Coyote Blog

An important goal of Marxist thought is the proletarianization of the middle class -- to convince great numbers of people in the office worker and shopkeeper classes that they are not beneficiaries of a rising tide of success but are no better than coal shovelers in a boiler room, victims of capitalist oppression that need to join the revolution. It is impossible to view the recent mayoral election in NYC as anything but a sign of their success.  People in NYC wail about how dehumanizing it is to sit in an office for 8 hours a day.

Socialists have been brilliantly successful at creating bad outcomes via institutions they control or policies they promote, and then blaming those bad outcomes on capitalism.  Probably the most brilliant success has been the shittification of higher education.  Socialist-controlled universities create sky-high expectations for their degrees, and reinforce these expectations with rampant grade inflation that makes every student feel like a success -- even when they do almost no work.  Academics on the Left route students into degrees and classes with absolutely no economic value (e.g. Paraguayan Feminist Poetry) and then dump them into the world -- after loading them down with $250,000 or more of debt -- with no possible path to reaching the promised expectations or even paying off the debt.  And when all this inevitably fails, the academic apparatchiks who live high on tuition money are quick to blame the failure on "capitalism."  And since these schools no longer teach students much about reasoned engagement with difficult and complex ideas -- and in fact encourage emotional reasoning, virtue-signaling, and just wailing in anger on TikTok over logical argument -- voters respond that "yeah, it must be capitalism's fault."

Anyway, in the context of all the turgid articles about the shrinking of the middle class and the failures of capitalism for the middle class, consider this which is all in 2024 $ (source):

Yes the middle class is shrinking -- because people in it are becoming richer.  They are not (on average, certainly there are individuals who go up and down) getting poorer because the poorest band on this chart is shrinking even faster than the middle class.  This is an enormous freaking victory for most everyone, but yet we are electing radical communists to tear down capitalism.  Incredible.

Postscript:  About a dozen years ago when my son was looking at colleges, like many parents I sat in a number of college admissions department presentations about the school.  All these presentations were remarkably similar -- my kids and I started calling them the "how we are unique in the exact same ways every other school is unique" speeches.

But another thing I noticed quickly was all the encouragement of students that if they go to their school, they will all go out and change the world the moment they graduate.  I guess it is good to be encouraging but this is a ridiculous expectation.  Except for perhaps a half dozen kids a year across the whole country, no one changes the world at 22 with an expensive degree and little life experience.  I have great respect for my son but at 22 he was happy to get a job with a beer company managing complex pricing lists and evaluating channel profitability.  It was work that was of value to the company but it was certainly not changing the world.  But he gained some great experience with data analysis, how to work in an organization, how to manage his time, etc. that were building blocks for better jobs or perhaps a future entrepreneurial excursion.  He learned what he was interested in doing, which focused his future learning plan.

For myself, I eventually helped shape a new industry but I didn't even get started on that path until my forties.  I had the opportunity to get fairly useful degrees at two renowned schools (Princeton engineer, Harvard MBA), but what I learned there was like 5%, at most, of the knowledge I used to eventually be successful.

Perhaps I am just old now and every older generation thinks this same thing, but haven't you noticed that many 22-year-olds that enter an organization today in an entry-level position seem to think they are in charge?  I have been asked to speak to young people about school and careers and one of the things I tell them is that at 22 they are not going to be advising presidents, they are going to be updating pricing lists.  And that is OK.  Deliver value to the company and learn from it what you can.  I think a lot of young people would be happier and in a better position to manage their learning and career if someone had just told them "your entry-level job is probably going to suck -- do a good job and work for something better."

Yes, I know.  A meltdown in subprime auto loans has been predicted almost every year of the past decade.   I am not an economist or stock analyst, so take all this with a shaker of salt, but here is the new factor that I don't think is being discussed much in the context of subprime auto loans:  the end of student loan forgiveness:

The U.S. Department of Education announced it will restart interest accrual for student-loan borrowers in the Saving on Valuable Education (SAVE) plan, starting from Aug. 1, according to a July 9 Education Department (ED) statement....

According to the ED, 42.7 million borrowers currently owe $1.6 trillion in student debt.

“Only 38 percent of borrowers are in repayment and current on their student loans,” the ED said in April.

“Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance, or in an interest-free deferment. A small percentage of borrowers are in a six-month grace period or in-school.”

The SAVE plan only includes 7.7 million of these borrowers, about 1/3 of delinquent borrowers, but its termination demonstrates this Administration's commitment to end forbearance for delinquent borrowers.  Over the last 6 months many other student loan borrowers have been taken off of variouis deferral agreements and asked to pay what they owe.

The reason this is relevant to auto loans is this:  there is a large overlap between households with student loans, particularly those with non-performing student loans, and those with sub-prime auto loans.  Borrowers delinquent to both a bank for auto loans and to the US government for their student loans will quickly learn that only one of these lenders has the legal power to force their debt to the top of the debt repayment stack.

I am not a financial analyst so I am not sure who would be most hurt by this -- certainly I would not want to be long the equity tranches of securitized auto loans.  There are banks such as Ally Financial that have a large percentage of their income in auto loans, including sub-prime,  And there are situations like Carvana, which is complicated right now.  On the positive side Carvana** stock is way up, likely in anticipation of rising used car sales and prices due to Trump tariffs.  On the negative side they are a huge sub-prime auto lender (short-sellers argue that their car sales business is just a loss-leader for their auto lending business).

**Postscript:  Carvana is one of those battlefield stocks where super-bulls and super-bears (the later now including Hindenburg Research and Chanos) duke it out constantly.  I will mostly stay away as I have already been sucked for years and years into the mother of all battlefield stocks (Tesla).  But I will say on Carvana that there may be an interesting pattern emerging.  Several years ago the founding family the Garcias sold billions in stock at the top, right before it crashed 99%.  Now that the stock has climbed back to those old highs again, the Garcias are selling billions more.  It is normal for founders to sell more than they buy to diversify their holdings, but their timing as historically been spectacular.