I've wrestled a bit with how to prepare financially for what could lie ahead but decided that there was really no harbor that is sure to be safe. I'm prepared to basically be poor and die from a thing that could have been prevented with some measure of health care.
I'm usually an optimist by nature, but I've never been so with regard to the economy and the growing wealth inequality. There is no soft landing for either in my mind.
Personally I'm preparing for this by aggressively paying off our mortgage, putting less money into the market. Also avoiding lifestyle inflation and even cutting back here and there. It's all about reducing fixed cost so that if shit hits the fan, we can absorb the higher cost or lower income as much as possible.
Get some gold (ideally a bit of physical gold but also put some of your investments into gold or broad commodities ETFs) as a hedge against inflation/monetary devaluation, keep some of your wealth in cash or short-term/liquid bonds/treasuries/money market funds if you predict an equities and real estate crash, buy some real estate or real estate ETFs to get a bit of real estate exposure if you have zero, buy stocks if you have none. Shift a bit of your equities into international ETFs if you only have US stocks.
Splitting up into equal buckets of cash, real estate, stocks, bonds, gold/commodities, hell even a bit of crypto, hell buy some goods upfront to hedge inflation like dry, shelf stable food - this is ultimately gonna be a less volatile ride than just sitting around and doing nothing.
"We're fucked but there's nothing we can do" is a defeatist attitude if you sense financial turmoil but can't predict what type, just don't put all your eggs in one basket, and maybe reduce your diversification once you sense things are getting better.
Still, my sense is that there won't be any safe havens. It will be global, it will be stocks, everyone will be poorer so real estate will be unsellable, inflation destroying cash holdings…
Serious question (I am no scholar on history), where were the safe harbors during the Great Depression?
My ignorant notion is that there were none. But if you held on to your stocks for a couple decades, you did fine … just not during those two decades though.
Serious question (I am no scholar on history), where were the safe harbors during the Great Depression?
Also, gold won't help at all in case of a crash. What you'll need is food and gold value is too big to buy food. Silver might work, but it has taxes unlike gold.
I understand the goal of reducing poverty. I understand the goal of limiting the unchecked power and influence of certain individuals of groups, caused by them having excessive wealth. But the issue of "wealth inequality" is in the "not even wrong" category for me.
Obviously, people don't make that argument, and the implication is that they don't really want to be tied down to any actual existing real world situation. By extension there's no level of wealth inequality they would accept. Then one must wonder why not? Perhaps they just enjoy watching the left riot. Alternative explanations welcome.
People aren't taking to the streets rioting - wealth inequality is at acceptable levels
People are taking to the streets rioting - wealth inequality is at unacceptable levels
Yes I know, that is trite, and circular, but maybe there is something in it. No-one is going to be able to define an exact acceptable level of wealth inequality, but your argument is an asymmetrical standard. I could just as well argue that your view says it is ok for the top 0.1% of people to have 99% of all the wealth while everyone else shares the other 1%. Would you deem that acceptable (assuming we live in the real world and not a fantasy of no scarcity)?
This has, of course, not convinced the government to stop increasing debt. This is people's reaction to merely slightly reducing the rate of debt increase.
The problem is not even that the debt is too high, but because the state's demand for new debt just for this year is too high at the interest rates they're offering.
Leaving aside how moral this is or isn't, and the practical problems (like destroying businesses, and the fact that capital can't actually be sold at the price it is valued), it would block the state's ability to lend, which would immediately force the state to save 20 times more than what the protests are about.
Actually doing what every party is screaming they want to do (pay for the state using the rich's resources) would cause an immediate disaster. But this is France, that doesn't mean they won't do it.
"The majority is poor" fits precisely the definition of wealth inequality, obviously not a good outcome.
Seems like you're arguing in favor of poverty. (Note, this is your argument redirected at you, not mine)
Both are true. The difference between a billionaire and a person living paycheck-to-paycheck is extreme and billionaires are getting richer.
If there's a small minority of the population that are so rich that they cannot meaningfully even spend their money (e.g. billionaires) and at the same time there's a sizeable percentage that cannot afford to eat regularly, then that's wealth inequality.
It's not so much about making everyone equal, but ensuring that almost everyone can provide for their basic needs (e.g. housing, food, medicine).
Not just recently -- always.
Prevention measures are sometimes well accepted, like minimum wage, but sometimes it comes to really stupid regulations like removing Advanced Math classes from Californian schools -- they are all aimed at preventing inequality.
Now, definitely a balanced solution would do both, but that rarely seems to be proposed lately.
As it should. The younger generations have been and are actively being fleeced by the older generations. The scary part is that it's all but flaunted at this point, with the tactic of choice being to gaslight younger people into thinking it's all their fault. That's the stuff of revolution and frankly, I think it will do the U.S. a world of good to see that level of rebellion.
https://apnews.com/article/real-estate-housing-market-home-p...
https://www.in2013dollars.com/us/stocks/s-p-500/1997?amount=...
1. $83k is not the total cost of ownership; it's just the loan balance. Just looking at a home mortgage calculator, the out-of-pocket costs of buying an $83k home at the historical interest rate of 1997, which was about 7.6%, is about $363k[0].
2. Homelessness is a crime in most states, so housing becomes a natural short position that everyone has to cover, just like taxes.
Outside of estate sales, it is very rare for a home seller to not also be a home buyer. The monetary value of the home is, for them, a way to accelerate and account for what would otherwise be a barter transaction. So if you're expecting to have to buy a home for a million dollars, and you've already spent $350k on the loan, then $1.2 million means you'd be about $150k in the negative, not counting closing costs and moving costs, compared to doing nothing. The $1.3m asking price is close to break even for people who aren't planning on dying anytime soon.
[0] I used this calculator: https://www.calculator.net/mortgage-calculator.html?chousepr...
I often think about why this is happening now without invoking the default "evil rich people" hypothesis. I think it's because world population increased so fast in the last decades that there is simply not enough resources, land, high paying jobs for everyone to achieve a comfortable life. And because the population is so high and the world so connected, it's easier for a single person to accumulate wealth because talent or sheer luck. IE. build the right app at the right time and get rich almost instantly. Society seems to be self correction mode by not having nearly as many babies recent years.
On the contrary, (in the US) I think there is at least enough land and resources (including food) that a modest haircut on the ultra-rich would go a long way for the lower-middle classes.
On the contrary, (in the US) I think there is at least enough land and resources (including food) that a modest haircut on the ultra-rich would go a long way for the lower-middle classes.
An interesting factoid from the Roman Empire is that in their later years there was a major fertility collapse to the point that various laws were passed in order to try to motivate fertility in various ways, and they ultimately failed.
I don't know what to take from that yet, if anything, but I think it's obvious that we've similarly entered well into an 'end of empire' type era, and fertility rates have also again collapsed. So again, I think it's simply interesting to ponder.
The same thing happened (declining fertility rates) between WW1 and WW2, which I found interesting. Also a time of great wealth inequality and economic dislocation.
Another thing I got from the same book (Dark Continent) was that pre-Nazi Germany was basically being run by the equivalent of executive orders due to political polarisation and deadlock in the Parliament. Definite vibes of modern US in that statement.
https://en.wikipedia.org/wiki/Dark_Continent:_Europe%27s_Twe...
I don't know if the same was true in Rome, but indirect evidence would suggest it may well have been. Here [1] is a selection of some of the laws that were created to motivate fertility. They definitely target what were probably higher class citizens - concubinage was legally recognized, inheritance was one of the main targets of penalties, ranking of politicians was determined by their number of children, and so on. There was even apparently some angle shoot where people tried to marry very underage girls to avoid the penalties against unmarried men while also having a legal justification for having no children 'yet'.
What do you mean? In the French protests, the "evil rich people" hypothesis is very present. Every other protester was brandishing "tax the rich" placards.
So I really don't get your original point in this context.
You got it exactly backwards. Population growth meant lots of children that consume but don't produce anything. This generates demand for workers who produce but don't consume (e.g. parents). Now that population growth has stopped, there are no more new consumers and the existing consumers are saturating, because they already have everything they could possibly want, with the exception of high priced things like housing.
Rising house prices increase the obligation to work for money, but they don't generate demand for more work. This leads to demand saturation.
Rich people do not generate demand, because they invest their surplus only when they expect to obtain an even greater surplus, which means they increase supply, which leads to even faster market saturation. You can't invest your way out of saturation unless you are okay with negative returns.
Communism is wrong, because its appeal lies in the fact that people hate their bosses. It literally tells you employment is the problem even though there have been historical periods after wars where markets were not saturated and the demand for labor was high. Employment was objectively good for workers during those times.
To this day communists do not have a theory that explains why there is a structural demand deficit for labor. The obvious answer is the one I laid out above. There are people who provide more labor hours to the market than they consume labor hours from the market, leading to an accumulation of labor hour credits (some people call it money) and the corresponding labor hour debit (some people call it debt). The communists would object to this by invoking their reserve army of labor theory, but that doesn't actually explain anything, it just shuffles around who gets hired. The argument is that competition between workers leads to employers only hiring the most productive employees that are necessary to supply the total demand for labor, but if the total demand for labor is equivalent to the supply of labor, there wouldn't be a reserve army in the first place. A critique based on competition leading to exploitation decides who wins the game of musical chairs, but it doesn't tell us why there is a shortage of musical chairs to begin with.
Obviously, the problem is the duration difference between the labor hour credit and the debit. You can hold labor hour credits at no cost, which is a free lunch. Holding labor hour debit means paying a fee and having a deadline each month, but the true duration of the debit is equal to the credit that created it. The demand for free lunches is infinite, which artificially inflates the holding period towards infinity and since one persons credit holdings are another persons debit holdings, debit is increasing towards infinity as well. This is what allows the labor demand deficit to grow over time.
The solution to this problem is to reject neoclassical economics with its automatic assumption of equilibrium and to build institutions that encourage equilibrium formation. The truth is that it's not only communists that hate equilibrium. Capitalists hate it as well.
I feel like "wealth inequality" is such a useless frame that it makes me wonder if the politicians harping on it are using it as a dodge to avoid the real issues.
Suppose a middle class lifestyle requires wealth 100 and below 50 is poverty. If the 25th percentile is at 40 and the 99th percentile is at 400, that's very bad, even though it's "only" a factor of 10. If the 25th percentile is at 200 and the 99th percentile is at a million, that's not ideal, but it's certainly better. So the ratio is basically a red herring and what matters is how the people at the bottom are actually doing.
Meanwhile most of the underlying problem with "wealth inequality", both in terms of cause and harm, is actually market consolidation. If you were an early shareholder of a trillion dollar corporation then you're probably a billionaire, but you wouldn't be if trillion dollar corporations didn't exist because there were 100 companies each of 2% the size instead of 2 companies each the size of countries, and moreover the problems come from the existence of a trillion dollar corporation which can then run roughshod over everybody because they don't have enough competition to keep them honest. Which isn't solved in the slightest bit by leaving the corporation the same size but causing it to be owned by mutual funds or foreign investors instead of domestic founders. But people keep proposing taxes as the solution to it, which is exactly the thing that doesn't fix that.
> Young couples can't afford to buy a home to start a family because interest rates are 3x higher than a few years ago while home prices went way up since covid
Current interest rates are in line with historical norms; ZIRP was an aberration. And in general higher interest rates result in lower housing prices, because you don't have people taking out huge low-interest loans and bidding up the prices.
The problem right now is that the transition from ZIRP to normal interest rates sucks, because it creates short-term gridlock. Somebody who would like to sell their house and move can't do it because the payments on a new, higher-interest mortgage are higher than the ones on their old low-interest mortgage, and then they can't afford it so they don't sell their house, which keeps supply off the market.
The best way to fix that is to solve the gridlock with new supply, but we mostly prohibit that through zoning. But it'll happen either way because eventually those low-interest mortgages age out (i.e. get paid down) and then the gridlock breaks and prices come down, it just takes longer and causes more damage in the interim.
And either way the result is going to be a reduction in housing prices, which people are going to call a "housing crash" and complain about it. But the issue isn't prices going down, it's that ZIRP causes a bubble. That's a sunk cost; we're already in it. Returning to ZIRP is only an attempt to re-inflate the bubble, which is just kicking the can down the road. And, of course, you can't use ZIRP if you're trying to fight inflation, which is why causing the bubble to begin with is bad -- once you have enough inflation to make ZIRP untenable, the bubble ultimately has to pop, and trying to fight it (which is what we did in 2008) only makes it worse.
Content warning, this graph is distressing:
https://fred.stlouisfed.org/graph/?g=1Mdsa
The peak in 2007 was the massive housing bubble that crashed the economy.
This is accurate except that it's missing the most important part: The mechanism by which this operates is large organizations, i.e. megacorps and governments. The power vested in the CEO of a huge conglomerate is independent of their personal wealth. A corporation owned by Wall St rather than the founder is at least as likely to engage in rapatorial behavior. Any proposal not effective to break up the power concentrated in large organizations is a sham.
And government spending works the same way. Most of the federal tax dollars collected go to the likes of Lockheed and UnitedHealth and affluent retirees, not the poor or middle class working people. It's actively counterproductive to shovel more money in those directions. It's funding the people who capture the government. Attempting an increase in government revenue when that is where the existing money goes is a plan to make the problem worse. Prove that you can cause the existing money to go somewhere else before you ask for more.
People keep proposing to take money from "Elon Musk and Jeff Bezos" because they're an unsympathetic excuse to divert even more public money to Northrop Grumman and the AARP, and then in the actual bill most of the money comes from doctors and engineers making six figures rather than ten. But the thing it actually needs is to have less public money going to cronies and more aggressive antitrust.
If the market cap of Google is a million dollars and a sandwich is $5 and then tomorrow the market cap of Google is a trillion dollars because they wiped out all their competitors and took over the market, the price of a sandwich is still $5 because it's quite unrelated and not affected by the number of search engines or mobile operating systems. Larry Page isn't going to personally eat so many sandwiches that it affects the global price of sandwiches no matter how much money he has. Moreover, necessities generally have elastic supply -- even if demand increased, we could just make more of them rather than raising the price -- unless you cause artificial scarcity (as we do with housing), in which case that's your problem independent of billionaires.
What the consolidated market does affect is that market, e.g. the price and quality of phones and phone apps. But that has nothing to do with what proportion of the company's shares is owned by what number of people. It's just as much of a problem if it's a publicly-traded company whose largest shareholder owns less than 1% of it. And the problem goes away if the market is competitive even if there exists someone who has billions of dollars as a result of owning a fractional percentage of a million different companies -- although that usually isn't what happens anyway because the primary driver of the existence of billionaires is "market consolidates enough to cause one company's market cap to exceed a hundred billion dollars", not "someone invests a thousand dollars each into a thousand separate companies and every one of them beat the market by a huge factor without any of them becoming a megacorp".
Also, migration & outsourcing…
Meanwhile the hype is causing things to be converted to "AI" even when it isn't any more efficient, which lowers labor demand (suppresses wages / increases unemployment, bad) and increases power demand (higher electricity prices, bad) and to the extent that hype causes adoption of inferior solutions, lowers efficiency (worthless AI customer service, bad). Some of the AI stuff is useful but the hype is causing folly.
Migration isn't particularly deflationary, especially with respect to housing prices since the new residents then increase housing demand, which is fine when construction isn't constrained by zoning but bad when it is, and right now, it is.
Most of the outsourcing that can reasonably happen already has, in large part because the US housing market (and therefore cost of living) has been out of whack for a long time, which makes US workers less competitive despite what would otherwise be various countervailing advantages. Things are made in China because they fit on a container ship, but that happened decades ago. Nurses and landscapers and firefighters and plumbers are still domestic and that isn't likely to change.