5 ms·

I actually stole it. The original quote is 'everyone gets what they want from the financial markets' Everyone can unpack the statement in different ways, but

by brc 11y ago

I actually stole it. The original quote is 'everyone gets what they want from the financial markets' Everyone can unpack the statement in different ways, but essentially your financial position is a result of how much effort you put into it. Most people put little effort into it, or even knowingly make bad mistakes like buying new cars on credit, yet shrug their shoulders and do it anyway. In the short term you might have a setback but people with priorities for financial success are able to overcome these and go on to greater heights. An evidenced in these comments there are some people who want to talk about how the deck is stacked against them and they can't possibly get ahead - yet people from all walks of life achieve financial freedom every day, so this is patently not true. The people who think this way are getting the outcome they want, which is to priories blaming over achievement.

branchless 11y ago
That is a very dumb statement. I think it might even be a joke. In a zero sum game of housing speculation where there is no wealth creation of any kind then by definition if you win it's at the expense of someone else. They are achieving financial freedom by stepping on the throats of their brothers and sisters. If you want to "achieve" financial freedom that way fine, but I'll rest easier on my (cheap) death bed rather than surrounded by trinkets bought after exploiting the poor and needy. Your comment is so wrong it's hard to comprehend the mindset.
fredkbloggs 11y ago
I think we're talking about several different things here. I'm asserting that there are five essential inputs to one's economic outcome. In no particular order, they are: 1. The activities in which one engages to obtain income. This can be labor, crime, cheating and manipulation, employment of capital, or some combination of these. 2. Starting position: did you enter adulthood with an inheritance or trust fund? 3. Management: what do you do with the income you receive? 4. Environment: macroeconomic conditions and public policy (presently inseparable). 5. Luck, those arbitrary events that affect an individual or small group of people (as distinct from environmental factors that affect everyone). These can be positive or negative. Individuals generally can control (1) and (3), though the available options and their merits are products of external forces. You seem hung up on the notion that these are the only two factors that matter. You acknowledge (5) but assert that it's ultimately irrelevant to outcomes. You don't seem to acknowledge (2) and (4) at all. I am asserting that a high probability of good economic outcomes (i.e., financial independence) requires that at least (3), (4), and (5) all be favorable if we begin from the premise that the only sources of income and capital available are the proceeds of labor and one's own accumulated capital. That is, we're not going to cheat or steal and we weren't born into anything. I am not asserting that good economic outcomes are impossible under other circumstances, only that they are highly unlikely. It would be very useful to bring some data into this conversation. I would like to compare the outcomes achieved by hypothetical pairs of individuals who satisfy our constraints on factors (1) and (2) and are identical in their luck (there are no material events) and management, but differ in environment. For example, suppose that there are two individuals born 20 years apart, one in 1955 and the other in 1975. Both are male Americans, both are employed in full-time, year-round work beginning at age 20, neither is ever unemployed for any reason, and both set aside some fraction of their age-appropriate median-wage income and invest it in one of a few simple ways (we can vary that fraction and how it's invested). Each pays the taxes he legally owes and no more, and for simplicity's sake each is single and lives in a state with no personal income tax. The object of this exercise? To check in with each at age 40 and see, in today's dollars, the purchasing power of their assets and the purchasing power of the income those assets produce. We could then examine other splits; for example, two people born at the same time, one in Japan and the other in Switzerland. Or fraternal twins, one male and the other female. The possibilities are limited only by the availability of data. It would be great to see such a study. If anyone has done it, the results are not particularly easy to find. Most of the data exists: historical tax laws from the Tax Policy Center, historical income data from the Census Bureau, deflators and unemployment data from the BLS, interest rate and bond market data from the Fed, and stock market prices and dividends from the exchanges and many other sources. Some countries keep better records than others. Having looked into what's available, I think someone could put together something reasonable in a week or two. According to your thesis, these studies will show that everyone will obtain approximately the same outcome, because in all cases we have controlled for luck, starting position, income, and management strategy. Only the choice of management strategy will have material impact. According to my thesis, these studies will reveal (a) that environmental factors dominate the outcomes, (b) that there are many environments in which there is no non-oracular management strategy that will yield an outcome as good as that achieved by a male American born in 1955 who employs a simple, moderately frugal management strategy, and (c) that the vast majority of environments that have existed over the past 20 years, including today's, are strongly detrimental to positive outcomes. I assert this despite the ultra-simplified deterministic model I propose to use. I further assert that the stochastic injection of periods of unemployment (in accordance with actual historical rates) will radically worsen outcomes in at least 3 quintiles relative to the above-mentioned baseline. Finally, I assert that these results are obvious. I'm not exactly going out on a limb here. I know I sound like a "progressive". I am not. I do not advocate redistribution, higher minimum wages, more rent control, or a culture of victimhood. Quite the opposite on all counts. What I do advocate are changes to public policy that make it much less likely that decades of any individual's working life will be lived in an environment that strongly penalizes the proceeds of labor and accumulated capital. You should not attack me based on your preconceived ideas about "what I want", from either the markets or public policy. More directly to the point, my original assertion was that teaching a child that factor (3) is the only one of import does him a great disservice. Prudent management of one's finances is almost always necessary but almost never sufficient. Acknowledging this is not casting blame but rather observing the world around us, thinking critically about how it works, and accepting it as it really is: healthy things for any child to do from an early age.
- WalterBright 11y ago
  > teaching a child that factor (3) is the only one of import does him a great disservice. I've seen a lot in my life with this, and it's wildly untrue. I know many families with multiple children, and over time some of those became millionaires and others did not. None I know started with inheritances. I know a lot of self-made millionaires. All of them share a common attitude that their future is in their own hands, and it's clear from the arc of their financial lives that that is true. Their choices produced their outcomes. The ones who did not become millionaires also share a common attitude that nothing they could have done differently would have changed anything. The fatalistic outlook you have will be self-fulfilling. But you can choose to change it. It really is up to you. The choices you make matter. If you want to know more, I can't recommend a better book than "The Millionaire Next Door" about how ordinary people doing ordinary things become wealthy.
  - fredkbloggs 11y ago
    I've read it. I think if I were born in 1950 it would be worth its weight in gold. Someday someone will write a similar book that would have worked perfectly for people who were born in 1980; unfortunately, by then it will be too late for us and instead the next generation will debate its (in)applicability to their lives. It's not fatalistic. As I've been saying all along, you have some control of some things. Exercising that control constructively is necessary. It simply is not sufficient.
    - WalterBright 11y ago
      Take a look at the stock market returns for the last 5, 10, 20 years. At pretty much any point you could have invested and had handsome returns by today. I also know people who abandoned the market at the bottom of one of the various dips. They're all bitter about the recoveries since. Taking a longer view, the various machinations of the market that seemed so important at the time are lost in the width of the line on the graph. Yes, your choices are by far the #1 factor in any success, or lack of, that you have. Telling your children anything less is a disservice.
- 11y ago

by brc 11y ago

branchless 11y ago

That is a very dumb statement. I think it might even be a joke. In a zero sum game of housing speculation where there is no wealth creation of any kind then by definition if you win it's at the expense of someone else. They are achieving financial freedom by stepping on the throats of their brothers and sisters. If you want to "achieve" financial freedom that way fine, but I'll rest easier on my (cheap) death bed rather than surrounded by trinkets bought after exploiting the poor and needy. Your comment is so wrong it's hard to comprehend the mindset.

fredkbloggs 11y ago

I think we're talking about several different things here. I'm asserting that there are five essential inputs to one's economic outcome. In no particular order, they are: 1. The activities in which one engages to obtain income. This can be labor, crime, cheating and manipulation, employment of capital, or some combination of these. 2. Starting position: did you enter adulthood with an inheritance or trust fund? 3. Management: what do you do with the income you receive? 4. Environment: macroeconomic conditions and public policy (presently inseparable). 5. Luck, those arbitrary events that affect an individual or small group of people (as distinct from environmental factors that affect everyone). These can be positive or negative. Individuals generally can control (1) and (3), though the available options and their merits are products of external forces. You seem hung up on the notion that these are the only two factors that matter. You acknowledge (5) but assert that it's ultimately irrelevant to outcomes. You don't seem to acknowledge (2) and (4) at all. I am asserting that a high probability of good economic outcomes (i.e., financial independence) requires that at least (3), (4), and (5) all be favorable if we begin from the premise that the only sources of income and capital available are the proceeds of labor and one's own accumulated capital. That is, we're not going to cheat or steal and we weren't born into anything. I am not asserting that good economic outcomes are impossible under other circumstances, only that they are highly unlikely. It would be very useful to bring some data into this conversation. I would like to compare the outcomes achieved by hypothetical pairs of individuals who satisfy our constraints on factors (1) and (2) and are identical in their luck (there are no material events) and management, but differ in environment. For example, suppose that there are two individuals born 20 years apart, one in 1955 and the other in 1975. Both are male Americans, both are employed in full-time, year-round work beginning at age 20, neither is ever unemployed for any reason, and both set aside some fraction of their age-appropriate median-wage income and invest it in one of a few simple ways (we can vary that fraction and how it's invested). Each pays the taxes he legally owes and no more, and for simplicity's sake each is single and lives in a state with no personal income tax. The object of this exercise? To check in with each at age 40 and see, in today's dollars, the purchasing power of their assets and the purchasing power of the income those assets produce. We could then examine other splits; for example, two people born at the same time, one in Japan and the other in Switzerland. Or fraternal twins, one male and the other female. The possibilities are limited only by the availability of data. It would be great to see such a study. If anyone has done it, the results are not particularly easy to find. Most of the data exists: historical tax laws from the Tax Policy Center, historical income data from the Census Bureau, deflators and unemployment data from the BLS, interest rate and bond market data from the Fed, and stock market prices and dividends from the exchanges and many other sources. Some countries keep better records than others. Having looked into what's available, I think someone could put together something reasonable in a week or two. According to your thesis, these studies will show that everyone will obtain approximately the same outcome, because in all cases we have controlled for luck, starting position, income, and management strategy. Only the choice of management strategy will have material impact. According to my thesis, these studies will reveal (a) that environmental factors dominate the outcomes, (b) that there are many environments in which there is no non-oracular management strategy that will yield an outcome as good as that achieved by a male American born in 1955 who employs a simple, moderately frugal management strategy, and (c) that the vast majority of environments that have existed over the past 20 years, including today's, are strongly detrimental to positive outcomes. I assert this despite the ultra-simplified deterministic model I propose to use. I further assert that the stochastic injection of periods of unemployment (in accordance with actual historical rates) will radically worsen outcomes in at least 3 quintiles relative to the above-mentioned baseline. Finally, I assert that these results are obvious. I'm not exactly going out on a limb here. I know I sound like a "progressive". I am not. I do not advocate redistribution, higher minimum wages, more rent control, or a culture of victimhood. Quite the opposite on all counts. What I do advocate are changes to public policy that make it much less likely that decades of any individual's working life will be lived in an environment that strongly penalizes the proceeds of labor and accumulated capital. You should not attack me based on your preconceived ideas about "what I want", from either the markets or public policy. More directly to the point, my original assertion was that teaching a child that factor (3) is the only one of import does him a great disservice. Prudent management of one's finances is almost always necessary but almost never sufficient. Acknowledging this is not casting blame but rather observing the world around us, thinking critically about how it works, and accepting it as it really is: healthy things for any child to do from an early age.

WalterBright 11y ago
> teaching a child that factor (3) is the only one of import does him a great disservice. I've seen a lot in my life with this, and it's wildly untrue. I know many families with multiple children, and over time some of those became millionaires and others did not. None I know started with inheritances. I know a lot of self-made millionaires. All of them share a common attitude that their future is in their own hands, and it's clear from the arc of their financial lives that that is true. Their choices produced their outcomes. The ones who did not become millionaires also share a common attitude that nothing they could have done differently would have changed anything. The fatalistic outlook you have will be self-fulfilling. But you can choose to change it. It really is up to you. The choices you make matter. If you want to know more, I can't recommend a better book than "The Millionaire Next Door" about how ordinary people doing ordinary things become wealthy.
- fredkbloggs 11y ago
  I've read it. I think if I were born in 1950 it would be worth its weight in gold. Someday someone will write a similar book that would have worked perfectly for people who were born in 1980; unfortunately, by then it will be too late for us and instead the next generation will debate its (in)applicability to their lives. It's not fatalistic. As I've been saying all along, you have some control of some things. Exercising that control constructively is necessary. It simply is not sufficient.
  - WalterBright 11y ago
    Take a look at the stock market returns for the last 5, 10, 20 years. At pretty much any point you could have invested and had handsome returns by today. I also know people who abandoned the market at the bottom of one of the various dips. They're all bitter about the recoveries since. Taking a longer view, the various machinations of the market that seemed so important at the time are lost in the width of the line on the graph. Yes, your choices are by far the #1 factor in any success, or lack of, that you have. Telling your children anything less is a disservice.
11y ago