Pyramid Scheme
In the three weeks following the Thanksgiving holiday in US, investors were subjected to a rough ride.
Some might call it frustrating. Others maddening. And still others don't bother themselves to fret over the vagaries of near-term oscillations in stocks, either because they're Warren Buffett (i.e., too rich to care about 10% here or there, but also too wise to care about ephemeral swings in a mercurial asset) or because they, like the majority of Americans, don't own any stocks to speak of. S
Nothing can stop Musk. Unless of course Powell tweets “Interest rates are too low imo”. Or people turn on Tesla for low quality and fake FSD.
Extrapolating an exponential trend is a poor way to predict the future. It will break and reverse, even if it looks unstoppable.
“It will break and reverse, even if it looks unstoppable.”
Like that riskless arb you were pitching here earlier this year.
As usual, your observations are spot on.
Like you, I sometimes wish for big things – world peace, for example. However, the hope that “our shared irrelevance will compel us…” will never occur.
As long as each individual can believe themselves to be better (off?) than others, they’ll be unwilling to level out the benefits of our society. How many of my upper middle class neighbors will only vote for the candidate who will lower their taxes. How many poor and lower middle class voters vote for the same candidates, for reasons that I cannot fathom.
People want to identify with the winners- not the losers. Few will ever recognize their irrelevance in the big picture, and fewer still will mind it. Instead, they will add the new gods to their list of Personalities, Teams, and Things to worship, and be happy in their church.
I wish it wasn’t true, but I believe you are spot on.
This being the Saturday before Christmas fare ( enjoying this Post…H ) . Have to add that what could upend this Status Quo is the Unknown .. The Glacial Pace of change we have talked about is always present and possibly could go into a sprint mode (relative pace) . History has supplied it’s share of surprises . IAs for me …I know fame is fleeting and the next best thing to playing and winning is playing and losing ( as goes the song ‘ Lucky one ‘ by Allison Krauss ).
Well, this is depressing . . .
Have there been previous historical periods with high wealth bifurcation followed by decreasing bifurcation? How did that happen?
(Serious, non-rhetorical question.)
Guillotine.
What Joey said, though trade unions worked too and were somewhat less violent – indeed, much of the violence was directed at them (see labor movements, XIX and early XX centuries)
Wealth without production (e.g. workers, robots) is not wealth. Imagine if all Amazon warehouse workers quit or all Tesla production workers walked off the job or people quit using Amazon services or buying Apple products. Imagine if politicians quit taking “bribes” from the truly rich. The nobility in Russia had all of the wealth in 1916; all that was needed to change that were some narcissistic Bolsheviks and a fed up population. Will egalitarian change or significant revolution occur in the US? Probably not.
Great post, sir. A few quick observations. Even as I edge towards eight figures, I know I am still irrelevant and what’s worse, I am vulnerable. I had my first really big vulnerability check in the April crash. It wasn’t pretty but I soon knew I was still going to stay comfortably solvent. Now I’m up nicely for the year, in spite of gifting more than half my income, so OK for now. I don’t know about other readers but first reading Harley Bassman’s postings on Convexity a few months back and then seeing his 2022 portfolio suggestions, I now realize that in spite teaching investments for some years and having written a text on the subject, in the land of the real players not only am I irrelevant but I am a rank amateur as well. To do what Bassman suggests one must be very rich to keep those hedged structures in a reasonably proportional context. If I were to try to hedge the coming crash I could easily be throwing away the other half of my income. The sad part about the “real” uber rich is they mostly don’t manage all that money. They all have stables of “people” for that. As you pointed out two guys with 3 billion aren’t necessarily the same. It’s really laughable watching the Donald trying to hang with these guys by fudging his data. He may be even more vulnerable than me. I own my assets, he doesn’t own much of anything except his name and that’s sinking fast. He’s never been exponential like Bezos or Buffett. One other thing that chart you posted shows the top 1% with 54% of the stock and the 50-90%thtle with just over 10%. The bottom 50% has mostly nothing so the missing piece is the 90+ to the 99th%tle. They apparently have the other 35%. I’ve noticed this wedge is virtually always omitted from these wealth imbalance charts. That group, it would seem, contains the “merely rich.” It’s a nice group to be in, but the vast majority of that group will never see exponential growth and would probably be wise not to over-lever, Then there’s the vulnerability factor. I’ll not soon forget the first time I lost 50k in a day. A real wedgie moment. Realizing how easy it was to come back — gone in a week — I followed Dr. Strangelove’s advice, stop worrying and learn to love the bomb. Now those moments just go by. The big problem for us irrelevants is to figure out what to put the new money in without being too stupid, especially at 77.
It’s nice to see you commenting again, Lucky One.
Jack Ma knows differently. Everything is different when it’s different.
World peace, I don’t see it till the gods die. Anyone going hungry on this planet is a shame and a failing of all politics and economy. I understand and agree with everything that you have written. That being said, most problems in America are actually luxury problems. Poverty in the US is not anything like it was in the 60s when America was great. Could a time come when the Titans understand what actually is in their best interest?
The minnows won’t learn because they are in the real sweet spot. Whales aren’t that hard to find if they open a hunting season. Ask Jack Ma.
Obsessing about one’s relative wealth, accompanied by billionaire envy, is not the road to happiness, which is essentially a state of mind. That said, a few laws of the universe come to mind, including exponential growth, consolidation and cyclicality (contradictory dialectic) – which suggests nothing is permanent. Even the top end of a pyramid, isn’t immune to gravity.
Is it billionaire envy or billionaire disgust?
Elon has decided that now is the time we should all live on Mars. He made that decision, not you, not me, and not anyone else.
That’s what kings do.
Agreed, I find the lack of democratic input worrying not just for Musk’s projects but also Gates’, Bezos’, the Koch brothers’ and even one/two billionaires who are funding lawyers to defend accused who would otherwise be forced/browbeaten into pleading guilty…
The problem is that I agree with 4 or 3 out of 5 of these guys’ visions and society seems uninterested in anything but 1, the worst one by a lightyear of the lot.
So what are we supposed to do when our democratic institutions are incapable of achieving anything of worth and purely maintain the status quo? I don’t like having Musk or Bezos as unelected shakers and movers but, if the alternative is never progressing…
Most of the wealth of the mega-wealthy is in unrealized capital (i.e., stock) gains. There are “simple” policy fixes to address that — tax stock portfolios annually based on mark-to-market, change the treatment of stock options, etc. — and while none of that seems possible in the current political environment, rapidly accelerating wealth inequality will not be ignored forever. That’s one of things people have in mind when they roll out Stein’s Law: things that can’t go one forever, won’t. (Just ask the 18th-century French aristocracy.)
Well, an article bemoaning how the upper-middle class will never catch up to the 1% speaks to your readership I’m sure.
For the general population:
Since the price of health care, education and housing has vastly outpaced wage growth during the last few decades and the wealthy have the ability to avoid paying their fair share in taxes — raising taxes on the ultra-wealthy, spending more money on helping the bottom 80% with the above-mentioned categories, and devoting more resources to tax enforcement makes sense to me.
I met a business school friend for coffee last weekend. He retired from a few decades of tech investment banking to manage his stock portfolio, a portion of which he day trades. His son just graduated from college and wants to work in high-tech sales (the modern equivalent of plastics). But while that might lead to being tomorrow’s Mark Benioff, it would require turning down a job offer from Goldman Sachs. Quite the dilemma.
I (clearly) don’t spend a lot of time hanging out with former classmates or investors, but leaving our coffee date I was struck by how money or more specifically aspirations of becoming even more wealthy appear to dictate every major family life decision (of which his son’s career dilemma is but one example). I was shocked that someone so wealthy (relative to me) should be so much a prisoner of their reflexive and unconscious desire for more.
“If you worship money and things — if they are where you tap real meaning in life — then you will never have enough … Worship your own body and beauty and sexual allure and you will always feel ugly, and when time and age start showing, you will die a million deaths before they finally plant you … Worship power — you will feel weak and afraid, and you will need ever more power over others to keep the fear at bay. Worship your intellect, being seen as smart — you will end up feeling stupid, a fraud, always on the verge of being found out.” [DFW, “This is Water”]
This also is a reflection of the increasing of concentration of wealth that leaves the “wealthy” feeling poor.
I’m consistently amazed by the ‘but you too have a chance be a god’ fallacy along with the knee jerk defensive position of the ‘sort of rich’ that the expanding plutocracy is proof meritocracy is alive and well.. The conceptual framework you are deconstructing is too painful for most to face, thus the prevalence of escapist and dismissive behavior. Kudos for having the passion and stamina to question the well established capital cult speak.
H_Man, but hasn’t this problem existed from the beginning of mankind? And doesn’t it always end the same way — the pyramid collapses at some point and the new pyramid builders show up. It could be something to do with our DNA.
This is the honest truth–I would much rather be me than be Elon Musk. I can walk around freely without being recognized or needing bodyguards. And I think he’s a dumbshit. Seriously–the present crop of financial gods–Musk, Bezos, Zuckerburg–these guys are intellectual and moral lightweights, no historical perspective, no vision. “I’m going to Mars”–the musing of morally bankrupt morons.
“To make the most of what is in our power, and take the rest as it occurs.”
Attributed to Epictetus, an ancient Greek stoic philosopher, who was born into slavery. So much of what we temporarily possess is not truly ours.
You can indulge in the usual daily condescension, unconsciously stereotyping every African American twentysomething who pulls up next to you at a traffic light playing music you can’t relate to (“God, please just turn green!”), debating how much is too much to give the Hispanic woman who details your SUV at the full-service carwash (“I mean, all I’ve got is a twenty. Obviously I can’t give her a twenty.”), writing off the fortysomething wearing a Trump hat in Walmart as irredeemable despite not knowing the first thing about him (“There’s the problem, right there.) and berating call center employees while simultaneously giving them backhanded compliments (“You said your name is Kimberly, right? Ok, well thanks for working on a Saturday night, Kimberly, and I know this isn’t your fault personally, but somebody has to explain to me why my cable was pixelated for seven minutes this afternoon. You do know Michigan was playing, right?).
I was a bit hurt there. You really think we’re all assholes?
More generally, though, I don’t see the bifurcation you describe as necessarily bad. Most humans throughout history are, regardless of wealth, irrelevant. I think we estimate the total number of humans having ever lived as 100B or so. How many does world history remembers? A thousands, a couple of thousands? Frankly, your odds of being remembered improved significantly if you kill a lot of people rather than get rich (who knows the name of that richest ever king of the Mali empire without googling? Genghis Khan need not be googled on the other hand…)
If everyone’s needs are being satisfied (and if we could educate people on the fact that lifestyles don’t really change between having, say, $15M and, say, $25M or between having, say $500M and having $1B), maybe it’d be okay to have a few Elon Musk-s?
We know what the future ought to look like (technology wise) – if you’ve read cyberpunk/near future sci fi. Metaverse, AR/VR, AGIs or ALIs, neurolinks, reversing senescence, fusion reactors, reversing climate change (either carbon scrapping or geo-engineering) maybe cybernetics, Mars terraformation and establishing stations in the main Belt… We know what the future looks like. We just have the slight technical problem(s) of getting it done. Especially sooner rather than later. Someone like Musk does seem important in pushing this agenda forward
I can’t speak for anyone else, but I don’t think we need even one king.
Since it’s our own economic system as we created it, we can make it whatever we want it to be.
We don’t need mega billionaires, at all. Not even one.
I don’t want Musk telling me that now is the time that I should go and live on Mars. He can go and f*** himself.
BTW, Musk hasn’t decided we should “all” live on Mars. I am pretty sure his vision doesn’t include forcing you (or indeed anyone else) to accompany him…
Read Ozymandias. No, really, read Ozymandius.
Thanks! Wasn’t aware of that poem and it’s a great one!
Today, we are but ants, and Elon is a god.
In 5 years time, due to exponential growth of his wealth but not ours, we will be bacteria. And maybe not even bacteria. Perhaps we will simply be molecules.
There’s a reason we created the antitrust laws in the first place. Otherwise today, all of us, including Elon, would be working for Cornelius Vanderbilt.
We have created a pyramid scheme, and it is high time to tear it down. We need to apply the existing antitrust laws and break up the Elon Monopoly.
While we are at it, we should also break up the Bezos Monopoly.
200 years ago or so we got rid of the last king. We don’t need any new kings. Let’s get our democracy back on track. Let’s restore the middle class to where it belongs.
It’s our economic system. We created it. We can make it whatever we want it to be.
Getting democracy back on track implies that we have to neutralize the king-makers…and they won’t go gently.
We can escape many things, but not human nature. For that we need to acknowledge it and look it squarely in the face, something humans as a whole have never done. Is it even possible? Can you envision the entirety of the world’s adult population meditating for 2 hours a day. Who would man the ramparts.