I watched another video from the Economics Explained channel. One thing he said really got to me and I think you might also find it interesting. It resonated with some concerns raised in previous threads.
Let me quote exactly what he said:
investing should be hard. how many times has it been said that investing is easy: just buy broad market index funds or good residential real estate, wait enough time and hey presto you are historically guaranteed returns.
this flies directly contrary to what is supposed to be the role of an investor in an economy which is to use their knowledge and intuition to effectively allocate capital towards productive businesses or promising ventures. investors in modern economies are rarely rewarded for being savvy or prudent. their returns are almost exclusively determined by how much they are investing.
on top of this investments normally attract lower taxes or at least accommodate more loopholes than regular earned income. a popular albeit controversial solution is just to make investing difficult. be that through higher interest rates, making leverage less lucrative or through higher taxes on unearned income.
people should not necessarily be able to set and forget a portfolio of vanguard etfs and live the rest of their life off passive income and capital gains. these investors don’t contribute towards productivity but they do feed off it.
Or you can listen to it here:
What do you think? Do you agree with him? Is there anything he’s missing?
Do be longterm invested is key for everybody. I wished I had understood this much earlier in my life… The artificial market today will probably not last for ever with several debt bubbles ongoing.
There were decades in 1970 and 2000 where you would not make much money buying classic ETF with worldwide spread. So maybe if there is a reset in the market, the focus might go back partly to the classic Bluechips companies, with high cash-flow and a business which has potential. But I dont have a magic crystal ball, so what do I know.
Why should it? It’s simply forgoing present consumption in favour of future consumption - possibly allowing the consumer to sustain (from some point onwards) a minimum level of consumption without having to depend on concomitant income from employment.
Yeah, I think he misses the point that saving/investing is achieved by postponing consumption. Instead of instantly spending our earnings on consumption, we allow that some resources are saved and put into work, in order to produce even more earnings in the future.
It bugs me that there are YouTube channels like this, where the guys appears to be prepared, his delivery is also of high quality, and then he raises some points that are not easy to dismiss immediately. Many people will watch it and believe it is the truth. “We should tax the hell out of these lazy investors!”
I agree with what he says, the facts contradict the narrative that markets are effective at allocating capital.
But that doesn’t mean those who take advantage of it are freeloaders - or at least not with the negative connotation.
Is it their fault interest rates are so low ?? No. Can’t be blamed for not letting your money sit in a bank account at 0%
If rates were higher, investing would be more risky. Therefore fewer people would do it. Their money parked in interest-bearing bank accounts could be used by banks to invest in a savvy manner though.
Why would it be more risky? Two reasons.
First the opportunity cost would increase - by investing you would miss on that sweet risk-free interest rate.
Second companies would have a harder time being profitable. They would need to generate more cash to cover higher interest rate on their debt. Less efficient companies would go bankrupt. More bankruptcies equals more risk for investors.
Also, I can’t quite see why “informed people investing into hopeful businesses” adding “value to society” should be mutually exclusive to FIREing.
Even if your goal is to retire early, you’re free to pick your investments according to what’s promising to add value to society (if it indeed does, it’s likely to increase in value as well). There’s no necessity to invest by using the lowest cost funds. Though that’d be certainly far from the worst option.
Interesting, thank you. What is the author actually advocating ?
Allocating capital towards the most productive businesses is very difficult as we know. Only a handful of people is able to do it consistently over the years. How can the author expect everyone to do it ? it would leave normal people guessing which business to invest into (which does not help productivity) or guessing which fund manager is part of the golden ones (which does not help productivity either). They could also get out of the market which would then be in need of capital.
A large majority of people blindly bring capital to the table, yes, and then there are market makers who, hopefully, know a bit more what they are doing. I don’t see anything wrong with that.
Also, why is the author deciding that the role of an investor is “to use their knowledge and intuition to effectively allocate capital towards productive businesses” ? is that a dogma ?
Well you can translate it into: the role of an investor is to maximize his return, and I guess there’s nothing too wrong about that statement.
I guess he sees taxation of capital gains as highly justified. He says it in the first sentence: make investing hard. Such statements really worry me, because it’s a step away from what Marx was saying: capitalists are leeches, sucking the blood off working people.
The critics always concentrate on the income-side, that it’s egocentric, not a productive income, etc etc
But Mustachianism is at least 50% about the expenses side.
My version: “…people should not be allowed to consume the amounts consumed in 1st world societies (and increasingly in countries aspiring to this level), these consumers contribute to excessive wasteful consumption leading to a downward spiral to ecological disaster.”
Unsustainable discretionary consumption should be taxed to be affordable to all, but only on a more moderate level. These taxes can be used to subsidize non-discretionary consumption and innovation for a better world (ecologically).
As @Julianek put it in the other thread, “Consumption is not the engine of society. Investment and innovation are.”
I estimate today’s innovation investment is 90% about consumption, imagine an innovation not only based on the next gadget or faster car or
You make some very good points. I think that indeed it is consumption that should be taxed, especially consumption of non-renewable resources (or not immediately renewable). Fossil fuels, plastics, but also wood, water. Labor is renewable so I would not tax it at all (although you could argue that human labor is actually very resource intensive). All this would be difficult to enforce though, as for it to work, it would have to be applied on a global level. Otherwise, you would just import that highly taxed resource/product. Maybe import tariffs would fix that. But it could end up in a bureaucratic nightmare.
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