These rich jerks in space
The frivolous use of large amounts of resources by the very rich is a problem for the economy and for society.
As a huge fan of the original Star Trek, I have to admit it was pretty neat to see Captain Kirk go into space. But there is a real problem with silly super-rich games here that deserves some thought.
There have been many stories and articles about the huge increase in the wealth of the super-rich since the start of the pandemic. Almost all of this is due to the rise in the stock market during this period. Part of that is a rebound, the S&P 500 lost almost a third of its value between its pre-pandemic peak in February 2020 and its pandemic low a month later. If we want to tell a truly dramatic story, we can start in the depths of the pandemic and take the stock market upward from March 20.e.
If we are to close the huge political power gap created by extremes of wealth, we must look for ways to empower those in the middle and bottom.
But even if we’re serious, there has been an extraordinary rally in the stock market over the past twenty months. The S&P 500 is more than a third above its pre-pandemic peak.
There are several different explanations for this increase. The first is simply that low interest rates generally increase stock prices. Interest rates fell during the pandemic shutdown, with the 10-year Treasury rate falling from just over 1.8% in February 2020 to lows of less than 0.6% last summer. Generally, lower interest rates will translate into higher stock prices.
But this explanation will not go too far: the interest rate on 10-year Treasury bills is currently above 1.6%. The gap between a Treasury yield of 1.8% before the pandemic and the current yield of 1.6% could only explain a small part of the rise in the stock market.
A second possibility is that stock market investors are genuinely optimistic about the prospects for future earnings. People are often confused as to what the stock market is supposed to measure. Stock investors don’t care about the future of the economy, they wonder about the future profits of Amazon, Facebook and the other stocks they own. If they think their profits are good, then they are willing to pay more for their actions.
It could be because they think the economy will be doing well and all the doomsday prophets in the media have no idea. If the economy grows strongly in 2022 and 2023 and companies get their share of higher profits, then high stock prices might be justified.
Another story would be that they expect the recent slide from wages to profits to continue. In this case, earnings growth could be strong even if economic growth is not. That would mean again that all of the people who are complaining in the media, about companies being strangled by rising labor costs, have no idea. But what else is new?
And, there is the third possibility that we are just witnessing another case of irrational exuberance. The possibility that there is no rational basis for stock prices shouldn’t sound strange to anyone who saw the stock market bubble collapse in the late 1990s and the 2007 housing bubble collapse. to 2009. Investors are often ignorant of economic fundamentals, so it is certainly possible that there has been no economic basis for the rise in stock prices over the past 20 months.
But, whatever the justification, there is no doubt that rising stock prices have made the super-rich a lot richer. The question is how much should we care about it.
I have always said that I am not very concerned about the inequality of wealth. It is poorly measured and very volatile. I am much more concerned about income inequality.
I recognize the political power associated with extreme wealth, but I don’t believe the people making this argument have given it serious thought. Suppose we reduce the wealth of the super-rich by 50% or even 75%. Will Jeff Bezos not have the resources to advance his political agenda if he only had $ 50 billion at his disposal? If we are to close the huge political power gap created by extremes of wealth, we must look for ways to empower those in the middle and bottom. The idea that we will do this by reducing the wealth of those at the top is hardly plausible.
What about space?
Okay, so what does all of this have to do with Captain Kirk going into space? If we think about how the extremes of wealth can hurt the rest of us, it comes down to their control over the resources of the economy. This is the story of the congested supply chain and overloaded ports. We demand more goods and services than the economy can currently provide.
If the billionaire gang manages to make space travel a major form of recreation for the very rich, that’s a real problem.
Space flights promoted by Jeff Bezos, Richard Branson, and presumably Elon Musk, involve an enormous use of resources. It takes a large number of often highly skilled people to plan and monitor these space flights. With the huge amount of free publicity that the media has given to these companies, we can expect many more very wealthy people to line up to take their space trips.
This will mean moving many workers away from areas where they could do more productive work, such as designing better solar and wind power systems, better batteries to store energy, and better ways to produce vaccines and medicines. It will be a real cost to the economy.
The frivolous use of large amounts of resources by the very rich is a problem for the economy and for society. This is distinct from their wealth as an accounting entry. For example, Warren Buffet is one of the richest people in the world, but by all accounts he leads a very modest life. If his wealth doubled, it’s hard to see why that would create major economic problems. On the other hand, if the billionaire gang manages to make space travel a major hobby for the very rich, it is a real problem.
I don’t have big plans to stop the last space race. I have always maintained that the best way to prevent extreme inequality is to stop structuring the market in such a way that it generates extreme inequality. This means less reliance on patents and copyright as funding mechanisms for innovation and creative work. This means reducing the size of the financial sector by structuring it in a way that promotes efficiency, not the extreme wealth of a few. And, having a corporate governance structure that doesn’t allow CEOs and senior executives to rip off the companies they work for.
These and other questions are addressed in Rigged, but the main point here is that we should try to keep our eyes on the ball. Wealth as a journalistic entry should largely be a matter of indifference to the rest of us. When the super-rich pull out large amounts of resources for their fun and games, that’s a big deal.
I’m going to skip the obvious joke that the problem isn’t sending rich people into space, it’s bringing them back.