Money and wealth
swombat.com
swombat.com
He never explicitly gives any advice for acquiring net income generating assets, but reading between the lines (and given the context) the advice is to pursue entrepreneurship. While I strongly encourage people to pursue entrepreneurship when it makes sense for them to do so, I don't think it's a substitute for proper retirement planning and long-term investment as this article seems to suggest. And it's certainly not good retirement planning advice for anyone who doesn't already understand the basic differences between money, wealth, and assets as this article seems to imply.
Given the failure rate of entrepreneurs and start-ups on average, it seems quite strange to dismiss traditional retirement planning and long-term savings as too risky while encouraging entrepreneurship as the solution in the same article. Traditional retirement investment vehicles (low-overhead diversified ETFs with a mix of bonds, ratio depending on years until retirement, combined with taking advantage of tax-advantaged accounts such as 401Ks, IRAs, etc) isn't anywhere near as risky, especially over the long term. Remember, a single stock market crash in your 20s or 30s is going to have virtually no impact on your retirement savings in your 50s and 60s. When saving for retirement, you have to consider the timeframe involved. By the same token, risky entrepreneurship isn't all that risky when you're young.
I have generated wealth by working for other people, diversifying, having low living costs, and getting most happiness out of life from being with friends and family.
In other words, a mixed strategy of setting goals for lots of free time and consuming less than I produce.
That being said, it is important to further diversify within a stock portfolio by having a good mix US, European, Emerging Market, small/mid/large cap, etc. As one nears retirement, risk can be reduced along with return by shifting into bonds. Again diversification is useful here. Have a good mix of both corporate and government, high quality, high yield, floating rate, inflation protected, etc.
Of course, developing a skill is a way to increase your wealth, as defined by the article, but diversified equity and fixed income holdings are a way to protect that wealth for a time when those skills are no longer relevant, whether it is by the slow erosion of time or a sudden unfortunate event.
Income-generating assets do have a place in your portfolio, but certainly should not be the majority especially if you are so far away from retirement. As you mentioned, as one ages the allocation can be changed. Towards retirement and into it, income-generation should have a much bigger proportion as it better reflects one's needs.
With my retirement age ~40 years away, it's not clear to me that locking my money into traditional investments is a good idea: existing historical records are not statistically convincing (to me) over such a term.
A single stock market crash or economic crisis may not matter over the long term, but I'm sure you're not suggesting there will be only one such occasion: it seems more likely that there will be several, which may or may not be timed in my favour.
When I come to unlock a pension, there's no way to know what the state of the economy will be and where the legislation will have gone. However, if I am dependent on that pension, it puts me in a very vulnerable position where I am likely to be taken advantage of - perhaps by the state or by an uncompetitive financial market.
You talk about tax-advantage, but I would have to retain this over several successive governments. I personally don't believe that it's in the interests of society for significantly wealthy people to retain additional tax advantages. I suppose it's in my personal interest for now to take those advantages, but I don't feel like they can be relied upon, and seem likely be changed over this time period - perhaps even retrospectively.
Anyway, if I am not completely dependent on my retirement savings, but have a means of generating wealth in my retirement, then I am in a much better position.
This is why I find entrepreneurship a good investment: it gives me valued skills that I will most likely retain into older age (even if I fail at first). Whereas, people who remain in traditional jobs have some danger of being obsoleted, or competed out of their jobs in older age.
This is why people are advised to move into bonds as they get closer to retirement age. Easier said than done though, if you just saw the stock part of your savings get cut in half. Very tempting to stay in stocks until it comes back.
Certainly, there should be several cycles expected in the economy and stock market every decade, but this is not entirely negative.
1) You are not investing all at once. Instead, you are dollar cost averaging - each paycheck, some of you money goes into the market, at either a high, or a low.
2) You are not divesting all at once. While taxable accounts have minimum distributions, no tax accountant is going to suggest that you take out all of your money at once. If you have 'enough' 1-3 years of divesting in a down market will leave you with a principle that will restore in a 1-3 year up market.
===== Other Note ====== > Whereas, people who remain in traditional jobs have some danger of being obsoleted
You are going to be in much more risk of obsolescence if you don't improve your skills as an entrepreneur than if you don't at a traditional job.
Lets say you started investing in 2006 (before the crash), specifically in SPY. Lets say you put $10,000 / year into SPY.
You'd have spent $80,000 over those years, and today, your SPY holdings would be worth $118,176.92. You'd make a 47% profit because you invested through a crash.
Crashes are the most amazing thing for your investment portfolio. Investing THROUGH a market crash makes insane amounts of money.
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The risk however, is the day you retire. If you retire during a market crash, you will lose a lot of money. But a crash during your 40 year investment period? That's the best possible scenario. Every crash will lead to insane gains in your portfolio. As others have noted, you can mitigate this risk by simply moving your money away from stocks as you near retirement age.
Bonds don't make as much money, but they're a lot more reliable.
Feel free to clarify this, because I don't agree.
The records of the FT30 index only go back to 1935[0] - which is not nearly long enough to make reliable predictions about the next 40 years - but still, it dropped in value in the following 15-year periods (before taking into account time value of money):
1936-1951
1959-1974
1994-2009
1995-2010 (records end)
Still not convinced? The fact that this is a surviving index makes it biased - indices which show a loss of value are less likely to be retained.
Your 2nd point is also a solid counter-argument that I won't belabor much further.
For most people, including Robert Kiyosaki, income producing assets basically means buying and renting out property. I disagree with doing that on so many levels and also think it's a terrible investment in todays over inflated market.
Another option is to save and make investments, but interest rates are currently so low that it's almost impossible to get escape velocity through low risk investments.
That leaves us with entrepreneurship. That is why we are here and it is probably our best chance, but is never risk free and not a path that the average person will use to build wealth.
This said, building wealth rather than accumulating savings is hard even if you are lucky enough to have all of the necessary ingredients and the right mindset.
Your pillars of health, education and intelligence are important. I'm glad that I have them because whilst I do, I hopefully won't go hungry. They are a safety net. However, I don't think that those alone are a path to building wealth.
That's not to disagree with your overall point--yes, you won't LITERALLY DIE--but relatively few people have the luxury to keep swinging and missing in the hopes of getting a hit.
I really like Rob Walling's description of what he does with software businesses [1] though, and my plan is to do something like that.
[1] http://www.softwarebyrob.com/2010/06/24/websites-as-investme...
A house is like education in a way - it seems to have intrinsic value, you know what YOU paid for it, but the outcomes that can come from trying to sell it vary DRAMATICALLY depending on the how good you are at selling it (and the current market conditions). So it is with my bachelor's from UVa - there have been times where it has gotten me basically minimum wage work and times where it's gotten me $1000/hr jobs, all based on how clever I was about it.
Stock market index funds seemed to be a good answer in the past. By owning them, you share in the economic growth and income of your country (or another country or set of countries) as a whole. Although, the spectre of Japanese-style stagflation for most of the West makes this less appealing at the moment (although even with the flat growth of the past 13 years, there are still dividend returns.)
Property is popular because everyone has to live somewhere, the old "buy land, they don't make it any more" proverb, and the funemplyoment nature of buying, improving, renting, and selling property.
Then there's the legal minefield. Being a developer or landlord makes one person very rich very quickly, and that person is your lawyer. Especially in the Bay Area. People here pretty much threaten lawsuits if they made eye contact with a teenager on the sidewalk, or if their cat's not eating its food, or if they don't care for the weather on any given day.
Source: I own a small apartment building in LA and sit on my HOA board in SF. I am the definition of a small-time real estate owner in the uncanny valley: not poor enough to not give a shit, but not nearly rich enough to do so, either.
I'm not a full-time landlord; it's more of a nights-and-weekends thing. But it sucks up a not-very-fun proportion of my nights and weekends, and every now and then, it eats into my workday as well. I would recommend landlording to people born into significant wealth, who can buy multiple properties and let a management company deal with the headaches. I would not recommend it as an upward path for those who aren't prepared to make real estate a full-time job, and who can't afford to jump a few rungs up the ladder at the outset.
Is this more "first world problems" and in fact you're making a reasonable return given your investment of time and money?
I've several friends who're small time landlords - ie own a second residence they let out - they all make a tidy profit and none of them appear to have been exposed any more than a regular home-buyer to fluctuations in the housing market. It all comes across a bit like complaining that your Cristal is warm and your maid keeps coming in late.
For a lot of people, the only rental property they can afford is in lower income neighborhoods, and the return on investment is often much better there too. But the headaches are also much greater.
You have it backwards. Borrowing money at 4.5% is way cheaper than using your own money. There is opportunity cost to tying up your own money in the real estate. Real estate loans allow you to leverage your 15-20% down. It was really bad when they let you leverage using 3.5% down.
Also, I wasn't really thinking that people used their cash to buy a second property. (Unless you are buying very low cost houses in low-income areas.) More like an inherited house or such.
> Also, I wasn't really thinking that people used their cash to buy a second property...More like an inherited house or such.
But in that case you have to think of your return as based on the opportunity cost of not selling the house and investing the cash in something else. If you aren't making money beyond what a loan would be, then it probably isn't a worthwhile investment to hold onto. (I'm over simplifying because there are tax benefits and you might gamble on appreciation).
Not true. I'm making decent cash flow and a net profit.
"Is this more "first world problems" and in fact you're making a reasonable return given your investment of time and money?"
Of course it's a "first-world problem." I think you're misinterpreting me as somehow complaining about how bad I have it. That's not the case. I'm in a very fortunate position that I can even be doing this.
The point of my post was specifically to respond to the previous poster's comment about how investing in real estate seems like "funemployment." It's not fun, and it's hard work. It can be lucrative, but it's not a set-it-and-forget-it type of job. And it's not easily scalable unless one is prepared to do it full time (in which case, if they're good at it, it can be quite lucrative).
Loads of work to make the property a good rental and then it's also loads of work to get the good tenants (especally in the beginning).
Now that they are settled I have more leeway but I know that more work is coming next.
As you said I would also recommend rentals to people that can either dedicate big chunks of time to it or to get it managed by someone else (by the risk of losing quite a big deal).
I don't know if I would do this again, sometimes I think I should have put the money in stocks and be done with it.
I imagine any of us here, being techie entrepreneurial-minded people, could build a system like that pretty easily. Create a website to market your rentals/show vacancies, post them to craigslist when necessary, find a general contractor to fill work orders and hire a V.A. to take calls and submit those work orders. I'm probably missing some things, but that's the basic framework for my plans.
[1] http://www.biggerpockets.com/
[2] http://www.biggerpockets.com/renewsblog/2013/09/26/lifestyle...
This period is not unique in this regard. Interest rate is always risk-related. There may been times of higher absolute rates on things like savings accounts, but the real returns and opportunity costs were similar.
What I'm saying is, there are plenty of investment opportunities; the stock market just rose almost 30% in 2013.
If you're going to read Kiyosaki's books, then you need to also do yourself a favor and read the criticisms thereof. Kiyosaki borders on a fraud, and many of the rich-dad'isms are flat out illegal. Indeed, as far as anyone is able to ascertain, most of Kiyosaki's traceable money comes not from real estate as he claims, but from selling his books and seminars.
Edit: Forbes link (http://www.forbes.com/sites/helaineolen/2012/10/10/rich-dad-...)
They got lucky. Those conditions are not likely to return and the path is likely to be much more difficult for anyone trying to do the same today.
I don't admire property speculators such as Kiyosaki. Recklessness rather than brains led many people down this path, and then they were subsequently bailed out with taxpayers money and ZIRP when it all went wrong.
In addition, hoarding property is actually a massive net negative to society.
(I am talking about our breed of buy to let investors here in the UK. I'm not sure if you have the same characters stateside.)
I think that progressive task on real estate could help with that. If you own one, two or even three houses, no tax, but if more, tax should grow very fast. Fast enough that it's more economical to sell property than keep it.
Instead, read Warren Buffett's letters to shareholders and take it from there.
He is even very clear that they were specific circumstances, and that it's not generalizable advice.
That said, the core philosophy of Rich Dad, Poor Dad is a good lesson: make your money make money by buying "assets" and avoiding "liabilities".
If I have a lot of money I can easily change it into a lot of wealth and a lot of wealth can be liquidated into a lot of money. And no, nobody who is actually rich cares about their education or intelligence because neither of these are able to generate anywhere near the kinds of returns from simply buying up large amounts of income generating assets.
I think the definition of wealth that is quoted at the top, and the one I normally use, is different from the one you are using (at least at some points).
As far as I understand the definition, (material) wealth refers to the physical things that you can own or enjoy that are good and useful. So that includes cars, houses, clothes etc. But not things are purely money generating things (like stocks and shares). A house is a good and useful thing in its own right because you can live in it. Stocks and shares, and money itself, are not (apart from the sheer pleasure of seeing a large number on your bank account).
You might also include 'things' that are not quite in the same category as physical possessions, but are things that can be enjoyed - like holidays and gym membership.
In that sense, money and wealth are almost opposites - you have to give up money to get wealth. At the extremes:
You can have millions in the bank and have no wealth - if you refuse to spend it, you'll die of starvation in cold, broken down house; and you can also have no money but plenty of wealth if, for example, you are the owner of a large, entirely self-sufficient farm, with servants etc. who are all paid via the produce of the land and live in buildings you own. Neither are very likely in our economy.
It seems you are mixing into that definition of wealth the ability to get money/wealth. I'd agree that is a form of wealth (in that you would say that person is in an enviable position), but, like money, it is more "potential material wealth" and not really physical/material wealth itself. And the ability to be happy with little material wealth is the best form of wealth, but, by definition, not a part of material wealth itself.
Disagree. To be a medium of exchange, money must have "holding" value (because money does not circulate, but simply switches holders: http://blog.oleganza.com/post/43378777734/on-circulation-of-...). The liquidity of money is in how many people want to hold it in their cash balances. The more people want it - the bigger value of the total supply (regardless if it's slowly shrinking or growing). The more and longer people want to hold cash, the bigger liquidity - the more "wealth" you can reliably "move" from one person to another. E.g. Bitcoin valuation is pretty small right now, so people can't use Bitcoin (yet) to make multi-billion purchases. Because to make multi-billion purchase one of the parties must hold billions and another must be willing to hold billions (and then find others to who give them if they need in the future).
So the money to be a good liquid medium of exchange must be a good store of wealth. And the more wealth it is "storing", the better medium of exchange it is.
In short this is the equivalent of "find a good lawyer" type advice. Gee thanks for that tip. (As an aside I have those assets and I've done that type of thing with success).
The problem is finding those assets and not overpaying for them and making a good deal. Just like someone saying "you have to find a woman/man who is this not that!". Ok go find that person.
The other thing that I have observed over many many years (starting in college when I worked for a lawyer and dealt with some of the deals he was involved in) is that many people who have those assets got them by being turned on to them by people that they know (their attorney, a friend, a business associate) so they are out there circulating in the world and get presented (similar in a much smaller way to what Warren Buffet does) with opportunities. Could be a fraternity brother they keep in touch with etc.
That said you still (and this is important) have to know enough to take advantage of the opportunities (so it's not just luck obviously) and of course be the type of person who even is associated with others who have identified opportunities. See [1].
As far as investing in your house well I could spin that the other way. A nice house gives you the opportunity to entertain and meet people. People always like a good party. And if you have a vacation home people will always want to come to your vacation home and stay over. [1] In short, if you have nice things people want to be around you. You meet people. Those people are contacts that can help you with opportunities.
[1] I had a vacation home (actually still do) and had a boat. It is a great way to socialize and entertain. Regardless of whether those people are the type that are truly friends or not there is a business value to making contact with people like that in certain situations.
There are valid reasons to make savings - accumulate money (or any other liquid asset with high exchange value, not necessarily use value - like gold). According to many economists, this is not true; rationally, one should only invest (exchange money for something producing more money later) or consume (make yourself feel better).
The reason to make savings is to postpone the decision to invest or consume (which is irreversible, due to physical nature of the world), and by doing that, you may gain an edge over other people who are forced to make that decision earlier. In other words, you gain power over other people by saving money (which is kind of what Marx what saying about the goals of capitalist - to make more money, ultimately).
Let me give a couple of examples: A rich capitalist (having a lot of money on hand) can survive a strike of his employees forcing them to reduce their demands; temporarily outlive better competition; react to new challenges by investing into technology already proven elsewhere; temporarily reduce prices to drive competition out of the market, and so on. Although in these examples I talk about capitalists, this is true for anybody, but the effect is not so apparent.
Of course, the extent how much one can do that or how much it will help depends on the money distribution in society. You cannot save all the time, and not everybody can save at the same time - otherwise you get a deflation. Thus it's not a sure-fire way to gain power, because nothing is. The blog post calls it "personal freedom", but it's not just that; that's very individualistic view of what's going on.
And since there are valid reasons to accumulate money, they are not just a medium of exchange. Whether or not the result (power over other people) is "wealth" depends on personal taste, I guess.
Warren Buffet famously holds large sums of cash or cash equivalents from time to time. Dumping your cash into overpriced assets just to keep your cash balance low is no smarter than hording cash.
http://www.forbes.com/sites/sharding/2013/09/20/has-warren-b...
From a scientific view wealth == money. Wealth is measured in money, something is worth x dollar. How this money is stored is another question, it can be stock, gold or whatever.
From a philosophical point of view wealth can be whatever you want it to be. I think the view of the author is quite sane and i agree with him on that; but please don't tell me , this is the right definition of wealth.
BTW I am reading Hackers & Painters right now and pg has a similar concept of wealth.
In both games, unspent minerals/gas/mana is seen as a bad thing. Either you have your sights set on something specific a little expensive (battlecruiser/expansion), you are building an army for an upcoming attack, or you are reinvesting it back into your economy.
In none of those cases are you letting your money sitting around without purpose. An army of 500 mineral marines is definitely going to beat a player with no army and 500 minerals.
Some RTS are, to a surprising degree, a lot about economy and balancing the short term v.s. the long term when it comes to your own resources.
But I expect that in both of them, just like in real life, there is some value to having unspent liquid assets, in that they give you optionality. Unspent liquid assets can be converted at a later time into marines/computing hardware/other 'real' assets, depending on what is most needed at the time. If you turn all of your liquid assets into illiquid assets as soon as you get them, you lose that optionality.
Usually better players will give newer players a simple heuristic like "don't let your mineral count go over 1000", which seems generous even. Something more hard core would be like 800.
The point is, there aren't many scenarios where "saving" your money would be a good thing. Except for "expensive" purchases, which usually hover around 400 and no higher.
Units and buildings (things you spend money on) in StarCraft also cost time. So if you wait until the actual time you need things to request their construction, it's already too late. So there's some forecasting going on so that you can soak up the construction time.
Also, your economy is a forever investment. If you aren't attacking, you're building/expanding. So there's essentially never an ideal moment, there's always a fall through case. You're always spending your money on something.
The one possible exception to this would be the Zerg, who play in a more reactive style. Which means that their per unit construction time is on average less than the other races (as I'm saying this, I'm actually just guessing that, watch me be wrong). The point is, the Zerg are more reactive than they are forecasting, so maybe in this scenario, some amount of saving would be apropos. But still, you are spending on your economy until the last possible moment and then transitioning into an army. Zerg happen to specialize in "on the field" adaptation and parallel construction, making their throughput higher for shorter amounts of time.
But it could be argued that none of that money was "optional" or idle. I knew that I was saving for an army and as I was scouting I knew I was saving for a specific kind of army. Maybe burn 2/3 on unit construction and save that last 1/3 to use their on the field adapt ability (like baneling morph).
Also, 2-player Starcraft is an antagonistic game. In the real world, there are coalitions, and the game is more complicated. Having cash on hand can give you an edge when the coalitions change.
If you don't have any such areas of expertise, then the best thing you can do with your money is use it to learn - gain one or more or many of these areas of expertise.
Figuring out what to do with your money isn't easy. So until you've got a good plan, go with a sensible default. That's VTI. Every day you procrastinate on this you're simply burning money.
This is a pretty great intro: http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Three-fund_portfolio
Keep in mind, though, that there are no guarantees. Stocks will have bad years, and you should expect that some years they will lose 50% of their value. The key is to choose an allocation that you can live with so you don't panic and sell when things get bad. Keep contributing and rebalance regularly (once or twice a year is usually enough). Tune out all the noise and stick to your plan. Even with these dips, most people expect stocks to perform better than any other asset class in the long term (20+ years).
I'd also recommend The Little Book of Common Sense Investing:
http://www.amazon.com/dp/0470102101
It's written by John Bogle, who founded Vanguard to bring diversified, low-cost investing to the masses. Vanguard is different from other companies in that it's client-owned. The Bogleheads forum is pretty good for this kind of investment advice:
You might also check out Wealthfront and Betterment. They are software-based financial advisors that use Modern Portfolio Theory and the Black-Litterman model to allocate your money optimally given their assumptions about expected returns and correlations between asset classes:
http://www.blacklitterman.org/intro.html
https://www.wealthfront.com/whitepapers/investment-methodolo...
Build your network: -Spend some of the cash inviting people out to lunch. -Go to conferences, if possible giving talks
Get skills: -Formal education -Workshops -Autodidacting, take time off work
Buy assets: -real estate -index funds -angel investing -bootstrapping
There are also intangible assets. e.g. Some people give to charity to get into the right networks.
Being able to afford time off work to build an open-source project, having the money to pay people to do some of the work (graphic design, documentation): you can build a high-value consultancy this way.
When will you need the money? In one year, or not until retirement? What are you planning on doing with the money? (If you don't have any plans, at least have an idea of when you might need to withdraw it)
Probably the biggest factor going to be your time frame. If you are going to need the money in 1-5 years (say for a house down payment), I would stay away from equity/stocks; in general, the proportion going towards equity should decrease as the time available decreases, because the volatility can result in negative returns. If you're going to need it in less than a year, just dump it in a savings account or similar where principal is guaranteed.
At the polar opposite is if you're just concerned about long-term growth. Then, I would in invest in a broad-market ETF like some of the Vanguard ones. Come up with an asset-allocation plan that ensures an acceptable level of risk.
Personally, I'm not a huge fan of directly investing real estate for the purposes of producing rental income. I just don't have any concern for property management, maintenance or dealing with tenants.
If you do go down this route, be sure to do the analysis and compare the expected income and risk with the alternatives (i.e. stocks/bonds, etc.)
This is one area the author of the article falls short in. There's lots of mention of "income generating assets" (with somewhat of preference to real assets) but not really any thought given to the different risks associated with each.
There seems to be an oversimplification that the only way to increase your wealth is to own assets that produce a cash flow (i.e. stocks that pay dividends, properties that generate rental income) with no focus given to capital gains. Capital gains have traditionally been a huge part of wealth gains and furthermore, may be more tax-efficient. None of this is mentioned, instead anything that doesn't produce a cash flow is hand-wavingly dismissed as "buy and pray".
This article lacks the humility to recognize that a large collection of publicly traded companies are going to have much more time, experience, and resources (wealth and leverage of it) to properly manage a company toward profitability.
Let's take a concrete example. Suppose that class warfare rhetoric utterly wins, and as its first scalp The People decide that the filthy rich Bill Gates needs to have 100% of his wealth confiscated for the good of The People. For simplicity, let's assume that 100% of his wealth is in Microsoft stock. So, The People United take all of his stuff. What do they get? Well, they don't several billion dollars. They get "several billion dollar's worth" of Microsoft stock. Well... that didn't accomplish much. We can't clothe or feed the people Microsoft stock. We need to liquidate it into money to get anywhere, and The People aren't too happy about the filthy capitalist stench of suddenly owning that much stock anyhow, so they immediately sell it all. Of course, dumping all that stock on the market at once immediately sends the price plunging; depending on how foolish The People in terms of wanting to be rid of it immediately it could well plunge to nearly zero. The People destroyed billions of dollars of wealth to obtain probably hundreds of millions of dollars, and quite possibly destroyed Microsoft in the process, hardly a net gain. The stock was as valuable as it was partially because it was in Bill Gates' hands.
In practice, you can't just "claw" wealth from the wealthy and hand it to "the poor" and have the effect you're expecting. You can certainly destroy large amounts of wealth, and yes, the poor will come away with something, but it's far less efficient than the "it's all just money" model leads you to believe. You aren't taking "$100 dollars" away from the wealthy and giving "$100 dollars" to the poor; at scale, you're moving a $100 asset out of the hands of "the wealthy" and into the hands of "the poor", and that's not going to produce the results you were looking for. And again, let me emphasize, it does work to an extent, it just doesn't work as well as you might naively think.
Politics being what they are, people are going to assume that I'm a fan of this truth because I'm saying it. I'm not. It would actually be really cool if redistribution worked as easily as people thought it does! I mean, seriously, awesome. How wonderful it would be if equality could be engineered so trivially! And let me be clear, no sarcasm there. However, it is still true, and it is something we ignore at our own peril. Also, does that mean all our social engineering schemes are hopeless? Well, no, again regardless of whether I'm a fan of them or not, but it does mean that, again, it's harder than we'd like to produce the results we're looking for, and it's a lot easier to overestimate the benefit to the poor and underestimate the damage to the wealthy and the general societal wealth (and even if you don't really care about the wealthy, you ought to care about the general societal wealth) that such schemes can have.
Also, if the rich are sitting on wealth which loses values as soon as it is spent, perhaps quite a lot of the "wealth" was never really there in the first place? (although there we are perhaps getting into philosophy)
I agree that in theory it would be awesome if wealth redistribution worked the way we think it might. I'd love to live in a Trekkie world where everybody seems to have all needs and wants met. In reality, redistribution is very much like throwing money away, considering the long-term impact of such. I think people are mostly either wealth generators or destroyers. Money in the hands of a benevolent generator has the possibility of benefiting many (even though in practice only a few wealth generators actually benefit the average person). In the hands of a destroyer it benefits only them, and only for a short time. Trickle down sucks, but it might be the most realistic option.
That said, while redistribution doesn't work, getting rid of tax shelters and deductions for the wealthy would.
That's a testable hypothesis, and as it turns out it's already been refuted: research has shown that dollar-for-dollar, tax cuts are a net drag on the economy, and food stamps deliver the biggest bang for buck economic stimulus. Even investments in infrastructure don't deliver as much of a GDP boost as food stamps. Giving that $100 to a wealthy person is one of the least productive things you can do with it.
Unfortunately for people who read this as a strong endorsement for general redistribution, it is indeed the "biggest bang" and once you have filled someone's belly (and generally filled in the lower Maslow levels), you no longer have such simple options to take a bit of wealth from one and give a lot of wealth to another. At the margins that's not the choice we face; usually it looks more like my original post.
I am a libertarian, but I greatly value the social safety net. It is an incredible, incredible source of societal wealth. The problem is that there's no way to scale the safety net up beyond being a safety net, because again let me emphasize that would be awesome, but it just doesn't work.
This was just a guttural post, I'll probably need to re collect my thoughts and edit this or post something again more in line with the op
> Wealth, more evenly distributed, would give more people a greater chance at, in turn, creating more wealth.
Yes and no. Look at lottery winners (or other windfall recipients) as an example that the average person cannot create wealth. Some people are able to create wealth and most are not. Let's say Bill Gates does indeed give every person that shares his picture on Facebook $5000 dollars. Most people will waste it, some will use it to pay down debt, and a small percentage will create wealth from it. I think there are two groups that could potentially benefit the most from this. Upper lower class folks can easily put this money toward education and skills that would have a net positive. Upper middle class folks might potentially start new businesses and markets which have a definite impact.
If people have a problem with current wealth distribution, there is a very easy (not easy in the sense of doing it, rather in understanding it) way to reallocate it - get out of debt. Debt is one of the main ways rich people get richer, by reallocating money from the poor to the rich. Getting rid of their main source of income would force them to invest in real, tangible businesses that solve real problems (because presumably without debt, nobody is buying a new TV yearly anymore). I believe debt is the primary source of economic stratification right now, not income.
> In terms of large corporations, I do think it would be more beneficial to split the money more evenly amongst the people who helped create the wealth.
Amen to this. This culture where CEOs earn 20x the average employee salary is screwed up. Also, it would be beneficial if they didn't own every politician ever created, but that's another story.
There has been a lot of thought and data on this already. The answer is in - giving money to poor people is much "better" as the money travels much further. They buy the "necessities of life" quite quickly, and the money changes hands several times, benefiting other (mostly poor) people along the way. Wheras in the hands of a rich person the money is unlikely to do that. It mostly goes into an investment as there are no necessities of life urgently needed. (lower Marginal Propensity to Consume http://en.wikipedia.org/wiki/Marginal_propensity_to_consume#... )
http://www.vosizneias.com/36051/2009/08/02/washington-food-s...
>I'm not really a fan of trickle-down economics, but I think it's more realistic
It is not. trickle-down economics has been tried and it failed. It is not a valid model of reality.
http://en.wikipedia.org/wiki/Trickle-down_economics#Criticis...
https://www.google.com/search?q=trickle+down+economics+doesn...
Politics ruins another mind.
Groups who capitalise phrases like The People traditionally want to redistribute control over the means of production, ie. they would have community ownership over microsoft itself. There aren't any socialist revolutionaries who want to break open the bank vaults and just start handing out cash, except in the popular imagination.
The other side of it, the one that's actually practiced in europe etc, is income redistribution, and that's different again.
Politics ruins another mind.
Again, people are going to have a hard time reading this as a morally neutral statement, but the fact that taxes exist depress the value of assets on the market. It's already priced in to the value of the asset, so it doesn't look like something that is "occurring", but it's still there. This is a morally neutral statement, and yes, taxes can fund things of value that can bring wealth to the society at large, etc etc, but all of that adds to the truth, it does not somehow "undo" this fact.
Isn't the net effect what people are interested in? If you impose taxes and then do nothing useful with the money, sure, that's an easy negative. And if you tax only unproductive private-sector assets and use them for public goods, that's an easy positive. The real-world situation is that you typically tax assets or income that are at least partly productive, and use them to produce things that are at least partly valuable. You come out ahead if the things you do with the tax money are better than what would've happened absent taxation, for some value of better.
The contention of people who support high taxation (as most of us in Denmark do) is that the net value is positive, and we are therefore overall better off and more prosperous than we'd be if we did not have taxation, or had much lower taxation. Partly this is because of a view that certain systemic problems can be much more efficiently solved by the public sector: it's difficult to imagine the private sector producing Copenhagen's public transit system, or the Danish healthcare system, especially for the same money. And partly it's because the prosperity we enjoy seems to generally require a backdrop of "things working well" that the state partly provides: good transit, low crime, few homeless people, safe buildings, functioning court system, educated populace, etc.
as a guy who's modeled and built economies for mmos, i can confidently say the more movement and activity in your economy, the healthier your economy is. consistent, steady growth and activity, rather than spikes (unbridled liquidity events) and valleys (accumulation stagnation), is the most desirable mode.
for a real world microcosm view, just look at the last six months of bitcoin activity. who on earth would consider that healthy?
The industrial revolution was bankrolled by extreme government spending at draconian (compared to present) tax rates during the World Wars. Every technological and scientific breakthrough of the last hundred years was bankrolled by the state either directly or indirectly. This fact is lost on a generation that takes all of this for granted, because they naively believe that progress is the natural state of civilization.
Today, a president like Eisenhower would be called a hopeless bleeding heart liberal. Who cares that the USA became a dominant scientific, technological and economic powerhouse under administrations like his?
History is the best teacher. Personally, I will watch the disintegration of these naive "meritocratic" policies with great interest in the coming years. Who needs public investment in infrastructure, science or healthcare?
There seems to be no quick way to liquidate that much wealth without destroying some in the process.
That's not actually wealth that exists being destroyed, that's a poor measure of the wealth represented by a stockpile being revealed to be poor. The quoted market price of a unit (which is basically the marginal price of the last/next unit sold) times units held is not an accurate measure of the total value (wealth) represented by a stockpile of a marketable asset.
A tornado lead to Scrooge losing all his money to everyone. This lead to everyone leaving their job and going on vacation. Soon, goods became scarce, so they had to turn to Scrooge who were selling produce from his farm at inflation-level prices. Soon everything returned to its usual equilibrium.
(Scrooge owns a lot of businesses, anyway, so that would be another avenue for him to recoup his losses.)
It also perpetuates the right-wing myth/prejudice that poor people are lazy and can't handle larger amounts of money than they "need", which has been proven wrong repeatedly.
You automatically take me for a fool when all I did was present the story, not my interpretation of it. Fiction can be interpreted in many different ways, independent of the author. I think the story is saying that there is more to wealth than just money; that you can't just throw money at things or people and magically get the equivalent amount of wealth.
How is it about power? Scrooge recouped his money by just working on a farm and selling the produce. If it was about power and/or assets, he would have recouped it through his businesses (of which he owns a considerable amount of), as I hinted at in my post.
> It also perpetuates the right-wing myth/prejudice that poor people are lazy and can't handle larger amounts of money than they "need", which has been proven wrong repeatedly.
Maybe it does. I think it has more to do with the fact that you can't just inject money (or redistribute it) into an economic system that is more-or-less closed (there is a more or less fixed amount of labour in the system and so on) and get the desired effect. Without some restructuring of the system, you're probably going to get a lot of undesirable effects like inflation, which might just return you to where you were (or leave you in a worse state). Scrooge had been hoarding all of that money for decades... to put it back into the system has the same effect as to print money.
If the story was motivated by some right-wing philosophies, I think it was more motivated by the simplistic model of human motivation for wealth and and incentives (everyone immediately goes on vacation when they have met a windfall). Scrooge is more motivated by money itself than wealth so he was able to buckle down and get his money back.
But I'm not an economist so my opinions might be wrong. Nonetheless I don't consider myself a "right-wing", which is a rather vague concept in this discussion since you're from Brazil and I'm from Norway.
The whole economy could go bust and society revert to bartering, yet Scrooge would still come out ahead because he owns the means of production (the farm/businesses) - assuming he has the power to uphold his ownership either by force or politics.
Re. motivation, I wasn't implying it's intentional, cultural/social context is carried into everything we do. An alternative ending would have people starting their own businesses, producing value and growing the economy as a whole. If written by a norwegian, maybe Scrooge would have found oil within the city borders and distributed the proceeds to all residents :)
Taxes are a way to put wealth on an logarithmic scale instead of an exponential one. We don't want to forcibly take money from rich people, we want to make it harder for them to make more of it. The point of the post its that wealth is related to having something that can be traded for value. Higher taxes (potentially to support a Basic Income) would leave the rich with their ”wealth” while taking only money from them, hopefully leveling the playing field for everyone else.
http://www.givedirectly.org/pdf/2012AnnualReport.pdf
These purchases are money generating assets. I think you touch on an important point though. It's much easier for a random individual to turn money into a money generating asset than it is for them to take a random money generating asset (MSFT stock) and turn it into cash. Ownership of a money generating asset requires domain knowledge, whereas you can choose to spend money where you already have domain knowledge.
Actually, no. They want to feed their families, period.
Dumping a lot of money on people's hand to buy food doesn't necessarily solve the issue because spending = inflation.
Spending does not equal inflation.
Increased money available to the consumers who have non-zero demand for a set of goods can reasonably be expected, under most circumstances, to increase the market clearing unit price for the goods -- but with most reasonable sets of assumptions the relative increase in unit price will be less than the relative increase in available funds to consumers, and redistributing money from one group of people to another will increase the latter groups purchasing power, decrease the former groups purchasing power, and increase the number of units sold of goods and services which the latter group has a greater marginal propensity to purchase than the former.
It does when it's a nanny state telling people to spend.
First, taxation is not redistribution of wealth. In practice, it's always a lot heavier on the middle class than on the elite, the later have better means to avoid taxation. Second, this money is never just handed over to the poor. Here in Brazil, for instance, it's used to back credit programs by state-owned banks, and interest rates are high.
If you want to see the result of this politic in practice instead of theory, just fly down here. The poor are buying more and drowning more in debt because wages still don't follow prices, and still have poor access to education and health. Heavy taxation and 7% "official" anual inflation rate (the real one is double that) erodes away the middle-class purchasing power. All that while banks break anual profit records.
Then the president makes an announcement claiming there aren't poor people in Brazil anymore. Mission accomplished right? They successfully moved the population from unskilled poor people to unskilled indebted people. Screw that.
This seems to be an article of faith (and one using buzzwords with no objective meaning) for which neither evidence nor argument is offered.
> Second, this money is never just handed over to the poor.
Concrete proposals to do just that (e.g., Unconditional Basic Income) have been made.
> Here in Brazil, for instance, it's used to back credit programs by state-owned banks.
And there might be all kinds of valid critiques of that specific use of tax funds, but it would be fallacious to conclude from the validity of those critiques of that specific use that using tax as part of a policy to redistribute economic returns from the wealthy to the poor is universally improper.
What do you mean? The argument is my entire comment explaining what's happening here.
Brazil also has what would be equivalent to a basic income, it's called "Bolsa Família" and guarantees a certain income for families based on the number of members. In practice it has been used to manipulate votes, every election there are rumors the program could end so poor people keep electing the same (already proven corrupt) party that championed the program.
In theory those ideas are beautiful, but I'm not seeing it work in practice, and I'm cynical it can ever be.
No, it doesn't.
> it's called "Bolsa Família" and guarantees a certain income for families based on the number of members
Bolsa Família is a combination of a variety of traditional social welfare programs of the type that Basic Income is laid out as an alternative to, not an equivalent of Basic Income; it features a variety of means-tested and other qualification-based components. The part you seem to be referring to is a benefit with a fixed cash value per vaccinated child attending school to families whose total family income is below a certain threshold. It involves both means-testing (the family income threshold to qualify) and behavioral testing (based on vaccination status and school attendance) of exactly the type that Basic Income is laid out in opposition to.
States are not magic. Economics does not suddenly turn into a zero-sum game just because consumers are spending food stamp money instead of "real money" from jobs.
Right now, when Bill Gates wants to use some of his wealth that is tied up in Microsoft stock, he has to sell it. When he sells it, he pays a capital gains tax of 15%. If we increase that tax, Bill gets less money and more of it goes to the government to be redistributed according to the wishes of the people (in theory!). There's no question of what the government is going to do with a bunch of stock.
Yes, technically the government is inserting itself into the transaction and seizing some of the value. But that's what all taxes do.
The government is also the party that is responsible for enforcing the terms of the transaction (via the justice system) if one party where to try to defraud the other. In effect it's more like a transaction fee.
Really against wealth redistribution? Talk about a bottom up approach to tweaking our economy instead of trickle down...
50 years ago, when you said "the rich", it would mean descendants of Carnegie, Hersey, or other big name company builders who created monopolies in the late 1800s and early 1900s. The majority of "the rich" were lawyers and doctors with Ivy League degrees and long pedigrees.
Today's rich are Bill Gates, Mark Zuckerberg, Warren Buffet, Gabe Newell, Elon Musk. While you'd call them perhaps middle class, or upper middle class (Gates and Zuckerberg went to Harvard afterall), their empires are clearly self-built and self-sustained. These people did not inherit their riches like "the old rich" did.
The "new rich" suffer from boom and bust cycles. 20% of Americans will find themselves in the position of "New Rich" for at least a year, before their self-built empire falls back down to middle-class or lower status.
http://www.dallasnews.com/business/business-headlines/201312...
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I admit... this is partly because college tuition rates were much much lower for Generation X / Baby Boomers than it is today. Government programs for education were never stronger than in those years. Today's young face rising tuition rates as education costs are cut... and for-profit schools have started up to more or less steal money from today's youth.
Sorry, still plenty of rich people who earn their money the old fashion way... They inherited it.
I wasn't even talking about individuals but a system that rewards people who already have wealth over the working poor and middle class. Worse, now with the "Citizens United" ruling we are creating a plutocracy that our Founding Fathers feared more then anything.
The interesting question is who will make better use of the dollars, or indeed microsoft shares. And the available evidence is that the poor make much more efficient use of their money than the rich (indeed on some level they have to, because someone 1000x as rich as me certainly isn't getting 1000x the value from their money). They spend money rather than hoarding it, improving the economy, and each marginal dollar improves their lives much more than it would for a rich person.
It seems noteworthy to point out in the GP in how he expresses class warfare. When this is invoked (here and elsewhere) it's always the poor who are committing "class warfare" against the rich. When in reality, with evidence abound throughout history it is the rich who actually commit class warfare on a continuous basis against everyone else. Even HN is not immune to this propaganda.
"...growth in inequality is not a simple picture. Old-line leftists, if there are any left, would like to make it a single story--the rich becoming richer by exploiting the poor. But that's just not a reasonable picture of America in the 1980s. For one thing, most of our very poor don't work, which makes it hard to exploit them. For another, the poor had so little to start with that the dollar value of the gains of the rich dwarfs that of the losses of the poor. (In constant dollars, the increase in per family income among the top tenth of the population in the 1980s was about a dozen times as large as the decline among the bottom tenth.)"
The Age of Diminished Expectations, 1990, p. 24.
http://lhrgateway.nu.edu.pk/articles/Krugman_Age_of_Diminish...
None of the facts he stated have changed. The poor have not started working. And citing the growth in inequality since the 1990s only makes his point about dollar gains/losses more stark.
>citing the growth in inequality since the 1990s only makes [Krugman's (1990)] point about dollar gains/losses more stark.
Actually, nothing is different nowadays as from long ago in history: the class-warfare is still the rich (capital) waging class-warfare on the poor (labor). Krugman, whom you quote, realizes this as well and rescinded his comments from that time:
"I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications. But I think we’d better start paying attention to those implications."[1]
"The pie isn’t growing the way it should — but capital is doing fine by grabbing an ever-larger slice, at labor’s expense."[2]
[1] http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robo...
[2] http://www.nytimes.com/2012/12/10/opinion/krugman-robots-and...
The mood affiliation is different, certainly. But I'm citing arguments, not tone.
There’s an implicit notion here that we’re waiting for the poor to start working. Perhaps it's coincidental, but I’d like to call out a possible conflation, because it's something I've seen expressed from time to time on Hacker News, and I think it perpetuates erroneous beliefs about poverty.
Krugman here is talking about the very poor; this is a relative statement, and it is almost a tautology to say that most of them don't work. (Rather, one should be quite scandalized that anyone who works could still be very poor.) Whatever the merit or relevance of his point may be, he’s not trying to characterize the conditions of poverty. He's trying to express the scale of the wealth disparity between rich and poor, and point out that a simple model of rent-seeking cannot account for it.
‘Poverty’ itself is a somewhat relative term, but only somewhat. People recognize hardship when they experience it, and a plateau in the relation between happiness and wealth has been identified. At some point down the sloping portion of that relation, we have to recognize poverty.
I do not think that any scholar has disputed that there are a significant number of Americans who work as much as they can, willingly, and yet live in poverty. One can argue whether most of the impoverished have work, but one cannot dismiss those that do. It is inhumane and does not honour their effort.
Maybe they are stupid people, with bad lives, who make bad decisions. Let’s allow every secret prejudice we have, just so long as we do not ignore that they work and go wanting for things we regard as essential. It is not by choice nor lack of action that they experience hardship. There is no more justice to their income than there is justice in the grades of a bell curve. They cannot work any harder or smarter than they are working already.
Further, most graphs of the sort you mention compare mean productivity (you can't measure any other kind in aggregate) to median income, which is a statistical fallacy.
If you have data suggesting the poor work more than in the past, please present it.
Not true in 1990. Very true today. The Bush tax cuts inaugurated the current era of class warfare. I'd say 2010 is when it really got going.
If you insist on confiscating Bill Gates' wealth, maybe you could hold the stock as an income-generating asset and redistribute the dividends.
A government powerful enough to distribute all assets is super powerful, and those that control this government(the party) have all the power.
Having all the power, they have all the material resources for them, their families and friends, even when they don't have "money". They want a car, they ask for a car with any excuse and the day after they have the car, they want to travel and so on.
The rest of the society live in conditions of near slavery. They could ask for a car, as they are "equal", but it takes years to come, and when it comes, it is a horrible car you could not choose anything about.
Also corruption is levels of magnitude bigger than anything in something near capitalistic(even paying more than 40% to the state) societies. If your wife is beautiful and the people of the party wants to fuck with her, they will blackmail her with the working conditions of her family. The same party that controls the media and justice and the only company that hires people.
That was the reason my family emigrated, all at once.
Wait, you mean they have homes? As in, stable places to live that don't put them in debt peonage their whole lives?
Wow, that's a pretty big rise in their standard of living versus current-day neoliberal capitalism ;-).
The only way to arrive at an opinion like that is lack of perspective.
Some people say that living as humans in the wild is preferable to "debt slavery" or "peonage" or whatever the leftists-word-du-jour is. Would you agree with them ? Can you see that you may be suffering from a similar delusion ?
I get his point, but by defining wealth as ownership of "net income generating assets" I think he is ignoring history.
It actually is a store of wealth. Money buys investments, which is where you store wealth. Money is easily transferable in and out of interest bearing accounts, which is a way to store wealth.
Medium of exchange and store of value are the two main functions that "money", as such, can have, but it is misleading to say that money is "theoretically supposed" to serve both purposes. Any particular money is adopted with very specific purposes, and modern fiat money by design has a very limited role as a store of value, being intended primarily as a medium of exchange that is useful as store of value only in the short term (and only secondarily so, as utility as a short-term store of value is essential to utility as a medium of exchange) specifically in order to encourage investment in productive non-money assets as a store of value.
edit: Just thinking further on it... I tend to approach things by thinking of pathological cases. In the case of a deflationary or flat currency, I think currency hoarding is a rational response economically even though it's unproductive and leads to high concentrations of wealth. On the other end, inflation that's too high will lead to an economy that is very illiquid and prone to solvency crises. There is a high incentive to minimize cash on hand and maximize debt. In my lifetime I've really come around on the value of a managed and low inflation to having a productive society.
Isn't the real point here that people who are capable of making a living will always have means to live and those who don't may get by from time to time when they come into money but don't have a lasting ability to generate it for themselves?
On a larger scale, I think this same idea could be used to describe the success and failure of most companies. Companies that can create products or services that sell will succeed in the long run whereas those that have large cash reserves but no ability to produce products or services that sell will eventually run out of cash and fail.
[1] http://www.amazon.com/Concise-Guide-Macroeconomics-Managers-...
I've been struggling to figure out what to do with the money I've been accumulating in my Bay Area tech job. I thought to put it into a house, but after reading this article, I think I'd really like to give entrepreneurship a serious go (whereas in the past, I might've done it as a side gig). Few people can claim to have that level of influence from their writings.
"The wealth of man is not measured by material computation."
It doesn't have much to do with getting wealthy, but it is a very elegant explanation of money as a technology to track members' contributions to society and their deserving of the fruits of society's labour.
Money can be modelled as a shared memory, track record, of contributions.
If it was evident to my grocer, that those abstract thoughts and lines of code I created had value, I could then have credit for adequate food; if the whole value chain was transparent and inherently obvious to everyone...
Can cryptocurrencies displace this (outdated, imperfect) technology?
What particularly comes to mind was when Kevin Rose was on the cover of [was it Newsweek? Time?] proclaiming that Digg was worth $60 million or something. He had to state at least once that he did not actually have $60 million in cash on hand.
In which country? The USD has lost around 90% of its commodity purchasing power since 1971.
> a small, steady, controlled inflation is really the ideal situation
I would agree up to the rate of population growth (1-2% or so). But US M2 expanded 8.4% last year, which is clearly far beyond what's needed to prevent the atrocious horrors of deflation.
It's not very surprising that others have said this - it's a sensible idea that's fairly well understood by some... but thoroughly misunderstood by others (still, and probably forever).
But the article says stocks are a bad idea. In that case, where should I be putting my money?
I can think of shares with dividends, bonds, rental properties, businesses, ... Anything else?
Health is extremely valuable, but fickle. You can lose it for no good reason and through no fault of your own. One just has to do the best one can. As for education and intelligence, I'm not sure I agree. Those resources are the wealth of the world. It's intelligence and creativity and just raw fucking grit that keep the fucking place from imploding. But many intelligent people end up as excess capacity, unused and maltreated. You need connections and credibility to unlock them. Education used to deliver that, out of the box; that's no longer true.
Ultimately, the best security is to be able to reliably get paid, well, for doing something that doesn't harm you to do it. That shouldn't be hard for programmers to arrange, but the age discrimination in our industry is disgusting, so I wouldn't count on being able to get quality jobs at 70, even with full capability and intelligence intact. When you get to that point where you the narcissism of the career world and its perverse (chickenhawking, see here: http://michaelochurch.wordpress.com/2013/12/14/vc-istan-6-th...) age obssssions go against you, it helps to have a wad of cash.
[I]t seems to me that the idea that the best preparation for retirement is to save up a load of money is a horribly noxious lie that has likely led to the bitter disappointment of hundreds of millions if not billions of people.
Well, it shouldn't be "money". It should be a portfolio of bonds, stocks, and commodities. (Real estate shouldn't be trusted; there are too many ways for misbehaving neighbors or politicians to fuck it up.) However, the idea that one can keep living off one's talents at the age of 70 is a fantasy. I wish it were that way; ageism is fucked-up and if it affects me in 30 years I am taking a Second Amendment Solution type approach to finally drop a pipe on that shit. Many people have their talents and ability intact at and beyond that age, but I would not want to be applying for programming or business jobs at that age.
We haven't had a serious bout with deflation in 80 years so people have grown overly biased against cash. We haven't had a serious bout with stagflation in 40 years. Historically, deflationary and stagflationary downturns have been common. All the points in the article are highly valid, but it seems to overlook these critical reasons to hold quite a bit of cash and hard assets.
Coincidentally we're not tying the money supply to stuff we dig out of the ground, growing the money supply is now only as difficult as turning on the printing press. Unless that changes, I don't see how deflation is a serious threat anymore.
The Eurozone countries tended to deflate, but there are plenty of examples of countries that went the other way -- Germany, Argentina, Mexico...
I don't think the US will default any time soon, but if we were to get near that point, we would inflate our way out.
Which can be quite difficult depending on what else is going on, as the example of Japan over the last 20-some years shows.
"But surely, having a lot of money, say a billion dollars, is the same as being wealthy? In theory, perhaps. In practice, it seems people who know how to maintain wealth would never keep a large sum in cash around, but quickly turn it into net income generating assets, and those who do not (e.g. lottery winners) often quickly find that the seemingly infinite pile of cash has evaporated into nothing."
You are a regular working class dude and all the sudden come into 100 million? 350 million? 1 billion dollars? The LAST thing you really need to do is "invest" that money to generate income. That's how most lottery winners lose their money is by making bad "investments".
You already have more money then you would have earned in a lifetime 1000x or so over that you can't possibly spend so why would you "risk" any of it? You live off the bank interest and have a really nice "modest" existence. Oh and... Stay away from money grabbing relatives but you do, of course share some of your good fortune.
> "You live off the bank interest"
Where does the bank interest come from, if not investments?