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There is that story about KLF actually setting fire to a million pounds [1]. Why don’t the ultra rich give away more money? Why do they spend it on super yacht

by Gatsky 4y ago

There is that story about KLF actually setting fire to a million pounds [1]. Why don’t the ultra rich give away more money? Why do they spend it on super yachts, houses with 50 bathrooms, and horridly expensive luxury trinkets? Even more to the point, why do they just hang on to vast sums of money they don’t need in bank accounts or other investments? My conclusion is that there isn’t a reason, in the same way that there wasn’t really a reason KLF burned a million quid. Counterfactualising the lives of the rich and powerful is a profound waste of time. [1] https://en.m.wikipedia.org/wiki/K_Foundation_Burn_a_Million_Quid https://en.m.wikipedia.org/wiki/K_Foundation_Burn_a_Million_...

jessekv 4y ago
You could argue that burning plain quid efficiently distributes the value back to the other holders of quid (deflation). Burning a million quid in some thing like housing, on the other hand, selfishly removes wealth from society and the economy.
- jessekv 4y ago
  It makes me wonder- what would happen if we had wealth taxes on cash, but the money went to... no one?
  - imtringued 4y ago
    If we assume the central banks lower their reserve ratios (you know, like they already did), no deflation would happen. If the reserve ratio stays the same, then deflation would eventually happen. However, even if there is deflation, people will still be willing to lend out cash as reducing their cash holding means they reduce the amount of tax they have to pay. You would most likely always see full employment according to "Say's Law". This is a much better idea than having a zero lower bound and an endlessly growing welfare state. I mean, imagine if you didn't have to pay for municipal garbage collection. You would produce more trash than is optimal as someone else is eating the cost. A guaranteed legal minimum wage that is excessively high (think $50 per hour) also encourages more workers to apply for jobs than is optimal. The zero lower bound not only contains a price control, it also contains an implicit subsidy that guarantees that the government has to subsidize the difference between the interest rate on the capital market, which may in theory be negative and the guaranteed interest rate on cash. It may not sound like a subsidy since no money is being paid, except if you don't pay the subsidy you get something like the great depression. The economy grinds to a halt. The subsidy has to be paid indirectly, the government has to guarantee to keep borrowing enough money until the interest rate is above 0%. I.e. the government has to take on more debt than is optimal and then it somehow has to recycle it back into the private economy. It will have to micromanage more and more parts of the economy simply because of some illogical decision to say "the private capital market ends at the zero lower bound". This is why I am in favor of negative interest rates above some threshold like $250k.
ascorbic 4y ago
One of the important things about them burning a million quid was that they weren't super rich. That money was pretty much all of the money they had left in their earnings from royalties. They then deleted their back catalogue, so they'd no longer earn royalties. I remember at the time that the only way to buy a KLF album was a Japanese import.
imtringued 4y ago
It's called liquidity preference. No matter how rich you are, there is no downside to being liquid but severe downsides to being illiquid so having extra money, no matter whether you use it in practice or not, is always worth it, just in case something useful ever pops up. This also means the interest rate gets stuck at some positive value and "investment philanthropy" never happens. If people use net worth or money as a highscore or status symbol that would also be considered liquidity preference.

by Gatsky 4y ago

jessekv 4y ago

You could argue that burning plain quid efficiently distributes the value back to the other holders of quid (deflation). Burning a million quid in some thing like housing, on the other hand, selfishly removes wealth from society and the economy.

jessekv 4y ago
It makes me wonder- what would happen if we had wealth taxes on cash, but the money went to... no one?
- imtringued 4y ago
  If we assume the central banks lower their reserve ratios (you know, like they already did), no deflation would happen. If the reserve ratio stays the same, then deflation would eventually happen. However, even if there is deflation, people will still be willing to lend out cash as reducing their cash holding means they reduce the amount of tax they have to pay. You would most likely always see full employment according to "Say's Law". This is a much better idea than having a zero lower bound and an endlessly growing welfare state. I mean, imagine if you didn't have to pay for municipal garbage collection. You would produce more trash than is optimal as someone else is eating the cost. A guaranteed legal minimum wage that is excessively high (think $50 per hour) also encourages more workers to apply for jobs than is optimal. The zero lower bound not only contains a price control, it also contains an implicit subsidy that guarantees that the government has to subsidize the difference between the interest rate on the capital market, which may in theory be negative and the guaranteed interest rate on cash. It may not sound like a subsidy since no money is being paid, except if you don't pay the subsidy you get something like the great depression. The economy grinds to a halt. The subsidy has to be paid indirectly, the government has to guarantee to keep borrowing enough money until the interest rate is above 0%. I.e. the government has to take on more debt than is optimal and then it somehow has to recycle it back into the private economy. It will have to micromanage more and more parts of the economy simply because of some illogical decision to say "the private capital market ends at the zero lower bound". This is why I am in favor of negative interest rates above some threshold like $250k.

ascorbic 4y ago

One of the important things about them burning a million quid was that they weren't super rich. That money was pretty much all of the money they had left in their earnings from royalties. They then deleted their back catalogue, so they'd no longer earn royalties. I remember at the time that the only way to buy a KLF album was a Japanese import.

imtringued 4y ago

It's called liquidity preference. No matter how rich you are, there is no downside to being liquid but severe downsides to being illiquid so having extra money, no matter whether you use it in practice or not, is always worth it, just in case something useful ever pops up. This also means the interest rate gets stuck at some positive value and "investment philanthropy" never happens. If people use net worth or money as a highscore or status symbol that would also be considered liquidity preference.