Sustainable Ponzi Schemes

https://en.wikipedia.org/wiki/File:Ponzi1920.jpg Charles Ponzi, 1882-1949 was a swindler who made $millions in the 1920s by promising investors huge  returns if they would send him money to invest.  They did, and early investors did get these huge returns: Ponzi was giving early investors money from later investors.   He didn't invent the swindle that today bears his name, but he was an effective publicist who got caught.  Many people have tried it, both before and after.  Such swindles cannot work over the long term, because eventually you will run out of investors, but they certainly can in the short term.

 Many people have pointed out that US Social Security is such a Ponzi scheme.  Well, yes and no.  If the scheme is set up so that it can never run out of investors, it can run indefinitely, and by doing so, it can generate a lot of value for people in the mean time by using the float wisely.  The stock market, and ultimately, the entire economy are also such schemes.   The trick to success is providing enough of a win that most people agree it's a good idea, while not really hurting anybody in the process.  In other words: truly giving value for money to the investors while not screwing anybody.

 Social Security works because as long as new people keep being born, and retirees eventually die, there is an indefinite supply of new investors to keep up with the growing pool of retirees.  The managers need to keep a positive balance, and to date, they always have.   As I write this, they'll be forced to reduce payments after 2034, but by increasing income a small amount, they'll be able to extend this easily.  Historically, they've mostly done this by increasing the cap on payroll deductions.  It's presently $184,500.  20 years ago, it was $94,200.  CPI over that time grew from 201 to 335, so this is faster than baseline inflation (which would have it at $157K), but not much.

The stock market is also such a "swindle".  Stock shares are ultimately worthless, but because investors have a chance to profit, through dividends, in the success of the underlying company, they'll buy in.  So many people have done this that there's a significant market for companies that do not pay dividends, called "growth stocks", which is entirely supported by speculation in the stock shares themselves.   At present time, the value of these shares (called market capitalization) of the world stock markets is about double GDP for the entire world (called Gross World Product or GWP).    Is this sustainable?  Probably not.  Most billionaires (possibly all) and a lot of millionaires are that wealthy solely because they own stock with that much market capitalization, and for a lot of them, their net worth would be highly negative if they were forced to live on the actual profits of the businesses they own.  This is especially true for businesses like "Private Equity" and "Hedge Funds".     E.g.: Tesla/SpaceX owner Elon Musk owns a $trillion in market cap, but these businesses all together brought in around $8B in profit last year.  And these are companies that are actually producing something.  Elon owns less than 15% of Tesla and 42% of SpaceX, so his actual value is well under $1B.  Hedge funds are even worse:  they produce nothing but the financial return.

 With all this market cap, owners are able to borrow against the asset to buy things, so without actually spending the asset, they are able to buy other things, such as yachts, broadcasting networks, sports teams, etc.  Every time they do this, they dilute the real value of both the shares they own and the things they're buying.   Dilution is very bad for the overall economy, because the people who actually do produce things: the workers, have a smaller and smaller share of the total money supply.  Eventually, there will be a comeuppance, and I don't see it being anything other than very ugly.    Millions will probably die, as died in previous "corrections", such as the English and US civil wars, WWI and II, various revolutions, etc.   

 We need to get this thing in balance.  The Wealth Tax, as proposed by Elizabeth Warren, is one way, but it taxes in a way that's uncontrollable, which can cause unintended harm.   I think income taxes should be very much higher on high incomes (presently capital gains are taxed at less than half what earned income is), and there should be a high tax on borrowing against appreciated assets over some high amount.   (presently it's actually a tax exemption). 

North Shore Boatbuilding

In 1963, my parents went to the boat show (I think it was in the Cow Palace in San Francisco), and my dad bought a boat.  It was a kit, made in England, for a 13'3" sailboat called an Enterprise.  A few weeks later, the kit was delivered to the agent for the western US, a guy called Sam Guild, at a place called North Shore Boatbuilding.

Guild rhymes with Mild, it's not pronounced like guild or gild.    He was from Maine and my parents were from Massachusetts--they had surprisingly much in common, in addition to being New Englanders.  I found Sam's obituary: he passed away in 2009 at 80, having moved back to Maine after less than a decade in California. 

 North Shore Boatbuilding was about 2.3 miles north of Marshall, on Tomales Bay.   Marshall is a tiny town, which only has a population of 400 if you count the numerous dwellings along the shore of the bay there.   We went there to pick up the Enterprise kit.   It was just exactly 100 miles by road from our home in Cupertino.

Over the next few months, my dad built it in the garage.  I helped--A lot I thought, but as I was only 8, probably less than I thought at the time.  It was very interesting and I did learn a lot.   The kit had fairly complete instructions but Dad read a lot of books and other things.  After a few months working on it constantly, nights and weekends, it was ready to sail.  We took it to a lake near home and he and a friend went for a sail.  I was taken out for a sail but was not allowed to help.   A few weeks later, he took me out and did allow me to help (trim the jib) and I figured it out quickly.  Barely a year later, I was given the opportunity to sail in a boat by myself (an El Toro) and I was able to do it.  Not long after that, I took formal sailing lessons at one of the local yacht clubs (Sequoia YC in Redwood City), and learned a lot more stuff.

There were about 10 Enterprise class boats in the Bay area by 1965 or so, all built from kits that Sam Guild had imported from England.  Sam had a good facility, not just for building boats but also for sailing them, and several of the boatowners lived up north, making Sams place a central location, so Sam hosted an Enterprise Regatta every month or so for a couple of years.  I was still too little, so mostly my Mom crewed for my Dad, and my sister and I found stuff to do around North Shore Boatbuilding. I tried fishing several times, and never once caught anything.  But I explored a lot.

 The pier is still there.  It's just south of "The Inn on Tomales Bay".  I can't tell if Sam and Ann's house is still there because the trees have grown up (it's been 60 years...).  There were trees near the water back then, but there was a clearing about 300 feet wide between the road and that grove, which is now all covered by mature trees.   The roadbed for the North Pacific Coast narrow gauge railroad was still discernable in the 60s, even though the tracks had been torn out during the Depression, 25 years earlier.

Sam's obituary mentions an 11 foot dinghy that the Guilds carried around on their camper.   I remember that boat well: it was a "Gull" class, which looked a lot like an Enterprise but smaller.  The Guilds carried it on the back of their Volkswagen pickup truck.   They'd brought it down to Redwood City one time on the back of that, and when heading home, had apparently forgotten to tie it down.   We were following, towing the Enterprise on a trailer.  I saw the Gull take off skyward, and it flew moderately well, coming down for a pretty good landing on its hull.  It suffered surprisingly little damage.

 

This is about half the bay area Enterprise fleet in around 1965.  I think the photo was taken by my dad, but I'm not sure where it was taken.  It's not Tomales Bay, Sausalito, or Redwood City, which I'm quite familiar with.  The boat my dad built is 9606.  Disappointingly, I don't have any pictures of Enterprises on Tomales bay or of North Shore Boatbuilding as it was in the 1960s.

 

Ranking the Presidents of my Lifetime

I find it difficult to choose here between my top 3, so in order of their term:

Eisenhower got many things right, a few wrong.  He supported the Warren court.  He supported civil rights and the overturning of Brown vs Board.   He supported the Coup against Mossadegh in Iran, which has led to 73 years (so far) of bad relations with Iran.

Kennedy.  He was successful mainly because he was Martyred and his successor, LBJ, was masterful at exploiting it.  The worst thing he actually did was Bay of Pigs.  The best was the Cuban Missile Crisis, the space program, and advocacy of what would eventually be the Civil Rights Act.

Obama.  The best president that managed to serve full term.   PPACA was his best thing.  He served in the face of the most hostile congress since the civil war.   Hands down the best orator.

Biden was a better president in most respects than Obama, but he had one monumental failure that destroys him: He held on too long and left the field open to Trump.

Carter could have been a great president but for three things:

1: he had the bad luck of running against Reagan, who lied and cheated to make him seem bad

2: He had some foibles on the Iran Hostage crisis.  Mostly not his fault, but he gambled more than he should have

3: His relations with congress were not the best.

4: (totally not his fault) The holdover from Nixon's OPEC policy and the Iran crisis led to high inflation.  His Federal Reserve Chair (Volcker) cured the problem, but too late for it to do Carter any political good

Clinton: a pretty good president, but he did a lot of stupid stuff that left him open to the Gingrich congress.   Lewinsky and Iraq were /totally/ the doings of the Rs. 

LBJ was actually quite a good president, if you get down to it.  Unfortunately, Goldwater's tactic wound up destroying him in the end.   Johnson understood that expanding VietNam was a huge mistake and that the Gulf of Tonkin incident was nothing, but Goldwater managed to inflate it to something that Johnson could not pretend to ignore.  The Great Society, Voting Rights Act, Medicare, etc., were really good things.   He would be at the top of this list without VietNam.

Ford:  After Ike, the least bad GOP president.   He had the luck to serve in Nixon's wake and looked wonderful by comparison.   He did very little, and was convincingly (and rightly) defeated by Carter.

Bush41: Perhaps the most competent R since Nixon, but mostly a promoter of Evil.  His alignment with the Oil industry being his worst problem.  Clinton mopped the floor with him in '92.  GOP'ers will tell you that Clinton only won because Perot stole votes from Clinton, but the numbers tell a quite different story. 

Nixon.  Corrupt but somewhat competent.  Screwed up LBJ's peace settlement with VietNam to undermine him (and his successor Humphrey)  in the '68 election.  Understood environmental issues better than many of his successors.  Watergate.

Bush43: Incompetent and Corrupt. Knew he was out of his depth, so he hired crooked people to do most of his thinking for him.  Reacted exactly wrong when the CIA told him that Bin Laden was determined to attack again.   September 11 was one of his lesser failings.  Invading Afghanistan was a huge mistake.  Invading Iraq before he'd finished with Afghanistan was a disaster.   (The right solution:  Build and fund schools, and promote small business, with not-corrupt banking.  The military should only be there to keep the teachers (and students) safe.)

Reagan. Trump would have been impossible without Reagan's opening us to corruption.  Reagan was incompetent, corrupt, did lots of stupid stuff (e.g.: he sent soldiers to Beirut, despite repeated warnings.  A truck bomb killed hundreds of them.   So one week later, he invaded Grenada.)  Iran Contra.  There are lots and lots of these.  He had enormous personal charisma, which for those of us with functioning BS meters, is a disqualifier.

Trump.  Incompetent, Immensely Corrupt, Stupid, remained in power by threatening people.   Before Trump, it was a contest between Reagan, Buchanan, Andrew Johnson, and Harding who was our very worst president.  Trump takes the prize in a landslide.  He may have destroyed the United States.  It's possible he will destroy life on earth.