Nobel-prize winning economist Gary S. Becker had a piece in the Wall Street Journal on Friday which is perhaps the best short comprehensive piece on the ongoing economic malaise, from the causes of the financial crisis of 2008 to the failure of the immediate past Congress and current administration to remedy the situation.
The University of Chicago economics professor reminds his readers that “government behavior also contributed to and prolonged” the financial crisis: “Regulators who could have reined in banks instead became cheerleaders for the banks.”
Given that markets melted down in a Republican administration, Democrats cleaned up at all levels in the 2008 elections. Once in power, they turned to their party’s tried and true response to economic crises: more government spending. Congressional Democrats put together a near-trillion dollar “stimulus plan”, and “Leading government economists, backed up by essentially no evidence, argued that this spending would stimulate the economy by enough to reduce unemployment rates to under 8%.”
Although a lot of economic theory supports the notion that higher spending stimulates the economy, the historical record tells a different story.
Instead of economic expansion on par with previous economic recoveries with accelerating job creation and declining unemployment, the Democratic stimulus instead produced . . .
. . . a sizable expansion of the federal deficit and debt.
The misdiagnosis of widespread market failure led congressional leaders, after the 2008 election, to propose radical changes in financial institutions and, more generally, much wider regulation and government control of companies and consumer behavior. . . .
Although regulatory discretion failed leading up to the crisis, Congress nevertheless added to the number and diversity of federal regulations as well as to the discretion of regulators. These laws and the continuing calls for additional regulations and taxes have broadened the uncertainty about the economic environment facing businesses and consumers.
Read the whole thing. These regulations put more power in the hands of federal bureaucrats who are incapable of creating new jobs and take it away from entrepreneurs who are the leading generators of new jobs in our economy.
FROM THE COMMENTS: Blair Ivey writes:
Once in power, they turned to their party’s tried and true response to economic crises: more government spending.”
It’s been tried, but it ain’t true.
Good catch, Blair.
I was underwhelmed by Becker’s piece. Perhaps it is a breakthrough that he is telling Big Government and its supporters, who were the root cause of the crisis, that they were “also” part of the cause. Kind of like telling the neighborhood drug lord that he may “also” be part of the neighborhood’s problems (along with all those moms who create tension by complaining about him). From one vantage point, yes it is courageous… from another, it is still timid. Here is an example, which you quoted:
No, actually: regulators were *telling* the banks to make subprime loans. Regulators weren’t unfortunately “cheerleading” the banks, they were giving the banks bad orders.
Where Becker gets it right, is in analyzing the lack of recovery from the crisis, the lack also being due to Big Government. For example, the “stimulus” that was a failure – and that had to be, because it’s just not possible to grow government and the private sector at the same time. (Nor to solve problems caused by overspending and too much debt, with more spending and debt.)
Dodd/Frank was high speed cover-up for the shenanigans pulled by a long list of government “over-seers” and “watch-dogs” and “affordable housing” advocates in all three branches of the government.
I liken Dodd/Frank to stacking the 9/11 Commission with the likes of Jamie Gorelick, who, remarkably, was also deep in the core of the Fannie/Freddie mess.
The new Republican government must root these people out, because they are still there shredding and mismanaging and further enriching selected private sector entities. On their “little” government salaries they are protecting the guilty and directing large money to selected firms, but they will collect their rewards when they go over to Goldman Sachs and GE and other “pet” players protected by Dodd/Frank.
Agree. Side note, if Goldman gets on the GOP bandwagon in the next election, it will be a bad sign in terms of the quality of the “new Republican government”.
Dodd-Frank was a deliberate, corrupt bill like ObamaCare & Porkulus.
And now it seems they have the audacity to sue the banks for following their orders.
Which will, of course, require another bank bailout. So it sure won’t end up being for the benefit of the taxpayers.
“Once in power, they turned to their party’s tried and true response to economic crises: more government spending.”
It’s been tried, but it ain’t true.
While it’s handy to have Wall Street’s support while governing from the White House, it’s not been beneficial to have so many from the highest ranks of the NYC Fed Reserve Bank, Goldman’s and Lehman’s rotating thro’ the White House Cabinet and the SEC Board as Chairs and staffers. Especially when so few on the appropriate House and Senate oversight committees lack a financial or business background…and their staffs and the committee staffs all want jobs on the Street when they live the Hill, or came from there in the first place. Purposefully…or unwittingly…they have transformed traditional equity capitalism into casino capitalism. The value of the “bets” far exceeds that actual equity value of the stock and bonds in-play. And the number of funds and investment vehicles exceeds the actual number of traded companies and investment entities.
The Secretaries of Treasury and Commerce should be from the private-sector, or outside-Wall Street bankers and business leaders. Not insiders there to “reassure the Street”.
Hi Dan,
Like ILC, I am also underwhelmed by Becker’s article, but for different reasons.
Consider when Becker says:
It is hard not to notice that he doesn’t actually disagree with this claim. he just says that government also contributed and prolonged it. His criticism of the stimulus comes down to the fact that it was badly designed (I agree with that) and that it did not achieve the high goals that its political supporters had hoped for it. Given it was too little, that is not surprising. I also agree that government prolonged this crisis (the current shambles in Washington together with its confidence sapping outcome is a case in point).
He makes two points. Entitlements need trimming. Regulation needs trimming. It is hard to see anything like a way forward out of our current predicament with that, apart from saying–entitlement issues are centred around Medicare issues (which a single payer system would help curtail the costs of), and regulations reform and trusting to the market’s magical powers to lead a recovery, in the face of the current collapse in demand, isn’t going to be doing it for us in the next two + years. And what is the model here? The confidence of the market place will re-emerge (somehow), and things will be hunky dory again?
And as for taxes and uncertainty. Could you point me to an article by Becker lambasting the Bush plan for having unfunded tax cuts (we do have two wars going on), because they would obviously create future uncertainty over when the tax hikes/spending cuts would be needed to pay for them, at some point in the future?
To be clear: To the nation’s job creators, what is actually “confidence-sapping” about the shambles in Washington is that:
1) the Democrats are sure to push for more wasteful spending / less spending reduction, and they might get it;
2) the Democrats are sure to push for higher taxes, and they might get them;
3) the Democrats are sure to NOT allow the repeal of their many new job-destroying regulations and laws.
All of which pose a continuing danger to the economy and thus to America.
Can either of those be disputed by any person who is both sane, and business-literate? (Hint: no)
Rubbish. Of course there is a way forward: that we proceed to REFORM ENTITLEMENTS and CUT REGULATION. It would be far more honest of you, Cas, to say simply that the Democrats (and you) do not wish to do those things. Not that they can’t be done; and not that the way forward is unclear, to any sane and business-literate person.
…is, in fact, (1) a collapse in the real value of the dollar i.e. the dollar’s value against commodities, (2) likewise a collapse in the real value of capital, (3) a collapse in the nation’s real prospects for getting out of its debt hole, (4) a massive increase in per-employee hiring costs, and (5) a massive increase in burdens placed, either now or in the future, on the nation’s entrepreneurs, such that there is much less point in being one.
All either brought about by, or at least worsened by, Obama’s policies.
… if and when we collectively get up the nerve to repeal the Obama policies which have destroyed it. It’s called cause and effect, Cas. Put a confidence-destroying policy in place, and it will cause confidence to be destroyed by that much. Remove it, and it will allow confidence to be restored by that much.
The element of uncertainty in the Bush tax cuts was that they were not made permanent from the beginning, as (for the sake of confidence and planning) they should have been.
As hashed out in a previous thread (an argument which you lost on the facts), the Bush tax cuts resulted in federal revenue increases within just a couple years of being given their full effect.
Hi ILC,
And here is the first bone of contention. You are ignoring the other group of job creators–the workers–i.e., labour. Without them, there is no job creation–and they care not one whit about your three points–they care about the uncertainty due to the lack of demand. And if you ask the other bunch of job creators, they to point to a lack of demand as the key uncertainty. The point isn’t that uncertainty isn’t the issue–and I can even acknowledge the theoretical reasonableness of your claim ILC, but the fact that you cannot acknowledge what is true for many business folks (uncertainty about demand is the key for them) is something I find strange, to say the least.
As for:
Really? If one looks at gold, sure, it has gone up in price (but it isn’t money). And if one were thinking that oil prices were directly correlated with the value of US currency, and ignored oil supply constraints and burgeoning Chinese/Indian demand for oil, then one could claim as you do… But commodity inflation should find its way into higher inflation figures and a greater spread on longer term treasury rates in any case. And higher nominal wages, without which hyperinflation is IMPOSSIBLE. So, what evidence do you have for any of these ILC? Currently, inflation adjusted bonds are trading at ZERO. Last I heard, the great hyperinflation bubble of 2010 failed to materialize. Are we going to hold out for the hyperinflationary bubble of 2011 or 2012. Or will you hold that this hyperinflation is coming–but when exactly, you don’t really know? So, where is this collapse of the real value of the dollar. To be blunt, we could do with some inflation to help reduce the real value of the debt we have (heresy, I know). And I the depreciation in dollar value during the Reagan years was not a negative, but helped this country get out of a recession (Sweden anyone?). So, your claim of the “destruction of dollar value” leaves me unconvinced, ILC.
As for 2-5, I would be pleased to review any links that you use as a basis for these claims.
And as for Bush’s tax cuts–I do not think you won that argument at all, ILC. The claim that “eventually” revenues were made up, doesn’t sway me, or many economists (It reminds me of the hyperinflation argument–“eventually” it will happen! I know it will!”). We didn’t make up for real revenues compared with 2000 until 2006. Sorry, you can claim that the facts do not support my views, but the claim that –eventually, tax cuts paid for themselves is a seriously questionable argument. The counter-factual remains–if the tax rates had stayed the same and government had spent dollars, how soon would GDP have reached the heights of 2006? Who knows,…
I think this is the most hilarious assertion of Cas’s attempts to deny reality.
Really? If one looks at gold, sure, it has gone up in price (but it isn’t money). And if one were thinking that oil prices were directly correlated with the value of US currency, and ignored oil supply constraints and burgeoning Chinese/Indian demand for oil, then one could claim as you do… But commodity inflation should find its way into higher inflation figures and a greater spread on longer term treasury rates in any case.
Typical. When faced with evidence of inflation — massive run-ups in commodity prices — Cas goes into denial and insists that inflation doesn’t exist.
Furthermore, Cas makes inane statements that constantly demonstrate its lack of mathematical and economic understanding. For instance, Cas insists that oil prices are “directly correlated” with the value of US currency — when in fact that is an INVERSE correlation. As the dollar is debased, the number of dollars required to buy a given quantity of oil rises.
In addition, Cas blabbers about “nominal wages”. If Cas had any understanding whatsoever of what hyperinflation actually IS (a rapid increase in nominal GDP without a corresponding increase in real output), Cas would realize that higher wages do not occur until AFTER hyperinflation has already begun, and are a reaction to the fact that the currency has been debased and devalued.
And this was a very telling statement.
To be blunt, we could do with some inflation to help reduce the real value of the debt we have (heresy, I know).
So Cas’s entire economic theory involves touching off hyperinflation to screw debtors.
This shows you how insane and amoral Cas is. Cas does not see debt as something that has to be paid, but as something that you use to cheat others. Cas and the Barack Obama Party that Cas represents are essentially telling the world with this statement that the United States has no intention of actually paying off its debts, and instead will attempt to use financial tricks to screw its bondholders.
Do they really think anyone will be stupid enough to lend them money now that they’ve stated this?
But of course, the really sick and delusional part about this is that the devaluation of the currency and the screwing over of bondholders that Cas proposes is going to hit Social Security the hardest — because it reduces the value of the securities that Social Security is allegedly holding to pay ITS debts.
You basically said it, ILC. Cas has already stated that the government’s only function should be to redistribute wealth — and that this should be done based, not on productivity or contribution to society, but on “entitlement”. Therefore, Cas will never under any circumstances support cuts in spending, changes to entitlement, or freedom for the private market.
And then this hit the ultimate delusion point.
Sorry, you can claim that the facts do not support my views, but the claim that –eventually, tax cuts paid for themselves is a seriously questionable argument.
So Cas IGNORES the facts and continues to push its lies. Cas says that the facts do not matter and that Cas will never under any circumstances accept any facts that are counter to its predetermined conclusions.
And then the real doozy:
The counter-factual remains–if the tax rates had stayed the same and government had spent dollars, how soon would GDP have reached the heights of 2006?
“If”?
In order for something to be “counter-factual”, it has to have FACTS, not “ifs”. Stating a hypothetical as a fact is a serious breach of argument, and in fact indicates that the individual involved is not arguing in good or intelligent faith.
That blather is difficult to parse. The best I can make of it, Cas, is that you are trying to claim that **workers** will not **accept jobs** until and unless they see the government undertake continued deficits and money-printing in the name of “demand” (or perhaps “stimulus”).
Only one word for it: Nonsense. Workers accept jobs from entrepreneurs (job-creators) because they want to be paid, Cas. They do not put it off because they feel uncertain about the neo-Keynesian (and as such, mythical) lack of “demand” in the general economy.
And your citation is, upon careful reading, worthless. A Democrat reporter decided to round up some Democrat small business owners who have *not yet* had their business prospects destroyed by burdens from Obama (or have not yet realized it), and who therefore would say the things that the reported wanted to hear. The opening quote of the article itself says it:
Hospitality. But what about, say, energy? Also – isn’t it possible that speaker is a dumbass, who simply hasn’t yet realized what Obamacare is doing to his hiring cost? Because he sure sounds like one.
It sounds strange to you, Cas, because, as established in prior threads, you know little both of business, and real economics: that is, a form of economics which would create wealth and lead to a general rise in living standards. You indicated in previous threads that a *decline* in living standards (which implies a depletion of wealth) is a normal, expected and acceptable result of your economics.
Most businesses are faced with no more uncertainty about demand for *their* product/business than they ever have been. They forecast based on recent results, plus insight into trends and other factors (e.g., seasonal). Their knowledge of their own results is no less certain than it has ever been. Their knowledge of trends is no more uncertain than it has ever been. Which mean, their ability to forecast demand for their product or service is no more uncertain than it has ever been.
When the business has forecasted what it expects to get from customers in (say) the next quarter or year, it can calculate how many employees it needs. But to arrive at that number, it must include the *cost* of employees. For a great many businesses, Obamacare explodes both the expected cost, and the uncertainty about the cost estimate. If the employee is going to be too expensive, they do not hire. They’re not being stopped by uncertainty in their demand forecasting, but in their cost forecasting. Or alternatively, they may be all too certain that their future employee costs will be too great to bear.
Perhaps your comment attempts to touch upon everyone’s uncertainty about what the future holds in the general economy, and/or the markets. If that is so, then it is very interesting that you refer to it by only one chosen aspect, “demand”: you confirm a criticism that I have long levelled at your phony economics, that it mistakenly treats “demand” (or spending) as the essence of the economy.
ROFL 🙂 (So misguided!)
And once more, Cas, you show your ignorance of financial matters. For a bond to be trading at or near zero interest, means that ITS PRICE IS HIGH. Which means, THE DEMAND FOR IT IS HIGH. So, for INFLATION-ADJUSTED bonds to be trading “at ZERO” means, BY DEFINITION, THAT PEOPLE WANT INFLATION PROTECTION. Which means that INFLATION IS HERE / INFLATION EXPECTATIONS HAVE RISEN.
The CPI understates inflation – a lot – because the government needs it to, and manipulates it to. See http://www.shadowstats.com
And yet… even by the government-manipulated CPI, inflation has begun to rise: http://seekingalpha.com/article/288323-far-from-deflation-inflation-continues-to-rise
Gold tends to lead the other commodities, by some months. They are hovering near all-time highs – the CRB (general commodity index) remains nearly triple what it was ten years ago: http://www.mrci.com/client/crb.php
Meanwhile, gold makes new all time highs. You can take that as an early warning that the others will keep going up.
As for nominal wages: Inflation is a multi-year process. First, the government (or the central bank) prints money: that is the real cause, the moment when it ‘happened’. The rest is mere effects. The effects roll out gradually, and roughly in a series. First the new money hits the asset markets (making everyone feel richer – and since bonds are among the assets being hit, interest rates initially drop). Then the commodity markets are affected, the stage we’re in now. Then producer prices, consumer prices, and finally wages the very last of all. In fact, nominal wages need not rise at all, for inflation to pinch. Rising commodity & consumer prices plus stagnant wages equals declining real living standards, the most painful effect of inflation. And that’s where we are, now, or are getting to.
So don’t give me this “where’s the wage inflation?” bullsh*t: from many perspectives, inflation is already here and the damage to living standards is all around you, and will continue to grow. You just need to pretend not to see it.
Now you’re just babbling. Did someone predict hyperinflation in 2010? Or 2011? I know that I did not. I also that I’ve had a great few years, betting on the trends that my understanding of economics enables me to see. Have you?
And, there it is. You actually ADVOCATE national penury. You actually ADVOCATE the plague that devastates the poor and middle class, to benefit the worst (the least legitimate) of both Wall Street and Big Government interests. What a disgrace!
Like most leftists, you never think about the dynamic effect (as in cause-and-effect) of what you are proposing. The inflation ‘genie’, once it’s been let out of the bottle, can be put back only with a lot of widespread pain and difficulty. Once people have been paid back in inflated money, i.e., money that is literally “worth less”, they don’t lend again – until they get some very juicy high interest rates. In other words, what you propose will *cause* long-term Treasury rates to shoot up to 10%, 20% or more. But real-world causes, effects, and results don’t concern you.
Which shows, again, how crazy your thinking is. You ass was kicked in that thread: for example, you clung to a factual claim that was demonstrably wrong, even after it was pointed out multiple times.
Evidently, evidently, and evidently.
Poor Hi Cas is just regurgitating the idiot talking points the left is putting in her mouth; one being that inflation is the solution to the debt crisis. This is idiocy. If inflation is unleashed, then the cost of entitlements increases because they are tied to inflation. Also, under inflation, interest rates increase, increasing the cost of borrowing. And consumer spending declines as people have to spend more money on necessities, which results in higher unemployment.
Just ask Zimbabwe and Wiemar Germany what an economic boon inflation is. But it’s not much surprise that the left is clinging to this delusion that they can avoid cutting the welfare and regulatory state if they just print more dough.
I have friends who have been looking fro full time work for months. Can someone explain to me how labor ‘creates’ jobs?
Short of arguing “Jobs are created when Labor breaks windows rioting” I’m not seeing it.
Livewire,
When you get your answer about labor creating jobs, you might take on Obama’s statement that the economy grows from the bottom up.
I remember way back in history when a bunch of Egyptian laborers all got together and talked the Pharaoh into building a pyramid and then they went out and grew crops and mined gold and did all sorts of economic things and gave them to him so he could keep them alive.
And that reminds me of how some of our ancestors asked the Dutch to bring them from Africa in crowded ships so that they could make it to America and grow rice and cotton and tobacco and find a nice white guy to keep them organized and work them on a plantation. They built all sorts of houses and barns and cooked meals and served juleps and ran barefoot around the slave row bonfires and never took a dime just so he and his own could live really fine.
That is how labor is, you know. Men sitting around the assembly line with nothing to do, so off they go and push Henry Ford into inventing the Model T. They were all so proud of Henry that they gave him scads of money and put him at the head of their parade.
Did I tell you about all the laborers who showed up together on the Colorado River and decided to build a dam? And then there were the guys who built the big Deco building in New York City and named it for Walter Chrysler because they liked his cars.
Yes, siree, we need to just sit back and let labor create jobs and fund us right out of this Depression. You might want to go down deep into the projects and watch the economy grow from the bottom up.
The U.S. has too much debt (and Obama has made it worse). Debtors are going to get an amnesty of some sort: whether inflation, or through defaults (bankruptcies). I don’t advocate that debtors get an amnesty; I only recognize that it must happen and is happening.
The question is, who will pay? Who will absorb the losses? Over-spending and over-regulation which our Dear Reader calls “stimulus”, and money-printing which our Fed calls “quantitative easing”, are current policy. Those policies loot the purchasing power of savings, redistributing said power to Big Government and the latter’s hungry stepchildren, Big Banking and Big Labor. Thus, the special interests – Big Government, Big Banking and Big Labor – are shielded from major losses. (Sound familiar? exactly like what has been going on?)
So who takes the loss? The people whose savings are being looted: successful individuals (e.g., retirees), and companies large or small who have good balance sheets, and non-government / non-Big Labor workers (the majority of workers, who either watch the purchasing power of their paychecks shrink, or whose jobs simply vanish as the economy’s real cost structure is blown out).
In short: anyone who is responsible, successful and independent (of government) loses. And that’s the point. That’s who Obama wants to lose. Obama and His supporters hate people who are responsible, successful and independent. Gripped with an envy they can never confess, they call such people an affront to “social justice”.
Heliotrope: sublime 🙂
ILC
ILC,
The interest rate (in standard economic theory) on a bond is made up of two pieces. The real rate of interest (what you would call the inter-temporal trade-off of current for future consumption) AND the expected rate of inflation. After all, bond holders need to be compensated for the erosion of their bond’s value, due to inflation as well as for the sacrifice of current consumption.
If people want inflation protection with a normal bond, they require a HIGHER interest rate to compensate them for higher expected inflation. With an inflation adjusted bond, the bond is indexed to inflation, and the bond face value (i.e., principal) is adjusted for inflation increases, when it is cashed in. So, the inflation indexed bond doesn’t require the interest payment that covers the expected rate of inflation. That is the difference.
When you look at both the inflation adjusted AND normal 10 year treasury bills they are trading at 0% and 2% respectively. In other words, ILC, people are willing to hold bonds that are inflation adjusted at 0% and those that are not at 2%. The market appears to be betting on deflation (as well as being totally searching for safe harbours for funds), ILC, unless you think the actual real rate of interest is 0% and the expected rate of inflation is 2%.
As for the greater demand for inflation adjusted bonds. You need to notice that all US securities are in this boat. Higher inflationary expectations would be seen in the higher interest premium that savers would want to see to compensate them. It just isn’t there, ILC. In a nutshell, your claim is incorrect.
Hi TL,
The reason I make this claim is to act as a counterweight to the distorted claim that entrepreneurs are “job creators.” As if they do this all on their lonesome. It is a claim that values capital and ignores labour. A product needs BOTH entrepreneurs AND labour to be made. And job creation (based on profit) requires workers to make the profitable product that will lead to increased hiring. I can honour the risk taking ability and capital utilizing skills of entrepreneurs and still honour the contribution of labour. If one does so, policy conversations become a bit more nuanced than they otherwise tend to be.
So in other words, Labour doesn’t create jobs. Labor fills jobs created by people willing to invest captial in a project.
Gotcha.
And once more, Cas, you show your ignorance of financial matters. You have no idea what it signifies, that people would want inflation protection so badly that they have bid the interest rate on inflation-protected bonds down toward 0%. I already explained it, and you still have no clue. Truly, Cas, your ears are stopped with unbelievable gobs of wax.
Bzzzzzzzzzzzzzt, wrong answer. You got it wrong again. The meaning of nominal bonds at 2% and inflation-protected bonds at 0% is that the overall market expects 2% inflation. Not deflation. Inflation.
Please note, I used the word “overall” deliberately. The overall market consists of a lot of what we call “dumb money”. The message of the commodity markets is that masses of people are still underestimating inflation. The message of the TIPS market (inflation-protected bonds at 0%) is that fewer people are making that mistake; more and more people want inflation protection. But “more and more people” is not “all market participants”. If people only knew their peril, the TIPS market would be trading at a negative interest rate – which has for brief moments, recently – while nominal bonds traded higher, producing that much more of a measured inflation expectations spread.
No, actually: it would be seen in the higher premium on inflation-protected assets. For example, TIPS might trade at 0%, or even go negative. And gold might be over, say, $1000. Who knows, gold might even be hitting new all-time highs at 1600, 1700, 1800, even 1900.
FIFY.
ROFL 🙂 (so misguided!)
Indeed they do, Cas. Part of the meaning of being an entrepreneur is that the business exists on your courage and vision; it would not exist, without you.
The entrepreneur creates the job for the worker and makes the job offer: the worker accepts it or declines it, as she likes (or in accordance with her other offers). That’s reality. Cas, you need to look into it.
Side note, the nominal bond market is also propped up (or interest rates held down) by an artificial source of demand from the Federal Reserve, “quantitative easing” again. The official myth is that QE has ended. It has not. The Fed still holds an inventory of trillions’ worth of Treasury bonds off-market, and the Fed continues to buy Treasuries, even now, at a rate of some $300 billion a year. Both tend to raise Treasury prices / lower rates. Both represent, again, a transfer of real purchasing power from people who hold cash balances for whatever reason, to the government (the issuer of Treasury bonds to finance its reckless deficits) and to the financial markets.
(continued) However, my immediate point is that we have government-manipulated interest rates, a metaphorically “drugged” bond market. Which is another reason why the market-coded rate of expected inflation, currently measured in the +2% range, should be (and in time, will be) higher.
The worker, it ain’t.
The entrepreneur can exist without the worker, if need be and on some scale; indeed, most entrepreneurs begin with no workers, and some choose never to have workers. But the worker cannot exist without the entrepreneur. Only after the entrepreneur has thought out the business to the point where it’s viable, and thought out its tasks to the point where some can be separated out for people of lesser courage and vision to perform by routine, do jobs exist and are workers needed.
ILC,
Simply put: If you were right, normal treasury bonds would have an expected inflation premia built in way above the margin that they currently do–just check out bond prices from Jimmy Carter’s time. They don’t. But the evidence is the opposite of what you would believe to be the case. That is evidence you can ignore if you desire ILC, but ignoring it does not make you right.
And as for blaming the Fed for keeping interest rates artificially low, you have to explain why the expected inflationary part of interest rates is near zero. That part is not controlled by the Fed–that part is controlled by folks like you and me–and we vote with our pocketbooks. If you want to claim that the markets are just completely delusional as to the threat of hyperinflation–go for it. Peter Schiff did so in 2010–and took a bath on his position. But what about most other folks?
And I already gave points on that as well. To summarize one more time, in an amused curiousity about whether any facts can penetrate your skull: nominal bond prices are still being bid up by (1) “dumb money” – though rather less of that than in the 2008 crisis; and (2) the Federal Reserve, which continues to create money from thin air to bid up bond prices, thus looting the purchasing power of other entities that might hold money, such as workers and retirees.
Neither of those conditions will last forever, at which point, yes, bond prices will start to look like Jimmuh Carter and worse.
Not at all. Evidence that people are worried about inflation is already given. To summarize one more time, in an amused curiousity about whether any facts can penetrate your skull: (1) the TIPS interest rate has been bid down to 0% and, at times, even below that i.e. negative. Which means that people seriously want inflation protection. (2) Gold is well above $1000. Indeed, it has put in a series of new all time highs at 1600, 1700, 1800, even 1900. (3) Broad commodity indices remain near their all time highs and near triple what they were 10 years ago. If you can’t recognize that as inflation, take a hike because you’re a nut case. (4) Even the CPI, which has been manipulated since the 80s and 90s to understate inflation, is showing a significant uptick in inflation to a 4% annual rate. Calculating CPI by the 1990 method, inflation is now above 7% a year, and by the 1980 (Jimmuh Carter) method it is above 10% a year. Right now.
The interest rate on a bond moves inversely to its price. When bond prices are bid up, interest rates are by definition bid down. When the Fed’s QE program buy trillions in bonds with money printed from thin air, it artificially bids up bond prices, and thus artificially bids interest rates down. Likewise with some of the non-Fed “dumb money” that has been fleeing Europe lately.
Come on, Cas. This is not that hard and I’ve said it several times already. It looks like you are playing your usual game of simply refusing to comprehend the words I write.
Nope. Wrong again. Schiff made money for his clients in 2010.
Really Cas: You can stop your ears and deny the evidence all you want, but it won’t change reality. Reality, Cas. Reality. Look into it.
Hi ILC,
I know you are greatly amused by the claims I make, but I find it amusing that you are holding to your claim. After all, when you say:
you appear to say it without an hint of irony. After all, what is the difference between “dumb money” being thrown at nominal bonds and “smart-money” being thrown at inflation adjusted bonds (True, I am assuming that you think it is smart, because all these people are running to inflation protected assets). I suppose that those in inflation adjusted bonds are just “smart-money” by accident. Because I don’t see the mechanism that distinguishes the two that you see. And by the way–you need to address the issue of inflation expectations being built into interest rates. Even if the Fed is pumping the system full of money, they don’t control that expectations part of the pie. So, if you were right, we would see that (unless those who buy bonds are just dumberer). And we don’t.
Let me spell it out again–you & I and others like you & I, ILC control that part of the interest rate equation. And you & I and others like you are not adjusting the inflationary expectations you hold. Correction–you are. So,why is it that so many are not adjusting their inflationary expectations, ILC? Hint: Wage growth…
To summarize your position, ILC: You keep asserting people want “inflation protection”–but there is nothing in the bond rates or the term structure of interest rates to support your claim, ILC, where one would expect it. You rely on the ad-hoc assumption that “smart money” is going to inflation adjusted bonds, and dumb money goes to the other bonds, without explaining why except that it is “dumb” money (at least my model explains both moves–flight to safety; lack of belief in inflationary spiral, etc). And this latter money is so dumb, that these folks don’t even ask for an increased risk premia that one would expect with increased inflationary expectations…okey dokey. Sorry, makes no sense to me.
And, let me know about all that explosive growth in wages that is fueling the inflationary binge you keep forecasting.
Ah, I do so love when Cas demonstrates what a fool it is.
Simply put: If you were right, normal treasury bonds would have an expected inflation premia built in way above the margin that they currently do–just check out bond prices from Jimmy Carter’s time.
You probably don’t understand this concept, Cas, but the interest rate on bonds is set based on trying to get people to buy them. The reason for the rate of bonds being so high during the Carter years is because investors could get double-digit rates of return by simply leaving their money in certificates of deposit.
In short, the reason bonds were so high during Carter’s time had nothing to do with the inflation rate; it had everything to do with the interest rate.
You are in denial, Cas, because your entire worldview depends on debasing the currency and printing money as a free out. You are completely ignorant of what happens to a country when it tries to print its way out of overspending. You seem to believe that you can hoodwink other countries and people into paying your bills for you, just as you and your Obama Party screamed and whined when bankruptcy laws were changed to prevent you from walking away from your bills.
Good god, some people have hard skulls don’t they?
And, let me know about all that explosive growth in wages that is fueling the inflationary binge you keep forecasting.
Perhaps you need to inform yourself, Cas.
Let me provide the conclusion, since we all know you’re too lazy to actually read.
There is little systematic evidence that wages (either conventionally measured by compensation or adjusted through productivity and converted to unit labor costs) are helpful for predicting inflation. In fact, there is more evidence that inflation helps predict wages. The current emphasis on using changes in wage rates to forecast short-term inflation pressure would therefore appear to be unwarranted. The policy conclusion to be drawn is that inflation can appear regardless of recent wage trends.
Do you see that, Cas? Inflation can appear REGARDLESS of recent wage trends.
You are in denial, Cas. That’s not atypical; desperate children like yourself who don’t want to pay your bills have been inventing theories of magic money throughout history. They’ve all been proven wrong, but since you are so ignorant of both history and economics, you wouldn’t be aware of that fact.
By the way, folks, please note: Cas has been screaming that it is impossible for there to be inflation without “explosive growth in wages”. Cas insists that, unless “explosive growth in wages” takes place, that inflation does not and cannot exist. Cas has repeatedly stated that, under no circumstances, can there be inflation without massive wage increases.
In short, the facts prove that Cas is dead wrong. And what we all know is going to happen next is that Cas is going to scream, whine, and bawl to try to get out of the fact that it is an idiot and that its idiocy has been made plainly obvious for all the world to see.
The dumb money is the money looking for a replay of 2008… and not finding it. It’s the money that has not yet realized that the dollar is compromised, T bonds are compromised, the US fiscal picture is as bad as Greece (only 100 times larger). In the 2008 crisis, there was lots of such dumb money: so the dollar jumped, nominal bonds skyrocketed while TIPS crashed, and gold corrected sharply – from the $1000 area, to the $700 area. (It sounds quaint, to hear such low prices.) This time around, the dollar has barely jumped, nominal bonds have only jumped (as opposed to skyrocketing), TIPS have jumped and gold has skyrocketed. That means the market is learning. Compared to 2008, it is catching on. But it does not catch on, all at once. Some people still treat U.S. Treasuries as a have by Pavlovian reflex, not realizing that the only way their bonds will ever be repaid is with new money, i.e., money that is literally “worth less” than the money they had lent when they bought the bond.
Actually, the smartest money has gone into gold – the very smartest got in when gold was still below 1000. (ILC coughs) TIPS money is only “not quite so dumb as to buy nominal bonds” money, sort of the B-student money, or the “I still believe in diversification enough to not want all my eggs in gold” money. (again ILC coughs)
Of course you don’t. You’re “dumb money”. (Assuming you are money at all.) This whole thread, you’ve been repeating all the “dumb money” shibboleths.
I’ve done that all along. You simply refuse to register it. It is hilarious to watch, Cas. You are so committed to your left-wing, dumb-money positions that you manifest an actual *cognitive block* that prevents your brain from registering my points. Thus, you ask me about them repeatedly as if I had never said them, etc.
Neither do they control the other part. They control *overall* rates. (At the short end firmly, at the long end just as an influence.) If they (plus dumb money) send 10 year rates down to the +2% range, and TIPS are also going down to the 0% range or even under (i.e. negative), then by definition, the ***overall*** market inflation expectation is ***right now*** in the +2% range. So what? It is what it is, for now. And it will change. CPI (21st century) is 4%, CPI (1990) is 7%, CPI (1980) is 10%. The dumb money will eventually catch up, and the Fed won’t be allowed to print forever.
Yes – as I’ve been saying and contra you, many have adjusted their thinking, BUT, some slow kids do remain. Like you, these slow kids typically spout propaganda to the effect that it isn’t inflation until it hits wages (which in reality is the terminal stage of the hyperinflationary cycle, the very last thing to happen); that it isn’t inflation if there is slack in the economy (the concept of “stagflation” somehow escaping their limited intellects); etc. These people will be last to protect what wealth they have from the Obama and the Fed – and they will deserve their fate. But I digress. In short, there is still a lot of dumb money out there – AND, as we see in the differences from 2008, there is less dumb money out there than there was in 2008. There is no conflict between the two statements.
I’ve shown that there is, several times. You simply choose to pretend I haven’t, a recurring practice of yours whenever you are in over your head, as now.
Sorry NDT, you could use a slightly better model there. CD rates are interest rates, just like bond rates are interest rates. In the end, it’s all one big money market. It’s true (and from the beginning, my comments have assumed) that interest rates can be divided into an inflation-expectations component and a “real interest rate” component. In the Carter years, interest rates – both CDs and bonds – got high because of a combination of high inflation expectations and high real interest rates (Volcker).
No argument 🙂
Again, no argument. (sigh)
Indeed. The essence of inflation is: currency depreciation, resulting in a rise of speculative capital, erosion of real working capital, production and trade, and decline of living standards. Wages need not ever rise for those things to occur – for example, if consumer prices rise while wages remain stagnant, then living standards have fallen, and because of inflation.
As previously stated, inflation is a multi-year process of overlapping stages (roughly but not strictly sequential). First, the government (or the central bank) prints money: that is the cause, the moment ‘it happened’. The new money shows up in asset prices, then commodity prices, then producer prices, consumer prices, and wages the very last.
(continued) It’s the neo-Keynesians who keep saying “There can’t be inflation if we don’t see wages rising”, “There can’t be inflation if there is unemployment”, etc. It’s all nonsense.
In the Weimar hyperinflation: first unemployment virtually disappeared, as real wages crashed and employees seemed cheap. (1921-22) Then unemployment skyrocketed, as production and trade crashed, which meant that jobs vanished. (summer of 1923) The highest unemployment went with the highest inflation.
ILC,
Sorry mate, but the fact that you have no clear model to explain why there is no expected inflationary premia–except to say that some people are “dumb” is just plain ad-hockery.
As for inflation and wages–thanks for the link. I will check it out and get back to you.
LOL – A nonsensical statement, as there IS an expected-inflation premium – as I’ve been saying all along.
Now let’s go through, Cas, and tally your wrong statements:
– That reforming entitlements and cutting regulation will not help the economy, not even by lifting entrpreneurs’ uncertainty – Wrong.
– That the problem with our economy is insufficient spending/demand – Wrong.
– That gold isn’t money – Wrong. (Poll the world’s central banks, and 2.5 billion Chinese and Indians.)
– That $1800 is somehow not a sign of inflation – Wrong.
– That inflation requires higher wages – Wrong.
– That 0% rates on inflation-protected bonds is a sign of deflation (or lack of concern with inflation) – Wrong. (Exact opposite of the case.)
– That nominal bonds reflect no inflation premium – Wrong. (Appeared to be a rookie mistake on how inflation premia are calculated.)
– That, the way bonds are priced today, bond markets are expecting deflation – Wrong. (Exact opposite of the case.)
– That the Bush tax cuts didn’t lead to higher federal revenues – Wrong.
– That Peter Schiff “took a bath” or lost money in 2010 – Wrong. (Quite the opposite.)
– That workers, in accepting jobs offered to them, are somehow “creating” jobs – Wrong.
– That entrepreneurs need workers as much, or more, than workers need entrepreneurs – Wrong.
– That I somehow failed to cover or explain points X, Y and Z – wrong. (I did so over and over; Cas simply deals with “being in over her head” by manifesting a cognitive block to people’s answers.)
Just one example, a few weeks ago my Cat treats were 1.59 at King Sooppers. I had to buy some more over the weekend, they had gone to 1.81. If there is no inflation then what do you call that? I like Yuban Coffee at beginning of year was 6.99 a can, it is now 13.99 a can. If there is no inflation then what do you call that? That’s just some examples. I’m sure there are many many many more and my wages have not changed.
Ah but Steven, you have a better iPhone than 2 years ago, right? That’s deflation right there, man, deflation is BAD and it’s everywhere, we have to stop it! now! PRINT MONEY! SPEND! THEY’RE ALL OVER ME, THE BUGS– Q^%*(^%&*r^$#
Seriously, last March, New York Fed president William Dudley, formerly of Goldman-Sachs, tried to tell an audience that food and gas prices don’t matter (in overall inflation) because of iPad improvements:
http://online.wsj.com/article/SB10001424052748704893604576199113452719274.html
Here are some heuristics for defining the “dumb money” in the bond market:
– People who will take a 2% measured inflation premium on 10-year nominal bonds – i.e., who will bet, today, that inflation will be only 2% a year for the next *TEN* years – in spite of the fact that the official CPI just upticked to 4%, the 1990-style CPI just upticked to 7%, the 1980-style CPI just upticked to 10%, gold is selling at $1800 and TIPS are selling for negative interest i.e. you pay to own them.
– People who deny that there even is an inflation premium on nominal bonds, despite laws of finance and arithmetic that say precisely what it is. (inflation premium = ((1 + nominal interest rate) / (1 + TIPS interest rate for equivalent term)) – 1; or perhaps (nominal interest rate – TIPS interest rate for equivalent term) as a more back-of-the-envelope thing)
– Doubtless I will think of others.
ILC,
You have a Casbunkle on your arse.
Heh 🙂
BTW, I hope nobody would be inspired by my comments to do short-term speculation against the dollar, or in favor of gold or commodities. After big moves in one direction, the probability of counter-trend moves (in the other direction) goes up. Markets are fickle like that; the big trends that you know “should” happen take time to play out.
I think Paul Krugman may be just as confused and ignorant about human nature, how business works, and how the economy works, as Cas is. Here is what he had to say when Obama thankfully iced a job-destroying EPA regulation:
Unbelievable – as in, unbelievably dumb!
Hi ILC,
Just a quick thought. Now that we have established that you believe that we have an expected inflation premium of 2%, you could try and explain why it is that this expected inflation premium has been in a falling trend for the last five years or so (unless you are saying it was less than 2% say in 2010, for example–is that what you are claiming?). I mean, according to your model,it should have been the opposite, given all the easing we have been having, right? The Fed has been effectively keeping nominal rates near zero for mucho of this time period (as you have often said–“artificially low” rates, as you would say), so, this again does not accord with your model, ILC. I mean, money is “dumb” for five years? When exactly is it going to wise up? I mean, it didin’t take people that long to wise up in the Carter years, so why is it taking so long now, if your model is accurate?
Maybe “dumb money” doesn’t learn, Or, maybe this is another example of using an ad hoc assumption to ensure an unfalsifiable hypothesis, ILC.
LOL.
Now that we have established that you believe that we have an expected inflation premium of 2%, you could try and explain why it is that this expected inflation premium has been in a falling trend for the last five years or so (unless you are saying it was less than 2% say in 2010, for example–is that what you are claiming?).
But if we had actually “established” anything, you wouldn’t be asking “unless” questions.
You are trying to construct a strawman to smear ILC because you, Cas, were completely and thoroughly humiliated today. You can’t win on the facts, so you make things up.
You really reveal your lack of character, Cas. Were you truly interested in learning, you would appreciate ILC’s breadth of knowledge and understanding in this regard and access to resources. Instead you attack him, insist that he is always wrong, and make up lies about him in order to smear him publicly.
But of course, we understand. Liberals like yourself are disconcerted when the facts disagree with them, and your reaction of lies and smears against anyone who would dare contradict you are a quite-understandable reaction to your discomfort and unwillingness to consider anything outside your ideology as correct.
What NDT said.
It’s been fun watching you, Cas, alternatively (1) writhe and (2) be unable even to register my comments (that I have said them) or to comprehend them. For an example of the latter, this:
… shows once more that you have not understood my comments. Anyway, it’s also been fun to get my own thoughts together here. But no value in answering you, beyond those things.
Longer! Like the poor, the dumb money will always be with us. It’s a good thing; I need people who take the other side of my trades.
Hi ILC,
I am sorry, I do register your points, really, I do. But the issue is that I do not think that you offer a telling defense of your position. I make the point that you have an ad-hoc assumption–that “smart” money buys inflation adjusted bonds while “dumb” money buys normal bonds. This is a position for which you show not one shred of evidence. Further, the very notion you present is UNTESTABLE. At least my position is–if interest rates rise in the face of Fed easing in a sustained way–not just up and then down, –you have a case to make for inflationary expectations rising, ands I can say–“hmm, maybe ILC is right about this.” As far as I can tell, you don’t have such a proposition to make at your end. You beam with pride as you tell me that “dumb” money can be dumb for however long–in this case–as long as it takes to fulfill your claim. That is not something one can argue with because–it is a religious position. No one can falsify it. You ignore the fact that money wasn’t dumb in the late 70s and early 80s, when interest rates factored in higher inflationary expectations. Why was it smart then, and dumb now? I have no idea, and you don’t have anything to say about this obvious query regarding your argument. Your arguments about what constitutes dumbness at 45 already presupposes that the behaviour is dumb–so that is highly unsatisfactory set of claims–after all, you can look at a bad CPI reading, but when you take out the volatile elements, you still end up with a reading that is LOWER than in 2006–and do not remember people screaming about the inevitable inflationary pressures… Let me ask you this–what evidence would or could falsify your position, with respect to the inflation that you predict will come? What testable proposition can you offer that could prove your case wrong, ILC? I offered one to you. Can you offer one back?
I looked at the article. Though there are papers that disagree with the claim, for sake of argument–let us grant you your claim. You support the conclusions that you quoted at 33, right? If so,why not take out the word “wages” and replace it with “commodity price”? After all, wages are the price that we pay for the commodity of labour services. So, this should not be a stretch for you, given what you have said previously. So,
You should be OK with that. OK then, please explain to me why the commodity price of wages hasn’t increased–according to your model, it should be rising. It isn’t. I have consistently argued that the reason for commodity price increases isn’t inflationary pressures (due to monetary pressures as you would argue), but because demand is rising because of emerging markets like China and India against supply side constraints; or supply shocks in the case of food products. I grant that gold is going up, but there are many reasons for this–not least of which is that savers are worried that the monetary system might implode as a whole because of the stupidly handled debt crisis that Europe is blundering its way through.
So are labour commodity pricess a special case for you? If so, why? Is it because of high U/E? That is questionable, I think. Even if U/E is high, it was also high in the 1970s when we had stagflation–and we are not seeing that right now. Maybe we will–is that your claim? If it is, when should we see it? Can you make a testable proposition? Or will it just appear when it appears at some indetrminate point in the future.
Again–I ask–what testable propositions can you make?
Watching the desperate Cas flail and try to spin its way out of its lies becomes even more entertaining with every single try.
Let’s break it apart.
I looked at the article. Though there are papers that disagree with the claim
Where? Quote them. You were presented with a paper and a link. Quote your own sources
for sake of argument–let us grant you your claim.
No. That is a published, testable, verifiable paper. That has established the claim and provided facts, a methodology, analysis, and reference. You are claiming the paper is wrong and providing no facts. You have no links, you have no sources, you have no quotes, you have no analysis, and yet you are insisting that the paper is wrong.
Pathetic, Cas. Just pathetic. You whine and scream about “testable propositions”, but you adamantly and totally REFUSE to do the same. You are a childish and immature brat who is utterly incapable of functioning in an intellectually consistent fashion.
Epic fail, and an excellent demonstration of your mental and cognitive block. You are literally incapable of processing facts that disagree with your predetermined conclusions and are proceeding into delusion. You expect to be able to say whatever you want and never be held accountable.
And now the delusion continues even farther as Cas, desperate to spin away, starts demonstrating its economic ignorance.
If so,why not take out the word “wages” and replace it with “commodity price”? After all, wages are the price that we pay for the commodity of labour services.
Because there is evidence that commodity price increases ARE linked to inflation — and in particular when said price increases are created by money supply shocks, such as quantitative easing.
The influence of commodity prices on consumer prices is usually seen as originating in commodity markets. We argue, however, that long run and short run relationships should exist between commodity prices, consumer prices and money and that the influence of commodity prices on consumer prices occurs through a money-driven overshooting of commodity prices being corrected over time. Using a cointegrating VAR framework and US data, our empirical findings are supportive of these relationships, with both commodity and consumer prices proportional to the money supply in the long run, commodity prices initially overshooting their new equilibrium values in response to a money supply shock, and the deviation of commodity prices from their equilibrium values having explanatory power for subsequent consumer price inflation.
As I accurately predicted above, Cas, you were going to scream, whine, and bawl to try to get out of the fact that you are an idiot and that your idiocy has been made plainly obvious for all the world to see.
Fortunately, children throwing tantrums are not acting rationally — and since you are nothing more than a child, you are not rational. Only a person in the grasp of the wildest delusion would attempt to argue that labor costs and commodity prices were identical and synonymous when there is so much immediate research demonstrating that they do in fact behave differently. You did, and you look even more the idiot for doing it.
NDT, brilliant paper recommendation, thank you!
Some smart traders I have followed have noticed the existence of a long-term “commodity pendulum”: overall commodity prices will undershoot increases in money supply and CPI for 10-20 years, then overshoot for 10-20 years. One was the late Howard Katz, another is Adam Hamilton, and others may be out there. These guys caught the commodity uptrend way ahead of everybody; Hamilton started recommending gold and gold stocks in 2001, a year when prices were rock-bottom by today’s standards and I had a Nobel laureate in investing science laugh in my face at the very notion that anyone could want to invest in them.
My major point now is that, yes, commodity prices track money supply (monetary inflation) for sure, in the long run; and more so during secular upswings of the commodity pendulum. For the Fed to do massive currency inflation in this decade (an upswing) is nothing short of insane.
These guys I follow(ed) discovered the “commodity pendulum” as a simple fact of the historical price charts. Reasons for it spring to mind. (First, note we’re talking dollar prices, which is fine because the US was the primary commodity producer and consumer throughout the 20th century, and the latter half of the 19th; I couldn’t say, at the moment, precisely how it works out in other currencies.)
The most important aspect of money’s value is what it will buy in terms of your physical needs: food, water, materials (for clothing and survival tools and homes), and energy. When your needs are covered, then you have money left over to cover other people’s physical needs i.e. to give them money for their services and assets. As a society gets richer, it produces/obtains more commodities per capita, and they drop in price, and less money is spent on them aka a rise in living standards, and more money is spent on services and assets, and services and assets rise in relative price. Conversely, as a society gets poorer, it produces/obtains less commodities per capita, and they rise in price, and more money is spent on them aka a drop in living standards, and less money is spent on services and assets, and services and assets drop in relative price (though their nominal prices may hold, if the government is inflating the currency; in that case, it’s more that commodity prices will go through the roof).
And lately, thanks to Big Government and to the Fed’s longstanding policy of monetary inflation, we’ve been getting poorer. Which should explain a lot. But I digress.
Under a fiscally disciplined government, a stable currency, and a regime of freedom (including effective property rights), commodity production will rise to meet market needs; and once it has, overall commodity prices will be stable-to-falling (specific commodities will rise but then fall, rise but then fall, on commodity-specific factors) as the society continues to get richer. That begins the downswing of the commodity price pendulum.
As the downswing matures, there will be underinvestment in commodity production – because why invest in something whose prices are stable-to-falling? Meanwhile, services and assets have been booming – and perhaps the government has now started to “cheat”, i.e. to run up spending and deficits for political convenience, and to print money to cover them. At first, people don’t realize what is going on – they are not clear on the fact that their money is losing value. (This is called Money Illusion.) Thus, the downswing continues a bit longer; but conditions are being created for the upswing.
As the upswing begins, commodity prices seem low, and commodity producers are held in contempt as an investment. However, commodity infrastructure has aged: as more years pass, it is increasingly unable to supply enough to match people’s past living standards. That begins the process of sending commodity prices up. As prices rise, Money Illusion wears off: people become aware that their nation’s money isn’t what it used to be, and that they may even want to hoard certain commodities in expectation of further price rises. That intensifies the upswing.
A foolish political culture and government, like ours, may fuel the upswing even more by accelerating its public spending, deficits and money printing – thus, money is devalued even faster, Money Illusion is eroded that much more, etc. If the political culture and government are foolish enough, the process ends in hyperinflation, i.e. destruction of the currency.
But as the upswing matures, real capital is attracted to commodity production. The upswing ends when commodity prices are so high that (1) enough capital is attracted to increasing commodity production that the cycle finally breaks from commodities’ “unexpected” newfound abundance; and (2) the government, seeing the economic havoc that it caused, cleans up its policies. Usually, it takes a secular overshoot of commodity prices to achieve those two things.
Thus, as stated previously, in the downswing, overall commodity prices decline relative to services and assets and undershoot monetary inflation; in the upswing, overall commodity prices rise relative to services and assets and overshoot monetary inflation.
The U.S. had an upswing in the 60s and 70s, worsened by Fed money printing and ending in the Carter inflation, then the Volcker interest rates which stemmed the dollar’s continuing decline.
The U.S. had a downswing in the 80s and 90s. In the mid 80s and again in the mid 90s, Volcker and Greenspan respectively started creating quite a bit more money than they should have – but, as the commodity pendulum was in a downswing, overall commodity prices barely rose and people did not really notice. Instead, asset prices rose (like the 1982-2000 boom in the stock market) which made people giddy.
Since about 2000, we have been in a new upswing of the commodity pendulum. At the same time, fiscal policy (first under Bush, then Obama) and monetary policy have both gotten much much worse. Thus, broad commodity indices today are at levels roughly *three times* what they were only ten years ago. And worse is to come, before the upswing is over. The upswing ends, again, only when (1) enough investment has been attracted to commodity production that commodities are again relatively abundant, and (2) the largest or most financially important governments have returned to sane policies. In the U.S., that will take at least 1 1/2 more years, and possibly 5 1/2. So the secular upswing in commodities has longer to run.
So anyway… I knew all the above, already. Your paper rec is sweet, because of how it dovetails, and because of its additional insights. For example: why consumer inflation lags commodity inflation (as I’ve been saying in this thread) which makes CPI a lagging indicator of monetary inflation; why the commodity overshoot/undershoot phenomenon happens also in smaller time scales (which I call volatility) in response to policy gyrations that a nimble trader can see and exploit; and more.
And only the fools, the “dumb money”, think that the secular upswing of the commodity pendulum isn’t tied to monetary policy, or that commodity prices somehow don’t track base-money aggregates (M0/M1) in the long run (and during an upswing, in the short-to-medium run as well).
Certain lefties can blather about rising demand from India and China all they want, but the fact is, that demand is largely nominal, and thus monetary: Indians and Chinese pay with *excess dollars* that the U.S. foolishly printed, then exported by trade deficit – i.e., by having the Indians and Chinese (and not the U.S.) do the actual productive work of the world. The more so as the dollar is the reserve currency, and the currency of world commodity trading. (Or it has been, up to now. Given Obama and Bernanke’s reckless policies, it won’t last.)
P.S. I am sure that Cas will now subject these new comments to her banal misunderstandings and inability to keep up with us. It doesn’t matter 🙂
It’s not a misunderstanding on Cas’s part, ILC.
It’s what happens when a pathological narcissist is cornered.
Cas has built an entire reality around its belief that it is never wrong, fueled by the fact that no one ever disagrees with it in the circles in which it runs. Just like Barack Obama.
And like Obama, when objective facts disagree with it, its response is to call those who bring up the facts racists, and then, when that ceases working, try to drown them in blather and literary spam.
That is why it is necessary to keep batting Cas back. Ignoring Cas reinforces the idea that all one has to do is scream to get their way. But if one keeps pushing back, Cas’s lack of knowledge and intellectual duplicity become increasingly more obvious.
Just like Obama and the Obama Party.
Hi ILC,
Wow, for someone who dislikes long comments, you sure know how to make one! Anyway, thank you for explicating your viewpoint. I notice that you don’t actually take issue with the central claim I make–which is that you have no testable position.
So, if your view is that commodity prices rises are a monetary phenomenon, then you still have to explain why wages are not rising in this country. So, would I be right and saying that you believe that it takes 10-20 years for such effects to wind their way through commodity prices. And that, given wages are a commodity price, you expect that wage effects will take 10-20 years to wind their way through the system? If so, that certainly is a very long run position you take, ILC. And many of us will be dead before you are proven right. In any case, given that other commodity prices are rising right now, you have to explain why nominal wages are not doing the same, in the face of what you feel are massive inflationary increases in liquidity.
To argue that the reason for the behaviour of the bond market interest rates is a question of “smart” and “dumb” savers is to already beg the question. Who is a “dumb” saver? One who saves using an instrument you think is “dumb” given some economic data you hold as crucial (i.e., they are “dumb” because you think they are “dumb”). As it stands, this means that currently, you use this assumption to claim the presence of rising inflationary expectations. If interest rates rise, you get to claim that inflation expectations (and hence inflation) are rising, as more savers “wise up.” Why are they wising up? Because they are asking for higher inflation premia–and that is what “smart” savers do.
In other words no matter what happens in the bond market, given your assumption and definition of “smart” and “dumb” savers, your claim is always going to be right, ILC. There is no piece of evidence that can prove your claim wrong. That is one definition of an unfalsifiable (or religious) claim.
So, if your view is that commodity prices rises are a monetary phenomenon, then you still have to explain why wages are not rising in this country.
Not really. It was explained several posts back.
You failed, Cas. You were exposed as an economic illiterate who was spouting foolish and disproven hypotheses. Your response was typical — spin, blather, lie, spam the thread, and do anything you possibly could to discredit those who humiliated you and demonstrated that they are far more informed and capable in regard to economics than you could ever hope to be.
1) But it wasn’t meant for your eyes.
2) I have never, ever said that I dislike long comments. Ever. What I have done, is point out that ***your*** comments are too long in a specific sense, namely, that they are too much packed with error, sentence by sentence; one simply does not have time to read-and-correct so much continual error.
LOL 🙂 No Cas, I don’t. Because I have explained it several times, in this thread alone (and others). With the idiot crudeness of a child, you simply choose to pretend I haven’t, then count on me playing along with your game. Your behavior is pathetic, and no one who has spoken in this thread is fooled by it.
You view people’s labor as just another commodity? I always suspected you did.
As for this:
No, it’s more like a colorful way of saying what should be obvious, that market participants have varying levels of ability and learn at varying rates, and that markets learn over time.
Yet another question that you’re pretending I haven’t already answered (#45). Based on your comments and poor behavior here, possibly you are?
Cas, we all understand that your economics does not care about the long run. We get it.
It’s precisely how America got to be in the hole it is now. Today’s problems are the “long run” of the past 80 years, the residue of decades of toxic Keynesianism and neo-Keynesianism that laughed off concern for future generations with quips about how everyone would be dead by then.
Likewise, we get it that your economics leads to declining living standards knowingly, i.e. viewing declining living standards as a normal, expected and acceptable result.
Hi ILC,
Yes, and so do your beliefs, ILC. You would have us go into a recession, for our “own good.” Well, when GDP falls, that means that there is also a fall in the average standard of living. We both believe that our approaches would provide long term growth. So, why exactly doesn’t this comment apply to you as well?. Oh, –because it does.
I care about the long run–but not at the expense of where we are right here and now. You don’t think that 10-20 years of misery is too high a price to pay to implement your policies. I think it is. On this we clearly differ. So, we have a philosophical difference, ILC. I get that, and so does everyone else.
I stand by my point about the untestable nature of your belief system. That your “dumb” and “smart” money assumption is an ad-hoc attempt to protect your model from legitimate criticism. Incorporating what you just said: what piece of evidence could possibly prove you wrong, except something perhaps that pans out, after we are all dead…
Finally,
Before commending a paper because you like its conclusion, you might actually want to read it.
Because anyone can quote an abstract, but doing so is no proof that the paper was actually understood. The results make for interesting reading, with important caveats, but I will stick with this point: If you check out the model’s assumptions, in part two, p11-12, you notice that the paper assumes that velocity is 1 and that it is stable. The “1” is unimportant, but the fact that the paper assumes that “velocity is constant” means that the result of the paper is a foregone conclusion.
Why?
Because the paper makes explicit that it assumes that the quantity theory of money holds, thus, PY = MV becomes PY = M, because V is constant and equal to one. So, printing money NECESSARILY leads to inflation if output is constant, BY ASSUMPTION. This is a rehash of Friedman’s claim that inflation is everywhere and always a monetary phenomenon, and this is unsurprising, given that the paper is written under the aegis of the European Central Bank. Now, maybe that assumption made sense in 2007, before the poopy hit the fan, but are you sure you want to stake your argument on such an assumption (and paper) in the recessional period we have been facing now?
If inflationary expectations are rising–and you believe that they have been since 2010, we could expect velocity to rise as people work extra hard to get rid of dollars that will be worth less tomorrow than they are today (and banks wanting to lend it out asap). So, do we see anything like that in 2010, or in 2011? If we do, that would be support for your model, and not supportive of mine. So, do we see that, or even still constant velocity? Because if it is falling, that would tend to support deflationary expectations, as people want to hold onto money, or not lend it. Of course, you could say that whatever result you get is a consequence of “smart” and “dumb” money movements. But you and I both know what I think of that “argument.”
So, another potentially testable proposition.
Actually, Cas, you have already stated that you don’t care about the economy twenty years from now and that your only concern is looting the productive.
Again, you are trying to smear ILC, who is clearly more intelligent and informed than you are, because you are a childish narcissist who has been repeatedly humiliated in this thread. You cannot produce an intelligent or coherent theory of your own, so you smear and attack everyone else’s.
The true hilarity, Cas, comes in when you start bashing the economists of the European Central Bank and insist that they’re all stupid. You won’t produce your own credentials or your own papers, but you throw these hilarious tantrums about how any conclusion that disagrees with yours is wrong and that the ECB economists who wrote that paper are clueless dummies.
This doesn’t surprise us; it’s how incompetents like Obama and the Obama Party operate, never offering anything of their own and constantly trying to bash those who do. Their policies never lead to growth because they are based on the liberal mindset that knows only consumption and destruction, not creativity or productivity.
Once more, you have not understood my comments and try to turn me into your sock puppet, speaking your banal incomprehensions as mine.
Once more, you have not understood my comments and try to turn me into your sock puppet, speaking your banal incomprehensions as mine.
Not my problem, fortunately.
For any sane people still attending: My view on recessions is that Obama has gotten us stuck in a continuous one – a new depression, in fact – and what we need to do, is get it the hell over with so the economy can resume real growth and get back to the business of raising people’s living standards.
Recessions are periods when the economy liquidates malinvestments. Big Government makes our recessions worse, in several ways:
1) Fiscal and monetary “stimulus” create artificial booms, as we saw with the dot-com bubble and the housing bubble. Politicians love them while they last, but in reality, they are largely just debt-fueled consumption binges. Vast quantities of debt are accumulated for the sake of… bad investments. That greatly worsens the recession to follow (like a bigger drinking binge makes a worse hangover).
2) Once a recession is underway, the worst thing the government can do is bail people out, i.e. try to *prevent* the liquidation of bad investments that is needed for growth to resume. The second worst thing government can do is grow itself, draining more from the economy which nips recovery in the bud.
Unlike Cas, my kind of economics consciously aims to create prosperity: a widespread increase in material living standards. Whereas Cas indicated, in a previous thread on GP, that declining living standards were an expected, normal and acceptable result of her economics.
My kind of economics views inflation (and the declining living standards involved) as a bad thing. Recession is also bad, which is why we mustn’t prolong it with historically harmful government interventions. History has shown on several occasions that reducing government (increasing freedom) in response to a recession produces a faster and stronger recovery; while growing government in response to a recession only drags the recession on and on and on, producing a Great Depression.
Leftists offer you poison as food, poison as antidote. When times are good, they have a million reasons why government should spend, borrow and print money. That causes enormous havoc – for example, the creation of debt-fueled bubbles, with painful recessions to follow. Then, when the inevitable painful recession comes, leftists again have a million reasons why government should spend, borrow and print money. That again causes enormous havoc, keeping the economy mired in recession and stopping recovery. Then, as the recession drags on for a decade in a Great Depression, leftists say “Oh look – we didn’t do leftism enough” and have a million more reasons why government should spend, print and borrow money. Always, always their “solution” is for government to subsidize more and more parasites, at your expense.
Unlike leftists, I do not advocate measures whose only real effect is to keep us stuck in recessions. I advocate measures to get recessions the hell over with, proven again and again in history to lead quickly to dynamic recoveries.
Hi ILC,
I just note that you reiterate your philosophy, but do not actually take issue with any of the substantive charges that I have made (except to assert that I “do not understand your comments.”
As for your philosophy, I am glad that you are trying to “consciously create prosperity.” I do to, its just that we disagree with each other about the means to do it. I think your approach leads to a deeper recession. You think it is worth it to do so, for the long run benefit of the economy. We disagree with each other. We all get that.
Don’t know what you have in mind, Cas, and don’t care. First, your charges are rarely substantive anymore, as they are indeed based on repeated, willing and banal incomprehensions of my points. Second, I have responded to your charges (substantive or otherwise) on rather more occasions than you deserve; in that I have been generous with you. You are really not worth it. People trying to understand, are worth it. You don’t and you’re not one.
Hi ILC,
Not that you will engage, but, just for starters:
Issue about untestable nature of your claims & overall model (In just this instance–“smart” and “dumb” money ad hoc assumption).
The misplaced commendation for an ECB paper that assumes the very thing you want to prove, and your unwillingness to consider velocity issue.
And there’s an excellent example of how the bleating and screaming child Cas continues to throw its tantrums.
The misplaced commendation for an ECB paper that assumes the very thing you want to prove
And we notice, Cas, when you start bashing the economists of the European Central Bank and insist that they’re all stupid. You won’t produce your own credentials or your own papers, but you throw these hilarious tantrums about how any conclusion that disagrees with yours is wrong and that the ECB economists who wrote that paper are clueless dummies.
And let’s not forget how you ran away squealing and crying when you were humiliated by having your own completely ignorant statements about inflation blown apart by actual evidence and papers from people with intelligence and credentials.
We are now starting to enjoy this, Cas. You are like the childish little brat who is crying up a storm, screaming and whining, stomping its feet and shaking its little fists, all because you are utterly and completely incapable of acknowledging other peoples’ information.
Why? Because it blows your little world apart. And every single one of us is laughing at you as you shriek yourself into a frenzy, demanding that we shut up and that we do as you say.
You don’t have the intelligence or honesty to make demands of anyone here, Cas, and you certainly have no intention of doing anything that even approaches intellectual inquiry. You’re simply a talking-points repeater like Obama who expects to be given a pass because of their minority status.
NDT – Again I recommend Fiat Money Inflation in France, if you haven’t read it. It’s a short, worthwhile read. A few relevant bits. From page 35:
In other words, they kept running larger deficits to “stimulate” the economy. They got up to where we are now – borrowing/printing 40 percent of the government budget – and went beyond.
The joke is that so-called Modern Monetary Theory advocates exactly that. MMT is one of the neo-Keynesian masks (i.e., the MMT and neo-Keynesian people claim to be different, but they advocate the same things in the end). There is nothing “modern” about it; the French Revolution tried it, and it failed.
Anyway, p. 38:
Emphasis in original. From p.39:
Puts a new light on those “Cash for gold!” ads, eh? The ads are designed to part the dumb money from its gold… sticking them with cash, that later will be depreciated further.
That’s what Obama, Bernanke, Krugman, Cas, etc. would drive us to (while pretending otherwise, of course).
I’ve said it before: Currency inflation benefits the government-embedded (or corporatist or fascist, whatever you call it) aristocracy -at the expense of- the working class. Sound money protects the working class above all. Those who favor sound money, favor the working class in reality. Those who don’t are entirely false “friends” of the working class: in fact, they are vicious, parasitic liars, pure scum.
(**Note that U.S. currency has already sunk to one one-hundredth of its value since the Fed opened its doors in 1914; just more slowly.)
Hi ILC,
You might want to read this paper–clearly written, and it gives a great overview of why the Europeans are in trouble–and why we are not Greece.
And as for gold, Krugman has been having an interesting series of posts that look at this problem from a different angle to that which you have been championing. He suggests that it is a problem of real low interest rates. Its worth a look to broaden your view of things, even if you do not agree with what he has to say.
And the petulant bleating little child tries another diversion.
Its worth a look to broaden your view of things, even if you do not agree with what he has to say.
Actually, ILC has demonstrated that he has an extensive breadth of knowledge and viewpoints.
You, on the other hand, Cas, are merely a malignant little narcissist, calling the economists of the European Central Bank idiots because you disagree with them while simultaneously demonstrating your own utter lack of knowledge or credentials on the topic.
And now you’re just throwing desperate little screaming fits that you think are giving you credibility — while the rest of us laugh at how completely ignorant and blind you are.
And it would behoove you, Cas, to overcome your blocks to comprehending other people’s points.
Imagine that – Krugman and I agree on something! Because what I have to say on gold’s relation to real interest rates, boils down to the fact that a government forcing negative real interest rates is one practical view or definition of a government destroying its own currency. And from that view, gold functions as a hedge against negative real interest rates (topic for another time). And indeed, on a monthly or yearly chart, gold’s price level and direction track remarkably well to certain thresholds and changes in the real interest rate. And indeed, right now we have negative real interest rates – with the TIPS market (which uses 21st century CPI) hitting zero and peeking into negative territory, and with the 1990- and 1980-style CPI indicating severely negative real interest rates.
I know all that whistled right past your ears, Cas. You didn’t hear a word. Know how I know? This thread alone shows your inability to comprehend my points. But here’s a deeper way of describing it. My views are coherent. What I say that might sound new in one comment, was in fact implied in some previous comment of mine. So that, if you actually understood economic and financial matters, plus if you bothered to comprehend my previous comments, then you would be able to anticipate my next one; for example, my understanding of gold’s relation to negative real interest rates. But, again and again and again and again, both your predictions of what I might say and even your representations of what I have said, have just been WRONG. Which should suggest to you the presence of significant calibration errors in your cognitive process. If you cared about truth, it would.
Hi ILC,
I would point out that Krugman believes that we are in a deflationary situation, not a developing hyperinflationary situation as you believe.
I agree-they are a coherent set of views, but I am not arguing with you about that. My issue with your worldview is not coherency, but the fact that you have an untestable view of the world. You have yet to provide a falsifiable claim. That is my point. The “smart” and “dumb” money ad-hoc assumption you offered in defense of your view of things means that there is no piece of evidence that can prove you wrong. Whether rates go up or down, its a question of “smart” and “dumb” preferences in liquidity. And what makes something “smart” or “dumb” is simply a question of whether you think their revealed preferences (in what financial instruments they decide to save) are “smart” or “dumb.” I think that is inadequate, ILC. If you want to argue that means that I refuse to grasp what you say, then so be it. But, you might want to consider that I have a legitimate concern with your model, that you refuse to address.
The Ptolemaic system was a coherent view of the cosmos, ILC. It didn’t make it right. And religions also have coherent views on a number of issues, but it doesn’t mean that they are testable or falsifiable.
My issue with your worldview is not coherency, but the fact that you have an untestable view of the world.
No; your issue is that you were shamed and humiliated by people who are better informed than you are, and like a typical malignant narcissist, you start sniping and screaming and crying to try to tear people down.
You are clearly ignorant of what inflation and its signs even are, Cas, as I showed above. In a normal cognitive situation, you would realize that you cannot claim that something is “untestable” when you lack even basic understanding of the topic; it’s akin to someone who doesn’t know how to do basic arithmetic criticizing an algebraic equation.
But frankly, Cas, you do not have a normal cognitive situation. You have been taught that your minority status makes your answers right, and as a result, you have learned to ignore reality in favor of your own conclusions. Worse, you have retreated inside a world of fantasy based on wild speculations and desperate rationalizations to avoid any contact with the real world.
That is why your claiming to be here to learn is hilarious. You cannot learn, Cas, as you make clear with your immediate proclamations that anything that disagrees with you is wrong. This was taken to extraordinary heights in this thread with your insistence that papers published by credentialed and established economists with the European Central Bank and the Federal Reserve were clearly incorrect and wrong because they disagreed with you. Learning requires changing one’s worldview, and you adamantly resist ANY changes to your worldview.