Charlie Munger

Charlie Munger a the Daily Journal Annual meeting said


"I do think that I'm way less afraid of inequality than most people who are bleating about it. I think that inequality is absolutely an inevitable consequence of having the policies that make a nation grow richer and richer and elevate the poor. So, I don't mind a little inequality,"

https://news.yahoo.com/charlie-munger-on-inequali…


Full interview at the link. Would enjoy hearing people's thoughts on this. 

 
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inequality of outcome due to inequality of effort is fine

inequality of growth due to structural mistakes is not fine

there will always be inequality, my fear is that income inequality and wealth inequality are mostly due to governmental policies benefiting holders of capital instead of fixing the plumbing of the system. the real risk of inequality isn't misery, though it's an awful side effect, it's destabilization of a nation and fragility. it's policies that bail out banks and investors but do nothing with regard to things like public education, infrastructure, and so on. 

capitalism creates inequality, crony capitalism creates what we're seeing today.

 

that's a loaded question. in my mind, cronyism is engaging in activities that increase long term fragility for short term gain, rather than the more literal definition of aiding ones friends without regard to qualifications. in my definition, I believe the cronies are the policies employed without regard for their long term benefits, assuming those benefits are knowable or approximable.

my assassination of cronyism would begin with a few things - term limits in congress, bans on politicians going into industries they regulate, shortening of election cycles (campaign begins Memorial Day, primary in August, election in November), bans on donations from entities (including unions, non profits, corporations, and PACs). I don't believe that entities shouldn't have a voice, I just believe they shouldn't have a financial voice that's bigger than the individual. if you want to organize and make a bunch of ads, totally fine, but I believe removing the current incentive structures that reward coddling industry, staying in power rather than making radical change, etc., will help a LOT.

additionally, I'd like to see moral hazard removed. let's start with corn. corn farmers have 50% of their income come from subsidies, and yet HFCS is one of the leading causes of metabolic disorders in this country as well as obesity which has all sorts of negative effects to healthcare costs. why are we talking about taxing someone's AGI by 1% more to pay for healthcare when the government is literally aiding and abetting the problem? another is student debt. do you think that schools would keep raising tuition if loans could be discharged in bankruptcy and the schools got hurt by that? I don't, I think schools would get their act together. I'd also like to remove decision making for tax merits rather than actual merits. a great example is things like D&A, deducting interest on debt, and expense accounts. employee pay and benefits should be above the line, but why should corporations get special treatment when the rest of us have to deal with the full cost of debt, purchase of assets, meals, etc., using after tax dollars? the only people interest deductibility helps is the banks (my employer included) as it incentivizes borrowing.

just a start, but that's the general theme.

 

Yeah, I'm always confused by the whole inequality discussion. I'm interested in how the bottom 20% or the average citizen is doing.  I could give a shit how the top 1% is doing if the average guy out there is making ends meet and his life is improving.

Also, the underlining economic thought behind this, which is almost medieval, is that the rich are taking from everyone else. It's the idea that we're all dividing the same pie instead of the fact that capitalism is all about making a bigger pie.

Not one day of my life have I woke up worrying that Jeff Bezos has more money than me....such a weird thought in my opinion.

 

I agree with this, in a sense, everyone needs to focus on themselves and less about what others have. 

However, I would also add, is the average guy out there making ends meet? And what exactly is defined by "making ends meet". Some look at that as food, shelter, clothes. Others look at that as includes luxuries, such as netflix, restaurants, multiple shoes. 

 

However, I would also add, is the average guy out there making ends meet? And what exactly is defined by "making ends meet". Some look at that as food, shelter, clothes. Others look at that as includes luxuries, such as netflix, restaurants, multiple shoes.

I wonder if the perceived inequality is higher today because of higher expectations for what an average or good lifestyle is. The visibility of luxurious lifestyles or the illusion thereof has improved tremendously due to social media. The Gini coefficient of the US according to the World Bank has not moved much from 40 in 1994 to 41.1 as of 2016  at least.

 

NoEquityResearch

Yeah, I'm always confused by the whole inequality discussion. I'm interested in how the bottom 20% or the average citizen is doing.  I could give a shit how the top 1% is doing if the average guy out there is making ends meet and his life is improving.

the only thing I'll add to this is the following - whether or not people are making ends meet is secondary, the primary is whether or not people are ABLE to make ends meet or if there are systemic/structural things that make it easier for one class to get ahead versus others. the main discussion of income inequality (if you're being honest and not trying to cram this complex thought into 280 characters) is that the lives of capital holders have improved orders of magnitude higher than labor. traditionally, the top 10% had about 1/3 of the national income until Reagan took office. after that, income inequality began with the ensuing 40 year bull market (with a few recessions sprinkled in of course). it'd be one thing if people thought that the top 10% should only have 10% of the income, that's idiotic, but what I believe is the bigger issue isn't that the top 10% is doing better, it's why didn't the bottom 90% grow at the same rate? I fear that if that gap continues to widen, we're talking about revolutions, nanny state, large swaths of people living in squalor, or worse, becoming a two class system like Argentina without the women, the wine, and the meat (THE HORROR!).

 

What you're asking about is kind of what I brought up earlier.  There is always an implication in this line of thought that because the growth rate between one group is different than the other, it MUST mean that the rich are taking from the poor. They MUST be somehow responsible for this.

That's one of my biggest gripes with this whole discussion. It's based on the idea of a fixed pie and if one person is doing well, it's because they are doing something to the detriment of the poor or middle class.

Is it not possible that the rich grow richer without hurting others in the process? Think of something as simple as housing and markets. I have enough money to use leverage to buy a house. And I have enough money to invest in a 401K. In a bull market, these two facts alone will make my growth rate of wealth WAY faster than someone without a house or 401K savings. Am I bad person for having a house and investments? Am I someone hurting the poorer person by growing at a faster rate?

 

The rich are likely making products and investment ideas on a large scale, which benefit society and increase GDP

When GDP increases, the standard of living increases.

The opposite of this smart money, is government excess and dumb money. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee
 

Social media really has made people softer, and it will create a lot of mental health problems down the line. A ton of people are insanely affected by seeing how some super rich person is living their life instead of enjoying what they have, and that leads down a messy road of jealousy, anger, hater and more.

 

It’s not really just economic inequality creating the tension here, it’s class inequality and what people perceive as lack of opportunity and dignity. 
 

One interesting concept is that of “elite overproduction” where you have way more people educating themselves to hold an “elite” position than exists. Think PhDs, lawyers, college grads etc. working in positions “beneath” them. These people clamor for influence and recognition for their competency - see Twitter. 
 

On the other end you have lower class people who may not actually be particularly poor in an economic sense, but feel a lack of dignity, low status, etc. Populism likely appeals to them.

Note these sentiments can be either real or imagined, but it doesn’t really matter as the resentment exists just the same. 
 

This is emblematic of a mature economy w/ growing self awareness (and expression) via social media. Class distinctions become more entrenched over time, not less. Emphasizing common identity and experience whenever possible seems to be a good antidote to this. 

 

My two cents...

There are a lot of poor people in this country, some are a victim of circumstances, others that of poor decisions. I'll give you a perfect example, one of the people in our accounting department would always complain about money. She said she didn't have any. However, I know for a fact that she spends $250 a month getting her nails done and $300 for her hair coloring, blowdrys, etc. So thats $550 a month, $6600 a year. Obviously she needs to take care of herself but I find that a bit excessive. She has two teen kids, she complained to me that one cracked a screen open of an iPhone, so now she has to get the iPhone 12 which is $1k+. No logic requires you to buy a brand new $1k phone. My parents would beat my ass silly if I demanded that especially if I broke on my own fault. I project she wastes about $15k on idiotic items/services. This is sizable because she makes around $40k.

I've also met people who are legitimately smart, but due to the need to make money they are unable to start or finish school. I know one such person who works in fast food. Hard worker and great personality. She wants to go to nursing school, but is in a tough situation because she's the primary breadwinner in the family. There needs to be policies that help people like this, not like the people above.

 

 I see your point. Definitely a type of behavorial finance issue. In a way, that's why the country as a whole is in the shape its in now with a pandemic, not many people thing past next week. 

Ultimately that's what I was referring to above, some people can't manage their money at any level, which would almost guarantee some level of inequality in a community.

 

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