Economic Pessimism Growing in U.S.
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I dunno about you, but I'm pretty glad that congress doesn't vote on my wage.
There is nothing new here. In boom years, they always do. In bust years, they come back down to earth.
> Either create your own assets (entrepreneurship), put all your money into leveraged! assets (stocks, housing), or prepare to live as a wage slave.
There is also not much new here either, sadly.
There was a brief time - pretty unique to the US - between WW2 and early 90s where things were different. This is pretty unique globally, and to the US.
In reality, this is terrible advice if you can't service the interest. It's a scheme that worked in a low rate environment, but likely will no longer be viable.
In bust years, they're out of a job.
Having the capital to maintain having capital is a gigantic edge over wage earners.
How long will this continue though? This can't be sustainable forever.
At one point, you won't have any money to buy any assets if your wages are barely covering your food and shelter, and so we'll go back to feudalism where only those few with inherited wealth owned assets and everyone else was a slave for life.
The behavior when it doesn't break is actually more informative, though. At first, all aspects of the music experience exponential growth. Once clipping sets in, the growth of the loudest / highest gain frequencies continues, but now at the expense of every other frequency. Eventually one frequency wins and the system devolves into the distorted shriek of a single fundamental frequency and its harmonics.
The idea here is that we can tell where we are between "free growth" vs "starting to clip" by looking to see how well the rising tide is fulfilling its promise of floating all boats.
I doubt it.
1) That's why the west are pushing for forms of government surveillance disguised as Covid tracking, or anti-terrorist surveillance, or anti-child-porn surveillance, or whatever flavor of the month the current "enemy" happens to be, to make sure they can see it coming and stamp out any potential public dissidence before it hits the elites.
2) Unlike the French or Soviet revolutions from a couple of hundred years ago, which saw the deaths of the elites, the elites of today can travel to remote places using planes to distance themselves from the angry mobs, and rule their empires remotely using the internet. Huge game changers compared to the past.
In the French revolution, which took place in Paris, the elites all lived outside the city. The royal family lived in Versailles. No one went into the city for any day to day business. When the revolution happened, the nobility fled, and they directed their armies to seize and starve the city. They were using all their wealth and power to quell and flee. Much good that did them.
Putting the present elite at an even stronger disadvantage, though, is that Western billionaires only have power because the people allow them to -- land, money, stocks, it's all owned on paper. If a revolution is successful, there is no reason a billionaire's wealth or power couldn't be wiped away at the swipe of a pen. Elon Musk does not have enough of a private army nor his wealth in gold to defend his claim to anything.
https://www.indiatimes.com/amp/technology/news/sergey-brin-s...
People like Musk are not the world's ruling elites though. He and other tech billionaires are the richest people who's wealth is in public companies, so that's why they get all the visibility and media attention, but they're not the richest people in absolute terms, nor are they ruling elites, quite far from them.
The ruling elites, the richest and most power people in the world, are the likes of the British monarchy, Vladimir Putin, Saudi family, and other such monarchs and dictators who basically own nearly entire countries in both land and valuable resources and also control militaries to defend their assets and their position. They never appear in Forbes riches people because, unlike tech billionaires, most of their wealth is highly secretive and well hidden from the rabble, and for good reason too.
Putin is estimated to be worth way more than Musk. And he also has an army at his disposal. Same with the Saudi family, they have an army and their wealth could probably make Musk look like he should be put on social security.
In principle you are right, they don't have armies per se. But don't let the "everyman" persona put on by Musk or even Buffett fool you.
Billionaires must have extensive (and probably armed) security operations protecting them and their families. It would be irrational for them not to have that. Agreed that they might not be able to prevent their factories or other industrial assets from being seized (Just ask the oligarchs who fell afoul of Putin and fled).
Revolution isn't just spontaneous popular protests leading to regime change. It can also be further slides authoritarianism.
Like the line from Titanic when the extravagantly wealthy Calvert is trying to buy himself onto a lifeboat – "Your money can't save you any more than it can save me."
The west is like this today (apart from the countries that built themselves up on colonial empires of theft) in part also to a lot of violent and sometimes deadly revolts against the ruling class.
US, UK, France, Italy, Germany, etc. all saw bloody strikes and protests, in order to get fair living conditions. Noting was ever given out of pure generosity, without a fight.
That's...barely a thing at all.
> US, UK, France, Italy, etc.
If those are your examples, you really don't need the “apart from...”
The wealth inequality was absolutely insane. It's not like thanks to colonialism, everyone living in the UK victorian era could afford to prop their feet up, live off free stuff taken from the colonies, and never have to work a day in their lives. Quite the contrary, they were working long hours living in poor conditions.
The working class only saw lifestyle improvements when they fought back for them.
During the industrial revolution life expectancy in UK was among the lowest in the world for the poorest industrial workers. Inequality was incredibly high.
Painting people in a country as being all benefiting (or being harmed) from an external factor is very misleading
There have been many periods of high inequality and stagnation in history broken up by war. Since war is not a preferable catalyst in this day and age, we have to opt for organized labor.
Excuse me, but where have you been in the past 3 months?
> Historically, that's when a revolution or regime-change happens. This is something the richest of the rich have either forgotten or mistakenly think they'll be insulated from.
Revolutions aren't always successful. If the rich control the state by corrupting democratic institutions and remove from the peasantry the tools to pursue "politics with other means," they might actually get away with a transition to something like feudalism.
When the government steals from your cash savings, you merely save somewhere else, but the purpose is the same.
Spoken like someone who has only operated in the recent bull market.
Using a mortgage to buy a reasonable house that you can afford is a good idea.
Using leverage to buy as much real estate and/or stocks as you can get away with is a terrible idea with some significant downside risk. Leveraged stock purchases are notorious for working great until the market turns and blows up your account. Even leveraged funds have significant slippage that isn’t obvious to the casual investor who thinks they’re just going to get a clean 2X return.
One of my most poignant memories from the 2008 crash was watching a few people I knew go from feeling like they were financial geniuses to bankrupt and struggling. The common theme among all of them was that they were leveraged to the hilt in real estate. They thought it was easy money when it felt like the market could only go up. Then it stopped going up and we all know what happened next.
People buying homes in places that have only gone up in the last 40 years need to consider that that might keep going up for another decade, or they might be cresting the hill before correcting.
Homes going up is not the problem though. Yes, they've been going up for longer than 40 years, but back in the 1950's their growth was basically tracking inflation and wage growth, or even going down in value since they were seen an any other depreciable asset, just a place to live in till you die.
It's in the last 40 years that housing massively outgrown wages, as it became a speculatory investment vehicle instead of just being a place to live, plus the introduction of NIMBYISM regulations to restrict supply, and that's where the issue is.
make money by doing stuff rather than having stuff, the latter of which is the epitome of economic rents.
It takes roughly a career to amass enough assets to retire on and that's with a slightly reduced standard of living in retirement.
Unless you want to assume population growth forever (seems unwise IMO) you need one average career to generate enough surplus to pay for an average retirement. So far, buying assets (usually a mix of real estate and fractional ownership of financial instruments that are ultimately backed by companies and governments) is the most efficient way we know to accomplish this goal.
note the phrase "asset income being periphery", which implies an optimum. the ability to own one appreciating asset is great. owning two is probably ok in most cases. 90 is highly unlikely to provide a net social good.
To answer you first question/comment (because you are not as original as you think you are): That is why robust electorate, transparent public governance, and durable anti-corruption institutions are so important.
That is the point.
> And there's always intermediaries. And they always take a cut.
Should they not be compensated for their productive work?
> Maybe it's you that's not that original.
That is the point.
Edit: sorry that was a bit snarky. The point is that there are other ways to ensure people have a reasonable lifestyle once their 'working days' are over. Those schemes are probably best to be tied in some way to contributions, but they certainly don't need to be simply a savings plan, they can be a means to provide social support for those that cannot contribute to the same degree as others.
again, that’s a logical leap that i was careful not to make. small-time investing can have positive externalities on an economic system; industrial, mechanized investing, not so much. if we didn’t try to turn everything related to money into a get-rich-quick gambling scheme instead of the (imperfect) accounting mechanism it was originated to be, we’d be much better off, pensions and 401(k)’s included.
Humanity as a whole? I don't think anyone has advocated that here, just a certain segment of the population in their later years. As for any living creature, I didn't spend any time doing anything productive over the weekend, and I think it was a good thing. In fact, I've been doing that every weekend for a long time, and I plan to keep doing it!
Doing enough work to survive is a fundamental part of life. Technology and society function to either make that work easier or lower the amount of work that needs to be done. Take either of those away and you're going to be spending much less weekends doing "nothing productive".
meta point is that this is why nuanced conversations on the (texted based) internet are a waste of time. You and the person you're quoting are not really talking about the same thing. In a conversation you would go back and forth and figure that out; on the internet that's not required.
The reason I responded to the parent comment was that it seemed to me like they were misinterpreting the person they were responding to; the original comment that started this thread was that people who only have wage-based income instead of asset-based income would not be able to effectively retire and would have to work for their entire life. The response to this was to argue that if people didn't work, then humanity wouldn't progress. I don't see why "humanity needs productivity to progress" implies "every human needs to be productive for every moment of their entire life", which is why I responded with both a direct answer (i.e. arguing that people should be able to retire is not arguing that people shouldn't be productive _ever_ in their life) and a tongue-in-cheek response (nobody actually is productive every single moment in their life).
And Elinor Ostrom won the Nobel in economics for her work describing the mechanisms used by real-world communities to effectively self-manage Commons: https://www.onthecommons.org/magazine/elinor-ostroms-8-princ...
offhand, i can't think of a practical and contemporary example of this though.
I'm not disagreeing with you re. what I'd rather see us move towards, but there's a whole lot of existing money and power entrenched in the idea that having money is a great way to continue having money.
Saving money is a smart idea unless you live in a communist state or a dictatorship, then your best bet is to spend as fast as you can or secure assets resistant to confiscation.
Maintaining liquidity is a smart idea unless you live in a world where the government decrees asset prices can never fall. In which case throwing everything you have into leverage is the best bet.
It's not an irrational bet that the Fed's hands will be permanently tied to a low interest rate environment. The more people who make that bet the more true it will be.
How is it plausible? I would say given the historical data, it is extremely unlikely. Not impossible, but near negligible probability.
People saying, “it’s different this time,” right before a economic crash is a cliche for a reason. I suspect that you could use the frequency of utterances to predict impending recessions / asset class corrections with extremely high accuracy.
Housing can return 20% per year until the end of time if the Fed wishes it to.
Will they this time? Who knows, but it generally pays to hedge a bit.
All the money "made" from crypto was at the expense of other players(I refuse to call them "investors") who were left holding the bags, or at the expense of the environment (most of the large scale mining operations was done in areas of the world with cheap and dirty energy like China, Russia, Iran, etc.)
For example, some tech and semiconductor companies, because the whole world benefits from better compute (research for vaccines can be done faster; imaging for medical equipment results in better diagnostics; cars, engines and batteries can be simulated better and made safer and more efficient etc.) The whole world benefits.
"Investing" in crypto on the other hand, added zero value to society, or actually added negative value through the environmental damage being done.
That's not really what is at question here though. It's the concept of a pyramid scheme. The reason the stock market over long periods of time generally trends upwards is because new money keeps being added to it. It's as much of a pyramid as crypto is. That's just how the whole economy is though. Every generation so far has had more people than the last. It will be rather devastating to the stock market and economy whenever that stops being true.
Iron Law: During recessions capital always takes care of it's own and foists the losses onto the working class.
How does one leverage to buy more real estate? Refinance one house to pay down the next one? I just went through a home loan process and this would never work because they look at total LTV and credit reports...
GSEs (Fannie, Freddie) let you lever up with a lot of real estate borrowing (~10 mortgages per person, with some wiggle room with creativity) before you have to go to a commercial bank to wrap the portfolio with a commercial loan or similar product.
This is the central theme of Piketty's "Capital" book, for anybody interested in exploring this further. This is also a good start: https://hbr.org/2014/04/pikettys-capital-in-a-lot-less-than-...
EDIT FOR TYPO
No. The monetary system works by encouraging capital to be invested in productive uses by debasing it yearly through inflation. If inflation was 0% or negative, the incentive to risk capital is much much lower.
The political system of Western countries favouring asset owners is separate.
Monetary stability makes many forms of investment less risky! Low real interest rates (which often co-occur with inflationary episodes) discourage many forms of savings (which banks could use to invest.) The link between inflation and overall amounts of investment is not abundantly clear in the general case and it is an open problem that remains under study.
Current rental rates (in my city) would require pushing tenants to untenable rates and even then you would only be covering principal payments and maybe property tax. Interest is out of pocket. So you tie up a heavy capital load for twenty years on the hopes of an escalating market. If you end up in a recession you end up holding an overly expensive property that you now have to pay for yourself.
I am not saying feel bad for the land lord - I am pointing out that that assets are very difficult given macro conditions to find that look attractive in the medium to long run at current valuations.
Sure thing, NIKKEI & NASDAQ investors know this better than anybody else.
In the USA over the last 50 years that is true. But it isn't generally true.
I would like to work on something new in software because the IC shortage and dealing with CM's in China has become challenging. But everything that seems like a niche surprisingly has established competition. I could compete with {x}ly.com when they were first starting out but if they have been in business for 10 years it seems like they will have extracted not just the value from their target market but neighboring niche markets as well. Perhaps this isn't true but given the pervasive pessimism it feels like software has already ate the world and picked it clean.
In school, I recall a professor listed out (I think) 3 types of successful business as an example. The first type was something along the lines of "strong in a national market," but the second was "strong in a local market." I feel like the second kind is becoming more and more nonviable (with globalization, advanced communications), which consequently leads to a lot less opportunity for individuals (even though it may be more "efficient" in some cold and abstract economic sense).
For example, national steel mills put local blacksmiths out of work, but they fueled industrialization, new construction, and entirely new market opportunities.
At least where I lived - you had mom and pop grocery stores in residential areas (small, family owned grocery stores, where you paid a bit more but it was convenient) - now it's been taken over by massive corporations like Wal-Mart and 7-11, etc. who have contracted out silicon valley companies to pay a pittance to contract workers who deliver you your groceries, when you could not that long ago just shop local, not need to drive, etc. etc.
You had many more opportunities to pick which grocer you liked, which butcher you preferred, where to get your fruits and vegetables, but global corporations like (again) - Wal-Mart, Safeway, McDonalds, etc. signing contracts with individual/large farmers - you can't compete as an individual/small business with companies that would be able to pay many times more than you just because of the cost of scale alone.
Globalization was a mistake for a _lot_ of things. The west has had it's manufacturing sector absolutely destroyed over the past half-century or more due to corporate interests/espionage/whatever. We rely on other countries to make our crap and ship it to us - how carbon efficient is that _really_? We'll never know because the corporations that own both the news/media and will tell us that it's okay, not to think about the consequences of actions, and to keep spending. "We're not going head-first into a really bad recession! No way!" (/s)
The west has basically taken all of our (soft? hard?) power and given it away to other countries (to simply save a buck? to intentionally weaken the western economy over decades by malicious actors? who knows?)
If you want to find where the opportunities are look at areas where we have recent technological innovations have resulted in large step changes in capability - where new technologies allow us to do things that were not previously possible. Machine learning and biotech (e.g. CRISPR, sequencing, etc) are two such areas.
The politicians seem like little more than corporate middle managers in a crumbling Empire, regardless of political ideology. They want jobs for their districts and kickbacks for their inner circles, by and large - and the only federal jobs on offer these days seem to be MIC programs of one kind or another. It's understandable, but they have no vision and are mainly just following the herd. The real centers of power appear to lie within the networks of Gilded Age plutocrats, in finance, tech, energy, pharma, retail, ag... and half of them seem to have plans for fleeing the country if things go really sour.
Add on top of all that, increasing pressure from climate (record California drought for example), breakdowns in global supply chains (imagine if China takes this opportunity to invade Taiwan, nobody in America will be able to get socks and underwear or toothbrushes). Apparently gun sales are at record highs as well.
It's not a very pretty picture. Looks more like sitting on the edge of another 1930s Great Depression than anything else. Much of the younger generation seems to have zero hope of ever buying a home, the largest older generation is all heading for a shaky insecure retirement, and the political leaders are mostly corrupt bumbling incompetents, many of whom should have retired from their jobs over a decade ago. A radical shift in direction is really needed.
Government/poor leadership is 19%.
Inflation, 18%; Economy 12%.
Then we’re in single digits: Top of single digits is Immigration at 8% - no clarity on what angle but I think everyone can agree it’s a mess, no matter how you want it changed, which probably accounts for its comparatively frequent mention.
Fuel prices are at 3%.
Also of note is that 70%+ of respondents thought economy was getting worse, while 20% thought it was getting better. I wonder what those 20% are comparing to? Depths of Covid lockdowns?
Why is it so interesting? The average person's budget is less than 5% gasoline.
The reason gasoline is historically this all important thing is because Exxon and auto manufacturers used to be the biggest, most important companies in the US (and to some extent airlines) - not because gasoline is the stable of the American consumers spending.
But maybe many people think exactly like you do - a 35% y/y increase to something I spend 5% of my income on directly, how bad can that be?
There’s been a severe talent shortage for many years. When we post jobs, we don’t have a lack of applicants, just a lack of decently qualified applicants, let alone stand-out ones we’d like to hire. People want the job, but are not qualified for the job. That seems more like a labor shortage in that paying more money is only going to rob talent from company A to Company B, but not somehow magic up more workers with the skills needed at both.
I’m not sure I buy the idea that there are immensely qualified people who are choosing to “not work”. If that’s the case - presuming they were paid such inflated numbers that they are basically retiring decades too early, it doesn’t buttress the wage shortage argument either. Now burnout is very real, but I’d argue that what’s driving burnout is lack of talent to spread the load across.
People pay good money for talent - I always say that in America, there’s more money than there is talent. If you want that money, it’s there for you. The barriers are extraordinarily low.
And granted that’s my view from professional services. In the basic service industry you may be right. Reliable labor is not cheap, and on top of that, we (as consumers) are not terribly interested paying more for it. Not sure what the fix for that is. Many answers I’ve heard seem far too simplistic, or come back to a talent shortage on the top end (pay CEO less).
Thankfully you’re right and it has seemed to recover a lot of ground since ~2016.
If the working age LFPR drop wasn’t a combination of earlier retirement for both men and women who did well in the strong aggregate economy of the the 90s boom and men doing more higher education, why are the big drops of working age LFPR in the period it was dropping:
(1) A big drop in men at the youngest age bracket included (25-34), that is not reflected a decade later in the 35-44 group, and
(2) A smaller drop in both men and women in the oldest age category of the “working age” group (45-54).
https://www.pewresearch.org/fact-tank/2018/09/24/stay-at-hom...
https://www.history.com/topics/21st-century/great-recession-...
This is just my opinion, so take it with a grain of salt: the Federal Reserve made a very big error in only raising interests rates by 50 basis points. They obviously (to me at least) care much more about keeping interest rates as low as possible rather than fighting inflation. Actually, they did not make an error, they are just purposefully being without heart or compassion.
I planned my finances to be relatively immune to massive inflation, but my experience volunteering at a local food bank and getting to know our “customers” has given me at least a little bit of understanding on how vulnerable many people are. So many people I talked with had had solid middle class lifestyles until sometime unexpected happened like a large medical bill.
I believe in equal opportunity but to not enforce equal outcomes for people. To some degree equal opportunity means not enriching the asset class and hurting average people with run-away inflation.
People always say this, but they don't account for how unequitable outcomes of the past have influenced the unequitable opportunities of the present.
For example, we can't hand-wave away the impact that the denial of equal opportunity for home ownership has had on African Americans. It accounts for a huge portion of the black/white wealth gap:
https://www.brookings.edu/essay/homeownership-racial-segrega...
Believing in equality of opportunity vs outcome is a nice sentiment, but without a significant redistribution of resources to actually make it start happening instead of the status quo (massive inequality of opportunity), it's just highlighting and not acting on the perfect while avoiding acting on the imperfect, but good.
A lot of people talk a good game about social justice and fairness, but sit on their asses and don’t actually do anything.
My comment isn't addressed at you as a person (whom I have no way of evaluating), but at the general appeals for "equality of opportunity vs outcome", which seem largely blind to systemic and structural inequalities that actively negate equality of opportunity today. Your (or my) personal efforts are sort of negligible to those larger issues.
> Also, re: unfairness to African Americans in the housing market: absolutely true. I don’t know what I can do about that right now.
That's the point. If the massive injustices whose effects echo through generations aren't addressed, then the marginal and even well-intentioned efforts will have limited effect.
It took something the size of the New Deal to restructure American society in the aftermath of inequities of the Gilded Age and the Great Depression, and I doubt anything short of that type of effort will change the picture today.
In the worst case, we could we end up with a society that relies on charity for its safety net (which at scale often comes with social/cultural/religious conditions attached). I also realize that for many that is a desired outcome, not something to be avoided.
If we do a UBI but then strip other public supports for low and no-income people, it would likely do more harm than good, as there is no politically feasible UBI that is going to provide an acceptable minimum standard of living that includes healthcare, public safety, housing, and education for everyone, regardless of race or ethnicity.
If people are struggling to stay housed and fed - which will likely happen if their benefits are stripped in favor of a UBI - they aren't suddenly going to pursue personal (and national) productivity-increasing self-improvement as proponents of that approach posit. They are going to figure out how to just survive another day, hurting others in their own community if necessary, which is often the case already today.
Opportunities are just the forward-looking effects of outcomes.
“Supposed” by whom?
> where decision making authority is allocated to each person in proportion to the value they produce
Seems like a bad idea; if I create a lot of value, all of it for myself, I also get more power to make decisions for others?
It’s fundamentally what a market is.
It’s like me saying a sorting algorithm is supposed to produce a sorted set, and you saying ‘“Supposed” by whom?’
No, it's not.
Fundamentally a market is the aggregate of individual actions to exchange goods at values that seem to make sense based on conditions at the moment of exchange.
What you described is approximately a common aspirational view of what hypothetical ideal markets would achieve, not fundamentally “what a market is”.
> It’s like me saying a sorting algorithm is supposed to produce a sorted set, and you saying ‘“Supposed” by whom?’
If a “sorted set” was not a well-defined, or even practically operationalizable concept, but merely a thing about which people had conflicting intuitions, and instead of an abstract ideal an “algorithm” was a class of real things that exist in the physical universe, and the ones that you named did not, in fact, produce anything that met most intuitions of what the might fit the ill-defined concept of a “sorted set”, your analogy would be spot on.
Claims like this are in general not well-founded.
https://www.nytimes.com/2021/08/11/business/economy/july-202...
Consumer sentiment was relatively higher in Spring 2021 and then plummeted to a 10-year low which may have hit bottom in April 2022 or may continue plunging, hard to say.