The Economy • Hacker News Board

Re: The Economy

#161

Post by dnautics » Mon, Jun 30, 2014, 8:27 PM UTC

api wrote: post #131

dnautics wrote: post #125

Earlier quoted context omitted.

I take a very very dim view of Keynsianism prescriptions, although their analysis may be correct (sometimes). Let's agree that we're in a demand constrained economy (I am not sure but it may be the case). 1) Why should you believe that governments are good at readjusting the economy to "unconstrain" it from demand? From Halliburton/Iraq to Solyndra to Fisker to 38Studios ( https://en.wikipedia.org/wiki/38_Studios ) t…

Your first point is a deeper problem that goes far beyond economics. We do have a government corruption problem. As for #2, the problem is that economic demand and economic activity means doing anything at all , including fixing environmental problems. Imagine there's no growth. Why adopt solar power then, and who's going to pay for it since there'd be no investment capital? Nope, just run those coal burners forever.…

Imagine there's no growth. Why adopt solar power then, and who's going to pay for it since there'd be no investment capital? Nope, just run those coal burners forever. No need to upgrade if there's no growth.

It's fallacious to argue that because there's no net growth in some economic indicator, say 'GDP', that there can't be growth in specific sectors.

Secondly, growth is not a measure of demand, especially as demand shifts. People value having clean skies, and breathable air. And there is also a obvious value in 'not having to dig in mines for your energy'. Depending on how you measure your economy (let's say we unbeknownst to us give a higher weight to miners who dig underground vs. laborers panel assembly factories in our metric), 'upgrading' to solar could incur a 'contraction' instead of 'growth'.

Re: The Economy

#162

Post by toomuchtodo » Mon, Jun 30, 2014, 8:29 PM UTC

sama wrote: post #33

tdees40 wrote: post #24

I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…

i am a bull. i just think that we should talk about what the problems are. ignoring them is not a good way to fix them.

What if growth in the US is being prevented by technology innovation? If I replace 100 jobs with 1, and no further jobs are need for those 99 people, and that's the core of what technology does, growth in the traditional sense isn't possible.

I agree that a basic minimum income may be necessary; I don't believe it'll fix the growth problem though.

Re: The Economy

#163

Post by scarmig » Mon, Jun 30, 2014, 8:30 PM UTC

ef4 wrote: post #113

johnward wrote: post #23

Earlier quoted context omitted.

I'm no economist but at some point aren't we going to become so productive that there won't be enough need for workers. Are we maybe at that point now? If every single person wanted to work there would not be enough jobs to support that. So what happens in the future? Some people have jobs and are rich while the rest are in poverty and can't eat? I don't think society could function with that many people not having a…

This same argument has been repeated for literally centuries now, and it always turns out wrong in the long run. Imagine if we could run the entire world economy with only 5% of the workers. Pandemonium? No, it has already happened before. Agriculture was the whole economy, the rest was rounding error. Virtually all workers worked in agriculture. Now we produce all that and much more with something less than 5% of th…

It turns out to be right, often enough.

In the 19th century, for instance, there was a class of physical laborers whose numbers in the USA reached the tens of millions. But as technology--particular the combustion engine and fossil fuel refining--took off, they became surplus unusable labor that literally was more valuable being turned into glue, or letting them starve to death.

Yeah, horses.

"But it's different this time! Horses aren't people!" you say. Sure, things are always different. But you're burying the actual argument into the assumptions you're making: that people are infinitely moldable and infinitely trainable, and every person is capable of creating value in modern economies.

It's not some logical contradiction for "people want more stuff" and for "the most useless, marginal workers can't provide value by participating in the economy" to both be true. Dismissing the second idea requires a bit more than a pat answer.

Even excluding government policies like a minimum wage and required healthcare benefits, lots of people are simply too expensive to employ. Anytime you hire someone, it adds administrative costs. It adds management costs. And the more marginal the worker, the more they need to be managed and administered. At some point any value they could hypothetically provide is outweighed by the cost of employing and managing them and the risk that something they do could expose you to substantial costs, and it's simply cheaper to replace that labor with capital.

In a capital rich environment, and in economies where complex organizations can fail catastrophically because of a single node failure, it's simply far too risky to employ a certain class of people. We already do that with many of criminal backgrounds, the physically disabled, and people with substantially reduced mental capabilities. New technology has simply expanded that unemployable class to include lots of people who just don't have much going for them, at least in terms of providing economic value that's legible to corporations and the State.

Re: The Economy

#164

Post by AJ007 » Mon, Jun 30, 2014, 8:30 PM UTC

Humjob wrote: post #66

tdees40 wrote: post #24

I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…

If government debt grows high enough then an increasingly large percentage of federal spending will be devoted to paying interest on that debt rather than on arguably more useful areas which create future prosperity, such as education and scientific research. After a certain point this becomes unsustainable and bad things start to happen, ranging from total political & economic collapse (Germany in the 1920s) to hype…

Something to consider is the difference between debt denominated in a countries' own currency verse that of another country.

In 2010 Germany finally repaid debt it had raised to pay its World War I reparations. The reparations never were paid in full but you damn bet the US dollar denominated debt was.

If a country borrows money in a foreign currency they may have bills due for an incredibly long time unless the creditors says "ok, you can pay less than you owe us." The EU members are in this position because the bills they owe are not in their own currency.

Generally this seems to have the biggest impact on tiny countries. One of the most interesting opinions I've heard recently is from James Rickards who was a negotiator for the Long Term Capital Management bailout in 1998. His opinion is the risks in the banking system have increased, not decreased, and when the next failure happens the US government will not be capable of a bailout largely due to the Federal Reserve's balance sheet leverage (which puts Lehman's leverage to shame) and a lack of political will to write a multi-trillion dollar check. What will happen is debt issued and denominated by the IMF, the only bank in the world left with a good balance sheet.

Re: The Economy

#165

Post by epicureanideal » Mon, Jun 30, 2014, 8:32 PM UTC

richcollins wrote: post #48

tdees40 wrote: post #24

I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…

Why will high Debt-to-GDP or government spending send the economy into a recession? Do you agree that it is a problem at some point? If so then why not at current levels?

If you think about this in a more general context it's easier to see that "Debt-to-GDP" ratio alone isn't enough to determine that there is a problem. You need a combination of debt level and interest rate.

For example, I personally could have $100 Trillion in debt but with an infinitesimally small interest rate and an infinitely long repayment period, I would not be concerned.

What matters is Debt-Payment-to-GDP ratio. There is certainly some level of that ratio at which I would be concerned.

Re: The Economy

#166

Post by jeffdavis » Mon, Jun 30, 2014, 8:34 PM UTC

pingburg wrote: post #142

jeffdavis wrote: post #99

Earlier quoted context omitted.

The thing that worries me about our debt is that it's not like the rates are locked-in for 1000 years. After bonds mature, we need to issue new bonds to pay for them. And if the interest rates are higher at the time, the new debt will have a higher interest rate (I guess, technically, the bonds will sell for a lower price, which has the same effect). Paying our current level of interest on our debt is not crushing. B…

Not being sarcastic here. 2013 A = Debt is around: $17.5 trillion B = Debt Service: $416 billion C = Average Rate: 2.38% ($416 billion / $17.5 trillion) D = U.S. Tax Revenue: +/- $2.8 Trillion Things won't get interesting until B approaches D. So one way of looking at is if everything remained constant (which it won't) you'd need 15% interest rates on the current debt for debt service to approach tax revenue. If inte…

"Things won't get interesting until B approaches D."

I'd say things would get pretty interesting well before that point. B=D is just the point at which a default is inevitable (unless much higher tax revenue is achievable without causing other problems).

But the problem is that the interest rates are so low now that large increases are not outlandish. 7 years ago, the rate was more than double what it is now. Looking at the graph in the article, in the 80's it was over 10%, more than 4X the current rate (which would imply 1.6 trillion in debt service).

It seems like we're making a big bet that interest rates are down permanently. That may be true, but it seems like a fragile assumption to me.

Re: The Economy

#167

Post by callmeed » Mon, Jun 30, 2014, 8:35 PM UTC

ef4 wrote: post #85

gautambay wrote: post #43

Earlier quoted context omitted.

i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income. with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term. of course, what constitutes "essential services" can be the subject of a lengthy debate.

Ah, the classic paternalistic argument. It's deeply appealing to many people's preconceptions. But a growing body of experimental results call it into question. When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.

Sources on that?

Re: The Economy

#168

Post by d4vlx » Mon, Jun 30, 2014, 8:35 PM UTC

nostromo wrote: post #134

We need to find the next big growth engine. Like "the internet" big, or its baby brother "mobile" big. (Imagine what the US economy would be like without those growth engines. Even with them, their effect on the US GDP growth chart in the article is unnoticeable.) I have a hard time thinking of things that could be so dramatic in terms of growth. AI, radical life extension, space elevators, renewables... I'm not sure…

I'm not trying to be snide but imo hoping the economy will improve by someone finding a growth engine is wishful thinking. I would like to see tax policy and government spending formulated for sustainability based on domestic consumption and have any potential innovation income as windfalls.

Hinging the economy on the creation of new grown engines is a risky strategy and I don't think the government should be in the business of making bets, at least at the macro economic scale (hell yeah on research spending).

Re: The Economy

#169

Post by seoguru » Mon, Jun 30, 2014, 8:36 PM UTC

I wish everyone (or at least Sam Altman) would read "The Seven Deadly Innocent Frauds": http://goo.gl/6a22pX less than 2 hour read. read it with an open mind and your worldview may change.

watch Stephanie Kelton and Warren Mosler talk about gov debt and deficits: (2 hours!) https://www.youtube.com/watch?v=ba8XdDqZ-Jg

Randall Wray on Job Guarantee vs Basic Income: http://www.economonitor.com/lrwray/2014/01/27/lets-compare-t...

Mosler's current prescription: 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment ...

Re: The Economy

#170

Post by pdovy » Mon, Jun 30, 2014, 8:36 PM UTC

DINKDINK wrote: post #154

yahelc wrote: post #46

Earlier quoted context omitted.

Agreed. Further, there's little evidence that Debt-to-GDP over 100% (despite "feeling" meaningful, because, 100%!) has any kind of predictive value for the long term direction of an economy, particularly one that has unusually low interest rates. If Debt-to-GDP were a problem for the US, you'd expect higher interest rates, not lower ones, as investors would be demanding higher returns on US debt. The fact that intere…

>The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term. Not necessarily. If you have to ask yourself what the country…

That doesn't really seem to follow, to me. The worst a single creditor could do is not bid, or bid for higher rates in future treasury auctions. The terms of existing debt are fixed. The impact of this wouldn't be large unless other creditors followed suit - there are many parties interested in buying up US debt.

Furthermore, if a holder of US debt declared war on the US, I wonder if that wouldn't be viewed as a credible reason to default on that outstanding debt - certainly doesn't make much sense to be sending interest coupon payments to someone invading your country.