The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been.
These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affecting every asset class from real estate to public market equity to early-stage startups to commodities, and you aren't the only one who's worried about it (I am).
I'm just an engineer with basic financial survival skills... but blind intuition suggests fixing those problems is necessary for a sustainable growing economy.
"Trickle-down" theory and growing inequality drains economic activity since the "1%" invest their money instead of spending it. They profit when the public consumes, unless short-sighted over-exploitation by some industries strangle general consumer activity...
It sure looks like we're being strangled. Off the top of my head: urban rent, health care, high consumer debt and student debt reduce disposable income while automation, exporting jobs, poor retraining for adult laborers, and lower small-business access to capital due to banking mergers lower actual income. When businesses close, some of their ex-employees will switch to high-skill high-demand jobs... but most will increase the labor supply in less skilled industries because they urgently need money - putting downward pressure on wages and working conditions.
If I'm wrong, I'd love to learn why, and what other systemic conditions explain our economic stagnation.
As for your larger argument, well, this is a just-so model. There are many different ones, in favour of different policies, of course. But, realistically speaking, constant growth of a developed economy was never possible. However well you reduce inequality or deal with automation-related job loss, there are limits to attainable market expansion. Stagnation or, at best, negligible growth are something we need to learn to face.
TD has been referred plenty, not under than name. You'll find a bunch of economist views (positive and negative) under supply side theories which is often steeped in trickle down theory.
And then the article promotes TD under the logic; "the sequence of payments is directly the opposite of what is assumed by those who talk about a ‘trickle down’ theory. The workers must be paid first and then the profits flow upward later – if at all." based on a couple of examples and his loose theory without any real research.
There are plenty of proper studies to the contrary available with an easy google.
A: We need to impose 100% tax on the top 10%, to achieve economic growth and lower inequality.
B: This isn't even wrong, this is asinine.
A: Oh, trickle-down much?
Why do this? Naturally, because genuinely debubunking the specific arguments against high tax rates is a lot harder than joking about the bourgeoise that promote TD because of their greed.
Housing costs are terrible. They're getting bad even in small towns like mine. There is no way that my house is worth 172k. For many, especially in California and states that followed their lead, housing cost are largely, not solely, due to regulation on new house starts. Environmental impact and associated costs make a new housing community in California on average 1 million dollars more expensive. For many, they don't even put shovel to sod.
Health in the US has a lot of this too. Governmental regulations and the AMA drive up the cost of doctors. All of this is well documented. Interestingly, the free market is coming to a possible rescue on the price of generics: https://www.nytimes.com/2018/01/18/health/drug-prices-hospit...
A good chunk of student debt is due to the government printing money for loans that students can't escape. School saw this bottomless supply and acted accordingly.
Job exporting has some factors due to regulation too. As do the others in your list.
I'm not saying that regulation is bad. I believe in free markets, not unfettered markets. However, a lot of the regulation is old, duplicative, and contradictory. It makes being a business far more complex than it should be. Regulation hampers innovation. We need to remove regulatory cruft at all levels. We need to adopt evidence based regulations.
There are some absolutely unnecessary regulations, like the loopholes Tesla has to go through to sell cars because traditional dealerships don't want to lose money, or unfair taxes against green energy - protectionism must die.
There are also outdated but reasonable regulations, like Seattle's density regulations. Our housing crisis is caused by the market lagging far behind economic growth because it took years for the public to recognize the city was growing, years to change the laws, and then more years for the normal construction timeline. Density regulations as a concept make sense, but we haven't figured out how to auto-scale limits to avoid falling behind.
And then there are areas where we do need more regulations. For example, we absolutely need more regulations on credit cards and loans in addition to better finance education in highschool. Consumers are responsible for being informed, but there's still no excuse for even offering to saddle someone with a high-interest loan that they can never hope to pay off... some people are simply too dumb to understand the math.
I like the phrase "evidence-based regulations", but sometimes the evidence is stale or measuring the wrong thing, and the data doesn't guarantee we implement the right system of incentives.
This is like saying "the main problem with laws is..."
In fact, this false dichotomy between "more regulation" and "less regulation" is mainly an artefact of corporate lobby groups (plenty of examples in their propaganda of this).
It dumbs down the issue to a childlike level and lets them play two political blocs who might have fundamentally similar interests off against one another depending upon what particular legislation they want introduced or repealed.
> This is like saying "the main problem with laws is..."
Is it ? A corporation that already pays employees higher than minimum wage can drive out smaller shops that do not pay much more than minimum wage by working to raise the minimum wage. This enables them to raise prices and screw customers over if the smaller shops go out of business.
'Murder laws help murders by allowing them to capture murder laws'
Does not quite seem to work
If you're talking about, say, Walmart, they lobby very hard against minimum wage raises and even go as far as to threaten what appears to be self destructive behavior to prevent it from occurring (e.g. threats to close profitable stores).
Minimum wage goes up -> Walmart profits go down. It's that simple. (see minimum wage across state borders by Dube, Lester & Reich).
They drive out smaller shops by using their buying power to beat suppliers down on price, using their size to get sweetheart land deals and sweetheart tax deals with local officials desperate to bring jobs to the area.
The trouble is that income/wealth inequality is often ignored in macroeconomic models. The math gets tough and an easy way to simplify the equations is to assume an equilibrium growth path. More complex models use a dynamic stochastic general equilibrium, but an equilibrium all the same.
Unfortunately, the key feature of rising inequality is that it may move the system into an unstable equilibrium. For example, if a handful of billionaires hang out together at Davos and get a bit of groupthink, they might decide to misallocate some capital (accidentally). If they make a mistake in a truly dramatic fashion, (investing heavily in Bitcoin, for example) they could evaporate a large chunk of the nation's wealth. When a handful of actors has an extreme influence on capital allocation, we've effectively become a command-economy instead of a free-market economy.
Read about Fordlandia. It's hard to measure the economic impact of Ford's obsessions on Detroit.
> us vs them
I'm not sure where you got that sense. Capitalist societies tend to create log-normal distributions of wealth. There's no threshold where you can say one person is "us" and the next on the curve is "them".
(edit: removed precise amount of US debt because figure is debatable and I don't want to get caught in weeds. It's a $BIG_NUMBER.
Of course, the general public is screwed when the crisis hits - we don't have any off-shore bank accounts - and this administration has seriously shortened the timeline to crisis.
As we continue on, we discover that, lo and behold, the programs need even more money, time for a tax increase!
Further down the line, we discover that further tax-increases are not politically-viable... no problem, let's just add to the entitlement-burden and let's re-visit the issue.
Later still, it's time to start paying for those unfunded liabilities but, damn it, there's no money in the vault. No problem: let's just print more money, and while we're at it, let's loan it to ourselves and charge "ourselves" interest (the second "ourselves" of course means "taxpayers, LMAFO).
Repeat until your currency, economy, and society collapses.
(edit: don't take the above as the complete-picture, by any means, it's just another rarely-mentioned factor that I wanted to bring up. I believe there's a sweet-spot to be found for taxation & social-programs that has a net-gain for society.)
I would say that a huge factor contributing to low growth in developed countries is the fact that, on a global scale, they're just very rich and for most businesses it makes more sense to develop in countries with much lower costs. I.e. the next 50 years will be about poor countries slowly catching up with the developed ones, not about developed ones getting even more ahead.
And the same thing was true during the bailout. 99% of that money was never spent so it didn't have any affect on the economy.
Then where did it go?
The BoE then collected and destroyed government payments on the bonds, so the net amount of money doesn't change in the long-term.
One side-effect of this is that the cost of bonds went up -- demand had increased -- so the profitability of buying them went down, meaning the banks were naturally incentivised to do something else with that money.
It's not a panacea, but it is quite a neat lever to have when you want to increase the supply of money without actually spending any. Unfortunately it still looks like the banks are being given lots of free cash, but it's not actually free.
Basically the Fed made lines of credit (with strings attached) open to banks to guarantee liquidity, increasing trust in markets. Banks didn't withdraw the money, and some that did (or were forced to take it to dissuade bank runs on the others) paid it back quickly to get out from under the strings.
Here's [1] a decent source on the finances of the bailout (which were actually loans).
Judging from low and stable inflation it's obviously the second as opposed to the first.
The computer boom is mostly over with the low hanging fruit taken. Prior to that we had IC engines and electricity, but nothing on the horizon seems to have that kind of potential to radically reshape society. And to double the economy every 25 years you need regular dramatic shits.
PS: Look at the past generation (20 years) and 3% are unusually good years.
1) AI. Somehow, we finally get the AI working, and it somehow produces a lot more jobs. I really think the opposite will happen, but who knows.
2) Climate Change. The ever rising waters and the ever worsening storms will cause nations to re/build large infrastructure projects. Think seawalls and repairing the NYC subway. I don't think that will be good, as it'll mostly just be debt spending, but who knows.
3) Biotech. With CRISPR and optogenetics combined, the ability to safely edit in vivo will explode. Change your eye color to pink in a week. New fruits and veggies. Everyone has a really skinny body-type. Etc. The FDA and other nation's agencies will be hesitant, but it'll happen either way. I think this has the biggest chance, though the time horizons are much longer than we are used to, maybe centuries.
Recall a few days ago some people were trying to reconstruct the genome of the first black man in Iceland. There's no way anyone could have a job doing that in anything but a very wealthy society.
In other words, AI won't create jobs in manufacturing, but it will enable unexpected jobs to be created that would otherwise not be cost-effective.
Recall who funded that work.
#2 is a broken window fallacy. It may create some up months, but you need increased productivity for sustained growth.
#3 Biotech has been around for a long time. It's a world of hard problems, and again you need increased effecency not novelty to drive sustained growth.
[0] http://www.mining.com/this-australian-man-just-found-a-massi...
Space mining is not the answer to things we can find otherwise on the ground. It is the answer to how we build things in space, and get things we can't get in bulk down here. The right rock could reshape our relationship to some of the rare earth metals, for example. Mining en masse in remote regions is no picnic, so if hundreds of millions invested in going up can bring many billions down on demand, the economics will make sense. Mining Antarctica for hundreds of millions of tonnes for a not-so-interesting minerals offers an upside that pales in comparison to the amazing nuggets we have floating around the solar system...
And if the economics are sound, technologically: if you combine a UAV and a brain about as good as we get in a Tesla you're just a few rockets away from some insane riches and the power to crush terrestrial markets on a whim... No soup for you <mineral producer>... that's the kind of thing Billionaires dream of.
The promises of low and micro g manufacturing, the decreasing weight requirements and increase intelligence systems, and holding the economic 'high ground' for humanities next step offer the potential to move the needle more than a little. Launch tech is the big bottleneck, so keep an eye on SpaceX :)
So true!
Your points about some unknown material/process in space being the key are correct. However, I don't think there is anything up there that we can't figure out how to make down here. There are some long, single grain, high weight elemental crystals that we can't make here, but they also takes millions of years to cool down in a vacuum. Space is really empty, and there really aren't any magic rocks up there. It's mostly just feldspar.
Then the next revolution happens. I'm sure people were pessimistic during periods of lesser innovation before electricity, telephone, phonograph, movie camera, consumer appliances, radio, television, PCs, internet, smartphones... there's always something new. There may be many reasons to believe there won't be 3% growth — "the computer boom is mostly over" is not one of them.
At the same time Thiel was making that claim, CRISPR, AI, robotics, VR/AR, blockchain/crypto-currencies and a massive general leap in automation were working their way into the economy. We're also about to take a leap forward when it comes to space tech and transportation improvements (from electric vehicles, electric planes, to hyper-loop and subterranean tunnel transport, those are all likely only the beginning of a new generation of transport tech; the power of combining electric vehicles + radically better software + lower cost, will be vast and will remake every nation). To add to all of that, China throws a big X factor into the global economy, they'll add additional spark to invention/innovation, accelerating competition and improvement between the US-Europe-Asia (Thiel's observations apply primarily to a time range when China was dirt poor, as recently as 1994 they had a mere $500b in GDP).
What's more important, flying cars (which are wildly impractical even if you can do it well), or curing Hepatitis C? We did the latter at the same time Thiel was expressing his pessimism. At least 70 million people have Hepatitis C world-wide. Flying cars are a joke by comparison to the extraordinary scientific accomplishment of wiping out HepC over the next two decades. Thiel set up his bold premise at exactly the wrong time.
They are also "costing a lot more" in terms of training and intelligence so there's a question mark of how much the average person without capital or privilege can access them. For me there's also a question of whether they are just playing catch up for increase in human population that's happened since the WW2 era - how many are not required if we just reduce population? Per capita are we really better of? There's a reason a lot of people are "nostalgic" for the period before the 1990's. There's also the negative things to consider of all this "innovation" such as environmental degradation, the massive increase in CO2 emissions, etc.
The "stagnant" economy (e.g food, land, health care) - the things most people need to survive comfortably have been increasing in cost significantly for most world economies. The innovations you state most of the world's population (who are mostly poor btw) would happily trade away for cheap more nutrient rich food, house, cheaper energy, etc.
Not saying hyperloops, blockchains and such aren't cool; I'm just questioning whether technology alone is what improves our quality of life. And all technology requires energy which is generally increasing in cost.
Honestly, though, it's a great time to be young and taking chances. Resources to become an entrepreneur have never been more plentiful/cheap, and the current business environment is incredibly favorable. For now, anyway.
You're ignoring all the ways that companies use their stock as a currency. From employee compensation to non-cash acquisitions, companies absolutely benefit from the secondary market. Especially in an era of low interest rates, it makes more sense for companies to borrow capital when they need it rather than raising money by issuing new equity, especially when other ways of issuing equity come with tax advantages.
If I understand correctly, you are saying that market sentiment that the stock market has reached its peak will result is real estate prices increasing. That’s a very optimistic take. When market sentiment thinks the peak has been reached, people start selling and you get a crash. Everyone can’t sell at the top.
I don’t think most people buy homes based on a guess of the stock market cycle. I think a more realistic model is: people sell stock and buy a house when it makes sense for their life and they can qualify. They take money out of the stock market (often a 401k) for the down payment and use it to meet reserve requirements. If the market crashes, people won’t be able to afford as much house and prices will drop.
If the stock market keeps going up, that will continue to be one of the factors supporting home prices.
Or am I thinking about it the wrong way ?
Cryptocurrencies and ICOs.
Applied neural networks.
Automation.
Good electric cars. To the point where people are prepaying for something that might be built in a few years.
Good cheap batteries.
What value is being created here, exactly? There's plenty of idealistic notions being thrown around, but I've yet to see a single, real, useful product or service materialize
>Applied neural networks.
Same.
>Automation.
This is way too broad to be invested in. Of course the world is automating at a greater rate, but is this a cause for growth? Will automated factories produce more goods for the same consumers?
>Good electric cars. To the point where people are prepaying for something that might be built in a few years.
Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable
>Good cheap batteries.
Granted this one would be a technological revolution greater than the internet, but it's just a fantasy for now. I think the grandparent is dead on here. Real inflation is 10 times the official rate since the mid 2000s. We are all playing with funny money these days, and this won't end well.
It's the greatest advance in money laundering ever invented. For that to work the proles need to be conned into participating so there is plenty of transaction volume to hide in.
Otherwise, you have to have a seemingly legitimate Enterprise that is accepting Bitcoin on a large scale. Which would cause you to stand out like a sore thumb to the authorities because no one in their right mind is using Bitcoin with $40 transaction fees.
Creating tons of coinbase accounts is no easy task. You have to validate the accounts with multiple forms of ID and this pattern would eventually be found out and get flagged big time.
Then, you need different bank accounts for every single coinbase account you create and those require multiple forms of ID as well as valid SSN numbers which will be checked.
If you are referring to GDAX allowing you to transfer to USD, looks like it is FDIC insured, which means it is a US bank account, which means it is subject to KYC patriot act stuff and will be the same as opening any other us bank account.
You do this so that each individual account can make small purchases over a long time horizon so it looks valid. Looking at coinbase's site, you only need a bank account if you're using fiat currencies. You'd probably also want to make it harder to detect all your laundering accounts by having them make purchases to other "legitimate" accounts too (e.g overstock) Obviously I'm not a criminal mastermind so this plan could very well fail, but I find it hard to believe that a digital cash currency couldn't be used to effectively launder money considering laundering is most effective for all-cash businesses (combined with good accountants/bankers like illegal organization employ these days to avoid all these problems).
Since driverless vehicles and fleets are arriving roughly concurrent to electric vehicles, they're actually more likely to _reduce_ the volume of cars produced, after accounting for any increased, accelerated "fleet churn" buyers exert via aggregate demand to reach a faster critical mass on increasingly or perfectly safe cars.
I have said multiple times, and did sign again, that I do not believe driverless vehicles will automatically lead mass adoption of fleet/on-demand vehicles. I don't think they will be as much of a savings over human-piloted vehicles as the optimists think.
From investor pov you can short dinos and ride disruptors. ez $$. Not saying tsla isn't overvalued though.
Except the "dinos" of GM, Nissan, BMW, Ford, and Hyundai are outproducing Tesla in the EV market, with a clear lead in affordability. Nissan Leaf is far and away the most popular EV ever built, having sold thousands more than all Tesla models combined (discounting unfulfilled preorders).
ELI5 please?
The inflation rate for a computer with a fixed set of specs is massively negative -- it gets cheaper every year. So it is for many technological devices.
But our whole economy is a mixture of technological stuff (that drops in cost over time, i.e. negative inflation) and non-technological stuff (burritos and health care).
The overall inflation rate is an average across the entire economy. Even if you believe the reporting is not distorted (which is dubious), then the fact that there are so many goods whose prices drop quickly over time, implies that there have to be many goods and services whose prices go up much faster than "inflation" would predict. Because something has to balance that average!
Baumol calls the technological stuff the "progressive sector" and the non-technological stuff the "stagnant sector". As time goes on, prices in the stagnant sector continue to rise until they consume almost all spending.
Baumol made specific predictions based on this model in 1960 that have turned out to be consistently true for 50 years ("the cost of healthcare will continue to rise to degrees that will seem scary" and so forth).
Furthermore, it's not like it is some weird complicated or hard-to-substantiate theory. It is just math, not much more complicated than the definition of the average. Given how big the consequences are, and how hard to argue with, it surprises me that this idea occupies so little of the public conversation.
Perhaps it's more like 5x, but the point stands
Right now I'm gradually liquidating my crypto stash and buying stocks instead.
Here's another at 6% : PHYSX https://finance.yahoo.com/quote/PHYSX?p=PHYSX
Less risky (municipal) at 4%: MMHYX https://finance.yahoo.com/quote/MMHYX/profile?p=MMHYX
The ASX is implementing blockchain for its ledger, via the digitalassets company. Right now.
HST voting dapp is being used at the world economic forum, this week.
Thats two I know of, off the top of my head.
As well as the obvious btc and eth being used to purchase stuff everyday, all over the world.
Its actually happening if you bother to look.
If you start from the assumption that well-being or some other desirable policy goal can be measured by income (profits, wages, etc), I'd argue most of the things in this list aren't likely to increase either wages or profits of companies.
But they are likely to create economic surplus - that thing that makes us want to trade/transact in the first place. Economic surplus is why you'd rather buy a Netflix package for $10 than rent a $3 video from the video store. You're massively better off with Netflix even though Netflix's profits and your wages haven't moved.
The problem is, we don't have a good way to measure this. Economists are aware of the problem, and it's something that makes comparison of GDP across decades difficult. There are many things that are better or flat-out new compared to what existed 50 years ago. How do you compare the experience of driving a modern, safe, smooth-driving car to an older one? Or the experience of talking cross-continent for practically nothing on Skype?
I agree that these technologies are going to reshape our world, I just don't think those gains are necessarily going to show up in GDP, at least not how we measure it today. And I also think this whole "real wages have stagnated" argument is a bit of a red herring. Maybe they have...so what. People are much, much better off today than they were even 20 years ago. We have more things, they're better in almost every way, less disease, the world is just 100% a better place, and anyone who says otherwise is just trying to push some redistributionist political agenda. I'm not saying inequality isn't a problem, but it's borderline lying to suggest our lives haven't gotten any better over the last 30 years because "real wages have stagnated".
I agree cryptocurrencies are mostly a fad, but AI, automation, electric (self-driving) cars, and good cheap batteries are definitely capable of driving productivity & growth. Lithium batteries are the IC of the 21st century. They've driven a lot of innovation already (smartphones, better laptops, tablets, smartwatches, EVs, consumer drones, etc), but there's a lot more to come in terms of mass market self-driving EVs, mass grid storage, electric aircraft (both robotic and not), etc.
It seems like this is the opposite of growth - as more jobs are automated, fewer people will be able to buy the products that are created by the automation.
Do you want more money but the same amount of widgets or do you want the same money but more widgets?
But if I earn less money, even if widgets drop in price, I don't have enough money to buy a thingamabob.
And really, how many widgets do I need? My garage is already stacked full of them and I can't even fit my car inside.
This is what Amazon has been doing for 20 years. People don't buy Netflix stock because they think it's gonna be profitable tomorrow, but rather because they expect it to be so dominant that when they start generating profits, they would be massive.
Why pay out dividends to your investors with after tax money that will be taxed again at a higher rate when you can just stash it overseas and buy more capital assets and let the stock grow in perpetuity. Same with apple.
As an investor, you don't need dividends, you just sell a few shares each quarter.
https://advisortools.zacks.com/Research/Stocks/AAPL/Sharehol... https://advisortools.zacks.com/Research/Stocks/AMZN/Sharehol...
Growth. Netflix is after a giant global market and investors would rather growth and investing in new content than a dividend. Yes, the stock has been on a tear, but they've also grown subscribers 25% YoY while also raising their prices. That's an impressive feat for a company already as large as Netflix.
It has returned 10x in the last 10 years so I don't think their investors are complaining.
If you look at google, facebook, and apple they are generating cash that would justify their valuations.
Netflix has had free cash flow of -$53 million, -$840 million, -$1.6 billion, and -$2 billion in the last 4 years respectively, and their debt has grown to $5 billion.
They also have a worldwide CDN capable of delivering high definition video around the world.
And lastly, they have 20 years of movie viewing history. Their prediction models alone are probably worth many billions to the movie studios.
They don't syndicate their shows, they don't sell much merchandise, and they don't sell their "prediction models" or user data.
Don't get me wrong, Netflix does a lot of things right but the way they manage their entertainment divisions is extremely odd. We have over a 100 years of lessons from Hollywood and paying others to produce your content will always be more expensive than making your own.
They have a very large studio actually:
http://www.latimes.com/business/la-fi-netflix-bronson-201701...
http://variety.com/2017/digital/news/netflix-expands-lease-h...
> They don't syndicate their shows, they don't sell much merchandise, and they don't sell their "prediction models" or user data.
The OP said "Amazon has assets". But using your argument, Amazon doesn't use any of their assets either, except for themselves.
The point is they have things they could sell that have value if they had to, just like every other public company's assets.
Isn't this one of those big Amazon myths?
I thought the truth was that the income has always been there but it's the constant reinvestment that has kept profits low?
They have been for some time. Prime memberships, AWS pricing, etc. The lines are "competitive" but Amazon is so far ahead in most that it doesn't matter.
I'd ballpark around 5%. And that's for people who weren't overprovisioned in the first place, which is most people.
Does the money disappear if they stop reinvesting?
I'm doing fairly well in my career but I'll have to earn literally 3x my current income to afford the mortgage on a decent apartment in my area.
Something feels very wrong about all of this
There is a very large difference between investing and speculation, and blockchain currencies are a supreme example of a pump and dump speculation scam.
But what do I know? I thought Facebook was overvalued at $30 billion.
(35% to 21% means that profits after taxes jumps about 20% even if nothing else changes. This means the value of the company goes up 20%.)
Of course, the market has gone up much more than that.
Also, Netflix revenues have been growing at staggering rate too: https://ycharts.com/companies/NFLX/revenues. Remember market responds to change in revenue over time, not the absolute value of revenue. I think it wouldn't be fair to say that stock prices are completely out of sync with revenue growth.
Speak for yourself. My brokerage account looks much greener since I bought it.
You forgot the part where quantum mechanics higgs boson yada yada long story short efficient market.