There once was a sleepy little town called Sleepyville. In this town there was a building owner named Joe. Joe’s building was built around 1901 and it had seven apartments. Joe had maintenance people to care for these apartments, so he did not really have to pay attention to the daily operations of the building. Joe decided to go on a round-the –world trip for a year. We can’t really blame him since it seems like a very exciting thing to do if you had the money to do it.
While Joe was on his trip, another inhabitant of Sleepyville worked in his garage. His name was Dan and he created a widget that he felt would greatly improve the lives of others, while at the same time, make him a lot of money. When he finished the development, he approached a venture capital firm and received investment money to build a factory, so that he could manufacture the widget. Dan built his factory in Sleepyville, which attracted people from all over to come work at his factory. It also attracted shop keepers, restaurant owners and other such entrepreneurs to open up their business in Sleepyville.
When Joe returned from his trip, he noticed that Sleepyville wasn’t so sleepy. There were more people running about and there was definitely more traffic. Joe also noticed that his property values had risen. He also discovered that he could raise the rent on his apartments because Sleepyvillers were making more money, all due to Dan’s factory.
Now, who are the ‘productive’ people in this story? Is it Joe? Well, not exactly. If it were up to Joe, the town of Sleepyville would still be sleepy. The productive ones are Dan, the venture capitalist and his workers. However, Joe did receive a win fall, by no effort of his own.
One day Joe was at the local barbershop when two other building owners, George and David walked into the shop. George was vexed about the raising of his tax, due to Sleepytown needing new roads, bridges and schools. David did not mind the new tax because of how much more money he was pulling in from his renters, compared to a year ago, when Sleepytown was sleepy. However, both Joe and George were unhappy. George told Joe and David about the local Sleepytown Building Owners Association, and how there was a man named “Jack’ that wanted to be the new mayor of Sleepytown, and that if HE were elected, he would lower the tax on real estate. As a result, members of the Building Owner’s Association gave Jack donations, so that he could run an effective campaign buying signs, buttons and buying commercial time.
Jack won the election and as mayor, lowered the taxes on Sleepytown building owners. To circumvent a budget shortfall, he raised the taxes on Dan’s factory and his employees. The people of Sleepytown complained a bit but most of them realized that the money was going for new bridges, roads and schools, if their money was used wisely. So they shrugged their shoulders, saying that the tax was high but the investment in infrastructure was needed. This prompted other manufactures to move to Sleepyville, attracted by all the infrastructural improvements. Joe’s property values rose higher and so did his rents, leaving Joe more money to give to Mayor Jack for his next election, which was a rounding success and Jack was very appreciative.
One day, Dan the factory owner and widget entrepreneur was going over his accounts and noticed that he wasn’t as profitable as he had been a few years earlier. He was selling more widgets but he wasn’t making as much money because of the tax AND having to pay his employees more because it was getting expensive to live in Sleepytown, since the rents had increased.
Dan decided to hire a financial advisor “Barnie” and after looking over his books, told Dan that he should give him a good amount of his profits and that he would invest it because there were really good tax breaks in real estate. So, Dan gave his financial advisor a good amount of his profits, money that would have otherwise gone into research for improving his widget.
After a year, Dan looked over his books and was stunned to see that his profits from his factory were even lower than the year before. Just at that moment, the statement from his financial advisor arrived, giving him the good news that his investments had been extremely profitable. Dan called his investment advisor to thank him and complain about his factory proceeds. Barnie the financial advisor listened politely to Dan’s complaints and then told Dan : I don’t know why you mess around with building products, the money is in real estate.”
