This is a diverse topic so I’m splitting it over a couple of newsletters (rather than putting you through a single 5000-word epic on it!). You’re reading part one…
I suppose, this deep into a series on wealth, it’s worth defining what wealth actually is.
This is a pretty simplistic way of thinking about it, but I think it’s helpful to understand the difference between earning money and having wealth:
When we measure Work, we are measuring your contribution to someone else’s actualisation.
When we measure Wealth, we are measuring your contribution to your own actualisation.
Let me break that down a bit…
I’m defining ‘work’ in the sort of context where your alarm goes off and (despite not really wanting to) you get out of bed and (despite not really wanting to) you get dressed and (despite not really wanting to) sit in traffic commuting across town. And then you work for 8 hours and take home 6.5 hours worth of the value you added to the company.
That’s cynical, so let me clearly say: I realise some people love their work. Some people love their commute, with its True Crime podcasts and shit now. I personally enjoy what I do at work (and I also like podcasts).
But, I could equally do things I enjoy if I didn’t have to work.
Importantly, I’m not excluding from my definition of work the self-employed builder, hammering away, on the building site with their tools or in their home-office-cubby with their invoicing software. It might appear that this is very different from working for someone else—someone carving a portion of your productivity off for their own ends—but it’s not. ‘Work’ can be simply thought of as an activity where you trade expertise or time or energy for the actualisation of someone else, and they, ideally, compensate you with something you value (money or status or pride or qualifications).
In essence, regardless of whether your ‘boss’ is the red-faced guy sitting in the corner office, or a faceless client on the other side of the world, or that nagging little Brain Sprite that gets you out of bed on Sunday to churn out the week’s Substack posts, doesn’t matter.
When you are in the Alternative Universe of Wealth, on the other hand, wealth does the value-gathering for you: You simply need to possess it.
To put it explicitly, writing this represents work—done for the entertainment and actualisation of readers like you.
It becomes wealth a few days from now, once it has that little “© 2023 Tim” on the bottom, and I need do nothing else to benefit from it, other than ‘own’ it.
We do actually all get to sample the weird physics of the Alternative Universe at times, even though most of us still have to work to survive.
And I’m not even saying any of that is necessarily “bad”: Lending and wealth-building serve a purpose in our economic system. The flow of work and wealth are both part of the mix that gives money its motion—and are good in principle. But what about the vintage Rolex that just sits in a safe and simply gets revalued-up every few years? What about the excess, stagnant savings that banks aggressively lend out and drive up housing costs? In the rush to get numbers on the board and shiny new Teslas in every driveway, we shouldn’t lose sight of what purpose wealth should have, and what kind of justice we might need to consider in order to have it deliver on that promise.
Because, we all understand, if you have enough wealth you can choose to spend time on creative pursuits, or at the building site. You can wake to an alarm clock and go into an office, or you can generously invest in smart people and progressive organisations. But, you don’t have to, because there are people who will just do that for you (“workers”). If you have $1m you can simply pop it in a bank account and the bankers will do the work of lending it and investing it, then pay you a premium rate of interest to survive on.
…And sure, for the past few years even ‘premium’ interest rates have been a bit trash, but, it’s still making you reliable money without you doing anything for anyone.
And, also sure, it’s better than having it just laying around the house1, but have we got the balance right? It’s pretty hard to know for sure but, I think, the messier our democracies get, the stronger the argument that the balance is off.
Regardless, the key thing to understand is any money or status you’ve earned (or lucked into), which contributes to wealth (rather than, say, a dollar-bill-bonfire or some influencer’s NFT ‘drop’), goes directly into your own actualisation.
The idiom might be “Put your money to work for you”… And that seems like a pretty good way to ease into our tour of the Alternative Universe of Wealth...
“A penny saved is a penny earned”
I have had several credit cards over the years. They each provided me some ‘interest-free period’ (up to about 6 weeks). In turn, they each required an application that sought to calculate my ability to pay them back: Some combination of income from my work, and wealth (my ‘net worth’).
The income part seems important, but it’s really a distraction. All the bank really wants to know is, can it get its money back profitably… In their ideal world, you don’t have an especially reliable income or the diligence to pay the bill regularly, and instead you rack up heaps of interest, right up to the point where they can still safely and efficiently take wealth off you instead.
Case in point, many children get regular pocket money for chores (“income”), but no bank will offer them a credit card unless, perhaps, they could back it up with some guaranteed source of wealth (most likely their parents).
This is why no credit card application assesses just your employment income—it asks you to document other loans, and what cars or boats or houses you own. This is because, remember, any income you get from work depends on your ongoing ability to actualise someone else2.
The more wealth I’ve accumulated, the better the deal I can get on a credit card. I get fee rebates and points and joining bonuses and complementary insurance… I’d strongly advise against it (without good discipline) but, for years, I was able to open and max out successive low-fee credit cards that offered ‘zero-percent-interest balance transfer’ promotions, then use them to clear debt off my mortgage!3
The point is, if you’ve had a credit card, you’ve had a little hit of the Alternative Universe during those, heady, 50-odd days of interest-free.
In the Alternative Universe, wealth is enough of a guarantee that the rich can borrow whatever money they need to live, without needing work income. The ultra-rich use things like a ‘line of credit’ to borrow against their shares and property and artwork and super-yachts. And, because we’re talking about big lives, and therefore millions of dollars in borrowings for their expenses, the bank can’t afford to just ‘write off’ any unpaid debts… If an ultra-rich person borrows $10m to live lavishly, secured against $150m in shares, the bank actually needs that money back, so they’re in a good negotiating position: That means super-low interest rates and long terms. The $1000 you might borrow via your credit card will cost you 20+% interest if not paid in full within few weeks; meanwhile the $10m borrowed by that rich person features a 1% interest rate and a 30 year term (which the bank will happily extend).
As J. Paul Getty put it “If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."
As an aside, it’s worth noting that even the simple credit card-class benefit from one Alternative Universe trick: Debit Card fraud (most likely to be suffered by people too poor or ostracised to get a secure credit card) is your problem; but Credit Card fraud is, again, typically the bank’s problem.
Hopefully, one other thing has also occurred to you by now: You don’t pay tax on money you borrow.
If, on the day I was born, my parents gifted me $100m in ‘wealth’ and I used it as security to borrow $10m, I could live a very nice life without paying a single cent in income tax. Ever. Sure, occasionally, I’d need to pay the interest costs on the debt, maybe out of rent or dividends or whatever the wealth has earned me (maybe taxed?). Or I might need to occasionally sell a few shares or artworks (maybe taxed? Although not here in Aotearoa NZ!). But, even all that is a bit of a rort because I could afford good accountants, and they’ll work to offset my expenses and losses against any hint of profit or income. And, let’s not forget, interest—i.e. the only real cost in this arrangement—is also easily tax deductible.
This is all to say, if you could wake up one day with a bank account full of money to pay your expenses, without the need for other income, and having access to all the same public services as the rest of us, but no obligation to pay the kinds of taxes that the rest of us cop, do you think you’d have an unreasonable advantage in life?
So far I’ve been talking about mostly personal stuff, but it’s even wilder when you get into corporate finance. There are countless examples of this bullshit, but I want to give you a little teaser, so here’s a basic play:
Find a stable, well-performing, and profitable business (Instant Pot, Thames Water… Privatised public-infrastructure companies are ideal!)
Buy it with borrowed money (at low interest rates)
Lay off as many permanent staff as possible
Outsource consulting to your overpriced mates’ (or your own) businesses, to “strategise further efficiency enhancements” or something.
Use all the money saved by the redundancies, along with the healthy profits, to pay large dividends directly to yourself and your other private shareholders—minus the absolute minimum payments (typically, interest only) towards the borrowed debt.
Via accounting tricks like ‘carried interest’, claim back any operating losses against your own shareholder earnings
Ideally, use the impressive dividend yields to attract further investors, thus further increasing the value of your shareholding equity
Use your increased equity wealth to borrow more money, and buy something else.
If you know anything about these sorts of Alternative Universe machinations it’s because, recently, several have been very publically shitting themselves, because interest rates have suddenly jumped up. With all the cash buffer syphoned off into the buyers-and-their-buddies’ bank accounts, these perfectly viable, profitable businesses are being driven into bankruptcy, because they are unable to pay the increased interest costs on loans used to buy themselves.
This shit has been done over and over. You can switch a few words around and you’ve got ‘residential property barons’, or the ‘distressed business’ buy-ups popular in the 1980s, or the ‘charitable foundations’ tax dodge. I’ve worked for a company purportedly specialising in electronics and entertainment, yet its profits are far more dependent on credit card and insurance services. Great American car companies make much more money out of opaque digital transactions, like on-selling loan debt or carbon credits, than they do out of moulding steel, plastic and rubber into functional shapes.
We live in a world where success is increasingly not measured by what you create with your pennies, but by how adept you are at not spending them.
That probably felt like that was a pretty big transit, but my point is, when you hear the phrase “a penny saved is a penny earned” it likely sounds to you like ‘not buying a second coffee this morning’. In the Alternative Universe, it’s an idiom about using structures—enabled exclusively by wealth—to not spend money but earn shit-loads anyway.
Hopefully, you’re enjoying your tour into the Alternative Universe of Wealth, a place that distorts and turns-topsy-turvy the “common sense” we share around money. We’re not done yet though—stay tuned.
-T
$1m in $1 notes translates to a cube over 70cm on each side. As a pile of money it would take up about the same space as an upright piano.
My 12-year-old-self can’t help thinking that phrase sounds somehow a bit dirty!
Just to reiterate, fuck the banks and all, but don’t fuck around with credit card debt unless you are extremely disciplined. If at all possible, pay your cards off in full every month, collect the points, and exploit your bank as much as possible (they are returning the favour, trust me!)