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The Economy

blog.samaltman.com

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Re: The Economy

#241

Post by nhaehnle »

dageshi wrote: post #57
api wrote: post #20

I have gradually become convinced by mountains of evidence from many quarters that the Keynesians are right-- we are in a demand constrained economy. One of the problems I think is that economists and politicos tend to always be fighting the last war. In the late 1970s to early 1980s -- the last time the economy seemed this systemically bleak -- the problem was insufficient capital available for investment combined w…

My view on Keynesianism is that it's basically been bastardised to the point where it's unworkable. I say that because my understanding is that Keynes originally proposed a system where the government ran a surplus during the "good times" and then ramped up borrowing and spending during the "bad times". This actually makes a great deal of sense because during a recession investors are usually falling over themselves…

Running a surplus isn't even a positive goal for governments. In US history, periods of federal government surplus were always followed quite rapidly by recessions or even depressions.

There are even good, clean, mathematical accounting truths behind this. If you sum up all monetary assets and all debts, the net must be zero just as a matter of accounting. So, if individuals are to build up savings (which most people would probably agree is a good thing), somebody else must go into debt. This somebody else could be private firms doing investment, or it could be government.

If you want government to be in surplus or at least netting zero as well, then firms must necessarily be in ever growing debt, which is probably just as unsustainable.

(Note that, as long as you look at a single isolated country, a third option is that foreign countries become indebted. But since we live in a closed system and the net over all countries is zero, this is not really a workable option either.)

Re: The Economy

#242

Post by danelectro »

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…

Ask not how you can avoid recession, ask what you can do for the rest of the country to emerge from recession that they are still suffering from.

Look at that GDP "Growth Rate" and of course you can clearly see as a derivative it's a "Shrink Rate of Growth Rate" and the trend line itself is more meaningful than you would think, especially the greater number of decades you have experienced to correlate with the patterns.

The right-hand y-intercept is fixed by the present day, but the left hand y-intercept would vary related to what year in the past you choose to begin your data series. Good choice anyway IMHO to use ~1950 on the left since so many in the USA who have economic experiences before that time are no longer with us, or seriously retired from productive service even though passive incomes for some survivors of earlier times are doing quite well for now.

Remember that this is corporate growth, and so many corporations depend so much on growth that anything which stands in the way will be disposed of, if a situation of zero real economic opportunity becomes significant, then growth (or reduced shrinkage as a last resort) will be extracted from the citizens either by passing on the costs directly or through government lobbying.

So look at area under the curve or in this case area over the curve which I believe are two different things.

Sharp or extended spikes below the trend are devastating to both corporations & citizens, but corporate shareholders are compensated by the eventual return of growth above the trend, since costs are passed on, the consumers do not share in the prosperity like they share in the devastation.

Anyway, experience has shown that a negative spike like the one in about 1981 will devastate maybe 10% of consumers at least, and for them there will be no recovery for about 25 years at least. Later on in the early '80's a different larger portion of consumers are neutralized. The 1990-91 ruin is still largely with "us" if you were one of the unfortunate ~10% there, otherwise you may not even notice, this is by design. Early 2000's there is a little downward noise, lots of dotcoms and their dependents, but 2008-09 were the worst thing since the Nixon Recession, a huge new group whose futures's ruined for decades to come.

Since each significant spike destroys a different block of consumers, this is adding up, estimate totalling up to almost a majority of consumers who are not just compromised but ruined by now.

And that's not all, Nixon was so incompetent that the currency had to be sacrificed too and that does not appear on the chart. This was huge.

Surprises are in store if you have not yet felt the wrath from 5 years ago. There is nothing more for currency to contribute, loss of property values since then has not extracted its toll proportional to negative area so something else will have to give, and it will have to be big.

Re: The Economy

#243

Post by dllthomas »

nhaehnle wrote: post #235
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…

However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance. Such an uptick would automatically go hand in hand with increased tax revenues and lower spending (because social safety net spending would shrink automatically). Basically, any scenario in which interest rates grow are scenarios in which automatic stabilizers will reduce the government deficit in other…

Why is that hard to imagine? If, hypothetically, our economy fell off a Great Depression style cliff, wouldn't that make it harder to pay our debt, expectation of which would force rates up, and be somewhat self-fulfilling?

Re: The Economy

#244

Post by ArkyBeagle »

jeffdavis wrote: post #99
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 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…

Generally, when interest rates pick back up, revenues rise faster.

We're fragile because ( IMO ) we're running the money supply too lean - especially for people who are in the grey market economy.

Re: The Economy

#245

Post by ArkyBeagle »

AJ007 wrote: post #151
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…

My guidance to others, when they ask about US debt, I suggest they watch Japan. When Japan's interest rates rise, even just a little, their debt will become unserviceable. Once that happens, it will be time to think hard about US debt. The plan is clearly to inflate out of it. Survivable for the wealthy, devastating for everyone else. The blog post raises some fair points, but the author does a pretty poor job at get…

There is probably 10% slack right now before you even get to mild inflation. What's concerning to me is geopolitical instability while the economy is teetering on deflation. This state is strongly correlated with big wars.

Re: The Economy

#246

Post by rhizome »

lexcorvus wrote: post #49

In this context, I hope at some point sama has a chance (if he hasn't already) to read the post "Sam Altman is not a blithering idiot" by Mencius Moldbug: http://unqualified-reservations.blogspot.com/2013/03/sam-alt... The basic problem with our society is a disconnect between consensus reality and actual reality. We actually have no shortage of natural leaders. But they cannot actually lead us anywhere. They are ope…

Ah yes, the old "actual reality" ruse.

Re: The Economy

#247

Post by dllthomas »

JetSpiegel wrote: post #200
muzz wrote: post #184

Earlier quoted context omitted.

Interest payments as a percentage of GDP are actually much lower now than they've been in the past: http://research.stlouisfed.org/fred2/series/FYOIGDA188S

Interest doesn't get come out of the GDP, only the Government pays it.

The government pays it, ultimately, out of tax revenues derived from GDP.

Re: The Economy

#248

Post by dllthomas »

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…

"Inflation is a theft from everyone."

Inflation is from those with assets denominated in dollars (if they are not inflation adjusted). It is to those with liabilities denominated in dollars (if they are not inflation adjusted) and to the people introducing the new dollars into circulation. In the case of the government printing money, that's the government (obviously) and it's fairly reasonable to consider it a tax like any other. A somewhat regressive tax, since the more wealthy usually have more flexibility about how they store their wealth, but I don't know how it compares to sales taxes.

Re: The Economy

#249

Post by snowwrestler »

nhaehnle wrote: post #236
autokad wrote: post #77

Earlier quoted context omitted.

I don't think the writer ever said that a high Debt-to-GDP / government spending will send the economy into a recession. it means the government's ability to fight a recession if one comes will be extremely constrained; furthermore, having high debt prior to a recession makes the pains of having the high debt extremely painful as revenues will decline significantly.

The US federal government budget is not like a household or the budget of a firm. Households and firms are USD users , which means that they can only make payments in USD if they first obtain those USD (whether as income or by loan). The US federal government, on the other hand, is the issuer of USD. If it wants to make a payment in USD, then nothing can stop it. This means that the debt-to-GDP ratio is an entirely m…

While you are correct economically, many of the U.S. government's decisions are made politically. And a high debt-to-GDP ratio definitely affects politics.

I remember when TARP was up for debate. It was obviously needed, and it was the right idea (as proven out by its success). It still failed in the first vote in the House, because it was politically unpopular with enough people.

Re: The Economy

#250

Post by dllthomas »

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…

"For the sake of arguement, let's say that China decided to annex Alaska. If we retorted with a threat of military action, China could come back and say we'll increase your interest rates."

Our debt is not callable. China can say "we won't buy from you except at a higher interest rate" as new loans come due, but anyone else in the market could come in and undercut them (and might be likely to, if they knew China was backing off because of politics and not worry about the soundness of our debt) - heck, it could even be patriotic Americans - BUY WAR BONDS!

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