Why Markets Boomed in a Year of Human Misery
nytimes.com
nytimes.com
When markets are the only place to put money that beats inflation, that's where people with money will put it. As more money gets dumped into equities their price goes up. Since those "investors" are just looking to hold the equity until someone else comes along and pays more for it they don't care about fundamentals or dividends.
Some companies have good fundamentals and have done well despite the pandemic. Many more have only gotten by with government handouts. A lot of exuberance today comes from big traders picking up stocks at a huge discount last March. The huge market drops were basically an interest free loan to anyone with enough money to pick up more stocks.
It's a great environment if you've already got money or retired recently with stocks as a large component of your investment portfolio. For everyone else the markets haven't done anything useful, if anything they've convinced low information voters that the economy is doing better than it is.
What this all suggests to me is that to pay for this we should have taxed high earners and not used debt. I say this because I fear inflating markets (stocks, housing, whatever) will actually wind up harming the middle class if/when the bubble bursts. Better just not to have the bubble in the first place, by taxing the money away on the front end.
Why are people still thinking that taxing high earners is an option? The world is ruled by rich people, why would they tax themselves? Doesn't make any sense. Democracy is nice, until all the choices you have, exhibit the same underlying core values that you disagree with.
Normally all successful parties will aim for the middle, where there are most voters. The ones that don't, are marginalized and perhaps have some chance at succeeding during times where voters go astray and just vote some extremists out of sheer frustration (like it happened in Germany a couple of times). But that never lasts. This seriously limits democracy, as you can be sure that some values will never change, because there is no party with enough votes to make these changes.
Instead, what we need is Democracy 2.0, where the people vote on individual packages, not parties. Switzerland may be the only country where that works out quite well.
for the most part, "high earners" are not rich people; they are the upper-middle class. the richest people make the vast majority of their income from investment returns, and are often able to avoid having it count as "income". the very rich are quite happy to have taxes increased on high salaries in exchange for maintaining the status quo re investments.
> Instead, what we need is Democracy 2.0, where the people vote on individual packages, not parties. Switzerland may be the only country where that works out quite well.
this much I can agree on. why do I have to choose between guns and abortion?
Humans are bad at some things. Understanding complicated situations where they aren't experts is one of them - Statistics, safety, complicated systems, etc.
Also, reddit is in many ways democracy 2.0 and they upvote literal fake news all the time.
We need to do away with upvotes and downvotes. It’s manipulated everywhere it exists.
On that note, Congress has had a rider problem forever. It's unconscionable how legislation get clumped together to a) force a vote on some generally positive thing while b) avoiding accountability and c) sneaking all kinds of evil opposites into the same package.
in tax contexts, "income" means about 3 different things, but to angry people it means one thing: "everything you earn that year"
the reality is that "income" is a subset of earning types, and the rich people anyone actually cares about do not earn much "income" and are therefore continually exempted from the populist fury
taxing high income earners just hurts the upper middle class and business owners
it is entertaining but disheartening to see so much energy put toward the same result over and over
Or STV, approval, STAR, etc etc literally ANY kind of voting system besides FPTP.
We need to decentralise the system so that fewer majority votes are needed (ideally, zero) and politicians hold less power (ideally, zero).
Most state functions can be privatised trivially. Some are more complicated but it doesn't seem like we're moving in this direction at all.
Every year the government spends more of the money stolen from taxpayers and keeps getting bigger and more powerful (and probably more corrupt).
Because I only have negative examples, where after privatization prizes went up and quality went down.
https://bg.hbr.org/1997/05/can-business-really-do-business-w...
https://www.govtech.com/magazines/gt/Indianapolis-Mayor-Step...
The cost of public health care is staggering and the quality is abysmal. If you can afford it, if you have something serious and you don't want to wait for ages or get poor equipment or lack of testing, you'll go private even in Europe.
I'd say private health care in the states is very successful as well (high quality and research) but the prices are ridiculously inflated because of government / insurances.
I maintain my position though. I really have never come across a person in conversation who would take an absolutist position that government action is always going to be better than private enterprise, but the opposite absolutist position is somewhat common.
It say it’s an article of faith because the people I’ve spoken to are not up for discussion about it. They have established their belief and nothing will cast a shadow of doubt upon it.
You’re claiming that all these people you’ve met are anarcho-capitalists? Are you under the impression that cultural conservatism means anarcho-capitalism?
> but the opposite absolutist position is somewhat common
You’ve provided no evidence that it is more common. In my experience, the opposite is true.
Here in Europe, we believe that certain things should be public: education, roads, health care, social security, basic research, while other things should be private, like smartphones, cars, ...
And I think for most of the things we like public, there is a good evidence that it should be. I.e. Euro style health care systems spend less money per patient while achieving a higher average lifespan when compared to whatever system the US has.
In general, the argument for private systems is that since they have to make a profit, they will be more efficient. In reality, they have to make a profit, which public systems don't have to. Public systems however have the same price pressure than private systems, since people put this pressure up via democracy.
The biggest issues I see is that public systems are less capable of big innovation vs. small process improvements. This can be tackled via the basic research done at public universities + the private sectors work to bring these to market.
Also, if you follow Peter Thiele Line of thought on how every business should strive for monopoly, so they can take monopoly profits and "focus on the product instead of the competition" - a public service that has granted this monopoly by law would be perfect: they have no competition, so they can focus on making the best product, and they don't have to make a profit, which means they can operate at cost. Now, I don't think it's as easy as that, but in the end, if you stop being an extremist, you can mix and match all kinds of system to use what is best, instead of striving for something that is ideologically pure.
tl;dr: I want my smartphone from private companies competing for the best product, I want my water from a public utility.
I'm European and I think zero things should be public. I absolutely don't like the European Union and where it's going.
The problem is that if you don't have any incentive to make ends meet because you're spending someone else money, slowly but surely you'll have inefficiencies in the system.
Too many employees, someone making sure a public contract goes to a friend for more money than it should, politicians expensing flights right and left, a service being provided which nobody uses (think about some bus lines).
The same happens in large organizations where who's footing the money doesn't have visibility. The government is the ultimate giant corporation - with the added bonus of not having to make a profit!
We can't say for sure how much money we're wasting, but government spending always grows bigger and I don't see public services improving or providing more value over time.
The last pandemic highlighted how much worse public health got in many countries in Europe. How did that happen and where did the money go?
An inefficient government starts eroding public services, spending the same and offering less, until there's a big crash and then there is nothing.
We saw a bit of that in Greece, we'll probably hear more from Italy soon.
I think we're years away from a collapse similar to the one experienced by eastern European countries post Soviet Union.
Not at all. Far from it. This is a very naive view of voting and public choice systems. See for example:
https://en.wikipedia.org/wiki/Public_choice#Special_interest...
https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action
https://en.wikipedia.org/wiki/Government_failure#Political_s...
https://en.wikipedia.org/wiki/Regulatory_capture
https://en.wikipedia.org/wiki/Public_choice#%22Expressive_in...
https://en.wikipedia.org/wiki/Rational_ignorance
https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
https://en.wikipedia.org/wiki/Jerry_Pournelle#Pournelle's_ir...
So in general I'd say I've seen government fail to run plenty of businesses. A more modern example would be PG&E which is in this weird situation where it's so regulated that it's almost government run but it's technically a private entity. There are also plenty of pure private entities that haven't run well (but at least, such entities end up being bankrupt, a healthy alternative for non-profitable private businesses).
So in my experience, seeing both private and publicly run companies fail, I've started to think that this aspect of it (being privately or publicly controlled) is not what makes the company run well but it's one of the many factors that can contribute to it. I think a more important factor are the interests, skills, will and agenda of those that control it, regardless of whom they answer to (voters or board).
And let's not discard the particularities of each business. Some enjoy a natural monopoly, others face tough competition. These are more important aspects contributing to efficient use of resources than, again, who the CEO answers to.
This is hard and inefficient in a large country with an underlying population that lacks critical thinking.
We could instead use a multi-party system where multiple voices are raised in the house and senate votes.
Most people only look at that tail end because the deliberation is dull, but if you want to know what it looks like, much of it is available to the public.
Which leads people to think, correctly, that independent-minded critical thinking is not determining those votes.
Most legislators have high approval ratings among their constituents, and practically unanimous among their party in their district. It's always other people's legislators who are the problem.
No. People are left voting for their representatives from a set of 2. With this, most people vote for one because they hate the other and not because they like their policies.
In terms of representative democracy, American two party system is just infantile.
This works terribly in CA, FYI.
I don't think there are any easy solutions to the political equilibrium we're in.
Proposition 13 putting a yearly property tax increase cap means that people who have owned property for a long time are basically not paying their fair share of local taxes. That tax advantage can be passed from generation to generation. It also has the perverse incentive to encourage cities to increase commercial and industrial zoning over residential zoning, with the effects on property prices one can see today.
Proposition 47 meant that many crimes under a 950$ threshold were considered misdemeanors instead of felonies. This is one likely factor for the large increase in the amount of car break-ins and shoplifting in some areas, such as San Francisco.
I lost my job due to covid but don’t get a “stimulus” — pointing out this means it’s income redistribution not stimulus and not relief for those impacted. That is factually true.
The people that were most important and productive during the pandemic are the ones on the front-line in healthcare and essential services. We have relied on them potentially exposing themselves in order to keep society going.
On the other hand, your so called “productive people” are sitting on their hands at home watching their assets massively gain in value.
The wealth divide is already accelerating, and the crisis is making it worse. I don’t think we should worry about “agitating” a small percentage of people whom our society seems to undeservedly elevate to god status.
We should recognize these feedback loops as a bug and rectify them.
The fact that you even had a job that you could loose, means that you are NOT in that category, and (statistically speaking) never will be.
What parameters determine when someone is forced to sell equity? How about equity in non publicly listed assets, which don’t have a deep market or clear price?
If it makes it clearer, suppose the market value of the assets you own increases from $10M to $15M in a year. How would you tax this? Do you start forcing people to sell? What if the asset they own isn’t publicly traded, for example land, or privately owned companies?
It’s not a “gotcha I’m against increasing taxes on wealthier people statement”. It’s a legitimate question on how to operate society when do much of the wealth is simply from increasing asset prices and decreasing currency values.
(and contra Graham, it's only assessed at a per-mille level, not percents)
Also, at that point, you shure as hell diversify your assets, instead of having them all in a single privately held company.
That's why we need a transaction tax on stock combined with tax breaks on stocks that have societal value, together with a ban on all derivatives. Stock markets need to be first order long term srategy crowdfunding again like they were originally invented as. Otherwise computers will just chase the next peofitable microsecond and CEOs will juse try to optimise the next quarter.
I know how real estate and tangible/intangible asset values are assessed for property taxes purposes, and the problems with that are enormous, not to mention the avenues for fraud and increased paperwork. There are definitely winners and losers there based on your level of influence in society.
How and who determines what “stocks” have societal value?
It’s really easy to say these things, but I have yet to come across someone with even a half baked plan to implement them in a fair way. For example, currently startup employees get screwed with the way taxes work on options, where they owe significant taxes for nebulous gains that they may or may not benefit from.
Take Jeff Bezos, the richest man on earth, for example. His total compensation is 1.7 million and His capital gains from stock sales are about 1-2 billion per year.
The salary is is essentially negligible, and even doubling capital gains would provide an extra 200-400 million. The federal budget for 2020 was 4,790 million dollars.
Those 600 people hold $4 Trillion dollar. Which is the federal budged you mentioned (it's not million btw).
The bottom 50% of the us population have 2 Trillion.
Those 4+ trillion federal budget include that ridiculous amount of defense spending, that's essentially welfare for the rich.
Now imagine if you could increase the federal budget by 25% for 4 years, just for science and education, and as a side effect you get a continued plus through the reduced negative effects of massive political influence by a small elite of 600 people.
There would probably a positive societal impact if you took those 4 trillion and burned them. Getting to spend them means, moon colonies, mars missions, broadband internet everywhere, proper healthcare for all, and maybe a shot at surviving the climate and biosphere collapse...
They do not have $4T. They have assets which may be valued at $4T based on the most recent sale price of a small representative piece of the asset.
There is no way that the “$4T” in assets can be converted to $4T cash as selling it all would shift the supply and demand curves causing the price to drop, and hence the valuation.
As I said, even if you'd just destroy all their wealth/power, you'd still get a better society, because politicians wouldn't constantly try to do the bidding of these people and instead tackle the real problems that we have.
Yes, I’m not arguing against redistribution of wealth (or power or influence or whatever you want to call it). I’m interested in the details of how it can be accomplished. Money is simply the most technologically advanced way we have of moving “power” around, but exactly how power gets converted to money is a big question, and one that frequently involves winners and losers.
> As I said, even if you'd just destroy all their wealth/power, you'd still get a better society,
I agree, and typically this has been accomplished with violence/war. I’m just trying to see if anyone has any good (and “fair”) ideas on how to accomplish it without violence.
I have an aunt and uncle in SF Bay Area who worked their whole life and saved for retirement, but didn’t assume that the land under their house would be worth $2.5M in their old age. What should happen to them? They certainly don’t have the cash flow to afford a proportionate property tax without having to move away. I don’t know a good answer either, maybe some people just have to end up screwed.
Stop mixing billionaires and millionaires.
Having billions is unfair by definition.
What if the sale price doesn’t match up with the valuation amount? What happens if a majority shareholder is forced to sell and it results in them becoming a minority shareholder? Does that mean one is forced to give up control of their business after a certain size?
Yeah, we all agree extreme income inequality is bad. That’s the easy part.
Then you don't have to sell as much as you thought.
> What happens if a majority shareholder is forced to sell and it results in them becoming a minority shareholder?
Works as intended. Companies this size should be broken up under monopoly laws anyways.
> Does that mean one is forced to give up control of their business after a certain size?
Now you're getting the spirit! Also, monopoly laws.
For those who don’t believe me check out how the dollar has declined relative to other currencies. I’m not making this up: https://www.reuters.com/article/uk-global-forex/more-weaknes...
https://www.bls.gov/charts/consumer-price-index/consumer-pri...
The only item baskets I found with recent increases are food, new vehicles, and medical care.
House prices doubled and the consumer price index shows low inflation for the same period.
I don't care about the price of a smartphone or whether spaghetti became 10 cents more expensive. I care about whether or not I will be able to afford a house through a lifetime of work. And it's looking bad at that front. I'd literally have to pay back debt for longer than I still have to work before retirement.
The huge inflation you expect will mean the real cost of these payments dwindle in size so they will matter very little to you.
In order to be able to have "real cost of payments" going down because of inflation you'll still need some down-payment or some basic proof that you'll be able to pay back the loan you're about to get, and those stagnating wages often times are not enough for that.
This is not a random subset of goods, we're talking about basic things like housing (as also mentioned by someone above) and education. It's not like the diamonds or the yacht markets have gone through the roof while everything else has remained pretty much stable, we're talking about stuff that affects almost everyone in their day-to-day life.
Now, low interest rates play an important counter role: it is cheaper to finance a house. It due to the increased prices, it takes a lot longer. Combine that with the fact that my generation deals with less worker rights and job safety (they call it flexibility) and the fact that I have now seen two once in a lifetime economic crisis within 12 years ... It's getting quite hard to sign that 40 year finance plan.
There is however a solution to this, which is to leave the cities and move to the countryside, where I can build a house on a plot of land that used to be part of my grandma's farm. Not everybody is that lucky tough and not everybody can a find a job there or work remote. Hell, I'm not sure if I can, given that the internet there is still copper based.
In my opinion the issue is that to much money goes into buying existing things and to little money goes into creating new things. QE and other gov. measures seem to be going mostly into propping up prices of existing values, so the ones who own them don't lose virtual money.
The point harryh was trying to make is that if consumer inflation is high then you could trivially pay off a low interest mortgage because inflation is constantly reducing the effective principal of the mortgage.
In reality what we see is asset inflation and asset inflation is usually a sign of mild deflation because there is an overabundance of production capacity or labor and therefore consumer goods with no takers.
That's on par with historical annualized inflation rates.
And? In Canada, the CPI has Shelter as 27%, with Owned accommodation being 17%:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
What's the component breakdown for the US CPI?
Just because prices for some things are up does not mean prices for all or even most things are. And even though prices are up, mortgage rates are down, which may result in a net-zero change to affordability (i.e., your monthly carrying costs end up being the same).
Heck, some Danish mortgage rates went negative in 2019:
* https://www.theguardian.com/money/2019/aug/13/danish-bank-la...
For everyone else, it's bullshit. Especially young people are extremely fucked by it.
Any product/service with domestic labor as a primary input (healthcare, education, childcare, construction, professional services) has seen much higher inflation.
Sure, I think everyone agrees on that but the CPI only measures a vary narrow range of goods and weights them such that it ends up ignoring some very obvious trends.
Most of the inflation could simply by accounted for by the drastic rise in stock prices, real estate values, etc. Even though the CPI/Fed doesn't care about those segments with regards to inflation does not mean it is not inflation.
The basket of goods used to calculate CPI includes thousands of items covering all categories of consumption by US consumers. It includes housing, energy, education, health care, consumer staples, durable goods, etc.
I literally listed those three categories in my comment as components in the CPI calculation.
For instance, consumer goods, or electronic products, or automobiles, or gasoline, or literally n other products that have suffered from lower or stagnant prices.
At the end of the day, you gotta measure inflation based on where people are actually spending their money. Not on an arbitrary ranking of which goods are "enablers of the rest of the basket."
Since they aren't correlated either gold is massively underpriced right now or this run on Bitcoin is for another reason.
The 'investor class' often gets derided for being short-sighted, but this is nonsense. In reality there are plenty of long-outlook investors who recognize this is a temporary set-back, and even then only in certain industries.
Even companies that had to essentially write '0' for revenue on their last 3 10-Qs are typically only marginally down. [1][2][3].
When stocks go up, the narrative is 'look! all the rich are getting richer!'
When stocks fall it's 'Those greedy millionaires are short sighted, look at what happened to everyone's pension!'
[1] https://www.marketwatch.com/investing/stock/dal [2] https://www.marketwatch.com/investing/stock/ual [3] https://www.marketwatch.com/investing/stock/ccl
> When stocks fall it's 'Those greedy millionaires are short sighted, look at what happened to everyone's pension!'
This hits the nail on the head. When the stock market was down 30% in Q2 and personal income was _up_, nobody was writing breathless articles about how investors were getting screwed while the common man was fine.
It's pretty shocking how unserious coverage of the stock market is, from picking dishonest time windows ("stock market up 10% during pandemic! [counting from after the 30% crash]") to selectively ignoring the difference in time horizons between equity prices and snapshot economic statistics.
A good rule of thumb is that reading mainstream articles harrumphing about the stock market is a waste of one's time, unless you're looking for a cable-news style dose of misinformed outrage for recreational reasons.
God these articles/tweets drove me absolutely nuts and they were everywhere. It was so disheartening to see.
And the stimulus bill was a huge boon to business. Most of it went to business.
All that money ended up in business coffers.
i.e. it was used by the people it was given to so they could pay their bills. You know, survive. Can you describe how a world would work where you can have one without the other?
> All that money ended up in business coffers.
...and most of it was then promptly paid out as wages to employees.
But the fact that “the Market” has exploded in value while the Federal and State government is making direct payments in order to help a significant portion of the population just survive should be a little concerning, no?
That’s another way of saying that it was used to pay employees.
A better question would be to ask if people overall are better off when order people die sooner… but that kind of question is always morally very difficult to answer.
More working-age people will be inheriting homes and wealth than in a typical year, as you suggest. If I was one of those people, I would use that as an opportunity to retire (why keep working for someone else if I already own a home and savings?). That means more working people than usual might retire this year, which I think is generally not good for an economy (less production).
Average Americans barely get 600$ to survive whilst corporates get such huge bailouts. Same thing happened during the GFC and the years since, when the fed printed money and pushed it back into the markets via QE.
This is not a republican or democrat problem, they are both equally complicit in all of this.
I work in Finance, and to see all those around me try and use sophisticated language and models and avoid admitting the glaringly obvious shows the lack of ethics and a morale compass.
We are all getting played by the rich and ultra rich.
Edit: Whats really got me is the role of pension funds in this. Pension funds worldwide are an aggregation of our savings, yet they are pushing capital more and more into markets and increasing our cost of living (especially property prices by doing so). Fund managers and pension managers all along the way get a cut through performance fees, whilst we get stuck with unbearable rent prices and we don’t get much benefit of the investment gain since inflation will reduce the value of the dollar...
Democrats are just as bad when it is about the things that matter but they are not glaringly bad like Trump.
Fixing first world economies is not very difficult if you had a benevolent dictator whose only job was to fix the economy. I'm not advocating against democracy but every time there is a systemic issue the fundamental cause lies in power creep of the wealthy and the difficulty of telling the population to accept a tiny bit of hardship for massive future gains because they are already used to getting screwed over all the time.
If you look at China, super successful, but a dictatorship where they will just kill you if you are not agreeable to them.
Invariably dictatorships devolve into what is in China, and other examples from years past.
That’s a very scary world to live in.
I thought I was sitting on the sidelines this year, just barely maintaining my finances while being ineligible for PPP or unemployment, but then I found an old position in an account I forgot about.