/

iamlindoro

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Re: Is it ethical to make money from something you own?
« Reply #55 on: February 09, 2014, 04:27:43 PM »
@iamlindoro - you say that it's not infinite, but then go on illustrating how to make it infinite. Just re-invest most of your earnings. Your income grows exponentionally, without you needing to do anything. OK, so at some point you will die, but if you've done your part correctly your children will continue where you left off. There is no upper limit.

Logarithmically, not exponentially.

This is really a somewhat silly argument-- so let me ask *you* a question.  What is the alternative?  Once someone reaches a certain financial level, we confiscate all further earnings?  And more importantly, if it's so easy and insidious (One could invest as little as $1000 in Vanguard), why isn't everyone doing it?

Psychstache

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Re: Is it ethical to make money from something you own?
« Reply #56 on: February 09, 2014, 04:29:05 PM »
(Side note: I apologize if I seem to be stubborn or willfully obstinate. That is not my intention. In fact, this article has given me a lot of food for thought and you have already managed to all but convince me. Thank you all for that! However I continue the debate because I find constructive arguments to be a wonderful way of thoroughly exploring an issue from all it's angles. If you find this offensive, please say so and I will stop).

Ok, I see the point about rental properties. There's quite a bit of service involved there and you don't get money for doing nothing.

Well then... here's the part that I still stumble upon: MMM and others advocate passive income as the only possible path to FIRE and a humane life as such. However it seems to me that this can only work as long as Mustachians are a minority. If everyone would try to base their lives on passive income, the economy would collapse because there wouldn't be anyone left actually making stuff (or, well, they would be a small minority).

What's the counterargument to this?

(P.S. Latvia is pretty much a "western" country. Some details vary, but the principles of economy are the same as in U.S.)

I agree. I have very much enjoye this thread. This has been a very civil, well reasoned, and interesting debate. This is just about the only place on the internet that seems possible.

SwordGuy

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Re: Is it ethical to make money from something you own?
« Reply #57 on: February 09, 2014, 04:33:31 PM »
Well then... here's the part that I still stumble upon: MMM and others advocate passive income as the only possible path to FIRE and a humane life as such. However it seems to me that this can only work as long as Mustachians are a minority. If everyone would try to base their lives on passive income, the economy would collapse because there wouldn't be anyone left actually making stuff (or, well, they would be a small minority).

What's the counterargument to this?

Everyone won't.  Just like everyone won't choose not to be a thief, or a murderer, or a drug addict. 

But let's suppose we suddenly change our society so that the majority of the people in it:

  • have adequate math skills to understand the rewards of saving, investing and compound growth,
  • can understand and support intelligent policies for their own and society's betterment,
  • have sufficient will power to delay instant gratification in order to get better long term results,
  • don't require a whole lot of services or products in order to lead a happy life, and
  • are willing to work to get those rewards.

Darn, what's the problem?    Don't you think a society that's composed of folks like that couldn't figure out how to make it work better than their opposites are now failing to do?

Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #58 on: February 09, 2014, 04:34:35 PM »
@iamlindoro - That article talks about investing from the first line to the last. Frugality is nice and fine, and part of the equation - but if you don't have passive income, then you can pretty much forget about FIRE - because once you quit your job your only source of income will be your savings. (Or did I get something wrong again?)

About the alternative - sorry, I haven't come up with one. Believe me, I've tried. :P This is part of the reason I'm asking this here. Because money-through-ownership is the only feasible plan I can see for a financially-stressless life - and yet it somehow seems... wrong. That I'm somehow setting myself above others and denying them the same opportunity that I'm taking. That there's only so much pie and now I'm helping myself to a second serving...

Sorry, I know I'm neither the first nor last person with this sort of mindset and misconceptions. But I couldn't find anything that would satisfactory explain it to me. Once more, thank you very much for taking the time and answering me!

@ksaleh - You're welcome. :)

@SwordGuy - Haha, I think you have a point there! :D

bikebum

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Re: Is it ethical to make money from something you own?
« Reply #59 on: February 09, 2014, 04:47:21 PM »
(Side note: I apologize if I seem to be stubborn or willfully obstinate. That is not my intention. In fact, this article has given me a lot of food for thought and you have already managed to all but convince me. Thank you all for that! However I continue the debate because I find constructive arguments to be a wonderful way of thoroughly exploring an issue from all it's angles. If you find this offensive, please say so and I will stop).

I think you are doing a great job expressing your arguments and thoughts without being offensive. Let the debate continue!

iamlindoro

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Re: Is it ethical to make money from something you own?
« Reply #60 on: February 09, 2014, 04:52:04 PM »
@iamlindoro - That article talks about investing from the first line to the last. Frugality is nice and fine, and part of the equation - but if you don't have passive income, then you can pretty much forget about FIRE - because once you quit your job your only source of income will be your savings. (Or did I get something wrong again?)

The article I posted is not at all about investment strategies!  It directly addresses the outcome if everyone were to become frugal/mustachian.  Your exact question was:

Quote
Well then... here's the part that I still stumble upon: MMM and others advocate passive income as the only possible path to FIRE and a humane life as such. However it seems to me that this can only work as long as Mustachians are a minority. If everyone would try to base their lives on passive income, the economy would collapse because there wouldn't be anyone left actually making stuff (or, well, they would be a small minority).

Which the article directly addresses:

Quote
To understand why that would happen, you just have to look at the actions of individuals again. If you’re working alone on an island, you only need to produce whatever you want to consume. If an entire society gradually decides that it wants to consume less, then it needs to produce less as well.

If there is less stuff that needs to be produced, then people don’t have to work as many hours to create it. That’s perfect, because many people will be dropping out of the workforce much earlier as they finish earning the money they need to get going on their their early retirement. The shortage of available work will be balanced by the reduced number of people willing to do that work.

Wise investments are the most efficient/realistic path for the average person to reach FI-- but accumulating the amount you would need to live off of with no appreciation whatsoever is a perfectly valid path to being FI.  For most people, the work (countless long hours at a mid-income profession) or career (average income in an exceptionally well-paid profession) required to reach FI by that path is impractical-- but it's no worse or better to take the path of raw accumulation.

Let's look at this another way.  Two people go to work every day.  They grew up in similar households and had the same educational opportunities. They each work the same number of hours, shoulder the same amount of stress, and employ the same amount of effort.  Because they are in different fields, one makes a wage far above the average, the other a wage far below the average.  Is this fair?  If the answer is "yes," then passive income is also ethical so long as all people have access to the same systems for producing wealth.  If the answer is no, then your problem is not with investments/passive income, but rather with the concept of capitalism in general.

Daleth

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Re: Is it ethical to make money from something you own?
« Reply #61 on: February 09, 2014, 05:33:05 PM »
I've also myself come up with another way of looking at landlording and other types of rentals - it can be seen as providing a service, which is of use to someone else. Hmm... I suppose that investing can be seen the same way - you're renting out your money to the company.

This.

You have no idea how many tenants thank me profusely for providing them clean, safe housing, taking care of maintenance issues right away, etc.  They've dealt with terrible landlords all their lives and are grateful to have one that provides them a great service.

Yes, I am making money on it.  And they're quite happy about it.  Win-win.

Exactly. That's especially the case for my friends who buy ghetto-cheap houses ($30k and under) in a sooooomewhat marginal but not dangerous neighborhood, which happens to be next to some nice neighborhoods. There are so many slumlords in that neighborhood... the kind of landlords who literally won't replace a refrigerator that breaks, won't exterminate if there are rats, won't even fix the goddamn front door lock if it breaks. I have a property there and so many potential tenants told me it was the nicest place they'd ever seen. Sh!t breaks, I fix or replace it. Same situation for my friends. They provide nicely remodeled houses (they can afford to remodel because the houses are so cheap), they fix or replace whatever breaks, they keep the places nicely maintained.

So not only are they (we) providing a service for tenants that is hard to find in that neighborhood, they (we) are also improving the neighborhood because our properties LOOK GOOD, unlike the slumlord properties. The folks who have owned there forever, almost all of whom are decent hardworking people, are seeing their property values stabilize.

Does anyone here really think my friends and I would be providing more value to the world if we got full-time jobs slinging lattes at Starbucks, or helping Acme Corporation more effectively market "Widgets You Don't Need" or "Toothpaste to Make You Sexy"?

Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #62 on: February 09, 2014, 05:39:39 PM »
@iamlindoro - That's another good question I've often pondered about. I'm afraid I don't have a good answer here either. :( On an emotional level that doesn't seem fair, but every alternative I've been able to come up with is much worse. :/

SwordGuy

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Re: Is it ethical to make money from something you own?
« Reply #63 on: February 09, 2014, 06:01:22 PM »
Original Poster:  You're from Latvia?   That means you either grew up in the USSR or surrounded by people who lived under the Soviet government.   No wonder you're so confused.   The Soviets told a lot of lies about how a free market economy works.  And, of course, where there was some truth to the bad points they exagerated them.

Most capitalists can't really abuse their position because there are enough other capitalists out there to stop them.   Read the book I recommended and you'll have a much better grounding in real economics and its effect on humanity. 

In the USA, few extremely wealthly families stay that way for more than 3 generations.   There is a lot of social mobility upwards and downwards.

bikebum

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Re: Is it ethical to make money from something you own?
« Reply #64 on: February 09, 2014, 06:17:31 PM »
Original Poster:  You're from Latvia?   That means you either grew up in the USSR or surrounded by people who lived under the Soviet government.   No wonder you're so confused.   The Soviets told a lot of lies about how a free market economy works.  And, of course, where there was some truth to the bad points they exagerated them.

I know quite a few Americans that would agree with the OP. I used to agree with a lot of it too. Seems a lot of these ideas come from college-age people trying to figure out why the world seems so dumb, lol. Not saying that is the case with the OP.

Mr.Fixit

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Re: Is it ethical to make money from something you own?
« Reply #65 on: February 09, 2014, 07:15:21 PM »

Well then... here's the part that I still stumble upon: MMM and others advocate passive income as the only possible path to FIRE and a humane life as such. However it seems to me that this can only work as long as Mustachians are a minority. If everyone would try to base their lives on passive income, the economy would collapse because there wouldn't be anyone left actually making stuff (or, well, they would be a small minority).

What's the counterargument to this?

(P.S. Latvia is pretty much a "western" country. Some details vary, but the principles of economy are the same as in U.S.)

Vilx, i like your line of thinking.  I believe there is something flawed about the stock market as we know it today.  When an economies value is so fluid it creates something too top heavy and volatile. Not only that but we also create a soul less monster of an economy where publicly companies follow the stock tickers.  A business no longer has culpable owners for their actions.

I also believe work is good and I don't intend to fully stop--its more about having greater flexibility, balance in life, and a balanced level of commitments for various stages of life.  Creating a hord and then living it up is not my goal.

At the end of the day it makes me a little sick to have my 401k in a broad market fund (don't have many options there).  Most all other savings/investments I make are privately held or in my home/property.  I haven't looked into it much but its more appealing to me to invest in a fund focused on "good" businesses rather than some all out global fund that's sending my money to Brazil and China so Wallmart stuff can be made outside good health systems or outside of good environmental regulation.
« Last Edit: February 09, 2014, 07:17:20 PM by Mr.Fixit »

nyxst

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Re: Is it ethical to make money from something you own?
« Reply #66 on: February 09, 2014, 07:57:10 PM »
The way i see it, investors are actually stoking the fire that keeps the pot boiling. If they keep a good rolling boil, they get the overflow as a reward. Of no one is there to feed the fire, no new jobs are created, no new companies are funded, no expansion funds are available, no landlords to rent properties. The whole system fails when no one invests....

nyxst

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Re: Is it ethical to make money from something you own?
« Reply #67 on: February 09, 2014, 08:11:13 PM »
Still, I wish i felt that stocks did well because the company they support did something stable and worthwhile... Often it seems like everyone is just chasing their tails and jumping at shadows and that determines whether a stock goes up or down. Not the most encouraging system.

AlexK

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Re: Is it ethical to make money from something you own?
« Reply #68 on: February 09, 2014, 08:54:46 PM »
Yes it's unethical. I'm moving into your house next week for free, hope that's cool.

Guizmo

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Re: Is it ethical to make money from something you own?
« Reply #69 on: February 09, 2014, 09:04:13 PM »
OP, in a world were investing is unethical, how can an elderly/disabled person that is no longer able to work ethically survive? That person's options are to leech from their family/society or live off their investments.

dragoncar

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Re: Is it ethical to make money from something you own?
« Reply #70 on: February 09, 2014, 09:24:39 PM »
OP, in a world were investing is unethical, how can an elderly/disabled person that is no longer able to work ethically survive? That person's options are to leech from their family/society or live off their investments.
http://www.youtube.com/watch?v=w8JPEq0Qp4Q

ace1224

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Re: Is it ethical to make money from something you own?
« Reply #71 on: February 09, 2014, 09:27:13 PM »
I don't see how it's unethical at all.  You have something people want, even if it is passive it's yours and if people want to use it you have the right to be compensated. Everyone is talking about rental homes which also provide a service. What about a more passive income? Say you own land that Verizon wants to put a cell phone tower on and wants to pay you a certain amount if money to lease use of the land each month.  Why is it unethical? It's yours, profiting doesn't make you a parasite, if you didn't lease it to them someone else up the road would. People want cell service.

sol

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Re: Is it ethical to make money from something you own?
« Reply #72 on: February 09, 2014, 09:38:33 PM »
This is a really dumb question.

I don't think it's a dumb question, and I totally understand where the OP is coming from.  In my mind, the question comes down to your feeling about human suffering, exploitation, and inequality.  Is it ethical to shower one family in gold plated lottery tickets while the family next door starves to death?

There have been some very predictable arguments made here that the wealthy are wealthy because they work harder, because they are smarter, because they save and invest more wisely.  You don't need to disagree with those arguments to see the moral problem with letting a child starve so that you can buy another rental house with your passive income.

I accept that some people are lazy and stupid and will always make poor financial decisions.  And by contrast that other people are conscientious and dedicated and frugal and will eventually build wealth.  That doesn't mean I want to see either family go hungry, or be homeless or suffer from treatable medical issues, or miss out on a solid education. 

From one perspective, each human being should be able to amass wealth based on the output of their own labors.  By design, our society has carefully subverted that ideal to allow some people to profit from the labor of others, thereby extracting wealth from people who work and produce and drive our civilization.  I don't think it's crazy at all to ask whether or not that system is the best of all possible options.

What's my proposed alternative?  Higher marginal tax rates.   The United States has historically had marginal tax rates in excess of 90% on the very highest earners, people for whom money no longer has any real value.  And still our economy grew, and we used that tax revenue to build great national infrastructure and start anti-poverty programs.  And generally try to keep anyone from starving, and I think that's a moral choice.




Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #73 on: February 10, 2014, 02:54:34 AM »
The USSR collapsed when I was 6, so I don't have any meaningful memories of it. I don't feel like my ideas were influenced by any communist lies - I came up with them myself (ideas, not lies :D). Also, there's no love lost here for those days. The planned economy back then was simply awful, everything was scarce. (I know some interesting stories, but that's offtopic) So almost everyone today loves capitalism. Whether they understand it though is another question...

So, here's my question then: when I buy some shares on the stock market, how do I help the businesses? After all, my money doesn't go to the business who's shares I just bought - it goes to the previous owner. That owner might spend it for consumption (thus driving the economy a bit), but more likely he'll just use it to buy other shares he thinks more valuable. So how does my money help?

warfreak2

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Re: Is it ethical to make money from something you own?
« Reply #74 on: February 10, 2014, 05:34:28 AM »
More demand for shares means higher share prices, so that the company can get more investment money by selling more shares. You also help other people who have shares and would prefer money.

Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #75 on: February 10, 2014, 06:38:22 AM »
Seems awfully roundabout. Do companies often emit new shares? Seems like it's against the shareholder's interests, because their shares lose value and they get less in dividends.

Karl_H

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Re: Is it ethical to make money from something you own?
« Reply #76 on: February 10, 2014, 07:26:38 AM »
Would you rather live your life supported by passive income or have to continually/frequently work to survive?

Take the example of Chris McCandless. With the right mentality, there are few things more exciting and rewarding than the struggle for survival. 

The way I see it, accumulating wealth and passive income allows you the freedom to do whatever you want to do.  That choice may include subsistence, producing more than you consume, consuming more than you produce.  Choose whatever makes you happy. 

dragoncar

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Re: Is it ethical to make money from something you own?
« Reply #77 on: February 10, 2014, 09:24:28 AM »
Seems awfully roundabout. Do companies often emit new shares? Seems like it's against the shareholder's interests, because their shares lose value and they get less in dividends.

http://en.m.wikipedia.org/wiki/Corporate_finance

Honestly it's hard to have a conversation about art, when you have to explain what paint is

Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #78 on: February 10, 2014, 10:07:56 AM »
*shrug* Well, you have to start somewhere...

Thanks for the link. I'm trying to digest it now, though the terminology is daunting.

dragoncar

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Re: Is it ethical to make money from something you own?
« Reply #79 on: February 10, 2014, 10:32:01 AM »
*shrug* Well, you have to start somewhere...

Thanks for the link. I'm trying to digest it now, though the terminology is daunting.

Never tried it, but maybe something like this would be better? https://www.coursera.org/course/finance

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Re: Is it ethical to make money from something you own?
« Reply #80 on: February 10, 2014, 11:13:03 AM »
Looks fine, but I'm not interested in committing to a schedule for learning.

Anyways, when I came here I just had these questions and had no idea how much I need to know in order to understand the answers. If I'm going too deep and this is beyond a simple forum conversation, then I'll continue on my own terms. Or not - but that's then my decision.

[Side note: I had a few semesters of economics at high school with a "polarizing" teacher - after studying with her people either fell in love with the subject, or vowed never to touch it again with a 10 foot pole. I was in the latter group. Lately I've regained some fleeting interest in the subject, but not yet enough to dive in headfirst.]
« Last Edit: February 10, 2014, 11:18:26 AM by Vilx- »

phred

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Re: Is it ethical to make money from something you own?
« Reply #81 on: February 10, 2014, 11:39:28 AM »
You can buy stock directly from many well established corporations such as DRIPs and others.  Also, if you believe you can just sit back once you have real estate, I hope you never buy any.  Any property needs constant maintenance, insurance coverage & tenant management, and study of tax laws.
  Real estate can also crash although this hasn't happened since 2008.  Stock shares ditto.  By saving and investing now, while others are living the good life,  allows you to have your good life later.  Hardly parasitical; without investors with money, not much would be accomplished.  If it really bothers you, as it bothers many who inherit but never worked for a living, give all the profits to your local food bank, soup kitchen, and homeless shelter.  There, problem solved.

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Re: Is it ethical to make money from something you own?
« Reply #82 on: February 10, 2014, 12:46:57 PM »
No, I do want the good life... not to need to worry about money anymore... to do the work I like when I like it... to live in a nice place... It's a dream alright. :)

It's just that "pie" or "pot" or whatever that has (had?) me hesitating.

Some time ago I googled a bit and found out that the GDP per capita of the world is about $1000 per month per person (or something like that). That's the total output of the world today. If you make more than that, that means that someone else has to make less.

And what I had thought is that the limiting factor, why the world doesn't produce more, is time. After all - one person can only do so much useful work per day. In that case, the only way to increase the world's output would be better technology, that makes those precious hours more productive.

But this discussion has made me think that perhaps there are other limits too. That perhaps people can produce more with today's technology, and it's the inefficient distribution of wealth (and perhaps some other things too) that prevents it. In that case, investing would indeed be commendable.

bikebum

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Re: Is it ethical to make money from something you own?
« Reply #83 on: February 10, 2014, 01:42:48 PM »
It's just that "pie" or "pot" or whatever that has (had?) me hesitating.

Some time ago I googled a bit and found out that the GDP per capita of the world is about $1000 per month per person (or something like that). That's the total output of the world today. If you make more than that, that means that someone else has to make less.

I think this depends on how a person is making money. As already pointed out, many income pursuits make the pot bigger without it being necessary for others to get less from it, and sometimes others actually get more from the bigger pot.

I do think there are situations where a person can take more from the pot without adding to it, so someone else ends up with less. Usually a person has to be tricked in some way for this to happen, or their lack of knowledge about something can be exploited. Credit cards come to mind, not in all cases but many. The only solution I can think of is for people to take the time to learn enough to avoid being duped. There will always be "sharks" and I think making laws to stop them is impractical. Learn to avoid them, and teach your friends!

arebelspy

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Re: Is it ethical to make money from something you own?
« Reply #84 on: February 10, 2014, 02:39:59 PM »
If you make more than that, that means that someone else has to make less.

If that was true, and the pot couldn't grow bigger, then everyone would have the same average standard of living that they did 3,000 years ago.   Clearly we can raise the standard of living for the average person without making others' lives worse.

That's the total output of the world today.

This is the key part you've apparently skipped over. That's the total output today.

We can raise that total output.  We can create wealth, and make things better for ourselves and others.

You're assuming for someone to make two dollars, someone else has to make two less.  Instead why can't one person make two dollars and the other make a dollar as well?

The total output, as you put it, rises.

Win-win.

Just because the average is 1000 today, that doesn't mean the people making less than that are making that low because you are making more than that.  You can raise yours, and theirs, at the same time.
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Re: Is it ethical to make money from something you own?
« Reply #85 on: February 10, 2014, 02:50:27 PM »
We also don't have the only currency in the world, and whatever currency people use holds a different value in different markets. I can buy much more with my dollar than the average person in NY or LA. If $10/month can feed a starving child somewhere, clearly $1,000 USD has much more buying power there.

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Re: Is it ethical to make money from something you own?
« Reply #86 on: February 10, 2014, 03:00:25 PM »
@arebelspy - Read carefully. My idea was that the output was limited only by our technology (which is why it's immensely larger today than it was 3000 years ago) and it can be only raised if we invent some new technology. This discussion has made me realize that there are other factors as well, including the distribution of wealth.

@Cheddar Stacker - That was meant to be "converted according to purchasing power, BigMac index and the proper sacrifices to the economic deities". It doesn't matter. The point was that it's a fairly small number by western standards.

YK-Phil

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Re: Is it ethical to make money from something you own?
« Reply #87 on: February 10, 2014, 03:11:04 PM »
This is a really dumb question.

I don't think it's a dumb question, and I totally understand where the OP is coming from.  In my mind, the question comes down to your feeling about human suffering, exploitation, and inequality.  Is it ethical to shower one family in gold plated lottery tickets while the family next door starves to death?

There have been some very predictable arguments made here that the wealthy are wealthy because they work harder, because they are smarter, because they save and invest more wisely.  You don't need to disagree with those arguments to see the moral problem with letting a child starve so that you can buy another rental house with your passive income.

I accept that some people are lazy and stupid and will always make poor financial decisions.  And by contrast that other people are conscientious and dedicated and frugal and will eventually build wealth.  That doesn't mean I want to see either family go hungry, or be homeless or suffer from treatable medical issues, or miss out on a solid education. 

From one perspective, each human being should be able to amass wealth based on the output of their own labors.  By design, our society has carefully subverted that ideal to allow some people to profit from the labor of others, thereby extracting wealth from people who work and produce and drive our civilization.  I don't think it's crazy at all to ask whether or not that system is the best of all possible options.

What's my proposed alternative?  Higher marginal tax rates.   The United States has historically had marginal tax rates in excess of 90% on the very highest earners, people for whom money no longer has any real value.  And still our economy grew, and we used that tax revenue to build great national infrastructure and start anti-poverty programs.  And generally try to keep anyone from starving, and I think that's a moral choice.

+10. Very well summed up.

Tyler

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Re: Is it ethical to make money from something you own?
« Reply #88 on: February 10, 2014, 05:13:34 PM »
When a lender makes a loan to a business, they're not the only one to profit from the transaction.  The business uses the capital to create more wealth for themselves and their employees than they would have been able to without the loan.  If that was not the case, the business would never sign up for the loan.  So the system is mutually beneficial to both lender and borrower.

That said, there are certainly both ethical and unethical lenders out there.  The good ones seek fair returns in a mutually-beneficial transaction, while the bad ones are downright predatory.  Which one you choose to be is up to you.

Parting thought:  What's more unethical -- lending your money to others so that they can afford the means to create their own wealth, or hoarding your money under the mattress and refusing to share?





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Re: Is it ethical to make money from something you own?
« Reply #89 on: February 10, 2014, 05:33:38 PM »
If a majority achieved large savings rates, reality falls between these endpoints

1. Entrepreneurs would find productive uses for that capital, and the economy becomes automated enough that a majority really can fund a lifetime from a few years of paid employment.

2. This doesn't happen. The savings glut pushes the return on capital to low levels, and the majority of savers needs to save even more to reach financial independence. The majority spend decades in paid employment to reach independence based on new 1% returns to capital.

Neither outcome crashes the economy. Neither is unfair.

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Re: Is it ethical to make money from something you own?
« Reply #90 on: February 10, 2014, 06:12:41 PM »
The other is ice813's suggestion that you get paid for accepting the risk. It's your neck on the line out there, and that's what you get paid for. Fair enough.

Paying you for the risk of ownership is the only answer to the original question you asked.

We were talking about the real estate and that is a great example if taken to the extreme. Lets say you find $2 million and buy a 200 unit apartment complex and rent it out. You then pay a management company and get an accountant to mange all the dirty little extras and then still have $100,000 per year left over which you have to do absolutely no work for.

The reason you get the $100k/year is because you take the risk that the hotel will lose value. If there were an earthquake, or a flood, or God himself decides to flick your building over, or the area gets taken over by gangs, or people just didn't want to live in that city anymore (think Detroit), then that $2 million loses value (even if you are insured). You are paid because of the risk you are taking that you lose your money.

Same principle works with stocks. You get your share of the profits because if the company goes bankrupt, you lose your money. It could be a Kodak, or it could be Apple in 1990. You don't know and neither does anyone else. By investing, you are saying that "I think this business is unlikely to lose my money but to cover my loses just in case, I want my share of profits now."

All of the other answers here seem way more complicated than they need to be. You are paid for your willingness to take on risks when you rent your assets.

phred

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Re: Is it ethical to make money from something you own?
« Reply #91 on: February 11, 2014, 07:05:34 AM »
Having your own business is not always a sure thing.  Hence, you are entitled to a profit to reward you for the risk you take in losing it all.  You may also be providing jobs to those who need jobs.  Frequently, keeping employees productive is like trying to herd cats, so that should be rewarded as well.

Landlords don't always "make" money on their rentals.  Many have a negative cash flow offset by other income.  Landlords are basically optimists who hope the building is still rebuildable after the tenant moves out.

Many renters rent because they are purchasing a service.  They don't want to be bothered by repairs and maintenance, and are happy to pay for the service.  They may also want to use their funds in other investments, not be tied down to any one area, or be more sociable than most of us

grantmeaname

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Re: Is it ethical to make money from something you own?
« Reply #92 on: February 11, 2014, 07:36:18 AM »
@arebelspy - Read carefully. My idea was that the output was limited only by our technology (which is why it's immensely larger today than it was 3000 years ago) and it can be only raised if we invent some new technology. This discussion has made me realize that there are other factors as well, including the distribution of wealth.
Don't just think of technology in a limited sense, like "quantum computing" or "nuclear fusion", the big sexy innovations of science fiction. Technologies can be anything that allow a company to run leaner and more efficiently, producing more value out of the same set of inputs. For financial markets alone, the economist's definition of 'technology' includes low-cost brokerage services, derivatives, credible audited financial statements, securitization of loans like credit cards and mortgages (which has been very productive in general with only one big exception), currency swaps, and a million other things.

Or think of the managerial tools: six sigma, which allows companies to waste less money making stuff that doesn't work; lean manufacturing, which minimizes the production of things customers don't want, empowers employees, and minimizes the amount of inventory a company has to finance at any given point in time; advanced product costing techniques, which allow companies to know what production really costs them and allocate resources accordingly; internal auditing, which minimizes embezzlement and theft; and market resarch, which entails making sure that companies are making things that customers actually want.

There's also infrastructure, like electricity, broadband internet, dredged rivers, and good roads. Asphalt is hardly "technology" - it's crushed up rocks - but as societies invest in their infrastructure production, distribution, and trade become much more efficient. That's a factor that will increase productivity over time, no?

Corporations in the developed world today are much more efficient than they were 150 years ago, and a big part of the productivity increase in coming decades will be the increases that come as the rest of the world becomes capable in these areas. Investors will be confident they can believe the financial statements of the Nigerian brewery, and that they'll be able to trade pesos or rupees for dollars at a reasonable rate when they want to cash out, and more capital will flow to the places that have the least of it. And the world's total output and wealth will increase.

grantmeaname

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Re: Is it ethical to make money from something you own?
« Reply #93 on: February 11, 2014, 07:47:14 AM »
From one perspective, each human being should be able to amass wealth based on the output of their own labors.  By design, our society has carefully subverted that ideal to allow some people to profit from the labor of others, thereby extracting wealth from people who work and produce and drive our civilization.  I don't think it's crazy at all to ask whether or not that system is the best of all possible options.
The idea that only labor creates value is the central tenet of Marxism, a failed philosophy that has not only produced totally unworkable societal systems, but also fails to make accurate, actionable predictions about the future of the world. I'm not throwing the term in your face because it's big and scary or because McCarthyism is nifty. But a very clear and fundamental implication of the idea is that real wages should fall as capital intensity increases and we have hundreds of years of evidence that that's exactly the opposite of what happens. It just isn't so! Capital is a fundamental ingredient of production and deserves the income that it receives, just like labor, because nobody has yet managed to describe any other workable economic system.

That doesn't mean inequality is desirable, or that the lower class has too much. But if you start with an assumption that fundamentally does not match the facts of the world, you're not going to get anywhere productive.

libertarian4321

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Re: Is it ethical to make money from something you own?
« Reply #94 on: February 14, 2014, 12:29:54 AM »
I like to think my passive income is derived from many years of hard, productive work.
The problem is that passive income can be made exponential. You can use it to acquire more assets which generate more passive income and so on into infinity. With a fixed amount of hard work you can get limitless income. Not much better than the lottery, really.


So you think you can just put a few thousand dollars into an investment, do nothing, and watch it grow exponentially?

Really?

Maybe I wasn't doing it right, but I spent a LOT of time managing my investments.  And that, my friend, is WORK, just as much as pushing papers at an office is "work."  Frankly, it was harder work than my "job."  Plus, of course, I'm putting my money, earned by hard work, at risk, in a way that benefits the economy.

If I put $1,000,000 into a savings account/money market/bonds, etc, I'm doing far more to help the economy than I could if I took a job slinging burgers 24-7 for 80 years.  The burger flipper may be burning more calories and may look busy, but his job provides minimal benefit to the economy, but my investment dollars are used to create loans that create dozens of new jobs. 

I guarantee the average peasant in Bangladesh "works harder" than the average American/German/Japanese. 

That's a country full of hard working people, going nowhere because they have next to no investment capital.

Yet those "freeloaders," as you call them, in countries like the USA, allow for even the poorest American to live a life of luxury that most in the world can only dream about.

Clearly, those investors are providing value, even if you don't understand how it works.  Take away that investment incentive, and the economy goes into the toilet, and we become hard working, dirt poor "ethical" non-freeloaders like those in Bangladesh or Haiti or whatever.

Is that what you want?

Just as an aside, most investors work, too.  If I was a betting man, I'd bet that, on average, they work harder than the average American.

grantmeaname

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Re: Is it ethical to make money from something you own?
« Reply #95 on: February 14, 2014, 05:37:49 AM »
So you think you can just put a few thousand dollars into an investment, do nothing, and watch it grow exponentially?
Yes. That's the whole investment philosophy of this site.

Quote
Maybe I wasn't doing it right, but I spent a LOT of time managing my investments.
Correct. You weren't doing it right.

Vilx-

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Re: Is it ethical to make money from something you own?
« Reply #96 on: February 14, 2014, 03:15:06 PM »
That doesn't mean inequality is desirable
Actually, this got me thinking about fairness.

As I said, I don't remember much of the Soviet era, but one thing I do remember is that pretty much everything was of a uniformly crappy quality. And that was because people didn't have much motivation to work better. They were getting paid the same anyway.

In my mind I had this picture, that in the Utopian world everybody would get paid according to their effort. Whether you're a CEO or a janitor, if you put in 8 straight hours of hard work, you get the same reward. What can be fairer that that?

But now I realize that the result would be hardly any better than what they had in the Soviet Union. A system like that wouldn't give people the right motivation. It would encourage them to work harder, not smarter. Innovation would be pointless, because increasing production with the same amount of effort as before wouldn't give any extra rewards to anyone - certainly not to the person who came up with the idea (although the item they were producing would now be cheaper, so I guess that's a gain for everyone - but it still wouldn't motivate the person).

libertarian4321

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Re: Is it ethical to make money from something you own?
« Reply #97 on: February 28, 2014, 04:38:44 AM »
So you think you can just put a few thousand dollars into an investment, do nothing, and watch it grow exponentially?
Yes. That's the whole investment philosophy of this site.

Quote
Maybe I wasn't doing it right, but I spent a LOT of time managing my investments.
Correct. You weren't doing it right.

Well, maybe I wasn't "mustachian" as I made my first million a good decade and a half before I discovered this site, but I gotta tell you, just tossing your money into an investment and forgetting about it probably isn't the fastest way to financial success. 

I'm not suggesting flipping in and out of stocks, day trading, or any other scheme, but you have to be paying attention, and that takes time and effort.  You don't want to invest in XYZ Corp, then just stop paying attention for 20 years as XYZ Corp drives itself into the ground.  If that is "anti-mustachian," then so be it.

As our net worth grew, I did put less and less time into it.  Sometime after hitting 2-3 million, I really became a lot more passive, because I knew we had more money than we would likely ever need, but I'm sure my results were less impressive because of it.


grantmeaname

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Re: Is it ethical to make money from something you own?
« Reply #98 on: February 28, 2014, 05:33:37 AM »
If you are buying stocks directly then you are not investing optimally, full stop. What you do after you buy stocks directly is irrelevant, because you've already made a mistake.

arebelspy

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Re: Is it ethical to make money from something you own?
« Reply #99 on: February 28, 2014, 07:06:32 AM »
We have some books we can recommend you libertarian, if you'd like to read more.  Also the bogleheads site is pretty good for educating yourself.

Personally, for you, I'd recommend starting with the Bogleheads® investment philosophy.  :)

(This isn't to imply that you can't do whatever you want, just explaining grant's comment on "That's the whole investment philosophy of this site." - this is the investment philosophy of most of us here, based on historical statistical research.)

If you are buying stocks directly then you are not investing optimally, full stop. What you do after you buy stocks directly is irrelevant, because you've already made a mistake.

For the vast majority of people, yes.
« Last Edit: February 28, 2014, 07:09:27 AM by arebelspy »
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