Musings Report #10 3-10-13 Wealth Inequality: Perception and Expectations
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Wealth Inequality: Perception and Expectations
Longtime correspondent G.F.B. recently sent me the link to this video on wealth inequality in America, and also offered this comment on the program:
"Given the information in the piece, what do people think about this, and is their reaction a valid indicator of "success" (or how "successful" a person is regardless of their position in the wealth spectrum)?
Spectrum of reactions:
-10) That is terrible, the world truly is a terrible place, then we die.
-08) That is terrible, the world truly is a terrible place, thank goodness for my religious faith which makes such inequity irrelevant.
-07) That is terrible, somebody needs to do something about that.
-03) That is terrible, we should do something about that.
-02) That is terrible, I need to do something about that.
00) That means nothing to me.
+01) That is clarifying, it helps explain why I suffer economically, and why relief is impossible: the deck is stacked.
+03) That certainly explains a lot, I understand it, but does not require action on my part because in the end: so what?
+04) That shows clearly we need to work together to shift those numbers more in the majority's favor.
+07) That shows clearly I need to work to shift my position up the scale.
+08) That is as it is. the world sometimes makes no sense, thank goodness for my religious faith which makes such inequity irrelevant, as economic inequity does not factor into my social interactions.
+09) Thanks! That shows exactly what I always suspected, that only a few really have financial freedom, and reinforces my commitment to rise as high on the scale as possible, as the financial abyss is not the far away.
+10) Great - I am going to be at the very top of the scale ( hopefully off the scale)! Thanks for overview! Off to my tee time!"
I responded with this:
"Perhaps we can simplify the spectrum to:
1. This is so unfair, but I am powerless to do anything about it.
2. This is so unfair, but I can do something about it in my own life.
3. This is not unfair, but merit/heredity/luck at work.
Perhaps happiness is related to which of these perspectives is operant."
My life history is one of long decades of low income interrupted by brief interludes of improved income. This is the natural result of switching careers to entirely new fields; it takes a decade or so to assemble networks and expertise. As a result of my experience, I am sensitive to expectations and perceptions of wealth and prosperity. If I have been pursuing work that excites and interests me, I've been happy, even when earning very little or earning money very sporadically. When I got tired of the work/field, no amount of financial compensation made me happy. Simply put: What looks like lowly, poorly compensated work to one person looks like a terrific opportunity to another. Wealth that one person is confident will generate endless happiness may have little effect on the happiness/satisfaction of another person who owns the wealth.
I have often noted in the blog that the key dynamic in China is not wealth inequality per se, but the heightened expectations of the people: in an environment of rising wealth and prosperity, it is the disappointment of high expectations that powers social unrest rather than absolute want, i.e. hunger.
Perceptions of unfairness arise from perceptions of moral judgment and entitlement; this helps explain the different attitudes displayed by immigrants and native-born citizens here in the U.S. The expectations and sense of entitlement of native-born residents are typically much higher than those of immigrants.
That said, I think it necessary to distinguish between wealth acquisition that benefits the greater good and wealth acquisition that results from skimming operations enforced by the State. It would be nonsensical to deny that there is a difference between the wealth acquired by Steve Jobs and Larry Ellison, for example, as a result of creating Apple and Oracle, and the wealth acquired by crony-capitalist financiers and State-enabled monopolists.
As a society, we are not bound to treat all wealth equally. Wealth that is "fairly acquired" is not just wealth that is legally obtained (as the wealthy and powerful live by a second set of laws) but by wealth resulting from enterprises that add value to the common good.
I think we also need to distinguish between the sense of entitlement that leads people to feel they are deserving of something more than life, liberty and the pursuit of happiness, i.e. opportunity, and the opportunities that should be available to every citizen.
As I have noted many times, a sense of entitlement and privilege leads to a focus not on opportunity (i.e. the power to change one's life without official permission) but on the resentment of the powerless.
Luck exists, but so do merit and effort. We do not control luck, but we can prepare to take advantage of whatever shreds of good luck drift our way.
Hereditary wealth leads to Aristocracy, and as a general rule the economy that enables and encourages creative destruction will also erode hereditary wealth and open up opportunities for new wealth creation. What we should want, perhaps even more than wealth equality, is a rapid turnover in wealth and an economic system that incentivizes creation of value for the common good as the road to wealth.
Correspondent AuntieGrav (Dan C.) added some cogent context to this discussion:
"I don't care that the wealthy are wealthy; what I care about is whether resources are being wasted and the general needs are not being met, i.e. that luxuries are ubiquitous and believed to be more important than basic satisfaction (the car and mall based society).
The real problem with wealth disparity is that the people on the bottom of the pyramid think they should strive for the wealth of the top of the pyramid, rather than work to satisfy the needs of their future resource base (basically: to stop building pyramids).
Solutions proposed based on wealth disparity are irrelevant, unless the ability to meet future resource needs is hampered by the hoarding of resources by the wealthy. So far, the wealthy are mostly just hoarding money and people believe they have to have that money in order to satisfy their own needs. Humans met their own needs for thousands of years without money, but they've apparently forgotten."
Perceptions and expectations play key roles in what we view as the problems and solutions in rising wealth disparity.
Market Musings
After 10 straight weeks of steady stock market advances, many people are naturally seeking signs of weakness that would presage a downturn of some sort. Such clues can certainly be found, but if we pull up a very basic chart of the S&P 500 (SPX), we find precious little evidence of weakness.
MACD is still rising, stochastic is pinned above 80 and the RSI has just poked up into overbought territory.
Meanwhile, some round-number targets lie just above. legendary trader Jesse Livermore noted how round numbers act as attractors. With the SPX at 1551 and its all-time high just above at 1,576, why would it roll over here? And with 1,600 just beyond 1,576, why wouldn't the index make that last little climb to 1,600? The same can be said for Dow 15,000.
There are certainly numerous cross-currents and divergences in play. In years past, the euro rose in conjunction with U.S. stocks while the US dollar typically declined in the equities/euro-rally "risk-on" trade. But recently, no doubt influenced by the yen's slide, the US dollar has been on a tear, rising side-by-side with equities. If the euro has marked a near-term bottom and finds some excuse to advance, that would generally be equities-positive.
In sum, I see little evidence that a reversal is close at hand. Divergences can stretch and extend for weeks or even months.
Many technicians are looking for a brief decline here, perhaps similar to the March 2011 swoon. Most expect the market to resume its ascent and reach new highs in May or June.
If the SPX surges above 1,600 in the next few weeks, that would likely mark a top if indicators weaken and roll over. That said, I noticed as long ago as the late 1990s that markets will often trend for 5 months and then reverse or consolidate for 3 months. Alternatively, markets might run for another 3 months, i.e. for 8 months. I marked two such typical patterns in the chart.
Would 1,600 SPX in March be the top for 2013, or just an interim top? I have no idea. We will play it as it lays when there is some compelling evidence of a tradable top and roll-over.
What I am doing: All positions short-term: Long some beaten-up tech names with strong growth records, long the gold miners and small oil producers, watchful waiting on the SPX.
What I would do if I were managing $1 billion: make short-term bets in weak sectors that might play catch up as the rally plods higher--perhaps AAPL and related tech names, the gold miners, etc.
Once those sectors in the lead weaken, players will look to the dogs and laggards for quick catch-up gains. The catch-up advance of the weakest sectors generally characterizes a topping process.
From Left Field
What will those crazy (and macabre) college kids think of next Dept: The Euthanasia Coaster is an art concept for a roller coaster designed to kill its passengers.
I want one of these, only re-engineered to include modern materials and safety features: the 2-passenger Isetta auto, BMW's first big postwar success (1955-1962)
Worthy essay of the week: Housing and Hope (via G.F.B.) Long but excellent, develops many themes that are rarely explored in the MSM: "Today, housing for the poor, and especially for the urban poor, is intimately connected to processes that characterize the modern world....
"People crushed by law have no hopes but from power. If laws are their enemies, they will be enemies to laws; and those who have much to hope and nothing to lose, will always be dangerous.” Edmund Burke (via U. Doran)
Thanks for reading--
charles
