[HN Gopher] The coming long-run slowdown in corporate profit gro...
___________________________________________________________________
The coming long-run slowdown in corporate profit growth and stock
returns
Author : Bostonian
Score : 134 points
Date : 2022-10-30 13:49 UTC (9 hours ago)
(HTM) web link (www.federalreserve.gov)
(TXT) w3m dump (www.federalreserve.gov)
| parf02 wrote:
| How would broad index funds with some bond exposure protect
| against this?
| mellavora wrote:
| based on performance results this year, about as well as a set
| of steak-based armor would protect a person from a pack of
| wolves.
| dzink wrote:
| The stock market has many stocks. Many will crumple and suffer
| from higher interest rates, less globalization, etc. However
| people who got used to investing in the market easily are not
| going to move their money elsewhere for a while if at all.
| Instead it seems like many are pulling money out of index and
| small cap and moving them into a handful of monopoly stocks, thus
| concentrating the gains and potentially creating FOMO. Some
| stocks do well even in down markets and with high interest rates
| on real estate, they seem an easy target.
| [deleted]
| mmaunder wrote:
| Excellent article that paints a grim picture in an understated
| way. To put it differently:
|
| We've seen a huge run-up in the stock market thanks to cheap
| domestic and cheap foreign labor, globalization, historically low
| interest rates and historically low corporate taxes.
|
| Interest rates are rising massively and globally to combat
| inflation.
|
| Labor prices are increasing, globally.
|
| There is a global decoupling thanks to the Russia/Ukraine
| situation and the China/Taiwan tension. This is bringing the era
| of globalization to its end.
|
| Corporate US taxes have been as low as they'll get for a long
| time due to the TCJA and will most likely only go up from current
| rates.
|
| Given all these factors combined, it's unlikely that
| price/earnings will hold at the current high ratio i.e. stock
| prices have a long way to fall still. This article was published
| almost two months ago, but I believe it will be relevant for the
| next several years. We're in for a long slow decline and then a
| plateau. The era of cheap labor, free money, low taxes and open
| global markets has come to an end.
| abeppu wrote:
| This is not my area, but I do wonder about the long term trends
| on interest rates, because not all that long ago, it seems like
| serious people were discussing the idea of "ultra-low" rates
| being not just the new normal, but the continuation of a very
| long downward trend. The phrase "historically low" does evoke
| the idea that there's a "normal" range from which we can
| deviate but will generally return to.
|
| https://www.bankofengland.co.uk/-/media/boe/files/working-pa...
| the__alchemist wrote:
| Are you in short positions?
| mmaunder wrote:
| No. I've found that an individual investor betting against a
| highly incentivized and much larger group of people in a
| corporation or a government is a bad idea. I short by sitting
| it out.
| dboreham wrote:
| While investing in fiat currency presumably?
| lamontcg wrote:
| You're sort of describing the current conditions without any
| analysis of how those conditions are likely to change. For
| example, the high interest rates right now are due to central
| banks looking at the rising labor prices and inflation and
| probably overreacting. It is very likely that the next step is
| going to be a massive global slowdown.
|
| You're also very likely massively overstating the case that
| Russia and Taiwan mean that "globalization has ended".
|
| I do think there's important secular changes happening (the
| tight labor market and inflation are very obviously something
| new that hasn't happened in 30 years), but I strongly doubt the
| idea that everything has turned on a dime 180 degrees to the
| opposite.
| Robotbeat wrote:
| I hope the current era ends. Ukraine/Russia and China/Taiwan is
| resolved (relatively) peacefully in a way that maintains the
| norm of wars-of-conquest-don't-work. And we get a resurgence of
| immigration and trade. I am heartened that a big cause of
| inflation, housing prices in the US (particularly California)
| may be addressed by recent reforms.
|
| We need to be automating way more. We're behind.
| zbrozek wrote:
| California is broadening its housing crisis to the rest of
| the United States via remote working NIMBYs. It's a national
| problem now and it deserves a federal response. A century of
| property rights erosion has made it extremely difficult to
| erect the wide variety and large quantity of residential
| structures needed to serve demand. Congress needs to
| legislate away the Euclid v. Ambler decision pronto.
| sdenton4 wrote:
| Ffs, if housing demand increases by epsilon due to a
| handful of relocating SF people, your housing market has
| bigger problems to begin with...
|
| 55k people left SF during the pandemic, 20% of whom stayed
| in the Bay Area, with many more moving as far away as
| Sacramento. New York was the largest destination outside
| California, with 1.7% of SF evacuees landing there.
|
| https://therealdeal.com/sanfrancisco/2022/09/22/where-do-
| peo...
| zbrozek wrote:
| CA is much bigger than SF and is estimated to be short
| 3-4 million homes[0]. The state's population has been in
| net decline for the last two years, primarily resulting
| in domestic outmigration[1]. The entire US had around 142
| million homes in 2021[2]. Based on jobs/housing starts it
| looks like much of the US is in the hole, but the west
| coast as a region is far, far worse[3].
|
| [0]
| https://en.wikipedia.org/wiki/California_housing_shortage
|
| [1] https://www.nytimes.com/2022/05/04/us/california-
| population-...
|
| [2] https://www.statista.com/statistics/240267/number-of-
| housing...
|
| [3] https://www.nar.realtor/research-and-
| statistics/housing-stat...
| throwaway5959 wrote:
| Thanks for bringing the data.
| throwoutway wrote:
| California is larger than just SF. The migration was
| larger was it not?
| [deleted]
| afpx wrote:
| How can this be? The world still seems flooded with cash, huge
| populations still aren't industrialized and want development,
| there's shortages of products and services in demand by middle
| classes. Why wouldn't this point to more growth?
| mellavora wrote:
| Because there is a difference between
|
| > The era of cheap labor, free money, low taxes and open
| global markets
|
| and continued economic growth.
|
| Likewise, there is a difference between growth in stock
| prices and economic growth. Stock prices have been growing
| much faster than GDP for a long time now, like 20-30 years.
| The S&P could be flat for 10 years or more before US GDP gets
| high enough to justify the price level (using a historical
| level).
|
| So yes, the US economy can continue to grow. And "emerging
| market" economies can grow and their stock markets could do
| extremely well over the next decade. And the SP500 could be
| flat over that same decade. All of these could happen.
| retinaros wrote:
| europe doesnt want to increase salaries and blocks countries
| that want to do it to do so. so at least in europe we will get
| the inflation but our salaries will remain the same. that will
| lead us to lower qualified immigration, poorer population and
| going back to a few decades in terms of social progress.
| america definitly won
| emptysongglass wrote:
| Why do you think Europe would want to stop us from increasing
| our salaries?
| baxtr wrote:
| The one thing that the article might be underestimating is that
| solar/wind energy and battery prices will continue to fall
| exponentially. The high energy costs are an anomaly right now.
| This might change the equation.
| dboreham wrote:
| Evidence?
| nostrademons wrote:
| Here's the price/watt of solar panels over the last 45
| years:
|
| https://avc.com/2015/07/the-bull-case-for-solar/
|
| It's very much following the same exponential decay cost as
| microchips, probably because solar panels are _also_
| semiconductors. We put in solar a couple years ago; our
| neighbors put it in about 10 years ago; our array covers
| _half_ the roof area that theirs does (and only about 20%
| of our roof, despite living in close to a worst-case lot
| for solar). Payback period was about 9 years when we put it
| in, but with recent rises in energy costs we 're looking at
| a 4-5 year payback period.
|
| I expect a lot of pain this decade with switchover costs -
| it takes a big capital investment to switch all our energy
| infrastructure over from fossil fuels to electric, and
| there are still some unsolved problems like producing
| batteries (or other energy storage) at scale. But in terms
| of both physics & economics, renewables do have the
| potential to solve our energy problems.
| baxtr wrote:
| https://youtu.be/Kj96nxtHdTU
| retinaros wrote:
| it doesnt matter we dont have infrastructure to store this
| intermittent energy
| bequanna wrote:
| I don't think so.
|
| The current reckless course has us replacing stable base load
| with intermittent sources before we have any storage
| solution. That means you need to massively overbuild
| generation and transmission capacity to meet reliability
| requirements.
|
| Electricity prices are set to greatly increase if we stay on
| the same path.
|
| Of course, your friendly regulated utility loves this as they
| make a set % on assets they own. They could careless about
| efficient generation. More assets = better returns for their
| investors.
| janef0421 wrote:
| That is unlikely. The rapid price reductions in those areas
| have been due to technological maturation of the underlying
| technologies and scaling of the manufacturing processes.
| These processes are likely to complete soon, if they have not
| already, and future developments will likely have more modest
| effects. Additionally, factors such as increasing demand for
| both these products and underlying material resources are
| likely to cause an upwards pressure on the price.
| YZF wrote:
| The market usually bottoms when everyone shares this doom and
| gloom scenario.
|
| Part of why it's so hard to buy at the bottom is that it looks
| like there's no path forward, but then there always is.
|
| - Globalization hasn't and won't end. For sure there are more
| tensions now but China needs to be able to sell its
| goods/services worldwide.
|
| - Russia/Ukraine isn't that great but on the bright side it's
| reminding us again that the use of force can result in
| unforeseen consequences. I think this will diminish China's
| appetite to take over Taiwan by force despite the rhetoric.
|
| - Inflation may have peaked. Certainly certain items (like gas
| prices and house prices) appear to have peaked.
| mijamo wrote:
| If that's the case we are very very far away from the bottom
| as my feed is full of posts of.people saying now is the time
| to buy, never been so cheap, only upside from now etc.
| NotYourLawyer wrote:
| What else is there to buy though, real estate?
| ferdowsi wrote:
| Bonds are back. TIPS bonds are now yielding around 2% real (not
| nominal). Treasury bills/notes are yielding above 4% nominal
| across much of the yield curve.
| JohnJamesRambo wrote:
| Crypto my friend. Doesn't matter if you believe in it or not,
| it's what the younger people want, so you best get some. They
| aren't buying the Boomers' bonds and stocks and real estate
| bags. They are at least smart enough to see how that game goes.
|
| https://cryptopotato.com/nearly-50-of-gen-z-and-millennials-...
| NotYourLawyer wrote:
| I'd rather light my money on fire and at least get to enjoy
| the warmth.
| __MatrixMan__ wrote:
| Do you not look around at the world and see problems in need of
| fixing? Spend your money on fixing them because then you get to
| live in a world with fewer problems (it's called investing).
| fullshark wrote:
| I see a real big problem that needs fixing: How do I save
| enough to retire and make sure I don't have to work until I
| die? That problem kind of dominates all other problems for
| me.
| mellavora wrote:
| I agree that it is morally good and proper that you seek to
| take care of yourself and not be a financial burden to
| others. "Life, Liberty, and the pursuit of
| property/happiness" (the original wording debated the two
| versions).
|
| May I ask an add-on? Do you also want to provide for your
| children?
|
| And as an extension of that, would providing for them
| include leaving them with a habitable planet?
| fullshark wrote:
| I'd rather not answer any personal questions, but
| basically the benefit of not selling out on that front
| doesn't seem justified, given my marginal impact. My
| point is not so much everyone should share my position,
| merely make it clear my belief that the majority of
| people think the way I do, and any plan without
| acknowledging that reality is doomed to fail. Doesn't
| matter how charismatic a leader or airtight scientific
| studies you show, you are asking a LOT in terms of
| opportunity cost if you are recruiting for an
| organization trying to "solve a problem" without a
| potential windfall at the end of it and you should
| realize that.
| __MatrixMan__ wrote:
| Yeah, I realize that my position goes against the grain
| in a rather extreme way. But I think that as time goes on
| it'll become obvious that some problems just can't be
| solved in a way that culminates in a windfall, and if we
| leave those problems unaddressed we're doomed anyway.
|
| Alternatively, maybe I'm wrong and some business genius
| figures out how to monetize the necessary work after all.
| Who are they gonna invest in, the guy who has been
| working at it for years even though maybe he'll die a
| pauper, or the guy who hasn't started because he can't
| see the payoff yet?
| __MatrixMan__ wrote:
| If the alternatives are:
|
| - spend the majority of my life making things worse so that
| I can afford retirement, and then spend my retirement
| dealing with the consequences of having ignored "all other
| problems"
|
| - die while saving up for my nth attempt to make things
| better
|
| I think I'd prefer the latter.
| hammock wrote:
| What do you see? I believe that's what he was asking. You
| merely threw his same question back
| __MatrixMan__ wrote:
| I don't see problems that can be fixed by buying something.
| Or rather, by buying abstractions in hopes of being able to
| sell them for more more later on (i.e. gambling).
|
| Personally, I think that the declining state of privacy is
| increasingly incompatible with democracy. I want to live in
| a democracy when I'm old, so I'm saving up to take a few
| years "off" and work on some ideas that I have which I
| think will help.
|
| So I suppose I will be buying things along the way. Food.
| Healthcare. Energy. Internet access. But I'll be doing it
| because I want to live in the world that I'll be creating
| (i.e. I'm investing time in creating that world). Not
| because I think I'll end up with more money when it's all
| said and done.
|
| So maybe I'm putting words in ferdowski's mouth here but I
| really think that by "buy" they meant "allocate my money
| under the expectation that it will grow without me having
| to do any extra useful work along the way".
| NotYourLawyer wrote:
| That'll really help my kids pay for college, thanks for the
| useful advice.
| [deleted]
| hotpotamus wrote:
| One thing I've never understood is how stocks are expected to
| grow at ~8% annually indefinitely if the economy is expected to
| grow at ~3%.
| wardedVibe wrote:
| Piketty has a whole thing about this. When the return on
| capital is higher than the growth rate of the economy, that
| capital owns the whole economy in the long run.
| mellavora wrote:
| That was Bernake's innovation. Artificially low interest rates
| allowed stocks to grow faster than the economy for decades.
|
| However, it may be that stocks now need to re-value to match
| the value of the economy, i.e. give up that ~5% delta that
| they've compounded over the last few decades.
| paulpauper wrote:
| This is easy to explain. Stocks prices are in large part
| dictated by corporate profits, which is not the same as GDP.
| Profits are returned to shareholders, GDP is not.
| AshamedCaptain wrote:
| > Stocks prices are in large part dictated by corporate
| profits
|
| Maybe the ones that pay dividends, or are very old and
| stable. The rest are primarily driven by the same forces that
| move the price of, say, Dogecoin.
| eloff wrote:
| Over the short term the stock market is a popularity
| contest. Over the long term it represents the present day
| value of future profits.
| eloff wrote:
| How do profits grow 8% if the economy grows 3%. It does seem
| counterintuitive.
|
| This is the best answer I've seen:
| https://economics.stackexchange.com/a/21617/7263
| Jensson wrote:
| They predicted that companies will be able to extract more
| value from workers in the future. In other words, they
| think that the top 1% will continue to get relatively
| richer at a faster rate, as long as that is true profits
| can improve without the economy improving.
| eloff wrote:
| That just means the economy will continue to grow, it
| doesn't specify how the stock market can grow faster than
| the economy.
| nostrademons wrote:
| The 2% economic growth rate is an average. It might be
| the case that the average worker's real wage grows 0%
| (this is basically true [1]), while corporate profits,
| which make up ~10% of the U.S. economy [2], grow
| 20%/year.
|
| [1] https://en.wikipedia.org/wiki/Real_wages#/media/File:
| United_...
|
| [2] https://fred.stlouisfed.org/graph/?g=1Pik
| hotpotamus wrote:
| > Stocks prices are in large part dictated by corporate
| profits
|
| I've also worked for a company with negative profits and a
| positive stock price which is also one of those things that
| tends to confuse me. (I'm aware that I'm pretty obtuse, but
| it's not all an act - I really don't get how much of the
| modern economy works.) I understand that the expectation is
| that profits will turn positive/grow over time, but that
| would seem to require the ability to accurately forecast the
| future, which seems problematic.
|
| Way too much of the modern economy looks to me like the South
| Park "Underwear Gnomes" model which you see memeified
| sometimes - the step 1: steal underpants, step 2: ?, step 3:
| profit, thing.
| [deleted]
| koyanisqatsi wrote:
| It means other parts of the economy must shrink. Population is
| no longer increasing which means every percentage of growth in
| one sector is offset by losses in another. There are only
| finitely many people and each person can only be in one sector
| at a time vs the previous regime where population growth meant
| every sector could grow concurrently by hiring from a growing
| population.
|
| Modern capitalism requires an infinite supply of people to
| maintain economic growth. The model is entirely busted because
| it is at odds with physical constraints and dynamics of a
| finite planet. I personally consider the whole thing a
| collective delusion because infinite growth on a finite planet
| is a logical and physical impossibility. Unless everyone
| decides to live in VR where nothing matters then the economic
| models must at some point make a connection with reality and at
| that point it becomes obvious that the capitalist model of
| infinite growth is untenable unless there is a supply of people
| growing at a faster rate than whatever economic metrics are
| used to measure the real economy.
| twblalock wrote:
| This is entirely mistaken. Wealth creation is not zero-sum.
| Per-worker productivity is not static. The carrying capacity
| of the planet is not static either.
| koyanisqatsi wrote:
| Have you personally done any work to increase the planet's
| carrying capacity? More specifically, what is its current
| capacity and how is it calculated? Seems like you would
| know this based on what you have stated.
| stocknoob wrote:
| Do you think the economy is zero sum? Go back 50k years, all
| the current wealth must have been distributed among a mere
| 50k cavemen. Were they all billionaires? Quality of life must
| have been amazing for them.
|
| When you go into the woods and stack rocks into a house, you
| created value. What part of the economy shrank?
| koyanisqatsi wrote:
| How many jobs do you have? Like as a professional in some
| sector of the economy, how many sectors do you personally
| occupy? Are you a farmer that also writes iOS software? No,
| obviously not. Whatever job you do is fixed and it
| contributes a finite amount of economic value. Since the
| population is now decreasing there are fewer people, which
| means if all the economic value from everyone is added up
| then the total contribution will be less than another
| population with more people.
|
| It doesn't make sense to talk about zero-sum economics
| because economics is always a positive sum arrangement of
| work and specializations. The number of workers is the main
| limiting factor in any productive economy, every other
| measure is essentially an approximate proxy of that.
|
| The financial sector on the other hand is indeed a zero-sum
| system. If someone is making money then someone else must
| be losing it because there is a finite supply of dollars in
| the economy at any given moment so if the supply is fixed
| then the monetary economy is a zero-sum game.
|
| All of this is derivable from first principles but for some
| reason most people are constantly parroting some nonsense
| about wealth and zero-sums.
| stocknoob wrote:
| Even finance isn't zero sum. The money supply is
| literally something that is managed. When you take a
| loan, the bank has created money, since the deposits are
| still on the books. When you buy insurance, you are
| getting security, insurance company is getting a premium,
| and you are both happy.
|
| When you take a loan and start a business, the bank makes
| money on the interest, and you (hopefully) make money
| because your business is providing more value than it
| was. You bought a new machine and make widgets 10x
| faster, etc.
|
| Also, people confuse money and wealth. One is bandwidth,
| the other is data. You use bandwidth to transfer data,
| which is what you care about, and its possibility for
| creation is basically limitless.
| koyanisqatsi wrote:
| You probably should spend some more time thinking about
| how that all fits together because saying that the bank
| creates money from interest rates means that the central
| bank sets the rate according to what economic growth
| they're expecting. If the rate is decoupled then it stops
| tracking real economic productivity as I've defined it.
| The obvious logical conclusion is that raising rates will
| lead to a recession because economic productivity has
| been stagnant for some time now. So if the rate is above
| actual economic productivity then that will reduce the
| total money supply and this seems to be their main goal.
| There is no way to reduce inflation without destroying
| money.
| twblalock wrote:
| > There is no way to reduce inflation without destroying
| money.
|
| Of course there is. When inflation is caused by supply
| restrictions, increasing supply will reduce the rate of
| inflation. Inflation is about _prices_ , it's not about
| the money supply per se.
|
| You've been making some weird personal attacks and
| telling people they need to "spend some more time
| thinking" and you should really stop doing that.
| koyanisqatsi wrote:
| Telling people to think is only a personal attack if they
| prefer not to.
| twblalock wrote:
| > If someone is making money then someone else must be
| losing it because there is a finite supply of dollars in
| the economy at any given moment so if the supply is fixed
| then the monetary economy is a zero-sum game.
|
| That is simply untrue. The money supply is not fixed.
| lossolo wrote:
| In a sense it is if it's tied to value, you can print
| trillions of empty dollars but the ratio will be the same
| if there will be no growth behind it, now instead of 1$
| you will pay 10$ for something, so maybe amount is not
| fixed but representation or ratio or how you want to call
| it seems to be.
| abigail95 wrote:
| > All of this is derivable from first principles
|
| I'm waiting
| deeptote wrote:
| "Companies have been pumping and dumping for years, buoyed by
| cheap labor, and have not been intelligent enough to invest long
| term. And now, they're sad."
|
| FTFY
| freemrkt8 wrote:
| I've been in meetings where rich elders openly admit to ageism;
| who cares about the problems this will create, they said,
| they'll be dead by then!
|
| This was back in the 00s before the last decade plus of
| expanded info awareness.
|
| Scientific measure of fossil fuels impact on environment was
| achieved in 1860s. How long the runway is before catastrophe
| has been modeled and then hidden away over and over.
|
| There is absolutely no reason to bequeath immense influence on
| human agency to the aristocrats. One small time polluter in the
| middle of BFE has nothing on Intel and Apple.
| [deleted]
| pvg wrote:
| _FTFY_
|
| _Eschew flamebait. Avoid generic tangents. Omit internet
| tropes._
|
| https://news.ycombinator.com/newsguidelines.html
| WastingMyTime89 wrote:
| But it goes beyond companies.
|
| Rich countries have had very myopic development strategies for
| the past thirty to forty years. I could blame incompetence but
| I think it's mostly because it allowed some happy few to make
| good money and they don't really care about the citizenry at
| large.
|
| My own country in Europe decided they were going to bet
| everything on high-end services and R&D while outsourcing all
| production. Apparently it wasn't obvious to them that when you
| don't produce you lose the culture and knowledge base necessary
| to do good R&D and that the countries they were outsourcing to
| would develop and stop relying on us.
| lordnacho wrote:
| This is because we've decided short term local optimization
| is somehow optimal. Just let every business maximize profits
| and everything will be good. Mention externalities and people
| will deny they exist, or try to tell you they're already
| accounted for.
| mellavora wrote:
| > Just let every business maximize profits and everything
| will be good
|
| Not quite right. You should have said maximize short-term
| profits.
|
| As an example from forestry. If you manage sustainably,
| such that cutting resembles natural loss, your forest
| produces high-quality wood for centuries and also provides
| revenue from i.e. lodges, salmon, and carbon offsets.
|
| So profit from that land over 100 years is X
|
| Or you clear-cut it, and realized 1/10th of X in 5 years.
| And make the land very low value for the remaining 95.
|
| The issue is short-term local optimization, as you claim.
| lordnacho wrote:
| What bothers me is someone will claim that cutting the
| whole forest is the best thing to do, because if it
| wasn't, the market would have done something else, like
| run it sustainably.
|
| Nobody points out that management does what it is
| incentivezed to do, and that those incentives ought to be
| fair game for negotiation. Or at least for commentary.
| [deleted]
| lob_it wrote:
| chiefalchemist wrote:
| > "I argue that the boost to corporate profits from lower
| interest and tax expenses is unlikely to continue, indicating
| notably lower profit growth, and thus stock returns, in the
| future."
|
| Given the author's CV this argument feels at least 10 years too
| late.
|
| https://www.federalreserve.gov/econres/michael-smolyansky.ht...
|
| That is, aren't the organizations (e.g., The Fed) accountable for
| considering the impact of their decisions, as well as the broader
| context? That is, aren't they responsible for anticipating?
|
| This sounds like too little too late. More CYA than sincere
| insights. And while from early Sept, appropriately timed for
| early November impact.
| boppo1 wrote:
| > aren't the organizations (e.g., The Fed) accountable for
| considering the impact of their decisions
|
| They are not. Interest rate interventionism is bankrupt policy.
| chrisgd wrote:
| I don't understand your argument. A guy who got his PhD 7 years
| after the GFC should have foreseen the impact of low interest
| rates.
|
| He is making a very rational argument that interest rates are
| rising and the share of corporate profits available for
| stockholders will be lower.
| mellavora wrote:
| I think you are right to criticize chiefalchemist, the
| comment is more snark than substance.
|
| The argument, as far as I understand it, is that if the Fed
| knew/believed in the arguments in the linked article, they
| would or should have acted differently over the last 10
| years.
|
| The argument falls apart because no reason is given for the
| Fed acting differently. The Fed does not have a mandate to
| maintain corporate profitability nor does it set tax rates.
| They are surely aware that their actions have impacts on
| corporations, and they surely do consider this, but their
| mandate is clear:
|
| The Federal Reserve Act mandates that the Federal Reserve
| conduct monetary policy "so as to promote effectively the
| goals of maximum employment, stable prices, and moderate
| long-term interest rates."
|
| https://www.federalreserve.gov/monetarypolicy/monetary-
| polic...
| skippyboxedhero wrote:
| All of the things mentioned in the article impact the Fed's
| mandate.
|
| It is like saying that the GFC didn't impact the Fed's
| mandate...but, ofc, we know it did because they cut rates
| to zero and gave hundreds of billions out. Funny how that
| works: the Fed has no responsibility when stock prices go
| up, but when they go down...immediate action.
|
| And 2008 happened, in part, because of the cut to 1% in
| 03-04 (no-one understand this today, synthetic CDO issuance
| pre that cut cycle was non-existent and suddenly went to
| tens of billions overnight because there was insufficient
| AAA securities with yields that could fund liabilities). We
| are just going through the same stuff over and over.
|
| These things have very real economic effects, they lead to
| massive volatility in employment, instability in prices,
| and have led to financial distortions that undermine basic
| aspects of how an economy functions (interest rates/the
| price of money no longer means anything outside of what the
| govt says it does, the result has been the most epic
| misallocation of capital in the history of the US economy).
| chiefalchemist wrote:
| The Fed has A LOT of power and influence both in the direct
| impact of its actions, as well as the leadership and
| "culture" it establishes among its group-think peers.
| You're naive to think otherwise.
|
| Why are you making excuses for them? Instead of holding
| them to the higher standard they claim to be.?
| chiefalchemist wrote:
| What the mandate is and what is actually happening are not
| synonymous.
|
| Congress is also supposed to oversee The Fed and how often
| does that happen?
|
| Referencing theory is fine. But not as a substitute for
| reality. It's important we see and discuss reality.
| chiefalchemist wrote:
| He's not making an argument. He's stating the obvious. With
| zero sense of shame and humility. Right? So to what end? FFS,
| this isn't a random fluff piece on Medium. It's from the most
| power financial organization in the world. And we're supposed
| to get just nod and get behind this?
|
| I'm not speaking to the individual per. He's simply another
| (over-educated) representative of a mindset that creates more
| problems than it solves. The Fed coming out in Sept of 2022
| and proposing the "argument" is comical at best. Apparently,
| not a single history course is requited to get those flashy
| degrees, nor is staying up on current events. Instead, they
| toss this out as something insightful and profound in a "oh
| we didn't see this coming sorta way"? Only the naive would
| buy this.
|
| The bottom line: The Fed is making decisions without a sense
| for the broader context and/or broader impact is negligent
| and irresponsible. This is too little too late.
| chrisgd wrote:
| We don't know that. The Fed has been saying since 2021 they
| were going to raise rates. Thousands of people who get paid
| billions of dollars mostly missed it. Powell is either
| going to go down in history as someone who successfully
| transitioned to more normal rates or he wrecked the
| economy. This article isn't the commentary of the FRB
| photochemsyn wrote:
| Takes a bit of reading before the primary issue gets mentioned:
|
| > "Some of the improvement in profit margins may have come from
| sourcing cheaper inputs from abroad, enabled by increased
| globalization. Moreover, for output produced within the U.S.,
| growth in labor productivity--i.e., real output per hour worked--
| exceeded real wage growth since the mid-2000s. This means that,
| for a given cost of labor, firms were able to produce more
| output, which would also likely have contributed to the
| improvement in profit margins."
|
| I's rewrite the introductory sentence for this article as
| follows:
|
| "Over the past two [four] decades, the corporate profits of stock
| market listed firms have been substantially boosted by
| ~~declining interest rate expenses~~ [outsourcing manufacturing
| abroad to sweatshop zones] and ~~lower corporate tax rates~~
| [importation of cheap and often undocumented labor from poor
| countries]."
|
| That's the essence of what its dectractors (including myself)
| call the neoliberal economic model.
| dvt wrote:
| > That's the essence of what its dectractors (including myself)
| call the neoliberal economic model.
|
| The impact of "cheap and often undocumented labor from poor
| countries" is minuscule, especially considering the sectors
| that have the highest profit margins aren't low-skill
| manufacturers, but rather finance, tech, real estate, private
| equity, and so on.
|
| There are two main issues at play here: corporate debt levels,
| and interest rates. The article does a pretty good job of
| covering both, and trying to spin the past few decades as some
| sort of "corporate colonialism" is missing the forest for the
| trees.
| photochemsyn wrote:
| Finance and private equity gets much higher returns from its
| investments in technology, agribusiness, construction, the
| service industry, the big chain stores etc. _because_ those
| subsidiary entities have vastly reduced labor costs via
| exploiting neoliberal government policies, both abroad
| (outsourcing) and domestically (labor importation).
|
| As far as real estate, that's been highly manipulated (tax
| havens, money laundering etc.) as well as heavily subsidized
| (in favor of large owners) by the federal government (i.e.
| subprime bailouts, etc.).
| leereeves wrote:
| The profit margins in finance and real estate were only
| possible because "corporate colonialism" prevented wages and
| consumer prices from rising along with asset prices.
|
| If real consumer prices hadn't been driven down by reduced
| manufacturing costs, then the lower interest rates that drove
| up asset prices would have led to consumer inflation and
| wouldn't have been politically viable.
|
| And if American labor had been able to demand a greater share
| of the wealth created over the past forty years, then
| corporate profits would have been far lower.
| dvt wrote:
| > easy money policies that were only possible because..
|
| I would push back a bit. First, I think these easy money
| policies are basically "possible" whenever the Fed mandates
| them (and the markets simply react accordingly). My point
| here is that they actually don't have to be rooted in any
| kind of fundamentals. Even now, the Fed is basically
| willing to blow up foreign markets (which might seem
| irrational) because it doesn't want _Americans_ to go
| through inflation.
|
| Second, while I do agree that cheap labor has enabled
| _some_ of this, it 's mostly due to China's insistence on
| treating its citizens like chattel; and, yes, to some
| extent the West being complicit, though calling it
| colonialism deflects blame from the true architects of this
| evil: the CCP.
|
| > and if American labor had been able to demand a greater
| share of the wealth
|
| The way I see things, wealth demanded is a function of
| leverage. American labor has no leverage when compared to
| Chinese labor (maybe apart from quality), and therefore
| always loses out.
| leereeves wrote:
| It actually seems like we agree.
|
| > Even now, the Fed ... doesn't want Americans to go
| through inflation.
|
| Exactly. The Fed's current behavior shows that they
| probably would not have lowered interest rates so much if
| the resulting inflation hadn't been countered by lower
| manufacturing costs.
|
| > American labor has no leverage when compared to Chinese
| labor
|
| Yes, and this was, I believe, that issue that
| photochemsyn was referring to. If _all_ manufacturers
| making products for the American market had to obey
| American labor laws (and other regulations), then
| American labor would at least be competing on equal
| footing.
| andrepd wrote:
| I wouldn't strike through those two factors to be honest.
| Monetary policy since 2008 has benefited capital and harmed
| labour. And the ideologically driven cut on corporate tax (and
| on the highest bracket income tax marginal rates as well) since
| the 1980s has also had a similar effect (see how CEO pay has
| skyrocketed)
| skippyboxedhero wrote:
| I think the author 100% knew what he was doing by not
| mentioning QE directly at any point. It isn't just since
| 2008, the cut in 03-04 to 1% was basically why synthetic CDOs
| were invented...it is amazing that this happened twenty years
| ago, and there is still a "debate" about the long-term
| financial consequences of very low interest rates/QE.
|
| Also, the issue with corporate taxes has been more to do with
| European tax havens. Places like Netherlands, Ireland,
| Luxembourg got very aggressive in offering corporations
| bilateral deals (i.e. bespoke deals on corporation tax
| outside the legal framework that applied to domestic
| companies). The US tax rate in the early 2010s was still 35%,
| it was only when revenue began moving offshore that the US
| felt the need to cut (not just the US, the same thing
| happened in the UK). The global minimum corporation tax deal
| is supposed to tackle this but, to be honest, the US should
| have cracked down on individual countries far sooner.
| sooheon wrote:
| > Figure 2 makes clear that a key driver was the decline in
| corporate interest rates--which itself largely reflects the
| steady, decades-long march down in Treasury yields.
|
| This is a direct reference to QE.
| subradios wrote:
| Corporate tax does not help or hurt labor.
|
| Corporations do not pay taxes - their customers or their
| employees do.
|
| The only way that a corporate tax is better for the worker
| than not a corporate tax is if that money will be better
| spent by the government. We cannot show this to be true,
| because very often government funds are utilized to fund
| programs and projects that are primarily ideologically
| motivated instead of mere improvements to facilities and
| entitlements we all use.
|
| Additionally sectors that have largesse of government spend
| (Medicare, military procurement, California HSR) start to
| morph to maximally abuse procurement bureaucracy and obtain
| monopoly power rather than provide service.
|
| These problems are solvable to be clear, but it doesn't
| strike me as obvious that the money Amazon makes is spent
| better by Congress than by Amazon in every possible case.
| sooheon wrote:
| This is true. Corporate tax is just a tax on consumers,
| workers, or investors, with extra steps.
| greesil wrote:
| Look at companies with enormous stockpiles of cash, or
| doing stock buybacks. They're just sitting on it, when some
| of it could be better spent on crumbling infrastructure
| that their delivery vehicles drive on, for example.
| daniel-cussen wrote:
| [deleted]
| bradleyjg wrote:
| > outsourcing manufacturing abroad to sweatshop zones
|
| > importation of cheap and often undocumented labor from poor
| countries
|
| > That's the essence of what its dectractors (including myself)
| call the neoliberal economic model.
|
| This is the economic nationalist (i.e. Trumpist) critique
| dressed up for polite company. You and the rest of the economic
| nationalists have no plan to make the lives of people in
| "sweatshop zones" or those desperately escaping them to the
| west, better. You are attempting to exploit pathos on their
| behalf to make their lives actively worse by shutting down the
| movement of goods and labor.
|
| At least Trump is honest about it.
| matt2019 wrote:
| Your counterpoint assumes there's a win-win that's possible.
| But sometimes that's wishful thinking. Imperialists have
| always convinced themselves that they're actually helping the
| peoples they intervene on, but they're often wrong.
| bradleyjg wrote:
| And the migrants are they worse off too? Is anyone allowed
| to decide for himself what his best option is?
| sooheon wrote:
| Why must everything always be only one thing? Why not both?
|
| The decline in taxes and interest rates mechanically account
| for 1.8% points of the 5.4% net income growth in the SP500
| since 2004. This is not in dispute, unless you don't trust the
| numbers.
|
| Outsourcing and cost cutting account for some of the difference
| between sales growth (2%) and EBIT growth (3.6%), or 1.6%
| growth. Basically if you only sell a little bit more, but your
| costs go down, you can take home more earnings. But it's not a
| given that 100% of this 1.6% gap comes from sweatshops, there
| have been some legitimate reductions to cost of labor
| domestically, unless you think literally nothing has changed
| about productivity in the last 18 years.
|
| So sweatshops account for a maximum of 1.6% of returns, likely
| less, while taxes and cheap credit account for 1.8%.
| Outsourcing is not "the primary issue", mathematically.
| theironhammer wrote:
| Excellent analysis! I would add investment in low risk high
| returns ventures like software as opposed to high risk lower
| returns ventures like brick and mortar factories.
| astrange wrote:
| Calling things neoliberal isn't an incisive economic
| analysis, it's a way to get upvotes from people in SF who
| claim to be Marxists and whose parents are rich landlords.
|
| Many of the "neoliberal" things that supposedly happened did
| not actually happen.
|
| https://noahpinion.substack.com/p/was-there-really-a-
| neolibe...
| cratermoon wrote:
| The Limits to Growth, 1972.
| https://www.clubofrome.org/publication/the-limits-to-growth/
| [deleted]
| jryle70 wrote:
| Such a textbook example of confirmation bias. You have certain
| conviction, and you dig deep until you find some references to
| it, and then declare that your conviction is vindicated.
|
| My conviction is that the growth in corporate profits is driven
| primarily by technology advance and globalization. And no,
| globalization is not a one way street, only benefiting
| corporates. China achieve their economy growth and their status
| as superpower, lifting a billion people out of poverty, thank
| in no small part to the large and rich market of developed
| countries they've been able to access.
|
| The growth is slow down because temporary roadblocks such as
| the pandemic and financial measures countries adopted to
| counter it. Geopolitics also play a role. Globalization is well
| and alive still, and while it will evolve, it is not
| reversible. We will not go back to the world pre-1990s.
| gazarullz wrote:
| What makes you think that it wont reverse? Look at what is
| happening to the chip wars between Us, EU and China, and the
| energy crisis in Europe.
|
| My thought is that we are witnessing the beginning of the end
| of globalization.
| pclmulqdq wrote:
| That happens every time an empire declines. The Roman
| empire had a globalized economy, and that ended up
| collapsing into the medieval period of hyper-localization.
| The collapse of the Dutch and British empires had similar
| results. The American empire is collapsing now, and
| globalization is the first casualty.
|
| Fun fact: Victorian England even had several very
| successful uber-like businesses (phone ordering aggregators
| in this case).
| Aunche wrote:
| It's funny that that anti-globalists like to frame it as them
| caring about the "poor sweatshop workers" without considering
| the sentiments of those workers. They think that taking away
| the little economic choice that these people have would be a
| great boon for them.
|
| Globalization isn't just good for developing nations, it
| benefits developed ones as well. American's dominance in
| technology, finance, and entertainment would not be possible
| to sustain without it.
| leereeves wrote:
| > American's dominance in technology, finance, and
| entertainment would not be possible to sustain without it.
|
| Yes, without it, other nations could develop competitive
| industries at the top of the food chain and their citizens
| would have options other than working in sweatshops.
|
| Globalization comes packaged with many demands that
| primarily benefit Western corporations and make it very
| difficult to rise above subservience.
|
| (China rose largely because they ignored these demands,
| violated Western intellectual property laws, restricted the
| transfer of money in and out of the country, heavily
| regulated foreign companies, and had enough strength not to
| be sanctioned, invaded, or overthrown for doing so.)
| cuteboy19 wrote:
| Ok thats just wrong. Many asian countries developed their
| own competitive industries _because_ the west outsourced
| some labor there. India /China both followed the same
| path
|
| Also, have you considered the opinion of the "sweatshop"
| workers because for them the options are "sweatshop" or
| not working at all
| leereeves wrote:
| Citing China as an example of the success of globalism
| and free trade is an interesting choice.
|
| They have a protectionist economy, and it was the most
| successful economy over the last forty years. China seems
| to have proven the benefits of protectionism.
|
| And I'm arguing that sweatshop workers would have options
| other than "'sweatshop' or not working at all" if free
| trade weren't killing any opportunity they might have to
| develop local industries.
|
| Their situation is not entirely unlike a small town in
| America when a WalMart opens, kills the local businesses,
| and the only remaining jobs are at WalMart.
| Ekaros wrote:
| Subsistence farming is what lot of these workers come
| from. The factories or even sweatshops might not be
| perfect, but with increased population they are
| preferable to working fields with all the risks that
| involve.
| wardedVibe wrote:
| More accurately, the alternative is continuing to
| practice subsistence farming, which is not a great
| alternative.
| Aunche wrote:
| Is Asia just a made up continent? How do you expect the
| child of an uneducated subsidence farmer to become a
| programmer when they live in a poor country, and you're
| blocking means of external investment? What people don't
| seem to realize is that it's impossible to transition a
| place with incredibly shitty living conditions to good
| living conditions, without reaching a midpoint of
| moderately shitty living conditions.
| mantas wrote:
| Old laptops are cheap. And piracy is non-issue. Learning
| to program is not rocket science. And that is pretty easy
| to learn too nowadays, just a bit harder to practice.
|
| Many of the subsistence farmers have a crapton of
| knowledge about their environment and how to make stuff
| grow. Many of them are pretty good at basic redneck
| engineering too. That's a pretty good background to get
| hold of basic programming which is not that far off.
| hurflmurfl wrote:
| When I got my first laptop I didn't magically learn
| programming. That bit took me several years of learning,
| trying, forgetting, getting confused, re-learning... All
| of that would have not been possible if not for my
| parents providing for me.
|
| If I absolutely had to work full days ( which
| incidentally isn't limited to 8 hours a week in all
| countries in all jobs) to make ends meet, my chance of
| finding my calling would have been pretty slim.
|
| In other words, just the learning tools are not enough,
| it's but one of the necessary resources, and for some
| people spare time or strength can be very difficult to
| find.
| mantas wrote:
| Personally I learned programming in the evenings after
| school when I was 12-15. Sure that counts as ,,parents
| providing for me" and my parents weren't farmers. But
| even in farming it's not like you work 24/7. And when air
| is crap or it's a slow season in between crops etc
| there's plenty of time off.
|
| And many farmers (labour, whatever) do know how important
| it is to give kids time to study things. TBH for me
| parents who drive kids around to all sorts of extra-
| curriculum activities for me seem to be much worse than
| free-range parents who just ensure that kids have time to
| pursue things they like. Just with some navigation to
| ensure they don't spend all the time partying. Which is
| also important though.
| brnaftr361 wrote:
| The thing is, is that those "shitty" conditions may well
| be a de facto, silently elected choice (conservative).
| The whole globalist ideal is that their paradigm of
| civilizational excellence is _the only answer_ but it isn
| 't, not by a long shot. Read Huxely's Island.
|
| Moreover the effects of capitalist-globalism have, I
| would posit, given rise to poverty in many instances with
| first-movers advantage, selectively shunting trade into
| some nations and away from others. If one nation elects
| to adopt the Western zeitgeist, and their neighbors
| neglect it, their neighbors will suffer as a product of
| their lack of technology. This will decrease the
| proportion of product to labor, increasing production
| cost (including non-monetary expense). [This creates huge
| reserves of impoverished people, otherwise known as cheap
| labor] pidgeonholing them into deals with the devil. At
| which point more developed nations can either strongarm
| them into _really_ shitty compromises or just outright
| implant leaders. Haiti is a really stunning example of
| this, where France levied a huge debt against the newly
| independent nation. Or we can point at Madagascar where
| the IMF discredited them, eventually forcing them into a
| position where they couldn 't fund malaria vaccines (or
| anything else for that matter).
|
| On Madagascar from David Graeber's _Debt: the First 5,000
| Years_ :
|
| "France invaded Madagascar, disbanded the government of
| then-Queen Ranavalona III, and declared the country a
| French colony. One of the first things General Gallieni
| did after "pacification," as they liked to call it then,
| was to impose heavy taxes on the Malagasy population, in
| part so they could reimburse the costs of having been
| invaded, but also, since French colonies were supposed to
| be fiscally self-supporting, to defray the costs of
| building the railroads, highways, bridges, plantations,
| and so forth that the French regime wished to build.
| Malagasy taxpayers were never asked whether they wanted
| these railroads, highways, bridges, and plantations, or
| allowed much input into where and how they were built."
|
| On Haiti from David Graeber's _Debt: the First 5,000
| Years_ :
|
| "Haiti was a nation founded by former plantation slaves
| who had the temerity not only to rise up in rebellion,
| amidst grand declarations of universal rights and
| freedoms, but to defeat Napoleon's armies sent to return
| them to bondage. France immediately insisted that the new
| republic owed it 150 million francs in damages for the
| expropriated plantations, as well as the expenses of
| outfitting the failed military expeditions, and all other
| nations, including the United States, agreed to impose an
| embargo on the country until it was paid. The sum was
| intentionally impossible (equivalent to about 18 billion
| dollars), and the resultant embargo ensured that the name
| "Haiti" has been a synonym for debt, poverty, and human
| misery ever since."
|
| The whole angle of dragging a people up is bullshit. The
| US alone has installed leaders and toppled parties
| repeatedly to maintain _our_ status quo, and historically
| empires just do this. And it 's always justified with
| some _magical_ self-righting pretense. We do as much
| damage on a cultural scale as we do good on an economic
| one - when we 're not doing damage to both, which I think
| _is certainly_ the most frequent case. And let 's not get
| started on the various military interventions over the
| history of the US...
| Aunche wrote:
| > The US alone has installed leaders and toppled parties
| repeatedly to maintain our status quo, and historically
| empires just do this.
|
| It's almost as if... protectionism is bad. Colonialism
| and imperialism are inherently protectionist. No matter
| how talented they were, a Madagascan was prohibited from
| pursuing the same desirable administrative jobs that were
| available to the French elite. The French elite
| prohibited their competitors from offering from offering
| the Madagascans a better deal.
| kasey_junk wrote:
| Both of your examples are of colonialism not modern neo-
| liberal globalism.
|
| I have no position on your argument other than those
| examples aren't making it for you.
| brnaftr361 wrote:
| Is colonialism not the precondition for "neo-liberal
| globalism"? In any case I would argue in any case the
| logical conclusion of colonialism _is_ globalism, a lever
| arm and a gear acting on the same system. I would also
| posit in just about any form it 's a bad idea, Neo-
| liberal or Communist...
|
| Not to mention the fact that the IMF (International
| Monetary Fund) is _the posterchild_ institution
| forwarding the Neo-liberal Gloablist agenda.
| mantas wrote:
| As a citizen of ,,2nd world" country that had (and still
| has to some extent) it's share of being a sweatshop...
|
| I'd rather say globalization is good for developing nations
| and the rich of the developed. It brings the middle class
| and labour of the world close together. Dragging down
| developed world a bit and enriching developing world a ton.
|
| Now is the most interesting phase when developing world has
| developed somewhat, local elites grew up and now they'll
| start challenging ,,developed" world elite.
|
| It will be most interesting to watch developed world non-
| elites. Developing world is very happy with improvements
| and have the momentum. Meanwhile developed world is slowing
| down and it will be damn hard to turn the tide.
| photochemsyn wrote:
| Note the article early on states:
|
| > "This note's key finding is that the reduction in interest
| and tax expenses is responsible for a full one-third of all
| profit growth for S&P 500 nonfinancial firms over the prior
| two-decade period"
|
| Even if accurate, where is the other 2/3 coming from? You'd
| think the primary issue would be more explicitly noted. As
| far as China, their escape from famine-level poverty took
| place well before the neoliberal outsourcing program adopted
| China as one of its preferred sweatshop zones (along with
| Mexico, Indonesia, India, Philippines, Bangladesh, Honduras,
| etc.) - it really began with importation of ammonia
| fertilizer factories in the 1970s under the Nixon agreements,
| which really ended the famine era. The big change wrt the USA
| and China took place in 2000-2001, with WTO membership. While
| NAFTA had already been gutting the US manufacturing sector
| for the past half-decade, the explosion took off after that
| (just look at any major box store and count the items with
| 'made in China' labels).
|
| Fundamentally, the neoliberal project is all about
| 'liberating' international pools of capital from the
| restrictions (tariffs, sourcing requirements, capital
| transfer fees, etc.) imposed by nation-states, as a means of
| putting more and more wealth and power in fewer and fewer
| hands. It's profoundly anti-democratic in nature, and should
| be ended.
| sooheon wrote:
| > Even if accurate, where is the other 2/3 coming from?
| You'd think the primary issue would be more explicitly
| noted.
|
| It is explicitly accounted for, in TFA. ~30% (1.6%) is
| coming from cost cutting --so potentially sweat shops, but
| also productivity gains--and another ~37% (2%) is coming
| from an actual increase in sales, i.e. GDP growth.
| [deleted]
| okay_dude13 wrote:
| throwaway1777 wrote:
| The problem is not really globalization, the problem is
| reliance on china, Russia, the saudis, etc for critical parts
| of the economy. That reliance was made possible by
| globalization, but the reason to reduce reliance on them is
| not because of increased efficiency but increased security
| and independence.
| darawk wrote:
| I have a belief that interest rates will be structurally higher
| for the entire world over the next decade, higher than the market
| currently expects. World population is declining in the countries
| that generate most current GDP, and are likely to in the future.
| China, in particular. Trade is fracturing, world trade isn't
| going to end, but it's going to compartmentalize, and that's
| going to make it less efficient at the margin. Energy is going to
| get more expensive as we address climate change, making
| everything else more expensive along with it.
|
| All of these things cause structural inflation, and thereby
| necessitate structurally higher interest rates. Not to mention
| the fact that at the very least, the tailwind of globalization is
| over, which means that the ultra low rate regime we have enjoyed
| over the past few decades absolutely cannot be sustained.
| Inflation is back as a problem for the fed unless and until we
| got another sustained source of cheap growth.
|
| There is one, and only one plausible such source imo, and that is
| powerful AI labor substitution. Hence the solution: Go long high
| interest rates, and make a levered long term bet on AI. These two
| things hedge each other. You don't have to believe AI labor
| substitution is going to happen (I'm not totally confident it
| will), all you have to believe is that it's our only out for
| structurally higher interest rates.
|
| A portfolio constructed to benefit in the right proportions from
| these two things is currently cheaper than it ought to be, in my
| opinion. I expect this bet to play out roughly over the next
| 10-15 years, and I am still not decided on exactly how I want to
| construct it in terms of specific assets. But broadly I think
| it's the right move.
|
| EDIT:
|
| Totally separately, i'd like to quibble slightly with this bit of
| analysis:
|
| > This suggests that, if interest and tax expenses had not
| declined as a share of EBIT (as shown in Figure 1), then the real
| growth rate of corporate profits would have been almost 2
| percentage points lower each year (5.4 - 3.6 = 1.8 percentage
| points). In other words, the relative decline in interest and tax
| expenses is responsible for a full one-third of all profit growth
| for S&P 500 nonfinancial firms over the past two decades (1.8 /
| 5.4 = 1/3). This is a very substantial contribution
|
| This isn't quite accurate. Cheap debt decreases the hurdle rate
| for capital investment. In other words, if rates weren't so low,
| much of this debt wouldn't have been taken out, and only the
| higher returning projects on average would have been invested in.
| Stated another way, as interest rates decline, the profitability
| of the marginal debt-financed investment declines along with it.
| It can also lead to anti-productive debt-financed market share
| wars between companies, etc (think of the vc battles between uber
| and lyft). This complicates the picture they're painting a bit,
| and likely reduces the true number here somewhat, but doesn't
| alter the broader story.
| nostrademons wrote:
| "Go long high interest rates, and make a levered long term bet
| on AI."
|
| The challenge with levered long bets on technology is that most
| foundational technologies undergo waves of innovation, growth,
| replacement, and bankruptcy. You could've been totally right
| about social networking by betting on Xanga in 1999, and still
| gone bankrupt because they were long gone by the time Facebook
| ultimately won the market. Same with betting on Altavista for
| Search in 1995, WebVan for e-commerce in 1999, BlackBerry for
| smartphones in 2002, etc.
|
| If you're looking to make a levered long-term bet on
| technology, often the smartest thing is to bet your _career_ on
| it. The skills you personally hold will survive multiple
| generations of companies, and then you can seek out whoever
| happens to be hiring at a given point in time for the
| technology that you think will be huge.
| parf02 wrote:
| Interesting ideas. What does such a portfolio construction look
| like?
| darawk wrote:
| Betting on higher rates can be done using interest rate
| futures: https://www.cmegroup.com/markets/interest-rates.html
| These are fairly complicated instruments though so you'll
| want to do a bit of reading in order to be sure you're making
| the bet you want to make.
|
| Betting on AI is more complicated: Obviously chip makers are
| likely beneficiaries, along with tech giants, in particular
| Google via Deepmind appears to be a leader in this area. But
| there are other ways for this sort of thing to play out, a
| lot of companies HNers probably never think about are
| investing in AI automation for their factories and automation
| in various ways. One possible future is that Deepmind builds
| The General AI Solution, and then licenses it to everyone.
| Another possible future is that the tech becomes so easy to
| build that each company just builds its own tailored solution
| for its particular problem.
|
| I think I find the latter solution somewhat more plausible,
| but both are definitely in play. How you invest to benefit
| from that is tricky. It's likely in that scenario that some
| big companies will develop solutions in house, and others
| will buy startups that you'll never have a chance to invest
| in. Your job as an investor at this stage would be to figure
| out _which_ big companies that you can invest in are likely
| to be the ones who do this successfully.
|
| And when I talk about big companies here I don't necessarily
| mean the big tech companies. I mean companies like Tyson that
| makes chicken, or chemical companies, or firms like
| Accenture, etc. This is the harder side of the bet, because
| it's going to play out over quite a while, and there is a lot
| of uncertainty about exactly how.
| deepsquirrelnet wrote:
| Moreso than AI, ML will continue to integrate into business
| and improve overall productivity. I don't worry so much
| about monopolies in AI, because compared to the business
| solutions from ML -- which are often much smaller, boutique
| models that perform more efficiently than large, general
| purpose models.
|
| I believe the soon to be realized lesson is that solving
| one specific problem is significantly cheaper than trying
| to leverage much more expensive models built to solve a
| great many problems.
|
| There's still a lot of runway left in "small" models (eg
| BERT) that are still being researched and augmented to
| solve common business problems. 10 years from now, I
| believe some form of the current models will become
| industry standards as methods for solving specific
| problems.
| paulpauper wrote:
| "The coming long-run slowdown in corporate profit growth and
| stock returns"
|
| And yet the S&P and DJIA posted one of the biggest weeks ever
| last week. Huge companies like McDonald's and Microsoft making
| record profits to no end, and I see no reason for this to change.
| This means more $ for shareholders even if interest rates rise.
| Stock did well in the 1980s and 1990s despite even higher
| interest rates than today. Not that his report is wrong, but
| experts , such as in 2009 or 1982, have a long history of making
| such predictions and being wrong. Being invested tends to pay off
| based on history.
| gchokov wrote:
| No idea why you get downvoted. I agree 100%, even the FED
| experts get it wrong more often than not.
| wardedVibe wrote:
| In the very long run, the growth rate of any subcomponent
| (publicly traded companies) of the economy must be smaller than
| the growth rate of the entire economy (GDP, which is ~3% in
| developed economies). It's not a question of if, but when.
| eloff wrote:
| That's not true though. Some companies will grow faster than
| others. Also companies expand into foreign markets that are
| growing faster.
|
| Plus that really long term is probably long after everyone
| commenting here is dead.
| gazarullz wrote:
| Based on some comments in this post and the posted article, it
| seems we are assisting to a power shift, I wonder who will
| replace the US and how long will it take.
| nightski wrote:
| I'm surprised, coming from the Fed, this article seems to
| completely ignore the effects of 8%+ inflation.
| wardedVibe wrote:
| All of these are denoted in real terms, so yeah, you can just
| ignore inflation.
| nightski wrote:
| Real terms only work in the past. These are future
| predictions about interest rates staying high. They would
| need to be making estimates about future inflation then and
| if history is any indication the fed always gets it wrong.
|
| Remember, inflation has been extremely low during the period
| of low interest rates as well which they are referring to. If
| inflation stays high, even with high interest rates, that
| will make a big difference.
| jmyeet wrote:
| Consider this:
|
| > The difference between EBIT growth and sales growth (3.6
| percent vs. 2.0 percent) can be attributed to an improvement in
| profit margins. In other words, costs grew at a slower rate than
| sales. Some of the improvement in profit margins may have come
| from sourcing cheaper inputs from abroad, enabled by increased
| globalization. Moreover, for output produced within the U.S.,
| growth in labor productivity--i.e., real output per hour worked--
| exceeded real wage growth since the mid-2000s.9 This means that,
| for a given cost of labor, firms were able to produce more
| output, which would also likely have contributed to the
| improvement in profit margins.
|
| Stagnation in real wages goes well beyond the mid-2000s. It
| starts in the late 1970s [1].
|
| Another way to put the author's thesis is that interest rate
| costs have gone about as low as they can. Another part is by
| depressing real wages. The only way for profit growth to continue
| on this model is to further depress real wages.
|
| Exponential growth cannot continue forever. Consider the metric
| of net profit per employee [2]. Why is it the employees cannot
| share in the success of the enterprise that simply cannot exist
| without them?
|
| We saw this again recently with the averted rail workers strike.
| Rail companies were freaking out at giving 125,000 "essential"
| rail workers _paid sick leave_ , the cost of which would've been
| 3-3.5% of _profits_.
|
| [1]: https://www.epi.org/publication/charting-wage-stagnation/
|
| [2]: https://tipalti.com/profit-per-employee/
| brundolf wrote:
| It sounds like we could finally see some movement on wage
| stagnation then, right? If so this seems like a good thing,
| even if my portfolio takes a hit. Most good for the most
| people, etc.
| sooheon wrote:
| Great links.
|
| > interest rate costs have gone about as low as they can.
| Another part is by depressing real wages. The only way for
| profit growth to continue on this model is to further depress
| real wages.
|
| The third variable is taxes -- we could always reduce
| sales/income taxes, and replace them with economically
| efficient taxes like the land value tax.
| jmyeet wrote:
| > The third variable is taxes
|
| One of the charts in the submission shows that effective
| corporate tax rate continues to drop (from ~30% to ~15% over
| the last 2 decades). How much lower do you want it to go?
|
| Also, if you replace the method of taxation (eg sales/income
| to land value use as you suggested), that's still a tax,
| meaning the only way to lower taxes is to... lower taxes.
| Changing the method of taxation doesn't inherently do that.
| sooheon wrote:
| > How much lower do you want it to go?
|
| Well ideally, 0.
|
| > Changing the method of taxation doesn't inherently do
| that.
|
| Yes it does.
|
| Different taxes have variable economic effects -- a tax on
| cigarettes is different from a tax on yachts is different
| from a tax on rent. Some taxes are inherently inefficient
| and put downward pressure on GDP. Others, like LVT,
| incentivize economic efficiency _and_ achieve better
| equality by preventing exploitative rent seeking.
| [deleted]
| status200 wrote:
| Hopefully this does not come across as whining (as i managed to
| escape the debt cycle), but this really seems like they're saying
| "the investment money train is over", which is just another slap
| in the face to my generation, who were already dealt a pretty
| crummy hand.
| timmg wrote:
| Funnily enough, I can't guess what generation you are in based
| on this comment. I'd argue it's pretty bad -- but not the end
| of the world -- for everyone from Zoomers to Gen X.
| googlryas wrote:
| Are we supposed to feel bad for the Americans with a crummy
| hand? To most of the rest of the world it sounds like if Prince
| Harry laments he's not in as high of a point of succession as
| his father was.
| Sevii wrote:
| People are complaining that entities in their government are
| favoring older generations over theirs. The government should
| not be discriminating based on age when it manipulates the
| financial markets to benefit retirees over the rest of the
| population.
| googlryas wrote:
| It seems more like people are complaining like "my dad
| bought a house and raised a family on a single income in
| 1970 and that's impossible now "
|
| That's a complaint about past vs current conditions not
| about current conditions favoring the elderly.
| pessimizer wrote:
| The current conditions favoring the elderly were the
| policy decisions that quintupled the value of those
| houses.
|
| For me the mistake is that the elderly aren't being
| favored at all, but the wealthy. The elderly are held up
| as helpless examples of the wealthy that need to be
| protected. But instead of protecting the elderly by
| directly taking care of them, which is obviously
| communism, it's important to protect the elderly by
| protecting the wealthy in general.
|
| Nobody cares about the broke baby boomers. They get to
| work at McDonald's until they are automated into
| homelessness.
| bradleyjg wrote:
| It's getting to the point where it isn't the boomers but
| their heirs that will benefit. The least we could do is
| eliminate the step up basis at death rule ...
| paulmd wrote:
| In a way though this fucks boomers pretty hard, if they
| didn't invest very responsibly and have their money out of
| stocks in time. The stock market is down 20% this year and
| unlikely to recover (if you believe the idea of the
| article) let alone return to long-run >10% growth like
| previously.
|
| Similarly we may be heading for a housing price crash at
| some point and that kinda screws boomers who hoped to use
| it as a piggybank.
|
| None of this in any way offsets the incredibly sweetheart
| deal that boomers received and then voted to deny to future
| generations, however. Almost free college, houses that
| pentupled in price, a stock market that averages 10-11%,
| generous social benefits, etc.
| arrrg wrote:
| That doesn't really make sense.
|
| If someone born in 1955 who started working in 1980 and
| then started saving money and investing into a
| diversified stock portfolio the current downturn sucks
| but isn't the end of the world. Plenty of time in the
| market.
|
| Sure, it always sucks if you are entering retirement when
| there's a downturn (which someone born in 1955 would do
| right about now) but I wouldn't even see the point in
| completely pulling out of stocks now.
|
| I would say that if the prediction that returns will be
| lower in the future is true then this sucks for everyone
| not entering retirement right about now. They still need
| and want time in the marke
| sidlls wrote:
| Yes, the fact that others are impoverished certainly
| justifies celebrating anything that helps those who aren't
| join their ranks. How spiteful.
| googlryas wrote:
| What part of my post is celebratory? I'm saying I can't
| really commiserate with the complainers. I'm not laughing
| at them though.
| marginalia_nu wrote:
| It's hardly uniquely shitty.
|
| There's bound to be people lived through the 1906 SF earthquake
| as a kid, the trenches of WW1 as a young adult (1917), then the
| Spanish Flu (1918) and then once things started looking up for
| them, either the 1929 stock market crash and/or the dust bowl
| came and took it all away again.
|
| Of course on the other hand, just because someone has had it
| worse doesn't make things not bad.
| adhesive_wombat wrote:
| And if you survived that, you got slapped with WWII. Which in
| Europe and Asia could have meant complete destruction all
| around you.
|
| In fact, in Asia, it didn't really improve from there for
| quite some time.
| marginalia_nu wrote:
| Yeah, it's basically 20th century Candide for much of that
| generation.
| bradleyjg wrote:
| How about being born in 1890 in China? If you lived until 80
| you'd have gone through: the first Sino-Japanese war, the
| Boxer Rebellion, the 1911 Revolution, the Warlord Era, the
| Northern Expedition and Chinese Civil War, the Second Sino-
| Japanese War, the second part of the Chinese Civil War, the
| Communist Purges, the Great Leap Forward, and the beginning
| of the Cultural Revolution.
| tupac_speedrap wrote:
| You aren't really whining, governments 20 years ago were
| worrying about "boom and bust" cycles but it feels like we only
| get "bust and bust" cycles at the moment.
| SR2Z wrote:
| We literally just had a decade of solid growth!
| qzw wrote:
| The current boom cycle has been juiced for so long that
| there's a whole generation of working people who have no
| idea what a bust looks like. My wife is one of them, and
| when I describe to her what things looked like after 2008,
| she thinks I'm just trying to scare her.
| mmaunder wrote:
| Unless you're unlucky enough to have a short life, you're going
| to live through several boom and bust cycles, so get used to
| it. I've personally lived through the collapse of the LTCM
| hedge fund and Russian economy while I was at Credit Suisse in
| 1998, the dot-com bust while I was at eToys.com in early 2000s
| ($6Bn market cap then delisted from Nasdaq and sold for $2MM to
| KB Kids), the housing bust of 2007/8, and now the current stock
| market collapse which is just getting started.
|
| Every crisis presents opportunity, provided you're not just
| spending your life riding everyone else's coat tails. Busts are
| particularly good for entrepreneurs because we don't have to
| compete with all the stupid money out there feeding the
| swarming incompetents. A bust is a time for true innovators to
| rise from the ashes.
| cowmoo728 wrote:
| The boom and bust business cycle is very different than a
| protracted run of near zero growth
| wardedVibe wrote:
| 3% a year in real terms is not near zero. It's what the
| actual state of the economy has been for decades, if not
| centuries.
| gnicholas wrote:
| When was there near zero growth? The last decade has seen a
| boom of VC investment and startup growth. There was the
| Great Recession before that, following the post 9/11 growth
| spurt. It seems like the last time there was no growth was
| perhaps the late 70s?
| netr0ute wrote:
| A run of near zero growth is exactly the same as a bust, so
| I don't know what you're adding.
| onlyrealcuzzo wrote:
| There's asset price inflation, productivity growth,
| technological growth, and population growth.
|
| I'm not sure why anyone thinks we need more people.
|
| Humans make up 34% of all land biomass.
|
| There are physical limits to technological growth. We're
| already getting close to the physical limits for how good a
| lot of things can get. Short of living in a fairytale, I'm
| not sure what people are hoping for.
|
| Productivity growth is predominately going to come from
| technological growth. However, much of the world is
| ridiculously under-invested in. We have generations of
| growth left here. Why do we need more people when ~70% of
| the world is ridiculously under-invested in?
|
| Asset price appreciation is good if you own assets - bad of
| you want to buy them. In an ideal world, I think assets
| would be valued based on some kind of sense - not whatever
| central banks decide.
| [deleted]
| bradleyjg wrote:
| Its really not that crummy a hand. Maybe it's not as good as
| being born in 1948, though they had to deal with medical issues
| that you never will, not to mention the military draft. But
| that's not the only point of comparison ever. The destruction
| in Europe created a period of unprecedented prosperity in the
| US.
|
| The student debt that is endlessly whined about has been
| transformed over the last decade from real debt to a marginal
| tax on income. This is the same system that's used in Australia
| and the UK.
|
| Then there's the run up in house prices. A real phenomenon but
| this idea that home ownership is the sine qua non of a happy
| life is a transitory culture artifact, not any kind of human
| universal.
| whimsicalism wrote:
| I would say having housing is pretty important and rents are
| rising too.
| bradleyjg wrote:
| Real income after housing costs is still very high both in
| historical perspective and as compared to other
| industrialized nations today.
|
| This is like US doctors complaining about malpractice
| insurance cost. Sure, it's high, but even after that look
| at income vs Canada or the UK.
| freyr wrote:
| "Sure, we're moving in the wrong direction, but at least
| we're not as bad as those guys yet" isn't that
| comforting.
| bradleyjg wrote:
| "who were already dealt a pretty crummy hand"
|
| Which is it?
| whimsicalism wrote:
| Yes, I am not one of those people who is foolish enough
| to think that it would have been better to have been born
| in 1940 than today. Of course quality of life and real
| incomes are higher.
|
| But I think in the microscale, it might have been better
| to be able to invest in this most recent bull run when
| housing was also lower cost than the next decade or so.
| tchaffee wrote:
| It's a crummy hand when the cause is increasing wealth gaps.
| The money was there and is there. Policy has shifted how much
| of it the middle class ends up with. That's crummy.
| bradleyjg wrote:
| I admit I don't get the obsession with inequality when the
| absolute numbers are so high. It feels like a generation is
| treating envy as a virtue rather than a vice.
| tchaffee wrote:
| It's not envy. It's rightly expecting a fair share of the
| pie you helped make.
| bradleyjg wrote:
| Some people are contributing to making that pie bigger
| and a lot of people aren't. Why should the people whose
| contribution is steady or negative get a fixed fraction
| of the pie? What's fair about that exactly?
| tchaffee wrote:
| That's a different topic. We are talking about the middle
| class getting less than they did in the past, and that
| extra money going to the rich.
| bradleyjg wrote:
| It's the same topic. Lots of middle class professionals
| have essentially the same output as their forebears did
| 40 years ago. They are not expanding the pie. They are
| nonetheless richer in absolute terms, but have pulled
| away in relative terms from those that are much more
| productive than their fore-bearers. This is perfectly
| fine but for envy.
| tchaffee wrote:
| > Lots of middle class professionals have essentially the
| same output as their forebears did 40 years ago.
|
| No, they have much higher output.
|
| > They are not expanding the pie.
|
| They are.
|
| > They are nonetheless richer in absolute terms
|
| They are not. It takes two incomes to do what one income
| used to pay for. Lots of middle class people cannot
| afford to even buy a house. Something most of their
| parents managed to do at a young age.
|
| > but have pulled away in relative terms
|
| Yes, this has also happened.
|
| > those that are much more productive than their fore-
| bearers.
|
| Much more productive? That's also not true.
|
| > This is perfectly fine but for envy.
|
| If it were envy, the middle class wouldn't be asking for
| better wages. They would be asking to become rich. It's
| not envy.
| bradleyjg wrote:
| "Lots of middle class people cannot afford to even buy a
| house. Something most of their parents managed to do at a
| young age."
|
| This one thing seems to be something of an obsession. How
| much did it cost their parents to have a child at 40? Or
| to cure prostate cancer?
| tchaffee wrote:
| Owning a house is not an obsession. Shelter is a basic
| human need and people across many cultures own houses.
|
| And no, it's not one thing, it's just one example. People
| aren't getting paid as fairly as they used to.
|
| Yes quality of medical care has improved. That's not the
| discussion. We're talking about fair pay.
| SantalBlush wrote:
| You made this up. Average labor productivity has steadily
| increased over this time.
| lossolo wrote:
| What's fair about Zuckerberg becoming billionaire by
| basically pure luck? There are millions of people more
| hard working and more intelligent than him but they were
| unlucky. If not Zuckerberg then someone else would create
| Facebook, he was surprised by how successful FB was.
| Calculus was discovered independently in the late 17th
| century by two mathematicians and it would be discovered
| if they both would die before doing it. It's all
| statistics, you can have the best idea in the world but
| be in a wrong place at the wrong time and you will fail.
| bradleyjg wrote:
| I might have been elected president. I wasn't, but I
| might have been. Should Biden have to split Air Force One
| with me?
| lossolo wrote:
| Seems like a straw man, it's like asking - I'm not
| husband of this woman but I could, so should she split
| this kid with me if I want to? This is different to
| sharing wealth, we already tax people so we share their
| wealth with the rest of the society but we don't share
| other people kids, wives or Air Force One.
| datalopers wrote:
| Last I checked you can still land a $150-250k job with a couple
| years experience slapping together python packages and some
| copilot code. Life is still very much on easy-mode for our
| generation.
| theknocker wrote:
| johnebgd wrote:
| You can also win the lottery but the odds aren't in your
| favor.
| qzw wrote:
| I assume you're fairly young. I know things look pretty grim at
| the moment, but in the longer term the younger people are going
| to be in the driver's seat like few generations before. The
| demographic trends in most countries forecast aging populations
| that will face serious labor shortages. So the younger
| generations should be able to leverage that into better
| economic outcomes. But the tricky part will be in getting
| around the institutional barriers that the older generations
| have and will continue to put up in order to maintain the
| economic upper hand.
| lpapez wrote:
| This overlooks the fact that automation is eating jobs
| requiring human input *much* faster than new human jobs are
| being created.
| Negitivefrags wrote:
| We can only wish this is the case.
|
| We are about to have a demographic crunch where we will
| have massive worker shortages. That is inherently
| inflationary, and we will need automation which is
| inherently deflationary if we want to keep the lifestyle we
| have.
| tchaffee wrote:
| Automation has never eaten jobs. People just do more
| interesting or more valuable work.
| bradleyjg wrote:
| How come the number of people employed is going up and not
| down?
| milesvp wrote:
| Can you cite a source? Every generation for the last 200
| years has felt this way, and I was taught from an econ
| degree years ago that historic averages turned out to be
| ~1.2 jobs created for every job lost to automation.
| Economies also tends to be self balancing which further
| lends credance to the idea that it's really hard not have
| an employed work force. I think the bigger problem isn't
| automation, it's the way we treat capex vs opex in
| corporate accounting. We'd go a long way to make paying
| someone more tax beneficial than to go the ludite route.
|
| (I also don't mean to downplay the pain if displacement
| from automation, it's a very real problem and a reason I'm
| a big fan of social safety nets)
| [deleted]
| seydor wrote:
| that is not possible. it's like asking a plant to thrive in
| toxic soil
|
| but humans are not like plants, they move and immigrate. look
| at southern europe for an example. Democracy serves a bad
| deal to younger generations and they know it
| mstipetic wrote:
| That makes sense on the surface, but often times it's not the
| case. Turns out in a democracy where everyone thinks only of
| themselves the older and more numerous generations vote for
| their own pensions and protections and stiff the younger
| generations.
| [deleted]
| qzw wrote:
| People always only think of themselves, democracy or not.
| That's been true since the dawn of time. That's why I said
| the younger generations will need to overcome some of the
| institutional barriers. Nothing is going to be just handed
| to them.
| 6510 wrote:
| This is incorrect, it is a cultural phenomenon. There has
| always been a balance between doing constructive things
| for others depending on how close they are socially and
| caring for themselves. You have all the emotions, you
| know how it works.
|
| There are tribes where no one cares who gave birth to the
| kids. We did countless wars and profited at the expense
| of others but if you fail to account for the soldiers
| moral it kinda not makes sense for them to make the
| ultimate sacrifice. We had many religions and some
| political ideologies where selfishness was not just not
| admired but frowned upon and undesirable. Most of our
| quality of life comes from previous generations doing the
| hard work for us, often intentionally. Try starting from
| scratch on the "only think of myself" principal and you
| get something nonsensical like Liberland.
|
| Almost everything was just handed to you. You got a good
| hand of cards. Almost nothing was the result of you
| taking care of you.
| 29083011397778 wrote:
| So do what the boomers did and form unions. Working
| together, you can collectively demand higher wages, or shit
| does not get done. This has been proven out in practice to
| work - that's why the boomers did it in the first place. Is
| it perfect? No. But it gets you closer to where you want to
| go instead of bitching about wages being too low, then
| following it up with American Individualism and
| Exceptionalism.
| [deleted]
| fredgrott wrote:
| given the Federal reserve handling of the 2008 crisis by re-
| selling those bad debts and the time they had to do that was
| infinite everyone had enough of a warning already that when
| they got to the end of that selling of bad debt the returns on
| all other asset would be lower as the Federal Reserve tool used
| implies that economic aspect.
|
| This is why the market was turning to real estate past the 2008
| crises in the first place, especially among hedge funds in
| particular.
| mellavora wrote:
| There is also an interesting relationship between government
| surplus/balance sheet and corporate profits.
|
| If you are non-cynical about it, and consider a theoretical model
| (closed system), then from basic economics if one actor is
| running a surplus than another actor must be running a deficit,
| otherwise the accounts don't balance.
|
| And while true, "it's only a model" (in the immortal words of
| John Cleese, looking at the model of Camelot in "MP and the Holy
| Grail"), if you chart the two against each other it holds up
| relatively well in reality.
|
| This is relevant because the Fed is also committed to shrinking
| its balance sheet, which, if that model holds, will also shrink
| corporate profits.
|
| Higher cost of capital, higher taxes, and less money in the pot.
| We've had a good run the last 40 years, the next 7 might not be
| so rosey.
| FredPret wrote:
| The zero-sum model bears no relation at all to reality.
|
| Consider the total planetary economy. We get many inputs from
| outside. We get free sunlight powering some solar panels and
| the whole ecosystem. We tap that ecosystem for many valuable
| resources. We get vast troves of pre-existing minerals that can
| dig up at will.
|
| We also have innovators that come up with inventions and
| systems and are compensated for their contributions, but never
| to the full extent that they benefit society. (Nobody can
| capture all of the value they add.)
|
| Growth seems almost inevitable.
| mellavora wrote:
| You might be right, and I was clear that it was only a model.
|
| This gives a starting point. You can then measure the value
| added by the externalities you mention.
|
| Or, as the author of the source article did, you can also
| measure the value added by low interest rates and low tax
| rates, then make some guesses as to what happens when those
| reverse.
| FredPret wrote:
| Fair enough. I think interest rates cannot add value; the
| stability that makes low rates possible is the thing that
| adds value. I'm no economist though
| mellavora wrote:
| I saw a long-term study of interest rates, going back
| hundreds of years (like to the 1300s or so). The long-
| term trend is for a decline, and probably due to the
| increasing stability reducing risk, thus the loans get a
| lower premium.
|
| Interest rates don't add value; they are the cost of
| money.
|
| Money should be expensive enough that it is encouraged to
| only use it on investments which are likely to add value.
| When money becomes too cheap, it is "worth it" to invest
| in things with very little real chance of payout.
|
| What that level is, I certainly don't know.
| hgomersall wrote:
| Whether or not real wealth can increase or decrease is
| besides the point in this discussion. Financial assets must
| sum to zero across the system.
| koyanisqatsi wrote:
| What innovations are going to maintain infinite economic
| growth on a finite planet that is going to be 2C degrees
| warmer in the coming decades?
| 6510 wrote:
| You sort of answer your own question, off world resources.
| Infinity is out there not down here.
| cs702 wrote:
| The expanding and shrinking of the Fed's balance sheet over
| period of time is neither a surplus nor a deficit, because
| there's no spending involved. The Fed expands is balance sheet
| by purchasing interest-bearing government/agency obligations
| (bonds) with non-interest-bearing government obligations
| (money), and shrinks it by selling the interest-bearing
| obligations in exchange for non-interest-bearing ones. The
| balance of government obligations (issued bonds + issued money)
| remains the same. There's no spending involved.
| hgomersall wrote:
| It's not really a model, it's accounting. The reason it holds
| up well is because it's an identity. If you represent all the
| flows they must sum to zero by definition. Those that ignore
| that (most people) miss some fundamental truths, which you
| allude to. No idea why you should be voted down other than to
| think those truths break much cherished dogma.
| mellavora wrote:
| well, downvotes for challenging dogma with mathematical
| identities is a long-standing tradition. I'll take them with
| pride on this issue.
|
| But thanks for the support, and for pointing out that I'm
| only stating identities, and that sometimes trends reverse.
| pessimizer wrote:
| > We've had a good run the last 40 years, the next 7 might not
| be so rosey.
|
| The "good run" also relied on that identity. The national
| income accounting identity tells us that if we run massive
| trade deficits for 40 years, we get a massive trade debt that
| has to be borrowed in foreign currencies. It can be either
| borrowed by the government, or individuals/businesses. The
| government can't cut national debt without reducing (or better,
| reversing) the trade deficit, so what it's actually doing is
| shifting that borrowing to the private sector.
|
| So ultimately reduction of government spending amounts to
| selling the private sector to pay off government debt, which
| imo is not good. We shift from owing other countries paper that
| we have an infinite supply of, to owing them actual parts of
| the economy.
|
| We need to be shifting spending from all of the direct subsidy
| to the wealthy of course, but we shouldn't be reducing
| anything. Turns out that giving money to rich people isn't a
| good investment because they steer most of it to financial
| scams and rent-seeking ploys. The government needs to spend in
| a way that targets lowering the trade deficit, and that means
| investing in things with a return. Part of that should be
| trying to shift the debts of normal individuals to government,
| where they can be more strategically invested in a way that
| will reduce imports or increase exports.
|
| The debts of normal individuals are mostly wrapped up in
| housing, healthcare, and education. So we should be subsidizing
| those rather than the stock market.
| bradleyjg wrote:
| _The debts of normal individuals are mostly wrapped up in
| housing, healthcare, and education. So we should be
| subsidizing those rather than the stock market._
|
| The subsidization, or more specifically the removal of
| individually driven feedback mechanisms, is what caused the
| prices of these things to skyrocket in the first place.
|
| The modern university isn't basically the same as the 1970s
| university except post Baumol's cost disease. The budget
| looks dramatically different.
| mellavora wrote:
| > The modern university isn't basically the same as the
| 1970s university except post Baumol's cost disease. The
| budget looks dramatically different.
|
| Agreed. Look at ratios of professors to non-academic staff.
|
| "The number of non-academic administrative and professional
| employees at U.S. colleges and universities has more than
| doubled in the last 25 years, vastly outpacing the growth
| in the number of students or faculty, according to an
| analysis of federal figures."
| https://hechingerreport.org/ranks-of-nonacademic-staffs-
| at-c...
|
| "Over the last two decades, the number of managerial and
| professional staff that Yale employs has risen three times
| faster than the undergraduate student body"
| https://yaledailynews.com/blog/2021/11/10/reluctance-on-
| the-...
| pessimizer wrote:
| > The subsidization, or more specifically the removal of
| individually driven feedback mechanisms, is what caused the
| prices of these things to skyrocket in the first place.
|
| No, it's that the subsidy was done through middlemen and
| rent-seekers instead of direct provision of free
| healthcare, education, and housing. Giving people earmarked
| funds is just direct subsidy to the people who control
| pricing.
| bradleyjg wrote:
| K-12 education is done via direct provisioning and has
| also seen costs explode, in no small part due to growth
| in non-core staff.
| BurningFrog wrote:
| Money is not wealth.
|
| We can all get wealthier (or poorer) in a in a system with a
| fixed amount of money.
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