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+--- Thread: The Great Divergence (/thread-12524.html)
RE: The Great Divergence - Jester - 09-17-2010
Quote:However, you missed my point.
Ah, yes, I thought you meant it took him 30 minutes to derail it from income inequality to wealth inequality.
Quote:We have now reviewed all possible causes of the Great Divergence—all, at least, that have thus far attracted most experts' attention. What are their relative contributions? Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:
Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
Immigration is responsible for 5 percent.
The imagined uniqueness of computers as a transformative technology is responsible for none of it.
Tax policy is responsible for 5 percent.
The decline of labor is responsible for 20 percent.
Trade is responsible for 10 percent.
Wall Street and corporate boards' pampering of the Stinking Rich is responsible for 30 percent.
Various failures in our education system are responsible for 30 percent.
A failure common to this kind of attribution is that it does not address causes so much as correlations. For example, "the decline of labour" is not a sui generis event. It is the result of the weakening power of workers relative to employers, which is itself the result of other causes. When Bretton Woods collapsed, international capital flows resumed, and trade barriers started to fall, the modern multinational corporation gained an enormous quantity of bargaining power against labour. No longer tied to the labour pool of their home country, they now held the implicit threat of moving their production operations. This eviscerated the Unions' bargaining power, not only in collective negotiations, but also at the political level.
Once Unions were not strong enough to resist, they could be broken (see: Reagan, Ronald, Lady, The Iron, and Pinochet, Augusto.) The strongest unions today are the ones that are functionally immune to this process: public sector unions, who definitionally negotiate only with their home government, whose jobs can't be moved elsewhere.
So, what's responsible for that gain in inequality, then? The decline of unions? Or the causes that stand behind that decline?
Similarly, we can say that the pampering of Wall Street caused inequality, but why was Wall Street suddenly pampered? Was it a spontaneous political decision, the whims of Ronnie Raygun? Or were the political forces favouring that kind of pampering getting stronger, and the countervailing forces getting weaker, due to deeper changes in the relationship between workers, corporations, and the state?
Between those two causes, you have 50% of their attribution of the whole phenomenon, and yet, true though they may be, they don't seem to get at root causes.
-Jester
RE: The Great Divergence - kandrathe - 09-17-2010
(09-17-2010, 08:37 AM)Jester Wrote: So when you wrote...We shouldn't "redistribute". If government plays a role, it should be in providing services, such as defending the nation, providing a social safety net, assuring that education is fairly distributed. Our issues are in structuring these services as a redistribution, and doing that by robbing from one set of successful workers to pay for the less successful workers. This is fine with the bourgeois, as they are not impacted much (as a percentage of their wealth) by redistributing the income earned by the more successful workers. Sure, the bourgeois opt to earn an income, and some may need an income, but at some point it just becomes a convenient way to siphon off some of their wealth to pay for normal cost of living expenses. So, rather, I like to look at each service provided by the government and ask, "In whose interest is this service being provided?" The answer indicates then whom should be paying.
Quote:We are not starting on an even playing field, and we need to address the lumpy Himalayas as they really exist. Many have nothing, many more have a little, a few have enough, and a very few have 90% of the wealth.
... you meant what by "addressing" the inequality of wealth? If that's not a problem, why redistribute?
How about we start from the point where the workers get to keep the full exchange of their labor, which if you are a Marxist, is already heavily exploited.
Quote:I would argue, and have argued that they are the most successful proletarians who are attempting to escape from the bowl of workers.Quote:I have a problem with the worker(proletariat) being saddled with the burden of government.
I do too. But thanks to the progressive income tax, the proletarians of the United States pay only a tiny fraction of the total tax burden. Those paying the lion's share are far from "proletarians".
Quote:Well, first, it's not anti-capitalism. I desire to shift the burden of government to capitalists, who are better able to afford paying for it and for whom the government protects (rights and property).Quote:I want to shift the burden of government to the capitalist (bourgeoisie) to enable more of the proletariat to become bourgeois. Think of it as a bowl with steep sides (taxes and regulations). Political forces are aligned to keep the sides of the bowl steep enough to trap the proletariat in the bowl, most never earning quite enough to escape in their lifetimes. If we flatten out the sides of the bowl, more workers become employers. The price of labor increases, and a larger portion of the society is uplifted balancing out the wealth inequality.
Analogies aside, you can't encourage saving and investment with a tax on wealth. That does precisely the opposite. It might discourage low-wealth savers less than high-wealth savers, but that's about the best I can say about it. Nobody is going to be encouraged to become "bourgeois" through a tax on net worth, just like nobody is going to become a cyclist in response to a bicycle tax.
But, I must say, I am tickled by your anti-capitalism.
I still believe the engine of productivity is capitalism. I would again resort to the example of Warren Buffet. He did not really get wealthy by working hard, and saving his money, although those qualities perhaps enabled him to become wealthy. He became wealthy by using his investment skills to grow his assets, but he never drew a large salary from his employment. He escaped from the bowl when he formed Buffett-Falk & Co, right after he left college with a B.S. in Economics.
So, would taxing wealth discourage savings? Only if you buy into the argument that taxation would discourage all the mechanisms of wealth generation of which the remainder after consumption would be savings. Also, I'm in favor of some reasonable taxation on consumption (with perhaps exceptions for food, and medicine) as well.
I would only think it would if the tax rate was too high, and again I would advocate allowing a person to have "tax free" savings for certain self sufficiency purposes (health care, retirement, and college), and perhaps a little for the rainy day fund as well (~$25K). Once these protected purposes are taken care of, then the asset values of all investments and savings (less debts) contribute to the calculation of net worth. Various charts I've seen put the total wealth of American households and corporations at around $150 trillion, and so to maintain even what I would consider bloated federal and state budgets would require a tax on assets of not more than 3%. If we returned to the year 2000 spending levels, it would be 1/2 that.
Also, thanks for seeing my deeper meaning in the discussion of divergence. What I'm implying is that if the government allows the lower (working) classes to keep most of their money until they become "wealthy", then we shrink the divide. Right now, the sides of the bowl (federal) start going up steeply for earnings > 34K$ regardless of local price variations. I feel people end up spending all they earn mostly by necessity, and not by choice. I feel this keeps workers in the bowl, and producing wealth for those outside the bowl. When you get nearer the rim, you have the ability to start investing your disposable income into wealth generating assets.
The other portion of my scheme would be to establish limits on protected funds (pensions, medical savings accounts, college funds). So a pension fund delivering income beyond the local median income (~$50K adjusted by State) should be taxed for that portion that delivers the excess (e.g. assuming a 5% annual rate of return and the US median income, assets > $1M in a pension fund would be taxed at a .02 rate). Similarly, a medical savings account be tax free only for the portion below a determined threshold. I could see that exemptions or adjustments might apply after the diagnoses of certain costly diseases.
"Per capita lifetime expenditure is $316,600, a third higher for females ($361,200) than males ($268,700). Two-fifths of this difference owes to women's longer life expectancy. Nearly one-third of lifetime expenditures is incurred during middle age, and nearly half during the senior years. For survivors to age 85, more than one-third of their lifetime expenditures will accrue in their remaining years."
And, similarly for college savings, looking at the variables of public, private, and in-state versus out-state tuitions, I think setting the tax free threshold at about $80K to $100K makes sense.
Finally, for inheritance, I believe these three areas are THE places where inheritance should flow without tax penalties, and for the transfer of other asset ownership I feel that the IRS should give the beneficiaries a long term payment schedule, rather than impose windfall taxes at the time of the owners death. This would allow a family business to continue without suddenly facing a 50% hit to asset value.
RE: The Great Divergence - kandrathe - 09-17-2010
(09-17-2010, 03:29 PM)Maitre Wrote: Actually Pete, I'm not so sure that renting would be the way to go. I think the way to go would be my personal situation: buy a home at the peak of the housing market, then watch your home value disappear while the debt you incurred to get it doesn't. Now you "own" your home and pay your property taxes, but you're net worth is barely positive because your primary asset isn't currently worth what you paid for it. Oh, and nobody's likely to help you out because you actually manage to pay your bills on time every month and have something in the bank at the end.Really? You'd go into debt to avoid a 2% tax? You'd pay more in interest charges on your debt, unless you get rates below prime.
I'm starting to like this idea of taxation based on net worth. Maybe I should go about getting more debt to cancel the assets I do have. Oh, no, better idea: go out and get some student loan debt so I can increase my earning potential without increasing my taxation, because all my new income will by canceled by the debt I incurred to get it.
If I can generate enough negative net worth, would I then get a rebate check instead of a tax bill?
[In case I'm being too obtuse here: government policies should NOT ENCOURAGE DEBT ACCRUAL. Don't give undisciplined people a reason to flaunt their spending. It takes a lot of energy to try and do it the right way, and even when you do, it may not work out. Don't offer bad shortcuts to those who aren't looking at what's in the other hand of the person helping them up.]
RE: The Great Divergence - --Pete - 09-17-2010
Hi,
(09-17-2010, 05:51 PM)kandrathe Wrote:(09-17-2010, 03:29 PM)Maitre Wrote: [In case I'm being too obtuse here: government policies should NOT ENCOURAGE DEBT ACCRUAL . . .
Really? You'd go into debt to avoid a 2% tax? You'd pay more in interest charges on your debt, unless you get rates below prime.
I was almost certain that Maitre's post was sarcasm even before he added the clarifier. I do believe you've missed not just the point, but the whole arrow.
--Pete
RE: The Great Divergence - kandrathe - 09-17-2010
(09-17-2010, 08:27 PM)--Pete Wrote: I was almost certain that Maitre's post was sarcasm even before he added the clarifier. I do believe you've missed not just the point, but the whole arrow.Oh, no, I knew it was sarcasm, and I was playing straight man. It's hard to tell with just text. I didn't have time to use some expressive curly cues.
RE: The Great Divergence - --Pete - 09-17-2010
Hi,
(09-17-2010, 08:35 PM)kandrathe Wrote: It's hard to tell with just text. I didn't have time to use some expressive curly cues.
Funny, that's just what the l33t say. I don't have time to type the whole word. I don't have time to capitalize. I don't have time for sentence structure. I don't have time for punctuation!!!!1!1!!!!!
And we tell them that clear communication is worth the time. Indeed, it saves time because it reduces requests for clarification.
I don't expect little pictures of facial expressions or body language, but icons are not really that big a deal. And they convey a lot.
If, for some reason the click to add icon list is not showing when you post, then just remember these three and they'll get you far.
: ) happy, joke
: ( unhappy, mad
; ) sarcasm, 'wink wink nudge nudge'
Just remove the space.
--Pete
RE: The Great Divergence - kandrathe - 09-18-2010
(09-17-2010, 03:46 PM)Jester Wrote:I would point out a few things here. As much as corporations broke labor, it was also labor that broke corporations. I was at Soo Line RR when they attempted to get all the unions to renegotiate to enable it to survive. Where is Soo Line today? My father was a Teamster for his entire long haul career, but where are the companies with in-house fleets now? And, before you try to pin that on Reagan too, deregulation was passed prior to Reagan.Quote:However, you missed my point.
Ah, yes, I thought you meant it took him 30 minutes to derail it from income inequality to wealth inequality.
Quote:We have now reviewed all possible causes of the Great Divergence—all, at least, that have thus far attracted most experts' attention. What are their relative contributions? Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:A failure common to this kind of attribution is that it does not address causes so much as correlations. For example, "the decline of labour" is not a sui generis event. It is the result of the weakening power of workers relative to employers, which is itself the result of other causes. When Bretton Woods collapsed, international capital flows resumed, and trade barriers started to fall, the modern multinational corporation gained an enormous quantity of bargaining power against labour. No longer tied to the labour pool of their home country, they now held the implicit threat of moving their production operations. This eviscerated the Unions' bargaining power, not only in collective negotiations, but also at the political level.
Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
Immigration is responsible for 5 percent.
The imagined uniqueness of computers as a transformative technology is responsible for none of it.
Tax policy is responsible for 5 percent.
The decline of labor is responsible for 20 percent.
Trade is responsible for 10 percent.
Wall Street and corporate boards' pampering of the Stinking Rich is responsible for 30 percent.
Various failures in our education system are responsible for 30 percent.
Once Unions were not strong enough to resist, they could be broken (see: Reagan, Ronald, Lady, The Iron, and Pinochet, Augusto.) The strongest unions today are the ones that are functionally immune to this process: public sector unions, who definitionally negotiate only with their home government, whose jobs can't be moved elsewhere.
"After Nixon left office, the Gerald Ford presidency, with the allied interests, secured passage of the first significant change in regulatory policy in a pro-competitive direction, in the Railroad Revitalization and Regulatory Reform Act of 1976. President Jimmy Carter devoted substantial effort to transportation deregulation, and worked with Congressional and civil society leaders to pass the Airline Deregulation Act (October 24, 1978), Staggers Rail Act (signed October 14, 1980), and the Motor Carrier Act of 1980 (signed July 1, 1980)." Wikipedia
How about the competitiveness of the American automobile industry?
Quote:So, what's responsible for that gain in inequality, then? The decline of unions? Or the causes that stand behind that decline?More importantly, did globalization destroy the competitiveness of American goods? In fact, this is caused in part due to the disparity between American living and working conditions and those of the workers where the products are built now. The workers lose, and the owners move their investments into Toyota (growing foreign markets where the exploitation of labor, and the environment is higher).
Quote:Similarly, we can say that the pampering of Wall Street caused inequality, but why was Wall Street suddenly pampered? Was it a spontaneous political decision, the whims of Ronnie Raygun? Or were the political forces favouring that kind of pampering getting stronger, and the countervailing forces getting weaker, due to deeper changes in the relationship between workers, corporations, and the state?How did Reagan have anything to do with the 1999 GLBA? Can you point to any deregulation bills during Reagan's two terms?
Quote:Between those two causes, you have 50% of their attribution of the whole phenomenon, and yet, true though they may be, they don't seem to get at root causes.I think they swung at the shadow anyway. Consider that 80% of the growth in the Stock Market over the past 60 years is due to inflation, and the value of a dollar has declined steadily over the past 100 years.
![[Image: ValueOfOne1913Dollar.png]](http://dollardaze.org/blog/posts/00747/ValueOfOne1913Dollar.png)
The Fed just increased M3 by > 20% and this inflation has yet to work its way through the system. As we've discussed in earlier posts, I believe the Feds printing of money has kept the (bogus) CPI fairly flat rather than allowing deflation (although we've seen a mix of deflation and inflation across the spectrum of consumer goods). As a result the bubble has shifted into US Treasuries. Just as with the other numbers the government publishes, the CPI, the unemployment rate, and the GDP are all fudged to make things look better than reality. We live in a world of rose colored scenarios.
"Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981. "
The people in the lower 90% of incomes tend to do their working, spending, and saving in dollars. While the people who earn incomes which are converted into dollars will not suffer from the devaluations. It doesn't shock me that 1 in 10 people don't understand or care about the complications of wealth in a global economy, and that of that upper 10% another 1 in 10 (like Gates, or Buffet) do exceptionally well. Heck, even Greenspan, Paulsen, Bernanke, Geitner, et. al. can be horribly wrong, and cause untold devastation all in the name of trying to fix today's crisis.
RE: The Great Divergence - Jester - 09-20-2010
(09-18-2010, 04:01 PM)kandrathe Wrote: I would point out a few things here. As much as corporations broke labor, it was also labor that broke corporations.
Right, which is why unions today are struggling outside of the government sector, real wages for workers have not risen in quite awhile, and yet, executive pay has shot off like a rocket for three decades. Obviously, the corporations are not "broken". They have gained, rather than lost, power.
Quote:I was at Soo Line RR when they attempted to get all the unions to renegotiate to enable it to survive. Where is Soo Line today? My father was a Teamster for his entire long haul career, but where are the companies with in-house fleets now?
If the wiki is to be believed, the line was bought and is currently managed by CP. Regardless, I would not be so bold as to advance the argument that unions are powerless, or that unions have no role in the failure of certain companies. Railroads in particular are unable to move, and therefore unable to take advantage of the international markets for labour. However, that does not change the general trajectory of labour vs. corporations in the larger picture.
Quote:More importantly, did globalization destroy the competitiveness of American goods?
American goods less than American workers. Until cheap sources of labour reach the limits of their productivity with low capital investment and poor education, American workers will face an uphill battle. On the other hand, they still have substantial advantages over their third world counterparts, and do see gains from trade - just less than their employers see, creating inequality.
Quote:How did Reagan have anything to do with the 1999 GLBA?
I don't recall advancing any argument like "Ronald Reagan was responsible for all deregulation, past, present, and future."
Quote:Can you point to any deregulation bills during Reagan's two terms?
The Garn-St. Germain Depository Institutions act? Reagan presided over a large relaxation of regulations, both by abolishing them officially, and just changing their enforcement informally. This is the man who decided that Alan Greenspan should be Fed chairman, for crying out loud. Are you really going to argue that Reagan didn't deregulate?
Quote:I think they swung at the shadow anyway. Consider that 80% of the growth in the Stock Market over the past 60 years is due to inflation, and the value of a dollar has declined steadily over the past 100 years.
Sure. But so what? What matters are real prices and real wages, unless you're stupid enough to have kept all your money in paper dollars for 100 years under your mattress. The question is not what % of stock market nominal growth is actually real growth. The question is what the rate of real growth is, and it's been quite steadily positive for this entire period, excepting a few crash years.
Quote:The Fed just increased M3 by > 20% and this inflation has yet to work its way through the system.
It hasn't even started. Velocity is still down. There are no signs of impending inflation, at least, none that investors are willing to bet their money on. Bond yields are shockingly low. Prices are not increasing overall, and are even decreasing in some areas. A little inflation right now would be marvellous.
Quote:As we've discussed in earlier posts, I believe the Feds printing of money has kept the (bogus) CPI fairly flat rather than allowing deflation (although we've seen a mix of deflation and inflation across the spectrum of consumer goods).
99 out of 100 economists agree: deflation sucks. Big time. Not printing money right now would be suicidally stupid.
Quote:As a result the bubble has shifted into US Treasuries.
There is a ceiling on US bond prices - the 0% nominal interest bound, the point at which you are literally giving money to the US treasury for nothing more than a promise to repay it, eventually. A bubble in bonds can only go so high, and therefore, can only cause so much damage.
Quote:Just as with the other numbers the government publishes, the CPI, the unemployment rate, and the GDP are all fudged to make things look better than reality. We live in a world of rose colored scenarios.
It's not getting any more true every time you repeat it. It was horsepuckey the first time you said it, and it's still horsepuckey.
Quote:"Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981. "
This doesn't make any sense. If the government is printing an enormous quantity of money, then the *last* thing people want to hold is US debt securities! If that was the fear, then the price of US debt should be crashing through the floor, not soaring through the roof. And yet, people still seem not only happy, but almost delusionally happy, to buy both US government debt, and also gold. What does that suggest? A flight to safety. It certainly doesn't suggest that investors are scared of monetary expansion, because that would be irrational, completely backwards. You sell bonds when you're expecting inflation, you don't buy them.
Quote:The people in the lower 90% of incomes tend to do their working, spending, and saving in dollars. While the people who earn incomes which are converted into dollars will not suffer from the devaluations.
It's strange that so many of your "sources" are just editorials from right wing newspapers.
Inflation hurts the rich more than the poor. People who have little or no savings are hit proportionally less. Wages adjust relatively quickly in an upwards direction, because employers need workers. Higher inflation generates lower unemployment, which increases the pressure on wages to increase. Inflation also decreases the value of debts, which are disproportionately held by the poor, especially the homeowning poor.
Everyone buys everything in the same currency, so that has no disproportionate effect on anyone. It's not like rich people deal directly in gold bullion.
Rich people, on the other hand, tend to have bank accounts. They may hold most of their assets elsewhere, but nobody operates with zero liquidity, and every dollar they keep in currency is a dollar hit by inflation.
Quote:It doesn't shock me that 1 in 10 people don't understand or care about the complications of wealth in a global economy, and that of that upper 10% another 1 in 10 (like Gates, or Buffet) do exceptionally well.
Bill Gates and Warren Buffett are more like one in a billion than one in a hundred. Top of the curve - someone has to be the richest. (Interesting that article is from 2005 - if you'd shorted the dollar from then until now, I don't think you would have exactly made a killing...)
Quote:Heck, even Greenspan, Paulsen, Bernanke, Geitner, et. al. can be horribly wrong, and cause untold devastation all in the name of trying to fix today's crisis.
I don't think anything that has been done has caused "untold devastation". Not enough was done. What was done, was not as effective as it could be. But compared with the magnitude of the crisis itself, no reaction to it has had a very large effect, good or bad.
-Jester
RE: The Great Divergence - kandrathe - 09-20-2010
(09-20-2010, 05:02 AM)Jester Wrote:In aggregate, yes, those corporations who were un-unionized were able to better exploit labor. I'm saying that given numerous corporations in a competitive market, the corporation without a union will out compete it's unionized competition. This is now global. US automobile manufacturers cannot produce cars at the same quality and as cheaply as their foreign competition, partly due to union contracts (pay more for average labor, and cannot remove the bad employees).(09-18-2010, 04:01 PM)kandrathe Wrote: I would point out a few things here. As much as corporations broke labor, it was also labor that broke corporations.Right, which is why unions today are struggling outside of the government sector, real wages for workers have not risen in quite awhile, and yet, executive pay has shot off like a rocket for three decades. Obviously, the corporations are not "broken". They have gained, rather than lost, power.
Quote:I have mixed feelings about collective bargaining, and strikes. Back in the early 1900's it was necessary due to horrendous working conditions. More often these days, the issues are picayune, and effects of strikes devastate economies (especially when executed by government workers). We are facing an impending transit strikes here against the metropolitan council (collective government over Minneapolis, Saint Paul metroplex). Their contract expired last July, and they are upset over flat wages and increasing health care costs. So are we all.Quote:I was at Soo Line RR when they attempted to get all the unions to renegotiate to enable it to survive. Where is Soo Line today? My father was a Teamster for his entire long haul career, but where are the companies with in-house fleets now?
If the wiki is to be believed, the line was bought and is currently managed by CP. Regardless, I would not be so bold as to advance the argument that unions are powerless, or that unions have no role in the failure of certain companies. Railroads in particular are unable to move, and therefore unable to take advantage of the international markets for labour. However, that does not change the general trajectory of labour vs. corporations in the larger picture.
Quote:I think de-development, and the devaluation of America is a part of the current administrations agenda.Quote:More importantly, did globalization destroy the competitiveness of American goods?
American goods less than American workers. Until cheap sources of labour reach the limits of their productivity with low capital investment and poor education, American workers will face an uphill battle. On the other hand, they still have substantial advantages over their third world counterparts, and do see gains from trade - just less than their employers see, creating inequality.
Quote:I missed that one, and Title VIII (adjustable rate mortgages) of that act did result in a savings and loan problem later. Mr. Greenspan, as Fed Chairman, was in a position to advocate for deregulation, but congress didn't do any of it until Mr. Clinton came to the White House.Quote:Can you point to any deregulation bills during Reagan's two terms?The Garn-St. Germain Depository Institutions act? Reagan presided over a large relaxation of regulations, both by abolishing them officially, and just changing their enforcement informally. This is the man who decided that Alan Greenspan should be Fed chairman, for crying out loud. Are you really going to argue that Reagan didn't deregulate?
Quote:You wouldn't only have needed to keep it in cash in your mattress, rather, any property that you owned denominated in dollars has declined in *real* value while increasing in present dollar price. Had you left your money in savings, annuity funds, or bonds (generally things pegged to the CPI), the value of your 1925 dollar would be slowly eroded away due to the lag in rates versus inflation.Quote:I think they swung at the shadow anyway. Consider that 80% of the growth in the Stock Market over the past 60 years is due to inflation, and the value of a dollar has declined steadily over the past 100 years.Sure. But so what? What matters are real prices and real wages, unless you're stupid enough to have kept all your money in paper dollars for 100 years under your mattress. The question is not what % of stock market nominal growth is actually real growth. The question is what the rate of real growth is, and it's been quite steadily positive for this entire period, excepting a few crash years.
![[Image: dow-1925cpi-log.gif]](http://www.dogsofthedow.com/dow-1925cpi-log.gif)
Investing in Stocks is considered the most risky. The Dow (adjusted for inflation) is trading between a 6% and 10% annual rate of return over the past 95 years (most of the growth has been since 1980), with long periods of significant down side potential. A good deal if you picked the right stocks.
Quote:They are meeting Tuesday to discuss buying more stuff with fiat money. Looking at the CPI, the problem is that inflation seems to concentrate on a certain commodities, like fuel and certain other goods (meat, used autos, rental property, tuition, local government services). Where is there not inflation? Technically, due to the Fed's manipulation of the money supply, we are not in a depression. However, the massive increases in the volume of money still hardly curbs deflation, leading me to conclude we are in a depression, masked to look like stagnation and we haven't hit bottom yet.Quote:The Fed just increased M3 by > 20% and this inflation has yet to work its way through the system.
It hasn't even started. Velocity is still down. There are no signs of impending inflation, at least, none that investors are willing to bet their money on. Bond yields are shockingly low. Prices are not increasing overall, and are even decreasing in some areas. A little inflation right now would be marvelous.
Quote:Psychologically, I agree. I think most people are bamboozled by the consequences of what the Fed are doing right now. The dollar will devalue in proportion to what have been printed, and we all have lost *real* wages, and savings in relation to what we were paid, and had saved in 2007. Prices have also dropped, so we don't feel the effects yet, but there is a 20-30% price inflation waiting to express itself once the recovery takes hold.Quote:As we've discussed in earlier posts, I believe the Feds printing of money has kept the (bogus) CPI fairly flat rather than allowing deflation (although we've seen a mix of deflation and inflation across the spectrum of consumer goods).99 out of 100 economists agree: deflation sucks. Big time. Not printing money right now would be suicidally stupid.
Quote:Right, what does that damage look like? People refusing to buy US Treasuries? Default on the debt?Quote:As a result the bubble has shifted into US Treasuries.There is a ceiling on US bond prices - the 0% nominal interest bound, the point at which you are literally giving money to the US treasury for nothing more than a promise to repay it, eventually. A bubble in bonds can only go so high, and therefore, can only cause so much damage.
Quote:We talked about U3 versus U6. It's not horsepucky. Here's an article describing how CPI is fudged. GDP... We can get into that later...Quote:Just as with the other numbers the government publishes, the CPI, the unemployment rate, and the GDP are all fudged to make things look better than reality. We live in a world of rose colored scenarios.
It's not getting any more true every time you repeat it. It was horsepuckey the first time you said it, and it's still horsepuckey.
Quote:I think people are going to safety (looking for anything with a rate of return), but everything looks bad, baring certain commodities. Stocks overall look bad, bonds look bad, municipalities are defaulting left and right. Asia, and Germany look good.Quote:"Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981. "
This doesn't make any sense. If the government is printing an enormous quantity of money, then the *last* thing people want to hold is US debt securities! If that was the fear, then the price of US debt should be crashing through the floor, not soaring through the roof. And yet, people still seem not only happy, but almost delusionally happy, to buy both US government debt, and also gold. What does that suggest? A flight to safety. It certainly doesn't suggest that investors are scared of monetary expansion, because that would be irrational, completely backwards. You sell bonds when you're expecting inflation, you don't buy them.
Quote:Leftists don't write as many articles, and being more Friedman than Marxist, I tend to post editorials that support my liberal(classical) point of view.Quote:The people in the lower 90% of incomes tend to do their working, spending, and saving in dollars. While the people who earn incomes which are converted into dollars will not suffer from the devaluations.It's strange that so many of your "sources" are just editorials from right wing newspapers.
Quote:Inflation hurts the rich more than the poor. People who have little or no savings are hit proportionally less. Wages adjust relatively quickly in an upwards direction, because employers need workers. Higher inflation generates lower unemployment, which increases the pressure on wages to increase. Inflation also decreases the value of debts, which are disproportionately held by the poor, especially the home owning poor.I don't disagree, other than that those in the upper quintiles of wealth know they have something to lose, and act to attempt to preserve their wealth. They can also probably afford to hire someone who knows how to attempt to preserve their wealth, if not increase it.
Everyone buys everything in the same currency, so that has no disproportionate effect on anyone. It's not like rich people deal directly in gold bullion.
Rich people, on the other hand, tend to have bank accounts. They may hold most of their assets elsewhere, but nobody operates with zero liquidity, and every dollar they keep in currency is a dollar hit by inflation.
Quote:You'd probably be up by about the same percentage that gold has increased in value, and maybe less. Gold buying seems to be influenced by animal spirits.Quote:It doesn't shock me that 1 in 10 people don't understand or care about the complications of wealth in a global economy, and that of that upper 10% another 1 in 10 (like Gates, or Buffet) do exceptionally well.Bill Gates and Warren Buffett are more like one in a billion than one in a hundred. Top of the curve - someone has to be the richest. (Interesting that article is from 2005 - if you'd shorted the dollar from then until now, I don't think you would have exactly made a killing...)
Quote:Shadow's articles questions why their is a growing divergence in incomes between the top and the rest of income earners. They've examined a number of things, which you and I agree (I believe) are not very good indicators. I see that these economic upheavals (recession/depressions) in our society have negative consequences more for the lower classes, and that the upper middle class, and the bourgeoisie weather, and rebound to further elevate their status. And, again, I use the bowl analogy to describe this phenomenon. I saw firsthand how the 70's stagflation affected my family, eliminating any ability of my parents to help fund the post-secondary education of their children. Luckily, each of us were able to pull ourselves up over time, although it took my older sister an additional 20 years, and two failed marriages. It was not in time to help her child much, who did not get the benefit of her later in life attainment of "professional" status. In general, people who are paid in the top 10% tend to have unique skills, are more in demand, and therefore their jobs are more recession proof.Quote:Heck, even Greenspan, Paulsen, Bernanke, Geitner, et. al. can be horribly wrong, and cause untold devastation all in the name of trying to fix today's crisis.I don't think anything that has been done has caused "untold devastation". Not enough was done. What was done, was not as effective as it could be. But compared with the magnitude of the crisis itself, no reaction to it has had a very large effect, good or bad.
The OECD recently published a paper called "A Family Affair: Intergenerational Social Mobility across OECD Countries" which captures another perspective showing that "Mobility in earnings, wages and education across generations is relatively low in France, southern European countries, the United Kingdom and the United States. By contrast, such mobility tends to be higher in Australia, Canada and the Nordic countries."
I think social mobility is another important factor.
RE: The Great Divergence - kandrathe - 09-20-2010
A progressive friend of mine just sent me this link; How Right-Wing Billionaires and Business Propaganda Got Us into the Economic Mess of the Century. So there, I'm fair and balanced.
Now let's get to rioting!
RE: The Great Divergence - kandrathe - 09-21-2010
Regarding Soo Line specifically. I helped the Labor Relations group set up their data analysis center with about a dozen of the fastest microcomputers on the market at that time, and statistical analysis softwares.
The labor rules for railroads haven't changed since the mid 1800's. Each train is required to have an Engineer, a backup engineer, a fireman (to shovel coal into the boiler), two brakemen (one for the left side, and one for the right side), and a conductor (to punch tickets, and handle freight waybills). So, a six man crew to drive a freight train, that barely requires an engineer anymore. The waybills are electronic, so no need for the conductor. The power plant is diesel electric, so no need for a fireman, and the brakes are automatic air brakes, so no need for two men to pull levers anymore. Beyond that, these 6 workers are only allowed to travel 100 miles per shift (12 hours per day, with anything over 8 being paid at 1.5, unless its a holiday, then its 2x), and then there are about 150 different add on charges they get paid for (backing up the train, going up a hill, coupling or uncoupling a car, getting off and switching a track manually). If you send two crews on the train, so that you can go 200 miles in that day, you need to dead head (pay extra) them to ride along but not be working. Often, in order to get the crew to a train after their 100 miles of work, they needed to have a taxi service to deliver the fresh crew to the train to keep it moving. Each T&E employee typically costs about $80K to $100K in salary, plus another $80 to $100K in additional pay. The unions have stalwartly refused to change any of these rules, making trains effectively obsolete by union rules rather than their utility.
Before deregulation, railroads were given a regional monopoly, and freight rates would be calculated from junction to junction. If you started on one railroad, crossed 3, and ended on a fifth one, the roads would calculate the end to end cost and then divide it up among the 5 roads. In this business model, having as much track as possible maximized your ability to get customers. The maintenance cost for all the rail repairs added to the freight costs. Lo, and behold, trucking over interstate highways was faster and cheaper.
After deregulation, main lines were the only ones profitable, and Soo Line sold off or abandoned all their track > 100 miles from their mainline, and each junction off the mainline with junctions on the mainline being mostly 100 miles apart.
How would we every manage to implement high speed rail, with trains traveling 200mph? You'd need to switch the 6 member crew every 30 minutes. How would this ever be profitable?
RE: The Great Divergence - Jester - 09-21-2010
You claim to be a fan of Milton Friedman. Yet you seem to be contradicting two of the ideas that made his reputation.
First, he, along with Anna Schwartz, authored *the* classic interpretation of the great depression, which concluded unambiguously that the depression could have been avoided, if only the Fed had printed a boatload of money and bailed out all the banks. This is what is happening now, yet you seem to be predicting doom, directly in contradiction to what Friedman and Schwartz concluded. The infamous "helicopter drop" is a direct quote from Friedman, and yes, this was a serious proposal.
Second, he pioneered the idea of rational expectations of inflation in bond pricing. People do not buy bonds assuming that there is zero inflation. That would be stupid. They buy bonds using their best information to predict likely future inflation, and adjust what they are willing to accept as a price appropriately. If people are buying bonds at near 0%, then that means they are not predicting massive inflation. They must be predicting low inflation or deflation, otherwise, these bonds would not be a good purchase.*
If you disagreed with this analysis, you could make a killing by shorting US government bonds - the "vigilante" scenario. But this is not happening. Pundits on the right are screaming from the rooftops that inflation is imminent, but they have not yet put their money where their mouths are, indicating considerably less economic confidence in their position.
Rational expectations also means that the only way to get seriously screwed by inflation is either by a rapid, unexpected inflation, or by holding lots of cash in a mattress or savings bank. Bonds are priced to include inflation, so they don't count.
-Jester
*or that the rest of the economy is such a wasteland that a near-0% rate of return is the best possible investment. But even then, if they were expecting 10% annual inflation, they could buy almost anything - gold, oil, land - rather than bonds.
RE: The Great Divergence - kandrathe - 09-21-2010
(09-21-2010, 05:15 PM)Jester Wrote: You claim to be a fan of Milton Friedman. Yet you seem to be contradicting two of the ideas that made his reputation.Yes, he was a genius, but...
Quote:First, he, along with Anna Schwartz, authored *the* classic interpretation of the great depression, which concluded unambiguously that the depression could have been avoided, if only the Fed had printed a boatload of money and bailed out all the banks. This is what is happening now, yet you seem to be predicting doom, directly in contradiction to what Friedman and Schwartz concluded. The infamous "helicopter drop" is a direct quote from Friedman, and yes, this was a serious proposal.He argued the Fed allowed the money supply to contract by 1/3 during causing the depression, from what would have ordinarily been a bad recession. To paraphrase Friedman from his book, "Capitalism and Freedom"...
... the Fed tightened the money supply in mid 1929 in an attempt to curb "speculation". The stock market crash some months later precipitated a lack of confidence in the economy, and people became cautious in their consumer behaviors, causing the recession. The Fed did nothing to ease the tightness of money, and by November of 1930 many Banks began to fail with runs on the banks. More, and more banks failed over the subsequent months leading to more, and more people losing confidence in the banking system entirely. The Fed did not provide the reserve currency, as per its mandate, to keep banks from draining their assets due to a panicked populous. When Britain went off the gold standard in September of 1931, the Fed acted vigorously to the external drain of gold reserves, further intensifying the crisis. Then, in January 1932, they raised the discount rate sharply to end the gold crisis, and this caused a spectacular increase in bank failures. He ends the chapter paraphrasing Clemenceau, money is too serious a matter to be left to the Central Bankers.
Quote:Second, he pioneered the idea of rational expectations of inflation in bond pricing. People do not buy bonds assuming that there is zero inflation. That would be stupid. They buy bonds using their best information to predict likely future inflation, and adjust what they are willing to accept as a price appropriately. If people are buying bonds at near 0%, then that means they are not predicting massive inflation. They must be predicting low inflation or deflation, otherwise, these bonds would not be a good purchase.*But, people don't always behave rationally, which is why you see the rise of "adaptive expectations" advocates and "behavioral economics". If you explore the details of the CPI for the past year, as I did, you'd see that for the broader basket of goods, prices are falling. For example, the prices of houses plummeted, and are still dropping. But, in the same category, you have rent, which is skyrocketing. Makes sense, right. The foreclosures drive people out of their homes, which now stand vacant, and the people are forced to move into apartments. The demand for housing is nil, due to the lack of confidence that bankers have now in giving people loans. The demand for rental property is climbing, due to the increased need for people to have shelter. The CPI masks the inflation, and deflation within housing. Another example would be automobiles. New car sales, are similarly depressed due to the banks reticence to offer loans, but used car sales are skyrocketing, driving up the costs. Again, the CPI masks the inflation, and deflation within that commodity. Energy prices are consistently increasing, as well as certain commodities that are in demand outside of the US.
If you disagreed with this analysis, you could make a killing by shorting US government bonds - the "vigilante" scenario. But this is not happening. Pundits on the right are screaming from the rooftops that inflation is imminent, but they have not yet put their money where their mouths are, indicating considerably less economic confidence in their position.
Rational expectations also means that the only way to get seriously screwed by inflation is either by a rapid, unexpected inflation, or by holding lots of cash in a mattress or savings bank. Bonds are priced to include inflation, so they don't count.
-Jester
*or that the rest of the economy is such a wasteland that a near-0% rate of return is the best possible investment. But even then, if they were expecting 10% annual inflation, they could buy almost anything - gold, oil, land - rather than bonds.
Fed Stands Pat and Says It Is Still Ready to Buy Debt
Their view of the economy tending toward deflation is what I'm seeing in the detailed CPI. Certain things are inflating, but in general, prices are decreasing. So, if you believe that the Fed will do more QE later in the year, and that it will stem the erosion of prices, then bonds may be a good deal. I wouldn't make that bet. I don't think we've seen the end of our financial travails yet. Friedman makes sense for many things, but I think Fed interventions need to be well telegraphed, thought out and implemented slowly to allow the market to adapt to the changes. I'm also with the Austrians on the nature of unintended consequences. Every positive action, raises the opportunity for an opposite negative reaction.
RE: The Great Divergence - Jester - 09-21-2010
(09-21-2010, 08:11 PM)kandrathe Wrote: "The Fed did nothing to ease the tightness of money, and by November of 1930 many Banks began to fail with runs on the banks. More, and more banks failed over the subsequent months leading to more, and more people losing confidence in the banking system entirely. The Fed did not provide the reserve currency, as per its mandate, to keep banks from draining their assets due to a panicked populous."
Right. Banks are failing left right and center, being swallowed whole by the Federal Reserve. Without that action, they would simply be collapsing entirely, leaving savers up a creek. Credit is frozen enough without the intervention of the Fed - if they stopped printing money, things would be even worse.
So, why is Fed action a bad thing? Because it might cause inflation later? Fix the first problems first, and worry about inflation when we actually have inflation. As per Keynes, in the long run, we're all dead. No point in solving tomorrow's problems at the expense of today's.
Quote:But, people don't always behave rationally, which is why you see the rise of "adaptive expectations" advocates and "behavioral economics".
Sure. We can see perfectly fine how people are behaving: they're scared witless. They're retreating to a high-savings, low-risk position, and it's creating a massive drop in the velocity of money.
Quote:If you explore the details of the CPI for the past year, as I did, you'd see that for the broader basket of goods, prices are falling.
There's deflation. Deflation is bad. Therefore, the Fed should generate inflation to counteract it. Am I missing something here?
Quote:Their view of the economy tending toward deflation is what I'm seeing in the detailed CPI. Certain things are inflating, but in general, prices are decreasing. So, if you believe that the Fed will do more QE later in the year, and that it will stem the erosion of prices, then bonds may be a good deal.
I still think your intuition on this topic is precisely backwards. Bonds are a great deal during deflation. You hold money today, and you get more money tomorrow - when it's worth extra. Why would bonds be a good deal during quantitative easing? QE should yield inflation, and inflation undermines the value of tomorrow's money - which is exactly what you are buying when you buy a US government bond.
Quote:I wouldn't make that bet. I don't think we've seen the end of our financial travails yet.
Again, backwards. If you think the economy is going to continue to suck, then you'd want to buy something nice and safe - gold or bonds. Betting on continued economic woes is to bet against the stock market, and in favour of safe investments, including US government bonds. The market obviously agrees, because bond prices are high right now (that is to say, yields are low).
If you think that the US fiscal situation is going to collapse, on the other hand, then you should be shorting the hell out of bonds right now. No better time for it. Is that a bet you want to take? It's available for the taking!
Quote:I'm also with the Austrians on the nature of unintended consequences. Every positive action, raises the opportunity for an opposite negative reaction.
Yes. Which is why I find it strange you're bringing up Friedman as a hero here, because this is a place where you clearly stand with the Austrians, against the Monetarists. Except that apparently you're also for a wealth tax to decrease inequality, which is about the most un-Austrian idea on the planet. So I'm not actually sure where you're coming from.
-Jester
RE: The Great Divergence - kandrathe - 09-22-2010
(09-21-2010, 09:57 PM)Jester Wrote:I'm not convinced they needed to do everything they did. TARP wasn't a bad idea, and it was effectively a loan. The stimulus was mostly a 44 year pent up Reid Pelosi progressive regulatory wet dream labeled as "Stimulus" backed by the Keynesian manta of spend, spend, spend. I feel part of the stimulus helped a little, but about 2/3rds of it was a matter of pushing future spending into the present, robbing the future of economic activity. Much like the cash for clunkers, cash for caulkers, or cash for home buyers, it mostly accelerated purchasing that would have already occurred, leaving a dearth of spending once it ended. And, due to the heavy regulatory changes, it was left structurally struggling to spend itself since most of the ready shovels, weren't.(09-21-2010, 08:11 PM)kandrathe Wrote: "The Fed did nothing to ease the tightness of money, and by November of 1930 many Banks began to fail with runs on the banks. More, and more banks failed over the subsequent months leading to more, and more people losing confidence in the banking system entirely. The Fed did not provide the reserve currency, as per its mandate, to keep banks from draining their assets due to a panicked populous."
Right. Banks are failing left right and center, being swallowed whole by the Federal Reserve. Without that action, they would simply be collapsing entirely, leaving savers up a creek. Credit is frozen enough without the intervention of the Fed - if they stopped printing money, things would be even worse.
Quote:So, why is Fed action a bad thing? Because it might cause inflation later? Fix the first problems first, and worry about inflation when we actually have inflation. As per Keynes, in the long run, we're all dead. No point in solving tomorrow's problems at the expense of today's.Keynes advocated doing something, rather than standing still. I'm not opposed to doing something, as long as its the right thing. The Hoover administrations regulatory changes, coupled with the Feds terrible policies are what helped cause the Great Depression, and when FDR instituted the Hoover program as the New Deal, it probably resulted in the recession of 1938-39. Friedman's objections to Keynes were in that doing anything was better than doing nothing, and this is not true. You can make it worse.
Quote:And, in the face of that, the administration passed an massive health care regulatory change affecting every employer, employee, and insurance company. This creates profit uncertainty, which makes it hard for businesses to predict their cash flow. Then, they worked on Cap-Trade, (it thankfully got shelved) which threatened to add a whole new slew of carbon taxes throughout the production stream. Then, regulatory reform, and a whole new regulatory agency writing a vast array of new regulations overseeing consumer credit. Adding lending regulatory uncertainty to a frozen credit market doesn't seem very smart. Then, the worst of two possible scenarios, either letting the tax cuts expire, or making most of them permanent. They should just extend them for two years, or one year and be done with it quickly. Add to that, a looming debt crisis as soon as we need to raise interest rates to curb inflation ( inflation that is built into the economy due to the vast increase of fiat money). Worrisome as well is the recent beggar-your-neighbor currency interventions which mirror a modern day Smoot-Hawley tariff. Rather than the side show that has happened, the idiots in Washington needed to redesign social security, medicare, medicaid, and draw down the costs of military operations. In the near future we need to come up with a 12% positive change in the budget by cutting spending, and increasing tax revenues.Quote:But, people don't always behave rationally, which is why you see the rise of "adaptive expectations" advocates and "behavioral economics".Sure. We can see perfectly fine how people are behaving: they're scared witless. They're retreating to a high-savings, low-risk position, and it's creating a massive drop in the velocity of money.
Quote:I agree, runaway deflation is as bad as runaway inflation. But, there are other ways to encourage inflation, such as giving corporations a tax break for two years.Quote:If you explore the details of the CPI for the past year, as I did, you'd see that for the broader basket of goods, prices are falling.There's deflation. Deflation is bad. Therefore, the Fed should generate inflation to counteract it. Am I missing something here?
Quote:I think my intuition is ok. I'm not denying that if all were as if appeared at face value, the Fed would spend another Trillion in QE, and bond yields would rise. But, we're not alone in this economy. Other large economies can take actions to suck the wind out of the Feds moves, and protect their own economies. As Albert Edwards writes, “once unfunded liabilities are included, it is obvious that most governments are already insolvent, with debt to GDP ratios closer to 500% of GDP than the official estimates for most G7 countries. It is simply too late. We’re stuffed either way and cannot escape the consequences of years of private and public sector debt debauchery, much as we might pretend otherwise.” Add to that the growing unease of China, and other nations to continue to hold US debt.Quote:Their view of the economy tending toward deflation is what I'm seeing in the detailed CPI. Certain things are inflating, but in general, prices are decreasing. So, if you believe that the Fed will do more QE later in the year, and that it will stem the erosion of prices, then bonds may be a good deal.I still think your intuition on this topic is precisely backwards. Bonds are a great deal during deflation. You hold money today, and you get more money tomorrow - when it's worth extra. Why would bonds be a good deal during quantitative easing? QE should yield inflation, and inflation undermines the value of tomorrow's money - which is exactly what you are buying when you buy a US government bond.
Quote:I'm thinking that it is reality that has unbalanced the worlds economy. Too many investors are keen to "get things back to where they were in 2008", when that was a fiction. As consumers here in the US, we are out of ways to squeeze any more blood from the stones. That "progressive" article I linked above mentioned a few things that were spot on. In the 1970's productivity increased as millions of women entered the job market, allowing prices to rise and families needed two incomes to remain above the poverty line. In the 80's and 90's easy credit allowed us to build up huge amounts of debt, and automation / computerization allowed companies to do more with less. Now, with globalization, all this is portable, and capitalists can take the work to whomever will do it cheapest, but Americans are losing their ability to afford to buy the products anymore. I believe there is something more fundamentally wrong with our economic situation than a lack of confidence. Precious metals are probably the last refuge of $ that are dropping through the floor in value. In reference to Shadow's original post, the income gap will be larger after this latest 20 year economic fiasco.Quote:I wouldn't make that bet. I don't think we've seen the end of our financial travails yet.Again, backwards. If you think the economy is going to continue to suck, then you'd want to buy something nice and safe - gold or bonds. Betting on continued economic woes is to bet against the stock market, and in favour of safe investments, including US government bonds. The market obviously agrees, because bond prices are high right now (that is to say, yields are low).
If you think that the US fiscal situation is going to collapse, on the other hand, then you should be shorting the hell out of bonds right now. No better time for it. Is that a bet you want to take? It's available for the taking!
Quote:Are you familiar with George Akerlof? I find in various economic theories, some things that ring true, and some things that are baseless, unproven, incomplete, or off track. I try to look for the best in all of it.Quote:I'm also with the Austrians on the nature of unintended consequences. Every positive action, raises the opportunity for an opposite negative reaction.Yes. Which is why I find it strange you're bringing up Friedman as a hero here, because this is a place where you clearly stand with the Austrians, against the Monetarists. Except that apparently you're also for a wealth tax to decrease inequality, which is about the most un-Austrian idea on the planet. So I'm not actually sure where you're coming from.
I admire in;
Marx -- his understanding of the plight of workers, and his identification of the source of capital stemming from the transaction between worker and owner. Where he is mistaken is in understanding the mobility, and the duality in that a person can move from one to the other, or be both at the same time.
Keynes -- his understanding of aggregate employment, and his work on income determination and national macroeconomic theory. I think he was mistaken on his over confidence in being able to control the system, just as the worlds money manipulators are now.
Austrians -- understanding business cycles, and the unforeseen consequences of market manipulations. They are mistaken, as you pointed out, in insisting that market equilibrium should be systemic, and not at all coerced.
Friedman (Monetarists) -- for understanding ways in which a government can tweak the economy without making a mess. However, as in what happened in 1930, or to Greenspan, or perhaps Bernancke, there is a seduction in believing in your own power to fix it. Friedman even cautioned against this arrogance.
I think the system is complex, and we've broken it. Pushing and pulling on the gears of liquidity, and interest rates may not fix it, and may break it further. The government's regulatory meddling only makes the situation more complex, and solution more dubious.
RE: The Great Divergence - kandrathe - 09-22-2010
(09-16-2010, 07:37 PM)ShadowHM Wrote: Hello allFrom the Economist today; "Is rising inequality in America exaggerated?"
I have been following a series of essays written for Slate Magazine, exploring the possible causes of the increasing disparity in income distribution in the U.S.A.
It has been fascinating reading and I feel motivated to share. I admit, I have not had the time to explore the bibliography (i.e. all the provided links) in the essays. No matter.
Here you are: THE GREAT DIVERGENCE : WHAT'S CAUSING AMERICA'S GROWING INCOME INEQUALITY?
"SLATE'S Timothy Noah has just wrapped up a ten-part series on the rise of economic inequality in America. Most of Mr Noah's installments are devoted to examining the impact of one of the usual suspects—immigration, trade, de-unionisation, education, executive pay, etc—on the level of inequality in the United States. I found Mr Noah's series disappointing from the start because he failed squarely to confront recent findings that challenge the premise of his exercise. In his final effort, Mr Noah does touch on the possibility that reports of rising inequality have been greatly exaggerated only to wave it off."
Overall, I agree that a more careful look needs to be made, but I'm not ready to declare that the earning power of the bottom 3 income quintiles is keeping up. Another factor in comparing Good A to Good B, purchased 30 years later is the amount of innovation added. A vehicle of 1980 is hardly comparable to a vehicle of 2010. Food is food, thankfully.
RE: The Great Divergence - Jester - 09-22-2010
(09-22-2010, 06:42 PM)kandrathe Wrote: Overall, I agree that a more careful look needs to be made, but I'm not ready to declare that the earning power of the bottom 3 income quintiles is keeping up. Another factor in comparing Good A to Good B, purchased 30 years later is the amount of innovation added. A vehicle of 1980 is hardly comparable to a vehicle of 2010. Food is food, thankfully.
Food is not just food. The 20th century has seen as much innovation in the food we eat as in anything else. Livestock from 1900 are very different from 2000, leaner, faster growing, mass produced. Wheat is faster-growing, and better tailored to growing environments. Vegetables are ... well, they're mostly just bigger and more watery, but I guess that's what people want. There are many that have been created with better vitamin content, or resistance to certain pests and diseases (although perhaps vulnerability to others.)
Innovation over the century has improved our lives in countless ways that we do not count in GDP. We have also endangered ourselves in ways that are equally not counted, by depleting environmental capital. What the net balance is, is anyone's guess. I would suggest it is strongly positive, even for the relatively poor in the first world, but certainly not without concerns for the future.
The Economist article is interesting. Descending into the quagmire of constructing baskets based on the goods people actually consume is a dangerous road to travel. Suddenly, you start saying things like "because poor people buy bulk cans of low-quality soup, and rich people buy gourmet organic chef-branded soup, both groups are getting soup, and that means lower inequality." If there are one set of goods for the poor and another for the rich, that's another facet of inequality.
Globalization proponents argue that access to cheaper, better products counteracts the deterioration of wages. They might be right, it's hard to say. But there is certainly a countervailing force there - you can get all sorts of cheap junk made in China, and if you're in the lowest income brackets, that's probably a major savings.
Moreover, we can't just ignore the top 1%, as if that part didn't matter at all. That's something like 1.5 million people in the US, and if their incomes are taking off like rockets when everyone else's are puttering along barely keeping up, then that's a major increase in inequality. Whether it's worth doing anything about is another question, but it can't just be swept under the rug. Tsarist Russia had 1% that were phenomenally wealthy, and everyone else dirt poor, but nobody called that an equal society.
-Jester
RE: The Great Divergence - --Pete - 09-22-2010
Hi,
(09-22-2010, 09:33 PM)Jester Wrote: Food is not just food. The 20th century has seen as much innovation in the food we eat as in anything else.
This debate between you and kandrathe has been interesting, but nothing I've felt a need to jump in on. But this comment was timely.
Yesterday, Sue looked for some soup bones at a local mega-mart. Seems that among all the canned pork and beans, frozen dinners, ready made breads, pies to go, etc., there was no room for a basic stock ingredient. Indeed, our food has changed.
As to fruits and vegetables, the main characteristic they've been bred for is a long transportation and shelf life.
--Pete
RE: The Great Divergence - LavCat - 09-23-2010
(09-22-2010, 10:34 PM)--Pete Wrote: Hi,
(09-22-2010, 09:33 PM)Jester Wrote: Food is not just food. The 20th century has seen as much innovation in the food we eat as in anything else.
This debate between you and kandrathe has been interesting, but nothing I've felt a need to jump in on. But this comment was timely.
Yesterday, Sue looked for some soup bones at a local mega-mart. Seems that among all the canned pork and beans, frozen dinners, ready made breads, pies to go, etc., there was no room for a basic stock ingredient. Indeed, our food has changed.
As to fruits and vegetables, the main characteristic they've been bred for is a long transportation and shelf life.
--Pete
By coincidence I decided to check the lounge as I boil a pot of water to cook asparagus to accompany an omlet (with a bit of Bearnaise).
When I was little, no matter how well washed, asparagus was gritty and full of sand. Back then eggs were white and now they're brown.
RE: The Great Divergence - --Pete - 09-23-2010
Hi,
(09-23-2010, 04:21 AM)LavCat Wrote: By coincidence I decided to check the lounge as I boil a pot of water to cook asparagus to accompany an omlet (with a bit of Bearnaise).
When I was little, no matter how well washed, asparagus was gritty and full of sand. Back then eggs were white and now they're brown.
Oh, wow. OK, cut up the asparagus into about 1/2" long pieces. Sweat in a pan with just a little olive oil, starting with the stems and adding the softer parts last. About half way through, add some sliced mushrooms. Then throw in some crumbled bacon. Pour off any excess oil (I like it on bread). Mix a little milk with your eggs, whisk it till it's just slightly frothy. Pour mixture over the asparagus and mushrooms (and bacon), add some grated cheese of your choice, put in a 350-400 degree oven till the center is cooked (use the toothpick test). Salt and pepper to taste. Una fritata con fungi e asparagi. Yum!
--Pete