If we instead look at time periods during which the industry average was considered to be 8%...
https://dqydj.com/dow-jones-return-calculator/
1960-1990 = 9.5% average return.
1960-2000 = 11.5% average return.
It's largely pointless to talk about inflation-unadjusted average-rate-of-return for long time periods. A 12% YoY return when inflation is at 15% is terrible. A 5% YoY return when inflation is at 0% is amazing.
Real (CPI as inflation) averaged annualized return on the DJIA 2000-2010: -2.219%
This is with relatively mild inflation.
Of course, 1960-2000 looks better when you literally put in the apex of the software bubble when P/E ratios shot skywards...part of which corrected over the decade following.
Expecting a 8% nominal or real return is simply nuts in my opinion because you are staking yourself on a really small sample size with crazy inflation to boot. Nominal or real is a nuanced distinction to what is plainly just bad overfit thinking. The introduction of just one decade with low inflation and bad returns can wreck you -- case in point: Dallas Firefighters/Puerto Rico ($43bn + of unfunded pension obligations)/Detroit etc. etc. etc.
I personally feel the right answer is in the middle. Socialise whats required like health, education, emergency services, roads, pensions, etc And leave the luxuries of life as free market.
As an extra touch, I would make politicians and civil servants required to use public services rather than private alternatives. Because when they and their families have to use public schools and hospitals etc they will care a bunch more about how they run than if they are choosing private alternatives, which is common in Australia at least.
That said, there is a huge government ("public") sector and the taxation is high on most things. Especially income and consumption.
Basically, all of the socialist programs that's currently going on in the Nordic countries rely heavily on taxing free enterprises (private sector) and would work a lot less without them.
social, not socialist.
Quite a different beast.
Socialism works great until you run out of other people's money. Whether it's because the price of oil dropped, your most productive tax payers moved out, or your currency hyperinflates until it's worthless: somehow it's never socialism's fault. Reality eventually does set in, though.
If your economic system can't efficiently feed people, more complex industries will be even harder. Not to mention building new industries.
The failures of their socialist experiment go far deeper than simply a non diversified industry. The drop in the petro industry showed immediately how fragile the massive spending schemes and nationalization was.
As Thomas Sowell said (paraphrasing), the problem with redistribution is that you can only take someone's money/property once, you can't take their ability to continually produce goods. So when that well dries up the cracks in the system become apparent.
The wikipedia article on the Venezuelan economy is a good read about the risks of centralized planned economies.
Benefits will get (mostly paid); taxes will go up (they have to, they're at unsustainable historic lows). This is not the end of the world.
I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift.
I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle.
I'd rather see failures and bankruptcies at a local level, which will maybe convince other municipalities to reform before they collapse. I don't want everything centralized into one giant US federal government default. That's not a better plan.
Agreed. That shift is going to happen though. Seniors are not a cohort you can ignore. They vote like clockwork.
> I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle.
I don't, but we should've been setting aside these funds. We didn't, and we'll still need to pay out even at a reduced benefits level.
> I'd rather see failures and bankruptcies at a local level, which will maybe convince other municipalities to reform before they collapse. I don't want everything centralized into one giant US federal government default. That's not a better plan.
Reform will not happen. That's code for "cutting benefits". As long as the US government maintains the ability to tax, it will not default. Social Security keeps a third of seniors out of poverty. 45 percent of Puerto Rican's are already in poverty. Cutting benefits further? That's not tenable.
No one held government accountable over the last several decades, and now we're stuck with the fallout.
EDIT: Because of ye olde' HN throttling limits:
Most seniors don't pay taxes, due to marginal tax rates. Seniors will vote all day to keep their benefits intact. I don't blame them.
> Reform will not happen. That's code for "cutting benefits".
The benefits to be cut will happen in a few small areas given the size of the US, thus will not affect the majority of lawmakers. If the GOP controls the Congress, that doesn't seem like a large enough impact for them to change their overall ideology towards pension subsidies.
Stick it in an omnibus bill with stuff they do like?
A country / protectorate defaulting is not necessarily something that can't be recovered from, and in some cases is the only sensible (or indeed feasible) course of action.
We're actually getting pretty handy at cutting retiree pensions and benefits. The deals negotiated decades ago predicated on fantastic rates of growth aren't really plausible and they eventually have to be reworked. That means cuts. That's reality and reality has, at long last, arrived for Puerto Rico.
So expect cuts. Don't believe there is some pot of gold out there filled with untaxed entities that just need to be tapped to fix everything. Its fiction and it won't happen like that.
The big reckoning after Puerto Rico is going to be Illinois. Producers are straight up evacuating IL while the state government just keeps digging itself deeper into the hole. That situation is going to set all sorts of precedents for how this nonsense gets resolved.
More people are moving out of Illinois than any other state. In polls residents of Illinois are most likely to say they're planning on moving to a different state. The state hasn't passed a budget in over two years, a US record for any state. Average income difference between families moving in and out of Illinois is over $20,000. The property taxes are second highest in the nation relative to COL and everyone agrees that they need to be increased to maintain the current budget. The state cut funding for all college grants programs and the average freshman class size at state schools has shrunk an average of more than 20% in two years. Illinois is the biggest exporter of students, and many never return. Pension costs are already 25% of the state budget and this is projected to increase.
The state is so deeply corrupt that bankruptcy seems inevitable. If not for the whole state at least Chicago. Madigan literally runs the state from the shadows and gov. Rauner has no real power.
The budget problems are accelerating at a frightening pace as anyone that can afford to leave the state does. The most severe issue is brain drain of the most bright and educated young people. Illinois will experience the fallout from this for decades.
If I had any money invested in Illinois I would watch this case closely. If Puerto Rico is allowed to proceed with bankruptcy to shed pension obligations Illinois will follow
What makes it appropriate to cut obligations to creditors we call pensioners, but inappropriate to cut obligations to creditors we call 'bondholders'?
(The answer is, obviously, that our politicians are quite happy to push our elderly under the bus, in order to protect wealthy investors.)
The part where I said bondholders should be held harmless is a fiction inside your head. When the gears finally strip the bondholders in these cases (Detroit, GM, etc.) take epic baths, and I don't shed any tears for them either. $7 billion in bondholders’ obligations in Detroit were erased, for example.
So I suppose there is little difference between supposed "creditors we call pensioners" and actual creditors; everyone gets wrecked.
I am sure I am being very naive here but this seems to me to be the essence of taxation without representation.
"Representation" is a bit of a vague concept in US governance.
http://nypost.com/2015/10/21/more-than-2-dozen-ex-fdny-colle...
"During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually."
http://davidgcrane.org/?page_id=702
It doesn't auger well for the future of stable financial markets. Weak localities will fail, and eventually the states that have to support them. Puerto Rico is the canary in the coal mine.