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United States42778 Posts
On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn!  )
Those rules already get dodged all the time by accountants. Walmart sell the right to the name Walmart to company B which is a shell company which happens to be owned by the Walton family. Walmart operates as before but now licenses the brand Walmart from B for an annual fee that is negotiated by the two of them yearly. Walmart makes $10b but unfortunately has to pay $10b in license fees. B has no employees and gives out a dividend to the Walmart shareholders. Or better yet, a Walmart pays a $12b license fee, declares a loss and then uses that loss registered in this year to offset against future taxes.
This is literally the relationship between your national Starbucks franchise and Starbucks international, it's why Starbucks don't pay any tax on their profits.
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On April 25 2014 01:49 JonnyBNoHo wrote:Show nested quote +On April 25 2014 01:37 GreenHorizons wrote:On April 24 2014 23:18 JonnyBNoHo wrote:On April 24 2014 15:47 GreenHorizons wrote:On April 24 2014 15:26 JonnyBNoHo wrote:On April 24 2014 14:37 GreenHorizons wrote:On April 24 2014 11:48 JonnyBNoHo wrote:On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn! ) So then when walmart employing 2.1 million people and seeing $15billion profits, $7.5 billion from that year would be divided between the 2.1 million, granting them all a $3kish bonus that year. (Less than the $5k I said earlier but I'll backtrack on that - I think split in half is better and more achievable.) If the company had a negative year, then obviously no bonus - and maybe even downsizing. I also think this system would grant workers a feeling of if not ownership then accountability, where their collective efforts would directly correlate with their pay. And if I understand it correctly (and as would be my goal) it would alleviate the problem of return of investments being greater than the return of labor. But I might be mis-thinking some here. It's not unusual for a company to have a profit sharing plan. I think Walmart does to an extent as well. Typically that doesn't add a whole lot, and it kind of can't because you'd have to take it back in a down year, and employees generally don't want to be exposed to that kind of volatility. I'm not sure how you'd calculate a rate of return on labor. I imagine it would far exceed a rate of return on capital. I may be wrong but I think this is more or less what he is getting at. We can run a quick thought experiment. What is worth more, ones ability to labor or, ones access to capital? Let's have someone inherit $1 million and invest it all at once, while not spending any of the money or adding outside funds for 50 years at various interest rates (using a basic compound interest calculation). We will have someone else work full time for 50 years not spending or investing any money. + Show Spoiler +![[image loading]](http://i.imgur.com/aVE6Wy1.png) Looks pretty obvious to me that having capital is much more profitable than working. It might be a bit harder to see with a $1 million inheritance so here's the results for $5 million ![[image loading]](http://i.imgur.com/EzELjgg.png) If you inherit $5 million it's almost impossible to make less than the top of the labor field, for simply having an investment in your name (even if you never work a day in your life). Said another way. No matter how hard you work your labor will essentially never be more profitable than someone who inherits $5-10+ million. Some people think it's a bit ridiculous to think someone who never works a day in their life could 'make/earn more money' than the most skilled laborers in the world. I guess some prefer it that way? Apples to oranges math. One is compounding, the other isn't. You can't have one side compound and the other not, when both sides have access to compounding. Not to mention that you should be getting a raise after 25 years. Seriously... Labor doesn't compound... And if you think the laborer investing will close the gap more than allowing the investor to labor it just reaffirms the original point. As for the raise the logical presumption is that they wouldn't make $300,000 for 50 years (that would put a 20 y.o. neurosurgeon at 70 yo still practicing)either. I figured you guys would have the sense to realize most people would probably be in between 2 salaries maybe 3 over a 50 year career. So calculating the raises would actually skew most of the wage numbers lower not higher. 50k is probably the most representative number as even if you end up making over 100k a year, chances are you didn't spend 50 years there. When you think about the years spent earning a lower annual salary it would probably average out closer to 50-75 k #'s. The 20 and 30k numbers are primarily to illustrate how someone who is too 'lazy' to get better employment or too 'ignorant' to invest, compares to a 'trust fund baby' who 'earns' their money while potentially never working a day in their life. You're assuming the first person saves 100% of their money and reinvests 100%. You're then assuming the second person saves 100% of their money, but invests 0% of it. Apples to oranges and atypical of real life. A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. And yes, having a $1mm inheritance is better from a financial standpoint than not having one. You don't need excel to prove that  Your critique is pointless? A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. What? How do you figure? $1,000,000 * 5% = $50,000 per year. $50,000 should be treated the same (i.e. used the same way) when making your comparison, otherwise you're looking at the difference between how the money is used, rather than where it comes from.
Well if I did that I would have to adjust the investors numbers to reflect them earning an income outside of the investment otherwise I would be giving the laborer two sources of revenue and the investor only one. The idea was to compare 'pure' investment vs 'pure' work.
You have admitted that investing $1m alone (with inherited [individually unearned] wealth)will yield more than work alone in the vast majority of cases. By increasing it to a $5m inheritence, you see that it is virtually impossible to out 'earn' someone who starts so far ahead, regardless of your personal (economic) decisions.
That was the entire point of the experiment.
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On April 25 2014 02:12 GreenHorizons wrote:Show nested quote +On April 25 2014 01:49 JonnyBNoHo wrote:On April 25 2014 01:37 GreenHorizons wrote:On April 24 2014 23:18 JonnyBNoHo wrote:On April 24 2014 15:47 GreenHorizons wrote:On April 24 2014 15:26 JonnyBNoHo wrote:On April 24 2014 14:37 GreenHorizons wrote:On April 24 2014 11:48 JonnyBNoHo wrote:On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn! ) So then when walmart employing 2.1 million people and seeing $15billion profits, $7.5 billion from that year would be divided between the 2.1 million, granting them all a $3kish bonus that year. (Less than the $5k I said earlier but I'll backtrack on that - I think split in half is better and more achievable.) If the company had a negative year, then obviously no bonus - and maybe even downsizing. I also think this system would grant workers a feeling of if not ownership then accountability, where their collective efforts would directly correlate with their pay. And if I understand it correctly (and as would be my goal) it would alleviate the problem of return of investments being greater than the return of labor. But I might be mis-thinking some here. It's not unusual for a company to have a profit sharing plan. I think Walmart does to an extent as well. Typically that doesn't add a whole lot, and it kind of can't because you'd have to take it back in a down year, and employees generally don't want to be exposed to that kind of volatility. I'm not sure how you'd calculate a rate of return on labor. I imagine it would far exceed a rate of return on capital. I may be wrong but I think this is more or less what he is getting at. We can run a quick thought experiment. What is worth more, ones ability to labor or, ones access to capital? Let's have someone inherit $1 million and invest it all at once, while not spending any of the money or adding outside funds for 50 years at various interest rates (using a basic compound interest calculation). We will have someone else work full time for 50 years not spending or investing any money. + Show Spoiler +Looks pretty obvious to me that having capital is much more profitable than working. It might be a bit harder to see with a $1 million inheritance so here's the results for $5 million If you inherit $5 million it's almost impossible to make less than the top of the labor field, for simply having an investment in your name (even if you never work a day in your life). Said another way. No matter how hard you work your labor will essentially never be more profitable than someone who inherits $5-10+ million. Some people think it's a bit ridiculous to think someone who never works a day in their life could 'make/earn more money' than the most skilled laborers in the world. I guess some prefer it that way? Apples to oranges math. One is compounding, the other isn't. You can't have one side compound and the other not, when both sides have access to compounding. Not to mention that you should be getting a raise after 25 years. Seriously... Labor doesn't compound... And if you think the laborer investing will close the gap more than allowing the investor to labor it just reaffirms the original point. As for the raise the logical presumption is that they wouldn't make $300,000 for 50 years (that would put a 20 y.o. neurosurgeon at 70 yo still practicing)either. I figured you guys would have the sense to realize most people would probably be in between 2 salaries maybe 3 over a 50 year career. So calculating the raises would actually skew most of the wage numbers lower not higher. 50k is probably the most representative number as even if you end up making over 100k a year, chances are you didn't spend 50 years there. When you think about the years spent earning a lower annual salary it would probably average out closer to 50-75 k #'s. The 20 and 30k numbers are primarily to illustrate how someone who is too 'lazy' to get better employment or too 'ignorant' to invest, compares to a 'trust fund baby' who 'earns' their money while potentially never working a day in their life. You're assuming the first person saves 100% of their money and reinvests 100%. You're then assuming the second person saves 100% of their money, but invests 0% of it. Apples to oranges and atypical of real life. A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. And yes, having a $1mm inheritance is better from a financial standpoint than not having one. You don't need excel to prove that Your critique is pointless? A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. What? How do you figure? $1,000,000 * 5% = $50,000 per year. $50,000 should be treated the same (i.e. used the same way) when making your comparison, otherwise you're looking at the difference between how the money is used, rather than where it comes from. Well if I did that I would have to adjust the investors numbers to reflect them earning an income outside of the investment otherwise I would be giving the laborer two sources of revenue and the investor only one. The idea was to compare 'pure' investment vs 'pure' work. You have admitted that investing $1m alone (with inherited [individually unearned] wealth)will yield more than work alone in the vast majority of cases. By increasing it to a $5m inheritence, you see that it is virtually impossible to out 'earn' someone who starts so far ahead, regardless of your personal (economic) decisions. That was the entire point of the experiment.
Like I said, you don't need excel to show that having $5mm is better than having $0
Edit: Also, in your original analysis you gave the investor two sources of income - a return on original capital and a return on savings. You only gave the laborer a return on work, and not on savings.
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On April 25 2014 01:47 RvB wrote:Show nested quote +On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:
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"Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:
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Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional.
On April 25 2014 00:18 JonnyBNoHo wrote:Show nested quote +On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:On April 24 2014 18:28 WhiteDog wrote:
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The starting phrase is so not convincing lol (America, pacific ? Really...). Japan getting back its military can become a problem for the stability of the region in the long run, considering the remnant of their imperialists "tendancies". "Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:On April 24 2014 20:01 WhiteDog wrote:
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That's a good question, I don't recall how to evaluate the rate of return on a washing machine (I've read something who did that so that's why I talked about it).
But just saying your evaluation is wrong, you need to evaluate not the time you would lose by doing it, but the cost of washing your laundry by someone else, most of the time in pound, and it's way less than 10$. Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter?
Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity.
The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question.
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On April 25 2014 02:31 WhiteDog wrote:Show nested quote +On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:
[quote]
Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation.
[quote]
You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. Show nested quote +On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:
[quote]
"Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:
[quote]
Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question.
You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI.
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On April 25 2014 02:46 JonnyBNoHo wrote:Show nested quote +On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:
[quote]
I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly.
The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments.
I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:
[quote]
Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation.
[quote]
You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI.
Who said anything about beating the market ? Also, you keep talking about finance, but finance is 10% of GDP.
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On April 25 2014 02:31 WhiteDog wrote:Show nested quote +On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:
[quote]
Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation.
[quote]
You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. Show nested quote +On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:On April 24 2014 20:49 kwizach wrote:
[quote]
"Pacific" with a capital "P", as in the ocean :-) Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation. On April 24 2014 20:29 Crushinator wrote:
[quote]
Well it is oversimplified, but there are search costs and transaction costs and transportation costs involved in having someone else do it, you would also need to account for the fact that washing machines take up space which also has a value, etc etc.. In any case I would think a washing machine is a pretty high return investment, and the reason joe the plumber makes less return on his investments is due to the factors I mentioned before. Also the fact that lower incomes spend relatively more of their income on consumption fits in there somewhere. You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question.
Its important to understand that some funds include as many assets as they can possibly conceive of, not just stocks and bonds. Though they are in the form of financial derivatives, it does not functionally matter if you own an actual farm somewhere or not if you have claims to the returns on farm goods included somewhere in your portfolio. I'm not actually a portfolio management expert, but I do believe this is how it works. In reality poor people obviously don't have equal access to these funds, usually flat fees must be paid aswell as a percentage that decreases as you put more money into it.
Your other point I have no objection to, being rich is pretty sweet.
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On April 25 2014 02:13 JonnyBNoHo wrote:Show nested quote +On April 25 2014 02:12 GreenHorizons wrote:On April 25 2014 01:49 JonnyBNoHo wrote:On April 25 2014 01:37 GreenHorizons wrote:On April 24 2014 23:18 JonnyBNoHo wrote:On April 24 2014 15:47 GreenHorizons wrote:On April 24 2014 15:26 JonnyBNoHo wrote:On April 24 2014 14:37 GreenHorizons wrote:On April 24 2014 11:48 JonnyBNoHo wrote:On April 24 2014 11:39 Liquid`Drone wrote:Like say, they implemented a rule saying that worker wages would increase proportionally to company profits or something? Like there could be a fairly low minimum wage which would be of the "barely scraping by" kind (where it currently is) and then there'd be an extra wage determined by company profits, and then you could say that company profits would be split in two, half evenly divided to the workers through this bonus system whereas the rest was returned to investors or retained by the company or how that really works. (I have no background in economics but am eager to learn! ) So then when walmart employing 2.1 million people and seeing $15billion profits, $7.5 billion from that year would be divided between the 2.1 million, granting them all a $3kish bonus that year. (Less than the $5k I said earlier but I'll backtrack on that - I think split in half is better and more achievable.) If the company had a negative year, then obviously no bonus - and maybe even downsizing. I also think this system would grant workers a feeling of if not ownership then accountability, where their collective efforts would directly correlate with their pay. And if I understand it correctly (and as would be my goal) it would alleviate the problem of return of investments being greater than the return of labor. But I might be mis-thinking some here. It's not unusual for a company to have a profit sharing plan. I think Walmart does to an extent as well. Typically that doesn't add a whole lot, and it kind of can't because you'd have to take it back in a down year, and employees generally don't want to be exposed to that kind of volatility. I'm not sure how you'd calculate a rate of return on labor. I imagine it would far exceed a rate of return on capital. I may be wrong but I think this is more or less what he is getting at. We can run a quick thought experiment. What is worth more, ones ability to labor or, ones access to capital? Let's have someone inherit $1 million and invest it all at once, while not spending any of the money or adding outside funds for 50 years at various interest rates (using a basic compound interest calculation). We will have someone else work full time for 50 years not spending or investing any money. + Show Spoiler +Looks pretty obvious to me that having capital is much more profitable than working. It might be a bit harder to see with a $1 million inheritance so here's the results for $5 million If you inherit $5 million it's almost impossible to make less than the top of the labor field, for simply having an investment in your name (even if you never work a day in your life). Said another way. No matter how hard you work your labor will essentially never be more profitable than someone who inherits $5-10+ million. Some people think it's a bit ridiculous to think someone who never works a day in their life could 'make/earn more money' than the most skilled laborers in the world. I guess some prefer it that way? Apples to oranges math. One is compounding, the other isn't. You can't have one side compound and the other not, when both sides have access to compounding. Not to mention that you should be getting a raise after 25 years. Seriously... Labor doesn't compound... And if you think the laborer investing will close the gap more than allowing the investor to labor it just reaffirms the original point. As for the raise the logical presumption is that they wouldn't make $300,000 for 50 years (that would put a 20 y.o. neurosurgeon at 70 yo still practicing)either. I figured you guys would have the sense to realize most people would probably be in between 2 salaries maybe 3 over a 50 year career. So calculating the raises would actually skew most of the wage numbers lower not higher. 50k is probably the most representative number as even if you end up making over 100k a year, chances are you didn't spend 50 years there. When you think about the years spent earning a lower annual salary it would probably average out closer to 50-75 k #'s. The 20 and 30k numbers are primarily to illustrate how someone who is too 'lazy' to get better employment or too 'ignorant' to invest, compares to a 'trust fund baby' who 'earns' their money while potentially never working a day in their life. You're assuming the first person saves 100% of their money and reinvests 100%. You're then assuming the second person saves 100% of their money, but invests 0% of it. Apples to oranges and atypical of real life. A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. And yes, having a $1mm inheritance is better from a financial standpoint than not having one. You don't need excel to prove that Your critique is pointless? A $1mm inheritance at 5% would generate you the same income as a $50K / year job. You should only be compounding that $50K to the extent that it is saved and invested, an option available to both the trust fund baby and the worker. What? How do you figure? $1,000,000 * 5% = $50,000 per year. $50,000 should be treated the same (i.e. used the same way) when making your comparison, otherwise you're looking at the difference between how the money is used, rather than where it comes from. Well if I did that I would have to adjust the investors numbers to reflect them earning an income outside of the investment otherwise I would be giving the laborer two sources of revenue and the investor only one. The idea was to compare 'pure' investment vs 'pure' work. You have admitted that investing $1m alone (with inherited [individually unearned] wealth)will yield more than work alone in the vast majority of cases. By increasing it to a $5m inheritence, you see that it is virtually impossible to out 'earn' someone who starts so far ahead, regardless of your personal (economic) decisions. That was the entire point of the experiment. Like I said, you don't need excel to show that having $5mm is better than having $0 Edit: Also, in your original analysis you gave the investor two sources of income - a return on original capital and a return on savings. You only gave the laborer a return on work, and not on savings.
It's not that having $5mm is better, It's that having $5mm means without doing a day of work in your life you 'earn' more than the hardest working people in the country, a pretty important distinction.
Just to appease, I did the math for the laborer who invests.
To illustrate my point I used someone making $50k for the first 25 years and $75k for the second 25 years. I had them invest 100% of their income every month into a 5% compounding investment.
After 25 years
$1m Inheritor: $2.39m 50k Laborer: $3.64m ($4167 per month)
$5m Inheritor: $11.93
Next 25 years
$1m Inheritor: $8.09m 75k Laborer: $9.27m ($6250 per month)
$5m Inheritor: $40.4m
Total 'earned' after 50 years
$1m Inheritor: $10.48m ($13m if they invest an additional $1k per month) 75k Laborer: $13m
$5m Inheritor: $52.33
So what you see there is even with working full-time and investing 100% of their income, someone making less than $75k for 50 years is barely making more money than someone simply born into $1m (investing $1k a month by the inheritor renders this false). You can also see how a $5m inheritance means you don't have to work a day in your life to generate more income than most of the hardest working Americans.
Keep in mind were comparing incomes of someone working full-time and investing 100% of their income to someone who never works a day in their life. (Also the 50 year # doesn't include the original capital for the inheritor.)
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On April 25 2014 02:46 JonnyBNoHo wrote:Show nested quote +On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:
[quote]
I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly.
The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments.
I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:On April 24 2014 21:04 WhiteDog wrote:
[quote]
Ho my god thanks didn't understand that. It's funny because when we talk about america, we say they are an atlantic nation so It never crossed my mind it is also a Pacific nation.
[quote]
You are mixing opportuinity costs and actual cost. The rate of return associated with the utilisation of a specific machine is evaluated by the utility gain, expressed in monetary terms. And the best evaluation for that is the market value of the service. Note that you must also take into consideration the fact that using your washing machine is not cost free (electricity, water). I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly. The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments. I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI.
You are absolutely wrong. It is extremely easy to beat the market in the long term, assets that have higher expected returns than the market return, but have more volatility are actually plentiful. This is basic stuff. As long as you are willing to bear more systemic risk, as in you design a portfolio with a beta greater than 1, you will beat the market in the long run.
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On April 25 2014 02:57 Crushinator wrote:Show nested quote +On April 25 2014 02:46 JonnyBNoHo wrote:On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:
[quote]
Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value....
I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:
[quote]
I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly.
The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments.
I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI. You are absolutely wrong. It is extremely easy to beat the market in the long term, assets that have higher expected returns than the market return, but have more volatility are actually plentiful. This is basic stuff. As long as you are willing to bear more systemic risk, as in you design a portfolio with a beta greater than 1, you will beat the market in the long run.
"Beating the market" usually mean predicting the evolution of the market and acting accordingly - this is impossible (at least in theory). Having more than average rate of return is not "beating the market" strictly speaking.
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On April 25 2014 03:20 WhiteDog wrote:Show nested quote +On April 25 2014 02:57 Crushinator wrote:On April 25 2014 02:46 JonnyBNoHo wrote:On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:
[quote]
Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low.
The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:
[quote]
Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value....
I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI. You are absolutely wrong. It is extremely easy to beat the market in the long term, assets that have higher expected returns than the market return, but have more volatility are actually plentiful. This is basic stuff. As long as you are willing to bear more systemic risk, as in you design a portfolio with a beta greater than 1, you will beat the market in the long run. "Beating the market" usually mean predicting the evolution of the market and acting accordingly - this is impossible (at least in theory). Having more than average rate of return is not "beating the market" strictly speaking.
Unless my reading comprehension has really failed me, this is not actually what he meant.
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On April 25 2014 02:57 Crushinator wrote:Show nested quote +On April 25 2014 02:46 JonnyBNoHo wrote:On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:
[quote]
Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value....
I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:
[quote]
I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly.
The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments.
I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI. You are absolutely wrong. It is extremely easy to beat the market in the long term, assets that have higher expected returns than the market return, but have more volatility are actually plentiful. This is basic stuff. As long as you are willing to bear more systemic risk, as in you design a portfolio with a beta greater than 1, you will beat the market in the long run.
Sorry, I was referring to alpha not beta. Beat the market on a risk adjusted basis is what I should have said. Yes you can shoot for a higher beta / add leverage, but that's risky.
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On April 25 2014 03:25 JonnyBNoHo wrote:Show nested quote +On April 25 2014 02:57 Crushinator wrote:On April 25 2014 02:46 JonnyBNoHo wrote:On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:
[quote]
Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low.
The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:
[quote]
Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value....
I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI. You are absolutely wrong. It is extremely easy to beat the market in the long term, assets that have higher expected returns than the market return, but have more volatility are actually plentiful. This is basic stuff. As long as you are willing to bear more systemic risk, as in you design a portfolio with a beta greater than 1, you will beat the market in the long run. Sorry, I was referring to alpha not beta. Beat the market on a risk adjusted basis is what I should have said. Yes you can shoot for a higher beta / add leverage, but that's risky.
Well, yes, you theoretically cannot hold a portfolio with less volatility and the same expected return as the market. Though holding the market portfolio is ofcourse also risky.
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On April 25 2014 02:47 WhiteDog wrote:Show nested quote +On April 25 2014 02:46 JonnyBNoHo wrote:On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:
[quote]
Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value....
I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:On April 24 2014 22:13 WhiteDog wrote:On April 24 2014 22:09 Crushinator wrote:
[quote]
I'm not confusing opportunity costs with actual costs, there is no actual difference. Engaging in any transaction, costs you resources, the time and energy it costs you to do deal with the other party for example, as does finding the person to transact with. You presumably also need to transport the goods to the person who will wash them. There is also a cost associated with loss in flexibility from having to deal with the business hours of the person who washes. These costs are hard to quantify but nevertheless relevant in a washing maching purchase decision, they give you utility, but also can be argued to have a monetary value since your time and energy can be put to more productive use, and neither can be observed directly.
The same is true for financial market transactions, or any other transaction. And a large part of the reason why joe the plumber does not go for higher return financial investments.
I would also like to note that Utility is never expressed in monetary terms, and is usually an ordinal ranking system. Money can be used as a proxy for utility, rather than as a direct expression, spending tells you something about preferences. Money itself has utility for any individual but it is not directly proportonal to the amount, utility gain from money has diminishing marginal returns. Utility is never expressed in monetary gain, that is why I said utility gain for the service or marginal utility if you will, and of course there is a difference between opportunity cost and actual cost... Opportunity costs explain the choice you make, actual costs are just market value.... I'm writing on my phone so i can't really develop. Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low. The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI. Who said anything about beating the market ? Also, you keep talking about finance, but finance is 10% of GDP.
I'm referring to any investment you can make.
By 'beating the market', I mean above average returns for a given level of risk.
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On April 25 2014 03:29 Crushinator wrote:Show nested quote +On April 25 2014 03:25 JonnyBNoHo wrote:On April 25 2014 02:57 Crushinator wrote:On April 25 2014 02:46 JonnyBNoHo wrote:On April 25 2014 02:31 WhiteDog wrote:On April 25 2014 01:47 RvB wrote:On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:
[quote]
Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision.
You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Yeah I don't get this either. There are so many different kind of funds and tools at everyone's disposal to compare them (morningstar) everyone can diversify. Thx for that graph on US mortgages btw Johnny I had no idea fixing a mortage for 30 years was even possible. Over here more than 10 years fixed is exceptional. On April 25 2014 00:18 JonnyBNoHo wrote:On April 24 2014 23:51 WhiteDog wrote:On April 24 2014 23:28 JonnyBNoHo wrote:On April 24 2014 23:15 WhiteDog wrote:On April 24 2014 22:41 Crushinator wrote:
[quote]
Ok, well, I suppose part of the reason I bring this up is that it doesn't make much sense to compare the market value of a washing machine investment to investments in the stock market. A large part of a washing machine purchase decision is based on household level utility gains that can't quite be expressed in the same way as returns on stocks, for practical reasons. But there isn't a reason to assume that the monetary return is low.
The washing machine decision is a nice analogy for differences in financial investment decisions, between average households and the super wealthy and financial institutions. Things that matter to joe the plumber are not a consideration for the other groups. Well, not pushing the metaphore too far in the microeconomic side, what I wanted to point out is that the more you have the more you get, which naturally tend to push to a situation of over concentration of accumulated wealth. It's not only a question of decision. You completly overlooked the idea of portfolio diversification, as of today one of the core of any risk management models. If you invest 10 000 $ in a business that gives you a 6% ROI but that same business crash itself, you lose your investment for a big part. When you have a big portfolio, you can not only diversificate your investments, and thus reducing the risk, but you can also pay various agents who would support the risk in your place. All this puts you in a situation where your actual ROI is just higher than most. The same kind of phenomenon appears if you take into consideration the system of shareholders, or the idea of lobbying and any kind of rent seeking behavior. So basically, the more you have, the more you are in a situation to actually assure yourself from any kind of risk and put yourself in a situation of rent. A small investor can have a diversified portfolio pretty easily. Comparing the ROI for a small and large investor would be a bit tricky without real data. A small investor would have somewhat higher transaction fees. A large investor can have a harder time getting a good price on buys and sells for large orders and faces higher tax rates. I'm not sure how that nets out, but it could very well be in favor of the small investor. Not in the same way... We got empirical data - Piketty's work - and most of the things I've said have been defended by Stiglitz in the price of inequalities. Can you explain what you mean? I can go buy an index fund or mutual fund pretty ezpz. Does "not in the same way" matter? Sure you can buy index fund or mutual fund, but that kind of financial scheme usually only gives average return from my understanding. When I talk about diversification I'm talking about it in the strict sense, buying bonds or financial goods, but also various type of assets (not only finance...) and to do that you need a substantial amount of liquidity. The idea of transaction costs is also compelling (like crushinator said) but what I think is one of the most compelling argument against inequalities here is Stiglitz's argument that with enough capital you have access to the board of direction, you can directly influence the policies, you have also enough power to lobby for your cause, start rent seeking, etc. It's all those behavior that are in question. You want to hit average returns. It's really exceptional to beat the market over the long run and trying to beat it usually makes you worse off (greater returns offset by higher management fees). You can do things like hold long term assets directly, but then you're exposing yourself to liquidity risk, which isn't a free lunch either. Meanwhile you're paying higher taxes which lowers your after-tax ROI. You are absolutely wrong. It is extremely easy to beat the market in the long term, assets that have higher expected returns than the market return, but have more volatility are actually plentiful. This is basic stuff. As long as you are willing to bear more systemic risk, as in you design a portfolio with a beta greater than 1, you will beat the market in the long run. Sorry, I was referring to alpha not beta. Beat the market on a risk adjusted basis is what I should have said. Yes you can shoot for a higher beta / add leverage, but that's risky. Well, yes, you theoretically cannot hold a portfolio with less volatility and the same expected return as the market. Though holding the market portfolio is ofcourse also risky.
Yep, no argument from me
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I am appalled by what Bundy said about 'the negro' but I couldn't help but notice how far left he is when it comes to Mexican immigration.
I've decided after this I am happy Bundy got the attention he did. He said what so many Republicans/Conservatives think but rarely admit. As result he forced people like Reince Priebus to say "Bundy's comments are completely beyond the pale. Both highly offensive and 100% wrong on race."which generally alienates the people who the 'dog whistles' are for.
When he said that Mexican families work, pay taxes, and have better families than most white people I had to pick my jaw up off of my keyboard. I have always suspected when you asked actual farmers/ranchers about Mexican immigration that their opinions would differ from their local peers. This gives me more reason to suspect so.
Oh man I'm listening to Hannity and it is almost too funny. Bundy is going to be really confused when he realizes that everyone left because of his negro comments and not his Mexican comments.
Looking at the rhetoric and ideas coming out of the people who generally supported Bundy. I would presume his second comment would be more inflaming to that group than his 'negro' comments but perhaps I''m wrong
It would be interesting to hear from some of the militia men that were/are? defending Bundy.
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Thomas Piketty is not the anti-capitalist radical that his critics fear.
"The market economy," he tells me at the bar of the St Regis Hotel in downtown Washington, DC, "is a system that has a lot of merit." (The location was chosen by the publicist for the English edition of his book; she admitted to me that perhaps it was a little too "top one percent," but it fit everyone's schedule nicely.)
Piketty is very French, with several buttons on his shirt undone, a fairly thick accent, and a Bourdieu reference ready to drop in response to a question about whether economists overemphasize mathematical models over empirical analysis. His book, Capital in the 21st Century (see our short guide), is being widely hailed as the most important economics volume of the decade and this week became the top-selling book on Amazon. It provides intellectual heft for some of the activist energy around Occupy Wall Street and other efforts to advance a post-Obama left-wing politics. Its core thesis is that capitalism, if left untamed, suffers from a fundamental flaw and will inevitably lead to a growing concentration of economic power into the hands of those lucky enough to inherit large sums of wealth from their parents, a state Piketty calls "patrimonial capitalism."
National Review and The Nation rarely agree on much, but both the right-wing and the left-wing magazines have reviewed Piketty as part of a revival of Marxist thinking.
It's probably no coincidence that Americans see Piketty — a professor at École des hautes études en sciences sociales — as more left-wing than he sees himself. The French political debate is considerably broader than the American one (I recall a dinner a few years back at which a senior member of what's considered the moderate wing of France's currently-in-power Socialist Party told the room that the problem with American Democrats is they don't see the need to "transcend capitalism entirely.") So the view that capitalism should be tempered by a top tax rate of 80 percent on wage income supplemented by a modest tax on net wealth is not necessarily a radical viewpoint there. During our conversation he expressed admiration for the "responsible" attitude of German labor unions toward the needs of the firms they work for, presumably in contrast to the counterproductively militant attitudes of French labor.
Indeed, he is at pains to stress that he's not even really a madcap tax raiser or an enemy of wealth accumulation. "My point," he says, "is not to increase taxation of wealth. It's actually to reduce taxation of wealth for most people."
Source
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Taking economic lessons from the French. Good god America is truly doomed.
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Yeah a nut. The whole story exposed both BLM's motivations and procedure to ridicule, just as any police response can be evaluated regardless of the offender. At least this guy's a rancher and not the leader of the Senate, the other one saying some deeply disturbing things.
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EPT
