So a stock market and/or real estate crash can actually be good to reduce inequality . In fact I think its about the only way to dramatically reduce inequality.
Think about young people trying to buy their 1st home now, its becoming impossible.
Think about young people trying to buy their 1st home now, its becoming impossible.
I keep "my money" in a few different places. I keep a spreadsheet and every 1st of the month I 'do the rounds' and add the numbers of deposits, investments, '401k', etc. so I keep an eye on my 'net worth' on a monthly basis. When COVID happened and I saw that SP500 tanked, I bought more than my typical 'monthly purchase'.
Now, I am a nobody and worth a little. Someone who had $50m in the bank, well connected, and with access to info, 'went in' for x1000 what I did, at a better timed entry and left at a better timed exit made big bucks.
I am definitely part of the top 1% (8b people --> 80m)(considering that majority of the planet lives 'poor')(my definition of 'poor' was redefined when I visited the Philippines and saw a family of 4 live in a carton box from a fridge).
"We" here in HN (most of us) are in that 10% of the global population, whether we like it or not. And it's not because "everyone living in the EU is rich", it's more like in so many countries for majority of the people their income is well below $upper-tripple-digits.
In both cases, what eventually resolved the matter was not banks spontaneously restoring solvency, but the central bank, that is, the financial entity capable of creating new money out of thin air, which reliquidated the banks, greatly assisted in the earlier instance by vast increases in government spending as a consequence of WWII.
There's a group who likes to preach loss of faith in the US dollar; their predictive record has proved quite poor. Despite this it remains an inexplicably popular trope.
Meanwhile, the insiders who knew what was going on (that the packaged mortgages were super high risk) insured their risk through new financial products - specifically 'credit default swaps' marked by AIG. The gimmick there was that AIG designed the swaps in a way that avoided insurance reserve regulations - and thus AIG had no money set aside in the event of default.
So when the shit hit the fan taxpayers coughed up close to 200 billion dollars to cover the 'swaps' sold by AIG that were backed by ... nothing.
A fair number of billionaires rose out of the ashes of those shenanigans. None were ever charged. That's how 'capitalism' works in the gold old USA. Always has. Always will.
Absolutely enormous amounts of money.
Look, I am all for hatin' the big man when he deserves it and he often does, but lets be a bit smart and not just throw random angry spits without checking the facts, shall we?
Do you even realize that during covid globally money lost some 20-30% of their purchasing power? That's real burning cash of regular folks right in front of you and everybody else.
I’m still “waiting” for the GFC to correct the Australian housing market…
This set off the greatest period of wealth equality in the US, through a combination of factors:
- Strengthening the power of the Federal Reserve to re-liquidate banks.
- Direct government employment of individuals, whether through the Works Progress Administration (WPA), Civil Conservation Corps (CCC), and eventually of course the armed forces as the US entered WWII.
- Enormous strengthening of labour rights and unions within the US.
- The US stepping in as the world's leading manufacturer in the post-war era, having its industrial plant intact, raw materials available, and demobilisation providing for a vast increase in the labour force itself without wage reductions.
- Generally progressive policies in government regulation, civil rights, educational access, housing access, transportation improvements, and healthcare over the period 1945 -- 1975.
- A highly progressive tax policy.
Not all of that is obviously replicable today. The US faces strong disadvantages relative to other countries in raw manufacturing (though can produce very-high-value goods which make up in trade value what they lack in sheer tonnage) and demographic challenges (along with much of Europe and advanced Asian countries, notably Japan, Korea, and China). But other options remain available and to my mind useful. Changes in tax policy to re-distribute aggregated wealth and make tax havens (both onshore and off) far less viable would likely be good starts. These are of course politically challenging, particularly under present circumstances, but might remain within possibility.
The irony is that the countries which did substantially see their industry wrecked and received Marshall Plan or equivalent funds afterward turned into the most competitive post-war economies, most notably Germany and Japan.
The US managed to build out new infrastructure, where it couldn't convert its war plant directly (which in automobiles, lorries, locomotives, ships, and aircraft it largely did).
We saw spectacular greenfields development most especially in high-speed rail, first in Japan, then France and Germany, all of which saw both infrastructure and real estate valuations (the key obstruction to railroad rights-of-way) collapse after the War. (China's HSR build-out follows a similar dynamic, though with different reasons, as that country industrialised for the first time.)
(Edit: The US hasn't established HSR, largely I feel because its previously-transport-enabled real-estate became too valuable. It's not tractably feasible to buy rights of way in the US, alternatives such as subway construction are themselves phenomenally expensive.)
I'm not sure of all the reasons for the UK's relative economic stagnation, though I suspect it was a mix of WWI and WWII debt, not having its industry blown to splinters, being out-competed by the US, and losing its cheap inputs as the Empire collapsed and colonies were spun out as independent states.
(Edit: The UK didn't see an economic turn-around until the 1980s, largely as North Sea oil came online, a boom it managed to extend with financialisation of the City of London, though that was largely restricted to the London metro region itself at a cost to the rest of the country which is immensely backwards.)
It's interesting to note that the US's post-war boom began slowing in the 1970s (for reasons which are widely, and I strongly suspect mostly wrongly speculated upon, particular the goldbugs' hypothesis), whilst Japan and later South Korea's were just hotting up (the latter imploded with the asset bubble collapse in 1990), and later of course China starting to grow significantly during the 1990s.
But at the end of WWII, the US had huge productive capacity, largely non-obsolete factories, worldwide markets for goods, raw materials, and a largely intact workforce (vanishingly few overall war casualties), a situation few other countries could claim, and none at similar scale. This provided about two-to-three decades runtime before factors caught up with it.
And in light of the 1929 crash, helped both prolong the expansion out of that crisis and see that the rewards were widely distributed among socioeconomic classes rather than concentrated amongst the very wealthy. That formula's not been tried since.
(Edits: Note two late adds above, they clarify/expand my argument slightly, pre-empt some possible counterarguments, and shouldn't change the meaning significantly.)
Establishing the US as the global reserve currency had little if anything to do with where gold was stored, and far more to do with US economic and military power generally in the post-war era.
Gold is, and has been, an exchange medium, in which national finances have been transacted, and a durable representation of wealth. It's useful in addressing balance-of-trade relations between state.
But the overwhelming wealth of states is in their internal and external production and international trade of goods and services.
Colonial-era Spain imported gold in vast quantities from the Americas, which did it little good as that didn't represent wealth but rather exchange capacity, and did little but bid up prices whilst reducing (in similar mechanisms to Dutch Disease and the Resource Curse) the real economic potential of the country (why raise grapes, cattle or other goods when you could get in on the gold exim trade instead)? Gold bankrupted Spain, ironically enough.
Britain's colonial trade focused far more on goods: spice, cotton, sugar, tea, grain, wool, lumber, saltpetre, slaves, and the like. Those are both directly useful and contribute to infrastructure. Two things Spains gold utterly failed to do.
Not realizing what had happened, in three years I went from "almost enough to buy a house in the city in cash" to "have to buy vacant rural wasteland then develop it myself from scratch."
The latter worked out, but cost me two years of my life of hard labor. Those two years of manual labor more or less represent what home owners took from non owners via the central bank.
Ignoring the meta economy lessons etc, how was it? Do you love what you've done?
How did you do it? Where is it? What was surprisingly hard and what was surprisingly easy? Etc etc etc, please tell all!
Love this kind of stuff :D (An HNer just embarking on a house self-building project)
QE was not, but, you know, everyone who owns assets or had a job turned out to be a beneficiary of it.
At least in Finland today it's much easier for young people to buy their 1st home now compared to 15 years ago. Interest rates are roughly where they were 15 years ago, but house prices in real terms have gone way down. There's also huge market asymmetry with large amount of vacant properties that nobody wants to buy, and relatively few buyers.
No, young people are not buying their first home. Despite that, yes, it is actually easier for them to buy. What is stopping them? I would say mainly the expectation that housing prices will drop further as the economy is going further down the drain, leading to better buying opportunities at a later time.
So why is it different in Finland? Is there a lot of free space around then cities? Or doesn't everyone want to live in Helsinki?
The mega trend of people concentrating to largest cities also occurs in Finland. The housing market in Helsinki (where I'm unable to sell my place!) is much better than the housing market in more rural areas.
A market crash like that would result in extremely broad layoffs, major global supply chain instabilities, and a cataclysmic knock on effect of capital losses into nearly every walk of life on earth.
Not to mention, as many already have, the federal govt would undoubtedly bail out the worst actors and leave the poor to fend for themselves.
Just yesterday the Treasury Department announced they aren’t going to enforce a money laundering law. You think they’re going to New Deal a major crash’s now? No way.
The top 10% aren’t losing their jobs in a crash, but the bottom 50% might.
So while the top 10% keeps investing and will maximize the recovery, the bottom 50% will cash out at the bottom and won’t return to invest for years after their emergency fund has recovered.
There are a lot of levered rich people. Musk would be screwed if he got margin called on Tesla.
(I mean, unless there's a federal ruling that it's unconstitutional to let a Musk and his money part ways.)
Even if Musk filed bankruptcy yesterday, he would still end his life a multi-billionaire.
I've never felt that I am entitled to any sort of property even when being software engineer to the core, even more a house, as a young person right after university. That was always a hard-won luxury, and I don't even mean some extremely well located place.
Some folks here often mention similar stuff and refer to some period in 50s/60s in US specifically where 1 salary could have done it in some more rural areas. Nobody mentions how rest of the population looked like, hardly whole US population was buying new houses with wife being stay-at-home mum.
When women started going to work too, suddenly such couples quickly outcompeted single earners from housing market. In Europe, this stay-at-home was never the thing in most places so we never even had such period, thus 0 such expectations. Properties, especially houses, were always a hard-won luxury.
Hell, there are companies and families who supported the third Reich openly.
They were rich before world war 2, they were rich after and they are still rich today.
Not to mention none of them had to go to the Nuremberg trials...
It's their system, it's their game.
> They were rich before world war 2, they were rich after and they are still rich today.
Yes, these families exist. But there is an equal amount of them that went to the poorhouse that you don't know about. Many German Nazis that got wealthy through stealing/grafting of Jewish businesses _did_ lose their assets. Others still stayed somewhat wealthy but are now just barely millionaires.
It's very easy to get fooled by survivorship bias, since it's only the companies and people that are still wealthy that get heavily covered. I don't think a publisher would accept a book like Nazi Billionaires about all the people that are no longer relevant at all.
edit: I have to say, I also think it's terrible that so many people could just go on like nothing happened. Doubly so for the bureaucracy, diplomats and judges -- both in Germany and the Axis collaborators.
But this is how the world goes. The only people punished for the Cultural Revolution and Great Leap Forward or the Gulags were those caught up in internal purges. The new Syrian government threw a few of the worst people in Jail, but cannot dismiss everyone involved in the old system for practical reasons. The Architects and executors of British and Dutch "counter-insurgency" strategies to keep their colonies have Barracks named after them. I could go on with American examples but I think we all know.
Or eventually get the parents house from generation to generation.
What's happened is a massive shift from a small-scale agricultural economy to a mix of urban and large-scale agriculture, and the building of homes/apartments hasn't kept pace.
Refurbishing them to a modern standard, of course, is quite a different story. Perhaps €100K EUR in a lot of cases.
Even me with my seniority most likely won't pull more than 1 500€ netto at most places.
in the great depression, the crash did reduce inequality
in the covid19, the crash increased inequality
my opinion is that nowadays, fortune is highly financialized.
during a crisis, for most(99.99%) ordinary people who are in the market, they suffer the real lose, and they have nothing to comeback, even have to sell their assets to pay their bills, all they can get from the goverment is something like food banks, or the best situation, get a job to sell their labor
but for certain people either hold enough cash or can obtain enough cash from government relief programs, putting them in a position of advantage, this enables them to quickly reap a large amount of wealth during an economic crisis.
If you're not rich but invested whatever you could over the course of your life and now the market tanks to where you've lost half (or more) of what you had then someone else is going to win that from you.
A massively rich company can hold out a lot longer than a software developer who tucked away what they could over the years. If a real crash happens that software developer just got 30 years of their net worth mostly vaporized in a few months.
How much of the population is in that category? It's the whole middle class basically. It's a crushing blow to most folks when the market crashes for a long period of time. It's even worse for folks who are already in a position of barely scraping by while putting a little bit aside whenever they can. That person is destroyed if a majority of that disappears because they may have to sell it off on the spot just to survive because if the market really crashes, you can be sure a ton of people are going to be out of work.
A billionaire with $200B in wealth could lose 99% of that and still have $2B, generational wealth that will perpetually fund an entire family tree down to great great grandchildren.
I don't know what you want to label it as but being able to ride out a crash and having your unrealized losses go back to normal while still having capital to buy a ton when the market was near the bottom of a crash sounds like a lot like transferring wealth to me (from the middle to the top).
I personally think that the Fed papers are just designed as an excuse to print money, but my point is the Fed is very far from seeing this as a problem and will never act to remedy it.
It would probably make it harder if it were anything like 2008.
The issue with housing is that throughout the Western world we've made it incredibly difficult to get new housing built.
Imagine if everyones socks were suddenly valued a million bucks, except yours. Would you "stay in the same place" or would you suddenly be too poor to afford to buy the labor of all the newly minted millionaires? I'd bet on the latter.
Suddenly everyone in the world owns a vial of potentially the elixir of life, except you. Can you still buy tomatoes when your neighborhood has sold their socks to Bezos and they suddenly each have a million bucks of cash in hand?
It also causes a lot of companies to go out of business or reduce their workforce because of reduced consumer spending, hurting the working class more.
They are only scared of one thing.
This would assume rich people have all their money in stocks, which is not correct.
Lina Khan types need solid support and fire power to make a dent.
Congress will not let the stock market crash because they are #1 insider traders.
Here's a recipe for happiness: stop comparing yourself to others and stop trying to keep up with the Joneses. It's old advice, but it's clearly been forgotten.
Instead we should be looking at the cups below us who can barely get by their salary
Have you.. lived in other countries? I came here from southeast Asia and yes, my BigTech salary affords me a comfortable life, but I simply don't understand why the bottom 90% aren't up in arms over here.
cheap products from 3rd world
cheap nature resources from 3rd world
cheap labor from 3rd world
that's why many of the free citizens of the Empire don't need to care about inequality at all
when these things change, you will care
Obviously sarcasm, but taking your argument at face value this is what rational (not necessarily moral) citizen of europe/usa should think. For that reason I don't think this is a good argument.
i'm just saying that there are reasons why people can "calmly" and "rationally" view inequality. when those reasons change, they will lose their composure.
and this is not new
> In a letter to Kautsky, dated September 12, 1882, Engels wrote: “You ask me what the English workers think about colonial policy. Well, exactly the same as they think about politics in general. There is no workers’ party here, there are only Conservatives and Liberal-Radicals, and the workers gaily share the feast of England’s monopoly of the world market and the colonies.”
Well the idea is that (correctly or incorrectly) lower inequality would result in significantly higher absolute living standards.
Arguably they had been going up at the pace they have over the last several decades almost entirely due to technological progress (and more arguably globalization/free trade).
Average productivity has been in increasing at a much faster rate than median or below median absolute living standards. Growing inequality is possibly the main culprit.
> looking in the other guy's cup
Well hard not to do that when the other guy has turned off the tap after filling his cup..
That amounts to cultural and political hegemony. Telling people to accept that is a little like telling them to know their place.
It could be way worse but it could also be better. There are people in the U.S without good health care or access to dignified jobs (or at least - a livable salary). These are issues that can be improved by a lot, it's not a law of nature.
Historically, one of the major turning points in the cycles of society/governments is when there is massive inequitable distribution of wealth such that the masses are left to divvy up a tiny piece of the pie while the top .05% hoard 80+% of the wealth. IMO we are currently seeing the wealthiest people on earth taking over the levers of the US government and it is unlikely we will ever return to the constitutional democracy we used to have. Moving forward Elon Musk and the other members of his Gothic MAGA will decide how much the government can spend each year and on what and for whose benefit.
A very, very different scenario than being envious of the sports car in your neighbor's driveway.