Do you ever find it hard to stomach that some people in this world have so much stuff while others have so little? If you don’t, you’re either deliberately not looking or you’re not very good at exercising one of humanity’s great strengths – empathy.
Let’s be blunt: You might be a sociopath.
But if your empathy for those who have less “stuff” than you is so overwhelming and all-consuming that you feel even a twinge of guilt when you look at the balance of your IRA or 529, take a seat. We’re gonna be here for a while. (The rest of you, go ahead and grab your complimentary Vigilante Training donut and continue about your day. You don’t need this week’s Basic Training lesson. See you next time!)
What is investor’s guilt?
We all know there are people who are struggling to feed their families, who don’t have a proper place to live, who don’t have clean water or sufficient decorative covers for their iPhones. On a global scale – particularly if you’re American, western European, or Canadian cold American with free health care – you can most likely find billions of people who are worse off than you are at any given moment. You, who sit in your cozy, clean, air-conditioned, LED-lit environment while billions of others swat at malaria-carrying mosquitos and debate whether it is advisable to eat today or save the food for tomorrow.1
Aren’t we supposed to feel bad for those who are less fortunate? Doesn’t a lack of guilt imply a lack of care, and doesn’t a lack of care mean you’re abandoning those in need? Doesn’t this violate the Golden Rule of treating others the way you’d want to be treated?
That’s exactly the line of reasoning that brings about investor’s guilt: the guilt of having earned more money than others, stashed it away, and profited from the hard work of still others, seemingly living “the good life” at the expense of your fellow man. But is that really what you’re doing?
To feel investor’s guilt is to make one central logical mistake: It is to severely underestimate the value of capital. Let’s fix that with chemistry!
Capital is oxygen for the economy.
There are generally three ingredients that we need for a fire to ignite and to continue burning: a fuel, an oxidizing agent, and heat sufficient to allow the chemical reaction. The common oxidizing agent for most fires on Earth is – you guessed it – oxygen!2 And so we have the Fire Triangle, reproduced from a now-dead link on Wikipedia:
Economic progress is remarkably similar to ignition. Ok, “remarkably” may be a stretch, but it too has three necessary ingredients: brain power, incentive, and capital. Brain power is like heat. It is necessary to move things around, force the interaction, and make sure that capital and incentive combine to become something new. Incentives are like the oxidizing agent; they can just sit there idly until the right mixture of circumstances allows them to promote the desired interaction, and if you remove them you may just suffocate and extinguish the reaction. Capital, then, must be the fuel. Capital, like fuel for the fire, gets reorganized and redistributed as a result of the activity, and provides the necessary ingredients for the activity to occur.
And so we have the substantially plagiarized Economic Progress Triangle:3
Capital is the bedrock of economic progress, especially since the Industrial Revolution. We cannot have higher-order goods4 without a considerable capital base. Which is where investing comes in.
Investing is a mechanism for allocating capital to a specific purpose.5 The stock market is a mechanism for investing without the requirement of any personal ties to the investment – it allows for the greatest turnover in uses of capital, because you don’t have to be personal buddies with Elon Musk to invest in Tesla. The general result of massive amounts of trading on the stock market is the movement of capital from storage as a dollar bill under your mattress to more productive uses – especially entrepreneurship.6 Investing causes little fires all over the economy, given the proper incentives to spark them.
Entrepreneurship is fire!
Entrepreneurship is the fire powering a capitalist economy. Whether it comes in the form of a slight improvement to a product, the development of a new way to drill for oil, or the development of a new technology that generates an entirely new industry such as solar power, entrepreneurship is literally the creation of new transactions in the world. These are transactions that simply weren’t occurring before. Transactions that mean there is more work available for more people in order to create more widespread availability of those newly-created goods and services. In exchange, of course, for money that represents the value of goods, services, and generally productivity out there.
Entrepreneurship, even if only indirectly, creates more wealth for all of us by making life better or making goods and services cheaper. Bill Gates’s entrepreneurship made nearly every industry more efficient in the 90s, and that’s why he has the wealth that he does now. And there’s a huge incentive for people and firms to innovate: money flows to the first and best in any industry.7
This is the logic behind the statement you sometimes hear that “economics is not a zero-sum game.” The growth of the entire economy via entrepreneurship means that one person suddenly receiving more goods, services, or money does not necessarily have to come at the expense of another person’s goods, services, or money. Rather, the new innovation will be giving others the opportunity to produce something or serve a need and earn their own money to invest. When Bill Gates sold to the world a user interface that satisfied a need most of us didn’t even know we had, we were happy to give him money, use the product to earn more for ourselves, and be better off while simultaneously making him wealthier than Scrooge McDuck. There’s no reason for guilt on either side of that equation – it’s an example of greed being good.
But the “rising tides lifts all boats” theory isn’t universally accepted. It’s too often mistakenly interpreted as a promise that we’ll all be rich, which isn’t physically possible in a relative sense. It’s forgotten that, in an absolute sense, the homeless of today’s America have more “stuff” to benefit their lives than the lords and ladies of 400 years ago. But since this isn’t necessarily enough to convince the more hardened Normies and Villains out there, let’s address some other causes of investor’s guilt:
Doesn’t investing cause people to lose their jobs?
We’ve all heard the cry that stock market dips cause layoffs. We’ve all heard that the stock market bubbles burst due to all those wealthy, money-grubbing investors and corporations greedily over-valuing stocks to unsustainable levels. Shouldn’t we feel guilty benefiting from that inflation in our quest to tame the Hulk?
This is a huge misunderstanding of financial markets. Invested capital doesn’t cause bubbles, nor does it cause them to burst. Pretending that value exists where it doesn’t – and where it never will – might.
How does that happen? Well, one way – and perhaps the most influential way – is inflation of the money supply.
In a market economy, prices are intended to function as signals of supply and demand between consumers, producers, and investors. But as the government prints more money, we the people are capable of maintaining or even increasing our consumption while simultaneously investing more…regardless of actual value produced in the economy.
This is unsustainable, because instead of the growth in value of the financial markets being brought about by entrepreneurial progress – which benefits us all – it is completely fictional growth.8 So, we’re increasing the amount of money to represent productive efforts/resources in the economy, but the actual amount of those things don’t increase at all. This is inflation.
The price signal, then, is distorted. Prices start to rise with inflation, since there is more money circulating and pursuing the same amount of resources. You make big plans with your enhanced income, but then prices of things start to rise as the bubble travels throughout all of the industries behind each of those “higher order goods” we mentioned earlier. Eventually, this comes to a crashing halt: the construction projects, debt accumulation, and consumer spending that was planned during the free flow of additional money begin to fail because there simply isn’t enough actual value to support all of them.
The stock market reacts by crashing. It’s the hangover after a period of binge drinking: The government bought us a bunch of drinks, and we took more than we could handle.
The crash isn’t brought about by the investors over-valuing stocks to serve their own greed. It isn’t brought about by natural, healthy swings in economic activity. It isn’t brought about by the Boogeyman. It’s brought about by manipulation of market forces (prices) by government activity (inflation of money supply). Nothing to feel guilty about there, investors!9
But if you’re still feeling investor’s guilt because all that theory is coming straight from The Man, the 1%, the Gordon Gekkos and Jordan Belforts of the world, fear not. The Vigilante has one more point to make.
Investor’s guilt helps precisely zero people.
Your guilt does nothing to help anyone. Pity, sympathy, or inward guilt has never provided an education, work, and a sustainable home for the homeless. Never has one person’s exceedingly bad feelings made another person truly happier – at least in any meaningful way. Your childhood bully might have thought that your suffering made him happy, but it didn’t. It was a coping mechanism. (Source: My Mom.)
The good you can do by indulging in your guilt and crying or holding a candlelight vigil is severely limited. Sure, there are rare situations where bringing awareness to a cause or expressing emotions through a vigil might be a valid goal, but more often these are the emotional suffering equivalent of the hedonistic spending treadmill that we FIRE types harp on all the time: a temporary high followed by lack of meaningful change and adapting to the new normal of whatever was changed. And what’s more: If you aren’t carefully self-reflecting, you might find that some of these activities are centrally guilt-motivated.
But actively doing something to help other people does generally make humans happier. Charity is an option. But it’s far from the best one, as often charitable efforts have extreme and unintended adverse effects on those who you intend to help. Particularly, there are often bad effects on sustainable economic activity, like where donating food to an organization for an area in need actually ends up driving down costs there and ruining the local growers’ livelihoods. This is the topic of the documentary Poverty, Inc.10, which I highly recommend for pure, unadulterated Vigilante subversion of authority.11
So what is a Vigilante’s best option? Invest. Invest in bonds and index funds for sustainable growth. Invest money that you aren’t afraid to lose in companies you believe are doing good for the cause you care about, like Tesla for the expansion of solar energy. Recognize that all of this is ultimately an investment in yourself, and that this is a wonderful thing. Become financially independent, and go out and do the good in the world that you want to see.
- To be fair, it’s a small number of people in the world who have so little wealth that this is their reality. But one is one too many!
- Look at you, you’re a chemist now!
- Thanks, mysterious Wikipedia source!
- Goods that rely on products and services from other industries, which in turn rely on other industries, and so on.
- What purpose? Doesn’t matter, if your goal is to make money – as long as the capital is used to enhance production of something that there is a demand for, the business will grow. If the business grows, so will the value of your investment.
- If you’re thinking: “But my money doesn’t go to Musk,” you’re right. But someone gave him money in the first place, hoping to watch it grow in value (speculating) and you are making that dream come true. In so doing, you’re signaling that the first investment was not in vain, signaling others to occur.
- Intellectual property rights – in spite of all their faults – help, too!
- This is one reason that many day traders like to look at the price-to-earnings ratio (P/E ratio) of a stock: if inflation is high, the P/E ratios will be low because much of the earnings of the company are attributable to inflation rather than actual business expansion.
- Unless, of course, you’re an investor who is encouraging the marriage of government and economy, in which case: Feel the guilt surge through you. It’s one of those rare, Vigilante-sanctioned types of guilt.
- I believe it’s on Netflix, as of the date of posting, if you want to save a few bucks!
- As stated in the tagline to I, Vigilante, so you know it’s an important goal!