Prosper and Live Long

Spock on Star Trek would often say, “Live long and prosper.” But it appears he had it backwards. It would have been more accurate to say, “Prosper and live long.” Why? Because life expectancy is correlated with wealth.

The poorest 5 percent of Social Security claimants live on average six years less than the broad population, and the wealthiest live an additional six years on average. So if you want to live as long as possible, it pays to have wealth. And it most certainly pays to avoid poverty.

 

 

The Wealthy Are Seriously Misjudging the Situation

This memo from one of the most revered icons of the investment world, Howard Marks, is typical of the public clamoring from the wealthiest elites in the face of rising populism from the Left. Mr. Marks, who has freely given sage advice over the years, benefiting many a budding investor, decries proposals from the Left that would impinge upon owners’ rights to run their companies as they see fit. This is typical of the elites’ response to rising populism, the diminishing share of profits going to labor, and the resulting gross disparity in income and wealth–in short, to what many consider gross unfairness and injustice.

I actually agree with much if not most of what Mr. Marks writes and do believe the risks from proposed solutions that would prove to be counterproductive are significant if not outright dire. What I object to, however, are the tactics of the elite, and what I am most concerned about is their obliviousness.

The tactics are to criticize and warn while ignoring or dismissing the problem out of hand. There are exceptions of course, but they are rare. To this point, the elite routinely dismiss the warnings of their more prescient members such as Ray Dalio.

In former times, when things got bad enough, the wealthy, powerful elite had to worry about insurrection and revolution. But today no one takes the threat of guillotines seriously. Today, serfs in western democracies have other options, the power to vote to be precise. And history shows they can be pushed quite far before becoming immune to manipulation by propaganda and threats; indeed, modern humans can be cowed fairly easily. We are a passive bunch.

The last time American serfs threatened to overturn the established order was during the Great Depression. The country was fortunate enough then to have a leader as astute and wise as Franklin Roosevelt. He understood the threat and headed it off. Social Security was born. Jobs programs were enacted. The role of the federal government was fundamentally transformed.

Roosevelt understood that unfettered capitalism was unworkable over the long term. I suspect Mr. Marks understands that as well, but after reading his memo I can’t be sure. Even if he does, it seems doubtful many of his fellow billionaires and multimillionaires get it. They seem to have been lulled into thinking their positions were secure since the guillotines have been dismantled and are no longer a response available to the masses.

Of course, if things got bad enough, they might be surprised at how quickly things could be reassembled, but we’re probably a long ways from that. What’s more likely is a political response that could strike at the heart of the elite: their balance sheets.

Which could be problematic, for some of the so-called “solutions” being proposed by the politicos on the Left would end up hurting the people they are designed to help, of that I am sure. But of course that’s not the real objective in most cases anyway. The real objective is to win an election and claim power.

It would be nice if Mr. Marks and a substantial number of other elites would do something other than complain and warn; it would be nice if they proposed and implemented solutions. But that would mean giving something up, and as of yet that doesn’t seem to be in the cards. So the power of the Left swells. And the risks increase.

To  be fair, in a parenthetical near the end of this memo, Mr. Marks concedes there is room for increases in tax rates. He cites the fact that today’s top rate of 37 percent is one of the lowest in the 106-year history of the U.S. income tax (thanks, of course, to Mr. Trump and the Republicans in Congress). But it was a mere parenthetical. And there is no evidence Mr. Marks is exhibiting any leadership in addressing the issues. He’s apparently content with writing memos.

My fear is that the wealthy are seriously misjudging the situation and that a global backlash may be unleashed which does more harm than good, to just about everyone. Of course, there are never only losers; there are always some winners, no matter how much the sands shift.

It’s time, I suspect, to be particularly attentive to ensure that, even if you can’t be a winner after this has played out, your losses will not be crippling.

Ignorance Is Unbecoming

There has been intense reaction to Congresswoman Alexandria Ocasio-Cortez’s proposal to increase the marginal income tax rate to 70 percent on income over $10 million. Which is good. Debate is what democracy requires. However, I am stupefied by the ignorance on the part of some people who should know better. For instance, billionaire Michael Dell, when asked about AOC’s proposal at the World Economic Forum at Davos (a retreat for the world’s billionaires and power brokers), remarked, “Name a country where that’s worked. Ever.” The answer, Mr. Dell, would be the U.S.A.

No matter one’s position on marginal tax rates or any other public policy issue, there really isn’t any excuse for ignorance of basic facts. And here are the facts with respect to marginal federal income tax rates in the U.S.

The End May Be Nearer Than We Realize

We are free today substantially but the day will come when our Republic will be an impossibility. It will be an impossibility because wealth will be concentrated in the hands of a few. – James Madison

Twenty-six of the world’s wealthiest people possess more wealth than the bottom 50 percent of the world’s population combined. That’s 26 individuals possessing more than 3.8 billion people.

Wealth and income inequality in the U.S. is at or near historic highs. Almost all the gains in wealth since the Great Financial Crisis have gone to the top 1 percent, and within that group, the top 0.1 percent has garnered the most.

Yet most Americans are living paycheck to paycheck. Many carry high debt burdens. Student debt has exploded past $1.5 trillion. Bankruptcies due to medical expenses aren’t uncommon. Social ills are rampant. Suicide and drug overdose rates have escalated. And we’re led by a highly divisive pathological liar.

Despite the corrosive effects of the gross inequity overhanging our populace, and the populist propaganda being vomited near daily by the White House and the pathetic con man who occupies the Oval Office, a year ago our Congress and president gave the wealthy a humongous tax cut. The consequence was predictable and, indeed, predicted: inequity has gotten worse and the national debt has ballooned (the Boomers “gift” to their children and grandchildren).

I guarantee you their eventual response to this will be to cut social programs: Social Security, Medicare, Pell grants (education), food stamps, Medicaid, etc. Their solution is to take it out of the hide of labor. It always is.

Madison predicted that our Republic will become an impossibility, that eventually our system of government will fail us.

He may be proved right. And sooner than any of us anticipated.

The Reign of the King of Debt

“I’m the king of debt,” Donald Trump once said. Apparently, he wasn’t lying.

The U.S. Treasury Department reported today that the national debt has increased by $2 trillion ($2,000,000,000,000) since President Trump took office on January 20, 2017. To be fair, the president didn’t do it all by himself: He had the full cooperation of the Republicans who controlled Congress.

I celebrated by buying some U.S. Treasury notes.

Just Watch

The good times — at least for those who are fortunate enough to own stocks — may be coming to an end.

It’s been quite a ride since the Great Recession/Financial Crisis of 2008. But the sky isn’t the limit. It never was.

I wonder who was buying stocks at the all-time highs last year. I suppose it was people who think you can’t lose money in the stock market if you’re willing to buy and hold. I suppose it was people who weren’t familiar with these charts: Continue reading

But At Least the Trump Family Is Getting Rich

Surely the president must be spazzing out over this, given how fond he is of telling everyone how much better he is than any of our prior presidents.

P.S. Normally, I don’t think a president has much of an impact on the stock market, given that no president controls economic forces or cycles. But this one most surely has had an impact, including a contribution to the current decline.

Mr. Cohen Is a Stark Reminder of the Temptations that Come Our Way

Michael Cohen, Donald Trump’s former lawyer, was sentenced to prison yesterday. Among his crimes were ones conducted with and at the behest of Mr. Trump. Whether Trump will be held accountable for his misdeeds remains to be seen. But in any case, Mr. Cohen is headed off to the pokey. Before he leaves, however, it’s good to take stock of the lessons imparted by his tragic experiences. Why? Because they may help you avoid the same fate, Vera. Continue reading

Raping the Nation’s Wealth? How Stupid Does He Think We Are? Oh, Yeah.

President Trump thinks allowing imports to be sold in the U.S. in amounts greater than our exports is tantamount to “raping the nation’s wealth.” Think for a minute. No, for a second. Just consider how stupid this is. And the level of thinking demonstrated by the man who makes such a claim.

Of course, imports sell here only if they’re cheaper or better than what we produce domestically. So banning imports would cause us Americans to pay more than we’d otherwise have to pay, thereby lowering our standard of living, or would compel us to accept inferior products (such as GM cars in the ’80s). There is nothing about this arrangement that could even remotely be characterized as an economic “rape.”

A legitimate issue, of course, is whether we should give a preference to domestically produced goods either by taxing imports (tariffs) or subsidizing domestic producers (in the way the U.S. subsidizes its farmers), or banning certain imports altogether or restricting the volume coming in (quotas). There could be legitimate reasons for doing so.

For instance, if one’s national security depended on it, then it may make sense to protect the domestic suppliers. For instance, it would not be prudent to become entirely dependent upon aircraft made in foreign countries. That would make the U.S. Air Force and Navy highly vulnerable to potentially hostile regimes.

Another legitimate reason could be the fairness doctrine. For instance, if the reason an import is cheaper is because of a subsidy the producer received from its home country’s government, then the U.S. could decide, as a matter of policy, to place a leveling tariff on the import to ensure the competition is fair. Or it might chose not to, instead being grateful for the subsidy that the foreign government is essentially providing to the U.S. consumer. Obviously, the U.S consumer stands to benefit from the lower price, even if it’s the result of a foreign subsidy, where the U.S. worker who might lose his job due to the subsidized import might be harmed. Which brings us to the policy decision: which jobs are worth protecting and which one’s aren’t? These aren’t always easy decisions. In any case, there are remedies in place to protect against competition from subsidized producers (indeed, I’ve been involved in several cases where tariffs were sought because of such unfair competition).

But to cut off or restrict imports simply because someone is selling more of their products to us than they are buying from us is sheer lunacy, especially if your country’s currency is the world’s reserve currency (as is ours). In short, mindless protectionism is a sure recipe, over the long term, for diminished competitiveness, economic stagnation, and lowering of a country’s standard of living. And based on history, there’s a good chance it will lead to recession, depression, or war. Yet that’s precisely the mindset of our president.

You wonder how someone like this could be elected president. Or maybe you don’t. But I do. And you should.

The broader lesson in all of this, Vera, is simple: think for yourself. And don’t accept as gospel anything someone says, even if they hold a lofty position. Just because someone is a president, CEO, or, for that matter, a grandfather, doesn’t mean they know what they’re talking about.