Risky Business, Risky Life? Part I--Capitalistic Advice from a Socialist
Monday, 15 April 2024
On Taking Risks—Part One
Risks are everywhere and have big roles to play in our lives. This week, I’m going to talk about economic risks—primarily stock market and life insurance. Next week, I’ll discuss some broader aspects.
What if someone—me, say—is a socialist (or “social democrat”) living amidst a capitalistic, free enterprise economy. Should he—should I—refuse to take advantage of the capitalist rules as a matter of principle? After all, I want a much more just economic society, with much higher minimum wages, much more progressive income taxes, with substantially higher rates on not just the top one percent but in fact higher rates on the top forty percent—and a substantial wealth tax on assets greater than anyone really needs to thrive.
And I want a well regulated government to meet citizens’ needs far better than government in the US does now: Socialized medicine (the profit motive is an especially bad thing in matters of health—see NYT article [link below] on end-stage poverty), including prescription drugs; quite possibly a basic minimum income for everyone; greater investments in public goods like highways, public transit, better libraries, better schools (with higher pay for teachers), and more along those lines.
Am I a hypocrite if I try to get rich and tell you how to, besides?
I don’t object to the general idea that people who come up with a new and better product or process and who take risks to get it implemented deserve to be rewarded.
I do not advocate for equal outcomes for all—but I do argue for a much fairer economic system where everyone has not just equal opportunity but a common floor—a common good—some guaranteed basic needs met for everybody.
In the words of AOC, “In America, no one should be too poor to live.”
AOC: Alexandria Ocasio-Cortez (US Congressional Representative)
Why would you pay any attention to capitalistic financial advice from such an open lefty? And maybe hypocritical pundit (I mean me—not AOC)?
I’d argue that anyone who lives in a capitalist, free enterprise society should understand the risks and rewards that are inherent in the system and he (you; me) can—and should—try to gain from the system at the same time he (you; me) works and votes to reform the system. And I’ve tried to do just that for many decades.
Capitalism emphasizes the great truth—and it is true—that life is full of risk, inevitably so. Capitalist proponents argue that since risk is inevitable, individuals should be responsible for managing it, and deserve to rise or to suffer based on how well they manage. And government should strive to get out of the way and let everyone judge what risks to take and what burdens to bear for avoiding other risks. I support a much more common good (“communist”?) approach, with serious limits on what risk-takers can gain or lose.
In practice, though, here’s my advice for people who live in free enterprise America—
Work and vote to make the risks society-wide less punishing and less rewarding—fairer, in a word.
Learn what actual risks are. Yes, you might get rich by buying up all the Enron stock you can afford when the price is low and selling when it’s high. But it can be almost impossible to know when either of those moments occur. And missing the moment can make you poor as fast as getting it right can make you rich. Buying and selling stocks is risky—but not doing so is risky, too. (More on that below.)
Settle, mostly, for getting rich slowly instead of taking the kind of risks that could maybe make you rich fast.
Delay gratification. I’m not saying to avoid taking pleasure in life—I’m saying don’t pay extra to get that pleasure right away. Be patient. It often pays off.
Don’t sucker for the siren songs of capitalism: advertisements or social pressure to have something or show off something. Don’t give in to the idea that you have to have a bigger and bigger house or a newer car or the latest style clothes to be happy.
Put aside a little for the future regularly, in good times and in bad. Steady wins the day. Look up what “dollar cost averaging” means and why it is probably wise..
Take financial risks, but reasonable ones. And know the difference. Putting money under your mattress to save for a rainy day does not avoid risks—it could get stolen; it won’t earn any interest or become more valuable. Putting it in a savings account at your bank takes less of these risks and is not unreasonable—but it is quite likely to grow less than equity—stocks, for example. Real estate or valuable art is riskier and takes more specialized knowledge. A single company’s stock can be very rewarding—and can also be very risky. What’s the best balance of risk and growth? Nothing is certain, but over the long run—ten years and more—broad-based stock investments (in mutual funds like an Index 500 fund) may be the best. But you need to be patient: frequently putting money into the market and pulling it out is likely to defeat your goals, as broker’s fees will add greatly to your costs. And knowing when to buy or sell is tricky indeed. Be an effective capitalist even while you understand better and better how unfair capitalism is.
If you need financial planning advice (not just access to markets), pay for it. “Free” financial advice often means the advisor has a vested interest in urging you to buy or do something that he or she will get a commission on—and you may well not know what it’s really costing you.
Understand basic life insurance ideas: life insurance policies do not—cannot—guard against loss of life. Everyone dies, and having insurance, according to TV murder mysteries, can even shorten your life if someone insures it and gets greedy. But healthcare, diet, and exercise are what help you live longer—insurance can’t. So, buy life insurance? Maybe. If someone is financially dependent on someone else, life insurance can be needed. If one parent is the main breadwinner and especially if there are minor children, that breadwinner should probably be insured. But never buy insurance because someone is loved—or as an investment. Term insurance, as it’s often called, is the right sort—not “whole life” (“permanent”) or any of its many variations. Buy and hold insurance when you cannot otherwise afford to guard against financial loss—and only then.
In a capitalistic, free enterprise economy like the one in the US, financial risk is inevitable. Don’t think you can avoid it, and don’t think the only way to prosper is to be born rich or to do what some huckster tells you to do. Don’t even think that you can’t afford a broker—if you want someone to help you buy stocks or bonds, and you aren’t looking for financial tips, you can get the right kind of help.
Spend some of your time and your votes (and your “capital gains,” after you win some) to minimize risks for everyone, to support the common good, for justice.
And be patient.
On “end-stage poverty” as a cause of death: https://www.nytimes.com/2024/04/11/opinion/doctor-safety-net-hospital.html?ugrp=c&unlocked_article_code=1.kU0.jDek.ExlPwNnoOpY8&smid=url-share
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This is an interesting and helpful post, Ed. Usually, when economics is discussed, my eyelids suddenly become very heavy. But this was good. I guess the only thing that gave me pause was saying that everyone in the top 40 percent should be taxed more. I am retired now, but before retirement I was a professor of philosophy and humanities, and you know how lavishly they are paid. So, I was within the top 40 percent. Now, I would have been happy to pay as much in taxes as they do in Denmark and Norway If I could have gotten what they get. What bugged me was that we have to pay as much as we do and often what we get is meager and given grudgingly. Case in point: A member of my family was diagnosed with a rare and debilitating disease. She applied for Social Security and, though she supplied copious medical evidence, the application was denied. She appealed to a judge who found in her favor, but Social Security still refused her, and they appealed to their headquarters in D.C. Finally, after much red tape and foot dragging, Social Security payments (which were pretty small) were approved. Clearly, Social Security hoped that they could delay long enough that she would die before they had to pay anything. I am glad she disappointed them. Crummy bastards.
Very well explained. I'm a Capital-Socialist myself. A person/society won't advance if it has no capital to invest in itself. I have also coined from the word sustenance, Sustenal, as living wages, to differentiate from all moneys. After all the sustenal is acquired that's needed, any money that is extra is capital to invest or sadly waste. Sharing to Facebook.