Comment by leggomylibro | Hacker News Reader

Comment by leggomylibro | Hacker News Reader

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I dunno, I thought the BBC's coverage laid out some possible rationales without being too over-the-top. And while it isn't a tabloid, they aren't exactly a finance-focused paper:

http://www.bbc.com/news/business-42942921

>...It is the largest fall in percentage terms since August 2011, when markets dropped in the aftermath of "Black Monday" when Standard & Poor's downgraded its credit rating of the US.

>US investors are reacting to small but significant changes in the outlook for the American economy, and what that might mean for the cost of borrowing.

>The stock market sell-off accelerated on Friday when the US Labour Department released employment numbers which showed stronger growth in wages than was anticipated.

>If salaries rise, the expectation is that people will spend more and push inflation higher.

>To keep that under control, America's central bank will need to raise interest rates, which is what has spooked investors who were expecting the US Federal Reserve to increase rates only two or three times this year.

>They now predict there may be a few more interest rate rises on the horizon.

>Monday's sell-off was driven by firms moving to sell stocks to put more money into assets such as bonds which benefit from higher rates, says Erin Gibbs, portfolio manager for S&P Global Market Intelligence. ...

>If salaries rise, the expectation is that people will spend more and push inflation higher.

Sure sucks to be a worker. When your salary rises your real gains will be inflated away.

If salaries aren't coming out of investor profits, they have to come out of the cost of goods.

The only way workers can win is:

1. Productivity gains make goods easier to make.

2. A bigger share of investor profits get redistributed to workers, be it through taxes, pension fund investments, co-ops.

#2 will not be happening anytime soon.

And #1 has been happening for decades, yet wages have stagnated. So the conclusion is workers can't win?

1. Many of those productivity gains happen via outsourcing work to countries where wages are much lower.

2. Many consumer goods have become cheaper as a result. The biggest ones, though (Rent, education, healthcare) have not. Incidentally, none of them can benefit from 'productivity gains.' Well, healthcare can, but...

>2. A bigger share of investor profits get redistributed to workers, be it through taxes, pension fund investments, co-ops.

>#2 will not be happening anytime soon.

That sound you hear in the distance is a recital of the Internationale.

[Some] Workers can individually win by forcing themselves to spend less than they earn and investing the surplus.

In other words, another way that workers can win is by becoming investors/owners.

That's a great idea. Let's all quit our day jobs, and buy into the S&P 500.

At the end of the day, someone has to 'waste' money, in order for companies to earn money. A quarter saved is a quarter that doesn't end up on a revenue sheet.

> At the end of the day, someone has to 'waste' money, in order for companies to earn money

I also used to feel this way, but I no longer think its accurate. This is most obvious in digital business-consumer goods today. Imagine I make a game. And it cost me about $100 to make this game. And you really want this game and would pay $5 just to get to play it. But I'm nice and sell it to you for $1. You certainly haven't wasted any money. And the fact I then sell it to 10,000 other people also doesn't mean you've wasted any money, nor they. Yet I've somehow made an immense amount of profit.

Even in the more difficult scenario of business to business material goods trades, it doesn't hold true. Imagine I sell iron and you need iron to make your widgets. It costs me $4 to produce a single unit of iron, but that's largely because I have an extensively refined and stream lined operation, and am able to benefit from an immense economy of scale. I sell it to you for $10. Well it seems that you must be wasting money, but the reality is that even if you bought the iron mine yourself and started producing your own iron you'd end up spending far more than $10 to create the volume of iron you need. So even though I'm again making immense profit, you're also not 'wasting' money in buying my iron.

This is why even huge companies are not entirely vertically integrated or producing their own supplies in other words. It's because buying from somebody else, even when that person is profiting immensely from the exchange, is not going to be inherently more expensive than if you did it yourself. And this is even true for simple no-skill goods like semi-raw materials. Get into skilled products, like semiconductors, and this all becomes even more true.

#2 happens every time unemployment drops. Yes higher worker pay increases inflation, but it's far from 1:1.

but your equivalent spending power vs your neighbor will be higher! That's what mattes... right?

I think of money as a claim check on labor (and to a lesser extent, other resources).

If everyone's income rises by 5% (and most of most people's income is spent rather than saved), I would expect prices to rise by about 5% and find that entirely logical.

Except not everyone gets a salary. Higher worker pay means investors for example get a lower share of economic gains.

>If everyone's income rises by 5% (and most of most people's income is spent rather than saved), I would expect prices to rise by about 5% and find that entirely logical.

Generally everyone's income would be rising 5% either from inflation, which amounts to a transfer from creditors to debtors, or from growth, in which case the total basket of goods and services available has grown 5% and there's no need for prices to go up.

You always have a mix. There will be growth in some markets, and inflation in others.

Humans tend to eat always roughly the same amount of food (except if they can't afford it). So food prices generally inflate with wage increases. Growth leads to bigger televisions, safer cars, faster internet being available at roughly the same price.

>Humans tend to eat always roughly the same amount of food (except if they can't afford it). So food prices generally inflate with wage increases.

Quite the opposite. Over the long term, food prices have deflated, and the variety has dramatically increased of foods available at a given price and a given distance from the point of production.

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