Savers are slowly choking off the life of the world economy
theguardian.com
theguardian.com
It says institutional investors such as pension funds, insurance companies and mutual funds, along with the sovereign wealth funds of oil-rich nations and central banks, hold around $100 trillion in assets under management.
This huge sum compares to US GDP of around $18 trillion and the total market value of US-listed companies in 2015 of $19 trillion (which today is more like $25 trillion).
Hyper-concentration of wealth is what's choking off the economy. An economy where most of the returns flow to the 0.01% is unsustainable.
as far as wealth concentration, it certainly is happening. what's scary is: whether or not it's sustainable remains to be seen. what will society look like if it is?
Firstly there is the sheer scale of savings held by individuals, companies and governments.
From http://www.bbc.co.uk/news/magazine-35801951:
A survey by the Money Advice Service has found that four in 10 adults in the UK do not have £500 or more in savings. Another by ING bank suggests 28% of UK adults have nothing at all in the bank.
Yeah, I'm sure all those hardcore savers in the UK are ruining it for the world's economy.
If you want to lower the savings rate you have to introduce a state pension system like Germany where (most of the) pension is paid by current workers. Doesn't work well with the ageing population but means that all money is directly distributed.
No rational person relies upon them, and rational people are precisely the kinds of people to have savings!
(Overstated slightly, but there is a role for both private and state pensions in a sensible system!)
Whereas with private pensions the values go up and down but are unlikely to hit 0 and stay there -- unless it's really mismanaged!
What would be the point of doing this? Whose interest does it serve? It does not serve the banks' interest. It does not serve the politicians' interest. It does not serve your interest.
Private pension collapses: "stakeholder" ones seem a bit safer, but company ones keep getting into trouble e.g. http://uk.businessinsider.com/sir-philip-green-bhs-pension-f...
I would stop immediately if I could. I am, however, required by law to save for a pension I will never receive.
The retirement age has already been raised to 67 where I live and is now linked to life expectancy. The second someone finds a cure for old age my retirement will be cancelled. Even if they don't, by the time I'm 67 the pension age will be >70.
My pension fund is actually worth less than the amount I paid into it, because all the intermediaries want a cut for their 'services' (whatever those may be). It's like being legally required to flush money down the drain.
I also know that some of the commenters in this thread are talking about pensions without distinguishing between public and private pensions.
I also know that there is an enormous amount of capital in the form of public pensions and that public pensions are often invested with relatively few restrictions compared to private pensions. (At least in the US?)
(Technology means that fewer and fewer people can "work productively" regardless of age, medicine means "too old to work" becomes older and older.)
Incorrect assumption.
In all countries where the main part of a pension comes from saving (e.g. UK, US), you will directly receive what you saved (plus interest, minus taxes). A system such as what you describe doesn't exist anywhere as far as I can tell.
The Tax-Burden on the other hand has been growing and growing, leading to a lot of braindrain and tax evasion.
So how do investors react? For decades, they have bullied governments to release assets for sale that can then be leased back at high returns. In the UK, this is why we have privatised utilities and a swath of other safe, previously state-owned, assets in private hands.
It is not morally wrong ("greedy") for investors to seek high returns. If an investment does offer high returns, investors will flock to it, the price will increase, and it will quickly offer average returns, relative to the amount invested.
Nor do investors "demand" high returns - who would they demand them from? - they simply look for the best place to put their money. Investors are not a cartel that lobbies the government. Government services were privatised in the UK for political reasons.
Then there is the way most people, businesses and governments have accumulated their savings. Just a quick look at the $100tn total and we can see that most of it is the result of tax avoidance.
The Japanese are famous for their savings and investments. But middle-income families can only save because they don’t pay enough tax for officials in Tokyo to provide basic services. Every year the Japanese government runs a 10% budget deficit, such that its accumulated debt is worth almost 250% of GDP.
The author has expanded the meaning of "tax avoidance" to cover cases where he thinks the government should be imposing higher taxes. I agree that governments should run a balanced budget (I would prefer they do so by cutting spending), but the author implies that you could pay all the taxes you owe, and you would still be cheating the system.
They most definitely are, especially in the UK and US. I'm actually a little unsure how you could honestly believe that investment institutions don't lobby governments.
Investors as a class most certainly lobby the government.
> Government services were privatised in the UK for political reasons.
.. and this politics does not exist in a vacuum. There is a whole mythology about privatisation that is put forward by opaquely-funded think tanks. It has other functions simply than providing assets - it's also an anti-strike measure and a means of avoiding complaints.
Some of these entities fund lobbyists and some don't.
mythology ... opaquely-funded think tanks
I don't know if you are a Marxist, but this is a Marxist way of looking at the world, where each class pursues its collective interest, and funds propaganda to spread a self-justifying mythology.
My comment about think tanks was driven by http://whofundsyou.org/ , really. "Funds propaganda to spread a self-justifying mythology" is definitely something that happens to varying extents by various actors - that's effectively how "super-PACs" work in the US. And privatization has the characteristics of a mythology: it's asserted as a cure-all for problems in public services, and implemented even when extremely unpopular. It relies on creating pseudo-markets, often with only one buyer and tiny number of sellers, and the buyer is not the consumer of the service so the quality gets driven down.
This is an example of isolating an action from a bigger picture. Of course, it's not morally wrong to seek high returns - in complete isolation from how they're sought.
What's more important is how the higher returns are sought. Is the investor privatizing water? Canceling funding for services like abortion? Or are they doing things that net benefit a society like building housing, designing and researching more efficient transportation.
Therefore the means through which the investment is sought can circumscribe morally wrong investments.
Companies ask governments for favors all the time. The Carrier deal is a widely viewed example. If you do x, Carrier will invest in your state. Sometimes the investment isn't even open for the public to take advantage of. In other words, a single hyper-wealthy person can have his/her agents lobby for their own personal benefit.
> Nor do investors "demand" high returns - who would they demand them from? - they simply look for the best place to put their money. Investors are not a cartel that lobbies the government. Government services were privatised in the UK for political reasons.
They lobby the government, or whomever has the power to grant them the higher returns. Sometimes that means displacing the local population, for example poor oil rich countries.
Maybe you are thinking about the small investor. Someone who is passive and without the power to change the playing field?
(More generally: a few years ago I saw a random comment on somebody's blog suggesting that it was only a matter of time before savers were rebranded as hoarders. So it's interesting to see this perhaps (finally) start to come to pass.)
The article argues that we would all be better off if that money were spent on the common good -- infrastructure, green tech, education, even ag & manufacturing -- rather than being put into buying up what used to be the public sector and putting a price on it without improving it.
Of course, how to make that happen is a hard question.
Populism is on the rise, and the demagogues steering it aren't actually going to fix any of the problems that created it.
I'm pretty sure this is market forces. Glut of savings --> low rates. Sure there are local exceptions and regulatory impacts, but those generally can't stand against the tide, so I'd say it's 95% natural.
> inflation of money supply
Depends on the currency, but in the case of USD, increasing the supply is necessary to avoid deflation, which would seem superficially good for savers, but would be disastrous for economic productivity.
> high taxes on earned income
???
> subsidies to speculators (housing subsidies)
I don't know much about this one, but I think most subsidies are homestead-y (to owner-occupiers and first-time buyers).
Indeed, the article seems blind to capital taxes, focusing instead on income tax. Wealth tax is a pretty alien concept in the US -- I think it would face strong cultural resistance, and cause even more wealth flight to tax havens. And yet, I can see how it would tackle a big part of the problems described here.
It may need to be implemented in a coordinated global fashion to avoid cheating. You'd need the rich nations to do it, with a working enforcement mechanism that spans international borders. That, combined with cultural resistance, sounds hard.
I thought interest rates were kept low to entice those having money to, rather than put it in the bank, invest it, that is: speculate. Problem seems to be that that's not what households did. In many countries, they paid back on their mortgages and put more money in the bank, despite the low interest rates. The science of psychological economics isn't that well developed, it seems.
Our rulers know that if we don't save any money, we'll be more vulnerable and dependent ... plus, it's too hard to tax saved money, whereas it's trivial to tax money that's moving.
America produces more then it ever did, yet manufacturing is considered dead as a source of jobs.
The small number of well-paid engineering jobs AI and robots create is dwarfed by those losses.
That will depend on how effectively we can replace those systems with AI and robots. We're on our way there with the legal system.
Your god-given right to be a rude motherfucker to whomever you feel like, whenever you feel like, without being subjected to any social censure, must be defended. I just don't understand why we can't call a _______ a _______ in polite company anymore.
Socialism is "fascism with a human face", the “The Fascists of the future will be the anti-fascists.” - Winston Churchill.
"I hate Indians. They are a beastly people with a beastly religion."
"[Ghandi] ought to be lain bound hand and foot at the gates of Delhi, and then trampled on by an enormous elephant with the new Viceroy seated on its back."
"I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place."
If he wanted to find fascism, all he needed to do was look to his treatment of the imperial holdings - something that British socialists were quite eager to point out.
If you torture the definition of fascism so far as to include social democracy, then it will also encompass America since the arrival of settlers, centuries of monarchical and parliamentarian Europe...
But perhaps some context is in order.
At that time India was pretty terrible. E.g. burning at the stake of widows after their husbands died. Even Marx found that the British occupation was a civilizing force. It could be argued that the occupation in its totality and for all of it's faults was a net positive.
Obvious fascism is obvious. Which is why George Orwell's books are dedicated to the less obvious fascisms. And it's why I made the point on political correctness, because it's less obvious.
Besides which, the entire article is rendered moot by the fact that inflation exists precisely as a tax on savings.
>> inflation exists precisely as a tax on savings
I don't think the article is suggesting that a person who has a savings account at the bank is the problem. Although the title is misleading in that case....
I think the real issue is the money multiplier effect. If I spend a dollar, it's spent and re-spent. This means that it gets to be taxed many times.
And if negative interest rates don't spur growth, it's because they weren't negative enough!
Now, when the banks are supposed to give out more credits (which is why the interest rates are so low in the first place), the current herd behavior is to refuse anyone but clients who don't need any credit to begin with.
I wonder if it is time that the central banks lend directly to private individuals. Scoring and credit rating is largely done by computers anyway, at least for the typical amounts that private individuals need.
No reason to have a middle man who does not meet his traditional obligations.
> One peak is the mountain of debt ... that is casting its shadow over the whole world ... We all recognize the mountain of debt.
> But few people recognize its twin: A mountain of idle cash, belonging to rich savers and corporations, too terrified to invest it into the productive activities that can generate the incomes from which you can extinguish the mountain of debt, and which can produce all those things that humanity desperately needs, like green energy ...
> Now, let me give you two numbers ...
Mark Blyth recently mentioned[1] two numbers that are particularly effective at explaining where money is being "saved".
> In 2015, Wall St. bonuses - not regular compensation, bonuses - seven years after they were bailed out with the public purse totaled $28.4 billion. Total compensation paid to every single person in this country who earns minimum wage: $14 billion.
Savings? That is a complete and total joke. The average American is being snuffed out and reduced to a wage slave.
With record low interest rates, any project that gives an ROI worth gambling on is worth borrowing for.