The Great Divergence

[kandrathe]

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.)

Point taken. I was thinking, an apple is an apple, and an orange is an orange. But, maybe there is more being done to them than meets the eye.

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.

Yeah, but think of the coal smog filled cities of the early industrial revolution... And, copious use of pesticides on our naked skin... When I was young the kids would run along behind the mosquito control spraying vans bellowing out clouds of DDT.

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.

The food gap is more in that fresh fruits and vegetables, and meats, fish and poultry are often the more expensive part of groceries, because we don't get them from China.

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.

You can't do other than get cheap junk from China now, because the local manufacturers were forced to move shop or expire due to the demands of Walmart and other retailers.

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.

My question would be... What are they doing differently then? Did they go to college, and if so, what degree did they get? Did they get married, and at what age? Did they have kids, how many, and how young? Did they save their money, or max out their credit cards? Did they inherit their wealth, or position, or did they "pull themselves up by their own bootstraps"? Answering what the 1% does differently would reveal whether the bottom 99% have a chance at "wealth", or whether they are trapped at the bottom.

[Jester]

My question would be... What are they doing differently then? Did they go to college, and if so, what degree did they get? Did they get married, and at what age? Did they have kids, how many, and how young? Did they save their money, or max out their credit cards? Did they inherit their wealth, or position, or did they "pull themselves up by their own bootstraps"? Answering what the 1% does differently would reveal whether the bottom 99% have a chance at "wealth", or whether they are trapped at the bottom.

I'm sure there's a package of advantages that might suffice. Some are just smarter and harder working than others. Some inherited wealth. Most were born of well-educated, successful parents, even if outside the 1%. Others got lucky. Some have a knack for business, or simply sacrificed everything else in their life to pursue income at all costs. Some knew the right people at the right time.

I'd be quite surprised if there were any near-universal answers, but I'd be equally surprised if all of those things were not highly correlated with being in the 1%.

Some of those things are structural inequality problems. Others are just the results of meritocracy in action. I suspect the wealthiest of the wealthy tend to have both - Warren Buffett and Bill Gates are both phenomenally richer than their parents, but they also both come from fairly well-off backgrounds.

-Jester

[kandrathe]

My question would be... What are they doing differently then? Did they go to college, and if so, what degree did they get? Did they get married, and at what age? Did they have kids, how many, and how young? Did they save their money, or max out their credit cards? Did they inherit their wealth, or position, or did they "pull themselves up by their own bootstraps"? Answering what the 1% does differently would reveal whether the bottom 99% have a chance at "wealth", or whether they are trapped at the bottom.

I'm sure there's a package of advantages that might suffice. Some are just smarter and harder working than others. Some inherited wealth. Most were born of well-educated, successful parents, even if outside the 1%. Others got lucky. Some have a knack for business, or simply sacrificed everything else in their life to pursue income at all costs. Some knew the right people at the right time.

I'd be quite surprised if there were any near-universal answers, but I'd be equally surprised if all of those things were not highly correlated with being in the 1%.

Some of those things are structural inequality problems. Others are just the results of meritocracy in action. I suspect the wealthiest of the wealthy tend to have both - Warren Buffett and Bill Gates are both phenomenally richer than their parents, but they also both come from fairly well-off backgrounds.

Generally, this is my feeling too. There are some mechanisms that allow inherited privilege, such as having your parents alumni status grant increased consideration. Or, 529 accounts which parents can use to offset most of the costs of private and post-secondary education (and shield any amount of money without taxation).

Generally, I think most of the top 1% did something unique to get there, and stay there. I doubt Bill Gates would have had much time to be a normal Dad, while he was earning his billions. His marriage, and fatherhood later in life was the sacrifice he made to be able to focus on his corporation. When you start being a father at age 41, you risk not being their for your kids young college years, and early adulthood, which is often when family stability is most important.

[Zenda]

The information and views in the articles are certainly enlightning for me, and I think this Timothy Noah got pretty far in explaining the divergence, considering he used only correlations. However, there might be another factor: phantom wealth.

Wealth and income for the richest people is mostly 'virtual'. It's money created by money, by means of trading in stocks, shares, debts, and even more exotic financial constructions. While phantom money does have a relation to 'real' money (cash and commodities), the total value of it has far outgrown the things it once represented, for the past decaces. Since accumulation of phantom wealth mostly befalls those who already have the most, this would greatly contribute to the current divergence.

[--Pete]

Hi,

The information and views in the articles are certainly enlightning for me, and I think this Timothy Noah got pretty far in explaining the divergence, considering he used only correlations. However, there might be another factor: phantom wealth.

Wealth and income for the richest people is mostly 'virtual'. It's money created by money, by means of trading in stocks, shares, debts, and even more exotic financial constructions. While phantom money does have a relation to 'real' money (cash and commodities), the total value of it has far outgrown the things it once represented, for the past decaces. Since accumulation of phantom wealth mostly befalls those who already have the most, this would greatly contribute to the current divergence.

OK, I must have awoken in an alternate universe. I actually agree with Zenda on this.

--Pete

[Jester]

Wealth and income for the richest people is mostly 'virtual'. It's money created by money, by means of trading in stocks, shares, debts, and even more exotic financial constructions. While phantom money does have a relation to 'real' money (cash and commodities), the total value of it has far outgrown the things it once represented, for the past decaces. Since accumulation of phantom wealth mostly befalls those who already have the most, this would greatly contribute to the current divergence.

I agree with you - wealth makes wealth, and as instruments for transforming today's capital into tomorrow's riches become more and more sophisticated, the productivity of capital increases relative to labour, increasing inequality between workers and owners. The more esoteric the instruments, the harder it is for the "little guy" to participate in those kinds of ownership.

As a small nit, however, money is not "real," at least not in its modern form. Money (the national bank note) is just the most basic financial instrument, a promise of value. It is different only in its simplicity from the more complex derivatives, options, mortgages, securities, bonds, and other "phantom" financial ideas. You still can't eat it.

-Jester

[LavCat]

You still can't eat it.

-Jester

I've read that in the Aztec empire the cocoa bean was the primary financial instrument. Not only could you eat it, money grew on trees. Unfortunately Mexico has long had a problem with drug money.

[Zenda]

As a small nit, however, money is not "real," at least not in its modern form. Money (the national bank note) is just the most basic financial instrument, a promise of value. It is different only in its simplicity from the more complex derivatives, options, mortgages, securities, bonds, and other "phantom" financial ideas.

I think it's more as just that. The value of 'real' money is guaranteed by authorities, as you say, but the value of 'phantom' money is only promised by its users. Real money cannot be issued by just anyone, while phantom money can simply be created by inventing something abstract and assigning it a value, which is 'backed' mostly by already owned phantom wealth, and only for a small percentage by real wealth. Such 'sophisticated' methods typically require a constant influx of new capital, like any other pyramid scheme, so the total amount of phantom money needs to grow. This is what mostly drives the divergence, imo.

[Jester]

I think it's more as just that. The value of 'real' money is guaranteed by authorities, as you say, but the value of 'phantom' money is only promised by its users. Real money cannot be issued by just anyone, while phantom money can simply be created by inventing something abstract and assigning it a value, which is 'backed' mostly by already owned phantom wealth, and only for a small percentage by real wealth. Such 'sophisticated' methods typically require a constant influx of new capital, like any other pyramid scheme, so the total amount of phantom money needs to grow. This is what mostly drives the divergence, imo.

Could you give an example? Most of the esoteric financial instruments in use are pretty clear, based on real things, however much they're aggregated, shuffled, or disassembled. They're either someone's debt, sliced and diced and repackaged, or they're insurance against something happening (essentially, a bet), or they're options or obligations to buy or sell something or another at a future date. None of that should require a constant influx of capital, although most peoples' bets are strongly in favour of the economy growing (tough to be an investor if it isn't.)

With these simple tools, they construct the tower of babel.

-Jester

[kandrathe]

I think it's more as just that. The value of 'real' money is guaranteed by authorities, as you say, but the value of 'phantom' money is only promised by its users. Real money cannot be issued by just anyone, while phantom money can simply be created by inventing something abstract and assigning it a value, which is 'backed' mostly by already owned phantom wealth, and only for a small percentage by real wealth. Such 'sophisticated' methods typically require a constant influx of new capital, like any other pyramid scheme, so the total amount of phantom money needs to grow. This is what mostly drives the divergence, imo.

Could you give an example? Most of the esoteric financial instruments in use are pretty clear, based on real things, however much they're aggregated, shuffled, or disassembled. They're either someone's debt, sliced and diced and repackaged, or they're insurance against something happening (essentially, a bet), or they're options or obligations to buy or sell something or another at a future date. None of that should require a constant influx of capital, although most peoples' bets are strongly in favour of the economy growing (tough to be an investor if it isn't.)

With these simple tools, they construct the tower of babel.

Well... I don't think it's all that sinister a plot. There is this mechanism called "price", which is not the value set by the seller, but is the amount of currency or trade that any individual is willing to pay in exchange.

Buyer beware! Collateralized debt obligations weren't being bought and sold to Joe middle class. The bankers and brokers doing the buying should have been the ones knowledgeable enough to assess risks correctly. Many of these "bets" are in buying future value with today's currency.

When the currency, (say the $, £, or the Euro), is in massive valuation flux due to devaluations, its hardest on those of use whose lives are denominated in that currency. We work for X$ per hour, or X$ per year salary. Many prices are now beginning to make life difficult, untenable, unfeasible, or impossible. We are seeing everything sucked into this deflationary black hole in spite of interest rates pegged at zero and quantitative easing, which results in selected commodity inflation.


Commodity spike queers the pitch for Bernanke's QE2

Wrapping my thoughts earlier together with what Zenda said, we are essentially thinking along the same lines, although with our own distinctive perspectives. I have been saying that the bubble economy was mostly fictitious since 1980. We have regulated away manufacturing in the US, and now with the latest health care, and FinReg legislation, we've regulated away portions of the future value of medicine, and banking as profitable industry.



The speculation on future value failed to materialize, and at least in the US, we did not invest our speculation money into *real* capital things (e.g. raw materials (land), machines, plant capacity, educating workers) that have a *real* impact on productivity. We did invest in soft capital things, like business strategies, software, etc. Yes, we can do math, or business really quickly now with near zero inefficiency. But, near zero x zero is still zero. But, as Iceland quickly discovered, at the end of the day, it really comes down to how many fish you catch.

Nothing will change until we begin to measure ourselves by what we produce for the world, rather than what we consume.

P.S. Writing this made me think back to a time when I went through the whole interview process, and was offered a lucrative opportunity with a corporation, and I turned it down. The company makes the wrappers and containers for the fast food industry. It struck me that I would be a part of the industry of converting raw materials, into something of temporary utility, that would eventually become roadside trash, or fill a garbage dump. It was a mental turning point when I began to see so much of what is produced in our world as the equivalent utility and quality of happy meal toys, most of which is also destined for land fills.

P.S.S. I found an interesting appropriate quote on instapundit (talking about why college costs are growing above inflation);

"The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we'll have more middle-class people. But homeownership and college aren't causes of middle-class status, they're markers for possessing the kinds of traits -- self-discipline, the ability to defer gratification, etc. -- that let you enter, and stay, in the middle class. Subsidizing the markers doesn't produce the traits; if anything, it undermines them."

P.S.S.S. I found an article on how in the US, households and corporations are attempting to de-leverage, while the Feds undo it all by spending borrowed money adding to our deficit and national debt.

[Jester]

I found an article on how in the US, households and corporations are attempting to de-leverage, while the Feds undo it all by spending borrowed money adding to our deficit and national debt.

I hate to flog a dead horse, but... you do understand that this is precisely the point? That if "households and corporations" (that is, the entire private sector) all "de-leverage" simultaneously, that causes a massive general glut in the market for everything except safe assets (gold and US bonds), causing deflation and a collapse in production? That the government is the only remaining actor with the ability to help undo this damage?

TL,DR: Government spends because nobody else will, and someone has to.

-Jester

[Kevin]

I hate to flog a dead horse, but... you do understand that this is precisely the point? That if "households and corporations" (that is, the entire private sector) all "de-leverage" simultaneously, that causes a massive general glut in the market for everything except safe assets (gold and US bonds), causing deflation and a collapse in production? That the government is the only remaining actor with the ability to help undo this damage?

TL,DR: Government spends because nobody else will, and someone has to.

-Jester

Yes someone has to spend, but if nearly everyone has been overspending (which I feel is the case) I think the question really is. Is it better for the government to pick up this slack and spend or should we suffer the consequences of previous overspending and let the economy reshape itself to the smaller level it should have been at?

Kan pretty much believes we should suffer the pain that we have coming to us. Current policy in the government wants to limit that and shuffle it off to later. It is possible that shuffling it off makes it avoidable because of how other things can change, but personally I think we are going to have to suffer more than we have for the errors that have been made. My problem is that the suffering isn't always hitting the people that caused some of the problems or made the mistakes. I think Kan also feels that the borrow and spend model that government is following does shift more of the burden to people that aren't at fault.

At least that is how I read most of what this debate breaks down into as you guys repeat it across most threads.

[Jester]

Yes someone has to spend, but if nearly everyone has been overspending (which I feel is the case) I think the question really is. Is it better for the government to pick up this slack and spend or should we suffer the consequences of previous overspending and let the economy reshape itself to the smaller level it should have been at?

It is almost never the correct answer to make the economy smaller. Anything that actually decreases the amount of goods and services being produced is almost guaranteed to be bad.

Now, there is the question of fixing the trade balance sheet - saving more and spending less, in the long run, relative to other countries. One way or another, that problem will get solved, automatically if not by choice. But there are two very important caveats. One: switching into full-blown savings mode is going to exacerbate unemployment, which is already unacceptably high. Two: anything that shrinks the economy hinders, rather than helps, the ability to save in the long run. You don't save money, as a society, by earning less income.

Kan pretty much believes we should suffer the pain that we have coming to us. Current policy in the government wants to limit that and shuffle it off to later. It is possible that shuffling it off makes it avoidable because of how other things can change, but personally I think we are going to have to suffer more than we have for the errors that have been made.

(Important bits italicized.)

Kandrathe's argument only works at all by presupposing that there is some fixed quantity of "pain" that must be suffered. There is not. How countries react in the face of crisis strongly determines not only when and what type of pain they suffer, but how much. Taking actions that counteract the crash might cost money, but will ease the pain in both the long and short runs. Taking actions that exacerbate it will not "get it over with" so much as just increase the pain.

This is not left wing lunacy. This is what Milton "Free to Choose" Friedman said about the Great Depression. Retrenchment, liquidation and deflation are very, very serious dangers, far worse than an increased debt load, and not enough is being done to avoid them.

My problem is that the suffering isn't always hitting the people that caused some of the problems or made the mistakes. I think Kan also feels that the borrow and spend model that government is following does shift more of the burden to people that aren't at fault.

Saving the banks was a necessary first step, since nobody wanted a total economic collapse. It wasn't supposed to be one of the last steps as well, but that's where you are. A stimulus package focused primarily on alleviating the suffering of those who were not at fault is a great idea. Sadly, just about all further stimulus is politically impossible, thanks to a gutless governing party, and a lunatic opposition.

At least that is how I read most of what this debate breaks down into as you guys repeat it across most threads.

I can only plead that I at least try not to be the first to bring it up. Again.

-Jester

[--Pete]

Hi,

Since I'm trying to be green and not waste electrons, I've mostly stayed out of this thread. Besides, I've stated my position in the past and it hasn't changed recently, so I had nothing to add. But there is a small point I must address.

Saving the banks was a necessary first step, . . .

Yes, it was. And because of the way it was done, with a no-strings-attached attitude, it went a lot further towards saving the bankers than it did the banks. I didn't notice much of an increase in money flow after the bail out, but maybe I should have been looking to the Bahamas and private accounts.

--Pete

[Kevin]

Saving the banks was a necessary first step, . . .

Yes, it was. And because of the way it was done, with a no-strings-attached attitude, it went a lot further towards saving the bankers than it did the banks. I didn't notice much of an increase in money flow after the bail out, but maybe I should have been looking to the Bahamas and private accounts.

--Pete

This is more what I was getting at it. I don't have a big problem with the bank bail out, but the way it was done drives me nuts.


I've also had idle speculation on what would have happened to the economy had the government just cut a check for $X dollars to each citizen. I really doubt it would have worked, but I just in my case that if I had gotten say $10,000 (so a $3 trillion "bailout") that some of the big banks would have gotten money back and I would be spending money now on consumption and not trying to get out from under my debt load. But I realize that being sick and unemployed for over 3 years puts a different debt load on a person.

[Jester]

This is more what I was getting at it. I don't have a big problem with the bank bail out, but the way it was done drives me nuts.

On the plus side, they're actually now making money off TARP. But yes, it's galling that in a time when the Economitanic was sinking, it was the guys who piloted it into the iceberg who got the lifeboats.

I'd have nationalized the whole lot, cleaned out their books, then relaunched them a couple years hence with clean balance sheets and a new, less unstable mandate, backed up by some serious stabilizing regulation. But apparently that was a bridge too far.

-Jester

[kandrathe]

Yes someone has to spend, but if nearly everyone has been overspending (which I feel is the case) I think the question really is. Is it better for the government to pick up this slack and spend or should we suffer the consequences of previous overspending and let the economy reshape itself to the smaller level it should have been at?

Here are some economic / moral questions I ask myself?

Do you think it is morally correct that we consume as much as we do just because we can? Don't you feel that we American's are swimming in a sea of commercialism and conspicuous consumption? The US accounts for about 5% of the worlds population, and about 33% of the consumption. Consider that half that consumption is based on money borrowed from the future. What obligation do we have to conserve, and to attempt to leave some of the natural resources of this world to successive generations?

Our 2009 economy was estimated to be about $14.3 trillion (down from its boom). How much of that do we really need to spend? In spending, and buying this stuff, what are we accomplishing? Also, consider that the government spent $3.5 trillion and took in $2.1 trillion in revenue. At the end of the day, do we measure ourselves by how much we consumed and spent that day, or by how much we accomplished and how efficiently and cleverly we accomplish our goals?

Ok, so let's take the low hanging fruit. Two long and expensive wars in Iraq, (say $750 billion), and Afghanistan (say $339 billion). What did we tangibly get for this investment ($3,500 tax (plus interest) per each of 307M Americans). The CBO has estimated the long term cost by 2017 would be about $2.4 trillion, or or $6,300 per U.S. citizen. I don't really understand the logic of going to other countries and spending tremendous amounts of money to break things real bad, then spend a decade trying to put them back together again for people who don't want us there in the first place. Yes, there is the whole "Fear" factor of terrorism, the poor mans war. You stop it by refusing to be afraid. Ignore the flea bites, and do your best to rid your rug of fleas. We are the military 800lb gorilla, so the only way they can beat us is to drive us to be like them (fascist aholes).

I just see that every thing we do has positive and negative consequences, and I think we are being frivolous with our wealth. We don't put our ingenuity to good purpose, and we could be transforming the lives everyone on the planet. We can be a producing nation, and helping to lift everyone. Rather, I feel we are more the gluttonous tick, feasting on the world. And, against the moral principles we expound, we freely enter into unholy alliances with despot monarchs, dictators and employ dark forces to accomplish our goals. If we need to sink the the level of extraordinary rendition, employing 3rd party torture, placing bounties on peoples deaths, and sending secret hit squads into sovereign nations, what do we have left to defend?

So, yeah. Pretty harsh self criticism for an American libertarian, Friedman loving capitalist.

Kan pretty much believes we should suffer the pain that we have coming to us. Current policy in the government wants to limit that and shuffle it off to later. It is possible that shuffling it off makes it avoidable because of how other things can change, but personally I think we are going to have to suffer more than we have for the errors that have been made. My problem is that the suffering isn't always hitting the people that caused some of the problems or made the mistakes. I think Kan also feels that the borrow and spend model that government is following does shift more of the burden to people that aren't at fault.

Ok, the way I look at it... Think of the economy as a car, driving down the road at night without headlights. We start out on the road, and we're moving! Woohoo! People get excited and begin pushing the car along, faster, and faster. Faster, and faster, and suddenly there is a curve and we end up in the ditch, and everyone gets dejected. We begin the arduous process of motivating everyone to get the car out of the ditch and back on the road again. Once again, the car is in a position to accelerate again.

Greenspan did a pretty good job of keeping us on the road for awhile. There was the stock market bubble. Paulsen and Bernancke did a worse job. But, then again, they can only do so much steering. Eventually, the exuberance of the economy pushers create an unsustainable velocity in one place or another, and when it crashes (pops) it tends to put us in the ditch again. This is the Austrian business cycle.

The acceleration is real, only its in the growth in value in goods and services. How do we know that we're going to fast? The value of _____ grows, and valuations seem too good to be true! In 2000, I remember when I was pulling all my money out of the stock market that Google at $200/share is ludicrous. In 2005, when I was arguing with the local assessor, that there was no way the value of my home could have doubled in five years. Success leads to over investment, or over consumption, which leads to a fictitious price. Once people realize the price is bogus, they stop buying and the price plummets (further than it should due to oversupply in the production pipeline). Also, we hit peak oil production in 2007, and the doubling, or tripling of crude oil prices was not sustainable either. Also, we are in an economic war with China, and the US so far has not been very firm in dealing with China's abuses. All these things made us vulnerable.

In our situation now, its housing. Housing is not something you can move around, so it becomes complicated to absorb the glut in housing. On my short drive 5 mile from the freeway to my house today I counted 30 homes for sale (about 25%). I don't know how many are foreclosed, or how many are vacant. A house is also an anchor, when it comes to getting a job that's out of commuting distance. The bad housing market exacerbates the unemployment problem by anchoring people to homes they cannot sell.

Recessions are a self fulfilling prophecy. You get out of them by letting the pushers rest, and get ready for the next cycle. Government "can" make things better if they do the right things. They just seldom do the right things. For example, Jan 1st, the stimulus funding for 100,000 jobs disappears, and so we get another big spike in unemployment, or face borrowing more billions to keep on paying people for make work jobs and not be unemployed. Had the government not interfered with these people lives, giving them make work jobs, many of them might be employed in places where they won't suffer being fired on Jan 1st. It might have been tougher on them in the short term, but many would have become permanently employed by now.

So far, the biggest wind sucks our congress has tossed at us are; a) Increased health care costs and years of uncertainty for companies as new rules get written, b) pushed a pseudo stimulus filled with political boondoggles and temporary spending masking the technical corrections that need to occur, and c) passed financial regulations that strip profitability from the banking industry and add years of uncertainty during rule making. I just feel the Obama camp has doggedly adhered to their political agenda, without heed to the peoples short term, or long term needs, or to the short term or long term costs. The latest $30 billion small business bill they passed was the first infusion at anything approaching what I would call effective government stimulus.

From what I've read so far, we are in for 5 to 10 years of sluggish or stagnant growth due to our self inflicted wounds and shackles, while we watch China rise to become the bigger 800lb economic gorilla.

[Jester]

In 2000, I remember when I was pulling all my money out of the stock market that Google at $200/share is ludicrous.

Re: Google. Google is at $525. If you'd bought in 2000, at $200/share, you'd have made 10% a year - and that's buying at the top of the bubble, and selling after the worst crash since 1929. Not bad for "ludicrous."

Re: "Make work" worsening unemployment. This is nonsense because you're not at full employment. U3 is at 10%, and U6 is at 16%. The relatively small number of people who have been given "make work" jobs, as you characterize them, are irrelevant. If there were jobs available in the private sector, one of the 10 million or so unemployed would have filled them by now.

Re: Too good to be true. You seem very sure of your ability to pick out "too good to be true" from "economic growth". Google is a great example - is that too good to be true? Or just a company that did very well in a very hot market?

Re: The Iraq and Afghanistan wars... I think we can look to those who supported these crazy boondoggles on flimsy evidence as being responsible for that spending. If you're wondering what possible logic could convince the US to invade some hellhole halfway around the world, your old posts should all be archived somewhere.

Re: The Austrian business cycle. Austrian theory predicts a *sectoral* redistribution due to malinvestment (companies made too much investment in the wrong stuff, not enough in the right stuff). What we see instead is a *systemic* crisis - everyone loses, nobody wins. What people want is not different goods or services, but safe assets. Savings are flooding away from, not towards, capital goods, simultaneous with a *decrease* in consumer spending. What does that say? Well, it says that the Austrian story is wrong, and that what we need is something more like Minsky - herding causes bubbles, panic causes crisis, fear prevents recovery. And no, that is *not* what the Austrians said.

-Jester

[kandrathe]

In 2000, I remember when I was pulling all my money out of the stock market that Google at $200/share is ludicrous.

Re: Google. Google is at $525. If you'd bought in 2000, at $200/share, you'd have made 10% a year - and that's buying at the top of the bubble, and selling after the worst crash since 1929. Not bad for "ludicrous."

It fell right after that, and didn't return to that price for 5 years, where at any time I might have bought it at a fraction of the year 2000 value.

Re: "Make work" worsening unemployment. This is nonsense because you're not at full employment. U3 is at 10%, and U6 is at 16%. The relatively small number of people who have been given "make work" jobs, as you characterize them, are irrelevant. If there were jobs available in the private sector, one of the 10 million or so unemployed would have filled them by now.

Ok, in your opinion then, companies using stimulus money to hire people they couldn't afford is better than having them eventually hired by companies that can afford them?

Re: Too good to be true. You seem very sure of your ability to pick out "too good to be true" from "economic growth". Google is a great example - is that too good to be true? Or just a company that did very well in a very hot market?

It was. The price crashed within months, as did Microsoft, IBM, and every other tech stock whether they deserved it or not.

Re: The Iraq and Afghanistan wars... I think we can look to those who supported these crazy boondoggles on flimsy evidence as being responsible for that spending. If you're wondering what possible logic could convince the US to invade some hellhole halfway around the world, your old posts should all be archived somewhere.

You mean like back in 2003 when I replied;

In light of current events, I have had some time to reflect on some thoughts related to yours.

1) Who has more to fear? Would it be the US, from infiltration of radical hate filled terrorists, or the rest of the world from the only remaining super power with the demonstrated force of 10's to 1000's of times larger than any other army on the planet. We like to think of ourselves as the good guys, but is that how the rest of the world views us? By acting and unleashing our dogs of war, will we reinforce folks fear of us? Fear, anger, hatred, somehow I feel they are connected.

2) The objectives of regime change by the Bush administration were always at odds with most of the rest of the world. Last summer it was clear that the only acceptable solution in Iraq for the Bush administration was one without the current regime in power. The last six months UN side show only delayed the innevitable ground war to depose Saddam. Anyone who is familiar with him or his regime would know that the Ba'aths would not walk away from power. In light of point #1 above, when the worlds only super power says your are done, period, I think it acted as a wake up call to most smaller nations (including France, Russia, et. al.). Generally, through this action, we are demonstrating to the world that we are calling the shots, and willing to back it up with force. The whole topic of WMD proliferation is a smoke screen, and I don't think we should not have played that card. Should we address the WMD capabilities of Pakistan, India, Iran, North Korea, or Israel? And, then why not the Russia, China, Britain, France, or ourselves?

3) The Bush administration's National Security Policy of pre-emptive action further sows fear, in light of #1 and #2. Again, we are viewing ourselves as the good guys, and after 9/11 we feel justified in going after the SOB's that did it to us. Why should we wait for an "event" which could take out hundreds of thousands of American lives. Afghanistan, yeah ok, the Taliban and the remnants of a war torn bombed out culture, sure. So, then are we justified in deposing Saddam, and eliminating the threat of this known enemy pre-emptively? Now who's next? What are the limits of assymetric warfare?

4) I think we were at the UN for the wrong reasons. Putting the shoe on the other foot, could it not be argued that it is the US that is failing the UN by trying to subvert the process, and cajole the international community into supporting a war that was ultimately unjustified (at least in what has been argued before the Security Council) . I agree with Pete's assessment that the only justification that was needed was to prove that Iraq has violated the 1991 armistice agreement. The reality, IMHO, is that the Bush administration did not feel the need to get the UN blessing, but it was done to make it easier for Blair, and other allies, and other Arab states to side with us. Now, without it, our allies in this conflict have been hung out to dry politically.

5) Lastly, the demonstrations we are seeing around the globe against the war are not in support of the Iraqi regime, or Saddam Hussein. I think they are a statement against an arrogant US administration, and unchecked US power.

So while the precedent of regime change to depose an evil despot in the Balkans exists, I think it is unique to the Balkans situation. Acting under NATO, I think it was done more (on our part) to help stabilize Europe. I don't think we really were looking to do anything in the Balkans, and Milosevic could hardly be viewed as a threat to the US. I believe we did it because our NATO allies asked us, and more likely cajoled, and shamed us into doing it.

Re: The Austrian business cycle. Austrian theory predicts a *sectoral* redistribution due to malinvestment (companies made too much investment in the wrong stuff, not enough in the right stuff). What we see instead is a *systemic* crisis - everyone loses, nobody wins. What people want is not different goods or services, but safe assets. Savings are flooding away from, not towards, capital goods, simultaneous with a *decrease* in consumer spending. What does that say? Well, it says that the Austrian story is wrong, and that what we need is something more like Minsky - herding causes bubbles, panic causes crisis, fear prevents recovery. And no, that is *not* what the Austrians said.

I'll have to look them up to quote it directly.

[Jester]

It fell right after that, and didn't return to that price for 5 years, where at any time I might have bought it at a fraction of the year 2000 value.

Stocks go up. Stocks go down. My point is - your idea of "ludicrous," an obvious loser, still would have net you 10% annual, despite having been at an unsustainable peak when you would have bought, and just following a major crash when you sold.

Had you bought at 100ish, in the early 2000s doldrums, then sold at 750 at the height of 2007, you'd have made a killing - about 22% annual. But then, if wishes were ponies, then beggars would ride, and if the stock market worked backwards, we'd all make a hobo of Warren Buffett.

Ok, in your opinion then, companies using stimulus money to hire people they couldn't afford is better than having them eventually hired by companies that can afford them?

Funny, I seem to recall arguing that to you, when you suggested massive tax credits for businesses to hire extra workers as a solution to unemployment.

You're trying to frame this as a choice between "make work" employment and "real" employment. The real choice is between "make work" employment and unemployment - otherwise, why is there 10% unemployment? And yes, that's a benefit to the "make work" employed worker, albeit an expensive one.

It was. The price crashed within months, as did Microsoft, IBM, and every other tech stock whether they deserved it or not.

And yet, it recovered. Holding Google was a great investment through that whole period, to present, *despite* two major crashes. As Warren Buffett said, you don't have to listen when Mr. Market comes to your door with a price in hand, and you didn't have to sell right after the crash. In fact, you'd have been an idiot if you did.

I'll have to look them up to quote it directly.

Please do. Pay particular attention to what they say about the key mechanisms: Interest rates, investment levels, and consumer spending. Then check them against what we observe.

Per the Iraq War: There's hedging your bets, and then there's the side you come down on. Are you really telling me that your position was one of opposition to the war? Or just distaste at having to pay for it all because France and Russia weren't interested? (Edit: Cagey, you were. But the one consistent theme is that Saddam *must* be "dealt with," and that existing methods weren't working. If you opposed the war, you certainly had an odd way of saying so.)

-Jester

(Ah, memories. Did you really predict that there wouldn't be many people living in Africa by 2010? I should really be keeping a list.)