Finance/econonomics question: Can we all (mostly) live on dividends?

El_Machinae said:
A 5% return with 3% interest is effectively a 2% return. If you need at least $50/year you need to have an initial investment of $2500 to live on the capital sustainably.

Here's what I want people to remember, there's no doubt that any specific individual can get enough wealth to live entirely on the dividend. What I am wondering is if this is scalable with increasing automation, if the financial system would be able to handle such a thing.
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I am unclear how old you are or how long you expect to live.


If having enough capital and nearing retirement age,
you might very well get away with your strategy.


But the financial system is unstable; it will change and may even crash;
its evolution over time or re-incarnation upon a restart may not be as
favourable to many groups of capital rich people as it currently is.

Those retiring and purchasing annuities in the last few years in the UK
have been stiffed by the low interest rates from quantitative easing.

It is completely unclear to me who the next victims will be;
the poor starving to death or the rich being hung by mobs.


So I suggest investing in human capital, children,
grand children, good neighbours too.
 
Hygro said:
The problem is that if it's a for-profit system, and everyone's living off accumulated financial assets, and if there's any scarcity of stuff then prices are going to rise (because the demand is there and the supply isn't) and the poorer investors are going to have to work again.
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Shouldn't dividends rise sufficiently?

EnglishEdward said:
I am unclear how old you are or how long you expect to live.
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Forever, or die trying.
 
Hygro said:
If the shareholders demand it. What happens when a small cadre of people control 51%?
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Hmmmn, interesting. It would have to be an endemic issue, but I guess the richer 51% could cause dividends to drop to the point where their incomes are sustainable, but the poorer aren't sustainable.
 
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Isn't this dividend idea of yours basically a very contrived way of going about a Socialist system with a guaranteed basic income?
 
El_Machinae said:
Hmmmn, interesting. It would have to be an endemic issue, but I guess the richer 51% could cause dividends to drop to the point where their incomes are sustainable, but the poorer aren't sustainable.
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And given that the rich prefer economic policies that slow growth at the expense of their own bottom line but for the benefit of their relative position, I expect that would end up happening.

Labor relations keep the system going.

Cheetah said:
Isn't this dividend idea of yours basically a very contrived way of going about a Socialist system with a guaranteed basic income?
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Shhh :mischief:
 
Cheetah said:
Isn't this dividend idea of yours basically a very contrived way of going about a Socialist system with a guaranteed basic income?
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Workers and capitalists trading places. Whereas the capitalist are the majority and don't have to work, the workers are the minority and make the big money.
 
El_Machinae said:
Here's what I want people to remember, there's no doubt that any specific individual can get enough wealth to live entirely on the dividend. What I am wondering is if this is scalable with increasing automation, if the financial system would be able to handle such a thing.
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I guess I've spent nearly a year mulling this, and I still don't know. After I retire, I don't know where the next cohort will get enough money to earn 'breakout' levels of savings, so that they too can retire. So, I can do it. But can my son? His earning power could very easily diminish, and the number of acceptable shares he can buy (that would pay a livable level of dividend) will also go down - there are only so many shares available at any given time, and I need to get my $30k in perpetuity, so I own a LOT of shares. So does everyone richer than I am.
 
By definition, no. Dividends are paid out of profits. If everyone is living on dividends then their aggregate ability to purchase goods can never exceed total profits. This can only work if all goods are produced with no costs, such that all sales are pure profit.
 
Holy Moley, Tim. That knocked it out of the park for me. I think you're utterly correct.

Hmmm, we'd then need the salary spending of the uber-rich, the managers of the companies (etc.) in order to complete aggregate demand.
 
El_Machinae said:
Suppose I'm way prescient, lucky, hardworking, and clever.
Say I've arranged to accumulate enough capital (in the stock market) to live quite comfortably purely on the dividends.
Post-tax, that is. I even have enough for reinvestment and a fairly respectable charitable donation.

So, other than burning through TV too fast, my life is pretty set.

How expandable is this? Can a clear majority of citizens do this?

Of course we'll still need workers, but we're becoming increasingly automated. And there will still be upper-level management making decisions and raking in mad cash. But if I can live purely on accumulated capital, can nearly everyone? I'm asking if it's scalable, if only in theory.
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Assuming machines would be able to do ALL the work, that would represent a MAJOR economic transformation (perhaps beyond the need of capitalism) and I can't think of any reason why EVERYONE would not be able to simply sit back and not work all day long and still live a comfortable life. Of course at that point the human brain will slowly stagnate and probably lose a lot of cognitive ability. Use it or lose it, as they say.
 
El_Machinae said:
Holy Moley, Tim. That knocked it out of the park for me. I think you're utterly correct.

Hmmm, we'd then need the salary spending of the uber-rich, the managers of the companies (etc.) in order to complete aggregate demand.
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Pretty much the only things I understand have to be able to reduce to two lines, so this was in my scope. If it can't be explained in a text message though, I probably don't get it.
 
You also have to consider that the stock market (at least in the US) is essentially a bidding system where buyers place bids for shares of companies and sellers may or may not choose to sell. It's liking placing a limit order or what not. Eventually as more people buy stock, less people are willing to sell at that low price, so the price goes up. The dividend doesn't. So as a percentage it drops. If everyone suddenly bought into dividend stocks then the stock prices would soar and you wouldn't have enough passive income percentage wise to sustain yourself.
 
For it to work, every job currently done by a human being would have to be done by a machine, otherwise some people would have to work. In each case, this would have to be so much cheaper than hiring a human being to do the job that it generated a profit equivalent to a living wage, which could go to the former worker - plus a little bit extra, to account for the fact that we rarely have 100% employment.

I suspect a more practicable system would be a rationing one, where governments gradually replace in-cash welfare by buying machines and using them to make the things that people need. I'm not sure what meaning cash would have if there were no relationship between hours worked and money held - I imagine there would still be monetary values on things, but I doubt we'd ever see any paper money.
 
I suppose if the machines could trade capital, or at least by accounting measures, we maybe can get around Tim's definitional answer?
 
Hygro said:
I suppose if the machines could trade capital, or at least by accounting measures, we maybe can get around Tim's definitional answer?
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Generally speaking the best way around a definitional answer is to redefine something.
 
Timsup2nothin said:
By definition, no. Dividends are paid out of profits. If everyone is living on dividends then their aggregate ability to purchase goods can never exceed total profits. This can only work if all goods are produced with no costs, such that all sales are pure profit.
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That doesn't seem correct. Having a cost entails making purchases from another business. Profit comes from combined consumer and business purchases not consumer purchases alone.

EDIT you're on the right track though. I'll detail a full argument later.
 
Perfection said:
That doesn't seem correct. Having a cost entails making purchases from another business. Profit comes from combined consumer and business purchases not consumer purchases alone.
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Aggregate profit is aggregate sales minus aggregate cost. A business purchase adds equally to aggregate sales and aggregate costs, since it is a sale for one company and a purchase for another. Since it affects both equally it doesn't affect the difference and aggregate profit is unchanged.
 
Timsup2nothin said:
By definition, no. Dividends are paid out of profits. If everyone is living on dividends then their aggregate ability to purchase goods can never exceed total profits. This can only work if all goods are produced with no costs, such that all sales are pure profit.
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Doesn't the same logic apply in today's economy though? Everyone's spending power is equal to everyone's wages - which, for the employed, might be thought of as the profit of selling their time. Can the costs not be expressed in reduced output?
 
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