Comment by jerf | Hacker News Reader

Comment by jerf | Hacker News Reader

No comment on whether the future is bleak or not.

But extending beyond economics, also consider the US political commentary of the past year and a half. It was, not to put too fine a point on it, shit. Take the conventional wisdom for any day of your choice four weeks before the election to a year before the election, then come back to it two months later. Uniformly, the boldly-made predictions and much-blabbered conventional wisdom were horribly, horribly wrong. As I like to say, if it had been right, we'd be awaiting President Clinton's swearing in after defeating Guiliani 75-25.

Future predictions have never been that great, and maybe it's just that I'm paying attention now, but the "horizon of wrongness" seems to have moved a lot closer to the present now. Pundits are rarely even close to right for events a month in the future now, and it's getting to the point that I can't understand why anybody even listens to them, because they are so wrong, I can't hardly even point out the people who were right.

Play it conservative. Keep your savings up. Any techie after 2001 should know that anyhow. Maybe the future will indeed be awful, but at this point, I'm burned out on punditry, and I would say that at the very least, try not to let this doom and gloom depress you too unduly. The people selling you doom and gloom... and I use the term "selling" on purpose, because it's the literal truth... have a horrible track record. Let's wait and see what happens.

Great post. One thing I found interesting about this piece was the blatant revisionism on display in the second paragraph of the article:

"less than two years ago, conventional wisdom dictated that the housing bubble would be painful but that global economic growth would remain stable."

Forgive me, Mr. Writer, but my recollection is that less than two years ago, few people in the mainstream were acknowledging that a housing bubble even existed. Hell, even a year ago, half of the mainstream press was essentially reprinting press releases from hacks like Lawrence Yun (widely quoted "expert" for the National Association of Realtors), who never saw a bad housing statistic that he couldn't spin for the positive. Those who were calling a bubble a bubble early on (as early as 2003) were labeled jealous curmudgeons who missed out on the easy-money party.

I keep trying to come up with a lesson from this, but the only thing I can think of is that our society doesn't reward dissent. No matter how insane and extreme the conventional wisdom, it doesn't pay to be the guy who vocalizes against the herd. If you're a contrary thinker, it's best to just keep your head down, your mouth shut, and do whatever you were going to do anyway.

"my recollection is that less than two years ago, nobody in the mainstream was acknowledging that a housing bubble even existed."

My recollection is different, because I was reading Business Week more than three years ago. The housing bubble has looked like a bubble for a long time to people who considered how much faster house prices increased than wages.

Michael Lewis's collection of articles, Panic,

http://www.amazon.com/Panic-Story-Modern-Financial-Insanity/...

includes articles that foresaw the housing crash more than two years ago.

Yes, there were a few people who were calling the bubble early. However, their view wasn't in the mainstream two years ago. It certainly wasn't "conventional wisdom".

I have edited my post to replace the word "nobody" with "few". Mea culpa.

They focused on the exception; you focused on the rule.

It's entertaining watching the tulip bulb story happen over and over again. Hopefully next time I'll have more capital to take advantage of the situation.

The Economist, which isn't exactly some small rural newspaper, talked about housing looking bubbly a few years ago.

A Google for [ "property bubble" site:news.bbc.co.uk ] will show many references to the British property bubble in the 2002-2007 timeframe.

However, your last paragraph is totally on the money.

A bubble is indistinguishable from a pyramid scheme legally run amok for the appearance of economic growth. Which is why I don't care for the naysayers opinions because they are far less useful than knowing a few average Joes who have the curiosity of cucumbers when it comes to economics, politics, etc. Once your average Joe catches onto the long tail of the curve, you know a bubble has run its course.

The next bubble will likely be the green one. It's large, necessary, and completely possible to go overboard regardless of what you'll hear every pundit saying for the next 10 years.

If I remember correctly, two years ago people were taking about a soft landing.

It has something to do with economics of punditry. Basically, for pundits incentives are against voicing dissent. If you go against the conventional wisdom and your predictions turn out to be right, you'll still have hard time getting your voice heard, since it will probably drown in a cacophony of "nobody could have seen this coming" type mainstream media flood. On the other hand, if you dissent from the crowd and turn out to be wrong, you'll be labeled a lunatic and sent to oblivion. So the punishment and the risk you're taking by far outweighs any possible rewards. Thus we get herding; pundits' predictions will always be closer to each other than they are to the real value of the thing being predicted.

If you watched any of the stock punditry two years ago, everybody knew there was a housing bubble. You could tell by looking at the charts. The discussion, which as I recall went on for a year, would how hard and how localized the "pop" would be. Safe money was at least betting on the market being overvalued in major cities and stayed away from REITS.

It was common knowledge.

That's how I remember it, anyway. You might be confusing this with the mortgage crisis, which is an entirely different (but related) matter.

Do you realize that by suggesting to "keep your savings up" you are predicting stable purchasing power of US dollar?

It's entirely possible for someone to play it safe, stick to cash savings and then get burned if/when dollar is devalued by 75% simialr to Argentina 2001, Russia 1998 or Iceland 2008.

If massive inflation occurs, you're pretty much screwed no matter what. It is not currently possible to live fully, truly off the grid in the manner in which anybody posting to Hacker News is accustomed. Planning for events that you can do nothing about is a waste of time; the fact that that is unfortunate changes nothing.

(Which is not to say some reasonable preparation for emergencies is a bad idea. I'm just saying that once you're proposing massive inflation, it's not like having a huge stash of gold in your basement is going to save you, or there's anything else you can hoard that can't be taken from you by force by a rampaging mob.)

>(Which is not to say some reasonable preparation for emergencies is a bad idea. I'm just saying that once you're proposing massive inflation, it's not like having a huge stash of gold in your basement is going to save you, or there's anything else you can hoard that can't be taken from you by force by a rampaging mob.)

Citation needed. According to FerFAL, who actually lived through the 2001 Argentinian peso devaluation, a large stash of gold will save you because there won't be a rampaging mob robbing everyone, especially not if you own a gun.

http://ferfal.blogspot.com/

Ten kilos of gold should be enough to get you anywhere on the planet; after all, it should be worth 300,000 current dollars or so. The only scenario where that would be useless is a nuclear holocaust.

I am amazed at the hatred for gold among some HN'ers.

This is the second thread I have seen where gold was mentioned, and the second time I have seen a vitriolic response about gold.

Gold will always be valuable and it will always be part of a sane person's plan for dealing with a "things are going to crap" scenario. Along with some form of food storage to deal with logistic interrruptions and some form of personal defense (mace, pepper spray, knives, guns, etc.)

Gold will always be valuable...

How do you know? While I'm all for world & class asset diversification, the whole reason is because I/we don't know.

1. It is needed for industrial/electronics purposes.

2. It is internationally recognized as being valuable, regardless of culture. That is, cultures as diverse as India, China, England, Russia, pan-Arabic (i.e. non-Jews in the Middle East) have all viewed gold as having value, and that over at least 1000 years of recorded history each.

3. It does not corrode or rot the way paper money does. In Israel they recently found some Byzantine-era gold coins, aside from the obvious numismatic/collector value they still retain value for the gold itself.

4. Gold does not require a government to enforce its value. It's value is innate or intrinsic to the thing itself. As such if a government falls or decides to modify the value of a paper dollar (as Mexico, Argentina etc. have done in the past) then the value changes. Gold that you have in your pocket cannot have its value modified by a government order.

Great answer - thank you. If you have a blog/site you should definitely write about this.

The internet is full of gold bug blogs.

Here's one response to the gold bug arguments, by Nobel prize winner Krugman:

http://web.mit.edu/krugman/www/goldbug.html

Even libertarians like Arnold Kling don't really have much time for the gold standard:

http://econlog.econlib.org/archives/2007/01/the_new_deal_an.... (and in other articles)

Generally, it's not regarded as territory for "serious economists", although of course it is always possible that serious economists are wrong.

The two most interesting posts I've read in defense of gold are these two: http://unqualified-reservations.blogspot.com/2007/11/who-hec... and here http://unqualified-reservations.blogspot.com/2008/02/return-...

Both are much better than the Krugman piece.

Selgin and White wrote some papers in defense of the gold standard. Hayek was sympathetic to a commodity standard, though not the classical gold standard per se.

The gold standard, having been around for 2,000 years, is the constant subject of serious study by economists.

There are certainly a few serious, respectable economists who favor the gold standard - I said only that "most don't", not that anyone who does is a not a "serious economist".

Incidentally, I think the "because we did it that way for a long time" argument is a terrible one. There are plenty of things we've done for a long time as humans and as societies that aren't very good, and are worth discarding. I don't think the gold standard is a good idea myself, but in the arguments for it, there are better ones than that one.

That's not a good argument for the gold standard, but it is a good argument for studying it as a serious monetary policy.

Not really. The last nail in the coffin of serious research on the gold standard was "Golden Fetters" by Eichengreen. It has a phenomenal and indisputable country-by-country timeline showing the cycle of deflationary behavior stopping during the Great Depression in country after country shortly following (4-6 months) the effective abandonment of the gold standard. One can argue that N=20 is not significant research, but there is a reason no-one will take you seriously if you do.

I personally haven't met anyone who has argued for the gold standard and has read it although that may be a comment more on the academic backgrounds of the people who used to write pro-gold stuff and stuff it into my inbox back in college than the theoretical basis of the argument. So while gold may have a place as an investment (especially as a hedge against inflation) in large part people who spend considerable breath on extolling its virtues using words like "intrinsic value" and "stability" and "natural" are kooks. Their choice of the word "natural" is also odd since gold coinage is hardly more natural than paper and in fact is less easy to control the asset base.

When economists talk about not repeating the mistakes of the 1930s, they are by and large talking about the importance of maintaining liquidity in the system to prevent deflationary spirals, and avoiding liquidity traps. They are also cognizant of Keynes' proof that Say's Law does not work once people want to start doing things like holding liquid assets, and the dismal performance of things like the zero-inflation policy in Canada and other countries through the 1990s.

I'm amazed by the number of Internet libertarians who have jumped on this bandwagon.

You make some interesting points and I will definitely hunt down the "Golden Fetters" piece. However I would ask whether you have looked into the argument that gold restricts the ability of the gov't to expand, in that there is a built-in expense to more spending when you have a gold-backed currency.

It appears (to me and probably others) that part of the current problems the USA is facing is due to a govt that grows and grows, without a method to have a feedback loop that would restrict it - currently it seems the answer is to just print (electronically or physically) more $100 bills (which cost about 4 cents to make).

As a result of World War I, the governments of the world printed far more money than they had backed in gold. Eventually, people realized that the government did not have enough gold to redeem all the paper currency. People rushed to the bank to withdraw so they could get their money out first. At this point, the government had to either devalue the currency or leave the gold standard. Sticking to the gold standard at the previous valuation was a recipe for ruin. Most countries chose to leave the standard altogether. But they could have simply devalued, learned their lesson about diluting, and returned to a gold standard.

The lesson the Keynesians took from this episode was not to go on a gold standard in the first place. The lesson the Austrians took was that government should not dilute the currency. Since all government's prefer to dilute the currency, and most "mainstream economists" are government funded, mainstream economists are almost all Keynesian, not Austrian.

The best two articles I've read in defense of gold are these two: http://unqualified-reservations.blogspot.com/2007/11/who-hec... and http://unqualified-reservations.blogspot.com/2008/02/return-...

Gold will always be valuable

For varying values of valuable. Our bold leader Gordon Brown sold off the UK's gold reserves for about a third of the current market price. He even announced well in advance that he was planning to dump a load of gold on the market, so the price dropped even further. Gold's a great asset but it's not the be-all and end-all.

I used to keep a portion of my savings in foreign currency ETFs, gold ETFs, and foreign stocks because I was concerned about devaluation of the dollar. You're gambling if you do this, of course, because the dollar can go up, too. However, it does hedge your risk somewhat compared to keeping all of your savings in assets denominated by a single currency.

False choice fallacy: either "no hyperinflation" or "rampaging mobs".

In fact several countries have survived hyperinflation without the mobs. Once again, Russia 1998, Argentina 2001, Icelad 2008.

On the other hand USA 1930 and Nazi Germany saw confiscation of gold by the government and it might make sense to prepare for that as well by storing your gold abroad.

Actually, rather than a false choice fallacy, my real point is that no matter how prepared you are, you can always hypothesize a situation for which your preparation is insufficient. Concluding that therefore, any given action (in this case, saving dollars) is a bad idea because it "might not be enough" is an invalid argument. One must argue about probabilities. I personally do not rate a hyperinflation of the US dollar without massive upheaval a very strong probability; your other cited examples weren't the foundation of the global economy. (I rate it much lower than either no hyperinflation, or hyperinflation with massive upheaval. The people stealing your goods in the massive upheaval case is likely to be the government, so merely "a gun" won't cut it.)

>>I personally do not rate a hyperinflation of the US dollar without massive upheaval a very strong probability; your other cited examples weren't the foundation of the global economy.

Well, I cited at lest some foundation to my argument - there were numberous cases where serious devaluation did not coincide with too much social disorder. I don't see how being "the foundation of global economy" makes Americans any more likely to riot and pillage. The only cases I can think of this happening in developed countries is an outright revolution, for which there does not seem to be basis in US right now.

You're quite right to worry about government doing the pillaging though. While probability is low, the consequences would be disastorous and if one is hedging their bets might as well include this possibility. Hence why I suggested keeping your goods abroad - that way you are diversified across two political systems.

This dude has consistently nailed it:

http://www.prospect.org/csnc/blogs/beat_the_press

The gloom and doom shouldn't depress you unless you derive all your happiness from wealth. Believe it or not, there were happy people living through the Great Deppression, both rich and poor prior.

Material comfort and stability is an important contributor to happiness. Go to a middle class gathering place, like a Chipotle restaurant in a business district at lunch, and then go to an unemployment office. See which population is happier.

I'll give you that, but nonetheless depression is fairly rampant in America despite those things. I've met orphans in poverty stricken areas of Mexico that were happier than middle to upper class kids in day care centers here in America. Really my point was that we shouldn't let ourselves get depressed over whatever the doomsayers may be spouting.

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