Why are some people rich and others poor?

Ask us something harder. People get rich by working hard and saving their money!

Yesterday, we watched a group of Nicaraguans dig a trench...and then another group plant trees. They labored in the hot sun. We didn't see them stop for lunch. No 'chuck wagon' came to slake their thirst. No smoke breaks were noticed. They stopped from time to time, waiting for instruction. Otherwise, they kept at it until the job was finished. The tree planters didn't finish until well after nightfall. They had to pull up their trucks and turn on the headlights in order to see what they were doing.

If people got rich by working hard, these people ought to be filthy rich. Instead, the crew we watched labored all day for $5 each. Likewise, if saving money alone were the key to wealth, you'd think the Chinese - who put away more than 25% of everything they earn - would be the world's richest people. Instead, they are among the world's poorest.

There must be more to it.
 
There was a time when Americans and Englishmen worked for $5 a day...and when they probably saved 25% of what they earned. (Americans saved nearly 10% as recently as 20 years ago.)

Then, cheap energy and cheap machines took over the hard work...and allowed a simple factory worker to produce 10 times as much as he had before. He could now earn $50 a day and afford a new automobile and a house with air conditioning.

But then, the world that had turned so favorably in his direction turned again. Globalization meant that his employer could go to someone in Nicaragua or China and get an employee in 2005 at 1905 prices! Factories and cheap machines worked just as well on the banks of the Wazu as they did on the banks of the Hudson. And now the poor American drudge has to struggle to make any headway; his real hourly wages haven't gone up much for 30 years. That doesn't mean he's worse off. He benefits from the lower prices globalization brings. And he goes further into debt to be able to buy even more.

Meanwhile, his old employer is doing fine. The company saves on labor costs. It may even be one of these 'platform' companies - outsourcing its factory work and labor costs overseas. Typically, a company has to pay its employees...and gets the money back when the workers buy things. But now the workers buy things with cash the employers never paid out. Instead, workers buy with credit...and the employer's profit goes up (because he has no offsetting labor cost).

It is almost too wonderful... The employee gets a better standard of living without actually earning more money...and the employer gets higher profits without having to make anything.

Have Americans discovered some new way to wealth? Without hard work...or hard money...or hard savings? Or are they just enjoying an illusion of late empire...before the cheap energy runs out...and the barbarians break down the gates?

We will see...

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.