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Larry Summers: Why the economy is broken — and how to fix it
Here's a very interesting perspective, which happens to dovetail with my own suspicion: Has there been a fundamental change in the economy which makes previous measures of employment, wealth accumulation and economic expansion meaningless?
Reply to @bee: Well, that's surely a big part of the issue, but I think that most of that is probably over and done with at this point. I'm very concerned over the ongoing job loss component due to increasing automation/robotization. Every time we eliminate ten jobs and proudly note the "increase in American productivity, competitiveness and efficiency" we conveniently overlook the fact that we just added ten more people to the unemployment pool.
That's ten more people who no longer have any discretionary income to help boost the overall consumption rate and manufacturing economy. That's ten more people who now will either need to work two part-time jobs with no benefits just to stay alive, or who will require some sort of assistance or concealed subsidy from the ever-shrinking pool of middle-class tax payers. This isn't a personal complaint about those subsidies or taxes... just a question as to how far we can go down that road before the whole thing completely falls apart. Nothing from nothing...
I'm very glad that I'm as old as I am... I sure don't like the looks of what I see coming.
Reply to @Old_Joe: While the logical extension of what is happening might seem dire as you believe, it will not typically reach that extreme because they tend to correct even if violently.
For decades, there has been a battle between the RoI for human capital investment vs RoI for financial capital investment. They are usually at odds with each other and need to exist in some equilibrium for the economy to function since you need both capital and labor. Unfortunately, this economic dynamics has got embedded into political ideology that distorts the self-correcting feature of an economic framework. On its own, it will account for immigration, outsourcing, etc. This is the argument that respectable magazines like the Economist do. However, the political process distorts it by treating one favorably over the other and preventing the corrections. This is NOT the regulations and taxation policies but much broader. For example, a system of nation states where it is easy to move capital across boundaries but not people isn't really a free market that forms the basis of claims of the type espoused by the Economist. These nation state boundaries disadvantage labor while helping capital.
Right now, the balance is too far in favor of capital, in policy including taxation. When this has happened in history, it has been corrected by wars or revolutions. Hopefully, we have safer mechanisms now than that. Things like Occupy Wall Street, the increasing demand for wages, etc are early symptoms of the consequences of that shift to one extreme. My guess is that this balance is going to change when a group of significant capital owners with more than making money in their heads and with sufficient empathy and compassion get upset with the current system to come together and start creating the kinds of programs once the Governments did. There are already some bands of billionaires forming with universal good in mind but they are not organized sufficiently yet. They will be in the next decade and they won't be coming from Wall Street.
They will significantly change the way capital is allocated in many areas with a broader definition of RoI. There is too much reliance on capital deciding economic direction with the assumption that capital flows wherever the returns are the highest. But that is an advantage only for the owners of capital and in reality it distorts markets as much as inefficient government programs. For example, our pharmaceutical industry is spending almost all of its research dollars into treatments for chronic illnesses than finding total cures because medications you have to keep taking is more lucrative than medicine that cures with a fixed dose and possibly completely eradicates a disease. The public funding which did a lot of the latter is drying up. Similar problem in techology. VC capital is now flowing into labor efficient ideas where less than 100 people can create billion dollar companies. Companies like Apple, Cisco, Oracle, Microsoft, etc would never be funded initially in this climate. Government funding that helped launch such companies is drying up and so on....
Since the Government, not unjustifiably, has been totally discredited for doing any of these public good things sometimes for selfish reasons and sometimes for ideological reasons, it requires these bands of billionaires with a conscience to emerge and become that third entity between Government and profit-seeking capital owners to change the economic climate where more people can participate and benefit than just the 1%.
Reply to @Old_Joe: I'm not going to say anything about Larry Summers that I haven't said before. That said, in terms of what you discuss above, look at banking: 'Mobile banking continues to take share and the number of branches - which fell to 5,151 in Q4 from 5,478 a year earlier - could drop to less than 5K by year's end, says Thompson. Mobile banking customers of 14.4M compares to 14M in Q3 and 12M a year ago. Yesterday, JPMorgan announced its dropped plans to add new branches."
"Let us never forget that authentic power is in service."
"We live in the most unequal part of the world, which has grown the most yet reduced misery the least. The unjust distribution of goods persists, creating a situation of social sin that cries out to Heaven and limits the possibilities of a fuller life for so many of our brothers." (Francis I)
OMG.....imagine the consumer beginning to practice.....Frugality
Robin would say to Batman, " Holy growth model Batman, it seems more consumers really are considering frugality as a method of living!?
Nah, nope; ain't gonna happen in my remaining life span, at least on a large scale. Marketing continues to provide excellent rationale as to why spending on whatever is such a great and rewarding joy.
We all receive marketing reasonings to do "stuff"; be it from the Federal Reserve or QVC.
Lastly, yes; this time is different. Time frames lend to different. I find no value in what was going on with the markets or other data about the U.S. economy 5 years after the end of WW2. My parent's generation, is not my generation; nor my generation's children and the economy today.
Reply to @catch22: I was going to say the same thing and I said it a few weeks ago in another thread. Will never happen re frugality, and that's why I continue to invest in credit card co's. Previous generations who went about their spending and saving doing things "the old fashioned way" find themselves bent over these days and are hurt/made to feel foolish for being frugal (and because getting seniors who can't find yield in CDs into emerging market bonds and other exotic risk to get some sort of yield is going to end well. Not.)
Yes, we've chewed over this for several years, eh? I wish that more folks we get their head in place about proper spending habits; but I don't see this happening on a grand scale. Some have been forced to re-think this area over the past 5 years. But, old habits are hard to break and may take more than one generation of family to change. So, our house; not unlike what you noted about cc companies, will do our best to continue to sort the trends in where the money is going, at least related to the broad consumer. 'Course the other things (QE, large money houses, etc.) also have their place in the great money scheme for the cause and effect, too.
Thanks for you note and take care of you and yours. Catch
It might take a black swan event for the population to consider frugality. The Depression and WW2 forced a generation to use frugality in everyday life and long after those events they continued the practice. Later generations forgot the principle as the older generation died off.
In the past when we have had a transition in working society like the end of the horse and buggy to the automobile labor could transition to a new job. Blacksmiths applied for the auto assembly lines where there were openings for everything. Years ago a person could work for Ford installing headlight rings. Do that for 30 years and retire. Maybe their kid took the job over. Now everything is automated and outsourced.
What I don't see this time around is a transition for the previous manufacturing working labor pool. Most have to be re-educated and trained into new careers. There will be new positions for robotic design and maintenance but not enough to satisfy the whole population. It does seem like there is a purposeful trend to lower wages and and as mentioned above lower the American society to a lower common denominator. I hope I'm wrong on that.
Reply to @JohnChisum: No, I don't think that you are wrong. I read cman's commentary with interest, but withheld response because I just can't see this situation being saved by any number of rich persons, no matter how well intentioned, nor any potential reallocation of capital, voluntary or otherwise. I believe that the conundrum which is building is a lot more basic than that: civilized survival continuing to depend, as it always has, upon individual work output, but not enough work to go around on a permanent basis.
Our entire societal structure is based upon the moral premise of survival dependent upon required work. A very small number of people may escape this requirement if they happen to possess a great store of wealth. If there is a long-term secular decline in the availability of required work, the only way to maintain this moral structure is for the State to somehow provide make-work projects and somehow provide the minimum payment necessary to allow survival and prevent civil unrest. I repeat the redundant "somehow" because I do not believe that this approach is viable on a permanent basis.
We usually comment upon the "housing bubble" of 2008 with respect to the various stupidities involved on the part of both government and capital. But consider this: the people who thought (rightfully or not) that they were finally getting somewhere in our system now know the truth: they are not going anywhere, and the chances of them ever improving their condition are worsening by the month.
To my knowledge, in all of human history the closet experience we have had with anything like this was the Great Depression, and that was ended only by the huge expansionary industrial production of WW2 and it's aftermath. This time around there is going to be no such war, and no such expansion.
"There will be new positions... but not enough to satisfy the whole population". I believe that you are correct in your appraisal, and that is why my remark to the effect that I'm glad that I'm as old as I am, because I just don't see a way out of this.
One demurral, if you don't mind: I surely can't speak for our entire generation, but my wife and I certainly do remember the lessons of frugality as practiced by our parents, and there are still quite a few of us around.
You noted: " One demurral, if you don't mind: I surely can't speak for our entire generation, but my wife and I certainly do remember the lessons of frugality as practiced by our parents, and there are still quite a few of us around."
'Course, not unlike your house; we have the "wreck'in ball" at work.
There are days when the costs involved in the remodeling is like someone trying to remove one my legs. Now, the upside; and I/we have been asked about this, is how can you afford to do this today.....retired with no wage income? Well, we saved and did not live on the edge of doing nothing, but were careful with where the money was spent in the working years. So, we have technically been saving and investing for 35 years to have the monies in place to do the house remodel. My biggest grind and I suspect your's too, at least some days; is what I was able to do years ago and can not do so well today and what it costs to have someone else do the work. YIKES !!!
But, all of the money that was saved in the early years with doing so much repair work on my own, on the autosm the home and everything else mechanical and electrical is really a decent offset for the money that must be spent today. So, some of this is a wash.
Not unlike yourselves, we still maintain a daily log of expenses. We knew exactly our spending habits and costs going into retirement, adjusted for inflation.
This method had a lengthy discussion back at FundAlarm; where I recall many of us offered support and help to "persons x" about the value of such a system related to spending and savings.
Anyway, some days they still need to hold me down to remove the wallet from my rear pants pocket for "mo" money.
Reply to @Old_Joe: My parents gave us the same lessons and that set us down the path of frugality. The stories of ration coupons for butter and flour. The sacrifice of giving up pots and pans to the war effort. Those lessons sunk in my head for sure. My biggest experience of adversity was during the 70's "depression" when gas prices exploded and inflation had prices going up on a daily basis. Our parents sat us all down at the dinner table and explained how things were going to be tight. Iron on knee patches for jeans became common in the neighborhood. Cheap meals. It was only a fraction of what they endured during the depression but it made its impact on me.
I will add this; my belief is that the US made a sea change when LBJ started the War On Poverty. The country switched from spending on infrastructure to social spending. Speaking for myself here as to not insult anyone, but I remember when it used to be an embarrassment when a family had to go on food stamps or welfare. Today it seems to be a right for many. I had a great conversation with a young person recently who spoke of her friend living in California and had recently had a baby. Life in Ca. was good because everything was free. My response was that nothing is free and that someone had to pay for those expenses, i.e. the taxpayer. It opened her eyes a bit. I could see some realization and I hope it stuck.
The social spending in the US is out of control. Yet we are demanding more and more taxes from a shrinking middle class, and that in turn cuts back their ability to save for their future. You and I know that this is not sustainable, but the people are demanding more. I learned to separate emotion from major decisions but every day we are hounded by example of poverty and desperation and then the politicians get up and say we need to ask you for more.
The War On Poverty was and still is a huge boondoggle. Trillions have been spent and all we have gotten are generation after generation still in poverty. Of course it all depends on what the meaning of poverty is.
They should come over here to the Philippines and then they will see true poverty.
Reply to @catch22: "My biggest grind and I suspect your's too, at least some days; is what I was able to do years ago and can not do so well today"
Tell me!! Last night you could have heard me screaming "I can't f---ing see!! as I repeatedly miss-wired a 50-conductor communications cable, my back killing me at the same time.
Nice to hear from you, Catch, and actually we are doing OK for the most part. Your observation regarding "we have technically been saving and investing for 35 years to have the monies in place to do the house remodel" is right on. And having, like you, done so much of the electrical, plumbing, carpentry and mechanical work myself for so many years surely helped to build our freedom in the retirement years. We don' seem to talk as much about that sort of thing here as we did on FundAlarm. Over a span of forty years that money not spent, but saved, invested and compounded adds up to a huge chunk, for sure.
Reply to @scott: Thank you Scott. In between internet outages and work here at home, I am trying to keep track of this discussion. My work? Filling cracks from the earthquake we had last year. As Old Joe and Catch would agree, the work on the house is never done.
Reply to @JohnChisum: No apologies necessary for the "rant". I'd much rather know what someone is thinking rather than simply hear someone appearing to agree with me when they really don't. This is what makes for interesting discussions.
That said, we seem to have conflated two distinct issues: Those who don't want to work (obliquely referred to in my post above as "people who thought (rightfully or not) that they were finally getting somewhere in our system", and my much greater concern- those who desperately want to work but who are being made obsolete by technology. The first group has always been with us, always will be, and frankly doesn't get much sympathy from me.
The second, however, is a new situation presently evolving, and is actually the subject of my post. You yourself defined this group with your observation that "What I don't see this time around is a transition for the previous manufacturing working labor pool. Most have to be re-educated and trained into new careers. There will be new positions for robotic design and maintenance but not enough to satisfy the whole population". I completely agree with you on that. Unless we somehow invent new reasonable-paying jobs on a large scale (and I certainly don't see that in the cards) the present system is simply going to fail. Not "maybe", but "when".
With respect to comparisons to the Philippines, those who have not spent significant time there out in the countryside will most likely not understand; those who have will surely agree. But unless we believe that the United States should have no concerns about economic retrogression because we are so much better off than country "x" or people "y", I really don't see the relevance with respect to the very real concerns facing the US and other "First World" countries.
You guys sound like the League of Grouchy Old Men.
It is not uncommon for the elders of one generation to think the next generation is in big trouble. Partly because of changes that they don't understand or inability to envision solutions outside of their experience that will solve future problems. Partly to be in denial that the world will continue just fine after them which makes them question their own contribution to the world in their waning years. So all the current problems are over-dramatized and solutions not entertained to continue with the kvetching. A generation thought the rock and roll, drugs and free love generation was doomed and now it is this generation's turn to think the same of the twittering millenials.
World has gone through even more radical changes from a primarily agrarian society to an industrial society. Such changes are evolutionary with people adapting at different times in their lives, it is not a clean divide between generations. Doesn't mean it will be entirely painless but it isn't doom either.
With globalization and fiat currency it is almost impossible for a country like the US to get into depression. Even with all the problems Japan has had, it still remains a major economy in the world.
Intervention by a band of rich men to avert disaster has precedence. JP Morgan did that in 1907. Without a functioning economy, even the rich become poor. So capital gets reallocated to maintain it whether via the Government or directly well before that doomsday scenario. People adapt. A lot of people from all over the US became oil field workers in N. Dakota. Urban unemployed have joined service economy whether to do ride sharing or deliver food or deliver other services at your home which wasn't possible before. Plenty of people employed and with money to utilize these services.
Can one predict exactly how this transformation will happen? Probably not, but it really isn't that hopeless and the world will continue to thrive long after ashes to ashes and dust to dust of any generation. You can get a good sleep now!
Thank you all for your outstanding and sometimes provocative contributions to this exchange.
Without a doubt, I benefited from your viewpoints on the Larry Summers’ interview, but many times more from your conjectures and projections on how the world will turn in the future. I’m more optimistic in general.
I delayed reading the Summers’ interview until I noticed the unexpected interest generated within the MFO family. Forecasters can’t forecast, especially economic soothsayers, so I typically don’t invest the time to read their projections.
Academic researcher Phillip Tetlock has made a career of testing the accuracy of professional experts in a variety of fields. He has assembled over 28,000 predictions and has carefully scored them. His conclusion is that their forecasts are abut equivalent to a coin toss. In many instances amateurs do better. In most cases algorithms do a superior forecasting job. Tetlock finds that the more famous and more frequently quoted the expert is, then the more likely that the guesstimate will be wrong.
The Summers’ talk is very one-sided. Not unexpectedly, it reflects mostly Keynesian governmental interventional economics. I’m sure an economist from the Austrian school would offer a different approach. I suspect that some combination of concepts from both schools would offer the best chances for success since each works best under differing conditions.
Early in the conversation, Summers seems upset and puzzled by the fact that a projection he made 5 years earlier on GDP growth rates would likely not be achieved in the next 5 years. Really? Here’s an economist making a 10-year forecast and is shocked that it might not be accurate. Now that’s arrogance!
Economists carry the historical burden of huge forecasting errors. John Kenneth Galbraith turned on his own with “The only function of economic forecasting is to make astrology look respectable” . Evan Esar noted that “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” Economists have earned no respect.
I thoroughly enjoyed learning just a little of your individual world views. It will allow placing your many fine MFO postings into some needed context.
I tend to fall on the side of those who believe in dampening (negative) feedback loops that limit damage as the law of diminishing returns is activated. Trees do not grow to the sky. Populations recognize and respond to scarcity, and naturally limit birth rates accordingly. Investment returns have a compelling pull towards a reversion-to-the-mean. I worry less about the future than many of you fellows.
The world is in better shape today than it was yesterday. Although progress is surely not even or uniform, and is not uniformly nor fairly distributed, over any meaningful timeframe and measure, it is definitely in the positive direction. We live longer more comfortable lives; child mortality is reduced; extreme hunger is down; crime is on a downward cycle; we’re becoming a more tolerant society; war is less universally destructive.
This last point about war is particularly significant to me. In the 1960s the USA and the USSR positioned and targeted thousands of nuclear missiles at each other. The danger of a score of missiles hitting within a few miles of my home was real and palpable. Today, that danger is near zero, at least for the foreseeable future. I’m much relieved and sanguine when contrasted against the deadly seriousness of the situation several decades ago.
I am impressed with all your postings, but I was especially surprised to learn of Scott’s youthfulness. His world views, his perceptions, and his market savvy are not representative of his age. That’s meant as a compliment.
Scott, although I am not a market trader and am a very passive investor these days, I greatly admire your market smarts, your research, and your trading reports. You always qualify your recommendations, and give logical reasons why the trade is proper for your special circumstances. Please keep trucking with your MFO submittals. I’m sure many MFO members profit from your investing wisdom.
Thanks for listening guys, and best wishes to all who participated in this worthwhile exchange.
Comments
Nothing from nothing leaves nothing.
That's ten more people who no longer have any discretionary income to help boost the overall consumption rate and manufacturing economy. That's ten more people who now will either need to work two part-time jobs with no benefits just to stay alive, or who will require some sort of assistance or concealed subsidy from the ever-shrinking pool of middle-class tax payers. This isn't a personal complaint about those subsidies or taxes... just a question as to how far we can go down that road before the whole thing completely falls apart. Nothing from nothing...
I'm very glad that I'm as old as I am... I sure don't like the looks of what I see coming.
For decades, there has been a battle between the RoI for human capital investment vs RoI for financial capital investment. They are usually at odds with each other and need to exist in some equilibrium for the economy to function since you need both capital and labor. Unfortunately, this economic dynamics has got embedded into political ideology that distorts the self-correcting feature of an economic framework. On its own, it will account for immigration, outsourcing, etc. This is the argument that respectable magazines like the Economist do. However, the political process distorts it by treating one favorably over the other and preventing the corrections. This is NOT the regulations and taxation policies but much broader. For example, a system of nation states where it is easy to move capital across boundaries but not people isn't really a free market that forms the basis of claims of the type espoused by the Economist. These nation state boundaries disadvantage labor while helping capital.
Right now, the balance is too far in favor of capital, in policy including taxation. When this has happened in history, it has been corrected by wars or revolutions. Hopefully, we have safer mechanisms now than that. Things like Occupy Wall Street, the increasing demand for wages, etc are early symptoms of the consequences of that shift to one extreme. My guess is that this balance is going to change when a group of significant capital owners with more than making money in their heads and with sufficient empathy and compassion get upset with the current system to come together and start creating the kinds of programs once the Governments did. There are already some bands of billionaires forming with universal good in mind but they are not organized sufficiently yet. They will be in the next decade and they won't be coming from Wall Street.
They will significantly change the way capital is allocated in many areas with a broader definition of RoI. There is too much reliance on capital deciding economic direction with the assumption that capital flows wherever the returns are the highest. But that is an advantage only for the owners of capital and in reality it distorts markets as much as inefficient government programs. For example, our pharmaceutical industry is spending almost all of its research dollars into treatments for chronic illnesses than finding total cures because medications you have to keep taking is more lucrative than medicine that cures with a fixed dose and possibly completely eradicates a disease. The public funding which did a lot of the latter is drying up. Similar problem in techology. VC capital is now flowing into labor efficient ideas where less than 100 people can create billion dollar companies. Companies like Apple, Cisco, Oracle, Microsoft, etc would never be funded initially in this climate. Government funding that helped launch such companies is drying up and so on....
Since the Government, not unjustifiably, has been totally discredited for doing any of these public good things sometimes for selfish reasons and sometimes for ideological reasons, it requires these bands of billionaires with a conscience to emerge and become that third entity between Government and profit-seeking capital owners to change the economic climate where more people can participate and benefit than just the 1%.
http://seekingalpha.com/news/1508851-bofa-branch-declines-continue-as-mobile-banking-grows
"Let us never forget that authentic power is in service."
"We live in the most unequal part of the world, which has grown the most yet reduced misery the least. The unjust distribution of goods persists, creating a situation of social sin that cries out to Heaven and limits the possibilities of a fuller life for so many of our brothers." (Francis I)
Robin would say to Batman, " Holy growth model Batman, it seems more consumers really are considering frugality as a method of living!?
Nah, nope; ain't gonna happen in my remaining life span, at least on a large scale. Marketing continues to provide excellent rationale as to why spending on whatever is such a great and rewarding joy.
We all receive marketing reasonings to do "stuff"; be it from the Federal Reserve or QVC.
Lastly, yes; this time is different. Time frames lend to different. I find no value in what was going on with the markets or other data about the U.S. economy 5 years after the end of WW2. My parent's generation, is not my generation; nor my generation's children and the economy today.
Regards,
Catch
Yes, we've chewed over this for several years, eh? I wish that more folks we get their head in place about proper spending habits; but I don't see this happening on a grand scale. Some have been forced to re-think this area over the past 5 years. But, old habits are hard to break and may take more than one generation of family to change.
So, our house; not unlike what you noted about cc companies, will do our best to continue to sort the trends in where the money is going, at least related to the broad consumer. 'Course the other things (QE, large money houses, etc.) also have their place in the great money scheme for the cause and effect, too.
Thanks for you note and take care of you and yours.
Catch
In the past when we have had a transition in working society like the end of the horse and buggy to the automobile labor could transition to a new job. Blacksmiths applied for the auto assembly lines where there were openings for everything. Years ago a person could work for Ford installing headlight rings. Do that for 30 years and retire. Maybe their kid took the job over. Now everything is automated and outsourced.
What I don't see this time around is a transition for the previous manufacturing working labor pool. Most have to be re-educated and trained into new careers. There will be new positions for robotic design and maintenance but not enough to satisfy the whole population. It does seem like there is a purposeful trend to lower wages and and as mentioned above lower the American society to a lower common denominator. I hope I'm wrong on that.
Our entire societal structure is based upon the moral premise of survival dependent upon required work. A very small number of people may escape this requirement if they happen to possess a great store of wealth. If there is a long-term secular decline in the availability of required work, the only way to maintain this moral structure is for the State to somehow provide make-work projects and somehow provide the minimum payment necessary to allow survival and prevent civil unrest. I repeat the redundant "somehow" because I do not believe that this approach is viable on a permanent basis.
We usually comment upon the "housing bubble" of 2008 with respect to the various stupidities involved on the part of both government and capital. But consider this: the people who thought (rightfully or not) that they were finally getting somewhere in our system now know the truth: they are not going anywhere, and the chances of them ever improving their condition are worsening by the month.
To my knowledge, in all of human history the closet experience we have had with anything like this was the Great Depression, and that was ended only by the huge expansionary industrial production of WW2 and it's aftermath. This time around there is going to be no such war, and no such expansion.
"There will be new positions... but not enough to satisfy the whole population". I believe that you are correct in your appraisal, and that is why my remark to the effect that I'm glad that I'm as old as I am, because I just don't see a way out of this.
One demurral, if you don't mind: I surely can't speak for our entire generation, but my wife and I certainly do remember the lessons of frugality as practiced by our parents, and there are still quite a few of us around.
Regards- OJ
How the heck are you two out your way?
You noted: " One demurral, if you don't mind: I surely can't speak for our entire generation, but my wife and I certainly do remember the lessons of frugality as practiced by our parents, and there are still quite a few of us around."
'Course, not unlike your house; we have the "wreck'in ball" at work.
There are days when the costs involved in the remodeling is like someone trying to remove one my legs.
But, all of the money that was saved in the early years with doing so much repair work on my own, on the autosm the home and everything else mechanical and electrical is really a decent offset for the money that must be spent today. So, some of this is a wash.
Not unlike yourselves, we still maintain a daily log of expenses. We knew exactly our spending habits and costs going into retirement, adjusted for inflation.
This method had a lengthy discussion back at FundAlarm; where I recall many of us offered support and help to "persons x" about the value of such a system related to spending and savings.
Anyway, some days they still need to hold me down to remove the wallet from my rear pants pocket for "mo" money.
Take care,
Catch
I will add this; my belief is that the US made a sea change when LBJ started the War On Poverty. The country switched from spending on infrastructure to social spending. Speaking for myself here as to not insult anyone, but I remember when it used to be an embarrassment when a family had to go on food stamps or welfare. Today it seems to be a right for many. I had a great conversation with a young person recently who spoke of her friend living in California and had recently had a baby. Life in Ca. was good because everything was free. My response was that nothing is free and that someone had to pay for those expenses, i.e. the taxpayer. It opened her eyes a bit. I could see some realization and I hope it stuck.
The social spending in the US is out of control. Yet we are demanding more and more taxes from a shrinking middle class, and that in turn cuts back their ability to save for their future. You and I know that this is not sustainable, but the people are demanding more. I learned to separate emotion from major decisions but every day we are hounded by example of poverty and desperation and then the politicians get up and say we need to ask you for more.
The War On Poverty was and still is a huge boondoggle. Trillions have been spent and all we have gotten are generation after generation still in poverty. Of course it all depends on what the meaning of poverty is.
They should come over here to the Philippines and then they will see true poverty.
Sorry for the rant.
Tell me!! Last night you could have heard me screaming "I can't f---ing see!! as I repeatedly miss-wired a 50-conductor communications cable, my back killing me at the same time.
Nice to hear from you, Catch, and actually we are doing OK for the most part. Your observation regarding "we have technically been saving and investing for 35 years to have the monies in place to do the house remodel" is right on. And having, like you, done so much of the electrical, plumbing, carpentry and mechanical work myself for so many years surely helped to build our freedom in the retirement years. We don' seem to talk as much about that sort of thing here as we did on FundAlarm. Over a span of forty years that money not spent, but saved, invested and compounded adds up to a huge chunk, for sure.
Good luck on your projects!!
Regards- OJ
That said, we seem to have conflated two distinct issues: Those who don't want to work (obliquely referred to in my post above as "people who thought (rightfully or not) that they were finally getting somewhere in our system", and my much greater concern- those who desperately want to work but who are being made obsolete by technology. The first group has always been with us, always will be, and frankly doesn't get much sympathy from me.
The second, however, is a new situation presently evolving, and is actually the subject of my post. You yourself defined this group with your observation that "What I don't see this time around is a transition for the previous manufacturing working labor pool. Most have to be re-educated and trained into new careers. There will be new positions for robotic design and maintenance but not enough to satisfy the whole population". I completely agree with you on that. Unless we somehow invent new reasonable-paying jobs on a large scale (and I certainly don't see that in the cards) the present system is simply going to fail. Not "maybe", but "when".
With respect to comparisons to the Philippines, those who have not spent significant time there out in the countryside will most likely not understand; those who have will surely agree. But unless we believe that the United States should have no concerns about economic retrogression because we are so much better off than country "x" or people "y", I really don't see the relevance with respect to the very real concerns facing the US and other "First World" countries.
Regards- OJ
It is not uncommon for the elders of one generation to think the next generation is in big trouble. Partly because of changes that they don't understand or inability to envision solutions outside of their experience that will solve future problems. Partly to be in denial that the world will continue just fine after them which makes them question their own contribution to the world in their waning years. So all the current problems are over-dramatized and solutions not entertained to continue with the kvetching. A generation thought the rock and roll, drugs and free love generation was doomed and now it is this generation's turn to think the same of the twittering millenials.
World has gone through even more radical changes from a primarily agrarian society to an industrial society. Such changes are evolutionary with people adapting at different times in their lives, it is not a clean divide between generations. Doesn't mean it will be entirely painless but it isn't doom either.
With globalization and fiat currency it is almost impossible for a country like the US to get into depression. Even with all the problems Japan has had, it still remains a major economy in the world.
Intervention by a band of rich men to avert disaster has precedence. JP Morgan did that in 1907. Without a functioning economy, even the rich become poor. So capital gets reallocated to maintain it whether via the Government or directly well before that doomsday scenario. People adapt. A lot of people from all over the US became oil field workers in N. Dakota. Urban unemployed have joined service economy whether to do ride sharing or deliver food or deliver other services at your home which wasn't possible before. Plenty of people employed and with money to utilize these services.
Can one predict exactly how this transformation will happen? Probably not, but it really isn't that hopeless and the world will continue to thrive long after ashes to ashes and dust to dust of any generation. You can get a good sleep now!
I'm a young person (30's) and think the next generation is in trouble haha.
Thank you all for your outstanding and sometimes provocative contributions to this exchange.
Without a doubt, I benefited from your viewpoints on the Larry Summers’ interview, but many times more from your conjectures and projections on how the world will turn in the future. I’m more optimistic in general.
I delayed reading the Summers’ interview until I noticed the unexpected interest generated within the MFO family. Forecasters can’t forecast, especially economic soothsayers, so I typically don’t invest the time to read their projections.
Academic researcher Phillip Tetlock has made a career of testing the accuracy of professional experts in a variety of fields. He has assembled over 28,000 predictions and has carefully scored them. His conclusion is that their forecasts are abut equivalent to a coin toss. In many instances amateurs do better. In most cases algorithms do a superior forecasting job. Tetlock finds that the more famous and more frequently quoted the expert is, then the more likely that the guesstimate will be wrong.
The Summers’ talk is very one-sided. Not unexpectedly, it reflects mostly Keynesian governmental interventional economics. I’m sure an economist from the Austrian school would offer a different approach. I suspect that some combination of concepts from both schools would offer the best chances for success since each works best under differing conditions.
Early in the conversation, Summers seems upset and puzzled by the fact that a projection he made 5 years earlier on GDP growth rates would likely not be achieved in the next 5 years. Really? Here’s an economist making a 10-year forecast and is shocked that it might not be accurate. Now that’s arrogance!
Economists carry the historical burden of huge forecasting errors. John Kenneth Galbraith turned on his own with “The only function of economic forecasting is to make astrology look respectable” . Evan Esar noted that “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” Economists have earned no respect.
I thoroughly enjoyed learning just a little of your individual world views. It will allow placing your many fine MFO postings into some needed context.
I tend to fall on the side of those who believe in dampening (negative) feedback loops that limit damage as the law of diminishing returns is activated. Trees do not grow to the sky. Populations recognize and respond to scarcity, and naturally limit birth rates accordingly. Investment returns have a compelling pull towards a reversion-to-the-mean. I worry less about the future than many of you fellows.
The world is in better shape today than it was yesterday. Although progress is surely not even or uniform, and is not uniformly nor fairly distributed, over any meaningful timeframe and measure, it is definitely in the positive direction. We live longer more comfortable lives; child mortality is reduced; extreme hunger is down; crime is on a downward cycle; we’re becoming a more tolerant society; war is less universally destructive.
This last point about war is particularly significant to me. In the 1960s the USA and the USSR positioned and targeted thousands of nuclear missiles at each other. The danger of a score of missiles hitting within a few miles of my home was real and palpable. Today, that danger is near zero, at least for the foreseeable future. I’m much relieved and sanguine when contrasted against the deadly seriousness of the situation several decades ago.
I am impressed with all your postings, but I was especially surprised to learn of Scott’s youthfulness. His world views, his perceptions, and his market savvy are not representative of his age. That’s meant as a compliment.
Scott, although I am not a market trader and am a very passive investor these days, I greatly admire your market smarts, your research, and your trading reports. You always qualify your recommendations, and give logical reasons why the trade is proper for your special circumstances. Please keep trucking with your MFO submittals. I’m sure many MFO members profit from your investing wisdom.
Thanks for listening guys, and best wishes to all who participated in this worthwhile exchange.