Lion of the Blogosphere

The declining importance of non-human capital

The traditional notion of capital is that it’s a transferable asset that makes money for you. So if you have enough capital, you don’t have to work because your money works for you.

This old-school view of capital is no longer applicable to the modern world. Currently, the risk-free return is close to 0% (for example, the 1-month LIBOR rate is 0.19%). Factoring in inflation, capital invested in risk-free investments is actually a wasting asset.

Even stocks, which are not risk-free investments, don’t return as much as they are used to. Look at this chart which shows the dividend rate of the S&P 500 since 1871. You can see that before the drop-off in the 1950s, the dividend yield tended to be around 5%. Even at the very peak of the 1920s bubble, the dividend rate was above 3%. But the dividend rate dropped below 2% in the 1990s, and has generally been under 2% for the last 15 years. The dividend rate today is 1.94%.

People will argue that investors don’t expect to make money from dividends because companies will retain their earnings instead of distributing it, or they will distribute the earnings through stock buybacks or when there’s a corporate takeover. But didn’t these expectations also exist a hundred years ago?

The reason for declining returns to non-human capital is because the returns are going to human capital instead. Or rather, you may call it value transference. Returns that should go to shareholders are instead gong to CEOs and other highly compensated employees, and to Wall Street types such as investment bankers and hedge fund managers.

When you add estate tax on top of assets losing their value over time, in order for future generations to remain wealthy, one must past value-transference capital to one’s descendants. This is why the elite are so concerned with raising their children to that they are positioned to attend elite schools and enter elite career tracks. And why wealthy men are far more likely than you would believe, if you only read “game” blogs, to seek intelligent wives who will pass on good value transference genes to their children rather than bimbo trophy wives.

Written by Lion of the Blogosphere

May 31, 2013 at 9:48 AM

Posted in Wealth

91 Responses

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  1. I wonder if that strategy will work. Steve Sailer recently said:
    “People make a lot of money by (roughly in order) owning things, selling things, and motivating and managing (and firing) people.”

    So maybe it’s best to teach your kids to be good capitalists.

    A rich extroverted guy should certainly marry Catherine Rampell, but a middle-class smart neurotic guy should look for someone who is happy and uncomplicated, so their kid gets some un-self conscious entrepreneurial spirit along with the IQ.

    Fiddlesticks

    May 31, 2013 at 10:08 AM

    • You don’t make money by owning things anymore, that’s the point of the post.

      People who made huge amounts of money from value transference, like Bill Gates, may appear to own a lot of assets, but they have the assets because of their success at value transference.

      • You should debate Steve on this, but sure if you live in Manhattan then things like real estate, trucking, food wholesaling are probably not good investments. Getting permits alone has to be a nightmare.

        The equation is different elsewhere.

        Fiddlesticks

        May 31, 2013 at 10:59 AM

      • But knowing HOW to get permits means you can make money from that knowledge.

      • Owning real estate in a desirable location of Manhattan is a good investment.

        Aren’t retail businesses value transference operators? They don’t make products, but sell them at a profit.

        “But knowing HOW to get permits means you can make money from that knowledge”.

        Aren’t lawyers and accountants value transferors as well? They know “how to” and make money off that. So do pseudo professionals or sophists, such as coaches who also know “how to”.

        It’s rather unfortunate that parasites/scrap feeders are at the top of the food chain, instead being only at the bottom of it.

        But Lion should be mistaken that it is now much harder to attain and even maintain elite status.

        Just Speculating

        May 31, 2013 at 12:09 PM

      • Steve’s right. It just depends what you own. Few people get rich by owning stocks*, but most people do get rich by having ownership stakes in other things (privately held business mainly; residuals in Hollywood can be thought of as ownership stakes in a sense too). Stocks are mostly for the middle class, and for the already extremely rich who need a place in addition to bonds to park their assets.

        I met with the founder of a mobile advertising start-up in New York last month, and asked him the name of a stock he owned to demonstrate my business’s hedging app. He mentioned a tech stock that went public a couple of years ago and said, “that’s the only stock I own”. This is a guy who sold one of his previous companies for several hundred million dollars, so, depending on his stake in it, is probably worth 8 or 9 figures. I’ve heard similar responses from other wealthy folks in tech. Most of his money is probably in venture capital and angel investments. When those investments eventually go public, insiders like him usually sell their stakes.

        *The exception is people who bought stock in a company like Walmart early, and held onto it forever. As Peter Lynch noted, these investors usually buy and hold because they have some emotional connection to the company (e.g., they or their neighbors worked there from the beginning), not because of any special insights that the company was going to be huge.

        A couple of other general comments: looking at stock returns from 1871 is pointless, due to survivorship bias. There were a lot of scams and worthless stocks back then (the railroad bubble was worse than the dot-com bubble in some ways). Also, at the tail end of the secular bear market that followed the great depression (around 1950), stock dividend yields were higher than bond yields, averaging about 7%. That was a great time to buy and hold stocks. An opportunity like that may come again before the end of the current secular bear market.

        Dave Pinsen

        May 31, 2013 at 1:20 PM

      • You need to slice the apple more finely when you make these kinds of statements. if capital means cash, then yes. if capital means an asset, then no.

        The main way people make scads of money is by owning things and selling them. See: David Karp, Zuck et al.

        The problem is what happens once you’ve made the money – and you have $250 million in cash – you are denied earning a return simply for holding capital as you might have for, say, the last 3,000 years. (yeah, since the invention of interest and money). you can still make money as an owner on capital appreciation in the stock market, dividends don’t necessarily matter for that purpose. but bondholders / fixed interest is a bad game except to lend to stupid people who will pay penalties and 30% annual interest.

        the question is whether the current absence of rewards to capital is a permanent trend or a temporary aberration.

        Most currencies fail over time, for the exact reasons we see around the world. the issuers of currencies can’t be trusted not to continually debase them. with electronic money, the debasement potential is unlimited.

        so – rather than assume capital will always be worthless, seems more likely that the relationship will “mean revert” … the USD will eventually collapse. the only way to preserve the value of the dollar is to “own something” – a house, land, a company, previous metals (all forms of capital). all of these assets will be re-valued in the “new” currency, so pick the one that is the least inflated at any given point in time and hold it. bonds and cash will be worthless until a new standard arrives.

        lion of the lionosphere

        May 31, 2013 at 7:18 PM

      • “Owning real estate in a desirable location of Manhattan is a good investment.”

        It doesn’t have to be in a desirable area. A cheap building in a bad neighborhood can yield upwards to 20% return in rental income, assuming you pay cash to purchase it.

        islandmommy

        May 31, 2013 at 8:34 PM

      • “It doesn’t have to be in a desirable area. A cheap building in a bad neighborhood can yield upwards to 20% return in rental income, assuming you pay cash to purchase it”.

        Assuming it’s commercial real estate which would be rented out to someone with capital (not to non-Asian minorities, especially Blacks).

        Just Speculating

        June 1, 2013 at 10:53 AM

      • Donald Trump is the poster boy for getting rich by knowing how to get permits and otherwise work the system. Developers in places like Houston, Nashville, Salt Lake City, etc., don’t get to be super-rich. There are some skills involved in putting together a development, getting it built, and selling it at a profit, and being a successful developer in places like those can make you rich, but it takes having the pull to get the planning and zoning changes required in places like New York or San Francisco, or even getting the state to take away grandma’s house for your casino, to get super-rich as a developer.

        Anthony

        June 1, 2013 at 2:13 PM

  2. “And why wealthy men are far more likely than you would believe, if you only read “game” blogs, to seek intelligent wives who will pass on good value transference genes to their children rather than bimbo trophy wives.”

    This one sentence explains increasing inequality more than anything else.

    If you’ve got a lawyer marrying a lawyer, or a doctor marrying a doctor, that’s a lot of household income.

    And then, on the other side, you have the proles with the single mother headed households, and the alpha type males who exploit them. Maybe one income earner per household, maybe zero.

    Morality drives economics in the modern world, and it is resulting in a “do-it-yourself eugenics”. The unintended consequences are extraordinary.

    Buzzcut

    May 31, 2013 at 10:15 AM

    • And do-it-yourself dysgenics, which will outweigh the eugenics because it produces more children per generation and more generations per century.

      dearieme

      May 31, 2013 at 10:44 AM

  3. Lion, totally agree with you here. For high IQ type guys like Bill Gates, women of equally high IQ are very sexy. My relationship with stupid women were always stressful with stupid arguments, which never lasted long. Most of my long term relationship are from highly intelligent types with mutual appreciation.

    Another point, wealthy parents tend to pass their assets to the loser offsprngs over Nouveau riche ones since nouveau riche really don’t need it. More than often, new generation of nouveau riche are even wealthier than their parents.

    IC

    May 31, 2013 at 10:55 AM

  4. You are confusing financial capital with capital. A printing press is capital, a CD is financial capital. You are right I think that financial capital is no longer a guarantee of growing wealth.

    steve@steve.com

    May 31, 2013 at 11:00 AM

    • People who owned printing presses didn’t do very well, demand for traditional offset printing has dropped because of DIY laser printers. And now, printed books and newspapers are even disappearing.

      • Sales of printed books rose in Europe during the recent recession and have always been high in Japan (manga). Printed journalism probably will disappear though.

        islandmommy

        May 31, 2013 at 11:32 AM

      • You’re being overly literal. The guy means that plant & equipment are forms of capital too.

        Dave Pinsen

        May 31, 2013 at 2:21 PM

      • “Sales of printed books rose in Europe during the recent recession…”

        This is correct as Europeans are into high culture much more than Americans. When did the average American read Moby Dick?

        Better yet, when did the average SWPL in NYC read Henry James’Washington Square?

        Just Speculating

        June 1, 2013 at 11:09 AM

      • I tried reading it once, but it was boring, there were these really long digressions into stuff like whaling that had nothing to do with the characters or the plot. The short story Billy Budd, Sailor is a much better read if you want a taste of Melville.

      • In Germany you can still see train passengers reading from print newspapers. This is partly attributable to Germans (and related countries like Switzerland and Austria) having the highest IQ of any gentile white population at 102. Although even German newspapers are putting paywalls as news increasingly moves to tablets.

        This is correct as Europeans are into high culture much more than Americans.

        The few Americans who read classic literature are more likely to be country club Republican types, not SWPLs. The “educated” liberal set’s literary knowledge is limited to high brow pop culture.

        The Undiscovered Jew

        June 1, 2013 at 12:14 PM

      • “This is correct as Europeans are into high culture much more than Americans. When did the average American read Moby Dick?”

        Maybe. But books like Diary of Wimpy Kid are huge in europe just like here. Comic books are big too. Walking Dead (print version) is even bigger in France than the US. It would be interesting to look at amazon for different countries, and the top seller lists for different genres and ages.

        I agree MD is boring. So are Call of the Wild and Paradise Lost.

        islandmommy

        June 1, 2013 at 5:32 PM

      • Even better is Bartleby.

        Nicolai Yezhov

        June 2, 2013 at 12:57 AM

      • I am an aspie, I don’t like fiction. 😉

        Black_Rose

        June 2, 2013 at 10:45 AM

  5. “they will distribute the earnings through stock buybacks or when there’s a corporate takeover. But didn’t these expectations also exist a hundred years ago?”

    No. In 1953 the tax laws changed and dividends where no longer exempt from income taxes. Prior to 1953 they were exempt.

    http://seekingalpha.com/article/189189-u-s-dividend-cap-gains-tax-rate-history-possible-relevance-to-future-taxation

    “You can see that before the drop-off in the 1950s, the dividend yielded tended to be around 5%.”

    What a coincidence!

    Regarding your overall theory, I don’t think the current interest rates provide the insight that they normally would since the Fed is holding rates artificially low. You need to look at earnings yields (inverse p/e) which are currently in line with the lower end of the range from 1880 – 1991 and on the higher end of the range from 1991 to present.

    If your theory is correct, then earning yields should be decreasing due to either declining corporate profits or higher stock prices. That IS what happened from 1991 to 2007 as a rapidly increasing pool of capital chased slowly increasing profits.

    But in that same time period, the globalization of the pool of human capital was even more dramatic than the increase in investment capital. I think that you are correct that in the U.S. where the government is controlling a majority of the income that connections and rent-seeking will become even more important, but for countries like Switzerland, Singapore, Hong Kong, New Zealand and increasingly Canada that are pursuing sound policy instead of the insanity of the BO left (deficits, exploding spending on the welfare state, massive unskilled immigration) these two trends will offset each other with their citizens becoming increasingly wealthy.

    -Mercy

    Mercy Vetsel

    May 31, 2013 at 11:07 AM

    • Agreed, and did LotB look at the historical wage averages as a percentage of companies’ revenues over the long haul? If employees’ salaries were eating up more of US companies’ revenues, then I’d buy Lion’s argument, because it’s likely being funneled towards the CEOs. If not, then his argument fails.

      This is Lion’s way of saying that the only way to make it now in America is to attend HYP or some elite Liberal Arts school to gain entrance to a peer network that will allow you to capitalize on value transference. This is definitely one route (I actually pursued this path and it has paid off), however creating your own small business is also a way to still achieve wealth. Has he forgotten who the typical “Millionaire Next Door” is? Not an HYP chap, that’s for sure. Nobody who attended Harvard would drive a Lincoln Town Car!

      DdR

      May 31, 2013 at 1:33 PM

      • The millionairs next door will end up as high proles who got lucky.

        colmainen

        June 1, 2013 at 10:39 AM

    • Real estate still seems to be a good investment in Canada. (Though I would be cautious about big cities since that is where the immigrants go. ) Buy land…they’re not making it any more. I wish we could afford to buy some land with a cottage. But at least we own our house and yard and it is paid off.

      My husbands parents used to own about 5 acres of waterfront on Salt Spring Island. They had a cottage there and eventually built a house. When they got too old to live there they sold it and moved to a seniors type condo on the mainland. They could have easily afforded to keep it, but perhaps they felt that would create bad feelings since my husband was the only one of their 3 children who lived in the west and would have been able to use it for recreation. They sold it for about $120,000 in the late 80’s or early 90’s (as I recall) They did well since they only paid about $14,000 for it in the early sixties. But that property would have been been worth several million dollars by the time his mother passed away a couple of years ago. It certainly gained much more value than the money they recieved from selling it, which they had carefully invested.

      Melykin

      May 31, 2013 at 4:10 PM

      • Your husband should have offered to buy it.

        colmainen

        June 1, 2013 at 10:41 AM

    • Bingo. Stock market return must be measured on full return, appreciation AND dividends.

      John

      June 2, 2013 at 2:50 PM

  6. “wealthy men are far more likely than you would believe, if you only read “game” blogs, to seek intelligent wives who will pass on good value transference genes to their children rather than bimbo trophy wives.”

    I’ve noticed this as well. In affluent towns on the East Coast true trophy wives are rare. Most Ivy League types invest a hell of a lot of time and money in their children and aren’t about to jeopardize their precious offspring with the trauma of divorce or bad genes.

    Peter the Shark

    May 31, 2013 at 11:15 AM

    • This is exactly what my friends’ parents are like. They went to schools such as Cornell and MIT, make well into the six digits per year, and all of my friends’ have high IQ fathers AND mothers. But most of my friends’ mothers are beautiful for their age too. SWPL women don’t get fat at nearly the rates that prole women do. Its lovely to see elite school male graduate + elite school female graduate marry, have kids, stay married for life, male has high income, female has nice life at home with the kids, kids turn out to be accomplished and well-rounded.

      SC

      May 31, 2013 at 12:01 PM

    • “bimbo trophy wives.”

      Why do you assume attractiveness correlates with stupidity? It doesn’t. The attractive are more likely to be smarter than average. There is a point though where intelligence begins to negatively correlate with a woman’s looks. I’d say after IQ 130 is that point for women. Men don’t seem to face this problem as men over IQ 130 and even 150 can vary greatly in terms of attractiveness.

      The Undiscovered Jew

      May 31, 2013 at 10:09 PM

  7. On a different note, here is video which makes the blogosphere’s version of the George Zimmerman case (he had to shoot to avoid being beaten to death) even more implausible. The man in the white T-shirt and jeans started a fistfight with the one in the red shorts, and it didn’t turn out well for the first guy. Which isn’t surprising, as Red Shorts is a very big dude, towering over White T-Shirt. The physical advantage is obvious, there’s no equivalent to the pointless speculation over whether Trayvon was one or two inches taller than George, or whether George’s waist measurement was 38 or 40 inches.
    Yet despite being at a massive physical disadvantage, White T-Shirt seems to have survived this encounter with no obvious injuries. At most he has a few bumps and bruises, but nothing like George’s well-documented injuries. This leads me to believe that George Zimmerman ***did not try to fight back or otherwise defend himself**. Whether this was due to his having heard too much about the (nonexistent) physical superiority of black males, or because he was concentrating on drawing his gun, I don’t know.

    http://www.liveleak.com/view?i=62e_1369959784

    Peter

    ironrailsironweights

    May 31, 2013 at 11:51 AM

    • Didn’t you just tell me yesterday that “anyone can get lucky?” Well, anyone can get lucky and emerge from a fight with just minor lumps. Maybe the winner didn’t really want to hurt the guy, or had some forward thinking about the prospect of jail for inflicting serious damage. But I like your intellectual style – not just the uber-anecdotalism, but also blithely equating suburban whites with a self-proclaimed “thug for life.” For the rest of you who can think, remember, blacks practice fighting like whites go to the golf range.

      alonzo portfolio

      May 31, 2013 at 2:53 PM

  8. One reason for the decline of true trophy wives is the sexual revolution and delaying of marriage. Would-have-been trophy wives have lots of pre-marital sex with many alpha males and guys with money, so from the alpha male/successful guy’s perspective there’s no reason you’d have to marry one. Why buy the cow when you can get the milk for free? A pretty girl can act difficult and hard-to-get, but she faces competition from easier women.

    Getting a trophy wife has in fact become a mark of shame. You announce to the world that you are the type of a guy who would not have been able to get laid by hot women in your teens and twenties and that you are now compensating with your new found status. A successful professional I know who is short and nerdy-looking married a hot blonde sales girl. Everyone’s talking about it and their response was basically “tst tst tst.” Now it is true that if a guy’s successful, the wife will be hotter than he is. However, there’s a socially acceptable limit to the hotness/intelligence ratio.

    As for the declining importance of financial capital, I only agree partly. Stocks may not return as much money as in the past, but that’s partly because prices of stocks have been greatly inflated. The lives of people in families tens or millions or more are different from those of you and me. I know because some relatives and relatives’ relatives in the old country are very rich, one even having a controlling share in a publicly traded company. In the old country, it is quite common for rich families to arrange marriages with very smart men or smart families – then, you can have both capitals!

    AsianDude

    May 31, 2013 at 11:55 AM

    • “tens or millions” should be “worth tens of millions”

      AsianDude

      May 31, 2013 at 11:56 AM

    • Your logic is wrong, because ugly women get more sex than hot women. Of course, easier women would be less desirable in the physical dept.

      People usually marry others of similar attractiveness. Why do you think many attractive non-Asian women shun Asian men who are usually less attractive than other males, despite their stellar credentials and reputation as consummate beta providers?

      Just Speculating

      May 31, 2013 at 12:46 PM

      • As our fellow brah Conquistador has always emphasized, women have it much easier than men.

        Ugly women get laid like rockstars, yet ugly men such as Asian guys and Beta nerds are generally incel.

        http://www.hookingupsmart.com/2013/02/12/hookinguprealities/the-most-attractive-women-have-the-least-casual-sex/

        Just Speculating

        May 31, 2013 at 12:54 PM

      • I stated that would-be-trophy-wives have more premarital sex than in the past, due to sexual liberation and delaying of marriage. I didn’t state that they have more casual sex than ugly women. Neither did I state that people usually marry people very different in attractiveness. My point was indeed the opposite.

        AsianDude

        May 31, 2013 at 4:52 PM

      • Your logic is wrong, because ugly women get more sex than hot women.

        Attractive women are more selective and have fewer partners than less attractive ones. And women who are 9 or higher seem attracted to ectopmorphic (skinny) men who aren’t too obviously nerdy. At least they do for LTRs even when they still have a good decade worth of hotness left and don’t need to rush to find a provider beta. For short term sex romps they may go out with a muscle bound dufuss, though.

        Maybe beta characteristics, in calibrated doses, are attractive to higher end women because beta traits such as neotony and intelligence make it less likely a sociable intelligent man will leave her completely in her later years.

        The Undiscovered Jew

        May 31, 2013 at 10:17 PM

      • “A pretty girl can act difficult and hard-to-get, but she faces competition from easier women”.

        Again, those easier women you are talking about are usually overweight and ugly women.

        Just Speculating

        June 1, 2013 at 10:58 AM

      • “For short term sex romps they may go out with a muscle bound dufuss, though”.

        You are talking about prole women. SWPL types aren’t into gym proles.

        Just Speculating

        June 1, 2013 at 10:59 AM

      • “Maybe beta characteristics, in calibrated doses, are attractive to higher end women because beta traits such as neotony and intelligence make it less likely a sociable intelligent man will leave her completely in her later years”.

        Asian men who have a tendency of being pedomorphic and intelligent prove otherwise.

        Just Speculating

        June 1, 2013 at 11:03 AM

      • You are talking about prole women. SWPL types aren’t into gym proles.

        For a short term screw they will. But for a more serious relationship 9s and 10s will go for an ectomorphic dude. And not only when they’re running out of options because of age but because they find those traits inherently attractive, provided he isn’t too beta in other areas. There are lots of intelligent, thin guys with 9s and 10s women in their early 20s.

        Asian men who have a tendency of being pedomorphic and intelligent prove otherwise.

        What I said only applies to intelligent and thin white men because there are other personality, physical, and behavioral areas that high IQ white men don’t share with Asian men.

        Unlike ectomorphic white guys, Asian are too beta in every area, don’t know or pay attention to any cultural events (high or low brow), don’t socialize, aren’t funny at all, and don’t make interesting conversation.

        The Undiscovered Jew

        June 1, 2013 at 12:29 PM

      • “But for a more serious relationship 9s and 10s will go for an ectomorphic dude. And not only when they’re running out of options because of age but because they find those traits inherently attractive, provided he isn’t too beta in other areas. There are lots of intelligent, thin guys with 9s and 10s women in their early 20s”.

        Because women want mesomorphic men who are rarer in numbers than thin men, and dislike fat endormorphic men, ectomorphs would be the most viable option.

        Just Speculating

        June 2, 2013 at 11:37 AM

  9. Oprah becomes the ultimate SWPL by giving a commencement speech at Harvard and receiving an honorary doctors of law degree. Would you classify Oprah as nouveau upper class or nouveau upper middle class? The lesson here is to excel in a value transference field. Market yourself like crazy, create and leverage your brand, and watch your wealth grow. Once you reach a certain level of wealth, a measly 2% apy in a safe investment is good enough to maintain a decent level of compounding growth.

    bobo

    May 31, 2013 at 12:27 PM

  10. Interesting spin on human capital. Usually it’s meant in terms of IQ and work ethic. Now, you’re using it as a proxy for inside information, personal networks, and nepotism. The new definition makes sense. It’s all part of the Latinization of America.

    Portlander

    May 31, 2013 at 1:17 PM

  11. It’s silly to just look at dividends and not total returns (i.e what would happen if you reinvested all dividends). The historical long run is a remarkably consistent ~6.8% after inflation. Here’s an image from a marketwatch.com article by Peter Brimelow and Edwin Rubenstein based on the book “Stocks for the Long Run”

    reynald

    May 31, 2013 at 1:29 PM

    • Marketwatch Gerymanders the data to suit their agenda.

      bobo

      May 31, 2013 at 2:05 PM

      • It’s from a major book called “Stocks for the long Run” and of course it’s interesting to note that Peter Brimelow runs vdare.com and Edwin Rubenstein writes there. here’s the graph since it didn’t embed.

        I agree that this information has been used to manipulate people and understate the risk in stocks.

        reynald

        June 1, 2013 at 1:18 AM

  12. “Human capital” is a confusing term, in this context, btw, because it conflates labor and capital. What you’re really talking about is talent. Consider, for example, two chefs with similar training. One works as an employee, the other owns a chain of successful restaurants. Both have human capital/talent, but the other has real or, as you’d call it, non-human capital (the restaurant chain).

    Dave Pinsen

    May 31, 2013 at 2:29 PM

  13. Lucrative investment opportunities are always there. But if everage Joes notices it, it would be the time to get out of it. Odd lot indicator.

    For underclass, Dunning–Kruger effect is real. They always find their way to feel superior to others. Yes, they are winning in their own head even thought their real life is shit.

    IC

    May 31, 2013 at 3:01 PM

    • If they are happy then their real lives aren’t shit.

      Dave Pinsen

      June 2, 2013 at 5:06 AM

  14. So, you just discovered “it’s who you know, not what you know?”

    I would agree that nepotism and rent seeking are on the rise in this country.

    Comrade

    May 31, 2013 at 3:42 PM

  15. “And why wealthy men are far more likely than you would believe, if you only read “game” blogs, to seek intelligent wives who will pass on good value transference genes to their children rather than bimbo trophy wives.”

    That’s not what “game” blogs say, so you can safely shelve your strawlion of the blogosphere. Men are, first and foremost, attracted to women’s youth and beauty. Wealthy men, just like poor men, will try to marry the best-looking women they can find and attract. Since most of the women that wealthy men attract will be from their social milieu, as a matter of expedience and emergent property, a wealthy man with the game goods is more likely to marry a cute smart girl than a cute dumb girl from the prole side of the tracks. However, many wealthy men have hot mistresses who are, shall we say, not exactly scions of the out of sight class.

    Alos, it’s important to make a distinction between the dating market and the marriage market. The two markets operate in parallel, but are not the same.

    PS Beautiful bimbos have higher IQs on average than ugly women. I know you’ll appreciate that factoid since you’re a stickler for all things HBD.

    just another Slate writer sacrificing his testicles for a pence

    May 31, 2013 at 3:59 PM

  16. The seriously rich do get returns on their capital but not from the stock market or other public markets. Basically, all public financial institutions have been rigged so that gains are appropriated by a few very rich people who participate in private markets from which most people are excluded (partly by SEC rules at the behest of the ultra-rich). If you are rich enough to join the club, you will enjoy gains. If you are just some hardworking schlub of an orthodonist who saved up a couple of million you are relegated to public “investments” provided to distract poor people, which yield negative returns after taxes and inflation. The rigging is partly enforced nowadays by the Fed’s zero-interest-rate policy which competes the returns on all retail “investments” down to approximately zero.

    The only legal way a non-ultra-rich person can get ahead, even with a few million in liquid capital, is quasi-gambling like financing a frozen-yogurt store. That approach offers a negative average return along with a small probability of a positive payoff.

    Longtime Reader

    May 31, 2013 at 4:23 PM

  17. “…or they will distribute the earnings through stock buybacks…”

    And they do. Look at the statement of cashflows. When buybacks are included the “real” dividend rate is doubled.

    Nicolai Yezhov

    May 31, 2013 at 4:39 PM

  18. This post is completely dismissive of the creation of the FIRE economy and the focus on generating asset inflation, which benefits asset holders (top 10% and up) while minimizing cost and wage inflation. America transitioned from a productive economy to a financial economy, starting in the ’80s. This was a product of the high interest rates of the Volcker era turning into the easy money system of Greenspan that fueled more bubbles in assets. Stock buy backs existed years ago, but nowadays they are mostly fueled through management taking out loans due to the easy money FED policy and using the borrowings to buy back stock, artificially inflating the stock as their compensation is tied to it. Money isn’t returned to the stockholders, but commandeered by the technostructure of the management class. This has been the method for decades, and the ’80s leveraged buy out and activist board member trends were a revolt against it. Capital does matter and is a source of wealth as long as your capital holding is aligned in interest with the CEO. The FED blowing back to back to back bubbles with low interest rates warps the view of dividends, returns on all risk assets, and predictions for future growth.

    SOBL1

    May 31, 2013 at 5:38 PM

  19. And why wealthy men are far more likely than you would believe, if you only read “game” blogs, to seek intelligent wives who will pass on good value transference genes to their children rather than bimbo trophy wives.

    Well wealthy men tend to be smart, and smart men tend to choose smart wives, but are the wives of wealthy men any smarter than the wives of equally smart non-wealthy men?

    Bottledwater

    May 31, 2013 at 8:32 PM

  20. “You need to slice the apple more finely when you make these kinds of statements. if capital means cash, then yes. if capital means an asset, then no.”

    Read your post title again.

    @The main way people make scads of money is by owning things and selling them. See: David Karp, Zuck et al.”

    Which is consistent with what Steve and I said.

    “The problem is what happens once you’ve made the money – and you have $250 million in cash – you are denied earning a return simply for holding capital as you might have for, say, the last 3,000 years. (yeah, since the invention of interest and money).”

    A) You’re already rich, so it’s irrelevant to the question of how to get rich.

    B) If you have $250 million, it’s not in a savings account anyway, and there are plenty of ways your family office manager can generate income for you on it in non-traditional assets.

    C) 3000 years ago there was no fractional reserve banking or interest or publicly traded stocks. Your “liquid” assets would have been in gold, which wouldn’t have paid you anything.

    D) Of course interest rates will mean revert. But in the meantime there are returns available to capital in other asset classes. A lot of wealthy investors have purchased productive farmland in recent years, for example.

    Dave Pinsen

    May 31, 2013 at 9:18 PM

  21. If only human capital is still valuable does this mean slavery will make a comeback with elites?

    The Undiscovered Jew

    May 31, 2013 at 9:56 PM

    • Immigrant cheap labor is the modern version of slavery.

      e.d.

      June 1, 2013 at 9:56 AM

    • It is more profitable to free the slaves and let them choose their life.
      Since they have lower IQ, they’ll burn their money away on useless things like monster energy drinks, oversized chrome rims, and appalling fashion wear with the words “Love Pink” printed.
      You only need to take ownership in companies that give these people what they want.
      At the end of the day, the wealth generated by their labor ends up in your pocket anyways without the need to give them lashings with the whip or chain to keep them in line. In America we have a word for the “freed slaves”. They are called the working class.

      Ode

      June 1, 2013 at 5:03 PM

  22. Longtime reader makes a good point. The rich do not get rich from public markets, like stocks. The purpose of the stock market is to provide liquidity and hedging. It is essentially the buy-side to Wall Street’s sell-side. The purpose of pushing the efficient market hypothesis is to get the rest of the country buying and holding financial assets on a periodic basis so that Wall Street types can sell into these markets, like ipos, options contracts, futures, CDO’s, etc.

    Derivatives and insider trades is how the rich make money on their capital.

    map

    May 31, 2013 at 10:07 PM

    • You explain the above comment well. I agree with you somewhat. However, the efficient market hypothesis is not a conspiracy. If anything, accepting the efficient market hypothesis prevents relatively intelligent but not that financially savvy people from being taken advantage of by value transference professionals like mutual fund managers.

      de Broglie

      June 1, 2013 at 12:05 AM

      • Actually, it does just the opposite. The efficient market hypothesis has taught people that “buy and hold” is the best investment strategy they can execute. It has taught people that volatility is simply “random” and does not matter for any kind of investment time-horizon. It has taught people to give a fraction of their income every month to index fund money managers who then buy positions in individual stocks. This is a monthly cash infusion into Wall Street of hundreds of billions of dollars.

        In other words, investors have been conditioned by the efficient market hypothesis to never ask for remittances if their positions suffer real losses. This was unheard of a long time ago. In 1960, if someone saw a 30% decline in their positions, they would demand the balance of their money back, never invest in stock markets, and tell all of their friends how horrible their experience was. Wall Street would be a pale shadow of its current self.

        Instead, EMH index fund investing has led most of the working population to sock money into the stock market no matter what it is doing, resulting in a massive backstop of investment capital that Wall Street can trade into and against. That is why index funds and EMH is so heavily pushed. Far from limiting value-transference, it greatly enhances it.

        map

        June 1, 2013 at 3:23 PM

    • You made a good point in your other comment:

      “In other words, investors have been conditioned by the efficient market hypothesis to never ask for remittances if their positions suffer real losses. This was unheard of a long time ago. ”

      I would add that some of the super rich are hypocrites on this in that they expect the little people to stomach bigger % losses than they themselves would. I wrote about one glaring example of this: http://steamcatapult.com/2010/04/26/joel-greenblatts-advice-for-the-little-people/

      Dave Pinsen

      June 2, 2013 at 5:17 AM

      • Huh…And I liked Joel Greenblatt’s Magic Formula book.

        Dave, I will do you one better: https://personal.vanguard.com/us/FundsAllHoldings?FundId=0040&FundIntExt=INT&tableName=Equity&tableIndex=0&sort=marketValue&sortOrder=desc

        The link above is a listing of the portfolio holdings of the Vanguard S&P 500 index fund. This fund is typically touted as the reference index fund that allows all investors to “become the market”, one that removes volatility and company-specific risk from the equation.

        Look at the way Vanguard balances the portfolio to emulate the S&P 500.

        See, what investors do not get is that the indexes are weighted in favor of the largest firms as measured by stock price times number of outstanding shares. This means the indexes are rigged to move by the biggest clients of the various exchanges. In the case of Vanguard, the top ten firms on their list account for 18% of the value of the entire portfolio, which means these firms account for 18% of the movement of the portfolio. Furthermore, the influence of the remainder of the stocks tapers off.

        in other words, broad market indexes are not really broad market. The volatility of Apple is not offset by the volatility of Molex. Apple completely swamps Molex because it is weighted greater by a mathematical formula that creates the index. Investors are not being paid a premium by virtue of Apple being bigger, but Apple is allowed such an enormous influence on the index. This is a massive screw-job on the public when they think they are reducing volatility in their portfolios when they are not.

        Also, the lack of truly broad-market indexes is why a “small cap” effect exists.

        map

        June 2, 2013 at 6:52 PM

      • Dave, you can now see why John Bogle’s index investing style became so huge. A steady infusion of cash is flowing into the stocks of the exchanges’ biggest clients, which encourages the clients to list and generates large trading fees when the stock moves.

        map

        June 2, 2013 at 6:56 PM

  23. …and this is a good thing. It moves the world towards a more meritocratic environment. It’s much easier for a poor kid to make it to Harvard than to have been born rich.

    Zack

    May 31, 2013 at 10:20 PM

    • First of all, for a kid born poor, anything with any chance of happening, no matter how small, is easier to do than be born rich. Second of all there is no reason to conflate human capital with meritocracy.

      For something like harvard there are certainly elements of meritocracy but remember their admissions, no matter how meritocratic, are based on a student at 16 and 17 years old. And admissions, while certainly dressed up to look like a meritocracy, are really in large part an arcane system rigged by elites who want to be able to gain advantages for their own children by exploiting their own wealth and insider knowledge.

      One’s undergraduate institution is an incredibly silly and indefensible thing to build a meritocracy around.

      reynald

      June 1, 2013 at 2:06 AM

  24. I don’t doubt the value of human capital. However, I wouldn’t write off non-human capital, either. The question should be, “How much can be transferred between generations?”

    You can transfer $10K per year as a “gift” tax free. So each parent can give each child 10K a piece every year. Together, they’re giving $20K to each child every year. Add grandparents and they’re giving each child $40K every year. That’s $800k by their 20th birthday. Assuming the traditional 10% rate of return compounded annually, each kid would have 2.3 million by 20 and about 6.6 million by 30 — at which point I’d expect the grandparents to have expired. If the parents continue to kick in at $20K per year until they expire each child will have over 45 million by the time they’re 50. At which point I’d expect the parents to expire and leave them the remainder of the estate. That’s not even counting the money the kids would make under their own steam. I’m going to say a family could maintain a net worth in excess of 50 million for multiple generations with a simple annual gift. That may not be “TOOS” but it beats a sharp stick in the eye.

    But I doubt that’s even necessary. I haven’t looked into it but I suspect accountants to the rich and famous have plenty of tricks up their sleeve. Both legal and illegal.

    destructure

    June 1, 2013 at 12:26 AM

    • 2 m is the 99th percentile in individual wealth in the US.

      Nicolai Yezhov

      June 1, 2013 at 6:17 PM

    • You have made a mistake in your assumptions.

      Children are supposed to have FOUR grandparents, not two. Therefore, between parents and grandparents, the child can receive 60K per year.

      ScarletNumber

      June 3, 2013 at 2:08 AM

  25. Here’s something posted on Live Leak, in the comment thread for one of that site’s innumerable street fight videos, that would have made all the difference in the world had George Zimmerman read something similar a couple years ago. He wouldn’t be facing criminal charges had he known this basic information.

    “Please Liveleakers, take this advice:

    Take a FEW minutes a week. Not even five minutes to practice punching. You don’t need to join a Jiu Jitsu school or learn Muai Thai or boxing. Just basics. (you can even find free vids on youtube to teach you how to punch/block correctly)

    Practice throwing STRAIGHT punches and keeping your hands UP, covering your face and your FEET planted. We see WAY too much rookie shit in these fight videos.

    How many fights are we going to watch where people WIND UP their punch by cocking their hand back behind their head and throwing a sloppy hook that you can see coming a mile away?

    These are NOT effective punches, either for power, accuracy or conservation of energy. And while you are throwing these ridiculous haymakers, your head, chin, jaw are TOTALLY exposed, making you an easy target.

    In the same amount of time, you could have thrown 3-5 solid punches to the face, probably ending the fight and/or demoralizing your opponent enough that they quit.

    Keep your FEET planted. Stay low. And attack 100%, with all out effort, punching as hard, straight and fast as you can, will defeat 95% of people out there. Don’t “escalate” the fight, starting with shouting, pushing, shoving, then slapping, then punching, etc.

    Once you decide to attack, DO NOT HESITATE. GO IN 100% NO HALF MEASURES. Put all your energy into attacking, do not stop, give them time to gain their footing, keep moving forward, do not let them recover from the “shock and awe effect” of your ferocious attack.

    You DO NOT NEED TO BE A BETTER FIGHTER. YOU NEED TO BE A MORE MENTALLY PREPARED FIGHTER AND MORE MOTIVATED FIGHTER. The win will almost always go to the prepared, motivated, focused fighter, not the guy with the big muscles and big mouth or who wants to “intimidate” you with words and his posture and threats. Ignore all of that. In your head just say to yourself “5,4,3,2,1..okay now” and ferociously beat the daylights out of them. Very few people can recover from a deliberate, focused attack like that. Give them no warning. Even if they touch you first. Relax. Wait. Let them think you’re not going to do anything, then attack.

    Don’t try to grab shirts, bear hug, kick, scream, threaten, call for a truce, call for your home boys, use racial slurs, talk, scream or communicate in any way. You should be too busy breathing.

    Unless you know what you are doing, don’t go for a takedown. (Although a take down takes about 5 minutes to learn, about 3-4 hours to good enough to use.)

    I’m blabbing now. I just wanted to say….Every grown man OWES IT TO HIMSELF to take a FEW minutes a week (preferably longer) and practice throwing punches, visualizing what you will do in a fight, visualize knocking your opponent out with a barrage of straight, powerful, accurate punches. It is WELL worth the investment when the time comes to use it…and the time WILL come…its just a matter of tick tock.”

    Peter

    ironrailsironweights

    June 1, 2013 at 12:27 AM

    • Is it considered “prole” to go all MMA on someone in a physical altercation, as opposed to what would be a seemingly “elite” response of pulling out a fashionable and expensive firearm, which, like watches and cameras, represent the current level of advanced European-derived technology, and simply smoke the aggressor, then demonstrate superior analytical and verbal intelligence by conjuring a justification-narrative that is so seamless and reasonable that it is essentially irrefutable, and by that I don’t mean simply exclaiming, “You think I’m going to FIGHT that orangutan?!”, which would obviously be “prole”.

      • Well, maybe it would have been prole for Zimmerman to have thrown some punches instead of using his gun, but it also would have worked out far, far better for everyone involved.

        Peter

        ironrailsironweights

        June 1, 2013 at 7:33 PM

    • None of this will help you if you are ambushed or attacked by more than one opponent.

      map

      June 1, 2013 at 3:49 PM

    • This isn’t bad advice for someone who already knows how to throw straight punches effectively and powerfully. Most people who haven’t had martial arts or boxing training don’t, though, and it takes a long time to learn. It’s a much more complex movement than a hook and requires a lot more coordination and timing. It feels natural to me and I assume to you, but that’s only because we’ve known how to do it for years.

      That’s why most “instant” self defense classes usually focus on mych simpler movements: foot stomps, knee and elbow strikes, kicks to the knee, etc.

      Dave Pinsen

      June 2, 2013 at 5:31 AM

      • One boxing guide I read said that the left jab is the only punch that should be used in a street fight as it’s the only one that does not cause the person throwing the punch to go off balance. With all other punches there’s a momentary imbalance, which can have unfortunate results.

        Peter

        ironrailsironweights

        June 2, 2013 at 11:12 PM

  26. If only human capital is still valuable does this mean slavery will make a comeback with elites?

    Slaves are humans and also capital, but they’re not “human capital” by anyone’s definition.

    Camlost

    June 1, 2013 at 10:19 AM

    • Slaves are humans and also capital, but they’re not “human capital” by anyone’s definition.

      Definitions were meant to be re-written.

      The Undiscovered Jew

      June 1, 2013 at 12:36 PM

    • Slave, wage slave. What’s the difference? The proletariat are the slaves. The bourgeoisie are the masters.

      The more things change, the more they stay the same.

      Nicolai Yezhov

      June 1, 2013 at 6:19 PM

      • Here is dialectical materialism:

        master, slave
        serf, lord
        peasant, lord
        proletariat, bourgeoisie

        What’s next?

        And contra the USSR haters when everyone is a state slave it’s better than almost everyone a slave to a small minority. Why? Ressentiment, Nietzsche’s ressentiment.

        Nicolai Yezhov

        June 1, 2013 at 9:10 PM

      • Even in communist systems, there is always a population subset smart enough, or unethical enough, or both, to game the system and climb to the elite echelons at the expense of others.

        islandmommy

        June 2, 2013 at 8:18 AM

      • “What’s next?”

        robot bourgeoisie

        bourgeoisie robot

        robot

  27. “The few Americans who read classic literature are more likely to be country club Republican types, not SWPLs. The “educated” liberal set’s literary knowledge is limited to high brow pop culture”.

    TUJ might be onto something, with the exception of professors and the usual college class in Literature 101, most “educated” liberals do not read or have an interest in anything remotely “classical”. Ask any SWPL in the streets of NYC, if they have read or heard of Henry James’ Washington Heights, and most of them would say no and even shrug their shoulders. Their reading diet consists mostly of contemporary NYT bestsellers, written by other liberals that come off as “high brow”. If anyone wants to call out sour grapes with the liberal elite, they are culturally deficient with poor tastes and low standards.

    Just Speculating

    June 4, 2013 at 10:06 AM

    • Henry James’ wrote Washington Square not Washington Heights. But I agree with the point. Conservatives are biased in favor of stability and tradition. Liberals are biased in favor of change and new. Therefore, conservatives will gravitate to the classics and liberals to current best sellers.

      destructure

      June 4, 2013 at 5:16 PM

      • Liberals do love writings of some “classic” female authors, where they can insert feminism between the lines. There are whole college courses based on doing this.

        islandmommy

        June 5, 2013 at 11:02 AM

  28. […] The declining importance of non-human capital […]


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