What if your entire worldview was just because of near-zero interest rates? | Hacker News Reader

What if your entire worldview was just because of near-zero interest rates?

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283 pointsantonomon383 comments

I've been saying this for the last 5 years. People don't realize how powerful the 'money printer' is. All the money which exists in the system was created out of nothing and injected into the economy through a few specific channels (mostly as credit backed by debt). IMO, everything in modern society is influenced in some way by interest rates; even culture and morality. Money printing can distort the market pricing mechanism and distort all economic activities.

IMO, a low interest rate environment is about luck, first mover advantage and media exposure. A high interest rate environment is about value creation. IMO, as interest rates increase, many successful people of the past decade are going to wake up to a new reality; those who have the humility to understand that they were lucky will be able to adapt their strategy to suit the new environment but most will go out of business.

I believe that in this new high interest environment, some people who were previously unsuccessful will thrive while some who used to be successful will start failing. The majority of investors will not be able to escape the mindset that they should only invest in successful people (since that has worked consistently in the past) and they will end up chasing loss after loss and not understand why their proven strategy of track-record-based investing is no longer working.

I agree with your thesis that genuine value creation will become more important.

I think this is a more exciting market to operate in as opposed to one where we simply need to raise and spend cash as quickly as possible.

For the first time in my career I'm also feeling cautiously optimistic about the future.

I'm one of these people who was absolutely terrible in this low-rate environment. At least I got to learn about some of the reasons why I absolutely suck at it.

One of my worst character traits is that I'm missing the hair-trigger opportunist factor (AKA "you've got one shot" factor) and this is precisely one of the traits which was rewarded heavily by the low-rate environment since it tends to reward first movers disproportionately.

What are some the skills or things you know that make you successful in this new environment, if I may ask?

I think I might be one of those, but I lack the contextual information/knowledge to act on it.

Well I can't be sure I will be successful in this new environment. Surely there's always luck involved. But I suspect that I will benefit from an environment where capital is spent more carefully. As someone who always bootstraps, it's been tough to compete against large amounts of capital. Too much capital flowing into an industry creates competition which drives up advertising CPC and crushes profit margins in that industry... Especially if those well-funded competitors aren't looking to make a profit themselves. If your competitor is willing to blow all their cash on advertising and allow their profit margins to shrink down to 0, you will also be forced to drop your margins down to 0 in order to remain competitive. If you're bootstrapped and rely on profit margins to sustain yourself, you simply cannot stay afloat in such competitive low-margin environment.

With high interest rates, there is an increased incentive for investors to just park their money into savings accounts instead of putting it to work (competing against small businesses) in the markets.

Are we saying there's a new era of small businesses thriving in the tech / software industry? God I hope so!

> genuine value creation

But how do we even know what this is anymore? With more than half the wealth accumulated by the top fraction of society it seems like ultra-luxury goods are going to be the most profitable, but surely that's not actually genuine value creation.

And have we strayed too far to achieve that without austerity? How will we pay interest on the national debt?

Does the top fraction of society ever actually spend significant amounts though. No. Trickle-down has never worked.

They don't have to spend it per se; by conventional economic theory, as long as they keep it in the bank, it's enough. Keynes:

> Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there was some continuous improvement in the daily conditions of life of the mass of the population, Society was so framed as to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the nineteenth century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. ... If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a régime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.

> Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted ... a situation in which they could call their own very little of the cake that they ... were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. ... And so the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Saving was for old age or for your children; but this was only in theory,—the virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.

Ultra luxury goods have a few downsides tho. The ultra rich are not easy customers, there is a high risk involved with having few customers (e.g. they could leave you hanging, another company could outperform you and grab that customer and you are basically done for etc.). A friend of my family has made his living selling handcrafted multi-million dollar hunting rifles. Let me tell you, these people are not easy to deal or negotiate with. The income brackets below are happier to spend and there is more of them

Even ultra luxury good creators rely a lot on other stuff, like manufacturing machines, hardware, parts, materials, etc. So the safer bet is probably going to be to sell shovels in a gold rush.

> handcrafted multi-million dollar hunting rifles

Haha what?

Haha indeed. The difference between men and boys is not just the price of their toys anymore it seems: it's also got to shoot real bullets and kill animals. Aren't humans cute?

I refer to this as the US 3rd nuclear bomb.

Most countries hold USD reserves/bonds.

If US prints money, the wealth of all countries holding USD goes down. While the wealth of US increases.

Since US started this monetary policy of easy money printing, they have been "bombing" the rest of the world, violence-free, ammunition-free and uranium-free.

I am not an American, but if I were, I would be pretty happy about it. Yes, it would affect me and my neighbors, but in the end I would be getting a net benefit.

The real beauty is how the other countries don't even fully realize this is happening to them and the people who do realize (finance ministries, central bankers, etc.) are kept rich enough to not talk about it too much.

They are trying to replace usd as the reserve currency.

> If US prints money, the wealth of all countries holding USD goes down. While the wealth of US increases.

True, yet average Americans lose out because their savings get eaten away by inflation

Real interest rates have been positive. Unless you were saving in a mattress, your purchasing power increased.

Not where I have been living in USA. Food and energy and rent in USA far outstripped interest rates on savings accounts or government bonds.

But for how long? Past year? Ten years? Century?

Wut? Tell me where savings accounts have rates that exceed inflation.

People in other countries usually have freedom to minimise their US dollar holdings, holding their wealth in pesos, rupees or lira instead and only obtaining dollars for specific transactions.

But they don't, because they'd lose a lot more wealth if they held it in pesos, rupees or lira than USD.

In fact the story of the last decade has been one of significant increases in the purchasing power of wealth held in dollars compared even with currencies of reasonably stable Western developed economies.

> All the money which exists in the system was created out of nothing

People keep saying this. But hasn't it almost always been true, almost everywhere? Apart from some rare exceptions, such as people using livestock as money.

A bunch of smart Dutch people got the idea of asking people for money which they would pay back with future profits.

This managed to fund a war with the Spanish empire that owned almost all silver mines.

Paper won against hard currency. And the rest is history.

You are naive as the m3 is not just m1. The original thinking is that once increase the base it has to cut back. It never did and for some reason (china) the inflation never came! It was until the pandemic underway and masked so much that the world except USA has too late to control the inflation. And putin is not helping. And that firm did not die especially big one does not help, just like russia and later china.

The idea that interest rate has to be at least 2% above the inflation will cut and hurt. It is not about the 0 interest rate. But the inflation and the difficulty and having the political will to let the central bank (and they have the clear head) to do the right thing, guy.

So far only USA seemed working. And if war in Europe and later in pacific rim ongoing, once again we have USA.

> adapt their strategy to suit the new environment

Yes, am raising cash and looking for US government debt to go 10%+ to lock in some sweet risk-free yield.

We are barely ticking up to moderate interest rates, I doubt we will ever see high interest rates ever again. Though it'd be interesting to see if your thesis is true.

The folks reading this are going to get the wrong message. They are going to believe that rising interest rates will magically make it so that the most highly valued companies are the ones that produce the most societal good. This may start to happen more to a certain extent, but it's a totally false assumption.

The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become.

Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter.

The question for many of the readers of HackerNews is whether their jobs (mostly as software engineers) ever needed to exist. The answer for many is going to be -- probably not. On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers!

> That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become.

Buffett invests in companies with a durable competitive advantage which is also often called a "moat". A monopoly is a situation where there is no competition. As a counterexample, although I agree that Coca-Cola has unfair advantages, such as brand name and economies of scale, over new competitors, they do not have a monopoly.

> The most valuable companies before and after this era of low interest rates were and continue to be monopolies.

That's not necessarily true. The most valuable companies, that is, the companies with the highest valuations are those which make the most money. Or, as Joel Greenblatt puts it: "Price follows earnings." If you want to buy a barn which very likely earns 10 mln per year for now until 2032, then a fair price would be at least 10 x 10 million discounted for the fact that money today is worth more than money tomorrow. Then, after 10 years you still own a farm and any extra income that is produced by it. Of course, this value fluctuates a lot depending on all kinds of factors, but this is generally the process that value investors use to determine the fair value. In the long run, it works as you can see when looking at the net worth of value investors such as Buffett. The only thing that a monopoly "does" is that it makes it easier to predict what the future earnings are going to be.

What is typically the case after bubbles is that people take actual earnings into account again. During speculative bubbles, it is very hard to buy things based on reasonable future earnings calculations. The price is driven purely by speculation. What historically has happened after bubbles is that prices become more reasonable again. That's why big companies with unreasonable valuations such as Tesla and Cloudflare have gone down respectively 55% and 62% in price in this year while big companies with more reasonable valuations such as Macy's, Citigroup, or JPMorgan have gone down only 20%.

> Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter.

Agreed. Capitalism is a ruthless and terrible system, but better than the alternatives.

> On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers!

Agreed!

Brands/Companies that Coca-Cola owns: - Sprite - Fanta - Dasani - Powerade - smartwater - Minute Maid - Fuze Tea - schweppes - Simply - Honest - innocent - fairlife - Georgia Coffee - Costa Coffee - Topo Chico - Aquarius - AdeS - Fresca - Barq's - Dogadan - Peace Tea

The list goes on. Anti-trust makes it virtually impossible to actually have a real "monopoly". Coca Cola lives in duopoly with Pepsi and other major beverage conglomerates, but the idea is the same. Having a "moat" is no different from having a monopoly. New players get in the soft drink game with the goal to get acquired down the road, no different from silicon valley startups burning money to get acquired by Google or Amazon.

A moat is really not a monopoly per se. Major laptop manufacturers all have a durable competitive advantage due to their brand name and economies of scale, but they are all not monopolies. Porsche is also another example. You could argue that any company with a moat is a something-poly but then why even mention the poly and not talk about a moat instead.

> the companies with the highest valuations are those which make the most money

In a perfect competition landscape, the net profit of players goes to effectively near zero. It doesn't matter if you're making sweaters or jet engines, this virtually a law of economics. The companies which have the highest valuations are those which make the most money (by eliminating competition).

I think a lot of HN adjacent engineers are going to have a rude shock over the next few years as there are several pressures working against them. The first is that companies that have been trading debt for growth are not sustainable in a high interest rate environment. The second is that the shift to working from home has meant that employing remote teams, be they in other areas of the states or overseas has become much more normalized. Why would you pay Bay area salaries when you can employ just as qualified people elsewhere for less?

I completely agree with this. COVID + everyone refusing to go back to the office means nobody needs to be in a specific place anymore. I've changed my hiring strategy to cultivate talent elsewhere and pay 1/3 of what is paid in the US.

This is the common logic since outsourcing was invented decades ago. Everyone eventually gets hit with the reality that large time zone and cultural differences lead to so much overhead on project management, not getting what you actually asked for, creative ways to game the metrics, and huge rework/bug fixes, that the 2/3 you saved gets eaten up by dealing with all of that, and anything leftover doesn’t pay for the stress of it all.

It's possible the experiment fails. The gap has narrowed significantly though since everyone is remote.

A quick look at a globe can tell you there are a lot cheaper markets in the same/close timezones to the US at least. Culture is obviously more nebulous, but it seems like something the US is better at exporting than any country as well. It's why I've long cautioned people about remote work - the work might end up more remote than they'd like.

Yes, Canada, LATAM, New Zealand have compatible time zones with Pacific time.

Having worked in a multi-area/multi-time-zoned company and teams, and having tried to coordinate all these along with the political games: it is a different beast to be remote some times a week and a different beast to try to coordinate with your own team spread around the world.

P.S. Hope your strategy works, and depends on what you do. I'd say a startup that tries to innovate at ridiculous leap speeds needs proximity and an office -- and that comes from me, who is 100% against the "work from the office or else" mandates...

Good luck with that. We are now mostly a remote company but we still pay top rates for the best employees, some of whom like to come in to the office every day, some work from home 50% of the time, some come in one day a week and some work pretty much full time remote. All are in Europe (most in the UK) so we don't suffer from timezone issues or all the pitfalls of extreme offshoring that has plagued every project I've seen that has ever tried it.

I think you're going to need a lot of luck, because I doubt your approach will work.

As a software engineer a good part of my job is communication and having that communication come with an eight hour time zone shift would substantially impede the job. Yes you can hire remotely if people are working largely the same hours or hours with substantial overlap. Hiring from cheaper parts of the world across an entire ocean isn’t going to work for the same reason you can’t get hired for a day job and work a night shift.

Have you heard of the southern hemisphere? All those Brazilians, Argentinians, even Mexicans? Quite similar time zones to much of US…

I'd argue that 1. Software continues to be critical in any part of the economy. 2. People continue to spend more and more time online.

So maybe many of the existing companies we work at will require less workforce but I don't see how the software engineers market can reverse in terms of offers/demand ratios anytime soon.

I definetly think a lot of the startup world view is just a function of low rates.

Startups could run for decades with $billions in losses and only a passing focus on eventual profits.

All of those losses flowed into the bank accounts of big tech (via AWS credits, Google and Facebook Ads).

All of the high salaries, employee expectations and leverage in tech startups and big tech derive from that spigot of cheap money.

What if it was all just an illusion for a few decades? It’s going to be a bumpy readjustment when it’s all that most of us have known.

It has skewed the labor market to an insane degree. So much talent went into idiotic pursuits, and away from anything that had to do with public service.

My wife's uncles is one of the top doctors in his field in the country, and was the head of department in the country's top medical university.

He makes less money than me, even though I'm 35 years younger and my "skills" include some basic coding, some marketing, and some understanding of social media. Whereas this man has spent nearly 50 years in the medical field and has treated multiple presidents.

None of the startups I've consulted for are profitable. Most, by all means, will never be profitable.

Meanwhile, my maid, who works harder in a day than I do in a week, makes 1/50th of my annual income.

All that free money has seriously misaligned societies incentives. Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience.

I'll be okay with a pay cut if it means a more equitable, more fair society.

> All that free money has seriously misaligned societies incentives. Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience.

Sounds like a problem that's sorting itself out. There were far too many people who wanted to be doctors; maybe if the supply drops the medical industry might have to - gasp - do something about their working conditions, or even pay more.

My country has a massive shortage of doctors. There's also a virtual cap to how much doctors can charge for consultation - most people, outside of a small minority of tech elite, can't afford to pay any higher fees. My wife's uncle's fees is already high enough that only the wealthy can afford him.

The problem doesn't seem to be sorting itself out. On the contrary, it's making access to people like him even harder for all but the top 1%.

If doctor salaries were to go even higher, it would mean that people like my maid would never ever get even half-decent medical care.

The solution would be to pay the maid more, but there's an oversupply of unskilled labor and any attempt to increase their wages would be thwarted by a flood of new labor supply.

> there's an oversupply of unskilled labor

That's interesting. What's unskilled about them? Could they not also learn some coding and marketing. Sounds like a worthwhile investment if they might 50x their salaries.

(In fact, with those numbers, even if it takes them 30 years it would still 10x their life earnings...)

I suspect a lack of general education and/or “soft skills”. I say this as a resident of a poorer US city, there are tons of barely literate people incapable of performing simple math who also don’t know how to handle conflict or social friction effectively.

> The solution would be to pay the maid more, but there's an oversupply of unskilled labor

The… misstep in reasoning here seems to me to consider that « maid » (and many other low-wage ones) is unskilled labor and/or painless, thus « deserves » lower wages.

I can say from witnessing it first-hand that not 1 in 10 of those high-profiles engineers or managers I have met are not at all equipped to work as a maid.

> There were far too many people who wanted to be doctors; maybe if the supply drops...

Actually, the problem is not that no-one wants to become a doctor, the issue is that there are too few open places in the medical schools. If it's due to lobbying by doctor's organizations or just bad planning by governments or something else I do not know. In all countries I have some visibility into there is no lack of people wanting to attend medical school and there are qualified applicants in the order of 100 to 1. And there is an accute need of doctors (and nurses) in those countries.

And regarding doctor's pay, I do not necessarily agree that it is too low, but I agree the salaries for software engineers is too high in many regions, particularly in the US, and certainly on the west coast.

And to nuance my comment on doctor's pay, I think it is important to note that a doctor has to study and practice in a hospital for about a total time of 10 years before graduating as an MD and start earning a decent salary. Thus many years of lost salary if comparing that with an engineer, and even more if comparing to someone just taking a couple of years of programming courses.

"I'll be okay with a pay cut if it means a more equitable, more fair society" hmm you could make it more equitable by raising your maids comp by your own description it would have 0 adverse effect on you.

Sure, but we need broader reform if anything is to actually change.

You can't fight the market forces and systemic problems with personal choices.

Sure you can if people take individual action based on their honest believes a lot can change. If people simply virtue signal without taking basic actions that are available to them then there is 0 chance something will change.

I'm not suggesting virtue signaling. Paying your maid more than market wage is virtue signaling. Voting for a party working to increase her bargaining power is not.

We need both individual action and political reform.

No it's not. Crocodile tears about how unfair it is for her to make so little instead of paying her more is virtue signaling. Dems have being in power in CA forever voting for them is not going to change maids wage.

The problem is thinking blue or red are the answer to this problem. Their current iteration is the leading reason why we are in this situation now.

Nope they are a reflection of their voters e.g. "us". As long as majority regardless of side continues to vote for amorphous virtue signalling unprincipled politicians the things will stay as they are.

Fun part of that is that the political systems are flawed as well and actively resist hiring new politicians who are more principled. In the US, it’s almost impossible to win without endorsement from Dem or Rep parties. Anywhere that does First Past the Post will devolve to two party rule at scale. Many countries have authoritarian regimes, so elections don’t matter. Even just drawing political lines is fraught and liable to bias against the will of the people based on existing precedent. Money in politics provides advantages to the rich and corporate interests.

Politicians are motivated to keep constituents happy, but only so far. The political systems generally provide a significant buffer for politicians to act on behalf of themselves or their donors and not get replaced.

This assumes an informed electorate that has real choices. It is most certainly not, with corruption and a totally dysfunctional profit-driven media ecosystem virtually guaranteeing it remains that way.

So what's your alternative proposal?

I 100% agree that paying the maid more is the right answer in this specific case, but saying that the Democrats are part of the problem, even if it's true, fails to account for the facts that a) the Republicans are much more of the problem, and b) there are no other viable parties to vote for due to our voting system.

"Voting for the Democrats" is a necessary, but insufficient, part of the solution. Another part is "voting for more progressive Democrats in primary elections". Again, necessary but insufficient. I don't have the whole answer...but I know that bitching about not being able to change anything...doesn't change anything. And, in fact, makes it much less likely that positive change happens, because it either makes people feel helpless, or directs them to utterly impotent methods. Which then fail, and leave them (once again) feeling helpless.

While it will have little effect on the system, paying your maid substantially more than market share goes way beyond virtue signaling. It has substantial effect on her life, possibly on the life’s of her partner and children as well. It may make the difference between scraping by and being able to start saving money, accumulating a bit of wealth that can possibly be passed on to the next generation.

> Paying your maid more than market wage is virtue signaling.

Is it? They're more likely to stay in that job and ask for more money on other jobs because now they know it's possible.

Just like we devs know we can make FAANG salaries and our asking price is adjusted accordingly.

I assert that you have it backwards. Virtue only exists in interactions with actual people, not with abstract people. Paying a maid more than market value is putting his money where his mouth is, because he believes the maid should be paid more is actual virtue. (Paying the maid more so that he could boast to his friends about resourcing the underprivileged/oppressed-group would be virtue signaling, but at least it would still have the virtue of some amount of self-sacrifice) Voting for politicians is the abstract. Not necessarily virtue signaling, if you actually believe the cause, but how is that likely to help the maid? Even if the party succeeds in doing something effective, how long will it take before the maid is actually better off? And is anyone going to evaluate whether the changes are actually effective in making people better off?

Or consider two scenarios: 1) someone claims maids should be paid more but pays them market rate and votes for politicians who claim to be changing the world to make maids better off, or 2) someone else pays the maid 3X the going rate (which he appears to be doing, see other thread) and does not vote for politicians who claim to be making maids better off (to be clear, this is hypothetical, I doubt he does this). Person 2 has made the maid actually better off. Person 1's maid is not better off, and any impact on maids (if any) is disconnected, and conveniently does not require any sacrifice on the part of Person 1. Person 2 has made the maid better off at the expense of themselves; this is the opposite of virtue signaling.

Blanket statements like that don't really help unless you understand the underlying context.

In my context, maids typically work in multiple households. While my household has seen its net worth go up disproportionately, other households around me haven't been as fortunate.

So even when I pay 3x the prevailing rate, it doesn't make any real difference since the remaining 6 households my maid goes to can't match my rate. And she has no real bargaining power because in India, there's a huge pool of similarly skilled labor willing to fill in.

Which is pretty much my point: that people in tech get paid disproportionately higher. If everyone around me had seen similar wealth increase, my maid's salary would have likely gone up far higher as well.

I grew up poor having any extra money makes a meaningful difference. 3X bump would mean the person is now making like 20% extra it's very meaningful difference pretending otherwise is very disingenuous.

The typical Indian maid works in multiple households.

My maid works in 7 different houses, spending approx. 1-1.5 hours in each. An individual household paying her more can only go so far - EVERYONE will have to start paying her more.

I already pay her substantially more than prevailing rate, but can everyone else afford to do the same?

It does not have to be about "them" you have a path available to you to make a person that you supposedly feel bad about better off.

While spaceman_2020 certainly has the money to pay their maid a lot more if they earn 50x what their maid does, that doesn't address the issue of all the other maids in the economy.

I mean, I give a sandwich to the one homeless guy I see on my daily commute, which might have a big impact on that one guy - but let's not pretend I'm solving homelessness by doing so.

But it does in a small way and it adds up when a lot of people do it. Being from Ukraine I see first hand how a lot of people volunteering/donating are making very sizeable impact on the problem even though each individuals contribution might be small.

And yet the systemic problem— the US using Ukraine as a pawn to weaken Russia, means that all those donations will ultimately mean nothing as the country’s infrastructure is reduced to rubble.

You are spreading Putin's propaganda.

Russia invaded Ukraine because Putin wants to reconstitute the USSR, with him on top. All the bullshit about NATO is just noise to get people who would otherwise side with the obvious victims to suddenly hem and haw and say, "Well, was Putin provoked? Is this really about the US?"

No; you've been suckered. It's about Ukraine, and the people dying there, who won't be in any better shape if the rest of the Western world just hands them over to a megalomaniac dictator who genuinely believes that any Ukrainian who doesn't identify as Russian is mentally ill or a traitor.

“Wants to reconstitute the USSR”. LMAO. Ok, thanks. Here’s Putin’s propaganda: https://www.rand.org/content/dam/rand/pubs/research_reports/...

He literally said he wants to reclaim all lands of Russian empire not just USSR.

Laughable propaganda. Find me the video. And not the MSNBC interpretation on it. Putin didn’t even want to annex the eastern oblasts of Ukraine until very recently, after his hand was basically forced. It’s well-documented that he even told the representatives not to hold referendums on joining Russia prior to the most recent ones, when it became clear there was no other way to protect the Russian-speaking citizens there from their own country’s aggression, which killled over 10k of their civilians before February 2022.

Here's from June 2022 https://www.youtube.com/watch?v=h5XdwlyWgSs recent enough for you? He compares himself to Peter the Great and says it's our destiny to reclaim Russian lands

Keep watching Russian TV.

Unfortunately, RT was banned in the freedom-loving USA. But there’s plenty of independent sources if you know where to find them. https://peoplesworld.org/article/pipeline-ploy-how-u-s-natur...

Individual choices are not the solution to systemic problems. That’s not to say they’re not also important.

> Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience.

Good comment overall, but I think the issues in the medical field are less about compensation and much much more about insane working conditions and a lot of disincentives. If you want a glimpse at some of it, maybe occasionally check out https://old.reddit.com/r/medicine/ or blog posts and articles.

Same problems here in Germany, but maybe - hope dies last - some movement? https://www.independent.co.uk/news/ap-berlin-b2239733.html

> An expert panel has unveiled a proposal for a major overhaul of Germany’s system for funding hospitals that it says will promote quality over quantity

EDIT (after responses):

If you have a hammer... The nice thing about always thinking everything is "money" is that everybody can join any discussion. There is no need to look at the details of the specific issue. Sorry for the sarcasm, but I think this fits sooo many discussions. Similar with discussions around education too.

Simultaneously we have plenty of threads right on HN where people realize life satisfaction surprisingly does not hinge on pay - after some threshold, where the basic worries about how to get the basic necessities without worrying.

Sure extreme pay would get quite a few more people into health care, but it would be an extremely unhealthy and inefficient way. Yes you can just not solve the actual major problems and just throw money at an issue, and especially younger people will see it as an opportunity to bite the bullet and endure bad conditions to work in that job for a while, to have a lot of money for middle age.

On the other hand, if a minimum pay is guaranteed, the environment, satisfaction with the job and the environment, and the feeling of doing something really useful for society, become much better places for adjustments than pay. Especially when it's as bad as it is right now, which is kind of extreme. Just looking at 24 hour shifts, really??? Health care is the last place where that should exist, since that's the place where there should be the most knowledge about how bad for long-term health and also for short-term efficiency this is. I would not enter that field for that one thing alone already, because it's just too ridiculous. Once in a while out of necessity, sure, but as regular part of the system?

Shouldn’t they be creating upwards pressure on salaries? Meanwhile, techies want another $50k if they ever have to venture outside of their home office.

But in the end people have to decide what they want to do, compared to other opportunities.

If being a doctor is the highest paid, highest prestige job, we won't lack doctors.

We seem to be lacking doctors here in the UK.

Crazy.

Salaries by prof. tell that SEs earn around 140k avg meanwhile meds. are around 300 easily

I think youre just looking at tiny group of SEs

I’m based out of India. Doctors from top colleges after a decade of effort in their 20s start off at around Rs. 80,000-100,00 per month (many even lower in smaller towns)

Starting salaries for 21-22 year old engineers from top colleges is approximately Rs 120,00-200,000 per month. By the time they hit their 30s, their salaries usually balloon to Rs 350,000-500,000 per month.

Doctors don’t catch up until they’re well into their 40s - an age at which many engineers from top colleges start retiring.

There is no real difference in the difficulty of getting into a top engineering program vs medical school.

It wasn’t always this wonky, but it has become increasingly wonkier every year as tech valuations have gone beyond sanity.

This is arbitrage of digital work, not unfair society. USA has big demand for software and simply imports work. The problem is that india is poor.

I agree though that it’s skewed because USA is at top of demand chain and could generate debt/demand in low interest rates environment.

Digital work arbitrage jobs don't actually pay that much.

The biggest source of wage inflation in the last few years has been domestic startups, all fueled by VC money from low interest rate regimes (Softbank, Tiger, Sequoia being the biggest culprits).

Those tech bodyshop jobs that cater to the US market still pay a small fraction of what a startup that targets the domestic Indian market, such as Cred, pays.

The point stands: digital work arbitrage has been around for three decades and didn't really create a massive income disparity. The bulk of recent income disparity has come through absurd tech startup valuations, all made possible because borrowing money was dirt, dirt cheap.

Modern money doesn't equal to importance of work or amount of experience or how much avg. people understand about low interest etc.

Here is your reality check, more fair society would only possible without monetary policies dictated by banks, top rich and powerful. They and their smart people/companies are only in the society to take more cut from you workers, globally. What you say is just utopia, and IMPOSSIBLE.

Btw I like reading fairy tales as a comments here.

Here it's simplify explained (not serious obv) https://www.youtube.com/watch?v=2sEbe9gveN4

The idea that some other monetary system would magically equal importance of work or amount of experience (usually promoted on the right by extremely wealthy people deeply invested in gold and on the left by people that imagine themselves running the Politburo) is the even bigger fairy tale though...

Talent doesn’t go into public service anymore unless they have extraordinarily rare values. Even if tech salaries get cut in half they’d be a good deal higher than government salaries. Working a government job in the Bay Area means accepting a well below poverty line income. The room for advancement is also terrible as non-management engineer tracks top out above $600k in the private sector if you never make distinguished engineer and in the millions if you can. Meanwhile the CTO roles in important government organizations often list in the $140-160k range. A 2% pension only goes so far. Some of us actually want to own homes.

If government actually wants talents it needs to be realistic about what the market is and take some money out of the insane amount it spends on contractors to pay accordingly. It also needs to build a culture that lets it hire well and lets it fire when it makes mistakes.

> I definitely think a lot of the startup world view is just a function of low rates. Startups could run for decades with $billions in losses and only a passing focus on eventual profits.

Yes. Buying growth at a loss is so over.

A stock is worth the present value of future dividends.

> A stock is worth the present value of future dividends.

Not every stock pays dividends. A stock's worth is determined by supply and demand in a market or directly between the seller and the prospective purchaser.

In fact it is a terrible idea to pay dividends. You can thank the tax code if you subscribe to that school of thought.

Why on earth would you think dividends are a terrible idea?

1. Theoretically speaking, this means the company has nowhere else better to put that cash [1]. Rather than reinvesting back into itself to fuel growth, dividends return company proceeds to investors. It's a sign of slow or no growth.

2. As an investor, you can't control when and how you're taxed. Dividends are taxable when they are paid out. A company stock buyback, on the other hand, would increase the value of your shares and let you sell when you're ready.

[1] Discounting stocks like REITs which are required to return profit in the form of dividends.

> Nowhere better to put their money

Same could be said about stock buybacks. In principle they're the same, only one has better tax characteristics.

> Rather than investing into itself.

Why would a mature business continue to invest into itself perpetually? What's in it for the investor?

This content of your post is exactly what the article is addressing.

What do you think the value is in a stock that doesn't pay dividends? It seems to me that if you remove them, you're getting into pyramid-scheme territory.

(1) the expected value of the company changing its mind and choosing to pay dividends in future + (2) the value of vote to remove management and replace them with someone who will pay dividends + (3) a legal right to share in the proceeds of sale/dissolution of the company.

These are actually worth quite a lot. But you do make a good point, particularly when it comes to companies like Facebook, who don't pay dividends but have dual class structures so management can't be ousted. I don't know why regulators allow these companies to be floated like that, they're pretty much the antithesis of what public companies are supposed to be. If Zuck's metaverse bet fails (which I anticipate it will), and he doesn't pull another rabbit out of the hat, I expect we're going to see a lot more institutional investors complaining about dual class structures in the next few years.

The op stated

> A stock is worth the present value of future dividends

1 and 2 are a restating of that. 3 is another way of returning money, but the money still has to be there.

I don’t know much about FB structure but there has been some murmurs about the board offering Zuckerberg a one way plane ticket to Hawaii soon.

Is this even possible?

“No one” cares about dividends since they are taxed like income and after corporate buy backs going the route next year I wonder what Wall Street will come up with..

You can sell your shares back to the company. That's the stock buyback that the linked article hates so much. It's just a more tax efficient alternative to dividends.

> A stocks worth is determined by supply and demand

That's a tautology. It's like saying the price is the price.

> That's a tautology. It's like saying the price is the price.

That's silly. Your quote was incomplete and selective.

This was a novel idea, at some point. For the stock it is a tautology, but for generally determining the worth it is a deep idea. It requires buying into a point of view of this model and, like all models, it is a (useful) approximation.

If one accepts that the worth of something is the price that supply and demand establish, there is no room for workers being underpaid (or overpaid), according to this model. They are paid exactly what the market determines (so what they are worth). Of course this is extremely simplistic, but you get the idea.

Funny, however, how this often touted as self-evident does not stop people from saying x profession earns too much, while the same time advocating for the market as the ultimate solution to all our problems.

Ehh, we have pretty good policy levers to alter the supply of labor for a given profession.

We can have policy levers for anything.

What I am saying is that under the market model supply and demand determine the worth of something. Under that logic, nothing can be overvalued or undervalued. Of course that model is too simplistic.

That's not what I meant.

The price is whatever the market pays. That's the definition, nobody disagrees.

The value is a different question. As you point out.

In our time, claiming those are the same (or even that they are meaningfully related) borders on fanaticism.

There has to be some basis for valuation. If you buy a stock, not because you expect it to pay something but because you expect someone to pay more later for the same reason you don't have investment. You have speculation.

Yes there are other methods for distributing profits (stock buy backs) but unless you're saying it's a massive Ponzi scheme, then the value has to come from something real.

The market can stay irrational far longer than you can stay solvent. What the years of free money proved is that the points are made up anyway. If you stayed playing the old game of PE ratios and market fundamentals you lost out on a ton of gainz in years past other than this one. The value comes down to how much the next sucker is winning to pay for what you're selling.

Just because the market is irrational, doesn't mean you have to be.

To bastardise buffet. I'd much rather everyone else gorge themselves on hotdogs so I can have my favourite burger restaurant to myself. When they come to their senses I will have to pay more for my burgers, if I can even get a seat in the restaurant.

'gainz' are only 'gainz' when you come to sell, and I have more confidence that something that I bought at current inherent value will maintain that value when I want to sell, compared to something with no inherent value.

> A stock is worth the present value of future dividends.

A more accurate thing to say would be that a stock is worth the present value of the future earnings the company generates divided by the number of outstanding shares.

Since the future is unknowable, a stock price is hence derived from the expectation of future earnings.

> a stock is worth..

Hasn't this always been the case?

Genuinely curious.

> Hasn't this always been the case?

Yes, but think the poster was implying the increase in interest rates makes it worth less.

$100 in 10 years is worth $91 today at 1% but $53 at 6%. That has a big affect on the valuation of growth companies.

Not an economist.

AFAIK this used to be true in the olden days. For the last few decades, many tech companies have turned little to no profit and yet trade at insanely high premiums given the fundamentals because most people have FOMO and pay for the expectation that maybe one day $money_loser will make money and be worth what they paid.

Outside of tech, I don’t think this is the case though. It’s valuing stocks by that axiom. But in tech, all bets are off.

It always been like that for every company in every field.

The only new factor is the amount of “free” money on the market. In the past it was minimal ( more or less ), now it’s maximal after a decade of zero interest rates and trillions of paper printed.

This exacerbated some aspects of the market but the fundamentals remain the same.

In a speculation driven environment, the future earnings of a particular growth company are heavily dependent on investor sentiment. If people want to invest in a company for whatever reason (such as hype), that means the company can raise more money at a higher valuation for a given amount of dilution, and by investing that money it can generate higher future earnings per share.

You don't need to pay a dividend to return value to a shareholder. You can also tacitly agree to buy back the share later at a higher price. Since this is taxed as LTCG instead of as dividend income, this is incentivized by the tax code.

If cheap credit is at an end I can see a lot of small companies and hobbyists losing free-tier services. I don't know how companies like Gitlab can give away so much functionality for zero money. One startup I worked at operated for years on free tiers and spent nothing on version control, CICD, CDN, remote access, authentication, email, chat, video conferencing etc.

I don't want that dream to end, of course. I make use of free-forever services. I just don't see it lasting if we get to the end of cheap credit.

Well, for all of those things, what is expensive for a small company if you run it yourself is the sysadmin aspect. You could run all these services off of a pair of three-year-old servers from ebay for next to nothing in hardware cost, even if you buy cold spares for disks and fans and power supplies from the get-go. But the cost of having someone learn to install, configure and operate all this software is very significant.

But when you're at the large scale and offering this as a commercial service, you've designed your free tier such that the marginal cost of adding a free tier customer is essentially zero, and the best way to acquire new customers is to have someone in that org using your product's free tier for their personal projects.

"What if it was all just an illusion for a few decades?"

Reminds me of a relatively new term that has become popular, "gaslighting", especially on the internet. If "tech" companies and their investors can convince people the illusion is a reality, then they can keep the racket going longer. Seems this was quite easy. As long as the cheap money was flowing.

As middlemen watching over the internet, now a primary means of human communication, "tech" companies are in an ideal position to create and manipulate "narratives". I am astounded by the ridiculousness of the arguments I am seeing from what we consider major corporations like Google in response to their infractions. It is apparently fair game to argue anything in support of their racket continuing.

What about this term "disruption". How much of that relied on low interest debt more than "technology".

IMO, there is a difference between making money and raising money. Those invested in "tech" startups like to conflate the two. Employees of "tech" companies being paid indefinitely from investment capital rather revenues, groups of computer nerds which never achieve profitability in the market,1 believe they are "earning" their salaries.

IMHO, raising money and earning money are different practices. The "tech" nonsense is an excellent illustration of how the former does not necessarily lead to the later, and, aside from those whose job it is to raise money, e.g., VC, only the later can be considered a measure of career "success". The two should not be confused.

1. Unless perhaps they sell advertising services or otherwise collect and exploit data about and/or obtained from computer users. As rates rise, wasting money on internet advertising will likely decrease.

Back in the 80s, I used to see those TV ads with John Houseman for Smith Barney and feel somewhat skeptical.2,3 "They earn it." Yeah, right. This was after all the time of "Liars Poker". Now when I look back, those ads seem remarkably admirable, closer to the truth, probably only because of how ridiculous the situation has become today.

Imagine a "tech" company proclaiming they make money the old-fashioned way, by earning it. Meanwhile they have no profits and they are paying salaries from VC money. Nice illusion.

2. https://www.linkedin.com/pulse/we-make-money-old-fashioned-w...

3. https://www.sanfranciscoschoolofcopywriting.com/great-ad-cam...

People who complain about extreme fed policy should look to congress. The inability of congress to address core economic and financial issues forces the feds hand.

Complete nonsense.

The Fed isn't supposed to address any "issues", but simply be neutral.

Instead they've spent a century saving entities that socialized private losses.

The fed has a mandate to follow:

https://en.wikipedia.org/wiki/Federal_Reserve_Reform_Act_of_...

They're meant to use monetary policy to maintain price stability and keep the unemployment rate low. Lots of issues come up where monetary policy would need to react. There are many places where fiscal policy might be better (it can be more finely targeted) and we generally don't see it materialize. So we're left with central bank technocrats using monetary policy.

The alternative to monetary policy isn’t necessarily fiscal policy. The current situation seems to be a combination of fiscal (demand side) problems [0] and supply problems. Congress can, slowly, address supply problems. The Fed can only usefully affect the demand side.

As examples that have come up, various shipping laws make shipping expensive. Energy should be cheap to improve economic output, but energy prices are quite high, especially in places like CA. Medical services, drugs, and drug development are wildly expensive and inefficient, and government policies help keep them that way. Various environmental laws, while well intentioned, raise costs of all kinds of things while providing little or even negative environmental benefit [1].

[0] Hello, Covid stimulus policies.

[1] As an example in California, water is quite useful, and desalinating water is not fundamentally particularly expensive. But so many environmental groups have veto power over desalination that the cost of large scale desalination might as well be infinite. Never mind that CA has plenty of coastline, plenty of solar resources near the coast, and plenty of valuable goods that could be produced if cheap solar power and reasonably priced water were actually available. And never mind that actual peoples’ actual living expenses (hello, inflation!) would be reduced if their utility bills, their restaurants’ utility bills, etc weren’t so high.

> The Fed can only usefully affect the demand side.

The Fed's job is to control inflation. If supply decreases, the Fed has to see to it that demand does too.

That is a pretty hostile reply to a neutral post.

They have sought to prevent large scale economic crisis, which would dramatically impact unemployment. And they have commented while doing so that this is not the ideal way to manage things.

What do you mean by “neutral”?

Independent and neutral are not the same thing. The Fed works in concert with the government (Treasury, policymakers) to balance monetary policy with fiscal policy.

> The Fed isn't supposed to address any "issues", but simply be neutral.

What the Fed is meant to do:

https://www.federalreserve.gov/faqs/about_12594.htm

> Instead they've spent a century saving entities that socialized private losses.

Yes, they've been around since 1913, about a century.

Don't get it mixed up, though, capitalism socializes elite private losses, not the blunt tool that is the Fed. Before that, feudalism did the same.

Very accurate. The dysfunction of congress led to a much slower economic recovery after the GFC due to sequestration and partisan debt ceiling games. Then went far the other way with huge tax cuts, huge spending, followed by even more spending by the current admin, and claim surprise at the resulting inflation. If we do have a recession coming, we are in a very bad position to cushion it at the moment due to political partisanship.

Low interest rates are supposed to make it easier to build new housing but instead zoning keeps getting more restrictive. People complain about Chinese investors buying up houses when they should be glad that they can use this money to build homes.

Local residents might think property values going up benefits the city but in practice wealthier individuals will be able to afford more houses and all of those increased property values exit the community when "mortals" move in and buy the house. The 700k paid on a house does not go to the community, it goes to some absentee owner/landlord in San Francisco or New York or some other major city.

Lol “forces the feds hand”

Congress, in part because of the fed, doesn’t have the ability to regulate it. This is why Andrew Jackson originally dismantled the second bank of the United States (the irony of him being on the $20 federal reserve note is painful).

The way the fed really works is that those closest to the supply of money get a higher valued dollar. During the pandemic the fed was straight up letting certain entities have the funds first (black rock, for instance). Then they were buying junk bonds and deciding winners and losers

https://www.federalreserve.gov/monetarypolicy/pmccf.htm

Who owns the fed? Where are the audits?

https://m.youtube.com/watch?v=HRduwYgrU7A

I seriously don’t understand why congress doesn’t even bother to audit the FED. The only reasonable explanation is corruption

The Fed is one of the most misunderstood institutions. Basically, everything you have said is completely wrong, which makes difficult to write a reply, because where to start?

In short, the original design of the Fed was correct, where each branch was independent and could set their own interest rate, and they purchased commercial paper to stimulate the economy. This changed during WWII, where the government mandated that they had to purchase government bonds to support the war.

Congress is the main problem, where they spend money recklessly with no intention of paying anything back.

The Fed is in a position where if they don't raise interest rates, they will be blamed for the bad economy.

The Fed is a convenient scapegoat, used by people who assume that Youtube videos are correct.

I may not know everything about how they operate, but I have seen how qualified their leadership is. The fed is usually run by a bunch of phd's so I have come to trust it a bit more than other government institutions.

1. The FED isn’t a government institution. That’s part of the problem.

2. In my opinion, a PhD doesn’t make your more qualified inherently. How often do candidates fail their qualifying exam or defense and never return? (Hint very few).

Take a step back and ask what the alternatives are? Prior to the 3rd central bank of the US the government was effectively fine. But it couldn’t print money, it had to collect it via taxes. This limited taxes and government spending.

Now… it’s basically a constant tax called inflation; much of which we export.

> Congress is the main problem, where they spend money recklessly with no intention of paying anything back

This is surely the main problem. But if we simply had a market equilibrium interest rate, they could not spend like they do. Hence, they are junkies and the Fed is their dealer.

Given that putting interest rates up is an artificial intervention into the market for money, what if your worldview is based around allowing financial institutions to extract rent by taxing people for setting up home?

Why is setting the price of money artificially - which gives free government money to financial institutions - better than the alternative: setting the base price of labour by guaranteeing people a job?

It would be better if we stopped talking about the false dichotomy of fiscal and monetary policy and started talking about stabilisation policy instead.

For what it's worth, I don't fundamentally disagree with the MMT viewpoint that you're coming from. But it's not so clear cut.

> gives free government money to financial institutions

By this, the parent means that nonzero interest rates on government debt represents "free money" that the government pays voluntarily even though it doesn't have to.

I'm not so sure. First of all, most of the institutions getting these payments hardly seem happy to be getting them, and would much rather see interest rates drop.

Secondly, the money does not come free to the recipients. It comes with a very high opportunity cost. That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high.

A job guarantee sounds nice, and I do think we should be encouraging full employment without worrying about wage growth. But with a jobs guarantee, who decides what the job is in service of? The point of not having a command economy is that price signals should influence such decisions.

"That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high."

Except that can't happen can it.

If Loans create deposits, then to get more savings, you need more loans. You can't have one without the other.

What they are trying to do its get people to pay off loans. How many people do you know who pay off loans in the middle of an inflation?

No, because bank reserves can go up. And by increasing its interest rates, the Fed reserve is encouraging banks to put more money in reserve accounts.

Bank reserves cannot go up in aggregate unless government spends more than it taxes and doesn't issue bonds to drain those reserves.

Bank reserves are on the asset side of the bank's balance sheet. Deposits are on the liability side.

Paying off loans is equivalent to saving! As long as you aren't taking on new debt to pay off the old one.

> How many people do you know who pay off loans in the middle of an inflation?

If interest rates are low, nobody. If they are high, lots. Go look at r/personalfinancecanada and there's been a huge shift from "taking out a line of credit at 2% when inflation is 6% is practically free money!" to "which should I repay first, my mortgage, my credit card, or my HELOC?"

"If they are high, lots."

And what do the aggregate numbers say, rather than the anecdotes from rich people?

If you can't afford the heating then you don't pay down loans. You take out new ones.

> And what do the aggregate numbers say, rather than the anecdotes from rich people?

You don't need me to do your research for you, but the data agrees with the theory. Canadians are paying down their at a record pace. Household debt payments rose to $57.4 billion in Q3, its highest ever.

https://www.theglobeandmail.com/business/economy/article-can...

On the flipside, household debt exploded after rates dropped to zero. I think that's very uncontroversial. So either you believe the conventional wisdom that low rates increase indebtedness and high rates decrease it, or... or you'd have to take one of these positions:

- every interest rate somehow stimulates borrowing

- there's one or more "goldilocks" interest rate that causes people to pay down debts but every other rate causes people to borrow.

"But with a jobs guarantee, who decides what the job is in service of? "

Doesn't matter (ultimately it is a political choice). The point of the job is to use up hours so you can't use them yourself. It forces the spending of time - which is the actual underlying exchange amount.

If you give up your time for others, then others will give up their time for you.

The purpose of jobs isn't to kill time, but to produce things like food, shoes, and soap. It's important that it accomplishes that.

The purpose of jobs is to use up time. A job is a contract for employment - selling hours.

If I have to use up my time to get the things I need to live, then I'm going to want to see you doing the same.

At root we exchange time with each other. And that time has to be for the service of others.

Service to others is the rent we pay for our room here on earth.

It's a little more than just producing consumption goods - which hopefully can be mostly done by machinery.

If somebody is giving up their time and they are being directed to do something pointless, who are you going to be annoyed with: the person doing the work, or the person directing the work?

I don't know how to cordially express how much I disagree with this.

The time that a job consumes is a bug, not a feature. The reason a farmer hires a carpenter is to get the barn built, not to feel better about the hours the farmer spent growing the crops that the carpenter eats. If the carpenter could snap their fingers and get the barn built instantaneously, rather than over the course of a few days, they would, and the farmer would still give them food to pay for it.

From my parents' experience guaranteeing people a job will only result in people idling at job site because there is no work to do instead of people idling at home or possibly studying for a job they want to do.

Giving artificial jobs don't differ much from giving people artificially valued money.

Look around when you're outside and take notice of all the maintenance not being performed. Speak with people who have a job and see how many of them would describe their workplace as chronically understaffed. We're a long way away from "people idling at a job site". And even if we weren't, there's a cost to idle tasks that sit around waiting for someone to be available to do them.

That said, only a small percentage of workers are happy to be pointless. Punishing everyone over the few hypothetical lazy does more harm than good.

1000 people buzzing to build up a startup that has negative unit econimonics and will never be possible is no different than doing nothing at work.

That being said, you’re right that we are seeing a lot of genuine demand for important work not being filled.

To me, this seems like mid-allocation of labor and it’s one of the effects of a low interest environment.

>> 1000 people buzzing to build up a startup that has negative unit econimonics and will never be possible is no different than doing nothing at work.

One could make the case that is actually worse than doing nothing, as it can be seen as a net negative.

*mis-allocation

I think the maintenance is not being performed because nobody wants to spend all the time and sweat to fix a bridge and getting rewarded by "Thank you and Goodbye! Oh by the way we couldn't get your budget approved but thank you, again, you helped us out with that thorn in our butt... about your payment.. better luck next time! KTHXBYE!".

Except there is plenty of work to do in public infrastructure, if the government is willing to spend money on getting it done: roads and bridges crumbling, water treatment systems in dire need of maintenance and repair, power grids fluctuating and unable to handle peak loads. And lots of second order work: administration of, and job training for, these infrastructure projects comes to mind.

It's harder for a few at the top to monopolize all the jobs than all the money.

First time I came to the US over 25 years ago, one thing I noticed that was really different from western Europe was the amount of artificial jobs: grocery store bag filler, elevator boy, parking place guard, etc. I hadn’t seen these in Europe for years, cause nobody needs them. Having first visited Eastern Europe during communism, the resemblance in this aspect surprised me.

“Grocery _story_ bag filler”. Love the typo in the context of the post about artificial jobs.

Seriously though: other factors may create these needs: wage costs, security needs, cultural expectations.

You have not seen them in part because of labour costs. Their existence seems to correlate with that.

"Giving artificial jobs don't differ much from giving people artificially valued money."

There's a big difference. It uses up the hours so they can't self consume them. And they are forced to turn up on time, and stay the day - or they don't get paid.

Which goes back to the root of our exchange system. We don't really exchange money, that's just a token - we exchange the output of our time, which is finite, and therefore valuable.

A job is a way of giving up your hours for the benefit of others.

An artificial job does not produce value from which others would benefit.

A real job that produces value would not need to have been artificially created!

A contract of employment is a contract for time. Giving up the hours is all that is required.

It's the job of capitalists to extract value from that time. If they do they get paid. If they don't they go bust.

The number of 'artificial jobs' is entirely in the gift of capitalists. If they don't like them, all they have to do to make them go away is hire the people's time and use it better.

If they can't do that in aggregate, then they lose out until they do. That's how the stabilisation works.

A contract of employment is also usually tied to some vague job description the employer is expecting from the employee.

It's your job to take the most value out of your time, either selling it to someone else (getting employed) or helping a grandma across the street.

Hiring a bag stuffer is less of an artificial position than hiring eleventh construction worker on a project for four.

Artificial job - A job that doesn't produce value for the employer

It's not your job to get the most value out of your time. It is the person who is hiring you's job to get the most value out of your time. That's where the surplus that pays them comes from.

Otherwise you are in business and the surplus should accrue to you, not your employer.

The employer has to extract value otherwise they have no right to that value.

How does that work on an island away from civilization? I still need to get the most value out of my time so I don't starve to death.

I'd rather say that keeping interest rates down required a continuous artificial intervention into the market for money - the current rate rise seems quite fully driven by reasonable market pressure, not by some artificial intervention.

If the central bank doesn't set a rate, then the interbank rate will drift to zero - because money is near costless to produce and no chance of non-payment because there is only one central bank in a currency and central bank money can't go anywhere else.

That doesn't stop the rate for lending to businesses being higher than that because there is a risk of non-payment there. There is more than one commercial bank.

Every form of money has its 'own' rate. There is no One Interest Rate to Rule Them All - contrary to neoliberal myth.

Wait, that's not how central bank lending works - you seem to equate "not setting a rate" with "setting a rate to 0" and offering limitless lending to commercial banks at that rate - which is a very high level of intervention IMHO; I'd rather equate "not setting a rate" by the central bank reducing its participation in the interbank lending and stopping this injection of 0-rate money, in which case the interbank lending rate will become dominated by the actual market competition, because commercial banks can't arbitrarily produce money.

That's exactly how central bank lending works. You have a fallacy of composition.

In reality the central bank doesn't lend to banks. The banks lend to each other and they do arbitrarily 'create money' to do so.

The commercial banks have accounts with each other. That's what interbank lending is, and what they clear to at the end of the day.

In Bank A it is DR Bank B, CR Customer 2 Deposit. In Bank B it is DR Customer 1 Loan, CR Bank A. They can't clear interbank payments unless that happens.[1]

The Bank of England has a full document on it [0]

[0]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

[1]: https://new-wayland.com/blog/why-banks-pay-interest-on-depos...

> In reality the central bank doesn't lend to banks.

Central banks absolutely do lend to banks through discount window lending and other means.

> The commercial banks have accounts with each other. That's what interbank lending is, and what they clear to at the end of the day.

> In Bank A it is DR Bank B, CR Customer 2 Deposit. In Bank B it is DR Customer 1 Loan, CR Bank A. They can't clear interbank payments unless that happens.[1]

There is not a one true way to do interbank lending, since it depends on regulation and the underlying market infrastructure used - therefore it is not a fact that banks arbitrarily 'create money' to do so.

Banks can lend to each other using central counterparty clearing houses (CCP) as intermediates, in that case, Bank A and Bank B will have accounts with the CCP, who will do all the clearing & settlement.

All interest rates set by central banks are an intervention into the economy. A central bank has the purpose of intervention.

>setting the base price of labour by guaranteeing people a job?

Minium wages are setting a floor to the cost of labour. "Guaranteeing jobs" is totally meaningless inside a somewhat capitalist system. People work if and only if there is an employer paying them a wage the person deems adequate for the job. If a person wants a compensation nobody is willing to offer they won't get a job. The only thing the government can do is either create fake jobs for the person to do give them welfare, which are the same thingv but the later is far simpler and cheaper.

“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009”

This is like 9% compounded for 13 years, which is in line with historic averages.

It continuing unabated for 13 years is a historical anomaly, however

We’ve had 3 bull cycles that lasted around 13 years covering periods in the 50s, 80s and 90s.

https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten...

The +9% average is long-lived and covers periods with drawdowns so no abnormality there.

Hm, but we've had zero interest rates that entire time so shouldn't we have expected even higher returns? E.g. what would the 90s have looked like with zero rates?

And by that thinking, if we could only manage historical averages during pronounced low interest rates, what does it say about the prospect of returns for the next few years?

Lowering rates will give a boost to the stock market in the short to medium term. In the long term, returns will settle closer to the interest rate in question (plus a risk premium). See: Japan over the last couple of decades.

It is kind of interesting how this was the core observation of Keynes. It isn't capital that dominates the markets it is money.

According to classical economics people either spend or save, there can be no such thing as indecisiveness or paralysis. What this means is that a too low interest rate would immediately cause inflation and therefore result in a higher nominal interest rate because the rate of capital formation is too slow.

In practice we haven't observed any capital shortages that weren't the result of a one off event. The interest rate appears to be the only barrier and the return on capital followed it in countries excluding the USA.

The iShares S&P 500 ETF has returned about 11.6% annualized over the past ten years. Their Ex-US ETF: 2.8%.

Point being: the third variable no one ever takes into account when considering Buffett's advice: "just invest in broad market indexes" literally only works in the US, and only has worked historically. It's not a coincidence that the US is the youngest developed economy on the planet.

In other words: How high would US stock returns have been if interest rates were near-0% throughout the 1900s? Have interest rate adjusted returns actually decayed in the past ten years? How long before the US stock markets stop behaving "historically" and start behaving "globally"?

I'm not asserting entire bearishness on the us economy. The US is still the nerve center of global finance, software technology, education, retail spending, every economic metric you look at the US leads in. That doesn't disappear. Just that: the story of the next twenty years may be the US financial indicators trending more toward historical global norms.

Maybe it only works in the US equity markets, but that's not "only works in the US" -- the S&P 500's companies are: not all based in the US, and in total derive only 75% of their revenues from outside the US.

For reference, the US share of world GDP is about 25%.

It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world they started or where their revenues originate.

I'm not saying anything about interest rates -- your point there might be spot on -- but US stock markets have huge global exposure, and your implied assertion that there's some kind of "global" benchmark equity growth rate doesn't seem that sound.

The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there.

The fact that the companies get a lot of their revenue from other countries is moot. In those countries, investing in index funds is not the highest performing long term investment.

What is typically the highest performing long term investment outside the US?

Rents.

/s (maybe?)

Yes I didn't make any claims about this fact.

My post was in response to the prior poster's claim that US exceptionalism here doesn't have a clear rationale, and that one might expect some sort of "reversion to the mean" where "mean" there is the performance of broad equity markets in other countries.

In my post, I'm saying that one shouldn't expect that broad markets indices to grow comparably in other countries, and the fact that they don't says little about how well they do/should/will perform in the US.

The US is at least as old as the concept of a contemporary “developed economy”, so it doesn’t seem like this part of the argument holds.

Sure, but if you compare to EU companies, their stock growth had been pitifull in comparison.

Everyone invests in US stocks/ETFs/companies if they want to see good returns.

Isn't the EU lagging due to post-GFC austerity?

It’s much more than that. EU policies stunt growth on a structural level.

The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes.

Growth =/= increasing share prices (or company valuations)

>> The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes

I used to be a believer in this. But I recently moved from Sweden to UK, from a very socialist country to a very capitalist one.

In capitalist societies people live in survival mode. This doesn't work well in every profession, especially managerial roles become very predatory. It does work well in tech/individual contributor roles though.

Some mundane tasks that are needed for tech development to go smoothly over long periods of time, is easier to manage in socialist Sweden. Whereas in UK, I suspect in US too, people tend to gloss over mundane managerial processes/goals like scrum, roadmap planning, business goals etc.

I can't find a good chart for this but the GDP of the EU and the US were almost at par until 2008, after which there was a massive decoupling. The main difference in the EU's and US's response is the level of austerity each engaged in. The US's response, while certainly not ideal, was significantly better than the EU's response.

edit: https://www.businessinsider.com/austerity-has-damaged-europe...

On the contrary; that's a component of my entire argument.

The US and the concept of a developed economy both started at Square 1 around the same time. That's a huge structural advantage. Developing or selling some new technology? No laws. Let's write one; with the input of the businesses doing the development. Other companies had to update their infrastructure over time; we green-fielded it. Much cheaper. Opening a factory? Take a thousand acres of land in the west, no one is using it, take it. Raw materials? An entire content worth of them, virtually untouched by the natives.

Those are all structural advantages which helped fuel the hyper-accelerated growth the US experienced throughout the past two centuries.

And the broader point is, every day that goes by everyone gets older; including the US itself. New businesses contend with more laws and regulations. Infrastructure was built without a plan for how to pay for its maintenance. The land is claimed, and the new owners want a million bucks for it.

That's the reversion to the global mean; that now, we're dealing with a lot of the same shit everyone else is and has been for centuries.

I wonder if devastating global wars (and pandemics) over the previous century(ies) makes for a confusing baseline to construct "historic averages".

I think the article brings up too many separate concepts without sufficiently tying them together.

One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy.

> After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple:

> > The Fed’s “strong and creative measures” would inflate stock prices, which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy.5

Of note is the fact that the citation for this quote is some random dude Wolf Richter's website. The guy's a former car dealership manager, and that's the extent of his financial background.

A much less sinister and simpler explanation exists: high inflation rates are bad for pretty much the entire economy regardless of level of wealth. We already saw this in action in the 1970s.

I also take issue with a lot of the numbered points in the article. These points seem to avoid the more nuanced multiple factors behind those specific developments:

1. Tech companies are flushed with cash because it's the highest margin business out there. There was no such thing as software company profit margins in the olden days of corporate behavior.

3. The buyback graph didn't show R&D spending decreasing at all or otherwise being impacted by stock buybacks. The cited HBR article doesn't directly link the lack of R&D expenditures to stock buybacks. Aren't there companies out there that have minimal R&D expenses? S&P 500 companies like Dollar General, Costco, Robert Half, and CBRE Group?

4. Isn't the biggest reason to link CEO pay to stocks to avoid personal income tax? That's just a tax efficiency issue.

5. Aren't there other reasons why Vanguard is popular besides the popularity of stocks in general? I always thought it was because the Boglehead ideology spread and Vanguard's low expense ratios proved to be attractive. I see this as "passive versus active investing" not "investing in stocks versus investing in something else."

7. Who says FIRE isn't productive? Where do you think those "tech companies flush with cash" got the cash from?

I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.

In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be more expensive now.

Stock buybacks are basically attempts to shirk leashes, freeing execs/other shareholders from the ongoing influence of exiting shareholders.

Dividends on the other hand, are straightforward returns on what was a commitment to sink risk. An ongoing source of income for the shareholder as a result of the company thriving. It's a straight up payment of a coupon off a bond. There is no need to exit/re-enter required. Your # of shares do not move. Therefore your relative investment stays as it was, whereas with the buyback, you're handing back your ongoing leash and influence on the company.

Stock buybacks are therefore not equivalent in any way to paying of dividends. I don't know why this is so hard to understand.

If a company does a buyback, shouldn't you still have a higher percent control if you dont sell any of your holdings, and the same % control if you do sell the dividend equivalent

Imagine a company has 100 shares and I own 10. If they company buys back 50, the stock price will double, and my % ownership goes up from 10 to 20%. I can sell down to 10%, the same control I had before to take my profits.

What am I missing here?

Wouldn't that friend on who's voting the stock that company holds in itself?

Is it the CEO? The board? The chairman? Or are the stocks cancelled from the total?

I can't parse all of your question. What friend? To answer what I think you are asking, the buyback shares are usually destroyed. It isn't like the CEO gets to vote with them instead of shareholders. In fact, they company does not destroy the shares, and holds on to them for whatever reason, they do not get to vote with them. those are called "treasury stock".

Apple is a classic case. Around 2010, the company had 26 billion shares outstanding. They've spent the last decade buying them back, and now have about 16 billion shares. This contributes significantly to the increase in stock price. The portion of the company 1 share represents is 60% larger today than it was in 2010 because there are fewer of them

Bought back shares are either retired or held in the company’s treasury stock. Either way, there’s no voting right for these shares.

Again, this decreases actionable accountability to the external world.

This should make it clear why stock buybacks would be preferred. Fewer people with standing to sue if they don't agree with management's direction.

so more shares is more accountable?

I'm not sure how you get that more shares means more owners. Doesn't really seem like the limiting factor.

Nothing, except for well... many investors aren't rational, or at the very least, they operate on other rationale. And because of this, it's entirely possible the stock price doesn't actually double in your scenario. However, if didn't, it at least would work positively towards the value metrics of the stock.

There are a few reasons some companies prefer buybacks over dividends.

Probably the smallest reason is that buybacks can save investors money on their taxes.

A much bigger reason is that buybacks are viewed as one time events. When a company starts paying a dividend investors often expect that dividend to be paid regularly. If the company chooses to stop paying a dividend or decreases the dividend the share price drops.

Finally, there is executive compensation. Let's say my compensation package let's me buy shares at $100 each. If the share price is currently $110 and the company does a $10 dividend then the share price goes to $100 and my options are worthless. If the company does a stock buyback then the share price goes up and my options are worth more. As CEO which do you push for?

I agree that a smart CEO holding options would favor to dividends but don't see how this is an argument against it.

It seems that it benefits stockholders and CEOs alike. Stockholders get the same value as a dividend without the immediate taxable income, and CEOs and other option holders like employees get some of the value when their options mature.

I wasn't arguing against buybacks. I was just giving some reasons buybacks are more popular with some companies than dividends are.

Stock price can't double. The amount of cash the company has must decrease by an amount equal to half its market cap. That should do something roughly equivalent to the value of the company.

The doubling is relative to if they had paid a dividend of the same value.

Stock price can double with the same market cap if you reduce the number of outstanding shares by half.

Buybacks and dividends both return capital to shareholders. In each case, the board and management are making the conscious choice to return capital rather than reinvest in the business. Mostly because they don't have a good internal investment to make that will generate returns. Investors can diversify and risk allocate for themselves.

Dividends are nothing like bond coupons. Coupons are guaranteed, tax treatment for both payor and payee is quite different.

So by your line of reasoning, a stock split should leash a company and hold them accountable since the cost to acquire or require shares is now much less than before.

We don't need the SEC, we just need to force companies to perform stock splits!

Voting shares + people active exercising and riding management like no tomorrow.

Point I'm making is that you can't declare a mechanism where you gain money but must exit as equivalent to you gain money, but no effect on your position as equivalent things.

The company purchases the shares from the market so you don't have to sell.

What if a company buys back 50% of the shares and simultaneously performs a 1:2 stock split so that there are exactly the same number of shares available?

If a company believes its own stock to be undervalued, why not invest in themselves by buying it? In that case it's an investment, vs a dividend which is not.

> Stock buybacks are therefore not equivalent in any way to paying of dividends.

They are extremely similar. The differences are around timeline and tax advantages, none of which you covered.

In a buyback, your percent ownership in the company will go up and the price will go up (barring other factors). You can sell some stock to keep your percentage flat and get some cash, making it like a dividend. Or, you can make a dividend like a buyback by reinvesting the dividend. Your percentage of ownership will go up.

If and only if people previously holding stock sell back to the company. Regardless, you realize no gains if you do not exit your interest on that stock. The exit is non-optional, and often not reenterable from.

> If and only if people previously holding stock sell back to the company.

This is trivial. They just buy it on the open market. This is public stock, people are always buying and selling.

> Regardless, you realize no gains if you do not exit your interest on that stock.

This is the big advantage of buybacks for shareholders! It is taxed as capital gains, and you can completely defer taxes by not selling. And "exit your interest" makes it sound like you have to sell all of it. You can just sell a small portion to make it like a dividend. You don't seem to be getting this.

> The exit is non-optional, and often not reenterable from.

Nonsense. It is optional. You can choose to keep it as stock or turn it into cash. And you can totally re enter. It's public stock.

Are you mixing up publicly traded stock buybacks with something in private companies?

Dividends create an immediately taxable event, the value gained in a stock buyback is only taxed when the stock is sold. It’s one contributor to the low amount of taxes paid by the so-called 1%.

Isn't stock sold in the event of a buyback? And isn't that event taxable? Are dividend taxes higher than capital gains from stock sale taxes?

Depends. Only if the sellers make a profit with the sale. Then that profit is taxed.

The value gained by the other shareholders is not taxed until they sell themselves.

Of course unrealized gains won't be taxable, but they can't be spent either.

For me, it makes a lot more sense to tax realized profit, or better yet consumption, than wealth itself.

I don't think it is desirable to force realization just to increase tax revenue.

> For me, it makes a lot more sense to tax realized profit, or better yet consumption, than wealth itself.

Why not tax all of that simultaneously? That's what the Dutch do.

> I don't think it is desirable to force realization just to increase tax revenue.

And yet various governments are doing or are planning exactly that.

I searched and couldnt find anything about a Dutch wealth tax, just answers saying they dont have one.

Do you have a source?

I wasn't aware of any western countries which have wealth taxes, but I was surprised to find that Norway, Spain, and Switzerland do have some.

https://taxfoundation.org/net-wealth-tax-europe-2022/#:~:tex....

Straight from the source: https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-...

Summary: https://en.wikipedia.org/wiki/Taxation_in_the_Netherlands#Bo...

This looks like capital gains to me. Taxation on income from wealth, not wealth itself.

https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-...

No, they use hypothetical yield (of over 5%). It applies to savings accounts, that had negative interest rates...

See my reply above.

Looking at your links, it says that savings are taxed at 0.01%. What am I missing here

The 0.01% is temporary/new, due to the wealth tax declared illegal by the European Supreme Court. This link explains the situation around the "Box 3" wealth tax better: https://www.tilburguniversity.edu/magazine/supreme-court-net...

“In 2001, the legislature assumed that everyone could easily earn a 4% return on their assets in Box 3 – regardless of how they were invested – without taking any risk, but this has certainly not been the case since 2008. Savings rates have yielded much less interest, as have bonds, with interest rates as low as 0%. At the moment, we’re even seeing negative interest rates. But the legislature never adjusted that assumed 4% return. This resulted in a situation where, for many years, the wealth tax people paid far exceeded their actual income from wealth"

It's not a capital gains tax. The Netherlands has been taxing net wealth (with some exemptions, most notably for primary residences and vehicles) at around around 1.2%/year. This was implemented as a 30% levy on an assumed 4% investment return on net wealth, regardless of actual or realized returns and regardless of how the wealth was held (stocks, bonds, savings account, bitcoins). I suppose you could say that the taxation is on "income from wealth" (assumed to be 4%, taxed at 30%), but that seems like a distinction without any difference to me. Your net wealth is assessed, and you pay a fix % on it, regardless how much money it actually made.

The article you linked to refers to a recent court ruling against that system. (A bunched of pissed citizens sued the government because interest saving rates have been 0% or even negative for many years now.) The government is now scrambling to update the tax code, but AFAIK no change has been implemented yet. Last year's net wealth was still taxed at assumed (rather than realized) investment returns in this years income tax assesment.

You say it is a distinction without a difference, but it seems like it is very relevant to me. For one, the fictional assumed income is based on the type of asset. Second, it seems like the fictitious rate is calculated based on Market conditions and changes over time. Lastly, the entire premise of the tax is to be levied on income. The assumed rate is just a simplification to calculate that. It seems that the legal proceedings were decided in favor of the taxpayers specifically because of this.

> For one, the fictional assumed income is based on the type of asset

It isn't. Under the current systen they make bo distinction, they just look at total worth per the market value. They treat 200k in savings the same as 200k in stocks.

Yes, the Netherlands has wealth tax, also known as "Box 3", and it includes tax on hypothetical yield on your savings accounts. The government got into issues with the European Supreme Court for this:

https://home.kpmg/us/en/home/insights/2022/05/tnf-netherland...

"The box 3 tax rate is assessed against a hypothetical yield. You are not taxed for capital gains or actual rental income. Instead, the Dutch tax office assumes that you enjoy a yield of up to 5.69% over your total asset value, irrespective if any actual gains are higher or lower(!)."

Note that actual savings interest rates were close to zero or even negative.

My understanding is that you can play tricks with stocks so that you don't really need to realize the gains to benefit from them. They can be used as collateral for loans, directly donated to charities (lowers down your tax bill w/o forcing you to realize the gain), there's also the step-up basis loophole (or was it already closed?). I may be missing some details (and other creative ways to do "tax optimization") though, I'm not a CPA.

I never see anyone complaining about buybacks because of tax reasons though. In particular, the author is complaining companies are not spending enough on R&D because of buybacks.

It is true that buybacks are more tax efficient than dividends, which is why companies generally do buybacks instead of dividends.

The US tax on capital gains is definitely a mess though.

I was mostly responding to the "but they can't be spent either" part. From my perspective there isn't that much difference if a company is doing a buyback vs a dividend, as long as it's sharing its profits with the investors (w/o that, I view the stock market as a legal Ponzi scheme); I'm not really commenting on how much money should transfer to the shareholders though.

I had not heard about the donating to charity. Very interesting and tax efficient, but worth noting that you cant make money with it (you are still donating far more than you are saving in taxes).

In high-tax states, where Federal + State taxes exceed 50%, it is now possible (but rare!) to 'make money' by donating.

Let's take someone with a 53% marginal income tax, living in NYC. The person has stock with a basis of $0.0 with a current value of $10, and has held the stock for less than a year (short term capital gains = ordinary income rates). Separately, they have $1,000,000 of income.

Scenario 1) Donating the stock would produce a $10 tax deduction, worth $5.3.

Scenario 2) Selling the stock would produce $10 of returns - $5.3 in income tax = $4.7

In this scenario, donating the stock produces higher returns compared selling the stock. It's a fairly obtuse scenario, since it's rare for the cost-basis to be so low, time-span to be so short, and to have a good use for a tax deduction. It becomes much more likely when a completely illiquid & price inflated stock is donated. If a large chunk of illiquid stock is sold, it'll crash. But donating an inflated chunk of stock would lock in the tax deduction.

Donating shares of a stock when a person knows insider information is called 'insider giving', and is highly prevalent & largely unenforced. https://dlj.law.duke.edu/article/insider-giving-avci-vol71-i....

Charities aren't necessarily "charitable" - they can be political and affect businesses. And in the dodgiest situations, they can be something you financially benefit from.

Obviously the latter leans towards tax evasion, but that's exactly the point - stock buybacks aren't necessarily tax evasion but they can certainly assist in it.

Just set up your own charity that pays for your charity-related travel - it's not your fault that the charity focuses on work in a region where you happen to have a summer home. ;- )

> Of course unrealized gains won't be taxable, but they can't be spent either.

They can be spent if you have a low interest LOC at a bank backed by your assets like stocks.

Don't get me wrong, unrealized gains are a useful and great thing to have. I would rather have them over nothing any day. However, you can't get that off your books without realizing gain at some point. It pushes tax burden into the future, but doesn't eliminate it

If you have enough money you can push it into the future more or less indefinitely.

Until you die. At which point your heirs get a "stepped up basis" to the date of your death without paying any capital gains tax, under the theory that they pay estate tax instead. But estate tax starts at $10M or so these days. And don't worry if you have more money than that - you've got enough breathing room to create irrevocable trusts to skip estate tax and distribute income directly to your low tax bracket decedents in perpetuity.

For an example of how much the IRS theoretically cares about not being able to kick income down the road - basically the entirety of retirement savings regulations revolve around the controlled ability to do just that.

They are completely different with respect to their impact on stock options.

If you hold stock options, a dividend doesn't benefit you. You need to hold shares to get the dividend. In fact, the dividend can cause the share price to fall (if it was not already anticipated) as the company's capital gets drained to pay shareholders.

On the other hand, buybacks (causing a sudden, surprising increase in share price) are most impactful on those who hold options. Proportionally speaking, they increase the value of options much more than the value of shares. The share price might go up 2%, and the options 200%.

Executive compensation packages tend to consist of stock options. So buybacks benefit corporate insiders more than shareholders.

This isn't accurate. Options are discounted by their expected dividend payout. Unless a company is issuing either 0 dte or decades out expiration options, no options are giving any corporate exec 100x leverage.

That doesn't sound right. Can you explain in more detail? The only mention of 100x was in regards to a buyback, not a dividend. Options are generally issued with a strike price equal to the current market value, to minimize the tax liability. Following the options grant, a subsequent decision to perform a share buyback would be new information to the market, not expected. Even the execs who received that options incentive package wouldn't have known at the time that they'd be doing a buyback down the road, even though they'd be rewarded for doing it.

The post refers to an article [0] which mentions that dividends are also not that great for productivity/R&D spend.

"Excessive dividend payouts, however, can undercut investment in productive capabilities in the same way that buybacks can."

[0] https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...

Regardless of Wolf Richter, the Wealth Effect is an actual philosophy tapped into by Ben Bernanke and others post-2009

> In defending the Fed’s bond-purchasing plan late last year, Bernanke said that “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion” (2011)

https://fortune.com/2011/04/21/wheres-the-wealth-effect/

The Fed was buying up government bonds in order to reduce long-term interest rates. The focus of Fed policy has always been on the long-term interest rates as a tool to control inflation/unemployment, and raising the demand for government bonds is the most direct way to lower the long-term interest rates. The quote from fortune.com is taking Bernanke's words out of context. Here is the original quote:

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.

The difference is in the way Wolf Richter presents the concept and mischaracterizes it as trickle down economics.

Wolf says:

> …which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy

This is distinctly different than what Bernanke says in that quote. Bernanke is saying that the mere economic indicator of higher stock prices boosts consumer confidence, like when someone sees a lower gas price and feels better about the economy.

I have to agree with Bernanke there. The layperson sees a number on the news that says “economy good” and they worry less about losing their job or spending too much.

Richter misunderstands the wealth effect to be the literal spending of money by people who own assets like stocks and the trickling down of that money.

Even if the wealth effect benefits the wealthy more, trickle down economics is not the same concept.

What if you're just too young to remember a business cycle because you weren't an adult or were still in college so were insulated from 2008?

Its funny to read all these takes from "kids" who think that all the fundamentals have totally changed at this point like the economy has turned some fundamental 180 degree turn and we're heading back towards >6% rates forever.

It hasn't. The Fed is going to crash the economy into a brick wall to bring down inflation via raising unemployment (we're probably still 6-12 months out) but then the Fed will slash rates in a panic and go "oopsie". This will bring back yet another low interest rate / cheap money period.

I suspect the next cycle will be shorter and a decade of ZIRP won't happen again, but we're going back to ZIRP again once the recession hits.

Born in the 80's I see. Complaining that people born in the90's have seen less than someone born 10 years earlier.

There are people born 20 years before you that have seen 2x as much.

> Born in the 80's I see

incorrect.

> What if you're just too young to remember a business cycle because you weren't an adult or were still in college so were insulated from 2008?

This. Whole article is trying to blame a whole lot of trends which were already very much present in 2008 (and in some cases specifically responsible for 2008) on what happened afterwards when interest rates were lower

It's not low interest rates that make people believe that Uber has a route to profitability (higher interest rates might kill off some small-margin businesses reliant on debt funding and reduce valuation of all companies; they won't make people investing sovereign wealth funds in US equities smarter about which companies they allocate their funds to), and higher interest rates certainly aren't going to encourage companies to reinvest their cash piles in R&D or help new market entrants compete away the monopoly power that generates those cash piles

We are not slashing rates, that is not going to happen.

Those times are over. We can not slash rates without inflation becoming a larger issue. We had a nice run but this is back to the historic norm that inflation is always lurking in the background and highly constraining on central bank policy.

You are just repeating a standard narrative that is almost certainly wrong. 6-12 months out a mild recession happens and then the Fed slashes interest rates and the market takes off.

I personally suspect this is all a form of denial of how ugly the situation is economically. Once inflation catches a spark it doesn't just go out because basically everything economic in terms of a recovery is inflationary.

> Those times are over. We can not slash rates without inflation becoming a larger issue.

If unemployment is pushing 8% they certainly can.

> Once inflation catches a spark it doesn't just go out because basically everything economic in terms of a recovery is inflationary.

This is nonsense. If the economy is in recession and unemployment is at 6-8% then we won't be in a recovery and it won't be inflationary. It will wind up blowing up another asset bubble, but they don't care about that, which is why economists distinguish between inflation and housing appreciation.

The pandemic recession was way too brief and v-shaped and was heavily cushioned by all the stimulus. That won't happen next time. That isn't the new pattern of recessions.

I just can’t take this person seriously. Clearly written by a non-expert and the questions/ideas are, as a result, well-trodden ground without anything original to add.

Take this representative quote “It’s Jerome Powell’s world: never before have I seen markets move so erratically in response to a once-boring Jackson Hole conference. Actually, the first time I ever heard of this event was this year since some acquaintances of mine were trying to ‘trade’ it.”

So, essentially, this person had no clue what Jackson Hole means in the financial world but makes a huge judgement on past events, then says immediately they know nothing of the past and just learned of them this year. No analysis of market volatility around these events, just a blanket statement that makes them look foolish.

Basically they are now opening their eyes to the huge role central banks play in the economy.

He's right in one sense, that the implications of Fed policy for the last decade are truly astounding, but I'm not sure he actually understands why he is right.

It’s a discussion that’s been had countless times and written about almost as often.

maybe I’m gatekeeping a bit but I also think the amount the average person understands about share buybacks and their relationship to ceo compensation packages, interest rates, and corporate tax law is lacking and this person has not improved that situation and probably hurt it through their own ignorance.

That’s just one of many issues with the article.

As someone semi familiar with this stuff, it is fairly notable how rates are moving markets right now.

Say the payroll number misses consensus by 5%, meaning there’s a fraction of a percent less chance of a 0.75% rise in rates vs 0.5%. The stock market then rallies by 2% or a few hundred $billion in market cap.

Surely that isn’t a healthy market when changes in fractional rate expectations create so much volatility.

> As someone semi familiar with this stuff

Your comment suggests the opposite.

Expectations for a fraction of a percentage interest rate move should not be the dominant narrative and driving volatility to such an extent. Positive GDP growth and falling unemployment used to be a good thing, this year they are deeply bearish.

Just yesterday I commented something about the disconnect between huge parts of the population (or at the very least those on social media and the internet) and just how the basic, underlying things in our society work. Seems this submission is just another, great example for this.

The recipe is always the same: lack of basic understanding of things (economics, law, finance, supply chains, medicine, science,...), a certain level of eloquence, full certainty to be able to work out everything based on first principle, no curiosity or intention to do some basic research into topics and a huge drive to look smart / proof to the world how smart you are. Easy to spot so, for example by sentences you pointed out.

While I try not to comment to 'defend my views' because it's a bit lame, I have to plainly say I am not "just opening my eyes to the huge role central banks play in the economy." I have been following markets many years, both as an investor and because I enjoy reading about economic history (also as part of my study).

My whole point with that sentence was - did you ever pay attention to a Jackson Hole conference before say 2022/2021, which was previously a relatively bureaucratic non-event? I certainly didn't, and now suddenly so many people around me were trying to trade it and the S&P500 moves 5% a day on it. That's the only point of that sentence, but you seem to be extrapolating much more from it... including whether or not I even deserve to write.

And are you really saying that not knowing of a Jackson Hole conference is indicative of 'not knowing anything about the past?' or whatever it is you meant there. Either way, that's just ridiculous gatekeeping of knowledge of financial markets and history based on a useless, pidgeonholed criterion - like whether or not someone is familiar with Jackson Hole.

If you didn't like the article, that's totally okay, but don't be so arbitrarily dismissive.

Are you the writer? In what way was the rise of Vanguard driven by cheap credit?

You can't say 1:1 directly that cheap credit = rise of Vanguard, but index funds have gotten really popular since 2008. The near-zero interest rate was the environment, and that environment was built on the Fed's policy goal of the Wealth Effect (belief of growth of assets boosts demand & spending). So, given that you could pretty much throw anything at the dart board among the giants and it would go up, indexes performed exceptionally well and capital poured into them. They were also initially seen as 'safer' post 2008 meltdown, but I think as the years passed it became less about this

But their growing concentration (esp. regarding Vanguard) has also worked to naturalize some of the largest companies as a 'group.' This kind of frame became sort of unavoidable amid all of them rising, so it's hard to separate the 'cheap money' environment from Vanguard's influence growing - especially since this macro environment also allowed for their entry into other ballooning assets like real estate w/ their ETF (which has been controversial)

The problem with this growing concentration is that, as Vanguard becomes a major holder of every top stock, then all those grouped assets are going to start moving more and more in lockstep the further the concentration grows. And that's less and less of a market to me, and more just a artifice unrelated to actual profitability. In all, this is another child of the post-Great Recession cheap money environment, although how directly you want to tie them together is debatable

Hmm, I guess I missed the point you were trying to make and assumed you were suggesting the rise of Vanguard was a result of it managing all of the investments for many of these companies prospering from all of this cheap credit.

"Index funds are a sure way to get stock-like returns with low volatility!"

When cost of credit < index fund return, it just makes sense to borrow and invest in those until the gap is smaller

I don't think that's the issue - if you expect returns in a healthy economy to be below the cost of capital then we have bigger issues.

If it helps, they weren't talking to you.

As soon as you put something out there in the world people are going to have conversations about it, with their own temperaments, that they'd never have with you.

You can take that personally, or realise that their comment really has nothing to do with you nor is meant for you to read it.

Yeah, that’s a good point. Thanks for mentioning it

Apart from the ad hominem, what is your actual, informed rebuttal then?

But is his conclusion wrong?

I suspect near-zero interest rates for a decade also contributed to the political realignment of affluent suburbs trending Democrat. So long as the Fed would buy federal debt cheaply and there was no significant inflation, Democrats could advocate multi-trillion social programs while promising to maintain Reagan-era tax rates on even quite affluent folks.

I want to know what happened to the promised "Peace Dividend". Military spending was supposed to go way down, not just down, and civilians were supposed to reap the benefits... Instead Industrialists took up the Globalization mantra and forgot the little guys (the guys and gals working in factories) and happily told them it would mean lower cost of living --conveniently leaving out that they would also earn much less, if they even got to keep their jobs.

Ross Perot and Bernie Sanders warned people, but they were made fun of and now Bernie has sold out and pretends.

How did Bernie sell out?

They told him he was a Kremlin asset in 2016 and he believed it. They gave him committee chairmanship as a consolation prize and now he’s one of the biggest hawks for the Dems’ proxy war in Ukraine. Even called out the CPC letter calling for diplomacy alongside military aid.

Ukraine was invaded by Russia. Not sure how that makes it "the Dems' proxy war".

Ah yes, that’s obviously where the story starts. ;-)

independently of Ukraine, Bernie still strongly supports worker's rights.

I’m not sure it’s fair to say Perot was laughed at. He commanded a tremendous following, and got 19% of the vote in the 1992 election, without a major party endorsement, and after hamstringing himself by leaving the race and re-entering.

https://en.wikipedia.org/wiki/1992_United_States_presidentia...

  > now Bernie has sold out and pretends

in what way?

Am I misremembering or.. didn't republicans with full control of congress do the tax breaks while increasing spending and later, in partnership with dems after losing congress, expanding social programs like Obamacare to be more universal (free pandemic-related care)?

Biden's eventual infrastructure bill also was smaller in scope than Trump's proposed one that wanted $2 trillion instead of $1 trillion.

What multi-trillion dollar social programs? What country are you talking about— I want to live there, sounds a lot better than the pittance we have in the US. Unless you think the Defense Department is a social program.

The reference is possibly to the Green New Deal or to Build Back Better. Both probably qualify as "multi-trillion social programs", but perhaps the former fits the description better.

I wouldn’t call either of those social programs. They’re mostly subsidies for industry, with ancillary tax benefits for the rich and upper middle class. Also hardly “multi-trillion”. After reading the article in full, I assume they were alluding to the PPP and direct stimulus payments to taxpayers that suffered some fraud. Even the 25% fraud cited seems minor, but it certainly could have been administered a lot better. I agree that public investment in long term endeavors has been abysmal, but that trend started in the 70s with Carter. What all this is ultimately about is neoliberalism. Using the state via the Fed to further enrich the rich is the final end of that ideology, and it has been very successful at that.

https://en.wikipedia.org/wiki/Green_New_Deal

> social aims like job creation and reducing economic inequality

> the plan could cost between $51–$93 trillion over the next decade

https://en.wikipedia.org/wiki/Build_Back_Better_Plan

> the largest nationwide public investments in social

> a variety of social policy initiatives

> $1.9 trillion

> $2.3 trillion (which, when combined with the American Families Plan, amounted to $4 trillion in infrastructure spending)

> $3.5 trillion reconciliation bill

Last I checked, neither plan ever passed. Nor would they have passed in time to make a difference for the issues raised in the article.

Your comment starting this theead was about the following quote from 'rayiner:

> Democrats could advocate multi-trillion social programs

https://en.wiktionary.org/wiki/advocate

Also over $4 trillion between CARES Act and the "American Rescue Plan".

Do you feel Cared about and Rescued?

I wouldn’t call those true social programs, although the direct payments to taxpayers comes close. The programs you cite were designed to prop up the economy, and they mostly succeeded, albeit highly skewed towards big businesses. It accelerated trends already in place.

Yes I was just trying to come up with trillion dollar examples of programs other than the ones already provided ("Green New Deal"), because there aren't many it could be referring to afaik.

Social security + Medicaid + Medicare is in the trillions.

Those are not new and would be part of the long term public investment the article states has been lacking. You can’t have a productive economy when old people are indigent and have to be cared for entirely by their working age relatives. And Medicaid is a subsidy for industry that doesn’t compensate its workers sufficiently with adequate healthcare benefits.

Social security and Medicare are each individually trillion dollar social programs. We also just had $2.5 trillion in covid related expenditures to individuals and families and healthcare: https://www.nytimes.com/interactive/2022/03/11/us/how-covid-.... Also, as I said, Democrats have been advocating trillions more in social spending (universal healthcare, etc.)

I’m not knocking any of that. But American Democrats are probably the only center-left party in the developed world who advocates for expensive social programs while promising not to raise taxes on people making up to $400,000 a year. My point is that this is a unique outgrowth of the fed’s money printing machine.

> It became the new normal, and the generation that entered Wall St. during this time is now disoriented, for they “do not know a world without cheap money.” [...] Whenever people are humbled by the melting away of things they took for granted, now that’s a topic worth exploring.

I'm trying to figure out parallels and implications for tech jobs.

Where in tech jobs will be first to decide they need to "rediscover the ways of our ancestors", and willing to pay to speed that up.

Low interest rates created a preference for subscription models over up-front sales. It may have felt like the transition to cloud software and subscription pricing was due to technology shifts or mobile phones, but it was probably driven by interest rates.

If higher interest rates stay around for the long term, it's quite possible that tech going forward will be a little more like the '90s: An up-front sticker price, plus an extra charge for support. Ad funding (as a continuous revenue stream) may also get somewhat less powerful, but will still be a big deal.

Given how subscription models are also pushed down the throat of consumers, who do not want them, I would believe that the love for ARR plays an even bigger role.

I'm waiting for the inevitable swing back from the Clouds to colos and dedicated DCs. Eventually, the cost difference is going to get a bunch of CTOs twitching.

I mean, the fact that "cost engineering" is an often used term these days makes me sad.

In the background, it's already happening for test and dev environments.

The technical term is "repatriation" and I can tell you those snowballs coming from S3 to your onsite aren't just for looks ;)

I feel that a lot of startups would never be possible in a low interest rate environment. If you were trying to start Uber today and told investors that you'll lose money on every ride for fifteen years straight, and that you will burn through $35 billion without showing a profit, you will likely be laughed out the building.

I think you mean a high interest rate environment? Higher interest rates mean more risk?

Also, when they started, I don't think Uber told their investors they'd burn through $35 billion and lose money on every ride...

I'm old enough to remember in university economics class, the professor would joke about how financial media would closely watch press conferences that Alan Greenspan would give after FOMC meetings, down to watching the thickness of the briefcase to guess as to whether the fed funds rate (which determines interest rates) would increase or decrease.

I am happy rates have risen, and I hope they stay at a sane level more in line with historical values rather than the insane period of the past 14 years. As another commenter here points out, when rates are not-zero, business defaults back to value-creation, instead of other silly game-the-system metrics that have arisen in this time frame.

Of course it will be painful, both for a generation of younger people who have never experienced "high rates", and also for the finance "professionals" who built reputations on nothing more than gaining access to easy-money and deploying them randomly to things which only rise in value because others also pumped in easy-money down the line. It may also address some of the woke-time-wasting initiatives at companies, as anything not actually adding value will be dropped.

The main thing will be to see if the Fed actually stays the course, or if the allure of the money-printer is too seductive and they decide to drop rates back down again even after (or worse, before) inflation is tamed. If so, then the currency will continue to debase until the crypto exit is inevitable.

Can you point me in the direction of something that explains the mechanics of how the FFR determines (prior to market sentiment) the rest of the yield curve? I know they do, but most explainers stop at that.

How many people under 35 know that Greenspan held an "emergency" Fed meeting in 1994 to RAISE rates 25 bps?

This idea the Fed exists to print money and keep rates low is just not reality. This is over extending the recent past as some kind of stable process.

This is going to be extraordinarily painful. So much of the economy, risk preferences, expectations have over aligned to an unsustainable zero interest rate environment that is gone for a generation. The biggest bubble ever popped last year if you look at Wilshire 5000 vs GDP but most people don't even realize we were in such a massive bubble yet.

We were not talking about the dot com bubble in summer 2000 either though. We were just talking about how do we get back to the bull market. We are still at the denial stage.

Western economies are thoroughly capture by financiers and US dollar hegemony and in particular the petrodollar.

All of these converge to push up asset prices irrespective of actual productivity.

The world has had no option but to buy US debt and or non controlling stakes in US companies. All of this has allowed asset prices to explode while the productive economy and our standard of living has stagnated or declined.

The whole system is so dysfunctional, it's no longer funny.

- fiscal policies (money printing)

- prevalence of bullshit jobs (70%+ of jobs are unnecessary/harmful)[0]

- exploitation of nature / future for profit motives of individuals

- systemic economic inequality

- subsidizing the most harmful things (oil, animal agriculture, plastics)

- agriculture based on degrading soils and spraying poisons

- health/medicine focused on perpetual treatment instead of prevention of diseases

If it doesn't work as it should, it's always the money somewhere behind the curtain.

One can't but think of the final chapters of the Hitchhiker's guide to the galaxy, where administrative workers and phone headset cleaners hoard tree leaves, in an attempt to reconstruct the economic system (note to myself: read it again).

[0] https://libcom.org/article/phenomenon-bullshit-jobs-david-gr...

Isn't "money printing" monetary policy, as opposed to fiscal policy?

You're right, of course.

My friend that has been a general contractor for around ten years acts like it's not even worth doing his job anymore now that interest rates are going up.

He's prolly right.

why is that? what kind of contractor?

> what kind of contractor?

https://en.wikipedia.org/wiki/General_contractor :

A general contractor…is responsible for the day-to-day oversight of a construction site, management of vendors and trades, and the communication of information to all involved parties throughout the course of a building project.

His firm develops multi-unit buildings in Chicago, mostly residential. I think he is just annoyed that the easy money is drying up, and that it hurts his bottom line or business in general. Based on his attitude, though, I'm just amazed that the type of project his firm takes on were so dependent on money being cheap. They also operated a lot on a fixed cost basis, and sudden price increases were not accurately factored into those contracts.

He wants without price stability and cheap money and has neither.

>He wants without price stability and cheap money and has neither.

He wants what?

Interesting. I just asked the builder that built my house* and he said his business hasn't slowed down at all.

His primary location since I'm sure that matters a lot: suburbs north of Dallas.

* We got the land right before the boom in prices. Paid super inflated prices for materials. Finalized a mortgage before the recent rate increases. I guess overall we came out ahead?

> Finalized a mortgage before the recent rate increases.

What a privilege it is to live in a country where home loan interest rates are fixed.

To be clear it has serious downsides too, and is heavily subsidized by taxpayers.

Yes, absolutely. Amazing benefits. My rate is 2.5%. Amazing.

Property taxes have gone way up b/c home values have gone insane. My home when I purchased it was valued at $220k. Now the town is saying it is over double that. The tax RATE has gone down - but my taxes have still nearly doubled ($6k to $11k).

I think it's going to take some time to settle a bit. Even though interest rates are high, the US is very low on housing stock and very low on labor. If there's a lot of demand for new units and very little labor to build new units, then they might not see business slow down.

Likewise, rates have dropped a decent amount from their highs earlier in the year. Zillow seems to indicate that rates have dropped around 0.7 percentage points (like 6.9% to 6.2%). I think a big issue is that people don't believe the Fed will keep rates high for more than 12-18 months. If rates are already calming down and you don't believe the Fed will make it impossible for people to buy/sell homes for the next 5-10 years, then the interest rates don't matter that much so we aren't going to see a dip in demand because people don't actually believe they'll be paying the monthly that they're signing on for.

Let's say that the Fed pushes rates 1-1.5 points higher and we see 8% mortgages. Let's say the Fed keeps mortgages at 8% for the next 5 years. We'll definitely see a huge shift in the housing market. A $750,000 place is $2,530/mo at 3%, $3,675/mo at 6.2%, and $4,403/mo at 8%. Right now, people are thinking "I have to spend an extra grand a month for a year and then refinance it." If that becomes, "I'm going to have to spend an extra two grand a month basically forever," that changes things a lot.

People's perceptions matter. Everyone is assuming that the 3% mortgage is coming back soon. I'm not criticizing those people - I also think the 3% mortgage is coming back. I think it's politically kinda impossible for it not to come back - we'd be locking a generation out of home ownership even more than they already are and we'd be locking people into their current housing since if they sold and bought a new place at the higher rate, they'd be paying so much more for the same quality housing. In the reality created by our collective perception, we're all continuing to value things at those prices.

Literally, the Fed hasn't lowered interest rates. It has continued to increase rates, but banks seem to be betting that won't last long and so mortgage rates are falling a bit.

I'd also note that the two of you might be comparing different things. You're talking about you building a home for yourself with (presumably) a 30-year mortgage. The other person might be talking about a contractor buying a house with a loan, refurbishing it over 6-18 months, and selling it. In that case, the long-term interest prospects don't matter. In fact, the high interest rates may have put a damper on how much people will pay for premium places while simultaneously making his job a lot more expensive. 6.2% vs 3% basically means $37,000 in interest vs. $18,000 for the first year. If you're looking to put $100k into the house and sell it for $200k above what you bought it for, an extra $18k expense really cuts into your profits - especially if closing costs are going to be $30,000-60,000. You might flip a place faster than a year and it's only $10-12k in interest for a 6-month flip, but regardless it's taking a sizable chunk out of your profits.

Right now, I think a lot of buyers looking at 30-year mortgages expect to refinance in late-2023 or maybe 2024. However, the Fed is projecting rates to climb from 3.8% to 4.4-4.9% in 2023 which should see mortgage rates hit 7.5-8% - with Federal Funds rates probably only returning to around 3.8% in 2024 and around 3% in 2025 (with mortgage rates sticking around what we're seeing now).

I'm skeptical simply because it's going to cause so much chaos in the housing market. Yes, the Fed is meant to be independent, but they would be effectively locking current home owners in place and making it extremely expensive for new homebuyers while stalling a lot of construction that's desperately needed.

Still, there's a definite possibility that rates will remain high. In fact, the people we literally put in charge of this are saying that rates will remain high through 2024, in their estimation (and they set those rates, but of course conditions might change which would change their minds). If/when that reality sets in, I think we'll start to see much larger impacts.

Contractor we use says they’ve got a 1-2 year lead time and very busy schedules. Who knows, maybe that’ll drop off in a few years

In New Zealand we have a sharp cliff of building contracts; they're insanely busy for maybe another year at most, and then nothing new is in the pipeline. Building contracts pan out over years, and interest rates flow into property prices rather slowly compared to share markets.

Because contractors charge you however much money you have available, which is how construction costs magically go up and down with home market values. I have a list of them I will not be using during this downturn.

> "What if your entire worldview was just because of near-zero interest rates?"

Worldviews typically include who we are, why we're here, what purpose (if any) we have in life, etc. It seems strange to me that someone's worldview could be thoroughly based on interest rates.

You (thankfully) mustn't know many crypto/optionbros.

The worldviews of the originators of HN and YC are probably built on cheap debt. Airbnb may have revenue, but I would say its their stock sales to speculators, also burgeoned by cheap debt, that resulted in these VCs thinking they are smarter than everyone else. Now that they are smarter than everyone else, their purpose in life is to tell people what they should do, how they should live, like the puritans of old. Get frustrated by other smart people who didn’t get their self-assurance from God or Market given prosperity. Thats a worldview ain’t it.

> Worldviews typically include..

For people who are their own favorite subject, maybe. For everyone else it is an internal model of the way the world works, which allows you to make sense of things. So when you are interested in the way the world actually works, not how you feel it should work, economics is very important.

I think the question aims to say that one's world view, which is a combination of your experiences, interactions, and learnings...might be based off of the adverse effects of zero interest rates(things happening around you or to you) rather than one's world view being solely based off of an understanding of interest rates(which I am pretty confident that most people don't have any deep knowledge about).

People's concerns start from food, housing and many other immediate pressing issues, before it gets to identity and purpose. (i.e. Maslow's Hierarchy of Needs)

It is not very possible to buy a house with high interest rates. So, most of your earnings go to rental cost.

You shape your life with what you have left to spend.

Hailing from a country with a weak currency and high, volatile interest rates I'd say this environment produces a certain disgust towards borrowing money.

This is further reinforced by past, ultimately disastrous attempts at going around the problem of high interest rates, like taking a mortgage indexed to CHF.

And it's only going to get worse now that interest rates ballooned to values unseen for a decade in a span of months.

Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face.

I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now.

> I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now.

Could you enlighten us? What is so clear?

Asset inflation, erosion of the middle class, rise of unprofitable business getting lots of investment, etc.

What would a "natural" interest rate mean to you? No open market operations, or what?

Yes, that. Not sure how the market for FF would work since that's not impacted by OMO, but I'm sure there'd be a way to just 'leave it to the market'.

What makes you think that the economy featuring the most un-chained capitalism is a centrally planned economy? I wasn't aware of any government dictated 5 year plans or similar thing anywhere in the western world.

The FOMC is a planning committee. Even if you keep your hands out of all the other parameters of industry, setting benchmark rates dictates what kinds of businesses succeed. It's like a string that all the other strings on the marionette connect to. You don't get granular control, but you're definitely exerting a huge amount of deliberate influence.

Because there's no such thing as a 'natural equilibrium' interest rate[1]. The base interest rate is an equilibrium, which regardless of monetary policy regime is influenced by something completely artificial (the quantity of base money in an economy) and lending activity. The Fed deciding to set the quantity of base money added to an economy 'no more ever' or 'x% per year' or 'in proportion to stocks of some shiny metal' or some other target leads to every bit as much of an artificial equilibrium interest rate, it's just that the vast majority of alternatives lead to more volatility and lower growth.

[1]OK, there's Wicksell defining "natural" interest rate as one which leads to commodity price stability, but a slight modification of Wicksell's definition of price stability (to avoid the threat of destabilising deflation) has actually been the Fed's primary objective over recent decades...

I mean, if we didn't interfere with the buying/selling of treasuries, wouldn't that be equilibrium?

It'd just be a considerably less stable equilibrium than the one we have now.

It's not like treasuries and dollar reserves a central bank put into circulation before a certain date are natural things emerging out of a market demand and the ones after they put into circulation after a certain date are "interference". There is a market for credit and a dependency of that market on artificial things called dollars the Fed conjured from thin air regardless, the only question is whether the Fed's policy on artificially created dollars is to continue to attempt to supply them in quantities necessary to maintain a stable economy or not.

The market for treasuries would exist exist without theed, since they're issued by the treasury. Why not set a limited quantity of dollars and have that be that, or a quantity that strictly grows at some pre-defined and predictable rate?

I'm familiar with the argument that people would theoretically hoard deflationary currency, I'd counter that people will always spend to eat and purchase shelter.

Calling shots like we are obviously isn't working and the only 'stability' seems to be a nominal one in asset prices. Everyone is otherwise bemoaning how broken the economy is. Great, we kept boomer pensions safe and quietly watched wage/salary earners' purchasing power erode. Seems like a false 'stability' to me.

> The market for treasuries would exist exist without theed, since they're issued by the treasury

The market to exchange dollars for treasuries would not exist without dollars. Since we've established that it was OK for the Fed to "interfere" to create dollars in the past, it seems absurd to pretend that doing so if future is somehow different.

> Why not set a limited quantity of dollars and have that be that, or a quantity that strictly grows at some pre-defined and predictable rate?

Because that's even more arbitrary (it's still the Fed creating the monetary base, they're just delinking it monetary base from credit demand and ignoring the effects of the quantity of money on the economy)

People aren't going to invest deflationary currency in productive enterprises to purchase food and shelter. They're not just going to invest it (and the rich don't need to spend very much of their wealth on food and shelter). Guess the proles will have to work harder for lower wages to make up for it. You think it's bad now....

One serious economic theory states there is a 'business cycle' [1], where the economy varies between doing well and doing badly every, say, 5-10 years. Keynesian economists [2] think the government should dampen these cycles by saving up a war chest when the economy is doing well, and spending when the economy is doing badly.

After all, if there's a Great Depression and you build the Hoover Dam, you get a big discount on the construction because nobody else is building - and you get 10,000 jobs for people who would otherwise be idle.

So the idea of targeting a given amount of growth, pressing the throttle on the economy when below that and the brakes when above it, is a well established notion.

Of course, these days in practice election cycles don't match business cycles, and there ain't no way Party A is building up a war-chest so Party B can deliver tax cuts, or vice-versa. And if a sector of the economy - like house prices - is overheating, the government is as likely to cut taxes to help out buyers, as it is to raise taxes to reduce price growth and build up a war chest.

[1] https://en.wikipedia.org/wiki/Business_cycle [2] https://en.wikipedia.org/wiki/Keynesian_economics

Well that makes a lot of sense for fiscal policy, but what about monetary policy? A professor explained it "lower rates make it easier for businesses to get loans, so they can create jobs!" This seems wholly and obviously short-sighted to me. Where does the theory address whether those jobs create anything worthwhile? Inflated valuation of suboptimal or unprofitable business?

These are really elementary questions/conclusions to explore:

Iirc Keynes said you could jumpstart an economy in the short term by paying people to dig ditches and fill them in[0] and watch a local economy pop up to support that 'industry'. What if doing so doesn't help the other primary activities and you just wind up with a ditch-digger economy? You're wasting resources on useless work.

[0]The actual quote is about filling jars with money, burying them in a mine, filling it with garbage and paying people to dig them out. I'm no bitcoiner but I had a chuckle about the guy who hired people to recover his hard drive from a landfill.

> A professor explained it "lower rates make it easier for businesses to get loans, so they can create jobs!" [...] Where does the theory address whether those jobs create anything worthwhile?

Economics 101 books assume every business is a medium-sized family-owned manufacturing company.

If you're a medium-sized family-owned manufacturing company, your growth might be constrained by access to capital - there might be several different investments in machines you could make, any of which would pay for itself within ~5 years, but you've only got the cash to get one machine. With more access to capital you can get a second machine, and hire the people to operate it - meaning more jobs and more profit.

And of course you'd steer clear of unproductive investments, short-term-ism and empire-building - you're planning to pass this business on to your children and grandchildren. You need a sustainable 10-to-20-year outlook, reliable, well-trained employees and an order book full of satisfied, profitable repeat customers.

On the other hand, if your business model is 1. Use cheap loans to provide subsidised taxi journeys, 2. ???? 3. Profit - the economic theory books don't really explain that.

Right, I think we're on the same page here. My underlying assertion is that the overall policy impact is more prevalently phenomena like your last paragraph than the first three. Surely the policymakers have observed or predicted this and are operating on theory more sophisticated than macro 101. What is that theory?

My worldview was prior to near-zero interest rates but the bulk of my career has been in the 2010s. Mine was: you work hard and others and yourself recognize value. Heh ... it didn't work during the last decade and it is my own naivete that led me to think that way. My view is purely anecdotal though. I know others had different experiences.

It took me a long time to learn that motivators for executives, shareholders, etc. were different than having a necessarily productive workforce. I can't help but say this is just my own experience and what I read though: cheap money seems to be really influential. I worked in a place for a long time that kept buying other companies with access to cheap credit lines and plenty of willing investors. I am not sure if that correlates to how little we were producing ourselves (that is, if there was a corporate strategy of buying companies precedes a product strategy.) However, this strategy would immediately stop when interest rates would jump.

I am too scared to speculate though and only walk away with a better sense of when red flags like this start to raise. Maybe there will be different things to look out for though when these influences are not present. However, I am thinking that maybe the return to "work hard and you'll be seen" will sort of come back again. Well, hopefully for myself it would. Seeing others recognize and value what I did is really encouraging.

This dude is complaining about the 1990s. Low interest rates are a factor behind a lot of trends in the startup world, but CEO stock pay, stock buybacks ect, a lot of this is 1990s era trends.

Just wait until we enter the ‘decades long workforce population decline’ period. Once GDP growth decreases by population shrinkage, investing will be fun again!

Well just keep desperately importing people from other countries, unlike Japan and Co. Or, for the other side of the political spectrum, ban abortions/birth control.

The first option reminds me of the Netflix show 3%.

Banning abortions/birth control has already been tried by Romania. It was the inspiration for the book The Handmaid's Tale. In Romania today, banning abortions/birth control would be a political death sentence due to peoples' memories of the results the last time it was tried.

>memories of the results the last time it was tried.

What happened?

While slowly turning the country into Bangladesh. Fantastic.

We have a TON of space, unlike Bangladesh and we’re already a developed economy with strong institutions and rule of law. From a lot of vantage points, the US has enviable problems.

It will be well beyond our lifetime when the US gets comparable to Europe in terms of population density. Bangladesh levels are way far away and there are good reasons to believe that the US can keep increasing their population via immigration and never achieve Bangladesh levels of density.

For anyone not following, Bangladesh has the highest population density in the world once you exclude city states. This is a classic example of a slippery slope argument.

I’m not making a point about population density, but rather changing culture and reducing social trust. Immigrants make their new country more like their home country: https://www.sup.org/books/title/?id=35594

> Immigrants make their new country more like their home country

This is a more refined concern than "While slowly turning the country into Bangladesh."

There's no reason to believe that Bangladesh will dominate the influx.

We're talking changes in immigration policy to make up for a domestic population decline. It would be naive to think that the only change would be "Let's just take more people without constraints." The US has in the past put restrictions on who can immigrate, and continues to have restrictions (whatever moral judgement is attached to them is left for the reader). You can restrict the countries they come from. You can restrict the education levels. You can restrict the number entering. You can restrict how long they need to be here before they can vote. And so on.

Moreover, maintaining the current US culture is not entirely desirable. It has its good points and its bad points, but in general, a lack of change tends to become a regression rather than improvement. Many of my friends from different countries emigrated to Canada in their teens or early twenties, and I visit the country often. It's clearly benefited from the mix of cultures that came in. The US really doesn't deserve the image of a "melting pot". Do they occasionally have problems related to the various cultures that come in? Sure. Is Canada still better off? Definitely.

Also, more people coming from Bangladesh can't be all bad. At the very least it will supply interesting folks on HN to have discussions with ;-)

> The US has in the past put restrictions on who can immigrate, and continues to have restrictions (whatever moral judgement is attached to them is left for the reader). You can restrict the countries they come from. You can restrict the education levels. You can restrict the number entering. You can restrict how long they need to be here before they can vote. And so on.

That won't help, and possibly makes things worse. For example, I'm part of the high-education, high-income Asian immigrant influx to the U.S. over the last few decades. Our immigration may present a temporary financial boon in industries like medicine and tech. But, as should be obvious, there's cultural risks to importing another society's elites. We bring our elitist attitudes and affinity for top-down administration of society with us. Many Americans would, quite reasonably, say those aren't good things.

I'm not saying we shouldn't have immigration. But more than a quarter of Americans today are immigrants or first-generation children of immigrants. That's a tremendous burden on the country's ability to socialize people into the country's values and principles. And it's a tremendous source of social distress and conflict.

> Moreover, maintaining the current US culture is not entirely desirable. It has its good points and its bad points, but in general, a lack of change tends to become a regression rather than improvement.

Culture changes without foreign influence, though.

We're both speaking in the abstract. It could pan out as you state, and there are reasons to think it would. It could pan out differently, and there are plenty of reasons to think so.

Fear can't be a motivator for (lack of) change.

The cultural attitudes I’ve observed among high skill Asian immigrants isn’t abstract. And it’s had tangible impacts in northern Virginia, where I grew up and where there’s been a large demographic change over a short period of time. There’s also historic precedent. The cultural imprint of Italy is hard not to notice in NYC for example.

I disagree that we should “move fast and break things” when it comes to culture. If you look around the world, there are more examples of dysfunctional societies than functional ones. More ways to go astray than to be on the right path.

Your point is not being disputed, nor is your experience. That it can be managed is the claim, and preserving culture is important, but only to an extent. And plenty of people in the US have seen positive change due to these influxes. That something may not have worked as you desired in Virginia is merely a data point.

As to the "abstractness", I think you misunderstood. The example you've seen is merely one place, with one set of immigration rules, with a certain set of immigrants, etc. There are a lot of variables, and the majority of the search space has not been explored. That's why this is an abstract discussion.

> If you look around the world, there are more examples of dysfunctional societies than functional ones.

And in most cases, the dysfunction is not due to immigration.

> More ways to go astray than to be on the right path.

There's no right path. Only opinions on what is the desirable path.

Print more and dump on the world strategy will end in the near future since big countries are planning to ditch trade in dollars. Funnily monster that the west created is about to eat it alive.

Ray Dalio says that we are entering an era of currency competition. Instinct tells me that he is right.

When the GFC happened, there's also a lot of people claiming that it's the end of the dollar hegemony.

> The 2010s were a decade that “disrupted everything but resolved nothing,” as Andy Beckett wrote, and I tend to agree.

These kinds of sentiments are great for drawing attention and might be true on a macro level, but I do not agree at all. Although there is currently a lot of nonsense going around, there are also great things going on if you look carefully.

For example, I think that electric cars do have their problems about battery minerals and such, but the idea that we can use solar and wind to locally put energy in the car is mind blowing. Some car makers, such as Lightyear, Sono Motors, and Aptera, are actually putting the solar panels on the car itself. Also, cars like the BYD Seal can drive 550 km / 340 miles on one charge and go from 0-100 / 0-60 in about 5 seconds for 35 000 dollars.

Furthermore, SSDs and processors have come a long way since the start of 2010. EUV systems are producing chips below 10 nm. Partially due to this, HDDs cost less than a cent per GB nowadays while SSDs are at about 5 cents per GB according to https://diskprices.com. The Crucial 1 TB costs 53 dollars! I've looked in my order history and payed about the same for a 120 GB SSD in 2016.

Also, note that GitHub was founded in 2008. Although I'm not so optimistic about the vendor lock-in taking place, I am very optimistic about the quality of the work. For example, Rust appeared for the first time in 2010!

Finally, what also makes me optimistic about the future is what Michael Dell stated nicely in a commencement speech (https://youtu.be/sIyGA1MlbwY). He said he is optimistic about the future because he has never met such an involved younger generation who care about the world and care about changing it. I think this also holds more generally, for example, since 2010, climate change is taken much more seriously (for example, see https://news.gallup.com/poll/1615/environment.aspx).

So no, I do not agree at all with the "resolved nothing" sentiment. A lot of bad stuff happened for sure, but a lot of great stuff happened too.

I don't think TFA meant "resolved nothing" as a literal nothing, and they meant in a more general sense of the world, not just seen from the tech point of view.

Sure, we made cool things in tech during this era, but was it worthwhile on a global scale, on a social level, in an economic sense? That is debatable.

It is nonsensical to say that the creation of the SSD or Github has created a more fair society. Apples and oranges.

> Sure, we made cool things in tech during this era, but was it worthwhile on a global scale, on a social level, in an economic sense? That is debatable.

Globally, I do think that it's getting more and more difficult each year for organizations and countries to hide immoral behavior. For example, the Chernobyl disaster of 1986 was kept secret from the West for a few days (maybe a few weeks) whereas I nowadays would imagine a Western satellite on top of it within a few hours to days. Similarly, the situation with the Uyghurs is well known and other countries do take that into account when interacting with China. With an optimistic hat on, I would say that at least knowing about immoral/inhuman actions is better than not even knowing about them. And then I come back to the SSD and chips. They help in gathering and sharing information.

> Similarly, the situation with the Uyghurs is well known and other countries do take that into account when interacting with China

... by ignoring the situation.

In essence, the situations you describe are an illustration on how the tech changes some things (like gathering and sharing information about atrocities) that demonstrably turn out to be not really relevant and not causing a meaningful change, since, as it turns out, the underlying reasons for actually implementing difficult political change (or refusing to do so) don't change just because tech makes it easier to talk about it.

How do you know? I wouldn't be surprised if many individuals and organizations have changed their behavior based on some country's actions. Being unwilling to export to the country as well as being unwilling to buy from the country are definitely things that are happening right now. In effect, this results in the country having less power.

Is the current cadre of politicians trained to set policy under high interest rate? I ask of those from main economies.

They are not well suited to set policies under any regime.

The central banks are controlling the rates, but they don't have so many freedom in doing so then we think. They need to think about inflation projection, consumer spending, geopolitical factors,... They seems more responding to the environment than dictating the market.

> The point of this silly question is to consider just how much of an outsized role the Fed now holds.

Among the overarching points of the U.S. Constitution is that people who wield vast power stand for election.

The Federal Reserve urinates all over this point.

Reforming the Federal Reserve is sine qua non IMO if there is to be any improvement.

The issue is it's not just the Fed, it's the administrative state as a whole. The President appoints the Fed board and the FCC commissioners and the DoJ and the FDA, and then they make policy though nobody elected them.

The rulemaking role of these agencies should be a subset of the legislature and the Congress should have to vote on their proposals before they become law.

Congress can barely agree on a debt ceiling without playing football every year.

Having them vote on the price tiers of postal service package weights or Amtrak route schedules seem like a surefire way to bring the management of every public agency to a standstill.

In fact, the only example we really have of our congress being in charge of setting rules for a public agency is the tax code— and its a mess of carve-outs, loopholes, stopgaps (AMT minimums?) that most lay people need to use a certified professional to simply perform a required function ever year. And it’s consistently subject to political football, drastic policy changes based on whatever party is in power, and core issues that congress was originally supposed to solve by running it (like supposed to balance how much money it brings in against public expenses) are often ignored anyways.

The point of a republic is not to put every decision to a vote, but to elect people we trust to be in charge— which includes who they appoint to run agencies, etc. In fact, that’s where most of the president’s power Tiber policy comes from— and it makes sense why, since he’s the only person in our government we all have a say nationwide in electing.

Great thoughts, but you invite the question: should techies like the readers of this site attempt to offer a more coherent system?

People seem to scale poorly, and the US government needs reform.

What to do?

Eliminate the amount of people. Unrealistic, but I think the US should get rid of state governments and only have a federal and county governments. Municipal governments can still exist, but really only in regards to city planning and infrastructure decisions. Issues like schools, police, social, the environment should really be consolidated at the county level anyways.

Barring that, I think the current system is definitely better than adding congress to the list of decision makers. In fact, that increases the too many cooks in the kitchen problem even more.

> US should get rid of state governments and only have a federal and county governments.

That would be one approach. However, back to my point on the unscalability of people, I'd argue going the other way, and pushing the (arguably scope-creep) functions that the federal government has assigned itself back to the states.

The ability to just buy replacements for things instead of repairing them might be coming to an end. A focus on reparability and reusability for physical goods could be making a comeback.

Perhaps Austrian Economics has something to it after all:

https://m.youtube.com/watch?v=d0nERTFo-Sk

Borrowing money can be expensive. It's also how we get to the next level.

The old economic world may be leaving us, but its pathologies stubbornly remain.

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