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Do you want to retire? Capitalism works this way because its customers, the investors, want it to work this way, because growth is how you get compound interes
by api 2y ago
Do you want to retire?
Capitalism works this way because its customers, the investors, want it to work this way, because growth is how you get compound interest. Investors include anyone with an interest bearing bank deposit, a 401k, stocks, bonds, etc.
No growth means it would no longer be possible for an investment to appreciate.
I think of a similar thing when I see people complaining about how companies don't want to pay good wages. When you go shopping do you buy the $10 product or the $5 essentially equivalent alternative? Most people will buy the $5 one. If you do that, you're putting downward pressure on wages.
It's in your (purely economic) best interest for your wages to be high but everyone else's to be low. That's because when you're a worker you are a seller of labor, while when you're a customer you are an (indirect) buyer of labor.
Everything in economics is like this. Everything is a paradox. Everything is a feedback loop. Every transaction has two parties, and in some cases you are both parties depending on what "hat" you are wearing at the moment.
- HFguy 2y agoGrowth isn’t necessary for high returns on equity. And it isn’t necessary for the investment to provide a return. Equity returns ultimately come from risk premiums. (Which are small now in US equities BTW). I’m invested in a microcap private equity fund that has returned >20-25% for years. They have high returns because they buy firms at 3-4x cashflow. You will get the high returns even with no growth. And with no increase in valuation. The returns are a function of an illiquidity premium. With Apple explicitly, growth is expected given the valuation level. If it doesn’t grow, the share price will decline. So yes, in their case, firm is certainly under pressure to grow. I also don’t agree with your “best interest for wages to be high and everyone else’s lower”. That is one aspect. It is more complicated. Consider Baumol Effect for starters.
- api 2y agoI'm talking about macroeconomics, not micro. Risk premium means there is risk; not everyone gets a return at all. The entire society, as a whole, cannot experience consistent returns unless there is macroeconomic growth. If the pie is not getting bigger, someone has to be losing for someone else to gain. Things like retirement, 401ks, etc., are society-wide institutions subject to macroeconomic rules.
- butlike 2y agoI buy the $10 one because the margin has to come from somewhere. 9/10, the more expensive product is better.