4 ms·

I'm only referring to a bank account in the final two sentences. There is a common trope in time travel stories where a person finds that their small bank accou

I'm only referring to a bank account in the final two sentences. There is a common trope in time travel stories where a person finds that their small bank account has become a fortune. The linked article seems to think that that's not just reasonable, but likely. But it's obvious nonsense. Yes, a T-bill grows faster than inflation, but slower than the economy as a whole. So you're going to get a smaller and smaller piece of the total economy--completely at odds with the premise of the article. The rest of my comment is valid regardless of the assets the trust holds. Certainly, someone can get a bigger slice of the economic pie by investing wisely (or luckily), but there's no particular reason to fear that a long-lived trust will do so, and plenty of reasons to think they won't. Look at successful companies from 100 years ago. Most of them don't even exist any more. Why would we think the management of a long-trust would be better at navigating the future economy than that of a major company?

mcguire 12y ago
Cf. Berkshire Hathaway.
logfromblammo 12y ago
That trope has a dual premise. First, compound interest is in play. Second, the beneficiary is not drawing on the account for living expenses. If you can put $10 in an account at 3% interest and wait 200 years, you can take $3693.56 out. The key is not needing that money at all over a 200 year time span. The interest only accumulates on money that stays in the account. Rich folks can afford to let money sit and gather interest. Poor folks spend all that they earn, if not more. As a thought experiment, take two identical trust funds. Put $10M in one, and $20M in the other. Both grow at 4% per year. At the end of each year, the beneficiaries may withdraw up to 3% of the fund. The beneficiaries have similar tastes, and initially withdraw $250k. Each subsequent year, they draw 3% more, unless they hit the cap. How many years before the larger fund grows from double to triple the size of the smaller? 25. It is four times the size after 42 years. It is 10x the size after 112 years. It takes 14 years for the less endowed beneficiary to hit the withdrawal cap, and 128 years for the other to reach it, at 10.64 times the size, spending 10.64 times as much per year, forevermore. If your expenses grow more slowly than your investments, you will grow ever richer. If your spending grows faster than your income, such as for everyone in the US earning a wage or salary since 1970, you grow poorer.
- jdmichal 12y ago
  > If you can put $10 in an account at 3% interest and wait 200 years, you can take $3693.56 out. Yes, but how much is that $3693.56 worth in 200-years-ago dollars? Chances are, the number is less than $10.
  - logfromblammo 12y ago
    In 200 years, other things could also happen. - US/Federal Reserve Dollars could be obsoleted in favor of a different currency. Your account might automatically be converted to a non-interest bearing account in a different unit of account. - Your account could be flagged as inactive and plundered by the banking institution or the governing authority. - The currency could be inflated much faster than your fixed rate of return. Your $3693.56 could buy one ramen noodle--not one packet of noodles, one noodle. - The banking institution could cease to exist. If there is a successor institution for your account at all, you might not know what it is. But the point is that if you just take your $10 bill into the future with you, you would only have one worthless 200-year-old $10 note, of interest only to curators and collectors. You wouldn't have the not-even-$10-worth of era-appropriate currency.

mcguire 12y ago

Cf. Berkshire Hathaway.

logfromblammo 12y ago

That trope has a dual premise. First, compound interest is in play. Second, the beneficiary is not drawing on the account for living expenses. If you can put $10 in an account at 3% interest and wait 200 years, you can take $3693.56 out. The key is not needing that money at all over a 200 year time span. The interest only accumulates on money that stays in the account. Rich folks can afford to let money sit and gather interest. Poor folks spend all that they earn, if not more. As a thought experiment, take two identical trust funds. Put $10M in one, and $20M in the other. Both grow at 4% per year. At the end of each year, the beneficiaries may withdraw up to 3% of the fund. The beneficiaries have similar tastes, and initially withdraw $250k. Each subsequent year, they draw 3% more, unless they hit the cap. How many years before the larger fund grows from double to triple the size of the smaller? 25. It is four times the size after 42 years. It is 10x the size after 112 years. It takes 14 years for the less endowed beneficiary to hit the withdrawal cap, and 128 years for the other to reach it, at 10.64 times the size, spending 10.64 times as much per year, forevermore. If your expenses grow more slowly than your investments, you will grow ever richer. If your spending grows faster than your income, such as for everyone in the US earning a wage or salary since 1970, you grow poorer.

jdmichal 12y ago
> If you can put $10 in an account at 3% interest and wait 200 years, you can take $3693.56 out. Yes, but how much is that $3693.56 worth in 200-years-ago dollars? Chances are, the number is less than $10.
- logfromblammo 12y ago
  In 200 years, other things could also happen. - US/Federal Reserve Dollars could be obsoleted in favor of a different currency. Your account might automatically be converted to a non-interest bearing account in a different unit of account. - Your account could be flagged as inactive and plundered by the banking institution or the governing authority. - The currency could be inflated much faster than your fixed rate of return. Your $3693.56 could buy one ramen noodle--not one packet of noodles, one noodle. - The banking institution could cease to exist. If there is a successor institution for your account at all, you might not know what it is. But the point is that if you just take your $10 bill into the future with you, you would only have one worthless 200-year-old $10 note, of interest only to curators and collectors. You wouldn't have the not-even-$10-worth of era-appropriate currency.