Monetary Policy is Non-Linear

This picture has nothing to do with monetary policy. It’s a chart of the density of water
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  1. The rapid rise in rates in particular mortgage rates is creating an interesting situation. If I have locked in a 3.5% 30 year mortgage, I would not want to sell my home.

  2. Double Roosevelt with a Volcker Sandwich

    Ben minces few words in today’s excellent note:

    *What’s coming down the pike if the Fed raises interest rates enough to actually have an impact on inflation may well look like a “mild” recession in the aggregate macroeconomic numbers, but it will be anything but mild to corporations and households that haven’t had access to a decade of free money. It will be an outright depression. Just in time for the 2024 election.

    The last 20+ years of monetary and fiscal policies have mostly favored the wealthy and big corporations. Why not pull a Constanza? With the right messenger (somebody like Fetterman?) it could be very popular and may be the only path where we aren’t torn apart. Some combination of both Roosevelt’s policies to protect the bottom 90% from the ravages of having to go Volcker:

    1. Direct payments/jobs programs/debt forgiveness
    2. Higher taxes on wealthy and corporations
    3. Vigorous antitrust
    4. Vigorous white collar crime enforcement
    5. Ratify the Congressional apportionment amendment

    Left with only bad choices and these may be the least bad.

    What do you think?

  3. Yes, that 3.50% 30-year fixed mortgage feels good…if you are the homeowner/borrower. But, it feels like a capital loss for the lender who now owns a very long duration asset with a coupon way under the market rate. And, it only feels good for the homeowner if they never have to find a market clearing price for their home. This is the median mortgage payment calculated on the median priced home BEFORE mortgage rates soared past 6.25% and were merely in the high 5%'s.

    This further mires those without home equity on the outside looking in. But, it will snare some of the “winners” in the hot housing markets of 2021 who needed to bid 15% over ask to join the club. Because these mortgage rates will cause housing prices to fall.

  4. For about 18 months now my wife and I have been planning and saving to buy land and build. That’s still an eventual goal, but…my rate is 3.47% and my mortgage is really low. Like, it’s <10% of our household income. It’s hard to justify trading a low rate and an easy payment for a very high rate and a ridiculous payment all in the service of having what we want.

  5. Avatar for Hobbes Hobbes says:

    So if I understand this correctly, Ben is saying this is the beginning of the end of the past 40 years of the financialization of our economy. Do the major benefactors of the largesse for the past 40 years understand the game is ending – assuming Mr. Powell is as resolute as he claims he’ll be? Will the powers that be admit they’re ending financialization? Which high priests will deliver that message?

  6. Remember back when we pro-forma’d deals using 7% interest rates? Pepperidge farm remembers…

    (edit and for you really old timers, yes I heard the old songs about 16% mortgages when you bought your first houses… but that was when I was born so I wasn’t doing any deals back then!)

  7. Based on the frenzy in the institutional world to lunge into Private Equity and leveraged Private Credit while there was no return on offer in Bonds, NO! The CIO’s and family offices were trading meme stocks too, they just had them packaged in a more socially acceptable form. Will their consultants and enablers show any remorse? Also no.

  8. The ending is ominous - the setup for ‘ A new road to Serfdom’ ?

  9. Am guessing that EDZ3 breaking 95.5 prompted the repost of this excellent article. Fish under a frozen lake was also a head scratcher for me!

  10. Avatar for xmj xmj says:

    To make phase changes to the affluent-consumer economy, what’s necessary is:

    • cuts to comfy bullshit jobs in the professional/managerial class
    • positive real interest rates.

    The other phase changes to non-affluent consumers work via mortgage rates, car loan rates and credit card rates, and those have already shot up enough to make themselves felt.

  11. Thanks for the note. Can you, or anyone else, expand on the reasons behind the below quote?

    The corporations and households that don’t have the money aren’t doing any of these things, but they don’t move the needle on CPI.

    Why is it that these corporations/households don’t move the CPI needle?

  12. Avatar for yffras yffras says:

    Fed raises rates to 4% by year end 2022
    Plus QT begins in earnest at $95B /mth
    Plus The $20T of US debt by foreigners gets sold
    equals what rate for the 2yr, 5yr, and 10yr Treasuries?

    I think it has an overall effect of a 5-6% rate on the 2 yr, which means AAA Corporate bonds are 7-9% and HY bonds move towards 10-12%.

    • Zombie companies go bye bye.
    • Money is sucked out of equities to bonds/treasuries
    • Mortgage rates hit 7-9%
    • House prices fall nationwide 20-40%
    • Dollar strength weakens dramatically
    • The Interest on reserves at the FED run a deficit of $250-$400B a year to the govnt. (To put this in perspective social security and Medicare budget is $600B)
    • Corporate earnings revisions drive P/E ratios into the floor.
    • ESG distortion for penalties to banks who lend to oil, gas & nuclear cause those energy rates to spike in a recession.
    • Powell has to come clean that 2% is a pipe dream and the reality is more like a 3-4% Target.
    • Bitcoin bottoms around $4500-$6000

    Remember, interest rates don’t curb inflation. M2 slowing down curbs inflation. If rates rise and companies still borrow more money to do deals, then inflation continues.

    And we have a huge possibility of retracing something like 2008/9 where todays S&P ends up around 1500.

    What am I missing?

    How do we navigate this world with our investments?

    Will the FED jump in and “save” us again by kicking the can down the road?

  13. Avatar for bhunt bhunt says:

    Thanks for the question, Evan. Both marginal consumer spending and marginal biz orders/spend are dominated by not-poor households and not-small corporations.

  14. Avatar for bhunt bhunt says:

    A 2024 election cycle where neither political party will accept the other party’s Presidential win as legitimate.

  15. RIP to about half of the Russell 2000

    Hopefully this is paired with a return of other classics of the 1980’s, including French Cuffs, cocaine, and New Wave bands.

    If mortgage rates hit 9% I think that 40% housing price fall is conservative. Hell, at 7% the housing market is dead for a few years. The newer realtors who all bought Cadillacs–and it’s always a Cadillac for some reason–are going to be sandwich board technicians by the Spring of '23.

    I’m not saying there is zero chance of this, buuuuut…think of a number that is as close to zero as you can get and that’s the chance I’m giving to this scenario (with a caveat). FX is a relative game. Anything the Fed is doing will be felt by the rest of the world, and what economies will be strong enough to allow their CBs to keep up with the Fed in terms of hikes and tightening? The PBOC is loosening which is why the USD continues to annihilate CNY. The ECB has been functionally allergic to rate hikes until very recently and they’re still considerably lower than the US. Hell, until like an hour ago they were still living in the land of ZIRP and in some cases negative rates. They’re not even at 100bps yet!

    The only way the USD weakens dramatically is if there’s a very hard landing that forces the Fed to ease at a pace and degree that is more dovish than any of their contemporaries. I’m failing to imagine a scenario in which that happens. If nothing else you can always depend on the Europeans to be more dovish than the Fed.

    Sector dependent of course, but I think there will be a “new normal” for what is considered an appropriate multiple. We just lived through an era where P/E didn’t matter (for reasons that still don’t make sense to me), so a collapse in that paradigm and then a mean reversion seems probable. How long that takes is well beyond my capacity to predict. But at some point buyers will come in if only because they know others will come in too. The crowd watching the crowd, etc.

    Or new technology floods in. But when we say technology what we really mean is ‘cheaper energy’. Whether it’s oil flowing in from Alaska in the early 1980’s, the frac’ing boom of the mid 2000’s and late 2010’s, or whatever comes next, the cure for inflation is some thing or things that make the cost of doing Business X cheaper. Sure, less money available will curb inflation too. But that version is also very destructive to the poor and middle class, so the optimist in me–he’s alive, but barely–hopes we get out of this tailspin in a way that doesn’t gut millions of people.

  16. Embarrassingly, despite my 70+ years and math background, one of the things I did not fully recognize until this year is that long-term capital gains taxes tax both the inflationary component as well as any ‘real’ gains in an asset’s current valuation. So finally I understood why inflation is good for the taxing authority: not just the ability to pay debts with lesser valued moneys but added tax revenues as well. The trick is to sneak in just enough inflation to do both without anyone saying WTF. 2% seems like a pretty good method!
    Meanwhile, BH’s discussion of the miracle of H2O density near the freezing point is spot on. There are a number of other miracles as well which are discussed in the book Rare Earth (Ward and Brownlee). Because the book was a refutation of Carl Sagan’s Cosmos, it remains relatively obscure.

  17. A 2024 election cycle where neither political party will accept the other party’s Presidential win as legitimate.

    Here’s an opportunity for the centrists - that’s anyone who is a small ‘c’ conservative and a small ‘l’ liberal. Don’t let the party leaders get away with it. Candidates & political parties have websites - it’s actually preferred to receive e-mail/web mail rather than USPS mail (thanks to anthrax). Be polite, but be active and timely with e-mails.

  18. Hey Bryan ,

    I think that maybe one thing that happens before we get to the levels you discussed is something breaks.

    We live in a world of massive leverage, a quadrillion dollars worth of derivatives, and these new portfolio loans that dwarf the margin loans of past cycles. All these closed end funds that operate with 30%+ leverage ,for example, could be forced to sell high yield bonds because of margin calls — this market is illiquid and will hit an air pocket ala 2020. The FED will be forced to reverse course.


  19. We have been discussing when higher rates would start to impact Private Equity:

  20. Avatar for aw21m aw21m says:

    Agreed. Honestly this interest rate raising thing feels like a big show. If inflation is so bad, and they really care about stopping it, why not raise rates directly to 4%? Instead, they raise by 0.75% every few months, talk a big show, doom and gloom, and wait another few months for a less-than-one-percent interest rate hike.

    I don’t think the markets can sustain high rates for long. All governments, corporations, and most Americans in general are highly indebted. High interest rates for long = blow ups and economic destruction. They will talk a big game to try and get markets to cool down, drop consumption a bit, and before things get too bad they will be forced to reverse course and lower rates again.

    Inflation (and low rates) pumps asset values, brings the government more capital gains tax revenues, lowers the value of their debt, and allows them to refinance their debt at permanently low levels. It allows the rich to get richer, and the government to get bigger and more powerful. High rates makes the rich poor, and drastically raises the governments debt burden. What do you think takes priority long term??

  21. Avatar for 010101 010101 says:


    Try if you can to imagine a world without risk.
    Everyone using the same preformed language in the same preformed scenarios for the same preformed outcomes.
    It is an ugly beautiful paradox. The form of change. We extinguish it with reason and birth it with lust passion desire verve youth, an intensity so needful it surmounts temper.
    The great religion, your risk can be extinguished by reason not of the self. By an act of ever greater agency your fears will be dissolved.
    Arise citizen investor clean from the mud of uncontrolled change.
    Quick grab a seat on the great carriage. They promised it will be the ride of a lifetime.
    Now after some time reflecting upon the quality of the interior design and the smoothness of the ride has become dull. None of the other passengers seem piqued by my conversation. If I disembark at the next station will I be missed during such un-scintillating journey?
    This standing alone in a field seems ridiculous now. Which way shall I go, towards the hills, battle the elements, build a cabin, hunt and fish? Trudge back to some settlement and contend in the forlorn hope of catching the same train again?
    I am going to build a machine, a system, a home so as to amusedly ponder upon the risks of changing them again. It is a great part of my nature.

  22. Avatar for jrs jrs says:


    You are not alone. Even if we’re all just LARPing together.

    We are zemschina.

  23. Avatar for 010101 010101 says:

    Does the new data/target rate policy reaction time delay affect the tipping point (or complex curve shape) of the non-monotonic interest rate/broad inflation relationship?

    Is there such a thing as an FOMC special meeting?

  24. Which is a very interesting part of the universal basic income debate. The current missing-in-action price signals from non-affluent consumers…

  25. With the cost to finance our 30 trillion dollar debt set in increase substantially, and still an outdated and unproductive infrastructure investing more money in the long now seems like a nonstarter— but stranger things have happened.

  26. As I see it, UBI is only “investing more money in the long now” if it is viewed purely as yet another form of “stimulus” in the current moment in time. And I want to be very clear about this - I do not. Consider UBI to be about the “right now” that is.

    I view UBI as the quintessential investment for the future. Which, for Ben H would be the very opposite of the long now. It’s seems to me, to be a stewardship tool more than anything - for a tomorrow that will look very different than our yesterdays.

    Would you like to avoid an electorate made up of rhinoceroses? Then give them a moment to breathe. To think. About something other than pure survival.

    Remember that the old greeks that invented this nice thing called Democracy would have considered it crazy to bestow a vote to humans spending 45 hours+ every week on working for other people/entities. Only those free of those shackles could be expected to add any value in the original democracy. Those old greeks happily used slaves to enable those “free people” to go about their democratic business so I guess you have to question their moral compass somewhat, but at the very least they understood something very important. Which is that it is not a good idea to trust those who have to spend their lifetime in an existential struggle for survival to “vote responsibly” at election time.

    I could be wrong, but it feels like we are slowly learning this lesson as well - in real time.

    You want a bottom up social movement, to counter the political black-and-white rhetoric? Then give people a floor to stand on. To enable those conversations, those pack-finding measures.

    If we want real people, moving towards real futures - we need to start putting a value on that realness. As fellow human beings, little nodes in the human network. All carrying our own value and influence on other real humans - irrespective of our “economic productivity” . Should you reap the extra benefits that economic productivity brings with it? Absolutely. But let’s not pretend that those who do not command regular and/or large pay checks do not add value to the human network.

    If you need illustration of this value, you don’t need to look far. I personally command a (relatively speaking) large pay check, but any “realness” that I add to the world I do out with my day job…as a parent, wife, friend, daughter and neighbour. Considering that I spend most of my time managing financial assets for other people and.or entities (which takes away from any other human efforts I might otherwise be up to) I could go as far as to say that any value I personally add to the human network, I do DESPITE my day job/economic productivity…

    Sorry, unintended rant over… :slight_smile:

  27. I would love to hear more specifics on the plan.
    How much would everyone get?
    Will everyone get it?
    If not what will eligibility be based on?
    How much do you expect it to cost and how will it be paid for?
    You foresee any unintended consequences?

  28. Not being familiar with the specifics of citizenship requirements for Ancient Athenians, I did a quick, hopefully accurate, survey: to my surprise, property ownership in Athens was not required. Citizens had to be non-slave males of age and have completed military service (if my understanding is correct). I presume some kind of geographic criteria were used as well. So to continue your comparison to the Athenians, are you recommending UBI for all citizens, which of course now include men and women (pardon me for the gender short cut) or would it be a larger group.
    Personally, I see no way that UBI is not Keynesian-ish now and the MMT of the future, and it seems to me that we are already watching MMT in the short now, and so I remain skeptical.

  29. Avatar for 010101 010101 says:

    The devil makes work for idle hands.
    With UBI there is also the duty of care to house the individual or family.
    I remember a friend of mine who was a single mother, with two adult children, complaining at great length about how many times she had had to unsuccessfully harangue the local Council on the telephone to replace a missing tile on the mantelpiece, after the gas fire had been replaced with a new one, in her rent free, three bedroomed house, that she was the only occupant of now that her children had long since moved out.
    The floods of tears and cries of disbelief after I explained to her that it was not actually her house and that it belonged to the council.

    To go into the culture of anti-social behavioural disorders (as a badge of honor) and the systematic persecution of anyone in their orbit who offends their distorted sensibilities, along with the college of crime that the social housing estates become, is a list of incidents that really would cause even the most devoted socialist to stumble for excuses.

    It is apparent to me that no matter how much you give someone, if anyone else has anything more than them, they justify to themselves taking it, using phrases like “it’s so unfair” and “well, they’re a bastard anyway”.

    Rich people will always be a minority, that is intrinsic to the definition of rich (possessing more than the normal level of wealth). As democracy further becomes an auction of future stolen goods, the wealthy will have no choice than to hide their creativity and means of production or lose it to the mob thus habituated in spending other people’s wealth.
    IMO this is not a recipe for social harmony or a prosperous society.

  30. Two things —first I am stealing THIS quote.

    Second - if I ever make it to a pack BBQ and you are there— I am sitting next to you.

  31. Agreed! A crib note for Atlas Shrugged.

  32. My issue with this is that we have no evidence that such an investment would be allocated in anything approaching useful or long term. Look how people used their stimulus checks. Look how VCs and PE firms used their firehose of nearly-free cash from a decade plus of loose monetary policy. Look how world governments–let alone the US government–has used taxpayer funds. To think that UBI would be anything more than kindling to be tossed into the unforgiving furnace is a level of optimism that I cannot share with you.

  33. seems like a good place for this.

  34. Avatar for O.P.A O.P.A says:

    I’d like to build on this thought (of a baseline wealth being necessary to enable full participation in democracy) with an excerpt you reminded me of from 1634, the second book in a series about some pesky Americans who got time-hopped into the middle of the 30-year’s war and decided to start the American Revolution a bit early.

    “You can’t enforce democracy until you have the wherewithal to do so. No point in telling a man he is the equal of any other, until you have the wherewithal to make that true in fact, as well as in theory. And that means red tape. Everyone has to stand in line to get whatever they want or need, be that man a duke or a pauper. No special privileges. But doing that, in turn, presupposes so many other things. Just to name three—”

    He lifted a thumb. “First, everybody has to be literate. And not just enough to work slowly through the Bible, either. Enough to read and comprehend, easily, instructions written by a bureaucrat—and enough literacy that you have a veritable army of bureaucrats able to write the instructions in the first place.”

    The forefinger came up to join the thumb. “Second, everyone has to have enough time to spare from necessary labor to exert their new privileges. Pointless to tell a farmer or blacksmith he has the same political rights as a duke, when the duke can spend every waking moment engaged in politics and the farmer and blacksmith can barely manage to lift their heads from their labors.”

    The middle finger came up. “And that, in turn, requires wealth. Lots of wealth, enough for everybody to live on decently enough without constant toil.”

  35. Avatar for 010101 010101 says:

    Over a long enough period of time, when a baseline, survival + level wealth
    is available to all of a population, does not a genotype that has a shorter gestation period become more prevalent, y’know little heads so they can be popped out two p.a. ?

  36. This, to me, is first and foremost a good illustration of the widening gyre - as it relates to class. There is no helping ourselves on a collective basis when the “un-rich” can be viewed through this particular lens. It is quite something to make the assertion that the rich are rich simply because of their enhanced creativity. I will give you that controlling the “means of production” certainly helps.

    It is also a clever reframing of the potential solution being discussed. UBI is not a broad redistribution of the wealth, in an attempt to bring everyone up and down to the same level of income. So any real discussion about its costs versus benefits must necessarily take this into consideration. UBI is is not socialism. UBI is a repurposing of the current welfare system. It is a floor to stand on - designed for the next tech-based societal paradigm. Considering the upheaval we are sleep-walking into, it may just be capitalism’s final hope.

    Dwell for a moment on Ben’s final line:

    Monetary policy is also non-linear in its impact on society.

    A large portion of society is, by Ben’s assertion, going to need to live through an economic depression, in order for interest rate rises to have any effect whatsoever on those currently moving the needle on CPI. Do you think this will be cost-less for society overall? How severe must the potential scenario be, before we consider a pre-emptive (humanitarian) strike? Is the compound/home security system/savings account robust enough?

    There would be plenty of intended and unintended consequences. This is one of the most interesting lines of healthy questioning as it relates to UBI. But there can be no useful discussion about the cost of UBI, until there has been an honest conversation about the costs of not considering it.

  37. Avatar for 010101 010101 says:

    Hi Em,
    One of the main reasons that I enjoy my membership of ET so much is the ability to discuss topics that matter to other members.
    Almost all of the friends that I have in England scratch on. Very few of them have any assets at all. Most of them, at best, have a rusty old vehicle. The incitement of class as a lens through which I am framing this discussion is calling upon the perspective of the assertions. As a pro money manager your vision of lack of opportunities is possibly obscured. UBI is an attempt at a top down solution to central planning’s flawed abilities to control individual outcomes.
    It is pointless discussing “costs of not” because it is not possible to either demonstrate or refute a negative, other than positing that it does not exist in the first place.
    In your plans how does the status quo change?

  38. Avatar for yffras yffras says:

    Great reminder Victor! Inflation is a penalty for savings in cash and bonds. I can’t remember the last time an American couldn’t get a CD near the current inflation rate. Real rates on the 2yr at 4.3% is -4%. Wicked. Encourages risk taking to invest in high yield bonds or higher risk dividends to try and keep up with 8+% inflation.

  39. Avatar for yffras yffras says:

    A large number of these home loans are owned by Fannie and Freddie and serviced by a few providers. Plus the MBS’ owned by the FED encouraged all of this lending to continue.

    Eventually 5-7% mortgages will become the norm again. And we will resume building new neighborhoods further out in the suburbs so you get more home for the money. or buying homes closer to downtown areas that need some TLC.

  40. Avatar for yffras yffras says:

    Something breaks is right. Coming to the narrative in about 6 months from now. It seems it takes about that long for these interest raises and QT to have their full effect on the economy. Loving this discussion thread!!

  41. I don’t think UBI will work as a monetary policy. But what about a social program where food and housing is covered at least to some manageable degree? And build our way up from there.

    Everyone always talks about how these sorts of program is less efficient but I don’t see much efficiency in how supermarket throws out tons of food because of bad inventory management. Or institutions buying up swathes of housing and inflating the price as an asset for their financial games.

    If you can guarantee a few necessities in life you can at least give most people the ‘potential’ for a better life and I think that’s something as a society we should all strive for. At least most people can agree that starving and being homeless doesn’t allow for much social mobility or stability for the individual.

  42. So your idea is going to solve the problem that these 83 Federal Govt programs have not——many of which are aimed directly that the issues you just framed.

    Will this new program replace some of these or will it be in addition.

    Again what Is. the estimated cost of UBI?

    Do we buy everyone a house? If we do is the person free to sell the house and use the funds for whatever purpose they want?

    Will we give the people food? Or money ? Or a SNAP like card? Why is this idea better than the current snap program?

  43. I’m not saying I have all the answers, but if the logic is that we should not try to better society because it’s difficult to do so we’d still be stuck in the stone age.

    I feel like you are misunderstanding my point. UBI is just money that can be given to people. I’m not so sold on the idea. But if you could guarantee weekly supply of basic necessities like food and streamline that process so it’s not just another bloated government projects like healthcare in some cases, I feel that is already something that is possible.

    And it’s not like public housing is a new thing and hasn’t worked to improve people’s lives. Whether someone feels that is a valuable use of resources is the only problem that most people seem to have. It seems to be the case of “I have a house and I don’t benefit from public housing argument.” But in reality what world is it better for a child to grow up homeless, and what world is it better for them to be a ward of the state than giving the parents public housing?

    In the long run, I think providing for necessities to live is a necessary outcome from the improved production that comes from automisation and AI. Anything less and you are arguing for people to compete with robots to somehow generate more value. So if you don’t want people to die as they cannot find a purpose in society, we all need to come to a consensus on allocating resources that at the very least allows people to live.

    In the end no one is going to beat AI or automisation in material things, not the best financial whizz or the CEO. It’s just whether they can try to maintain their wealth in the face of the advancement of tech that seems to be their biggest worry.

    I think everyone would benefit from the idea behind UBI- not specifically UBI itself. Because human beings are losing their purpose in this digital/AI world and there isn’t going to be any meaning in allocating resources based on work or generational wealth.

  44. I read lots of ideals but no details —-and the success or failure rests in the details.

  45. Well, taxation is the part most people don’t seem to like if you live in America. Taxation into government spending seems like a good idea to me and has worked for me in the past in UK and Australia. I also believe social programs in scandanavian countries also seem to function well:

    But probably a co-ordinated effort on higher tax rate globally on obscenely wealthy billionaire class so the fear of them fleeing the country with their wealth won’t exist. But the idealisation of such a thing would require less corruption and less mandarins dictating policy globally so it’s going to take a while.

    But the alternative is letting mandarins be mandarins and obscenely wealthy individuals hoard their wealth for no purpose to society. So there is a clear answer which direction we need to go and it’s just a question of how to get there.

    But the worst thing to argue is attempt nothing and expect the ‘free market to sort it self out.’ That’s a recipe for disaster because the only thing it leads to is rich individuals and a poor society.

  46. This is just a little bookmark to say that I am going to come back with more details on how I personally think UBI could be introduced. Over the years, I have a little digital library of thoughts on this but it may take me a little while. Events have conspired against this UK based investment manager - to put it mildly. These are interesting times. I do believe the new UK government is attempting to shoot itself in the foot. So far, with some success…

    In the meantime, it would be good to hear more details about how you feel the political, cultural and security landscape will change - in the face of a tailor-made economic depression for the most vulnerable only? Have you got alternative solutions in mind or are you content with the status quo?

    As has always been the case, it is easy to dismiss new ideas and harder to come up with better ones.

  47. Are we going to have Norway’s social safety net model - coupled with Afghanistan’s immigration model?

    There are about 700 billionaires in the US - if we took a billion from all of them it would clean out about half of them - that would pay for a UBI for about a month at $4,000.

  48. As I said, I don’t affix to the idea of income. But I do affix to the idea of giving food and shelter to people who need them. There isn’t a real price tag attached to what that would cost because we haven’t attempted a universal version of that on any large scale- and that will be necessary to accomodate the future reality where people will cease to have a work purpose in the face of automation and AI.

  49. I guess we could hand out MRE’s to anyone who needs them at a Govt facility --people can get 1 week at time if they find themselves hungry. That may be the most efficient way to solve the hunger problem - of course I am sure that company selected to provide the MRE’s will be chosen based on their level of political giving.

    We could at the same time do away with all other Federal programs that are designed to feed people?

  50. ~11% of the US Federal budget is spent on what you’d call ‘economic security’ programs. If $665b annually isn’t enough then perhaps the problem is one that isn’t solved by bureaucrats catapulting money at people?

    “We just need to spend more money through a series of convoluted and confusing programs run by the most annoying person from your high school graduating class” has a track record of never, ever being correct, but maybe this time is different.

  51. Well the problem is that your lens is through the idea that the government is corrupt. I totally understand your view because you could travel to my birth country and bribe policeman and that’s not exactly an uncommon occurance.

    But you are dismissing any instance in which a central government agency has worked. And in my simple opinion, it has worked quite well in curbing the issues of rampant capitalism. Without some form of government intervention, your water system would be at the mercy of the men who hold the taps and thus the gun to your head. That’s just the end result of capitalism unchecked. I don’t think its a leap to believe housing requiring the same level of intervention. Throw in healthcare and food too.

    But the problem is nothing in this universe as a state is permanent and society as a derivitative is no exception to it. It requires making similiar mistakes and growth periods to get back on the right path- debatable what that path is, but I’d say something similar to UBI is a part of it farther along that path. Anything less and you are advocating for deaths along that path.

    We will reach a point in (mine at least) lifetime barring mishaps that automation will take over many types of jobs, I don’t see how a human being is going to beat a computer in any metric to serve a purpose. At a certain point and in nearly every field, a human being is just the weakness to the system as it pertains to producing value. Once a computer has a human beat, the human being is NOT going to catch up.

    Plus, right now we are at an empasse with widening wealth inequality and there is no path where that can be curbed without some pain (lol) for the rich. I’m not someone with a mathematical background, but it doesn’t take a genius to realise with finite resources, and widening wealth inequality that it just means misallocation of wealth has been ongoing with our current system. An equivalent idea to UBI is necessary to redistribute it as society cannot function optimally with this level of wealth disparity. Or the alternative is once again, we wait until people die.

    But imo, time to try new things and not be scared to try because everyone in government is corrupt and the world is ending anyway. It starts small and builds from there.

    But if one of the target is hunger, we need to end it by saying that “there isn’t a human being that is hungry against his will”. If that requires multiple types of services or just one service doesn’t matter. I mean, it may matter later as people care about how much it’s costing them, but without having the ability to say that in the first place, it doesn’t matter to the hungry person and it doesn’t really matter to me personally.

    But if we could actually say"there isn’t a human being that is hungry against his will" that would be an amazing achievement in itself. Being paralysed about the exact details would mean you’d never try something new because there is no proof it’d work.

  52. Well ofcourse USA is a terrible example of a society that has functioned well with taxation. You pay more per capita for your healthcare and get less out of it. But I’m sure you probably know of other societies where it has worked to have a robust social services.

  53. Let’s not create the strawman argument of limited government vs no government. No one that I know of is arguing for no government. But I would argue , that the benefits of government are non-linear when government spending crosses a certain threshold of GDP and we have far exceeded that level.

    Edit: its also worth noting that many European countries can spend more on the social safety net because the US is paying for their defense.

  54. That’s a fair point on the last part. It could be that is the case.

  55. Avatar for 010101 010101 says:

    It does become difficult to rationalise or limit the humanitarian argument, because it is an emotional position. Does generosity with other peoples’ wealth end at national borders? Of course not. because the recipients are humans.

  56. There are precisely zero other countries of our size that have a system that is even reasonably close to competent. If you have a small, wealthy country with a largely homogenous population and an abundance of natural resources (looking at you, Norway) then yeah, you can have an amazing system.

    We should cap the prices of drugs. Sure, it’ll kill off a truckload of Europeans, but if that’s the price we pay for saving 4% on our insulin then dammit I’m all for it.

    We pay more because American consumers are largely footing the bill for the rest of the world. When Sovaldi came out it cost $84,000 in the US and $900 in India. Now nobody paid $84,000 of course, that was the sticker price. But without US health insurance companies paying up for a revolutionary drug, there’s no way that a single person in India (or the entire continent of Africa) was going to get their hands on that treatment. We subsidize the rest of the world and in exchange for that we get laughed at and shit on by smug Europeans who are burning wood this winter to not freeze to death but want us to believe that they’re the pinnacle of human civilization. Hard pass on that kind of system.

  57. I think you are looking at it too adversarially. I’m in agreement that US funds a lot of ground breaking pharmaceutical research, but I think you could be ignoring the rampant capitalism in the field also. There is no way insulin should cost as much as it does in the US and it’s not a 4% difference in price tags.

  58. I’m looking at it the only way one ever could. Without a profit motivation you get very little in the way of innovation. And having a competitor means by definition the whole game is adversarial. Imperfect as it may be it’s what we have.

  59. Avatar for jewing jewing says:

    One thing in the debate about “how much should Americans pay” is that all of us actually way underestimate the relative amount of taxes individuals in the United States pay compared to the rest of the world. Yes, it is often a bit less than say the Nordics, but it is not the order of magnitude it is made out to be.

    Why? Because our tax system is layered, and federal income taxes are only one part of it. Yet, when compared with Europe, federal income tax rates are the numbers often used - and they are misleading.

    We Americans pay not just federal income taxes, but also Social Security taxes (7%) and Medicare taxes (1.5%) - both of which are part of the social safety net and assessed on top of ‘income’ taxes. Many of us also pay state income taxes (0-10%), and a few unfortunate souls pay municipal income taxes. These numbers quickly add to north of 40% of income for upper middle income earners, and in some cases they can approach 50% of earned income, especially now that state and local tax deductions have been stripped down. In Europe, income taxes often come as a single bill, which is often in the 40-50% range.

    In addition, we also pay very high property taxes compared to the rest of the world, as we choose to fund our schools and many local services out of property taxes instead of income taxes. In many places in Europe, property taxes are measured in the hundreds of dollars even on valuable properties, whereas in the US property taxes are often in the thousands, if not the tens of thousands, of dollars.

    Where Europeans do often pay more is in their VAT taxes. Sales tax varies greatly in the US, from 0% to 10%, but never close to the 15-20% in VAT that is often added to European goods. Frankly, that is probably a tax we could use, and I would happily take a reduction in the burdens above for the introduction of a VAT - but of course that would take one of the most progressive tax codes in the world and make it more regressive.

    More importantly, the point above stands. When comparing strictly the US federal income tax burden to European income taxes, it looks light. But when adding all of the other earned income taxes Americans pay, the disparity is not so great. Add in property taxes, and the gap is even smaller.

  60. Well agree to disagree that profit is the only motive. For the researchers it’s as likely to be about curiosity/accolades/for benefit of others. Maybe the funding is mostly for profit, but not the research itself. Higher taxation would help with any replacement incentive for profit.

  61. Then there are also taxes added to things like gas and hotel rooms , taxes to register your car , and other hidden taxes like licensing fees to sell something in a state like insurance or securities.

    Don’t forget the most regressive of them all --the voluntary tax only poor people pay --the lottery. No casino in Las Vegas could ever lower their slots to an expected payout of 25% or the gaming commission would shut them down in a second—80% is the min. 25% is the expected payout on a lotto scratcher.

  62. The United States health care system is optimized for profitability.

  63. Sorry, I guess I didn’t make it clear, that is the current motive, which we all agree is maybe not optimal when you can charge someone maximum for their life, e.g. “if you don’t take this pill you die, so give me all your money for the rest of your life.”

    But the actual workers who research the drug, create it, distribute it, dispense it, probably none of those people are caring about shareholder profitability. They would do the work for a reasonable wage. So all I’m saying is that maybe healthcare shouldn’t be optimised for profit, but for maximised sustainability of outcome.

  64. So it seems like corruption is the biggest problem before UBI. Because if y’all paying so much taxes and getting nothing out of it, maybe should emulate countries where it works.

  65. Would they ?

    Do you think the ability to earn a very lucrative living is at least in part what drove them to excel in high school , to take on the debt to study hard in college and graduate school? You don’t think these people at the very top of their fields don’t want a high level of compensation with cash and stock?

    Of course they do

  66. So you don’t think generation wealth exists? Do you think they excelled in school or did they get there because their parents paid for a private education?

    The rich aren’t always virtuous or clever. Things don’t always happen for a reason.

    But barring all that, no one makes a billion dollars because they generated a billion dollar worth of value or that they are best stewards to hold unto all that wealth. Sometimes you just get lucky or unlucky.

    So you load the dice a little in each direction to get the best outcome as a society, limit the excess and limit the poverty. I think definitely if Bezos can fly to space for a whim or have a billion dollar super yacht, I don’t think it is unreasonable to say that is a sign of someone with too much money and not as much value.

  67. You need to look up the value of Amazon , because that is the minimum of value he has created.

    Contrary to common knowledge most of the really wealthy people in America got that way because they were clever , and they provided us with something we wanted even if we didn’t know we wanted it at the time — Amazon/Bezo’s is a perfect example.

  68. Under no circumstance would I ever support something this fundamentally immoral. Excess as defined by whom? The governments who produce very little and take very much? The governments who have a monopoly on violence? I don’t want those people within a thousand meters of defining what is considered excessive spending by a private citizen.

  69. Avatar for 010101 010101 says:

    All the contractors who built the yacht and all the crew who work on it etc. That does not include the corresponding entries on bank balance sheets that exist at the same time as the actual capital assets and wages being paid.

    The more wealth in existence, the more there is to be distributed. The rest is mostly semantics.

    Why no discussion of what destroys wealth, what is an exchange of something for nothing, how and why is the vast quantity of wealth consumed for no lasting benefit?

  70. Immorality is extracting value past your means. Im sorry but I think anyone who thinks they deserve a billion dollars is sinful.

    But I’m surprised as to the attitutude towards the goverment. I mean it must generate some sort of value/serve some sort of purpose. I’m not saying money going to the people who run the goverment is a good use of wealth, but government spending directed correctly tends to help people, while private citizens creating super yacht does not.

    Though it does bring up this really interesting thought I’ve had since I read nitzche (I confess this was a pretty recent event maybe 1 or 2 years ago) and it has stuck with me. When you are poor and weak, you have a slave morality of priding yourself in humility and generousity, a.k.a. stuff that benefits a poor person. When you are rich and powerful you pride yourself in master morality of courage and ambition, a.k.a. stuff that you attribute yourself in your success, but basically another form of self serving idealogy.

    So the question isn’t whether my morality or yours is right or wrong, it’s just that when you look at it from the lens of class struggle you’d maybe have a bit more empathy. In this case, I don’t wholy think I’m being unreasonable when I say we should work towards the ideal of universal housing and food, the basic necessities of life basically, something that in the future with automation will be necessarily to implement as being able to survive in that case.

    I think it’s the moral thing to do, but even if not, it’s going to be the most practical thing to do when automation takes jobs away, but even if not, it could lead to a class struggle which unlike previous such struggles society won’t survive and there won’t be any wealth left to allocate.

  71. I polled some of my family about UBI and found (to my surprise) a generally favorable response, but of course the devil is in the details. In hashing out the details, we came to agreement on the following:
    UBI is for all US citizens of age (pick one: 18 is good enough for me) except those serving sentences for convicted criminal offenses.
    Such citizens must have at least one primary residence / address (not a P.O. Box).
    UBI is funded in part by reduced welfare payments (details TBD).
    Social credit / ESG would never influence UBI payments.
    There would be no income test for UBI, but not accepting the UBI would become a tax credit.

  72. So you don’t think a company like amazon wouldn’t have existed without Bezos? Also was amazon such a good thing to exist? I mean capturing all that market share was valuable, which is why he’s worth so much, but was that a good thing for people?

    Sorry, to be clear, when I say value, I mean real world value to other human beings. Not the numbers go up and down type and for yourself.

    Also did he really generate that value by himself? Or did he just manage to allocate the profits to himself?

    I don’t doubt that people in those positions are clever, but whether they are clever in eating much and quicker, or by creating food for others to eat is the question to me. I doubt there is anyone who generates enough value for others to eat that they deserve a billion dollars. At least none that I’ve heard about.

  73. Avatar for 010101 010101 says:

    Have more than a billion people watched the original Star Wars trilogy?
    I would happily pay over $100 for a set of films as entertaining in relative terms.
    So even at $1 per hour of pleasure per person, how much wealth did George Lucas generate?

    Gene Roddenberry

    Isaac Asimov

    JRR Tolkien

  74. Who would have thought that an online used-book aggregator with no profits for years would turn into the juggernaut that Amazon is today. It is truly remarkable. A fellow Princetonian, I fully expect Bezoston to be announced with fervor in the not-too-distant future by Eisgruber, the current president. It’s too bad they both have left such a messy trail.

  75. I think the point is that do you believe he generated billions of dollars in value over everyone who worked for him?

  76. Art is the only thing I’ll concede is based around whatever the buyer wants to pay. But in the case of the film, do you think it was George Lucas who generated the value or his wife who was the editor and by all accounts saved the film? Who generated more value but who extracted the most value then?

  77. Luckily there is a way to test out what someone’s means are worth via public markets and transparent pricing of the assets a person owns. In the case of Mr. Bezos his net worth is precisely what his labor has produced, recalculated thousands of times per day, five days a week.

    Renew your drivers license in California, you’ll be much less surprised.

    It absolutely does! Government, at various levels, is good at a lot of things. But in the mid 1960’s in the US politicians started to veer away from the things government did well–sanitation, regulation of food, drugs, policing, national defense, delivering mail, et al–and they embarked on an adventure to engage in the things that nobody was good at, i.e. solving poverty. Once the mandate shifted there was no going back. From that point on the only answer given by the Bigger Government Now group was to spend more and more each year, with results that did not indicate the plans were working.

    It has little to do with empathy. Jeff Bezos being rich has not made me somehow poor. His purchase of a yacht hasn’t cost me or anyone else a single thing.

    The biggest impediment to more housing has largely been the people who say the same things you do, believe in the same things you do, but when it comes time to vote ‘yes’ for a new subsidized housing project they simply say ‘no’. Here in the States we call them NIMBYs (Not In My Back Yard). They’ve dominated local politics for generations.

  78. I am sorry to reply that I think there is no answer to your question because a statement which is not falsifiable is not-even-wrong. Having said that, I would go on to say that the layering of wealth creation within businesses is stacked in favor of administration / management as is public humiliation, and this paradigm is standard operating procedure for most of our publicly traded companies. Do I like that one CEO has brilliantly worked the system to make himself ultra-wealthy compared to his employees? No, especially since so many small businesses have thereby gone extinct. But isn’t that exactly the point? Consolidate small businesses into a juggernaut that can buy the WAPO and lobby Congress up the wazoo.

  79. Avatar for 010101 010101 says:

    Are the majority of other transactions forced?

  80. Avatar for 010101 010101 says:

    The viewers of the films.

    For rough estimation;

    1 billion viewers X 6 hours of fun = 6 billion hours of enjoyment

  81. The only transaction that is forced upon me is where roughly 1/3 of my income is confiscated each month and spent in ways that I totally disagree with - much of it anyway.

    In every other transaction-- I engage in it freely and believe that I am getting a fair value for my money.

  82. I think absolutely relying on that as a mechanism to attribute value is probably flawed imo. He could have as easily bribed the government for tax breaks and your point would still be valid but his wealth would be illegal, or he pays no tax on it by sending it to tax havens. There is a lot of ways to provide no value and have an inflated net worth.

    Interesting, so you think they haven’t reduced income inequality since 1960s til now?

    It hasn’t? So let me break down by thought process:

    He was part of the team that created the company.

    He extracted the largest value out of the company.

    A value he could have distributed to his workers and other shareholders.

    He buys a super yacht with it.

    Which granted requires maintenance and the building of it.

    But doesn’t provide value to others who were also instrumental to creating the company called amazon. So yes, maybe you won’t care as someone who doesn’t work for amazon, but for someone who does, being denied pee breaks because of metrics the value of which is being used to fund his super yacht, it does seem like he’s costing them.

    I mean, you can tell me where my logical steps broke down in how I think his wealth is at cost to others.

    That’s a fair point. It’s not just the wealthy that is an impediment to change and progress. Everyone can be. Actually, it’s not even a question, if there wasn’t such division amongst people I wouldn’t even have to suggest it, those things would already be implemented, the wealthy mandarins be damned! :smile:

  83. True. But out of the wife and the husband, why is the wife deriving less monetary value from the films even if she’s arguably as or more instrumental to their success?

    Not because George Lucas was so talented, but because his wife didnt negotiate or market her talents at the level it warranted. My point being that in a lot of cases, the value generated and the value allocated aren’t always aligned. You can get more for doing less. Meritocracy only exists in very few cases.

  84. FALSE

    Amazon was founded by Jeff Bezos from his garage in Bellevue, Washington, on July 5, 1994 . Initially an online marketplace for books, it has expanded into a multitude of product categories: a strategy that has earned it the moniker The Everything Store.

    The people that came on board later and the investors early on have become , rightfully , very rich believe me from what I have read in the last hour - way richer than you believe is just.

  85. Avatar for 010101 010101 says:

    Wall St helped a bit.

    Edit: Alright, probably a lot.

  86. Sorry, I wasn’t trying to say created as in from start up, but as in as we see amazon today. But yes, they are all wealthy and I’m not specifically talking about Bezos in particular but he’s easy to point at to get my point across. In reality, I feel that the lowest level of workers shouldn’t have had to work through a tornado and have buildings collapse on them so he effectively gets a super yacht.

    Whats that statistic again?

    So either CEOs have magically become more productive, or tech and digitisation has lead to a more productive society with most of the wealth being accrued at the top.

  87. Probably, but even the foots on the ground helped a bit.

  88. Right, but we’re not talking about those other ways of attaining wealth, we’re talking about this one particular person. The same rule generally applies to any founder of a company that is now publicly traded. If you own an asset–in this case Amazon stock–then you are entitled to the value of that asset, as determined by a market. In the case of someone like Bezos who was the founder and thus owns stock from day one, his worth is tied completely to value that markets believe he creates and the discounted cash flows are the mechanism by which said value is measured.

    Demonstrably not, no. The gaps in income between upper-income and middle- and lower-income households are rising, and the share held by middle-income households is falling | Pew Research Center

    He owns the company. That value is his and he may choose what to do with it. If you own your home are you extracting value from it while someone somewhere sleeps on the streets? Are you causing a homeless person to be even more homeless by not offering your spare bedroom to them?

    They are not indentured servants. They can go work elsewhere. Every job I’ve taken resulted in an initial pay cut because I wanted to leave where I was and go where I believed I would be happier and progress more. One of those times–the biggest one of my career–I absolutely could not afford to make that change, but I did anyway and it after years it paid off. It wasn’t fun, but I knew it had to be done. (I don’t particularly care for Amazon’s worker practices and I don’t know that I would be fit to run a place that requires employees be under that kind of pressure; but it’s also not my choice to make)

  89. So now we are talking about CEO’s --managers of companies not creators of them.

    I don’t know of any billionaires among that class , unless they were also the creator of the company.

    But yes CEO is pay is probably too high , but it is also none of my business unless I am a shareholder of the company , or the company is seeking taxpayer money.

    I think one of the biggest sins thriving in our society today is ENVY. The truth is what somebody else makes is none of my business 9 times out of 10.


    If I feel strongly about the way a company is run and I am not a shareholder I can always choose to boycott its products , there are several companies who products I refuse to buy and actors whose movies I refuse to see. I am sure they will do just fine without me though – and thats ok too.
  90. Right. But there are various ways a government can directly affect the valuation of his worth. Minimum wage at $30 would reduce his take home pay because his workers would derive more value from the work they do for him. Or not provide him with tax credits if he isn’t creating a fairer work environment.

    So what exactly kick started this decline as you see it? Any particular policy? I’m particularly interested where you are going with this one now because I feel like its instrumental to understand your distrust in the government.

    I think there is a degrees to this. No one is asking for him to give up a spare room in his home, no one is asking him to give up eating food so he can give it to children who need it more. All I’m saying is that he doesn’t have a reasonable amount of wealth in that he get’s to decide to go outerspace arbitrarily like I would go to disneyland or build his castle boat like I would build a PC.

    Am I saying I know where to draw lines? Not really. But I am saying in the face of it, he has crossed it. Like most of the other billionaires. And it’s not envy that makes me say this, but because I read about how his workers are required to work like machines to generate this value. The contrast is too stark. I also don’t think it’s sustainable in the long run.

    Any pain he would feel about losing his super yacht, I shed no tears as that probably feeds and houses a a thousand families for years.

    I totally agree with you. But the logic that they can leave unsafe work practices doesn’t seem like a good one. Fine him harshly for each instance of terrible work practices and illegal union busting and see what happens then. That is another form of taxation (well technically it’s just enforcing laws).

  91. Well it was my stance against billionaires in my defense. I just used Bezos as an example. I’d be a lot harsher to generational wealth. :grin:

    Well I imagine you could make it your business if you wanted to protect workers wages.

    I honestly don’t care what anyone earns either (correction- maybe I care a bit when it hits a billion dollars. I feel like that should be the maximum limit). I just sort of think that if people ask me “where will the money come from” when discussing ideas like UBI, I’ll point at the super yacht and say “start there.” Seems logical to me. :grin:

    Oh 100%. But active approaches can work too, you can look at how they have created that wealth and find a targetted way to equalise it. So for example if Bezos found a way to operate at a loss so that he could squeeze his workers later or have a high churn rate to avoid paying for whatever bonuses and perks that comes from being a long term employee, you’d start to think about ways to fix that.

    I’m not saying I know all the intricacies of this plan, but I don’t think wait and see approaches makes sense.

  92. Avatar for 010101 010101 says:

    What happens to the superyact?

    If you confiscate all assets above your arbitrary moral threshold, who do you sell them to, because you have just destroyed that market. Are you just enamoured with the idea of things that are over-indulgent (in your view) not existing?

    Planning on deep sixing what is in effect trillions of dollars of other peoples’
    goods and with it the scale of collateral that they substantiate in leveraged credit instruments is going to hurt everyone, big style.

  93. I’m not saying things that are indulgent should not exist. I’m just saying a super yacht level of indulgence in the face of massive inequality is an indicator of a society that is not functioning very well at extracting away wealth from the yacht owner and providing for the people who are dying.

    Besides, this unfair policy around taxing the rich isn’t a radical idea. On the face of it, taxes are always higher on the rich (lol), the problem is that when you reach a level of wealth that you can do odd tricks like borrowing against assets like Elon to never pay taxes, or having your whole networth tied up in stocks. So essentially people who are billionaires are just better at avoiding taxation in most cases or have mandarin friends who represent their interests.

    So again, I’m not the morality police, I just think the practicality of allowing a class of people who can afford super yacht and then the yodelling about how there is no money to pay for social services seems like a bunch of yahoo to me. But then again, if we are specifically speaking about US, apparently they pay so much taxes and get nothing in return for those taxes (student loan is crippling, healthcare is expensive, public housing sucks, public transport sucks).

  94. Avatar for 010101 010101 says:

    I appreciate your make life fairer for everyone sentiment, but that is all that it is. Emotions.

    Central dictat to control a class is not language that I would expect from an intelligent person like yourself.

  95. Well, I’m still learning and growing. If you feel like there is a better way to distribute finite resources in a fairer manner I’m always ears. I’ve advocated for something similar to UBI because it resonates with me, but I’m not in love with any idea. What would be your ideal way to deal with wealth inequality? Or are you just fine with the status quo?

  96. Avatar for 010101 010101 says:

    I would not try to deal with wealth inequality. I know the Gods would laugh at me.
    I have found a place where I can tolerate and surmount life’s many, many imperfections.

  97. Maybe I shouldn’t have framed it as wealth inequality. Yes, attempting to solve the issue of poverty is icarus. I still think it’s worth trying and something that will need to happen in the future when your wealth is not dependant on your ability to provide any value (because AI beats you anyway) a.k.a. your wealth is not virtuous.

    But what about dealing with the issues of someone not being able to afford necessities to live, a.k.a. housing, food, healthcare with a minimum wage job? Let the free market sort itself out? Or charity as the vehicle to provide? Or let those people die? What’s the option or path you see?

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