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Wealth Inequality Savings Heuristic Bonds

WISH Bonds
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(+2, -1)
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Concerns about wealth inequality seem to have consumed the Western World in a way last seen during the communist/socialist fervor of the early 20th century.

The largest cause of the recent (post 80s) surge in wealth inequality is of course not the Internet, not corrupt executives and lawmakers, not the overhaul of the tax code. It's arithmetic. How so?

Well, if you have $1000 worth of Google stock, and it doubles, you have $2000 worth of Google stock.

If you have $1B worth of Google stock and it doubles, you have $2B worth of Google stock.

Clearly if you count wealth not in SHARES of Google, but in the money those shares translate, the relative proportion of wealth changes dramatically.

Thereby the shocking, shocking growth of wealth inequality since the 80s is NOT tax policy, nothing of the sort -- it is simply the result of the stock market, as measured broadly by the S&P 500 index, being 10x to 30x higher today than it was in the early 80s, depending on which day you chose. The latest wave is of course post the 2008 crash, since which point the market has doubled.

With this basic intro accomplished, what can be done about it.

Politicians like Elizabeth Warren are predictably coming up with arithmetically unsound, and arguably (in the US) unconstitutional proposals to confiscate wealth above certain levels. This will probably never happen, but it seems to me it's always better to attempt to bring up the bottom than bring down the top, anyway.

Enter WISH Bonds.

We already know that everyone pays different interest rates for their credit, based on their credit worthiness.

Further, we already know that drastically experimental things are going on with rates, from quantitative easing to negative interest rates for long term debt, all of this to stimulate the economy at a time drastic ongoing change in labor markets and economic structure.

WISH bonds would distribute their coupons based on credit worthiness as well.

So if you have such poor credit that you can only get 40% pay day loans, a $1,000 bonds would pay you a 40% coupon. If you are Banc of America, you might get a zero or even negative rate -- which is already happening.

So in other words, the bond pays you like you pay for debt.

In a way, we are simply encouraging direct savings here, and accentuating its results, for the bottom of the economic ladder, without going through an "artificial" mechanism like an earned income tax credit or basic income.

theircompetitor, Nov 17 2019


       Adds a layer of government inefficiency & waste. [-]
8th of 7, Nov 17 2019

       how so? it's just savings bonds and a rule for calculating interest?
theircompetitor, Nov 17 2019

       If it were worth doing, commercial entities would provide it. As it's obviously not (or it would exist) then it's going to be a loser.
8th of 7, Nov 17 2019

       The problem is primarily greed, and also the share-market (not what people are DOING with the share-market, but that it EXISTS). As with most societal issues, we need better people, not more convoluted laws & rules & stuff.
neutrinos_shadow, Nov 17 2019

       One of these days I should invest in the stock market with my vast amounts of spare cash I keep hiding from myself.
RayfordSteele, Nov 17 2019

       //The problem is primarily greed, and also the share-market (not what people are DOING with the share-market, but that it EXISTS)//   

       The problem if you'd rather leave in a mud hut, maybe.
theircompetitor, Nov 18 2019

       The problem is not the arithmetic, the problem is the market efficiency combine with transaction costs or commissions. If I have a million pounds and get a 10% return on it, I probably earn close to £100,000 (say £99,400). But if I have a hundred pounds and get a 10% return, I probably lose money on the costs of trading.
MaxwellBuchanan, Nov 18 2019

       completely wrong, transaction costs have been crashing and have now been eliminated by most brokers in the US at least.   

       More on point, wealth inequality, as calculated is all about UNREALIZED gains in stocks.
theircompetitor, Nov 18 2019

       //completely wrong// Hey, I'm back on form!
MaxwellBuchanan, Nov 18 2019

       So why would someone consent to pay well above market rate for a loan regardless of the credit rating of the loaner?
Voice, Nov 18 2019

       why would someone give Germany money to get less back in 30 -- count them -- years? We live in strange times
theircompetitor, Nov 18 2019

       I'm discussing wealth inequality as it's reported in economic papers and the press -- and that is absolutely, positively and irrefutably based on the growth of the value of stocks
theircompetitor, Nov 18 2019

       Mostly they experience increased visibility of those who live a higher quality of life and are envious of it.
theircompetitor, Nov 18 2019

       Mostly no. Wages have not kept up with inflation for the median household. So keep beating that drum, tc, but try a different rhythm.   

       In the 1950's it took one income to sustain a decent lifestyle for a family of four.   

       These days it takes much more than that.   

       I swear between yourself, xenzag, bigsleep, doc, and yes, even Max and 8th, you've all become the preachiest, stubbornest, most self-convinced lot of misfits that clouded these halls with pet economic theories about why the world should work the way you prescribe.   

       Its old.
RayfordSteele, Nov 19 2019

       You say the sweetest things
Voice, Nov 19 2019

       //why would someone consent to pay well above market rate//   

       My assumption was that these would have to be government bonds ... in which case, this idea would be a variation on the theme of using the public treasury to redistribute wealth towards somewhat poorer people, (provided in this case that their saved capital is above zero) ... which is fine by me in moderation, but WHO ARE YOU AND WHAT HAVE YOU DONE WITH THE REAL [theircompetitor]??   

       Next week, [8th] will post an idea in which some kittens are quite nice after all, [xenzag] will forgive Mr Trump and [MaxwellBuchanan] will find Jesus.
pertinax, Nov 19 2019

       Wouldn't this incentivise large, cash-rich organisations to take out short-term loans which they then default on in order to weaken their credit-rating, so that they can then invest their billions of spare cash in a high-yield WISH bond?
hippo, Nov 19 2019

       Yes [hippo], that would be one way to game this. Another might be for loan sharks to loan needy people twice as much money as they asked for, on the condition that half the loan be invested directly into these bonds, whose returns would flow right back to the sharks without touching the sides.   

       In both cases, the basic concept would be the same, namely, "kophon prosopon", the phrase coined by Appian when describing the gaming of anti-poverty measures by wealthy Romans around 100 BC.
pertinax, Nov 19 2019

       // I swear between yourself, xenzag, bigsleep, doc, and yes, even Max and 8th, you've all become the preachiest, stubbornest, most self-convinced lot of misfits that clouded these halls with pet economic theories about why the world should work the way you prescribe.//   

       I resemble that remark. Which doesn't alter the fact that there is no meaningful inflation, or that wealth inequality is a result of stock prices, which in large part are a result of liberal, not conservative Fed policy. The two income change goes back to the post war period.   

       I'm not debating that the economy has not changed massively -- of course it has -- and will continue. I've said that literally for decades. I'm not debating that it sucks for Apalachia, or won't suck for Texas if they manage to ban oil.   

       We have a group on Facebook, counting roughly 10,000 people -- all made up of Soviet Union immigrants that came here in the 80s, many have grandchildren. As you may realize, most of them are Jews, which as you know normally skew significantly more liberal.   

       You will be hard pressed to find one among them that has different political opinions than me. It's because we've been inoculated against this socialist shit (if you'll pardon the expression), and you haven't been.   

       As to the yellow vests in France -- (and sorry [bigsleep], I didn't see that point earlier) -- well that is exactly my concern for America -- we see that the significantly larger safety net countries in Western Europe struggle to appease their populations, and yet somehow we have a substantial portion of the population imagine that by widening our safety net to that level or beyond, we can solve our problems.
theircompetitor, Nov 19 2019

       mmm, yes, because a movement like "Occupy Wall Street" could *never* gain traction in the USA, could it?

You're shifting the goalposts - it's not about the 'safety net', by which I think you mean things which people in other countries see as basic rights, like a minimum wage, maternity pay, etc., but rather it's about income inequality which is a very different thing
hippo, Nov 19 2019

       sorry, I don't see how -- I was responding above the Ray's annotation only.   

       I think otherwise throughout this thread I talked only about wealth inequality, NOT income inequality, wealth inequality , to repeat myself, largely a result of stock values. Why those stocks have risen is another discussion -- in large part, certainly in the last decade, it's been central bank policy -- and certainly also the changes in the economy.   

       Income inequality is an entirely different animal.
theircompetitor, Nov 19 2019

       It doesn't take socialist shit to restrain assholes like Shkreli from raising the price of drugs that have been on the market forever by a factor of 56x.   

       It doesn't take socialist shit for companies to pay a living wage.   

       It didn't take socialist shit to make ends meet in the 1950's and it shouldn't now.   

       I'm not jealous of the rich. I'm jealous of the life my parents had, despite not being anywhere close to rich. Unlike your experiences in the FSU which shaped your perspective both in ways you are and are not aware of, we had a REAL middle class in this country.
RayfordSteele, Nov 20 2019

       //jealous of the life my parents had//... Totally agree. One of the problems is that our economies (UK and US) are totally defined by never-ending “growth”, and yet resources and population are essentially flat.   

       For growth to continue, we have to borrow more and spend more per capita, so personal debt escalates.   

       Banks essentially generate profit through debt, so they have no incentive to reduce debts- quite the opposite.   

       We currently live in a toxic consumerist debt-laden storm, which can not be sustained.
Frankx, Nov 20 2019

       [Ray] let me take this on one at a time:   

       // It doesn't take socialist shit to restrain assholes like Shkreli from raising the price of drugs that have been on the market forever by a factor of 56x.//   

       Actually, it does, because in a free market, he can charge what he wants, but also in a free market, this drug could be manufactured and sold by 50 other companies, and all he would be is out of business. It's FDA regulations that created this situation.   

       // It doesn't take socialist shit for companies to pay a living wage.//   

       Outside of tipping in a restaurant or giving to charity, you are in the habit of paying more for things than they cost? When someone knocks on your door and offers to mow the lawn, you chose the higher priced guy? Why should they give more than the market value of those skills? If there's a societal need for a minimal living standard -- and let me stipulate that there is -- why should a given company bear its cost, where in fact they are HELPING to reduce that cost by giving any wage?   

       Are companies at fault for birth rates? Sure, if they are competing for resources, even for low paying job resources, they will up salaries and benefits, you don't need a government whip for that.   

       // It didn't take socialist shit to make ends meet in the 1950's and it shouldn't now.// actually the 50s wouldn't have been the 50s without some quite serious socialist shit. And America was rebuilding half the planet while also building the highway system.   

       Guess what -- when I take consulting contracts today my rate is often 1/3 of what it was in 1997. Because the Internet happened. Outsourcing happened. A surge in people becoming programmers happened. And yes, it's much worse for coal miners.   

       I'm not saying things didn't change, will not continue to change. I'm not saying that the cheese has not moved for anyone, there's been plenty of cheese movement. But ultimately people lead significantly easier lives, in America especially so.   

       If you're point is -- in the 50s a laborer could own a house and his wife wouldn't need to work, I would agree, and point out that I have a friend whose wife doesn't work, and he is a contractor who owns 2 homes and has put 2 kids through college. He's never had any meaningful number of employees -- just a small guy that gets a lot of contracting work. Sure, my dentist friend is better able to go on lion killing safaris, but that was true in the 50s too.   

       Are houses less affordable? Even as they are more expensive, we have <4% interest rates. I paid a 13% interest rate for my first house in the 80s, on a $23K salary.   

       Student loans? I've already discussed that here -- you can get an instate 4 year degree for well under 60K, less if you live at home, and KPMG is offering people 60K to start -- by no means a financial disaster, unless they expected to make a living making youtube videos and their degree is English (and their level of mastery thereof still dubious).   

       I may circulate in haute circles -- I do not know a single 20 or 30 year old, even if they do not live at home -- who cooks on any kind of regular basis. How do you think UberEats became UberEats? Cause they're all eating ramen?   

       I don't know. I don't see it, sorry. But regardless -- the one thing that will definitely NOT fix any of that is an enlarged safety net -- otherwise our brethren from Europe would not have Brexit and yellow vests and parliamentary deadlocks.
theircompetitor, Nov 20 2019

       Please resist the urge to mansplain the economy anymore. I understand everything you just wrote, and have understood it for umpteen thousand years. So no more steps at a time. No more lessons on capitalism or socialism or fascism or anarchism or ismism. That’s precisely what’s so fucking annoying. Ok Boomer?   

       You don’t think our current state has been in a parliamentary deadlock for a decade or so?   

       Things may be different here in the Midwest, but most people I know cook.   

       Those high financial returns don't just grow on trees. They are taken out of the latest method to shortchange or automate lower-pay workers.   

       Many people I know have 20~something’s and 30- something’s living at home with them. My son will probably be one of them someday.   

       With luck, my daughter won’t.
RayfordSteele, Nov 23 2019


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