At this point, the stock market is lower than it was a decade ago. As James Surowiecki has said, you can look at the last 10 years as a period not of market growth, but of incredible volatility. Lots of movement up, lots of movement down, but fundamentally, no real change. But the incredible volatility had side effects. An industry arose to arbitrage it. Paul Krugman looks at that industry today, and concludes that "the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole."That's been true in politics, of course, where money has spoken, and loudly. It's a neat trick how even with Democrats in power, hedge fund managers still pay half the tax rates of the rest of us because their income is redefined under a tax loophole.As it became common for brokers to earn a million, and for the best to earn far more than that, inequality rocketed forward, with all its attendant expenditure cascades. As economist Robert Frank explains, expenditure cascades are "a process whereby increased expenditure by some people leads others just below them on the income scale to spend more as well, in turn leading others just below the second group to spend more, and so on." This leads to more visible consumption in order to retain status, and thus less savings. Put simply, it's hard to keep up with the Joneses when the Joneses are trying to keep up with the Burgs and the Burgs are tryying to keep up with the Charloffes and the Charloffes are trying to keep up with Bernie Madoff.One way to keep up, though, is to join up. The riches were so near, and so tempting, that a tremendous quantity of Ivy League talent rushed to Wall Street, rather than to more productive, or public-spirited, pursuits. If half your peer group is starting out with six figure salaries and a gleaming bachelor pad in Manhattan, it can be hard to go the research route. That money came from somewhere, though. That somewhere was fees. Investors paid traders to navigate and assess risks that the investors didn't understand, but the traders swore they did. They didn't. But they don't have to give back any of those fees. So money that could have gone into the bank, or into an index fund, or into personal luxury -- that could have been used productively -- instead went to Wall Street. And as Wall Street grew richer, we were more impressed by them, and we trusted them more, and gave them more money. And so it went. OUR BRAND IS VOLATILITY.
At this point, the stock market is lower than it was a decade ago. As James Surowiecki has said, you can look at the last 10 years as a period not of market growth, but of incredible volatility. Lots of movement up, lots of movement down, but fundamentally, no real change. But the incredible volatility had side effects. An industry arose to arbitrage it. Paul Krugman looks at that industry today, and concludes that "the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole."That's been true in politics, of course, where money has spoken, and loudly. It's a neat trick how even with Democrats in power, hedge fund managers still pay half the tax rates of the rest of us because their income is redefined under a tax loophole.As it became common for brokers to earn a million, and for the best to earn far more than that, inequality rocketed forward, with all its attendant expenditure cascades. As economist Robert Frank explains, expenditure cascades are "a process whereby increased expenditure by some people leads others just below them on the income scale to spend more as well, in turn leading others just below the second group to spend more, and so on." This leads to more visible consumption in order to retain status, and thus less savings. Put simply, it's hard to keep up with the Joneses when the Joneses are trying to keep up with the Burgs and the Burgs are tryying to keep up with the Charloffes and the Charloffes are trying to keep up with Bernie Madoff.One way to keep up, though, is to join up. The riches were so near, and so tempting, that a tremendous quantity of Ivy League talent rushed to Wall Street, rather than to more productive, or public-spirited, pursuits. If half your peer group is starting out with six figure salaries and a gleaming bachelor pad in Manhattan, it can be hard to go the research route. That money came from somewhere, though. That somewhere was fees. Investors paid traders to navigate and assess risks that the investors didn't understand, but the traders swore they did. They didn't. But they don't have to give back any of those fees. So money that could have gone into the bank, or into an index fund, or into personal luxury -- that could have been used productively -- instead went to Wall Street. And as Wall Street grew richer, we were more impressed by them, and we trusted them more, and gave them more money. And so it went. 
