
Concentrated Wealth Is Strangling Prosperity - akg_67
http://evonomics.com/insanely-concentrated-wealth-strangling-prosperity/
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macawfish
You know what else is strangling prosperity? Normalization of taking debt.
When someone "buys" something using debt, it must be paid for many times over.
They usually don't end up paying that all on their own, even though they were
responsible for taking the debt.

For example, when you buy an over valued house with a mortgage, say during a
housing bubble, it doesn't make sense for you to try and sell it later on for
less than you originally "paid" (with your fancy loan). So you are going to
hold onto it, waiting for the market to go "up", so that you can sell it to
yet another person who takes out yet another loan to "pay" for this overpriced
house. In the mean time, either you or some renter is busting their ass to pay
the interest on that unnecessary loan. It's completely ordinary for people who
who decided not too take a mortgage to get stuck paying the interest for
someone who locked a house into debt.

This is completely straight forward but when I try to convey how absurd it is,
a lot of common sense people look at me like I'm crazy. It's considered a
financially "sound investment" to buy a house and try to sell it higher. Well
what if I don't want to live in a world where everyone is just playing
monopoly all the time? I feel like there are much more interesting and
pressing things to do with our precious human time and energy than cater to
these ridiculous cycles of debt.

And lot of people who take debt because it's so "smart" couldn't come up with
an original exponential function if their life depended in it.

~~~
conanbatt
I dont think you understand the economics of debt related to mortgages.

If there were no morts, you would have to amass wealth for a long time to be
able to purchase a home, which means ur capital becomes tied and you cant
invest. Mortgages increase the amount of circulating money enormously.

Everything is exponential in finance, both debts and house values. Also income
and investment returns. The exponential nature of debt is not an argument
against anything. Rental also has an exponential opportunity cost.

~~~
TheOtherHobbes
Mortgages don't solve that problem.

In the UK is that housing has become unaffordable for most of the population -
precisely _because_ mortgages made it possible to buy property as an
investment.

At the same time the market has been deliberately starved of affordable
housing as a matter of national policy.

So your point makes no sense. What are you going to do with capital while
you're saving it for a property purchase? Keep it under a mattress?

In reality, without mortgages, there would be far more investment cash
available, because the money would be out there doing something useful, not
trapped and congealed inside a fixed asset.

~~~
conanbatt
Man, I always say Argentina is anachronistic: we've had 15 years of no
mortgages and we are starting to have them now, while there is an anti-
mortgage sentiment in the world.

> In the UK is that housing has become unaffordable for most of the population
> - precisely because mortgages made it possible to buy property as an
> investment.

Without going too deep, there is a problem with saying unaffordable. Are we
talking about indigents? Or that the middle class 25-35 doesn't have the
access to houses the previous generation had? They are very different
propositions.

I would take for granted that mortgages raise the price of housing, simply
because it helps foster demand more than supply. But it also means more houses
are sold, which also means more houses are built. The goal is not to have
cheap housing, is for the biggest amount of people getting housing, and
banning mortgages will reduce both prices and people getting housing.

> At the same time the market has been deliberately starved of affordable
> housing as a matter of national policy.

I can't comment or debate about this for UK because I don't know what this is
about. Any government that puts a policy to control what is built is likely
going to have bad effects. It is true that luxury housing is providing higher
returns than affordable in the U.S. In argentina its a bit different, due to
historically no credit: basically the only buyers of new property in Argentina
are investors, because those are the only ones that had the capital to
purchase in advance. Hence for a decade, the market was flooded with cheap-
construction rental homes. I expect the introduction of mortgages to create a
market for long-term quality housing.

> So your point makes no sense. What are you going to do with capital while
> you're saving it for a property purchase? Keep it under a mattress?

Probably low-yield money funds if you are sophisticated. Home-owners are ill-
advised to mortgages their home to invest in the stock market: using your
capital to buy a home to invest in stocks is basically the same.

> In reality, without mortgages, there would be far more investment cash
> available, because the money would be out there doing something useful, not
> trapped and congealed inside a fixed asset.

If a man buys a house at 100k, his capital is now owned by the former seller,
so the amount of capital in circulation is the same. The point is what happens
when someone wants to buy a house: they have decades of saving money in low
yields. This can be seen in Argentina again, as there is a mortgage boom, 30
year olds are making cash-down payment, even though market participation is
almost non-existent. People were saving the cash in their mattresses.

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empath75
This will only get worse as jobs get replaced by ais and robots, which will be
owned by the wealthiest people as well.

The darkest timeline is one in which the wealthy decide that the vast number
of humans are unnecessary surplus to be eliminated, as the wealthy retreat
into secure enclaves guarded by robot armies, leaving the rest to serve as
slaves or to starve and die.

~~~
pdkl95
We've been the path to the "darkest timeline". Mark Blyth (Prof. of political
economy at Brown) has been warning his hedge fund friends that that, "the
Hamptons is not a defensible position. ... Eventually people will come for
you."[1]

[1]
[https://www.youtube.com/watch?v=Zzl4B3mrKQE](https://www.youtube.com/watch?v=Zzl4B3mrKQE)

~~~
uoaei
That's why they're building prepper-bunkers!

------
Eliezer
I laughed at the Smaug example because it's a good analogy - wealth doesn't
hurt anyone sitting in a cave. And aggregate demand is controlled by the Fed -
if it's too low "because" rich people are sitting on bank accounts, everyone
at the Fed should be fired for incompetence.

~~~
xiphias
Why is it incompetence if Fed increases shareholder value?

~~~
BoiledCabbage
At some point people will realize it's bad too optimize the world for
shareholder value.

~~~
partomniscient
But at that point, will it be too late to do anything about it?

Like most things, it depends where you are in the scheme of things.

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rbanffy
And all that because accumulation of wealth is the best strategy to ensure
long-term survival. Would we want to do it if we knew for sure we would always
be able to live in nice houses, in nice, safe, clean neighborhoods, have good
food and have healthy kids that go to good schools an colleges and repeat this
same cycle?

I wouldn't.

I'd do what I do best, not what pays more.

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spodek
Reagan won.

At least his policies got what he wanted. He probably did love this country
but didn't consider the consequences.

~~~
blunte
He was an actor! He did well to surround himself with "experts" and then
listen to them. Unfortunately his experts were wrong.

------
Aron
Keep in mind folks, over by the green button: 'DONATING = CHANGING ECONOMICS.
AND CHANGING THE WORLD.'

------
Klockan
> people with lots of money don’t spend it.

They do, they just spend it on buying things like factories, companies and
real estate. This is usually called investing and will also get money back
into the system since the things you buy when investing were built by workers
as well.

~~~
macawfish
Maybe they'll get money back in the system, but peoples' debts grow
exponentially faster than the wages purported to trickle down. And you don't
need to have debt personally to pay for it. My landlord, for example, like
many landlords, has a mortgage. We pay her interest and her principle. We pay
for the debt she locked the house behind.

~~~
conanbatt
But u have to consider that the house wouldnt be available without the
mortgage, and u would pay a higher rent somewhere else, and the owner might
still be amassing the cash to buy it.

Mortgages have a low interest rate in comparison to regular credit, so money
that is not put on the mort and into the business economy is an exponential
gain.

~~~
uoaei
You're describing a situation where mortgages are alreadu the norm, and have
already raised the price of houses beyond an affordable price at cash
_precisely because_ it's relatively easy to take out a mortgage to buy a house
at the prices we have today. If it were never so easy to take out a mortgage
to buy a house, housing costs would be much lower as the market matched demand
to supply.

~~~
conanbatt
They would be lower prices, but there would be less home-owners.

If the final goal were to reduce prices, you just need to pass a law that all
housing is worth 1$ for an unprecedented successful policy.

It is always interesting to me how in Real Estate, people are intelectually
sensitive to price increases: as if price increments were a sign of things
going awry. More often than not its the opposite: job creation in a city
raises rents which is a net good (i.e. SF and Seattle). Or people moving out
of their parents home earlier.

It is senseless to look at the price of one thing and focus on that as a
measure of well-being. After all, a man in the 20's would look at our salaries
and say we are all filthy rich.

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averagewall
The author seems to have the forgone conclusion that high concentration of
wealth is bad but doesn't put any real effort into explaining why. It's going
to make people who agree it's bad feel supported and people who disagree feel
frustrated at still not having an answer.

The best reason I've heard is that is leads to violence. People (specifically
men) can't cope with knowing they can never succeed in the competitive race to
be the richest so they turn to other ways to gain power - like intimidating
and beating people. But that seems to be more the fault of those individuals
not the people they're jealous of. Maybe we should educate kids to not feel
jealous of rich people and that would solve the problem.

~~~
polotics
Wow, just wow. The biggest flaw is ignoring shared biology: the meanest
virus/bacteria bred in the deepest helpless squalor of absolute 3rd+ world
poverty can and will infect any 1st- world billionaire at the first
opportunity. Add climate change and associated vector spread (west-nile,
zika,...) and those opportunities multiply. Solidarity may be the optimal
approach, even with a pure self-serving outlook.

~~~
Sacho
The effect is the other way around; diseases like aids, malaria, polio
were/are the scourges of the third world, because the poor do not have the
means to treat them; the viruses/bacteria in the third world suffer low
evolutionary pressure because the humans only fight back with their immune
systems. In the first world, we grow super resistant bacteria due to
evolutionary pressure from our modern medical treatment. It's the first world
that we should fear from a "shared biology" standpoint.

~~~
rbanffy
OTOH, populations that develop imune systems that can deal with their diseases
will host deadly stuff for those who rely on external defenses.

