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lmm 1 hour ago | parent [–] | on: The World After Capital (2018)

>> For tribal chiefs, food probably wasn't scarce. For kings and lords, land was not scarce. For industrialists, capital was not scarce.

>On the contrary, kings and lords were acutely aware of how much land they had and devoted much of their energy to amassing more. Likewise for tribal chiefs and food, and presumably likewise for industrial. They had more of it than others, sure, but it was scarce for them: it was the limiting factor on what they were doing.

I'm sure that Bezos or Musk are also acutely aware of their capital, that does not mean that they have any scarcity.

>Right, but at that individual level too, capital isn't really the issue these days. You can get a loan for anything, anyone can get a credit card. If someone wants to improve themselves, it's rarely capital that's the limiting factor - it's more likely to either be time, or something a bit more complicated.

I think you seriously underestimate the difficulties that come with being poor. There are lots of studies that show that the primary problem with poverty is actually lack of funds. There have been many projects that showed that giving poor people money with no strings attached has higher success rates than anything else. Also your advice of getting loans or credit cards is quite unrealistic and shows you the cost of being poor. The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.

> The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.

One thing I haven't understood is the idea of charging high interest on poor debtors.

Conceptually the problem is simple. The debtor must repay the entire sum. What if the debtor is unable to do so? It would imply that the debtor is only able to repay the sum partially. But here is the problem. How does charging high interest help the debtor repay the loan? It doesn't. The only difference is that the bank gets the money sooner rather than later. You borrow $1000 and repay $800 and then default. -20% interest for one year. Clearly a bad loan.

The bank charges 30% interest on your credit card. You still only repay $800. The bank got your money sooner. So the only explanation for this is that the high interest rate discourages bad debtors (it clearly doesn't otherwise people would have stopped borrowing at a much lower rate like 10%) or there are people who can repay the debt even at excessive interest rates. They ask family or friends to chip in and a lower interest rate would not put enough pressure on people to take money from someone else.

Debtors aren't just divided into "can pay" and "can't pay", there's a huge category in there of "can meet the minimum payment required to avoid default (and potential legal problems) for a very long time".

There's other categories, but high interest debt (e.g payday loans) is targeted at that one: it locks them into a situation where they will nearly perpetually have to pay a small amount to the debt issuer, while their total debt rises.

The high rate is there to increase the probability that the debt will "lock on", even for small sums. This way, even if they manage to land a windfall someday, it often won't pay back the full interest owed, so they remain in debt and, crucially, making regular small payments upon which the debt issuer relies -- it's basically a SaaS model.

In this way, a person who just needed $200 once can end up paying $2500 over a multi-year period before somehow escaping or defaulting -- and that's why the bank does it, to maximize return.

The person who borrows $1000 but can only get back $800 ever is rare -- the person who can only get $1000 back over the course of 16 weekly payments of ~$60, and can somehow then go on to keep paying $60/week for another full year, is common.

They're not making money from the person who defaults (well, maybe if they default after a long series of payments). They're making money on average by lending to a lot of people, of which only a subset default. If you look like a bad risk, you pay more to subsidize all the people who also look like bad risks and will actually default.

> I'm sure that Bezos or Musk are also acutely aware of their capital

I'm not. I suspect they're paying a lot more attention to who they have working for them, their regulatory situation, particular projects....

Put it this way: when Rockefeller decided to build a new factory, his first question would've been "where's the capital coming from". When Bezos or Musk decide to build a new factory, what do you think is the first question they ask?

> There have been many projects that showed that giving poor people money with no strings attached has higher success rates than anything else. Also your advice of getting loans or credit cards is quite unrealistic and shows you the cost of being poor. The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.

I wasn't giving advice. But I think your studies are taking a naïve approach - that kind of program inherently selects for the kind of person who gets access to that kind of program, which is immensely class-loaded.

> On the contrary, kings and lords were acutely aware of how much land they had and devoted much of their energy to amassing more. Likewise for tribal chiefs and food, and presumably likewise for industrial. They had more of it than others, sure, but it was scarce for them: it was the limiting factor on what they were doing.

So it's exactly the same as today's capitalists who have more than enough capital but keep amassing it.

> Right, but at that individual level too, capital isn't really the issue these days. You can get a loan for anything, anyone can get a credit card. If someone wants to improve themselves, it's rarely capital that's the limiting factor - it's more likely to either be time, or something a bit more complicated.

I find this could be a bit more credible than the "bay area venture capitalists blowing money on idiotic things therefore capital is post-scarcity" line of argument. Is it really true though? The median net worth of a person under 35 in USA the internet says is $14,000. How much of a loan is that kind of collateral going to get me if I'm clearly already living pretty much hand to mouth? Can I reduce my working hours, take the loan, and go to school? Or to start my own small business? What is the risk I'm taking on?

> So it's exactly the same as today's capitalists who have more than enough capital but keep amassing it.

Today's capitalists aren't focused so much on capital though. Stock buybacks are bigger than ever. Founders are happy to sell off huge portions of their ownership as long as they can keep control with super-voting shares, where the previous generation of industrialists would be happy to accept outside board members but wanted to make sure they kept all the profits. A decade ago the goal was to be a "serial entrepreneur" who would use their huge exit from one company (as it matured) to fund another, even more profitable one; now keeping control of a big company is a much bigger deal.

> Is it really true though? The median net worth of a person under 35 in USA the internet says is $14,000. How big of a loan is that kind of collateral going to get me if I'm clearly already living pretty much hand to mouth? Can I reduce my working hours, take the loan, and go to school? Or to start my own small business?

My sense (and I don't have evidence) is that getting a loan for study or business is easier than ever before (though reducing your working hours might not be).

> What is the risk I'm taking on?

Being trapped in debt you can't repay is always possible, but it feels to me like the biggest risk would be derailing your career and not being able to get back into it. A side effect of the disappearance of middle class jobs is that there's no way to work your way up from the mailroom any more, so if you do have a stable career-track job then there's a strong argument for clinging onto it as hard as you can. For those who are already on the wrong side of the line that's a much weaker argument though.

> Today's capitalists aren't focused so much on capital though. Stock buybacks are bigger than ever. Founders are happy to sell off huge portions of their ownership as long as they can keep control with super-voting shares, where the previous generation of industrialists would be happy to accept outside board members but wanted to make sure they kept all the profits. A decade ago the goal was to be a "serial entrepreneur" who would use their huge exit from one company (as it matured) to fund another, even more profitable one; now keeping control of a big company is a much bigger deal.

Seems like a lot of handwaving and arbitrarily picking parameters to fine tune your proposition. Let's step back and look at the big scheme of things.

Food has always been scarce for some and plentiful for others. Same as land. Same as capital. And there have always been some people who have enough or more than they need who have a drive to amass even more, but that does not mean they have a shortage of it. And inversely if they don't try to horde more of a particular resource or asset that doesn't mean that asset is post-scarce for society as a whole.

I'll put it a different way, are you just trying to create such a specific definition that you can manage to fit it into? Then what's the point? it doesn't usefully say anything as far as I can see.

If you can support an argument which says practically everyone has plentiful cheap and easy access to capital via loans then that would be saying something. And if you can do that then you don't need these flimsy examples of food in prehistoric times or the behavior of wealthy elites to prop up your argument at all, do you?

> My sense (and I don't have evidence) is that getting a loan for study or business is easier than ever before (though reducing your working hours might not be).

Quite a journey remaining to get from there to "capital is not scarce or limiting for society", though.

Less than 20 years ago we had the credit markets almost cease functioning, major banks collapsed almost taking the banking sector with them, hundreds of thousands of home owners being unable to service their loans and were foreclosed. In my layman's understanding a major cause of this was undervaluing the cost of loans. Things have changed since then of course, but these industries and environments are very cyclical. Similarly, just because you kill a woolly mammoth or have a bumper harvest does not mean your society has been liberated from food scarcity problems.

But even ignoring recent massive failures of capital markets and just looking at the situation now, I'm still pretty skeptical of the assertion that anybody can get easy plentiful access to bank loans. People without much collateral or high incomes or steady work history get hit with extreme costs and harsh terms on loans if they can get them.

> Food has always been scarce for some and plentiful for others. Same as land. Same as capital. And there have always been some people who have enough or more than they need who have a drive to amass even more, but that does not mean they have a shortage of it. And inversely if they don't try to horde more of a particular resource or asset that doesn't mean that asset is post-scarce for society as a whole.

Sure, so you can say that everything is scarce - because for any given thing there will surely be one person for whom that thing is scarce. But that has no explanatory power. If we want to talk about what's scarce for society as a whole, looking at what most elites and most everyday people focus most of their attention on takes sense.

> Less than 20 years ago we had the credit markets almost cease functioning, major banks collapsed almost taking the banking sector with them, hundreds of thousands of home owners being unable to service their loans and were foreclosed. In my layman's understanding a major cause of this was undervaluing the cost of loans. Things have changed since then of course, but these industries and environments are very cyclical.

I completely agree with this, but it's worse (or better) than cyclical - the 2008 financial crisis was a small bump in the road that we've kept travelling down. Mortgages, subprime mortgages, subprime debt, indebtedness... take any measure you like, there's now more of it than in 2008. There's just so much capital sloshing around the system looking for anywhere to go.

> On the contrary, kings and lords were acutely aware of how much land they had and devoted much of their energy to amassing more.

Just because I want more of something, it doesn't mean that something is scarce, human desire is infinite.

There was this crazy Elon Musk of dark projects of the Cold War, can't remember his name, that collected his piss in jars, it doesn't mean piss is scarce.

If it's only one guy doing it then it doesn't mean much. If all the top people were doing it, then it might indicate something real.

"Land" means different things to peasants or lords, just like capital does today.

Land for common folks was scarce -- and it meant that thing that can produce food for you -- the lord did not have any problems with food.

The lord did not want more land because he was hungry, but because it meant more wealth and people, making him more likely to be able to defend himself against other lords.

The same with capital today. Capital might be plentiful for some people who are closer to the printing press, but not for others.