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Comment by code4tee | Hacker News Reader

Broadly speaking the US economy is quite healthy and people were expecting a correction in the stock market for some time. Within tech, it will have some negative impact on the plans of some companies as it will be harder to get lofty valuations based on 'fluff'... during such times investors want to see hard facts and real results to back-up value--but that's a broader trend thats been slowly developing for some time.

Internationally, China is clearly having a hard time dealing with the realities of 'the market.' People have long since suspected a lot of the figures coming out of China were not accurate and everyone knows the place is rampant with corruption and such. Things are going to get a lot uglier there before it gets better.

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Regardless of your ideological background, you cannot possibly assert the U.S economy is healthy.

0% interest rate for several years is not healthy.

QE is not healthy.

100+ % debt:GDP ration is not healthy.

Inflating assets is not healthy.

A vanishing middle-class is not healthy.

>QE is not healthy

QE is over (though, I wouldn't be shocked to see more).

>0% interest rate for several years is not healthy.

Why not?

>100+ % debt:GDP ration is not healthy.

Why not?

I mean, I wouldn't call the US economy "flourishing" or anything. But it's not sick, and relative to the rest of the world it's looking pretty good (as the strong dollar and low rates imply).

QE is not over. The balance sheet of the Fed hasn't gone down. What is over is QE expending.

Well... what maturity bonds did the Fed buy? How long ago did they start buying them? The Fed's current plan is to let them expire. If I recall correctly, a big part of what the Fed bought was 2-3 year duration (but I could be mistaken). Some of that should have already expired; more should do so soon.

QE is 'over'(for now), but it has shaped today's economy. There may have QE4.

Artificially low interest rates is the main cause of most malinvestment and inflating assets. Usually ends with a pretty rough recession.

For debt, I could just say 'Greece/Argentina/Brazil/Japan/...', but(yes) these aren't the world's reserve currency. U.S could just pay its debt to China by 'printing money'

Still, it also severely hurt Americans and is probably the main problem for the middle class. Wages don't keep up with inflation and assets are inflated, so their purchasing power is smaller and citizens usually get indebted themselves.

"'Greece/Argentina/Brazil/Japan/...'"

... were all just barely over 100% debt / GDP when things went bad? I don't recall that being the case.

It is surely true that there can be unsustainable levels of debt. You have not made the case that those are anywhere near 100% GDP. I would be surprised if there were any fixed number of GDP where it goes from good to bad - it's going to at least depend on the cost of borrowing that money, and that also looks much different between the US and many other countries (very much including the countries you listed).

>were all just barely over 100% debt / GDP when things went bad?

Indeed. It's amazing to me that people don't blink an eye at borrowing 8-10x their annual income to buy a home in California, but think the US economy, which can print its own currency, is going to fold with debt levels at 1x income and rates at historic lows.

Perhaps those are not the same people?

Bear in mind that printing currency is not without consequences either. It's not like each printed (and used) dollar is worth exactly as much as the previous one - otherwise hyperinflations could not happen.

I think that metaphor is useful for driving intuition about how it might not be a problem, if people aren't seeing that. I do worry about relying on it much beyond that. Households, companies, and governments all have balance sheets, but there are tremendous differences.

Actually, debt is held by the US Government, which has had historic average revenues of ~18% GDP. Therefore, to have 100% debt/GDP is actually the US Government borrowing 5.5x their annual income.

Not only that, but cause and effect isn't obvious either. Let's say there's some correlation between high ratios of debt / gdp (our proxy for "unsutainable levels of debt") and low growth. Is the low growth caused by the high debt or did the country get into high debt because they've had low growth (and thus lower than expected revenues)?

>"Artificially low interest rates is the main cause of most malinvestment and inflating assets."

Rates aren't "artificial" (there is huge demand for treasuries) and malinvestment occurs at any time. Sure, it makes it "cheaper" to spend money stupidly, but it's also cheaper to spend money "smartly" -- to take risks and chances to do big things. You know, what places like SV are all about. I'm agnostic as to what the rates are, because our economy requires lenders and borrowers. Right now it favors borrowers.

>"Wages don't keep up with inflation and assets are inflated"

Who owns all these inflated assets, the houses, the stocks?

>Rates aren't "artificial" (there is huge demand for treasuries)

Of course they're "artificial." There may be huge demand for treasuries, but not enough to maintain a constant ~0% interest rate - that's the Fed's doing. The Fed certainly is not allowing treasuries to drop to their true market value, as Volcker did.

You are mixing up interest rates and government debt yields.

Interest rates are set artificially by the Fed. Because they are set almost at zero, this causes run on government debt as the only "safe" source of interest income, lowering yields thus making it inexpensive for the government to acquire even more debt.

The result (in the US) is skyrocketing government debt (from 64% of GDP in 2008 to 103% in 2015)

We. Are. So. Fucked.

Government debt yields are a nearly 1 to 1 function of the interest rate, assuming there's confidence in the currency and the government's ability to tax and print money.

You mean "nearly the identity function". A 1-to-1 function is something different (((namely, a function f such that whenever f(a) = f(b), a = b))).

1-to-1 correlation, I meant to say. Anyway, I think my meaning was obvious.

There was actually a very interesting discussion on econtalk that easily came to the conclusion that interest rates aren't artificially low. The primary, possible reasons they saw were that new industries in the West need fewer initial investments than traditional industries (compare the cost of starting a new refrigerator factory to starting a tech startup) and that Asian countries with much higher saving rates are making up a larger portion of the economy. One point they made is that interest rates were already very low before the recession and QE.

> these aren't the world's reserve currency. U.S could just pay its debt to China by 'printing money'

China isn't the entity which holds the US debt, the US citizens do. Besides, printing money doesn't make you able to pay debt, it just devaluates the money you already have. The early 20th century has shown us all that printing money won't help you.

I keep trying to tell people, but they've drank the koolaid from the mainstream media, unfortunately... the facts as you have listed them are there for anyone to think about, but the rabid "EVERYTHING IS FINE, SHUT UP AND BUY MORE" crowd won't have the thought of weak fundamentals in their head.

Many of the problems are "easy" to fix with government action, but the consequences of the easy fixes are problematic.

> they've drank the koolaid

> the rabid ... crowd won't have the thought of weak fundamentals

If you've been telling people using the same level of rhetoric and the same amount of facts as in this comment, I wouldn't be surprised if they don't listen to you, regardless of whether you're actually right or not.

It is probably out of frustration, because whatever language you use to argue something which is not supported by the mass media is rejected by most people as being 'fringe' or 'kooky' (Ron Paul being a well-known example).

The public is only slowly waking up to the fact that mass media ownership has been consolidated among 5-6 major corporate/industrial conglomerates.

Slowly, hence the frustration.

Yes, this is exactly it. You can use whatever technical indicators or statistics you want to create your alternative narrative, but if it isn't the MSM's narrative (which is frequently very poorly researched and extremely corrupted by outside interests) you won't be listened to because you're not "the authority" on the issue.

The media has been on the bullhorn about "the recovery" for years now, trying to make it happen by repeating that it's already happening. It's no surprise that this language rings hollow for many people; the GDP of a country and the stock valuations on an index do not necessarily mean that there is a genuinely healthy economy. These kinds of discussions never take into account labor force participation, only rarely QE, geopolitics, actual volume of consumer goods moved, actual market liquidity, etc.

HN always reminds me of this comic: http://i.imgur.com/NIWnZgu.jpg

The post that I replied to contains sufficient rhetorical talking points that are typically used in this kind of discussion. Do you have a refutation of them?

You can state the facts as impartially as you like; people will not hear them because it contradicts the "recovery is here and the economy is strong" narrative.

You're on such a roll with truth, I'll add too it. Wholesale orders are falling off a cliff, huge backlogs of oil, railroad shipments down sharply, container shipments down sharply, chinese currency re-set, etc.

#TRUMP2016 Let's make America great, again?

Cherry picking much?

Agreed. The stock market has been propped up by the FED for the past 6 years with free money from near-0% interest rates. Great for the folks close to the money supply (bankers, rich folks with lots of investments, etc), not so great for the middle/lower class. The best thing that can happen is to bite the bullet and raise interest rates.

If the economy picked up there wouldn't be a problem. It's apparently better than a total crash, because the economy has to go on either way. The problem is what products and services can we make to make the economy grow again and to employ people. Also you may get malinvestments, but that is what risk is all about. No risk, no gain, you know. You just need a few homeruns to cushion the bad ones and the big homeruns are the ones that create whole new markets and longer employment. How to function and survive in the economy is difficult for everyone and it's a big clusterfuck of complexity and short term thinking, so it's all related in many ways. I think QE and 0% interest rate is the smallest of our problems as far as long term goes

Honestly, I don't think you have a clue what you are talking about. You aren't wrong, per-say, you just list all things that have literally 0 to do with the actual problems. Its a very common political trick for an ideologue like yourself to grab a bunch of things they think are bad and argue they are the cause of all your ills. You are approaching things from a "this is good for people, it must be good for the country" point of view. A national economy is not a person and doesn't function on the same economic rules as a person does.

The real problem in this country, frankly, is the Federal Government has been badly mismanaging economic & tax policy for 30+ years. They've repeatedly used short term solutions and short-changed everything from highways to R&D in the name of military, taxes, & social spending. Many long term investments in physical goods [e.g. buildings] are really only rated for a 30ish year timeline for depreciation for a reason.

That combined with the demographic shifts, labor market arbitrage, massive private debt load are the actual problems. Did you bitch when the private debt to gdp was over 120%? Did you even think about it, honestly?

I'd list sources but I honestly think you wouldn't believe me.

----

> A vanishing middle-class is not healthy.

By that logic, the US economy has in the shitter since the 1980s.

> Inflating assets is not healthy.

Actually, inflating prices is the definition of healthy and has been for a long time in economic theory. No economist argues we should have deflation.

> QE is not healthy. & 0% interest rate for several years is not healthy.

Having deflation would be less healthy than 0% interest and QE.

QE is also over.

> 100+ % debt:GDP ration is not healthy.

That isn't a serious issue as long as the US is considered the reserve currency. National debt doesn't have a direct correlation with economic growth.

http://www.theatlantic.com/business/archive/2014/09/governme...

> Government Debt Isn't the Problem—Private Debt Is

> What was the big problem? Look at the line representing private debt. It clearly is not parallel to the GDP line and, indeed, reflects a rapid growth of private debt relative to GDP.

> Look familiar? Time and again, that’s the story we found: A major financial crisis is preceded by a runup in private debt relative to GDP. In fact, there seems to be only one other ingredient required for a crisis: that the absolute level of private debt is high to begin with. We found that almost all instances of rapid debt growth coupled with high overall levels of private debt have led to crises.

Excellent points. Most people confuse macroeconomics with microeconomics. You cannot apply the principles of personal finance to a national economy.

Macroeconomics is (in my opinion) the science of applying statistical analysis to microeconomics in such a way that it retroactively justifies whatever it is the power-elites are already doing. As such, there is a lot of hand-waving, misdirection, and misuse of language in it. Whenever someone says "deflation," I must immediately ask "of what?" Production costs? Retail prices? Wages? Quantity of circulating currency?

Most of the time, an unqualified "deflation" means "a trend of declining retail prices, as measured by non-adjusted currency." And I know why economists in the employ of monetary authorities hate it. It means that there was a missed opportunity for that authority to steal more from the economy by inflating the money supply at a faster rate.

Ordinary price deflation is beneficial [for the working class]. It allows you to buy more stuff with less of your own labor. You can buy a computer today that is vastly more capable than one from 1995, at maybe 20% the cost, as measured by your own labor. You might have spent two weeks of gross wages back then. Now, you might spend 2 days of your work.

Working people usually spend at least 2000 hours of their own labor per year, for a span of about 50 years. They have to budget that 100000 hours out for everything they will ever want or need. They can't get more stuff for free just by printing off a few more bills or raising taxes. So everybody loves it when they can all get more stuff with the same amount of work, and everybody hates it when they have to work twice as hard to only get the same amount of stuff their parents had.

The economy hasn't just been in the toilet since the 80s. Real wages for working class families have been in decline since 1970. And the cause (in my opinion) was economists who pretended that macroeconomics was something other than a simple summation of many thousands of individual microeconomic models. They pretended that "government" was some magical economic actor that could defy the laws of microeconomics, by gradually moving numbers from the "truth" column of the ledger into "lies", from "lies" to "damned lies", and finally putting them into "statistics", where they could safely be explained away, hidden in margins for error, or redefined into nothing.

This is what monetary authorities and their pet macroeconomists have given us since 1970. The ordinary march of human progress--which has steadily given us an approximate annualized return of 1.5% per year, failing only temporarily due to wars, plagues, or other catastrophes--now goes directly into an annual inflation of the money supply of at least 1.5%. This has transformed global commerce from an ever-rising tide that floats all boats, into one where only the yachts float higher as the canoes, coracles, skiffs, and dinghies get swamped.

You can and should apply the principles of personal finance to national economies. You may learn something about macroeconomics that you didn't suspect before.

> Most of the time, an unqualified "deflation" means "a trend of declining retail prices, as measured by non-adjusted currency." And I know why economists in the employ of monetary authorities hate it. It means that there was a missed opportunity for that authority to steal more from the economy by inflating the money supply at a faster rate.

Someone hasn't heard of the various inflation-caused panics of the 1800s or deflationary economic problems pre-1900. applauds Read some history books.

Please, just stop. You have no clue what you are talking about.

That's explicitly ad hominem. If you have something meaningful to add, do so. Otherwise, don't dismiss everything I said by claiming I am ignorant of some facts that you somehow failed to provide.

I am claiming that the problems caused by central banking are worse than the those supposedly solved by central banking. Some people that are far more knowledgeable about economics than I have claimed that the greatest single cause of the Great Depression was the monetary policy of the Federal Reserve.

The first panic of the 19th century was created or worsened by the Second Bank of the United States, a Hamiltonian central bank. I loathe that guy. They should have run him out of Philadelphia in a wheelbarrow in 1783. If ever there was a man who loved money more than freedom, it was him. Unfortunately, there are plenty of others like him, and someone would have tried multiple times to institute a central bank in the U.S. After all, we got saddled with the Fed long after he was dead.

The second panic was caused mostly by massive fraud by a single financial company, but also the fear of legal slavery in the western territories.

The third was a combination of a bubble in railroads and the government ending the bimetallic standard, due to the 16:1 fix getting very unbalanced by silver mining. And oh, look, another "too big to fail" bank overinvested in the railroads bubble and failed. Again, it was Hamilton that fixed the silver:gold ratio at 15:1 in the first place instead of letting the market work. That jerk.

The fourth? Oh, shit. Another railroads bubble, and more bank failures from overinvestment in it. And more stupid government intervention in the silver market.

Did I miss any? Investment bubbles and the silver standard, all the way. Do I need to include the greenback crisis during the Civil War, where Lincoln paid for the Union war effort with inflationary fiat paper that went all the way up to one gold dollar costing 2.5 greenback dollars just a few scant years after the first print run?

And are you referring to the deflationary period from 1870 to 1890, which correlates with one of the strongest periods of sustained growth, industrialization, and prosperity in the history of the U.S.? That deflation in consumer prices of about 2% per year? The only economic problem there was that businesses had a harder time achieving economic profits--that is, a greater return than other possible investments--because more things were becoming commoditized. If you wanted to make real money, you had to innovate and invest in useful capital. ~Sounds like a real problem to me.~

Do you dispute that central banks pursue an explicit economic policy of routine monetary inflation to offset price deflation? Do you dispute that this practice transfers wealth away from the producers of value in the economy to the printers of money, and those who get to spend that new paper first? Do you dispute that any institution that is too big to fail is also too dangerous to continue to exist?

I have several clues about what I am talking about, and I haven't needed to impugn your knowledge of this subject to do it. Please do me the courtesy of arguing with facts, rather than dismissing my claims with the rhetoric of ad hominems and appeals to authority.

> I have several clues about what I am talking about, and I haven't needed to impugn your knowledge of this subject to do it. Please do me the courtesy of arguing with facts, rather than dismissing my claims with the rhetoric of ad hominems and appeals to authority.

Sure. That is because you don't.

> This is what monetary authorities and their pet macroeconomists have given us since 1970. The ordinary march of human progress--which has steadily given us an approximate annualized return of 1.5% per year, failing only temporarily due to wars, plagues, or other catastrophes--now goes directly into an annual inflation of the money supply of at least 1.5%. This has transformed global commerce from an ever-rising tide that floats all boats, into one where only the yachts float higher as the canoes, coracles, skiffs, and dinghies get swamped.

https://www.cibcwg.com/c/document_library/get_file?uuid=1308...

7.7% according to this one is "real returns" from 1913-2012.

http://efinance.org.cn/cn/fm/The%20Equity%20Premium%20Stock%...

> Over the period from 1802 through 1990, equity has provided returns superior to those on fixed income investments, gold or commodities. Most strikingly, the real rate of return on equity held remarkably constant over this period, while the real return on fixed income assets declined dramatically. Over the subperiods 1802-70, 1871-1925 and 1926-90, the real compound annual returns on equity were 5.7, 6.6 and 6.4 per cent, but the real returns on shortterm government bonds dropped from 5.1 to 3.1 and, finally, 0.5 per cent.

Real returns are basically the same before and after the Federal Reserve and sure as hell hasn't had a 1.5% change to the negative in real returns.

Real returns were higher after the Federal Reserve was created over an extended period of time. You can't really go earlier than 1802 because there just isn't enough records available. So where is this magical 1.5% real return loss coming from?

So please, provide a 50+ year period that doesn't include the Federal Reserve, in which your statement beats the market under the Federal Reserve. I'm willing to even eat the Great Depression since you think its caused by the Federal Reserve. I'm even willing to let you pick a period about half the size! So all you need is to show a 9.2% return in the US for 51+ years. Can you do it? [Hint: You can't.]

> I am claiming that the problems caused by central banking are worse than the those supposedly solved by central banking. Some people that are far more knowledgeable about economics than I have claimed that the greatest single cause of the Great Depression was the monetary policy of the Federal Reserve.

Okay, well I'm willing to eat the Great Depression in either of the time periods I offered you. Hell, I'm willing to start in 1926, during the run up to the Great Depression, and let you cherry pick a period that is over a decade smaller than mine.

http://www.merrilledge.com/Publish/Content/application/pdf/G...

> 1879: US stocks record their best year ever, returning 57%*

Hell, take Jan 1 1871 to Dec 31st 1912

http://www.moneychimp.com/features/market_cagr.htm

7.64% / 8.59%; real returns

Jan 1926 to Dec 31st 2009 [hell, lets take near a market top to near a market bottom over 80 years!]

6.63% / 8.72%; real returns. That is a 1.01% gap, not a 1.5% gap. So I really have no clue what time periods you use to get a 1.5% gap and I'm super curious. Hell, I took the worst possible timeframe I could think of and gave you the best year on record.

So please enlighten me to this special time frame where you find this 1.5% gap.

http://fee.org/freeman/the-great-depression-according-to-mil...

> The Great Depression created a widespread misconception that market economies are inherently unstable and must be managed by the government to avoid large macreconomic fluctuations, that is, business cycles. This view persists to this day despite the more than 40 years since Milton Friedman and Anna Jacobson Schwartz showed convincingly that the Federal Reserve’s monetary policies were largely to blame for the severity of the Great Depression. In 2002 Ben Bernanke (then a Federal Reserve governor, today the chairman of the Board of Governors) made this startling admission in a speech given in honor of Friedman’s 90th birthday: “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry.”

Yeah, that is what you mean?

> Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped like flies, seemingly oblivious to the effect this would have on the money supply. The Fed could have offset the decrease created by bank failures by engaging in bond purchases, but it did not. As Milton and Rose Friedman wrote in Free to Choose:

> The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended—or at least sharply reduced—the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money. Unfortunately, the Fed’s actions were hesitant and small. In the main, it stood idly by and let the crisis take its course—a pattern of behavior that was to be repeated again and again during the next two years.

The problem with using that as part of argument is that. Yes, the single greatest cause of the Great Depression was the monetary policy of the Federal Reserve precisely because they do what you advise and let nature take its course.

Now you're knocking down strawmen.

The taking by inflation does not impact investment returns that are adjusted by inflation. That's the whole point of adjusting for monetary inflation. When you take out that inflation, you are comparing the equities against all the other uses of that money that are also adjusted for inflation. The loss from inflation becomes invisible, because everyone is affected by the same amount of it. The impact can still be seen in the change of ownership, from those who held real assets and old money to those who printed and spent the new money.

The 1.5% is the increase in total productivity. It comes from every laborer on the planet using, on average, slightly better tools every year than were available the previous year. That's an estimated average over a very long period of time--about 500 years. The average worker today can produce about more of whatever it is they make than the average worker in 1500, and there are a lot more workers to do it all. The rate of productivity increase has itself been increasing, thanks to universally useful inventions like steam engines, modern steel, and computers. So in the last century, the average annual increase in productivity has been closer to 4%.

The Bank of England was founded in 1694, as the first national central bank. Others followed. But it wasn't until around 1870 that it, and other national central banks, decided that they could lend in excess of commodity reserves in response to financial crises. This expanded the monetary power of central banks. It wasn't really until Bretton Woods that they started to really break free of the gold standard (coincidentally increasing in total global supply at about 1.5% per year). Had countries remained on the gold standard, the money supply could only increase by 1.5% while national productivity was increasing at 0% to 10%. Monetary crises where the amount of new money did not match the increase in available goods and services would have become increasingly common. So they started fudging the numbers, and the Fed was the lucky one that got to issue the reserve currency, so they could cheat more than any other central bank.

This all fell apart in 1971, when Nixon ended redemption in gold. The Fed had abused its dominant position from Bretton Woods too much, and other banks were calling them on it. So Nixon gave them the finger, and told them to sit on it. Nice guy. After the gold window closed for good, central banks were now free to inflate their money supplies at a greater rate, with the only check being how fast the other central banks were inflating, rather than how fast new gold could be mined and vaulted. And not coincidentally, this is when incomes started stagnating for the middle class.

Those historical returns on investments in equities are completely orthogonal to what I am talking about. The productivity dividend should, for the most part, be distributed to those who invest in research and development, and those who buy capital goods based on new technology. So, pretty much everyone, in a wide variety of businesses, across all industries. Everybody gets x% more stuff for the same amount of work. The central banks, by inflating the money supply by y%, takes some of those gains. They are not destroying the additional production. They are taking it. That percentage is not being subtracted. It is going to a different recipient. When y equals x, everyone who works labors just as hard for the same amount of stuff, and some people get a lot of stuff for no work at all. Free lunch.

But monetary inflation is a large and unwieldy hammer. You can't fine tune it for different industries. Businesses that can gain more productivity than x% can actually come out ahead. Those that cannot find it more difficult to stay in business. Tech companies often manage to pull off greater gains.

That's all this is. The power to control the money supply is the power to take a percentage of the entire economy circulating your currency. If you believe that central banks and their bank clients do not exercise that power for their own gains, at the expense of everyone else, you are a fool.

Persistent inflation of a fiat currency monetary base puts everyone on a technology treadmill, where if you do not increase your productivity faster than everyone else, you fall off. And the whole time, the spinning wheels are powering some banker's margarita mixer.

You are claiming they extract value, yet real returns increase. Therefore either one of the following is true:

A) The Federal Reserve actually increases real returns on investment, thereby masking the extraction.

B) Your statement that they are extracting money from the system is false since real returns have improved, not declined.

Like, I get you want to believe there is some massive extraction going on here but it just isn't the case. Inflation existed before the Federal Reserve.

If I have $100,000 today and $106,000 in a year, I'm not having money "taken" from me via inflation if in an earlier time I'd have only ended up with a $105,000.

You can't prove something like what you claim exists without showing an impact on the real return on investment.

Likewise, you can't show the effect of inflation on numbers where the effect of inflation has been explicitly removed.

If I buy an equity at $100 a share, and I sold it at $110 a year later, and got $1 in dividends during that year, I earned 11% on it, without accounting for inflation. There are two effects that may occur due to inflation. First, the $111 I now hold can only buy an amount of stuff that could have been purchased for $106 the previous year (or the amount of stuff that cost $100 then now costs $105). The second effect is that someone close to the monetary authority, perhaps a government agency or one of their contractors, could outbid someone else for that $110 equity, because they have newly inflated money.

The return remains the same. The ownership of the equity is different. Without the monetary inflation, someone could have bid a lower amount for the equity in order for me to achieve the same real rate of return. The equity does not cease to exist. It does not perform more poorly. It does not change its own length if the measuring stick is now longer. Those who benefit most from the monetary expansion (i.e. those who can spend the new cash first) can more easily afford to take ownership of it from those who benefit least.

Do you understand now why real rate of return is irrelevant to the value extracted from the economy via monetary expansion? Some fraction of corporate dividends are now going to different people. They do not grow or shrink based on who gets them.

You guys are arguing the same point: the government blew it in 2007, and has been blowing it for the past 30 years.

Granted, you definitely give a more in-depth account of how we got to the end points that OP cites, but still I don't see the need for such hostility.

All of the damage has been by people making the same mistake as the person I replied to of misrepresenting the underlying causes/symptoms.

Repeating the reasons people use to justify things like:

"If we just lowered taxes"

"If we just cut the deficit"

Isn't helping. Especially when they aren't the underlying cause.

>> A vanishing middle-class is not healthy.

>By that logic, the US economy has in the shitter since the 1980s.

Yes, and?

>100+ % debt:GDP ration is not healthy

By itself, there's no reason it's unhealthy if it's spent on solid investments in the country. After WWII when it was last way above 100%, the composition of that spending had a much better effect on the country. Now? What's the nature of the current debt? I'd agree that it's not so wisely spent.

> Regardless of your ideological background, you cannot possibly assert the U.S economy is healthy.

Sure you can (note, I wouldn't, but that's a different issue); standards for "health" of an economy are deeply ideological.

A vanishing middle-class is not healthy.

Everyone's been picking at all your claims except this one, so let me jump in on this part.

You've been drinking too much of the kool-aid. It's certainly fashionable for talking heads to spout platitudes about the middle class, but it doesn't match the real world. The picture that's being painted is that the vast majority of us will be living lives as serfs, while a group of oligarchs (the arbitrarily mythical 1%) determine our fates while eating grapes and being fanned. That's not what's happening.

In fact, the VAST majority of Americans are better off than they ever have been. Check out this [1], for example, based on US census data.

Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class

Further, in the demographics where we have seen increases in inequality, the lion's share of the change has been the result of lifestyle choices made by the individual. Imagine a social order - call it "A" - in which most people are paired off and raising a family. In that world, a large portion of the families have two incomes, which are going to pay for a single rent or mortgage bill, a single set of utility expenses, etc. Imagine another society, "B", in which many of the folks corresponding to those paired adults have instead decided to go it alone, either by way of divorce, or even deciding to have a family with no mate.

Isn't it obvious that in society "B", the un-paired "families" are going to have far less aggregate income ('cause there's not a second breadwinner earning that income), and are going to have much greater expenses at the same time ('cause there's not a mate to share housing and utilities, and in fact other things like dining may need to be outsourced, that being the result of not having a mate to cooperate with)? And compared to those families that are following the "A" model, it'll appear that the "B"s have a disadvantage?

It doesn't apply for every case, but for most "B"s, a decline in purchasing power for the family is directly explainable by their own choices. We might wish that our choices had fewer side effects, but we can't blame it on others who made different choices.

[1] http://www.aei.org/publication/yes-the-middle-class-has-been...

I started reading and after the second sentence was waiting for a reference to AEI. I was not disappointed.

There's something very ironically Soviet about certain sectors of the American right. I'm sure at the height of Communism there were official mouthpieces that talked bout how everything was getting better, and I'm sure reading them was just as bizarre and vertigo-inducing like "what parallel universe do these people inhabit?"

Ideologies die hard. You can cherry pick statistics to attempt to argue anything, but the scenario you describe does not match the real world.

>>In fact, the VAST majority of Americans are better off than they ever have been. Check out this [1], for example, based on US census data. Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class http://www.aei.org/publication/yes-the-middle-class-has-been... --

You need to pick your sources a little more carefully. The organization whose article you cited is an ExxonMobil-funded conservative thinktank that was involved in some notable controversies, such as trying to bribe scientists with $10,000 to critique the International Panel on Climate Change.

http://www.theguardian.com/environment/2007/feb/02/frontpage...

I'll be more specific with my criticism: the alleged increase in upper-middle class membership tracks extremely closely to women entering the workforce. Note that the data they use is family income, although the author has conveniently omitted that keyword from the graph title.

You need to pick your sources a little more carefully.

I'm always annoyed at the invocation of the logical fallacy that the source of an argument renders it inadmissible. Not only is it a fallacy, but it's typically (but not in your case, especially since you're offering a specific criticism!) invoked by someone simply assuming that their own source is sacrosanct. That said...

You may have a point, but it's not fatal to my argument. It maybe renders mine less strong.

Why would you think that women entering the workforce must be treated exogenously? I think it's proper to consider this part of the overall improvement.

For the years shown in my chart, the shift of women into the workforce was well underway. Even in 1950, women accounted for about 30% of the workforce [1]. So by my thumbnail estimation, the increase from ~1965 (when my original chart began) on is nowhere near large enough to account for the effect I showed.

Further, women entering the workforce is central to my second point about it finding oneself in the lower income tiers is significantly a personal choice. If the rest of the world has passed you by, it's still your own choices that are holding your back.

Without making any moral claims at all, purely based on mathematics, the two-income family has advantages beyond simply having double the income. As I alluded to, by sharing tasks and specializing within the family (e.g., I cook while my wife does the laundry), we're able to lower total expenses because we save enough time between us that more can be done without outsourcing work. It also offers better risk management. One partner can pursue a riskier but potentially more lucrative job, without fearing losing the family's only income. I have several friends doing this kind of thing, with one spouse running a small business while the other has a corporate job (including the medical care it implies). And if one spouse does lose their income, the consequences are much less dire, as there's some semblance of a buffer protecting them.

Thus, even aside from the simple doubling of family income as women entered the workplace, they shifted the picture so that more wealth could be created in total by protecting against greater risks.

But this is all endogenous to the question. Through their own means (in many cases, that being the decision of a woman to enter the workforce), Americans have transformed their demographics such that incomes have shifted strongly toward the higher end of the scale.

[1] http://www.bls.gov/opub/mlr/2002/05/art2full.pdf page 2 (PDF warning)

EDIT: I'd stupidly left the parens in para 4 empty; went back to fill them in.

>Why would you think that women entering the workforce must be treated exogenously? I think it's proper to consider this part of the overall improvement.

Because "improvement" normally refers to something like growth in productivity, or growth in income-per-labor-hour. Doubling the family's income by just doubling the total hours worked isn't actually an improvement at all, especially when it just results in doubled competition for certain zero-sum assets[1].

[1] -- http://slatestarcodex.com/2014/06/28/book-review-the-two-inc...

>>I'm always annoyed at the invocation of the logical fallacy that the source of an argument renders it inadmissible. Not only is it a fallacy, but it's typically (but not in your case, especially since you're offering a specific criticism!) invoked by someone simply assuming that their own source is sacrosanct.

I didn't say it is inadmissible. I simply pointed out that it is significantly biased as a source, and proved it by pointing out the author's willful omission of important information and misrepresentation of facts.

Another issue with the AIE article is that defining the middle class purely by income is fallacious. Paul Krugman explained this wonderfully [1]. He makes the point that being middle class is really about two things: security and opportunity.

http://www.truth-out.org/opinion/item/21841-paul-krugman-red...

So a $60,000 family with good health insurance, high labor mobility and job security can be middle class, whereas a $90,000 family with no health insurance and terrible job security may not be.

Economist Miles Corak also elaborated on the opportunity aspect:

http://milescorak.com/2013/06/18/income-inequality-equality-...

When you actually look at the numbers, rather than simply believing the graphic, you will find that your data proves your opponent correct.

The income levels that fell during the studied period:

15,000-24,999

25,000-34,999

35,000-49,999

50,000-74,999

75,000-99,999

Income levels that grew:

100,000-100,000+

100k + increased by 6%

75k-99k decreased by 1.1%

50k-74k decreased by 3.1%

But sure, you could make up your own categories for the data to make 75,000+ look like it went up, when in reality it was only 100,000+ that showed an increase.

The fact is that the middle class is shrinking, and wages are stagnant or falling.

I encourage you to actually check the sources linked in articles - when you find different categories of data in the article than the study, its likely something is being misrepresented.

I don't think you're saying anything different, you're just missing how it proves the point.

The key is that the number of people in the higher tiers increased, while the membership of the lower tiers went down. That's exactly what you said. But what it shows is people were shifting into those higher tiers.

You're right that in all groups below $75K, the percentage of people in the group went down. While from $75K and up, the membership of each group increased (you've read that part of the data wrong, as the $75l-$99K group also increased.). That's precisely what my linked article says, and exactly what we'd like to see: people are shifting from lower groups into higher groups, across the board.

EDIT: here's the spreadsheet from the census bureau I was working from: http://www.census.gov/compendia/statab/2012/tables/12s0696.x... (Excel spreadsheet)

It's nearly unknowable what the optimum debt/GDP ratio is. This being said, GDP isn't growing fast enough.

And what inflation? Outside VC money and the stock market ( and the peripheral real estate markets to those ) there isn't any.

> 0% interest rate for several years is not healthy

That's not healthy or unhealthy. It's just a thing.

> QE is not healthy

Ask Europe that didn't do quantitative easing (or did too little too late) which economy they'd rather have right now. And it's no longer a thing - because it ran its course and largely worked.

>Inflating assets is not healthy

Some classes of assets are inflating. Some are deflating. Again it's a little vague.

> 100+ % debt:GDP ration is not healthy.

It was never higher than right before the boom of the 50's and 60's so...

Agree with you on the impact on the middle class.

But I think you can assert on the balance of things that the economy is healthy vs not. You've obviously ignored a lot of positive stats around employment growth and economic growth.

>> 0% interest rate for several years is not healthy > That's not healthy or unhealthy. It's just a thing.

I agree with you generally, but this response is a little silly. What does "it's just a thing" even mean? Given that there's no ironclad economic consensus on this question yet, it's more comfortable to not spend too much time sitting on the ZLB. Now that doesn't suggest anything specific about what costs should be incurred to get away from the ZLB[1], but all else held equal, it's not unreasonable to suggest that staying near zero for so long is a bit more uncomfortable than having a bit of a buffer to lower rates.

[1]i.e., I'm not taking the oft-heard position that we need to do what it takes to raise rates NOW before it's too late

There's this general sentiment that it should be between 1-3%. But it's just a sentiment mostly based on historical experience. But the global economy is constantly evolving; China wasn't really even a blip on the radar 15-20 years ago. So whose to say what the right level is except the one that is attempting to balance inflation and employment goals.

The advantage is much more fundamental. Given the uncertainty that you're describing, removing a constraint on our actions is ceterus paribus a good thing. The same argument could have been made during the Bush years, when rates were kept low "unnecessarily" (according to conventional thinking), and the inability to lower rates after the crash tied our hands unnecessarily.

Europe can't really do QE in the same way the US can because there isn't a central bank tied to a central government. In addition: http://www.cnbc.com/2015/08/18/st-louis-fed-official-no-evid...

>Ask Europe that didn't do quantitative easing (or did too little too late) which economy they'd rather have right now. And it's no longer a thing - because it ran its course and largely worked.

This isn't an excluded-middle sort of question. QE is indeed very unhealthy, precisely because it's a solely monetary stimulus, pumping up finance while households and public services starve. Fiscal stimulus works far better when you actually want a stimulus (but requires that Congress be willing to act).

You mean less optimal not unhealth .

But at least home prices are back to bubble levels ... so there's that, right?

>people were expecting a correction in the stock market for some time

"People" are expecting a correction 100% of the time, so the forecast is pretty much useless. If it was truly anticipated, it wouldn't happen. Action, like that which occurred at opening this morning, is sheer panic.

That isn't true. People expect a correction when there has been a long run up in prices and when those prices are high relative to, for example, earnings. This has been the case for quite some time. On the other hand when the S&P hit the 600s in 2008 (or was it 2007?) I doubt anyone was anticipating a correction

>high relative to, for example, earnings. This has been the case for quite some time.

Well, the Shiller CAPE has been "relatively high" (above the mean) since about 1998. So, I guess we agree that people have been calling for corrections the whole time. And it's useless.

I'm interested to hear other people's experiences. I have a 100k trading portfolio and I have sold/bought nothing in the last week.

Thoughts on who's doing all this downward trading?

Individual investors really don't impact prices. It's big funds that are able to do very large trades that have an impact on supply/demand.

And I'd also point out that nothing has to be bought/sold for prices to move, although volume does spike when prices move downwards.

I'm curious about your terminology. 100k is quite a bit for most people. Is that your 'trading' portfolio or your 'investing' portfolio? If it's the latter, I suggest you keep doing what you are doing (i.e. nothing).

I'd actually be looking at buying with a big down move. Not with all my cash, because trying to time bottoms is a bad idea. Buy with 1/3 or 1/4 cash whenever there's a significant drop and you should average out pretty well without having to time.

>Thoughts on who's doing all this downward trading?

I imagine at least some of it is hedgies being crushed by oil sub-$40 as well as the AAPL correction (which was the #1 holding for a lot of funds). Lots of paper being re-positioned.

It was absolutely nuts this morning. VIG, which is the dividend growth ETF, composed of large-stock US companies, was down 18% at one point! I couldn't get any buys filled, though.

I think this was due to a rogue market-maker with bad algos. Market data was all over the place this morning. Nobody had a clear view on what the market order book looked like. I'm pretty sure theres a market-making firm out there that may not be in business tomorrow.

I have about 1/4 as much, mostly from past employee stock purchase plans in big tech. I'm regretting not having sold 6 months ago, but I'm not inclined to sell now either.

I've placed orders to buy one of my favoured indices today (which should turn into an actual purchase on Wednesday), and I wish I had more cash to invest at the moment.

Unfunded liabilities (money that is owed, but not currently on-hand) in the United States are said to be greater than $127T:

http://www.forbes.com/sites/realspin/2014/01/17/you-think-th...

This does not account for unfunded liabilities owed by the states. The situation there is very difficult as well.

You also mention that China is rampant with corruption. In my view, with respect to politics and cronyism, I think the United States government is also highly corrupt.

I would like to share your optimistic outlook, but unfortunately, I'm not able to do so given all that I see going on around me.

The US government does not lie about growth, nor does it threaten money managers with prison time for selling stocks.

This is all pretty obvious and a long time coming. There are a lot of forces at play: aging of the population, greater returns to capital vs labor due to increasing productivity.

As an absurd conclusion, birthrates drop to ~1 per couple, 2/3rds of the population retired, and robots put most people out of work.

Is it really so surprising that taxes would have to go up massively on the owners of the robots and other capital to provide all of the retirees a basic income?

Hans Moravec, who ran the CMU robotics department, pointed out these trends in his 1988 book _Mind Children_ and what the end game would be.

My fear about the unfunded liabilities argument is that it appears to be the new talking point of Trump and Fox News, and rather than see the writing on the wall with respect to the long term trends in the labor market and demographics, it'll just be more arguments about slashing federal social programs, pensions, and the liabilities themselves, which will make us all the less prepared when the real devil comes knocking.

>Unfunded liabilities (money that is owed, but not currently on-hand) in the United States are said to be greater than $127T:

This is classic one-sided accounting. That money is not vaporized, never to be seen again when it's paid out. It is paid to US citizens as income. Out one pocket, into another.

I'm far from a reflexive debt hawk, but when someone mentions something like this, aren't they usually referring to the instability inherent in unfunded liabilities (as opposed to what you seem to be assuming (s)he means, which is that the money is illusory)?

And let's not ignore the usa's role as a debtor of last resort: people actually need to save money for retirement, China and Norway needs to do something with their dollars so their economies don't overheat. Even if the interest rates suck, the US gov and financial system has always been will to take your dollars off your hands in a pretty safe way, which is part of the reason the dollar has been so successful.

I suspect whatever fraction of it is to be paid will be stolen from the young / yet-to-be-born and given to others.

That strikes me as extremely corrupt. Politicians steal from the young / unborn and use the money to advance their careers.

But to your point, yes, it's from one American to another, strictly speaking. I don't see that as making it moral.

I've got maybe 70 more years to live, my unfunded liabilities spiral into the millions!!! And that's before children! I must be bankrupt!

Interested to know which statistics you based this opinion of the US economy being "quite healthy" on. Anything deeper than top level unemployment rate?

I am also interested in seeing the data which claims that the US economy is quite healthy right now.

The unemployment rate is a juked stat; check out the labor force participation rates if you want the full story. A primer: labor force participation got smashed in the Great Financial Crisis, and still hasn't recovered.

The participation rate is down 3.3% from 2005 [1]. Given the huge shift in demographics over the last 10 years [2], I don't think that's a data point that screams "smashed."

[1] http://data.bls.gov/timeseries/LNS11300000

[2] Lost of baby boomers retiring and Gen X being such a small demo compared to the boomers and the millennials.

The demographic shift angle doesn't make sense. The boomers are slowly exiting the workforce, sure-- on an individual basis, as they can choose to retire at different times. Many are having to defer retirement or not retire. This isn't an orderly mass exit, it's a trickle.

Millenials are a far larger generation than the boomers, and are rapidly leaving college and attempting to enter the workforce-- 100% of them are trying to enter the workforce at the same time, immediately after graduation day. The fact that labor participation rates haven't stabilized or even increased in response to their population level attempts to enter the workforce shows that there really are not enough jobs to go around.

Jobs lost in the early depression haven't returned, and there are many more people out and about looking for them now than there were before. Boomers are retiring, but their children are desperate to take their place, which isn't actually possible.

The fact that labor participation rates haven't stabilized or even increased in response to their population level attempts to enter the workforce shows that there really are not enough jobs to go around.

I'm not sure the data bears this out. If they're looking they're in the labor force, and we'd see a commensurate rise in unemployment for age groups 20-24. That's clearly not the case, as unemployment is down ~1.5% for that demo since mid-2014:

http://www.bls.gov/web/empsit/cpseea10.htm

I don't have demo-level participation data available but that would clarify whether rates are lower bc of millenial LF dropout or millenial employment success.

> Millenials are a far larger generation than the boomers

Depends on your definition of "far larger".

- The Millennial cohort is 83.1 million

- The Boomer cohort is 75.4 million, 90% the size of the Millennials.

Source: https://www.census.gov/newsroom/press-releases/2015/cb15-113...

> Jobs lost in the early depression haven't returned

There are actually more jobs now then there were in 2005:

- January 2005: 132,752,000

- January 2015: 140,793,000

Source: http://data.bls.gov/pdq/SurveyOutputServlet?request_action=w...

Obviously the _type_ of jobs have changed, and this doesn't factor in population growth directly, but I don't think the statement "jobs lost in the early depression haven't returned" isn't grounded in the data.

Debt to income ratios, capitalization of companies, worker productivity, oil prices, savings rates, more healthy housing prices (in most areas), foreclosure rates, industrial orders, housing starts, .... This isn't 2007-08.

Wages are shit for workers and thus consumption/demand are weak... this undermines the Chinese economy, which in turn undermines the US economy.

Labor force participation is also garbage. Savings rates are a bit moot when tons of people are living paycheck to paycheck, also.

It's not 2007-2008, but it's not quite 1998 either.

Capitalism at it's finest. The race to the bottom will eventually force someones (possibly everyones) hand. The mechanism that will drive change (either violent/non-violent) is just a matter of who blinks first.

> Capitalism at it's finest. The race to the bottom will eventually

What are you going on about? If capitalism is a race to the bottom, we would have reached it a long time ago.

Capitalism isn't new. It's been around for a while.

I'm amazed anyone can try to defend a system that has manic-depressive episodes built in as a feature.

Because it's the system that's pulled several billion people out of abject poverty in the last 30 years? I believe the system that was tried before that was called socialism, and didn't work as well as capitalism.

In Europe socialism created limited working hours, affordable health care, free public education all the way to university level - and beyond - and was also responsible for massive investment in infrastructure and R&D.

Modern social democratic states wouldn't exist without it.

You might want to understand what the word means before running down a political system you seem to know nothing about.

As for abject poverty - there's more of that around than ever. Just because you choose to ignore it doesn't mean it's not there.

And after this week, there's more on the way, too.

I'd hardly call Europe socialist. Socialism is the social ownership (state ownership) of the means of production. A welfare state is a state with large programs to ensure the welfare of the people, which better describes much of Europe.

As for extreme poverty, China has seen a 90% reduction in extreme poverty since 1981, and India has seen a 60% reduction since 1981, and Sub-Saharan Africa has seen a 12%. The Indian and Chinese reductions coincided with a relaxation on state owned industry and introduction of free market economic policies.

Hate the corruption, hate the corporatism, but according to the world bank (and nearly every other NGO), capitalism has reduced human misery on this planet like no other force.

Socialism is the social ownership (state ownership) of the means of production.

Social ownership != state ownership. That's only one manifestation of it. Socialism has historically been about common ownership, which implies decentralized, democratically structured worker cooperatives. One existing example today is Mondragon.

>(state ownership) of the means of production

That would be Communism, a very extreme form of Socialism. Many countries in Europe are very Socialist.

Communism is state ownership of all property. The parent gave the proper definition of socialism. It is the state ownership of the means of production. Europe is not socialist. There were various attempts, but the means of production is still overwhelmingly private.

Reading Lenin's letters in the Lenin museum in Tampere was very eye opening and educational. Communism was never meant to be the state ownership of all property. It was meant to be the centralized state ownership of the means of production (mainly mining and large infrastructure) with cottage industries (local farmers and makers etc) existing and operating in a free market. Shortly before his death Lenin warned the politburo that Stalin was no good and should be purged from the party. When Stalin came to power he corrupted the original aim of Communism and installed new rules for state ownership to encompass the means of all production and also the proceeds of all production and we all now what happened next.

The commons is a very old concept in Europe. In the UK for example common ownership of agricultural land was the norm until the tragedy of the commons in the early/mid 1800's.

Today Europe is largely a social democracy which aims to walk the line between socialism and capitalism. Again social ownership of the means of production does not necessarily mean state ownership. As vezzy-fnord pointed out Mondragon is a cooperative who came about from the anti-Franco socialist movement in Spain in the mid 1900's. This is most definitely a socialist philosophy operating within a capitalist framework.

Socialism has had a major impact on European politics. The Nordic countries have an immensely strong welfare states due to this, the labour party in the UK (the blip of Tony Blair is an anomaly and they are swinging back to the left now), Sinn Fein (IRA political wing) in Ireland, François Hollande's Socialist party etc etc. Sure Europe operates within a capitalist framework but there is not such a fervent religious belief in unbridled capitalism as one would find in the States. All one needs to do is look at all the anti-trust lawsuits we have in the EU, against the likes of Google and Microsoft, to see how Socialist philosophy manifests itself in contemporary times.

> Reading Lenin's letters in the Lenin museum in Tampere was very eye opening and educational.

Since when is Lenin an authority on communism? He was a thug, same as Stalin.

> cottage industries (local farmers and makers etc) existing and operating in a free market.

To his credit, they did do some very interesting things in the 20s. Then Stalin came to power and that ended.

> Again social ownership of the means of production does not necessarily mean state ownership.

Yes, it does.

The USSR was NEVER communist. United Soviet SOCIALIST Republics.

It was a truly socialist state. All the means of production were state controlled, but private property did exist.

The GOAL was to eventually reach communism.

> Today Europe is largely a social democracy which aims to walk the line between socialism and capitalism.

Ok, but the line between socialism and capitalism isn't socialism. As previously mentioned, a welfare state seems a more apt description.

> Socialism has had a major impact on European politics.

Agreed.

> there is not such a fervent religious belief in unbridled capitalism as one would find in the States

There is no "fervent religious belief in unbridled capitalism" in the US. Zero.

Capitalism is a mixture of free market and government subsidy. The government doesn't manufacture anything, but does get heavily involved in the markets through subsidies, regulations, financial instruments, outright purchases of goods, etc. Generally a 70/30 split is considered the norm, where 30% of all market activity is government controlled.

Nobody is excited over this.

There is a "fervent" belief in the free market and the idea that capitalism isn't ideal and that we should tweak that split and reduce government involvement. That we should move toward a free market. That gets people excited.

>There is a "fervent" belief in the free market and the idea that capitalism isn't ideal and that we should tweak that split and reduce government involvement. That we should move toward a free market. That gets people excited.

Serious question. How is this any different than unbridled capitalism? No government involvement and a laissez-faire approach to the market is exactly what unbridled capitalism looks like in my understanding.

Just because Socialism is in the name USSR doesn't necessarily mean anything. If we are to look at the name Nazi which was the National Socialists Party and their Italian counterpart was a major proponent (even father of) of Corporatism, a rather extreme form of capitalism (though in the case of USSR it might be true, as I said earlier Communism is a form of Socialism).

The Welfare State has it's roots in Socialism. Socialism is an umbrella term. Anarchism is a main branch of Socialism (the other two being reformism and Marxism) and to be fair extreme Anarchists don't want a State at all so Socialism cannot and does not mean State ownership. This is one of the major confusions into what Socialism means and kills any possible meaningful discussion around the topic, especially in the USA where Communism and Socialism are used interchangeably. The spectrum of allowable political ideology in the USA is so narrow that only center-right and far-right exist. This is a very unhealthy situation as there are great ideas to be found from across the political spectrum. Just to be clear I'm not saying this to say Europe is better or anything but I do find it an unfortunate state of affairs.

Also Lenin didn't kill 50m+ people just because he was paranoid. You can't lump them together. Stalin was arguably worse than Hitler. While Lenin was certainly not a saint, he was an intellectual with brilliant ideas, operating in an extremely difficult environment.

First, read over your post. You capitalize "Socialism" everywhere, but seem to purposefully lowercase capitalism.

If you are so attached to ideology, rather than the results those ideologies bring, we can't have a serious conversation.

> Serious question. How is this any different than unbridled capitalism?

"Unbridled capitalism", no matter how unrestrained, denotes heavy government involvement by virtue of the second word in there.

> No government involvement and a laissez-faire approach to the market is exactly what unbridled capitalism looks like in my understanding.

Your understanding is wrong.

Capitalism requires the accumulation of substantial capital in private hands and its application. And not just any hands, very specific hands, where that capital is magnified.

You can't have that kind of distribution and application of capital without government involvement.

Eminent domain, government contracts, grants, regulations, etc. all direct the flow of capital to the few individuals blessed to wield it.

In short, the government controls and directs the flow of capital. That's capitalism.

> Just because Socialism is in the name USSR doesn't necessarily mean anything.

Yes, it does. It means those who were at the center of the creation of the state saw the enterprise as a socialist one. Even your friend Lenin.

> If we are to look at the name Nazi which was the National Socialists Party and their Italian counterpart was a major proponent (even father of) of Corporatism, a rather extreme form of capitalism

https://en.wikipedia.org/wiki/Nazism#Economics

"Nazis also promised social policies like a national labour service, state-provided health care, guaranteed pensions, and an agrarian settlement program."

"To tie farmers to their land, selling agricultural land was prohibited."

"Farm ownership was nominally private, but business monopoly rights were granted to marketing boards to control production and prices with a quota system."

Sounds like state controlled means of production to me. I can go on, but you get the point. They were clearly socialist.

> The Welfare State has it's roots in Socialism.

Yes.

> Socialism is an umbrella term.

No. We defined it a few posts above.

> Anarchism is a main branch of Socialism > to be fair extreme Anarchists don't want a State at all so Socialism cannot and does not mean State ownership

You're skipping steps there. Socialism -> Communism -> Anarchism.

Communists aren't fans of government either. They believe(d) that once all private property is out of the picture, there would be no need for government, since there would be no disputes over private property to mediate ... which would lead to a state without government. Leading to anarchism.

> his is one of the major confusions into what Socialism means and kills any possible meaningful discussion around the topic, especially in the USA where Communism and Socialism are used interchangeably.

What? The front-runner for the Democratic nomination openly calls himself a socialist ... that's clearly not true.

> Also Lenin didn't kill 50m+ people just because he was paranoid. You can't lump them together.

https://en.wikipedia.org/wiki/Vladimir_Lenin#Red_Terror

Ok, so he didn't kill 50m+, maybe 1m?

How do you differentiate between a thug who was responsible for the murder of 50m and one for who was responsible for 1m?

> While Lenin was certainly not a saint, he was an intellectual with brilliant ideas, operating in an extremely difficult environment.

I'm glad to hear he's your hero, but at the end, he's just another murderer. An honest, decent man wouldn't be capable of what he did.

Being intelligent, well spoken, even brilliant ... doesn't excuse you from being a shitty human being.

Stalin was also quite brilliant. That doesn't excuse him either.

Produced goods are always getting cheaper. All trends point towards moving towards a zero marginal cost society. Economic pressures and the need to compete are forever pushing prices down. We are also getting more efficient at producing goods in parallel to this trend (another side effect of capitalism). The only way this will stop is through organized price fixing cartels.

>What are you going on about? If capitalism is a race to the bottom, we would have reached it a long time ago.

Only for a long time it had internal pressure (workers demands) and external pressure (the Cold war etc). Else we'd be still with child labor, 14 hours work day and such...

Workers and their demands are part of capitalism, as one of the sides of the labor market.

Things like Taft-Hartley outlaw secondary strikes.

Not if capitalists can prevent it, crush it, disallow it, etc -- along with their friends in the goverment, with "right to work" laws, etc.

It's funny that for something supposedly pragmatic and empirical, as capitalism, there are people invoking the "no true capitalism" defense.

I mean when they say that in "true capitalism" the government would not interfere and the market would adjust itself etc, where in real life (and in all know historical cases), the government is in the pockets of powerful moguls and big business lobbys).

> It's funny that for something supposedly pragmatic and empirical, as capitalism, there are people invoking the "no true capitalism" defense.

This is hugely disingenuous. It's about as fair as crying "no true socialism" if someone were to say "moving towards socialism leads to mass famine! Just look at Mao!".

I think part of what makes conversations like this so frustrating for everyone involved is that people are using vastly different definitions. Those decrying capitalism are usually defining "socialism" as a mixed-market economy and capitalism as an unfettered "pure" Randian market economy. (In conversations critical of socialism, you usually see the opposite dynamic).

The fact of the matter is that mixed-market economies are basically ubiquitous at this point, and for good reason. It's a lot easier to find a common understanding on which to debate when everyone is clear what the actual disagreement is: the market is good at certain things and bad at others, and gov't action is a sensible alternative in the areas it's better at (of which there are quite a few, not least dealing with externalities) or a damaging hindrance in the areas where it's worse than the market mechanism (explicitly setting prices, in most cases). The disagreement is over which things go in which category, which is a far less flame-baity way of thinking of it than "capitalism/socialism is just bad!".

> the market is good at certain things and bad at others, and gov't action is a sensible alternative in the areas it's better at (of which there are quite a few, not least dealing with externalities) or a damaging hindrance in the areas where it's worse than the market mechanism (explicitly setting prices, in most cases).

I don't think that's actually true[1]:

>Two German microeconomists tested the “widely accepted” hypothesis that “prices in a planned economy are arbitrarily set exchange ratios without any relation to relative scarcities or economic valuations [whereas] capitalist market prices are close to equilibrium levels.” They employed a technique that analyzes the distribution of an economy’s inputs among industries to measure how far the pattern diverges from that which would be expected to prevail under perfectly optimal neoclassical prices. Examining East German and West German data from 1987, they arrived at an “astonishing result”: the divergence was 16.1% in the West and 16.5% in the East, a trivial difference. The gap in the West’s favor, they wrote, was greatest in the manufacturing sectors, where something like competitive conditions may have existed. But in the bulk of the West German economy — which was then being hailed globally as Modell Deutschland — monopolies, taxes, subsidies, and so on actually left its price structure further from the “efficient” optimum than in the moribund Communist system behind the Berlin Wall.

Or in other words, mixed economies can easily operate just as far from the Efficient Market Hypothesis as centrally-planned economies. The Efficient Market Hypothesis should probably be considered more like a Carnot engine than like a real internal combustion engine: some substantial degree of inefficiency is probably an inevitable result of operating in the real world.

[1] -- https://www.jacobinmag.com/2012/12/the-red-and-the-black/

The Efficient Market Hypothesis should probably be considered more like a Carnot engine than like a real internal combustion engine: some substantial degree of inefficiency is probably an inevitable result of operating in the real world.

That's a specious conclusion; the paper explicitly says that the inefficiency is due to the degree of management present in West Germany, which was significant.

It's not like the EMH says the market prices are theoretically perfect; it only says they're better than whatever individual or group can calculate. And the paper you cite provides evidence for that.

"To sum up, the unexpected similarity of overall deviance between actual prices and eigenprices in East and West does not warrant the conclusion that East German pricing behaviour was not so bad after all and more or less guided by relative scarcities. In those sectors where market forces prevail in the West, East German actual prices deviate significantly more from eigenprices. However, the similarity of the overall indicator testifies to the fact that a sizeable part of West German GNP is not produced under competitive market conditions. It obviously is the case in sectors with predominant public ownership rights and strong government influence."

(Emphasis mine)

https://www.europa-uni.de/de/forschung/institut/institut_fit...

> the bulk of the West German economy — which was then being hailed globally as Modell Deutschland — monopolies, taxes, subsidies, and so on actually left its price structure further from the “efficient” optimum than in the moribund Communist system behind the Berlin Wall.

This isn't really contradicting what I said. As they say, the gap in the West's favor was greatest in the places where the market was relied upon in contrast to a system full of "monopolies, taxes, and subsidies". Neither West Germany nor East Germany had particularly market-oriented economies.

To wit, the market mechanism efficiently provides a price level but that doesn't mean you can't mess it up by poorly planned gov't intervention in the economy (and to be clear, I mean "gov't intervention that is poorly planned", not that gov't intervention is per se ill-advised).

Would you mind providing some color around these metrics, or pointing me towards a source that paints the picture in greater detail?

I don't mean to be snarky or sarcastic, I'm just generally uninformed and would like to develop a more nuanced opinion.

Note: I've been slow banned for this comment. Please read it, I'm sure a hell ban is coming next. Apparently having a different opinion politely expressed is not even allowed here anymore.

Debt to Income- yes everyone and their dog walker is not out there buying condos hoping to flip them in 3 years, so we are less leveraged than we were. Hard to tell how much of this is because people have more money coming in or are more responsible having just gotten burned 7 years ago.

Capitalization of Companies-- well we've had significant monetary inflation, have you accounted for that? Ok, now have you accounted for that using the real money supply?

Productiivty- this is the result of technology, should continue to increase.

Oil Prices- Oil prices are shockingly low, especially when you account for inflation. This is good as energy drives the economy... but it hasn't been this way long enough to see real economic effects that are lasting, yet.

Savings Rates-- well, compared to 2006 when everyone was leveraged to the hilt to buy just one more condo, sure they are better. But are they actually good?

Housing Prices-- "healthy" is also what they said in 2006. The monetary inflation that drove the housing bubble in 2000-2008 was only amped up after 2008. The spigot is open even wider now, and while we're clearly not in the mania we were in 2006, it's not obvious that these prices aren't also.... quite artificial.

I'd like a stat that was EBIDTA of the S&P 500, inflation adjusted against the real money supply, over the past 30 years. I think that would be a good indicator.

>having a different opinion politely expressed

Do you honestly think you're expressing a different opinion by stating that everything is mostly bad? I'd say you're comfortably in the internet majority.

>I'd like a stat that was EBIDTA of the S&P 500, inflation adjusted against the real money supply, over the past 30 years.

Okay:

http://www.multpl.com/s-p-500-earnings/

That's not quite what MCRed asked for. He/she asked for "inflation adjusted against the real money supply". Elsewhere in the post MCRed also said something about the real money supply.

I think the background idea is that "real inflation" = "change in the real money supply". But that's wrong, because the economy changes size, too. That is, if I start a company and make some stuff, the economy is now bigger than it was. If the number of dollars doesn't increase, then the value of each dollar has to increase, so prices go down - deflation. What the Fed is trying to do is keep the value of the dollar (relatively) constant, rather than keep the number of dollars constant.

So I think MCRed's request (to the degree that it differed from your answer) is based on a mistaken idea...

Savings Rates-- well, compared to 2006 when everyone was leveraged to the hilt to buy just one more condo, sure they are better. But are they actually good?

Well they're higher now than they were 15 years ago:

https://research.stlouisfed.org/fred2/series/PSAVERT

and just slightly off the average over the last two contractions (highlighted in gray).

PS... I don't deny that a subset of the US economy/workforce got hit really hard in 2008 and never recovered. But when you look at the US economy as a whole things are doing quite well.

> when you look at the US economy as a whole things are doing quite well

To be more accurate, when you look at the propaganda spewed by the mainstream media, everything seems to be fine, because they keep spinning everything in a positive light.

In the US, for starters, there's a huge bubble in stocks, and an echo bubble in housing. There's a massive property bubble in Canada and Australia, and so on.

With interest rates already at roughly zero, they don't have room for lowering them to "stimulate" the economy (to avoid the inevitable crash that's coming).

Of course, getting people to spend money they don't have and businesses to start projects they shouldn't, isn't exactly good for the economy but hey.. whatever keeps the show going for a while longer.

(Downvoters? It's at the very least possible that you just don't know that I'm right.. :) Do your homework, but not from mainstream media sources)

We have a democrat who is president, and who took over after a crisis during the term of a republican. (never mind that he was part of the cause of the crisis with his 1990s era "not lending to people who can't repay is racist" lawsuit against banks)... so the liberals of HN are highly motivated to believe that democrats are "responsible" and that they have "fixed the economy" after republicans "wrecked it".

So when you point out that the king has no clothes, naturally you get downvoted.

The current mess of the US economy is due to the choices of many politicians, in congress and the presidency, from both parties. Neither party should get a passing grade in this regard.

This is why we need the government out of the economy, and let it work. Hell if it weren't for government the bad banks would have failed in 2008-- and we would have had a real recovery afterwards.

Yeah, speaking the truth tends to get you downvoted. People are silly and emotional. But it's nice to see another independent thinker here. I've noticed you before.

Don't pay much attention to the political circus though, the false choice between "Demopublicans". That's all smoke and mirrors to make you think you have a say in how you're "governed" (i.e. coerced).

> The current mess of the US economy is due to the choices of many politicians, in congress and the presidency, from both parties.

It's much deeper than that. The dollar was detached from the gold standard in 1971, and that was the beginning of "the real end". Before that, the establishment of the Federal Reserve in 1913 set the scene for all the economic trouble to come, and so on. Check out: https://www.youtube.com/watch?v=5IJeemTQ7Vk

> This is why we need the government out of the economy, and let it work.

You're on the right track, but take it further. We need the government out of existence: https://www.youtube.com/watch?v=ngpsJKQR_ZE .. it is based on extortion, after all.

What maintains governments is the belief in political authority: http://spot.colorado.edu/~huemer/Contents.pdf

> Hell if it weren't for government the bad banks would have failed in 2008-- and we would have had a real recovery afterwards.

That's certainly true.

> if it weren't for government the bad banks would have failed in 2008-- and we would have had a real recovery afterwards.

We would - but at the price of a much worse crash. (Which doesn't mean that the result, today, would have been any better - the further down the bottom was, the better the recovery has to be to reach the same point.)

America is the greatest economic engine the world has ever known. It's not because we're situated on a mountain of rubies, or that we are intellectually superior to other countries.

It's because of our system of government. This talk about the government being the problem, causing harm to the economy, really irritates me - the American economy owes its very existence to the American government and the private property protections it offers in the forms of regulations, legal system, social welfare programs, public education, military, etc etc etc.

If you can't stomach the sausage making in the US without losing respect for all the greatness it permits, just stop paying attention and vote for whoever says what feels right, that's the American way.

Your italicized real recovery sounds like another adrenaline boost in the arm, rather than the robust, sustainable recovery that is actually occurring.

> America is the greatest economic engine the world has ever known. It's not because we're situated on a mountain of rubies, or that we are intellectually superior to other countries. It's because of our system of government.

I'm not taking any position against your overall point, and I do think there are many (relatively) uniquely American policies that historically have paid wonderful dividends; but you're vastly underestimating the exogenous geographic advantages of America (and I'm not sure if you're doing this, but most people tend to overestimate how long global American hegemony has existed).

We're sitting on 50% of the world's navigable internal waterways, overlaid over by the world's largest piece of contiguous farmland[1]. We've got ports that allow easy direct shipping access to most of the rest of the world's economy (Western Europe and China/Japan/India; We also have easy direct shipping access to South America and Africa, but those have naturally been less important). We've got enormous natural borders with the rest of the powers that were most recently useful in the fact that we've had the luxury of staying out of the incredibly catastrophic wars of the rest of the world more or less until we decided to enter[2] (and to the degree that we decide to enter). Those also enabled us to escape essentially 100% of the physical destruction of those wars.

[1] https://www.stratfor.com/analysis/geopolitics-united-states-... This is an excellent article with a lot more depth than the couple of stats I referenced; there's also a part 2 that I recommend reading.

[2] Obviously less true for Pearl Harbor, but still true to an extent: consider the impact of a surprise attack for Germany -> France as opposed to for Japan -> US. Crossing the Pacific is infinitely harder than crossing Belgium.

> America is the greatest economic engine the world has ever known. It's not because we're situated on a mountain of rubies, or that we are intellectually superior to other countries.

> It's because of our system of government.

No, it's because of the relative freedom you enjoyed in the past. Strangely enough, the less of the fruits of people's labour you forcefully take away from them, the more motivated they are to produce.

The easier it is to do business, the more business will be done. Go figure.

There's a reason people were flocking to America from all over the world, and it wasn't to get horribly oppressed by filthy capitalist "Robber Barons".

I think you're getting downvoted because you're bringing a bunch of paranoid conspiracy-theory drivel, but no data.

I mean, if you at least supplied some links to the data that you think support your view, that would make for a much more worthwhile post.

"In the US, for starters, there's a huge bubble in stocks"

The median PE ratio of S&P 500 stocks at the moment is $14. That's certainly not "bubble" territory. The current market correction is surprising nobody, but I don't think many people consider this a bubble (at least for the US markets).

Now there are certainly subsectors within the US that could be in bubble territory and could get hit really hard... unrealistically valued tech stocks being one of them. But again, across the whole US economy things are alright.

I assume you meant 14, not $14. Anyway, it is false.

S&P 500 P/E ratio was (until last week) around 19. The more accurate Shiller P/E was closer to 27.

Way above the historical median.

http://www.bloomberg.com/news/articles/2015-06-26/the-s-p-50...

The Shiller CAPE is 24.41, the historical average is 16.62:

http://www.multpl.com/shiller-pe/table

Corporate profits have been good, GDP has been rising at a decent rate, consumer confidence has been looking OK. Statistically, the economy has been looking alright, although the distribution of benefits continues to be unequal.

Staggeringly unequal benefits distribution makes for an unhealthy economy. We don't describe the economy of Mexico or Brazil to be healthy even when they are at high employment and growing GDP mostly because the burgeoning economy doesn't produce a similar ripple in their societies.

Basket case economies are reflected in bond yields. The US pays little to borrow money because it is a safe haven. That may not jive with your world view but people that invest on their ideological dogma are quickly separated from their money.

>Basket case economies are reflected in bond yields. The US pays little to borrow money because it is a safe haven.

Or because it uses its huge military might to make sure it is so.

The market doesn't distinguish the root cause of safe-havenism. There's a reason people think military-industrial is a sensible use of financial resources.

>The market doesn't distinguish the root cause of safe-havenism.

Of course. The market only cares for the bottom end.

I'm saying it though for those pretending the market is some victimless activity, that's not about power at all, etc, and "hard working people" (and countries) prevail.

and don't forget about the petrodollar that's financing this military superpower.

The USD enjoys an unfair competitive advantage over its peers and this distorts the financial markets immensely and more importantly the balance of power in international relations esp. in times of political crises and military conflicts.

There's no real reason a 'staggeringly unequal benefits distribution' should lead to an economic crisis, unless you believe in proletarian revolution or something.

Let's say all the wealth in the world, minus a few percent, belonged to 400 people. Can you think of some ways that would wreak havoc on the economy, even without triggering a "proletarian revolution?"

No, because an economic crisis is a fall in economic output.

The point is that "undesirable wealth distribution" is not what an economic crisis is. If 400 people controlled everything, the world wouldn't be a great place to live, but the economy would probably be more stable.

I don't recall high Gini coefficients being associated with economic stability. The massive reduction in marginal utility from most people focusing only on immediate consumption, coupled with the massive oligopolism and centralization leading to price distortions -- those alone don't imply economic stability to me. An extreme oligopoly would likely imply civil unrest, so all else would suffer.

Can you think of some ways that an economy where virtually all the demand for goods theoretically possible is coming from 400 people, would see a substantial drop in economic output? Assume everyone's participation in the economy aside from that 400 is limited to getting enough shelter that they don't die of exposure and enough food that they don't starve to death.

> There's no real reason a 'staggeringly unequal benefits distribution' should lead to an economic crisis, unless you believe in proletarian revolution or something.

There's plenty of reason to believe in proletarian revolution [0] as a thing that happens, whether or not one believes in it as a thing which is an ideologically desirable response to certain conditions.

[0] At least, revolution in which the lower classes are actively involved and where their dissatisfaction is a key lever used by the revolutionary leadership, even if the leadership itself is often from disaffected factions of the elites, either in government, military, academia, or private wealth.

Bubble? http://i.imgur.com/lQt3Ylr.jpg

Central bank bubble.

You mean... something like this...

http://blog.milesfranklin.com/wp-content/upLoads/2014/12/US-...

But at a global scale?

Now extend the timeline 100 years into the past, it will look a lot more encouraging. Or a 1000 years, it will look positively sunny.

Utterly useless to show a growth graph spanning decades without a log scale.

> Broadly speaking the US economy is quite healthy

In reality, it's the exact opposite of "quite healthy". Here's a good overview of what's up: http://www.oftwominds.com/blogaug15/bear8-15.html

You cannot offer a different view. Go home. Sorry.

(And they won't even perceive the sarcasm).

If a 2008-style credit crunch takes out the likes of AGI in the next few weeks, causing rippling effects to spread throughout the economy in ways that no one understands... then we've reached a 2008 level crisis.

We don't have record numbers of people flocking to mobile homes as their subprime mortages jack up the rest of the economy.

Your article is crap because it ignores everything that was bad about 2008. Record layoffs, hundreds of thousands of people losing their homes and jobs. Major manufacturers (the _entirety_ of the "big three" car companies) almost went bankrupt.

Financial controls are arguably in a worse state than they were in 2008. But beyond that, the core economy is doing much better than back then. Furthermore, financial controls in 2007 prevented us from seeing any issues. The subprime mortgages getting wrapped up in CDOs and all that stuff was occurring in a non-regulated "shadow economy" manner.

Is there a shadow economy that is about to crash today? I don't think so. But that was the conditions of 2007/2008 financial crisis.

Can't wait till we link to this comment 5 years from now, laughing at how gullible we were – again.

>laughing at how gullible we were – again.

What exactly are we "falling for"? The economy ebbs and flows, as it has for centuries.

The real gullibility is thinking that these cycles somehow represent the end of the world.

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