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Comment by nostromo | Hacker News Reader

This article doesn't answer the question and seems primary based on nostalgia.

My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it.

Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably.

So, the Fed has the pedal to the metal for seven whole years and we get mediocre job growth, no real wage growth, but screaming high housing costs and stock market. And who owns the most real-estate and stocks? The wealthy do, which is why inequality is growing.

Even though I'm critiquing the Fed's policy, I don't have the answers and would probably pursue the same policy. It's a real conundrum. Perhaps basic income, or some other "throw money from helicopters" idea is the solution.

View on HN

Here's another solution:

Respect the wisdom of markets. Allow corrections to take place and don't bury malinvestment under the rug only for it rear it's ugly head worse later on by acting as if you have a better intuition on what the price of money should be.

Most people accept the virtue of free markets. Yet many don't see that the actions the Fed has been taking destroys the concept of a market by artificially supplementing supply or demand in an unbounded way based on a perceived sense of greater understanding.

The problem is it's really hard for most of these policy makers to build a platform based on "Let's do nothing and let the markets correct themselves". In such complex domains like an economy the action bias is very real, problematic, and the best thing to eliminate if you want to renormalize markets.

The value of money is completely determined by fed actions and allowing it to drift in detrimental value paths would be the farthest thing from respecting the markets. Economy wide "malinvestment" is not a thing. It entails that a person living off of others is more productive than a person working. It's nonsense.

Although money should be just an intermediary tool for trade and negotiation, an artificial asset that is neutral, in the short run this intrinsically valueless paper can distort the markets, even if it has predictable value, but only if it is manipulated into being a store of value that has a better risk adjusted return than private market stores of value.

Paper money has no intrinsic value in itself. If the fed keeps it predictably devaluing fast enough, always moving it towards its intrinsic value, it acts as a very useful enabler of trade by creating a unit of measurement for value and medium of exchange.

But unfortunately, for fiat to enable trade, it also has to artificially be made into a store of value. If this paper is made into a store of value that retains value better than private stores of value (such as stocks, bonds, or just stockpiles of stuff), it jams the markets for private stores of value. It turns savers into accumulators of pieces of paper or numbers in accounts instead of being holders of things that are backed by economic activity and wealth creation. It becomes a subsidy from investors, entrepreneur, job creators and workers to holders of pieces of paper. It is the worst kind of subsidy because it blocks wealth and welfare creation.

The only way for central banks to allow private markets to function properly, is to get money out of the way by making sure it always devalues fast enough that it doesn't overly displace private stores of value that are backed by real economic activity.

> Economy wide "malinvestment" is not a thing. It entails that a person living off of others is more productive than a person working. It's nonsense.

At microeconomics malinvestiment happens all the time, and you do want it to fail. Otherwise we'd be still sending typewriter created letters though horsemail.

Now, you are proposing that at the macro-level it does not exist? How is it so? Is malinvestiment one of those things that cancel-out at the macro level? If so, that would be huge, it would be the first real (not nominal) value ever to cancel-out at the macro-level. So, I'll have to ask for your references.

It's because at the micro level, investments can be sub-optimal when they could be replaced by better more productive investments.

At the aggregate level, the alternative to investment is just economic inactivity. At this level, turning investment into fiat means stopping economic value creation and preventing economy value retention.

Unless you really believe that the unemployed would be destroying more than 100% of the value of the investment they need to work, it's an incorrect assumption.

I think the erroneous assumption that Austrians make is that they think investments are not worth it in the private markets if they have negative returns.

That is incorrect, stores of value can be useful as long as they retain part of their value, that is unless their returns are above -100%. You don't throw out a bag of apple because one of them may rot early. Idle fiat has a return of -100% to the aggregate economy over the time that it is made idle. On the aggregate, it's just paper it doesn't actually carry value forward. It is a claim on value created by others who have not promised to create anything. If you had instead invested the money into stock or a bond, something that enables production, even if you would only have generated -50% returns, you would have added much more value to the aggregate than if the savings would have been kept as idle fiat reserves.

It is crucial that fiat does not price good short term investments out of the market every time the risk adjusted market rates go below -2%. -2% can be an artificially high rate that puts the private market in a gridlock.

Negative returns may well be the natural state for stores of value. Before financial systems existed, almost all investments, had negative returns if you didn’t put work and energy into them. The only way you had to store value was to accumulate stuff, buildings or land. All options either had high maintenance costs, were subject to risk of damage from natural causes and theft, were very volatile or required hard labor to get production out of.

Even in societies with good financial systems, getting risk free, hassle free, positive real returns has been difficult for most of history. This probably reflects the laws of thermodynamics that tell us that things tend to decay without work and energy put into them.

The 20th century was probably the most notable exception. Because of unprecedented demographic and technological growth, positive risk free returns were easy to find. This however, may not continue forever, particularly amidst a aging and retiring population.

Money should not be made an artificial government backstop for stores of value as this destroys the total amount of real wealth in the economy and replaces it with pieces of paper or numbers in accounts. The saving vehicle of last resort should be for people to stockpile stuff they will need in the future (which incidentally creates job because this stuff needs to be produced) not accumulation of fiat.

Sorry, but you stated the inexistence of bad investments on aggregate, and you support that extraordinary claim with a rant about stores of value?

Anyway, that rant makes no sense. You can't just informally move from real and nominal values at will, as you can't claim that in a population, if everybody lose any amount less than 100% of their wealth, everybody would get richer. Or better, well, you can claim it, you just can not make it real.

Bad investment compared to what? Idle excess fiat is worth about -100% to the aggregate economy over the time it is kept idle. Manipulating it so that it stores value for an individual at a real rate of -2% when private market stores of value's risk adjusted real returns are lower than that is a market distortion that transforms people's savings into a huge loss to the economy.

I am the one being meticulous about the implications of real vs nominal. In particular I am saying that people's saving should be tied to something real by making sure they end up in something backed by real economic activity like stocks, bonds, actual stuff or credible promises of production of actual stuff.

You on the other hand don't seem to see the different implications between fiat stores of value and real value tied to production and production capacity. You have no problem if people's savings end up as purely nominal idle fiat without any real intrinsic value tied to them, if people's savings accumulate as pure government created claims on production from other people who have not promised to fulfill those claims.

I like to make simplified agrarian economy metaphors:

Say you had an isolated farming village where people wanted to save to be able to eat in the winter. It is important that farmers invest their profits into additional production to have something to eat in the winter, even if, because of perdition, the stored crops are only worth 90% of the initial investment required to produce them.

Otherwise, if they instead mandate their government to create a currency that keeps 98% if its real value when other forms of savings available don't, most farmers are going to work, trade part of the crop they don't want to eat to diversify their diet and keep their cash profits to be able to buy something to eat in the winter. They will not produce a crop to store for the winter since it would only return -10% and their central banks promised to keep money at -2% real value.

However, now comes winter and all farmers have cash but few have anything to sell because they didn't reinvest their cash in the production of a stored crop for the winter!

It's going to be difficult for the government to control inflation in such conditions because there will be too few goods for the amount of money people will want to spend. If the government manages to control inflation it will be by depressing the nominal value of the crops of the few farmers who did invest and save a crop for the winter. The central bank might do this by giving high enough interests payment on cash to prevent people from wanting to spend it immediately. In any case, people won't eat much during the winter.

This could all have been prevented if the central bank had kept money devaluating sufficiently and farmers would not have kept their savings as cash but would have reinvested them into an extra crop for the winter and have continued to trade during the winter.

What you call allowing "malinvestment", I call allowing sufficient production or production capacity to fill the needs of the future even if the returns are quite negative on this production.

Note that there are parallels with farmers saving for the winter and a baby boom saving in preparation for retiring and stopping to work.

Isn't the value of bonds, which are essentially debt denominated in the fiat currency, intrinsically linked to the value of that currency? Debt isn't an independent store of value in the same way that equity or real property is.

Not necessarily. See inflation-adjusted bonds, for instance.

This is a gray area. If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries which would be gone (from the US) forever. Same with banks. As much as we detest bailing out bankers, allowing the US to economy to be cut off from credit would create lasting collateral damage.

The counter example is Iceland who told the banks to get lost and is the only European country who's economy is now ahead of where it was in 2008.

http://www.independent.co.uk/news/business/news/three-charts...

Not the only one -- Poland didn't even have a red year. It exhibited GDP growth throughout the crisis.

Ireland, the example shunned by krugmanites, has followed the IMF/ECB advice and is in better position than it was in 2008.

I see some mixed data on Ireland.

A quick search shows an unemployment rate that just crossed below 10% in April. From 2000-2008, the unemployment rate ranged 4-5% (with very high unemployment in the 80s and 90s). http://www.tradingeconomics.com/embed/?s=ieuert&v=2015080617...

Also, government debt to GDP rose steadily and is near historic highs, although has recently begun to fall: http://www.tradingeconomics.com/embed/?s=irldebt2gdp&v=20150...

By which measure is Ireland in a better position than 2008?

The only reason Ireland's unemployment fell is because of emigration.

The economy is a disaster, especially for young people, home repossessions are just getting started by the banks (who were the actual ones bailed out, wrecking the economy by driving government debt through the roof.) The actual situation on the ground is grim, despite what the official figures might tell you.

Source: Irish person who emigrated.

Iceland is orders of magnitude smaller than the US, and is generally not regarded as a large financial center.

> If we allowed a large automaker to go bankrupt

The 2009 "bailouts" of GM and Chrysler involved each company entering bankruptcy, and having the desirable assets of those firms purchased in bankruptcy by new entities in which the US and Canadian governments were (together) major (in GM's case) or minor (in Chrysler's case) investors. So, any sentence that starts with "if we allowed a large automaker to go bankrupt..." that concludes with describing a result that didn't actually occur is demonstrably incorrect.

In my previous comment, I was referring to liquidation. This would have happened without government intervention, because it takes money to keep a company operating under bankruptcy restructuring. The money required for this was not forthcoming from the private market, which was paralyzed with fear. Counter-party risk alone was a huge concern.

> If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries which would be gone (from the US) forever.

That's what people thought about textiles and apparel. Neither turned out to be true. Textile mills are coming back to the East Coast (http://www.nytimes.com/2015/08/03/business/chinese-textile-m...) and the number of apparel manufacturing jobs in the Los Angeles County has stabilized in the past several years.

> If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries

And you'd free a loot of resources (people, money, etc) to create something that people really want, instead of forcing them to work on stuff the government has to pay people to buy.

Anyway, what is sending companies out of the US is your government fiscal policies. Start paying the stuff you take from there (instead of buying on loans), and those companies will be back.

Creating too bigger to fail out of already too big to fail industries does nothing except throw good money after bad, and increase systemic risk for an even worse repetition of a failure.

Not to mention the fact that continuously proceeding with such bailouts is simply unsustainable. The problem lies in our modern inability to stomach losses and handle austerity. It's something no one rightfully wants, but when market failures or financial crises occur, it's for a reason. You're witnessing a natural repricing mechanism at work and no one is disagreeing a lot of destruction can be a by product. But I don't buy your narrative that unless we saved those industries in the US they would have permanently moved elsewhere.

The economy is like an organism, not a washing-machine. The most optimal repairing mechanism is itself.

>The economy is like an organism, not a washing-machine. The most optimal repairing mechanism is itself.

organism have finite life, they die. Washing machine can be maintained/repaired indefinitely. Of course cyborg is the best way.

Individual organisms die. Short of existential events, ecosystems last.

Morality aside, the US government acted in its own self-interest by protecting industries within its borders. It is likely had any major US automakers been liquidated, more wealth would have been destroyed than created.

Extending the organism metaphor, forest fires can be a naturally occurring healthy event that promotes renewal. Sometimes, a fire will burn with enough intensity that the forest itself is destroyed. Should we try to prevent all forest fires, the most destructive fires, or let nature take its course?

The analogy only stretches so far but I think letting nature take it's course isn't as dangerous you think.

Politics also needs consideration. If other countries protect their industries and US does not what will happen?

Then they'll be exposed to systemic risk and we won't.

markets dont self-regulate to normal distributions they seek monopols

... but normally only achieve them through government backing of the larger players. It's called cronyism and it's not free market capitalism.

Respect disease let people die when they contract them.

Markets are not wise by any stretch. No one agrees what a "free" market would look like, but in general they tend to favor incumbents and the powerful.

And they do so by influencing politics which in return need to abandon free markets to really favor the few.

So the problem is not necessarily one of free markets but alternatively, one of corruption.

That's what politicians do. Markets favor future money (i.e. profit).

That's, uh, what we've been doing since the early 1980s, at least ideologically speaking.

I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market thereby increasing housing prices. I don't understand why Feds inflation gauge doesn't take into account the housing prices/rents that well? Every month Feds see unemployment rate and review the rates accordingly. I think they should also take into consideration the housing prices equally. I feel zero-interest rates have benefited wealthy 10 times more than an average person.

Super low rates are bad all the time. They allow many things to exist that shouldn't, while the viable businesses have to pay higher prices for all their inputs.

When you have cheap money, more people think marginal investments now make a lot of sense. But if you create too many online dog food companies, eventually most of them have to be shut down.

It would have been better to allow an organic recovery.

And remove the impediments to hiring. We seem to ignore the law of supply and demand in the labor markets and then scratch our heads when there is a lot of unemployment.

>And remove the impediments to hiring.

What're those?

Anything that makes labor more expensive than the price the market is willing to pay.

Government adds a lot of costs and even fixes the price of unskilled labor in the belief that these workers are benefiting.

But if the total cost of labor is higher than employers are able to pay for labor, they won't hire. This is especially true in a downturn.

If we want to assist these workers, it would be far better to help them directly instead of forcing employers to do it. We'd avoid distorting the market place and shutting a certain percentage out of it altogether.

Total econ noob here, could somebody please explain how zero interest rates cause increasing housing prices?

Low Fed interest means you can't make good money safely by loaning it to the central bank. So it makes the alternative loans more attractive, mortgages are a relatively safe and profitable investment. When the cost of mortgages goes down the amount borrowable goes up so the people can buy more expensive houses. The immediate result is that their prices go up.

People tend to judge affordability based on repayments, not prices, so lower interest rates mean you can service a much larger debt for the same monthly repayment.

Where housing is scarce prices are determined by availability of credit more than anything else, so "you can" rapidly becomes "you'll have to, otherwise you'll be outbid by somebody who will".

Over the long term it's a shitty, negative-sum game for everyone except the banks.

Lower interest rates mean it's cheaper to borrow, which makes borrowing more affordable to more people, which increases demand, which increases prices when supply is limited (artificially or otherwise, see San Francisco).

One thing nobody mentions is the increasing share of the GDP that the government consumes:

http://www.usgovernmentspending.com/total_spending_chart

That wealth has to come from somewhere.

The data you point to shows government spending as a share of GDP peaking in FY 2009, dropping through FY 2014, rising slighting to FY 2016, and with a projected sharp bend upward beginning in FY 2018.

The only recent period of a significant runup in government spending (federal or overall) as a percent of GDP was approximately the second term of the most recent Bush Administration, and the only periods with any sustained growth in that measure since the 1970s are about from the middle of the Carter Administration through Reagan's first term and then again both terms of the second Bush Administration (as noted, with a particularly rapid rise in the second term.) Even with the projected increase in the out years, the projected 2020 spending level as a percent GDP isn't that much ahead of 1970.

The growth from 30 to 35% 1970 to present is enormous. People often point to the 1950's as the good old economic days, and the percentage was much lower then, as well.

More important than that, though, is that the USA was one of the few highly industrialized nations in the world which did not have its factories bombed out less than a decade before.

Umm US Gov spending was 30% GDP in 2000, bushes wars and a recession bumped it to 35% but that's hardly a run up.

I think the government's interference in the markets for housing, capital and labor are a much bigger problem than how much government consumes.

Bubbles happen because borrowing money is subsidized. Unemployment is caused when interference with prices prevent supply and demand from equalizing.

Government may waste capital, but I can point to many things that do.

I think you can increase taxes if you free markets enough and the economy could still grow.

You could GIVE everybody the downpayment for their first house and have a healthy housing market as long as you got rid of all the other subsidies and inducements and tax write-offs. Not proposing that, but you get the idea.

Which has pretty much leveled out since the end of the 1970s according to those charts?

You mean decreasing share, right?

I like how the charts run to 2020 to hide the massive ramp up in the last few years.

> I like how the charts run to 2020 to hide the massive ramp up in the last few years.

From the data there, spending as a share of GDP peaked in FY 2009, bottomed in FY 2014, and rose slightly from that trough through FY 2016. Extending it to the projected FY 2020 levels provides a bigger ramp up than recent years, since the 2018-2020 ramp up is the fastest one since the FY 2009 peak.

The only massive ramp up in recent years was the one leading up to the 2009 peak.

I don't particularly 'like' it, but entitlements will grow at an increasing pace as more of the baby boomers reach Social Security elidgibility.

How about allowing markets to operate as markets instead of a government handout to the wealthy and powerful? fed policy only encourages malinvestment and inefficiency.

How about tax and regulatory reform instead of the current corrupt regime of barriers to keep out the innovative and new for the old and established.

There's so much which would help, but completely corrupt status quo serves the powerful at everyone else's loss, things are this way because the powerful want it this way.

> How about allowing markets to operate as markets instead of a government handout to the wealthy and powerful?

How about neither. How about addressing inequality by pumping money where it belongs, down to the poor, lowering taxes on the 99%, raising them on the 1%, and fixing the source of all the actual problems rather than simply treating symptoms? Markets aren't naturally good and crony capitalism isn't either, they both need tamed.

The answer was mentioned briefly in the beginning of the article, and then the implications discussed through the rest - it was not entirely obvious. Population rises and falls on long time scales. It acts like a commodity in that the supply and demand for people affects prices. When population is high wages are low and living space is expensive. The converse is also true. After WWII the population was very low (because the workforce slice of the demographic was more heavily affected than the other slices), now the population is relatively high (and the workforce slice of the demographic has expanded).

More people with money chase a fixed(-ish) number of homes through rent and purchase. Debt is cheap. The result is high prices. Most people in a job can be replaced with a large available pool of others, the result is low wages though lack of negotiating power.

The unanswered question in the article is whether Reagan/Thatcher caused these changes through their policies or simply rode into power on their effects. History is nothing but a long-term record of the effect of demographic change on political will.

The reason asset prices rise first in a fed led recovery is because new money enters the system through bank loans. Naturally, banks want to lend against hard assets, so the first thing that new money buys is property, stocks and other income producing assets.

This time is different. The new money enters the system via central bank asset purchases, which lower the returns on those assets. These purchases push investors into asset classes with higher returns, raising the prices of all assets as a result.

An additional buyer shouldn't have the effect of lowering the rate of return on an asset.

This ain't any old additional buyer. This buyer prints its own money.

http://www.economist.com/blogs/economist-explains/2015/03/ec...

More money chasing the same asset will lower its rate of return.

This explains the how, but not the why. I have found in life the best way to work out why something happens is to follow the money.

The Fed never touched the pedal. See also "Interest on reserves".

Land rents ( which are not the same as "rack rent", what you pay the landlord, but can be related by land prices going up speculatively ) drive out wage rises.

Scott Sumner says we should have Nominal GDP Targeting; if Real GDP is < say, 4%, the rest is made up with inflation.

> Land rents drive (...) out wage rises.

Should we address rent seeking with land taxes and other Georgist policies?

Probably. It would mean a painful period of adjustment. And the rentiers will fight with everything they have.

This is incorrect. Fed only increases asset value because it increases the value of an asset relative to its revenue generation capacity. Interest rates are a revenue to asset ratio. This means residences are worth more relative to their rents but not that rents are higher.

Rising income may be a second-order effect but the low rate at witch it is happening is because the fed is not stimulating enough and constantly missing its inflation target. If it were, employers would be fighting for employees and wages would grow.

It's true that the wealthy own most of the assets that gain value with fed stimulation. However, they can only capture that value if they sell them and spend the money while the feds are stimulating. The total future revenue generation of assets is not greater, only the relative value of selling and spending the money now (which incidentally creates jobs and raises wages). The other thing that becomes highly valued when central banks stimulate is the creation of new assets, another thing that increases employment.

The Fed does not have "the pedal to the medal" for that it would need to promise to allow inflation go higher which it seems mortally afraid of.

This is not a bug it is a feature.

The rich are a lot smarter today than when they were the descendants of feudal landlords - 100 years of meritocracy combined with assortative mating makes for a very clever ruling class.

Edit. Spelling.

My social networks include a fair number of wealthy people. Some of their kids are dumb as rocks, and they don't have to improve themselves, ever. Those are the real welfare queens. Sometimes a fool can be made a leader by other people in power. Believe me, I'm American.

You might have noticed that I said the rich are smarter than in the past, but the ruling class are very clever. As you rightly point out there are plenty of dumb rich, but relatively few of these dumb rich are ruling.

As for leaders who the figurehead is does not matter - ask yourself what do the rulers care more about; who is the POTUS or who is the head of the federal reserve.

Are the ruling classes more clever, or has technology and globalization allowed average cleverness to be more impactful than in the past?

This is not an either or question :)

The ruling class is both much clever than the past and technology and globalization has allowed their cleverness to result in more control.

In regards the level of control I am most impressed at how subtly it is used. To be able to shift the the share of production from 75% masses / 25% rich to 50% masses / 50% rich in 40 years with barely a peep is truly breathtaking. They have even been able to convince a large section of the population that this is all the fault of people with brown skin.

This split is why I am not sold on why the rich or ruling classes are more clever than any other point in time, and not simply enabled by technology. I would like to see evidence of increased cleverness over time divorced from technological enabling.

Actually all professions are much more stratified by intelligence than in the past (this is side effect of meritocracy). There is lots of research on this - this is just the first paper I found on google [1].

In regards the rulers have a look at their educational background. In the roles that really matter they are all very clever.

1. https://www.staff.ncl.ac.uk/daniel.nettle/britishjournalpsyc...

Not exactly true, back in feudal times just being able to read was quite a privilege. They also had a lock on information.

We're much more on equal footing in terms of ability to gain information. Whether we act on the information is another issue.

In order to have an effective meritocracy you have to have universal education. You then pick the top 0.1% and invite them to join you and marry your son or daughter. The whole economic system is designed to identify the very clever no matter their background and bring them into the ruling class.

If we build upon your assertion ("to have an effective meritocracy you have to have universal education"), if some of those in power define universal education differently (which would seem to make any concept of universality in education void of such in practice), then it wouldn't be surprising to see a decline in the effectiveness of an economic system, which is what I would suggest is what we are seeing today.

Universal education is not the same as universality in education. If the aim is to identify the 0.1% it does not matter if the universal education is rather spotty in quality since the highly intelligent will manage to succeed no matter how poor the educational environment.

If you want to be really clever you just give those smart kids who had a bad school environment bonus marks at the university entrance stage and give full scholarships - say just like the elite universities do right now.

I should mention the aim of the rich is not to maximise production, but their share and status. It does not matter if the pie is smaller as long as the size of your slice is larger.

What would stop any of such highly intelligent from eventually co opting the structures of today and doing something short term orthogonal (maybe even beneficial to the "share and status"), long term oppositional to some of those in power, if say, they reject to continue attending an ivy/elite league university after they attend for a couple of years after getting a scholarship, and realize that they can pursue "other interests" with such forces of coercion in mind?

This is actually a very good question. There are really a few possible answer to this. The main one is that those clever people that can make it into the ruling class, but choose to reject it, are not a worry to the ruling class since these people are not going to organise a revolution from outside. If you are not interested in ruling then you are not a worry to those in power.

More fundamentally most very smart people realise that they are outliers and that their children are likely to regress to the mean. While the elite welcome the very clever into their club, they also use their power and status to benefit their not so clever children (e.g. legacy students).

I'm curious about the ideas that people have when they speak of such subjects, can you possibly enumerate on the other answers that you had in mind besides the main one you listed?

I am of course speaking as an outside observer to the ruling class, but I have some personal interaction with this class (Australia is not that big). The vast majority I have met are intelligent and decent people. Their one major flaw is they believed that they made it there on merit, when in fact they all came from very privileged backgrounds (both genetically and environmentally). If you believe that you are rich and powerful because of your own hard work then you are prone to dismiss people who aren't rich as just the people who have just not worked hard enough.

If you banish any of the smart/clever/etc to the underclass they might just start a revolution. Much easier to invite them to join the party.

Exactly right. The rich found this out early last century with the rise of communism. What they did was very clever; they basically introduced socialism in the 1930s by shifting the majority share of production to the masses to keep them quiet, introduced mass higher education with an emphasis on identifying the very smart (troublemakers if excluded) and brought them into the ruling class. Once this "decapitation of the masses” was in place (1970) they slowly took back their share of production. We are now back to the level the rich had in the 19th C. Impressive if somewhat depressing.

Democracy is the insurance premium the rich pay against the threat of pitchforks and guillotines.

Democracy only works if you have leaders. The non-rich no longer have leaders. We do at least have better bread and circus than the past.

Are you kidding?

What does a family line which has had uninterrupted, exclusive access to a personal library know?

I mean think about it--what is that family like? That family which has held on to the same chunk of physical space, with books and notebooks, for several generations.

"Equal footing in terms of ability to gain information", my ass!

My own toddler gets confused when he tries to describe his home--probably because he's moved three times in as many years.

I remember the encyclopedias I read as a child. But, I don't have them. I can't review them. I can't consult my notes, nor smell them and get connected to the concrete memory of the day I learned about phases of matter or dry cell batteries.

Those things are important. They change the slope of the playing field.

i don't understand the argument you are trying to make.

you cut off the the "more" to make it sound like my statement meant we are equal instead of relatively better than we once were in comparison to the upper class.

then proceeded to provide examples of your toddler being able to retain information and yourself retaining information. both are about memory and ability to recall those memories with accuracy.

I had to go looking for that 'more'. I guess I cut it off (didn't notice it to begin with) because it's a meaningless modifier when attached to an absolute-sounding phrase like "equal footing". I don't know the name of this writing style pitfall, but here is another example: "The boot hardly annihilated the flower." ...That's a terrible example?

Oh, in the first post, my examples are about "ability to gain information [learn]" but you were talking about "ability to gain information [access]". Okay, yes the internet and the public library system are truly wonderful. I do presume that the ruling class (and/or the rich) have some information that is not publicly available, and it's probably very important information, but yes, a poor man can walk into a library today and find treasure laying around. That has improved our footing. :)

There haven't been hundreds of years of meritocracy. For one, women have only even been allowed to attend university since the mid 1800s, and only got the right to degrees much later. You can't have a so-called meritocracy when half te population isn't even allowed to particpate. At best, we've maybe had 35 years of meritocracy.

Secondly, where's your evidence? Your statement seems to be total conjecture.

Holy shit. I hope this is sarcastic

You must be new here. There's a sizable cadre of IQ score worshipping neo-eugenicists around here. More people need to actually study evolutionary biology. Like I mean the real kind with math and combinatorics and stuff. Or maybe I'm just a stupid head.

I think you might mean population genetics, not evolutionary biology. If you study population genetics you might discover what results from assortative mating.

I read the rest of your replies and I think I misunderstood your point a bit (as did the rest of the crowd).

I don't agree that assortive mating could do what you suggest as quickly as you're suggesting -- evolution is slower than that. But I agree with the general idea that meritocracy has caused a brain drain from the lower classes, and also that the ruling class is quite clever.

As far as transferring 50% of the middle class's wealth upward without a peep -- this has primarily been accomplished through the "culture war." People will vote against their economic interests if it means voting in favor of their cultural biases.

How on earth would you study evolutionary biology without studying population genetics?

Is a bit like saying not to study mathematics because you actually need calculus.

Evolutionary biology is a real big field. Typically population genetics is its own separate subject at the university level.

I was not suggesting to not study evolutionary biology (we should just call it biology as there is no such thing as non-evolutionary biology), just explaining what is the area you need to study if you want to understand the question being discussed.

Typically population genetics is its own separate subject at the university level.

https://www.google.co.uk/search?q=population+genetics+bsc

oh no it isn't

Subject as in unit, not subject as in degree. When I taught population genetics I taught population genetics as one half of a unit on human genetics. I would have loved to devote an entire unit to population genetics, but the timetable did not allow it.

As a unit it often is called something else to appeal more to students and is more often mixed in with other biology fields. This is a general trend across biology where areas that were once separate fields have come back together with the rise of molecular biology.

Typically population genetics is its own separate subject at the university level.

...

As a unit it often is called something else to appeal more to students and is more often mixed in with other biology fields.

Which is it?

It is both - it is a a separate subject (course unit), but one that is often hidden inside another subject (unit) to make it palatable to students. To do this you give it another name and mix in some other stuff - I guess a bit like the way nasty tasting medicine is handled :)

The problem with teaching population genetics is not that it is not important or interesting, but that it involves maths. Biology students and maths are a bit like oil and water.

I am curious to know why you think this?

Counter-data: Paris Hilton.

Not sure if this proves or disproves anything, but there are rumours she's a vintage radio enthusiast

http://www.buzzfeed.com/alanwhite/the-truth-is-out-there

I think it just proves she is underestimated by some people here. I saw a documentary on her which was a behind-the-scenes look and while she is no ultra genius, she is also no dummy.

Actually Paris is quite smart, she just plays an idiot for the masses. Even if she was an idiot, it proves nothing. There are plenty of dumb rich as even with assortative mating your children will be normally distributed, just from a higher mean.

>>Actually Paris is quite smart, she just plays an idiot for the masses.

People said the same thing about George W. Bush. We have yet to see any evidence for that assertion, both for him and Hilton.

>>There are plenty of dumb rich as even with assortative mating your children will be normally distributed, just from a higher mean.

Quite a bold claim. I'd like to see a citation.

>People said the same thing about George W. Bush. We have yet to see any evidence for that assertion, both for him and Hilton.

GWB got a SAT mark that implies a IQ over 130. While he certainly liked to play the fool for his audience, I saw no evidence that he was stupid, just totally corrupt.

>Quite a bold claim. I'd like to see a citation.

Any trait that has more than a few hundred genes influencing it will be normally distributed with the mean of the offspring the mean of the parents. The genetic component of intelligence is influenced by a few thousand genes so it is not surprising to find that intelligence is normally distributed with the offspring mean the mean of the parents. This is population genetics 101.

One of the more interesting observations about human intelligence is the variation in high intelligence is almost all genetics while low intelligence has a quite large environmental component [1].

1. https://en.wikipedia.org/wiki/Heritability_of_IQ

>>GWB got a SAT mark that implies a IQ over 130.

Huh? He scored 566 on verbal and 640 on math for a total of 1206 points -- around 140 points below his Yale classmates. I'm not sure how this implies an IQ of over 130, unless you believe that Yale is attended by pure geniuses (hint: it isn't).

Furthermore, both SAT and IQ scores are highly correlated with the quality of education one receives. They don't measure innate intelligence.

But if we still care about IQ, then a 2006 study of presidential IQs estimated Bush's IQ to be around 125, the lowest in any president over the past 50 years, and higher than only three other presidents (Grant, Monroe and Harding). You can read about it if you want [1].

[1] https://en.wikipedia.org/wiki/U.S._Presidential_IQ_hoax

We can argue over GWBs's IQ, but nobody with an IQ of 125 is a dummy - half the population have an IQ under 100.

The better the quality of your education, the greater the influence of genetics on your IQ score. At least, that was my understanding of the WP article, which says poor environment means poor heritability.

Yes that is the general consensus, but there is quite a bit of argument about if it is true. The problem as in almost all these studies in the selection of the participants.

Per the intro to that article, presumably high intelligence also has a large environmental component, in that you need a good environment not to squash the heritability.

btw, I think you didn't finish editing:

> normally distributed with the mean of the offspring the mean of the parents

> normally distributed with the offspring mean the mean of the parents

Yes even if you have the genetic potential for high intelligence environment can destroy it. What counts as a good environment is pretty basic though - the vast majority of people grow up in an environment which won't kill their genetic potential.

What I wrote about the means is correct. Over the population the mean intelligence of the offspring is equal to the mean intelligence of the parents. Of course with individual parents and offspring you can have sets of children where the means are not the same, but averaged over a large group the means are the same.

Ok re: IQ. Re: means, I still can't parse what you wrote the first time and I'm a native speaker. <noun> will be <verb> with <noun> <noun>?

What I wrote was a bit dense and extracting what I was try to say was not easy (this is bad writing on my part). What I was trying to say is the average intelligence of the children is the same as the average intelligence, but the actual values of the children will be scattered and this scattering will show a normal (bell curve) distribution. Putting this into numbers if the father has an IQ (g these days) of 110 and the mother an IQ of 150 then their children will be expected to have an average IQ of 130, but their actual IQs might be 115, 140, 160, and 100.

Sure, ok, makes sense.

Like another poster said, GWB scored 1206 in his SAT - that is below the 80th percentile. An 80th percentile IQ score is 113 - it will not get you into Yale or Harvard unless you are both a legacy admit as well as a son of a millionaire.

Don’t only the right hand side of the bell curve take the SAT [1]? Also hasn’t there been significant inflation in SAT scores over time [2]?

1. http://nces.ed.gov/programs/digest/d10/tables/dt10_154.asp

2. http://www.ets.org/Media/Research/pdf/RR-02-04-Dorans.pdf

Edit. This article is rather interesting [3]. I am not sure how much we can draw from SAT marks from along time ago other than GWB was not an idiot nor the smartest person at Yale. No dumb person is going to graduate from Yale even if they are a legacy student.

3. http://www.slate.com/articles/briefing/articles/2000/01/bill...

> If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense...

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30...

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