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Creative Capital

Three Fundamental Laws of Private Capital

A few years after “Capital in the Twenty-First Century” exploded on the scene, the University of Chicago surveyed 36 well-known economists, asking if they agreed with Piketty. The results? One yes and 35 no’s. How could a book so celebrated upon publication diminish into obscurity in a few short years? Presumably, it had something to do with …

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Creative Capital

The Rich Will Lose Their Money Soon Enough

We are talking about Thomas Piketty’s “Capital in the Twenty-First Century,” including its extraordinary publishing history and its subsequent fade from grace. I reviewed the various problems with Pikkety’s theses as they have been noted in the economics literature, and I also proposed my own view of the book’s central problem: that its author is a naïf. …

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Creative Capital

On r > g, Part II

Thomas Piketty’s “Capital in the Twenty-First Century” exploded on the scene in mid-2013, but it’s impact faded quickly. I reviewed last week the widely discussed reasons why Piketty’s book fell from grace, but I also proposed a reason of my own: that Piketty is a naïf. A naïf, for this purpose, is a person who knows his narrow subject …

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Creative Capital

The Trouble with “Capital”

In the summer of 2013 a remarkable event occurred in the publishing industry. A challenging, 685-page economic text written by an obscure French economist and published by an academic press became an overnight best seller. Thomas Piketty’s “Capital in the Twenty-First Century” (referred to here simply as “Capital”) sold so quickly that Harvard University Press couldn’t keep up …

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Creative Capital

Examples of What to Say

Even small children love to hear simple stories about their ancestors, and as children grow into teenagers and then young adults the stories can become more complex and serious. For example, consider Great-Grandpa Henry Knox’s many shortcomings as a rancher. Or the general klutziness of the Knox men, who are disposed to walk around with …

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Creative Capital

Tell the Right Stories to your Children

In the last few posts I’ve spent a lot of time talking about kids who grow up in wealthy families and the issues they face, as well as talking about how virtually all American kids are raised these days. I’ve devoted so much time to these subjects because I want to emphasize the many minefields that surround …

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Creative Capital

Trust Fund Baby Syndrome: An Interesting Case

In the fall of 1997 I found myself in the spacious, many-windowed living room of a large home in a southern state I’ll call Florida, although that’s not where it was. I have also slightly modified some of the details of the family to protect their privacy. Ostensibly, I was there to discuss more aggressive …

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Creative Capital

A Pampered Generation

The typical trust fund baby is well-known to all of us: a life devoted to spending down the family’s capital on themselves, not working, having difficulty maintaining relationships, living empty lives. The fear that people will be ruined by money is so pervasive that, following the French Revolution, trusts were abolished in virtually all civil …

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Creative Capital

Poor Parenting Saps the Wealthy

We are talking in a roundabout way that has taken us back to first principles about the human maturation process and how it interacts with the fear of affluent parents that money will ruin their children. There are several characteristic ways that affluent families go wrong, launching the shirtsleeves-to-shirtsleeves phenomenon that, as Jay Hughes has …

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Creative Capital

Understanding the Trust Fund Baby

We are talking about the complex process through which infants and children are transformed from little beasts into responsible adults. More particularly, we are talking about how that process often goes wrong and never goes perfectly. In “Civilization and Its Discontents,” for example, Sigmund Freud proposed a…, well, a “Freudian” take on the issue. Freud pointed …

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Creative Capital

The Talk

No, not that talk. Talking to kids about sex is a walk in the park compared to talking to kids about their family’s money. The worst that can happen with the-birds-and-the-bees conversation is massive parental mortification. The worst that can happen with the money talk, however, is… Well, let’s look into that. For more than a century, …

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Creative Capital

Make your Plan Now (While You’re Calm)

“Would I say there will never, ever be another financial crisis? I hope that it will not be in our lifetimes and I don’t believe it will be.” –Janet Yellen. Last week I suggested six steps we could take to prepare ourselves for the next market crisis—which, Janet Yellen notwithstanding, will in fact happen. This …

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Creative Capital

What Will You Do in the Crisis? Part II

“I’m less interested in the return on my money than in the return of my money.” –Mark Twain Whether the markets crash next week or years from now, it’s not too soon to be thinking about how we will navigate the next crisis. With asset prices as high as they are and investor complacency (measured by market volatility) as low …

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Creative Capital

What Will You Do in the Crisis?

“The world is in the throes of a Bull Market in everything.” –The Economist. No, I am not—not, not, not—predicting a market crash. (On the other hand, if the market collapses just after I post this, I will naturally take credit for calling it.) If I don’t think the markets are going to crash any time …

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Creative Capital

The Trouble with the Elites

C. P. Snow titled his last book, written shortly before he died, “A Coat of Varnish.” What he meant, as he put it, was that “Civilization is hideously fragile.” Civilization, that is to say, is like a thin coat of varnish spread on top of human savagery. The varnish looks terrific, but scratch it and what …

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Creative Capital

Europe Fails to Build the New Man

Since human beings settled into communities—that is, since most of us stopped being hunter-gatherers—a primary goal of mankind has been to improve how we are governed. We wanted governments that were more representative, fair, and efficient, governments that could improve our economic circumstances and defend themselves (and us) from outside influence or destruction. We wanted …

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Creative Capital

The Instability of Europe

Between the first and second world wars, most of the European governments—Britain and, to a lesser extent, France, being exceptions—lived lives that were, to paraphrase Hobbes, weak, unstable, and short. The Weimar Republic in Germany faced existential issues from the beginning. Germany had been humiliated in World War I. It had been burdened with impossibly …

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Creative Capital

On Populism

Civilization is like a very fine suit of clothes that is just slightly too small for us. The term “populism” derives from the Latin, populus, meaning “people.” It doesn’t mean “people” in the sense of “There are a lot of people who don’t read my blog.” It means “people” in the sense of a nation, a …

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Creative Capital

Investing in a Rigged Market, Part IV

If we care about the health of free market economies, then we need to care about how efficiently capital is allocated in those economies. And if we care about efficient capital allocation, then we need to care about the health and efficiency of capital markets, because those markets are the principal instruments we have for …

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Creative Capital

Squeezing out the Investment Experts

The core problems with central bankers, which have led directly to the catastrophes of the Tech Bust, the Financial Crisis, the pathetically weak recovery from the Great Recession of 2008-09, and the near-destruction of the asset management business, are: groupthink, arising out of the fact that every central banker in the world went to the …

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Creative Capital

The Fed and Friends

We are talking about the traumatizing events that rocked the asset management business, to say nothing of the world, beginning in 2008, a calamity brought to us courtesy of the world’s central bankers. I’ve discussed elsewhere the bizarre strategies of the U.S. Fed and its various doppelgängen at other central banks around the world. But …

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Creative Capital

Investing in a Rigged Market

The asset management business as we know it today got started in the mid-19th century. The impetus for investment management firms separate from banks arose out of the awkward fact that banks often fail, while asset management firms hardly ever do. According to Nigel Edward Morecroft, who has studied the history of asset management, firms …

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