The public corporation has outlived its usefulness

[Horsemen]

The publicly held corporation has outlived its usefulness in many sectors of the economy.

Evidence for this includes:
- The decline in the number of publicly listed corporations and IPOs in major developed markets since the 1990s
- The increasing number of companies being taken private or de-listed from the public markets
- The growing amount of capital invested in private equity and private debt vehicles; some describe it as a 'tidal wave' of cash

Why is this happening?

Every public company suffers from the same fundamental problem: the conflict of interest between the management of the company and its owners, i.e. an 'agency problem'. There is abundant evidence that managers of public companies are incentivised to engage in inefficient and wasteful activities that may enhance executive compensation and ego, but at the expense of the company's value to its stakeholders and employees. There are many examples of this phenomenon, involving companies ranging from Arther Anderson to GE. This problem can only be fully avoided when the management and shareholders of the company are the same entity. When managers' own personal wealth is directly invested in the ownership of their company, they are much less likely to make destructive choices.

At the same time, the proliferation of venture capital and private equity firms has made it easier than ever for companies to access capital through the private markets, rather than through a public listing of stock. Many managers even prefer to obtain capital privately; it gives them greater autonomy, and shields them from the quarter-by-quarter scrutiny of their financial performance by the public markets, enabling them to focus on long-term results. (See: Elon Musk's relationship with Tesla shareholders). Moreover, many private investors are profoundly well-connected, and typically bring a high level of sector expertise to companies in which they invest. Management teams with access to these investors have a clear advantage in intellectual capital over those that do not.

What does this mean for me?

The main problem for retail investors is that there are fewer and fewer opportunities to invest in growing companies. By the time many new companies are listed on the stock exchange, most of their growth has already taken place; the public listing just becomes a method for the current owners to cash out, leaving nothing in the way of future earnings growth for the retail investor to capture. This has severe implications for large swathes of the population, as it leaves fewer opportunities for individuals to grow their retirement savings, leave a nest egg for their family, or invest in the future education and well-being of their children.

Can this trend be stopped? And if so, does it represent a problem for the basic retail investor?

More articles on this:
https://www.ft.com/content/d083b08e-82c ... e435b57a3b
https://www.forbes.com/sites/greatspecu ... 550a992078
https://papers.ssrn.com/sol3/papers.cfm ... _id=146149

[Squamiger]

The corporation has outlived its usefulness, take over your workplace! You don’t need your boss and the shareholders, they need you.

[lejend]

The corporation has outlived its usefulness, take over your workplace! You don’t need your boss and the shareholders, they need you.

https://www.youtube.com/watch?v=fJwHZVl5Buk

[Dolan]

[Dolan]

Most of those stocks are overvalued, anyway, so nothing of value is lost. "Investors" are just chasing easy money wherever they can, just because they can. It's harder to make money taking the old route, of greenfield investment, actually taking time to grow a business and make it work. Nah, why should we wait for so long and take so many risks? Better just "invest" in stocks that you know will go up as long as the Fed or other central banks signal they're going to do whatever possible to avoid any "downward pressures". Where did those money that the Fed pumped in the economy after the 2008 crisis go? Into stocks, mostly. Making investment funds and banks richer. Middle class or blue collar peeps haven't really seen significant growth in purchasing power, even though officially the economy has kept growing. Not to mention that stock prices growth is not counted in GDP growth, but their owners have cashed out handsomely and used those gains in the real economy.

So, good riddance. Stocks investment is just another instance of casino capitalism. I understand the need that firms have to draw capital from markets, but the negative consequences far outweigh the benefits. Lots of hyped up startups have increased their "market valuation" through the roof even though they're basically just a glorified chat app that makes money from swindling users out of their private data without telling them, and selling that to advertisers. This has gone way way too far, so little wonder it's starting to unravel.

Elon Musk is starting to scowl at public investors, but that's what made him rich in the first place. If it weren't for the publicly listed Paypal golden goose, he would have been a nobody right now and Tesla wouldn't have existed. But now, when investors in Tesla are growing impatient with his spoiled boomer tantrums, suddenly money that were scentless until then start to stink.

[Horsemen]

Most of those stocks are overvalued, anyway, so nothing of value is lost. "Investors" are just chasing easy money wherever they can, just because they can. It's harder to make money taking the old route, of greenfield investment, actually taking time to grow a business and make it work. Nah, why should we wait for so long and take so many risks? Better just "invest" in stocks that you know will go up as long as the Fed or other central banks signal they're going to do whatever possible to avoid any "downward pressures". Where did those money that the Fed pumped in the economy after the 2008 crisis go? Into stocks, mostly. Making investment funds and banks richer. Middle class or blue collar peeps haven't really seen significant growth in purchasing power, even though officially the economy has kept growing. Not to mention that stock prices growth is not counted in GDP growth, but their owners have cashed out handsomely and used those gains in the real economy.

So, good riddance. Stocks investment is just another instance of casino capitalism. I understand the need that firms have to draw capital from markets, but the negative consequences far outweigh the benefits. Lots of hyped up startups have increased their "market valuation" through the roof even though they're basically just a glorified chat app that makes money from swindling users out of their private data without telling them, and selling that to advertisers. This has gone way way too far, so little wonder it's starting to unravel.

Elon Musk is starting to scowl at public investors, but that's what made him rich in the first place. If it weren't for the publicly listed Paypal golden goose, he would have been a nobody right now and Tesla wouldn't have existed. But now, when investors in Tesla are growing impatient with his spoiled boomer tantrums, suddenly money that were scentless until then start to stink.

This post is just wrong on so many levels that I don't know where to begin.

[Dolan]

Well, if you're involved in this business, ofc you think it's wrong...

[Dolan]

Let me ask you something. Let's assume a Silicon Valley startup's stocks double their valuation in a year. Let's also assume that they haven't made any particularly significant new investment and most of those stock gains went into owners' pockets, who were able to trade their shares for more cash. How has this market valuation increase benefited the economy? Inb4, owners can afford to buy more assets, so this boosts the economy (the trickledown effect argument). And if they don't? They're just sitting on a bigger pile of cash, parked in banks or in other "investment vehicles", that continue this cycle.

[Horsemen]

Let me ask you something. Let's assume a Silicon Valley startup's stocks double their valuation in a year. Let's also assume that they haven't made any particularly significant new investment and most of those stock gains went into owners' pockets, who were able to trade their shares for more cash. How has this market valuation increase benefited the economy? Inb4, owners can afford to buy more assets, so this boosts the economy (the trickledown effect argument). And if they don't? They're just sitting on a bigger pile of cash, parked in banks or in other "investment vehicles", that continue this cycle.

Your view of things puts the cart before the horse. Stock prices are related to expected future earnings. If the founders of the start-up have made no new investment in the company, and are not promising any new investment, and yet the price of their stock still increases, it's because the expected earnings of the company are increasing due to other factors. This could be the result of a favourable economic environment, a growing market, rising customer awareness, cheaper financing, etc. In other words, stock prices do well because of the economy, not the other way around. They are essentially just a blunt measure of economic fundamentals.

In the short-term prices can be affected by market conservatism, investor bias, animal spirits, hysteria etc., but in the long-term these effects are neutralised and prices reflect the underlying value of expected earnings.

None of which relates to my original post that public companies are going extinct because of greedy and inefficient managers failing to deliver value for company owners.

[Dolan]

Yes, that is true, but that was the point I was making. That these stock gains are based purely on psychological factors, on expectations which may or may not turn out to be true. In the meanwhile, someone has cashed out on those temporary gains. There has been a transfer of value, capital has exchanged hands.

What expected earnings can we talk about in the case of companies like Amazon that avoid reporting profits and just keep reinvesting it? They're using their increasing market valuation to just acquire a bigger chunk of the real economy. It's basically a self-fulfilling prophecy. The market sees that they are ever-growing and "expectations" keep increasing, which leads to another cycle of increased shares valuation and more capital for them to reinvest.

Maybe it's not specifically addressing your point from the OP, but it is quite related to the fundamentals of the economic equation that make this possible. Of course "hot money" investors won't share the same vision as the founders or owners, since they're not motivated by the wish to develop something, to build a product, to keep a certain heritage alive, they're purely motivated by chasing market gains.

[deleted_user0]

The corporation has outlived its usefulness, take over your workplace! You don’t need your boss and the shareholders, they need you.

Also, separate corporation and state!

[lejend]

[deleted_user0]

Rather, why don't the people just build their own roads? https://www.citylab.com/equity/2017/03/ ... es/519588/

via Imgflip Meme Generator

[lejend]

"Slaves"

No one is putting a gun to your head. If you don't like your job, quit and go live innawoods.

"Cheap labor"

It's amusing to see the richest generation in history complaining about how poor they are.

In fact, my grandpa was the only one who brought home meat to eat after his father died when he was 11. I recall one story he told about hauling trees all day and being paid enough to buy one shotgun shell. The next day he went out and found a covey of quail all bunched up. That one shotgun blast was enough to kill six of them but the seventh flew off (this was in the days before game regulations). My grandpa said that he cried all the way home because he knew that although his six sisters were going to have a quail to eat he was going to have to do without.

https://babylonbee.com/news/study-avera ... tire-lives

Study: Average American Now Complains More In A Week Than People Living Through The Black Plague Did Their Entire Lives

U.S.—Demonstrating just how bad modern life has gotten, surveys now show that the average American today complains more in a week than people living during the black plague complained throughout their entire 30-year life span.

“There’s just so much more going wrong now,” said Karen Maxwell, a college student. “Things were just much simpler during the Black Death. All they had to deal with was squalor, starvation, and the constant threat of disease. Nowadays we have microaggressions, student debt, gluten, unequal pay for women, GMOs, problematic things like Scarlett Johansson playing a transgender man. The list just goes on and on. So it’s no wonder we complain more.”

“It just makes sense,” she added before going back to using her smartphone, a device that would have seemed like dark magic to people living just a hundred years ago.

Studies backup Maxwell, as there are recorded only a handful of common complaints from the 14th century such as large boils, lack of food, and everyone dying. In the present day, though, there are thousands of things people complain about daily — poor cell service, traffic jams, unripe avocados, obesity, favorite TV shows being canceled — problems no one six hundred years ago had to deal with at all.

“It’s just a miserable time to live in,” Troy Walker said while eating a burrito in an air conditioned food court, something that would probably confuse and scare a 14th century European. “All the disease back in the 1300s sounds bad, but at least they didn’t have high health care costs from it since they didn’t have health care. And look how we’re being exploited by capitalism.” Walker pointed to his iPhone. “But in plague-ridden Europe, most people had pretty much nothing, so they didn’t have to worry about that.”

[deleted_user0]

@lejend "remembering" the time when the world was a "freer" place...

lejend.png

[Horsemen]

Ultimately, it is income inequality that causes so much discontent. If you want any society to develop rapidly (high GDP per capita growth), you need a system with effective incentives. Those who bear the risk and accelerate wealth creation (ex. entrepreneurs, investors, etc.) need to be able to reap a significant portion of that incremental wealth.

As such, those with talent & willingness to bear risk accrue greater wealth. They then proceed to gain even greater wealth as they tap into a flywheel. Their wealth allows them access to:

- Other talented folks who have mastered wreath creation (entrepreneurs / innovators / investors, etc., which enhances them in both knowledge and forging of new partnerships to create more wealth
- Access to resources that the vast majority cannot afford (conferences, private schools to send their kids to, etc.)
- Access to other deals / opportunities that average people don't get (ex. Buffet gets so many potential deals that are directed at him whereas the average asset manager needs to both source more ideas independently and convince that person to let them invest)

At a certain scale, you really hit a point where your wealth compounds very effectively. For instance, if you start out with a 2ml net worth and conservatively assume your money doubles every ten years (7% RoR, basically just the S&P500), in just 3 decades that 2ml will become 16ml. If you'd started out with 4ml that becomes 32ml, and so forth. However, if you had just started out with 200k, in 3 decades that would only be 1.6ml (given finite life spans, it just doesn't have the time to compound further)
And eventually you pass these mechanisms on to your progeny. You get them private tutors, send them to private schools, get them to top tier colleges where they have the opportunity to meet even more sons/daughters of wealthy parents and their networks become more effective over time. And if you're a smart parent, you teach your kids financial literacy, the importance of saving/investing, and teach them the methods of wealth creation. This is all without even mentioning trust funds/inheritances. As such, there is a high probability that these kids stay wealthy throughout their lifetimes and wealth continues to accrue.

The middle class doesn't have all of these factors going for them. And yet they also benefit enormously from the wealth creation of these rich folks as their investments spur job growth, offer people the ability to ride their coattails into their own wealth (ex. asset managers quite literally build their personal wealth by servicing wealthy people). So aside from some racial bias that admittedly exists in the system, overall it is quite equitable. Certainly far more equitable than in any point in history.

This idea of wealth accumulating disproportionately at the top is essentially inevitable (unless you want a communist society where there are no incentives so the willingness to take risk/invest is tiny and presents enormous drag on the economy - see China, which owes its rapid development to relaxing these policies & welcoming more capitalist elements). You need this dynamic.

However, people are jealous and ungrateful. Despite living in the most prosperous society in the history of the world, many people still tend to be unsatisfied that others are living in such wealth while they are not. It's not like their wealth isn't growing, it's just not growing as fast the wealth of the upper class (due to the above reasons). Historically, there have only been two ways this dynamic plays out. One is revolution. The less extreme route is wealth redistribution (through a variety of mechanisms). Given ease of travel and extremely mobility even for a middle class person in the U.S. today, and the myriad of packets of wealth around the world today (Singapore, Australia, Hong Kong, Switzerland, etc. etc. etc.), the world has never before presented so many alternatives. If the wealthy hit a certain breaking point, they WILL MOVE.

To be fair, we are nowhere near that now. It's not just money that wealthy people consider when moving to avoid excessive taxation/redistribution, but also social ties and being near other wealthy people. As such, they're willing to tolerate a lot, but if you're some uber-jealous liberal, you are naive if you don't think there's a breaking point that is lower vs. the past. Hyper-liberals always point to post-WW2, when tax rates where 90%. But they fail to consider that things were different post WW2, where Europe was in ruins and there were two superpowers vying for dominance; safety was an enormous concern. Today, that is not the case as there are dozens of safe, first world-nations with enormous prosperity, mobility is far greater (both physical and transfers of assets), and people think a lot more global in terms of travel (avg. person today has been to way more countries vs. avg. person in 1960), so there's a greater willingness to move to other countries.

A bit long winded, but overall, while I think there is room to tax the rich further, if I were a policymaker, I'd be wary of how far I want to push it. Can marginal tax rates go from ~40% to 55% for the top bracket w/ little fallout? I think so. Can they go to 70% w/ little fallout? I doubt it. Same principle for cap gains taxes (which I understand matters far more to most rich people as they derive far more wealth from net worth invested in assets vs. income). The dangerous thing here is that this disrupts the flywheel that allows powerful countries to stay powerful. Innovation slowly moves elsewhere as does immigration/talent. As this happens and other countries become more powerful (ex. China), this weakens our network of foreign alliances as now there are alternatives (both economic and military). So now you see economics infecting our power as a nation, which reflexively affects our economy. As you can see, there are potentially disastrous consequences that come from the mob's envy and desire to divide the pie vs. grow it. Again, this type of change takes time; it won't all happen overnight, but it will happen.

The throngs of liberals don't understand this, thinking that taking from the "haves" is just & fair for little reason. They are perpetually unsatisfied with what they have and attempt to steal it from others, but in the long run, this thinking will doom our society. In a democracy where a complete idiot who knows nothing about economics / international policy has the same voting right as someone highly educated, it eventually devolves into popular despotism.

[kami_ryu]

-- deleted post --

[Horsemen]

bear the risk and accelerate wealth creation, lmao

The company I work for now currently has 7 or something CEOs that just sit there on their asses and collect the dirt oil money. They literally don't do anything to make the company grow. No finding new contracts, no finding new customers, no expanding, no shit anywhere. It comes down to the people who are on site to provide good, efficient service to people. If we get a new customer, it isn't thanks to our glorious 7 CEOs. It's probably because our public relations person actually knows people.

I used to believe in upper management. Until I finally started working at a real company. Though to be fair, most presidents of a company will indeed be expanding and running things well. They should be compensated as such. But some lofty CEO? Nah. That's a fucking joke. Their literal only merit is that they had enough money to throw around to invest into a company in the first place.

This is the point of my OP exactly

[kami_ryu]

-- deleted post --

[Dolan]

@Horsemen

I agree with some of the points you made but I think you're presenting a very idealised, rose-tinted view on the role played by wealth.

Not all wealthy people actually invest in the real economy, driving things forward. There are lots of them who simply live off arbitrage and chasing stocks gains. Because it's just so much easier and less of a hassle to just "invest" than put in the work and dedication required to take care of greenfield investment in businesses that produce tangible goods and/or services. This kind of wealthy people are no different than bitcoin investors, putting money in certain "assets" just because they think they can play the market and milk the hapless who don't know when to get in or get out. They're just clients of a casino capitalism. That doesn't drive shit forwards and it accrues risks to the whole system that eventually are mitigated using public money. When they go belly up, the state jumps in with taxpayer money and plugs the holes, because hey, they're too big to fail, so c'mon people, it's in your own interest to save these "investors"' asses. The benefits accrue to the investors if things go right, the costs accrue to the public, if things go wrong.

Also, lots of such people who only got to wealth through inheritance couldn't give a crap about development, social impact of their wealth and so on. They'd rather hire some managers to do the asset management part for them and some PR agency to take care of their image, while they're busy taking selfies with their Lambos in Monaco to make sure they keep that Instagram fresh and updated. Want examples? Search for Ecclestone's offspring and such. This kind of wealthy offspring only takes a job if it involves an "acting" or "modeling" career, or "art journalism" or some other occupation that has nothing but status-signalling value. You know, you need to have some stories to tell about the "meaningful" things you're doing with your life when you meet other wealthy offspring. There's nothing inherently wrong with that, just saying that wealth doesn't always or necessarily play some kind of heroic and providential role in the economic system. Money can also equally slosh around in funds, managed by specially employed people that play stocks and used for conspicuous consumption and not much else.

At a certain scale, you really hit a point where your wealth compounds very effectively. For instance, if you start out with a 2ml net worth and conservatively assume your money doubles every ten years (7% RoR, basically just the S&P500)

And this is what is wrong with the current system, among other things. You shouldn't be able to take this for granted. It's not the point of an economic system to provide you with easy ways to multiply your money without putting much work into it. And that's what "playing stocks" does. Most often it's a question of making sure you get in the market when stocks have a lot of upward headroom and get out when they're overvalued, so you can leave others "holding the bag". That's just predatory speculation and nothing else. No, it's not doing a great job providing capital to those businesses, it's just meant to make a quick buck. It's no different from "hot money" chasing higher short-term returns on interest or currency arbitrage (aka, global carry trade).

The middle class doesn't have all of these factors going for them. And yet they also benefit enormously from the wealth creation of these rich folks as their investments spur job growth, offer people the ability to ride their coattails into their own wealth (ex. asset managers quite literally build their personal wealth by servicing wealthy people).

Yeah, they benefit if those rich folks do create jobs. Just employing a couple of wealth managers doesn't quite have a meaningful impact on job creation, compared to greenfield investment. And the wealth that those asset managers build is, again, simply the result of speculation, not real-economy development. They tend to piggyback on the real economy, placing stocks bets.

This idea of wealth accumulating disproportionately at the top is essentially inevitable (unless you want a communist society where there are no incentives so the willingness to take risk/invest is tiny and presents enormous drag on the economy - see China, which owes its rapid development to relaxing these policies & welcoming more capitalist elements). You need this dynamic.

I agree.

It's not like their wealth isn't growing, it's just not growing as fast the wealth of the upper class.

I'm not sure about that. I'm pretty sure people before the 2008 crisis had much better access to credit and housing than people today. You could argue that that was the case because it was based on the wrong fundamentals, so it was unsustainable purchasing power that was based on lower barriers for access to credit.
I think the cost of housing is one of the biggest frustration of salaried people today. When you have to work for a wage, half of which will go to paying rent and another quarter to paying bills, you don't feel like you're doing that great as the apologists of the current system claim you're doing on paper.

If the wealthy hit a certain breaking point, they WILL MOVE.

And that won't change much, because their wealth is mostly in paper assets. Good riddance if they just take their paper wealth with them and their tangible assets back home get nationalised. It's not like those who aren't wealthy right now become completely clueless on how to run an economy or how to manufacture goods. There will be a short-term issue with capital flight, but eventually it will be supplanted by other means.

while I think there is room to tax the rich further, if I were a policymaker, I'd be wary of how far I want to push it. Can marginal tax rates go from ~40% to 55% for the top bracket w/ little fallout? I think so. Can they go to 70% w/ little fallout? I doubt it

Increasing taxes never really solved structural issues anywhere. It's a bandaid solution to no structural problem. So what if governments can spend a bit more? It's not like the state is the biggest job creator or wealth creator. What people don't understand when they keep quoting "the Scandinavian model" is that those high taxes and free services are matched by a fierce local capitalism. You need to have something to tax, you need to find some excess fat in the economy that they can afford to lose. Swedish firms aren't communist cooperatives, that's not why Sweden is a highly developed state, it's because their private sector can actually still thrive on market-based dynamics, despite taxes being higher. My feeling is that this will not last for long. I know people from Sweden who want to leave the country and work somewhere else, precisely because they don't want to pay such high taxes that end up benefiting some Iraqis or gypsies that just moved in the country. They'd rather move to another country where taxes are lower and welfare is not such a high burden on public spending.

The dangerous thing here is that this disrupts the flywheel that allows powerful countries to stay powerful. Innovation slowly moves elsewhere as does immigration/talent. As this happens and other countries become more powerful (ex. China)

That's not why China has progressed and grown so much. In fact, their economy is still very much politically steered and controlled behind the scenes, except it's not a planned economy anymore. And it's a rather closed economy in terms of market access. They only allow you as much access as it benefits them. But you never own anything in China, it's all just a temporary lease. Foreign investors are not allowed to own land in China. So that's not why innovation moved to China, it's because they have carefully put together an economic model that takes advantage of the West's addiction to outsourcing and stealthily drains them of their intellectual property, at almost zero cost. They have entrenched themselves in the West's supply chains so closely, it's hard for Western firms to disentangle themselves without incurring high costs. This is why Trump is cracking down on them right now and it's the right thing to do, but it comes so late. This should have been initiated at least 10 years ago. Now it might be too little too late.

The throngs of liberals don't understand this, thinking that taking from the "haves" is just & fair for little reason. They are perpetually unsatisfied with what they have and attempt to steal it from others, but in the long run, this thinking will doom our society.

Yep, that's what I've been arguing too. All this talk about "inequality" hides deep-seated envy and nothing else. It shouldn't even be a relevant subject for discussion that some people managed to accumulate more wealth than others. That's not the problem. If people had decent access to housing and could see profits effectively trickling down to employees inside the firm, not just theoretically in the consumption market, they wouldn't protest as much about the fact that some have accumulated more. It's their frustration with the current blockage that they experience in terms of housing prospects and income growth that frustrates them and makes them talk about inequalities.

In a democracy where a complete idiot who knows nothing about economics / international policy has the same voting right as someone highly educated, it eventually devolves into popular despotism.

Agreed. Unfortunately, democracy eventually proved all those 19th century pessimists right. It is the rule of a clueless and disoriented mob, that is stealthily steered by media owners and "opinion influencers" in whatever direction they see fit.

[Goodspeed]

It's not like their wealth isn't growing,

It is like that

[Horsemen]

@Dolan

I agree with some of the points you made but I think you're presenting a very idealised, rose-tinted view on the role played by wealth.

I don't think my view is idealised or rose-tinted. Wealthier people save more and increase the supply of capital; more capital means cheaper financing, which puts more money into the hands of people who are dedicated to doing great things. It's easier than ever to start a company and raise capital for your business. Sure, some entrepreneurs with half-baked ideas will take advantage of the current range of opportunities to get rich quick without creating a good product. That's inevitable. But cheap capital is also a safety net. The advantage of this environment is that we can take risks and still survive if a particular concept fails. It's an environment where we can test and experiment with new ideas at relatively low cost. There are now fewer barriers than ever for entrepreneurs with a truly great product to succeed. I don't think this is an environment that warrants pessimism.

Also, lots of such people who only got to wealth through inheritance couldn't give a crap about development, social impact of their wealth and so on. They'd rather hire some managers to do the asset management part for them and some PR agency to take care of their image, while they're busy taking selfies with their Lambos in Monaco to make sure they keep that Instagram fresh and updated. Want examples? Search for Ecclestone's offspring and such. This kind of wealthy offspring only takes a job if it involves an "acting" or "modeling" career, or "art journalism" or some other occupation that has nothing but status-signalling value. You know, you need to have some stories to tell about the "meaningful" things you're doing with your life when you meet other wealthy offspring. There's nothing inherently wrong with that, just saying that wealth doesn't always or necessarily play some kind of heroic and providential role in the economic system. Money can also equally slosh around in funds, managed by specially employed people that play stocks and used for conspicuous consumption and not much else.

If it's any comfort, most families like this lose their wealth after a few generations. The types of people you talk about might have plush lives for the time being, but the negative consequences will eventually fall on their children and grandchildren.

It turns out that the families that are best at preserving wealth have their own 'mission statement'. They are encouraged to work hard at stewarding the family's wealth and directing it towards socially beneficial ends. The Rothschilds and the family behind JAB Holdings come to mind. These types of families can become social institutions and have historically persevered.

And this is what is wrong with the current system, among other things. You shouldn't be able to take this for granted. It's not the point of an economic system to provide you with easy ways to multiply your money without putting much work into it. And that's what "playing stocks" does. Most often it's a question of making sure you get in the market when stocks have a lot of upward headroom and get out when they're overvalued, so you can leave others "holding the bag". That's just predatory speculation and nothing else. No, it's not doing a great job providing capital to those businesses, it's just meant to make a quick buck. It's no different from "hot money" chasing higher short-term returns on interest or currency arbitrage (aka, global carry trade).

This understates the risk that people take when they put money into stocks. You could get a 7%+ return if you invest for the long-term, i.e. 20 years, but most people don't have that kind of time horizon - you might need money in 5 years, or less, to afford the down payment on a new home. If you put your savings into stocks, there is a chance that when you withdraw money after 5 years, you will get back less than you invested. The higher expected return is compensation for downside risk - it's not an 'easy way' to multiply money, and that's exactly why the return is taken for granted.

Yeah, they benefit if those rich folks do create jobs. Just employing a couple of wealth managers doesn't quite have a meaningful impact on job creation, compared to greenfield investment. And the wealth that those asset managers build is, again, simply the result of speculation, not real-economy development. They tend to piggyback on the real economy, placing stocks bets.

The job creation and development of the real economy comes when businesses use cheap capital to invest in new projects. Asset managers are just one example of the types of jobs I was talking about. There are literally armies of lawyers, tax accounts, property managers, private bankers etc. who build their personal wealth by stewarding the wealth of others. These careers are tried-and-tested ways for the educated middle classes to move up in society.

I'm not sure about that. I'm pretty sure people before the 2008 crisis had much better access to credit and housing than people today. You could argue that that was the case because it was based on the wrong fundamentals, so it was unsustainable purchasing power that was based on lower barriers for access to credit.
I think the cost of housing is one of the biggest frustration of salaried people today. When you have to work for a wage, half of which will go to paying rent and another quarter to paying bills, you don't feel like you're doing that great as the apologists of the current system claim you're doing on paper.

Credit is pretty cheap nowadays so I don't know about that. Housing costs are definitely a problem, but they are mostly the result of heavy-handed government interference:

i) Regulation: Greenfield sites, height restrictions and general NIMBYism make it challenging to expand the housing stock, so that demand inevitably outpaces supply.
ii) Tax policy: Governments indiscriminately apply the same tax thresholds nationwide despite large regional differences in housing costs and living expenses. Introducing regional variations to national tax policies would go a long way towards correcting the affordability problem.

Increasing taxes never really solved structural issues anywhere. It's a bandaid solution to no structural problem. So what if governments can spend a bit more? It's not like the state is the biggest job creator or wealth creator. What people don't understand when they keep quoting "the Scandinavian model" is that those high taxes and free services are matched by a fierce local capitalism. You need to have something to tax, you need to find some excess fat in the economy that they can afford to lose. Swedish firms aren't communist cooperatives, that's not why Sweden is a highly developed state, it's because their private sector can actually still thrive on market-based dynamics, despite taxes being higher. My feeling is that this will not last for long. I know people from Sweden who want to leave the country and work somewhere else, precisely because they don't want to pay such high taxes that end up benefiting some Iraqis or gypsies that just moved in the country. They'd rather move to another country where taxes are lower and welfare is not such a high burden on public spending.

Agreed, especially on how misunderstood the Scandinavian model is.

Yep, that's what I've been arguing too. All this talk about "inequality" hides deep-seated envy and nothing else. It shouldn't even be a relevant subject for discussion that some people managed to accumulate more wealth than others. That's not the problem. If people had decent access to housing and could see profits effectively trickling down to employees inside the firm, not just theoretically in the consumption market, they wouldn't protest as much about the fact that some have accumulated more. It's their frustration with the current blockage that they experience in terms of housing prospects and income growth that frustrates them and makes them talk about inequalities.

Most of the wage stagnation of the last decade was fallout from the financial crisis. Now that the labour market is tightening we are finally seeing real wage growth catch up with the pre-crisis trend. The only developed economies in which this is not happening are basket-cases like Italy and Greece, i.e. debt-laden economies with restrictive labour markets and overbearing trade unions. The housing problem is essentially a problem of excessive taxes and regulation in densely populated urban centres where demand is outpacing supply - a system with less red tape on house-building and with regional tax variations would make housing a lot more affordable.

Like I was trying to say before, there is much less reason for pessimism than people like to think. I am absolutely sure that would people would not be so angry about the current state of the world were it not for the influence of social media and the 24-hour news cycle. We are living in exceptionally good times - truly, the world has never been safer, healthier, or more prosperous. Perhaps the only problem that's getting worse is climate change, but even on that front we are making progress. The case for redistribution and regulation just isn't robust in this environment. Reversing the policies of wealth-creation that have benefited us over the last decades would be the biggest act of self-harm we could inflict on ourselves at this time.

[Horsemen]

It's not like their wealth isn't growing,

It is like that

The collapse in median net worth in the last decade was due to the financial crisis. Although the latest data is sparse there is evidence that net worth is recovering towards pre-crisis levels. Although the middle classes' share of wealth is declining, they are almost certainly getting wealthier in absolute terms.

[spanky4ever]

Most of those stocks are overvalued, anyway, so nothing of value is lost. "Investors" are just chasing easy money wherever they can, just because they can. It's harder to make money taking the old route, of greenfield investment, actually taking time to grow a business and make it work. Nah, why should we wait for so long and take so many risks? Better just "invest" in stocks that you know will go up as long as the Fed or other central banks signal they're going to do whatever possible to avoid any "downward pressures". Where did those money that the Fed pumped in the economy after the 2008 crisis go? Into stocks, mostly. Making investment funds and banks richer. Middle class or blue collar peeps haven't really seen significant growth in purchasing power, even though officially the economy has kept growing. Not to mention that stock prices growth is not counted in GDP growth, but their owners have cashed out handsomely and used those gains in the real economy.

So, good riddance. Stocks investment is just another instance of casino capitalism. I understand the need that firms have to draw capital from markets, but the negative consequences far outweigh the benefits. Lots of hyped up startups have increased their "market valuation" through the roof even though they're basically just a glorified chat app that makes money from swindling users out of their private data without telling them, and selling that to advertisers. This has gone way way too far, so little wonder it's starting to unravel.

Elon Musk is starting to scowl at public investors, but that's what made him rich in the first place. If it weren't for the publicly listed Paypal golden goose, he would have been a nobody right now and Tesla wouldn't have existed. But now, when investors in Tesla are growing impatient with his spoiled boomer tantrums, suddenly money that were scentless until then start to stink.

You have some good points and some not so good points, but on the whole, nice post. I also think the stocks are overrated, in a big way, and what will make them come tumbling down again? See, that is the big questions not, cos its only a matter of time.
Personally, I have a deep respect for Elon Musk, he made teslas available in a way nobody has done when it comes to electric cars.

[spanky4ever]

how can the world prosper, and at the same time, we do not ruin the world we live in? what checks and balances do we need? THIS is what we are faced with, and this is the question, above every other question:idea: Corporate that, and you will be rich