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Post No.: 0333assets


Fluffystealthkitten says:


Assets normally appreciate faster than wage rises do i.e. the rate of compensation for one’s labour doesn’t usually rise as fast as the value of investment assets that just sit there, often doing nothing else of utility (e.g. underused holiday homes). Assets can indeed depreciate so investing involves risk but the unit value of labour can fall too. So – although you can work to eventually obtain some assets like real estate and then let such assets do the ‘work’ for you – working, as in sweaty graft, won’t make you as rapidly richer as assets, investments or capital, which people can just inherit too, can. Inheriting capital can give people a huge initial advantage in life that just becomes an ever-greater advantage as their lives go by (unless they’re exceptionally profligate). This all bridges from Post No.: 0285 and how, generally speaking, the already-rich don’t need to work as hard or be as talented to get the same results.


Rich people can get richer from the appreciation of their assets rather than their extra talent, creativity, skill or effort i.e. not merit. So if you want to get rich – play the long game and save as much as you can and then invest in classically appreciating assets such as classic cars, property or art. It’s economically ‘wrong’ for the health of the economy overall (by doing so, you’re not increasing economic production so much as capturing economic rents – you’re just hoarding things and then waiting for them to appreciate in value, not producing things or jobs and creating value in the economy like that) but it’ll be in your own self-interests. (Investing in businesses rather than properties is therefore much more useful economically but is also riskier.) I’m not saying it’s morally right or wrong but that’s basically what super-rich people at least partly do.


Note that ‘wealth’ is income (what one earns) plus assets (what one already has e.g. tangible objects, land and properties, liquid money, shares, a pension fund, intangible insurance, pension rights and other rights). Assets also include ‘human capital’, such as one’s education – but most of one’s ‘social capital’ i.e. who one knows, not just what one knows (e.g. family support and networking circles for access to jobs or social positions) comes with one’s financial advantages in this world.


Investing in property assets doesn’t increase the productive capacity of an economy or invest in jobs and wages (e.g. buying a vintage piece of art isn’t increasing production in the economy, and it reduces joy in society too when a masterpiece is locked up in a free port somewhere where no one can enjoy it, in order for the buyer to avoid sales taxes and VAT). And if assets ‘earn’ more than working (you can only work so many hours per day but if you have multiple valuable assets then they can each ‘earn’ for you, opening up a potentially unlimited income stream that has less to do with hard work or talent i.e. most of the wealth held by people alive today is not due to the pure result of a meritocracy) then inequality (evidently) rises sharply, and not due to the talents or efforts of those with the assets but just because they were already asset rich.


The rich hoard many assets because they can afford to save and invest – if you only had £70 to live off each week then all of that must go into food and survival, not savings or shares; but if you had £10k to live off each week then maybe £140 of that goes into your living costs, maybe £300 could go on luxuries and entertainment, but you’re still left with well over £9k per week to save or invest. Therefore the rich get richer, and can take riskier investments and ventures too – well they’re risks for their money but not risks for their lives because they’re not gambling with their food and roof but their disposable income (unless they get too greedy).


It’s admittedly more complicated than this (e.g. people with large, under-utilised homes invested for their future pension funds) but with all of these under-utilised properties, how is it an efficient use of assets for the country overall when so many people are struggling to buy a home to live in (not merely as an investment) or even find an affordable place to rent? Well renting only makes the existing asset-rich even richer again because it’s mainly them who own these rental properties.


Note also that rich people only need and want to consume/spend so much per week typically, so if the wealth was more equally distributed in society (e.g. if everyone had a disposable income of £300 per week) then the economy will be significantly boosted via this extra spending potential per person. Poor people logically cannot spend any more because they’ve literally not got any more money to spend, and rich people will only spend so much of their money because they only need and want to eat so much, be entertained so much, etc.. Therefore if we want to boost the economy via consumer spending, we cannot blame the poor because they’re already spending about 100% of their income (some even need to go into debt) – we either demand the rich spend a larger percentage of their income, or tax them higher, where this tax money can be used by the public to directly invest in production and jobs, or be redistributed to the poor so that they can spend more in the economy, to boost the economy.


So it’s not that poor people are necessarily dim and don’t know how to make money work for them rather than them work for money – they just cannot afford to invest in long-term assets or risk any real amount on other investments because that money is needed for food, bills and other things to immediately survive on a daily basis. It takes the asset-poor a lot more time or effort to make an extra £1 than it does for the asset-rich. Of course it’s partly the case that talent gets you a higher income, and some entrepreneurs do get rich without a leg-up, but it’s even easier to inherit wealth or family connections to start your life with advantages, and then it becomes easier to get even richer once you’re already rich.


It’s difficult to double your money, whether from £10 to £20 or £1,000 to £2,000. You’d rather put your efforts into trying to double £1,000 than £10, but you’d need £1,000 to spare in the first place. One shouldn’t risk more than one is willing and able to lose too, so if a poor person wants to get rich then she/he will need to take quite irrational gambles. (And some do e.g. playing the lottery or casino games, for their chance to get rich, hence these games are said to exploit the poor.) The poor are rationally better off banding together to increase their economies and decrease their collective risk – which sounds a lot like socialism. Well hedge funds essentially do that by pooling capital from various sources!


Although, with a highly-paid job, one can eventually acquire a high value of assets, one should rather initially have a low-paid job but a high value of assets, than a high-paid job but low value in assets – because, as ascertained earlier, the rate of appreciation of assets is normally greater than the rate of appreciation of labour; and it’s even worse when wage rises stagnate and don’t even beat the rate of inflation. Jobs are insecure too.


If one can get a 5% appreciation/interest on assets/savings, when the growth in wages only rises by 1-2% in the same timeframe, then the already-asset-rich will get even richer over the years (e.g. if you have £1M and the interest rate is 5% then you can ‘earn’ an extra £50k without having to get out of bed! That’s exactly how many born-rich people get richer without having done a day’s work in their lives! Actually, even a 1% appreciation if you have £1M in assets will result in an extra £10,000 ‘earned’, which is easier ‘work’ than working. And the only difference here is being asset-rich or poor in the first place.


Even small differences in income or assets can create compounding effects over time (e.g. if person A earned just £1,000 more than person B per year then person A can save that entire £1,000 in an indexed financial product, for instance, and not touch it, and it’ll accrue compounding gains until the advantage over person B will become significant over the years). This is why the gender pay gap means so much more than what it seems (and in some cases it already seems bad)! How do we repay any discriminated group for their lost compounding interest?


So wealth from assets grows faster than income and accumulates faster in the hands of those who have a lot of wealth to start with. The more asset-rich you are, the faster your wealth can grow for doing no real productive work, then you can use the sales of your appreciated assets to buy even more lucrative, rare and greater-appreciating assets, etc., and get ever richer. How about investing in a piece of rare art, memorabilia or a classic car then sitting on your fuzzy gicker? Oh wait, only rich people can afford to invest in such exclusive pieces in the first place. Yes, markets and savings rates can crash. Investments can fall in value – but on aggregate and in the very long run, they don’t tend to (and I’ve been talking about already-rich people as a whole rather than any particular individuals). It’s also not a matter of hard graft so they shouldn’t be patronising about it in an ‘all you need to do is work harder’ kind of way(!) And value (spending power, or power itself) is always relative, not absolute, thus a rich person’s wealth, and power, rises relative to a poor person’s just because they were likely born with different initial advantages.


Indeed, it’s not just about an inequality of money but an ever-widening inequality of power – money, and therefore power, being concentrated ever more into the hands of a few. That’s why, even though some may argue that living standards have increased in absolute terms (adjusting for inflation) over the past 30 years for everyone overall – there’s the major problem of the gross imbalance of power, which is always relative, and so democracy is undermined. There are also negative psychosocial effects related to inequality (e.g. feelings of superiority/inferiority, being valued/unvalued, respected/disrespected). Status-insecurity leads to status-competition, which leads to greater consumerism and (superficial) social evaluative judgements (e.g. buying stuff, sometimes on credit, to try to ‘look like’ one of the wealthy).


A significant portion of ‘developed-world stress’ is due to perceived and real relative social status evaluations between people in a context of high inequality. (Stress is also transferred to a baby in the womb and after birth, so such a child will be already born disadvantaged in this way too!) One way to reduce these effects of power and social comparisons is to not worship the wealthy for simply being wealthy and to not heuristically apply the ‘halo effect’ to judge the wealthy as automatically being more clever, wise, trustworthy, physically attractive or whatever than other people. But it’s hard to fight our instincts, even when we know they evolved mainly during a time when social media and even money didn’t yet exist i.e. they’re not honed for this modern world.


Some rich people will attempt to dispute the logic that their ever-increasing wealth isn’t necessarily down to their hard work but because of their assets, for it’s in their political interests to do so (and they have enormous political influence too). But most people aren’t asset-rich, and in a democracy ‘the most’ should politically get their way…




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