<story><title>The Rent Is Too Damn High: The Enormous Cost of Letting Finance Rule</title><url>https://www.jacobinmag.com/2014/02/the-rent-is-too-damn-high-2</url></story><parent_chain><item><author>api</author><text>The rich are simply not smart enough to intelligently allocate their capital. Things like rent extraction schemes (formulaic investment patterns) and bubbles (indicative of simple herd behavior) dominate because they are easy, dumb ways to make more money off existing money. You don&amp;#x27;t see big investments in new technology, science, infrastructure, or other complex and difficult areas because by and large the financiers do not &lt;i&gt;understand&lt;/i&gt; these things. But they do understand finance itself, as well as big dumb markets like real estate.&lt;p&gt;These schemes are dumb because they contain the seeds of their own destruction. Rent extraction eventually kills the golden goose or provokes a populist revolt, while bubbles are basically casino gambling.&lt;p&gt;The libertarian anti-tax&amp;#x2F;anti-government revolution was largely predicated on the idea that private capital would be so much smarter and more agile than state capital. What we&amp;#x27;re seeing is that this isn&amp;#x27;t the case. Private capital is every bit as stupid as the state; Goldman Sachs is not that different from a Soviet planning bureau.</text></item></parent_chain><comment><author>enoch_r</author><text>If the market is &amp;quot;stupid&amp;quot;, what testable results do we expect? Here&amp;#x27;s one: smart people who figure out &lt;i&gt;better&lt;/i&gt; ways to allocate money should be able to consistently beat the market performance.&lt;p&gt;Great--now let&amp;#x27;s test that hypothesis! Studies have consistently shown there is very little or no autocorrelation between excess returns--that is, someone who beats the market in year n is essentially no more likely to beat the market in year n+1 than anyone else. This is very different than a field like programming or basketball, where someone who performs well one year will probably perform well the next year.&lt;p&gt;To me, this is absurdly good evidence that the market is not &amp;quot;stupid,&amp;quot; even when I think it is.&lt;p&gt;Worse, arguments like this don&amp;#x27;t merely say that the market is stupid and &lt;i&gt;could be beaten&lt;/i&gt;--they use the &lt;i&gt;author&amp;#x27;s personal views&lt;/i&gt; on the stupidity of particular market movements to make that claim. In other words, to accept this argument, I need to believe that you are one of the (maybe) few people on the planet who can consistently beat the market. I don&amp;#x27;t believe that.</text></comment>
<story><title>The Rent Is Too Damn High: The Enormous Cost of Letting Finance Rule</title><url>https://www.jacobinmag.com/2014/02/the-rent-is-too-damn-high-2</url></story><parent_chain><item><author>api</author><text>The rich are simply not smart enough to intelligently allocate their capital. Things like rent extraction schemes (formulaic investment patterns) and bubbles (indicative of simple herd behavior) dominate because they are easy, dumb ways to make more money off existing money. You don&amp;#x27;t see big investments in new technology, science, infrastructure, or other complex and difficult areas because by and large the financiers do not &lt;i&gt;understand&lt;/i&gt; these things. But they do understand finance itself, as well as big dumb markets like real estate.&lt;p&gt;These schemes are dumb because they contain the seeds of their own destruction. Rent extraction eventually kills the golden goose or provokes a populist revolt, while bubbles are basically casino gambling.&lt;p&gt;The libertarian anti-tax&amp;#x2F;anti-government revolution was largely predicated on the idea that private capital would be so much smarter and more agile than state capital. What we&amp;#x27;re seeing is that this isn&amp;#x27;t the case. Private capital is every bit as stupid as the state; Goldman Sachs is not that different from a Soviet planning bureau.</text></item></parent_chain><comment><author>loceng</author><text>The &amp;quot;rich&amp;quot; were smart enough to find a way to be able to pool resources, or &amp;quot;lucky&amp;quot; enough to have been born into a situation. The problem is we need to be investing in everyone, equally, until they prove they can use resources better than others and then allot them more resources. The first trick is doing it in a way that is fair, and the second trick is doing this while in transition from the old systems.</text></comment>