The Poverty of Wealth

There has been a significant common feature of recent elections both here and in Europe. This is the trend of educated and affluent suburban whites toward leftist candidates. In Germany the Green Party has surged into second place from the outer fringes in that country’s most wealthy areas. Similarly, the substantial Republican erosion in America’s transient white bubble-burbs was a key contributor to the Democrats’ large outperformance in the mid-terms. Of course we may never know how truly large that performance was, as votes will presumably continue being counted until the Dems win whatever number of seats their sponsors consider sufficient.

Regardless of media-approved irregularities, on both sides of the Atlantic the same cohort seems to be smugly sliding a knife into their children’s necks. It’s worth contemplating the psychology of why.

Most readers are likely familiar with the wealth effect. This financial theory posits that bull market participants will spend more lavishly as a result of their paper securities gains, even if their tangible financial condition or income haven’t actually improved. It is, in other words, the psychological phenomenon of mirage optimism.

Consider an analogous wealth mirage. Imagine you inherited a vast, opulent, and meticulously maintained family estate that had been passed down generations. It is your inheritance and you are its steward. You perform required maintenance and add your own meager contributions as time and talent allow. The title of this estate is in your name; you can legally do with it as you choose. Though, perhaps only dimly, you recognize the moral responsibility of maintenance to both your parents and children. For you would have had nothing without the sacrifice and sweat from the former, and the latter will have nothing without yours.

That may be seen by some as a sacred duty, though by others a tedious chose. For instead of an economic life of conscientious upkeep, maintaining security, and small marginal contributions, imagine the lifestyle alternative if one were to feast off the estate’s equity.

What if rooms were sold off as condos to strangers? The pool area relinquished to the city in exchange for daily entrance fees? The adjacent fields and forests leased for mining rights? The estate name and remaining common areas converted for corporate retreats and recruiting? What would that feel like?

It would feel very wealthy, that’s what. Your bank account would be swollen; a Ferrari would gleam where your Camry used to slouch; and the day’s toughest decision would be picking out which Patek Philippe to put on. Suddenly you’ve never felt so optimistic. So here’s the question: are you actually richer or poorer now?

Well, you no longer own an estate passed down a thousand generations, but merely one unit on the property. You have plundered your children’s inheritance—I’m sure they’ll understand if you don’t tell them. And all of your wealth is now in depreciating trappings, rather than the most coveted and productive real estate in the history of the world. On the other hand, you do have a very nice watch.

So returning to whether you are richer or poorer after such a binge of divestitures, I am afraid the average man will answer that with energetic alacrity. He will smile smugly, show you his wrist, and tell you he just made the deal of the century.  It is that psychic mirage from the wealth effect that seems, in my estimation, to be driving the leftward tilt of affluent suburban whites all across the Western condo they’re busily liquidating.

Those who operate businesses benefit from lower labor costs and more consumers. As I have asserted many times, it is this drive for perpetually increasing consumption that makes the appetite for migrants insatiable. Those who own houses benefit from appreciation. Those who buy goods benefit from lower prices. Those who work in corporations benefit from higher stock prices. And those who issue treasury bonds benefit from the world’s most secure employment, given the geometric public debt required to levitate a third world population into the clouds of a first world living standard.

The point I am making is that white suburbanites perceive tangible gains from monitizing their patrimony. They perceive these gains because they are real. What they less perceive is the equally real transfer of ownership that accompanies them. They now have cash but no title. One of these will be worth painfully less in the future; the other pleasantly much more.

But it’s difficult to convince a man he is actually impoverishing himself, family, and community when exquisite pieties are producing cold cash. Sometimes men are ultimately convinced by their old neighbors; sometimes by the new. Though eventually every man feels the stinging loss of home. You can set your watch to it.

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21 thoughts on “The Poverty of Wealth

  1. Pingback: The Poverty of Wealth | Reaction Times

  2. Regarding $380,000 watches, I’m beginning to get more serious about my proposal either to deed countries to billionaires and tell them to run them or to confiscate their wealth above a certain amount.

    • I’ve never felt a pang of resentment toward the rich for being rich. Though I feel perpetual pangs for their relentless attempts to undermine their own nations for the mere sake of stacking another penny.

      I’m convinced by lifelong observation that wealth above a certain threshold turns malicious at a startling rate. Thus from a purely utilitarian standpoint I am for crushing, confiscatory taxation above whatever statistical event horizon that is.

      • Around Thanksgiving some of my family and guests mentioned Jeff Bezos’ 154 billion dollar value. I casually mentioned I’d tax him at 99.99% or merely cap him at something like 25 million. The variously libertarian leaning members were stunned. Stunned. I said think about it: No one needs that level of wealth and if you are honest about human nature, no good can come of it. Even if he thinks he’s doing good, like George Soros, it’s insane to give any member of society that much power. Honestly, I saw a few faces go from bewilderment to contemplation. The idea could have legs if it were discussed more.

        • The problem isn’t Jeff Bezos’ desire for money, it’s his desire for holiness. If we hadn’t replaced the useful religion of Christianity with the suicidally insane religion of Progressivism, Bezos would be building cathedrals, monasteries, orphanages, and such with his money instead of using it to import infinity brown people.

      • I think you have cause and effect backward. It’s not that wealth over a certain threshold turns flesh-and-blood humans into leering sociopathic bugmen; it’s that only leering sociopathic bugmen are so soulless as to worship the accumulation of wealth to the degree necessary to attain it in those amounts.

        • That may very well be accurate.

          In saying wealth turns malicious I wasn’t speculating on cause and effect, but rather just remarking on the conversion rate in practice.

        • Interesting point. One of those types that will pop into my head repeatedly, and cause me to ramble on and on about it to my wife, who is the only on that is contractually obligated to listen to my nonsense. Come to think of it, you probably owe her an apology…

          Its tough to speculate on what you’d do with that much money, though. If I had had 25M, I know exactly what I’d do. If I had 25B, I have no idea what i would do.

          • To be clear, when I said I had no idea what I would do with the 25B or whatever Jeff Bezos has, I don’t mean I think I might turn into him, I just mean that if it dropped into my lap, I’d probably spend a pretty big percentage of it attempting to reverse certain issues plaguing this country. Seeing as how I am perfectly happy living on mid 5 figures, I think I’d count that as money well spent.

        • If that’s true, it just reinforces Fire’s point. All the more insane to allow those members of society in particular to have that much power.

  3. On ZH one finds a catechism of victimhood where it’s “the Fed,” “the Banksters,” etc. who choreograph the entire macabre dance. Just this day one comment stated that low interest rates drove people to load up on debt.

    That is, of course, irrational. Interest rates are set by debt PRICES. Interest rates are thus simply a product of the meeting between people who want to buy debt and people willing to go into debt. It’s simply another way to state a price. And what did low rates tell us? That the desire to buy other people’s IOU’s was nearly insatiable for a time.

    Is this not, like enthusiasm for foreigners, migrants, immivaders, and political promises hither and yon, simply an expression of giddy optimism and openness? It sure seems like it to me.

    Taken to its logical extreme, a people stoned out of their minds on their own endorphins (via self-satisfaction plus indulgence in any or all of today’s nearly endless vices) must surely make the easiest, fattest marks any con artist ever saw.

    I submit to you that decades of skyrocketing addiction to endogenous opioids (the “reward chemicals” in human brains) led to leapfrogging Leftism (embrace of ever-wackier lunacy), open borders, dilution-by-delusion of multi-culturalism and all of the other things we of (hopefully) clearer minds see everywhere our eyes fall.

    It’s not chasing the last penny. It’s oh-so-much-more than that.

    • Ecclesiastes 8:11

      Our culture has gotten away with so much for so long, it’s as if we’re begging God to show us where the boundaries are, once and for all.

    • Interest rates are set by debt PRICES. That’s only technically true. In actuality interest rates are set by the Fed when they should be set by the market. There is no truth in these market signals. The price of debt is set arbitrarily and capriciously to steer the market and those participating in it. If Porter is correct in his characterization of the wealth effect (I believe he is) then artificially stimulating that effect is simply a con.

      • There’s plenty of truth in these market signals. Not the truth of an underlying alpha-signal according to bare economic theory, but rather the cold hard real truth of game theory. People play the Fed’s game because it’s the only game in town and everybody knows that everybody knows that.

  4. Deter & Adobe,

    As they often say, you’re actually both right. Interest rates are set by the Federal Open Market Committee (FOMC) of the Federal Reserve Board. Technically they don’t actually set rates as by edict, but rather they establish rate targets that are reached through open market operations (buying and selling of securities in the market).

    They do this to manipulate the “federal funds rate,” which is the interest rate at which banks borrow reserves from each other.

    The fed funds rate is at the far short end of the yield curve, and is frequently used as a proxy to price many other private debt instruments. So even though the FRB only sets one given interest rate, this number filters broadly though the debt market. As you go further out on the yield curve, the influence of the fed funds rate grows less, but does not disappear.

    As an example, mortgage rates are normally priced off 7-year money. This is mostly a market-derived interest rate—the fed does not set the rate of mortgages or 7 year maturities. I say mostly because if the fed funds rate was at 20% (as it was in 1980), then no one would be making 6% mortgage loans, even though they would be perfectly within their rights to do so.

    When things like an inverted yield curve occur (very mildly the case right now), they are because the FOMC has raised short-term rates higher than where the market has priced longer-term maturities.

    The summary being: no interest rate you as a consumer will ever deal with has actually been set by the government. But the one rate they do target effects everything else in the market.

    All of this being a lot of writing that you both probably knew already.

    • But don’t the Fed’s actions also inordinately effect where money goes? IE: stocks versus bonds? Their effect on the price of debt however oblique distorts that market signal.

      • The FOMC creates or destroys vast amounts of liquidity depending on whether they are buying or selling. That liquidity, waxing or waning, represents an enormously powerful tidal pull in nearly every asset class.

        If the fed is buying, then the cash they handed the sellers could be redeployed to any asset class: debt, equity, bitcoin, or prostitutes.

        If they are selling, they are selling bonds, but again the cash to buy them could come from anywhere.

        So while powerful, I’m prone to say their effect in the market is vehicle agnostic rather than particular to equity or debt.

        However, I won’t say absolutely for fear someone will explain precisely why that isn’t true.

      • Yes. The fed’s actions do indeed influence the stock and bond market. The fed, through their polices, influences interest rates. In recent time, by driving them lower. This lower interest, the lower price of debt, allows companies to borrow money, IE issue bonds, at artificially lower interest rates, and use the money from the bond sales to buy stocks back, which drives the price higher, thereby increasing the bonuses given to board members. Plus all kinds of other stuff. Removing shares from the open market can also artificially increase demand for outstanding shares, and increase EPS. Nice little trick, for a little while. But, like most things regarding our financial system, aren’t sustainable in the long run.

  5. Guys, I’m under the weather & thus too blunt. Your attribution of FOMC cause & effect, while nearly universal, is stupid. No committee sets the price for any actual market. I won’t spend 30 seconds trying to explain why this is so, and sadly it requires a level of abstract thought that makes arguing about it absurd.

    We had a mania.
    It’s probably over.
    Everything will change (if that’s so.)
    A new set of cargo-cult rationalizations will arise to explain it to y’all.

    Enjoy the illusion of wealth while it lingers.

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