Inequality and the top 10%

[Ponty]

As you have chosen to ignore growth of other forms of money supply. Check out the growth of M1,2,3 and 4 money supply between, say, 2000 and 2005 (though I think 2004 is the most important). Somewhere, floodgates were opened that were a lot less benign than Central Bank QE later in the decade (not to suggest they were totally benign, if at all). The 2008 financial crisis is a misnomer, we are experiencing a process, not an event.

Not ignoring, just not highlighting. The times you mention were when the govt were spending like drunken sailors in a brothel. Hardly surprising the money supply ballooned. It seems recessions are now not allowed. The slightest wobble and economies are flooded with cash. Clearly this has other, potentially worse longer term consequences, alluded to on this thread.

 

[BTC3]

As you have chosen to ignore growth of other forms of money supply. Check out the growth of M1,2,3 and 4 money supply between, say, 2000 and 2005 (though I think 2004 is the most important). Somewhere, floodgates were opened that were a lot less benign than Central Bank QE later in the decade (not to suggest they were totally benign, if at all). The 2008 financial crisis is a misnomer, we are experiencing a process, not an event.

I don't get the point you're trying to make. Growth of M0=>M4 from 2000 to 2005 was pretty steady and linear, continuing the path that started around 1996 or thereabouts, and went on, at the same rate, until 2009. Then it slowed down until 2016 when it kicked off again. WHat floodgates and what nefariousness?
M0, M1, M2, M3 tend to follow a relatively steady path as a proportion of overall GDP, which, I think they do in the 2000 to 2005 period. The impact of QE on the money supply (supply of highly liquid money) has always been smaller than people wanted, c/f the commercial banking sector being accused of not passing enough of the funds on to consumers and small businesses, as risk management policies concerning lending at commercial banks override the imperative to get cash out into people's hands.

 

[molee]

https://www.google.com/search?sxsrf...biw=1280&bih=800&dpr=1.5#imgrc=zxAklP-uIo83pM

I'm really sorry about the length of the link and I don't think the graph fully illustrates my point either. If it displays, I think it shows a certain non-linearity if not absolute exponentiality that predates the qe of various central banks. Considering that the graph wouldn't change that much from when it begins in 1981 back to 1945 i think it is fair to say that 2004 marks something of a step change. (I confess that my reference to 2000 to 2005 was not all that helpful) You mention nefariousness, not me, but I don't think a consideration of the growth of cash and (I think more importantly) deposits can dismiss the possibility*. You also mention the possible relationship between growth of money supply and gap but I can't find such a graph and my understanding of economics is not up to grasping the significance.

*I do have an idea but can't back it up though.

I don't get the point you're trying to make. Growth of M0=>M4 from 2000 to 2005 was pretty steady and linear, continuing the path that started around 1996 or thereabouts, and went on, at the same rate, until 2009. Then it slowed down until 2016 when it kicked off again. WHat floodgates and what nefariousness?
M0, M1, M2, M3 tend to follow a relatively steady path as a proportion of overall GDP, which, I think they do in the 2000 to 2005 period. The impact of QE on the money supply (supply of highly liquid money) has always been smaller than people wanted, c/f the commercial banking sector being accused of not passing enough of the funds on to consumers and small businesses, as risk management policies concerning lending at commercial banks override the imperative to get cash out into people's hands.

 

[BTC3]

@molee as a stab at accounting for the situation in the U.K. in the run up to 2007, try pages 8 onwards here.

 

[S-Man]

I have a sort of friend who built up a business and "takes" £1M a year as income. He doesn't pay higher rate (40%) tax!
Incredible, but:
He gives quite a bit to charity
His ~100 employees consider him a superb boss (and for many good reasons).
He works very, very hard.

What's right and wrong?

 

[sean99]

I have a sort of friend who built up a business and "takes" £1M a year as income. He doesn't pay higher rate (40%) tax!
Incredible, but:
He gives quite a bit to charity
His ~100 employees consider him a superb boss (and for many good reasons).
He works very, very hard.
What's right and wrong?

I think you have missed the point that we currently use the idea of "meritocracy" to justify extreme wealth inequality, and there seems to be little doubt as to your friend's merit. However there is also a HUGE amount of luck involved in being successful, genes, environment, timing, geography. Further, massive wealth inequality, and lack of access to basic services like housing, good education, healthcare are extremely destabilizing to democracies, and often lead to dangerous populist governments and policies (see Brexit, Trump).

And finally, how many successful folks are really happy if they live their lives with the burden of knowing that many around them are denied the basic necessities of life, and that a run of misfortune could quickly put them in a similar situation ? I know I don't like to live this way.

 

[James]

I worry about housing affordability for my daughters. When I graduated with my degree in 1992, I was able to buy my first home within two years. It cost 4.2 times my gross salary. Things were tight, but I could afford to service a 30 year mortgage and buy the occasional record to feed my music habit. My wife and baby daughter did not go hungry.

That baby daughter is now 27 and has a good job in government. She has paid off more than half of her student load debt. But for her to be able to afford to buy a house where we live, she will need to save at least 1.5 times her gross salary just for the deposit. The average house in our neck of the woods in New Zealand is 8 times her gross salary. The situation for my younger daughter isn't any better. They both flat with others to stay afloat financially.

I built a new house less than 10 years ago. It is now worth at least twice what I paid, but my salary has not moved anywhere near that much. It feels impossible for those yet to get onto the property ladder, and may be faced with a lifetime of renting.

 

[matt j]

It feels impossible for those yet to get onto the property ladder, and may be faced with a lifetime of renting.

It feels to me like that is certainly the long term goal, get the plebs out of owning property and get them used to renting for life.

 

[James]

It feels to me like that is certainly the long term goal, get the plebs out of owning property and get them used to renting for life.

...and working for life. The security of having your own home in retirement is a goal that is becoming increasingly elusive.

 

[matt j]

...and working for life. The security of having your own home in retirement is a goal that is becoming increasingly elusive.

Yep. Own nothing, work till you're dead and don't claim your full pension. Fodder.

 

[Bob McC]

I have a sort of friend who built up a business and "takes" £1M a year as income. He doesn't pay higher rate (40%) tax!
Incredible, but:
He gives quite a bit to charity
His ~100 employees consider him a superb boss (and for many good reasons).
He works very, very hard.

What's right and wrong?

I am sick and tired of the rich telling us how ****ing hard they work for their rewards.
I have family members who do it.
Do they really think they work harder than a front line nurse?
I know my relatives don’t.

 

[kensalriser]

I find the whole notion of hard work an oppressive, puritanical affront, not to mention diversionary propaganda by the classes that don't need to work at all.

What about working moderately and having enough to enjoy your life through leisure?

 

[Tony L]

I’ve always felt the very concept of hard work was an affront to my dignity and have spent a lifetime trying to avoid it. Quite successfully too.

 

[Snufkin]

I worry about housing affordability for my daughters. When I graduated with my degree in 1992, I was able to buy my first home within two years. It cost 4.2 times my gross salary. Things were tight, but I could afford to service a 30 year mortgage and buy the occasional record to feed my music habit. My wife and baby daughter did not go hungry.

That baby daughter is now 27 and has a good job in government. She has paid off more than half of her student load debt. But for her to be able to afford to buy a house where we live, she will need to save at least 1.5 times her gross salary just for the deposit. The average house in our neck of the woods in New Zealand is 8 times her gross salary. The situation for my younger daughter isn't any better. They both flat with others to stay afloat financially.

I built a new house less than 10 years ago. It is now worth at least twice what I paid, but my salary has not moved anywhere near that much. It feels impossible for those yet to get onto the property ladder, and may be faced with a lifetime of renting.

What we need is a serious collapse in the price of property. Current prices are beyond ridiculous. Yes I know it would hurt some people but eventually the country would benefit from falling house prices and even more importantly falling rents. It’s worth noting that we are all paying for high rents through Government subsidy to the cost of housing.

 

[S-Man]

I am sick and tired of the rich telling us how ****ing hard they work for their rewards.
I have family members who do it.
Do they really think they work harder than a front line nurse?
I know my relatives don’t.

It is my opinion that he works very hard. I have never heard him tell anyone "how ***ing hard he works".

I suspect he does work harder than a front line nurse, but I'm not going to argue about it because I don't actually know. And unlike some, I don't like to make judgements based on very limited information!

 

[Ponty]

What we need is a serious collapse in the price of property.

I would agree. The only way that will happen IMHO is IR’s >5% and no forbearance, resulting in forced sales, as prices are set on the margins. Once the excess debt is purged and the free money stopped, we’ll be in a far better state to move toward. That’s basically what happened in the early 90’s (with far higher IR’s).

 

[Ponty]

I have a sort of friend who built up a business and "takes" £1M a year as income. He doesn't pay higher rate (40%) tax!
Incredible, but:
He gives quite a bit to charity
His ~100 employees consider him a superb boss (and for many good reasons).
He works very, very hard.

What's right and wrong?

Assuming he does nothing illegal, good luck to him. He’s probably paying additional rate div tax, which is greater than higher rate income tax when corp tax is factored in. His contribution to the economy will be pretty hefty if he’s running a successful business employing 100 happy staff. Much more so than many who’ll bleat that he should pay more.

 

[dweezil]

I would agree. The only way that will happen IMHO is IR’s >5% and no forbearance, resulting in forced sales, as prices are set on the margins. Once the excess debt is purged and the free money stopped, we’ll be in a far better state to move toward. That’s basically what happened in the early 90’s (with far higher IR’s).

Any collapse will immediately stop new builds. Could be seen as a good thing now we're getting back to ZPG.

If interest goes up towards 10% loads of businesses will fail, ours included.

We need to curtail demand for housing some way other than increasing borrowing costs.

 

[Joe Hutch]

What we need is a serious collapse in the price of property. Current prices are beyond ridiculous. Yes I know it would hurt some people but eventually the country would benefit from falling house prices and even more importantly falling rents. It’s worth noting that we are all paying for high rents through Government subsidy to the cost of housing.

As long as it doesn't affect me, I'm in favour. Other people can look out for themselves.

But, seriously, how do you reduce demand? People have to live somewhere. Even now, many people well into their 30s are having to live with their parents because they can't afford to buy. If house prices fall, many such people will be back in the market and prices will inexorably rise again.

 

[Heckyman]

Or central banks might just try to let inflation run a bit…