Why do the majority of rich people stay rich during and after an economic recession?

[graffic]

For example, in the Wall Street Crash in 1929, although of course many bankers and traders lost their fortunes, the class divisions seemed to survive almost intact throughout and after the depression. I believe the same is happening today regarding the 2008 recession. Although many people have lost money, the rich do not seem to suffer in any similar way to workers or the middle class in the recession.

My question is whether, or to what degree this is relevant to, the way in which unemployment rises so dramatically during a financial crash. Is it the case that for capitalists to keep making profits they need unemployment to rise above average because the bigger the available labor force the less the capitalist must pay workers?

The US always has an unemployment rate of at least 4% [real numbers] facilitated by the Federal Reserves manipulation of interest rates. Although this is to regulate inflation, perhaps it is as important, if not more important to keep the wages down. When the system crashes, and businesses have no money, an obvious survival tactic is to sack workers because they cannot afford to pay them anymore.

Hypothetically, do you think if the businesses "suffering" in the crash paid everyone in that business a flat same wage, from executives down to the bottom of the company, as a temporary measure, they would have more chance of surviving the depression? Another question is that what pressure are owners of businesses coming under when they sack workers? Are they saving themselves and their profits or perhaps they are under pressure from share holders etc, who have money invested in the company.

[Dean]

This is largely explained in my essay posted here:

The result was a wide-spread housing bubble which popped, a massive over-night transfer of federal funds to banking firms (executed by the “left leaning” Democrats!), fundamental changes to asset management regulations which allowed financial institutions to subjectively asses their assets (rather than the market assessment – the former standard - which would have left most firms insolvent), and a trickle-down effect of the compromised profit line (financial firms channel their losses to their consumer and laborer constituents to stay competitive).

The bottom line is that, in a recession, capitalist firms become conservative with their wealth - but there isn't some polarity wherein an economic slowdown makes capital unprofitable. That is to say, we aren't dealing with 2 modes - fast and slow - one of which "loses money" for the capitalist. Rather, we are dealing with two modes that consistently stratify class and accumulate wealth in the hands of the key players (that is to say that both models are profitable and symbiotic, per below.

The "slow" mode always takes away from the working class in order to maintain profit (divestment in the working class and re-investment in more secure products, like the derivatives we've heard so much about - derivatives which allow for "bets" against all sorts of finance (i.e. mortgages!) therefore allowing a deficit to provide proportional surplus).

In returning to the faster-paced model, the working class is given fewer incentives because the market has been deliberately engineered by the above tactic to cheapen labor. This raises confidence in the profitability of exploiting working people, so reinvestment to that end can occur.

[tradeunionsupporter]

Good Topic.

[Rosa Lichtenstein]

They receive massive amounts of welfare from the state. Check this out:

The Conservatiuve Nanny State, by Dean Baker

You can download this book from here.

[mikelepore]

Even without the modern derivatives, capitalists would have ways to diversify. Bonds and money market certificates get more attractive when stocks are less attractive. With balanced mutual funds, the investor doesn't even have to make a call, and the diversification is automatic. Even today, after all the recessions, there has never been a money market mutual fund in all of history that has set it's fixed one-dollar-per-share and was then forced to lower it, even though their prospectus says that they have the right to lower it. So the capitalists who take refuge there may have to put up with a two percent annual return for a while, at least their eggs will be in several baskets. Then they have international and global mutual funds, the difference between them being that the word international is usually used for a fund that is permitted to invest in other countries, and the word global is usually used for a fund that is required to invest in other countries.

Besides that, there are some industries that don't follow recession trends. When durable goods and housing starts are way down, there may be no corresponding effect to utilities, paper goods, or entertainment. Repair businesses ranging from shoe repair to major appliance repair make more money when consumers are poorer and forced to reduce their rate of buying new products. The management at Mary Kay cosmetics makes the pitch that their rate of income pays no attention at all to the direction of the rest of the economy.

[Ocean Seal]

Although the rich love to cry about it they often stay rich in the worst of times they may not have $20 million, but hey with 10 million they're in better shape than most. Plus they often play with the wages of the proletariat and when they screw up they just get government money and/or lay off their workers, but hey the system is ruined by the "lazy workers" so them taking money is a-OK with the capitalists that they pay off.

[Bud Struggle]

Although the rich love to cry about it they often stay rich in the worst of times they may not have $20 million, but hey with 10 million they're in better shape than most.

There's a lot of complicated ways of making money in down times. But the above explains most of how it's done. Once your bills are covered plus a bit more everything else is fodder for investment. Prices are low--buy. They go up sell and make money.

Rich people aren't in any "business" per se. They make money with money. Everythng else is just details.

[Edit] That was the downside--here's the upside. Anyone can do it. You don't have to be rich to move ahead. You can invest a couple of dollars amd make a couple of dollars return. Do it for a while and you can make millions. You don't always make a fortune--but you con easily make a tidy sum if you pay attention and qwork hard at it.

[RadioRaheem84]

They receive massive amounts of welfare from the state. Check this out:

The Conservatiuve Nanny State, by Dean Baker

You can download this book from here.

Dean Baker is great. One of the many good and honest liberal economists out there.

[GreenCommunism]

That was the downside--here's the upside. Anyone can do it. You don't have to be rich to move ahead. You can invest a couple of dollars amd make a couple of dollars return. Do it for a while and you can make millions. You don't always make a fortune--but you con easily make a tidy sum if you pay attention and qwork hard at it.

i doubt that those who are not economist or rich can realistically make as much money as those who aren't . the rich have connections to know the next business move ,even though it is illegal.

economic recession are a good time to make money since they will buy assets at a very low price and they will skyrocket when things get better.

the fact that many people on the rich side of life would kill themselves rather than live the life of the poor is quite telling of their arrogance, they wouldn't accept to live like us inferior people.

[RGacky3]

[Edit] That was the downside--here's the upside. Anyone can do it. You don't have to be rich to move ahead. You can invest a couple of dollars amd make a couple of dollars return. Do it for a while and you can make millions. You don't always make a fortune--but you con easily make a tidy sum if you pay attention and qwork hard at it.

Actually no you can't, you do realize that most people live hand to mouth right?

Most rediculously rich people have was of insuring their investments so that they win eitherway.

[Lyev]

Actually, I think I'm right in saying that in the 1970s, when recession hit the rich actually got poorer. In the current crisis, however, the rich have got much richer. Now, I don't know very much about economics, so I can't really take the first steps to explaining this. I know the '70s are quite specific/relevant when it comes to a contemporary analysis of crisis, in that it was a turning point for global capital. It sometimes to do with immigration, credit, workloads and possibly the Reagan-Thatcher combo. Would anyone care to try? But anyway, to say try and state this as a rule doesn't work because each and every crises, whilst having some general steadfast rules, differs in some aspects.

[Alaric]

The rich control the public till, they have the purse-strings of the whole nation grasped in their claws. They sit at the side of the President and whisper to him of re-election and drool as his pen swirls on paper, streaming money to them "in the national interest", they play party on party and always they benefit...always we are drained and they swell, always we are left to rage impotently as they cannily manipulate the impoverished against us, holding out that if you just keep quiet and work, why, you can be just like them!

If every man believes he can become a millionaire, that that bright and shining future is just around the corner for him then he will make no plans to help himself that seem to hint he will always be poor, accept no law that would drain him from his soon-to-be pile of gold. Thus, the man of today is slave not to greed, but to the delusion of greed, kept in line, kept quiet, by the chain of his aspirations.

[Judicator]

The rich control the public till, they have the purse-strings of the whole nation grasped in their claws. They sit at the side of the President and whisper to him of re-election and drool as his pen swirls on paper, streaming money to them "in the national interest", they play party on party and always they benefit...always we are drained and they swell, always we are left to rage impotently as they cannily manipulate the impoverished against us, holding out that if you just keep quiet and work, why, you can be just like them!

If every man believes he can become a millionaire, that that bright and shining future is just around the corner for him then he will make no plans to help himself that seem to hint he will always be poor, accept no law that would drain him from his soon-to-be pile of gold. Thus, the man of today is slave not to greed, but to the delusion of greed, kept in line, kept quiet, by the chain of his aspirations.

Lehman certainly had a good handle on the public till when they went bankrupt.

It's no wonder someone is poor if they think only about being a millionaire and make no other financial plans.

[sattvika]

The rich control the public till, they have the purse-strings of the whole nation grasped in their claws.

Wankers.

[tradeunionsupporter]

This is a great topic.