Seriously thoughtful US/Europe Cultural Divide -- Musings

[Greg Anos]

To me, you are asking the question backwards. It's not allowing inequality that causes our rate of innovation. It's having a open system, where 2 guys in a garage can create a world class business, not once but multiple times. (not just Apple started in a garage, but HP did also (a generation before)). But there were a dozen (or more) other garages at the time that failed. The result is a more inequal society. The inequality is not a cause of innovation, but a product of it. If you don't have people doing those garage inventions, you will have a more equal society, but much less innovation. (You can have a very inequal society, and not have great rates of innovation. Think USSR circa 1950.)

[slayda]

I think those people who want to "equalize" the wealth should spend a little more time looking at the multitudes of poor that will get part of their wealth rather than concentrating on those few very wealthy whose wealth they want to get a share of.

IMO the very poor are to busy surviving to think of "eqaulizing" the wealth.

[zerospinboson]

Ralph? Have you heard of TomTom? "startups" are not a US-only phenomenon, nor is the "open system" a necessary part.

Originally Posted by slayda

I think those people who want to "equalize" the wealth should spend a little more time looking at the multitudes of poor that will get part of their wealth rather than concentrating on those few very wealthy whose wealth they want to get a share of.

IMO the very poor are to busy surviving to think of "equalizing" the wealth.

Right. "Be grateful for what you have, and whatever you do don't challenge the status quo." People who have enough money not to have to worry about surviving from day to day should know better than to use that time in whatever way they want. In fact, they should spend it worrying that they'll lose it. So your argument against decreasing inequality is "fear the masses".

David Ricardo believed that, only (luckily for us) he was wrong/shortsighted, because when the rabble got enough money to spend to be able to buy other goods other people were producing everyone profited, because the market expanded immeasurably. "Defend what little you have, and for heaven's sake, don't think about the future, or the welfare of other people" indeed.

Anyway, nice try dodging having to reply to my response to your statement that "socialism" is ruling the USA now.

[Sparrow]

Originally Posted by slayda

I think those people who want to "equalize" the wealth should spend a little more time looking at the multitudes of poor that will get part of their wealth rather than concentrating on those few very wealthy whose wealth they want to get a share of.

IMO the very poor are to busy surviving to think of "eqaulizing" the wealth.

I find, as I grow older and more cynical, that I'm developing a fondness for the Victorian notion of the deserving and the undeserving poor.

[Greg Anos]

Originally Posted by zerospinboson

Ralph? Have you heard of TomTom? "startups" are not a US-only phenomenon, nor is the "open system" a necessary part.

I believe I said much less, not zero. And a "open system" makes it much easier for start-up to succeed or fail.

[nekokami]

Can anyone point to a study that measures inventive output per capita in different countries, as a function of economic form? It seems to me that a lot of innovation has come out of Japan, even with their economic problems. I'm afraid I'm not convinced that the ability to fail is intrinsic in the ability to succeed. (And one-sided lists of the things invented in the US are not going to change my mind-- I'm looking for a meaningful comparison.)

[zerospinboson]

Originally Posted by Sparrow

I find, as I grow older and more cynical, that I'm developing a fondness for the Victorian notion of the deserving and the undeserving poor.

But question is: Why should the undeserving rich have to suffer less than the undeserving poor?
Cynicism and misanthropy are just words; the trick is being consistent and fair in applying them. Focussing only on the poor means being unreasonably selective (either because you don't know how to fix it or because you've just become jaded and have stopped caring at all). You can still be a cynic and be engaged, you know
Either they got a better education (from their parents) that they squandered, or they inherited money that they would've never made, but in either case they're better off than the undeserving poor.

[Xenophon]

Originally Posted by BlackVoid

Before you do this, take a look at the japanese stock market for the last 20 years. There is a fair chance that it is happening to other stock markets all around the world. A 20 YEAR BEAR MARKET. Hooray???

Investing is not that easy, you cannot just put money to the same place (stock market) and forget about it. It may work for 40 years, then there are ten years when it is a very bad idea. If that 10 years happens before your retirement, then you will have no retirement.

Actually, I've done that analysis. The scheme I was recommending is certainly not completely resilient in the face of a 20-year bear market, but it comes close. You need to consider a few things to understand this:

• You aren't just investing a lump sum at the beginning, and then asking "what will it be worth after 20 years?" If that was the story, you'd be completely screwed by a long-term bear market.
• Investing 7% of gross income every year (as an example) pushes you in the direction <yourCurrencyHere>-cost averaging. That is, if I'm investing $100 each month and the market is at $50 I buy 2 shares this month. If the market falls to $25, I buy 4 shares that month. My average cost per share is much more attractive this way. Especially because very long bear markets are quite rare.
• You should note that I recommended holding a significant amount of cash or cash-equivalent. This is exactly a hedge against a long-term bear market. As you get older, the percentage of your retirement fund that is in cash should get larger. A typical recommendation is <yourAge>% in cash (if you are very cautious) or .5*<yourAge>% in cash if you are not quite so cautious. Regular rebalancing to maintain this percentage cash helps you to buy more stock at lower prices and sell as the prices rise. Which is exactly the buy-low-sell-high that you need to make money.
• Sensible investors place part of their investment outside their local market. For a US investor, that means a World fund of some sort. Sensible Japanese investors would certainly have taken a hit in their 20-year bear market -- but should also have had some money invested outside Japan. This can't save you from a world-wide meltdown, but it really helps hedge against market problems driven by local policy failure (as in the Japanese case, or in "Kim-Il-Bob's" Zimbabwe).
• Even on the day you retire, you still have (on average) 20 years or more for the market to recover. In nearly all cases your cash hedge should see you through to enough recovery. Assuming, that is, that you've been investing all along.
• NOTHING protects you from a Weimar-Germany-style hyper-inflation. That's not worth worrying about (much) in retirement planning, because there's no practical individual solution.

I haven't run the numbers for the Japanese 20-year bear market. I have, however, run the numbers using historical US market data, including ALL of the down-markets, depressions, and panics since stock market data in the US began.

The assumptions I used for returns on stock investments are that whatever the market did in a given quarter, your investments did 1% worse than that. In addition, I priced new investments for each quarter at the highest price for the quarter -- that is, assuming that you actually bought on the worst possible day each quarter throughout your career! Finally, I assumed that the growth in the retirement account is tax-free, but the money is taxed as ordinary income both when earned (e.g. before investment) and again when withdrawn from the account. This tax treatment is significantly worse than the current state of US law -- we actually pay income tax on retirement investments only once (either before putting $ into the retirement account, or after withdrawal, but not both). Further, post-retirement I assumed that any market sales took place on the lowest-priced day of the quarter.

Using these very pessimistic assumptions, there is no 10-year period in US history where the return for an account is worse than the inflation rate. None. Sliding a career-length window across the historic market and inflation data leads to the result that 7% of gross income starting at age 30 (a late start!) lets you retire at your final wage, and live at that standard for the rest of your expected life leaving a moderate-but-not-huge pot of money to your choice of heir (be it family, gov't, charity, or whatever) -- even in the worst possible choice of dates. If you get lucky on the economy you do better.

This is not a guarantee, of course. We could have hyper-inflation. We could have the fall of the Roman Empire (or equivalent) and go to hell in a handbasket. But for the majority of realistic scenarios, this plan would leave you in fine shape for your retirement.

It also shows what a bad deal Social Security is for todays workers, btw. In the unlikely case that SS pays me every penny they currently promise, I will see roughly a 1% return on that money -- before inflation. My sister's children who are just entering the workforce will see a negative return before inflation. If you are in the US and younger than 55, you are NUTS if you count on Social Security for your retirement -- even based on the promised return.

I don't want to rattle on too long about this. My overall point is that reasonable and sensible strategies can take you a very long way, leaving you screwed in only the very most extreme circumstances. And when I compare against the promises made by Social Security in the US, we'd have to see economic times very substantially worse than the great depression (for a longer period, too!) to screw up a simple plan like this one.

It's not rocket science. Really.

Xenophon

[Greg Anos]

To protect yourself against a hyperinflation, you need a percentage in real assets (unleveraged). This could be metals, real estate in some form, or things that have a long track record of value.

[Greg Anos]

Originally Posted by nekokami

Can anyone point to a study that measures inventive output per capita in different countries, as a function of economic form? It seems to me that a lot of innovation has come out of Japan, even with their economic problems. I'm afraid I'm not convinced that the ability to fail is intrinsic in the ability to succeed. (And one-sided lists of the things invented in the US are not going to change my mind-- I'm looking for a meaningful comparison.)

I'm afraid I don't.

[tirsales]

Originally Posted by Ralph Sir Edward

Take a look at the technology changes of the last 50 years. How much of it was invented/designed/initially brought to market by the US?

Well, have a deep look. Then normalize it "per citizen" and compare it to other nations - no, does not look that well. (Dont get me wrong: US is among the most productive nations - but the difference to e.g. Germany or Japan is not that big (if at all)).
And ... have a second look how many foreign scientists you are buying - and then think about your educational system (I dont believe the German one to be good btw).

That's because of our inequal system, which allows nobodies to excel, (if they have the will and the ability) in a system that is driven to take the new/creative and make money off of it.

Yes, that is certainly true - you have a system that allows for Rockefeller or "making money out of sand".

But (as I've said before), we pay for all of this "creative destruction" with inequality and poverty at the lowest levels. And yes, that's a very real cost.

Just to re-announce this.

But on the profit side of the ledger, look at all the technical innovation the world enjoys due to the results of the American system. where's the EU equivalent of "Silicon Valley" that has had the same world impact as the US one?

Well ... which area was the "driving force behind technology" 100 years ago (using similar social structures) - yes, Western Europe.
And - again - please normalize your values - you should be comparing "US vs the whole of Europe" to be fair, and suddenly it doesnt look so bright.

And any discusion about the American culture needs to include the good, as well as the bad...

This I agree with - and I surely dont want to state, that the Western Europe (or German) system is perfect - far from it. Our system is suffering from its bureaucracy, a "stable" (and I mean this in the most negative way possible) society, abstruse taxation, a far-from-perfect educational system, a healthcare that is very good - but (again) uses far too much bureaucracy, a world-wide trend against citizens rights or human freemdom, etc
No, we are not perfect and we both can learn from each other.

[tirsales]

@slayda: Please dont understand my following statement negative. I value your oppinion and I really dont want to upset or affront you. But I simply have to write it.

Originally Posted by slayda

(what I call socialized medicine)

No this is a statement only an american can make. Please - read again what sozialism is and try not to stubbornly repeat what McCarthy said and the yellow press is repeating over and over again.
A general available-for-all system is NOT sozialism and got NOTHING to do with sozialism - in fact, it would be totally acceptable for a capitalistic system.
You might not like our medical system, but please use proper terms...
(Oh and calculate the overall expense for NOT providing medical services for the poor - its actually more expensive. Just a side-note, I will let you do the research for yourself).

but I hate the idea of bailing out companies that overpay their CEOs (who have led the failure) and still believing that those same CEOs can now (with our tax paid bailout) lead the company to success. This is socialized business practices, IMO.

Also I agree to your statement - again this has NOTHING to do with sozialism.
Sozialism is about the ownership of production capabilities.. In fact a capitalistic system is more then able to spend money into companies...

Although I understand the rationale of "saving the company", I deplore the idea of believing the failed leadership can miraculously lead to success. (Recall that the definition of insanity is to continue to do the same thing but expecting different results.)

I agree (pitty that we are doing the same thing in Europe. But thats politics - politicians want to be re-elected, so they try to look occupied..)

@zerospinboson: I am not allowed to give you Karma at the moment. Would have done for your last posts..

Originally Posted by nekokami

(And one-sided lists of the things invented in the US are not going to change my mind-- I'm looking for a meaningful comparison.)

Thanks.

[tirsales]

Originally Posted by Nate the great

I've found several medical studies that either state or imply heart attacks don't get you emergency surgery in the UK. You're on the same waiting list as anyone else. Can you show that NHS has changed the policy?

Well ... I do not know the medical system in the UK - but it works in the BRD. I have worked as a paramedic, and I have seen more then one person being brought directly from the street (with a heart attack) into emergency care (including surgery).
Just to announce that "general healthcare" does NOT mean bad healthcare. I had my share of accidents (including near-fatal ones) and I have trust in our system

[Lady Blue]

Originally Posted by HarryT

Your comment about 18 week surgery waiting lists applies to "routine" stuff. Obviously, if you have something urgent (like the heart attack that you mention), you get immediate surgery!

Please don't think I'm trying to be a smarta**, but what is meant by "routine" stuff?

[tirsales]

Originally Posted by Lady Blue

Please don't think I'm trying to be a smarta**, but what is meant by "routine" stuff?

There are many different kinds of "routine" surgery - e.g. transplanting an artificial hipjoint. It needs to be done, but (in most cases) its not important whether you wait some weeks.
There are even some operations at the heart (e.g. some kinds of vasodilatation) that are considered "can wait" (in fact: most (thats most, not all) surgical interventions can wait at least some days, if not weeks or months).