Economics

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One thing that I've been thinking about lately (with the background of a pretty crazy stock market and massive government stimulus) is what will happen if/when there is a large (>40%) stock market crash. What happens in any stock market crash? Isn't it essentially a redistribution of wealth from the people who didn't get out in time to the people who cashed in at the peak? While valuations are destroyed, valuations only exist on paper...the cash that went into the system is preserved, is it not? So if a few people come out of the stock market mania with enormous wealth, while most probably lose than what happens to the broader economy? Too many dollars chasing too few products results in inflation. That's a common refrain. But can many many dollars exist that do not chase products/services? I doubt many billionaires hold much of their cash in savings accounts...but if they did, doesn't that effectively remote it from the system? As wealth inequality continues to soar is liquidity and money velocity decreasing? If it is, that would lead me to believe that inflation won't happen.
 

Danoff

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One thing that I've been thinking about lately (with the background of a pretty crazy stock market and massive government stimulus) is what will happen if/when there is a large (>40%) stock market crash. What happens in any stock market crash? Isn't it essentially a redistribution of wealth from the people who didn't get out in time to the people who cashed in at the peak? While valuations are destroyed, valuations only exist on paper...the cash that went into the system is preserved, is it not? So if a few people come out of the stock market mania with enormous wealth, while most probably lose than what happens to the broader economy? Too many dollars chasing too few products results in inflation. That's a common refrain. But can many many dollars exist that do not chase products/services? I doubt many billionaires hold much of their cash in savings accounts...but if they did, doesn't that effectively remote it from the system? As wealth inequality continues to soar is liquidity and money velocity decreasing? If it is, that would lead me to believe that inflation won't happen.

There's no currency "in" the stock market. It's out of the stock market doing other things, buying stuff, being loaned out, velocitizing. Theoretically, if called, the cash in circulation needs to be capable of buying the stock in the stock market at the price it is in the stock market. When the stock value goes down, the cash in circulation doesn't need to buy as much stock. This means the amount of cash, compared to what it has to buy, is higher, not lower. That's inflation. It used to be that it took $10T (or whatever, totally made up) to buy the stock in the stock market, now it takes $6T, that means that we have $4T extra dollars that are no longer spread across the market.

I feel like we've talked about this before. ;)

The money already changed hands prior to this crash event you're predicting. That money is where it's going to be. The crash is just people who have stock that was worth one thing one day, now having stock that is worth less the next day. It's not re-distributive, it's a loss of value. That loss of value is particularly held among people that are heavily invested in stock. It would not generally be assumed to be a transfer of wealth from the poor to the rich, but rather the rich losing something of value, and the money in circulation no longer needing to account for it.
 
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Keef

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Economics is dope. It works like this: If you're born to a rich family, you just screw around for a few decades until your dad dies and then you get all his money! And you stay rich! You can either run his old company or just snort cocaine on the yacht you inherited, it's fine!

Or we could raise inheritance taxes to where they used to be to make sure that every new generation of people actually has to work and create and earn. Maybe funnel that revenue to charities, or science, or fund public education with it, or universal healthcare, or increased access to college for the poorest families who have no inheritance at all. Cut off elite nepotism at the bud and allow poorer and less connected people to actually gain skills and compete at higher levels. Another trick of economics is that not everybody can win, that's just a fact, but as it sits the rules on who will or won't win are already written. No wonder so many Americans feel like they have no say in what happens. They don't.
 

Danoff

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Economics is dope. It works like this: If you're born to a rich family, you just screw around for a few decades until your dad dies and then you get all his money! And you stay rich! You can either run his old company or just snort cocaine on the yacht you inherited, it's fine!

In the US, even extreme wealth is gone in 3 generations. How old do you think people typically are when their parents die?

prince-charles-queen-elizabeth-cancel-events.jpg


Or we could raise inheritance taxes to where they used to be to make sure that every new generation of people actually has to work and create and earn.

So the goal is to knock people down? Usually the goal is to lift people up.

Maybe funnel that revenue to charities, or science, or fund public education with it, or universal healthcare, or increased access to college for the poorest families who have no inheritance at all.

...which is the vast majority. And rich people, especially at the end of life, funnel lots of money into chairty.

Cut off elite nepotism at the bud

Nepotism? I thought we were talking about inheritance.

Another trick of economics is that not everybody can win, that's just a fact,

Explain to me how "economics" has rule that says not everyone can win. Support your "fact".
 
8,727
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This is somewhat related to above, but mostly just a venting exercise. My experience in California (as well as some lingering Randism) leaves me to conclude that any intervention into the natural course of economics at the structural level should be very, very carefully considered. Many people are aware of the crises/struggles/failures/challenges that California is currently facing. And the more I think about it, the more it's hard to look past just two laws enacted in the 1970s that have built a moat around the beneficiary group at the literal expense of everyone else.

1. Proposition 13
2. CEQA

Proposition 13 - very simple:
Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.

The proposition decreased property taxes by assessing values at their 1976 value and restricted annual increases of assessed value to an inflation factor, not to exceed 2% per year. It prohibits reassessment of a new base year value except in cases of (a) change in ownership, or (b) completion of new construction. These rules apply equally to all real estate, residential and commercial—whether owned by individuals or corporations.

Sounds great, right? Your property taxes can only go up 2% per year as long as you own your house. It's hard not to see this as a tremendous benefit to existing home owners...and it is. They have been enjoying that gravy train for 45 years now. But here are the unintended consequences:

Real property values are grossly out of sync with the tax revenue collected. People are still paying 1% tax against 1976 homes values. Meaning there are people, especially in the Bay Area who are paying a 1% tax on assessed values of around $100,000 against property that actually has a market value 10x or more higher. Want to know why I have to pay some much income tax? Because the state has to have high income taxes to make up for the property tax shortfalls. It's why schools are underfunded.

Not only that, but the specific wording of the law "except in cases of (a) change in ownership" hugely incentives people to not sell their home, ever!,...because if they get a new one, they lose their enormous tax benefit. This is why an enormous bulk of "starter" homes in California are occupied by people who have been there for 40-50 years. It was their starter home! They never moved because the tax law incentivized them not to. The existing housing inventory is severely constrained by people aging in place. It's shocking the amount of trust/probate sales that take place in the Bay Area versus homes being sold by a living owner - that is to say, a significant portion of the inventory is reliant on people dying in their homes to become available. People looking to buy starter homes are literally on waiting for people to die. (California has just passed a modification of prop13 that allows people to shift their tax benefit to a new home...meaning they can move and keep their benefit. While in theory this should help to get old people the **** out of the bay area, I'm afraid that they will just bring the distortion/problem to other areas and drive up the values there - at best.)

Just to give a particularly egregious example of this, consider the Los Angeles Country club, which should be mentioned is a private club. The estimated real value of the property it sits on is $10 BILLION (it is 300 acres in Beverly Hills). If you took the standard ad-valorem property tax rate, the club would pay $100,000,000 (that's one hundred million dollars) in property tax a year. They actually pay $200,000 a year in property tax. That works out to a 0.002% rate or 0.2% of what they actually should be paying. I'm sure the state of California and the city of Los Angeles make up this $99,800,000 deficit with higher taxes for everyone else. So I am subsidizing the LA country club's tax bill through income tax.

Ah yes, but what about new construction! That surely gets around the economic distortions of Prop 13. Yes it does, that's where CEQA comes in.

CEQA is far more complex but here is the basic explanation:
The California Environmental Quality Act (CEQA) is a California statute passed in 1970 and signed in to law by then-Governor Ronald Reagan,[1][2] shortly after the United States federal government passed the National Environmental Policy Act (NEPA), to institute a statewide policy of environmental protection. CEQA does not directly regulate land uses, but instead requires state and local agencies within California to follow a protocol of analysis and public disclosure of environmental impacts of proposed projects and, in a departure from NEPA, adopt all feasible measures to mitigate those impacts.[3] CEQA makes environmental protection a mandatory part of every California state and local (public) agency's decision making process. It has also become the basis for numerous lawsuits concerning public and private projects.

Now it's fair to say that CEQA is well intentioned and that protecting the environment is an important consideration. The kind of limitless junkspace sprawl of DFW or Houston or Phoenix is not good use of land. However, there is a component of CEQA that has utterly weaponized it against all development. That's because almost anyone can sue to stop the development of a construction project, any construction project, under the pretense of environmental concern. It has become the favored bludgeoning tool of NIMBYists and union extortionists. They often do not succeed, but they can almost always delay - and delays are a pretty serious outcome for developers. Just the threat of CEQA intervention is a chilling factor for them. There is a housing project near me that has been going through litigation for 15 years because the residents of the area simply do not want the project to be built.

Or how about a construction union, bizarrely, suing to stop the construction of a 1,000-unit residential construction project because there may be bird collisions. Yeah, a construction union. That sure sounds like good faith...just to be clear, there are a myriad of ways to prevent bird strikes of glass buildings, it is typical for Audubon societies to present recommendations. It is not typical for construction unions to sue over that issue. And also, just to be clear, CEQA can stop a project that has been approved (even unanimously approved!) by the planning entity having jurisdiction. This particular project may be delayed years for this one suit.

So proposition 13 strangles the liquidity of the existing housing market (and state tax revenue, which they make up for by billing me more) while CEQA belabors, at best, the construction of anything new. Taken together, Prop13 and CEQA represent enormous supply-side distortions in the economy of California that predictably result in sky-high property values and a housing crisis. Thanks, Ronald.

It's outside the scope of this post, but I'd like to make special mention of unions because they, too, have distorted the economics in California to the breaking point. Union demands and the teeth that they have recently killed a 13,000-unit housing project in east bay because the developer would have taken a loss on the project if they had met the union pay demands. The city council sided with the union and voted to stop the project. So instead of 13,000 units of housing during a housing crisis, and jobs during an economic catastrophe, that 5,000 acre site remains vacant and useless. I absolutely love the reaction from the head of the construction trades council:

We look at this as a victory,” he said. “We also look at it as an opportunity to get back to building this project by finding a master developer that will play by the rules the city of Concord has put in place. We are not going to sit on our thumbs. The Building Trades Council and the city will be working on finding a replacement for Lennar.”

Sure, buddy. I'm sure developers will look at this process and think, oh yeah I want some of that!

Before you start feeling sympathy for little guys making up the unions, I've met bay area union electricians who make $200,000/year without overtime. That is above what electrical engineers make in the bay area..
 
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Keef

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In the US, even extreme wealth is gone in 3 generations. How old do you think people typically are when their parents die?
Three generations, or over 100 years of economic and political dominance centered on maintaining that generational wealth.

So the goal is to knock people down? Usually the goal is to lift people up.
The goal of the hyper-wealthy is to maintain their wealth and control at any cost, including actively holding down the poor majority. They don't give a **** about lifting people up, and they laugh to the bank as they write books teaching us how to invest and how to get rich. It is legally impossible for the majority of Americans to get rich. We can't even day trade penny stocks to pass the time! The people who were already rich made wealth inaccessible, they wrote the system, and then they wrote the self-help books to troll us.

...which is the vast majority. And rich people, especially at the end of life, funnel lots of money into chairty.
Rich people funnel miniscule proportions of their wealth into charity, and that's before we factor in the purchasing power of their wealth. If I funnel 10% of my annual pay to charity that's a whopping $4,000. That's five months of rent! That's a reliable used car! That's my entire multi-engine rating needed to advance my career! That's an entire semester at Ohio State! That's a chunk of the medical bills sitting on my desk! That's a dumptruck of money and I've got way more important things to use it for than giving it to charity. I cannot afford to donate that to charity.

But if somebody worth $400 million gives $40 million to charity? That seems like a lot of money but actually it's just one of their several investment mansions, all of which are skyrocketing in value. That's just a portion of their stock portfolio which fluctuates by millions from week to week. Literally losing $40 million in the trash will not put them at risk of a medical bill going to collections, or being able to study that semester, or saving for that downpayment on their first house. They don't worry about their credit score. The $360 million they have left is still more than an airline pilot could save in a dozen lifetimes, and they could maintain a roof over their head in my $700 apartment for...514,285 months. 42,857 years. Or it could pay for 535 people to have a $700 roof over their head for an entire 80 year lifetime. That's ****ing insane, vomit-inducing wealth. Just a ballpark number I'm pulling from down-under here, but for somebody worth $400 million to donate as much as that $4,000 matters to me, they'd have to donate, like, $350 million. If I donated $4,000 once in a decade which is probably all I could manage, they'd still have $50 million to invest for a decade and see where it goes. Elon Musk and Jeff Bezos certainly would've turned that back into another $350 million donation within a decade. I feel like you either never did or have lost grasp of the actual value of money, and how much a few small number of people control the will of hundreds of millions of people via their world-dominating wealth.

Nepotism? I thought we were talking about inheritance.
Nepotism is the natural consequence of generational wealth, where family members, children, grand children, all happily stumble into positions of tremendous power through the connections they had no choice but to make as a toddler. You know this. The practice is despicable, and the people who engage in it are evil.

Explain to me how "economics" has rule that says not everyone can win. Support your "fact".
My facts are the entirety of human history, where at ever moment of our entire history there were winners and there were losers, and the finishing (and starting) positions were almost universally decided by the people who had already won.
 
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Danoff

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Three generations, or over 100 years of economic and political dominance centered on maintaining that generational wealth.

Probably not over 100 years. Depends on how you count, but it's almost certainly less than 100. And it's not "economic and political dominance", especially by the 3rd generation. It's more like maybe the first one is "economic dominance" and the next one is "powerful" and the next one is "kinda muscular" and then "normal".

The goal of the hyper-wealthy is to maintain their wealth and control at any cost, including actively holding down the poor majority.

Such class warfare. Nobody needs to hold anyone down (in America) to "maintain their wealth".

They don't give a **** about lifting people up, and they laugh to the bank as they write books teaching us how to invest and how to get rich.

You're so full of demonization for people you don't seem to understand.

It is legally impossible for the majority of Americans to get rich.

Citation needed.

The people who were already rich made wealth inaccessible, they wrote the system, and then they wrote the self-help books to troll us.

Inaccessible? How? Remember, wealth is created. It is not a zero sum game. You do not need to swindle someone out of theirs to have some of yours. You can create it by yourself.

Rich people funnel miniscule proportions of their wealth into charity, and that's before we factor in the purchasing power of their wealth. If I funnel 10% of my annual pay to charity that's a whopping $4,000. That's five months of rent! That's a reliable used car! That's my entire multi-engine rating needed to advance my career! That's an entire semester at Ohio State! That's a chunk of the medical bills sitting on my desk! That's a dumptruck of money and I've got way more important things to use it for than giving it to charity. I cannot afford to donate that to charity.

But if somebody worth $400 million gives $40 million to charity? That seems like a lot of money but actually it's just one of their several investment mansions, all of which are skyrocketing in value. That's just a portion of their stock portfolio which fluctuates by millions from week to week. Literally losing $40 million in the trash will not put them at risk of a medical bill going to collections, or being able to study that semester, or saving for that downpayment on their first house. They don't worry about their credit score. The $360 million they have left is still more than an airline pilot could save in a dozen lifetimes, and they could maintain a roof over their head in my $700 apartment for...514,285 months. 42,857 years. Or it could pay for 535 people to have a $700 roof over their head for an entire 80 year lifetime. That's ****ing insane, vomit-inducing wealth. Just a ballpark number I'm pulling from down-under here, but for somebody worth $400 million to donate as much as that $4,000 matters to me, they'd have to donate, like, $350 million. If I donated $4,000 once in a decade which is probably all I could manage, they'd still have $50 million to invest for a decade and see where it goes. Elon Musk and Jeff Bezos certainly would've turned that back into another $350 million donation within a decade. I feel like you either never did or have lost grasp of the actual value of money, and how much a few small number of people control the will of hundreds of millions of people via their world-dominating wealth.

First of all, you just seemed to try hard to demonstrate the opposite of what you were saying. So you came into this saying rich people donate very little, and then kinda made a case for why you donate little, but rich people can actually donate a lot!

Then you kinda went nuts over values. I think you're failing to understand how people like Musk and Bezos are "rich". They own a lot of stock in a single company. And they can't even liquidate big portions of that without tanking the stock price. If musk started trying to cash out his stock, it would send prices down hard. So he has to just sit on it. You say it makes money, but only if Tesla goes up, or Amazon. If not, it loses money... millions... in a single day. It's not nearly the same calculus that you're talking about. You can sit here and pretend that it goes nowhere but up, but that's not the truth of it. And in fact it's highly volatile, plummets, and is very difficult to access.

Now sure, if they need a few million, they can cash it out. No problem (and pay lots of tax). But it's not like they have 100 billion in an interest bearing savings account. They also don't "dominate" the world. World domination looks a lot more like what Trump attempted (badly) a short few weeks ago, and less like what Musk does.

Nepotism is the natural consequence of generational wealth, where family members, children, grand children, all happily stumble into positions of tremendous power through the connections they had no choice but to make as a toddler. You know this. The practice is despicable, and the people who engage in it are evil.

What? No, Nepotism is not a natural consequence of generational wealth. Nepotism is its own thing.

My facts are the entirety of human history, where at ever moment of our entire history there were winners and there were losers, and the finishing (and starting) positions were almost universally decided by the people who had already won.

It's not a game. There aren't winners and losers. I wish you could understand this. There's just life... yours, mine, Elon Musk's. And we're spending it. Money can make you more comfortable, less stressed, and even give you some interesting choices. But it doesn't fundamentally change your life unless you're scraping at the edge - which in America, is unlikely. I have lived on part time minimum wage, and I have very different means now. And I've experienced most of what is in between.

The greatest thing that made my life amazing when I was making minimum wage was my wife (girlfriend at the time), who got very nervous for me once when we were at the grocery store and I bought $30 of groceries and wasn't entirely sure whether my debit card could ring it. These days, I'm far from worry about anything like that. What's the greatest thing that makes my life amazing today? My wife.

I think if you understood how rich I am compared to some of these billionaires, you might start thinking that relationship inequality is where class warfare should really happen.
 
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Keef

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Sitting on cash describes what I'm doing perfectly. And paying off debts rapidly describes exactly what I'll do when I start getting paid again, eventually, maybe, hopefully. And engaging in various activities to improve my credit score which has been absolutely demolished during this pandemic, but hey, I won't be able to afford a house for years and don't want one anyway so I don't really care.

Edit: Except that student loan. My minimum is hilariously cheap so that bastard is going to the grave with me. :lol:
 

DK

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Same here (apart from the paying off debts part, kinda hard to do that without any :embarrassed:), but it's more of a case of not really needing to buy anything rather than worrying about job security. There's no point buying a car when I don't have a licence, I've got a ton of jumpers and jackets that aren't in tatters, really the only thing I'm splurging on is buying lunch every day and some cans of craft beer.