Hudson on the Piketty Phenomenon

[DSpencer]

Re: Hudson on the Piketty Phenomenon

Hudson always seems to imply that if you are a rich "monopoly guy" and have $1 million you can go down to the rentier club and simply exchange that $1 million for $2 million risk free and repeat the process over and over.

If he or one of his itulip fans knows of how this actually works in the real world, I'd love to hear all about it. Whether you personally have the money or not, if you can find risk-free passive income (aka rentier)investments with a good return then you can make all the money you want.

The problem is that I'm not convinced this actually exists in the real world. In the real world investors bid up the prices of those type of investments until they don't offer low risk and high returns anymore.

[santafe2]

Re: real estate tax breaks

If you just buy a house and rent it out, you have taxes and risk up the wazoo, which is why I fought my wife tooth and nail not to do that!

I think we differ on this point. Others here have made the exact opposite argument and I've disagreed with them as well. Real estate in most areas of the US is a good investment. We are doing well as we've moved more into real estate. It's not a way to get rich quickly but it provides good income, nice tax breaks and steady appreciation. I don't think one can ask for much more than that.

[gwynedd1]

Re: Depressions and gold

Fixes you could use under a gold standard:

Spend savings previously accumulated.

Why spend when gold is the best asset to own, which it will be in a depression as we have observed several times. Its not speculation.

Borrow against future revenue

Again why? When the money is dead or inflating then one is motivated to deploy it. When its the best investment in town you just hoard it. Its what happened several times. Again, its not speculation.

Debt forgiveness.

It never happens. It will happen even less under a gold standard.

Sell assets.

To the creditors of course who can call it another successful credit squeeze.

Currency depreciation and deficit spending is really just a covert way of doing the first three of these things.

Yes. Thank God for that. Any economic rents that go to finance needs to be utterly destroyed. Any state should sweat profusely in panic the moment that money makes money according to M-M rather than M-C-M.

However once that occurs, and when the credit apparatus of the state falls into their hands, then what was formally a defense has now become a weapon in their hands. It is a mistake to think that an M1 Garand in the hands of a German is a problem with the M1.

Depressions occur because of excess lending. If banks were not allowed to lend amounts greater than deposits, there would be no endogenous financial cycles. Five nobel prize winners, including Akerloff, are backing Kotlikoff's limited purpose banking. Under that system, aggregate lending is less than or equal to aggregate savings.

Agreed. I have been saying so. Gold standard or no gold standard, credit is credit.

[quote]
Another advantage is that savers would have the choice of risk free, non-interest bearing accounts.
[/qote]

Risk free is nothing but a displacement of risk. Like a risk free war , its only because someone else will take the risk. Risk free is a myth. That is why I have no use for Treasury bonds. I consider them inherently evil. Risk free assets should not grow in value.

These would not require any FDIC insurance.

I think the FDIC is anachronistic. We pretend that we don't know our credit accounts are leveraged specie and then we buy insurance for when we stop pretending. Why not just realize that credit is money , or do away with demand deposits? A well run state could just print the money we all thought we had , and then tax it back in when the crisis is over. I fail to understand the need for FDIC with fiat currency.

Considering the interest bearing accounts, the interest getter (investor) would take all the risk, not the bank. No need for FED, since the banks could never fail to return what they owed. Nor would they ever need "over night loans" , bailouts, or what have you. The banks would not be making much money in this system. Boo, hoo !

I think we need to get away from interest bearing everything. I don't draw interest from a plot of land. All things are effectively an equity relationship. An apple in a bad year is worth more than 10 in a good year. Thus an interest rate of 3 apples a year makes no sense in either year.

[LazyBoy]

Re: Hudson on the Piketty Phenomenon

If by "what needs to be done," you mean "how to fix the broken system," we can discuss what brought us to this pass and what needs to be done 'till doomsday, but with the foxes in full control of the henhouse very few of our brilliant ideas will come to fruition.

If by "what needs to be done," you mean "how to protect ourselves and maybe even prosper in this rigged, dysfunctional system," I believe that is where EJ wants to keep the focus. That means focusing more on things as they are, not how they ought to be.

The idea is to stay solvent during the death throes of the FIRE economy, then be part of the building of the TECI economy.

OK. I must confess to not reading the TECI details.
But I thought TECI was a "should happen" not a "will happen" and so, by the logic above, it should not be a focus.
Does POOM naturally lead to TECI? Does POOM preclude FIRE and other "rigged, dysfunctional systems"?

[Thailandnotes]

Re: Hudson on the Piketty Phenomenon

he’s produced a book without any solution, and the free enterprise boys like that. The 1 percent don’t mind being criticized as long as there’s no solution to their problem.

that’s why the neoliberal’s love Piketty. That’s why Krugman loves Piketty. You can’t implement it.

Hudson

Perfect!

[don]

Re: Hudson on the Piketty Phenomenon

he’s produced a book without any solution, and the free enterprise boys like that. The 1 percent don’t mind being criticized as long as there’s no solution to their problem.

that’s why the neoliberal’s love Piketty. That’s why Krugman loves Piketty. You can’t implement it.

Hudson

[don]

Re: Hudson on the Piketty Phenomenon

Hudson on why he's embraced and what's missing . . .

[Polish_Silver]

Depressions and gold

Yes it is true that gold standards do not cause depressions. The issue is that when there is a depression there is no remedy to fix it. Credit can and will grow with gold and then two generations are lost. First is the Austrian complaint. That is to say mis-allocated resources. However a gold standard will cause a second. That is the non-allocation of resources, the complaint raised by MMT.

You cannot allow the best financial investment to be money, especially now. At least under a gold standard, gold mines always ran deficits. A balanced budget has no new supply of money and is purely one of credit expansion and contraction.

Fixes you could use under a gold standard:

Spend savings previously accumulated.
Borrow against future revenue
Debt forgiveness.
Sell assets.

Currency depreciation and deficit spending is really just a covert way of doing the first three of these things.


Depressions occur because of excess lending. If banks were not allowed to lend amounts greater than deposits, there would be no endogenous financial cycles. Five nobel prize winners, including Akerloff, are backing Kotlikoff's limited purpose banking. Under that system, aggregate lending is less than or equal to aggregate savings.

Another advantage is that savers would have the choice of risk free, non-interest bearing accounts. These would not require any FDIC insurance. Considering the interest bearing accounts, the interest getter (investor) would take all the risk, not the bank. No need for FED, since the banks could never fail to return what they owed. Nor would they ever need "over night loans" , bailouts, or what have you. The banks would not be making much money in this system. Boo, hoo !

[Polish_Silver]

Re: Hudson on the Piketty Phenomenon

No, I don't live there, but I do vacation there often, usually to the Dorado Beach area which is a wealthy enclave and absolutely beautiful. PR is a great place. It's easy to get to, no passport needed, I think a hidden gem. I can see that in the current FIRE economy, PR could be a great place for a distressed investment/opportunity if you have a long time horizon.

My reason for posting was more to show how more and more tax breaks for the wealthy/businesses get used to help struggling economies. That's not changing anytime soon. Hudson could rant all he wants but this isn't going away, and the more any economy weakens the more tax breaks there will be.

Is there any good snorkeling or scuba diving? What about hiking?

[gwynedd1]

Re: what is inflation?

If money supply keeps pace with economic output, prices will not rise unless velocity increases.

Under a gold standard, prices are very stable. Contrary to what is usually said, it is not a gold standard that causes deflations, but leveraged lending.

Yes it is true that gold standards do not cause depressions. The issue is that when there is a depression there is no remedy to fix it. Credit can and will grow with gold and then two generations are lost. First is the Austrian complaint. That is to say mis-allocated resources. However a gold standard will cause a second. That is the non-allocation of resources, the complaint raised by MMT.

You cannot allow the best financial investment to be money, especially now. At least under a gold standard, gold mines always ran deficits. A balanced budget has no new supply of money and is purely one of credit expansion and contraction.

[Polish_Silver]

Re: Hudson's lack of distinctions

It is a hot issue around here as well but since the people that benefit the most are the families who have been here for several generations their issues have so far prevailed. There is a family at the end of our street who have lived in the same house for many generations. In fact, they used to own the street and other land around us. It would definitely be a hardship for them if they had to pay prevailing tax rates. On the other hand my neighbors who recently moved in and have no children, pay twice as much tax as we do and that's not fair either so it's a complex issue.

I think that's what happens to most families who inherit land. After a few generations, there is not much wealth left. I am not sure how big of a problem "dynastic wealth" is . Hard to get information because people who have dynastic influence would want to keep quiet about it.

[Polish_Silver]

real estate tax breaks

I don't think speculation is required to stay even. There are times when various asset classes are down and it makes sense to invest in them. Today, real estate is a good investment in many areas of the US. If anyone thinks it's tax free or without risk, they should try it and report back. Over the last couple of years I've been investing there and I can assure you, it's neither easy or without serous tax issues. I think EJ has built a couple of real estate funds and can offer his insights.

It's not often I completely disagree with Hudson but I don't think he understands one thing about real estate.

Eastham capital has acknowledged "tax favored status" for real estate ventures. The tax breaks seem to be mainly for the big fish. You should see the k-1's coming back from them: "no income" 3 years running. Listen to EJ's conference "I survived the real estate bubble" It used to be on the front page. Even the real estate magnates are laughing about the absurd tax breaks they get. Now some of that savings will get passed on to tenants, but the market is not perfectly competitive. If it were, returns would be low.


If you just buy a house and rent it out, you have taxes and risk up the wazoo, which is why I fought my wife tooth and nail not to do that!

[santafe2]

Re: Hudson's lack of distinctions

I am not sure it's fair that you can pass on dirt cheap taxes to children, but it's far from the top of my worry list.

It is a hot issue around here as well but since the people that benefit the most are the families who have been here for several generations their issues have so far prevailed. There is a family at the end of our street who have lived in the same house for many generations. In fact, they used to own the street and other land around us. It would definitely be a hardship for them if they had to pay prevailing tax rates. On the other hand my neighbors who recently moved in and have no children, pay twice as much tax as we do and that's not fair either so it's a complex issue.

[Polish_Silver]

Re: Hudson's lack of distinctions

Good point. Over time, the increased property value would pay off the subway construction cost. However, the owner could sell as soon as the subway was finished, paying only 1 year of higher tax.

Old land owners:
This was also the impetus behind California's proposition 13. Property taxes were going up far faster than incomes for many people. I am not sure it's fair that you can pass on dirt cheap taxes to children, but it's far from the top of my worry list.

[santafe2]

Re: Hudson's lack of distinctions

Hudson's example was a downtown landowner, whose property becomes more valuable because a subway is built nearby. It makes sense to levy a special property tax on property enriched by other tax payers.

This is exactly how property taxes work here. Property is regularly reassessed to its current value. If it works the same way in NYC, no special tax should be required. It makes sense for counties to distinguish between dwellings used as a primary family residence and dwellings operated as a business. Because our primary residence has been in our family for about 30 years, it is taxed at about 1/2 the rate of our rental properties. Some families in Santa Fe have owned their homes for well over 100 years and are taxed at a small percentage of current rate. If they were taxed at anything close to the prevailing rate they would not be able to keep their homes.