The scenario you led with was clearly designed to be invidious ("rich guy with $100K lying around to spend on a Lamborghini or invest") but a lot of investors are ordinary people putting away money for retirement or contingencies. At least to me it is entirely "fair" that such investors have an upside for deferring consumptions for years or decades.
Also, as to the free 1% from "risk free" t-bills: you left out taxes. After tax, any high-income investor is lucky to not lose purchasing power if they only invest in t-bills or munis. And that's before assuming the risk of a rapid devaluation.
It always makes me queasy when people talk about "fair" because the term is so subjective. I'm glad you mostly focus on the policy question of how investment affects the economy and society.
In principle, exempting all "capital" income in equilibrium is the same as taxing only consumption. I say that administratively it is easier to classify expenditures as saving/investment or consumption than to classify income as capital, non-capital. The indexing of capital gains tax is and example.
Might be worth noting that when I buy a share of stock my money doesn’t go to the company, unless I’m buying from the company in an IPO or subsequent offering. Usually my money goes to someone who owns a share and wants to sell. So I’m usually not investing in the company. The existence of a trading market in company shares does assist the company in raising capital by setting a market price.
When you buy stock in an established company you are increasing the value of the business, and if the company pays dividends, you are buying part of that cash stream, and the company is paying money to shareholders. But by increasing the demand for the stock, these investors make the share price rise and thus the market capitalization. This makes it easier for the company to get loans for investments and if they were to be acquired by a larger company makes the price they would get higher. Also many of the company employees hold stock, so this raises their wealth. The company can make subsequent stock offerings to raise cash, but typically do the opposite by buying their own shares on the market. The most important point is that the secondary market for shares is what incentivized the original investors to create the company in the first place.
I had the same thought about IPOs, but I think from Noah's perspective it makes the narrative more confusing. I probably would have just put this point in a footnote.
After all, when you buy stock, you could conceptually trace it back to the person who bought it in the IPO. The person buying it today in the secondary market is giving the original IPO purchaser a way to lock in their gains (or losses). If you couldn't ever sell stock, then that's additional risk the IPO purchaser would have to bear.
Also, firms are constantly buying back stock (to a lesser extent selling additional new stock) and issuing dividends. Which complicates the discussion further.
Company always has the potential to issue new shares. A $100B company can do a lot more than a $100M company by issuing a secondary offering or issuing stock based compensation or using its own stock as collateral.
This is the story I've always been told. Investing is the decision to forego consumption to build capital with the expectation that it will increase productivity. I can do it by myself: I will work more, and rest less, so I can build a tool that makes my normal work easier and faster. I can work more so I can pay someone to build the tool for me. I can work more so I can buy the tool and give it to someone who does not have it, so his work becomes more productive. I can give some money to someone who knows which tools are useful, so they can buy them and give them to other people. And so on, with increasing intermediation, until we have the modern system in which causation is near-impossible to understand.
And yet…the last time you went on a vacation the airplane flew, someone built it, someone piloted it, someone fueled it, someone printed those little tags for your luggage…they got paid and you enjoyed your vacation. That mind boggling chain of intermediated investments in tools and labor somehow produced exactly what you wanted.
The whole argument turns on ‘fairness’, a loaded word, to say the least, and used most often – or assumed to mean most often - a degree of equality of outcome. At its extreme, everything is fair if everyone has the same, as in a communist paradise.
But an economy is made up of people. Economists think people are rational – I’m not so sure. I have always thought that people are emotional and political and that they rationalize their arguments to justify their decision to themselves or to others. (I have never sat in on a Board meeting without wondering afterwards whether anyone made any rational decision at all.)
People are competitive – at all levels even in negotiating the price of beans at a market. So this means that fairness is not an outcome, because in trying to make it so you are militating against people’s natural tendencies, and is that fair to them? The world isn’t fair – some people will end up being rich and others will end up be3ing poor. But the key to making the world prosperous and happier is in giving its participants a stake in the deal – making them feel ownership. I don’t know anyone who feels ownership as a result of being told they have to have equality of outcomes, but I do know people who feel ownership when they are given the chance to make things better for themselves (‘better’ being a personal thing). This is true of any walk of life – and is the root of getting people in big organisations – whether government or corporations – to successfully navigate the changing context of the economy – the original meaning of Change Management in the 1990s. So is it fair to press a button to invest in the S & P ETF? Fair to whom? To the person who does it and takes a risk in doing so? To the rest of society – not only in the way Noah describes – but also in the extent to which society can benefit from the wealth created – by progressive taxation that re-distributes wealth across society? And that is another question: does our current tax system do that properly? Who benefits from the redistribution at the moment? How can we give everyone a stake in the game? Another topic for discussion, I suggest.
Great comment, Matthew. I will add that there are at least 5 distinct definitions of fair, and only one is equality of outcome regardless of contribution (Marxist fairness).
Others include 1) outcomes relative to contributions, 2) outcomes based upon faithfully following the rules, and 3) outcomes defined by one’s role, and 4) the fairness of higher order rules that one would choose behind a veil (Harsanyian).
Critics of markets often blur all these distinctions for rhetorical impact.
We are seeing that if inequality gets too great, it fucks with brain development of the next generation, so there's reason to put some boundaries on max and min outcomes.
Sorta tangential, but (A) I don't think Matt Bruenig's argument was entirely normative (his X comment suggests that he doesn't think capital investor's are functionally necessary for modern postindustrial economies, a debatable proposition to say the least), and (B) there's nothing wrong with making a normative case based on "fairness" (or any other vague normative concept) so long as you thoroughly spell out your argument.
It's very possible I'm just missing something. But while I find the questions laid out in this piece interesting, I find the Bruenig tweet confusing. Why does the blindness of the trust matter for the thought experiment?
Paying someone with greater expertise to do something that is opaque to the "buyer" seems both common and obvious.
"An electrician, where a property owner pays a person to fix something the owner does not understand, without explaining exactly what the fix entails, is like a thought experiment you would construct to tease out whether property owners actually need electricity"
...That's not a profound thought experiment. It's just stupid on its face.
And all this ignore that fact that, as I understand it, the primary reason for a blind trust, rather than just, having a financial advisor who DOES tell the client what they are doing with the money, is because it is either legally required, or else would be harmful to not have one.
You can ask the question Noah does, about whether it's fair or good or useful for stock market investments to provide so much value, without bringing in blind trusts or money managers or anything like that.
I've lost a lot of faith over the past few years in the stock market's connection to real business outcomes, and therefore to it's likelihood of driving efficient capital investment.
-Telsa is valued at more than the rest of the auto industry combined, despite holding only a tiny fraction of industry revenue or profits, consistently declining revenue, a brand value collapse, and being technologically lapped by several other companies.
-Meme stocks just keep going...Gamestop has held most of its insane valuation increase for several years now.
-Bitcoin has shown that an asset with almost zero prospects of generating productive revenue can be worth over a $1 trillion. If Bitcoin can be worth this much, why not any other asset that generates no real world revenues.
My prediction: the whole thing is a house of cards in a way that it wasn't for sustained periods in the past. It'll collapse and China, with its growing command of actual value creation will rule the world. But I realize this is a crank-style belief.
Tesla’s valuation is based on the hope of self driving cars and humanoid robots, it’s absolutely overvalued as a EV maker. NVidia also seems overvalued, but they have big risks because they depend on TSMC and ASML to make their chips, and depend on data centers continuing to be built.
There is a stock that has risen more than all of these in the last 5 years, and it is BBW, which if you invested Noah’s $100,000 in it in 2020 you would now have $2,300,000, compared to $1,450,000 for NVidia or only $310,000 for Tesla. What is BBW? They are in a mall near you: Build-A-Bear Workshop.
TSMC is the best but Samsung and Intel aren't /incredibly/ behind them.
ASML, Zeiss, and several other suppliers are harder to replace. Canon, Nikon or SMIC could catch up with 5-10 years depending on how many employees they could poach.
So you didn't lose the faith during the dot-com bubble or the housing bubble? There is a new technology, Ai. It is pretty well established that when a new technology comes out we will over-invest in it, the market will reset, and life will continue on.
I think Ai is a bubble, but I don't think it's entirely disconnected from reality. A lot like the dot-com bubble. Both represent sea changes in which a few companies will make a massive amount of money - investors are just gambling they'll pick the right one.
If Pets.com remained valued in the multi-billions for several years after it was clear they wouldn't be growing anymore and Pets.byd overtook them, I would've lost faith then.
The housing bubble issues was mostly happening in the shadows (credit default swaps, etc.)
AI investment looks a lot like the investment in telecom infrastructure. They’ll overinvest in it, some companies will go bankrupt, and others will buy the infrastructure at pennies on the dollar. Over time, we will come up with profitable uses for that infrastructure and it will be a net benefit to the economy. This happened with railroads in the US and UK, which were really the first “tech bubble” in history.
The fact that companies like Microsoft and Google are structuring a lot of these investments in things like SPACs leads me to believe they see this coming, and intend to not bankrupt themselves, so they can buy the assets themselves when this happens.
I believe this is also why Apple isn’t going full-bore into AI - they have hundreds of billions in cash that they can use to swoop in after the bubble bursts.
You are looking at Pets.com with hindsight. In the moment you would not have know if it was clear or not. I guess my point is don't lose faith. Tesla is valued as an Ai winner, not a car company. Gamestop has an $11B market cap, it couldn't be more irrelevant to the market, Bitcoin (Gold) has existed forever).
I'm a big fan of the Chinese style of economic interventionism, but I'm not so sure they'll end up replacing the US. They're further down the demographic transition curve than we are, and as far as I know, they haven't made any notable improvements in that regard.
would love it if this was true, but don't think it is.
1. Absolute numbers matter more than relative. China is still producing way more babies than the US.
2. Relative numbers only matter in that old people are a drain on finances. That's much less true in China than the US, since they don't spend an absurd amount of money on geriatric eldercare (or have generous social security.)
3. China's massive investments in robotics will further mitigate the problem of prime age workforce reduction (which again, will still remain much larger there than in the US)
I love that you’re diving into this topic. From an ethical/social perspective, what has always struck me as unfair is the “feedback” nature of interest: Debt is harder and harder to dig out of, and wealth is easier and easier to compound.
Even though I do think it’s fine to earn on savings on principal in principle, there seems to be something extremely not-progressive going on, in a way that progressive income taxes address in the “wages” realm.
Said another way: not many people would object to someone saving $1000 and investing it in their hardware store down the street and earning back $100. Or even buying $1k of S&P and earning back $100. But, it’s kind of insane to let someone put in $10M and earn back $1M, effortlessly harvesting millions of dollars. Each subsequent million should be harder to earn, not easier, right?
"Debt is harder and harder to dig out of, and wealth is easier and easier to compound."
Talk to any asset manager and they'll tell you that it's actually easier to get high returns on lower capital amounts than high ones. If you have a million to invest you can (in theory) find some undervalued company and invest in it to get great returns. If you have a trillion there are not enough assets out there for you to buy and you'll be investing on the market at large for much lower returns.
Don't you generally get the best returns by firing all the asset managers and putting it in an index fund? Alternative investments are for uncorrelated returns, not because they're better.
If you are thinking the world of investment is already vetted (went to IPO) companies that listed onto a regulated stock exchange, then to a certain extent as a retail investor, yes.
that of course mistakes all investment as identical to investment into a liquid, well-regulated stock exchange whose listed companies have been reasonably screened in (to achieve IPO).
and it rather abstracts away from all the prior effort that led to this.
once one starts trying markets that don't have such features, one tends to learn not to simply assume the benefits exist.
Yes but you shouldn't try those markets, you should buy an index fund. Institutional investors aren't in those markets because it's a good idea, but because their emotional idea of themselves as fancy institutional investors requires them to do fancy alternative things.
A. the wider market of capital investment is not synonymous with retail or index investing in the small sub-set (albeit highly visible) that is public exchange listed publicly traded stocks. Or even more broadly, publicly traded listed securities. Americans are particularly prone to this error as US has per capita the biggest range of publicly trade investment securities but that's virtually unique globally and still misses significant swaths of capital investment that are not in publicly listed exchanges.
B. the availability and potential of public markets depends on a wider market that feeds new paper/companies of listable quality to the public markets - and that needs active investment development or the public markets wither via attrition and lock-up (and equally the risk capital funding to innovation / growth dries up or struggles to emerge as without listing trade sales are not enough. the comparative of VC in EU to US or UK is demonstrative although one can see this much more broadly globally
A pure focus on the utility of the Index fund for publicly traded securities (and it is unquestionably useful and efficient) reminds me of the Tech investment space particulalry out of US over the past decades which has lazily simply assumed the infrastrcutures and ecosysystems just magically spring up - taking for granted the infrastructure and business ecosystems that actually laid the foundational base.
A major reason why so much global tech play trying for developing markets has fallen flat on its face, they assume that the Amazon etc could develop purely from internet but the reality is there needs to be a wider infrastructure (logistics servicing industries, physical infra of course etc). - and it can't just be assumed to spring up.
If everyone does 100% index, passive eventually the Free Riding will see a public market impoverishment.
The Alt Assets investors are providing a fundamental service to the wider investment market (well not all of them, I won't defend the excessive development of Alt of which mega PE as well as Hedgies, but growth PE and VC certainly)
Assuming the ecosystem, assuming the availability of public paper to trade is an error. It's an error that becomes very visible when one examines developing markets where the cases of early flourishing and then a kind of investment anorexia (in my view largely from oligarchic economies where the 'big families' actively obstruct).
Depends on the asset. Inflation won’t make stock prices, bond prices (except something like Treasury I-bonds) or money in a savings account also go up in value. Real estate prices seem to go up regardless of inflation beca of tight supply, and rising inflation means lower corporate profits and would make stocks less valuable. If the dollar price of an asset stays the same but the dollar loses value so does the value of your asset. If you have gold or other precious metals, they will go up in value if dollars get cheaper, but they would collapse if an asteroid mining company succeeds in vastly increasing the supply.
Some do, some don’t. That said, I should have focused more narrowly on bank loans as assets to the bank; they lose value with inflation (the money they get back is worth less) and if they are fixed rate, increasing interest rates to fight inflation reduces their real return.
Accounting for inflation, my 2.5% mortgage was generating a negative rate of return. I suspect it’s been packaged up and sold on to some entity that wants to hedge against riskier investments.
If 1000 people each put in $1000 and invest the pool the return must be the same as if one person invests $1M. So there’s no practical way to reward the former more than the latter.
In fact usually it’s the opposite, since pooling adds transaction costs. So large single investors can get even better returns.
You do, to some degree. Base capital gains rate is 15% but goes to 20% if your AGI (or modified AGI, I can't recall) gets too high. And the Obamacare special 3.8% kicks in as well at some level. So, cap gains can be anywhere between 15% and 23.8%
They're still way lower than peak income tax rates, even than today's historically low peak rate of 37%.
The idea is that 10 million dollars helps not just the individual but the rest of society by funding productive uses of capital. To restore some fairness to the system see my reply to Max F as one approach.
Should be? The question to ask is if a system where it got harder to invest as money grows would lead to a better complex adaptive system or a worse one? I think I know the answer to that.
I’m not sure I follow why your argument wouldn’t also apply to progressive income taxes?
There are a lot of ways to crank the economic efficiency and output higher that we choose not to do, because we need to balance social outcomes that we value. For example, minimum wages and progressive income tax.
I think progressive taxes pass the test. I would recommend something like a 25% flat tax with an exemption of say $50k, which would be very progressive. Minimum wages seem to do more harm than good.
The focus on fairness or equality is misguided. I would much rather live in a world with a covid vaccine and ungodly rich pharmaceutical exec's, than a world with no vaccine and more equality. I would much rather live in a world where a rich Elon is able to give me internet in the middle of no where, than a world where Elon isn't rich and I have no internet.
Of course the fairness proponents assert that we can have both the vaccine and more equality. Okay, but I want the vaccine and.... the next great invention. I'd rather be middle class today than rich in 1900. That's because of technological progress, not equality.
The focus should be on what is going to bring tomorrow's technologies into the present. That is what makes people's lives better. Maye more equality would do that. But no one argues that. They argue equality is just inherently better and fairer. The other side at least argues their way leads to better progress.
It's not a matter of how much you sacrifice that determines you're right to earn money. It's a matter of how much you contribute. Nobody should be paid less because they enjoy their job, or more because they hate their job. Otherwise janitors would be the highest paid people in the country, and movie stars would make minimum wage. The issue is not how much you sacrifice but how much you contribute. If you contribute something to a process that produces wealth, you have a right to some of that wealth.
Having worked at a company whose share price fluctuated significantly over the past years it’s pretty clear that when it’s high the company increases hiring and capital investment. And when it’s low they slow down investment and pursue layoffs. So to me this looks like the capital allocation of equity investors is actually working exactly as we would want.
As for index investors, an overlooked point is that they amplify the influence of active traders. Shares are priced on the margin by active traders but the net effect depends on the total market cap, which is driven higher by index investors. So by locking up your money in an index fund you are contributing to the economy by allowing active trading to have a stronger effect on directing capital.
Finally, I find discussions of “fair” distasteful since they generally devolve into each person thinking whatever benefits them is fair. If I earned $100k and spent it all and you earned $100k and invested $50k, then earned $10k returns, I don’t see how that is inherently unfair. I made a choice to pursue consumption, it seems like I’m trying to have my cake and eat it too if I now turn around and say well you need to give up more of your returns to me. And in the end we all die anyway and you can argue that whoever consumed the most “won” so ultimately all money should used for consumption. Investing is just deferring it.
MMMM- well as a starting point the discussion collapses "investing" into what is more or less "retail investing in the stock market into publicly listed equities"
And that's quite distortive as it overfocuses on a specific sub-set of investment.*
Also somewhat uniquely American given financing and investment outside of US for productive investment into the private sector is much much less publicly listed company driven (versus Bank financing and similar vehicles that are transforming savings into investment differently). Bank financing and near-bank finaning is really dominant for Europe.
(the Blind Trust tweet is just... well.... dumb. I don't even have words for his 'conclusion.' Its about as logically coherent as his 2014 risk comment... [one could see Blind Trusts as an interesting exploration of Agency Problem though]).
Overall this rather reminds me of the Lefty Left tendency to collapse all business policy and thinking into "big companies" via a lens as if everything is Google or Microsoft of Exxon, ignoring small-and-medium sized operators, non-listed mid-Caps etc.
But to the question:
"Which brings us to the question of whether buying an S&P 500 index fund is actually productive.
The answer to this one, unfortunately, is “We don’t really know.” The reason is that we don’t know exactly how the economy works. "
I think if one takes the direct action of buying into a listed Index fund, is it productive, possibly not directly.
However if one looks at a more structural view and on investment into growth, the existence of a dynamic publicly traded capital markets is a quite necessary factor for having high-risk taking private capital - classic VC, midCap/Growth oriented Private Equity (versus the megacap buyout PE). Recently Matt Yglesias highlighted (https://www.slowboring.com/p/the-biden-reckoning-democrats-need) although rather buried flagged literature on the former (while showing the buyout KKR ... well not so great).
Without a full cycle to Exit (onto stock market) the risk capital availability is much more constrainted (see Continental Europe).
Most firms of course are not listed on any publicly traded exchange, but having a real component of investment market that is able to go to publicly traded markets opens up more risk investment potential. Post listing it is a lot muddier, and probably most so in America as I think one has to question the direction of US markets policy and if it's not very heavily over-incentivized short-termism (not to assert though it definately has but one has to be open to the suggestion it has, to try to examine empirically)
I've thought about purchasing index funds in a similar way to the last few paragraphs of this essay. How does investing in an index fund 'help' the economy. It kind of feels like purchasing an index fund is more or less free riding on people who are ACTUALLY evaluating companies and picking investments. So it would probably be bad if EVERYONE just purchased index funds. But then the more people there are just purchasing index funds, the more potential gains there are to be made for people who can get ahead of them, so it probably balances.
I think questions like this can be kind of interesting, but to me the moral question always kind of misses the point. The question of whether investors 'deserve' their payouts is ultimately irrelevant. 'Deserve' is to loaded of a word. A lot of financial activity is almost certainly useless and maybe even detrimental. But it's like the adage about advertising. We know half of it is useless, we just don't know WHICH half. The more interesting question is 'what would be better'? Would it be better if people couldn't make money by investing or buying stock? And the answer is most assuredly no, it wouldn't be, not for the vast majority of people.
When people identify something that capitalism 'allows' that they don't like (billionaires, short selling, etc..) I think the right question is not 'is this thing morally justified' but 'what would you need to do to get rid of it'. And the vast majority of the time the solution proposed is far worse than the disease. Obviously not always, but I'd rather talk about what it would cost to get rid of something than the moral implications of it existing.
People who hate billionaires are mostly jealous and misguided. The value created by Gates and Bezos flows not only to employees of the companies they founded, but to users of Windows and Amazon as well, those two guys just captured a small percentage of the wealth that they created. Even entertainers like Taylor Swift, Oprah and Shohei Otani who became very rich probably made their many fans happy enough to not feel they were exploited. There are some despicable billionaires, however — at least one of them is in the White House right now.
It's mostly because people forgot the difference between $1 billion as a pile of dollars and $1 billion as a pile of shares. The second is worth that much because investors think you're cool enough to give you $1 billion if you asked. (Except it's not worth that much because treating the marginal price of a share as the price of all the shares makes no sense.)
I find this pretty odd. I'd frame it as, "is it good policy to allow a financial system to develop in which people can push a 'BUY' button, instead of some other system." The answer would come down to what the other system is.
It's nice that you're trying to ask these questions, but by asking 'and should they?' you're stopping onto a philosophical minefield on which, to me, your discussion of the mostly misses the mark (although I do agree that some reward is likely justifiable, and your 'it could be' is a nice deflection away from your initial question). But to start, you say "the first [investors] sacrifice is consumption.". That is not true. Ignoring the risk/reward for a moment, they are merely deferring consumption to a later point. That is not a sacrifice. A donation would be a sacrifice, an investment is not. If we include risk this gets more complicated of course, because if I die before I retire, everytime I put money in a retirement fund was a sacrifice, in hindsight, but since that was not the intention I don't think it counts as such.
Secondly, and this is a more important issue, the question of whether or not it is fair can't be answered by (only) looking at how investing currently works. It should also be based on a discussion of how it currently works, in relation to the broader institutional setup of the society it is in VS other possible institutional setups. Because, crucially, capital is a legal-institutional construct, and so is the reward you earn from it. And because money also is a social relationship (something like an entanglement of anonymous credit-debt relationships), one that involves the act of creating this money out of nowhere, the fact that someone has a 100.000 to invest in must already be assessed for fairness in the first place.
> Ignoring the risk/reward for a moment, they are merely deferring consumption to a later point. That is not a sacrifice.
It's somewhat of a sacrifice, because any particular opportunity you could spend it on could itself go away. eg if you didn't go to Japan in January 2020, well now you can't enter until 2022. And half the bands I liked broke up in the meantime.
Yeah but it's not sacrifice, because you didn't have that trip to begin with. If you have 100k then you have a large set of possibilities what to do with it, such as 'do nothing' (keep the 100k in the bank), invest, consume (in a large variety of ways), donate, etc. But they're all just options for now. If you'd really want to use sacrifice you could say, at most, that you're 'sacrificing the opportunity to consume right now'. Which, on the whole, doesn't mean that much because then that's what we'd be doing all the time. But I guess it would technically be correct. But that's not the same as 'sacrificing consumption'. Otherwise we, by consuming, wouldd also be 'sacrificing consumption', but that would be rather contradictory. Instead we're 'sacrificing' the possibility to consume 'something else', 'or later in time'.
Excellent. Now let's discuss what reasonable and optimal capital gains rates should be. I've always thought that we need a lower rate for a much longer holding period (20+ years), to help compensate for inflation effects of long held assets.
Buying an asset for $100K in 1991 and selling today at $150K would be an adverse investment result for the investor, yet they still pay capital gains tax. Rates should take into account risk/reward AND inflation impacts.
> I've always thought that we need a lower rate for a much longer holding period (20+ years), to help compensate for inflation effects of long held assets.
Great point -- perhaps Roth accounts do address at least a portion of that problem. But I'm also considering investments separate from retirement savings, and Roth accounts have a number of restrictions on withdrawals prior to retirement age.
The scenario you led with was clearly designed to be invidious ("rich guy with $100K lying around to spend on a Lamborghini or invest") but a lot of investors are ordinary people putting away money for retirement or contingencies. At least to me it is entirely "fair" that such investors have an upside for deferring consumptions for years or decades.
Also, as to the free 1% from "risk free" t-bills: you left out taxes. After tax, any high-income investor is lucky to not lose purchasing power if they only invest in t-bills or munis. And that's before assuming the risk of a rapid devaluation.
It always makes me queasy when people talk about "fair" because the term is so subjective. I'm glad you mostly focus on the policy question of how investment affects the economy and society.
Also, $100k lamborghini? $100k gets you a big Ford.
We see that Noah is not a car guy.
👆🏼👆🏼👆🏼👆🏼 This is exactly what I was going to say....
Aren't muni bonds tax-free? Mine are.
It's HYSAs that are bad deals for high-income investors. Oh, and gold and other collectibles.
It's rare to find short-term, investment grade munis that yield more than inflation.
Join the push to convert the progressive income tax into progressive consumption tax; saving is deductible.
Let's just tax investment income like normal income, with a deduction for inflation.
In principle, exempting all "capital" income in equilibrium is the same as taxing only consumption. I say that administratively it is easier to classify expenditures as saving/investment or consumption than to classify income as capital, non-capital. The indexing of capital gains tax is and example.
Might be worth noting that when I buy a share of stock my money doesn’t go to the company, unless I’m buying from the company in an IPO or subsequent offering. Usually my money goes to someone who owns a share and wants to sell. So I’m usually not investing in the company. The existence of a trading market in company shares does assist the company in raising capital by setting a market price.
When you buy stock in an established company you are increasing the value of the business, and if the company pays dividends, you are buying part of that cash stream, and the company is paying money to shareholders. But by increasing the demand for the stock, these investors make the share price rise and thus the market capitalization. This makes it easier for the company to get loans for investments and if they were to be acquired by a larger company makes the price they would get higher. Also many of the company employees hold stock, so this raises their wealth. The company can make subsequent stock offerings to raise cash, but typically do the opposite by buying their own shares on the market. The most important point is that the secondary market for shares is what incentivized the original investors to create the company in the first place.
I had the same thought about IPOs, but I think from Noah's perspective it makes the narrative more confusing. I probably would have just put this point in a footnote.
After all, when you buy stock, you could conceptually trace it back to the person who bought it in the IPO. The person buying it today in the secondary market is giving the original IPO purchaser a way to lock in their gains (or losses). If you couldn't ever sell stock, then that's additional risk the IPO purchaser would have to bear.
Also, firms are constantly buying back stock (to a lesser extent selling additional new stock) and issuing dividends. Which complicates the discussion further.
Company always has the potential to issue new shares. A $100B company can do a lot more than a $100M company by issuing a secondary offering or issuing stock based compensation or using its own stock as collateral.
If the house next to you sells for double the price, you still became richer even though you didn't sell your house.
This is the story I've always been told. Investing is the decision to forego consumption to build capital with the expectation that it will increase productivity. I can do it by myself: I will work more, and rest less, so I can build a tool that makes my normal work easier and faster. I can work more so I can pay someone to build the tool for me. I can work more so I can buy the tool and give it to someone who does not have it, so his work becomes more productive. I can give some money to someone who knows which tools are useful, so they can buy them and give them to other people. And so on, with increasing intermediation, until we have the modern system in which causation is near-impossible to understand.
And yet…the last time you went on a vacation the airplane flew, someone built it, someone piloted it, someone fueled it, someone printed those little tags for your luggage…they got paid and you enjoyed your vacation. That mind boggling chain of intermediated investments in tools and labor somehow produced exactly what you wanted.
And Adam Smith envisioned this long before it became obvious.
The whole argument turns on ‘fairness’, a loaded word, to say the least, and used most often – or assumed to mean most often - a degree of equality of outcome. At its extreme, everything is fair if everyone has the same, as in a communist paradise.
But an economy is made up of people. Economists think people are rational – I’m not so sure. I have always thought that people are emotional and political and that they rationalize their arguments to justify their decision to themselves or to others. (I have never sat in on a Board meeting without wondering afterwards whether anyone made any rational decision at all.)
People are competitive – at all levels even in negotiating the price of beans at a market. So this means that fairness is not an outcome, because in trying to make it so you are militating against people’s natural tendencies, and is that fair to them? The world isn’t fair – some people will end up being rich and others will end up be3ing poor. But the key to making the world prosperous and happier is in giving its participants a stake in the deal – making them feel ownership. I don’t know anyone who feels ownership as a result of being told they have to have equality of outcomes, but I do know people who feel ownership when they are given the chance to make things better for themselves (‘better’ being a personal thing). This is true of any walk of life – and is the root of getting people in big organisations – whether government or corporations – to successfully navigate the changing context of the economy – the original meaning of Change Management in the 1990s. So is it fair to press a button to invest in the S & P ETF? Fair to whom? To the person who does it and takes a risk in doing so? To the rest of society – not only in the way Noah describes – but also in the extent to which society can benefit from the wealth created – by progressive taxation that re-distributes wealth across society? And that is another question: does our current tax system do that properly? Who benefits from the redistribution at the moment? How can we give everyone a stake in the game? Another topic for discussion, I suggest.
Great comment, Matthew. I will add that there are at least 5 distinct definitions of fair, and only one is equality of outcome regardless of contribution (Marxist fairness).
Others include 1) outcomes relative to contributions, 2) outcomes based upon faithfully following the rules, and 3) outcomes defined by one’s role, and 4) the fairness of higher order rules that one would choose behind a veil (Harsanyian).
Critics of markets often blur all these distinctions for rhetorical impact.
We are seeing that if inequality gets too great, it fucks with brain development of the next generation, so there's reason to put some boundaries on max and min outcomes.
Sorta tangential, but (A) I don't think Matt Bruenig's argument was entirely normative (his X comment suggests that he doesn't think capital investor's are functionally necessary for modern postindustrial economies, a debatable proposition to say the least), and (B) there's nothing wrong with making a normative case based on "fairness" (or any other vague normative concept) so long as you thoroughly spell out your argument.
It's very possible I'm just missing something. But while I find the questions laid out in this piece interesting, I find the Bruenig tweet confusing. Why does the blindness of the trust matter for the thought experiment?
Paying someone with greater expertise to do something that is opaque to the "buyer" seems both common and obvious.
"An electrician, where a property owner pays a person to fix something the owner does not understand, without explaining exactly what the fix entails, is like a thought experiment you would construct to tease out whether property owners actually need electricity"
...That's not a profound thought experiment. It's just stupid on its face.
And all this ignore that fact that, as I understand it, the primary reason for a blind trust, rather than just, having a financial advisor who DOES tell the client what they are doing with the money, is because it is either legally required, or else would be harmful to not have one.
You can ask the question Noah does, about whether it's fair or good or useful for stock market investments to provide so much value, without bringing in blind trusts or money managers or anything like that.
Yes, precisely... the Bruenig blind trust tweet is just so far off into nonsense and no-undertanding land it's hard even to respond to it.
I've lost a lot of faith over the past few years in the stock market's connection to real business outcomes, and therefore to it's likelihood of driving efficient capital investment.
-Telsa is valued at more than the rest of the auto industry combined, despite holding only a tiny fraction of industry revenue or profits, consistently declining revenue, a brand value collapse, and being technologically lapped by several other companies.
-Meme stocks just keep going...Gamestop has held most of its insane valuation increase for several years now.
-Bitcoin has shown that an asset with almost zero prospects of generating productive revenue can be worth over a $1 trillion. If Bitcoin can be worth this much, why not any other asset that generates no real world revenues.
My prediction: the whole thing is a house of cards in a way that it wasn't for sustained periods in the past. It'll collapse and China, with its growing command of actual value creation will rule the world. But I realize this is a crank-style belief.
Lots of people are taking about a bubble now. Hardly a crank belief.
Tesla’s valuation is based on the hope of self driving cars and humanoid robots, it’s absolutely overvalued as a EV maker. NVidia also seems overvalued, but they have big risks because they depend on TSMC and ASML to make their chips, and depend on data centers continuing to be built.
There is a stock that has risen more than all of these in the last 5 years, and it is BBW, which if you invested Noah’s $100,000 in it in 2020 you would now have $2,300,000, compared to $1,450,000 for NVidia or only $310,000 for Tesla. What is BBW? They are in a mall near you: Build-A-Bear Workshop.
TSMC is the best but Samsung and Intel aren't /incredibly/ behind them.
ASML, Zeiss, and several other suppliers are harder to replace. Canon, Nikon or SMIC could catch up with 5-10 years depending on how many employees they could poach.
So you didn't lose the faith during the dot-com bubble or the housing bubble? There is a new technology, Ai. It is pretty well established that when a new technology comes out we will over-invest in it, the market will reset, and life will continue on.
I think Ai is a bubble, but I don't think it's entirely disconnected from reality. A lot like the dot-com bubble. Both represent sea changes in which a few companies will make a massive amount of money - investors are just gambling they'll pick the right one.
If Pets.com remained valued in the multi-billions for several years after it was clear they wouldn't be growing anymore and Pets.byd overtook them, I would've lost faith then.
The housing bubble issues was mostly happening in the shadows (credit default swaps, etc.)
AI investment looks a lot like the investment in telecom infrastructure. They’ll overinvest in it, some companies will go bankrupt, and others will buy the infrastructure at pennies on the dollar. Over time, we will come up with profitable uses for that infrastructure and it will be a net benefit to the economy. This happened with railroads in the US and UK, which were really the first “tech bubble” in history.
The fact that companies like Microsoft and Google are structuring a lot of these investments in things like SPACs leads me to believe they see this coming, and intend to not bankrupt themselves, so they can buy the assets themselves when this happens.
I believe this is also why Apple isn’t going full-bore into AI - they have hundreds of billions in cash that they can use to swoop in after the bubble bursts.
You are looking at Pets.com with hindsight. In the moment you would not have know if it was clear or not. I guess my point is don't lose faith. Tesla is valued as an Ai winner, not a car company. Gamestop has an $11B market cap, it couldn't be more irrelevant to the market, Bitcoin (Gold) has existed forever).
I'm a big fan of the Chinese style of economic interventionism, but I'm not so sure they'll end up replacing the US. They're further down the demographic transition curve than we are, and as far as I know, they haven't made any notable improvements in that regard.
would love it if this was true, but don't think it is.
1. Absolute numbers matter more than relative. China is still producing way more babies than the US.
2. Relative numbers only matter in that old people are a drain on finances. That's much less true in China than the US, since they don't spend an absurd amount of money on geriatric eldercare (or have generous social security.)
3. China's massive investments in robotics will further mitigate the problem of prime age workforce reduction (which again, will still remain much larger there than in the US)
Matt Bruenig is a troll who doesn’t merit this much attention.
I love that you’re diving into this topic. From an ethical/social perspective, what has always struck me as unfair is the “feedback” nature of interest: Debt is harder and harder to dig out of, and wealth is easier and easier to compound.
Even though I do think it’s fine to earn on savings on principal in principle, there seems to be something extremely not-progressive going on, in a way that progressive income taxes address in the “wages” realm.
Said another way: not many people would object to someone saving $1000 and investing it in their hardware store down the street and earning back $100. Or even buying $1k of S&P and earning back $100. But, it’s kind of insane to let someone put in $10M and earn back $1M, effortlessly harvesting millions of dollars. Each subsequent million should be harder to earn, not easier, right?
Curious your thoughts on this?
"Debt is harder and harder to dig out of, and wealth is easier and easier to compound."
Talk to any asset manager and they'll tell you that it's actually easier to get high returns on lower capital amounts than high ones. If you have a million to invest you can (in theory) find some undervalued company and invest in it to get great returns. If you have a trillion there are not enough assets out there for you to buy and you'll be investing on the market at large for much lower returns.
Don't you generally get the best returns by firing all the asset managers and putting it in an index fund? Alternative investments are for uncorrelated returns, not because they're better.
If you are thinking the world of investment is already vetted (went to IPO) companies that listed onto a regulated stock exchange, then to a certain extent as a retail investor, yes.
that of course mistakes all investment as identical to investment into a liquid, well-regulated stock exchange whose listed companies have been reasonably screened in (to achieve IPO).
and it rather abstracts away from all the prior effort that led to this.
once one starts trying markets that don't have such features, one tends to learn not to simply assume the benefits exist.
Yes but you shouldn't try those markets, you should buy an index fund. Institutional investors aren't in those markets because it's a good idea, but because their emotional idea of themselves as fancy institutional investors requires them to do fancy alternative things.
https://www.wsj.com/articles/what-does-nevadas-35-billion-fund-manager-do-all-day-nothing-1476887420
You have entirely missed the point on two levels
A. the wider market of capital investment is not synonymous with retail or index investing in the small sub-set (albeit highly visible) that is public exchange listed publicly traded stocks. Or even more broadly, publicly traded listed securities. Americans are particularly prone to this error as US has per capita the biggest range of publicly trade investment securities but that's virtually unique globally and still misses significant swaths of capital investment that are not in publicly listed exchanges.
B. the availability and potential of public markets depends on a wider market that feeds new paper/companies of listable quality to the public markets - and that needs active investment development or the public markets wither via attrition and lock-up (and equally the risk capital funding to innovation / growth dries up or struggles to emerge as without listing trade sales are not enough. the comparative of VC in EU to US or UK is demonstrative although one can see this much more broadly globally
A pure focus on the utility of the Index fund for publicly traded securities (and it is unquestionably useful and efficient) reminds me of the Tech investment space particulalry out of US over the past decades which has lazily simply assumed the infrastrcutures and ecosysystems just magically spring up - taking for granted the infrastructure and business ecosystems that actually laid the foundational base.
A major reason why so much global tech play trying for developing markets has fallen flat on its face, they assume that the Amazon etc could develop purely from internet but the reality is there needs to be a wider infrastructure (logistics servicing industries, physical infra of course etc). - and it can't just be assumed to spring up.
If everyone does 100% index, passive eventually the Free Riding will see a public market impoverishment.
The Alt Assets investors are providing a fundamental service to the wider investment market (well not all of them, I won't defend the excessive development of Alt of which mega PE as well as Hedgies, but growth PE and VC certainly)
Assuming the ecosystem, assuming the availability of public paper to trade is an error. It's an error that becomes very visible when one examines developing markets where the cases of early flourishing and then a kind of investment anorexia (in my view largely from oligarchic economies where the 'big families' actively obstruct).
Now of course I am not a retail person...
For almost everyone, you personally aren't going to run out of investment opportunities.
Inflation hurts asset holders and helps debtors.
I don't think it hurts asset holders. Their assets appreciate with inflation. It hurts people who don't have assets or debt.
Depends on the asset. Inflation won’t make stock prices, bond prices (except something like Treasury I-bonds) or money in a savings account also go up in value. Real estate prices seem to go up regardless of inflation beca of tight supply, and rising inflation means lower corporate profits and would make stocks less valuable. If the dollar price of an asset stays the same but the dollar loses value so does the value of your asset. If you have gold or other precious metals, they will go up in value if dollars get cheaper, but they would collapse if an asteroid mining company succeeds in vastly increasing the supply.
Some do, some don’t. That said, I should have focused more narrowly on bank loans as assets to the bank; they lose value with inflation (the money they get back is worth less) and if they are fixed rate, increasing interest rates to fight inflation reduces their real return.
Accounting for inflation, my 2.5% mortgage was generating a negative rate of return. I suspect it’s been packaged up and sold on to some entity that wants to hedge against riskier investments.
If 1000 people each put in $1000 and invest the pool the return must be the same as if one person invests $1M. So there’s no practical way to reward the former more than the latter.
In fact usually it’s the opposite, since pooling adds transaction costs. So large single investors can get even better returns.
Of course there is a practical way. You can have progressively tax capital gains and dividends.
You do, to some degree. Base capital gains rate is 15% but goes to 20% if your AGI (or modified AGI, I can't recall) gets too high. And the Obamacare special 3.8% kicks in as well at some level. So, cap gains can be anywhere between 15% and 23.8%
They're still way lower than peak income tax rates, even than today's historically low peak rate of 37%.
Is that true for income taxes? 1000 people work for $10/hr vs 1 person working for $10k/hr?
The idea is that 10 million dollars helps not just the individual but the rest of society by funding productive uses of capital. To restore some fairness to the system see my reply to Max F as one approach.
Interesting idea!
Should be? The question to ask is if a system where it got harder to invest as money grows would lead to a better complex adaptive system or a worse one? I think I know the answer to that.
I’m not sure I follow why your argument wouldn’t also apply to progressive income taxes?
There are a lot of ways to crank the economic efficiency and output higher that we choose not to do, because we need to balance social outcomes that we value. For example, minimum wages and progressive income tax.
I think progressive taxes pass the test. I would recommend something like a 25% flat tax with an exemption of say $50k, which would be very progressive. Minimum wages seem to do more harm than good.
The focus on fairness or equality is misguided. I would much rather live in a world with a covid vaccine and ungodly rich pharmaceutical exec's, than a world with no vaccine and more equality. I would much rather live in a world where a rich Elon is able to give me internet in the middle of no where, than a world where Elon isn't rich and I have no internet.
Of course the fairness proponents assert that we can have both the vaccine and more equality. Okay, but I want the vaccine and.... the next great invention. I'd rather be middle class today than rich in 1900. That's because of technological progress, not equality.
The focus should be on what is going to bring tomorrow's technologies into the present. That is what makes people's lives better. Maye more equality would do that. But no one argues that. They argue equality is just inherently better and fairer. The other side at least argues their way leads to better progress.
It's not a matter of how much you sacrifice that determines you're right to earn money. It's a matter of how much you contribute. Nobody should be paid less because they enjoy their job, or more because they hate their job. Otherwise janitors would be the highest paid people in the country, and movie stars would make minimum wage. The issue is not how much you sacrifice but how much you contribute. If you contribute something to a process that produces wealth, you have a right to some of that wealth.
Having worked at a company whose share price fluctuated significantly over the past years it’s pretty clear that when it’s high the company increases hiring and capital investment. And when it’s low they slow down investment and pursue layoffs. So to me this looks like the capital allocation of equity investors is actually working exactly as we would want.
As for index investors, an overlooked point is that they amplify the influence of active traders. Shares are priced on the margin by active traders but the net effect depends on the total market cap, which is driven higher by index investors. So by locking up your money in an index fund you are contributing to the economy by allowing active trading to have a stronger effect on directing capital.
Finally, I find discussions of “fair” distasteful since they generally devolve into each person thinking whatever benefits them is fair. If I earned $100k and spent it all and you earned $100k and invested $50k, then earned $10k returns, I don’t see how that is inherently unfair. I made a choice to pursue consumption, it seems like I’m trying to have my cake and eat it too if I now turn around and say well you need to give up more of your returns to me. And in the end we all die anyway and you can argue that whoever consumed the most “won” so ultimately all money should used for consumption. Investing is just deferring it.
MMMM- well as a starting point the discussion collapses "investing" into what is more or less "retail investing in the stock market into publicly listed equities"
And that's quite distortive as it overfocuses on a specific sub-set of investment.*
Also somewhat uniquely American given financing and investment outside of US for productive investment into the private sector is much much less publicly listed company driven (versus Bank financing and similar vehicles that are transforming savings into investment differently). Bank financing and near-bank finaning is really dominant for Europe.
(the Blind Trust tweet is just... well.... dumb. I don't even have words for his 'conclusion.' Its about as logically coherent as his 2014 risk comment... [one could see Blind Trusts as an interesting exploration of Agency Problem though]).
Overall this rather reminds me of the Lefty Left tendency to collapse all business policy and thinking into "big companies" via a lens as if everything is Google or Microsoft of Exxon, ignoring small-and-medium sized operators, non-listed mid-Caps etc.
But to the question:
"Which brings us to the question of whether buying an S&P 500 index fund is actually productive.
The answer to this one, unfortunately, is “We don’t really know.” The reason is that we don’t know exactly how the economy works. "
I think if one takes the direct action of buying into a listed Index fund, is it productive, possibly not directly.
However if one looks at a more structural view and on investment into growth, the existence of a dynamic publicly traded capital markets is a quite necessary factor for having high-risk taking private capital - classic VC, midCap/Growth oriented Private Equity (versus the megacap buyout PE). Recently Matt Yglesias highlighted (https://www.slowboring.com/p/the-biden-reckoning-democrats-need) although rather buried flagged literature on the former (while showing the buyout KKR ... well not so great).
Without a full cycle to Exit (onto stock market) the risk capital availability is much more constrainted (see Continental Europe).
Most firms of course are not listed on any publicly traded exchange, but having a real component of investment market that is able to go to publicly traded markets opens up more risk investment potential. Post listing it is a lot muddier, and probably most so in America as I think one has to question the direction of US markets policy and if it's not very heavily over-incentivized short-termism (not to assert though it definately has but one has to be open to the suggestion it has, to try to examine empirically)
I've thought about purchasing index funds in a similar way to the last few paragraphs of this essay. How does investing in an index fund 'help' the economy. It kind of feels like purchasing an index fund is more or less free riding on people who are ACTUALLY evaluating companies and picking investments. So it would probably be bad if EVERYONE just purchased index funds. But then the more people there are just purchasing index funds, the more potential gains there are to be made for people who can get ahead of them, so it probably balances.
I think questions like this can be kind of interesting, but to me the moral question always kind of misses the point. The question of whether investors 'deserve' their payouts is ultimately irrelevant. 'Deserve' is to loaded of a word. A lot of financial activity is almost certainly useless and maybe even detrimental. But it's like the adage about advertising. We know half of it is useless, we just don't know WHICH half. The more interesting question is 'what would be better'? Would it be better if people couldn't make money by investing or buying stock? And the answer is most assuredly no, it wouldn't be, not for the vast majority of people.
When people identify something that capitalism 'allows' that they don't like (billionaires, short selling, etc..) I think the right question is not 'is this thing morally justified' but 'what would you need to do to get rid of it'. And the vast majority of the time the solution proposed is far worse than the disease. Obviously not always, but I'd rather talk about what it would cost to get rid of something than the moral implications of it existing.
People who hate billionaires are mostly jealous and misguided. The value created by Gates and Bezos flows not only to employees of the companies they founded, but to users of Windows and Amazon as well, those two guys just captured a small percentage of the wealth that they created. Even entertainers like Taylor Swift, Oprah and Shohei Otani who became very rich probably made their many fans happy enough to not feel they were exploited. There are some despicable billionaires, however — at least one of them is in the White House right now.
It's mostly because people forgot the difference between $1 billion as a pile of dollars and $1 billion as a pile of shares. The second is worth that much because investors think you're cool enough to give you $1 billion if you asked. (Except it's not worth that much because treating the marginal price of a share as the price of all the shares makes no sense.)
> How does investing in an index fund 'help' the economy.
There are choices of index funds, and choosing between equity/bonds/money markets is an impactful option by itself.
I find this pretty odd. I'd frame it as, "is it good policy to allow a financial system to develop in which people can push a 'BUY' button, instead of some other system." The answer would come down to what the other system is.
It's nice that you're trying to ask these questions, but by asking 'and should they?' you're stopping onto a philosophical minefield on which, to me, your discussion of the mostly misses the mark (although I do agree that some reward is likely justifiable, and your 'it could be' is a nice deflection away from your initial question). But to start, you say "the first [investors] sacrifice is consumption.". That is not true. Ignoring the risk/reward for a moment, they are merely deferring consumption to a later point. That is not a sacrifice. A donation would be a sacrifice, an investment is not. If we include risk this gets more complicated of course, because if I die before I retire, everytime I put money in a retirement fund was a sacrifice, in hindsight, but since that was not the intention I don't think it counts as such.
Secondly, and this is a more important issue, the question of whether or not it is fair can't be answered by (only) looking at how investing currently works. It should also be based on a discussion of how it currently works, in relation to the broader institutional setup of the society it is in VS other possible institutional setups. Because, crucially, capital is a legal-institutional construct, and so is the reward you earn from it. And because money also is a social relationship (something like an entanglement of anonymous credit-debt relationships), one that involves the act of creating this money out of nowhere, the fact that someone has a 100.000 to invest in must already be assessed for fairness in the first place.
> Ignoring the risk/reward for a moment, they are merely deferring consumption to a later point. That is not a sacrifice.
It's somewhat of a sacrifice, because any particular opportunity you could spend it on could itself go away. eg if you didn't go to Japan in January 2020, well now you can't enter until 2022. And half the bands I liked broke up in the meantime.
Yeah but it's not sacrifice, because you didn't have that trip to begin with. If you have 100k then you have a large set of possibilities what to do with it, such as 'do nothing' (keep the 100k in the bank), invest, consume (in a large variety of ways), donate, etc. But they're all just options for now. If you'd really want to use sacrifice you could say, at most, that you're 'sacrificing the opportunity to consume right now'. Which, on the whole, doesn't mean that much because then that's what we'd be doing all the time. But I guess it would technically be correct. But that's not the same as 'sacrificing consumption'. Otherwise we, by consuming, wouldd also be 'sacrificing consumption', but that would be rather contradictory. Instead we're 'sacrificing' the possibility to consume 'something else', 'or later in time'.
Excellent. Now let's discuss what reasonable and optimal capital gains rates should be. I've always thought that we need a lower rate for a much longer holding period (20+ years), to help compensate for inflation effects of long held assets.
Buying an asset for $100K in 1991 and selling today at $150K would be an adverse investment result for the investor, yet they still pay capital gains tax. Rates should take into account risk/reward AND inflation impacts.
> I've always thought that we need a lower rate for a much longer holding period (20+ years), to help compensate for inflation effects of long held assets.
Isn't that a Roth IRA?
Great point -- perhaps Roth accounts do address at least a portion of that problem. But I'm also considering investments separate from retirement savings, and Roth accounts have a number of restrictions on withdrawals prior to retirement age.