posted on 09 January 2017
by Reverse Engineer, Doomstead Diner
The First Law of Thermodynamics:
Energy is neither created nor destroyed, only transformed from one form to another.
How is wealth created? Is it created at all? An important idea in capitalist epistemology is that the capitalist system creates wealth, and that those who become wealthy within the system do so by creating that wealth. Do they really?
The issue here is the idea that some people are "Wealth Creators". Bill Gates, Elon Musk, Mark Zuckerberg, they all got incredibly wealthy, right? So they must have "created" wealth, right? This concept depends a whole lot on whether you view the idea of "wealth" from the POV of the Individual or from the POV of the System as a whole. Which lens you use on this microscope on makes a HUGE difference on how you view the distribution of wealth in the society at large.
In order to better elucidate my POV, I am going to use 3 different examples of biznesses that supposedly "create wealth". I will look at my own last bizness of the many I have been involved with first, the Gymnastics Bizness. Then I will look at the Dental Bizness, which is my friend Eddie's type of biz. Then I will look at Tesla, Elon Musk's really BIG bizness, currently creating tons of wealth for Elon. lol.
The Gymnastics Bizness
Now, in the case of the Gym Biz, what the Gym Owner does is to insert himself in between well to do parents of kids who can afford a pretty high price tag of around $400/mo to be on the Team and coaches who know how to teach gymnastics. Then there are lots of recreational gymnasts who come for 1 class a week for around $100/mo. The typical gym has between 500-1000 gymmies running through it at any given time. Because it is such a pricy sport to be putting your kid into and it is an optional thing to do (you don't absolutely NEED to do gymnastics like you need to have your teeth drilled when you have a toothache), the clientele has a pretty high average income. Poor people do not send their kids to a gymnastics school. So I put the average income for the Victims here at around $100K.
Now, if out of the 1000 Gymmies you have 200 on Team, that is $400 X 200 =$80K/mo income, x12 = $960K/year. Your 800 other Rec gymmies are paying $100/mo for another $80K/mo, another $960K/year. Total gross income here around $2M for a well organized gymnastics school.
On the outflow end of this conduit, the gym owner has the cost of his facility, equipment, salaries for coaches and the taxes & insurance he has to pay. Facility costs can vary tremendously from old warehouses to custom buildings. Equipment also varies from old beat up stuff bought used to brand spanking new stuff from Spieth-Anderson or AAI. Coaches are almost universally paid low wages, often teenage ex-gymnasts are used as coaches at Min Wage before they even go to college. You gotta be a really first class coach to get out of this Min Wage level and actually make a living at coaching the sport. Even so, you never get into 6 figures as a coach unless you own the gym and run the conduit scheme.
Depending on the market they insert themselves into, Gym Owners can both become exceedingly rich or they can fail miserably, I've known both types over the last 30 years. In neither case though did anyone "create" any wealth. All they did was sieve wealth from one end, the victims, on the way to it's other end downhill in this process. The gym owners who got rich were the ones who were best at soaking their victims, but they never created any wealth here.
Where did that wealth come from? Well, many of the parents here are professional, doctors, dentists, lawyers and so forth. They in turn were using their own conduit schemes to sieve wealth from their victims. They have nice big paychecks incoming, so they can afford to pitch $400/mo after tax income to keep gymmie happy. In fact it costs a good deal more than that when you include all the meet fees, team leos and warmups, private lessons etc.
The Dental Racket
So now let us look at one of the Victims of the Gym Biz, the Dentist with his prized young daughter with this quite rare talent of extreme coordination, strength and flexibility and also pychological qualities of fearlessness and a drive to succeed, who sees Simone Biles/Mary Lou Retton/Shannon Miller/Shawn Johnson/Nadia Comanice on TV at the Olympics and wants to make her a STAR! How is he "creating wealth" to do this?
In order to analyze the Dental Biz in detail,, I made a new Infographic to examine how the Dental Conduit Scheme works!
There are 3 basic Nodes here, the Dental Victims, The Dentist and the higher level extractors taking profit from the Dentist, which makes him a second level Victim.
I used some average numbers here, giving the low level Victims an average take home salary of $50K (which is probably a high estimate) and the Dentist an average take home salary of $250K (which is probably a low estimate). I put the tax bill for the Dentist at a 50% rate, so it costs also $250K in taxes for the dentist every year.
For the wage slaves working for the dentist answering the phones, filling out the medical records and dealing with regulations and insurance companies, I figured 8 employees each making around $60K average, for around a total of $500K. A dental hygenist might make a bit more, a records clerk less.
The dentist also has to buy a lot of expensive stuff to run his bizness, those gold fillings don't come cheap these days you know! Nor does the hardware for implants or aything else. You also gotta upgrade all the time and buy those expensive new Digital X-Ray Cameras, and you gotta fly all the time all over the country to Utah and other spots for getting your continuing education credits to maintain your license. Then there are the Malpractice Insurance bills.
So, in order to maintain a $250K/year income here in this Conduit Scheme, the Dentist needs a Gross Income of around $2M before expenses, taxes, insurance, materials etc etc etc. All of that money has to come from the Victims of the Dentist, each making an average of $50K.
So one way to look at this is how many Victims the Dentist needs to cover $2M in costs, and how much they have to pay him each year? If the Dentist has 100 Victims, then each Victim would need to pay the Dentist $20,000 every year to keep this conduit scheme going. Obviously, people making $50K a year cannot afford to pay $20K of that to a Dentist! So really the Dentist needs more like 1000 Victims to be successful with the conduit scheme. Now you are down to $2000 per victim, which is a bit more affordable at a $50K salary. BUT, can a single dentist really drill the teeth of 1000 different people every year?
I Googled the cost of Dental Fillings in TX.
Call the average cost $200. To work up a $2000 bill, each patient of the 1000 needs 10 fillings every year. So the dentist needs to drill 10,000 teeth each year, in 250 working days. That's 40 a day, 5/hr in an 8 hour day. So he has to drill & fill a tooth every 10 minutes, with a 10 minute break every hour to check for Doom on the Diner. lol.
Another way to look at it is how much money the Dental Biz needs to bring in each day to cover those $2M in bills. If you figure the dentist works 5 days a week 50 weeks out of the year, he has 250 days of extracting money from the Victims. That means that every last day of that 250 days, he has to bring in $8000 from the Victims. If he is working 8 hour days, that works out to $1000/hr!
Now, since I do not have PRECISE numbers on this to work with, these are all just estimates. BUT, even if you knocked my numbers down by half, you can see why it is not sustainable. The folks who pay the bills at the BOTTOM cannot retire the debt and costs that the Dentist has! They just don't make enough money to do that! Somebody somewhere is working up a nice debt bill. No wealth has been created, just an ever increasing pile of debt!
The only way this shit gets paid for these days is through ever increasing debt, and the asset in this example goes on the side of the Dentist and the liability goes on the side of the Victim. That is straight economics. You cannot make something from nothing.
Clearly here, the Dentist has created no wealth, all he has done is insert himself into a position where he can serve as a conduit between people who have dental pain or issues and those free of dental pain or issues. Unlike the Gymnastics Biz, it is not optional to visit or not visit a Dentist when you have a bad enough toothache. You have no options here within the borders of the FSoA, you MUST pay whatever the Dentist will charge to relieve your pain. Unless you cross the border into Mexico, you will bankrupt yourself if you make an average salary trying to pay off the dentists for fixing your teeth. I have visited at least a dozen different dentists over the course of my life trying to repair teeth here in the FSoA that other dentists in Brazil ruined in my childhood and adolescence. Every root canal and every cap cost me $thousands$ on a very average salary of median income for the time period. You are talking at least a dozen of these things over the time period. In the end, all that money went to waste, every single one of those teeth had to be pulled out of my mouth by a Mexican Dentist, who did it at the Bargain Basement price of $25 a tooth, whereas a Dentist here in Alaska would have charged me $300 a tooth to do the same job. It's a great racket here in the FSoA if you can get licensed to do it. Every last Dentist that I ever visited owned a Mercedes and had a nice huge McMansion to live in. I paid for that, along with all the other Dental Victims.
Why can dentists here in the FSoA charge such high prices for these tasks? Because they run a gated profession with few Dental Schools relative to population size and they make it EXTREMELY difficult for a foreign trained dentist to get licensed to practice dentistry in the FSoA. So there exist a LARGE pool of victims (basically everyone since everyone has some kind of dental problem at some point), and a relatively SMALL number of dentists licensed to do the job on your teeth that needs to be done. So they can pretty much set the price as they please, the only constraint on this being what the other local dentist will charge, since most people will not cross the border into Mexico. As a Dental Pain Sufferer, you are over a barrel if you cannot make the border crossing to Mexico, you MUST pay whatever the Dentist charges or else suffer agonizing pain until you figure out how to yank the offending tooth out of your mouth yourself. This is called a contract under DURESS, and it is illegal in Tort Law. In reality, you are not obligated to pay any of these charges by tort law. In reality, all dental patients shoudl file a Class Action Lawuit against all Dentists and strip them of their criminally stolen money and property.
The Elon Musk Flim-Flam
OK, we have now moved through 2 types of Small Biz, the Gymnastics Biz and the Dental Biz. To finish off for the day here, let us look at BIG BIZNESS, Elon Musk's Tesla, Gigafactory Battey facility and Rocket Ship Biz.
Not a single one of these biz makes any profit at all, but they have a Market Cap of $BILLIONS$ WTF did all the money come from so Elon could build his toys without making a dime of profit for YEARS? Can you imagine going for years with a negative net income and still getting credit to keep going?
Like all of the really large corporations and big biz of our society, it is all run on CREDIT, and if you are well enough connected the credit has been quite endless. The "money" flowing down through the society into all the small biz like Gymnastics Schools and Dental Offices actually begins with these very large corporations and their associated banking industry, they are all created through the massive issuance of debt in the form of corporate bonds. The other big money creation mechanism is from Goobermint bonds, debt which the population is supposed to retire through paying their taxes. The debt of corporate bonds is supposed to be retired by profits from the industry, again which the population at large is supposed to provide the money for by buying the products. In reality, in neither case can the population ever make enough money to retire the debt either created by the corporations or by da goobermint. This can be masked for a long time, but if you notice just about every large corporate entity eventually goes bankrupt. The railroads all went bankrupt, the big automotive companies like GM and Chrysler went bankrupt, and the airlines like TWA and PanAm also went bankrupt. Then new ones pop up with new issuance of debt and reorganizations, mergers and acquisitions, but they too will all go BK in the bye and bye. No wealth was created here in any of these industries, only an ever increasing pile of debt along with a lot of landfill.
Similarly, Da Goobermint never created any wealth either by issuing out its vast quantities of debt. While certainly Goobermints have built many roads, bridges, tunnels, power plants, sports stadiums etc, the maintenance cost on all of it is always greater than the revenue brought iin through taxation to pay for it. So the only way to keep going with it is to issue out still more debt. Which they do as long as they can, but eventually smaller countries like Greece get cut off from the bond market, at which time their economy immediately tanks. Similarly, any large corporation cut of from the corporate bond market immediately goes BK.
The "wealth" Elon creates is simply a bigger pile of debt somewhere else, bur unlike the gym owner or dentist, he has inserted himself into the very TOP of the food chain, getting his debt money directly from the folks in charge of manufacturing money, the TBTF banks. Elon hardly needs Victims to bilk at all selling Teslas, hell he's only sold around 150,000 of them since 2008! In the end, he's really bilking the taxpayer, who will end up with all the bad debt he has created on their balance sheet.
Nobody in this whole chain of events ever creates wealth. They only sieve wealth in various types of schemes and rackets on it's way down the thermodynamic hill. So where then IS the wealth "created"?
It's not created, it's EXTRACTED. The wealth is the resources of the earth, and all that debt money that is created are little tickets (or now digibits) which allow you to buy some of the resources, most particularly the energy resource of oil. Those little tickets trickle down through the rest of the economy, and various types of biznesses and rackets insert themselves along the way as the energy moves its way down the thermodynamic hill. Who gets the privilege of creating these little debt tickets? The folks who control the energy of course, which is why the Energy Industry and Bankstering Biz are so closely related. It's why the Rockefellers who controlled Standard Oil ALSO founded the Chase Manhattan Bank, now JP Morgan Chase. They issue the credit to buy the Oil, and it gets burned up all the way down the line in various stages as it moves through all the rackets. The BEST rackets are at the very top of the food chain here, like Elon Musk or Mark Suckerbug's rackets. Neither one creates any wealth though.
By the time you get down to small time rackets like the Gym Biz and Dental Biz, you're getting close to the end of the line on the way down to the final stop, the end consumer of everything that happened above in the chain. The end consumer DEFINITELY creates no wealth, but rather destroys what is left of it on its way to its final destination as waste in the landfill or CO2 in the atmosphere.
What wealth there was in the Earth was captured over billions of years by photosynthetic organisms collecting energy from the sun. Animal life just extracts that energy from the plant, then eventually both die and sequester carbon, and then after that Homo Saps evolve to burn up all that energy, and develop an economic system which does that. Very rapidly too!
How long does the game last? Only as long as there is a big enough thermodynamic gradient to support a downhill flow of the energy. It appears we are getting quite close to the point where no work can be done exploiting the energy flow left. At least not on the scale globally we have been doing it anyhow.
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