As a wealthy American with a massive spending problem, I’ll say there’s diminishing returns.
You can spend a huge sum on organic groceries, and ski lift tickets.
Is it 100x better than my former WoW subscription and $10 university food? Not really.
I think it depends on how you describe "wealthy". The life of someone who makes $200k a year isn't hugely different from someone who makes $50k. You still have to drive yourself to work and sit in rush hour traffic with every other peasant, for example.
When I think about wealth and quality of life, I'm usually trying to eliminate the mundane in my personal life without even thinking of the "cost". I can afford healthcare, and car maintenance.....but I'm not at a level where I can keep a personal assistant on-call 24/7 to sort through my mail and then go buy groceries even if I want them at 2am or something. It's interesting you mentioned spending a "huge sum" on organic groceries....I think I eat decently well but I live in Japan where adequate-quality food in adequate portions doesn't bust your wallet, especially if you have a USD income.
Until I can just tell someone "I have identified a problem. Make it go away, these are your restraints and constraints in finding a solution." I will still consider myself a peasant, no matter how much grass-fed beef or how many Swiss watches (just bought my first... a used limited-edition Edox) I can afford.
>I think it depends on how you describe "wealthy". The life of someone who makes $200k a year isn't hugely different from someone who makes $50k. You still have to drive yourself to work and sit in rush hour traffic with every other peasant, for example.
One of the biggest differences between those salary levels is the housing they enable. 200k salary will allow for owning a home in most places (in the US, at least), while 50k will not. From there flows a lot of other things, like crime/safety, schools (if you have kids), etc, and even can improve your example: 200k can get you a place closer to work with a shorter commute, even if some of it still is spent in rush hour.
Healthy food is not as expensive as people claim. At least the average person can afford fruits and vegetables and staples they can cook. Most of our health problems are from overeating and eating a high amount of junk and sugar, not from being unable to buy everything at Whole Foods.
Being able to fly international in Business Class for annual vacations should you choose to is a choice many would consider 100x better than $10 University food.
Sure. I didn’t make my point clear.
100x expense doesn’t mean 100x utility. There are a lot of “consultants” in HCOL cities grifting from high earners.
I had a baby proofer try to charge me 4 grand for a handful of outlets and corner pads.
yah, rich people are extremely stupid in ways that doesn't really hurt them because it's a small portion of their income. How jimbo might do something stupid and spend 10% of his disposable income on scratchers trying to get rich, rich people do the same, it's just 10 % of their income is a large number and they are usually chasing convenience or experience rather than riches.
As a fellow (?) American who does not have fuck you money, but also does not have to work anymore, I can see how 100x wealth could make my life 100x better if played right. And I am not talking about ski lift tickets vs WoW subscription or organic food vs ramen, which really have trivial differences in value.
> who does not have fuck you money, but also does not have to work anymore
I don’t understand how those can both be true. Having enough money that you don’t need to work anymore is pretty much the definition of having ‘fuck you’ money.
Probably lifestyle inflation. For tech bros it might be buying a $4000 workstation to "play with llama/stable diffusion". For a normie it might be spending $100k on a luxury SUV/pickup.
It's interesting to me that people worried about wealth inequality are normally also very supportive of free trade policies.
A lot of the concentration of wealth comes from the fact that economically there is capital, goods, and people. We made it super easy for capital to flow around the globe, moderately easy for goods to flow around the globe, and difficult for people to flow around the globe.
An Apple phone made in China, sold in South Africa, still sends money (capital) back to the US. This lets a few people gain extraordinary leverage at the expense of the lower ends of the curve in the United States who have seen their jobs shipped overseas.
Because the free trade policies aren't the root of the problem (ie inequality). As given enough time, global free trade policies should lead to income/wealth equalizing across the globe. Rather its unequal access to credit, and its costs, which is the real engine/cause of inequality. US has the money printer to the world's largest reserve currency, and the government as well as those who are directly subsidized by it, are those who benefit greatest. You'd be rich too, if the government printed and handed you $50 billion and didn't do the same for anyone else.
I don't think this is at all guaranteed by free trade. You could have one country stuck in a rut where they're exporting only raw goods, and they have to buy everything from a (smaller) country making more advanced goods and selling them back. Of course, the balance has to even out, but it the money is spread between more people on one end then it doesn't mean they'll be as well off as the other country.
No, that's wealth equalizing. Raw goods moving from one country to another, means equalizing those raw materials across the globe. That is, those materials are not all concentrated in one country and forgone in another (inequality), but now spread more equally between the two countries. Same for advanced goods.
But you're not wrong, the real crux of where the inequality happens is in the bond between people - represented by money - which is nothing but an IOU, a promise of a favor. There's a reason why 2 nations are often leery about what currency to trade in, as it can easily be manipulated for unfair advantage.
I don't think currencies work the way you seem to be implying. While there are certainly economic advantages to being the currency everyone trades in (in particular for your ability to finance your way out of a recession with less impact on your currencies value), I don't think it is the source of any long term difference in economic strength, this has more to do (imo) with government policies and such. See e.g,. the wikipedia article on the resource curse.
Well no, economic strength is really a matter of labor productivity, and I do not disagree in that the difference stems from government policies, I am not sure what statement I said makes you think I disagree?
The OP questioned people's stances on wealth inequality and free trade, implying that the growing inequality stems from free trade policies. This is understandable from solely an American perspective, but globally and economically speaking, this is untrue. My argument is that it's rather government policies around credit (and its costs (ie taxes)) which fundamentally drive economic inequality.
That's overly simplistic. In the Apple scenario, it enriches the partners in the other countries (eg Foxconn), many retailers worldwide, and employees and shareholders. The latter might not be American. Many firms are multinational with money flying in all kinds of directions, even friendly governments.
So, what you say is correct in some ways. Some do get more leverage while others jobs are shipped overseas. Who is getting leverage is every party benefiting from these arrangements. Interesting enough, that includes companies in U.S., South Africa, and China.
I think the idea is that with some wealth redistribution (taxes) free trade allows domestic companies to bring in larger revenues which would contribute to better education (healthcare, infrastructure etc). Then the idea is that we don't have domestic sweatshops, Nikes would continue to be made cheap offshore and the country's population could benefit from better education which would contribute to better innovation and better quality jobs
larger revenues which would contribute to better education (healthcare, infrastructure etc)
Where do you see larger revenues going besides to shareholders? If anything we've seen the opposite of better education/healthcare for the general public.
> Where do you see larger revenues going besides to shareholders
The state takes a much larger share of your salary than the shareholders do, so no you are wrong here. Most money do not go to shareholders, it goes to the state taxes to fund programs and worker salaries, increasing those is a good thing.
> I think the idea is that with some wealth redistribution (taxes) free trade allows domestic companies to bring in larger revenues which would contribute to...
You can support both. Most people concerned about inequality are usually in favour of some sort of wealth tax. It's a tax on individuals, not corporations.
Correction: the people who pretend to be worried about wealth inequality are very supportive of free trade policies. It's just something they are supposed to say at fancy parties.
A big issue at the core of this phenomenon is the Fed funds rate and access to capital.
It has never been clear to me how having a single universal funds rate for the entire economy would prevent this very scenario of diverging fortunes between those with large capital reserves and those without. In the name of fighting inflation, small businesses now struggle for access to cheap credit and have been under stressful conditions for years now while richer American entities continue to bid up prices of luxury items and average home prices. The reality on the ground is far more dire than what the headline metrics show as we see an entire generation push up average duration of long term credit like car loans or home loans and thus set themselves back from otherwise needed population milestones by a decade or more right now.
The old cliche about "The first Million dollars is the hardest, but the next Million is an eventuality" comes from this very phenomenon we're seeing.
There has to be a better way for the Fed to have a fine grained approach at applying friction to money supply and credit rather than hitting everything in the economy at once.
A good macro economist I follow who called the spy 350 bottom and this entire runup back when everyone was bearish has been saying we are in a have vs have not economy since covid. And that is in part what drives the markets higher and higher. Majority are bearish and skittish but economic numbers keep printing like everyone is flush.
He is calling for a blow off top followed by a deflationary bust fwiw.
TLDR: your guy is probably overconfident about his prediction. Even if your guy is actually super brilliant, and not over-confident, there’s no way for us to verify that. Therefore there’s no good reason to trust him more than average.
Unfortunately these kind of predictions are impossible to trust, even if the predictor is known to make good calls. Michael Bury called the 2008 financial crisis and made a killing off of it. Since then he’s been periodically predicting a water-scarcity-driven recession, deleting and undeleting his twitter every couple of years. It never happens. Even the best economist can’t predict the timing of these things. If somebody believes they _can_, that just makes me suspect that they’re not wise enough to know they can’t predict it, and probably aren’t very skilled. Or maybe they’ll be the first to get it right — but how could I confirm that, without blind faith?
On any given day there are probably a thousand reasons the economy should fall apart tomorrow, and yet somehow it doesn't. Sometimes someone calls out one of the reasons on the exact day it falls apart tomorrow, and they feel like a god, but they just got lucky.
Coincidentally this is a very concise summary of the book "Fooled By Randomness". Bet you didn't know you were writing a book summary, but sometimes it just happens by chance :)
The difference between him and Burry is his macro forecast doesn't change. Actually watching guys like Burry grasp at straws after they got one big one right is in large part why I am an even bigger believer in this forecast.
For example Trump and tarrifs have nothing to do with his forecast whatsoever. It's a long term macro forecast that trumps presidents etc.
I’d be curious to see this broken down further. Consumer spending seems to me a better way of measuring wealth, as in wealth inequality for public policy purposes than paper wealth reflected in stock valuations.
I feel like a sales tax coupled with a 0% rate on the first X$ of spending would be a sweet spot. Could use a card or something to track taxes per person spending at the register.
No tax filing, still lower rates for poor people. That'd be nice.
But also there's the very real problem of wealth concentration. The economy works best with flowing income. It works worst when money is at rest. With a sales tax only you end up in a situation where wealth can be endlessly horded, which takes that velocity of money out of the market.
For example. Let's say there's 1000 monies and 100 people's. If bread costs 10 monies everyone gets fed if wealth is evenly distributed. However, as wealth concentrates into one person less people can afford to eat which has a knock on effect of potentially putting bakers out of business (ultimately raising the price of bread).
Sales tax only explicitly favors wealth concentration. The more money you have the more you can defer and invest to accumulate more wealth. If you don't have enough money then it's impossible to ever start accumulating.
> But also there's the very real problem of wealth concentration. The economy works best with flowing income. It works worst when money is at rest. With a sales tax only you end up in a situation where wealth can be endlessly horded, which takes that velocity of money out of the market.
This is basically arguing the world works best when the rich buy bigger yachts instead of bigger factories. All of this wealth the rich have isn't gold coins in a giant vault like scrooge McDuck, it's a sheet of paper that says they own .3% of Microsoft.
> For example. Let's say there's 1000 monies and 100 people's. If bread costs 10 monies everyone gets fed if wealth is evenly distributed. However, as wealth concentrates into one person less people can afford to eat which has a knock on effect of potentially putting bakers out of business (ultimately raising the price of bread).
What you're describing is a recession do the a drop in aggregate demand. Yeah this is bad and we have monetary and fiscal policy to reverse it. And usually monetary and fiscal policy are better because if we just fixed it by incentivizing the rich to spend more money on consumer goods we'd have more workers building mansions vs homes. Not to mention we are currently do not have that problem, which is why we have inflation above target.
I think there are a lot of good reasons to tax the rich (and upper middle class) more, like our ballooning deficit, but creating tax incentives so the rich spend more money in an economy that is already on the verge of overheating isn't one of them.
> This is basically arguing the world works best when the rich buy bigger yachts instead of bigger factories.
Yachts are wealth that would be taxed. And in fact, assuming you are taxing the rich based on their wealth/property/ and income then you are in fact incentivizing them to buy bigger factories rather than yachts. The bigger factory generates more wealth for them while not being taxed because it isn't directly owned by them. A yacht only costs them money.
> All of this wealth the rich have isn't gold coins in a giant vault like scrooge McDuck, it's a sheet of paper that says they own .3% of Microsoft.
And what do those sheets of paper do? Do they create jobs? Do they employ people?
The problem with the investment ownership model is it's completely speculative without any actual feedback into the economy. The only difference between the paper that grants ownership of microsoft and the paper that allows you to pay back debt is one has speculative value for trade. Because the value of the sheet of paper is based on what the market values that sheet of paper as, it creates perverse incentives that aren't actually economically good. For example, the last couple of years when tech businesses hired a bunch of employees because that made the stock go up, then fired a bunch of employees because that make the stock go up. Businesses are being ran not based on whether or not the goods are being sold or valuable, but rather whether or not the speculators in the market think it's good or valuable. That's a major negative distortion of the market.
The entire point of stock isn't bigger factories, it's to enable bigger yachts.
Stock as compensation, particularly for business owners, is one of the worst inventions of society. It is what causes enshittification.
> if we just fixed it by incentivizing the rich to spend more money on consumer goods we'd have more workers building mansions vs homes.
Right, but as you point out, that's not what the rich are doing. They are instead buying paper that does not feed back into the economy. But further, there are only so many consumer good someone could buy before they are completely satiated. There's only so much bread one person needs. There are limits to the bed or computer someone could buy. We are at the point where the wealth literally have more money than they can spend and that's part of the problem.
> Not to mention we are currently do not have that problem, which is why we have inflation above target.
We have inflation above target because businesses have merged and consolidated to the point where they can aggressively raise prices not because they need to but because they have the general population over a barrel. Collusion and speculation is a big factor in a lot of the inflation.
That's not universally true, after all egg price inflation has been due to herd culling for bird flu. It is however fairly true and something that businesses are bragging about during their quarterly shareholder meetings.
> creating tax incentives so the rich spend more money in an economy that is already on the verge of overheating isn't one of them.
Where and how they spend their money matters. And part of the defense against further inflation can be more taxes/regulations. For example, vacancy taxes for residential units which would help pull back the real-estate market.
> The bigger factory generates more wealth for them while not being taxed because it isn't directly owned by them. A yacht only costs them money.
Everything you said is true regardless of how taxes are structured, so I don't see how that's supposed to support your claim that "taxing the rich based on their wealth/property/ and income then you are in fact incentivizing them to buy bigger factories rather than yachts".
> Businesses are being ran not based on whether or not the goods are being sold or valuable, but rather whether or not the speculators in the market think it's good or valuable.
I don't see what the issue is. We don't have a crystal ball that tells us "whether or not the goods are being sold or valuable", so the latter is the best we have. How else are we going to allocate capital? A central economic planning committee?
>The entire point of stock isn't bigger factories, it's to enable bigger yachts.
If you want to be reductive, sure. If you want to be even more reductive, you might as well go with "Everything in the world is about sex, except sex. Sex is about power".
>Right, but as you point out, that's not what the rich are doing. They are instead buying paper that does not feed back into the economy.
The people who invest in VCs, PE, and private credit are most definitely not "buying paper that does not feed back into the economy". VCs and PEs directly fund startups and other businesses, and private credit funds infrastructure projects and other corporate spending. Moreover, even if spending $100 to buy shares in Tesla doesn't directly cause $100 being spent on battery gigafactories or whatever, doesn't mean it "does not feed back into the economy". You're paying off a chain of investors, all the way back to the investor who participated in Tesla's IPO, who did directly fund Tesla's factories. Claiming otherwise makes as much sense as "buying an apple from the grocery store doesn't feed back into apple farmers, because you're only paying the grocery store".
>We have inflation above target because businesses have merged and consolidated to the point where they can aggressively raise prices not because they need to but because they have the general population over a barrel. Collusion and speculation is a big factor in a lot of the inflation.
Source?
>That's not universally true, after all egg price inflation has been due to herd culling for bird flu. It is however fairly true and something that businesses are bragging about during their quarterly shareholder meetings.
Executives bragging about how greedy they are is basically the equivalent of rappers bragging about all the crimes they've committed in their albums. In both cases their audiences like them to sound as greedy/criminal as possible, so they oblige. Securities law makes the former can't straight up lie about stuff, but the incentive structure is the same.
> You're paying off a chain of investors, all the way back to the investor who participated in Tesla's IPO, who did directly fund Tesla's factories. Claiming otherwise makes as much sense as "buying an apple from the grocery store doesn't feed back into apple farmers, because you're only paying the grocery store".
The more you distance and dilute from the original share, the less relation there is to the original investor. Eventually, there is simply no relation to the two. Similar to how buying a used copy of Frankenstein today has no benefit to Mary Shelley or her estate.
I should also point out that apples and other consumables have finite lifespans. The apple you buy from the grocery store has a near direct line to the farmer that sold it. Purchases of apples drive demand because they are almost immediately consumed.
Stock is more closely related to something like iron. Sure, someone had to refine it at one point and there is demand for new iron on occasion. However, generally speaking the recycling and reuse of iron has little direct impact or benefit to the original miner. Unlike iron or apples, stock never goes through a value add transformation. A share is a share. It provides no extra work or good.
>The more you distance and dilute from the original share, the less relation there is to the original investor. Eventually, there is simply no relation to the two. Similar to how buying a used copy of Frankenstein today has no benefit to Mary Shelley or her estate.
No, because capital markets are far more liquid than the market for copies of Frankenstein. Every dollar that gets "invested" goes into the global pool of capital stock, some of which is used for new investments like factories or whatever. Spending a dollar on existing shares makes them ever more expensive, and therefore a poorer investment than new investments. That causes more money to be funneled into new investments. There isn't a surfeit of piled into existing shares, because the existence of such a surfeit would imply there's money for someone (institutional investors, hedge funds) to sell their existing shares to fund new investments.
The original claim was "Collusion and speculation is a big factor in a lot of the inflation.". Your article says:
>Gross profit margins of big-name stores and brands stayed mostly steady
and
>"Even though profit margins for grocery stores have gone up," he wrote in a July report, "the increase appears to be only a small contributor to the rise in food prices relative to the increase in their operating costs."
But grocery stores' margins are single digits, so at best this explains a few percent (note, not the same as percentage points) of inflation. Hardly "a big factor".
An easy first step is simply raising taxes. They are ridiculously low. But further, I'm partial to the wealth tax (or a property tax). Couple that with social spending which will hyper juice the economy. The more needs we have provided, the more excess wealth can be spent on luxuries which is what encourages capitalism in flourish in the first place.
There are ancillary benefits to having a progressive and aggressive tax system. If there's one thing business owners hate, it's giving money to the government. So if they can avoid being taxed by hiring more employees or paying them a higher salary, that's exactly what they'll do. It flips the incentives around revenue and pushes businesses to invest in the business.
That was a huge driving factor of the innovations in the 60s, 70, and early 80s. We've been stagnating since mainly because the government has been slowly pulling back on taxation making it much more profitable to horde rather than invest and innovate.
That sounds rather dystopian to me. Tracking all spending by each person individually. It'd be like forcing the population to use something like Bitcoin, but with every address registered to a citizen. That's a big nope from me. We could just tax higher income more and extreme wealth.
Last time I called my mom who's in Beijing, she says that economics doesn't seem very good at the moment, many shops and restaurants has closed, but there are more luxury shops popping up. Looks like similar in the US.
For anybody still cofused about taxation and what are solutions, please check Gary Economics YouTube channel. He is ex trader, few years rated best at Citibank, and is making very easy to understand educational videos on what wealth inequality is and why the rich are getting richer and poor are getting poorer.
Normally I wouldn’t recommend a channel, but this one is such a gem it’s a sin not to recommend it. Watched a lot about economics and taxes before, overwhelming majority of explanations are poor and a frankly a joke.
The wealthiest 10% of American households—those making more than $250,000 a year, roughly—are now responsible for half of all US consumer spending and at least a third of the country’s gross domestic product.
This wording makes it sound like consumer goods and services are the moral things to spend money on and wealthier individuals are slacking. This is silly.
There are many good things other than consumer spending that wealthy people can and do spend their money on: capital investments for new or growing businesses, philanthropy, research, etc. etc. etc.
In fact it would probably be better if wealthy people spent less money on consumer (luxury) goods and services and more on these other things—if they were, in your words, even farther from “their fair share.”
This is a fair reply, and I was being a little glib. This is in response to the facile premise and body of the article that seeks to defend wealth concentration.
What is clear is that wealth disparity is making it hard for more than half of the country to meet basic needs, and they are not contributing towards consumer spending measures because they are unable to not because they are unwilling to.
The article makes a much better case for updating the higher tax brackets, taxing income avoidance strategies more effectively, and using the proceeds to ease the load on the least wealthy half of americans so they are able to contribute to consumer spending and live happier and healthier lives.
This is where behavioral, microeconomics, and macroeconomics meet up. You have to appreciate the stress on individuals and the social fabric that these figures imply.
The Fed's chart is talking about actual wealth, but Bloomberg, despite saying "wealthiest," is really talking about the top 10% income earners. So it's not an equivalent comparison.
How does this compare to other developed nations currently? Or developing nations on the cusp of modernization? Is this a contemporary trend or an outlier?
Why “of course”? It’s not clear to me why that would the case. For instance, we wouldn’t expect the top 10% to account for 50% of all food consumption simply becuase they control 50% of the wealth.
Yes we could.
Wealthy people eat more expensive food.
Sometimes insanely more expensive.
While the majority of Americans are debating whether or not to buy a dozen eggs this week,
a wealthy man is spending a million dollars a year to feed themselves. https://www.youtube.com/watch?v=HyABU75DKjA
I knew you'd say that,
so I already have my answer: you're substituting your own definition of 50% for the articles definition: consumer spending.
I'd say you're moving the goalposts but trying to change "amount spent as an economic measure" to "caloric content" is more like looking at a football field and asking where home plate is.
Why should control of 50% wealth equate to 50% of all consumption? Why not 70% of consumption or 40%? What is the reason that the two percentages are expected to be the same?
Because in the US wealth and consumption are considered two sides of the same coin.
Wealthy but not conspicuously consuming?
You're not keeping up with the Joneses.
Conspicuously consuming but poor (thanks, easy credit)?
You'll be mistaken as having more money than you do.
The two sides often come together in the upper-middle classes,
where people with more-than-comfortable incomes and financial resources will grossly overextend themselves on credit appear more well off than they already are.
I see the graph, but I'm not sure this is very different from years gone by. Maybe 10 years ago, the top 10% of Americans accounted for 50% of travel expenses. Politics feels more significant: Trump-voting counties have never made up more than 36% of GDP.
The error I always see in these analyses of income percentiles, while not always explicitly stated but but usually inferred, is that the income groups remain static.
But this isn't true. This analysis of churn shows households move across income quintiles over a decade.
For the 2nd to the 5th quintile, only 3% to 23% of households are still in the same quintile a decade later. Among the lowest, it's higher at 64%, which may seem disconcerting, but one must recognize that retirees would fall in that group and often have low income for the duration of their retirement as they live off savings.
And intuitively this makes sense - people leave home to start careers often make low incomes and see progressively higher income until retirement, at which point they see a large drop incomes.
So while it may be true that the wealthiest American fuel spending, that group of wealthiest Americans is constantly changing.
it's higher at 64%, which may seem disconcerting, but one must recognize that retirees would fall in that group and often have low income for the duration of their retirement as they live off savings.
This worries me, as we're now top heavy, and therefore a larger percentage of our population is retiring over the next decade.
