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The Everything Bubble [infographic]

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Re: The Everything Bubble [infographic]

#111

Post by eighthnate »

twobyfour wrote: post #35

The reason? Too much capital, not enough growth to invest in because demand isn't growing. Demand isn't growing because 60% of the population is barely scraping by. How do you increase demand? Roll back the tax cuts to the wealthy who have nowhere to put that money except into speculation and bubbles. Redistribute it back to the working class in the form of tax cuts, credits, higher minimum wage, and social programs.…

> Voila, more growth, fewer bubbbles.

It seems simple on paper. But the wealthy didn't get wealthy by giving away money.

Asking the wealthy to hand back some of their "welfare" is going to be incredible difficult and unsuccessful.

Think about it. It's easier to ask 1 million people to give up $1 each than it is to ask one person to give up $1 million dollars.

Re: The Everything Bubble [infographic]

#112

Post by saint_fiasco »

rainbowmverse wrote: post #110
Chathamization wrote: post #86

Earlier quoted context omitted.

> Without reforms to medical school and medical residency programs, healthcare might never be affordable. That's important, true. But that's not the only thing that would increase the amount of healthcare available to people. Dean Baker, for example, makes the important point that we could greatly increase the supply of doctors simply by allowing qualified foreign doctors to be certified in the U.S.[1] Lower class wo…

Doctors saw what happened when every factory worker in the US was forced to compete with every factory worker in North America after NAFTA, and later the world. Unlike factory workers, no one's spent decades dismantling doctor unions and organizations, and they actually have the money and influence to resist attempts to break protectionist barriers. This just isn't going to happen. Rapid, careless globalization was a…

It worked, didn't it? The price of most manufactured things went way down while the price of healthcare keeps going up.

Besides, doctors are service workers. It's not like their jobs will be outsourced or people will start traveling to India to visit a cheaper doctor.

Re: The Everything Bubble [infographic]

#113

Post by colorint »

karllager wrote: post #8

Fun fact: Capitalism depends on crises - they are not the exception, they are the rule. People forget that and treat it as something that happens, like a natural catastrophe. This is unfortunate, because this is a purely man-made thing, but still, even the high end media is kind of left in the dark about this central theme (let alone economists, who sometimes get lost in the details of their specialisation). Now the…

Well, Minsky's financial instability hypothesis is at least interesting. His argument is, basically, that there's a cycle wherein: during normal times, people want to beat the averages, so they engage in more speculative bets; as that ratchets up, and speculative positions become increasingly leveraged, a point comes where debt is financing interest on speculative leverage; once enough people get suspicious, further debt isn't extended, so the speculative positions default and drive cascading defaults (since there's "blood in the water"); the after-crash period comes with a renewed sense of caution, and people accept lower yields as the price of earlier speculative frenzy; over time, the caution comes to seem outmoded and people believe that normal times are here again; and so on.

I'm not sure how I feel about this, but it's at least a perspective.

Re: The Everything Bubble [infographic]

#114

Post by colorint »

lukewrites wrote: post #55

Why is more investors indexing a “bubble”? Is it just because of the growth line? While there surely must be some crappy indexes out there, one could argue that more indexing by (individual) investors is a sign of a more people understanding the difficulty of stock picking and harsh effects of management expenses on investment returns. I’m very happy indexing in my retirement portfolios, but am curious as to what the…

>but am curious as to what the arguments against it are

There's a "philosophical" problem to the effect of, at some point, what are you indexing? But what seems to me to be the more practical issue, and forgive me for this being half-formed, is that it seems like indexing is subtly the wrong thing to do (in a world consisting of only bad choices). The things being indexed are basically weights, for example, the relative capitalization of various stocks, based on some filtering criteria. In order to keep a fund on target with an index, they have to buy and sell according to those weights, and in principle, if the weights change, then the fund's holdings have to change accordingly.

This would seem to me to introduce problems like, if there's a sell-off of some stock so that its price drops, then its capitalization will also drop (capitalization being number of shares times price per share), which would seem to reduce its weight in the index. This should then lead to index funds having a follow-on sell-off. (And likewise for exuberant buying.) So this would suggest to me that, if index funds come to dominate stock holdings, then they should both increase volatility, and result in their holders systematically "buying high and selling low." That is, because an index fund is not the same as an index, but it's in active feedback with the index computation method.

There's also a potential issue, again depending on the level of buy-in, that one should see systematically increasing P/E ratios because of increased overall buying of stocks. That is, in the past, it was not typical for normal people to engage in regular stock purchases (which are held for decades). This would suggest lower dividend yields, which leaves one wondering whether 401ks will become what people think Social Security is, i.e., ever-rising P/Es serving as a transfer from the young to the old that requires continual workforce increases to maintain.

Though I'm not in finance, these are just the things that occur to me in thinking, how would I implement an index fund, and what might that do to the system's dynamics.

Re: The Everything Bubble [infographic]

#115

Post by AnimalMuppet »

lukewrites wrote: post #55

Why is more investors indexing a “bubble”? Is it just because of the growth line? While there surely must be some crappy indexes out there, one could argue that more indexing by (individual) investors is a sign of a more people understanding the difficulty of stock picking and harsh effects of management expenses on investment returns. I’m very happy indexing in my retirement portfolios, but am curious as to what the…

The term "bubble" gets thrown around a lot, sometimes incorrectly. It doesn't just mean that money is flowing into an asset class.

Let's take an S&P 500 index fund as an example. Vanguard or whoever does some marketing, and people decide that index funds are a good way to invest, and money flows into index funds. That's not a bubble.

The economy starts doing well, and stocks go up, and a bunch more people decide that they want to be in the stock market, and so they put their money into an S&P 500 index fund, not because they really want to be in the stock market, but because it's what's going up. That's still not a bubble.

Vanguard gets a bunch of money for its S&P 500 index fund, which it has to use to buy stock in the companies that compose the S&P 500. As a result of all the new money coming in, the stock in the S&P 500 companies go up - more than the fundamentals of their business indicate, more than stock in, say, the Russell 2000 goes up. Because the S&P 500 has gone up more, more money pours in to S&P 500 index funds. Now the S&P 500 is going up because of all the money being invested in it, and all the money is being invested in it because it's going up. That's a bubble - a positive feedback loop that has become detached from the fundamentals of the assets involved.

That's a bubble, but it doesn't really get bad until borrowed money enters the picture. If people are borrowing money to invest in S&P 500 index funds, because the funds are going up faster than the interest cost on the borrowed money, now it's a bubble that can cause serious damage when it pops, because it may damage the lender as well as the borrower.

So, for example, people were talking about bonds being in a bubble because bond prices were so high (extremely high by historical standards). That was a flight to safety, not a bubble. People were not buying bonds because they expected bond prices to keep rising, they were buying bonds because they expected other prices to keep falling.

Re: The Everything Bubble [infographic]

#116

Post by kps »

saint_fiasco wrote: post #105
kps wrote: post #87

Earlier quoted context omitted.

The problem isn't money for doctors, it's money for administrators (including insurance). Same as education. In any field x , you have people who specialize in x and people who specialize in extracting money. It's no surprise where the money ends up. (This is independent of particular mechanisms for extracting money that vary across economic and political systems.)

If more money is put into the healthcare system but the amount of new doctors per year does not increase, of course the money is going to go to administration. It has nowhere else to go. That's also why the US spends so much on drugs. Doctors are overworked, so they are forced to depend on prescribing more drugs, the most time-efficient tools for them.

Doctors are overwhelmed with paperwork, often with institutionally-mandated EHR systems that are slower and worse than traditional paper notes for medical purposes. They are spending more time on administrative tasks that could otherwise be spent on actual patients, just like professors are spending more time on grant acquisition that could otherwise be spent on teaching and research.

Re: The Everything Bubble [infographic]

#117

Post by rosylamp »

abakker wrote: post #93
rosylamp wrote: post #89

Earlier quoted context omitted.

That sounds like something that would be absolutely abused

sigh, probably. OTOH, unless we drastically cut government spending, tax increases on the rich and tax decreases on the middle class won't really help much. Maybe my armchair policy is a bad one, but providing the carrot to corporations to increase wages seems more rational than constantly providing them tax incentives to relocate to places where they can lower their effective tax rate. (see GE moving to MA from CT,…

depends what spending is on, government spending can be incredibly productive. Tax increases on the rich would work better if they actually paid them. This is a difficult problem, I certainly don't have the answer, and I'm not convinced there is a simple answer.

Re: The Everything Bubble [infographic]

#118

Post by jerf »

colorint wrote: post #113
karllager wrote: post #8

Fun fact: Capitalism depends on crises - they are not the exception, they are the rule. People forget that and treat it as something that happens, like a natural catastrophe. This is unfortunate, because this is a purely man-made thing, but still, even the high end media is kind of left in the dark about this central theme (let alone economists, who sometimes get lost in the details of their specialisation). Now the…

Well, Minsky's financial instability hypothesis is at least interesting. His argument is, basically, that there's a cycle wherein: during normal times, people want to beat the averages, so they engage in more speculative bets; as that ratchets up, and speculative positions become increasingly leveraged, a point comes where debt is financing interest on speculative leverage; once enough people get suspicious, further…

Basic differential equations: Any system with an effect proportional to the negative second derivative in it will tend to have cyclic behavior. That's a bit oversimplified, but in practice it often works out that way. And there's plenty of such things in the economy, so cycles in the economy are inevitable.

You can make solid cases that we don't need to have quite the crashes we actually do. But I don't believe in the existence of a real economy that doesn't have some substantial cycles in it that people will point to as evidence that something is wrong.

(Of course, if enough of those people get together and get put in charge of an economy, they often are successful at removing the cycles, by virtue of removing all instances of the economy going up at all....)

Re: The Everything Bubble [infographic]

#120

Post by yuhong »

protonfish wrote: post #29
0xcde4c3db wrote: post #7

I have no great difficulty believing we're due for another pop, but the only one of these that I find remotely alarming is the auto loan one. The rest seem to be one of: utterly irrelevant (number of cryptocurrencies in circulation?), lacking any frame of reference, or readily attributable to the economy still not being really recovered from the 2008 crisis.

I'm not concerned. Auto loans are inherently secured - they just repo your car. And unlike houses, auto prices are not drastically over valued.

Which also reminds me of Harvey destroying cars and insurance companies.
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