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Fri 08 07 2022
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How can it be that it no longer pays to work? 

by bernt & torsten

How can it be that it no longer pays to work? That a billionaire can pay less in taxes than a cleaner and that we are getting more and more billionaires? 

What is going on?

There are actually three things that are happening in parallel. On the one hand, the Central bank has pursued a very expansive monetary policy with low-interest rates, which has pushed up the value of assets such as real estate and shares. Until now, we have had low inflation when it comes to consumer goods but very high asset inflation. 

This development has been diluted by politicians by lowering or removing a number of taxes on capital. In addition, there have been extensive privatizations that have transferred assets from the state to a number of private owners. 

In recent years, with rushing stock and real estate prices, the number of billionaires has exploded. The bad stock market in early 2022 has made some of these billionaires poorer but quite a few are even richer than before 2022.


At the same time as the rich get richer, on the other spectrum, poor people are getting poorer. It has been very easy to borrow money that has developed into a credit and consumption culture. Many people have also taken on debt to be able to afford a house, as prices have skyrocketed.

The rushing housing market

Buying a home today is not an easy task. If you’re not a billionaire, of course. But for ordinary people, the high housing prices in combination with inflation and demands of 15% down payment have made it difficult to enter the housing market at all. It is not possible to save for a down payment. This is going to widen gaps in society, where those who can afford to enter the housing market are the clear winners. Especially since the housing market has given more returns than the stock market.

Of course, there are periods where the stock market has been better, but not least in times of low-interest rates, housing has won. An important explanation is that home purchases can be mortgaged highly, which has a leverage effect on returns. If you borrow 85 percent of the purchase price and the home doubles in value, your investment has grown almost eight times.

The loan carousel and inflation

People are mortgaging to be able to afford to live and it is a favourable deal for the banks. 99 percent of what we in everyday speech call money is created by private banks at the same time as they grant new loans. It really happens the same way: out of nowhere. More loans mean more money in circulation, which has pushed up the price of housing in particular.

For those who own homes and shares, rising prices have created a so-called wealth effect. The idea is that if housing and shares rise in value, households will feel richer and then dare to consume more, which will boost growth in the economy. But what has not been taken into account is the constantly rising housing prices in the inflation calculation. The housing market is outside what is measured as inflation. There is a risk of missing out on enormous societal changes that are of great importance to the economy.

Why is it dangerous to only look at commodity prices when looking at inflation?

Because then you risk missing out on enormous societal changes that are of great importance to the economy. A clear consequence of asset inflation, such as more expensive housing, is rising indebtedness. This in turn increases the risk of financial crises.

The lost people’s home

In the past home was more based on the idea of ​​one-for-all-all-for-one, today’s society is more characterized by each-one-for-himself. In most western countries the taxes on labour. But we have significantly lower taxes on capital. The big difference is that it is more profitable to own things than to live on paid work.

through companies than to be employed.

Do these rules mean that a billionaire can pay less in taxes in percentage terms than a cleaner?

There are lots of loopholes and special rules that allow a billionaire to push down his tax well below the official tax on capital income. And someone who has 1 billion in a high yield bank account and lives on dividends every year pays only a lower percent in tax on that income.

Greed rules

To say that money changes people is a common expression. But the fact is that there is evidence that this is true. In a study where the subjects would play Monopoly, half were given twice as much money from the start. They also got double dice to play with and twice as much money every time they passed. Of course, these individuals won over their peers.

But when they were interviewed about what they themselves thought was the reason, they did not tell about their obvious, unfair advantages, but about their strategies and their winning thinking. There is something rooted in our way of thinking that we deserve our profits. No matter how we got them.

Have high-ranking politicians deliberately bet on their own fortunes?

It has become much more favourable in the last 25 years to be a capital owner. Some politicians belong to an extremely favoured group themselves and belong to the 1 percent richest. There is any conspiracy behind it, but neither does it contribute to the cohesion of a country. Many politicians have also become rich by buying assets from the public sector.

Is capitalism as we know it dead?

The problem is that we have not had real capitalism for a while, rather a kind of planned economy where a small group has benefited at the expense of others. I think it is quite urgent to change, otherwise, the system loses all its legitimacy.


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