Wednesday, April 23, 2014

For Us Thieves, Life Is Easy

I get the feeling that for most of the people reading this blog, life is pretty easy.  Mostly it's the kind of people that not only can meet their needs with each paycheck, but there's money left over to save.  I'm lucky enough to be able to say that's true for me.

I don't consider myself a super frugal person, but I aspire to be.  If you are frugal and you save money it doesn't necessarily take too long before the money you've saved itself "earns" enough to cover your monthly expenses.

So for instance, suppose I was a more frugal person and could live on $30K/year.  If I were to save $750K then my savings should cover all of my expenses.  Forever.  A general savings rule is that if you've invested in a broad range of stocks, perhaps via a mutual fund, you might expect that you can withdraw 4% of your total savings annually and the savings would never go away.  Maybe you have 7% growth, you withdraw the 4%, and inflation eats 3%.  Basically the money lasts forever.

Suppose I've hit financial independence, but I just keep working for a few more years.  It doesn't take that long to go from $750K to $1.5 million because that initial $750K grows as well.  If I wait a few years on retirement and still live on $30K when I do retire, by the end of each year I'd have $30K more than when I started.  Despite the fact that I've lived comfortably, paid my utility bills and my food bills.  I had many people that provided me services.  And yet despite doing nothing I now have even more money than the year before.

How does that work?  How is it that I can take advantage of services, pay for utilities, go out to eat, generally enjoy myself, all the while doing nothing, and when I've done that for a year now I have more than when I started?  We're told that our money "works" for us.  But it doesn't really.  Money doesn't actually "do" anything.  People do.  People work.  What money does is it entitles me to take a portion of the value that other people create.  This is entailed in the concept of "property rights".

In other words, people work in factories and in so doing they add a certain amount of value.  They only keep a portion of that value.  Who gets the rest?  I do.  It goes to me.  I don't necessarily know what they do.  I don't know if the work is destructive to his body or his environment.  I just get the money.  And I haven't really done anything.

If I were to continue working as I do now for a couple of more decades a savings of $1.5 million is entirely conceivable, and I think living on $30K/yr is also plausible when the mortgage is gone.  So what does this mean?  It means that when I stop working I not only will watch my wealth grow, I'll be able to provide for my kids such that they could extract services forever and likewise never work.  I just need to teach them the 4% rule.  I'd be living on 2% on this scenario, so the amount I can withdraw annually without seeing any reduction in my real wealth increases

This scenario is very much within my reach, and it seems unfair.  The idea that I can reach a point where I never work, yet my wealth grows, and further that my kids and their kids can likewise live off that same wealth.  So you can imagine how extreme the unfairness is for people that are really sitting on large piles of money.  They can hardly see their wealth diminish even if they try.  Why?  Because sweat shop laborers and other laborers are compelled to hand over the fruits of their labor to these rich oligarchs.  Money the oligarchs don't need, but the sweat shop laborers do.

This is the system I participate in.  We are the lucky ones that don't live hand to mouth.  We've seen a big boost in our wealth over the last year or so as the stock market has come back.  That's wealth that was created by the companies I partly own through mutual funds.  Companies that have people that work for them, people that often live hand to mouth and just don't have the ability to save.

It's just kind of depressing to me, but I don't see that I have much choice.  I've been working all these years and I haven't been allowed to keep the entire amount of value I've created.  It's gone to stock holders before me.  If I had been able to keep what I produce maybe I'd have enough saved that I wouldn't need to work any more, but that's not where I am.  So like they have taken the excess value I've produced, I'm going to take the excess value produced by others further down the line.  As I age it's going to get tougher and tougher to work for a wage.  You're going to have to have savings.  There are alternatives to investing, but they aren't so good.

What would be more fair of course would be to take back from the rich what was taken from us instead of taking from the poor, but our system of property rights just doesn't permit it.  But this is one of the reasons I find it absurd to hear complaints from rich people about welfare.  The biggest welfare system ever is the system of property rights, which compels the very poorest of people to give the value they create to people that are so fantastically rich they can't realistically even spend it.

Amongst some on the left a popular phrase is "Property is Theft".  I think that's correct.

Tuesday, April 22, 2014

Corporate State Capitalism

Did you know that every important component in the iPhone was originally developed with funding from the US government?  Not just the iPhone of course.  Google, pharmaceuticals, GPS, commercial aviation, satellite communications.  Just about every advanced technology that you could think of that sets the US apart from the rest of the world in terms of our economic strength finds it's root in the state sector.

Economist Marianna Mazucotti goes into more detail in this Ted talk, and those that have read my blog for a while know that I learned this long ago from Noam Chomsky.  Chomsky goes into further interesting detail in this lecture from 1997.  He says that pretty much everyone understood following the end of WWII that state support of the economy was vital, and if we took it away with the end of the war we should expect to plunge straight back into the Depression we had just emerged from.  Think about these facts the next time you hear someone talk about how Steve Jobs is the perfect example of the kind of innovation that is possible if only we'd get government out of the way.

Monday, April 14, 2014

Chasing Liberal Extremists

I really first started reading liberal voices in more depth around 2009, just after Israel's invasion of Gaza, which struck me as outrageous.  At that time I learned for the first time of many things, one of which was how the finance industry uses high frequency trading to extract money from the rest of us.  What happens is when a trade is placed it takes fractions of a second to execute the trade.  Financial institutions have access to cables that can execute trades more quickly, so what they do is they run a line to sense if you've made a trade.  Knowing you are about to buy a stock they basically cut in line, jump in front of you, and purchase at a slightly reduced price, then the price you actually get is slightly higher, and they make a small amount.  It's not a lot, but do it millions of times per day and you're now pulling in some good money.

This is another example of how finance extracts money while it's quite dubious that this provides real value.  What's interesting to me though is suddenly I'm hearing all kinds of more mainstream voices talking about it.  Today it's Paul Krugman.  Here again at Naked CapitalismThe Atlantic.  It's just interesting to me to see so much of this in more "mainstream" liberal circles.

Global warming is another case.  I'm glad to see that in mainstream liberal circles it's becoming more common to take the urgency of this issue for granted, while the extremists have been saying it for years.  For those that think science was telling us global cooling was on the way back in the 70's I think it's interesting to show them Isaac Asimov explaining things in 1977 or even this scene in the movie Soylent Green in 1973.  But recently despite the well funded propaganda efforts by the fossil fuel industry and the right wing think tanks you're seeing a lot of alarm in mainstream circles, like this from the NY Times.  John Kerry recently said of dealing with the deniers that we just don't have time for a meeting with the Flat Earth Society.  For the bury the head in the sand crowd evidence is just not something that matters to them at this stage, and we really don't have time to wait for them to be convinced.  I think I'm seeing more and more of this and that's a good thing.

At the root of all this is simply the fact that Capitalism is killing us and can't go on without catastrophic consequences.  Read here about how Thomas Piketty's book is affecting even mainstream economic discourse, simply saying the kinds of things liberal "extremists" have been saying for a long time.  Capitalism Has Failed The World is one headline.  I'm not expecting the establishment to buy it any time soon.  A lot of the people involved simply benefit too much from existing paradigms.  It's like that esteemed economist interviewed in the movie "Inside Job".  He wrote papers about how in Iceland deregulated finance was working wonders and was a model for the rest of the world.  At the time of publication Iceland was beginning the collapse, and we would later learn that he's on the payroll of banks that benefit from this catastrophic system.  Glenn Hubbard similarly in the US.  There's a lot of that going on.

I think when considering predictive capacity and incentives it's easy to understand why mainstream circles, even mainstream liberal circles, are always so late to the party.