The Economy(blog.samaltman.com)
blog.samaltman.com
The Economy
http://blog.samaltman.com/the-economy
269 comments
Agreed.
Further, there's little evidence that Debt-to-GDP over 100% (despite "feeling" meaningful, because, 100%!) has any kind of predictive value for the long term direction of an economy, particularly one that has unusually low interest rates. If Debt-to-GDP were a problem for the US, you'd expect higher interest rates, not lower ones, as investors would be demanding higher returns on US debt.
The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term.
Further, there's little evidence that Debt-to-GDP over 100% (despite "feeling" meaningful, because, 100%!) has any kind of predictive value for the long term direction of an economy, particularly one that has unusually low interest rates. If Debt-to-GDP were a problem for the US, you'd expect higher interest rates, not lower ones, as investors would be demanding higher returns on US debt.
The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term.
The thing that worries me about our debt is that it's not like the rates are locked-in for 1000 years. After bonds mature, we need to issue new bonds to pay for them. And if the interest rates are higher at the time, the new debt will have a higher interest rate (I guess, technically, the bonds will sell for a lower price, which has the same effect).
Paying our current level of interest on our debt is not crushing. But it's not hard to imagine the rates tripling (or more) considering how close to zero the rates are now. Then we are over $1 trillion/yr in debt service (if my calculations are correct).
Combined with what seems like a structural deficit, I don't see any good way we'd get out of that.
In other words, we're not falling off a cliff now, but it seems like fragile situation.
Paying our current level of interest on our debt is not crushing. But it's not hard to imagine the rates tripling (or more) considering how close to zero the rates are now. Then we are over $1 trillion/yr in debt service (if my calculations are correct).
Combined with what seems like a structural deficit, I don't see any good way we'd get out of that.
In other words, we're not falling off a cliff now, but it seems like fragile situation.
My guidance to others, when they ask about US debt, I suggest they watch Japan. When Japan's interest rates rise, even just a little, their debt will become unserviceable. Once that happens, it will be time to think hard about US debt. The plan is clearly to inflate out of it. Survivable for the wealthy, devastating for everyone else.
The blog post raises some fair points, but the author does a pretty poor job at getting any point across. The most concerning things right now are: low interest rates on very high risk debt, continued and dramatic growth of derivatives (you fail, I fail, we all fail), and China's decision to push the 2008 correction in to the future finally running out of steam. The geo-political issues in the Middle East, North Africa, and Asia are a whole other cause for concern.
I think the risks now are still fairly benign compared to what was faced during the Cold War (though we still build new nuclear weapons and delivery vehicles, Russia fell short of its recent goal of 300 and instead has built 30 so far.)
The blog post raises some fair points, but the author does a pretty poor job at getting any point across. The most concerning things right now are: low interest rates on very high risk debt, continued and dramatic growth of derivatives (you fail, I fail, we all fail), and China's decision to push the 2008 correction in to the future finally running out of steam. The geo-political issues in the Middle East, North Africa, and Asia are a whole other cause for concern.
I think the risks now are still fairly benign compared to what was faced during the Cold War (though we still build new nuclear weapons and delivery vehicles, Russia fell short of its recent goal of 300 and instead has built 30 so far.)
There is probably 10% slack right now before you even get to mild inflation. What's concerning to me is geopolitical instability while the economy is teetering on deflation. This state is strongly correlated with big wars.
> The plan is clearly to inflate out of it.
[[Citation needed]]
[[Citation needed]]
Not being sarcastic here.
2013 A = Debt is around: $17.5 trillion B = Debt Service: $416 billion C = Average Rate: 2.38% ($416 billion / $17.5 trillion) D = U.S. Tax Revenue: +/- $2.8 Trillion
Things won't get interesting until B approaches D.
So one way of looking at is if everything remained constant (which it won't) you'd need 15% interest rates on the current debt for debt service to approach tax revenue. If interest rates stay the same you could increase the debt to $128 trillion.
Reference: Debt: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Debt Service: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Tax Revenue: http://www.usgovernmentrevenue.com/
2013 A = Debt is around: $17.5 trillion B = Debt Service: $416 billion C = Average Rate: 2.38% ($416 billion / $17.5 trillion) D = U.S. Tax Revenue: +/- $2.8 Trillion
Things won't get interesting until B approaches D.
So one way of looking at is if everything remained constant (which it won't) you'd need 15% interest rates on the current debt for debt service to approach tax revenue. If interest rates stay the same you could increase the debt to $128 trillion.
Reference: Debt: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Debt Service: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Tax Revenue: http://www.usgovernmentrevenue.com/
"Things won't get interesting until B approaches D."
I'd say things would get pretty interesting well before that point. B=D is just the point at which a default is inevitable (unless much higher tax revenue is achievable without causing other problems).
But the problem is that the interest rates are so low now that large increases are not outlandish. 7 years ago, the rate was more than double what it is now. Looking at the graph in the article, in the 80's it was over 10%, more than 4X the current rate (which would imply 1.6 trillion in debt service).
It seems like we're making a big bet that interest rates are down permanently. That may be true, but it seems like a fragile assumption to me.
I'd say things would get pretty interesting well before that point. B=D is just the point at which a default is inevitable (unless much higher tax revenue is achievable without causing other problems).
But the problem is that the interest rates are so low now that large increases are not outlandish. 7 years ago, the rate was more than double what it is now. Looking at the graph in the article, in the 80's it was over 10%, more than 4X the current rate (which would imply 1.6 trillion in debt service).
It seems like we're making a big bet that interest rates are down permanently. That may be true, but it seems like a fragile assumption to me.
There is no reason for the government to default when B=D. (If you disagree, please take a deep breath and think through the mechanics of exactly how the US federal government could be forced into default.)
In reality, B=D is likely to balance itself out again. This becomes apparent once you think through where the interest payments go.
If they are reinvested in government bonds, nothing happens. If they are reinvested in other financial assets, the general interest rate decreases, which will also pull down the interest rate on government bonds (reducing B). And if the interest payments end up with people who spend them on goods, well, that grows the economy, which increases D.
In reality, B=D is likely to balance itself out again. This becomes apparent once you think through where the interest payments go.
If they are reinvested in government bonds, nothing happens. If they are reinvested in other financial assets, the general interest rate decreases, which will also pull down the interest rate on government bonds (reducing B). And if the interest payments end up with people who spend them on goods, well, that grows the economy, which increases D.
I agree that it will happen before B equals D but no one knows the tipping point ratio. In theory, a government can always argue right up to that point that, "we'll grow our way out of this."
Interest payments as a percentage of GDP are actually much lower now than they've been in the past:
http://research.stlouisfed.org/fred2/series/FYOIGDA188S
http://research.stlouisfed.org/fred2/series/FYOIGDA188S
That doesn't dispute my point at all. I'm not worried about the payments now. I'm worried about the payments if interest rates go up.
And we shouldn't be surprised if rates go up substantially, because they are at historic lows right now.
And we shouldn't be surprised if rates go up substantially, because they are at historic lows right now.
There is a reason why they are at historic lows-- it is the decision of market participants. Your concern is essentially that market participants will somehow do a complete 180, for no stated reason.
"Your concern is essentially that market participants will somehow do a complete 180, for no stated reason."
If market participants demand a higher interest rate, I wouldn't call that a "complete 180".
Regardless, change is the only constant, as they say. Markets move. Behavior changes in response to the environment. If we really are supposed to be a risk-free place to loan money, then I would think we'd be a little more resilient to rising interest rates, which happen fairly often historically.
If market participants demand a higher interest rate, I wouldn't call that a "complete 180".
Regardless, change is the only constant, as they say. Markets move. Behavior changes in response to the environment. If we really are supposed to be a risk-free place to loan money, then I would think we'd be a little more resilient to rising interest rates, which happen fairly often historically.
If you count the federal reserve as a market participant.
Interest doesn't get come out of the GDP, only the Government pays it.
The government pays it, ultimately, out of tax revenues derived from GDP.
However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance. Such an uptick would automatically go hand in hand with increased tax revenues and lower spending (because social safety net spending would shrink automatically).
Basically, any scenario in which interest rates grow are scenarios in which automatic stabilizers will reduce the government deficit in other places. It's a healthy system in which the feedback mechanism go in the right (i.e. stabilizing) direction.
Basically, any scenario in which interest rates grow are scenarios in which automatic stabilizers will reduce the government deficit in other places. It's a healthy system in which the feedback mechanism go in the right (i.e. stabilizing) direction.
"However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance."
It's not that hard to imagine; what you describe is essentially Stagflation. You may consider it unlikely, but there are some known potential causes[1].
As I understand it, Stagflation happens when increased demand is less able to stimulate increased supply than one might expect.
As mentioned in [1], an oil supply shock could be a cause. That is not outlandish given the current instability in the middle east and our tense relationship with other oil producers (Russia and Venezuela). The US and Canada do produce a lot of oil, which may offer insulation, but I don't think that's necessarily a defense.
Another cause listed is tough regulatory atmosphere. For instance, if the EPA decides to strongly curb CO2 emissions, or misguided labor laws come into effect, or the healthcare system in the US gets even worse. Again, not outlandish.
[1] http://en.wikipedia.org/wiki/Stagflation
EDIT: reworded for clarity
It's not that hard to imagine; what you describe is essentially Stagflation. You may consider it unlikely, but there are some known potential causes[1].
As I understand it, Stagflation happens when increased demand is less able to stimulate increased supply than one might expect.
As mentioned in [1], an oil supply shock could be a cause. That is not outlandish given the current instability in the middle east and our tense relationship with other oil producers (Russia and Venezuela). The US and Canada do produce a lot of oil, which may offer insulation, but I don't think that's necessarily a defense.
Another cause listed is tough regulatory atmosphere. For instance, if the EPA decides to strongly curb CO2 emissions, or misguided labor laws come into effect, or the healthcare system in the US gets even worse. Again, not outlandish.
[1] http://en.wikipedia.org/wiki/Stagflation
EDIT: reworded for clarity
Ah, right. I still think there are two mitigating factors here to what I said.
First: In the stagflation of the 1970s (which is really the only significant empirical data point we can draw from), increased interest rates were a political choice made by the central bank rather than an economic necessity.
Second, and more importantly: Stagflation is characterized by inflation, which means that nominal GDP grows even while real GDP is stagnating.
Since real GDP is irrelevant to the debt-to-GDP ratio (witness the debt-to-GDP ratio through the 1970s), the conclusions for whether one should worry about the debt-to-GDP ratio remains the same as far as I can tell.
First: In the stagflation of the 1970s (which is really the only significant empirical data point we can draw from), increased interest rates were a political choice made by the central bank rather than an economic necessity.
Second, and more importantly: Stagflation is characterized by inflation, which means that nominal GDP grows even while real GDP is stagnating.
Since real GDP is irrelevant to the debt-to-GDP ratio (witness the debt-to-GDP ratio through the 1970s), the conclusions for whether one should worry about the debt-to-GDP ratio remains the same as far as I can tell.
Why is that hard to imagine? If, hypothetically, our economy fell off a Great Depression style cliff, wouldn't that make it harder to pay our debt, expectation of which would force rates up, and be somewhat self-fulfilling?
Generally, when interest rates pick back up, revenues rise faster.
We're fragile because ( IMO ) we're running the money supply too lean - especially for people who are in the grey market economy.
We're fragile because ( IMO ) we're running the money supply too lean - especially for people who are in the grey market economy.
> The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term.
With respect, I don't think it's accurate that the fact that bond rates remain low correlates to evidence that there's no major macroeconomic problem. Just take a look at the Federal Reserve's balance sheet that was relatively stable for many years has quadrupled in 5 years.
Reference: Chart: http://research.stlouisfed.org/fred2/series/RSBKCRNS
Reference: Balance Sheet: http://www.federalreserve.gov/releases/h41/Current/
With respect, I don't think it's accurate that the fact that bond rates remain low correlates to evidence that there's no major macroeconomic problem. Just take a look at the Federal Reserve's balance sheet that was relatively stable for many years has quadrupled in 5 years.
Reference: Chart: http://research.stlouisfed.org/fred2/series/RSBKCRNS
Reference: Balance Sheet: http://www.federalreserve.gov/releases/h41/Current/
>The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term.
Not necessarily. If you have to ask yourself what the country had to do to keep those rates from changing. The more a country is in debt (especially to other countries) the more their foreign debtors have leverage over what policies the debted country can enact. For the sake of arguement, let's say that China decided to annex Alaska. If we retorted with a threat of military action, China could come back and say we'll increase your interest rates.
Also high debt to GDP ratio makes printing money as a solution more attractive for a government. Inflation is a theft from everyone.
Not necessarily. If you have to ask yourself what the country had to do to keep those rates from changing. The more a country is in debt (especially to other countries) the more their foreign debtors have leverage over what policies the debted country can enact. For the sake of arguement, let's say that China decided to annex Alaska. If we retorted with a threat of military action, China could come back and say we'll increase your interest rates.
Also high debt to GDP ratio makes printing money as a solution more attractive for a government. Inflation is a theft from everyone.
Foreign debtors have zero leverage over the United States. What would happen if China decided to stop buying US debt? Their currency would appreciate, their exports would collapse, and their economy would go into recession. Our currency would depreciate, our exports would increase, and our economy would get a much desired boost.
You will pay triple for your iPhone, your car, your TV, your laptop, your monitor... If you haven't checked recently anything you buy comes from China or has a significant % of it's BOM from China and is essentially financed by that debt. Your standard of living would collapse.
Obviously both China and the US would take a big hit but I'd argue the US would take a bigger hit. Right now the US benefits from the status of the US$ as the world's reserve currency. If all foreign US bond holders sell their their bonds the US$ will not simply depreciate, it will collapse. The US will be able to import nothing and it's not geared to handle that. It's very comfortable having the cheap manufacturing and the environmental implications somewhere else. Now none of the US debt holders want to see this happen but also no one will want to be the last one holding to debt in a collapsed currency - if someone sneezes.
Given that a lot of US businesses do their business worldwide and keep their money out of the US they won't necessarily be impacted as much but this "run on the bank" scenario is not going to be pretty.
Obviously both China and the US would take a big hit but I'd argue the US would take a bigger hit. Right now the US benefits from the status of the US$ as the world's reserve currency. If all foreign US bond holders sell their their bonds the US$ will not simply depreciate, it will collapse. The US will be able to import nothing and it's not geared to handle that. It's very comfortable having the cheap manufacturing and the environmental implications somewhere else. Now none of the US debt holders want to see this happen but also no one will want to be the last one holding to debt in a collapsed currency - if someone sneezes.
Given that a lot of US businesses do their business worldwide and keep their money out of the US they won't necessarily be impacted as much but this "run on the bank" scenario is not going to be pretty.
The more a country is in debt (especially to other countries) the more their foreign debtors have leverage over what policies the debted country can enact.
Not necessarily, because national debt (eg bonds, t-bills, etc) can be owned by anyone, not just foreigners. In the case of the US, as it happens, most national debt is overwhelmingly owned by Americans --think your IRA: whatever percentage of bonds you own is government debt to you.
The confusion arises because one particular strategy of hedge funds in the past has been to buy up huge controlling amounts of dollar-denominated bonds/debt from small export-dependent countries so that, if the country's economy slows down and they have to devaluate their currencies to boost exports (and thus growth), they end up unadvertently increasing the amount owed to the hedge funds in dollars. This can easily get way out of hand, thus causing the well-publicized financial crises of the 1990s, Argentina's, Greece[1] etc. But this scenario obviously does not apply for countries that do not issue foreign-currency bonds, like the US.
[1] The case of Greece is even worse because they cannot even devaluate "their" currency to boost exports, so all they can do is intentionally depress or deflate their economy to make everything (salaries, land, inputs) massively cheaper; or refinance their debt with EU-backed loans.
Not necessarily, because national debt (eg bonds, t-bills, etc) can be owned by anyone, not just foreigners. In the case of the US, as it happens, most national debt is overwhelmingly owned by Americans --think your IRA: whatever percentage of bonds you own is government debt to you.
The confusion arises because one particular strategy of hedge funds in the past has been to buy up huge controlling amounts of dollar-denominated bonds/debt from small export-dependent countries so that, if the country's economy slows down and they have to devaluate their currencies to boost exports (and thus growth), they end up unadvertently increasing the amount owed to the hedge funds in dollars. This can easily get way out of hand, thus causing the well-publicized financial crises of the 1990s, Argentina's, Greece[1] etc. But this scenario obviously does not apply for countries that do not issue foreign-currency bonds, like the US.
[1] The case of Greece is even worse because they cannot even devaluate "their" currency to boost exports, so all they can do is intentionally depress or deflate their economy to make everything (salaries, land, inputs) massively cheaper; or refinance their debt with EU-backed loans.
"Inflation is a theft from everyone."
Inflation is from those with assets denominated in dollars (if they are not inflation adjusted). It is to those with liabilities denominated in dollars (if they are not inflation adjusted) and to the people introducing the new dollars into circulation. In the case of the government printing money, that's the government (obviously) and it's fairly reasonable to consider it a tax like any other. A somewhat regressive tax, since the more wealthy usually have more flexibility about how they store their wealth, but I don't know how it compares to sales taxes.
Inflation is from those with assets denominated in dollars (if they are not inflation adjusted). It is to those with liabilities denominated in dollars (if they are not inflation adjusted) and to the people introducing the new dollars into circulation. In the case of the government printing money, that's the government (obviously) and it's fairly reasonable to consider it a tax like any other. A somewhat regressive tax, since the more wealthy usually have more flexibility about how they store their wealth, but I don't know how it compares to sales taxes.
"For the sake of arguement, let's say that China decided to annex Alaska. If we retorted with a threat of military action, China could come back and say we'll increase your interest rates."
Our debt is not callable. China can say "we won't buy from you except at a higher interest rate" as new loans come due, but anyone else in the market could come in and undercut them (and might be likely to, if they knew China was backing off because of politics and not worry about the soundness of our debt) - heck, it could even be patriotic Americans - BUY WAR BONDS!
Our debt is not callable. China can say "we won't buy from you except at a higher interest rate" as new loans come due, but anyone else in the market could come in and undercut them (and might be likely to, if they knew China was backing off because of politics and not worry about the soundness of our debt) - heck, it could even be patriotic Americans - BUY WAR BONDS!
That doesn't really seem to follow, to me. The worst a single creditor could do is not bid, or bid for higher rates in future treasury auctions. The terms of existing debt are fixed. The impact of this wouldn't be large unless other creditors followed suit - there are many parties interested in buying up US debt.
Furthermore, if a holder of US debt declared war on the US, I wonder if that wouldn't be viewed as a credible reason to default on that outstanding debt - certainly doesn't make much sense to be sending interest coupon payments to someone invading your country.
Furthermore, if a holder of US debt declared war on the US, I wonder if that wouldn't be viewed as a credible reason to default on that outstanding debt - certainly doesn't make much sense to be sending interest coupon payments to someone invading your country.
The creditor could dump the bonds on the open market, and depending on the level of pain they were willing to feel, could crush the us bond markets. The fed can only stand in and defend for so long until we have to go inflationary to defend the dollar. Its actually a good thing that china controls a large chunk of US bonds, they can't dump without taking a huge hit themselves, MAD (for you cold war buffs). The countries you need to worry about dumping are ones with large amounts of hydrocarbons, Russia. They could theoretically dump, and then they have the hard asset to trade (oil) if they truly wanted to cause pain, however doing so to the US would send the entire world in to a free fall and they would probably end up worse than before, however everyone would be worse than before. It would be a large global reset.
Exactly. If China dumps their bonds rates are going to go to the sky and the US currency will depreciate. No one wants to do this but no one will want to sit on the sidelines holding billions of US bonds if this starts happening. It's not that different than a run on a bank that does not have enough reserves. (well, it's a little bit different, a bank can't print money)
What everyone is trying to do is figure out a way to unwind this slowly and/or grow out of it. I think a lot of past growth was fuelled by population growth and "free" resources (oil, coal, etc.). Population isn't growing as fast and resources aren't as free any more.
What everyone is trying to do is figure out a way to unwind this slowly and/or grow out of it. I think a lot of past growth was fuelled by population growth and "free" resources (oil, coal, etc.). Population isn't growing as fast and resources aren't as free any more.
The US is already in a recession. The two quarters of negative growth is not a good means of showing the shape of the economy.
You could have two quarters of -0.5% growth, and that would mean recession. Or one quarter of -3% growth, and that doesn't mean recession, despite being worse than the two quarters. It's a silly way to calculate the state of the economy. Besides that, inflation is intentionally understated, GDP is contracting at a worse rate than stated in the headlines. 2% GDP growth is a recession in this environment of intentional central bank inflation schemes.
Not once post WW2, has the US economy shrank by more than 1.5% in a single quarter and then not entered a recession (or already been in one).
Housing has begun to tip over, as the Fed pulls its asset inflation program. Corporate earnings growth is anemic at best, most blue chips are struggling to grow at all (MCD, KO, IBM, WMT, etc). The vast majority of growth in the stock market has come from multiple expansion, not from earnings growth. Full time jobs are still far under where they were in 2007, while simultaneously welfare benefits are dramatically higher, including labor problem indicators such as SS disability (and of course labor force participation is at 35 year lows).
This all with 0% interest rates. If you can't grow an economy with 0% interest rates, you're in for a very, very bad time.
Stocks tend to hit new record highs just before a recession begins. This happened with both of prior Fed asset inflation parties, in the late 1990s (2000 peak) and early 2000s (2007 peak). They repeated the same inflation recipe, trying to fake a wealth effect, and turned it up several notches. The same result will occur again on the backside, for obvious reasons.
You could have two quarters of -0.5% growth, and that would mean recession. Or one quarter of -3% growth, and that doesn't mean recession, despite being worse than the two quarters. It's a silly way to calculate the state of the economy. Besides that, inflation is intentionally understated, GDP is contracting at a worse rate than stated in the headlines. 2% GDP growth is a recession in this environment of intentional central bank inflation schemes.
Not once post WW2, has the US economy shrank by more than 1.5% in a single quarter and then not entered a recession (or already been in one).
Housing has begun to tip over, as the Fed pulls its asset inflation program. Corporate earnings growth is anemic at best, most blue chips are struggling to grow at all (MCD, KO, IBM, WMT, etc). The vast majority of growth in the stock market has come from multiple expansion, not from earnings growth. Full time jobs are still far under where they were in 2007, while simultaneously welfare benefits are dramatically higher, including labor problem indicators such as SS disability (and of course labor force participation is at 35 year lows).
This all with 0% interest rates. If you can't grow an economy with 0% interest rates, you're in for a very, very bad time.
Stocks tend to hit new record highs just before a recession begins. This happened with both of prior Fed asset inflation parties, in the late 1990s (2000 peak) and early 2000s (2007 peak). They repeated the same inflation recipe, trying to fake a wealth effect, and turned it up several notches. The same result will occur again on the backside, for obvious reasons.
I don't think the writer ever said that a high Debt-to-GDP / government spending will send the economy into a recession. it means the government's ability to fight a recession if one comes will be extremely constrained; furthermore, having high debt prior to a recession makes the pains of having the high debt extremely painful as revenues will decline significantly.
This. Especially when some economists recommend recession spending as a way to fight it. We've already spent the money, maxed out the "credit cards" and currently interest rates are poised to go up.
If another recession does take hold, it will be a nasty fight.
If another recession does take hold, it will be a nasty fight.
"it will be a nasty fight"
Yes, possibly literally. Major wars are often the ultimate solution to this kind of problem. When the dust settles a new order exists.
I detest war. I detest human suffering. But it appears sometimes war has amazing cleansing power. Hopefully this isn't always the case.
Yes, possibly literally. Major wars are often the ultimate solution to this kind of problem. When the dust settles a new order exists.
I detest war. I detest human suffering. But it appears sometimes war has amazing cleansing power. Hopefully this isn't always the case.
This is the saddest part of it. Wars have economic benefit because of the giant injection of spending and incentives for investment. One could have the same benefit using much less destructive and even beneficial projects such as colonizing the oceans or space or building gigantic solar power plants to solve all our energy problems.
Alas, there seems to be always at least one party that is opposed to any kind of visionary project.
Alas, there seems to be always at least one party that is opposed to any kind of visionary project.
This.
I'm sorry I know I shouldn't but I'm so sick of people writhing "this." that I couldn't stop myself.
The US federal government budget is not like a household or the budget of a firm. Households and firms are USD users, which means that they can only make payments in USD if they first obtain those USD (whether as income or by loan).
The US federal government, on the other hand, is the issuer of USD. If it wants to make a payment in USD, then nothing can stop it.
This means that the debt-to-GDP ratio is an entirely meaningless measure as far as the government's ability to fight a recession is concerned. (It may have play a role in other consideration, such as questions about equity and distribution of wealth, but that's a digression.)
The US federal government, on the other hand, is the issuer of USD. If it wants to make a payment in USD, then nothing can stop it.
This means that the debt-to-GDP ratio is an entirely meaningless measure as far as the government's ability to fight a recession is concerned. (It may have play a role in other consideration, such as questions about equity and distribution of wealth, but that's a digression.)
While you are correct economically, many of the U.S. government's decisions are made politically. And a high debt-to-GDP ratio definitely affects politics.
I remember when TARP was up for debate. It was obviously needed, and it was the right idea (as proven out by its success). It still failed in the first vote in the House, because it was politically unpopular with enough people.
I remember when TARP was up for debate. It was obviously needed, and it was the right idea (as proven out by its success). It still failed in the first vote in the House, because it was politically unpopular with enough people.
i completely disagree. its not just politics as mentioned bellow, which is a very key point. The us government couldn't just keep printing money to pay for all of its deficit. the money would become worthless, and at a point it would be like breathing in a bag, but that doesn't matter as it would have collapsed before that ever happened.
the dept to GDP ratio (as well as printing money) has a huge effect on a countries ability to issue bonds, just ask the PIIGS. interests rates on bonds would rise very quickly making the annual deficit larger and since all interest rates in the country are based off the US treasury interest rate (the risk free rate), they would rise too, even if the US' interest rate was at 0. that'd make any recession get out of control as credit froze up.
it'd be the fed's worst nightmare. they would loose control of interest rates during a recession while the central government would loose its ability to borrow money.
the dept to GDP ratio (as well as printing money) has a huge effect on a countries ability to issue bonds, just ask the PIIGS. interests rates on bonds would rise very quickly making the annual deficit larger and since all interest rates in the country are based off the US treasury interest rate (the risk free rate), they would rise too, even if the US' interest rate was at 0. that'd make any recession get out of control as credit froze up.
it'd be the fed's worst nightmare. they would loose control of interest rates during a recession while the central government would loose its ability to borrow money.
I'm afraid that saying "just ask the PIIGS" is to miss the crucial point. Those countries are members of the Eurozone, and therefore their governments are currency users rather than issuers. Therefore, an analysis that draws upon your everyday household experience carries at least some water, even though it is entirely inapplicable to a monetarily sovereign government such as the US government.
Other than that, I can only recommend that you try to consider all the relevant dynamic effects in the macroeconomy. For example, if money would indeed become worthless, this would not happen overnight due to the immense inertia of an economy as large as the US economy. It would be a drawn out process.
Throughout that process, as a consequence of money losing value, the nominal GDP would increase, and therefore the debt-to-GDP ratio would decrease, which means that the system has a very strong self-stabilizing tendency.
Other than that, I can only recommend that you try to consider all the relevant dynamic effects in the macroeconomy. For example, if money would indeed become worthless, this would not happen overnight due to the immense inertia of an economy as large as the US economy. It would be a drawn out process.
Throughout that process, as a consequence of money losing value, the nominal GDP would increase, and therefore the debt-to-GDP ratio would decrease, which means that the system has a very strong self-stabilizing tendency.
The issues of debt relate to a Minsky Moment.
http://en.wikipedia.org/wiki/Minsky_moment
It happens when the assets can't pay their interest payments any more.
For now interest rates are low, so the government can pay it's billed. Unfortunately, we hold a lot of short denominated debt. We should lock in these rates while the going is good. If interest rates spike up, the government will have to cut programs, borrow a lot more money, or increase taxes. It's a very negative spiral.
The reality is that nobody has been in our exact situation, so there is more speculation. Are we becoming more like Japan? Or Europe? And how might aggressive immigration help us?
It happens when the assets can't pay their interest payments any more.
For now interest rates are low, so the government can pay it's billed. Unfortunately, we hold a lot of short denominated debt. We should lock in these rates while the going is good. If interest rates spike up, the government will have to cut programs, borrow a lot more money, or increase taxes. It's a very negative spiral.
The reality is that nobody has been in our exact situation, so there is more speculation. Are we becoming more like Japan? Or Europe? And how might aggressive immigration help us?
The US can't just "lock in" rates by deciding to do so. Most of the world treats debt very different than the US consumer is used to on credit-card and mortgage loans.
The US issues debt and the market bids on what it will pay, nearly always charging higher rates for longer terms. And the US can't pay it down early; it has those rates for the entire term of the loan.
If I read http://www.bankrate.com/rates/interest-rates/treasury.aspx?e... right, the US can borrow for 3 months at 0.025%, but for 10 years at 2.63%.
One reason the US does so much short-term borrowing, among other reasons, is that it's so cheap to do so.
The US issues debt and the market bids on what it will pay, nearly always charging higher rates for longer terms. And the US can't pay it down early; it has those rates for the entire term of the loan.
If I read http://www.bankrate.com/rates/interest-rates/treasury.aspx?e... right, the US can borrow for 3 months at 0.025%, but for 10 years at 2.63%.
One reason the US does so much short-term borrowing, among other reasons, is that it's so cheap to do so.
Right. In my view it's better to lock in relatively low 10 year (or better yet 30 year) rates rather than roll the dice on interest rates rising. Rates can easily rise to long term norms of 5%.
The market is anticipating that rates will rise, hence the nature of the yield curve.
If the government's assets are long term, shouldn't the liabilities match it?
The market is anticipating that rates will rise, hence the nature of the yield curve.
If the government's assets are long term, shouldn't the liabilities match it?
I think the responses you're getting are ignoring the key question: How will high debt-to-GDP or government spending send the economy into a recession?
Many have been forecasting complete collapse and hyperinflation for these reasons, and it hasn't materialized. It seems there is something flawed with the models people are trying to use to make their economic forecasts, or their reasoning doesn't apply to this situation.
One reason government spending would be bad is that it is crowding out private investment by driving up rates. But he indirectly recognizes this isn't the case due to rates being low enough that they should be encouraging investment.
He doesn't say how government debt should be reduced, and where government spending should be cut. He also glosses over the point that we're at a zero bound. The post is basically a bunch of graphs while expressing concern about government spending and debt. He doesn't really connect these to the GDP and go into detail about the reasons for that quarter. I could go on.
Many have been forecasting complete collapse and hyperinflation for these reasons, and it hasn't materialized. It seems there is something flawed with the models people are trying to use to make their economic forecasts, or their reasoning doesn't apply to this situation.
One reason government spending would be bad is that it is crowding out private investment by driving up rates. But he indirectly recognizes this isn't the case due to rates being low enough that they should be encouraging investment.
He doesn't say how government debt should be reduced, and where government spending should be cut. He also glosses over the point that we're at a zero bound. The post is basically a bunch of graphs while expressing concern about government spending and debt. He doesn't really connect these to the GDP and go into detail about the reasons for that quarter. I could go on.
The sole reason the US avoided disaster - temporarily - from occurring due to the massive increase in public debt, is the Fed began buying the radical majority of the government's debt after China let up on its buying.
When you have to rely on your central bank to fund your government's debt burdens with magic fiat, you're in a perpetual downward spiral scenario already. These are the good years, the deficit is set to explode dramatically higher again soon, and there will be nobody to buy except the Fed.
Who else can eat $500b to $1t per year in junk paper? China can't afford it any longer (having just taken on a mountain of debt the past five years). Japan hasn't been able to afford it for a very long time, they can't even afford their own debt.
Now it's merely a question of time. The Fed is pulling its programs because it can't sustain them any longer without running inflation through the roof. They know the US economy is weak, they see the data that led to the -3% GDP print. It's not like we're producing 500,000 full-time jobs and 200,000 manufacturing jobs per month.
When you have to rely on your central bank to fund your government's debt burdens with magic fiat, you're in a perpetual downward spiral scenario already. These are the good years, the deficit is set to explode dramatically higher again soon, and there will be nobody to buy except the Fed.
Who else can eat $500b to $1t per year in junk paper? China can't afford it any longer (having just taken on a mountain of debt the past five years). Japan hasn't been able to afford it for a very long time, they can't even afford their own debt.
Now it's merely a question of time. The Fed is pulling its programs because it can't sustain them any longer without running inflation through the roof. They know the US economy is weak, they see the data that led to the -3% GDP print. It's not like we're producing 500,000 full-time jobs and 200,000 manufacturing jobs per month.
Two consecutive months of negative "growth" define a recession. The "dismal weather" argument has been used to death. We've had very cold winters before, it's nothing new. Labor markets are not improving as you might think. Most of the job growth is in low wage positions.
Regarding the link, the argument is that by 2020 (6 years from now) more people will be working. and more specifically, the paragraph below, is flat out wrong.
"But that is medium term - in the near term, the reasons for a pickup in economic growth are still intact:1) the housing recovery should continue, 2) household balance sheets are in much better shape. This means less deleveraging, and probably a little more borrowing, 3) State and local government austerity is over (in the aggregate),4) there will be less Federal austerity this year, 5) commercial real estate (CRE) investment will probably make a small positive contribution this year.
Regarding the link, the argument is that by 2020 (6 years from now) more people will be working. and more specifically, the paragraph below, is flat out wrong.
"But that is medium term - in the near term, the reasons for a pickup in economic growth are still intact:1) the housing recovery should continue, 2) household balance sheets are in much better shape. This means less deleveraging, and probably a little more borrowing, 3) State and local government austerity is over (in the aggregate),4) there will be less Federal austerity this year, 5) commercial real estate (CRE) investment will probably make a small positive contribution this year.
i am a bull. i just think that we should talk about what the problems are. ignoring them is not a good way to fix them.
Debt to GDP isn't a problem: http://www.peri.umass.edu/fileadmin/pdf/working_papers/worki... (very widely circulated paper, given that they lowered the boom on Reinhart/Rogoff)
Yes, Altman's point #2 is essentially the Reinhart-Rogoff fallacy that was widespread a few years ago, before being debunked.
What if growth in the US is being prevented by technology innovation? If I replace 100 jobs with 1, and no further jobs are need for those 99 people, and that's the core of what technology does, growth in the traditional sense isn't possible.
I agree that a basic minimum income may be necessary; I don't believe it'll fix the growth problem though.
I agree that a basic minimum income may be necessary; I don't believe it'll fix the growth problem though.
Tech Innovation kills existing jobs by replacing 100 humans with one machine, this is true. If you're a cab driver, you may not be ecstatic about self-driving cars.
But those same technological advances invent new goods and services for an ever increasing population. More people are fighting over the same set of resources, which technology allows markets to distribute more efficiently. The new tech creates new demand no one knew was needed (e.g. the mainframe, the internet, mobile web, the blockchain).
While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) and upgrading society like 'aging up' in Age of Empires or Civilization.
But those same technological advances invent new goods and services for an ever increasing population. More people are fighting over the same set of resources, which technology allows markets to distribute more efficiently. The new tech creates new demand no one knew was needed (e.g. the mainframe, the internet, mobile web, the blockchain).
While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) and upgrading society like 'aging up' in Age of Empires or Civilization.
>While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life)
Sure. Personally, long-term, I think that will be true. The thing you have to understand, though, is that in the short-term, this hasn't been happening, for whatever reason, and the short-term, if it goes on for long enough, becomes the long-term. This is a problem that needs human effort before it will be solved.
Now, some people argue that it's a macro thing; Corporations are sitting on a bunch of cash right now, and not hiring. Some of those people say that we need some inflation so that those corporations are incented to do something (which usually means hiring people) with that money.
Personally, I don't understand macro. I understand Micro, though, and on the Micro level, I don't see a lot of entrepreneurs putting a lot of effort into figuring out how to create at-least-minimum-wage jobs for the less than awesomely skilled. I do see some effort being put into commoditizing third-world labor, you know, fiver and mturk, which you could argue is probably good on the global scale, but if you are focused on America, is decidedly counterproductive.
I think solving this problem using market-based tools would be an awesome project. I think it would be a possible project, especially if we are okay with another "service sector revolution" type deal where unemployment is low, but most of the jobs are kinda shitty. (which would certainly be better than the current case.)
Do you have an idea for a business that scales that could pay relatively unskilled folks better than minimum wage?
The thing I do see is that many companies seem to be cutting customer service more than I think makes sense; Most of the time, I'd pay another 10% if I could get good customer service rather than a bad robot. Of course, I'm one of those nerds who would prefer a robot to a human, for most service, assuming the robot was good enough... but the robot usually isn't good enough, and I think most people would prefer a human, if the human and robot were equally good at solving the problem at hand.
I think the problem, though, is good customer service isn't a low-skill job. If you can do customer service all day, every day, if you can do so without developing a deep hatred for humanity, you are a better person than I am.
Sure. Personally, long-term, I think that will be true. The thing you have to understand, though, is that in the short-term, this hasn't been happening, for whatever reason, and the short-term, if it goes on for long enough, becomes the long-term. This is a problem that needs human effort before it will be solved.
Now, some people argue that it's a macro thing; Corporations are sitting on a bunch of cash right now, and not hiring. Some of those people say that we need some inflation so that those corporations are incented to do something (which usually means hiring people) with that money.
Personally, I don't understand macro. I understand Micro, though, and on the Micro level, I don't see a lot of entrepreneurs putting a lot of effort into figuring out how to create at-least-minimum-wage jobs for the less than awesomely skilled. I do see some effort being put into commoditizing third-world labor, you know, fiver and mturk, which you could argue is probably good on the global scale, but if you are focused on America, is decidedly counterproductive.
I think solving this problem using market-based tools would be an awesome project. I think it would be a possible project, especially if we are okay with another "service sector revolution" type deal where unemployment is low, but most of the jobs are kinda shitty. (which would certainly be better than the current case.)
Do you have an idea for a business that scales that could pay relatively unskilled folks better than minimum wage?
The thing I do see is that many companies seem to be cutting customer service more than I think makes sense; Most of the time, I'd pay another 10% if I could get good customer service rather than a bad robot. Of course, I'm one of those nerds who would prefer a robot to a human, for most service, assuming the robot was good enough... but the robot usually isn't good enough, and I think most people would prefer a human, if the human and robot were equally good at solving the problem at hand.
I think the problem, though, is good customer service isn't a low-skill job. If you can do customer service all day, every day, if you can do so without developing a deep hatred for humanity, you are a better person than I am.
> Do you have an idea for a business that scales that could pay relatively unskilled folks better than minimum wage?
The problem with this lies in the nature of most service sector jobs - they require physical proximity to those people being served. Contrast this with manufacturing jobs, where a factory can be set up in a remote town (or on the other side of the world, which is precisely why they no longer exist in America in large numbers) and the products shipped en masse to consumers.
Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class. Nowhere is this more apparent than in SF. If the Bay Area public transit system were better and if housing were much denser, then more unskilled workers could afford rent in/near the city and have short commutes to service jobs.
Rather than raising minimum wages, we should be working to lower the cost of living for those not as well off. Our cities are currently so inefficient that you could squeeze a great amount of sheer waste out of them.
The problem with this lies in the nature of most service sector jobs - they require physical proximity to those people being served. Contrast this with manufacturing jobs, where a factory can be set up in a remote town (or on the other side of the world, which is precisely why they no longer exist in America in large numbers) and the products shipped en masse to consumers.
Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class. Nowhere is this more apparent than in SF. If the Bay Area public transit system were better and if housing were much denser, then more unskilled workers could afford rent in/near the city and have short commutes to service jobs.
Rather than raising minimum wages, we should be working to lower the cost of living for those not as well off. Our cities are currently so inefficient that you could squeeze a great amount of sheer waste out of them.
>The problem with this lies in the nature of most service sector jobs - they require physical proximity to those people being served. Contrast this with manufacturing jobs, where a factory can be set up in a remote town (or on the other side of the world, which is precisely why they no longer exist in America in large numbers) and the products shipped en masse to consumers.
The service sector jobs I have experience with; technical support, can often be done from anywhere.
Of course, having done tech support both in person and over the phone/email, I can tell you that the experience is vastly better for all involved when you are there physically. Besides the fact that it's quite often technically easier to solve the actual problem, the customer is way less likely to get crazy abusive to someone who is physically there and obviously, you know, a human being.
So... okay, point taken. I hadn't thought about that, but having remote tech support is often one of those choices where you optimize for price at the cost of good service. I guess that's the idea behind apple's "tech support in the store" model.
I remember during the first dot-com, shortly after I was promoted out of phone support, hearing the boss talk about how he wanted to do a startup for 'high end tech support' that would send people out in person to set up your internet, rather than making you talk on the phone with us.
>Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class.
I think we have a negative feedback loop here. The rich don't want public transit near them because they don't want the poor near them, because they aren't used to in-person service jobs. Now, I think most of this is the fact that most middle-class Americans are super weird about class. I mean, that's not to say that the British aren't super weird about class, but they are weird about class that allows the middle/upper classes to acknowledge the existence of the lower classes. The American middle and upper classes want to pretend that the lower classes don't exist, and plan their cities accordingly.
The thing is that we now have this purposely useless public transit infrastructure, which makes it really difficult to rehabilitate the idea of more in-person service jobs.
The service sector jobs I have experience with; technical support, can often be done from anywhere.
Of course, having done tech support both in person and over the phone/email, I can tell you that the experience is vastly better for all involved when you are there physically. Besides the fact that it's quite often technically easier to solve the actual problem, the customer is way less likely to get crazy abusive to someone who is physically there and obviously, you know, a human being.
So... okay, point taken. I hadn't thought about that, but having remote tech support is often one of those choices where you optimize for price at the cost of good service. I guess that's the idea behind apple's "tech support in the store" model.
I remember during the first dot-com, shortly after I was promoted out of phone support, hearing the boss talk about how he wanted to do a startup for 'high end tech support' that would send people out in person to set up your internet, rather than making you talk on the phone with us.
>Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class.
I think we have a negative feedback loop here. The rich don't want public transit near them because they don't want the poor near them, because they aren't used to in-person service jobs. Now, I think most of this is the fact that most middle-class Americans are super weird about class. I mean, that's not to say that the British aren't super weird about class, but they are weird about class that allows the middle/upper classes to acknowledge the existence of the lower classes. The American middle and upper classes want to pretend that the lower classes don't exist, and plan their cities accordingly.
The thing is that we now have this purposely useless public transit infrastructure, which makes it really difficult to rehabilitate the idea of more in-person service jobs.
> The service sector jobs I have experience with; technical support, can often be done from anywhere.
The problem with this type of service sector job (remote technical support) is that, since it can be done from anywhere, it is just as amenable to outsourcing as manufacturing. Think about it this way - if a job can be "outsourced" to the Midwest, whether it be manufacturing or service sector (i.e., tech support over the phone), it can be outsourced to China or India.
So to be clearer, when I said service sector jobs, I meant those that require physical proximity. After all, the basic problem we're facing here is that a lot of American workers simply have no competitive advantage over foreign workers (after factoring in the lower wages paid abroad). Therefore, those workers need to be in an industry where they can exploit an unassailable advantage of theirs - they can be physically proximate to the people they're serving in a way that no one in another country can.
But such an industry doesn't exist right now (at least not at the size necessary to support all those unemployed people), because of our housing and public transit policies. If those policies were changed, allowing for cheaper and better services to reach the upper middle class, you would see the rapid growth of a new market, one that would really help funnel money from the upper middle class down to the lower classes.
Of course, in the long run, using physical proximity as the sole competitive advantage is not a good social policy, since it will lead to social stratification. Therefore, we also need to quickly reform our education system to ensure that the next generation of workers is broadly competitive with foreign workers, rather than only the top 20-30% of American workers doing jobs that could be outsourced but aren't, because the American workers are truly better at it than their foreign counterparts. But in the short run, we can't reeducate all those people in their 20s, 30s, and 40s, who still have decades of work ahead of them, but have long since exited the educational system. They need jobs, and they need them now, if you don't want mass social unrest and economic collapse.
> The American middle and upper classes want to pretend that the lower classes don't exist, and plan their cities accordingly.
I think a lot of this has to do with white flight and high levels of lead in gasoline coupled with high rates of driving, which led to very high crime rates in cities in the mid-20th century. But crime rates have been dropping in urban locales all across America for the last couple of decades, and affluent youth are more willing to live in (and even raise their own kids in) urban environments than their parents or grandparents were.
For example, this article[0] was posted on HN just a day or two ago. If this trend spreads across the nation (which would still require a concerted and extended effort), we could see a dramatic paradigm shift that allows both the upper middle class and the lower class to coexist in urban environments.
0: http://www.citylab.com/commute/2014/06/how-denver-is-becomin...
The problem with this type of service sector job (remote technical support) is that, since it can be done from anywhere, it is just as amenable to outsourcing as manufacturing. Think about it this way - if a job can be "outsourced" to the Midwest, whether it be manufacturing or service sector (i.e., tech support over the phone), it can be outsourced to China or India.
So to be clearer, when I said service sector jobs, I meant those that require physical proximity. After all, the basic problem we're facing here is that a lot of American workers simply have no competitive advantage over foreign workers (after factoring in the lower wages paid abroad). Therefore, those workers need to be in an industry where they can exploit an unassailable advantage of theirs - they can be physically proximate to the people they're serving in a way that no one in another country can.
But such an industry doesn't exist right now (at least not at the size necessary to support all those unemployed people), because of our housing and public transit policies. If those policies were changed, allowing for cheaper and better services to reach the upper middle class, you would see the rapid growth of a new market, one that would really help funnel money from the upper middle class down to the lower classes.
Of course, in the long run, using physical proximity as the sole competitive advantage is not a good social policy, since it will lead to social stratification. Therefore, we also need to quickly reform our education system to ensure that the next generation of workers is broadly competitive with foreign workers, rather than only the top 20-30% of American workers doing jobs that could be outsourced but aren't, because the American workers are truly better at it than their foreign counterparts. But in the short run, we can't reeducate all those people in their 20s, 30s, and 40s, who still have decades of work ahead of them, but have long since exited the educational system. They need jobs, and they need them now, if you don't want mass social unrest and economic collapse.
> The American middle and upper classes want to pretend that the lower classes don't exist, and plan their cities accordingly.
I think a lot of this has to do with white flight and high levels of lead in gasoline coupled with high rates of driving, which led to very high crime rates in cities in the mid-20th century. But crime rates have been dropping in urban locales all across America for the last couple of decades, and affluent youth are more willing to live in (and even raise their own kids in) urban environments than their parents or grandparents were.
For example, this article[0] was posted on HN just a day or two ago. If this trend spreads across the nation (which would still require a concerted and extended effort), we could see a dramatic paradigm shift that allows both the upper middle class and the lower class to coexist in urban environments.
0: http://www.citylab.com/commute/2014/06/how-denver-is-becomin...
>Of course, in the long run, using physical proximity as the sole competitive advantage is not a good social policy
I believe that in the long run, standards of living will somewhat equalize. I mean, there will be differences, but I hope those differences will be like the difference between San Francisco and Denver, not the differences between San Francisco and rural Vietnam.
[on transit]
>If this trend spreads across the nation (which would still require a concerted and extended effort), we could see a dramatic paradigm shift that allows both the upper middle class and the lower class to coexist in urban environments.
What I was trying to say is that I believe the problem isn't technical; we have the money and ability to create good transit systems. We need the will to create good transit systems. We need a reason for the politically powerful classes to want public transit in their backyards.
I believe that in the long run, standards of living will somewhat equalize. I mean, there will be differences, but I hope those differences will be like the difference between San Francisco and Denver, not the differences between San Francisco and rural Vietnam.
[on transit]
>If this trend spreads across the nation (which would still require a concerted and extended effort), we could see a dramatic paradigm shift that allows both the upper middle class and the lower class to coexist in urban environments.
What I was trying to say is that I believe the problem isn't technical; we have the money and ability to create good transit systems. We need the will to create good transit systems. We need a reason for the politically powerful classes to want public transit in their backyards.
> I believe that in the long run, standards of living will somewhat equalize.
I think that it will depend on whether or not we reform the education system so that we don't create a permanent "servant underclass." Just as we once established an education system that effectively prepared the citizenry for manufacturing jobs, we have to now establish a system that prepares the citizenry for a knowledge economy. The last thing we want is a postmodern Downton Abbey-style society.
> We need a reason for the politically powerful classes to want public transit in their backyards.
I agree with that - the problem is not, and has never been, a technical one. But I think the social obstacles are falling away with the younger generation, because they didn't grow up in a world where urban areas were seen as blighted and crime/poverty-ridden as they were 2 or 3 decades ago.
I think that it will depend on whether or not we reform the education system so that we don't create a permanent "servant underclass." Just as we once established an education system that effectively prepared the citizenry for manufacturing jobs, we have to now establish a system that prepares the citizenry for a knowledge economy. The last thing we want is a postmodern Downton Abbey-style society.
> We need a reason for the politically powerful classes to want public transit in their backyards.
I agree with that - the problem is not, and has never been, a technical one. But I think the social obstacles are falling away with the younger generation, because they didn't grow up in a world where urban areas were seen as blighted and crime/poverty-ridden as they were 2 or 3 decades ago.
>I think that it will depend on whether or not we reform the education system so that we don't create a permanent "servant underclass.
I find it really difficult to argue against good state-subsidized education; some people really do learn useful stuff in school.
But... I don't think good education is going to make the problem go away all by itself.
I really hope that what I am about to say is wrong.
I don't believe that education has as much to do with success as people say. Education correlates with high income, yes, but education also correlates with having high income parents. I think having the sorts of parents who encourage and help you to get an education also correlates with both getting an education and with getting a successful career.
Nearly everyone in my family has a degree of some sort, many have advanced degrees. I have no degree, and no significant time spent at college, and am the highest earner of my siblings. Hell, almost all of my siblings have worked for me at some point.
From what I've seen? My life (and my income) is more like that of my "class brothers" than of those I went to high school with who have my level of "educational attainment" - The conclusion I am drawing from this is that having parents like mine was important to my success; most people with parents like mine are going to go to college, sure, but the college itself is less important than those parents.
I find it really difficult to argue against good state-subsidized education; some people really do learn useful stuff in school.
But... I don't think good education is going to make the problem go away all by itself.
I really hope that what I am about to say is wrong.
I don't believe that education has as much to do with success as people say. Education correlates with high income, yes, but education also correlates with having high income parents. I think having the sorts of parents who encourage and help you to get an education also correlates with both getting an education and with getting a successful career.
Nearly everyone in my family has a degree of some sort, many have advanced degrees. I have no degree, and no significant time spent at college, and am the highest earner of my siblings. Hell, almost all of my siblings have worked for me at some point.
From what I've seen? My life (and my income) is more like that of my "class brothers" than of those I went to high school with who have my level of "educational attainment" - The conclusion I am drawing from this is that having parents like mine was important to my success; most people with parents like mine are going to go to college, sure, but the college itself is less important than those parents.
> But those same technological advances invent new goods and services for an ever increasing population.
While I'd agree this has been the case historically, I'd argue this is no longer the case.
> While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) and upgrading society like 'aging up' in Age of Empires or Civilization.
Seems like a pretty big bet to take.
Where are ~4 million drivers going to go when self-driving cars roll out? Bus boys? Service jobs? Technology is going to saturate the labor market with surplus labor (that labor having been automated away). History has shown us this does not end well.
While I'd agree this has been the case historically, I'd argue this is no longer the case.
> While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) and upgrading society like 'aging up' in Age of Empires or Civilization.
Seems like a pretty big bet to take.
Where are ~4 million drivers going to go when self-driving cars roll out? Bus boys? Service jobs? Technology is going to saturate the labor market with surplus labor (that labor having been automated away). History has shown us this does not end well.
They'll live in a utopia free to pursue artistic and self improvement endeavours!
>> But those same technological advances invent new goods and services for an ever increasing population.
>While I'd agree this has been the case historically, I'd argue this is no longer the case.
Better kill ourselves now, we've reached the End of History.
>While I'd agree this has been the case historically, I'd argue this is no longer the case.
Better kill ourselves now, we've reached the End of History.
i think the only point in here that represents a potential risk to startup investing is #1 - declining GDP. Basically, if we run into a recession, the risk is that asset values decline based on negative projected growth. when asset values decline, startup values decline even harder, since they are a risky/"high beta" asset.
The rest of these charts are basically the background on the decline-and-fall of america, and I would say only tangentially relate to the startup ecosystem.
the most important chart that you left out was the stock price of Facebook, which is riding/causing a wave of investor (and corporate) enthusiasm for all things social, which in turn benefits the startup eco system because they buy lots of companies, and drive the hype that a given company could be the "next" facebook or sell to them.
Facebook (more so than google) seems appropriate for ecosystem barometer because:
* they do the most audacious acquisitions, with due diligence that consists of weekend meetings eating strawberries - $17bn for whatsapp, etc.
* Facebook is valued at $170 billion dollars, based on selling ads which I've never seen (because i use adblock+) and peddling to brands i also never engage with (because i only use FB to keep up with friends). that seems unsustainable IMHO.
The rest of these charts are basically the background on the decline-and-fall of america, and I would say only tangentially relate to the startup ecosystem.
the most important chart that you left out was the stock price of Facebook, which is riding/causing a wave of investor (and corporate) enthusiasm for all things social, which in turn benefits the startup eco system because they buy lots of companies, and drive the hype that a given company could be the "next" facebook or sell to them.
Facebook (more so than google) seems appropriate for ecosystem barometer because:
* they do the most audacious acquisitions, with due diligence that consists of weekend meetings eating strawberries - $17bn for whatsapp, etc.
* Facebook is valued at $170 billion dollars, based on selling ads which I've never seen (because i use adblock+) and peddling to brands i also never engage with (because i only use FB to keep up with friends). that seems unsustainable IMHO.
You missed the trend of growing inequality. I think this is important because the marginal propensity to spend for someone low on the income scale is much higher than the wealthiest.
Otherwise, good points.
Otherwise, good points.
A much better thing to look at is how much GDP growth do you get for each additional dollar/currency of debt?
If we borrow $1 and get $2 of GDP growth, great. If we borrow $1 and get 10 cents of GDP growth, big fucking problems ahead. Considering that the debt is going cost more than we borrowed, that benefit red line is pretty far ahead of $1.
Demographics are another trend to look at. Shrinking population generally means the GDP is going to end up going the same direction. On a micro-level we could examine Detroit, on a macro-level Japan. Both are returning developed land to farmland; quite a paradigm shift for someone who grew up watching fields turn in to suburbs. A country, or city, with a rapidly growing population needs to borrow money to build infrastructure. One that is shrinking may face a crises even with a much smaller debt load.
Thinking about recessions or perhaps even depressions is a bit simplistic. Both are bumps in the road. A more valuable idea is to look at the multi-decade trends where countries fall in and out of power or even cease to exist.
If we borrow $1 and get $2 of GDP growth, great. If we borrow $1 and get 10 cents of GDP growth, big fucking problems ahead. Considering that the debt is going cost more than we borrowed, that benefit red line is pretty far ahead of $1.
Demographics are another trend to look at. Shrinking population generally means the GDP is going to end up going the same direction. On a micro-level we could examine Detroit, on a macro-level Japan. Both are returning developed land to farmland; quite a paradigm shift for someone who grew up watching fields turn in to suburbs. A country, or city, with a rapidly growing population needs to borrow money to build infrastructure. One that is shrinking may face a crises even with a much smaller debt load.
Thinking about recessions or perhaps even depressions is a bit simplistic. Both are bumps in the road. A more valuable idea is to look at the multi-decade trends where countries fall in and out of power or even cease to exist.
Quite. It's entirely rational for the government o maximize borrowing when interest rates are low, because treasuries are fixed-income securities, whose coupon (regular payment of interest to bondholders) does not fluctuate with the interest rate. Now if rates go up and borrowing does not fall, that would be a huge problem. But when rates are historically low it's completely rational to load up with as much debt as you can carry if the economic gain > the interest payment. My main beef with governance (by both the parties rather than one alone) of the last few years is that we didn't borrow enough and what we did borrow was mostly spent on transfer payments, instead of a massive (and necessary) overhaul of our infrastructure that would have created more employment and arguably had a greater money multiplier effect even at sub-optimal levels of economic efficiency.
>> I'm not clear on how any of this will lead to a recession.
Here are some reasons: 1) if government spending is half of GDP that means any increase in non-government economic activity will only have half the effect it otherwise could (with zero govt contribution) this works both ways though, but more importantly it means government spending is critical to the economy. 2) Debt is high, so there is a LOT of pressure to reduce govt spending, which would directly (negatively) affect GDP in the short term - see 1, gov spending is 0.5 of GDP. 3) Any rise in interest rates will result in 2 (the alternative is to just increase the debt). To spend more in interest, you have to spend less elsewhere. 4) If we get inflation (and they're trying really hard) they'll want to keep it low by raising interest rates, resulting in 2 (see 3).
Here are some reasons: 1) if government spending is half of GDP that means any increase in non-government economic activity will only have half the effect it otherwise could (with zero govt contribution) this works both ways though, but more importantly it means government spending is critical to the economy. 2) Debt is high, so there is a LOT of pressure to reduce govt spending, which would directly (negatively) affect GDP in the short term - see 1, gov spending is 0.5 of GDP. 3) Any rise in interest rates will result in 2 (the alternative is to just increase the debt). To spend more in interest, you have to spend less elsewhere. 4) If we get inflation (and they're trying really hard) they'll want to keep it low by raising interest rates, resulting in 2 (see 3).
Even though you qualified it, the weather is not worth mentioning when we are talking about an incredible and unacceptably low rate like -3%.
It takes a whole mountain of suck to create that type of suck sandwich.
It takes a whole mountain of suck to create that type of suck sandwich.
"Why will high Debt-to-GDP or government spending send the economy into a recession?"
You're confusing the short run and the long run. In the long run there are more degrees of freedom. In that context, this quote simply seems to show a lack of imagination. Entities that extremely indebted lack strategic operating flexibility (countries and businesses alike).
You're confusing the short run and the long run. In the long run there are more degrees of freedom. In that context, this quote simply seems to show a lack of imagination. Entities that extremely indebted lack strategic operating flexibility (countries and businesses alike).
The financial press often defines recession as a technical term, meaning any two sequential quarters of negative GDP growth. NBER has a slightly different definition [1].
[1]: http://www.nber.org/cycles/recessions_faq.html
[1]: http://www.nber.org/cycles/recessions_faq.html
Labour markets/Employment figures tend to lag other indicators.
Why will high Debt-to-GDP or government spending send the economy into a recession?
Do you agree that it is a problem at some point? If so then why not at current levels?
Do you agree that it is a problem at some point? If so then why not at current levels?
If you think about this in a more general context it's easier to see that "Debt-to-GDP" ratio alone isn't enough to determine that there is a problem. You need a combination of debt level and interest rate.
For example, I personally could have $100 Trillion in debt but with an infinitesimally small interest rate and an infinitely long repayment period, I would not be concerned.
What matters is Debt-Payment-to-GDP ratio. There is certainly some level of that ratio at which I would be concerned.
For example, I personally could have $100 Trillion in debt but with an infinitesimally small interest rate and an infinitely long repayment period, I would not be concerned.
What matters is Debt-Payment-to-GDP ratio. There is certainly some level of that ratio at which I would be concerned.
Still, there hasn't actually been any argument as to why a high debt-whatever-to-GDP ratio would cause a recession.
I would actually argue the opposite: If debt payments suddenly increased, this would infuse cash into the economy which would likely boost GDP.
I would actually argue the opposite: If debt payments suddenly increased, this would infuse cash into the economy which would likely boost GDP.
A recession is two consecutive quarters of negative gdp growth. So if the economy shrinks this quarter we are, by definition, in a recession.
> A recession is two consecutive quarters of negative gdp growth.
That's a common rule of thumb, and apparently (per Wikipedia) the official definition in all states in the EU. But the US is not the EU, and the closest thing to an official definition in the US is that a recession exists whenever the Business Cycle Dating Committee of the National Bureau of Economics Research decides that a recession exists.
That's a common rule of thumb, and apparently (per Wikipedia) the official definition in all states in the EU. But the US is not the EU, and the closest thing to an official definition in the US is that a recession exists whenever the Business Cycle Dating Committee of the National Bureau of Economics Research decides that a recession exists.
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Ask not how you can avoid recession, ask what you can do for the rest of the country to emerge from recession that they are still suffering from.
Look at that GDP "Growth Rate" and of course you can clearly see as a derivative it's a "Shrink Rate of Growth Rate" and the trend line itself is more meaningful than you would think, especially the greater number of decades you have experienced to correlate with the patterns.
The right-hand y-intercept is fixed by the present day, but the left hand y-intercept would vary related to what year in the past you choose to begin your data series. Good choice anyway IMHO to use ~1950 on the left since so many in the USA who have economic experiences before that time are no longer with us, or seriously retired from productive service even though passive incomes for some survivors of earlier times are doing quite well for now.
Remember that this is corporate growth, and so many corporations depend so much on growth that anything which stands in the way will be disposed of, if a situation of zero real economic opportunity becomes significant, then growth (or reduced shrinkage as a last resort) will be extracted from the citizens either by passing on the costs directly or through government lobbying.
So look at area under the curve or in this case area over the curve which I believe are two different things.
Sharp or extended spikes below the trend are devastating to both corporations & citizens, but corporate shareholders are compensated by the eventual return of growth above the trend, since costs are passed on, the consumers do not share in the prosperity like they share in the devastation.
Anyway, experience has shown that a negative spike like the one in about 1981 will devastate maybe 10% of consumers at least, and for them there will be no recovery for about 25 years at least. Later on in the early '80's a different larger portion of consumers are neutralized. The 1990-91 ruin is still largely with "us" if you were one of the unfortunate ~10% there, otherwise you may not even notice, this is by design. Early 2000's there is a little downward noise, lots of dotcoms and their dependents, but 2008-09 were the worst thing since the Nixon Recession, a huge new group whose futures's ruined for decades to come.
Since each significant spike destroys a different block of consumers, this is adding up, estimate totalling up to almost a majority of consumers who are not just compromised but ruined by now.
And that's not all, Nixon was so incompetent that the currency had to be sacrificed too and that does not appear on the chart. This was huge.
Surprises are in store if you have not yet felt the wrath from 5 years ago. There is nothing more for currency to contribute, loss of property values since then has not extracted its toll proportional to negative area so something else will have to give, and it will have to be big.
Look at that GDP "Growth Rate" and of course you can clearly see as a derivative it's a "Shrink Rate of Growth Rate" and the trend line itself is more meaningful than you would think, especially the greater number of decades you have experienced to correlate with the patterns.
The right-hand y-intercept is fixed by the present day, but the left hand y-intercept would vary related to what year in the past you choose to begin your data series. Good choice anyway IMHO to use ~1950 on the left since so many in the USA who have economic experiences before that time are no longer with us, or seriously retired from productive service even though passive incomes for some survivors of earlier times are doing quite well for now.
Remember that this is corporate growth, and so many corporations depend so much on growth that anything which stands in the way will be disposed of, if a situation of zero real economic opportunity becomes significant, then growth (or reduced shrinkage as a last resort) will be extracted from the citizens either by passing on the costs directly or through government lobbying.
So look at area under the curve or in this case area over the curve which I believe are two different things.
Sharp or extended spikes below the trend are devastating to both corporations & citizens, but corporate shareholders are compensated by the eventual return of growth above the trend, since costs are passed on, the consumers do not share in the prosperity like they share in the devastation.
Anyway, experience has shown that a negative spike like the one in about 1981 will devastate maybe 10% of consumers at least, and for them there will be no recovery for about 25 years at least. Later on in the early '80's a different larger portion of consumers are neutralized. The 1990-91 ruin is still largely with "us" if you were one of the unfortunate ~10% there, otherwise you may not even notice, this is by design. Early 2000's there is a little downward noise, lots of dotcoms and their dependents, but 2008-09 were the worst thing since the Nixon Recession, a huge new group whose futures's ruined for decades to come.
Since each significant spike destroys a different block of consumers, this is adding up, estimate totalling up to almost a majority of consumers who are not just compromised but ruined by now.
And that's not all, Nixon was so incompetent that the currency had to be sacrificed too and that does not appear on the chart. This was huge.
Surprises are in store if you have not yet felt the wrath from 5 years ago. There is nothing more for currency to contribute, loss of property values since then has not extracted its toll proportional to negative area so something else will have to give, and it will have to be big.
If government debt grows high enough then an increasingly large percentage of federal spending will be devoted to paying interest on that debt rather than on arguably more useful areas which create future prosperity, such as education and scientific research.
After a certain point this becomes unsustainable and bad things start to happen, ranging from total political & economic collapse (Germany in the 1920s) to hyperinflation (Zimbabwe) to, in the best of the worst case scenarios, a large default/restructuring and subsequent downgrading of a country's debt to junk status (Argentina in the 2000s).
As F.A. Hayek, Milton Friedman and numerous other economists have written, government spending tends to be more inefficient than the free market because the government isn't constrained by profits and losses, which are society's way of indicating whether a company is producing goods and services that are valuable and desired. Of course, there are some goods and services that only the government can provide well, and the current left-right political divide is largely a debate over the point at which government taxation and spending becomes undesirable and inefficient. However, it's undeniable that at a certain level (almost certainly a level below our current level of spending in my opinion) each marginal dollar the government sucks out of the economy is used less efficiently than it would have been used if it remained in private hands.
After a certain point this becomes unsustainable and bad things start to happen, ranging from total political & economic collapse (Germany in the 1920s) to hyperinflation (Zimbabwe) to, in the best of the worst case scenarios, a large default/restructuring and subsequent downgrading of a country's debt to junk status (Argentina in the 2000s).
As F.A. Hayek, Milton Friedman and numerous other economists have written, government spending tends to be more inefficient than the free market because the government isn't constrained by profits and losses, which are society's way of indicating whether a company is producing goods and services that are valuable and desired. Of course, there are some goods and services that only the government can provide well, and the current left-right political divide is largely a debate over the point at which government taxation and spending becomes undesirable and inefficient. However, it's undeniable that at a certain level (almost certainly a level below our current level of spending in my opinion) each marginal dollar the government sucks out of the economy is used less efficiently than it would have been used if it remained in private hands.
Something to consider is the difference between debt denominated in a countries' own currency verse that of another country.
In 2010 Germany finally repaid debt it had raised to pay its World War I reparations. The reparations never were paid in full but you damn bet the US dollar denominated debt was.
If a country borrows money in a foreign currency they may have bills due for an incredibly long time unless the creditors says "ok, you can pay less than you owe us." The EU members are in this position because the bills they owe are not in their own currency.
Generally this seems to have the biggest impact on tiny countries. One of the most interesting opinions I've heard recently is from James Rickards who was a negotiator for the Long Term Capital Management bailout in 1998. His opinion is the risks in the banking system have increased, not decreased, and when the next failure happens the US government will not be capable of a bailout largely due to the Federal Reserve's balance sheet leverage (which puts Lehman's leverage to shame) and a lack of political will to write a multi-trillion dollar check. What will happen is debt issued and denominated by the IMF, the only bank in the world left with a good balance sheet.
In 2010 Germany finally repaid debt it had raised to pay its World War I reparations. The reparations never were paid in full but you damn bet the US dollar denominated debt was.
If a country borrows money in a foreign currency they may have bills due for an incredibly long time unless the creditors says "ok, you can pay less than you owe us." The EU members are in this position because the bills they owe are not in their own currency.
Generally this seems to have the biggest impact on tiny countries. One of the most interesting opinions I've heard recently is from James Rickards who was a negotiator for the Long Term Capital Management bailout in 1998. His opinion is the risks in the banking system have increased, not decreased, and when the next failure happens the US government will not be capable of a bailout largely due to the Federal Reserve's balance sheet leverage (which puts Lehman's leverage to shame) and a lack of political will to write a multi-trillion dollar check. What will happen is debt issued and denominated by the IMF, the only bank in the world left with a good balance sheet.
Next time what should be done (but probably won't) is to take over the insolvent banks, prosecute the fraudsters, and allow mortgage debt to be reduced in bankruptcies, perhaps converted to equity. The US federal government assets are certainly an order of magnitude (possibly two) bigger than the Fed balance sheet, so to talk of leverage is laughable.
> the current left-right political divide is largely a debate over the point at which government taxation and spending becomes undesirable and inefficient.
Its often presented that way -- almost exclusively by people on the right, however -- but as I see it the left/right debate is less about fact questions (even somewhat fuzzy ones like the efficiency question you propose) and more about the ethical/moral/value issue of what is the purpose of government.
Its often presented that way -- almost exclusively by people on the right, however -- but as I see it the left/right debate is less about fact questions (even somewhat fuzzy ones like the efficiency question you propose) and more about the ethical/moral/value issue of what is the purpose of government.
"the current left-right political divide is largely a debate over the point at which government taxation and spending becomes undesirable and inefficient"
I disagree. It's more about a notion of "fairness": whether you think that the government can improve fairness, in what situations, and at what cost of efficiency.
I disagree. It's more about a notion of "fairness": whether you think that the government can improve fairness, in what situations, and at what cost of efficiency.
Here is a chart of that percentage over time:
http://research.stlouisfed.org/fred2/series/FYOIGDA188S
http://research.stlouisfed.org/fred2/series/FYOIGDA188S
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Almost any argument that relies on GDP numbers to back up its claim is specious at best.
For example, you could have a tornado destroy a town and the disaster recovery spending would increase GDP. You could build a teleportation device that puts all delivery drivers out of work. GDP would decrease but there would be an overall increase in wealth and quality of life.
Thinking about economics through the lens of GDP is just the wrong way to think about the economy.
Here's a great Planet Money podcast on the invention of "The Economy" and on GDP: http://www.npr.org/blogs/money/2014/02/28/283477546/the-inve...
For example, you could have a tornado destroy a town and the disaster recovery spending would increase GDP. You could build a teleportation device that puts all delivery drivers out of work. GDP would decrease but there would be an overall increase in wealth and quality of life.
Thinking about economics through the lens of GDP is just the wrong way to think about the economy.
Here's a great Planet Money podcast on the invention of "The Economy" and on GDP: http://www.npr.org/blogs/money/2014/02/28/283477546/the-inve...
Yep. Heart attacks, perpetual 'diabetes treatment', borrowing a million (or a trillion) dollars you can't pay back and spending it, promising unrealistic pension benefits, and depleting natural resources (wood, water, energy, overfishing, selling your seed corn), fighting losing wars (is there ever a winner?), paying other people to raise your kids, all grow "gee-dee-pee'.
Additionally none of this is population normalized.
https://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&...
Additionally, the first GDP chart conflicts with what it's reporting: Title "United States GDP Growth Rate", Subtitle "Percent change in Gross Domestic Product". Additionally, percent change relative to what?
Additionally, the first GDP chart conflicts with what it's reporting: Title "United States GDP Growth Rate", Subtitle "Percent change in Gross Domestic Product". Additionally, percent change relative to what?
Perfectly stated. We need to get to where we truly reject the whole GDP concept. It is corrupt, manipulable, and destructive.
He just suggested a basic income for everybody.
I just wanted to point this out in case people missed it when skimming.
I just wanted to point this out in case people missed it when skimming.
oops, i accidentally published an earlier draft. i added a bit more of my thinking here--my sense is that it would probably lead to less waste than current systems.
i'm also not sure it's the right approach, but i haven't heard any better ideas yet.
i'm also not sure it's the right approach, but i haven't heard any better ideas yet.
i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income.
with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term.
of course, what constitutes "essential services" can be the subject of a lengthy debate.
with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term.
of course, what constitutes "essential services" can be the subject of a lengthy debate.
> "i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income."
If we believe in the market's ability to efficiently find the path forward, identifying "essential services", even if it were possible, is wasteful at best and more likely counter-productive over time.
Twenty years ago we'd have locked in home phone service and missed internet. 10 years ago we might have locked in cell service, but missed mobile data. We'd have propped up "bad" products, at massive profits for the benefactors, for years beyond their relevance, instead of allowing the market to evaluate and react to changing conditions.
And while we might agree that it's logically possible for efficient and effective government to correct mistakes like those, the "money is speech" reality in the US gives such outsized power to lobbying interests that even an optimist has to rate effective "steering" of any definition of "essential services" as "unlikely".
Never mind the basic question of whether it's at all desirable to force a youth from an underprivileged family to "buy" government-guaranteed education, instead of allowing him to spend even a fraction of the equivalent on a laptop, smartphone and developer tools -- or a 3d printer and amazon hosting services. Or even allowing him to look outside the box of lobbiest-approved education providers, and allowing him to "spend" his assistance on developer conferences or workshops or online learning or just moving to another town that has a better local program.
Would some people inevitably spend a guaranteed income poorly? Of course they would. They also sell food stamps for cash -- at 50% of their face value -- to make their bad decisions regardless of what we might prefer.
It isn't worth the cost to try to enforce "essential services" spending at the micro level. It's too rich a target for corporate lobbyists to define approved services at the macro level. And at the economic level, there's little reason to believe it will give us better outcomes.
If we believe in the market's ability to efficiently find the path forward, identifying "essential services", even if it were possible, is wasteful at best and more likely counter-productive over time.
Twenty years ago we'd have locked in home phone service and missed internet. 10 years ago we might have locked in cell service, but missed mobile data. We'd have propped up "bad" products, at massive profits for the benefactors, for years beyond their relevance, instead of allowing the market to evaluate and react to changing conditions.
And while we might agree that it's logically possible for efficient and effective government to correct mistakes like those, the "money is speech" reality in the US gives such outsized power to lobbying interests that even an optimist has to rate effective "steering" of any definition of "essential services" as "unlikely".
Never mind the basic question of whether it's at all desirable to force a youth from an underprivileged family to "buy" government-guaranteed education, instead of allowing him to spend even a fraction of the equivalent on a laptop, smartphone and developer tools -- or a 3d printer and amazon hosting services. Or even allowing him to look outside the box of lobbiest-approved education providers, and allowing him to "spend" his assistance on developer conferences or workshops or online learning or just moving to another town that has a better local program.
Would some people inevitably spend a guaranteed income poorly? Of course they would. They also sell food stamps for cash -- at 50% of their face value -- to make their bad decisions regardless of what we might prefer.
It isn't worth the cost to try to enforce "essential services" spending at the micro level. It's too rich a target for corporate lobbyists to define approved services at the macro level. And at the economic level, there's little reason to believe it will give us better outcomes.
Fair points, all.
However, markets fail when there is a misalignment of incentives and/or lack of information/education. I view the government's job primarily as aligning people's incentives with the desired long-term direction.
In India (where I'm from), there have been decades of dole-outs for the poor (especially farmers), but it has failed to create any long-term economic benefits for those communities. On the other hand, education (both for the farmers and their children) has been far more effective in uplifting people out of poverty.
I realize that the average American is more educated and has better access to information that the average Indian farmer. But still, you can be assured that some of that "basic income" will be going into a slot machine.
Perhaps the solution is a basic income with some restrictions / incentives around how to spend it?
However, markets fail when there is a misalignment of incentives and/or lack of information/education. I view the government's job primarily as aligning people's incentives with the desired long-term direction.
In India (where I'm from), there have been decades of dole-outs for the poor (especially farmers), but it has failed to create any long-term economic benefits for those communities. On the other hand, education (both for the farmers and their children) has been far more effective in uplifting people out of poverty.
I realize that the average American is more educated and has better access to information that the average Indian farmer. But still, you can be assured that some of that "basic income" will be going into a slot machine.
Perhaps the solution is a basic income with some restrictions / incentives around how to spend it?
I doubt that the basic income bears much resemblance to the dole-outs for the poor in India. "For the poor" is the kicker: by far the most economically appealing aspect of the basic income is that it's provided to everyone. If it's only provided to a particular type of person, that offers opportunities for corruption, administrative costs, and, most importantly, a very sharp disincentive against improving yourself and working harder, sometimes amounting to implicit marginal tax rates that are higher than 100%.
Another aspect is simplicity of administration. Providing some restrictions is a bit paternalistic, though I wouldn't dismiss it out of hand: for me the biggest issue would be how you can implement that with a minimum of cost, administrative overhead, and opportunities for corruption. And there's a bunch of areas that'd result in vindictive political debate. Sure, slot machines and vodka might be things we'd agree to restrict. But liberal arts MA programs? For-profit colleges? MLM schemes? Online class certificates via Coursera? Internet connectivity? Reddit gold? Gym memberships?
If you doubt that this kind of item by item trench warfare is what would happen, just look at the furor in the USA over something as obviously {good,bad} as providing {cost-effective,immoral} birth control to the insured.
I have difficulty imagining a system where the government picks and chooses what's good and what's bad for people to use that's not rife with corruption, sclerotic from past decisions and bureaucratic rules, and easy to use for the actual citizen it's intended to enable. The value recovered from preventing "bad spending" would almost certainly be outweighed by the cost of policing the billions of purchases that happen every day.
Another aspect is simplicity of administration. Providing some restrictions is a bit paternalistic, though I wouldn't dismiss it out of hand: for me the biggest issue would be how you can implement that with a minimum of cost, administrative overhead, and opportunities for corruption. And there's a bunch of areas that'd result in vindictive political debate. Sure, slot machines and vodka might be things we'd agree to restrict. But liberal arts MA programs? For-profit colleges? MLM schemes? Online class certificates via Coursera? Internet connectivity? Reddit gold? Gym memberships?
If you doubt that this kind of item by item trench warfare is what would happen, just look at the furor in the USA over something as obviously {good,bad} as providing {cost-effective,immoral} birth control to the insured.
I have difficulty imagining a system where the government picks and chooses what's good and what's bad for people to use that's not rife with corruption, sclerotic from past decisions and bureaucratic rules, and easy to use for the actual citizen it's intended to enable. The value recovered from preventing "bad spending" would almost certainly be outweighed by the cost of policing the billions of purchases that happen every day.
Valid points on the complexity and the ensuing corruption.
I suspect that as real-time data-gathering becomes cheaper and more prevalent, the costs of policing will become trivial. That's certainly some years away though.
I suspect that as real-time data-gathering becomes cheaper and more prevalent, the costs of policing will become trivial. That's certainly some years away though.
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Ah, the classic paternalistic argument. It's deeply appealing to many people's preconceptions. But a growing body of experimental results call it into question.
When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.
When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.
I'd be interested to see any of the research on this, if you have references. I suspect that in practice it's exceptionally hard to draw realistic conclusions from any such research, simply due to the confounding factor of "the wider social structure of the country".
NPR had a brilliant episode where they discussed an experiment where money was given to a control group of people on Kenya. http://www.npr.org/blogs/money/2013/11/08/243967328/episode-...
For those asking, here are some links that will start you down the path to reading all about said research:
http://www.npr.org/blogs/money/2013/10/25/240590433/what-hap...
http://freakonomics.com/2013/06/04/should-we-all-just-give-c...
http://freakonomics.com/2013/09/26/would-a-big-bucket-of-cas...
http://freakonomics.com/2013/11/27/fighting-poverty-with-act...
http://poverty-action.org/project/0522
I'm glad I could help Google That For You.
http://www.npr.org/blogs/money/2013/10/25/240590433/what-hap...
http://freakonomics.com/2013/06/04/should-we-all-just-give-c...
http://freakonomics.com/2013/09/26/would-a-big-bucket-of-cas...
http://freakonomics.com/2013/11/27/fighting-poverty-with-act...
http://poverty-action.org/project/0522
I'm glad I could help Google That For You.
Thank you for responding before I could and saving me the link gathering effort.
You made a very specific claim:
When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.
None of the above links appear to support it. Please let me know if I'm mistaken, otherwise please do provide a relevant citation. Like many others here, I'm genuinely interested in learning about such a study.
When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.
None of the above links appear to support it. Please let me know if I'm mistaken, otherwise please do provide a relevant citation. Like many others here, I'm genuinely interested in learning about such a study.
Very interesting (and certainly plausible)! Could you link to any of the experiments?
Here is an article giving high level overview of a few of the experiments: https://decorrespondent.nl/541/why-we-should-give-free-money...
[deleted]
Sources on that?
This article has a few examples of basic income experiments, with encouraging results. For instance, when the town of Dauphin had basic income implemented, hospital visits went down by 8.5%, which suggests real benefit rather than just frivolous spending.
https://decorrespondent.nl/541/why-we-should-give-free-money...
https://decorrespondent.nl/541/why-we-should-give-free-money...
"you run the risk that the receivers spend it on shiny objects"
The problem is, what is a shiny object?
For me it might be going to grad school without a care in the world how I'll feed my kids.
For another it might be a car. Well, that's OK, car sales are imploding on a decade or so scale.
For another, housing. Anytime housing goes up thats trumpeted as an inherent good. It isn't, of course. But no one will say that in public.
Usually "wasted money" is just whatever someone doesn't personally like, its not actually bad. The problem with central planning, including of what everyone will have to invest in, is lack of flexibility.
The problem is, what is a shiny object?
For me it might be going to grad school without a care in the world how I'll feed my kids.
For another it might be a car. Well, that's OK, car sales are imploding on a decade or so scale.
For another, housing. Anytime housing goes up thats trumpeted as an inherent good. It isn't, of course. But no one will say that in public.
Usually "wasted money" is just whatever someone doesn't personally like, its not actually bad. The problem with central planning, including of what everyone will have to invest in, is lack of flexibility.
We have that in Denmark and it holds it's own problems.
Personally I believe that a UBI is the way forward for the very simple fact that it always pay off to work and it will remove a huge control system and free those people to do better things with their lives than controlling other people.
Personally I believe that a UBI is the way forward for the very simple fact that it always pay off to work and it will remove a huge control system and free those people to do better things with their lives than controlling other people.
The counter to that is that I understand what services and goods are essential to me better than the government does (or anyone that isn't me, for that matter). If the goal is to do the most good with the least waste, basic income is probably better than a hodgepodge of universal services.
That said, I'm all for either or a combination of approaches. Anything to catch the US up with the rest of the developed world socially.
That said, I'm all for either or a combination of approaches. Anything to catch the US up with the rest of the developed world socially.
That. I think a combination is the way to go, for no other reason than the fact that some desirable services have huge scale gains (transportation), and some services have huge positive externalities (health). It would be unwise not to incentive people to use those.
There are a couple ways to view this. By covering "essential services" you really are just guaranteeing a lot of inflation in those sectors (they are now on a fixed minimum income as a group). Some would argue that many of the same cost run-ups we've seen in university education (with government loans and other programs) will affect those essential service sectors in the same way.
One of the benefits of a basic income is that it serves as a really effective wealth redistribution program. It is partly a social safety net, but it's also something that can potentially give the economy as a whole a boost thanks to a lot of spending on the bottom (as opposed to income hoarding at the top).
I'm not sure I agree with those positions. I think I lack enough knowledge of economics to form a good opinion. I have definitely seen both of those arguments made in support of a simple basic income, however.
One of the benefits of a basic income is that it serves as a really effective wealth redistribution program. It is partly a social safety net, but it's also something that can potentially give the economy as a whole a boost thanks to a lot of spending on the bottom (as opposed to income hoarding at the top).
I'm not sure I agree with those positions. I think I lack enough knowledge of economics to form a good opinion. I have definitely seen both of those arguments made in support of a simple basic income, however.
[deleted]
i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income.
What about countries in Europe that have that, and yet aren't doing great?
What about countries in Europe that have that, and yet aren't doing great?
Some interesting thoughts on better ideas here: http://bleedingheartlibertarians.com/2014/06/why-living-on-t...
> any better ideas yet
Progressive tax on incomes >$1,000,000. This won't slow anyone down except the ultra-wealthy.
As of 2009, it's 236,883 people. That's less than 1 in a thousand. With more income in a single year than most people in the U.S. earn in a lifetime, they'll certainly still be much more than quite comfortable.
Progressive tax on incomes >$1,000,000. This won't slow anyone down except the ultra-wealthy.
As of 2009, it's 236,883 people. That's less than 1 in a thousand. With more income in a single year than most people in the U.S. earn in a lifetime, they'll certainly still be much more than quite comfortable.
Most of the people in this class are able to hire accountants and re-classify much of their income in such a way as to avoid the taxes.
Part of the problem when you start talking about massive tax bills is that the higher the tax, the higher the return on investment from avoiding it. So if you can pay an accountant $500,000 to set up a bunch of shell corporations and trusts as legal tax shelters that will save you $5,000,000, you'll do it in a heartbeat.
Add in Citizens United to the mix and you can see where this is going. If it's suddenly a great return on investment to lobby Congress to introduce a tax loophole, people will do it. The entire premise of modern corporate finance is that if you don't like what a company is doing with your investment, you are free to cash out your investment and invest in something else. That doesn't work with governments; but it doesn't prevent people from trying to apply the same attitudes.
Part of the problem when you start talking about massive tax bills is that the higher the tax, the higher the return on investment from avoiding it. So if you can pay an accountant $500,000 to set up a bunch of shell corporations and trusts as legal tax shelters that will save you $5,000,000, you'll do it in a heartbeat.
Add in Citizens United to the mix and you can see where this is going. If it's suddenly a great return on investment to lobby Congress to introduce a tax loophole, people will do it. The entire premise of modern corporate finance is that if you don't like what a company is doing with your investment, you are free to cash out your investment and invest in something else. That doesn't work with governments; but it doesn't prevent people from trying to apply the same attitudes.
>>> Progressive tax on incomes >$1,000,000. This won't slow anyone down except the ultra-wealthy.
What do you think happens to anybody, let alone people who are really rich when you continually increase their taxes? They stop spending, they start hiding their money, they it send it to foreign countries, they will find ways around the taxes you're trying to levy against them.
It doesn't matter who you tax, they're going to try and avoid paying taxes regardless. People have this notion that since they're super wealthy, they have money to burn - which is hardly the case. Most people making over $1 million per year live a lifestyle that's congruent to the money they're making. You think those people are thinking , "Aye, it's only 10K more to the governmnet, no big deal?", right?. Hardly. They want to hold onto their money just as much as the next guy.
What do you think happens to anybody, let alone people who are really rich when you continually increase their taxes? They stop spending, they start hiding their money, they it send it to foreign countries, they will find ways around the taxes you're trying to levy against them.
It doesn't matter who you tax, they're going to try and avoid paying taxes regardless. People have this notion that since they're super wealthy, they have money to burn - which is hardly the case. Most people making over $1 million per year live a lifestyle that's congruent to the money they're making. You think those people are thinking , "Aye, it's only 10K more to the governmnet, no big deal?", right?. Hardly. They want to hold onto their money just as much as the next guy.
I'm 99% sure rich people don't get rich by "spending money". Just saying.
"Trickle down" is fucking bullshit.
"Trickle down" is fucking bullshit.
Unfortunately, the article isn't very clear about what the problem statement is for which basic income is the proposed solution. But assuming it is something like "people are having trouble participating in the economy, which is a drag on our society's standard of living", I don't see how "increased federal income" is a solution. What do you propose the government do with its newfound wealth to solve these problems? "Tax the rich" might be a decent tactic, but it certainly isn't a good strategy.
I actually missed that because I essentially scanned this.
I didn't know Sam had any particular expertise in economics something that confounds people with pretty deep intellectual understanding and academics. That have been observing things for many many years. It's a black art.
And I tend to pass on anything that starts to mention facts and figures which can be made to achieve any point you want.
I did note that it ended with this of course:
"I think the path from our troubles will involve finding a way for economic growth to continue." Obviously a rising tide lifts all boats. But finding "a good lawyer" (to go all cliche here) is the problem.
I didn't know Sam had any particular expertise in economics something that confounds people with pretty deep intellectual understanding and academics. That have been observing things for many many years. It's a black art.
And I tend to pass on anything that starts to mention facts and figures which can be made to achieve any point you want.
I did note that it ended with this of course:
"I think the path from our troubles will involve finding a way for economic growth to continue." Obviously a rising tide lifts all boats. But finding "a good lawyer" (to go all cliche here) is the problem.
The actual quote was
> In addition to thinking about new sorts of jobs to replace lost jobs that aren’t coming back, we should probably think about things like a basic income.
So not necessary "basic income", and certainly for everyone. The reality is that many of the emerging economies are better (as in "cheaper") able to fulfill low-skill/high-labor positions, and not everyone will be able to transition into higher skill jobs.
> In addition to thinking about new sorts of jobs to replace lost jobs that aren’t coming back, we should probably think about things like a basic income.
So not necessary "basic income", and certainly for everyone. The reality is that many of the emerging economies are better (as in "cheaper") able to fulfill low-skill/high-labor positions, and not everyone will be able to transition into higher skill jobs.
Another thing to think about is eventually the higher skill jobs are leaving. There's nothing inherently American about, say, programming, and there's a heck of lot more of "them" than "us".
The only real hope for natives is high skill service jobs perhaps ER doctor.
The only real hope for natives is high skill service jobs perhaps ER doctor.
I'm wondering at point do we stop relying on the government to provide us with everything we need.
What happens when we have too many unfunded liabilities and the government runs out of money and all the millions of people who suddenly depend on government from everything from medical care, income, employment, and other forms of support?
All you have to do is take a good, hard look at countries like Greece and Argentina for examples to see what happens when countries go bankrupt.
What happens when we have too many unfunded liabilities and the government runs out of money and all the millions of people who suddenly depend on government from everything from medical care, income, employment, and other forms of support?
All you have to do is take a good, hard look at countries like Greece and Argentina for examples to see what happens when countries go bankrupt.
When the government stops making it illegial, or charging fees for---Living. If Jesus Christ reappeared; what would
his first few days look like? He couldn't fish without a license. He couldn't hunt without a license. He couldn't
light a fire without a permit. He couldn't sleep unless
in a sanctified Homeless Shelter. He would probally get a
loitering ticket while preaching to the masses, or worse--
thrown in jail over inciting a riot? So, we live in a society where government regulates pretty much everything
we do; until they back off--they need to help the people
who can't "work" in their system. (God--please forgive me, I was just trying to make a point. I didn't use your name in vain.)
I wholeheartedly agree that we need to help those less fortunate, but not in a way that promotes aheavy reliance on the government.
All my Liberal friends conveniently forget that Bill Clinton took millions off of welfare and brought them out of poverty. Not from relying on government, but through incentives and job training.
Interesting to note that this was a bipartisan bill, introduced by a Republican, and heavily endorsed by Clinton himself. And yes, it went through two veto's before getting signed.
http://en.wikipedia.org/wiki/Personal_Responsibility_and_Wor...
All my Liberal friends conveniently forget that Bill Clinton took millions off of welfare and brought them out of poverty. Not from relying on government, but through incentives and job training.
Interesting to note that this was a bipartisan bill, introduced by a Republican, and heavily endorsed by Clinton himself. And yes, it went through two veto's before getting signed.
http://en.wikipedia.org/wiki/Personal_Responsibility_and_Wor...
Argentina did pretty well after it defaulted its obligations in 2001 and the commodities prices significantly increased. The issues in Argentina are more related to poor infrastructure (transport, Internet, mobile, financial) and corruption.
There is a saying in Argentina that we should stop stealing for at least two years [and the country will flourish].
There is a saying in Argentina that we should stop stealing for at least two years [and the country will flourish].
What surprising or remarkable about that? Basic income has been an extremely trendy topic lately.
[deleted](1)
" Personally, I think that current levels of entitlement spending are ok (thought maybe the spending should be distributed differently), and we should probably do more. But I think we need to plan for it. In addition to thinking about new sorts of jobs to replace lost jobs that aren’t coming back, we should probably think about things like a basic income."
A basic income is a great idea...it would also be a good idea to completely remove the profit motive from health care. A social safety net that includes a living wage, guaranteed higher education, and retirement is completely possible if you don't spend so much on defense and intelligence.
I'm no economist but at some point aren't we going to become so productive that there won't be enough need for workers. Are we maybe at that point now? If every single person wanted to work there would not be enough jobs to support that. So what happens in the future? Some people have jobs and are rich while the rest are in poverty and can't eat? I don't think society could function with that many people not having an income. If it came down to it and I had to kill you for my family to survive then I'd hate to tell you which one I would choose.
This same argument has been repeated for literally centuries now, and it always turns out wrong in the long run.
Imagine if we could run the entire world economy with only 5% of the workers. Pandemonium? No, it has already happened before. Agriculture was the whole economy, the rest was rounding error. Virtually all workers worked in agriculture. Now we produce all that and much more with something less than 5% of the workforce.
Having no more work to do necessarily means that everybody already has everything they want. It's not a meaningful risk.
Most of already do work so esoteric that our ancestors wouldn't possibly believe you could base a real economy around it. Yet here we are. Our descendants will do things that similarly boggle us.
Imagine if we could run the entire world economy with only 5% of the workers. Pandemonium? No, it has already happened before. Agriculture was the whole economy, the rest was rounding error. Virtually all workers worked in agriculture. Now we produce all that and much more with something less than 5% of the workforce.
Having no more work to do necessarily means that everybody already has everything they want. It's not a meaningful risk.
Most of already do work so esoteric that our ancestors wouldn't possibly believe you could base a real economy around it. Yet here we are. Our descendants will do things that similarly boggle us.
It turns out to be right, often enough.
In the 19th century, for instance, there was a class of physical laborers whose numbers in the USA reached the tens of millions. But as technology--particular the combustion engine and fossil fuel refining--took off, they became surplus unusable labor that literally was more valuable being turned into glue, or letting them starve to death.
Yeah, horses.
"But it's different this time! Horses aren't people!" you say. Sure, things are always different. But you're burying the actual argument into the assumptions you're making: that people are infinitely moldable and infinitely trainable, and every person is capable of creating value in modern economies.
It's not some logical contradiction for "people want more stuff" and for "the most useless, marginal workers can't provide value by participating in the economy" to both be true. Dismissing the second idea requires a bit more than a pat answer.
Even excluding government policies like a minimum wage and required healthcare benefits, lots of people are simply too expensive to employ. Anytime you hire someone, it adds administrative costs. It adds management costs. And the more marginal the worker, the more they need to be managed and administered. At some point any value they could hypothetically provide is outweighed by the cost of employing and managing them and the risk that something they do could expose you to substantial costs, and it's simply cheaper to replace that labor with capital.
In a capital rich environment, and in economies where complex organizations can fail catastrophically because of a single node failure, it's simply far too risky to employ a certain class of people. We already do that with many of criminal backgrounds, the physically disabled, and people with substantially reduced mental capabilities. New technology has simply expanded that unemployable class to include lots of people who just don't have much going for them, at least in terms of providing economic value that's legible to corporations and the State.
In the 19th century, for instance, there was a class of physical laborers whose numbers in the USA reached the tens of millions. But as technology--particular the combustion engine and fossil fuel refining--took off, they became surplus unusable labor that literally was more valuable being turned into glue, or letting them starve to death.
Yeah, horses.
"But it's different this time! Horses aren't people!" you say. Sure, things are always different. But you're burying the actual argument into the assumptions you're making: that people are infinitely moldable and infinitely trainable, and every person is capable of creating value in modern economies.
It's not some logical contradiction for "people want more stuff" and for "the most useless, marginal workers can't provide value by participating in the economy" to both be true. Dismissing the second idea requires a bit more than a pat answer.
Even excluding government policies like a minimum wage and required healthcare benefits, lots of people are simply too expensive to employ. Anytime you hire someone, it adds administrative costs. It adds management costs. And the more marginal the worker, the more they need to be managed and administered. At some point any value they could hypothetically provide is outweighed by the cost of employing and managing them and the risk that something they do could expose you to substantial costs, and it's simply cheaper to replace that labor with capital.
In a capital rich environment, and in economies where complex organizations can fail catastrophically because of a single node failure, it's simply far too risky to employ a certain class of people. We already do that with many of criminal backgrounds, the physically disabled, and people with substantially reduced mental capabilities. New technology has simply expanded that unemployable class to include lots of people who just don't have much going for them, at least in terms of providing economic value that's legible to corporations and the State.
I'll grant your premise, for the sake of argument.
So where's the big negative fallout? If the set of unemployable people has been growing for centuries, where is the mass starvation and misery? How can it be possible that the 20th century -- well into the process you describe -- saw a burgeoning middle class in the West, and then later a burgeoning middle class in Asia?
Clearly the benefits of productivity growth have been bigger than the overhead required to support the people who cannot contribute.
I'm not arguing that everybody is infinitely retrainable. I think the biggest problem we face is several generations of existing people with completely obsolete mindsets, who are too old to relearn.
Your whole argument is written in terms of employment at a job. But that's precisely part of the mindset that is obsolete. The idea that "getting a job" is the best option for most people is historically recent and already dying. There are plenty of other ways to organize an economy, and there's plenty of historical precedent for the idea that common people can successfully operate far more independently than they do under the industrial model. In a capital rich environment, you teach people to be capitalists, and let a million independent experiments blooms.
The alternative is you keep teaching people to defer to the boss, and the boss evolves into the Lord, and we go back to serfdom. That could happen too.
Assumptions about what "average people" are capable of need to be judged against the system that's training those people. Our present system was consciously designed to make them into good industrial widgets. But the malleability of children is absurdly high, and from directly experience I see no reason you couldn't turn nearly all of them into creative capitalists.
So where's the big negative fallout? If the set of unemployable people has been growing for centuries, where is the mass starvation and misery? How can it be possible that the 20th century -- well into the process you describe -- saw a burgeoning middle class in the West, and then later a burgeoning middle class in Asia?
Clearly the benefits of productivity growth have been bigger than the overhead required to support the people who cannot contribute.
I'm not arguing that everybody is infinitely retrainable. I think the biggest problem we face is several generations of existing people with completely obsolete mindsets, who are too old to relearn.
Your whole argument is written in terms of employment at a job. But that's precisely part of the mindset that is obsolete. The idea that "getting a job" is the best option for most people is historically recent and already dying. There are plenty of other ways to organize an economy, and there's plenty of historical precedent for the idea that common people can successfully operate far more independently than they do under the industrial model. In a capital rich environment, you teach people to be capitalists, and let a million independent experiments blooms.
The alternative is you keep teaching people to defer to the boss, and the boss evolves into the Lord, and we go back to serfdom. That could happen too.
Assumptions about what "average people" are capable of need to be judged against the system that's training those people. Our present system was consciously designed to make them into good industrial widgets. But the malleability of children is absurdly high, and from directly experience I see no reason you couldn't turn nearly all of them into creative capitalists.
I didn't intend to suggest we see mass starvation and misery now, simply that a larger and larger proportion of the population of working-age population would fall out of the workforce. Which we've seen for men for decades, and women as well recently. We've dealt with this by a hodgepodge of measures, from a hacky attempt to patch those weak portions of the labor market using SSDI; to kids living in their parents' basements and sharing their family health insurance; to extending unemployment for periods much longer than it was originally designed; to encouraging early retirement. We've muddled through, basically. As the tendency intensifies, it'd be worthwhile to figure out a solid way to rationalize and optimize all those programs.
Your other points I'm in broad agreement with. More and more of the economy will shift from hierarchical, institution-oriented "jobs" to something more freeform. This effectively amounts to shifting management and monitoring costs to the individual instead of the organization, which I think makes loads of sense and is a practice that'll end up outcompeting others. I don't think the average worker will end up screwed in the next ten or thirty years. I'd expect that a surprisingly large number of them will be working in autonomous jobs outside of corporate environments.
But many of those new freeform activities will be marginal, and many of them will involve barter as compensation or even be wholly uncompensated.
So, I'm not so sanguine about the bottom 20%: even if we do manage to revamp our education system to deal with contemporary economic problems better (a huge, giant if that'd take decades to implement), it'll take time to replace the whole workforce (40 years!), and there will always be students who end up performing significantly below average. Retraining programs of older workers haven't shown exceptionally promising results, either.
One of the things I like a lot about the Basic Income is that it provides a way for those displaced workers to experiment with new ways of work without the vigilant eye of the State trying to shove them into legible, easily-taxed, and controlled corporate employment.
Your other points I'm in broad agreement with. More and more of the economy will shift from hierarchical, institution-oriented "jobs" to something more freeform. This effectively amounts to shifting management and monitoring costs to the individual instead of the organization, which I think makes loads of sense and is a practice that'll end up outcompeting others. I don't think the average worker will end up screwed in the next ten or thirty years. I'd expect that a surprisingly large number of them will be working in autonomous jobs outside of corporate environments.
But many of those new freeform activities will be marginal, and many of them will involve barter as compensation or even be wholly uncompensated.
So, I'm not so sanguine about the bottom 20%: even if we do manage to revamp our education system to deal with contemporary economic problems better (a huge, giant if that'd take decades to implement), it'll take time to replace the whole workforce (40 years!), and there will always be students who end up performing significantly below average. Retraining programs of older workers haven't shown exceptionally promising results, either.
One of the things I like a lot about the Basic Income is that it provides a way for those displaced workers to experiment with new ways of work without the vigilant eye of the State trying to shove them into legible, easily-taxed, and controlled corporate employment.
Are you saying that we will continue to invent things to do in exchange for money? I feel like there has to be a point that you can't do that. I guess it would have been insane to think that people would be sitting in offices making comments on news forums most of the day.
> it would also be a good idea to completely remove the profit motive from health care.
If I had a fatal disease with no known cure, I want a system that makes whoever finds the cure filthy rich. That's my best chance at survival. If anything, I want a system with even more profit motive.
If I had a fatal disease with no known cure, I want a system that makes whoever finds the cure filthy rich. That's my best chance at survival. If anything, I want a system with even more profit motive.
Why would anyone care about curing your fatal disease if they are profit driven? They should be able to make more money working on widespread non-fatal problems, like erectile disfunction or baldness.
If the world were as simple as the statement you made then sure...it isn't.
Ah yes, the old "it'll work, we just need more money, promise!". We've been hearing that one since the beginning of the democratic form of governance. Guess you haven't looked at the recent graphs of US budget spending, otherwise you would have figured out that "more money" doesn't necessarily solve the problem.
Hint: Most, if not all, the additional money gets eaten up by newly created bureaucracy.
Hint: Most, if not all, the additional money gets eaten up by newly created bureaucracy.
You can't remove the profit motive from health care.
Please expand on that - I personally think for-profit health care is one of the most ill-conceived ways of doing business I have ever heard of. Saving people's lives but only in ways that are investor-friendly?
healthcare innovation requires enormous investment. How should society pick healthcare problems to focus on, and how will we know a solution when we see it? The distributed price signal is an elegant mechanism for solving this problem and has worked to guide innovation in many other areas of human endeavour.
We can do better, though. For example, if poor people are hit harder by something, there might be less "price signal" than if a few rich people are sick.
You can reduce it, and you can try to amplify other motivations. But if you're developing a new drug, why wouldn't you market it to people who can pay you more for it?
You can't save every life - no one is immortal. And in the decision of what care to give to which people, money will always be one factor. This is probably amplified in non-life-threatening situations since personal trainers and nutritional consultants will probably not be covered by collective health plans.
You can't save every life - no one is immortal. And in the decision of what care to give to which people, money will always be one factor. This is probably amplified in non-life-threatening situations since personal trainers and nutritional consultants will probably not be covered by collective health plans.
What do you mean? It's quite common.
Some technology will be too expensive to provide, or some procedure will require skills that are too rare. They will command high prices. And you can't find enough doctors, hospital administrators, drug researchers etc for a whole country without finding some greedy/rational ones who will do better work for more pay.
guaranteed higher education
How about "guaranteed job training?" That way, if you wish to pursue a career that does not require a post-secondary degree, you can prepare yourself for that career just as well as the white collar worked who spends four years studying post-modern poetry.
N.B.: I have degrees in philosophy and writing, so I'm criticizing the study of the liberal arts.
How about "guaranteed job training?" That way, if you wish to pursue a career that does not require a post-secondary degree, you can prepare yourself for that career just as well as the white collar worked who spends four years studying post-modern poetry.
N.B.: I have degrees in philosophy and writing, so I'm criticizing the study of the liberal arts.
Basic income is a potentially unlimited liability without any government control over fertility. If the needs of the portion of the population that are net consumers grow quicker than the surplus from net producers, an economic apocalypse happens sooner or later.
In a world of dysgenic fertility, this is guaranteed[1].
[1] http://charltonteaching.blogspot.com/2014/06/dysgenics-is-mo...
In a world of dysgenic fertility, this is guaranteed[1].
[1] http://charltonteaching.blogspot.com/2014/06/dysgenics-is-mo...
The entire premise of this completely unsubstantiated blog post is refuted by the well-substantiated Flynn effect: http://en.wikipedia.org/wiki/Flynn_effect
Probably a positive environmental effect masking decline in genetic potential IQ, which there is evidence for: http://www.xenosystems.net/dysgenic-reactions/
Corporate savings are high across a broad basket of companies like the S&P500 because the earnings of multinationals are parked in Luxembourg, avoiding US taxes. We've all read about the Double Dutch and other IP licensing schemes that avoid taxes for Google, Apple and others. I personally feel these funds are waiting for a US corporate income tax holiday, perhaps under the guise of creating new jobs and investment domestically. The stock price of companies like Apple has their cash balance as "money good", meaning the market doesn't believe they'll pay tax on the $150 billion parked overseas.
Sam's zero interest rate point is the most salient to the startup world. It forces accredited investors to chase asset classes like technology startups for yield. You also see it in the midwest in oil, gas and other natural resource drilling/mining. These are long term 10 year investments for these investors to park their cash.
Sam's zero interest rate point is the most salient to the startup world. It forces accredited investors to chase asset classes like technology startups for yield. You also see it in the midwest in oil, gas and other natural resource drilling/mining. These are long term 10 year investments for these investors to park their cash.
So, the 0% interest is a catalyst for startup investment? Do institutional investors or big banks directly fund incubators and the like?
I read somewhere recently that global bank income was up 29 billion from last year, does any of that profit come from startup success?
I read somewhere recently that global bank income was up 29 billion from last year, does any of that profit come from startup success?
Institutionals and investment banks are higher up the chain. Accredited investors serve as front-line angels that fund would-be entrepreneurs, and then the aforementioned parties provide them with liquidity (distribution and marketing of the company's other shares to more sophisticated investors).
We need to find the next big growth engine. Like "the internet" big, or its baby brother "mobile" big. (Imagine what the US economy would be like without those growth engines. Even with them, their effect on the US GDP growth chart in the article is unnoticeable.)
I have a hard time thinking of things that could be so dramatic in terms of growth. AI, radical life extension, space elevators, renewables... I'm not sure.
The sad thing is we only have one Google. Very few other well-monied companies are taking big moon-shot risks. We need a dozen Googles and a hundred Elon Musks to find the next growth engine.
But instead we have billionaires buying NFL teams, the government taking money from STEM to fund entitlements, and corporations too risk-averse to make any big bets.
I have a hard time thinking of things that could be so dramatic in terms of growth. AI, radical life extension, space elevators, renewables... I'm not sure.
The sad thing is we only have one Google. Very few other well-monied companies are taking big moon-shot risks. We need a dozen Googles and a hundred Elon Musks to find the next growth engine.
But instead we have billionaires buying NFL teams, the government taking money from STEM to fund entitlements, and corporations too risk-averse to make any big bets.
I nominate cleantech, energy efficiency, and renewable energy.
Over the next 30ish years, the entire globe will have to transition from fossil fuels to sustainable energy. The amount of growth that needs to happen is probably bigger than what we experienced in the internet boom. Already in California, green jobs outnumber Hollywood jobs, and solar is now profitable without subsidy.
These are the areas that are going to have the largest growth and innovation over the next few decades. The next Google is going to be an energy company.
Over the next 30ish years, the entire globe will have to transition from fossil fuels to sustainable energy. The amount of growth that needs to happen is probably bigger than what we experienced in the internet boom. Already in California, green jobs outnumber Hollywood jobs, and solar is now profitable without subsidy.
These are the areas that are going to have the largest growth and innovation over the next few decades. The next Google is going to be an energy company.
I don't know how you can qualify this as growth. The transition to renewable energy should be applauded, but at the end of the day it is a displacement of the fossil fuel industry, which is massive. It seems less like a wealth creation engine and more like a "we will destroy the earth otherwise" necessity.
The next big growth engine could and should, if the Congress were to choose to emprace it, be a large infrastructure and public works budget (especially given the current low interest rate environment, and the large number of people unemployed and underemployed). Our bridges and highways and air traffic control system could really use it. Of course, keeping the waste, fraud, and abuse in that budget down to a minimum would be difficult, given current Congresspeople and their priorities and agendas.
I actually think the the Block-chain could be such growth engine.
It basically holds the promise to potentially take out any middlemen from server to bank, from company to nation which in itself would cause a major shift in the economy.
It basically holds the promise to potentially take out any middlemen from server to bank, from company to nation which in itself would cause a major shift in the economy.
Although Google has done a much better PR around its research efforts, IBM and Microsoft are both investing much more in R&D. Microsoft is the tech company with the most research investment.
I'd caution using R&D investment as a metric. Historically, it seems the huge game changers (Google, Apple, Facebook, etc.) came from motivated individuals and not corporate research labs. Microsoft's early and enormous investments did not help them catch/contribute to the search/social/tablet/mobile wave which generated much of the value in the tech economy the past decade.
What about, say, the solid-state transistor?
The massive catalog of Bell Labs innovations came from a heavily-regulated monopoly, not a half-forgotten research arm of a software or advertising company whose mission can best be summarized as "Hire smart people so the competition doesn't get them."
Why the Bell Labs approach worked so well while most such heavily-subsidized and centralized research efforts fail is something I don't entirely understand. It could be because their charter was centered on the improvement of telecommunications in general. In the twentieth century, that covered endless acres of fertile intellectual ground. To extend the cliche', there was a lot of low-hanging fruit on the physics trees, and once it was picked, that was it for Bell Labs.
Why the Bell Labs approach worked so well while most such heavily-subsidized and centralized research efforts fail is something I don't entirely understand. It could be because their charter was centered on the improvement of telecommunications in general. In the twentieth century, that covered endless acres of fertile intellectual ground. To extend the cliche', there was a lot of low-hanging fruit on the physics trees, and once it was picked, that was it for Bell Labs.
This is an important point. There are times when confidence in your future enables a longer term investment horizon. And from that good things may often follow. But neither that confidence nor the good things may be enough to keep any social/economic position in perpetuity.
I'm not trying to be snide but imo hoping the economy will improve by someone finding a growth engine is wishful thinking. I would like to see tax policy and government spending formulated for sustainability based on domestic consumption and have any potential innovation income as windfalls.
Hinging the economy on the creation of new grown engines is a risky strategy and I don't think the government should be in the business of making bets, at least at the macro economic scale (hell yeah on research spending).
Hinging the economy on the creation of new grown engines is a risky strategy and I don't think the government should be in the business of making bets, at least at the macro economic scale (hell yeah on research spending).
I think the most likely next big growth engine will be drones. However the opportunity will probably go to China, who will make up for lack of innovation with deregulation, meanwhile western countries will be too anxious about terrorism to allow drones to fly about their cities/countryside making deliveries, spraying crops, etc.
That's easy: cheap energy, particularly thorium reactors. Driving down the cost of energy creates a defacto boom, not to mention the industry to build out such infrastructure.
There's a specific mental trap -- I'll call this "scientism" -- that a lot of comments here are rapidly falling into. It's in treating macroeconomics as a "solved" problem, or putting too much faith in specific studies or sentences.
That's not at all the proper way to look at macroeconomics. Our economy is unimaginably complex -- it's full of hundreds and millions of moving parts, with each single part (the human brain) driven by an even more complex system with hundreds of billions of parts (neurons). All of these parts are re-orienting themselves with new data in real time.
What Sam is trying to say here, is that we don't know if these trends are "good" or "bad", or if they'll lead to bad outcomes or not, or in what time frame this will occur. All we know now -- and this I agree with -- is that something in our economy has changed permanently. And this should be a good cause to worry, or at least, should be taken as a call to arms to economists everywhere to try and figure out why our models aren't working as well as they used to.
That's not at all the proper way to look at macroeconomics. Our economy is unimaginably complex -- it's full of hundreds and millions of moving parts, with each single part (the human brain) driven by an even more complex system with hundreds of billions of parts (neurons). All of these parts are re-orienting themselves with new data in real time.
What Sam is trying to say here, is that we don't know if these trends are "good" or "bad", or if they'll lead to bad outcomes or not, or in what time frame this will occur. All we know now -- and this I agree with -- is that something in our economy has changed permanently. And this should be a good cause to worry, or at least, should be taken as a call to arms to economists everywhere to try and figure out why our models aren't working as well as they used to.
"Too large a proportion of recent "mathematical" economics are mere concoctions,
as imprecise as the initial assumptions they rest on, which allow the author
to lose sight of the complexities and interdependencies of the real world in a
maze of pretentious and unhelpful symbols." - John Maynard KeynesI wish everyone (or at least Sam Altman) would read "The Seven Deadly Innocent Frauds": http://goo.gl/6a22pX less than 2 hour read. read it with an open mind and your worldview may change.
watch Stephanie Kelton and Warren Mosler talk about gov debt and deficits: (2 hours!) https://www.youtube.com/watch?v=ba8XdDqZ-Jg
Randall Wray on Job Guarantee vs Basic Income: http://www.economonitor.com/lrwray/2014/01/27/lets-compare-t...
Mosler's current prescription: 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment ...
watch Stephanie Kelton and Warren Mosler talk about gov debt and deficits: (2 hours!) https://www.youtube.com/watch?v=ba8XdDqZ-Jg
Randall Wray on Job Guarantee vs Basic Income: http://www.economonitor.com/lrwray/2014/01/27/lets-compare-t...
Mosler's current prescription: 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment ...
The first sentence prophesies 'collapse', but then reading on you see a recipe for a continuing mild recession.
Where does the collapse come in? (if it's nebulously caused spike in treasury rates, I'm not going to be convinced)
Where does the collapse come in? (if it's nebulously caused spike in treasury rates, I'm not going to be convinced)
You would think with all the social spending we do that things would be better by now for people in this category but its not really. There needs to be a concerted effort to reduce the number of assistance programs to a single digit number so that funds are not lost to paying the workers to administer the programs. There are thousands of assistance programs just at the Federal level, sure that is not an ideal way of getting help to those in need.
US GDP growth in real dollars is low (and trending down). It was 2.9% for Q1 2014 after the second official revision [1]. If it’s down again for Q2, we’ll be in a recession.
Just a nit, but to be clear...
1Q 2014 GDP #s (revised) growth rate was negative 2.9% (-2.9%).
The second sentence in the quote also implies as much, so I think the quoted text has an oversight/typo.
http://www.cnbc.com/id/101787838
Just a nit, but to be clear...
1Q 2014 GDP #s (revised) growth rate was negative 2.9% (-2.9%).
The second sentence in the quote also implies as much, so I think the quoted text has an oversight/typo.
http://www.cnbc.com/id/101787838
Some of the figures Altman gives are important. There are some more:
http://monthlyreview.org/2008/12/01/financial-implosion-and-...
If you read that article and consult the (mostly government) sources, you'll see:
* It's not just government debt that is high - household, business, and especially financial debt is high
* The financial sector has been growing much faster than the "real" economy
* Less and less of the GDP goes to consumers in wages and salaries
* Industrial capacity utilization goes down and down and down (so why invest in new capital?)
* Since the 1980s, profits have been an increasing share of GDP, while investment has been going down
Macroeconomic collapse on the scale (or greater then) it happened in the 1930s will, I believe, inevitably happen.
http://monthlyreview.org/2008/12/01/financial-implosion-and-...
If you read that article and consult the (mostly government) sources, you'll see:
* It's not just government debt that is high - household, business, and especially financial debt is high
* The financial sector has been growing much faster than the "real" economy
* Less and less of the GDP goes to consumers in wages and salaries
* Industrial capacity utilization goes down and down and down (so why invest in new capital?)
* Since the 1980s, profits have been an increasing share of GDP, while investment has been going down
Macroeconomic collapse on the scale (or greater then) it happened in the 1930s will, I believe, inevitably happen.
I believe tax breaks don't show up as government spending. If for example Boeing is given a billion dollar tax break, then the government has a billion dollars loss and Boeing has a billion dollars more. But that won't show up as a billion dollars going to the government, and then spent on Boeing, even though that is exactly what is happening.
I suspect that if tax breaks were accounted for, then government spending would be higher. It looks like US corporate welfare is around $200bn/year, although there are many larger estimates out there (eg count the banking bailouts). I haven't seen numbers for personal tax breaks, but adding them will make the number larger.
I suspect that if tax breaks were accounted for, then government spending would be higher. It looks like US corporate welfare is around $200bn/year, although there are many larger estimates out there (eg count the banking bailouts). I haven't seen numbers for personal tax breaks, but adding them will make the number larger.
Q1 2014 GDP growth was -2.9%. There's no minus sign in front of 2.9% in item #1 in the article (I'm using Chrome).
Another interesting chart: https://twitter.com/hblodget/status/483577150805901312
Does anyone think we are heading towards an economic collapse?
Collapse, no. But I do think we're going to see, in our lifetimes, a mostly-global economy that is very different from anything that humans have had in the past, and that the transition to that is going to sometimes look disastrous.
I can't say much about the intricacies of how economies are managed, because I don't know much about that. But there are a few trends happening today that are unique in human history.
For one, we've entered an age where the economies of most of the countries in the world have become interconnected to some extent. Just 100 years ago, this wasn't the case. The mismanagement of an economy in one country can have serious repercussions in other countries now; I think it's inevitable that we'll see a world economic governing body develop. This sort of already de facto exists, but if it doesn't meet the needs of the lower and middle classes, it's going to become more political.
For another, we have begun to impose some serious limits on our resource demands. In the past, one way to combat a sluggish economy was to get bigger; if you had the money, you might try to establish a colony somewhere, grow your territory, or put more natural resources to work in the form of industry. But now, we've seen the effects of that on our natural environment and mostly collectively decided to limit our use of resources. Now, the name of the game is greater and greater efficiency, doing more with less, consuming less.
Meanwhile, a common trend around the world, and especially in the "west" (incl. Europe and Australia and the usual suspects), is that people want more leisure time. Workers are tired. The economy has been particularly hard on the lower socioeconomic classes, and they can get burnt out just like anybody else. They largely have crap jobs -- "bullshit jobs" as one economist puts it -- they can't expect loyalty from their company so they aren't loyal to it either, and they don't make enough money to get to enjoy the perks of life that, thanks to a massive global communications system, they get to see everyone else enjoying. You can't go to the store anymore without seeing a travel magazine with a beautiful front cover staring you in the face.
So, I don't think most people are looking to work more. In fact, I think that if it were possible for a lot of people, down to the poorest classes, to give up just a little bit more to be able to gain more real leisure time, they'd do it.
Simultaneously, production technology keeps getting better and better, so we can have more and more stuff for less and less money.
And, there's a massively adversarial relationship now between the worker classes and the wealthier classes. I think a lot of people intuitively recognize a lot of this, and they feel like the only thing keeping them from having the life they want is unfairly low wages mostly set by people who have a lot more money.
There's always political unrest somewhere in the world; I think a lot of it in the west is going to focus on economic issues. People are going to keep agitating to get their basic needs met, so that they're less reliant on jobs that they feel are both demeaning and fundamentally unfair. As hard as it may be to believe, especially if you rarely leave the Silicon Valley scene, I think we're going to see more of a movement towards spending less on material goods. I think the developing world is where almost all of the economic growth will be for a while, and I think the economies in the developed world are going to continue to be sluggish until there's a big breakthrough in either energy (e.g. fusion) or exploration (Mars).
I also think there's a possibility this could all lead to an amazing modern Renaissance. Never before in history have so many people been so close to having as much free time as they desire to create, build, or learn about anything they want; we truly have no idea what kind of art, engineering, or science might come from that.
Unfortunately, until a new social contract is developed between the economic classes, the poor are going to have a very hard time of it.
I can't say much about the intricacies of how economies are managed, because I don't know much about that. But there are a few trends happening today that are unique in human history.
For one, we've entered an age where the economies of most of the countries in the world have become interconnected to some extent. Just 100 years ago, this wasn't the case. The mismanagement of an economy in one country can have serious repercussions in other countries now; I think it's inevitable that we'll see a world economic governing body develop. This sort of already de facto exists, but if it doesn't meet the needs of the lower and middle classes, it's going to become more political.
For another, we have begun to impose some serious limits on our resource demands. In the past, one way to combat a sluggish economy was to get bigger; if you had the money, you might try to establish a colony somewhere, grow your territory, or put more natural resources to work in the form of industry. But now, we've seen the effects of that on our natural environment and mostly collectively decided to limit our use of resources. Now, the name of the game is greater and greater efficiency, doing more with less, consuming less.
Meanwhile, a common trend around the world, and especially in the "west" (incl. Europe and Australia and the usual suspects), is that people want more leisure time. Workers are tired. The economy has been particularly hard on the lower socioeconomic classes, and they can get burnt out just like anybody else. They largely have crap jobs -- "bullshit jobs" as one economist puts it -- they can't expect loyalty from their company so they aren't loyal to it either, and they don't make enough money to get to enjoy the perks of life that, thanks to a massive global communications system, they get to see everyone else enjoying. You can't go to the store anymore without seeing a travel magazine with a beautiful front cover staring you in the face.
So, I don't think most people are looking to work more. In fact, I think that if it were possible for a lot of people, down to the poorest classes, to give up just a little bit more to be able to gain more real leisure time, they'd do it.
Simultaneously, production technology keeps getting better and better, so we can have more and more stuff for less and less money.
And, there's a massively adversarial relationship now between the worker classes and the wealthier classes. I think a lot of people intuitively recognize a lot of this, and they feel like the only thing keeping them from having the life they want is unfairly low wages mostly set by people who have a lot more money.
There's always political unrest somewhere in the world; I think a lot of it in the west is going to focus on economic issues. People are going to keep agitating to get their basic needs met, so that they're less reliant on jobs that they feel are both demeaning and fundamentally unfair. As hard as it may be to believe, especially if you rarely leave the Silicon Valley scene, I think we're going to see more of a movement towards spending less on material goods. I think the developing world is where almost all of the economic growth will be for a while, and I think the economies in the developed world are going to continue to be sluggish until there's a big breakthrough in either energy (e.g. fusion) or exploration (Mars).
I also think there's a possibility this could all lead to an amazing modern Renaissance. Never before in history have so many people been so close to having as much free time as they desire to create, build, or learn about anything they want; we truly have no idea what kind of art, engineering, or science might come from that.
Unfortunately, until a new social contract is developed between the economic classes, the poor are going to have a very hard time of it.
For one, we've entered an age where the economies of most of the countries in the world have become interconnected to some extent. Just 100 years ago, this wasn't the case.
I don't blame you because this is the kind of conventional trope that everybody parrots and just feels right, but economic historians agree on that the extent of globalization 100 years ago was in fact just as high as it is today in many respects --and in some respects such as labor mobility, it was even higher then [1,2].
In fact, it was only after the collapse of the transoceanic European colonies after the wars that nationalism and the Great Depression gave rise to isolationism and trade protectionism as the natural state of affairs; only to be gradually re-dismantled towards the end of the twentieth century. But if you think about it, the technical and institutional elements of globalization --efficient mechanized shipping, industrialized commodities production/extraction, global electronic communications, settling/clearing institutions-- were all there then.
[1] http://groups.csail.mit.edu/mac/users/rauch/misc/globalizati...
[2] http://eml.berkeley.edu/~eichengr/research/brooking.pdf
I don't blame you because this is the kind of conventional trope that everybody parrots and just feels right, but economic historians agree on that the extent of globalization 100 years ago was in fact just as high as it is today in many respects --and in some respects such as labor mobility, it was even higher then [1,2].
In fact, it was only after the collapse of the transoceanic European colonies after the wars that nationalism and the Great Depression gave rise to isolationism and trade protectionism as the natural state of affairs; only to be gradually re-dismantled towards the end of the twentieth century. But if you think about it, the technical and institutional elements of globalization --efficient mechanized shipping, industrialized commodities production/extraction, global electronic communications, settling/clearing institutions-- were all there then.
[1] http://groups.csail.mit.edu/mac/users/rauch/misc/globalizati...
[2] http://eml.berkeley.edu/~eichengr/research/brooking.pdf
I was specifically thinking of the European Union (which didn't exist 100 years ago) and its relationship with the Greek economy, and the extent to which a Greek default in 2011 or 2012 might have affected economies across Europe and overseas, as well as the effects of the U.S. economic recession in 2008 on the rest of the world.
You're right to point out that all (edit: many) of the pieces of globalization were well in place by 1915, but the number of countries involved now, and the extent to which they're involved, is quite a bit different. Political conflicts between countries are now as likely to be handled economically as by any other means.
I thought my comment was already way too long, so I didn't explain what I meant.
You're right to point out that all (edit: many) of the pieces of globalization were well in place by 1915, but the number of countries involved now, and the extent to which they're involved, is quite a bit different. Political conflicts between countries are now as likely to be handled economically as by any other means.
I thought my comment was already way too long, so I didn't explain what I meant.
Again, I don't blame you because it is counterintuitive, but I invite you to read Section 6 ("Financial Crises") of the Bordo, Eichengreen and Irwin 1999 paper (linked above), to appreciate the extent to which globalization then was indeed similar to today's --even in terms of the number of countries involved, the role of supranational institutions, and the "contagion" effects of local crises via economic linkages. It's quite fascinating.
I'm reading that paper now (and I'll read the other later tonight). Thank you for linking to it, it's interesting so far.
I'm a little confused though: in the beginning of the paper, it seems to be supporting some of my thesis, that the modern global economy is more interconnected than it has been at any recent point in history. e.g., "We conclude that our world is different: commercial and financial integration before World War I was more limited. ...integration is deeper and broader than a hundred years ago."
...maybe they go on to refine that point in a way that refutes me. I'll keep reading.
I'm a little confused though: in the beginning of the paper, it seems to be supporting some of my thesis, that the modern global economy is more interconnected than it has been at any recent point in history. e.g., "We conclude that our world is different: commercial and financial integration before World War I was more limited. ...integration is deeper and broader than a hundred years ago."
...maybe they go on to refine that point in a way that refutes me. I'll keep reading.
No, you are right! I completely misread the paper. From the conclusion:
"While presenting a good deal of detail, we have sought in this paper to emphasize a small number of general points. First, the globalization of commodity and financial markets is historically unprecedented. Facile comparisons with the late nineteenth century notwithstanding, the international integration of capital and commodity markets goes further and runs deeper than ever before."
Thank you for pointing this out! I stand corrected.
"While presenting a good deal of detail, we have sought in this paper to emphasize a small number of general points. First, the globalization of commodity and financial markets is historically unprecedented. Facile comparisons with the late nineteenth century notwithstanding, the international integration of capital and commodity markets goes further and runs deeper than ever before."
Thank you for pointing this out! I stand corrected.
Seeing as how "natural economic growth" is not infinitely sustainable (I'm operating under the assumptions that there are finite quantities of natural resources and human ingenuity is not infinite and infallible). It's probabilistically inevitable.
Natural resources are finite, but so long as we can improve our efficiency faster than some rate N, we will never run out of a given resource. Thank you Zeno's Paradox.
(Recycling also plays a part, though I don't know if it should be considered increasing the supply, or increasing our efficiency)
The only one that is a real problem is energy. Thanks to the laws of physics, we may not be able to forever increase our energy efficiency, and energy cannot be recycled.
(Recycling also plays a part, though I don't know if it should be considered increasing the supply, or increasing our efficiency)
The only one that is a real problem is energy. Thanks to the laws of physics, we may not be able to forever increase our energy efficiency, and energy cannot be recycled.
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It seems unlikely to me that we're anywhere close to diminishing returns from technology. More likely we're seeing what happens when a system is full of perverse incentives that reward unproductive / destructive behavior.
Yeah I agree, I guess what I meant to ask is if we are going to experience one in the near future (within 10 years)
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True economic collapse, in which ammo becomes more valuable than money? No. Depression? Quite possible. I'd give it a 50% chance in the next 20 years (read my post on this thread, I explain some of why.)
The very long term outlook is positive; the short-term outlook is dismal. The global elite and the middle class have been at war and the latter is losing.
The very long term outlook is positive; the short-term outlook is dismal. The global elite and the middle class have been at war and the latter is losing.
Just read it, very interesting. I just have a fear of the economy and dollar collapsing and life as we know it going to shit since the whole world is so dependent on us. I don't have a very solid basis for this fear, but that's the nature of many fears (I saw someone on Maury with a fear of pickles). Just hearing bad news all the time about the direction this country is going makes it loom in the back of my head.
>Just hearing bad news all the time about the direction this country is going makes it loom in the back of my head.
Things are getting better across the board, but that narrative won't sell. Doom sells.
Things are getting better across the board, but that narrative won't sell. Doom sells.
I have gradually become convinced by mountains of evidence from many quarters that the Keynesians are right-- we are in a demand constrained economy.
One of the problems I think is that economists and politicos tend to always be fighting the last war. In the late 1970s to early 1980s -- the last time the economy seemed this systemically bleak -- the problem was insufficient capital available for investment combined with high inflation. This resulted in "stagflation," something classical Keynesians thought impossible, and thus resulted in a widespread discrediting of classical Keynesian and economic liberal thought.
Thing is... in the late 70s the supply siders may well have been right and the Keynesians wrong. We were in a supply limited economy, and stimulus and other liberal policies just made everything inflate.
But now I think the situation has reversed. Today looks a lot more like the 1930s, albeit not quite as viscerally nasty. There's a huge amount of capital available but few good investments. Wages are stagnant, savings are down, pay and wealth inequality are utterly massive, etc.
So today I think the Keynesians may well be right again. Hopefully it'll come in the form of something less destructive than a war. I'd personally suggest a massive program to electrify all transport, huge investments in both renewable energy and next-generation nuclear power, a medical "war on aging," and a campaign to establish a permanent human settlement on Mars. All that taken together would probably end up costing about what WWII did, and so might be enough. The war on aging would have the added follow-on benefit of helping with our demographic problems. (As would a more liberal immigration policy.)
Meta question: perhaps there's a new insight here... do modern industrial economies actually tend to oscillate between demand constrained and supply constrained failure modes? Perhaps the Keynesians overcorrected for the great depression, resulting in the 1970s, and now the supply siders have overcorrected for the 1970s resulting in today. In that case maybe we oscillate between periods when Keynesian demand-side policies work and periods when Friedman-esque supply-side policies work.
Edit: the reason I don't think we're hurting as bad at the street level today as we were at the depths of the Great Depression is simply because we've grown so far beyond subsistence level. Today the amount of economic pain required to cause visceral physical pain among large numbers of people in the developed world -- starvation, etc. -- would be quite a bit larger than what it took in the 30s. To lead to that kind of thing we'd need the 2008 financial crash times ten at least, combined with a major political collapse and some kind of technological train wreck. A mega-sized solar flare or a sudden "oh crap" worst case peak oil cliff coming to pass might do it.
But compared to a non-slump timeline -- compared to what should be happening given the technological growth we've experienced -- we are in a depression. We should be colonizing Mars, conquering aging, pretty much doing all the things I suggested as stimulus. Instead we are building apps like Yo while people go bankrupt in underwater houses with underwater student loans. (Not blaming the authors of Yo either... during the depression a lot of people took up whittling sticks and other little time-passing pursuits for lack of good work to do.)
One of the problems I think is that economists and politicos tend to always be fighting the last war. In the late 1970s to early 1980s -- the last time the economy seemed this systemically bleak -- the problem was insufficient capital available for investment combined with high inflation. This resulted in "stagflation," something classical Keynesians thought impossible, and thus resulted in a widespread discrediting of classical Keynesian and economic liberal thought.
Thing is... in the late 70s the supply siders may well have been right and the Keynesians wrong. We were in a supply limited economy, and stimulus and other liberal policies just made everything inflate.
But now I think the situation has reversed. Today looks a lot more like the 1930s, albeit not quite as viscerally nasty. There's a huge amount of capital available but few good investments. Wages are stagnant, savings are down, pay and wealth inequality are utterly massive, etc.
So today I think the Keynesians may well be right again. Hopefully it'll come in the form of something less destructive than a war. I'd personally suggest a massive program to electrify all transport, huge investments in both renewable energy and next-generation nuclear power, a medical "war on aging," and a campaign to establish a permanent human settlement on Mars. All that taken together would probably end up costing about what WWII did, and so might be enough. The war on aging would have the added follow-on benefit of helping with our demographic problems. (As would a more liberal immigration policy.)
Meta question: perhaps there's a new insight here... do modern industrial economies actually tend to oscillate between demand constrained and supply constrained failure modes? Perhaps the Keynesians overcorrected for the great depression, resulting in the 1970s, and now the supply siders have overcorrected for the 1970s resulting in today. In that case maybe we oscillate between periods when Keynesian demand-side policies work and periods when Friedman-esque supply-side policies work.
Edit: the reason I don't think we're hurting as bad at the street level today as we were at the depths of the Great Depression is simply because we've grown so far beyond subsistence level. Today the amount of economic pain required to cause visceral physical pain among large numbers of people in the developed world -- starvation, etc. -- would be quite a bit larger than what it took in the 30s. To lead to that kind of thing we'd need the 2008 financial crash times ten at least, combined with a major political collapse and some kind of technological train wreck. A mega-sized solar flare or a sudden "oh crap" worst case peak oil cliff coming to pass might do it.
But compared to a non-slump timeline -- compared to what should be happening given the technological growth we've experienced -- we are in a depression. We should be colonizing Mars, conquering aging, pretty much doing all the things I suggested as stimulus. Instead we are building apps like Yo while people go bankrupt in underwater houses with underwater student loans. (Not blaming the authors of Yo either... during the depression a lot of people took up whittling sticks and other little time-passing pursuits for lack of good work to do.)
A large component of 70's stagflation was just supply shocks for oil. Why this never gets brought up, or is just brushed aside casually is beyond me.
> do modern industrial economies actually tend to oscillate between demand constrained and supply constrained failure modes
This is probably a pretty good way to look at it. The solution is something like http://en.wikipedia.org/wiki/Functional_finance
The meat:
1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.
2. By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.
3. If either of the first two rules conflicts with principles of 'sound finance' or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2
> do modern industrial economies actually tend to oscillate between demand constrained and supply constrained failure modes
This is probably a pretty good way to look at it. The solution is something like http://en.wikipedia.org/wiki/Functional_finance
The meat:
1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.
2. By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.
3. If either of the first two rules conflicts with principles of 'sound finance' or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2
>A large component of 70's stagflation was just supply shocks for oil. Why this never gets brought up, or is just brushed aside casually is beyond me.
It's politically expedient to forget it - just as it's politically expedient to forget that the people causing the oil shocks and the people who benefited from them politically seemed (and continue to seem) to have some interesting relationships.
Keynes is in danger of being written out of history, in the same way that dissidents like Henry George were.
I'm not sure how many people realise the extent to which anti-Keynesian narratives were deliberately promoted and funded after WWII, especially in Chicago.
The fact that Keynes is no longer considered an orthodox policy source is not an accident.
It's politically expedient to forget it - just as it's politically expedient to forget that the people causing the oil shocks and the people who benefited from them politically seemed (and continue to seem) to have some interesting relationships.
Keynes is in danger of being written out of history, in the same way that dissidents like Henry George were.
I'm not sure how many people realise the extent to which anti-Keynesian narratives were deliberately promoted and funded after WWII, especially in Chicago.
The fact that Keynes is no longer considered an orthodox policy source is not an accident.
True, and I'm sure the fact that we've likely passed peak conventional oil is a contributing factor to the current malaise.
In both cases there was probably a physical underpinning, but economic policies could indeed have helped. In the case of the 70s oil shocks, having more investment capital available allowed more investment in new capacity. Today having more consumer capital available would spur adoption of electric cars, rooftop solar, LED lights, and other consumer next-generation energy technologies that are required to help us shift consumption away from being so dependent on oil.
In other words I think today's energy problems are -- paradoxically -- also a demand problem. We need more demand, not less, to drive the adoption of alternatives.
In both cases there was probably a physical underpinning, but economic policies could indeed have helped. In the case of the 70s oil shocks, having more investment capital available allowed more investment in new capacity. Today having more consumer capital available would spur adoption of electric cars, rooftop solar, LED lights, and other consumer next-generation energy technologies that are required to help us shift consumption away from being so dependent on oil.
In other words I think today's energy problems are -- paradoxically -- also a demand problem. We need more demand, not less, to drive the adoption of alternatives.
> A large component of 70's stagflation was just supply shocks for oil. Why this never gets brought up, or is just brushed aside casually is beyond me.
This is how David Graeber starts his book "Debt: The first 5000 years"
This is how David Graeber starts his book "Debt: The first 5000 years"
My view on Keynesianism is that it's basically been bastardised to the point where it's unworkable. I say that because my understanding is that Keynes originally proposed a system where the government ran a surplus during the "good times" and then ramped up borrowing and spending during the "bad times". This actually makes a great deal of sense because during a recession investors are usually falling over themselves to park money with the government at very low interest rates.
But no modern government seems capable of running a surplus for any length of time. And modern Keynesians have basically done away with the surplus requirement so that you can borrow in the good times and borrow more in the bad...
I'm sure they have academic studies that back up that being possible, the issue is the general public don't believe it and the general public elect the politicians who'll have to implement it.
On the other hand if governments did run a proper surplus during the good years, I think there would be much wider acceptance in the general public for significantly more government spending during recessions. The "Keynesian blast" so to speak.
Given all that, any Keynesian response by modern governments will always fall short of what's required for it to actually work because the voting public don't trust the modern incarnation of it.
But no modern government seems capable of running a surplus for any length of time. And modern Keynesians have basically done away with the surplus requirement so that you can borrow in the good times and borrow more in the bad...
I'm sure they have academic studies that back up that being possible, the issue is the general public don't believe it and the general public elect the politicians who'll have to implement it.
On the other hand if governments did run a proper surplus during the good years, I think there would be much wider acceptance in the general public for significantly more government spending during recessions. The "Keynesian blast" so to speak.
Given all that, any Keynesian response by modern governments will always fall short of what's required for it to actually work because the voting public don't trust the modern incarnation of it.
Running a surplus isn't even a positive goal for governments. In US history, periods of federal government surplus were always followed quite rapidly by recessions or even depressions.
There are even good, clean, mathematical accounting truths behind this. If you sum up all monetary assets and all debts, the net must be zero just as a matter of accounting. So, if individuals are to build up savings (which most people would probably agree is a good thing), somebody else must go into debt. This somebody else could be private firms doing investment, or it could be government.
If you want government to be in surplus or at least netting zero as well, then firms must necessarily be in ever growing debt, which is probably just as unsustainable.
(Note that, as long as you look at a single isolated country, a third option is that foreign countries become indebted. But since we live in a closed system and the net over all countries is zero, this is not really a workable option either.)
There are even good, clean, mathematical accounting truths behind this. If you sum up all monetary assets and all debts, the net must be zero just as a matter of accounting. So, if individuals are to build up savings (which most people would probably agree is a good thing), somebody else must go into debt. This somebody else could be private firms doing investment, or it could be government.
If you want government to be in surplus or at least netting zero as well, then firms must necessarily be in ever growing debt, which is probably just as unsustainable.
(Note that, as long as you look at a single isolated country, a third option is that foreign countries become indebted. But since we live in a closed system and the net over all countries is zero, this is not really a workable option either.)
But no modern government seems capable of running a surplus for any length of time.
Can you name any government, ever, that was capable of running a surplus indefinitely (say, until it was brought down by plague or war)?
Can you name any government, ever, that was capable of running a surplus indefinitely (say, until it was brought down by plague or war)?
Most likely not. I don't actually think it's possible. A government needs to borrow and it needs the facility all the time because you obviously can't predict the kind of disaster that might require it. And inevitably politicians will get into bidding wars in order to get elected which ends up ramping up national debt.
Symbolically though, if government ran a surplus for x years during a particular ten year period, that would be sufficient to say "look, we've mostly balanced the books, we have been running surpluses during some years".
Again it's about public perception more than anything else. When national debt is climbing towards heights only previously reached during WW2 and government has shown zero ability to run a surplus in over a decade (I think Clinton ran surpluses?) then people will simply not trust politicians with the authority to borrow the necessary amount for Keynesianism to work.
Symbolically though, if government ran a surplus for x years during a particular ten year period, that would be sufficient to say "look, we've mostly balanced the books, we have been running surpluses during some years".
Again it's about public perception more than anything else. When national debt is climbing towards heights only previously reached during WW2 and government has shown zero ability to run a surplus in over a decade (I think Clinton ran surpluses?) then people will simply not trust politicians with the authority to borrow the necessary amount for Keynesianism to work.
Politicians will get into bidding wars in order to get elected which ends up ramping up national debt.
That's it. The rest is just noise. It's just too easy to spend other people's money, under the guise of 'public interest'. Even if the politician is not corrupt, and not, say, channeling public funds to friends, outside of a few obvious cases (foreign invasion, giant earthquake, meteor strike, e.g.) it is difficult to hold politicians accountable for, say "good intentions gone awry".
The United States did quite well for a half century or so (only dipping into debt to pay for wars). There was the moral precept of 'no taxation without representation' and the early government understood that debt incurred the future taxation of people who would not be able to go back in time and vote against the spending[0]. That's all been abandoned long since.
[0] it is often said that "governments are not like families" and so that debt dynamics are different. Well, that is indeed the case. At least when individuals enter a debt, there is a contract of understanding between a single person and the lendee which means that the responsibility for repayment is on the borrower and the consequences of default are on the lender (except in a few morally questionable cases, such as academic debt). When governments enter debt, the payment is the responsibility of, potentially, someone else (there's the 'spending other people's money' again, except this time, at a societal level).
That's it. The rest is just noise. It's just too easy to spend other people's money, under the guise of 'public interest'. Even if the politician is not corrupt, and not, say, channeling public funds to friends, outside of a few obvious cases (foreign invasion, giant earthquake, meteor strike, e.g.) it is difficult to hold politicians accountable for, say "good intentions gone awry".
The United States did quite well for a half century or so (only dipping into debt to pay for wars). There was the moral precept of 'no taxation without representation' and the early government understood that debt incurred the future taxation of people who would not be able to go back in time and vote against the spending[0]. That's all been abandoned long since.
[0] it is often said that "governments are not like families" and so that debt dynamics are different. Well, that is indeed the case. At least when individuals enter a debt, there is a contract of understanding between a single person and the lendee which means that the responsibility for repayment is on the borrower and the consequences of default are on the lender (except in a few morally questionable cases, such as academic debt). When governments enter debt, the payment is the responsibility of, potentially, someone else (there's the 'spending other people's money' again, except this time, at a societal level).
I think he means that it is very rare to find a government that runs a surplus for even a very short amount of time, let alone the amount of time Keynes's original theory intended.
> Thing is... in the late 70s the supply siders may well have been right and the Keynesians wrong
Keynesians were definitely wrong since at the time sustained stagflation was considered basically impossible. Which is why what is today colloquially called "Keynesian" is different from Keynesian as it was then because important parts of it were disproved.
Keynesians were definitely wrong since at the time sustained stagflation was considered basically impossible. Which is why what is today colloquially called "Keynesian" is different from Keynesian as it was then because important parts of it were disproved.
I take a very very dim view of Keynsianism prescriptions, although their analysis may be correct (sometimes).
Let's agree that we're in a demand constrained economy (I am not sure but it may be the case).
1) Why should you believe that governments are good at readjusting the economy to "unconstrain" it from demand? From Halliburton/Iraq to Solyndra to Fisker to 38Studios (https://en.wikipedia.org/wiki/38_Studios) to Telacu (http://capoliticalnews.com/2014/02/21/construction-firm-tela...), time and time again, we see governments at all levels (local to federal) reallocate funds to cronies instead of in the "interest of the public".
2) Why should we do anything to stoke demand, at all? Doesn't consumerism and the impact it has on the environment (among other aspects of society)? Why should we presume that there is a 'correct' amount of consumption that society ought to engage in? How does one measure it, and why should we be incentivising individuals to abandon what they think is right for them based on their localized information?
Let's agree that we're in a demand constrained economy (I am not sure but it may be the case).
1) Why should you believe that governments are good at readjusting the economy to "unconstrain" it from demand? From Halliburton/Iraq to Solyndra to Fisker to 38Studios (https://en.wikipedia.org/wiki/38_Studios) to Telacu (http://capoliticalnews.com/2014/02/21/construction-firm-tela...), time and time again, we see governments at all levels (local to federal) reallocate funds to cronies instead of in the "interest of the public".
2) Why should we do anything to stoke demand, at all? Doesn't consumerism and the impact it has on the environment (among other aspects of society)? Why should we presume that there is a 'correct' amount of consumption that society ought to engage in? How does one measure it, and why should we be incentivising individuals to abandon what they think is right for them based on their localized information?
Your first point is a deeper problem that goes far beyond economics. We do have a government corruption problem.
As for #2, the problem is that economic demand and economic activity means doing anything at all, including fixing environmental problems.
Imagine there's no growth. Why adopt solar power then, and who's going to pay for it since there'd be no investment capital? Nope, just run those coal burners forever. No need to upgrade if there's no growth.
The deflationary road leads to the dystopia portrayed in The Hunger Games: one or two massively advanced cloistered cities for the mega-rich, and vast feudal slave classes feeding them with coal and other should-be-obsolete things.
As for #2, the problem is that economic demand and economic activity means doing anything at all, including fixing environmental problems.
Imagine there's no growth. Why adopt solar power then, and who's going to pay for it since there'd be no investment capital? Nope, just run those coal burners forever. No need to upgrade if there's no growth.
The deflationary road leads to the dystopia portrayed in The Hunger Games: one or two massively advanced cloistered cities for the mega-rich, and vast feudal slave classes feeding them with coal and other should-be-obsolete things.
The deflationary road leads to the dystopia portrayed in The Hunger Games: one or two massively advanced cloistered cities for the mega-rich, and vast feudal slave classes feeding them with coal and other should-be-obsolete things.
Huh? That's what the inflationary road leads to. This should be obvious, inflation skims value off the top of everyone's savings and channels it to the ultra rich (or politically connected, aka ultra rich). Almost every society in history, over the past 4000 or so years has been weakened by inflation, not deflation.
As a counterpoint, the US, which had a pretty good net deflationary run for about 150 years, had a pretty significant social equalization (freeing the slaves) over that time period.
The "deflationary spiral" hypothetical is popular idea but it is not supported by any historical evidence whatsoever (conceding that it may be true), mostly because despots have had a really hard time keeping themselves from debasing the currency over history.
I suggest reading this for some broad historical perspective: http://www.amazon.com/The-Great-Wave-Revolutions-History/dp/...
Huh? That's what the inflationary road leads to. This should be obvious, inflation skims value off the top of everyone's savings and channels it to the ultra rich (or politically connected, aka ultra rich). Almost every society in history, over the past 4000 or so years has been weakened by inflation, not deflation.
As a counterpoint, the US, which had a pretty good net deflationary run for about 150 years, had a pretty significant social equalization (freeing the slaves) over that time period.
The "deflationary spiral" hypothetical is popular idea but it is not supported by any historical evidence whatsoever (conceding that it may be true), mostly because despots have had a really hard time keeping themselves from debasing the currency over history.
I suggest reading this for some broad historical perspective: http://www.amazon.com/The-Great-Wave-Revolutions-History/dp/...
Imagine there's no growth. Why adopt solar power then, and who's going to pay for it since there'd be no investment capital? Nope, just run those coal burners forever. No need to upgrade if there's no growth.
It's fallacious to argue that because there's no net growth in some economic indicator, say 'GDP', that there can't be growth in specific sectors.
Secondly, growth is not a measure of demand, especially as demand shifts. People value having clean skies, and breathable air. And there is also a obvious value in 'not having to dig in mines for your energy'. Depending on how you measure your economy (let's say we unbeknownst to us give a higher weight to miners who dig underground vs. laborers panel assembly factories in our metric), 'upgrading' to solar could incur a 'contraction' instead of 'growth'.
It's fallacious to argue that because there's no net growth in some economic indicator, say 'GDP', that there can't be growth in specific sectors.
Secondly, growth is not a measure of demand, especially as demand shifts. People value having clean skies, and breathable air. And there is also a obvious value in 'not having to dig in mines for your energy'. Depending on how you measure your economy (let's say we unbeknownst to us give a higher weight to miners who dig underground vs. laborers panel assembly factories in our metric), 'upgrading' to solar could incur a 'contraction' instead of 'growth'.
Well, first, Keynes created an interesting theory, where time couldn't change anything, and real wealth don't actually appear. It's no wonder people want to ignore it, yet it successfully teaches how to solve one kind of problem.
Our current problem is that, since we learned that one piece of tech, we started applying it to every economical problem we saw. Thus since the 40's no economical crisis could by solved by keynesianism; if it could, there wouldn't be a crisis there.
Our current problem is that, since we learned that one piece of tech, we started applying it to every economical problem we saw. Thus since the 40's no economical crisis could by solved by keynesianism; if it could, there wouldn't be a crisis there.
So what is the reasonable response to the future we have at hand. Most answers are the sky's the limit(stock will just keep going up) or zombie apocalypse.
I would prefer more of a negative income tax.
I would prefer more of a negative income tax.
"On the positive side, but as you’d expect with near-zero rates, US equities are at record levels." I'm no so sure this should be on the positive side. Those equities are artificially inflated by central bank (indirect) manipulation. Those prices might not reflect the real value of the underlying assets and could collapse, which would once again put the whole financial system at risk.
The private debt levels are just as critical as the public debt levels and much higher (although down from their 2008 peak still I think). What is particularly is the total rate of change for public and private debt which heavily dictates the growth levels. When the economy suddenly switches from growing debt at accelerating rates to reducing debts is when the major crash happens.
It's intriguing that US economy is slowing down since WWII. What are the reasons?
1. No significant improvements like agriculture.
2. Increasing regulations
3. Big middle class that have no strong motivation to advance further or have "enough money" for good living (modulo individuals)
4. Growth in domain which GDP doesn't capture e.g. Open Source
5. No obvious investments opportunities e.g. Highway
1. No significant improvements like agriculture.
2. Increasing regulations
3. Big middle class that have no strong motivation to advance further or have "enough money" for good living (modulo individuals)
4. Growth in domain which GDP doesn't capture e.g. Open Source
5. No obvious investments opportunities e.g. Highway
I'd say it's probably just the world slowly but surely becoming less dependent on the U.S. economy after the entire world economy was destroyed in a War.
And, yes, birthrates and longer retirement are probably relevant.
And, yes, birthrates and longer retirement are probably relevant.
6. Retirement of the baby boom generation.
7. Low birth rates.
7. Low birth rates.
A simplified example of what happens when trade deficits occur over a long enough period of time:
Squanderville versus Thriftville (Warren Buffet) - http://www.freerepublic.com/focus/news/1053684/posts
Squanderville versus Thriftville (Warren Buffet) - http://www.freerepublic.com/focus/news/1053684/posts
But it's not a bad economy VC/PE. It's basically loads of 0% money and no tax via carried interest. If you disagree, come see the number of entire floor apartment renovations happening on 5th ave.
<3 NYC
<3 NYC
I agree technology will save us from the mad max scenario that we repeatedly have read about over the last 5 years. However, it will be interesting to see how the "Technocracy" plays out.
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This comment section turned out about the way one would predict: politics.
This comment section turned out about the way one would predict when so few of the participants have ever studied economics.
Unfortunately there seem to be two distinct groups that each think the other has never studied economics.
It's possible to have good discussions about this, but it requires a lot more moderation than HN wants to do (rightly, in my estimation). And probably a different format: the threaded discussion format leads to all sorts of weird tarpits.
It's possible to have good discussions about this, but it requires a lot more moderation than HN wants to do (rightly, in my estimation). And probably a different format: the threaded discussion format leads to all sorts of weird tarpits.
This ^^ +10
How could it not? Macroeconomics and politics are inseparable.
It's a dismal situation. Low interest rates mean cheap money in theory, but the "people" best equipped to take advantage of it are corporations. It's not like average people are able to start businesses just because the interest rate is low. However, low interest rates mean the penalty (to companies) for hoarding and for general risk aversion is also low. This means that lousy executives don't get a lot of investor pushback (companies don't have to do much to beat the risk-free rate) and can stick around indefinitely. The only thing that changes is that their exorbitant salaries go up (as do housing prices, college tuitions, and healthcare costs).
Meanwhile, for the 99%, this debt/poverty cancer just keeps growing inside the country, making it weaker every day: it's not just government debt-- although that is a real problem-- but student debt and credit cards as the replacement for Fordist wage increases.
The macro picture is bad, but the micro picture is even more dismal. Corporate management is becoming more self-serving and corrupt, internal policies of corporations are becoming more mean-spirited (many companies now require employees to use vacation when sick, and open-plan <50 SF allotments of office space are becoming the norm). When you see the reality of work life for most Americans, you realize that the corrosion is organic, inevitable, and really quite deserved. Our country has become a patchwork system of slapped-together corporate garbage, whether you're talking about its healthcare coverage or the way most of us have to work. What used to be a country is now a phalanx of uninspiring, mean-spirited organizations not worth caring about.
I think that startups and venture capital will continue to do well.
Ouch. Sorry to disagree, but... what's pushing people into startups is not that this VC-funded game is so great (it ain't) but that corporate employment has become such a raw deal. Now that big companies have ceased doing the right thing when it comes to investing in their employees, avoiding layoffs unless absolutely necessary, etc., we've reached a point that shoestring long-shots called "startups" look like a good idea in comparison. The startups haven't improved. (In fact, they've become worse.) The alternatives, however, have gone to shit.
VC-funded startups are notoriously cheap, and stinginess leads to mediocrity. For example, they don't pay relocation, don't pay for education, and usually involve 80+ percent "employee contributions" on health insurance. Some even make people take fucking vacation days to attend conferences. If you look at it honestly, "we're a startup" is usually just used to justify being a terrible company.
Now, the proper strategy is either to bet big on someone, or not hire that person, and (in general) to be very selective. (If you're not willing to pay full relocation, you shouldn't be hiring that person at all.) The problem is that these VC-funded startups are so weak in terms of technical talent that "hire a few strong people and bet big on them" isn't a viable strategy, because they can't get the first part down. So they have to hire large (as in, a large number of people... like 30 before they even launch) and so they offer crappy salaries, dogshit equity, and nonexistent perks in the hope that one of the clueless 22-year-olds who takes their offer will be an undiscovered talent. Occasionally, it works out that way. Most of the time it doesn't. Hence, the high failure rate of VC-funded startups.
VC has been, and will continue to be, an underperforming asset class and there's a clear reason why. The main players aren't optimizing for the performance of their portfolios but their careers (and, to be fair, I can't blame them; I'd do the same in their shoes). Their career goals push them to over-collaborate (read: collude) and that creates that disgusting culture of co-funding. But as soon as you have important decisions made by committee, mediocrity is a result because you're now biased in favor of mediocre/never-offends-anyone people instead of high-variance people who actually do the fucking work.
Personally, I think that innovation and new technology is what will save us.
Eventually, yes. But I think we're going to see things get a lot worse before they start getting better. I don't think that the US or the world economy is in terminal decline, but I think we have another 10-15 years of ugliness before things start to improve.
Meanwhile, for the 99%, this debt/poverty cancer just keeps growing inside the country, making it weaker every day: it's not just government debt-- although that is a real problem-- but student debt and credit cards as the replacement for Fordist wage increases.
The macro picture is bad, but the micro picture is even more dismal. Corporate management is becoming more self-serving and corrupt, internal policies of corporations are becoming more mean-spirited (many companies now require employees to use vacation when sick, and open-plan <50 SF allotments of office space are becoming the norm). When you see the reality of work life for most Americans, you realize that the corrosion is organic, inevitable, and really quite deserved. Our country has become a patchwork system of slapped-together corporate garbage, whether you're talking about its healthcare coverage or the way most of us have to work. What used to be a country is now a phalanx of uninspiring, mean-spirited organizations not worth caring about.
I think that startups and venture capital will continue to do well.
Ouch. Sorry to disagree, but... what's pushing people into startups is not that this VC-funded game is so great (it ain't) but that corporate employment has become such a raw deal. Now that big companies have ceased doing the right thing when it comes to investing in their employees, avoiding layoffs unless absolutely necessary, etc., we've reached a point that shoestring long-shots called "startups" look like a good idea in comparison. The startups haven't improved. (In fact, they've become worse.) The alternatives, however, have gone to shit.
VC-funded startups are notoriously cheap, and stinginess leads to mediocrity. For example, they don't pay relocation, don't pay for education, and usually involve 80+ percent "employee contributions" on health insurance. Some even make people take fucking vacation days to attend conferences. If you look at it honestly, "we're a startup" is usually just used to justify being a terrible company.
Now, the proper strategy is either to bet big on someone, or not hire that person, and (in general) to be very selective. (If you're not willing to pay full relocation, you shouldn't be hiring that person at all.) The problem is that these VC-funded startups are so weak in terms of technical talent that "hire a few strong people and bet big on them" isn't a viable strategy, because they can't get the first part down. So they have to hire large (as in, a large number of people... like 30 before they even launch) and so they offer crappy salaries, dogshit equity, and nonexistent perks in the hope that one of the clueless 22-year-olds who takes their offer will be an undiscovered talent. Occasionally, it works out that way. Most of the time it doesn't. Hence, the high failure rate of VC-funded startups.
VC has been, and will continue to be, an underperforming asset class and there's a clear reason why. The main players aren't optimizing for the performance of their portfolios but their careers (and, to be fair, I can't blame them; I'd do the same in their shoes). Their career goals push them to over-collaborate (read: collude) and that creates that disgusting culture of co-funding. But as soon as you have important decisions made by committee, mediocrity is a result because you're now biased in favor of mediocre/never-offends-anyone people instead of high-variance people who actually do the fucking work.
Personally, I think that innovation and new technology is what will save us.
Eventually, yes. But I think we're going to see things get a lot worse before they start getting better. I don't think that the US or the world economy is in terminal decline, but I think we have another 10-15 years of ugliness before things start to improve.
Just to be clear, pretty much every point you made about startups directly conflicts with the sample of ~10 SF/SV companies I talked with during a recent job search
- base salaries at funded startups are good. Equity could vary greatly depending on how much salary you asked for - insurance is 100% paid for employees and 50%+ paid for family - I didn't discuss relocation but I was relocated to SF 2 yrs ago by a startup - Very, very smart and capable co-workers - Vacation days were untracked or 15+, and there was a separate allotment of sick days - Most teams were < 10 developers well after launch - Much easier to find jobs as an experienced senior developer than a junior developer
The one point you nailed is all open-plan offices, everywhere, all the time.
I don't know what you're basing your statements on, and maybe it's different in other parts of the country, but in SV/SF right now, if you're a demonstrably good developer, you're in extremely high demand and many, many excellent companies are competing fiercely to hire you.
- base salaries at funded startups are good. Equity could vary greatly depending on how much salary you asked for - insurance is 100% paid for employees and 50%+ paid for family - I didn't discuss relocation but I was relocated to SF 2 yrs ago by a startup - Very, very smart and capable co-workers - Vacation days were untracked or 15+, and there was a separate allotment of sick days - Most teams were < 10 developers well after launch - Much easier to find jobs as an experienced senior developer than a junior developer
The one point you nailed is all open-plan offices, everywhere, all the time.
I don't know what you're basing your statements on, and maybe it's different in other parts of the country, but in SV/SF right now, if you're a demonstrably good developer, you're in extremely high demand and many, many excellent companies are competing fiercely to hire you.
Your analysis is good WRT "VC has been, and will continue to be, an underperforming asset class" as an isolated group. However, it is relevant to consider as a class, they're competing against large corporations, the home of Dilbert and TPS reports... Beating them as a class should be fairly easy.
Like the story about two guys running from the bear, you don't have to run faster than the bear, you just need to run faster than the other guy, and Dilbert doesn't exactly have an ultra-marathoners physique.
Like the story about two guys running from the bear, you don't have to run faster than the bear, you just need to run faster than the other guy, and Dilbert doesn't exactly have an ultra-marathoners physique.
(and, to be fair, I can't blame them; I'd do the same in their shoes)
Why?
Why?
In this context, I hope at some point sama has a chance (if he hasn't already) to read the post "Sam Altman is not a blithering idiot" by Mencius Moldbug:
http://unqualified-reservations.blogspot.com/2013/03/sam-alt...
The basic problem with our society is a disconnect between consensus reality and actual reality. We actually have no shortage of natural leaders. But they cannot actually lead us anywhere. They are operating in consensus reality rather than actual reality. Their joysticks are not plugged in. When the consensus is nonsense, sober good sense is nonsense. Nonsense is no use to anyone.
It's a long post, but if you're interested in examining the problems we face from a fresh and unusual perspective it's worth reading the whole thing.
http://unqualified-reservations.blogspot.com/2013/03/sam-alt...
The basic problem with our society is a disconnect between consensus reality and actual reality. We actually have no shortage of natural leaders. But they cannot actually lead us anywhere. They are operating in consensus reality rather than actual reality. Their joysticks are not plugged in. When the consensus is nonsense, sober good sense is nonsense. Nonsense is no use to anyone.
It's a long post, but if you're interested in examining the problems we face from a fresh and unusual perspective it's worth reading the whole thing.
It's also critically wrong in understanding technology:
"one run of a time machine, with a printout of Wikipedia, would be pretty much all the real 1950 needed. Send the technology back to 1945, and you'll have iPads by '55 at the latest. Those guys got things done."
That kind of thinking betrays a common misunderstanding. The limiting factor on what we can build at any given time is very rarely ideas. In 1950, people already knew enough physics to build an iPad. The idea of integrated circuits had already been proposed. The first one was demonstrated in 1958 -- only three years later than Moldbug's alternate history.
And yet no iPads in 1960. Because there's a vast global capital structure that needed to evolve first. Technology is not an external factor. It makes no sense to argue whether society is better after factoring out technology, because technology cannot be factored out. It's all part of the same web of interrelationships.
Edit to add:
I had to add this, because it's so wrong it's perverse: "At the base of the pyramid are air, water and food. How does 2013 do at supplying oxygen, hydration and nutrition? How did 1950 do? Just fine. Gentlemen, a draw."
Only if you limit yourself to the wealthiest 10% of human beings. Out here in reality, global food security for everybody else is dramatically better than it was in 1950. Much of the developing world is starting to worry more about obesity than starvation. Moldbug is simply ignoring the biggest economic story of the last 40 years, presumably because it didn't happen in The West.
"one run of a time machine, with a printout of Wikipedia, would be pretty much all the real 1950 needed. Send the technology back to 1945, and you'll have iPads by '55 at the latest. Those guys got things done."
That kind of thinking betrays a common misunderstanding. The limiting factor on what we can build at any given time is very rarely ideas. In 1950, people already knew enough physics to build an iPad. The idea of integrated circuits had already been proposed. The first one was demonstrated in 1958 -- only three years later than Moldbug's alternate history.
And yet no iPads in 1960. Because there's a vast global capital structure that needed to evolve first. Technology is not an external factor. It makes no sense to argue whether society is better after factoring out technology, because technology cannot be factored out. It's all part of the same web of interrelationships.
Edit to add:
I had to add this, because it's so wrong it's perverse: "At the base of the pyramid are air, water and food. How does 2013 do at supplying oxygen, hydration and nutrition? How did 1950 do? Just fine. Gentlemen, a draw."
Only if you limit yourself to the wealthiest 10% of human beings. Out here in reality, global food security for everybody else is dramatically better than it was in 1950. Much of the developing world is starting to worry more about obesity than starvation. Moldbug is simply ignoring the biggest economic story of the last 40 years, presumably because it didn't happen in The West.
Not only capital structure, but lots and lots and LOTS of various minor improvements in all areas.
They would not be making iPads, because simply having one around doesn't automatically create the production technology to create it. That would still take a whole lot of work. It may well be that it would be more efficient to send them a bunch of C64's if you simply wanted them to improve faster, since the gap between the technologies are lesser.
They would not be making iPads, because simply having one around doesn't automatically create the production technology to create it. That would still take a whole lot of work. It may well be that it would be more efficient to send them a bunch of C64's if you simply wanted them to improve faster, since the gap between the technologies are lesser.
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One way to see how technology can be factored out is to consider a time when it changed more slowly. For instance, technology in ancient Rome hardly changed between, say, 180 A.D. and 400 A.D., at least by 21st century standards, and yet there's no doubt that Roman civilization declined precipitously during that time.
One of Moldbug's claims is that similar declines in the last two centuries or so have been masked by technological improvements. For example, in the 1960s many people routinely left their cars unlocked, often even leaving their keys in the ignition. [1] Meanwhile, technological improvements in the intervening ~50 years have made it much harder to steal cars. The way to factor out technology in this case is to imagine what would happen if modern cars had no alarm systems, no LoJacks, were easy to hot-wire, etc., and if people routinely left keys in the ignition of unlocked cars. It's not even hypothetical—you could actually do this as a real experiment. The result would, I predict, show that (at least in this narrow respect) American civilization has declined in the intervening years.
[1]: http://www.vdare.com/articles/why-hasnt-crime-fallen-further...
One of Moldbug's claims is that similar declines in the last two centuries or so have been masked by technological improvements. For example, in the 1960s many people routinely left their cars unlocked, often even leaving their keys in the ignition. [1] Meanwhile, technological improvements in the intervening ~50 years have made it much harder to steal cars. The way to factor out technology in this case is to imagine what would happen if modern cars had no alarm systems, no LoJacks, were easy to hot-wire, etc., and if people routinely left keys in the ignition of unlocked cars. It's not even hypothetical—you could actually do this as a real experiment. The result would, I predict, show that (at least in this narrow respect) American civilization has declined in the intervening years.
[1]: http://www.vdare.com/articles/why-hasnt-crime-fallen-further...
Ah yes, the old "actual reality" ruse.
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"Entitlement" is a dog whistle that is used in place of "welfare".
http://rationalwiki.org/wiki/Entitlement_program
http://rationalwiki.org/wiki/Entitlement_program
In the United States, the term "welfare" is typically used to refer to need-based social programs like SNAP (food stamps), as compared to things like Social Security which are available to all citizens after a certain age. Politicians across the spectrum use the phrase "entitlement programs" to refer to all social programs offered by the government.
Arguing about terminology is a great way to avoid arguing about tough fiscal realities.
I think it's worth mentioning. Propagandistic terms such as "entitlements" frustrate discussion and make it even more difficult to communicate. It belittles and trivializes the opinion that poor people are entitled to things like healthcare or food, making people who hold that opinion unwilling to discuss it.
It's the government's own term, used by nonpartisan entities like the CBO.
If anything, "welfare" is now used as a more politically loaded term. It's almost never used anymore without attaching a negative connotation -- whether by the right in the old way, or by the left when decrying "corporate welfare".
If anything, "welfare" is now used as a more politically loaded term. It's almost never used anymore without attaching a negative connotation -- whether by the right in the old way, or by the left when decrying "corporate welfare".
Politicians can't refer to social programs as "welfare" because it carries a negative connotation, and people on Medicare, Medicaid, and Social Security will be uncomfortable with being grouped with those on SNAP. They also can't refer to them as "social programs" because it's three short letters away from "socialism."
The use of the word "entitlements" is a lot like how socially left-leaning people are now more commonly referred to as "progressives" rather than "liberals."
The use of the word "entitlements" is a lot like how socially left-leaning people are now more commonly referred to as "progressives" rather than "liberals."
I realize that it's biased but it also explains the point very well. It's a dog whistle.
The defense budget has gotten smaller as a total percentage of the economy since WWII, but the economy was smaller and the entire country was mobilized.
We currently spend over a trillion dollars a year on defense and intelligence. "Entitlements" are not the problem.I love how they are entitlements even though you pay for them...in fact, let's start calling it the social safety net instead.
The main problem is that the wealthy, corporations and individuals, don't pay enough. Cut defense by half and stop letting the wealthy walk all over us and all of a sudden you don't have a crisis.
We currently spend over a trillion dollars a year on defense and intelligence. "Entitlements" are not the problem.I love how they are entitlements even though you pay for them...in fact, let's start calling it the social safety net instead.
The main problem is that the wealthy, corporations and individuals, don't pay enough. Cut defense by half and stop letting the wealthy walk all over us and all of a sudden you don't have a crisis.
I wouldn't say spending on entitlement programs are an issue, they're more of a symptom. IMO, the root cause of our economic stagnation is our government's inability to create policy that is efficient, thoughtful, and timely. The inherently conservative features found in the structure western-style democracies are increasingly becoming an anchor on societal progress. Our governments aren't "conservative" in the ideological sense but in the slow, methodical manner in which change is meant to flow through the system.
I keep getting stuck on what I've learned of "lean" manufacturing principles and how hard it was for businesses to adapt to a more responsive and adaptive model of operations. Industrial behemoths could plod along, surviving off the enormous inertia they'd built over the decades. Some fell while others are still plodding along, yet unchallenged by efficient competitors that can't clear the entry barriers of the market, time will still come for them.
Governments are behemoths of a much more impressive scale. Their size lets them wield tools that no business is large enough to hold (monetary policy, "monopoly of violence"). Unfortunately inertia will always be overcome by time and friction in the form of a century of inefficient policy.
The fix isn't going to be found in dropping all forms of welfare or by jacking up tax rates to cover the continuing expenses of such programs, it will be found through guided reform. We need to base policy on facts and economic "facts" aren't universal, they're marginal and we need much more information and real world date to find those margins.
In my opinion the US needs a few big picture changes in order to start making informed policy reforms:
- States need to be given the room for experimentation that was intended our nations founders. The scientific approach to any problem requires a control group and when the federal government attempts to monopolize control at every level there's no room for comparison.
- To that point, there are many problems that can only be approached at a national level. The areas of defense, common natural resources, border controls, and interstate disputes of all types were wisely enshrined in the constitution as the domain of the federal government. While I'd like to hand as much power to the states as possible and others would like to handle things like healthcare at a purely national level, I think the wise approach would involve studying the international picture before jumping to any conclusions. Looking internationally we'd find that universal and mixed systems can be equally successful. Universal national systems (NHS), regional systems (Canada's provincial system), privately weighted mixed systems (Malaysia), and publicly weighted mixed systems (Germany) are all able to produce better outcomes than our attempt at a mixed system. So we must study, experiment and design, maybe we'd find that a provincial system would work best, maybe a national single payer system would work but despite years of debate we've ended up arguing over ideology. Ultimately we must have a system of reasoned debate and a legislative process capable of enacting the well-validated policy.
- Our electoral processes have resulted in a deeply divided, highly ideological country. There's no structural roadblock standing in the way of implementing well-researched policy as I've described, there are only political barriers. I can't think of a quick fix capable of changing millions of minds but I know that any slow shift like this degradation of political discourse can be reversed at the same slow pace. The solution is something that should have always been in the federal domain and that's our disjointed, uncoordinated redistricting processes. Centuries of gerrymandering have resulted in a map of districts engineered entirely for the purpose of furthering a party's political machine. The bent geography necessary for ensuring the "safety" of congressional seats is just a hair above the line of credibility if we are to consider our government "representative". The lack of fair demographic representation boxes us all in to neat little bubbles of ideology where few of us are allowed to express our political will in the face of an overwhelming majority opposition. We're the only country where districts are drawn by the interested parties and this needs to change. I believe it will push people out of their bubbles and hopefully bring about a stronger culture of political debate.
I have a few other ideas that are much less feasible but my tl;dr is that we need to start fostering a less divisive culture that will be receptive to taking a scientific approach to policy. Otherwise the lumbering dinosaurs called western democracies are going to fall so behind the curve that failure will become the only option.
I keep getting stuck on what I've learned of "lean" manufacturing principles and how hard it was for businesses to adapt to a more responsive and adaptive model of operations. Industrial behemoths could plod along, surviving off the enormous inertia they'd built over the decades. Some fell while others are still plodding along, yet unchallenged by efficient competitors that can't clear the entry barriers of the market, time will still come for them.
Governments are behemoths of a much more impressive scale. Their size lets them wield tools that no business is large enough to hold (monetary policy, "monopoly of violence"). Unfortunately inertia will always be overcome by time and friction in the form of a century of inefficient policy.
The fix isn't going to be found in dropping all forms of welfare or by jacking up tax rates to cover the continuing expenses of such programs, it will be found through guided reform. We need to base policy on facts and economic "facts" aren't universal, they're marginal and we need much more information and real world date to find those margins.
In my opinion the US needs a few big picture changes in order to start making informed policy reforms:
- States need to be given the room for experimentation that was intended our nations founders. The scientific approach to any problem requires a control group and when the federal government attempts to monopolize control at every level there's no room for comparison.
- To that point, there are many problems that can only be approached at a national level. The areas of defense, common natural resources, border controls, and interstate disputes of all types were wisely enshrined in the constitution as the domain of the federal government. While I'd like to hand as much power to the states as possible and others would like to handle things like healthcare at a purely national level, I think the wise approach would involve studying the international picture before jumping to any conclusions. Looking internationally we'd find that universal and mixed systems can be equally successful. Universal national systems (NHS), regional systems (Canada's provincial system), privately weighted mixed systems (Malaysia), and publicly weighted mixed systems (Germany) are all able to produce better outcomes than our attempt at a mixed system. So we must study, experiment and design, maybe we'd find that a provincial system would work best, maybe a national single payer system would work but despite years of debate we've ended up arguing over ideology. Ultimately we must have a system of reasoned debate and a legislative process capable of enacting the well-validated policy.
- Our electoral processes have resulted in a deeply divided, highly ideological country. There's no structural roadblock standing in the way of implementing well-researched policy as I've described, there are only political barriers. I can't think of a quick fix capable of changing millions of minds but I know that any slow shift like this degradation of political discourse can be reversed at the same slow pace. The solution is something that should have always been in the federal domain and that's our disjointed, uncoordinated redistricting processes. Centuries of gerrymandering have resulted in a map of districts engineered entirely for the purpose of furthering a party's political machine. The bent geography necessary for ensuring the "safety" of congressional seats is just a hair above the line of credibility if we are to consider our government "representative". The lack of fair demographic representation boxes us all in to neat little bubbles of ideology where few of us are allowed to express our political will in the face of an overwhelming majority opposition. We're the only country where districts are drawn by the interested parties and this needs to change. I believe it will push people out of their bubbles and hopefully bring about a stronger culture of political debate.
I have a few other ideas that are much less feasible but my tl;dr is that we need to start fostering a less divisive culture that will be receptive to taking a scientific approach to policy. Otherwise the lumbering dinosaurs called western democracies are going to fall so behind the curve that failure will become the only option.
The problem with entitlements/social safety net programs (how ever you want to spin it) is that they're policies that are predicated on the old generation being funded by a larger younger generation. That's policy that isn't fault tolerant to population decreases nor medical black swans.
I thought that they were called entitlements precisely because we pay for them.
They are called entitlements to make people think that some undeserving class is getting over...they think they are "entitled"...is the way that is put. It was done on purpose by conservatives. Its a dog whistle.
I don't think that comes from where you think it does. I think it comes from the fact that people are literally entitled to that money via the legal contract we've set up - it is spoken for.
Too many mixed metaphors.
Aside from employees, .gov gives people money two ways:
1) Contracts. 200 F-22 for $100B or so. $1M for the service contract for that server for a year. Usually involves a psuedo competitive bidding process, a lack of one is unusual enough that you get the phrase "no bid contract" because its an oddity.
2) Entitlements. If you meet these requirements, you get this money, or income tax credit, or whatever. You're entitled as a member of a class where that class is poor dudes or historic property investors or hybrid car owner or whatever. Usually doesn't involve competitive bidding or auctions at all.
You're just going to confuse people by mixing contracts and entitlements in the same line.
Aside from employees, .gov gives people money two ways:
1) Contracts. 200 F-22 for $100B or so. $1M for the service contract for that server for a year. Usually involves a psuedo competitive bidding process, a lack of one is unusual enough that you get the phrase "no bid contract" because its an oddity.
2) Entitlements. If you meet these requirements, you get this money, or income tax credit, or whatever. You're entitled as a member of a class where that class is poor dudes or historic property investors or hybrid car owner or whatever. Usually doesn't involve competitive bidding or auctions at all.
You're just going to confuse people by mixing contracts and entitlements in the same line.
Sorry, didn't mean to confuse. "Contract" is used metaphorically in relation to the government all the time, though. "Social contract", for example.
I don't think you get what a "dog whistle" is. Everyone calls them entitlements.
Everyone huh? Try Google-ing entitlements and racism.
I don't see the relevance. All I'm getting is a lot of criticism of some comment Scalia once made which seems to have nothing to do with whether things should be called entitlements.
Further, if that was somehow your point, bear in mind that "everyone" in this context is pretty clearly something like "the vast majority". I could find traces of evidence of people trying to redefine the term, sure, but no evidence they're being particularly successful. Even the NYT calls them entitlements with no apparent irony. Call them mainstream or call them leftist, either way, it's evidence on my side.
Further, if that was somehow your point, bear in mind that "everyone" in this context is pretty clearly something like "the vast majority". I could find traces of evidence of people trying to redefine the term, sure, but no evidence they're being particularly successful. Even the NYT calls them entitlements with no apparent irony. Call them mainstream or call them leftist, either way, it's evidence on my side.
Entitlements are simply something people are legally entitled to.
No one thinks that entitlements Social Security and Medicare go predominantly to minorities and a lazy underclass, and yet they're the biggest parts of our budget. (Some people do, however, labor under the impression that SS and Medicare make up 5% of the budget and the remaining 95% goes to welfare, foreign aid, and greedy public employees, but that's another issue entirely.)
No one thinks that entitlements Social Security and Medicare go predominantly to minorities and a lazy underclass, and yet they're the biggest parts of our budget. (Some people do, however, labor under the impression that SS and Medicare make up 5% of the budget and the remaining 95% goes to welfare, foreign aid, and greedy public employees, but that's another issue entirely.)
You're partially right about the dog whistle, but the literal meaning of 'entitlement' is that you have title to something, ie a legal right of ownership and it is the correct technical term for these payments, notwithstanding the secondary political meaning (of false entitlement) that has been attached to it.
It looks like it's mostly medical costs. Social Security and other such things haven't increased much.
Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case.
For the bull case, see this post, from a guy who's been right about everything since the mid-2000s.
http://www.calculatedriskblog.com/2014/06/the-future-is-stil...