The Economy
blog.samaltman.com
blog.samaltman.com
Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case.
For the bull case, see this post, from a guy who's been right about everything since the mid-2000s.
http://www.calculatedriskblog.com/2014/06/the-future-is-stil...
Otherwise, good points.
I agree that a basic minimum income may be necessary; I don't believe it'll fix the growth problem though.
But those same technological advances invent new goods and services for an ever increasing population. More people are fighting over the same set of resources, which technology allows markets to distribute more efficiently. The new tech creates new demand no one knew was needed (e.g. the mainframe, the internet, mobile web, the blockchain).
While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) and upgrading society like 'aging up' in Age of Empires or Civilization.
While I'd agree this has been the case historically, I'd argue this is no longer the case.
> While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) and upgrading society like 'aging up' in Age of Empires or Civilization.
Seems like a pretty big bet to take.
Where are ~4 million drivers going to go when self-driving cars roll out? Bus boys? Service jobs? Technology is going to saturate the labor market with surplus labor (that labor having been automated away). History has shown us this does not end well.
>While I'd agree this has been the case historically, I'd argue this is no longer the case.
Better kill ourselves now, we've reached the End of History.
Sure. Personally, long-term, I think that will be true. The thing you have to understand, though, is that in the short-term, this hasn't been happening, for whatever reason, and the short-term, if it goes on for long enough, becomes the long-term. This is a problem that needs human effort before it will be solved.
Now, some people argue that it's a macro thing; Corporations are sitting on a bunch of cash right now, and not hiring. Some of those people say that we need some inflation so that those corporations are incented to do something (which usually means hiring people) with that money.
Personally, I don't understand macro. I understand Micro, though, and on the Micro level, I don't see a lot of entrepreneurs putting a lot of effort into figuring out how to create at-least-minimum-wage jobs for the less than awesomely skilled. I do see some effort being put into commoditizing third-world labor, you know, fiver and mturk, which you could argue is probably good on the global scale, but if you are focused on America, is decidedly counterproductive.
I think solving this problem using market-based tools would be an awesome project. I think it would be a possible project, especially if we are okay with another "service sector revolution" type deal where unemployment is low, but most of the jobs are kinda shitty. (which would certainly be better than the current case.)
Do you have an idea for a business that scales that could pay relatively unskilled folks better than minimum wage?
The thing I do see is that many companies seem to be cutting customer service more than I think makes sense; Most of the time, I'd pay another 10% if I could get good customer service rather than a bad robot. Of course, I'm one of those nerds who would prefer a robot to a human, for most service, assuming the robot was good enough... but the robot usually isn't good enough, and I think most people would prefer a human, if the human and robot were equally good at solving the problem at hand.
I think the problem, though, is good customer service isn't a low-skill job. If you can do customer service all day, every day, if you can do so without developing a deep hatred for humanity, you are a better person than I am.
The problem with this lies in the nature of most service sector jobs - they require physical proximity to those people being served. Contrast this with manufacturing jobs, where a factory can be set up in a remote town (or on the other side of the world, which is precisely why they no longer exist in America in large numbers) and the products shipped en masse to consumers.
Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class. Nowhere is this more apparent than in SF. If the Bay Area public transit system were better and if housing were much denser, then more unskilled workers could afford rent in/near the city and have short commutes to service jobs.
Rather than raising minimum wages, we should be working to lower the cost of living for those not as well off. Our cities are currently so inefficient that you could squeeze a great amount of sheer waste out of them.
The service sector jobs I have experience with; technical support, can often be done from anywhere.
Of course, having done tech support both in person and over the phone/email, I can tell you that the experience is vastly better for all involved when you are there physically. Besides the fact that it's quite often technically easier to solve the actual problem, the customer is way less likely to get crazy abusive to someone who is physically there and obviously, you know, a human being.
So... okay, point taken. I hadn't thought about that, but having remote tech support is often one of those choices where you optimize for price at the cost of good service. I guess that's the idea behind apple's "tech support in the store" model.
I remember during the first dot-com, shortly after I was promoted out of phone support, hearing the boss talk about how he wanted to do a startup for 'high end tech support' that would send people out in person to set up your internet, rather than making you talk on the phone with us.
>Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class.
I think we have a negative feedback loop here. The rich don't want public transit near them because they don't want the poor near them, because they aren't used to in-person service jobs. Now, I think most of this is the fact that most middle-class Americans are super weird about class. I mean, that's not to say that the British aren't super weird about class, but they are weird about class that allows the middle/upper classes to acknowledge the existence of the lower classes. The American middle and upper classes want to pretend that the lower classes don't exist, and plan their cities accordingly.
The thing is that we now have this purposely useless public transit infrastructure, which makes it really difficult to rehabilitate the idea of more in-person service jobs.
The problem with this type of service sector job (remote technical support) is that, since it can be done from anywhere, it is just as amenable to outsourcing as manufacturing. Think about it this way - if a job can be "outsourced" to the Midwest, whether it be manufacturing or service sector (i.e., tech support over the phone), it can be outsourced to China or India.
So to be clearer, when I said service sector jobs, I meant those that require physical proximity. After all, the basic problem we're facing here is that a lot of American workers simply have no competitive advantage over foreign workers (after factoring in the lower wages paid abroad). Therefore, those workers need to be in an industry where they can exploit an unassailable advantage of theirs - they can be physically proximate to the people they're serving in a way that no one in another country can.
But such an industry doesn't exist right now (at least not at the size necessary to support all those unemployed people), because of our housing and public transit policies. If those policies were changed, allowing for cheaper and better services to reach the upper middle class, you would see the rapid growth of a new market, one that would really help funnel money from the upper middle class down to the lower classes.
Of course, in the long run, using physical proximity as the sole competitive advantage is not a good social policy, since it will lead to social stratification. Therefore, we also need to quickly reform our education system to ensure that the next generation of workers is broadly competitive with foreign workers, rather than only the top 20-30% of American workers doing jobs that could be outsourced but aren't, because the American workers are truly better at it than their foreign counterparts. But in the short run, we can't reeducate all those people in their 20s, 30s, and 40s, who still have decades of work ahead of them, but have long since exited the educational system. They need jobs, and they need them now, if you don't want mass social unrest and economic collapse.
> The American middle and upper classes want to pretend that the lower classes don't exist, and plan their cities accordingly.
I think a lot of this has to do with white flight and high levels of lead in gasoline coupled with high rates of driving, which led to very high crime rates in cities in the mid-20th century. But crime rates have been dropping in urban locales all across America for the last couple of decades, and affluent youth are more willing to live in (and even raise their own kids in) urban environments than their parents or grandparents were.
For example, this article[0] was posted on HN just a day or two ago. If this trend spreads across the nation (which would still require a concerted and extended effort), we could see a dramatic paradigm shift that allows both the upper middle class and the lower class to coexist in urban environments.
0: http://www.citylab.com/commute/2014/06/how-denver-is-becomin...
I believe that in the long run, standards of living will somewhat equalize. I mean, there will be differences, but I hope those differences will be like the difference between San Francisco and Denver, not the differences between San Francisco and rural Vietnam.
[on transit]
>If this trend spreads across the nation (which would still require a concerted and extended effort), we could see a dramatic paradigm shift that allows both the upper middle class and the lower class to coexist in urban environments.
What I was trying to say is that I believe the problem isn't technical; we have the money and ability to create good transit systems. We need the will to create good transit systems. We need a reason for the politically powerful classes to want public transit in their backyards.
I think that it will depend on whether or not we reform the education system so that we don't create a permanent "servant underclass." Just as we once established an education system that effectively prepared the citizenry for manufacturing jobs, we have to now establish a system that prepares the citizenry for a knowledge economy. The last thing we want is a postmodern Downton Abbey-style society.
> We need a reason for the politically powerful classes to want public transit in their backyards.
I agree with that - the problem is not, and has never been, a technical one. But I think the social obstacles are falling away with the younger generation, because they didn't grow up in a world where urban areas were seen as blighted and crime/poverty-ridden as they were 2 or 3 decades ago.
I find it really difficult to argue against good state-subsidized education; some people really do learn useful stuff in school.
But... I don't think good education is going to make the problem go away all by itself.
I really hope that what I am about to say is wrong.
I don't believe that education has as much to do with success as people say. Education correlates with high income, yes, but education also correlates with having high income parents. I think having the sorts of parents who encourage and help you to get an education also correlates with both getting an education and with getting a successful career.
Nearly everyone in my family has a degree of some sort, many have advanced degrees. I have no degree, and no significant time spent at college, and am the highest earner of my siblings. Hell, almost all of my siblings have worked for me at some point.
From what I've seen? My life (and my income) is more like that of my "class brothers" than of those I went to high school with who have my level of "educational attainment" - The conclusion I am drawing from this is that having parents like mine was important to my success; most people with parents like mine are going to go to college, sure, but the college itself is less important than those parents.
The rest of these charts are basically the background on the decline-and-fall of america, and I would say only tangentially relate to the startup ecosystem.
the most important chart that you left out was the stock price of Facebook, which is riding/causing a wave of investor (and corporate) enthusiasm for all things social, which in turn benefits the startup eco system because they buy lots of companies, and drive the hype that a given company could be the "next" facebook or sell to them.
Facebook (more so than google) seems appropriate for ecosystem barometer because:
* they do the most audacious acquisitions, with due diligence that consists of weekend meetings eating strawberries - $17bn for whatsapp, etc.
* Facebook is valued at $170 billion dollars, based on selling ads which I've never seen (because i use adblock+) and peddling to brands i also never engage with (because i only use FB to keep up with friends). that seems unsustainable IMHO.
Further, there's little evidence that Debt-to-GDP over 100% (despite "feeling" meaningful, because, 100%!) has any kind of predictive value for the long term direction of an economy, particularly one that has unusually low interest rates. If Debt-to-GDP were a problem for the US, you'd expect higher interest rates, not lower ones, as investors would be demanding higher returns on US debt.
The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term.
Paying our current level of interest on our debt is not crushing. But it's not hard to imagine the rates tripling (or more) considering how close to zero the rates are now. Then we are over $1 trillion/yr in debt service (if my calculations are correct).
Combined with what seems like a structural deficit, I don't see any good way we'd get out of that.
In other words, we're not falling off a cliff now, but it seems like fragile situation.
2013 A = Debt is around: $17.5 trillion B = Debt Service: $416 billion C = Average Rate: 2.38% ($416 billion / $17.5 trillion) D = U.S. Tax Revenue: +/- $2.8 Trillion
Things won't get interesting until B approaches D.
So one way of looking at is if everything remained constant (which it won't) you'd need 15% interest rates on the current debt for debt service to approach tax revenue. If interest rates stay the same you could increase the debt to $128 trillion.
Reference: Debt: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Debt Service: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Tax Revenue: http://www.usgovernmentrevenue.com/
I'd say things would get pretty interesting well before that point. B=D is just the point at which a default is inevitable (unless much higher tax revenue is achievable without causing other problems).
But the problem is that the interest rates are so low now that large increases are not outlandish. 7 years ago, the rate was more than double what it is now. Looking at the graph in the article, in the 80's it was over 10%, more than 4X the current rate (which would imply 1.6 trillion in debt service).
It seems like we're making a big bet that interest rates are down permanently. That may be true, but it seems like a fragile assumption to me.
And we shouldn't be surprised if rates go up substantially, because they are at historic lows right now.
If market participants demand a higher interest rate, I wouldn't call that a "complete 180".
Regardless, change is the only constant, as they say. Markets move. Behavior changes in response to the environment. If we really are supposed to be a risk-free place to loan money, then I would think we'd be a little more resilient to rising interest rates, which happen fairly often historically.
In reality, B=D is likely to balance itself out again. This becomes apparent once you think through where the interest payments go.
If they are reinvested in government bonds, nothing happens. If they are reinvested in other financial assets, the general interest rate decreases, which will also pull down the interest rate on government bonds (reducing B). And if the interest payments end up with people who spend them on goods, well, that grows the economy, which increases D.
The blog post raises some fair points, but the author does a pretty poor job at getting any point across. The most concerning things right now are: low interest rates on very high risk debt, continued and dramatic growth of derivatives (you fail, I fail, we all fail), and China's decision to push the 2008 correction in to the future finally running out of steam. The geo-political issues in the Middle East, North Africa, and Asia are a whole other cause for concern.
I think the risks now are still fairly benign compared to what was faced during the Cold War (though we still build new nuclear weapons and delivery vehicles, Russia fell short of its recent goal of 300 and instead has built 30 so far.)
[[Citation needed]]
Basically, any scenario in which interest rates grow are scenarios in which automatic stabilizers will reduce the government deficit in other places. It's a healthy system in which the feedback mechanism go in the right (i.e. stabilizing) direction.
It's not that hard to imagine; what you describe is essentially Stagflation. You may consider it unlikely, but there are some known potential causes[1].
As I understand it, Stagflation happens when increased demand is less able to stimulate increased supply than one might expect.
As mentioned in [1], an oil supply shock could be a cause. That is not outlandish given the current instability in the middle east and our tense relationship with other oil producers (Russia and Venezuela). The US and Canada do produce a lot of oil, which may offer insulation, but I don't think that's necessarily a defense.
Another cause listed is tough regulatory atmosphere. For instance, if the EPA decides to strongly curb CO2 emissions, or misguided labor laws come into effect, or the healthcare system in the US gets even worse. Again, not outlandish.
[1] http://en.wikipedia.org/wiki/Stagflation
EDIT: reworded for clarity
First: In the stagflation of the 1970s (which is really the only significant empirical data point we can draw from), increased interest rates were a political choice made by the central bank rather than an economic necessity.
Second, and more importantly: Stagflation is characterized by inflation, which means that nominal GDP grows even while real GDP is stagnating.
Since real GDP is irrelevant to the debt-to-GDP ratio (witness the debt-to-GDP ratio through the 1970s), the conclusions for whether one should worry about the debt-to-GDP ratio remains the same as far as I can tell.
We're fragile because ( IMO ) we're running the money supply too lean - especially for people who are in the grey market economy.
With respect, I don't think it's accurate that the fact that bond rates remain low correlates to evidence that there's no major macroeconomic problem. Just take a look at the Federal Reserve's balance sheet that was relatively stable for many years has quadrupled in 5 years.
Reference: Chart: http://research.stlouisfed.org/fred2/series/RSBKCRNS
Reference: Balance Sheet: http://www.federalreserve.gov/releases/h41/Current/
Not necessarily. If you have to ask yourself what the country had to do to keep those rates from changing. The more a country is in debt (especially to other countries) the more their foreign debtors have leverage over what policies the debted country can enact. For the sake of arguement, let's say that China decided to annex Alaska. If we retorted with a threat of military action, China could come back and say we'll increase your interest rates.
Also high debt to GDP ratio makes printing money as a solution more attractive for a government. Inflation is a theft from everyone.
Furthermore, if a holder of US debt declared war on the US, I wonder if that wouldn't be viewed as a credible reason to default on that outstanding debt - certainly doesn't make much sense to be sending interest coupon payments to someone invading your country.
What everyone is trying to do is figure out a way to unwind this slowly and/or grow out of it. I think a lot of past growth was fuelled by population growth and "free" resources (oil, coal, etc.). Population isn't growing as fast and resources aren't as free any more.
Obviously both China and the US would take a big hit but I'd argue the US would take a bigger hit. Right now the US benefits from the status of the US$ as the world's reserve currency. If all foreign US bond holders sell their their bonds the US$ will not simply depreciate, it will collapse. The US will be able to import nothing and it's not geared to handle that. It's very comfortable having the cheap manufacturing and the environmental implications somewhere else. Now none of the US debt holders want to see this happen but also no one will want to be the last one holding to debt in a collapsed currency - if someone sneezes.
Given that a lot of US businesses do their business worldwide and keep their money out of the US they won't necessarily be impacted as much but this "run on the bank" scenario is not going to be pretty.
Not necessarily, because national debt (eg bonds, t-bills, etc) can be owned by anyone, not just foreigners. In the case of the US, as it happens, most national debt is overwhelmingly owned by Americans --think your IRA: whatever percentage of bonds you own is government debt to you.
The confusion arises because one particular strategy of hedge funds in the past has been to buy up huge controlling amounts of dollar-denominated bonds/debt from small export-dependent countries so that, if the country's economy slows down and they have to devaluate their currencies to boost exports (and thus growth), they end up unadvertently increasing the amount owed to the hedge funds in dollars. This can easily get way out of hand, thus causing the well-publicized financial crises of the 1990s, Argentina's, Greece[1] etc. But this scenario obviously does not apply for countries that do not issue foreign-currency bonds, like the US.
[1] The case of Greece is even worse because they cannot even devaluate "their" currency to boost exports, so all they can do is intentionally depress or deflate their economy to make everything (salaries, land, inputs) massively cheaper; or refinance their debt with EU-backed loans.
Inflation is from those with assets denominated in dollars (if they are not inflation adjusted). It is to those with liabilities denominated in dollars (if they are not inflation adjusted) and to the people introducing the new dollars into circulation. In the case of the government printing money, that's the government (obviously) and it's fairly reasonable to consider it a tax like any other. A somewhat regressive tax, since the more wealthy usually have more flexibility about how they store their wealth, but I don't know how it compares to sales taxes.
Our debt is not callable. China can say "we won't buy from you except at a higher interest rate" as new loans come due, but anyone else in the market could come in and undercut them (and might be likely to, if they knew China was backing off because of politics and not worry about the soundness of our debt) - heck, it could even be patriotic Americans - BUY WAR BONDS!
Do you agree that it is a problem at some point? If so then why not at current levels?
For example, I personally could have $100 Trillion in debt but with an infinitesimally small interest rate and an infinitely long repayment period, I would not be concerned.
What matters is Debt-Payment-to-GDP ratio. There is certainly some level of that ratio at which I would be concerned.
I would actually argue the opposite: If debt payments suddenly increased, this would infuse cash into the economy which would likely boost GDP.
You're confusing the short run and the long run. In the long run there are more degrees of freedom. In that context, this quote simply seems to show a lack of imagination. Entities that extremely indebted lack strategic operating flexibility (countries and businesses alike).
It takes a whole mountain of suck to create that type of suck sandwich.
After a certain point this becomes unsustainable and bad things start to happen, ranging from total political & economic collapse (Germany in the 1920s) to hyperinflation (Zimbabwe) to, in the best of the worst case scenarios, a large default/restructuring and subsequent downgrading of a country's debt to junk status (Argentina in the 2000s).
As F.A. Hayek, Milton Friedman and numerous other economists have written, government spending tends to be more inefficient than the free market because the government isn't constrained by profits and losses, which are society's way of indicating whether a company is producing goods and services that are valuable and desired. Of course, there are some goods and services that only the government can provide well, and the current left-right political divide is largely a debate over the point at which government taxation and spending becomes undesirable and inefficient. However, it's undeniable that at a certain level (almost certainly a level below our current level of spending in my opinion) each marginal dollar the government sucks out of the economy is used less efficiently than it would have been used if it remained in private hands.
In 2010 Germany finally repaid debt it had raised to pay its World War I reparations. The reparations never were paid in full but you damn bet the US dollar denominated debt was.
If a country borrows money in a foreign currency they may have bills due for an incredibly long time unless the creditors says "ok, you can pay less than you owe us." The EU members are in this position because the bills they owe are not in their own currency.
Generally this seems to have the biggest impact on tiny countries. One of the most interesting opinions I've heard recently is from James Rickards who was a negotiator for the Long Term Capital Management bailout in 1998. His opinion is the risks in the banking system have increased, not decreased, and when the next failure happens the US government will not be capable of a bailout largely due to the Federal Reserve's balance sheet leverage (which puts Lehman's leverage to shame) and a lack of political will to write a multi-trillion dollar check. What will happen is debt issued and denominated by the IMF, the only bank in the world left with a good balance sheet.
I disagree. It's more about a notion of "fairness": whether you think that the government can improve fairness, in what situations, and at what cost of efficiency.
Its often presented that way -- almost exclusively by people on the right, however -- but as I see it the left/right debate is less about fact questions (even somewhat fuzzy ones like the efficiency question you propose) and more about the ethical/moral/value issue of what is the purpose of government.
Here are some reasons: 1) if government spending is half of GDP that means any increase in non-government economic activity will only have half the effect it otherwise could (with zero govt contribution) this works both ways though, but more importantly it means government spending is critical to the economy. 2) Debt is high, so there is a LOT of pressure to reduce govt spending, which would directly (negatively) affect GDP in the short term - see 1, gov spending is 0.5 of GDP. 3) Any rise in interest rates will result in 2 (the alternative is to just increase the debt). To spend more in interest, you have to spend less elsewhere. 4) If we get inflation (and they're trying really hard) they'll want to keep it low by raising interest rates, resulting in 2 (see 3).
Regarding the link, the argument is that by 2020 (6 years from now) more people will be working. and more specifically, the paragraph below, is flat out wrong.
"But that is medium term - in the near term, the reasons for a pickup in economic growth are still intact:1) the housing recovery should continue, 2) household balance sheets are in much better shape. This means less deleveraging, and probably a little more borrowing, 3) State and local government austerity is over (in the aggregate),4) there will be less Federal austerity this year, 5) commercial real estate (CRE) investment will probably make a small positive contribution this year.
Many have been forecasting complete collapse and hyperinflation for these reasons, and it hasn't materialized. It seems there is something flawed with the models people are trying to use to make their economic forecasts, or their reasoning doesn't apply to this situation.
One reason government spending would be bad is that it is crowding out private investment by driving up rates. But he indirectly recognizes this isn't the case due to rates being low enough that they should be encouraging investment.
He doesn't say how government debt should be reduced, and where government spending should be cut. He also glosses over the point that we're at a zero bound. The post is basically a bunch of graphs while expressing concern about government spending and debt. He doesn't really connect these to the GDP and go into detail about the reasons for that quarter. I could go on.
When you have to rely on your central bank to fund your government's debt burdens with magic fiat, you're in a perpetual downward spiral scenario already. These are the good years, the deficit is set to explode dramatically higher again soon, and there will be nobody to buy except the Fed.
Who else can eat $500b to $1t per year in junk paper? China can't afford it any longer (having just taken on a mountain of debt the past five years). Japan hasn't been able to afford it for a very long time, they can't even afford their own debt.
Now it's merely a question of time. The Fed is pulling its programs because it can't sustain them any longer without running inflation through the roof. They know the US economy is weak, they see the data that led to the -3% GDP print. It's not like we're producing 500,000 full-time jobs and 200,000 manufacturing jobs per month.
If another recession does take hold, it will be a nasty fight.
Yes, possibly literally. Major wars are often the ultimate solution to this kind of problem. When the dust settles a new order exists.
I detest war. I detest human suffering. But it appears sometimes war has amazing cleansing power. Hopefully this isn't always the case.
Alas, there seems to be always at least one party that is opposed to any kind of visionary project.
The US federal government, on the other hand, is the issuer of USD. If it wants to make a payment in USD, then nothing can stop it.
This means that the debt-to-GDP ratio is an entirely meaningless measure as far as the government's ability to fight a recession is concerned. (It may have play a role in other consideration, such as questions about equity and distribution of wealth, but that's a digression.)
I remember when TARP was up for debate. It was obviously needed, and it was the right idea (as proven out by its success). It still failed in the first vote in the House, because it was politically unpopular with enough people.
the dept to GDP ratio (as well as printing money) has a huge effect on a countries ability to issue bonds, just ask the PIIGS. interests rates on bonds would rise very quickly making the annual deficit larger and since all interest rates in the country are based off the US treasury interest rate (the risk free rate), they would rise too, even if the US' interest rate was at 0. that'd make any recession get out of control as credit froze up.
it'd be the fed's worst nightmare. they would loose control of interest rates during a recession while the central government would loose its ability to borrow money.
Other than that, I can only recommend that you try to consider all the relevant dynamic effects in the macroeconomy. For example, if money would indeed become worthless, this would not happen overnight due to the immense inertia of an economy as large as the US economy. It would be a drawn out process.
Throughout that process, as a consequence of money losing value, the nominal GDP would increase, and therefore the debt-to-GDP ratio would decrease, which means that the system has a very strong self-stabilizing tendency.
It happens when the assets can't pay their interest payments any more.
For now interest rates are low, so the government can pay it's billed. Unfortunately, we hold a lot of short denominated debt. We should lock in these rates while the going is good. If interest rates spike up, the government will have to cut programs, borrow a lot more money, or increase taxes. It's a very negative spiral.
The reality is that nobody has been in our exact situation, so there is more speculation. Are we becoming more like Japan? Or Europe? And how might aggressive immigration help us?
The US issues debt and the market bids on what it will pay, nearly always charging higher rates for longer terms. And the US can't pay it down early; it has those rates for the entire term of the loan.
If I read http://www.bankrate.com/rates/interest-rates/treasury.aspx?e... right, the US can borrow for 3 months at 0.025%, but for 10 years at 2.63%.
One reason the US does so much short-term borrowing, among other reasons, is that it's so cheap to do so.
The market is anticipating that rates will rise, hence the nature of the yield curve.
If the government's assets are long term, shouldn't the liabilities match it?
You could have two quarters of -0.5% growth, and that would mean recession. Or one quarter of -3% growth, and that doesn't mean recession, despite being worse than the two quarters. It's a silly way to calculate the state of the economy. Besides that, inflation is intentionally understated, GDP is contracting at a worse rate than stated in the headlines. 2% GDP growth is a recession in this environment of intentional central bank inflation schemes.
Not once post WW2, has the US economy shrank by more than 1.5% in a single quarter and then not entered a recession (or already been in one).
Housing has begun to tip over, as the Fed pulls its asset inflation program. Corporate earnings growth is anemic at best, most blue chips are struggling to grow at all (MCD, KO, IBM, WMT, etc). The vast majority of growth in the stock market has come from multiple expansion, not from earnings growth. Full time jobs are still far under where they were in 2007, while simultaneously welfare benefits are dramatically higher, including labor problem indicators such as SS disability (and of course labor force participation is at 35 year lows).
This all with 0% interest rates. If you can't grow an economy with 0% interest rates, you're in for a very, very bad time.
Stocks tend to hit new record highs just before a recession begins. This happened with both of prior Fed asset inflation parties, in the late 1990s (2000 peak) and early 2000s (2007 peak). They repeated the same inflation recipe, trying to fake a wealth effect, and turned it up several notches. The same result will occur again on the backside, for obvious reasons.
That's a common rule of thumb, and apparently (per Wikipedia) the official definition in all states in the EU. But the US is not the EU, and the closest thing to an official definition in the US is that a recession exists whenever the Business Cycle Dating Committee of the National Bureau of Economics Research decides that a recession exists.
If we borrow $1 and get $2 of GDP growth, great. If we borrow $1 and get 10 cents of GDP growth, big fucking problems ahead. Considering that the debt is going cost more than we borrowed, that benefit red line is pretty far ahead of $1.
Demographics are another trend to look at. Shrinking population generally means the GDP is going to end up going the same direction. On a micro-level we could examine Detroit, on a macro-level Japan. Both are returning developed land to farmland; quite a paradigm shift for someone who grew up watching fields turn in to suburbs. A country, or city, with a rapidly growing population needs to borrow money to build infrastructure. One that is shrinking may face a crises even with a much smaller debt load.
Thinking about recessions or perhaps even depressions is a bit simplistic. Both are bumps in the road. A more valuable idea is to look at the multi-decade trends where countries fall in and out of power or even cease to exist.
Look at that GDP "Growth Rate" and of course you can clearly see as a derivative it's a "Shrink Rate of Growth Rate" and the trend line itself is more meaningful than you would think, especially the greater number of decades you have experienced to correlate with the patterns.
The right-hand y-intercept is fixed by the present day, but the left hand y-intercept would vary related to what year in the past you choose to begin your data series. Good choice anyway IMHO to use ~1950 on the left since so many in the USA who have economic experiences before that time are no longer with us, or seriously retired from productive service even though passive incomes for some survivors of earlier times are doing quite well for now.
Remember that this is corporate growth, and so many corporations depend so much on growth that anything which stands in the way will be disposed of, if a situation of zero real economic opportunity becomes significant, then growth (or reduced shrinkage as a last resort) will be extracted from the citizens either by passing on the costs directly or through government lobbying.
So look at area under the curve or in this case area over the curve which I believe are two different things.
Sharp or extended spikes below the trend are devastating to both corporations & citizens, but corporate shareholders are compensated by the eventual return of growth above the trend, since costs are passed on, the consumers do not share in the prosperity like they share in the devastation.
Anyway, experience has shown that a negative spike like the one in about 1981 will devastate maybe 10% of consumers at least, and for them there will be no recovery for about 25 years at least. Later on in the early '80's a different larger portion of consumers are neutralized. The 1990-91 ruin is still largely with "us" if you were one of the unfortunate ~10% there, otherwise you may not even notice, this is by design. Early 2000's there is a little downward noise, lots of dotcoms and their dependents, but 2008-09 were the worst thing since the Nixon Recession, a huge new group whose futures's ruined for decades to come.
Since each significant spike destroys a different block of consumers, this is adding up, estimate totalling up to almost a majority of consumers who are not just compromised but ruined by now.
And that's not all, Nixon was so incompetent that the currency had to be sacrificed too and that does not appear on the chart. This was huge.
Surprises are in store if you have not yet felt the wrath from 5 years ago. There is nothing more for currency to contribute, loss of property values since then has not extracted its toll proportional to negative area so something else will have to give, and it will have to be big.
For example, you could have a tornado destroy a town and the disaster recovery spending would increase GDP. You could build a teleportation device that puts all delivery drivers out of work. GDP would decrease but there would be an overall increase in wealth and quality of life.
Thinking about economics through the lens of GDP is just the wrong way to think about the economy.
Here's a great Planet Money podcast on the invention of "The Economy" and on GDP: http://www.npr.org/blogs/money/2014/02/28/283477546/the-inve...
Additionally, the first GDP chart conflicts with what it's reporting: Title "United States GDP Growth Rate", Subtitle "Percent change in Gross Domestic Product". Additionally, percent change relative to what?
I just wanted to point this out in case people missed it when skimming.
You can't save every life - no one is immortal. And in the decision of what care to give to which people, money will always be one factor. This is probably amplified in non-life-threatening situations since personal trainers and nutritional consultants will probably not be covered by collective health plans.
Imagine if we could run the entire world economy with only 5% of the workers. Pandemonium? No, it has already happened before. Agriculture was the whole economy, the rest was rounding error. Virtually all workers worked in agriculture. Now we produce all that and much more with something less than 5% of the workforce.
Having no more work to do necessarily means that everybody already has everything they want. It's not a meaningful risk.
Most of already do work so esoteric that our ancestors wouldn't possibly believe you could base a real economy around it. Yet here we are. Our descendants will do things that similarly boggle us.
In the 19th century, for instance, there was a class of physical laborers whose numbers in the USA reached the tens of millions. But as technology--particular the combustion engine and fossil fuel refining--took off, they became surplus unusable labor that literally was more valuable being turned into glue, or letting them starve to death.
Yeah, horses.
"But it's different this time! Horses aren't people!" you say. Sure, things are always different. But you're burying the actual argument into the assumptions you're making: that people are infinitely moldable and infinitely trainable, and every person is capable of creating value in modern economies.
It's not some logical contradiction for "people want more stuff" and for "the most useless, marginal workers can't provide value by participating in the economy" to both be true. Dismissing the second idea requires a bit more than a pat answer.
Even excluding government policies like a minimum wage and required healthcare benefits, lots of people are simply too expensive to employ. Anytime you hire someone, it adds administrative costs. It adds management costs. And the more marginal the worker, the more they need to be managed and administered. At some point any value they could hypothetically provide is outweighed by the cost of employing and managing them and the risk that something they do could expose you to substantial costs, and it's simply cheaper to replace that labor with capital.
In a capital rich environment, and in economies where complex organizations can fail catastrophically because of a single node failure, it's simply far too risky to employ a certain class of people. We already do that with many of criminal backgrounds, the physically disabled, and people with substantially reduced mental capabilities. New technology has simply expanded that unemployable class to include lots of people who just don't have much going for them, at least in terms of providing economic value that's legible to corporations and the State.
So where's the big negative fallout? If the set of unemployable people has been growing for centuries, where is the mass starvation and misery? How can it be possible that the 20th century -- well into the process you describe -- saw a burgeoning middle class in the West, and then later a burgeoning middle class in Asia?
Clearly the benefits of productivity growth have been bigger than the overhead required to support the people who cannot contribute.
I'm not arguing that everybody is infinitely retrainable. I think the biggest problem we face is several generations of existing people with completely obsolete mindsets, who are too old to relearn.
Your whole argument is written in terms of employment at a job. But that's precisely part of the mindset that is obsolete. The idea that "getting a job" is the best option for most people is historically recent and already dying. There are plenty of other ways to organize an economy, and there's plenty of historical precedent for the idea that common people can successfully operate far more independently than they do under the industrial model. In a capital rich environment, you teach people to be capitalists, and let a million independent experiments blooms.
The alternative is you keep teaching people to defer to the boss, and the boss evolves into the Lord, and we go back to serfdom. That could happen too.
Assumptions about what "average people" are capable of need to be judged against the system that's training those people. Our present system was consciously designed to make them into good industrial widgets. But the malleability of children is absurdly high, and from directly experience I see no reason you couldn't turn nearly all of them into creative capitalists.
Your other points I'm in broad agreement with. More and more of the economy will shift from hierarchical, institution-oriented "jobs" to something more freeform. This effectively amounts to shifting management and monitoring costs to the individual instead of the organization, which I think makes loads of sense and is a practice that'll end up outcompeting others. I don't think the average worker will end up screwed in the next ten or thirty years. I'd expect that a surprisingly large number of them will be working in autonomous jobs outside of corporate environments.
But many of those new freeform activities will be marginal, and many of them will involve barter as compensation or even be wholly uncompensated.
So, I'm not so sanguine about the bottom 20%: even if we do manage to revamp our education system to deal with contemporary economic problems better (a huge, giant if that'd take decades to implement), it'll take time to replace the whole workforce (40 years!), and there will always be students who end up performing significantly below average. Retraining programs of older workers haven't shown exceptionally promising results, either.
One of the things I like a lot about the Basic Income is that it provides a way for those displaced workers to experiment with new ways of work without the vigilant eye of the State trying to shove them into legible, easily-taxed, and controlled corporate employment.
How about "guaranteed job training?" That way, if you wish to pursue a career that does not require a post-secondary degree, you can prepare yourself for that career just as well as the white collar worked who spends four years studying post-modern poetry.
N.B.: I have degrees in philosophy and writing, so I'm criticizing the study of the liberal arts.
If I had a fatal disease with no known cure, I want a system that makes whoever finds the cure filthy rich. That's my best chance at survival. If anything, I want a system with even more profit motive.
Hint: Most, if not all, the additional money gets eaten up by newly created bureaucracy.
> In addition to thinking about new sorts of jobs to replace lost jobs that aren’t coming back, we should probably think about things like a basic income.
So not necessary "basic income", and certainly for everyone. The reality is that many of the emerging economies are better (as in "cheaper") able to fulfill low-skill/high-labor positions, and not everyone will be able to transition into higher skill jobs.
The only real hope for natives is high skill service jobs perhaps ER doctor.
i'm also not sure it's the right approach, but i haven't heard any better ideas yet.
Progressive tax on incomes >$1,000,000. This won't slow anyone down except the ultra-wealthy.
As of 2009, it's 236,883 people. That's less than 1 in a thousand. With more income in a single year than most people in the U.S. earn in a lifetime, they'll certainly still be much more than quite comfortable.
What do you think happens to anybody, let alone people who are really rich when you continually increase their taxes? They stop spending, they start hiding their money, they it send it to foreign countries, they will find ways around the taxes you're trying to levy against them.
It doesn't matter who you tax, they're going to try and avoid paying taxes regardless. People have this notion that since they're super wealthy, they have money to burn - which is hardly the case. Most people making over $1 million per year live a lifestyle that's congruent to the money they're making. You think those people are thinking , "Aye, it's only 10K more to the governmnet, no big deal?", right?. Hardly. They want to hold onto their money just as much as the next guy.
"Trickle down" is fucking bullshit.
Part of the problem when you start talking about massive tax bills is that the higher the tax, the higher the return on investment from avoiding it. So if you can pay an accountant $500,000 to set up a bunch of shell corporations and trusts as legal tax shelters that will save you $5,000,000, you'll do it in a heartbeat.
Add in Citizens United to the mix and you can see where this is going. If it's suddenly a great return on investment to lobby Congress to introduce a tax loophole, people will do it. The entire premise of modern corporate finance is that if you don't like what a company is doing with your investment, you are free to cash out your investment and invest in something else. That doesn't work with governments; but it doesn't prevent people from trying to apply the same attitudes.
with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term.
of course, what constitutes "essential services" can be the subject of a lengthy debate.
One of the benefits of a basic income is that it serves as a really effective wealth redistribution program. It is partly a social safety net, but it's also something that can potentially give the economy as a whole a boost thanks to a lot of spending on the bottom (as opposed to income hoarding at the top).
I'm not sure I agree with those positions. I think I lack enough knowledge of economics to form a good opinion. I have definitely seen both of those arguments made in support of a simple basic income, however.
https://decorrespondent.nl/541/why-we-should-give-free-money...
When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.
http://www.npr.org/blogs/money/2013/10/25/240590433/what-hap...
http://freakonomics.com/2013/06/04/should-we-all-just-give-c...
http://freakonomics.com/2013/09/26/would-a-big-bucket-of-cas...
http://freakonomics.com/2013/11/27/fighting-poverty-with-act...
http://poverty-action.org/project/0522
I'm glad I could help Google That For You.
When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.
None of the above links appear to support it. Please let me know if I'm mistaken, otherwise please do provide a relevant citation. Like many others here, I'm genuinely interested in learning about such a study.
The problem is, what is a shiny object?
For me it might be going to grad school without a care in the world how I'll feed my kids.
For another it might be a car. Well, that's OK, car sales are imploding on a decade or so scale.
For another, housing. Anytime housing goes up thats trumpeted as an inherent good. It isn't, of course. But no one will say that in public.
Usually "wasted money" is just whatever someone doesn't personally like, its not actually bad. The problem with central planning, including of what everyone will have to invest in, is lack of flexibility.
If we believe in the market's ability to efficiently find the path forward, identifying "essential services", even if it were possible, is wasteful at best and more likely counter-productive over time.
Twenty years ago we'd have locked in home phone service and missed internet. 10 years ago we might have locked in cell service, but missed mobile data. We'd have propped up "bad" products, at massive profits for the benefactors, for years beyond their relevance, instead of allowing the market to evaluate and react to changing conditions.
And while we might agree that it's logically possible for efficient and effective government to correct mistakes like those, the "money is speech" reality in the US gives such outsized power to lobbying interests that even an optimist has to rate effective "steering" of any definition of "essential services" as "unlikely".
Never mind the basic question of whether it's at all desirable to force a youth from an underprivileged family to "buy" government-guaranteed education, instead of allowing him to spend even a fraction of the equivalent on a laptop, smartphone and developer tools -- or a 3d printer and amazon hosting services. Or even allowing him to look outside the box of lobbiest-approved education providers, and allowing him to "spend" his assistance on developer conferences or workshops or online learning or just moving to another town that has a better local program.
Would some people inevitably spend a guaranteed income poorly? Of course they would. They also sell food stamps for cash -- at 50% of their face value -- to make their bad decisions regardless of what we might prefer.
It isn't worth the cost to try to enforce "essential services" spending at the micro level. It's too rich a target for corporate lobbyists to define approved services at the macro level. And at the economic level, there's little reason to believe it will give us better outcomes.
However, markets fail when there is a misalignment of incentives and/or lack of information/education. I view the government's job primarily as aligning people's incentives with the desired long-term direction.
In India (where I'm from), there have been decades of dole-outs for the poor (especially farmers), but it has failed to create any long-term economic benefits for those communities. On the other hand, education (both for the farmers and their children) has been far more effective in uplifting people out of poverty.
I realize that the average American is more educated and has better access to information that the average Indian farmer. But still, you can be assured that some of that "basic income" will be going into a slot machine.
Perhaps the solution is a basic income with some restrictions / incentives around how to spend it?
Another aspect is simplicity of administration. Providing some restrictions is a bit paternalistic, though I wouldn't dismiss it out of hand: for me the biggest issue would be how you can implement that with a minimum of cost, administrative overhead, and opportunities for corruption. And there's a bunch of areas that'd result in vindictive political debate. Sure, slot machines and vodka might be things we'd agree to restrict. But liberal arts MA programs? For-profit colleges? MLM schemes? Online class certificates via Coursera? Internet connectivity? Reddit gold? Gym memberships?
If you doubt that this kind of item by item trench warfare is what would happen, just look at the furor in the USA over something as obviously {good,bad} as providing {cost-effective,immoral} birth control to the insured.
I have difficulty imagining a system where the government picks and chooses what's good and what's bad for people to use that's not rife with corruption, sclerotic from past decisions and bureaucratic rules, and easy to use for the actual citizen it's intended to enable. The value recovered from preventing "bad spending" would almost certainly be outweighed by the cost of policing the billions of purchases that happen every day.
I suspect that as real-time data-gathering becomes cheaper and more prevalent, the costs of policing will become trivial. That's certainly some years away though.
That said, I'm all for either or a combination of approaches. Anything to catch the US up with the rest of the developed world socially.
What about countries in Europe that have that, and yet aren't doing great?
Personally I believe that a UBI is the way forward for the very simple fact that it always pay off to work and it will remove a huge control system and free those people to do better things with their lives than controlling other people.
I didn't know Sam had any particular expertise in economics something that confounds people with pretty deep intellectual understanding and academics. That have been observing things for many many years. It's a black art.
And I tend to pass on anything that starts to mention facts and figures which can be made to achieve any point you want.
I did note that it ended with this of course:
"I think the path from our troubles will involve finding a way for economic growth to continue." Obviously a rising tide lifts all boats. But finding "a good lawyer" (to go all cliche here) is the problem.
What happens when we have too many unfunded liabilities and the government runs out of money and all the millions of people who suddenly depend on government from everything from medical care, income, employment, and other forms of support?
All you have to do is take a good, hard look at countries like Greece and Argentina for examples to see what happens when countries go bankrupt.
All my Liberal friends conveniently forget that Bill Clinton took millions off of welfare and brought them out of poverty. Not from relying on government, but through incentives and job training.
Interesting to note that this was a bipartisan bill, introduced by a Republican, and heavily endorsed by Clinton himself. And yes, it went through two veto's before getting signed.
http://en.wikipedia.org/wiki/Personal_Responsibility_and_Wor...
There is a saying in Argentina that we should stop stealing for at least two years [and the country will flourish].
In a world of dysgenic fertility, this is guaranteed[1].
[1] http://charltonteaching.blogspot.com/2014/06/dysgenics-is-mo...
Sam's zero interest rate point is the most salient to the startup world. It forces accredited investors to chase asset classes like technology startups for yield. You also see it in the midwest in oil, gas and other natural resource drilling/mining. These are long term 10 year investments for these investors to park their cash.
I read somewhere recently that global bank income was up 29 billion from last year, does any of that profit come from startup success?
I have a hard time thinking of things that could be so dramatic in terms of growth. AI, radical life extension, space elevators, renewables... I'm not sure.
The sad thing is we only have one Google. Very few other well-monied companies are taking big moon-shot risks. We need a dozen Googles and a hundred Elon Musks to find the next growth engine.
But instead we have billionaires buying NFL teams, the government taking money from STEM to fund entitlements, and corporations too risk-averse to make any big bets.
Why the Bell Labs approach worked so well while most such heavily-subsidized and centralized research efforts fail is something I don't entirely understand. It could be because their charter was centered on the improvement of telecommunications in general. In the twentieth century, that covered endless acres of fertile intellectual ground. To extend the cliche', there was a lot of low-hanging fruit on the physics trees, and once it was picked, that was it for Bell Labs.
It basically holds the promise to potentially take out any middlemen from server to bank, from company to nation which in itself would cause a major shift in the economy.
Over the next 30ish years, the entire globe will have to transition from fossil fuels to sustainable energy. The amount of growth that needs to happen is probably bigger than what we experienced in the internet boom. Already in California, green jobs outnumber Hollywood jobs, and solar is now profitable without subsidy.
These are the areas that are going to have the largest growth and innovation over the next few decades. The next Google is going to be an energy company.
Hinging the economy on the creation of new grown engines is a risky strategy and I don't think the government should be in the business of making bets, at least at the macro economic scale (hell yeah on research spending).
That's not at all the proper way to look at macroeconomics. Our economy is unimaginably complex -- it's full of hundreds and millions of moving parts, with each single part (the human brain) driven by an even more complex system with hundreds of billions of parts (neurons). All of these parts are re-orienting themselves with new data in real time.
What Sam is trying to say here, is that we don't know if these trends are "good" or "bad", or if they'll lead to bad outcomes or not, or in what time frame this will occur. All we know now -- and this I agree with -- is that something in our economy has changed permanently. And this should be a good cause to worry, or at least, should be taken as a call to arms to economists everywhere to try and figure out why our models aren't working as well as they used to.
"Too large a proportion of recent "mathematical" economics are mere concoctions,
as imprecise as the initial assumptions they rest on, which allow the author
to lose sight of the complexities and interdependencies of the real world in a
maze of pretentious and unhelpful symbols." - John Maynard Keyneswatch Stephanie Kelton and Warren Mosler talk about gov debt and deficits: (2 hours!) https://www.youtube.com/watch?v=ba8XdDqZ-Jg
Randall Wray on Job Guarantee vs Basic Income: http://www.economonitor.com/lrwray/2014/01/27/lets-compare-t...
Mosler's current prescription: 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment ...
Where does the collapse come in? (if it's nebulously caused spike in treasury rates, I'm not going to be convinced)
Just a nit, but to be clear...
1Q 2014 GDP #s (revised) growth rate was negative 2.9% (-2.9%).
The second sentence in the quote also implies as much, so I think the quoted text has an oversight/typo.
http://monthlyreview.org/2008/12/01/financial-implosion-and-...
If you read that article and consult the (mostly government) sources, you'll see:
* It's not just government debt that is high - household, business, and especially financial debt is high
* The financial sector has been growing much faster than the "real" economy
* Less and less of the GDP goes to consumers in wages and salaries
* Industrial capacity utilization goes down and down and down (so why invest in new capital?)
* Since the 1980s, profits have been an increasing share of GDP, while investment has been going down
Macroeconomic collapse on the scale (or greater then) it happened in the 1930s will, I believe, inevitably happen.
I suspect that if tax breaks were accounted for, then government spending would be higher. It looks like US corporate welfare is around $200bn/year, although there are many larger estimates out there (eg count the banking bailouts). I haven't seen numbers for personal tax breaks, but adding them will make the number larger.
(Recycling also plays a part, though I don't know if it should be considered increasing the supply, or increasing our efficiency)
The only one that is a real problem is energy. Thanks to the laws of physics, we may not be able to forever increase our energy efficiency, and energy cannot be recycled.
The very long term outlook is positive; the short-term outlook is dismal. The global elite and the middle class have been at war and the latter is losing.
Things are getting better across the board, but that narrative won't sell. Doom sells.
I can't say much about the intricacies of how economies are managed, because I don't know much about that. But there are a few trends happening today that are unique in human history.
For one, we've entered an age where the economies of most of the countries in the world have become interconnected to some extent. Just 100 years ago, this wasn't the case. The mismanagement of an economy in one country can have serious repercussions in other countries now; I think it's inevitable that we'll see a world economic governing body develop. This sort of already de facto exists, but if it doesn't meet the needs of the lower and middle classes, it's going to become more political.
For another, we have begun to impose some serious limits on our resource demands. In the past, one way to combat a sluggish economy was to get bigger; if you had the money, you might try to establish a colony somewhere, grow your territory, or put more natural resources to work in the form of industry. But now, we've seen the effects of that on our natural environment and mostly collectively decided to limit our use of resources. Now, the name of the game is greater and greater efficiency, doing more with less, consuming less.
Meanwhile, a common trend around the world, and especially in the "west" (incl. Europe and Australia and the usual suspects), is that people want more leisure time. Workers are tired. The economy has been particularly hard on the lower socioeconomic classes, and they can get burnt out just like anybody else. They largely have crap jobs -- "bullshit jobs" as one economist puts it -- they can't expect loyalty from their company so they aren't loyal to it either, and they don't make enough money to get to enjoy the perks of life that, thanks to a massive global communications system, they get to see everyone else enjoying. You can't go to the store anymore without seeing a travel magazine with a beautiful front cover staring you in the face.
So, I don't think most people are looking to work more. In fact, I think that if it were possible for a lot of people, down to the poorest classes, to give up just a little bit more to be able to gain more real leisure time, they'd do it.
Simultaneously, production technology keeps getting better and better, so we can have more and more stuff for less and less money.
And, there's a massively adversarial relationship now between the worker classes and the wealthier classes. I think a lot of people intuitively recognize a lot of this, and they feel like the only thing keeping them from having the life they want is unfairly low wages mostly set by people who have a lot more money.
There's always political unrest somewhere in the world; I think a lot of it in the west is going to focus on economic issues. People are going to keep agitating to get their basic needs met, so that they're less reliant on jobs that they feel are both demeaning and fundamentally unfair. As hard as it may be to believe, especially if you rarely leave the Silicon Valley scene, I think we're going to see more of a movement towards spending less on material goods. I think the developing world is where almost all of the economic growth will be for a while, and I think the economies in the developed world are going to continue to be sluggish until there's a big breakthrough in either energy (e.g. fusion) or exploration (Mars).
I also think there's a possibility this could all lead to an amazing modern Renaissance. Never before in history have so many people been so close to having as much free time as they desire to create, build, or learn about anything they want; we truly have no idea what kind of art, engineering, or science might come from that.
Unfortunately, until a new social contract is developed between the economic classes, the poor are going to have a very hard time of it.
I don't blame you because this is the kind of conventional trope that everybody parrots and just feels right, but economic historians agree on that the extent of globalization 100 years ago was in fact just as high as it is today in many respects --and in some respects such as labor mobility, it was even higher then [1,2].
In fact, it was only after the collapse of the transoceanic European colonies after the wars that nationalism and the Great Depression gave rise to isolationism and trade protectionism as the natural state of affairs; only to be gradually re-dismantled towards the end of the twentieth century. But if you think about it, the technical and institutional elements of globalization --efficient mechanized shipping, industrialized commodities production/extraction, global electronic communications, settling/clearing institutions-- were all there then.
[1] http://groups.csail.mit.edu/mac/users/rauch/misc/globalizati...
You're right to point out that all (edit: many) of the pieces of globalization were well in place by 1915, but the number of countries involved now, and the extent to which they're involved, is quite a bit different. Political conflicts between countries are now as likely to be handled economically as by any other means.
I thought my comment was already way too long, so I didn't explain what I meant.
I'm a little confused though: in the beginning of the paper, it seems to be supporting some of my thesis, that the modern global economy is more interconnected than it has been at any recent point in history. e.g., "We conclude that our world is different: commercial and financial integration before World War I was more limited. ...integration is deeper and broader than a hundred years ago."
...maybe they go on to refine that point in a way that refutes me. I'll keep reading.
"While presenting a good deal of detail, we have sought in this paper to emphasize a small number of general points. First, the globalization of commodity and financial markets is historically unprecedented. Facile comparisons with the late nineteenth century notwithstanding, the international integration of capital and commodity markets goes further and runs deeper than ever before."
Thank you for pointing this out! I stand corrected.
One of the problems I think is that economists and politicos tend to always be fighting the last war. In the late 1970s to early 1980s -- the last time the economy seemed this systemically bleak -- the problem was insufficient capital available for investment combined with high inflation. This resulted in "stagflation," something classical Keynesians thought impossible, and thus resulted in a widespread discrediting of classical Keynesian and economic liberal thought.
Thing is... in the late 70s the supply siders may well have been right and the Keynesians wrong. We were in a supply limited economy, and stimulus and other liberal policies just made everything inflate.
But now I think the situation has reversed. Today looks a lot more like the 1930s, albeit not quite as viscerally nasty. There's a huge amount of capital available but few good investments. Wages are stagnant, savings are down, pay and wealth inequality are utterly massive, etc.
So today I think the Keynesians may well be right again. Hopefully it'll come in the form of something less destructive than a war. I'd personally suggest a massive program to electrify all transport, huge investments in both renewable energy and next-generation nuclear power, a medical "war on aging," and a campaign to establish a permanent human settlement on Mars. All that taken together would probably end up costing about what WWII did, and so might be enough. The war on aging would have the added follow-on benefit of helping with our demographic problems. (As would a more liberal immigration policy.)
Meta question: perhaps there's a new insight here... do modern industrial economies actually tend to oscillate between demand constrained and supply constrained failure modes? Perhaps the Keynesians overcorrected for the great depression, resulting in the 1970s, and now the supply siders have overcorrected for the 1970s resulting in today. In that case maybe we oscillate between periods when Keynesian demand-side policies work and periods when Friedman-esque supply-side policies work.
Edit: the reason I don't think we're hurting as bad at the street level today as we were at the depths of the Great Depression is simply because we've grown so far beyond subsistence level. Today the amount of economic pain required to cause visceral physical pain among large numbers of people in the developed world -- starvation, etc. -- would be quite a bit larger than what it took in the 30s. To lead to that kind of thing we'd need the 2008 financial crash times ten at least, combined with a major political collapse and some kind of technological train wreck. A mega-sized solar flare or a sudden "oh crap" worst case peak oil cliff coming to pass might do it.
But compared to a non-slump timeline -- compared to what should be happening given the technological growth we've experienced -- we are in a depression. We should be colonizing Mars, conquering aging, pretty much doing all the things I suggested as stimulus. Instead we are building apps like Yo while people go bankrupt in underwater houses with underwater student loans. (Not blaming the authors of Yo either... during the depression a lot of people took up whittling sticks and other little time-passing pursuits for lack of good work to do.)
> do modern industrial economies actually tend to oscillate between demand constrained and supply constrained failure modes
This is probably a pretty good way to look at it. The solution is something like http://en.wikipedia.org/wiki/Functional_finance
The meat:
1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.
2. By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.
3. If either of the first two rules conflicts with principles of 'sound finance' or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2
In both cases there was probably a physical underpinning, but economic policies could indeed have helped. In the case of the 70s oil shocks, having more investment capital available allowed more investment in new capacity. Today having more consumer capital available would spur adoption of electric cars, rooftop solar, LED lights, and other consumer next-generation energy technologies that are required to help us shift consumption away from being so dependent on oil.
In other words I think today's energy problems are -- paradoxically -- also a demand problem. We need more demand, not less, to drive the adoption of alternatives.
This is how David Graeber starts his book "Debt: The first 5000 years"
It's politically expedient to forget it - just as it's politically expedient to forget that the people causing the oil shocks and the people who benefited from them politically seemed (and continue to seem) to have some interesting relationships.
Keynes is in danger of being written out of history, in the same way that dissidents like Henry George were.
I'm not sure how many people realise the extent to which anti-Keynesian narratives were deliberately promoted and funded after WWII, especially in Chicago.
The fact that Keynes is no longer considered an orthodox policy source is not an accident.
But no modern government seems capable of running a surplus for any length of time. And modern Keynesians have basically done away with the surplus requirement so that you can borrow in the good times and borrow more in the bad...
I'm sure they have academic studies that back up that being possible, the issue is the general public don't believe it and the general public elect the politicians who'll have to implement it.
On the other hand if governments did run a proper surplus during the good years, I think there would be much wider acceptance in the general public for significantly more government spending during recessions. The "Keynesian blast" so to speak.
Given all that, any Keynesian response by modern governments will always fall short of what's required for it to actually work because the voting public don't trust the modern incarnation of it.
Can you name any government, ever, that was capable of running a surplus indefinitely (say, until it was brought down by plague or war)?
Symbolically though, if government ran a surplus for x years during a particular ten year period, that would be sufficient to say "look, we've mostly balanced the books, we have been running surpluses during some years".
Again it's about public perception more than anything else. When national debt is climbing towards heights only previously reached during WW2 and government has shown zero ability to run a surplus in over a decade (I think Clinton ran surpluses?) then people will simply not trust politicians with the authority to borrow the necessary amount for Keynesianism to work.
That's it. The rest is just noise. It's just too easy to spend other people's money, under the guise of 'public interest'. Even if the politician is not corrupt, and not, say, channeling public funds to friends, outside of a few obvious cases (foreign invasion, giant earthquake, meteor strike, e.g.) it is difficult to hold politicians accountable for, say "good intentions gone awry".
The United States did quite well for a half century or so (only dipping into debt to pay for wars). There was the moral precept of 'no taxation without representation' and the early government understood that debt incurred the future taxation of people who would not be able to go back in time and vote against the spending[0]. That's all been abandoned long since.
[0] it is often said that "governments are not like families" and so that debt dynamics are different. Well, that is indeed the case. At least when individuals enter a debt, there is a contract of understanding between a single person and the lendee which means that the responsibility for repayment is on the borrower and the consequences of default are on the lender (except in a few morally questionable cases, such as academic debt). When governments enter debt, the payment is the responsibility of, potentially, someone else (there's the 'spending other people's money' again, except this time, at a societal level).
There are even good, clean, mathematical accounting truths behind this. If you sum up all monetary assets and all debts, the net must be zero just as a matter of accounting. So, if individuals are to build up savings (which most people would probably agree is a good thing), somebody else must go into debt. This somebody else could be private firms doing investment, or it could be government.
If you want government to be in surplus or at least netting zero as well, then firms must necessarily be in ever growing debt, which is probably just as unsustainable.
(Note that, as long as you look at a single isolated country, a third option is that foreign countries become indebted. But since we live in a closed system and the net over all countries is zero, this is not really a workable option either.)
Keynesians were definitely wrong since at the time sustained stagflation was considered basically impossible. Which is why what is today colloquially called "Keynesian" is different from Keynesian as it was then because important parts of it were disproved.
Let's agree that we're in a demand constrained economy (I am not sure but it may be the case).
1) Why should you believe that governments are good at readjusting the economy to "unconstrain" it from demand? From Halliburton/Iraq to Solyndra to Fisker to 38Studios (https://en.wikipedia.org/wiki/38_Studios) to Telacu (http://capoliticalnews.com/2014/02/21/construction-firm-tela...), time and time again, we see governments at all levels (local to federal) reallocate funds to cronies instead of in the "interest of the public".
2) Why should we do anything to stoke demand, at all? Doesn't consumerism and the impact it has on the environment (among other aspects of society)? Why should we presume that there is a 'correct' amount of consumption that society ought to engage in? How does one measure it, and why should we be incentivising individuals to abandon what they think is right for them based on their localized information?
As for #2, the problem is that economic demand and economic activity means doing anything at all, including fixing environmental problems.
Imagine there's no growth. Why adopt solar power then, and who's going to pay for it since there'd be no investment capital? Nope, just run those coal burners forever. No need to upgrade if there's no growth.
The deflationary road leads to the dystopia portrayed in The Hunger Games: one or two massively advanced cloistered cities for the mega-rich, and vast feudal slave classes feeding them with coal and other should-be-obsolete things.
Huh? That's what the inflationary road leads to. This should be obvious, inflation skims value off the top of everyone's savings and channels it to the ultra rich (or politically connected, aka ultra rich). Almost every society in history, over the past 4000 or so years has been weakened by inflation, not deflation.
As a counterpoint, the US, which had a pretty good net deflationary run for about 150 years, had a pretty significant social equalization (freeing the slaves) over that time period.
The "deflationary spiral" hypothetical is popular idea but it is not supported by any historical evidence whatsoever (conceding that it may be true), mostly because despots have had a really hard time keeping themselves from debasing the currency over history.
I suggest reading this for some broad historical perspective: http://www.amazon.com/The-Great-Wave-Revolutions-History/dp/...
It's fallacious to argue that because there's no net growth in some economic indicator, say 'GDP', that there can't be growth in specific sectors.
Secondly, growth is not a measure of demand, especially as demand shifts. People value having clean skies, and breathable air. And there is also a obvious value in 'not having to dig in mines for your energy'. Depending on how you measure your economy (let's say we unbeknownst to us give a higher weight to miners who dig underground vs. laborers panel assembly factories in our metric), 'upgrading' to solar could incur a 'contraction' instead of 'growth'.
Our current problem is that, since we learned that one piece of tech, we started applying it to every economical problem we saw. Thus since the 40's no economical crisis could by solved by keynesianism; if it could, there wouldn't be a crisis there.
I would prefer more of a negative income tax.
1. No significant improvements like agriculture.
2. Increasing regulations
3. Big middle class that have no strong motivation to advance further or have "enough money" for good living (modulo individuals)
4. Growth in domain which GDP doesn't capture e.g. Open Source
5. No obvious investments opportunities e.g. Highway
7. Low birth rates.
And, yes, birthrates and longer retirement are probably relevant.
Squanderville versus Thriftville (Warren Buffet) - http://www.freerepublic.com/focus/news/1053684/posts
<3 NYC
It's possible to have good discussions about this, but it requires a lot more moderation than HN wants to do (rightly, in my estimation). And probably a different format: the threaded discussion format leads to all sorts of weird tarpits.
Meanwhile, for the 99%, this debt/poverty cancer just keeps growing inside the country, making it weaker every day: it's not just government debt-- although that is a real problem-- but student debt and credit cards as the replacement for Fordist wage increases.
The macro picture is bad, but the micro picture is even more dismal. Corporate management is becoming more self-serving and corrupt, internal policies of corporations are becoming more mean-spirited (many companies now require employees to use vacation when sick, and open-plan <50 SF allotments of office space are becoming the norm). When you see the reality of work life for most Americans, you realize that the corrosion is organic, inevitable, and really quite deserved. Our country has become a patchwork system of slapped-together corporate garbage, whether you're talking about its healthcare coverage or the way most of us have to work. What used to be a country is now a phalanx of uninspiring, mean-spirited organizations not worth caring about.
I think that startups and venture capital will continue to do well.
Ouch. Sorry to disagree, but... what's pushing people into startups is not that this VC-funded game is so great (it ain't) but that corporate employment has become such a raw deal. Now that big companies have ceased doing the right thing when it comes to investing in their employees, avoiding layoffs unless absolutely necessary, etc., we've reached a point that shoestring long-shots called "startups" look like a good idea in comparison. The startups haven't improved. (In fact, they've become worse.) The alternatives, however, have gone to shit.
VC-funded startups are notoriously cheap, and stinginess leads to mediocrity. For example, they don't pay relocation, don't pay for education, and usually involve 80+ percent "employee contributions" on health insurance. Some even make people take fucking vacation days to attend conferences. If you look at it honestly, "we're a startup" is usually just used to justify being a terrible company.
Now, the proper strategy is either to bet big on someone, or not hire that person, and (in general) to be very selective. (If you're not willing to pay full relocation, you shouldn't be hiring that person at all.) The problem is that these VC-funded startups are so weak in terms of technical talent that "hire a few strong people and bet big on them" isn't a viable strategy, because they can't get the first part down. So they have to hire large (as in, a large number of people... like 30 before they even launch) and so they offer crappy salaries, dogshit equity, and nonexistent perks in the hope that one of the clueless 22-year-olds who takes their offer will be an undiscovered talent. Occasionally, it works out that way. Most of the time it doesn't. Hence, the high failure rate of VC-funded startups.
VC has been, and will continue to be, an underperforming asset class and there's a clear reason why. The main players aren't optimizing for the performance of their portfolios but their careers (and, to be fair, I can't blame them; I'd do the same in their shoes). Their career goals push them to over-collaborate (read: collude) and that creates that disgusting culture of co-funding. But as soon as you have important decisions made by committee, mediocrity is a result because you're now biased in favor of mediocre/never-offends-anyone people instead of high-variance people who actually do the fucking work.
Personally, I think that innovation and new technology is what will save us.
Eventually, yes. But I think we're going to see things get a lot worse before they start getting better. I don't think that the US or the world economy is in terminal decline, but I think we have another 10-15 years of ugliness before things start to improve.
Like the story about two guys running from the bear, you don't have to run faster than the bear, you just need to run faster than the other guy, and Dilbert doesn't exactly have an ultra-marathoners physique.
Why?
- base salaries at funded startups are good. Equity could vary greatly depending on how much salary you asked for - insurance is 100% paid for employees and 50%+ paid for family - I didn't discuss relocation but I was relocated to SF 2 yrs ago by a startup - Very, very smart and capable co-workers - Vacation days were untracked or 15+, and there was a separate allotment of sick days - Most teams were < 10 developers well after launch - Much easier to find jobs as an experienced senior developer than a junior developer
The one point you nailed is all open-plan offices, everywhere, all the time.
I don't know what you're basing your statements on, and maybe it's different in other parts of the country, but in SV/SF right now, if you're a demonstrably good developer, you're in extremely high demand and many, many excellent companies are competing fiercely to hire you.
http://unqualified-reservations.blogspot.com/2013/03/sam-alt...
The basic problem with our society is a disconnect between consensus reality and actual reality. We actually have no shortage of natural leaders. But they cannot actually lead us anywhere. They are operating in consensus reality rather than actual reality. Their joysticks are not plugged in. When the consensus is nonsense, sober good sense is nonsense. Nonsense is no use to anyone.
It's a long post, but if you're interested in examining the problems we face from a fresh and unusual perspective it's worth reading the whole thing.
"one run of a time machine, with a printout of Wikipedia, would be pretty much all the real 1950 needed. Send the technology back to 1945, and you'll have iPads by '55 at the latest. Those guys got things done."
That kind of thinking betrays a common misunderstanding. The limiting factor on what we can build at any given time is very rarely ideas. In 1950, people already knew enough physics to build an iPad. The idea of integrated circuits had already been proposed. The first one was demonstrated in 1958 -- only three years later than Moldbug's alternate history.
And yet no iPads in 1960. Because there's a vast global capital structure that needed to evolve first. Technology is not an external factor. It makes no sense to argue whether society is better after factoring out technology, because technology cannot be factored out. It's all part of the same web of interrelationships.
Edit to add:
I had to add this, because it's so wrong it's perverse: "At the base of the pyramid are air, water and food. How does 2013 do at supplying oxygen, hydration and nutrition? How did 1950 do? Just fine. Gentlemen, a draw."
Only if you limit yourself to the wealthiest 10% of human beings. Out here in reality, global food security for everybody else is dramatically better than it was in 1950. Much of the developing world is starting to worry more about obesity than starvation. Moldbug is simply ignoring the biggest economic story of the last 40 years, presumably because it didn't happen in The West.
They would not be making iPads, because simply having one around doesn't automatically create the production technology to create it. That would still take a whole lot of work. It may well be that it would be more efficient to send them a bunch of C64's if you simply wanted them to improve faster, since the gap between the technologies are lesser.
One of Moldbug's claims is that similar declines in the last two centuries or so have been masked by technological improvements. For example, in the 1960s many people routinely left their cars unlocked, often even leaving their keys in the ignition. [1] Meanwhile, technological improvements in the intervening ~50 years have made it much harder to steal cars. The way to factor out technology in this case is to imagine what would happen if modern cars had no alarm systems, no LoJacks, were easy to hot-wire, etc., and if people routinely left keys in the ignition of unlocked cars. It's not even hypothetical—you could actually do this as a real experiment. The result would, I predict, show that (at least in this narrow respect) American civilization has declined in the intervening years.
[1]: http://www.vdare.com/articles/why-hasnt-crime-fallen-further...
If anything, "welfare" is now used as a more politically loaded term. It's almost never used anymore without attaching a negative connotation -- whether by the right in the old way, or by the left when decrying "corporate welfare".
The use of the word "entitlements" is a lot like how socially left-leaning people are now more commonly referred to as "progressives" rather than "liberals."
We currently spend over a trillion dollars a year on defense and intelligence. "Entitlements" are not the problem.I love how they are entitlements even though you pay for them...in fact, let's start calling it the social safety net instead.
The main problem is that the wealthy, corporations and individuals, don't pay enough. Cut defense by half and stop letting the wealthy walk all over us and all of a sudden you don't have a crisis.
Further, if that was somehow your point, bear in mind that "everyone" in this context is pretty clearly something like "the vast majority". I could find traces of evidence of people trying to redefine the term, sure, but no evidence they're being particularly successful. Even the NYT calls them entitlements with no apparent irony. Call them mainstream or call them leftist, either way, it's evidence on my side.
Aside from employees, .gov gives people money two ways:
1) Contracts. 200 F-22 for $100B or so. $1M for the service contract for that server for a year. Usually involves a psuedo competitive bidding process, a lack of one is unusual enough that you get the phrase "no bid contract" because its an oddity.
2) Entitlements. If you meet these requirements, you get this money, or income tax credit, or whatever. You're entitled as a member of a class where that class is poor dudes or historic property investors or hybrid car owner or whatever. Usually doesn't involve competitive bidding or auctions at all.
You're just going to confuse people by mixing contracts and entitlements in the same line.
No one thinks that entitlements Social Security and Medicare go predominantly to minorities and a lazy underclass, and yet they're the biggest parts of our budget. (Some people do, however, labor under the impression that SS and Medicare make up 5% of the budget and the remaining 95% goes to welfare, foreign aid, and greedy public employees, but that's another issue entirely.)
I keep getting stuck on what I've learned of "lean" manufacturing principles and how hard it was for businesses to adapt to a more responsive and adaptive model of operations. Industrial behemoths could plod along, surviving off the enormous inertia they'd built over the decades. Some fell while others are still plodding along, yet unchallenged by efficient competitors that can't clear the entry barriers of the market, time will still come for them.
Governments are behemoths of a much more impressive scale. Their size lets them wield tools that no business is large enough to hold (monetary policy, "monopoly of violence"). Unfortunately inertia will always be overcome by time and friction in the form of a century of inefficient policy.
The fix isn't going to be found in dropping all forms of welfare or by jacking up tax rates to cover the continuing expenses of such programs, it will be found through guided reform. We need to base policy on facts and economic "facts" aren't universal, they're marginal and we need much more information and real world date to find those margins.
In my opinion the US needs a few big picture changes in order to start making informed policy reforms:
- States need to be given the room for experimentation that was intended our nations founders. The scientific approach to any problem requires a control group and when the federal government attempts to monopolize control at every level there's no room for comparison.
- To that point, there are many problems that can only be approached at a national level. The areas of defense, common natural resources, border controls, and interstate disputes of all types were wisely enshrined in the constitution as the domain of the federal government. While I'd like to hand as much power to the states as possible and others would like to handle things like healthcare at a purely national level, I think the wise approach would involve studying the international picture before jumping to any conclusions. Looking internationally we'd find that universal and mixed systems can be equally successful. Universal national systems (NHS), regional systems (Canada's provincial system), privately weighted mixed systems (Malaysia), and publicly weighted mixed systems (Germany) are all able to produce better outcomes than our attempt at a mixed system. So we must study, experiment and design, maybe we'd find that a provincial system would work best, maybe a national single payer system would work but despite years of debate we've ended up arguing over ideology. Ultimately we must have a system of reasoned debate and a legislative process capable of enacting the well-validated policy.
- Our electoral processes have resulted in a deeply divided, highly ideological country. There's no structural roadblock standing in the way of implementing well-researched policy as I've described, there are only political barriers. I can't think of a quick fix capable of changing millions of minds but I know that any slow shift like this degradation of political discourse can be reversed at the same slow pace. The solution is something that should have always been in the federal domain and that's our disjointed, uncoordinated redistricting processes. Centuries of gerrymandering have resulted in a map of districts engineered entirely for the purpose of furthering a party's political machine. The bent geography necessary for ensuring the "safety" of congressional seats is just a hair above the line of credibility if we are to consider our government "representative". The lack of fair demographic representation boxes us all in to neat little bubbles of ideology where few of us are allowed to express our political will in the face of an overwhelming majority opposition. We're the only country where districts are drawn by the interested parties and this needs to change. I believe it will push people out of their bubbles and hopefully bring about a stronger culture of political debate.
I have a few other ideas that are much less feasible but my tl;dr is that we need to start fostering a less divisive culture that will be receptive to taking a scientific approach to policy. Otherwise the lumbering dinosaurs called western democracies are going to fall so behind the curve that failure will become the only option.