system
Given the following post, respond as if you're commenting on Reddit:
human
How do rich people “hoard wealth?”

I see this expression all the time, but I don’t really see how it plays out in reality.

Isn’t almost all the money owned by the rich being continually invested?
gpt
“Hoard” is a politically charged word. This is a difficult question to answer without coming down on one side of a very contentious divide. What people typically mean when they say “hoard” is that rich people are holding lots of their wealth in safe, static assets like cash or Treasury bonds. This money is static because it is subject to certain constraints that prevent it from being used for more productive, but risky endeavors.

>Isn’t almost all the money owned by the rich being continually invested?

Yes and no. Not all investments are created equal. When people invest, they usually want some mixture of both 1) safety, and 2) a high return. There is generally a trade off and people will have different preferences depending on their risk tolerance. When people hold cash in a checking account, they are letting the bank do the investing. Banks have lots of convoluted rules for how they can manage assets due to the inherent risk of bank runs like 2008. What’s happening now is that banks are also “investing” in cash and T-bonds to a large extent. Note that cash held by banks at the Fed (called Reserves) is ultimately not really invested in anything. It’s there in large part to back up everything else and provide a buffer in the case of a run. Before 2008, banks didn’t used to hold Reserves in excess of their legal requirements, but during the crisis a lot of things changed and suffice it to say that now they are holding (or from some people’s perspective “hoarding”) more than ever. And as for T-bonds, both private banks and the Fed are investing in the U.S. Federal government when they choose to hold Treasuries. But the government isn’t actually spending or investing in a lot relative to the global demand for its debt.

Over the past few decades, and especially in the last 10 years, the amount of money being held in cash and T-bonds has increased substantially. One effect of this can be seen in M2 money velocity. Basically, M2 money is cash and money held in checking accounts, and the velocity of M2 money is a variable that loosely corresponds to how fast M2 money is moving around the economy. Since this value is decreasing, we can infer that more and more money is sitting around in cash, ultimately being backed up by Reserves at the Fed. Theoretically, the people/institutions who own this money could invest it in something else that yields a better return. But they’re not doing that. As to why this is the case—that’s a hotly debated topic. One theory is that it’s the product of rising inequality. The richer you are, the lower your marginal propensity to spend. This is just a fancy way of saying that rich people tend to save money while poor people tend to spend it. There is a *huge* desire for saving in dollars right now that far exceeds the capacity of those dollars to be spent, because poor people don’t have any money (relatively speaking). Another theory is that investors are fighting a losing battle against deflation and demographics. The world population is getting older, and there are fewer and fewer young workers per old retiree with each passing year. This has theoretically decreased the opportunities for robust growth, i.e. there really is no good answer for how all that cash should be put to use. Moreover, old people tend to want safer assets, so they are less eager to put their money in relatively riskier investments.

Note that this is just a one picture of what “hoarding” can mean. In practice it can refer to other ways that rich people make inefficient investments. Buying up lots of expensive art or super yachts might also be seen as ways in which rich people are using their wealth in ways that don’t necessarily lead to as much “trickle down” as supply siders like to claim—i.e. hoarding. Think of the dragon Smaug, who hoarded a mountain of gold on Erebor. Perhaps he was afraid the dwarves were going to use it poorly, such as by starting a war with the elves. He also probably didn’t think the dwarves would pay back any loans he made in the first place, and so he chose to sit on the gold instead—an inefficient but safe choice. In the end, he was killed by the dwarves (technically the kill shot was from a man named Bard, from Laketown) due to his greed and the mountain of gold that was spent by the dwarves who acquired it ushered in a literal Golden Age fueled by productive investments in new infrastructure and the like.