A Tweet Thread by Michael Pettis explains.
- During my Sunday seminar a student made a presentation with preliminary data on how Covid-19 has affected the wealth and the income of different households in China, ranked by income. I sort of expected a broadly linear relationship in which the rich and very rich would have…
- …been unaffected or slightly worse off, the middle worse off, and the poor a lot worse off.
According to her data, however, the rich and very rich were actually better off in terms of both income and wealth (the latter, we think, mainly because they owned “better” real… - …estate), while the middle were worse off in both, and the poor were much worse off (in wealth mainly, we think, because of a depletion in savings).
I expected Covid-19 to worsen income inequality, but I was surprised both by the extent to which it did and by the fact that… - …the wealthy actually continued advancing while only the middle and the poor were worse off – at least according to preliminary data. What happened in China won’t necessarily happen elsewhere, but, still, I suspect we will see similar patterns in other countries affected by…
- …Covid-19. The net economic effect of the pandemic, in other words, is likely to be a very substantial transfer of wealth up the income scale. It seems to me that any fiscal or monetary response that doesn’t take this into consideration is likely to be ineffective and maybe…
- …even harmful (if it worsens income inequality).
The US will see similar things but not to the same degree.
Many successful US businesses had far too much leverage and will go under as the economic data has been nothing but grim.
- May 8: Over 20 Million Jobs Lost As Unemployment Rises Most In History
- May 15: Retail Sales Plunge Way More Than Expected
- May 15: Industrial Production Declines Most in 101 Years
Fed Promotes More Free Money
Things are so bad in the US, The Fed asked Congress to step in with fiscal recommendations, especially more deficit increasing measures.
I commented on May 14, Panic Sets In: Fed Promotes More Free Money.
The Fed wants the asset holders to be bailed out and the Fed will try, but the US rich “in general” will not as a class all do better.
Yet, I agree with this key statement: “The net economic effect of the pandemic, in other words, is likely to be a very substantial transfer of wealth up the income scale.”
Mish
Not just the Chinese:
American billionaires got $434 billion richer during the pandemic (so far)
As of last November America had 608 billionaires, that is one in every 538,715 or 0.00000186% of the population. (link to investopedia.com)
So in three months billionaires have been handed an average of $713,815,789,470 each.
But shit, I cannot complain because I got my $1,200. To the MOON Alice!
Classifying people simply according to how rich they are, completely misses the point.
Some people are rich because they can go out and fill Wembley Stadium with people paying GBP100 to hear them sing old songs. Or they are part of a team building world leading stuff at competitive prices.
Those guys’ interest are as diametrically opposed as could be, to those of leeches living off of propped up assets while doing nothing productive whatsoever.
The latter no doubt love nothing more than to be counted and treated as if they have anything at all in common with the former. As I suppose being considered talented, hardworking, productive, innovative and the like, sounds more impressive, to their fragile egos, than being the useless leeches on welfare whose entire, unearned, privileged livelihood depends on nothing more than an all powerful government robbing their productive superiors, as well as children and widows, on their behalf, whch they really are, does.
While the former, bonafide rock stars, may be “rich”, they are still working people. Getting paid what others are voluntarily willing to pay for what they offer in return. While hardly “working class,” they are the bourgeoisie Sechel refers to. And as such, they are really just uncommonly well paid gig economy workers. Nice gigs though, for those who can get them….
As such, they are also harmed by responses aimed at “saving the system” by inflating asset values. By propping up “poppeti vaijues” and all the other pathologies of purely kleptocratic “ownership societies.” “Harmed” may seem a bit relative, in relation to someone who can obtain another million or two for, literally, a song. But harm nonetheless, as they are also having their still formidable purchasing power diluted, solely in order to facilitate privileged nobodies, “aristocrats,” who never did, nor have the aptitude to ever do, anything of value in their whole life, living large simply off of the closeness to the aristocrats’ welfare office which is The Fed.
It’s the same story for everyone productive. They are the ones who have to produce all the value that central banks are then stealing for them by debasement, in order to have something to hand to abject nothings “making money of their home” and “portfolio.” That some of the productive may still have a decent chunk left, even after the robbery, in no way alters that.
“While the former, bonafide rock stars, may be “rich”, they are still working people.” Oh, the poor rock stars with their mansions around the world and big fat investment portfolios. Kicking back – living off the royalties.
I don’t quite follow. If Bono’s wealth manager is any good at riding the system, Bono is doing well. Whereas Joe Sixpack with 50k in a dumb-as-rocks target date fund is going to get the sharp end of the stick over and over.
There is a big difference between a talented Bono making millions singing for millions, and an over the hill Bono collecting similar millions by way of a central bank or hundred debasing the world’s children into starvation to pump up the “assets” his wealth manager manages. The former entails producing value. The latter being the beneficiary value redistributed, aka stolen, from others.
And it’s not a moral argument. It doesn’t make Bono “evil”, nor callous, nor bad in any way, any more than retired people making money from a house they bought, somehow being evil for owning the house they live in.
It’s just that, economically, a decaying, and obsoleting, good like a house, don’t generate value by sitting there. Wall mold don’t produce value. So the only place the gains can come from, is someone’s work being appropriated, then handed to the home owner. The more widespread this redistribution gets, the more inefficient the economy gets, as those people having to do the value add, will face ever higher costs in order to keep the racket propped up. Hence, will be ever less competitive. Until they can no longer compete with even someone as economically illiterate as five year planning communists.
And the story is exactly the same wrt “making money from my portfolio.” Again, The Fed printing money makes those owning stock richer. Yet printing money doesn’t create wealth. So all the wealth handed to those owning stock, has to be created by someone who do create value, then be stolen from them, in order to be handed to the stock owner. There’s simply no two ways about it. Which, of course, doesn’t make someone and “evil” neither capitalist nor anything else, just for buying a mutual fund. After all, leeches aren’t “evil” either. They’re just born leeches.
Shouldn’t someone who has produced value be able to retain some of it for future use? What should Bono do with his legitimately earned money that wouldn’t constitute theft aided by the Fed when he’s moved past the prime of his career? I’m trying to understand how saving works in your system.
“Shouldn’t someone who has produced value be able to retain some of it for future use?”
He should. But not by stealing the “retention” from starving children. Nor from productive people.
With a Gold, or Bitcoin, dollar, Bono could simply, easily and cheaply retain his prior earnings until the end of eternity. Without requiring a runaway government to block access to, hence driving up the cost of, productive capital; for those who could make most efficient productive use of it.
Joe sixpack will get his 3% average return per year over his working life provided the economy grows over that period. The system isnt a zero sum game.
Net of real inflation? I don’t think so. In fact since 2000 more than 100% of all new wealth generated in America has gone to the top 10% and most of that to the 1%. That means they took all gains in national wealth plus at least some of the savings of the lower 90%.
And a major part of the culprit is the favored tax status of unearned income which represents the VAST majority of all 10%’ers income. Earned income at any level is a good thing (possibly excepting drug dealers), but when income is nothing more than clipping coupons on mountains of debt propped up by the Fed and federal government you have extreme disincentive to spend your life going after marginal gains through work.
Investments like gains on Real Estate on an individual basis are not unearned, they require risk and active maintenence in order to realize that gain. As well they provide a public good in the form of shelter that would otherwise become a government moral responsibility to house people.
All I would ask of our system is that the Fed and government stop padding the portfolios of the rich at the expense of working labor and start to treat all income as income, and to tax it at a REASONABLE progressive rate.
There’s a Chinese saying that who gets to use the money is more important than who has the money.
Jack Ma, etc, etc, might appear to be rich, but without approval from the CCP, it’s doubtful they’ll be able to fully utilize their money.
If need be i.e. if it suits the needs of the CCP, their wealth will be confiscated and redistributed.
“Give me control of a nations money, and I care not who writes its laws.” Meyer Rothchild
“The net economic effect of the pandemic, in other words, is likely to be a very substantial transfer of wealth up the income scale.”
…
The masses need more … or the rich (and their assets) need to get less … or civil unrest will grow (along with more hare brained politicians).
Talked to the owner of 5 car dealerships yesterday … received $5 million in PPP … not sweating the rest of the year … at all.
There are 608 billionaires in the country as of November. The average take for them in just three months has been WELL over seven hundred million each on average.
But then they NEED that level of new wealth to even notice it, where you and I got our $1,200 and would have noticed it if it had been just $12.
Nice. By the way, Jeff Besos in the photo of the link you@Herkie linked to is giving the traditional hand gesture, in Greek, of the equivalent of the American middle finger. Very apropos.
Probably giving it to Trump since they are fueding like no corporate boss verses president in our history.
The Fed wants the asset holders to be bailed out and the Fed will try, but the US rich “in general” will not as a class all do better.
I disagree. They will do better because they will have more concentrated power in places that matter. They also will have better access to medicines and health in general. If you want to see what true wealth inequality looks like over a long time, go to places in Asia and Africa where there is much worse wealth inequality. Developed nations are so much better off. A homeless person in America looks wealthy by comparison to some countries in Africa and Asia.
Well of course as a class they will to better, owning even more of what there is to own than ever, but not all of them — there will be some exceptions, also depending on how diversified they are.
As for Africa and Asia, there are a lot of people who won’t be getting kicked out of their house as will most of the unemployed in America. And although Americans have much better access to ventilators, Africans probably have better access to medicines that actually work against Covid-19, since big Pharma has less influence to get institutions to forbid generic drugs.
They dont have houses to get kicked out of in Africa or Asia.
The Fed (Powell) recently said it is his responsibility to attend to the stability of markets which oh by the way 84% of all equities are owned by 10% of the people,so when he says his job is to attend to market stability he is saying his job is to keep the top 10% by wealth wealthy. In the same answer he also said (with a straight face no less) that it is the GOVERNMENT’S job to attend to the economic welfare of the rest of the people and that congress and the president must act to make sure that happens on a POLITICAL basis.
Do you not see the disconnect here? He says he is just pumping trillions into markets as if those very markets were not owned 84% by a small minority of the PEOPLE! He somehow has a mandate to keep 10% of us extremely wealthy via unearned income by simply inventing monetary assets and handing them over to the rich yet does not have the mandate or authority to create the same assets and see that they go to segments of the population that are desperately poor. So poor that no amount of labor or ethics can possibly fish the vast majority of them out of that poverty. They have created structural poverty with word games and accounting frauds.
This was especially true in the GFC when more than 6 million houses were point blank taken from homeowners. Where was the forbearance then? Some of those houses are still unsold and still crippling the credit of the previous owners. My own house was held for 5 years and I am still trying to rebuild all these years later.
Fortunately for the wider public in America the inevitable breaking point is now upon us and real change is about to happen that some are not going to like, but which has to happen or the nation will go down in flames and cease to exist. I am sure they will do it wrong, at least at first, a new economic order is not just born overnight without overshooting the goals or making errors. There will be some revenge involved I am sure. But the slavery and abuse is going to end soon. One way or another.