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> Your job is not to save money. Your job is to save value I could not disagree more. For much of human history, and most of American history, saving currency

> Your job is not to save money. Your job is to save value I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. > Wages have kept pace with inflation. Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread). While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days. It makes sense that CPI and CPI-adjusted wages will always be a flat line, by the way. I recently learned that the CPI basically just measures the annual median American's budget via their consumer spending survey, which is of course directly related to wages. [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

arcticbull 5y ago
> I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. For much of human history we pooped in the street and murdered each other with reckless abandon - then we found a better way. I'm not sure the rose colored glasses mean much here. That may have been how we did things in the past, but there's no reason to couple a medium of exchange (short term) and a store of value (long term). There's really no justification for it, and the economy has been much better off for it. Stability has improved dramatically over a gold standard. > The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. As I explained these are completely unrelated. You're conflating a social policy issue with a fiscal policy issue. There's no reason to believe that if inflation were 0% wages would not have remained exactly constant in notional dollars, and if there was deflationary currency they wouldn't have just gone down in notional dollars. > It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. http://betterment.com http://betterment.com > Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread). Agree to disagree. > While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days. Works all over the world, why not here?
- lend000 5y ago
  > For much of human history we pooped in the street and murdered each other with reckless abandon. I'm not sure the rose colored glasses mean much here. Is this a straw man or a red herring? Try to avoid your logical fallacies on HN, regardless. > That may have been how we did things in the past, but there's no reason to couple a medium of exchange (short term) and a store of value (long term). There's really no justification for it, and the economy has been much better off for it. Stability has improved dramatically over a gold standard. There is a reason. Normal, hard-working people can thrive under that simple system, and wealth inequality does not systematically increase to the betterment of the financially savvy. Which is exactly what is happening in our inflationary utopia you are describing. Where have you been? I don't know what metric you are using to define stability, but keep in mind bear markets are the only periods in American history where wealth inequality reliably decreases as capital is reallocated [0]. Staving them off at all costs benefits the wealthy more than the many. Betterment, which you linked, is a free market solution to a policy problem, but it's about 50 years too late, and unless they capture 100% market share, they aren't going to solve the problem going forward (and of course they will scoop some nice fees off your savings). > Agree to disagree. With data?... All of your points hinge on CPI being a correct measure of inflation. It isn't [1]. CPI quite literally measures what typical Americans are buying, and how much of it they are buying. I.e. their budget. A budget directly set by their wages. [0] https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#range:1989.3,2020.4;quarter:125;series:Net%20worth;demographic:networth;population:1;units:levels https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr... [1] https://www.forbes.com/sites/perianneboring/2014/02/03/if-you-want-to-know-the-real-rate-of-inflation-dont-bother-with-the-cpi/?sh=2b5e6e91200b https://www.forbes.com/sites/perianneboring/2014/02/03/if-yo...
  - arcticbull 5y ago
    > Is this a straw man or a red herring? Try to avoid your logical fallacies on HN, regardless. Neither, I was pointing out that just because we used to do things a certain way doesn't meant they were inherently better. In fact, "for much of human history" things were much worse, and we were approaching them in ways that are by and large inferior. This is a kind of declinism bias or rosy retrospection bias. [1] > There is a reason. Normal, hard-working people can thrive under that simple system, and wealth inequality does not systematically increase to the betterment of the financially savvy. You're once again missing the forest for the trees. The unit itself doesn't matter. How much of it you have matters and what you put it to work doing matters. > Where have you been? I don't know metric you are using to define stability, but keep in mind bear markets are the only periods in American history where wealth inequality reliably decreases as capital is reallocated. Boom and bust cycles under the gold standard were dramatically exaggerated, in part because no entity could stabilize the medium of exchange. As bad as 2008 was, I guarantee you the Great Depression was worse. > Betterment, which you linked, is a free market solution to a policy problem, but it's about 50 years too late, and unless they capture 100% market share, they aren't going to solve the problem going forward (and of course they will scoop some nice fees off your savings). It's not a public policy problem, it's a public policy solution. Your job in a capitalist economy is to allocate capital to the most productive investment. If you choose to abdicate that responsibility you can pay a fee to Wealthfront of Betterment to do it for you, or you can pay a 2% per annum fee and keep it at home. However, money only has value when it changes hands, not when its jammed under your gramma's mattress. Inflation encourages investment to keep capital flow moving. GDP is in fact money supply times velocity. This is how the economy functions. > All of your points hinge on CPI being a correct measure of inflation. It isn't. > The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. [2] [1] https://en.wikipedia.org/wiki/Declinism https://en.wikipedia.org/wiki/Declinism [2] https://www.investopedia.com/terms/c/consumerpriceindex.asp https://www.investopedia.com/terms/c/consumerpriceindex.asp
notahacker 5y ago
The average person doesn't need an "investment strategy". They "invest" most of the money buying stuff they actually think might help them, and the rest goes in a savings account, index or pension fund where businesses that do have a strategy use it to generate returns. On the other hand, it's better for the average person that need access to capital to grow businesses and create jobs that people with significant holdings of capital have some downsides from not letting anybody use it. Imagine a wealthy person in 1635 has 1% of the dollars in the US. Their investment strategy regards actually using those dollars to help people as too risky, so they instead bury it in the ground. Four centuries later, thanks to millions of non-wealthy people working billions of hours and some very clever inventions and investments and no thanks at all to the wealthy miser, 1% of the US comprises many of the world's successful businesses and modern cities full of technology. Does the heir of the wealthy miser have a rightful claim on 1% of four centuries of other people's labour and capital being put to better use if he digs up the dollars? I would say no.
- lend000 5y ago
  A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address. Consider: 1. The money supply can grow without inflation, as GDP grows (via fractional reserve banking). 2. The number of years (400) is irrelevant -- the question is, does an heir deserve anything? I would argue that a value creator has the right to pass on wealth, and the government has a right to tax it (inheritance tax). 3. You are ignoring how someone came to acquire 1% of the money supply in the first place. They must have created a tremendous amount of value. How much further into the future did they push forward society in acquiring that wealth? Years? Decades? Finally: I am not advocating for a deflationary currency. I think 1% inflation is a reasonable concept. The Fed aims for 2%, but measures it with a CPI that is broken, and so the true inflation rate ends up being something like 3.5% or more, which causes all sorts of problems, most notably wealth inequality and asset inflation. Not hyperinflation, but not a picnic, either.
  - notahacker 5y ago
    1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats. 2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance) As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.
whakim 5y ago
> I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. Actually, predictably very low long term rates of inflation was one of the main causes of inequality for much of the period of human history for which we have reliable tax data (18th century to the beginning of the 20th century). When inflation is predictably low, and economic growth is low (as it has almost always been - the majority of growth is tied to population growth), the wealthy only need a modest after-tax rate of return on their capital in order to stay ahead of inflation and increase their relative wealth basically without bound. If inflation is high or erratic, then those debts which the wealthy rely on quickly disappear. As the chart in the OP shows, this was basically true in the United States throughout the 19th century and up until the eve of WWI, with the notable asterisk of the Civil War; it helps explain increases in inequality in the antebellum period and through the Gilded Age. It's even more clear if you look at the Insee statistics for CPI in 19th-century France, where inflation was consistently low and no disruptions on the level of the US Civil War occurred. (France on the eve of the first World War was staggeringly unequal - although the United States is fast heading towards that mark.)

arcticbull 5y ago

> I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. For much of human history we pooped in the street and murdered each other with reckless abandon - then we found a better way. I'm not sure the rose colored glasses mean much here. That may have been how we did things in the past, but there's no reason to couple a medium of exchange (short term) and a store of value (long term). There's really no justification for it, and the economy has been much better off for it. Stability has improved dramatically over a gold standard. > The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. As I explained these are completely unrelated. You're conflating a social policy issue with a fiscal policy issue. There's no reason to believe that if inflation were 0% wages would not have remained exactly constant in notional dollars, and if there was deflationary currency they wouldn't have just gone down in notional dollars. > It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. http://betterment.com http://betterment.com > Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread). Agree to disagree. > While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days. Works all over the world, why not here?

lend000 5y ago
> For much of human history we pooped in the street and murdered each other with reckless abandon. I'm not sure the rose colored glasses mean much here. Is this a straw man or a red herring? Try to avoid your logical fallacies on HN, regardless. > That may have been how we did things in the past, but there's no reason to couple a medium of exchange (short term) and a store of value (long term). There's really no justification for it, and the economy has been much better off for it. Stability has improved dramatically over a gold standard. There is a reason. Normal, hard-working people can thrive under that simple system, and wealth inequality does not systematically increase to the betterment of the financially savvy. Which is exactly what is happening in our inflationary utopia you are describing. Where have you been? I don't know what metric you are using to define stability, but keep in mind bear markets are the only periods in American history where wealth inequality reliably decreases as capital is reallocated [0]. Staving them off at all costs benefits the wealthy more than the many. Betterment, which you linked, is a free market solution to a policy problem, but it's about 50 years too late, and unless they capture 100% market share, they aren't going to solve the problem going forward (and of course they will scoop some nice fees off your savings). > Agree to disagree. With data?... All of your points hinge on CPI being a correct measure of inflation. It isn't [1]. CPI quite literally measures what typical Americans are buying, and how much of it they are buying. I.e. their budget. A budget directly set by their wages. [0] https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#range:1989.3,2020.4;quarter:125;series:Net%20worth;demographic:networth;population:1;units:levels https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr... [1] https://www.forbes.com/sites/perianneboring/2014/02/03/if-you-want-to-know-the-real-rate-of-inflation-dont-bother-with-the-cpi/?sh=2b5e6e91200b https://www.forbes.com/sites/perianneboring/2014/02/03/if-yo...
- arcticbull 5y ago
  > Is this a straw man or a red herring? Try to avoid your logical fallacies on HN, regardless. Neither, I was pointing out that just because we used to do things a certain way doesn't meant they were inherently better. In fact, "for much of human history" things were much worse, and we were approaching them in ways that are by and large inferior. This is a kind of declinism bias or rosy retrospection bias. [1] > There is a reason. Normal, hard-working people can thrive under that simple system, and wealth inequality does not systematically increase to the betterment of the financially savvy. You're once again missing the forest for the trees. The unit itself doesn't matter. How much of it you have matters and what you put it to work doing matters. > Where have you been? I don't know metric you are using to define stability, but keep in mind bear markets are the only periods in American history where wealth inequality reliably decreases as capital is reallocated. Boom and bust cycles under the gold standard were dramatically exaggerated, in part because no entity could stabilize the medium of exchange. As bad as 2008 was, I guarantee you the Great Depression was worse. > Betterment, which you linked, is a free market solution to a policy problem, but it's about 50 years too late, and unless they capture 100% market share, they aren't going to solve the problem going forward (and of course they will scoop some nice fees off your savings). It's not a public policy problem, it's a public policy solution. Your job in a capitalist economy is to allocate capital to the most productive investment. If you choose to abdicate that responsibility you can pay a fee to Wealthfront of Betterment to do it for you, or you can pay a 2% per annum fee and keep it at home. However, money only has value when it changes hands, not when its jammed under your gramma's mattress. Inflation encourages investment to keep capital flow moving. GDP is in fact money supply times velocity. This is how the economy functions. > All of your points hinge on CPI being a correct measure of inflation. It isn't. > The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. [2] [1] https://en.wikipedia.org/wiki/Declinism https://en.wikipedia.org/wiki/Declinism [2] https://www.investopedia.com/terms/c/consumerpriceindex.asp https://www.investopedia.com/terms/c/consumerpriceindex.asp

notahacker 5y ago

The average person doesn't need an "investment strategy". They "invest" most of the money buying stuff they actually think might help them, and the rest goes in a savings account, index or pension fund where businesses that do have a strategy use it to generate returns. On the other hand, it's better for the average person that need access to capital to grow businesses and create jobs that people with significant holdings of capital have some downsides from not letting anybody use it. Imagine a wealthy person in 1635 has 1% of the dollars in the US. Their investment strategy regards actually using those dollars to help people as too risky, so they instead bury it in the ground. Four centuries later, thanks to millions of non-wealthy people working billions of hours and some very clever inventions and investments and no thanks at all to the wealthy miser, 1% of the US comprises many of the world's successful businesses and modern cities full of technology. Does the heir of the wealthy miser have a rightful claim on 1% of four centuries of other people's labour and capital being put to better use if he digs up the dollars? I would say no.

lend000 5y ago
A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address. Consider: 1. The money supply can grow without inflation, as GDP grows (via fractional reserve banking). 2. The number of years (400) is irrelevant -- the question is, does an heir deserve anything? I would argue that a value creator has the right to pass on wealth, and the government has a right to tax it (inheritance tax). 3. You are ignoring how someone came to acquire 1% of the money supply in the first place. They must have created a tremendous amount of value. How much further into the future did they push forward society in acquiring that wealth? Years? Decades? Finally: I am not advocating for a deflationary currency. I think 1% inflation is a reasonable concept. The Fed aims for 2%, but measures it with a CPI that is broken, and so the true inflation rate ends up being something like 3.5% or more, which causes all sorts of problems, most notably wealth inequality and asset inflation. Not hyperinflation, but not a picnic, either.
- notahacker 5y ago
  1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats. 2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance) As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.

whakim 5y ago

> I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. Actually, predictably very low long term rates of inflation was one of the main causes of inequality for much of the period of human history for which we have reliable tax data (18th century to the beginning of the 20th century). When inflation is predictably low, and economic growth is low (as it has almost always been - the majority of growth is tied to population growth), the wealthy only need a modest after-tax rate of return on their capital in order to stay ahead of inflation and increase their relative wealth basically without bound. If inflation is high or erratic, then those debts which the wealthy rely on quickly disappear. As the chart in the OP shows, this was basically true in the United States throughout the 19th century and up until the eve of WWI, with the notable asterisk of the Civil War; it helps explain increases in inequality in the antebellum period and through the Gilded Age. It's even more clear if you look at the Insee statistics for CPI in 19th-century France, where inflation was consistently low and no disruptions on the level of the US Civil War occurred. (France on the eve of the first World War was staggeringly unequal - although the United States is fast heading towards that mark.)