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greyenlightenment  investments: META/FBL, TSLA, TQQQ, TECL, MSFT ...  1yr ago (greyenlightenment.com)   2078 thread views

Moloch and college tuition: why broken systems endure – Grey Enlightenment

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Submission statement

  1. The college debt debate overlooks the huge college wage premium and focuses instead on the nominal amount of debt, which although large, is still small relative to wages. Americans earn among the highest incomes in the world, when combined with low taxes, makes college even more worthwhile. I was surprised myself to see that the average income for college grads is so high: $70k. Just a few decades ago, it seemed like high 5 figures was uncommon, but now the norm. When you make so much, who cares about $3-5k/year in student loan payments.

  2. The incentives are aligned in such a way as to encourage the accumulation of a lot of debt, whether it's college or home ownership. Savers seem to miss out (penny wise, pound foolish as it's said). This goes against conventional wisdom that debt is bad or saving is always good. The people who seem to have the most wealth by their late 30s or 40s seem to be those who took on a lot debt in 20s and invested heavily in education, like student loan debt , graduate degrees, and mortgages.

  3. Students can take advantage of low interest rates with federal loans despite having no credit history, which is not possible with private debt. Also, tons of forgiveness plans and forbearance. This creates an incentive to take on debt.

  4. In the job market, not having a degree puts one at an obvious disadvantage compared to degree holders. Unless everyone defects, it's disadvantageous from an individual perspective to forgo college.

  5. Trade schools may not live up to hype and can be as expensive as 4-year degrees.

Rising interest rates will make this less lucrative, especially #2. On Reddit 'FIRE' subs, almost everyone who got rich over the past decade took advantage of low interest rates and surging asset prices after finishing college. But even with high interest rates and high inflation, college educated workers still fare much better. But it looks like 10+ year bond yields are crashing again. It's the same pattern of long-term rates falling like rock when even the slightest hint of economic weakness shows, or even for no reason at all. The era of 6+ % 10-year bonds like in the 80s,90s, and so, are over for good. There is too much demand from pensions and other sources buying up any long term treasury yielding 3% or more.

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With rate increases will FIRE people get burned? -On a more serious note, I think the current inflation is doing serious harm to income inequality. Either through education or skills you are either in a dynamic industry where you get rewarded with pay increases so you maintain or increase your purchasing power or you're in a stagnating uncompetitive industry where your real income is eroded by inflation. This advantages only increases as you go through life, buying a house instead of renting and adequately saving for retirement vs renting and not being able to save.

On a more serious note, I think the current inflation is doing serious harm to income inequality.

However, it's slightly improving wealth inequality at the same time. Let's say I am one million in debt and you have one million in assets. Both are equal to, let's say, our annual earnings. If the currency is inflated 900%:

  • I still am one million in debt, but it's between one tenth of my annual earnings (if I work in a dynamic industry) and my annual earnings (if I work in a stagnant industry).

  • You have between one (you had everything in your savings account or invested into stagnant industries' stocks) and ten million in assets (if you had everything invested into dynamic companies' stocks)

If we both are smart, you preserve your wealth and I erase my debt. If we both are dumb, I preserve my debt and you erase your wealth.

What exactly do you mean by dynamic v stagnant industry, though?

Winner of the current market cycle?

Its like a world-wide Dutch Disease where the industry of focus is some technology/ finance and some select entertainment sectors; and all other occupations not tangentially related won't keep up with inflation.

Whatever AmericanSaxeCoburgGothic had in mind.

FIRE people stand to do well if they have already locked in low rates with mortgages and student loans. New FIRE people will find it harder, but should still be at an advantage if they have high-paying careers, which tend to have higher inflation-adjusted incomes and raises even in high inflation.

Regarding inequality, the stock market is a good proxy for that. Rising stock market = more inequality. Given that the stock market does well most of the time, including periods of high inflation, inequality should be expected to rise. https://gabriel-zucman.eu/files/uswealth/SaezZucman2014Fig1.png

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