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kaleberg
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Trump was the revenge on the revenge of the nerds. Way back when, nerds were uncool. They got beat up in the hallway and laughed at. Then, the nerds starting getting rich and popular. They graduated from high school and made good. Meanwhile, the non-nerds got decent enough jobs at factories, but the nerds kept closing the factories. The non-nerds didn't even get a consolation prize. Remember all those revenge of the nerds movies? They caught the zeitgeist. The zeitgeist has turned, at least in some quarters. Donald Trump was about Douglas Neidermeyer finally punching John Blutarsky in his fat gut, the way a real man would.
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We have a Republican president. That means lots of borrowing to pay for big tax cuts for the rich, falling living standards for most Americans and at least one serious recession. That's been the pattern for a long time now. I think Eisenhower was different, but he was to the left of Barack Obama. I don't see Trump breaking the pattern. I'm not going to try and predict how Trump's recession will start, but so far we are seeing the usual Republican crash the economy policies being proposed. The simple fact is that Republican economic policies cause recessions and slow economic growth. You can see it by comparing those little recession lines on St. Louis Fred graphs with administration boundaries or comparing the economies of red states and blue states. It's not rocket science. As an investor, however, I think Trump is going to be good for the markets. He is anti-labor, so profit ratios will rise. He is anti-regulation, so various scams will have good runs before they crash and burn. He is anti-growth, so the lack of investment opportunities will result in higher prices for shares of existing concerns. He is pro-deficit, so interest rates will rise on low risk debt. A lot of economists and investors confuse the financial economy with the economy that most people rely on to provide them with food, clothing, shelter and so on. ---- Economists like Rogoff always take me back to the good old days in the 1980s. I used to pick up the English language editions of Pravda or Soviet Life now and then to read about the workers' paradise. They had lots of people like Rogoff there who were willing to spout the usual party line nonsense in exchange for a better apartment or a nice dacha. Sometimes I wonder where all those journalists and economists went. Sometimes I think I know.
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When I bought my first house back in Massachusetts I had to pay the stamp tax to certify the deed. My lawyer explained that while the stamp tax imposed by the British may have led to the revolution, the very first act of the free Massachusetts legislature was to impose the very stamp tax I was paying. It was never about the taxes.
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A lot of people argue that if the US had remained a colony slavery would have ended without the Civil War, but this ignores the financial and political power of the textile industry in England and its need for cotton. It is quite likely an exception for Southern slavery would have been carved out of the overall imperial emancipation.
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It's good to see this debate out there. Whatever flaws the old Keynesian models had, they didn't assume that people can get jobs when no one is hiring or spend arbitrary amounts of money that they don't have. They were sort of the Kirchoff's Laws of money flow, as opposed to electricity. At least they made some sense from an accounting point of view, and accounting is sort of the free body analysis at the heart of physics. Most of the newer work in economics seems to make no sense from an accounting point of view. It ignores the basic conservation laws. It makes unreasonable mathematical assumptions, like presuming that there is an equilibrium solution. It's high time the field started pulling itself into the 20th century.
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For a very good take on the problem read the Mahablog starting perhaps here: http://www.mahablog.com/2016/11/16/voters-are-not-mind-readers/ Maha was in the midwest during the election season and points out that the Clinton message was simply anti-Trump. There were the usual ads portraying Democrats as the bringers of all evils, but no ads by Democrats explaining why a Democratic vote might help them and the area economically and a Republican vote would hurt it. As she says in the post linked to, "Voters are not mind readers." The important economic parts of the Democratic message are not unpopular there. They are simply unknown.
Toggle Commented Nov 27, 2016 on On Krugman And The Working Class at Economist's View
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The thing is that we have known this for a long time. In fact, our nation was founded on principle of limiting the pernicious effects of this kind of aristocracy. We also have known what to do about this for a long time. We had plenty of millionaires and billionaires even with 90% marginal tax rates on high incomes. We also had serious inheritance taxes. They worked and let us build a society of unprecedented mobility. Then the American people got tired of prosperity and voted against it.
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Since the recession of the early 90s I've done very well on the market by remembering that when there is nothing to invest in, everyone will be stuck having to buy stocks.
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Deloitte also has what they call the "shift index": http://www.johnseelybrown.com/shiftindexabstract.pdf - exhibit 4 The stock market and financial sector decoupled from the economy by the early 1990s. The money flowing to the wealthiest was no longer buying labor, but prestige and symbolic goods instead. That was, as the author noted here, good for stocks: http://www.nytimes.com/1995/06/11/business/investing-it-how-do-the-bulls-think-with-a-smile.html
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This has been a long term problem. The value of investing in a business is, on the average, lower than ever because incomes have stagnated. My first piece of evidence was when business magazines dropped the regional income reports back in the late 1970s. There was no longer enough rising income to make tracking it worthwhile for a business. I can only find a couple of references this morning. International: https://www.oecd.org/eco/growth/35485300.pdf The following use the same data. For the US: http://larrysummers.com/wp-content/uploads/2014/06/NABE-speech-Lawrence-H.-Summers1.pdf (Figure 14) http://www.frbsf.org/economic-research/files/wp2016-11.pdf
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That's a hopeful scenario, but no one is going to build capital assets unless they expect someone to pay for what those assets produce. If consumption isn't going up, then there is no point to capital spending. In China, the communist government decided to subsidize solar power, so they drove down costs per watt dramatically, but that's communism for you, not capitalism. I don't see how the pump gets primed here, at least within a capitalist framework. We've also seen part of your prediction come to pass. Work has paid less and less over the last 30-35 years, and more and more money to spend on capital has become available. We have so much potential capital that the ROI has been sinking for decades. Our supply side policies have been so successful, that we have a lack of demand. Also, I don't believe economies are zero sum. I think that gets you a theory in which economic growth is impossible. The implication is that there is some conservative symmetry. It seems to argue that every loan must be paid back in a manner which undoes the prior benefits purchased by the loan. Energy is conserved, so you don't win by converting from kinetic to potential and back, but investing in a asset now can produce overall benefits even if the asset is eventually destroyed.
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In the 1950s and 1960s the US had lots of manufacturing jobs and most of them paid pretty well. They were reserved for white men, most of whom were union members. There had been massive capital investment in the 1940s, but by the late 1960s the capital plant was getting old and out of date. I learned this is Social Studies in middle school, so it was pretty common knowledge then, at least outside of the executive suite. By the 1970s, the US started slipping in manufacturing. There were all sorts of layoffs, anti-union fights, relocations to the south and so on. Outsiders, e.g. blacks and women, were demanding access to the good union jobs that were left. The manufacturing cities of the midwest were rapidly becoming wastelands. When I was a kid, Akron was tire central. By 1980, when I met a guy from Akron who had moved east, he told me the entire town center was abandoned tire factories. Needless to say, the political reaction was for white men to turn anti-union and demand lower pay for themselves and lower taxes on billionaires. Does anyone else remember 'Fear and Loathing on the Campaign Trail' and American cars "made by junkies in Detroit to teach the rest of us a lesson"? US industry was falling behind. Volkswagen came out of nowhere and got 10% of the market. By the 1980s, it was the Japanese and American manufacturing companies began to respond. There was a lot of outsourcing, but also a massive reduction in labor content. In 1909 it to 303 hours of labor to produce a car. By 1929 it was 92. Nowadays it is 14. In the 1990s alone, white goods dropped 75% of their labor content. Manufacturing jobs just aren't going to come back, even if we built tariff walls a mile high. The problem is that we need better paying jobs in the service sector and more public goods for everyone. This would work for everyone except white men who see themselves as above the service sector as too feminine or requiring education and so effeminate.
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I noticed this some years back when I discovered that the income deflator and the GDP deflator were vastly different in the US. Basically, economic growth has been completely decoupled from rising living standards in the US. The value of an hour of work in terms of a share in overall production has plummeted, and most people make their living by selling hours of work. Of course, the people who whine about this most fight for the policies that make it worse lest someone else not do as poorly as they are doing, so it is a political conundrum.
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Of course, that ancestor count ignores the fact that people often marry cousins N-times removed. It's not a tree, it's a directed acyclic graph. Of course, graph theory is neat and gives one things to think about, like the infinity lemma: if the human race does not die out, there is someone now living who will have descendants living a million years from now. I recently waded through 'Ancestral Journeys', and once you get used to the R1a1a1a1b Y-haplotype stuff, you realize that various groups and regions have been breeding in relatively narrow circles for millennia. That's why they can use genetics - X and Y haplotypes - to track the two paths of migration from Anatolia to western Europe, one inland through middle Europe, one following the Mediterranean shore. Even with the internet, it is hard to have sex with someone more than a few feet away.
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We are going to have a stimulus. The Republicans are going to borrow a trillion dollars or so. Most of it will go to tax cuts for billionaires and vanish with a zero multiplier. A big chunk of the rest will go for defense spending to build up our military so that it can be dismantled at some point in the future. A small remainder will actually go into the real economy and some portion of that will be investment in human or physical capital. Why can I speak with such certainty? Easy, that's what every Republican has done since Reagan. It was in Trump's platform, for whatever that is worth, and in the platform of just about every other Republican, and the Republicans control Congress and the presidency. It's like predicting that water will run downhill.
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Look for high tax rates. "Good school district" usually means higher taxes.
Toggle Commented Nov 19, 2016 on Rent or Buy? at Economist's View
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If I remember correctly, renting also involves a negative cash flow. I haven't rented in a while, so I might be wrong here. There's also the problem that one has the choice of rent, buy or live in your car or under a highway overpass.
Toggle Commented Nov 19, 2016 on Rent or Buy? at Economist's View
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Thanks. That IS interesting.
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Their approach to saving Social Security is similar. Life expectancy is going down in red states particularly. If they can just get it down below 67, the new retirement age, the program would be solvent forever.
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China is attempting to carve out a co-prosperity sphere to provide it with growing markets. Isn't there some Chinese saying about 'the emperor is far away'. Well, so is the US. If you ignore Korea and Japan, China is miles ahead of every nation in the area economically and possibly militarily, so it might be able to make its co-prosperity sphere work. On the other hand, they'll have a serious problem growing domestic demand without building a safety net to discourage savings. One problem they have is that it is hard to build a robust consumer society in the face of heavy political repression. When people start getting rich, they get delusions that they can have a say in politics. China increasingly will need repression to deal with internal discontents as the growth rate slows and its rust belt corrodes. It would be amusing if China cut off exports to the US. Our companies would have to relocate manufacturing, possibly some of it back to the US. Our retailers would have to do some serious resourcing. Personally, I think that China would do worse out of the bargain. China goes through these outward looking / inward looking cycles. I'm not exactly sure how they are linked to dynastic cycles, but China spent some time looking outwards. Now they are going to look inwards. I wish them luck.
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In middle school in the 1960s I was taught that US manufacturing was at risk because of our dated factories. We were using old fashioned blast furnaces, but the Europeans were using basic oxygen and open hearth furnaces. I think RGC captured most of the issues involved. There was another factor. In the 1960s I worked for a while in a machine shop in Sunnyside back when it was an industrial area of NYC. I had taken metal shop and mentioned that I knew how to use a shaper and a milling machine. The guys laughed. No one used shapers anymore, though they still used milling machines. (Spell check doesn't even think shaper is a word.) One gadget I did have charge of was a numerically controlled machine that combined a lathe, a drill press and a host of other things. I had other work, but now and then it would whistle and I'd put a new tube of aluminum in to keep it happy. Machines like this one replaced lots of other machines. Instead of buying several milling machines, lathes and drill presses, you bought one of these. In the 1960s this machine was a novelty. In the 1980s it made the typical US plant an anachronism. This kind of machine was shutting down countless small machine tool sellers and makers. More seriously, this kind of machine was being adopted overseas more rapidly than in the US, so US manufacturing was no longer at risk. It was collapsing. The whole industry was changing, and the US was still riding on the massive investment in machine plant from WWII. Hell, there were probably shops where they were still using shapers.
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At least one form of affirmative action is still popular with conservatives.
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It’s good to see the math. I suspected that the productivity growth decline had something to do with underproduction showing up as lower productivity growth. I thought it had to do with the lack of aggregate demand, but this analysis suggests an alternate mechanism, basically that minimizing costs results in underproduction which shows up as lower productivity growth. P.S. Why did an L turn into an N in equation 4? Is this some economist nomenclature thing?
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I'm with Quite Likely on this. Jefferson was a smart guy, but he didn't think this yeoman farmer thing through. It sounds great, egalitarian, productive and all that good stuff, but it depends on having a growing supply of land. This can come from colonization or conquest and usually both. We see it in ancient Greece as the Mediterranean was colonized. We see it in conquering Rome. We see it in the New World and the US in particular. We see it in Hitler's lebensraum. As soon as the supply of land saturates, the yeomen turn into peasants at the mercy of the political elite. I get the impression something like this happens with manufacturing as well. The usual pattern for an industry is to start with myriad small producers and innovators. As long as the technology is still developing and/or the market is still growing, there is a place for these 'pioneers'. When the technology stagnates or market matures, these guys get wiped out and are turned into cogs in the machine. It's almost a thermodynamic process, except the end result is the opposite of entropy. It's concentration. The US government kept the farming cylinder expanding by annexing a continent as part of the Jeffersonian model. It also expanded the manufacturing cylinder as part of the Hamiltonian model. One big problem we have now is that our current model of government allows for neither approach and doesn't even allow us to get a new cylinder.
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