Hudson on the Piketty Phenomenon

[Milton Kuo]

Re: Hudson on the Piketty Phenomenon

I would suggest that property taxes should be graduated, like income taxes, so that Harry homeowner wouldn't be hit hard, while Scrooge McDuck, with his 30 story palace, just chalks it up to the cost of ownership. I don't know that anyone is thinking along those lines.

BTW, in some states, like Maryland, where I live, the state and even incorporated municipalities do both income and property taxes.

Scrooge McDuck in Texas has a ranch worth somewhere north of $30mln but due to his having a few cows or something on his sprawling property, it's classified as a farm and he ends up paying something like $10,000/year in property taxes. Meanwhile, a $350,000 house in Houston is assessed over $10,000/year in property taxes.

With the exception of people taking advantage of loopholes such as the one mentioned above, though, property taxes are already somewhat graduated. Those living in more expensive homes do pay more property tax.

[thriftyandboringinohio]

Re: Hudson on the Piketty Phenomenon

...one has to continually work to turnover their depreciating currency to prevent poverty; one cannot simply work hard, save money and become independent of wage slavery without speculating with savings hoping not to end up with a goose egg. In short, money currently has an effective expiration date...

+1

This issue vexes me.

My money has an expiration date. It will melt, like a snowman in the sun, and vanish.
I am forced to speculate just to keep even, always trying to find the gaming table where my odds are best this year.

[dcarrigg]

Re: Hudson on the Piketty Phenomenon

+1

This issue vexes me.

My money has an expiration date. It will melt, like a snowman in the sun, and vanish.
I am forced to speculate just to keep even, always trying to find the gaming table where my odds are best this year.

I thought Twain handled the issue well in A Connecticut Yankee in King Arthur's Court.

There has always been inflation. There will always be inflation.

The alternative is no churn and a young generation with no chance.

Those that benefit most are at the top of the pyramid, inflation or no.

[santafe2]

Re: Hudson on the Piketty Phenomenon

My money has an expiration date. It will melt, like a snowman in the sun, and vanish.
I am forced to speculate just to keep even, always trying to find the gaming table where my odds are best this year.

I don't think speculation is required to stay even. There are times when various asset classes are down and it makes sense to invest in them. Today, real estate is a good investment in many areas of the US. If anyone thinks it's tax free or without risk, they should try it and report back. Over the last couple of years I've been investing there and I can assure you, it's neither easy or without serous tax issues. I think EJ has built a couple of real estate funds and can offer his insights.

It's not often I completely disagree with Hudson but I don't think he understands one thing about real estate.

[Thailandnotes]

Re: Hudson on the Piketty Phenomenon

It's not often I completely disagree with Hudson but I don't think he understands one thing about real estate.

This has come up before on this forum. I think Hudson completely understands real estate and is not talking about an upper middle-class couple who inherits a house and rents it out or buys two houses looking for income.

“In New York City, where I live, the older the building, the more valuable it is because it doesn’t wear out, it’s maintained – most landlords spend about 10% of their income on maintenance and repairs. So the pretence is landlords pretend that their building is like a machine, wearing out, they charge depreciation and because of that they say “I didn’t make any profit, this is a return of capital”. And as soon as they’ve depreciated a building in full they then sell it among themselves or they buy it all over again and start the whole process all over, so you can depreciate the same building, say it’s 100 years old, you can keep depreciating it again and again and again and again as if it’s worn out all these times, and it’s the same building. But the owners and the next owners and the next owner and the next owner doesn’t have to pay any tax on this.”

Basically, the whole argument is about where the super rich store wealth and how they prevent the interest it gains from being taxed. Part two is about suppressing wages to the point where everything in life requires borrowing = tax paid to the lenders.

GRATs, the 65-day rule, and the like are absurd perversions of the tax code. You can listen to Krugman on Moyers and sigh, but he gets some important parts right. 10 billion dollars grabbing 5 % on its investment returns over a million dollars a day. Go to Forbes and check out their historical billionaires list. It’s clear Piketty hit some homeruns with his data. Those lists, as you move through them, are the children of the children of innovators/monopolists

How long should copyright law extend?

“Forever less one year," said Jack Valenti.

[don]

Re: Hudson on the Piketty Phenomenon

Hudson's perspective is based on a classical economist foundation, ergo Land, Rentier Class, Capital, Labor. He references contemporary FIRE moves within that context.

[vinoveri]

Re: Hudson on the Piketty Phenomenon

I thought Twain handled the issue well in A Connecticut Yankee in King Arthur's Court.

There has always been inflation. There will always be inflation.

The alternative is no churn and a young generation with no chance.

Those that benefit most are at the top of the pyramid, inflation or no.

Nothing wrong with inflation per se if it is reflective of economic growth, i.e., the money supply must grow to keep up with economic growth per Friedman approach.

Twain lived in a different world, e.g., one without pure fiat currency. Of course there have always been speculators, carpet baggers, sheisters, etc irrespective of inflation, but now we have systematic deliberate currency depreciation by the central authorities which clearly are directed to benefit the top of the pyramid, and which clearly disadvantage the lower classes (e.g., housing bubble/bust and aftermath) and which are inequitable. The system and those at the top are more important than the commonwealth and common good - but the right continues to rationalize via "trickle down" theory justification, and the left is caught up with its government can do so much good for "the people" by allocating credit via the banking system and 'arbitrarily' fixing the price of money. I don't think it works currently; corruption has taken over.

[gwynedd1]

Re: Hudson on the Piketty Phenomenon

The currency is devalued in ALL circumstances as far as I can tell - and in fact is stated official policy, i.e., inflation targeting. Moreover centralized monetary policy, although not necessarily inherently so, seems to promote the formation of a pyramid where whoever receives the money first benefits more than those who receive it later.

If you place a banana on a ladder and spray cold water on all the monkeys anytime one monkey tries to get it, you will soon have reinforced the idea that the cold water and the banana is related. it will also cause the other monkeys to stop any monkey wise monkey who discovered this is not the case when the one with the hose leaves. In other words you are describing two very different principles that have only by habit and design been linked. Inflation tends to correlate with being bad for middle class debtors because the system inflates with credit inflation. Monetary inflation relieves middle class debtors, necessarily as a fundamental principle . However most of the public is now deceived because they fail to graps the credit money paradox.

An issue arises because central control of the monetary unit and its value if forced on people, even this itself need not be bad per se, but it is the corruption and the fact again that those who get the money first benefit that is unjust. Letting people deciding what to trade is consistent with freedom.


Here is where philosophy and worldviews come into play. The world is tough and competitive enough. A society that rewards ingenuity, hard work, risk taking directed toward increasing real wealth by providing goods and services that raise standards of living is righty directed imo. A world of centrally managed fiat creation and devaluation means one has to continually work to turnover their depreciating currency to prevent poverty; one cannot simply work hard, save money and become independent of wage slavery without speculating with savings hoping not to end up with a goose egg. In short, money currently has an effective expiration date.

As it should IHO.

Note this doesn't even touch upon the issue of leverage, and the fact that those with access to easy and unlimited credit causes asset inflation which since it is not uniform causes dramatic inequality. Look what is happening with PE buying up forecloses homes for instance. How close are they to the money spigot vs us?

Which is why I bristle at the idea that fiat currency is any real problem. A hard currency brings as much credit and paper notes as our system ever did. The only difference what the size of it. So long as bank notes were regional, there was the threat that too many notes would come back for the redemption of specie when the economy was saturated as was noted by Adam Smith.

If anything fiat currency might even be worse for deflation. The silver demonetization was cured in the long run because of an increase in the supply of gold. Never in the history of the world would I recall all the gold mines being closed. However with our money system this has occurred several times. A balanced budget or a surplus is the equivalent of shutting down every gold mine in gold standard and even to putting some back into the ground.

[vinoveri]

Re: Hudson on the Piketty Phenomenon

As it should IHO.

We'll have to agree to disagree on this point. Sorry, I don't understand the monkey-water analogy. You seem to acknowledge that the system is "by design", "paradoxical" and the public is "deceived" so there we can agree.

[gwynedd1]

Re: Hudson on the Piketty Phenomenon

We'll have to agree to disagree on this point. Sorry, I don't understand the monkey-water analogy. You seem to acknowledge that the system is "by design", "paradoxical" and the public is "deceived" so there we can agree.

There is no inherent link to inflation hurting the poor or middle class. If a myth built by an association by design such as beating someone on sunny days, it is nothing but a purely manufactured association. If they dropped $100 bills in a poor neighborhood, there would be inflation as well, yet the association would be quite clear that inflation would be linked to windfalls of that nature.



The myths these people believe are astounding?

He also got in a big argument with your Australian Steve Keen two years ago saying that banks don’t create credit. “All banks do,” Krugman said, “is lend out savings.” He said it’s inconceivable that a bank can actually create credit or inflate asset prices.

Again I cannot take anyone seriously who things fiat currency is the problem when credit dominates the money supply. Nor with the Internet "Austrians" speaking about reserves and potential which are mythological speculations.



This is why I find company with classical economics:

I apprehend that bank notes, bills, or cheques, as such, do not act on prices at all. What does act on prices is Credit, in whatever shape given, and whether it gives rise to any transferable instruments capable of passing into circulation or not.

JS Mill

[vinoveri]

Re: Hudson on the Piketty Phenomenon

There is no inherent link to inflation hurting the poor or middle class. If a myth built by an association by design such that beating someone on sunny days is nothing but a purely manufactured association. If they dropped $100 bills in a poor neighborhood, there would be inflation as well, yet the association would be quite clear that inflation would be linked to windfalls of that nature.

Yes, there would certainly be inflation, and it would be more of an equitable arrangement. Handing out money/credit (and there is no difference practically in the short run as money is debt after all in the current system) to everyone equally is more just IMO than handing it out to a select few and hoping/trusting they will pass it on judiciously.

The myths these people believe are astounding?

He also got in a big argument with your Australian Steve Keen two years ago saying that banks don’t create credit. “All banks do,” Krugman said, “is lend out savings.” He said it’s inconceivable that a bank can actually create credit or inflate asset prices.

Again I cannot take anyone seriously who things fiat currency is the problem when credit dominates the money supply. Nor with the Internet "Austrians" speaking about reserves and potential which are mythological speculations.



This is why I find company with classical economics:

I apprehend that bank notes, bills, or cheques, as such, do not act on prices at all. What does act on prices is Credit, in whatever shape given, and whether it gives rise to any transferable instruments capable of passing into circulation or not.

JS Mill

Again, not sure I follow - what are the myths and what is accurate in your view? I use of the term "fiat money/currency" broadly. Having a bank lend me 1000 US dollars is credit and creates $1000 of new fiat money as far as I understand. I can walk out of the bank with 10 C-notes after all. Is this what you think is a myth?

[gwynedd1]

Re: Hudson on the Piketty Phenomenon

Yes, there would certainly be inflation, and it would be more of an equitable arrangement. Handing out money/credit (and there is no difference practically in the short run as money is debt after all in the current system) to everyone equally is more just IMO than handing it out to a select few and hoping/trusting they will pass it on judiciously.



Again, not sure I follow - what are the myths and what is accurate in your view? I use of the term "fiat money/currency" broadly. Having a bank lend me 1000 US dollars is credit and creates $1000 of new fiat money as far as I understand. I can walk out of the bank with 10 C-notes after all. Is this what you think is a myth?

Well look at it this way. Credit isn't currency. And if most money is credit, then the currency is a fraction of a money problem. The Great Depression and its vast swings of credit happened squarely on a gold standard.

Then of course getting government entirely out of money does not get them even remotely out of credit, if credit is secured by anything the governments touches like real estate. Of course we are so far gone with loan guarantees and the like that this phenomena has not seen a ray of sunshine, nor will it likely ever . That is to say nothing of Fannie, Freddie and Ginniemae . That prints credit like nothing else. The 2000-2008 consumer economy was run on HELOC.

[vt]

Re: Hudson on the Piketty Phenomenon

These gentlemen make quite a bit more than the average worker. Is it undeserved? Their net worth runs from $140 million to $700 million.

http://www.forbes.com/sites/zackomal...-artists-2014/

4/16/2014 @ 10:01AM 195,793 views

The Forbes Five: Hip-Hop's Wealthiest Artists 2014

This story appears in the May 5, 2014 issue of Forbes.

The Forbes Five: Hip-Hop's Wealthiest Artists 2014

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The Forbes Five: Hip-Hop's Wealthiest Artists

Sean “Diddy” Combs’ reign as hip-hop's wealthiest mogul continues (full coverage here). Who else made this year’s rap rich list? Click through the gallery to find out.

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Back in 2007, Sean “Diddy” Combs teamed with Jay Z and 50 Cent to create a song titled “I Get Money: Forbes 1-2-3 Billion Dollar Remix.” Less than a decade later, rappers are closing in on ten-figure fortunes, and he’s the nearest of the bunch.
Diddy leads the pack with an estimated fortune of $700 million, an increase of $120 million over his net worth last year. The change comes largely from the addition of Revolt TV—the new, music-focused, multi-platform channel of which he’s the majority owner—to his already-hefty portfolio.
“Right now my focus is Revolt and making it the number one, most-trusted, most credible worldwide brand for music,” he told FORBES in a recent interview. “And to get Revolt to be the quintessential definition of real time. I think that’s the future.”
Diddy has plenty of competition in the race to $1 billion. His top challengers are Dr. Dre, who ranks second with $550 million, and Jay Z, in third place with an estimated $520 million. The former leapfrogged the latter on this year’sForbes Five thanks to a large stake in Beats By Dr. Dre, which he cofounded with Interscope chief Jimmy Iovine in 2008.
The company controls an astounding two-thirds of the premium headphone market, with annual sales reportedly in excess of $1 billion and growing. Private equity firm Carlyle invested $500 million for a minority stake last year, pushing Beats’ value past $1 billion and likely closer to $2 billion.
“Beats has a unique brand—it speaks to a nice young demographic, which is really interesting to marketers,” says Peter Csathy, former president of Musicmatch, an early digital music purveyor acquired by Yahoo YHOO -2.19% in 2004 for $160 million. “When I think about Beats, I think about it as a lifestyle, I think of it as a media company, not just a hardware and music-focused company.”
Full coverage: Hip-Hop’s Wealthiest Artists 2014
Jay Z’s fortune continues to grow at a healthy clip, too. He’s made multiple nine-figure deals in the past, including his $204 million Rocawear sale in 2007 and his $150 million pact with Live Nation in 2008. But much of his recent growth comes from Roc Nation, his record label and management firm that recently added a sports agency. The outfit gets a single-digit cut of pacts like Robinson Cano’s $240 million monster agreement.
(For more on Mr. Carter’s rise as a businessman, check out Empire State of Mind: How Jay-Z Went From Street Corner To Corner Office).
Next up: Bryan “Birdman” Williams, whose net worth would be over $300 million if he didn’t share his fortune with brother Ronald “Slim” Williams. The duo cofounded Cash Money Records two decades ago; Cash Money continues to grow with a roster that includes Drake, Nicki Minaj and Lil Wayne. Birdman has also diversified with Cash Money Content, GT Vodka and the YMCMB clothing line.
Rounding out the list is 50 Cent, who owes most of his fortune to his $100 million haul from the sale of Vitaminwater in 2007. Now he’s trying to repeat the feat with companies like SMS Audio and SK Energy beverages. In the meantime, he’ll reboot his music career by taking his G-Unit Records independent and releasing new album Animal Ambition in June.
“It was getting pretty difficult to launch music that everyone was paying attention to at the same time,” says 50 Cent of his final days at Interscope, the label that launched him to superstardom. “The company itself was going through so many changes that I didn’t really know the people involved in the projects anymore.”
In order to complete our Forbes Five list, we follow the same procedures we follow while calculating our list of the world’s billionaires: looking at past earnings, valuing current holdings, leafing through financial documents and talking to analysts, attorneys, managers, other industry players and even some of the moguls themselves—like Diddy, who already has his eye on the next generation.
“My advice to future entrepreneurs is to always know reality, to know what you’re getting yourself into, to know how hard it’s going to be, how competitive it’s going to be,” he says. “We’re in a time where the people that really work hard—and really believe in themselves, and really don’t give up on their dreams, no matter how many times they fall down—are the ones that are going to be successful.”
Note: This story is an expanded version of a piece that ran in the May 5, 2014 issue of FORBES magazine.
For more about the business of music, check out my Jay Z biography, Empire State of Mind. My next, Michael Jackson, Inc, will be published in June. You can also follow me on Twitter and Facebook.

[santafe2]

Re: Hudson on the Piketty Phenomenon

This has come up before on this forum. I think Hudson completely understands real estate and is not talking about an upper middle-class couple who inherits a house and rents it out or buys two houses looking for income.

“In New York City, where I live, the older the building, the more valuable it is because it doesn’t wear out, it’s maintained – most landlords spend about 10% of their income on maintenance and repairs. So the pretence is landlords pretend that their building is like a machine, wearing out, they charge depreciation and because of that they say “I didn’t make any profit, this is a return of capital”. And as soon as they’ve depreciated a building in full they then sell it among themselves or they buy it all over again and start the whole process all over, so you can depreciate the same building, say it’s 100 years old, you can keep depreciating it again and again and again and again as if it’s worn out all these times, and it’s the same building. But the owners and the next owners and the next owner and the next owner doesn’t have to pay any tax on this.”

Basically, the whole argument is about where the super rich store wealth and how they prevent the interest it gains from being taxed. Part two is about suppressing wages to the point where everything in life requires borrowing = tax paid to the lenders.

GRATs, the 65-day rule, and the like are absurd perversions of the tax code. You can listen to Krugman on Moyers and sigh, but he gets some important parts right. 10 billion dollars grabbing 5 % on its investment returns over a million dollars a day. Go to Forbes and check out their historical billionaires list. It’s clear Piketty hit some homeruns with his data. Those lists, as you move through them, are the children of the children of innovators/monopolists

I still completely disagree with Hudson's points but let's see if we can discuss this and find some common ground.

• You begin with the issue of class. My takeaway from your point is that upper middle class, or lower end of the investing class, is OK. One or two houses is OK but 100 buildings in NYC is not OK. If so, this is an issue of scale, not a real estate issue. It of course begs the question, how much is too much?
• Hudson rails against depreciation. This is the ability to, over 27.5 or 40 years, depreciate a property asset. As he points out, property is maintained so it doesn't really depreciate. Depreciation does not provide tax avoidance. That portion of your rental property that is depreciated becomes capital gain. Again, this is not a real estate issue, it's a tax issue. Depreciation turns ordinary income into capital gains.
• You mention inheritors. The poster children are the Walton family. This is an issue of both scale and estate tax loopholes, I'm sure you don't care if I split my estate between my children. For the Waltons, it may at this point also be an anti-trust issue but it has nothing to do with real estate.

Rents are taxed as income not capital gains. If expenses are about 10% a year and depreciation is between 2.5% and 3.7%, the remainder is non maintenance expenses, improvement or profit. There are of course ways to securitize real estate investments but that again would be a tax issue. I think Hudson is conflating issues and not thinking clearly on this issue.

[Woodsman]

Re: Hudson on the Piketty Phenomenon

These gentlemen make quite a bit more than the average worker. Is it undeserved? Their net worth runs from $140 million to $700 million.

They move product. They make what some might consider a lumpen form art. For this they are paid a king's ransom.

Meanwhile, a fireman runs headlong into a burning building to rescue some dirtbag who wouldn't piss on you if you were on fire. Goes to bed, rescues a little girl the next day. Get's pissed on Saturday, makes it to Mass on Sunday, starts all over the next day, and I think to myself what does he deserve? 30 and a pension is all he's hoping for, but I guess half a billion is a nice take for a fellow who grew up selling crack $20 a rock and stabbing people in the stomach in business disputes.

The fireman is a dime a dozen, right? One in every city worth the name. But there's only one Roca-fella. Supply and demand. The way God intended.

I kid, of course. Nobody said it had to make sense. Me, I love watching stupid human tricks.