Thursday Open Thread

KIM IS RETURNING!!!

Next week she will resume active administration of The ToteBag. Please fill up the Suggest Topics page for her. Friday Advice Column items are especially welcome.

As a conversation starter, but feel free to digress, Finn asked the following:

Most of us invest in indexes. Mutual funds or ETFs? What are the pros and cons of each? Which do you use?

78 thoughts on “Thursday Open Thread

  1. Kim – I am glad you’re back.

    Real estate investing, continued from yesterday’s thread: I am very comfortable having my real estate investments = the home we live in + publicly traded real estate investment trust (VNQ).

    DS2 has been talking about maybe buying a condo wherever he goes to med school vs renting. I’d be comfortable being a partner in that real estate venture if it happens since I don’t think I’d get into a ‘bad tenant’ situation.

  2. I don’t think I’d get into a ‘bad tenant’ situation.

    I figure you’d have that problem when he moves for his residency and he’s too busy to deal with tenant drama so it falls to you.

  3. indexes. Mutual funds or ETFs? What are the pros and cons of each? Which do you use?

    Our 401(k)s are mutual-fund based, so that’s what we use.
    – Some are direct index funds (e.g. Total Stock Market Index, Total Bond Fund Index), some are ‘funds of funds’ (Vanguard’s 2030 Target date retirement fund is made up of 4 other Vanguard Index Funds).
    – Some fund companies (American Funds) seem to be actively managed only so their Target Date funds are made up of a bunch, 10+, of their other funds spread across equity & debt, domestic & international.

    IMO The key advantage of ETFs vs Mutual Funds is the ability to take your capital gains when you want them for taxable accounts. Rarely are there large end-of-year taxable distributions from (index) ETFs, but you can get them from mutual funds. For tax-advantaged funds (IRAs, 401ks) none of that really matters.

    Mutual Funds we have:
    – Lord Abbott Developing Growth
    – Vanguard 2025 and 2030 Target Date Funds
    – TRowePrice Capital Appreciation & Global Stock
    – American Funds Balanced & Total Bond

    ETFs we have:
    – VNQ (Real Estate fund-of-funds)
    – SDY S&P Dividend Aristocrats
    – PSJ (Software)
    – BIV (Intermediate Bond)
    – GBTC (Bitcoin)

    I also own 5 whole shares of Amazon.

  4. Fred,

    If we don’t sell the place. Which would be my plan.

    In 4 years? It’s unlikely you’d make any money with that short of a time frame.

  5. There used to be a disadvantage with ETFs because of the fees to trade, but most people can access a no fee account to trade so it isn’t as big a deal to buy an ETF.

    Typically, there isn’t much difference with buying the ETF or the index fund if they are tracking the same basket, but you receive the end of the day price if you buy the index fund shares. That reflects the moment in time at the market close. If you want to trade vs. invest, it might make sense to buy an ETF in certain situations if you are trying to catch a dip. This can be done with an ETF because you can buy that at any time of the day and you receive the market price at that moment vs. end of day.

  6. I have become lazier and lazier as I get older and realize that the little details don’t matter as much any more. Right now, all new money basically goes into VTSAX. I should probably shift things to ETFs, but since so much is in 401(k)s/Roths, and VTSAX doesn’t exactly trade much, the CGs issue hasn’t been something I’ve much cared about. And I imagine by the time it is, we’ll be taking the CGs as distributions anyway. The only other stuff we have is the 529s, which are in age-based plans, so again I don’t have to worry about it.

    DH is a little more active — he puts his bonuses and such into Fidelity and chooses various funds and such there. My own separate money is in a couple of value funds, but I’m not adding to those any more, so they’re just sitting.

    If my FIL is any indication, I’ll probably pay more attention and get more active when I retire and need a hobby. ;-)

  7. Lauren +1

    I like ETFs because I can put in a sell or buy order at a price. My boss has told me he’s got sell orders in for VTI at 210 215 220 so he takes some profit as he goes. (forgot to mention I also have VTI).

    If you’re interested in being invested but not interested in spending your time on it the most important thing to remember is to be invested and contributing (to a portfolio of quality investments spread across equities / debt).

  8. In 4 years? It’s unlikely you’d make any money with that short of a time frame.

    You have to factor in how much they would’ve paid for four years of rent. If he would pay even $500 a month for rent, that’s $24k, and that’s low-balling it. So if they break even on the condo, they are $24k (likely more) ahead.

  9. So if they break even on the condo, they are $24k (likely more) ahead.

    After closing costs, taxes, broker commission, condo fee, insurance, assessments…

  10. DD – yeah that’s it. There are +s and -s to each of renting v owning but he’s taking the opportunity cost view. And at ~2.5% interest rates on a 30yr mortgage the out of pocket (PITI) will be equal to the rent.

  11. Rhett – setting aside the real risk of real estate price decline over a 4yr horizon for a moment, we’d do a downtown financial analysis comprehending all that to see what the comparative cash flows would be. Then overlay a potential set of price parameters (0%, -5%, -10%, -20%) to size the risk. If a tolerable level of risk results in a ‘close to breakeven’ amount, we’d (see I’m already counting on being a partner) probably buy.

  12. A couple of people I knew in college had parents who bought houses for the kids to live in and share. If they hung onto those houses they’ve made a nice profit. But the San Francisco Bay Area isn’t representative.

  13. Our crypto assets are up a LOT right now. But I wouldn’t ask DH to sell those! ;)

    DH is our active manager, so I only half pay attention to our actual holdings and which funds/securities.

  14. We invest in Vanguard funds. It works for us, because we don’t want to actively manage our portfolio.

  15. Different topic, but one we have discussed before. The days are so much brighter now! Even when not sunny (like today; light snow flurries) it’s a lot brighter than during Nov-Jan when we had cloudy, dark days. Makes me have a better mood.

  16. OK, so someone explain the value of crypto to me, please. My fidjit brother is all over bitcoin — which, hey, good for him, he has no job or assets and needs something to live on other than my dad. I understand that they control the supply and it’s hard to “mine,” so it shouldn’t be massively diluted in the future. But, you know, there were only so many tulips in Holland, too.

    Where’s the inherent value in it? At least with regular currency, it is backed by the full faith and credit of the government. Yes, all modern currency is basically an IOU, but who is giving that IOU matters. If I go to the store down the street and hand over $20, that’s a promise from Uncle Sam to provide $20 worth of value on demand. And that’s good unless the whole government goes down. But if I go to the store down the street and hand over an IOU from Jim down the street, why should they take it? They have no idea who Jim is, if he pays his bills on time, or if he can afford to pay off $20 for whatever it is. So what happens if the folks who created Bitcoin just take their money and run, or people just decide they’re not going to accept it? The only “value” I can see is the alleged ability to operate invisibly from the eyes of the government — which is great if you’re, say, a drug lord or intent on adding another level to your bunker. But why is that so appealing to the ordinary guy who buys everything via Amazon Prime and has loyalty cards to every brick-and-mortar store around?

    Seems to me that crypto has value only because people think it has value, and the price keeps rising because people are impressed with its increase in value and are buying in because its value keeps going up. But that’s the kind of momentum that can lead to a very, very rapid crater if there is suddenly a serious question about whether it’s worth anything.

    Not that I want to see my fidjit brother back relying on the Bank of Dad even more. But I’d sure like a few less FB posts about how brilliant Bitcoin is and why haven’t we readers all thrown all our money into it yet?

  17. After closing costs, taxes, broker commission, condo fee, insurance, assessments…

    Yes, I was including all that in the break even calculation.

  18. Fred, I keep a sunrise/sunset time chart taped on the wall next to my desk beginning in December through about March. I look at the sunset time every.single.day. I put the chart away when the sunset time has gotten sufficiently late.

    Investments wise, I invest primarily in index funds to keep things low touch and even prefer to not to look at balances often – the opposite of my focus on daily sunset times. :) I should probably switch my priorities.

  19. OK, so someone explain the value of crypto to me, please

    ::Crickets::

    I’ve read tons about crypto, but I can’t get past your questions. As you say, it was great for The Silk Road and people buying their meth online. Other than that, despite my reading, despite my attempts to understand currency more generally in order to understand crypto, I don’t get it.

    Also, apparently China is kicking our ass WRT crypto.

    https://www.wsj.com/video/us-vs-china-the-battle-for-bitcoin-mining-supremacy/78975620-B4A1-49B1-A83D-FE8195D8C635.html?mod=trending_now_video_2

  20. LfB – with bitcoin, it’s scarcity – there is a finite supply, so therefore desirable. Some of the coins are linked to a company that issued them, like stock, and the purchase of the coin supports the company’s activity (like ETH, the purchase of which allows smart contracts to run on the Ethereum blockchain). For the rest of the coins, I don’t think there is inherent value either. I mean, Dogecoin?

  21. The Wikipedia article on crypto currencies sez:

    “Transactions that occur through the use and exchange of these altcoins are independent from formal banking systems, and therefore can make tax evasion simpler for individuals. Since charting taxable income is based upon what a recipient reports to the revenue service, it becomes extremely difficult to account for transactions made using existing cryptocurrencies, a mode of exchange that is complex and difficult to track.

    ‘Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money. Rather than laundering money through an intricate net of financial actors and offshore bank accounts, laundering money through altcoins can be achieved through anonymous transactions.’

    So I can see why that would be appealing.

    Also:

    “Gareth Murphy, a senior central banking officer has stated “widespread use [of cryptocurrency] would also make it more difficult for statistical agencies to gather data on economic activity, which are used by governments to steer the economy”.”

    And I guess I can see why “disrupters” like Musk would think that was neat-o.

  22. “with bitcoin, it’s scarcity – there is a finite supply, so therefore desirable”

    So I get why people think that way. And that’s certainly a fundamental tenet of basic economic theory. But that sort of assumes that the “thing” that is scarce has some sort of inherent value. Like, say, paying a gazillion dollars for the last loaf of bread because your family needs food. Or even paying over list price for a car because it’s “cool” — you’re buying it because you want to buy a cool car, and so you’re willing to pay a premium. But at the end of the day, if the whole shebang crashes, you still have a loaf of bread or a car. With the dollar, you still have a promise from the US government to give you a dollar’s value. The appeal of Bitcoin seems to be that a lot of people find it appealing. But if the laws change or they fall out of fashion, the value could crater.

    Just seems more like buying Beanie Babies or tulip bulbs than buying stock, precious metals, commodities, or even other government currency. But what do I know? I’m an old fart who can’t even bother to look beyond VTSAX. ;-)

  23. “L – Just make sure you don’t lose your passwords!”

    Kara Swisher likes to lament how much the bitcoin she bought for a story she was writing when it first emerged would be worth now if she hadn’t lost her password.

    The Winklevoss twins bought tons of bitcoin after they settled with Facebook, and the story of how they safeguarded their passwords by cutting them into pieces and storing the pieces in safe deposit boxes in random local banks around the country is crazy. Bitcoin Billionares is a very interesting book.

  24. LfB,

    My understanding is that one of the goals is to have a currency that slowly deflates over time rather than inflates. With $ or € if you want your purchasing power to stay the same over time you need to invest in some asset class – equities, bonds, real estate etc. With crypto the currency units increase in value over time.

    What I can’t understand is how a bitcoin denominated mortgage or corporate bond would work.

  25. I have been enjoying very much that it is now light out well past 5. It does help, even though there are 3′ of snow on the ground right now. UGH.

    We are pretty much 100% Index funds in our investment accounts. Some are funds of index funds (Target Date), some VTSAX or similar, some international, some bond index funds. Our non-work investments are with Vanguard. Like Fred, we own 5 whole shares of Microsoft (although those shares are worth way less than Fred’s). That was because FIL wanted DS to learn about investing by picking a stock for fun. Microsoft = Minecraft. But it’s been a great year for Microsoft!

    Interesting thought about the ETF vs. Mutual Fund tax implications. I probably need to start thinking about that more as our taxable investment account is more material than it used to be.

  26. Interesting article, Louise. The one part I seriously disagree with is the first part of this sentence:

    So-called renewables such as wind power and solar perform poorly, or do not perform at all, in such conditions, while natural-gas, coal, and nuclear facilities have been shut down or hampered by pipelines, instrumentation, and other equipment that is inadequate to the current conditions.

    Renewables (NOT “so-called!”) actually CAN perform in current conditions in TX. The problem isn’t that turbines are inherently incapable of operating in cold weather; they have them in Greenland, for Pete’s sake. In fact, from what I’ve read, the turbines have outperformed other sources of power — something like responsible for 10% of the power gap but make up 20% of the grid. And as Finn pointed out yesterday, solar may not work well during the storm itself, but when the sun comes back out, it will work just fine, even if the temperature remain well below freezing.

    The problem with the wind turbines in TX is precisely the same there as for all of the other types of energy that have failed: they were not designed and maintained for a black-swan freeze event. And to me, that really is a failure of the desire for a free market. As the author points out, people want power in the middle of a storm, but the week before or after, they’re not willing to pay for it. And the energy companies are happy to give them exactly what they’re willing to pay for, because it’s the customers who bear the hardships when nature strikes back and the grid goes down. One of government’s primary jobs is to sometimes make us do things we don’t particularly want to do, because it’s in our best long-term interest. So in the regulated world, utility commissions mandated a certain amount of backup supply for peak demand periods, required certain construction or maintenance standards that were supposed to ensure consistent supply, and had the full authority to impose penalties on companies who didn’t do what they were supposed to. I represented a power generation plant that literally got paid NOT to operate: because the state needed power during peak periods, the plant had a contract that covered all of its basic fixed costs regardless of if it ever operated at all (it didn’t make a profit from that — it only profited if it ran — but it made enough to keep the equipment maintained and up-to-date). But the flip side is that it had to be able to come online within 2 hrs of being dispatched. I’ve also represented a local supply company that operates two entire plants that are only emergency generators — many large emergency generators — that run only when problems with the power supply would otherwise cut off service.

    In a deregulated world, you won’t see that. Many companies won’t bother to build backup capacity, or to design their equipment with extra safeguards to manage extreme weather situations, because they can get only market price for their power, and the rest of the market providers aren’t spending that kind of money. A few companies might build backup capacity, but if you want that to be your plan, you need to be prepared to handle massive price increases — like 1000x — for them to cover their costs.

    Seems like what we have now is sort of the worst of both worlds — enough regulation to prevent price-gouging (i.e., create a serious disincentive to companies who might otherwise take a shot at backup capacity), but not enough to ensure that the power companies are actually planning appropriately for things that could interrupt service.

  27. It doesn’t really seem like the market could ever work with the current setup. For it to work they would need to be able to cut off each customer based on who they picked as their energy supplier. If you pick Texas Star Energy and it’s $0.18 a kwh but they winterize their plants and maintain backups etc. then your power stays on. If you pick Crazy Eds Power at $0.12 kwh and they don’t winterize and they don’t have backups then your power stays off till the equipment thaws out.

    But if who you buy from has nothing to do with whether you lose power then there is no incentive for providers to winterize or maintain backups.

  28. “But if who you buy from has nothing to do with whether you lose power then there is no incentive for providers to winterize or maintain backups.”

    Precisely.

  29. Wow! They have a 360 camera set up in the JPL control room.

    Click on the arrows in the top right and you can swivel your view around the room.

  30. I loved hearing the excitement in her voice as it was getting closer and closer. And then once it landed, how happy and relived everyone was.

  31. That article was very interesting, RMS. And I’m vowing to use the phrase “helltopian torturescape” in a sentence tomorrow.

  32. Fred and Lauren brought up some differences between funds and ETFs that make sense to consider.

    Has anyone here looked at whether either has an advantage in expense ratios? Since I tend to buy and hold, that would probably be key if they weren’t the same.

  33. I prefer ETFs for the reasons already mentioned. Expense ratios for ETFs and MFs tracking the same index are usually comparable. One downside of ETFs used to be inability to design systemic investment where you contribute fixed dollar amount periodically. But I believe, fractional share buying has solved that problem.

    Combination of VTI (Total Stock Market) or VOO + VXF for US and VXUS for Intl. Or slice and dice based on the factors you prefer. And in case of market swing, pick your ETF company (ishares, Schwab) and choose the comparable ETFs to tax loss harvest.

  34. Kim, very glad to have you back. I hope you and your family are well. I’m sure many of us would agree that you have been in our thoughts. Many thanks to meme for keeping this place running. I can’t check in every day like some, but I do rely on this group for excellent information and the hard truth when the truth is needed. I would miss this blog terribly if there were no admin to keep it alive.

    RMS, thanks for the links. I started reading Cult of Smart after Rhett recommended it and didn’t finish*, but found the authors positions interesting. I agree that Alexander’s essays are less than concise, but I enjoy his stream of consciousness/I’m making an important point combination writing.

    *I had to return it to the library – it was a new book and I could not renew any longer. I think the review RMS posted is enough to convince me that I don’t need to buy a copy and finish, I already got the gist.

  35. Finn – I compared Total Stock Market Index tracking investments:
    Vanguard
    – VTI 0.04%
    – VTSMX (investor shares) 0.14%
    – VTSAX (admiral shares) 0.04%

    But Fidelity’s mutual fund which seems to do the same thing as Vanguard’s (FSKAX 0.01%) is 75% cheaper. Depending on your preference if you had $1M in a total market fund Fidelity would save you $300/yr in expenses.

  36. Yeah, so he lost me here:

    “In a completely utopian society I was building from the ground up, I would want a law that no child over (let’s say) 6 can be involuntarily confined anywhere, any more than any adult can. If a child wants to stay at home, they can stay at home. If they want to wander the streets, they can wander the streets. If they commit a crime, courts can limit their movement, same as if adults commit crimes. Schools get converted to nice community centers where children can spend the day and go to classes if they want. If parents need some time off, they can ask their kids to get out of the house, which would probably (but not necessarily) mean they go to the community center. If children don’t want to go home to their parents, there are other options available, like living at the community center or finding a foster family. Community centers don’t have to take children who are violent or disruptive, but there are some “community centers of last resort” that do, since these kids need somewhere to be too. There are no grades, but some sort of College-Board-like company offers take-whenever-you-like pass-fail tests that certify kids as being educated a certain amount (eg “an eighth-grade education”). Children know what will be on these tests and can study for them however they want. Most jobs will ask for the equivalent of a twelfth-grade education to work there, so children are incentivized to study enough to reach that level.”

    Sounds very much like a system that would benefit the brilliant, inquisitive, self-driven individualists — i.e., the Scotts of the world — but would screw over the other 99.9999%.

  37. I agree completely, Laura. He lost me, too. And that’s been tried multiple times since the beginning of the 20th century (see also: Summerhill) and it just never really works out at scale.

  38. Sounds very much like a system that would benefit the brilliant, inquisitive, self-driven individualists — i.e., the Scotts of the world — but would screw over the other 99.9999%.

    I also detect a MMM like aversion to being told what to do.

  39. “I just thought here’s a guy who doesn’t know any children.”

    Right. And he’s going entirely on the memories of his own childhood.

    He does point out that he taught children for a year in Japan. He tried some slightly looser, more fun strategies, and they bombed, so he went back to doing it the same way as every other teacher.

    But I think he’s really just ranting. I am not sure that if he sat down for a week to think about it, and research it, he’d write all that stuff about The Ideal Educational Process. That’s just what he wishes he’d had.

    The stuff about meritocracy and DeBoer’s failure to apply it evenly to individuals and to groups is more interesting, but belongs on the politics page.

  40. Even from my years of teaching college-age students, I know you have to be careful. They could always go to the bathroom whenever they wanted, because class attendance was only mandatory-ish. If they wanted to just leave, go ahead.

    But if you say “I know it’s 8:00am and you’re starving and want coffee, so it’s okay to bring in coffee and a bagel or something”, SOMEONE will bring in hot fried fish and the classroom will be filled with the smell and all the non-morning people will be retching. So you try to say “you can bring in something that doesn’t have a strong odor” but someone will find a way around that, so eventually it’s “You can bring in coffee. Period.”

  41. So. The book that triggered this review is only the latest in a recent spate of focus on the evils of “meritocracy,” and how we need to do away with it. What I don’t get is: what in the world do you replace it with? I mean, the “old” version assigned status and wealth based on family lineage. Our current ideal is that people gain status and wealth based on their own efforts and talents. Is there a third option there that I’m not aware of? Shall we just run a lottery to hand out jobs?

    I think it’s completely fair to point out the flaws and failings of meritocracy as it is currently practiced. But those primarily strike me as falling within three camps: (1) many things are still decided based on non-“merit”-based things, like family wealth and race, so many people never get to develop their inherent talents to compete fairly; (2) our hierarchy is too stratified, with the “winners” taking too much and leaving the losers with nothing; and (3) it’s still a hierarchy, which means there are still going to be people at the bottom who get screwed. I think (1) isn’t a critique of meritocracy per se, but is in fact the reverse: it is a complaint that historic norms are getting in the way of actually achieving a world based on merit. (2) is also not a critique of the concept of meritocracy itself, but rather about how we manage our regulatory and taxation system — in other words, no one is saying that a brilliant hedge fund manager shouldn’t make more than someone who works at Arby’s, they’re just saying he shouldn’t make/keep *as much* more as he does now. And (3) is a very significant problem in any system — it is not something that can be avoided no matter what your system is, so we should be looking at how to support the losers of whatever system we choose rather than attempting to discard the system simply because there *are* losers.

    The answer provided by the book reviewed, of course, is socialism/communism, on the theory that that kind of system ensures that there are no losers. But that’s false. Both of those systems end up with a ruling class that decides how to allocate resources fairly — so in practice, it’s not much better than the old monarchy system, where you’re relying on the good intentions of the rulers to spread the wealth fairly. And we’ve all see how that turns out. As much as we’d like to believe otherwise, we’re all Sneetches: no matter what the system is, we’re going to figure out some way to create a hierarchy. Better to accept that fact as a given, figure out what version of a hierarchy is the most beneficial to society, and then devote a reasonable amount of resources to supporting the folks who can’t win under that hierarchy.

    Which brings me back to: if you don’t want to base your hierarchy on merit — on the idea that the people who work hard and suck it up and get degrees or build businesses or whatever should get more money and status than people who don’t — then what factors do you want to base it on? No, meritocracy isn’t “fair,” because not everyone has the same innate talents or the background to take advantage of them. But I can’t think of a system that is more fair. I think it makes a ton more sense to look at where meritocracy is failing and why and try to fix those problems vs. arguing that the whole concept is wrongheaded.

  42. Rawls. You let the smart people with fine motor coordination be the surgeons, and you pay them just enough extra to get them to do it rather than stay home all day playing video games. So pay is not equal but it’s a hell of a lot more equal. And we stop acting like there’s some metaphysical perfection that attaches to being smart, a glow that just makes you superior. You’re just generally more worthy.

    And everyone on this blog, including me, has to stop being smug and braggy about what geniuses their kids are, because that doesn’t make them morally better or more deserving of a good life.

    And Finn can pipe down about “What’s great about this blog is that we all get to brag endlessly about our kids!” That’s not actually what’s great about this blog. And it does get old.

    And the capacity to work hard is as randomly distributed, and as unearned, as intelligence or beauty or musical talent. I know you’re going to scream at me about that, Laura, because you don’t believe it. So we’ll have to agree to disagree. But “I worked damned hard to get where I am”, okay, a) did the ditch diggers really work less hard than you? and b) what if someone just doesn’t have that capacity, any more than they have the capacity to sing like Kiri Te Kanawa?

  43. “I know you’re going to scream at me about that, Laura, because you don’t believe it.”

    Nope. I actually agree with you 100%. Regardless of what is genetic vs. environment, the world still is what it is, and different people are going to have different abilities to succeed.

    And remember: I was the one who spent most of my career believing my success was just pure luck; it took me a long time to give myself any credit for how my own actions helped get me there.

  44. And FWIW, I firmly believe that you measure the worth of a society by how it treats its least powerful.

  45. what in the world do you replace it with? I can’t think of a system that is more fair.

    A world with a narrower range of incomes. Kids who do well in school will still live very comfortable lives as orthopedic surgeons and software developers. But they will take home a little less. And the guy with an IQ of 78, who is doing the best he can rounding up the carts at the supermarket, will take home a little more. Freddie would presumably say a lot less for the surgeons and a lot more for the cart rustler. But that’s what the debate is about.

    Freddie’s point is that the guy rounding up carts isn’t rounding up carts because the school system failed him. If only he had better teachers he could be an orthopedic surgeon or a software developer. He can’t and it’s no ones fault. That’s just the way the world is.

  46. Rhett: but that’s not meritocracy — that’s income inequality. Which is less about how society self-sorts and more about whether we govern in a laissez-faire way vs. more actively.

  47. Rhett: but that’s not meritocracy — that’s income inequality.

    The objection isn’t to meritocracy. It’s to the spoils be awarded based on how well one succeeds at formal education.

  48. I can easily be convinced that the orthopedic surgeons should take home a little less, and Freddy at Walmart a little more. But the problem is the orthopedic surgeons think that their pay is about right, but they definitely agree that the hedge fund partners should keep a little less so Freddy can keep more.

    And Freddy agrees he should keep more, but he doesn’t think that his brother-in-law who is sleeping with his sister on his mom’s floor on an air mattress should have anything more, because he’s not willing (or is it able?) to work at all.

  49. “A world with a narrower range of incomes. Kids who do well in school will still live very comfortable lives as orthopedic surgeons and software developers. But they will take home a little less. And the guy with an IQ of 78, who is doing the best he can rounding up the carts at the supermarket, will take home a little more.”

    Kinda like we were before the Reagan tax cuts, but with EITC.

    As I’ve pointed out before, that results in a smaller economy, as the surgeons (and probably the software developers) don’t work as much. But that’s not necessarily a bad thing, although we probably would have a harder time getting surgery, or more generally, medical care. OTOH, PCPs might take more time with their fewer patients.

  50. “Both of those systems end up with a ruling class that decides how to allocate resources fairly — so in practice, it’s not much better than the old monarchy system, where you’re relying on the good intentions of the rulers to spread the wealth fairly.“

    I don’t share your faith in the ruling class’ fairness. I agree with your assertion less the instances of, ‘fairly.’

  51. Finn: that was sort of my point. I’m not big on systems that put their faith in a specific ruling class to govern justly, where the plebians have no power to change who is in that ruling class. You need checks and balances.

  52. Finn,

    I think you’re basing your thinking in terms of taxes and how that motivates people. A world in which orthopedic surgeons make $2500 for a total knee replacement rather than $5000 might not result in a decline in output. German orthopedic surgeons make $300k while US ones make about $600k. The German one is trying to make the payments on his wife’s X5 and the US is trying to make the payments on his wife’s X7. They both have bills to pay.

    That’s a totally different scenario than a 1970s US doc making $5,000 per but taxes go up to 90% if he does his 100th procedure so he goes out golfing.

  53. “German orthopedic surgeons make $300k while US ones make about $600k.”

    I wonder how much it costs for German orthopedic surgeons to make it through med school, and when they start making $300k.

  54. Point being, that given the cost of med school and how long before MDs start actually earning significant amounts, reducing their earnings would likely result in even greater shortages of MDs.

    OTOH, DS thinks we wouldn’t need as many MDs if we made more use of AI.

  55. I wonder how much it costs for German orthopedic surgeons to make it through med school, and when they start making $300k.

    Yeah, I’m guessing the German surgeon has hundreds of thousands less in debt than the American surgeon.

  56. reducing their earnings would likely result in even greater shortages of MDs.

    There is no shortage of MDs due to lack of interest. There is a shortage due to there only being a set number of residency slots.

  57. Re Rhett’s NYT article. Yeah, it’s one hurdle after another to become a practicing doctor in the US. Some of which is good, right?

    The Caribbean medical school option is there and works for what sounds like half of their graduates who want US residencies. But those odds made it a no-brainer for the daughter of friends, DS2’s age, who had started at one of those schools last fall but left it when a US-based DO program offered her a slot.

  58. “DO”

    DW and I were just talking about the dad of one of DS’ best friends, who is a DO. DW mentioned how DO’s DW was often reminding other parents that “he’s a real doctor.”

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