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I think the substack article linked here [0] is pretty good at addressing what you need to know. It used to be that money - capital - was used for value creati
by ambientenv 4y ago
I think the substack article linked here [0] is pretty good at addressing what you need to know.
It used to be that money - capital - was used for value creation like a better product or service or some public good in the commons. Now the most crucial use of capital is to generate (further) wealth for those already wealthy. And since "conventional wisdom" of the economics kind blames higher wages as an impetus for inflation, "hurting" those wage earners is the key via higher rates to reign in said inflation. But real wages are and have been falling. Thus, because the economy is biased towards enabling and sustaining the making of money with money, in other words continuing to generate and increase wealth for the wealthy at the expense of others, the system will continue to reward the needs and wants of the wealthy.
Just my take on things. I'm learning as we go.
[0] https://news.ycombinator.com/item?id=35260210 https://news.ycombinator.com/item?id=35260210
- tppiotrowski 4y agoI agree with this take. Being a builder does not generate predictable returns like an index fund or the S&P over the last 100 years. They tell you in school that you should invest money early and watch it accrue, but if we all do that collectively as a society then who is going to build.
- webinvest 4y agoWhen valuations are high, companies IPO, founders cash out and hopefully go on start new companies. People on the street buy companies for 3x their annual earnings but the stock market regularly buys companies for 8x, 20x, even 80x their annual earnings. This is expressed in each stock’s P/E ratio.
- ericmay 4y ago> Being a builder does not generate predictable returns like an index fund or the S&P over the last 100 years. Sure but investing a modest sum in the S&P 500 as a wage earner, salary earner, or otherwise also requires you to work for someone else your whole life and never get wealthy. That incentive kesp people starting new companies and doing other things - i.e. taking risks.
- skybrian 4y agoThe people who get funding will build, presumably? Investing doesn’t prevent people from building. Investments fund building. (Among other things.) This happens literally when banks loan money to real estate developers or other large projects. But we’re in a situation where there was, until quite recently, both too much consumer demand (inflation) and too much investment (lots of wasted investment on silly things). Higher interest rates are an incentive to slow investment and consumption and park money in government funds, where it‘s presumably more inert. I think the answer to “what if everyone does it” is that everyone doesn’t do the same thing. If you have a good idea then you can spend your own money on it, and sometimes you have to, but if it’s expensive then it’s probably better to try to raise money from other people.
- danielmarkbruce 4y agoPredictable? An index fund does not give predictable returns.
- pc86 4y agoOver long timelines, and with rare exceptions, yes they do.
- reducesuffering 4y agoSure, you just might spend 33 years for a 1.4% real return annually https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1990&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=IntlDeveloped&allocation1_1=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...
- p_j_w 4y agoWhat percentage of 30 year spans give a 1.4% return or less? Better question: what's the cumulative distribution function of a 30 year investment span on an S&P 500 index fund?
- reducesuffering 4y agoBoth are relevant. It’s good to know what your average scenario for a 30 year span is. It’s also good to prepare for the worst case…
- pc86 4y agoYes, you might. The vast, vast majority of people won't. Some people are unlucky. That doesn't mean the entire system is nonsense.
- s1artibartfast 4y agoIt is pointless and Mindless to save money purely for the purpose of having more. The point of investing and saving is to have money to spend. When money is spent, it goes to the person who built something, provided a service, or has a good.
- eppp 4y agoI think the richest among us seem to disagree with you.
- s1artibartfast 4y agoDifferent people may indeed have different values, but when we are talking about most people and what they are taught, I think this is true. People are thinking about retirement, buying a house, or paying for their kids education and this is why they save.
- tppiotrowski 4y agoI disagree. Money buys you recognition, influence and power. There is no fixed price for these. It's an auction where the rewards go to the highest bidder.
- s1artibartfast 4y agoIs that what you personally are saving up for?
- tppiotrowski 4y agoFreedom. Having money in the bank allows you to control your circumstances. It gives you time to wait for and consider multiple job opportunities. It gives you time to re-skill if the economy shifts or move if your region undergoes an economic depression.
- s1artibartfast 4y ago
- JumpCrisscross 4y ago> real wages are and have been falling Broadly, no [1]. There was some weirdness around the pandemic, but real wages today are flat with 2019 which, apart from the interceding era, was and is an all-time high. [1] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
- 23B1 4y agoThis number is meaningless unless compared to productivity; wages have comparatively been flat since the 1970s. 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... When you start adding in other considerations, the picture is worse. https://www.epi.org/publication/charting-wage-stagnation/ https://www.epi.org/publication/charting-wage-stagnation/
- JumpCrisscross 4y ago> number is meaningless unless compared to productivity No, it's not. Productivity adds a dimension to the question: it tells us the pie got bigger without more ingredients. But that isn't relevant to the absolute size of one's slice. Real wages are meaningful without preference to productivity. > wages have comparatively been flat since the 1970s Flat isn't falling. Taking into account benefits, per your Pew article [1], they're up. (Barely.) The real economy grew in that time, and the rich got richer with it. That's a problem. But it's not a problem of falling real wages. [1] 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...
- nwienert 4y agoIf wages stay flat and capital makes gains, then in the most true general sense wage-earners are earning less of a % than before. Also what’s the story with purchasing power which seems to be way down. I think those are much more important to highlight and less pedantic.
- granshaw 4y agoWhat? No. People have always wanted to be as wealthy as they could, even in non capitalist systems
- wolverine876 4y agoInflation is also bad for wage earners, reducing the value of their wages. Inflation is good for debtors, however, reducing the value of the principal, and similarly bad for creditors. High inflation is bad for almost everyone.
- esalman 4y agoCan attest. Right now we're priced out of the housing market because of inflation.
- wolverine876 4y agoThe housing market has been inflating for a long time, on its own.
- eppp 4y agoHardly on its own. I would wager in a large part due to terrible government policies and their NIMBY enablers.
- lamontcg 4y agoHousing is an asset not inflation. If inflation was running hot persistently at like 6% then long term interest rates would be higher and housing prices would fall in nominal terms compared to wages. The low-inflation, low-interest rate environment has produced high asset valuations due to the cheapness of borrowing money. There is an important distinction on the spectrum between consumable things bought with wages and investments bought with borrowed money, and the rise in prices in those categories are different. If you want to play the semantic game that all rises in any prices are inflation there is a real distinction that you're missing -- in which case we should talk about asset inflation vs. price inflation vs. wage inflation as being different inflations and stop talking about it like its the same thing (which economists would tell you it isn't by arguing that you're talking about assets and not inflation, but now we've just gone in a circle talking past each other because of definitions).
- Aunche 4y ago> https://news.ycombinator.com/item?id=35260210 https://news.ycombinator.com/item?id=35260210 As I mentioned in that thread, this is an extremely disingenuous take. The Federal Reserve has no interest in "hurting wage earners." Before the rate hikes, wage earners had already been hurt because inflation was outpacing wage growth. A wage-price spiral would only exacerbate this pain for those who aren't in a good position to switch jobs or negotiate with their employer. Also, "the wealthy" isn't a monolithic group that all have the same interests. People who got rich off of cheap money, like Elon Musk, are asking for the Fed to lower interest rates as well.
- whitemary 4y agoIt's extremely disingenuous to act like these tendencies are new, or as if anything has fundamentally changed. It hasn't. 150 years ago, Karl Marx articulated all of these characteristics of capitalism, including the tendency of capital to accumulate, the tendency of the rate of profit to fall, the contradictions and complexities of financialization, and much more.