patrick.net

mell says

http://market-ticker.org/akcs-www?post=220451

So the author of this article is claiming purchasing power has been eroded by the increase in the ratio of average non-supervisory earnings to total systemic debt.

That is, average n-s earnings have fallen about 3x relative to total systemic debt. Isn't he forgetting about what the debt is used for? To actually purchase things? How can you add debt to the "denominator" and leave it out of the "numerator?" when talking about earnings power? Debt is used to buy things...

Earnings power has been enhanced by the addition of credit. He says himself the S&P 500 has increased MORE than total systemic debt. This implies a positive feedback loop, does it not? (.inx 1385 vs. ~1600)

If you borrow $1 to buy something, then it increases in value, can you then not sell it and pay back the borrowed dollar to make profit?

indigenous says

Say what?

It is called co-opting and it is done tacitly, for sure it is a lie.

First, let me say you are correct here. I mispoke - only recalled the Fed increasing the Fed Funds rate in that time period and made a poor assumption. I should have verified before speaking.

indigenous says

Railroads are obsolete? No they are not and neither is steel. You are waxing
esoteric regarding the board rooms so I don't know what you are talking
about.

So you are telling me rail transport for both travel and freight are anywhere near the peak in this country? Also, you are saying that US steel production, which was roughly 1/3 to 1/2 of total world production at pre-1940, and is now roughly 5% of world production, is not obsolete in the manner in which Reality used the word? Rail and steel was obviously a significantly higher percentage of US economic output in Carnegie's time than it is today.

tatupu70 says

You are partially correct. He also advocated that such spending should be used during down periods to stimulate the economy. During good times, he advocated reduced spending. The bottom line is the current military spending does not follow Keynesian theories.

So throughout Keynes' life (1883-1946), when did he advocate reduced government spending in real time (as opposed to some theoretical "future" time)? How about . . . Never! What was he doing the 1920's boom? Why, of course advocating government spending and debasing the currency! He was actively participating in the bubble speculations himself. Good time is never good enough for him or for any sitting politician . . . .which means his so-called theory is simply a fig leaf covering for government profligacy NOW! in exchange for a future reduced spending that will NEVER be implemented voluntarily! Anyone placing faith in such a theory is either naive or willfully blind, no different from an enabler of an alcoholic who hits you up for money to buy alcohol everyday promising to quit next week, every week!

The post-WWII peace time military spending was very much justified on Keynesian grounds: the spending was considered economic necessary lest there be job losses . . . the obvious flaw in such logic is of course civilians using the money buying goods that they want would result in more prosperous lives for all than wasting human labor on useless weapons.

tatupu70 says

Very good. I was looking for some examples. I'm assuming it must happen a lot since politicians are using Keynes for cover... Like David said, other than recently, when else have politicians called for it?

Whenever there is an economic slow-down and the politicians think it's their opportunity to meddle. Keynesianism was very much in vogue in the late 60's and early 70's. Remember Nixon's quip "We are all Keynesians now" ?

tatupu70 says

History is pretty clear on this front. Just look at the measures of wealth disparity--absent government intervention, wealth will tend to accumulate at the top. Not sure why you are talking about government getting into computers--I'm certainly not arguing for government owned businesses.

Who do you think control the government where wealth tend to accumulate to the top? I used the computer industry as an example to show the effect of government bureaucratic intervention vs. market choice by millions of individuals acting independently. Just look at government purchase programs, they usually buy from the big dominant players in the industry. Government bureaucrats buy products from the today's Apple when it is the top computer maker; they would not buy from the 1978 Apple when it was an upstart. Government entrenches dominant players. Government bureaucrats pay-off matrix is such that they personally derive no benefit from outsized gains from discovery but would pay dearly for mistakes relating to not choosing the mainstream choice. So bureaucratic decision making tend to be not creative but extremely conservative and incumbent-reinforcing.

tatupu70 says

Pseudo-religious myth?? WTF are you talking about. Like others have said--you are confusing Keynes with monetarists.

Monetarists were students of Keynesian Macroeconomics to begin with, but diverged from Keynesianism after making some real world observations. Keynsianism is a pseudo-religion because it makes a bunch of counter-factual assertions then work from there. The most classic example of this was mulplier effect that Keynes pulled out of his own ass.

Reality says

The most classic example of this was mulplier effect that Keynes pulled out of
his own ass.

I see. So the wages paid to Solyndra employees went safely into their mattress for safekeeping.

david1 says

Reality says

The most classic example of this was mulplier effect that Keynes pulled out of

his own ass.

I see. So the wages paid to the Solyndra employees went safely into their mattress for safekeeping.

That is the broken window theory. Money spent on a war does not add value to a country. It also has inevitable unintended consequences.

indigenous says

Solyndra went BK = poor job creation, poor production, poor profit

So in Solyndras case (you are about to see why I chose it) - the money was wasted. That is, not one dollar the government invested in that company went anywhere else in the economy. No one that worked there paid taxes. No one that worked there bought a Big Mac.

Reality said the multiplier effect was pulled from Keynes' ass. For that to be true, dollars the government invests in companies, like Solyndra, not only need to fail, but also everyone who works there, every vendor Solyndra used, everything, had to have no economic effect whatsoever.

Do you really believe that? Every dollar went into Solyndra had a return to the general economy of only one? No one bought anything? No one paid taxes?

david1 says

Reality says

The most classic example of this was mulplier effect that Keynes pulled out of

his own ass.

I see. So the wages paid to Solyndra employees went safely into their mattress for safekeeping.

The wages paid to the Solyndra employees is no different from the French experiment in the 19th century hiring the unemployed to dig holes in the ground, then hiring more of the unemployed to fill them back up! All that money paid out as wages on such counter-productive work has to be taken from taxpayers now or in the future with interest added.

The multiplier effect in this case is negative! As it destroys productive jobs via taxation now and in the future to pay for the government waste.

This is not meant to be a personal insult, so please excuse me for the second half of this sentence, but the very fact that a well educated person like you David would bring up Solyndra and employee wages in such a counter-productive enterprise, goes to prove my earlier point that Keynesianism is a pseudo-religious brain fog.

The real beneficiaries of Solyndra are the well-connected corporate cronies who could draw much larger paychecks as a result of government subsidy. The average workers would have been better off if they had spent that part of their career in a productive enterprise that had not been taxed and out-bid (on input factors) out of existence thanks to the politicians' intervention in the market place.

indigenous says

This is a natural law that can only be followed or violated.

What is this natural law you speak of?

david1 says

indigenous says

Solyndra went BK = poor job creation, poor production, poor profit

So in Solyndras case (you are about to see why I chose it) - the money was wasted. That is, not one dollar the government invested in that company went anywhere else in the economy. No one that worked there paid taxes. No one that worked there bought a Big Mac.

Reality said the multiplier effect was pulled from Keynes' ass. For that to be true, dollars the government invests in companies, like Solyndra, not only need to fail, but also everyone who works there, every vendor Solyndra used, everything, had to have no economic effect whatsoever.

Do you really believe that? Every dollar went into Solyndra had a return to the general economy of only one? No one bought anything? No one paid taxes?

Have you ever seen the multiplier effect in the wild?

No because it does not exist.

What is the bench mark on this subject?

It is value, which is defined as somebody would rather have your goods or services than the money they have in their pocket. This is the win win part.

Everything that deviates from this is superfluous.E.G. notions of the value of green energy that no one is willing to pay for or inflated salaries of the parasites who started Solyndra.

The problem with free capitalism is lack of restraint and unethical measures to get profits. See Chinese infant formula laced with melamine to increase protein content.
The problem with government controlled markets is twofold: 1) government can never respond swiftly enough to market forces and ends up strangling the economy. 2) Business and corporations can buy influence with government and soon wind up controlling themselves, so you have the first scenario anyway.

There is no elegant solution. A well functioning economy requires constant vigilance and constant adaptation. It's like any natural system, it requires finely tuned BALANCE to survive and thrive. Take your blood chemistry. Your body must control it's PH between 7.51 and 7.56 or it will have trouble functioning. Carefully balancing acid intake and acid production (CO2) with elimination (exhaling), it maintains an exact acidity perfect for life.
Markets are less particular, but a balance is still critical.

david1 says

Reality said the multiplier effect was pulled from Keynes' ass. For that to be true, dollars the government invests in companies, like Solyndra, not only need to fail, but also everyone who works there, every vendor Solyndra used, everything, had to have no economic effect whatsoever.

Do you really believe that? Every dollar went into Solyndra had a return to the general economy of only one? No one bought anything? No one paid taxes?

Every dollar that the government "invests" in companies like Solyndra has to be paid back from current tax revenue or future tax revenue with interest added. When Solyndra went bankrupt, that left a hole in the cash flow that has to be made up by taxation now and in the future with interest added. That's what makes Keynesian "multiplier" ultimately negative, and actually deflationary in the long run. Keynes infamous defense against that is of course "in the long run, we are all dead." So are you dead, yet? What about your children?

Reality says

All that money paid out as wages on such counter-productive work has to be
taken from taxpayers now or in the future with interest added.

The multiplier effect in this case is negative! As it destroys productive
jobs via taxation now and in the future to pay for the government waste.

I disagree. The net effect of "taxes taken" would be forced consumption. That is, some percentage X of the taxes taken to pay Solyndra employees would have been saved anyway, adding no benefit to the demand economy at a time when the economy surely needed demand. Alternatively, some percentage Y of the wages paid would also be saved. However, as long as X>Y (and assuming no borrowing here, while we both acknowledge borrowing is what happened in reality you used the taxes example) the multiplier effect is not negative, not zero, not 1, but greater than 1.

Reality says

The real beneficiaries of Solyndra are the well-connected corporate cronies who
could draw much larger paychecks as a result of government subsidy.

No disagreement with this statement in principle, however you are looking at the wrong culprit. The owners of Solyndra (capital) emerged victorious from the wreckage with nearly $1B losses able to be applied to future gains. Primary debtors are left holding the bag.

This is why I chose Solyndra - to in effect head off where the conversation may go next - to the bailouts of the automakers. The real beneficiaries of a liquidation in Detroit (which we would have had) would have been a few monied interests with access to capital at that time. It would have been a consolidation of wealth and power grab by vultures and opportunists. Those manufacturing jobs would have been in Mexico and other countries willing to help with labor arbritrage faster than you can say Foxconn.

david1 says

The net effect of "taxes taken" would be forced consumption.

Such forced consumption is no different from the 19th century French that hired gangs of workers to dig holes on the side of the road and filling them back up. The ultimate result was economic collapse and the political turmoil of 1848 (and the birth of Communism Manifesto, perhaps that kind of circumstance is what some want for the near future).

That is, some percentage X of the taxes taken to pay Solyndra employees would have been saved anyway, adding no benefit to the demand economy at a time when the economy surely needed demand.

This anti-savings attitude among Keynesians is really quite non-sensical. Savings (consuming less than production) is the very source of capital formation. When a recession hits, the economic slow down is indicative the existing capital structure running into limitations reality (e.g. natural resource limit, etc.), so a new form of capital is urgently needed to utilize available resources more efficiently. Savings (consuming less than production) provides the resources to make such long term capital structure adjustment, so a new and more productive relationship among resource, labor and capital can emerge and give rise to recovery while rendering old capital obsolete.

The Keynesian policy of suppressing savings and artificially pumping up old pre-crisis demand literally gets in the way of such a transition and reformation. It is literally a policy prescription for entrenching the old established capital by evicerating what could emerge to replace them. It is little wonder that after a few decades Keynesian practices, the working class is reduced to semi-slavery existence under the entrenched capital . . . for there is a lack of new alternative capital to offer the workers a better deal!

Alternatively, some percentage Y of the wages paid would also be saved. However, as long as X>Y (and assuming no borrowing here, while we both acknowledge borrowing is what happened in reality you used the taxes example) the multiplier effect is not negative, not zero, not 1, but greater than 1.

Reality says

This anti-savings attitude among Keynesians is really quite non-sensical

Your ignorance on Keynesian attitudes is what is non-sensical. Keynesians are not anti-savings at all. Your inability to understand the difference between an economy with too little capital vs. one with too little demand is hard to believe.

Re: Anti-Savings.

We have strayed quite far from talking about Keynes pulling a multiplier effect from his ass, haven't we?

My argument would be that if the savings taken via taxes come largely from those who would only use those savings for rent-seeking behaviors that are destructive to growth, then take away.

david1 says

Re: Anti-Savings.

We have strayed quite far from talking about Keynes pulling a multiplier effect from his ass, haven't we?

No, we haven't. Saving and investment are two sides of the same coin. Someone has to be saving (consuming less than producing) in order to for himself or for someone else to use the difference to invest in higher order machinery (i.e. capital formation).

My argument would be that if the savings taken via taxes come largely from those who would only use those savings for rent-seeking behaviors that are destructive to growth, then take away.

The very idea of new capital formation is to reduce the market power of existing rent-seekers, and offer both workers and natural resources a a more productive combination. Someone has to save (consuming less than producing) in order to come up with the difference to make the production of such new machinery or new business (i.e. new capital formation) possible!

Your very beloved Keynesianism is a rent-seeker entrenchment tool.

tatupu70 says

Your ignorance on Keynesian attitudes is what is non-sensical. Keynesians are not anti-savings at all. Your inability to understand the difference between an economy with too little capital vs. one with too little demand is hard to believe.

Sounds like you don't know much about Keynes at all. He is on record advocating reducing interest on savings to zero over time ("in one generation" was his plan). If that's not anti-savings, I don't know what is.

You don't seem to understand capital or demand either. Capital investment creates its own demand. The idea of "too little demand" is really quite silly. People always have more wants. Those wants failing to translate into Qualified Demand is usually due to existing capital structure unable to deliver supply at a price low enough given existing natural resource constraints. That's why new capital formation is critically needed so supply can reach market at lower price (and still profitable for the producer) so people's wants are satisfied as "qualified demand."

Reality says

Capital investment creates its own demand.

Oh no--another Say's Law proponent? Reality says

The idea of "too little demand" is really quite silly. People always have more
wants.

Demand requires not only the "want" but also the means to satisfy that "want". When people have no money, by definition, they have no demand.

tatupu70 says

indigenous says

Actions are what I look at, the hell with the theory.

Well then why the hell would you call it Keynesian if you know it's not? Call it politicians spending too much on defense because that's what it is.

I guess it depends on what your definition of defense is.

Maybe military can play defense thru good offense, the way peyton manning and kurt warner, and even tom brady at times , have done in the nfl. I'm still not sold that you can encapsulate those type actions into the definition of defense, but I've been wrong before

tatupu70 says

Reality says

Capital investment creates its own demand.

Oh no--another Say's Law proponent?

Says Law is not even necessary to recognize that Capital Investment creates its own Demand. "I" is one of the items in the general equilibrium formula.

tatupu70 says

Demand requires not only the "want" but also the means to satisfy that "want". When people have no money, by definition, they have no demand.

Yet, government giving people money only serves to rob Peter to pay Paul. Take a wild guess whether the rich or the poor is more likely to buy off and have the politicians in their own pockets? The fundamental solution to satisfying more and more human wants and needs has to come from more productive ways of combining labor and resources into goods and services that people want at prices that people can afford.

Reality says

He is on record advocating reducing interest on savings to zero over time ("in
one generation" was his plan).

Keynes was anti-excess savings (savings over and above what was necessary for investment). Too much savings will lead to underemployment. That's why wealth disparity is such a problem--the 1% saves way too much.

tatupu70 says

Keynes was anti-excess savings (savings over and above what was necessary for investment). Too much savings will lead to underemployment.

That's a ridiculous set of statements. Did you ever read Keynes' book? or do you just make up things in your own mind and attribute it to Keynes?

The idea that too much savings would leadto underemployment is preposterous. Money in savings accounts don't just sit there. The money is swept every night and invested.

That's why wealth disparity is such a problem--the 1% saves way too much.

Shall we mandate that the 1% must each spend 10% of their income on Ferrari's? LOL. To the extent that the wealthy consumes less than they produce, that's a good thing . . . so there's more resources for the rest of us to consume! So plebian cars and mere "luxury" cars are still made for us, instead of the ultra-lux cars sucking up all production resources.

The real problem in our current society is the encourage of dis-savings among the poor and middle class, so the upward social mobility that used to be so traditionally American is now so broken.

Reality says

The fundamental solution to satisfying more and more human wants and needs has
to come from more productive ways of combining labor and resources into goods
and services that people want at prices that people can afford.

Correct. But that doesn't happen with no demand. There is no investement without demand.

Reality says

The idea that too much savings would leadto underemployment is preposterous.
Money in savings accounts don't just sit there. The money is swept every night
and invested.

Really? What are short term treasuries paying now? Or bank savings accounts?

Reality says

The real problem in our current society is the encourage of dis-savings among
the poor and middle class, so the upward social mobility that used to be so
traditionally American is now so broken.

You have got to be kdiding. The problem is that the guy making $7/hour at Walmart isn't saving enough??? Are you able to type this stuff without laughing?

tatupu70 says

Correct. But that doesn't happen with no demand. There is no investement without demand.

What kind of market demand was there when iPod, iPhone and iPad were merely figments of Steve Jobs' imagination?

The big breakthroughs in life are not result of endless replications, but genuine entreprenuership.

tatupu70 says

Really? What are short term treasuries paying now? Or bank savings accounts?

Not nearly high enough. The FED is robbing the retirees to pay the banksters.

tatupu70 says

You have got to be kdiding. The problem is that the guy making $7/hour at Walmart isn't saving enough??? Are you able to type this stuff without laughing?

Walmart pays more than minimum wage. In any case, the lack of savings among low to mid-income families make them much more vulnerable to what essentially is loan sharking by banksters. That condemns them to perpetual and generational poverty.

Reality says

How can what he said and wrote in his magna opus ("The General Theory"), the
defining work of his economic theory not matter?

This is such a ridiculous use of the latin term and not correct...it would be magnum opus. Or perhaps you meant plural "great works" which would be Magna opera, if my grammar school latin holds.

Anyway, the problem you have here is I usually remember when I have read something before....and curiously, the wikipedia page on Keynes also refers to "General Theory" as his Magnum Opus.

http://en.wikipedia.org/wiki/John_Maynard_Keynes

Did you write the wikipedia page on Keynes? jk....

It was lifted from Martin Frost so maybe you are he...

Just use normal english and make your points. We already know you are pretty bright so speaking like this is unneccesary.

Reality says

The idea that too much savings would leadto underemployment is preposterous.

So please explain this one. With math or examples, please.

Reality says

That condemns them to perpetual and generational poverty.

Funny, I thought what condemned them to generational poverty had something to do with the amount of their productivity siphoned to the top...ie how low their wages were.

Reality says

What kind of market demand was there when iPod, iPhone and iPad were merely
figments of Steve Jobs' imagination?

Huge demand. That's why Jobs figured out a way to make them.

Reality says

The big breakthroughs in life are not result of endless replications, but
genuine entreprenuership.

Yep--how does that relate to the discussion at hand?

Reality says

tatupu70 says

Really? What are short term treasuries paying now? Or bank savings accounts?

Not nearly high enough. The FED is robbing the retirees to pay the banksters.

Yep.

david1 says

Did you write the wikipedia page on Keynes? jk....

It was lifted from Martin Frost so maybe you are he...

Just use normal english and make your points. We already know you are pretty bright so speaking like this is unneccesary.

Thanks, but no and no to the two bold guesses. Obviously, if I were Martin Frost or read Wikipedia, I wouldn't have made the rather rudimentary mistake in Latin. I used the expression for two reasons: 1. the significance of the book in the context of Keynes' theory; 2. the book was written in such a (unnecessarily) convoluted and dense way that a Latin phrase would be appropriate.

david1 says

The idea that too much savings would leadto underemployment is preposterous.

So please explain this one. With math or examples, please.

1. Savings are invested.

2. Japan, Korea and China all had/have extremely high savings rate during their massive economic growth period. Comes to think of it, the US had very high savings rate in the 1950's. The problems began in the 70's, after the savings rate dropped starting in the late 60's.

david1 says

Funny, I thought what condemned them to generational poverty had something to do with the amount of their productivity siphoned to the top...ie how low their wages were.

Considering how high the youth unemployment rate is both in this country and in Europe, largely due to minimum wage laws, it's questionable how much productivity those baseline retail jobs can have.

The lack of savings deprive the poor family of any opportunity to start their own businesses, which used to be what made Americans upward socially mobile. Read the biographies of Andrew Carnegie, Henry Ford and etc. I don't think many youths of America today are aware of iconic American figures from an earlier much more upward mobile era.

tatupu70 says

Reality says

What kind of market demand was there when iPod, iPhone and iPad were merely

figments of Steve Jobs' imagination?

Huge demand. That's why Jobs figured out a way to make them.

No, the market didn't exist. Jobs' supply created the demand. That's the market premium of Apple.

Reality says

The problems began in the 70's, after the savings rate dropped starting in the
late 60's.

Hmm. Nice, but the problem is my data shows the savings rate rangebound by 5 and 8% in the 1950s, 7 and 10% in the 1960s, 8 and 13% in the 1970s, and hovering between 10 and 12% in the early 1980s until around 1985, where the savings rate gradually deteriorated to 2.5% today.

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Reality says

No, the market didn't exist. Jobs' supply created the demand. That's the
market premium of Apple.

The market existed. For an iphone--it was cell phones or smart phones.

But even the market didn't exist-there could still be demand. Before cell phones were manufactured, there was demand for a phone that could work anywhere. Just no product to satisfy that demand.

david1 says

Hmm. Nice, but the problem is my data shows the savings rate rangebound by 5 and 8% in the 1950s, 7 and 10% in the 1960s, 8 and 13% in the 1970s, and hovering between 10 and 12% in the early 1980s until around 1985, where the savings rate gradually deteriorated to 2.5% today.

Are you talking about savings account interest rate or per centage of income put into bank savings account? The numbers don't look right for generalized savings that would include the entire difference between earning and consumption (i.e. not just bank savings accounts, but also financial investment of all kinds).

tatupu70 says

The market existed. For an iphone--it was cell phones or smart phones.

But even the market didn't exist-there could still be demand. Before cell phones were manufactured, there was demand for a phone that could work anywhere. Just no product to satisfy that demand.

The "Demand" in economic discussion is a very specific term, not just want, but a qualified demand meeting price points. There could not have been quantifiable qualified demand before the price point for iPhone was set.