Comment by yummyfajitas | Hacker News Reader

Comment by yummyfajitas | Hacker News Reader

The author of this article has internalized some Keynesian assumptions so deeply that he doesn't realize the story he is writing directly falsifies one of them. A major assumption of Keynesian economics is that employment scales with production. Thus, if you stimulate aggregate demand, you will increase production, and thereby increase employment. This hasn't happened - aggregate demand and production have recovered, but employment has not.

The fact is, our economy is a lot more complicated than it used to be. Workers are not interchangeable cogs and expanding profits does not necessarily involve expanding employment. Stimulating demand in retail will not raise the employment of construction workers or realtors. Many employees produce nothing directly, but merely improve the value of capital [1] - increased profits don't demand hiring more employees, and reduced profits don't demand firing them.

Until economics catches up with the times, all we will get are silly ideas like "invest in infrastructure" and "stimulate demand". Really, you think jobs are moving to India because of their infrastructure? Lets get real here. I've done a little work for someone who created about 30 jobs in Pune. He drives for 2-4 hours on crappy roads to get from his house in Bombay to the office, only to discover that the power is out and no work can be done today. You think he'll come back to the US if you widen a few highways?

[1] I'm a good example. My labor is directly worth nothing - all of my companies profits are directly attributable to capital (a trading system + money in the brokerage account). My employment is an investment - I have a significant probability of increasing the value of that capital.

"The fact is, our economy is a lot more complicated than it used to be."

Or, our economy is actually just not the top of the heap anymore, and probably never will be unless Asia suddenly slides off and sinks into the Pacific. If it weren't for anomalously successful companies like Apple or Wal-Mart, multi-nationals will eventual write-down the US market as dying and move everything overseas. If KFC can make more money in China than here, we're not really going to recover and be their #1 market again, unless we just open the immigration floodgates (even then, that adds 100 million TOTAL Mexicans, which is a drop in the bucket in comparison). GM sells more cars in China than in the US. You think that's ever going to "pivot" back to us, no matter if we build infrastructure or let it crumble?

It's simpler than you think. Multi-nationals will continue to benefit from the stable political structure and docile and manipulable populace, executives from said companies will continue to live here with its favorable individual tax and seasonal climate (not everyone can stomach the heat in Singapore no matter how tax advantageous it may be) and liquid assets can be increasingly secreted away in wherever pleases them (Caymans, Switzerland, etc.). The only thing that actually changed is that their money makes the world flat.

This is the end of the empire, whether by brute force (Chinese market and labor force) or by increasing political and military irrelevance. We used to own all the money and guns. Now everyone's got guns and everyone's getting money. Now we're just 300 million people pointing fingers at each other.

It's not complicated; there just isn't going to be any solution that we want to hear.

    unless we just open the immigration floodgates 
    (even then, that adds 100 million TOTAL 
    Mexicans, which is a drop in the bucket in 
    comparison).

Why do you assume immigration would be restricted to Mexicans?

It's the hot-button issue in immigration politics and they would obviously be the biggest beneficiary of an open border policy.

A car from tijuana is much cheaper than a plane from Manilla.

The U.S. may no longer dominate but with 300 million people and tremendous resources we're not heading to the bottom of the heap either. Our standard of living is going to move back closer in line with the rest of the world, which is fine.

I'll accept 1 American moving from upper middle class to lower middle class if it lifts 3 people out of poverty in the third world.

In some ways, this makes me long-view bullish as an entrepreneur. Imagine the opportunities to serve a global market that lives at first world standards.

Well, yes and no on the relevance of Keynesian / neo-K policy. It's true that the current pot-hole filling projects are just ways for congressmen to get money for their district while claiming they're stimulating the economy.

However, there are certainly projects out there with high multiplier affects. For instance, in PA the "Ben Franklin Partnership", who invest in early stage startups, claims a 5x multiplier of economic value over its funding. This is the type of infrastructure spending I could get behind.

Certainly, a lot of our human capital needs investment as well. Anyone who claims this isn't a partially structural recession is living in a fantasy land or is blatantly supporting the status quo. School reform as a long-term plan and some type of incentive for retraining the existing workforce would seem to have a high multiplier affect as well.

FWIW

> However, there are certainly projects out there with high multiplier affects. For instance, in PA the "Ben Franklin Partnership", who invest in early stage startups, claims a 5x multiplier of economic value over its funding. This is the type of infrastructure spending I could get behind.

This is one of those cases where people like to take credit for economic multiplication that would have happened anyway (the biggest culprit of this is NASA). It doesn't take a government project to fund early stage startups. How many would have been successful anyway? How many were not successful, because they stayed in Pennsylvania, instead of moving elsewhere?

A very valid point! No one can deny that all organizations can claim things like this. There are good and bad parts of them, such as everything in Pittsburgh looking for their seal of approval first - which could lead to a herd mentality for or against a company.

However - I personally know several companies that wouldn't have started sans their investment and efforts. There is a certain "activation energy" with companies that orgs like YC and Ben Franklin (Innovation Works / AlphaLab locally) provide for. This was true for my company.

The "say in PA" part of the program I agree is a bad thing. They should force PA to work to retain companies - not using golden handcuffs... However, all in all, if I was going to spend tax money - I'd rather put it there than into potholes.

aggregate demand has recovered

Wow. Ok, I lean left and you lean right so obviously we're going to differ on some things. But, conceptually, you'd think those things would all be values-related things. In this case what you're saying conflicts with my mental model of the world. The basic "reality" that I live in.

I don't have a point to make, just expressing how weird it is to me to see someone write that.

I stand by the reality of my statement.

Here is data on production: http://research.stlouisfed.org/fred2/series/GDP http://research.stlouisfed.org/fred2/series/INDPRO

Here is employment: http://research.stlouisfed.org/fred2/series/PAYEMS

See the disconnect?

Lets focus specifically on Durable Goods, since we have a decent measure of their demand (not just their production). The recovery here is incomplete, but it's we are about halfway from trough to peak.

Durable goods demand: http://research.stlouisfed.org/fred2/series/DGORDER

Durable goods production: http://research.stlouisfed.org/fred2/series/IPDCONGD

Durable goods employment: http://research.stlouisfed.org/fred2/series/DMANEMP

It doesn't surprise me that what I'm saying conflicts with your model of the world. It conflicts with my old model, and nukes my favorite possible solution (tax cuts) as well. But the data is the data, and all we can do is try to build new models which fit it.

The economy has changed, and our old models don't work very well anymore. We need new models.

we are about halfway from trough to peak

That sounds reasonable. It was the implication of full recovery that sounded crazy to my mental model.

In terms of total production we have fully recovered and grown beyond our peak. It's only industrial production that hasn't fully recovered.

Investing in infrastructure isn't silly if it is a large project that only government could afford, addresses a current or near future problem, and has favorable return on investment.

Widening highways and filling potholes has been more about giving states a short-term bailout under the name of stimulating the economy.

I'm not saying all infrastructure projects are a bad idea. I'm just pointing out that the thesis of the author is silly. Jobs are being created in India rather than in the US, and better infrastructure won't bring those jobs back.

In the US, a single bridge collapse is a national outrage, and a sign of "crumbling infrastructure". India has had at least one major collapse per year for the past 5 years:

http://www.theglobeandmail.com/sports/more-sports/bridge-col... http://news.smh.com.au/breaking-news-world/india-bridge-coll... http://articles.cnn.com/2008-10-19/world/india.bridge_1_metr... http://www.rupya.com/archives/2007/09/10/hyderabad-bridge-co... http://www.indiadaily.org/entry/bridge-collapse-contractors-...

The NYC subways are crowded at rush hour. Here are Indian trains:

http://www.google.com/images?q=india+train&um=1&ie=U...

Suffice it to say, jobs are being created in India rather than here in spite of infrastructure. If infrastructure mattered, the jobs would already be here. US infrastructure is top class - roughly the same as in all other first world countries (Japan, France, UK, etc), and is orders of magnitude better than that of India or China (no week-long traffic jams, for instance).

(Not trying to single out India, I just know more about India than China, the Philippines, or other popular outsourcing sites.)

What evidence do you have that demand has recovered?

Production has recovered, as have profits. Goods are being produced, services being performed, and consumers are buying.

See my response to davidmathers for links to specific timeseries.

The way I read those statistics makes me think that we have the same GDP as we would have expected to have reached by the beginning of 2009, except with 2 years worth of population increase, productivity gains, and inflation unaccounted for. The Industrial Production Index chart seems to place us somewhere around the year 2000.

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