Tag Archives: money

The rich stay richer and the poor stay poorer (now with data to back this up)

I was impressed by this study of economic mobility over many generations in Florence: What’s your (sur)name? Intergenerational mobility over six centuries | VOX, CEPR’s Policy Portal. They make a good case that the richer families stay richer and the poorer families stay poorer regardless of the many other changes that occur in an area.To add to this, VOX reviews it and also references a study done in Sweden that finds something similar (Today’s rich families in Florence, Italy, were rich 700 years ago – Vox).

It’s depressing, but not surprising to me. I suspect that while individuals may rise and fall in terms of economic mobility, specific families work to insure that the wealth acquired is maintained through marriage and inheritance. Worse, conditions for poorer families are such that they can never acquire enough wealth to move them from the lower percentile to a higher one.

What companies mean when they say money is offshore

When you hear of companies like Apple having their money offshore, you might imagine piles of gold bullion or paper bills sitting in a physical bank somewhere in Switzerland or Ireland. More likely that money is residing in one of the big banks head-quartered somewhere in the United States. (For that matter, it is likely residing as so many numbers in a computer run by one of these banks and not piles of paper or gold.)

The Times and Slate explain it here: For U.S. Companies, Money ‘Offshore’ Means Manhattan – The New York Times and Offshore accounts not actually offshore.

Why Bankers Want Rate Hikes

It looks like the Fed in the US is going to raise rates. It is highly arguable whether it is a good idea. For a long time, it was a bad idea. Despite that, commercial banks recently have been arguing for the Fed to raise rates.  Now whatever reasons they have been given, the true and underlying reason is mentioned here:  Why Bankers Want Rate Hikes – The New York Times.

It is more difficult for banks to make money with lower rates. Higher rates make it easier for them to make money. Hence the push by some of them to raise the rates.

Banks aren’t stupid: they don’t want the economy to tank: they don’t make money that way either. But the sooner rates rise, the easier it is for them. Here’s hoping the US Fed continues to be smart enough to resist the pressure and do the right thing for the American economy.

 

Janet Yellen, Forecasting Ace

I didn’t expect a positive review of Janet Yellen in the wsj, but this piece, linked to below, is really positive. Here’s a sample:

Steering central bank policy depends more than anything on assessing where the economy is heading. Yet, central bankers, surprisingly, are seldom picked for their forecasting acumen. More often they are former public servants, bankers or academics.

Then there is Janet Yellen.

Her forecasts as a Fed official have been strikingly accurate, as the release of 2009 transcripts to the Fed’s deliberations make clear. If she worked on Wall Street, she’d be a “hot hand.” This does not mean as chairwoman she is necessarily right; but it does suggest her forecasts deserve the benefit of the doubt.

via Janet Yellen, Forecasting Ace – Real Time Economics – WSJ. A really good piece.

The Performance of Many Hedge Funds Comes Down to Owning *ONE* company

The one company? Apple. How dependent are the hedge funds? According to Bloomberg Business:

A group of companies representing the most popular long positions for hedge funds is up just 0.2 percent in 2015, compared to a 2.3 percent gain for the Standard & Poor’s 500 Index, data compiled by Goldman Sachs show. A 19 percent year-to-date increase for Apple, which is owned by one in every five hedge funds and is a top-10 position for 12 percent of them, has provided a needed boost, the firm said.

That’s a bad thing. A similar thing happened in Canada when fund managers held large holdings in companies like Nortel and RIM. It didn’t end well.

For more, see this: The Performance of Many Hedge Funds Just Comes Down to Owning Apple – Bloomberg Business.

Piketty Explained (by someone other than me. Also more prodding from me to get you to read it

 

I wrote about Piketty’s Capital in the Twenty-First Century here and here. As I said, I strongly encourage you to read it and take notes.

If you want a great summary of the book, I highly recommend this post: Piketty Explained: Summary of Capital in the Twenty-First Century by Thomas Piketty.

It’s superb. Peter Shirley, the author, has written  a 30 second summary and a 15 minute summary, and when you finish both, you will have a very fast but very thorough introduction to the book.  I am going to come back to this from time to time as a refresher to what I read in the book (as well as flip through the book again). Did you read Piketty but skip sections? Then review Peter’s post to see what you missed.

More good reasons to pick up Piketty before 2014 ends.

(The chart on world growth rates is from a link to Peter Shirley’s blog post.)

My marginalia from my copy of Piketty’s capital

My previous post was a guide to reading Piketty’s Capital. As I was going through it, I also jotted down some rough notes on the book and things I thought as I was going along. My marginalia, so to speak. Here it is, for what it’s worth to you:

  • Piketty’s book irked people for a number of reasons, including me initially. One reason, I think has to do with the grandness of his book. First, there’s the title. It implies this is a follow on to the great text by Marx. Second he does things like state fundamental laws of capitalism, as if economics were physics and Piketty is the 21st century Einstein. While Piketty can seem grand at time, he’s also humble in other parts. Throughout the book he often confesses to the limits of his approach based on the data (or lack of data) he has. He still has a lot of data and he has done a lot of analysis, but he is aware of the limits of it. This humility helped me get over the parts that irked me.
  • For non-economists like me, I think the book is most enjoyable when Piketty relates economic theory with example in literature and history. His references to Austen and Balzac make his ideas less abstract and make them richer. Fortunately, he does this often.
  • Some American critics would have you believe that Piketty is anti-capitalist / pro-socialist. I didn’t see that. I’d say Piketty is for open markets, strong on education, and democratic.  From an American point of view, he may seem left wing, but to most of the developed world I would place him closer to the center, slightly left.
  • One thing Piketty’s analysis can’t or doesn’t take into account is the exponential change in everything starting at the end of the 19th century. He touches on it a bit (pop growth rates on page 80), but this is factor. I believe that there is a correlation between growth rates and birth rates, with growth rates lagging birth rates. But this is a belief I have: I don’t have the ability to show this.
  • I was surprised by how limited economic growth is. (Chart on page 94). As Piketty mentions, people think it should be in the 3-4% range, but is much more likely to hover around the 1% range. Yet even such growth rates have a huge impact over decades and centuries.
  • Indirectly, Piketty makes the case for Naomi Klein’s thesis on disaster capitalism.  The biggest opportunities for growth in the 20th century occur as a result of the World Wars. Take a look at the charts on page 97 to see what I mean. Wars are terrible for people and cities but good for economic growth.
  • As I was reading the book in the summer, there were a slew of critics writing Think Pieces (or tweets!) against him and his book. The most ridiculous arguments against Piketty are the shallow ones, of course: the ones based on the book title, or that he is French, or that the book is all about new taxes. These arguments, mainly from American writers, reflect a lack of thought and the biases of Americans more than anything else. Critics of Piketty who write small articles on his book, criticizing this point or that, are missing the much bigger picture. Piketty, in presenting all of this data and analysis, is providing a broad stage to discuss capitalism. I think anyone wanting to take him on really has to do the same level of work. That’s the thing. Cherry picking is useless. Yes, it would be good to have more data. But this is the data available. If you want to criticize Piketty, you need more data, or you need to critique his data. If you want to show how technology is making inequality less not more, bring that data. Saying “Piketty is a red” or “this is not 19th century range” and thinking you are done just makes you look foolish and your arguments weak. (Of course you can believe what you like, but belief is not argument.)
  • Another thing he doesn’t touch on is the destructive nature of IT on capital. Being an IT professional, I was wondering if he would examine capital in the 21st century from that perspective, since IT is having a greater and greater effect on our economies, and as more things become digital, the depreciation of capital related to those things accelerates. If you’d like to read more on that topic, you won’t find it here.
  • It is interesting to note the stability of capitalism in the 19th century, at least in Europe. It was a conservative time politically, with limited warfare. Currency and other things economic were also stable then. No point here, just something that struck me as interesting.
  • I believe that an accumulation of capital leads to anti-democratic measures by capitalists that result in revolutions or wars, which lead to the destruction of private capital. Piketty doesn’t go into this, but it would be interesting to read an analysis that shows a relationship between the accumulation of capital and the advent of wars and revolutions.
  • I found this fact fascinating: after the Napoleonic wars and World War 2, Britain’s public debt was 200% of the GDP. 200%! I found this fascinating, first because there is a lot of worry now about the wealthiest nations having their public debt going over 100% of their GDP. Yet Britain’s was much much higher in those two cases. How did they reduced that debt and bring the percentage down from 200% to a much smaller number (as seen in the book)? Inflation. It was done over a very long period of time, but it is proof that high debt can be brought down and that it isn’t irreversible.
  • Reading the section on slaves and capital made me think many things, including the idea that capital based on anti-democratic or inhumane means is precarious — think of capital that pollutes or depends on the deprivation of otherwise rights….it is unstable capital — and that capitalists and not just socialists should argue for an economic society based on democracy and human rights.
  • One thing Piketty does well is whenever possible he links data from the US and Sweden because they are both relative outliers to the UK, France and Germany. It also highlighted to me how much the US lags (or leads, depending on your viewpoint) much of the developed world.
  • Piketty is big on education. If anything, I think he gives it too much weight. People from better schools stay wealthy not just because of what they learn but who they connect with in such schools. (Maybe it is different in France, but I doubt it.) Establishment schools are smart enough to let new blood in but they are far from meritocracies. To me, Piketty seems to have a blind spot when it comes to academia that he doesn’t show elsewhere when talking about inheritance or super-managers.
  • Piketty makes the case that taxes are better than debt. I made this note: “The concern for progressives is that capitalists will drive down both taxes and debt by abusing social programs.” But I don’t know why! 🙂 Ah well…it was likely a good thought at the time of reading it.
  • Piketty talks at the end about the contradiction of capitalism is r > g. My belief is that this formula should be more complicated and that when you add a time factor in there and some other dependencies, you see have a better model and formula (or formulae) on how capitalism corrects itself, either through war, or revolution, or other drastic social change. But this is just another belief I have.

As you are reading it, you will likely have your own notes and marginalia. Let me know what you think.