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kaleberg
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Ronald Reagan was a disaster for most Americans. The upward redistribution first hurt the poor, but it has moved up and wiped out much of our middle class. When you are making $100K a year, you don't think much about the guy making $20K getting stuck at $20K or dropped to $15K. When you are making $400K a year, you don't think much about the guy making $50K getting stuck at $50K or dropped to $30K. The thing is that every year those numbers move up. If you look at the numbers, first Reagan and his policies hurt the poor, then the working class, then the middle class. The upper middle class is still doing well, but the Republicans have them in their sights. It's just a matter of time. One of the things about the 1930s was that the collapse hit everyone from the day laborer to the investment banker and business owner. This piecemeal disassembly of American prosperity has been more effective and harder to fight as it is always possible to argue that one is above the magic line of destruction.
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If you live outside a major city, Verizon is likely your best bet for decent coverage. I live in a town near a national park, and, for years, Verizon has provided the best, most comprehensive service. AT&T was second choice with major gaps and weaknesses in their coverage. The others were terrible with minimal coverage and then only in town. I'm sure the cost providing coverage in places like mine is borne by system users in major cities who never get more than a few hundred feet from an antenna. Again, the cities subsidize the countryside. At least there is a nice national park to visit, though a lot of folks might prefer a few bucks off their cell phone bill.
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Don't confuse nominal and effective tax rates. The nominal rate was 92% though much lower on long term capital gains. I used to play tax accountant as a kid, and I paid attention to the rates. My father was a tax accountant in season which meant paper airplane season started after April 15th. The effective rate was lower since the government provided all sorts of incentives to reinvest and pay higher wages and provide benefits to employees. Watch a movie like "The Wheeler Dealers" and you'll be surprised at how much the high tax rates influenced corporate and high income spending back in the 1950s and 1960s. No one could do the I'll-buy-your-cab-and-lease-it-back-to-you joke nowadays. Taxes on high earners and corporations are too low for that kind of deal structure to be worthwhile. Did I mention that my father was a tax accountant and explained the joke to me? The women-don't-belong-on-Wall-Street sub-plot, well that's more or less up to date.
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The problem was that it got too easy to break unions thanks to changes in federal enforcement under Ronald Reagan. He let his policy be known when he broke PATCO, the air traffic controllers' union, the first union to endorse him. While Reagan might have been a member of the Screen Guild, he never did think in terms of putting something back in the pot for someone else. He took his, and encouraged others to do so as well, leaving nothing for future generations. We've had more and less pro-union presidents since then, but ever since Reagan's big nod, the unions have been slowly squeezed out of our economy. My parents were both union members, and I had a good middle class life thanks to that. I would have been glad to pay my union dues if there had been any union shops willing to hire me as a computer programmer. (In fact, I did have interviews at a handful of unionized companies, but never got past the first interview.)
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Maybe we liberals need a gun safety campaign discouraging people from putting loaded handguns in their mouths and firing them. Hey, it works with two year olds.
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Free trade is in conflict with the fundamental human idea of having a place to live. Idealistic reformers are constantly coming up with efficient ideas that ignore basic human needs. Look at Soviet agricultural reform. It made perfect sense to an economist looking to modernize agriculture. With larger plots, equipment could be used more efficiently and so on, but we all know how poorly this worked. It's often used as an object lesson. Free trade is no better. We construct places by replacing imports with locally produced goods. One of the great complaints about the suburbs was that they produced nothing. They were bedrooms for people who went elsewhere to work and produce things. They were sterile and alienating. Cities, towns and even regions of the countryside produce things, and they often build their identity on such production. Look at Walt Whitman's 'I Hear America Singing'. Each individual had a place in society because he or she did something. Obviously, we don't expect every city of a certain size to have its own chip foundry. The sheer cost and productivity of such facilities limits their number. On the other hand, we have a glut in capital, so there is no reason each city does not produce its own beer or clothing, especially since having such industries leads to the development of a creative community as well as providing production jobs. It also turns a location into a place. Think of it as a form of anti-trust enforcement less concerned with competition than with existence. The Europeans do this with their appellation laws, and the idea could be extended. As every nation that has ever developed knows, the only way to develop is to construct trade barriers in the forms of tariffs, discriminatory laws, tendentious government policies, massive subsidies and so on. There are no exceptions. China's highly planned Communist economy is just the most recent example. The colonial powers forced China to accept free trade, fighting wars as needed, but once China won independence it abandoned free trade, and that is where all the growth in income and its economy has come from. Economists aren't comfortable with this. They argue that it was free trade that improved low end incomes around the world, but any close look reveals that it was simply former colonies eliminating free trade that did this. Maybe it is time we gave free trade a closer look.
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The US is working hard at becoming increasingly irrelevant. There was a time in the 20th century when it was nearly impossible to discuss any major development in world politics, science or the arts without having to talk about the US of A, but as the 21st century moves on, this will continue to change. People will still talk about Europe, and they'll talk about China and other places, but the US will become a backwater again.
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There has long been this fantasy that learning is just about absorbing information and techniques, and that this could be done by simply providing people with written instruction, visual materials and some mechanism for evaluating how well one understands the topic. Yes, there are people and circumstances where this can work, but for most humans this very idea is bogus. It is well outside human experience. Yes, some people can bench press 800 pound weights, but we shouldn't design our society around them. When we wanted a literate society, we didn't just provide everyone with a library card. We created a social and physical construct called a school in which people with knowledge of reading and writing and arithmetic, imparted that knowledge to those who were expected to learn. This designation of social space and situation is much older than literacy. Even pre-literate cultures have schools. Various sections of Ayer's Rock (Uluru) in Australia, for example, are designated as areas for teaching boys or girls. This suggests that the idea of a school, a special place and social structure for imparting knowledge, has been around for at least 40,000 years and possibly longer. Odds are there is a reason for it. The idea is to have information transferred from person to person in a structured space, subject to structured time and in a structured environment. That's how humans learn best. It isn't just exposing people to information or expecting them to find out on their own. It is the explicit action of teaching. Look at http://www.realcleareducation.com/articles/2014/04/22/kids_dont_learn_better_just_because_theyre_young_948.html for a discussion of how to teach children what a "spoodle" is. Just showing them spoodles or letting them play with spoodles was insufficient. Someone had to explicitly teach what spoodles were. I think MOOCs are a wonderful idea, but so were correspondence courses, and my guess is that MOOCs are going to be just marginally better, if at all. I think making video of lectures available is a wonderful idea. On the other hand, I think learning works best for humans when humans teach other humans in a socially explicit teaching environment. Sorry. Worrying about the cost of education strikes me as rather silly except insofar as it damages the prospects of those educated. The societal costs are irrelevant, at least until we've licked that everyone is going to die eventually thing. Sure, we can automate all sorts of things. There is no reason humans need to lift heavy loads or stand out in the hot sun and so on, but an awful lot of work is social work, and people who do social work, aside from high level corporate executives, are generally poorly paid. If you imagine a world in which automation is used efficiently, you never hear about eliminating high level corporate executives, though most could be automated with a pair of dice and a tailor's dummy. Similarly, things like teaching, care giving, meal serving, child rearing, counseling and so on are not the kind of thing that should be automated. We need an excuse for paying people and giving them some form of occupation, and these things can be made easier with automation, but the human contact cannot be automated in and of itself.
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Places are created by import substitution. Free trade makes import substitution harder. That means places like cities, states and even nations, have found it increasingly difficult to be somewhere as opposed to some trading post or colony. People like to live somewhere as opposed to nowhere.
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The difference between a boom and a bubble seems only obvious in retrospect. A boom ends relatively slowly as demand and prices slow. A bubble ends precipitously with demand and prices collapsing. I assume that economists have precise metrics for distinguishing booms from bubbles in retrospect. (I am sure that economists know whether the collapse in the demand for and the price of unskilled labor was the end of a boom or the end of a bubble.) One problem is that it is impossible to actually measure value. One can measure prices, but values are just a statistical aggregation of price information. How valuable is the coal in an coal producing area? If solar power and natural gas get cheap enough, the price of coal goes down, but what happens to the value of the field and how quickly? We can laugh at the actors in the tulip bubble, or the fools who bought factories to produce DVD players or horses for breeding or coal mines, but many of them earned good livings from their speculation. Why was the tulip bubble funnier? Was it it's short life? Was it the ratio of the peak to the final trough? People have to estimate values somehow, and watching prices seems to be the way to do it. Sure, you could argue that proper estimations require taking all sorts of other things into account. How big is the market at the anticipated prices? Can the product be replaced by one less costly? Is the style durable or a flash in the pan? Unfortunately, these fundamentals are not always obvious at the time. I agree that the tulip bubble, in hindsight, involved irrational behavior, but I really don't see that behavior as any more extreme than we see in any group of investors today.
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The whole sales pitch for supply side economics revolved around blurring the distinction between wealth and capital. The idea was that there was a capital shortage and the only way to deal with it was to make it easier to accumulate wealth. Effectively, we've wound up with a lot of wealth, mostly concentrated in a small number of hands, but no increase in capital. It's good to learn that there are economists who recognize the distinction. Maybe it will seep into public debate before the next debacle.
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I think this is a step in the right direction. At least Lo realizes that there is something wrong with existing models. The problem I see is that he doesn't go far enough. Economics always seems strangely devoid of even basic human insight. For example, there is an assumption that humans are immortal or at least completely unaware of their own aging and mortality. How can anyone talk about rational markets when human needs are a function of age and circumstance? Economics also seems horribly uninformed by other fields. Even basic ideas from biology or mathematics are too exotic. Look at the reviewer's remark: "In this light, consider fund managers who do beat the big stock indexes for a while. In many cases, their successes are followed by years of poor performance. Why? Because they did not keep adapting to a changing investing environment." Occam's Razor says it's just reversion to the mean. There's no need to postulate anything about investment strategies unless one considers markets completely deterministic. Very tall parents are more likely to have children shorter than they are than very short parents. The whole problem of radical swings is well understood from the point of view of systems theory, so it dates from the 1930s and 1940s. Any moderately complicated system, like a guitar amplifier, is expected to have a certain instability, but economists act surprised when the market suddenly shifts. Is it ideological blindness or merely massive insularity. Lo seems to be taking a few baby steps. Let's hope he and others of his ilk inspire the field to actually start learning how to walk.
Toggle Commented May 23, 2017 on Darwin Visits Wall Street at Economist's View
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Shiller is being ingenuous. run75441 has this right. Flipping only worked because there was a market for low grade mortgages to serve as a base for a complex set of badly audited, badly constructed financial instruments. This demand led to a complete relaxation in lending standards, the nearly complete corruption of rating standards and an entire industry dedicated to finding warm bodies to originate loans to. The flippers were just guys who found a few dimes on the sidewalk left by the professional thieves who robbed every bank in the city. Shiller surely knows this, but is trying to make excuses for the scum who sign his paychecks. The whole thing was extremely well documented. The whole thing was completely predictable. There is a complete consensus that people like Shiller are still trying to discredit with garbage like this. At least he isn't blaming the handful of minority members who were issued loans in the heated frenzy of generating bogus mortgage based securities. P.S. Maybe someone can explain to me why economists don't recognize the most obvious argument for purchasing a home as opposed to buying. Buying a house hedges against rising rents. Given that rents are an increasing portion of US consumer spending and this shows no sign of reversing, buying such a hedge makes perfect sense. My guess it is because economists have no problem imagining that corporations prefer lower risk, but cannot seem to imagine why an individual might.
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This fits in with Paul Graham's theory that the most advanced version of anything is just an incremental move towards Lisp, a computer language developed in the early 1960s and that probably peaked in the 1980s. Lisp hackers always argued that program and data structures should have standard textual forms so that arbitrary data structures could be converted to and from a linear stream of bytes in a reliable, human comprehensible way. The move to XML kept the textual stream, but it sacrificed simple comprehensibility by requiring a specific, problem oriented data structure. JSON shit-canned that. It is simply a subset Lisp reader for Javascript data structures, so that all sorts of applications can transmit and receive arbitrary data in a simple, machine independent form. It is no surprise whatever that there is a big move towards JSON, now that the formalists and their ilk are being eclipsed by people who just want to get things done in a relatively straightforward, non-formalized fashion. We're seeing a move away from SQL databases as well, and it's high time. RSS and various other feed formats were based on XML. They were clunky and inflexible. JSON, allowing the transfer of more or less any kind of data, is a great way to move into the future. Those Lisp hackers from the 1960s and 1970s, myself included, are having a good laugh.
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We'll be seeing more of this now that working class whites no longer have family jobs, and decide they can't afford families. People whose job it is to justify not giving money to people and making them lead horrible lives always come up with some kind of excuse that blames whoever they don't want to give money to.
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It was only the violent labor movement that led to the reforms that allowed living standards to start their rise starting in the 1850s.
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Does he explicitly state that he is referring to economics on earth, or is he exploring the exciting field of exo-economics? It is a timely field what with Kepler and other observatories finding new planets on a regular basis. Surely he is not referring to economics our planet when he says: "The capital that is most highly rewarded is now human capital". Good grief. On earth, the capital that is most highly rewarded is inherited wealth in the form of money, real estate, intellectual property rights and shares of corporations. The ratio of effort to reward is infinite. The capital that is almost highly rewarded is accumulated capital which requires some effort to accumulate. Somewhere down with paper clips and miscellaneous office supplies is human capital, the ability to actually do things, rather than just owning things. The apologists are getting desperate if they are producing drivel like this.
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Graydon nailed it. Companies are saving, not investing because there is no growing market for their goods, direct or indirect. Wages have been flat or falling, so investment might improve profit margins, but is unlikely to improve overall profitability. Bunker gets it too. He dismisses the knee jerk idea of cutting taxes that has been proposed as a cure for scabies, stagnation and sarcasm. He's right. There is less and less competition thanks to the lack of antitrust enforcement. Why invest when you have a sinecure? We need more antitrust enforcement.
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I remember visiting Europe on $5 a day back in the 1960s, and gas in the US cost around $0.30 a gallon depending on gas taxes. In Europe, it usually ran about $1 and up for four liters, a bit more than a gallon, except in Switzerland where it was about $0.55. We bought a VW Beetle in Europe and took it home. We liked it so much we sold our old Valiant. It seemed that VW came out of nowhere and grabbed about 10% of the US market by selling small, ugly cars with dinky little engines at low prices but with great, nearly 30 mpg, gas mileage. My father said it was the best car he had owned since the Ford Model A, except he said "shit box" instead of car. There was a big VW place on Northern Boulevard, the gasoline alley that ran from near the 59th Street Bridge to past our house. There used to be all sorts of manufacturing down that way along with the car dealers, gas stations and repair shops. I remember Bell & Howell, the folks who made our 8mm movie camera, had a place on Northern Boulevard, and I worked at a machine shop owned by a friend of the family a few blocks off the main drag. The Sunnyside Yards, a train mustering facility where my friends and I shot a movie, was surrounded by small scale manufacturers. The manufacturers are mainly gone, but the car places are still there. I'm guessing that there are as many jobs, but not as many involved in mass production.
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Anthropologists still have a lot to teach economists. It's a good sign that Paul Krugman has gotten to the point where he can say: "that wages are in no wise pinned down by something called marginal productivity to the extent Econ 101 says" Any woman doing the same job as a man but getting 70% of his pay understands this completely and viscerally. The greater part of "value" is based on societal norms, not anything intrinsic in the work or object. "Who" is often more important than "what". There are societies, even today, where, by law, a man's testimony in court is considered worth the testimony of two women. Are men intrinsically twice as honest and observant as women? There was a European empire now at the fringe of living memory that set salaries based on nationality and race, not the nature of the work. There is a reason employers will not raise wages while bitterly complaining about the availability and quality of workers. I think economics can be a great and useful discipline, but it needs to learn a lot from others.
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You are right. We are pretty far from Byzantium, but we do have our problems. Look at how many states have laws against municipal and county broadband, even when electrical power is handled that way. We have an ideology still in ascendance that encourages granting property rights, and that is a dangerous thing.
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When I read 'The Inheritance of Rome', a book recommended on this site, one of the disorienting statements in the book was that in traditional societies wealth flowed from securing government position, so it was often worthwhile to bribe and curry favor to secure various offices. The example was Byzantium, but this seems to have been the case in many other societies. Whether it was a position as parakoimomenos or control of a salt monopoly or the right to collect taxes in a particular region, the big money was in owning a piece of government action. Then I realized it wasn't all that different today. The obvious cases are things like private prisons or charter schools, where the government pays and private parties rake the big bucks off the top, but it is more extensive than that. Look at the whole idea of a corporation, a government chartered collective entity with extensive rights, no responsibilities and and ability to shelter wealth and income in a way unavailable to individuals. At one time corporations had to serve some public purpose, but that entire idea has been expunged. Despite our technology and our lip service to democracy, we are not all that different from Byzantium.
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I think economics would do better with a new doxology than a new epistemology. I think economists' beliefs have gotten in the way of their knowledge.
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This fits in with Edward Lambert's analyses of effective demand over at Angry Bear: http://angrybearblog.com/2013/05/edward-lambert-on-effective-demand-labor-share-capacity-utilization-and-growth.html The Fed's hair trigger inflation fight doesn't help. Inflation seems to have been redefined as rising wages, so as soon as the economy warms up, the Fed slams on the brakes.
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On the other hand, the relative cost of housing has been slowly rising. In the 1930s, the general wisdom was that housing should cost no more than 25% of one's income. By the 1960s that number was about 33%. Lately, the actual number is in the range of 40-50% for an increasing number of people. This is partly supported by the relatively lower prices of food and clothing. Goods whose value flows from ownership have increased in price while goods whose value flows from labor cost have decreased in price. I agree that this is not sustainable, but it might be part of the Malthusian cycle in the west for the last 1,000 years or so. By the Renaissance European observers noted that there were two types of price increase, fames and cares. The former involved a, usually short term, dearth of a certain good, like food, hence the same root as famine. The latter involved a less force driving the price, generally in a roughly 200 year cycle which some have associated with rising population raising the cost of ownership related goods like housing and, back then particularly, fuel in the form of firewood. US population has doubled since the 1950s. Since Americans have not been reducing their personal housing space, this has meant a lot of construction, and construction requires resources. One way a capitalist system directs resources is by raising prices. (Granted, between 1950 and maybe 1980, the government directed a lot of tax revenue directly and indirectly into subsidizing housing, but these subsidies have long been discontinued.) I'd speculate that house prices are related to the change in demand for housing, so what we are seeing in that chart are pulses in effective demand. That's comprised of rising incomes, people coming of house buying age, and availability of affordable credit. The slow Obama recovery has enabled a lot of former home owners to be able to buy their own homes. Rents are rising in recovering areas, so a home buyer is buying a fixed rental rate as well as a place to live. There are also all sorts of young people who have been living at home and have now gotten jobs that they might think of as careers so they are thinking of moving out and getting their own places. Those two groups could be driving the most recent boom. There's also a third group, investors taking advantage of rising rents to buy rental units that provide a cash flow far superior to anything offered by a bank. Again, this can't go on indefinitely, but it can go on until the end of the current pulse, most likely during Trump's depression or whatever we'll call it. He's a Republican, so odds are he'll tank the economy at some point or another. It's what they do. Then, there will be another recovery and another set of players and the whole thing will repeat again. A true, long lived real estate bust will require an economic collapse that lasts a lot longer than five or ten years. Real estate isn't a particularly liquid investment, but if you have a 20-30 year horizon, the odds still look good.
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