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Thread: EUCOM Economic Analysis - Part I

  1. #401
    Council Member Firn's Avatar
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    According to our dear enlightened former PM Berlusconi Monti and his german-centric are to be blamed for bad state of the Italian economy. While I do not agree with some of the policies of Frau Merkel or Mr. Cameron or more then a couple of other politicians by far the biggest share of our current troubles is home-made. And the guy with the biggest influence in the last 20 years was mostly busy with bunga-bunga, delayed actions against the law as well as breaking it and personal business affairs.

    Another big slice is the unhappy impact of supply-side globalisation in traditional Italian sectors with vastly increased competition. The increase in demand resulting in more export was not able to compensate the loss. In this case Germany got dealt the better cards with specific sectors booming due to heavy international demand.

    The Scala bit is really just a storm in the tea cup but Mr.Balotelli scoring in the Summer was certainly not

    ---

    I have now to clean up the portfolio to give the state as little tax money as possible. It was stupid to leave it for so late as the markets have generally gone up, should have sold some stock with negative return already during the Summer. This way I could have balanced the book with less friction.
    Last edited by Firn; 12-11-2012 at 06:50 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  2. #402
    Council Member Firn's Avatar
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    The economist's view zoomed in on an interesting issue in this case with a post of Tim Taylor.

    'Cautionary Details on U.S. Manufacturing Productivity'

    Awhile back I asked Tim Taylor if it would be okay to reprint a post occasionally in full or in part, and he quickly and graciously said I could. As he notes, this is an important addendum to the standard story on manufacturing, productivity, and employment. The bottom line is that "the condition of U.S. manufacturing looks more ominous than the standard story" would have us believe:
    Said McKinsey report states:

    "A rich pipeline of innovations promises to create additional demand and drive further productivity gains across manufacturing industries and geographies. New technologies are increasing the importance of information, resource efficiency, and scale variations in manufacturing. These innovations include new materials such as carbon fiber components and nanotechnology, advanced robotics and 3-D printing, and new information technologies that can generate new forms of intelligence, such as big data and the use of data-gathering sensors in production machinery and in logistics (the so-called Internet of Things). ...

    Important advances are also taking place in development, process, and production technologies. It is increasingly possible to model the performance of a prototype that exists only as a CAD drawing. Additive manufacturing techniques, such as 3-D printing, are making prototyping easier and opening up exciting new options to produce intricate products such as aerospace components and even replacement human organs. Robots are gaining new capabilities at lower costs and are increasingly able to handle intricate work. The cost of automation relative to labor has fallen by 40 to 50 percent in advanced economies since 1990."



    Krugman discusses the role of the human versus the physical capital.





    So the story has totally shifted; if you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.
    I enjoyed his earlier 'wonkish' post about the role of technology. Indeed not all technology is created equal in their effects on the marginal product of labor.
    So it’s wrong to assume, as many people on the right seem to, that gains from technology always trickle down to workers; not necessarily. It’s also wrong to assume, as some (but not all) on the left sometimes seem to — e.g., William Greider — that rapid productivity growth is necessarily jobs- or wage-destroying. It all depends.

    What’s happening right now is that we are seeing a significant shift of income away from labor at the same time that we’re seeing new technologies that look, on a cursory overview, as if they’re capital-biased. So we could be looking at my technology B story above.

    There are, however, other possibilities — including the possibility that the fact that we don’t actually have perfect competition is playing a big role here.

    So that’s the story so far. And it’s important stuff.
    I think it would be worthwhile to look more at this stuff also in the European context. Personally I think it is a highly interesting topic. Overall I thought that great built-up in capital in the last 60 years cpuled with the marginal product of capital and the demographic trends would result in a generally more worker-biased shift. The simplified cited model of the role of technology might be part of the answer.
    Last edited by Firn; 12-12-2012 at 08:00 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Council Member Fuchs's Avatar
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    ( http://4.bp.blogspot.com/-9AsiPbToI1...mckinsey+5.jpg )

    I'm always amused when I see such stats showing the U.S. so far ahead in national income. It's ridiculous, but the PPP method doesn't reveal it.

    Two men paying no VAT for washing each others' hand pay each other a gazillion dollars for washing hands once and do so as part of business expenses - and do so on Nauru.
    Boom! Nauru is now the biggest economy in the world!

    Such services-inflated GDP stats are a joke, but I guess the time hasn't come to make this visible to the mainstream.
    I prefer to look at the physical economy and the services trade balance instead.

    ________

    About Krugman; it's astonishing, but he misses the wood while walking past trees. (Yeah, I totally forgot how the saying works in English.)

    I suppose the decisive influence factor at work is simply power asymmetry. He's totally in a dead end with his look at who owns the capital. This decides who gets the capital income, not how much of the income becomes allocated to the capital owners. He probably needs more sleep or something.

    Power asymmetry; this is largely picked up from a professor of mine, Prof. Homburg, years ago (not my invention, if this helps its credibility ):
    Imagine the labour market. A corporation seeks a worker for a job, workers apply, one gets the job. This is a monopoly situation, with monopoly power and even worse; the corporation can squeeze a rent out of the worker by only offering a small wage. There are plenty other workers, after all.

    Now the workers form a labour union AND there's little unemployment. The labour unions adds bargaining power to the workers and this leads to a shift of income to labour.

    Now good policy would be to push -with whatever policies- for power symmetry. This way the labour union cannot take a power rent from the capital owners (and occasionally crash some companies) and the corporations cannot exploit the workers either. Furthermore, good policy is to regulate conflicts in a way which means the nearly symmetric powers can agree on new wage levels without many harmful strike days.

    Power asymmetry is a form of market failure for which mainstream recognition isn't well-developed yet either, though.


    OK, what happened instead ?
    (1) Unemployment because of poor adaptation to changing circumstances and because the employer lobby actually likes unemployment while labour unions don't get hurt by it much in the short term (and are often distracted by trying to avoid creative destruction): ~40 year old problem.
    (2) A largely successful 30-year campaign of the U.S. right wing to break labour unions, step by step, sector by sector, state by state.


    So now the U.S. has an economy with an unemployment rate which capital elites actually like if not promote (see how the public discussion is dominated by the budget, not by jobs?), with almost powerless labour unions, with a race to the bottom by states in regard to worker benefits and worker power.


    Isn't it obvious that this leaves a trace on the capital / labour income balance (especially if you look at executive compensations as a third share, not mixed up with worker's pay)?


    Related:
    The effect of Germany's Agenda 2010, which basically forced the poorest 20% into accepting ridiculously low pay and much-lowered security*:

    http://www.scribd.com/doc/116046526/Agenda-2010

    It transferred about 7% of national income from labour income to capital income in a mere two years. This shift had no parallel since the 50's, and the reached level of capital income share wasn't seen for decades either.
    (Our social democrats don't deserve their name any more; part of the reason why their left half parted ways and joined the former communists or greens or abstained from politics or voting.)

    *: Such as courier drivers who used to have a normal job with 40 hour week and good job security now being forced into pseudo-entrepreneurship with 1-man businesses needing to take a loan for an own truck, work 50-60 hours/week, have huge insecurity and in the end no money left for retirement savings or only proper insurances.

  4. #404
    Council Member Firn's Avatar
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    Quote Originally Posted by Fuchs View Post
    ( http://4.bp.blogspot.com/-9AsiPbToI1...mckinsey+5.jpg )

    I'm always amused when I see such stats showing the U.S. so far ahead in national income. It's ridiculous, but the PPP method doesn't reveal it.

    Two men paying no VAT for washing each others' hand pay each other a gazillion dollars for washing hands once and do so as part of business expenses - and do so on Nauru.
    Boom! Nauru is now the biggest economy in the world!

    Such services-inflated GDP stats are a joke, but I guess the time hasn't come to make this visible to the mainstream.
    I prefer to look at the physical economy and the services trade balance instead.
    I do not agree, at least not fully but I will have to tackle that another time.

    ________
    About Krugman; it's astonishing, but he misses the wood while walking past trees. (Yeah, I totally forgot how the saying works in English.)

    I suppose the decisive influence factor at work is simply power asymmetry. He's totally in a dead end with his look at who owns the capital. This decides who gets the capital income, not how much of the income becomes allocated to the capital owners. He probably needs more sleep or something.
    What the man wrote earlier:

    But there’s another possible resolution: monopoly power. Barry Lynn and Philip Longman have argued that we’re seeing a rapid rise in market concentration and market power. The thing about market power is that it could simultaneously raise the average rents to capital and reduce the return on investment as perceived by corporations, which would now take into account the negative effects of capacity growth on their markups. So a rising-monopoly-power story would be one way to resolve the seeming paradox of rapidly rising profits and low real interest rates.
    He is just a good economist, looking at the evidence and then around what might explain it and can be tested against:

    As they say, this calls for more research; but the starting point is to realize that there’s something happening here, what it is ain’t exactly clear, but it’s potentially really important.
    Last but not least:

    I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxismwhich shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.
    Anyway I agree that power asymmetry should be a bigger topic in general. Why nations fail did really put the link between politics and economics on the 'agenda 2012'. We have of course many models of markets up to monopolies but the political impact on the framework of the economy has been not given much attention in the last twenty years. In the US and Europe the reforms and policies of the last thirty years have certainly not weakened (large) capital relative to labour...
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Council Member Fuchs's Avatar
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    I noticed his monopoly power point, but it's a subset of power asymmetries, and not the same I meant. He doesn't appear to mean the labour market with his remark.

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    Quote Originally Posted by Fuchs View Post
    I noticed his monopoly power point, but it's a subset of power asymmetries, and not the same I meant. He doesn't appear to mean the labour market with his remark.
    I felt he did. In any case the important point is the supposed trend and what might cause it. As usually I'm rather guarded and like it when there seems to be a strong effort to look at the scientific 'problem' from different angles without jumping too quickly to a conclusion. One can too easily fool oneself.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  7. #407
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    Default What is the growth holdup?

    Is US economic growth over? Faltering innovation confronts the six headwinds, CEPR Insight # 63, Robert J Gordon, Northwestern University and CEPR, http://www.cepr.org/pubs/PolicyInsig...yInsight63.pdf

    The prospects for future long-run US economic growth were already dismal in 2007 but were little noticed in the continuing euphoria over the invention of the internet and the related 1. developments in information technology and communications (ICT). This Policy Paper pulls back from the past five years of financial crisis to pose a question with implications that will persist for decades even if the current international economic disorder is eventually resolved.
    Robert J. Gordon, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Robert_J._Gordon

    In an economy not so far, far away, By Izabella Kaminska, December 27, 2012 8:00 pm, Financial Times, www.ft.com

    Imagine a time when all undesirable work is done by automated systems or robots. What would it mean? Would there be a financial crisis? What would happen to labour and capital?

    These are some of the deeper questions economists are asking when not preoccupied by short-term worries about the fiscal cliff, a Chinese slowdown or the eurozone.
    Innovation Crisis or Financial Crisis? Kenneth Rogoff, Project Syndicate, http://www.project-syndicate.org/com...kenneth-rogoff

    Is Growth Over? Paul Krugman, NYT Blog, http://krugman.blogs.nytimes.com/201...s-growth-over/

    Gordon argues, rightly in my view, that we’ve really had three industrial revolutions so far, each based on a different cluster of technologies:

    The analysis in my paper links periods of slow and rapid growth to the timing of the three industrial revolutions:

    IR #1 (steam, railroads) from 1750 to 1830;
    IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
    IR #3 (computers, the web, mobile phones) from 1960 to present.

    Gordon then argues that IR#2 was by far the most dramatic, which again seems right. Think of the America shown in Lincoln, which is a society shaped by industrial revolution 1 but not yet transformed by IR #2. It was a society in which you could travel much further and faster than ever before — but when you got to your destination, it was still a horse-drawn society in which most people still lived on farms and cities were cruder and dirtier than we can easily imagine. By the 1920s, however, urban America was already recognizably a modern society.

    What Gordon then does is suggest that IR #3 has already mostly run its course, that all our mobile devices and all that are new and fun but not that fundamental. It’s good to have someone questioning the tech euphoria; but I’ve been looking into technology issues a lot lately, and I’m pretty sure he’s wrong, that the IT revolution has only begun to have its impact.

    A decisive year for ‘deglobalisation’, Howard Davies, December 23, 2012, Financial Times, www.ft.com

    The quarter-century leading up to the financial crisis saw a remarkable leap in globalisation. In particular, cross-border financial flows grew rapidly. Western investors piled into China and the other Brics. The new phenomenon of south-north flows emerged, as sovereign wealth funds from Asia and the Middle East acquired developed economy assets on a massive scale. But the fastest growth was in cross-border bank lending, much of it intermediated in London. Citibank’s ambition was to be seen on street corners from Manhattan to Manama; HSBC proudly told us, every time we got off a plane, that it was “the world’s local bank”.

    Since the crisis that last trend has gone into reverse: cross-border lending has fallen sharply and the ambitions of major American and European banks have been scaled back. HSBC has withdrawn from a number of countries; Citibank and Barclay’s have other preoccupations. The continental European banks are struggling to strengthen their capital bases, and emerging market assets have been realised to bolster the parents’ balance sheets.

    So are we entering a new age of financial deglobalisation? If so, should we care?
    Globalization, From Wikipedia, the free encyclopedia,http://en.wikipedia.org/wiki/Globalization

    In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge.[7]
    Sapere Aude

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    Council Member Fuchs's Avatar
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    I’ve been looking into technology issues a lot lately, and I’m pretty sure he’s wrong, that the IT revolution has only begun to have its impact.
    Sometimes he doesn't sound like a macroeconomist.

    There's a model about how inflation-corrected growth happens.
    The four ingredients on the macro (aggregate) level are
    (1) labour
    (2) capital
    (3) natural resources (exploitation thereof)
    (4) technology

    whereas "technology" (technological progress) is the "leftover" that explains away all the growth (or shrinking) that happens after the other factors were appraised.

    Technological progress is a pointless model variable for very detailed or short-term analysis, but it makes a lot of sense when you talk about decades.

    I wonder why he didn't prefer to stick to technological progress instead of diving into micro here. This macro variable tells a story of a declining rate of growth, for technological progress shrinks by 0.1 to 0.2 percent points per decade. At this pace, we would run out of technological progress in about three to six generations.

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    Council Member Surferbeetle's Avatar
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    Quote Originally Posted by Fuchs View Post
    Sometimes he doesn't sound like a macroeconomist.
    To my eyes, he is a Nobelist and public intellectual who has been able to use technology to engage and educate civil society in a long overdue discussion regarding economic policy (which of course impacts us all). Now if only our elected officials would follow his lead - do their job, take the time to try and understand what is going on and actually formulate & operationalize functional policy that meets the needs of the majority of their democratic constituency.

    I am going to dig into this a bit, for my own edification mainly as I am assuming much of what follows is familiar to you.

    In his macroeconomic work, as I understand it, he is characterized as new-keynesian...part of a school that attempts to bridge the gap between macroeconomics and microeconomics by also examining imperfect competition (to include monopolies and oligopolies traditionally examined by microeconomists) and wage & price stickiness (using advanced models such as DSGEs - Smet-Wouters in the case of the ECB) in addition to the traditional macroeconomic concerns of national income, output, consumption, unemployment, inflation, savings, investment, international trade, international finance, etc.


    Quote Originally Posted by Fuchs View Post
    There's a model about how inflation-corrected growth happens.
    The four ingredients on the macro (aggregate) level are
    (1) labour
    (2) capital
    (3) natural resources (exploitation thereof)
    (4) technology
    I am assuming that you are referring to the Nobelist Dr. Robert Solow and his Solow–Swan growth model (intellectual progeny of the Harrod–Domar model)?

    Quote Originally Posted by Fuchs View Post
    whereas "technology" (technological progress) is the "leftover" that explains away all the growth (or shrinking) that happens after the other factors were appraised.

    Technological progress is a pointless model variable for very detailed or short-term analysis, but it makes a lot of sense when you talk about decades.

    I wonder why he didn't prefer to stick to technological progress instead of diving into micro here. This macro variable tells a story of a declining rate of growth, for technological progress shrinks by 0.1 to 0.2 percent points per decade. At this pace, we would run out of technological progress in about three to six generations.
    The links to Dr. Krugman, and others, which I provided upthread and in this post are part of a discussion regarding factors impacting growth sparked by Dr. Gordon's recent paper. Dr. Gordon, broadly, seems to be reprising Rev Thomas Robert Malthus' argument regarding limits to growth. Dr. Krugman, Dr. Rogoff, and others find his argument interesting, but, dispute his conclusions.

    By definition exogenous inputs, such as 'technology' (industrial revolutions as opposed to x-inefficiency or technical efficiency - output produced with given inputs), are difficult to predict.

    My read is that Dr. Krugman is referring to technology in the sense of an unpredictable exogenous input as opposed to the more narrow macroeconomic definition examined by Dr. Solow.

    So...do you see a pull back in globalization as part of the explanation of the current global malaise? Overreach by the oligarchy?

    The Quiet Coup, By Dr Simon Johnson (Former IMF Chief Economist), May 2009, The Atlantic, http://www.theatlantic.com/magazine/...t-coup/307364/
    Sapere Aude

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    Council Member Fuchs's Avatar
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    You seem to have misunderstood something.
    The technological progress I mentioned is vastly more general, not more narrowly defined than 'better machines'.

    The introduction of timestamps to reduce absentee rates would contribute to it, for example. Also legislative changes affecting productivity. Nice weather in a given year. Even higher world market prices for crops contribute to it (minus their effect on domestic inflation).

    It's so general that so many factors are placed in this leftover aggregate that it's useless in the short term.

    Nevertheless, it's great for long-term analysis.
    It makes sense to calculate the rate of this technological progress of the 60's, 70's, 80's, 90's and 00's. This is the terrain of Kondratieff's long waves and seems to be exactly the same terrain as the stuff I replied to.


    To use the technological progress variable I referred to may appear to be an excessive aggregation, but the topic is about technological progress caused over decades and in more than even only the entire Western world. You need a huge aggregation to match this. You cannot investigate the productivity effects of individual tools or technologies in many years and in many countries in parallel. There aren't enough man-years available for such an approach.
    Look at the technological progress variable (relatively easy to get) for the G7 countries instead.

  11. #411
    Council Member Surferbeetle's Avatar
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    Quote Originally Posted by Fuchs View Post
    You seem to have misunderstood something.
    Ok

    Let's look

    Quote Originally Posted by Fuchs View Post
    The technological progress I mentioned is vastly more general, not more narrowly defined than 'better machines'.
    I suggest that we have a continuum of definition here ranging from industrial revolutions/exogenous inputs to better machines/technological progress. I think that we might be at different places along that continuum with our respective definitions.

    Quote Originally Posted by Fuchs View Post
    The introduction of timestamps to reduce absentee rates would contribute to it, for example.
    I see this example as a 'better machine', i.e. management controls

    Quote Originally Posted by Fuchs View Post
    Also legislative changes affecting productivity.
    'Better machine', i.e. policy controls.

    Quote Originally Posted by Fuchs View Post
    Nice weather in a given year.
    Unpredictable exogenous input - 'act of god'

    Quote Originally Posted by Fuchs View Post
    Even higher world market prices for crops contribute to it (minus their effect on domestic inflation).
    Mixture....'act of god' plus 'better machine' - farming techniques

    Quote Originally Posted by Fuchs View Post
    It's so general that so many factors are placed in this leftover aggregate that it's useless in the short term.
    Going to my point that exogenous inputs are unpredictable and thus difficult to model.

    Quote Originally Posted by Fuchs View Post
    Nevertheless, it's great for long-term analysis.
    It makes sense to calculate the rate of this technological progress of the 60's, 70's, 80's, 90's and 00's. This is the terrain of Kondratieff's long waves and seems to be exactly the same terrain as the stuff I replied to.
    I would classify this as being able to be modeled, and, thus defined as 'better machine'

    Quote Originally Posted by Fuchs View Post
    To use the technological progress variable I referred to may appear to be an excessive aggregation, but the topic is about technological progress caused over decades and in more than even only the entire Western world. You need a huge aggregation to match this. You cannot investigate the productivity effects of individual tools or technologies in many years and in many countries in parallel. There aren't enough man-years available for such an approach.

    Look at the technological progress variable (relatively easy to get) for the G7 countries instead.
    Although I am not currently aware of any papers, I wonder how long until 'big data'/cheap computing power/huge databases will sufficiently expand modeling frontiers in order to help tighten the definitions used when discussing this topic...components of economic growth...exogenous inputs vs technological progress.

    I would offer Thomas Savery's work (invention of the steam engine) as an exogenous input/industrial revolution and James Watt's work as an example of a technological progress/better machine. Similarly for electricity Ben Franklin (arguable considering the recent rediscovery of the Baghdad Battery) for the exogenous input and Nikola Tesla and Thomas Edison for technological progress. Finally Alan Turing's work for the exogenous input and Steve Jobs for the technological progress description with respect to computing.

    When thinking about this topic I contrast the often qualitative answers provided by economics with the quantitative answers provided by science & engineering. Although exogenous inputs are an example of a nonlinear stochastic process, IMO economics still has a ways to travel yet before it can provide satisfactory answers to the questions we pose.
    Sapere Aude

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    Are there significant western governance failures in designing, gaining acceptance, and implementing changes to the social contract? Would this lead to measurable (peer reviewed) social instability? A global estimate of 60 year olds has risen from 200 million in 1950, to 760 million in 2009, and is projected to hit 2 billion people by 2050. Youth unemployment & underemployment - if nothing else - detracts from the ability to care for the 60+ demographic by reducing the amount of time to gain & hone skills and fund, via taxation, a portion of the costs the 60+ cohort has not saved for (or subjected to pension shortfalls). It would seem to follow that taxation rates would need to at least meet a transparent cost breakout of items of social value that a democratic society has agreed to fund (rule of law, education, infrastructure, vulnerable demographic cohorts, security, etc). Are there examples of western governance directly engaging the population at large in a substantive discussion regarding these topics? Switzerland perhaps?

    WEF Global Risks Report, 2012, http://www3.weforum.org/docs/WEF_Glo...eport_2012.pdf

    Restoring Fiscal Equilibrium in the United States, by William R. Cline, Peterson Institute for International Economics, June 2012, http://www.petersoninstitute.org/pub...esearchID=2144

    How the [US] Tax Burden Has Changed [1980-2010], NYT Graphic, 29 Nov 2012, http://www.nytimes.com/interactive/2...ax-burden.html
    Sapere Aude

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    Council Member Fuchs's Avatar
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    Quote Originally Posted by Surferbeetle View Post
    (...), a portion of the costs the 60+ cohort has not saved for (or subjected to pension shortfalls).
    It makes little to no sense to speak of savings of elderly when looking at demographic problems. My country had this fallacy in its public discourse about the topic a decade ago as well (and sticks with it), but it's still a fallacy in most contexts it's being used in.

    Look, the quote is talking about the global population, so there's a perfectly closed economy (as quite safe assumption even for 2050, 2070 etc).
    The elderly may have savings or not, but that's merely an indicator for allocation issues. What would they do with their savings? They would buy the period's economic output (or output that's not much older).

    It makes thus little sense to discuss savings in the context of demographic change; it's much more reasonable to speak about natural GDP growth paths, capital stock, depreciation rates (share of very durable goods in capital stock) etc.
    ______________

    My view on demographic change etc is the view of someone who has read too much about history:
    Forget about the supposed problem. Humans adapt easily to changes, and especially so to slow changes. The problem almost solves itself because it's so creeping.
    We might be able to consume more per capita if a larger share was working. Not going to happen. Instead, we won't get used to this 'more' consumption and thus won't really miss it more than we would miss 'even more' consumption if we had 'more'. We won't be satisfied anyway.

    When thinking about this topic I contrast the often qualitative answers provided by economics with the quantitative answers provided by science & engineering. Although exogenous inputs are an example of a nonlinear stochastic process, IMO economics still has a ways to travel yet before it can provide satisfactory answers to the questions we pose.
    Maybe the problem is with the questions.
    Very, very, very much can be answered with economic theories older than I am. Most often economic science can say "this would be stupid because ..." and there's no real need to calculate how stupid it would be.

    The problem is in my opinion more that people cannot make good use of existing economic theories. It's perfect routine for politicians to ignore economic science advice and listen to charlatans instead.

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    Fuchs,

    Appreciate the discussion on growth & development. 2013 is shaping up to be a very interesting year in that the struggle over (scarce?) resources by various factions becomes ever more visible. Apparently, Malthus may be alive and well.

    Europe: Burnt and abandoned, by James Fontanella-Khan, January 2, 2013 6:44 pm, Financial Times, www.ft.com

    Between 2007 and 2011, annual investment in the 27 countries of the EU dropped by more than €350bn, vastly outpacing falls in other economic indicators, according to a study published last month by McKinsey, the US consultancy. The decline was 20 times the fall in private consumption, for example, and four times the decline in the overall economy.

    That lost investment means companies in Europe will not generate €543bn in revenues they would otherwise have churned out between 2009 and 2020, the study estimated.
    Obama Fights Republicans on Debt as Investors Seek Growth, By Mike Dorning - Jan 3, 2013 6:19 PM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...ek-growth.html

    Fresh from a budget fight so raw that the Republican speaker of the U.S. House cursed the Democratic leader of the Senate outside the Oval Office, President Barack Obama and Congress are heading for an even bigger confrontation over raising the nation’s debt limit.

    U.S. Treasury bond investors -- who most directly bear the risk of a government default -- aren’t alarmed. In a sign of the disconnect between Washington and Wall Street, investors remain confident the two sides will compromise rather than inflict what Obama called “catastrophic” consequences. Yields on long-term U.S. debt are near record lows.
    “Heretofore, they’ve been playing with a cherry bomb in economic terms,” said Steve Bell, a former Republican Senate budget aide. “When they start playing with the debt ceiling in February, they are starting to play with C-4,” he said, referring to the powerful plastic explosive material.
    The decline of western dominance, by Samuel Britton, January 3, 2013 5:31 pm, Financial Times, www.ft.com

    Indeed, what has to be explained is not the west’s looming relative decline but its temporary pre-eminence. Of a world population approaching 7bn, the US and western Europe together account for a mere 770m. Their gross domestic product per head – a very approximate guide to living standards – is three times the world average. Such discrepancies can hardly be expected to last in an increasingly globalised planet. In 1500, just after Christopher Columbus’s voyages of discovery, China and India were both estimated to have had a total GDP considerably higher than western Europe’s and GDP per head only slightly lower. Earlier still, in about 1000, living standards were fairly uniform – and low – throughout the world but the estimates show China slightly in the lead.
    Many commentators see the reverse flow out of developing countries as unnatural, by which they mean immoral. There are clearly special factors at work such as state management of the Chinese economy and the large surpluses of oil producers. But these do not look like going into reverse at all soon, and we had all better learn to live with the new direction of capital flows, which is apparently known in academic literature as the Lucas Paradox.

    The intriguing question is what the emerging nations will do with their accumulating surpluses. There are already many signs that they have had their fill on holdings of dollars and other western currencies that earn low or even negative real interest rates. The next stage is both portfolio investment and direct investment in areas such as Africa, but also in America and Europe. For the moment, they can be assured of a welcome but what will happen as their stake grows?

    There are almost bound to be tensions. Zillions of words have already been written about the declining real power of western governments. Even more will need to be written as they become responsible for ever smaller proportions of their own economies. The main sufferers are not likely to be ordinary citizens, but the hitherto governing and business classes.
    Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation, Laura Alfaro, Sebnem Kalemli,-Ozcan Harvard Business School, University of Houston, and NBER, Vadym Volosovych, University of Houston, November 2005, http://www.people.hbs.edu/lalfaro/lucas.pdf

    We examine the empirical role of different explanations for the lack of flows of capital from rich to poor countries—the “Lucas Paradox.” The theoretical explanations include differences in fun- damentals across countries and capital market imperfections. We show that during 1970−2000 low institutional quality is the leading explanation. For example, improving Peru’s institutional quality to Australia’s level, implies a quadrupling of foreign investment. Recent studies em- phasize the role of institutions for achieving higher levels of income, but remain silent on the specific mechanisms. Our results indicate that foreign investment might be a channel through which institutions affect long-run development.
    Sapere Aude

  15. #415
    Council Member Firn's Avatar
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    Sorry for not doing much discussing recently, I had to enjoy my holidays.

    Economic history makes for an interesting read. One has to keep in mind that the data is very very limited for most of our history and often biased for a certain bono. The growth we witnessed in Europe and in the US in the last hundred years was indeed a great ride. Last year I bought a neat volume on European Econhistory and read a little bit about our local area. It reminds one once again that the massively increased yields/productivity gains in agriculture are the basis of our current living standards.

    ----

    To be honest it is also a bit amused to read things like Europe: Burnt and abandoned when you too had a great ride in the stock markets. I did of course not match the DAX, as I had invested more broadly and bonds were a drag but it was a fine year indeed. While some companies did cut the dividends, sometimes completely, the earnings are still strong compared to the price in many instances. A very high ratio of 75% in stocks payed off also in asset growth while I personally invested more with an eye on dividends*. Of course one should not be fooled by success so I have to think if I have to adjust something. Sadly I could not balance away a high percentage of the capital gains by selling stocks at a loss so I will have to do an additional contribution on the budget front.

    *For the reasons posted a couple a times in this thread I did not buy a single fresh bond in the last two years. Dividends of good companies have been beating them handily for a couple of years now. This can and will of course change!
    Last edited by Firn; 01-04-2013 at 07:30 AM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  16. #416
    Council Member Surferbeetle's Avatar
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    Firn,

    No worries on time, the conversation is good and moves at it's own pace.

    Thought this article was interesting and it seems to speak to our global adventures in a variety of fields :

    Learning to Create the Perfect Cup of Coffee, By MATT RICHTEL, Published: December 31, 2012, NYT, http://www.nytimes.com/2013/01/02/di...general&src=me

    The essence of good espresso, of good coffee in general, revolves around three numbers: the amount of quality dry coffee used, the amount of time water flows through it and the amount of coffee that comes out the other end. When the ratio is right, the process extracts the best flavor. If it is wrong, the good flavor never surfaces or is watered down. A mistake in seconds or grams, I am coming to learn, is the difference between something wonderful and awful.

    Mr. Baca explains that you have to experiment to find just the right balance of these three elements for each coffee machine and coffee grind, and then replicate them. He has tested the machinery at Sightglass and determined that we want to use 17 grams of high-end coffee and run water for 25 seconds to yield about 30 grams of coffee.
    ---------

    Quote Originally Posted by Firn View Post
    Economic history makes for an interesting read. One has to keep in mind that the data is very very limited for most of our history and often biased for a certain bono. The growth we witnessed in Europe and in the US in the last hundred years was indeed a great ride. Last year I bought a neat volume on European Econhistory and read a little bit about our local area. It reminds one once again that the massively increased yields/productivity gains in agriculture are the basis of our current living standards.
    I would agree. As we have discussed, Jeremy Grantham has been providing some thoughtful 'realtime' analysis on this and continues to do so. Along these lines, I received a copy of James J. O'Donnell's 'The Ruin of the Roman Empire' for the holidays. I find it to be very well written with some excellent insights into economics, governance, war, and the human condition in general. Who is your European Econo-history author?

    Quote Originally Posted by Firn View Post
    To be honest it is also a bit amused to read things like Europe: Burnt and abandoned when you too had a great ride in the stock markets. I did of course not match the DAX, as I had invested more broadly and bonds were a drag but it was a fine year indeed. While some companies did cut the dividends, sometimes completely, the earnings are still strong compared to the price in many instances. A very high ratio of 75% in stocks payed off also in asset growth while I personally invested more with an eye on dividends*. Of course one should not be fooled by success so I have to think if I have to adjust something. Sadly I could not balance away a high percentage of the capital gains by selling stocks at a loss so I will have to do an additional contribution on the budget front.
    Quote Originally Posted by Firn View Post
    *For the reasons posted a couple a times in this thread I did not buy a single fresh bond in the last two years. Dividends of good companies have been beating them handily for a couple of years now. This can and will of course change!
    Newspaper article titles can be, shall we say, 'eye-catching'. The article itself was meat & potatoes analysis to me, but I also keep in the back of my mind the 'micro' (with macro implications) - UK in or out of the EU question that is playing out in the UK media, as well as the macro East & West economic convergence theme being examined.

    Equities are fun and familiar, yet it's always good to gain additional perspective. Sheldon Natenberg's book Option Volatility and Pricing has been/continues to be a very thoughtful/exceptional look at things. Derivatives are an exotic & theoretical tool for me at this point, even after a number of years of thinking about them. Bonds are an even further bridge. I still rely on bond index funds for diversification. Any suggestions regarding bond books? Perhaps I will have to look at the FT Guides for bonds...I have some on finance, risk modeling, options, and forex and find them all to be insightful and helpful for my equities focus. School is always good...but i find that i still gotta keep exercising my brain cell in order to survive out here in the retail trading & investing world. Successfully running money out in the professional world has to be another order of magnitude leap...

    Going back to the coffee analogy, overall I think much of life is about quality, timing, and a bit of luck. 08' - '12 has been very educational and I made a profit for that time period, primarily on quality Euro stocks. I hope to continue to do so.
    Sapere Aude

  17. #417
    Council Member Firn's Avatar
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    Quote Originally Posted by Surferbeetle View Post
    Equities are fun and familiar, yet it's always good to gain additional perspective. Sheldon Natenberg's book Option Volatility and Pricing has been/continues to be a very thoughtful/exceptional look at things. Derivatives are an exotic & theoretical tool for me at this point, even after a number of years of thinking about them. Bonds are an even further bridge. I still rely on bond index funds for diversification. Any suggestions regarding bond books? Perhaps I will have to look at the FT Guides for bonds...I have some on finance, risk modeling, options, and forex and find them all to be insightful and helpful for my equities focus. School is always good...but i find that i still gotta keep exercising my brain cell in order to survive out here in the retail trading & investing world. Successfully running money out in the professional world has to be another order of magnitude leap...

    Going back to the coffee analogy, overall I think much of life is about quality, timing, and a bit of luck. 08' - '12 has been very educational and I made a profit for that time period, primarily on quality Euro stocks. I hope to continue to do so.
    "Live is about Quality, timing and a bit of luck". I think Kahneman got it right when he stated that success = talent + luck and great success = a little more talent + a lot of luck. One of my profs teaching sociology opened once his lecture by stating that he was glad to see such a bunch of winners of evolution. (Had to write a paper about the selfish gene ) And indeed we are just the last in a long line of organisms who arguably had overall a little more talent and a massive lot of luck. If you are an American or a Westernish European all the luckier.

    The situation for many in Europe is indeed worse then in the last decade and the Italian South lost just last year, IIRC over 100.000, mostly young. I hope they will have a better future here in the North or elsewhere. It might be heartless but this mobility is needed to make the idea of of a Eurozone (or Italian state) work.

    I hope you too will continue to do well and enjoy the mental fun. My maternal grandfather was mentally sharp till his death by swimming his ten km a week and by following the markets. There are worse vices for your brain cells.

    In a strange way this song pretty fitted in his case. The name of course especially. This song does so only partly, luckily. For those who were not so lucky I will raise the last beer.
    Last edited by Firn; 01-05-2013 at 02:21 AM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  18. #418
    Council Member Surferbeetle's Avatar
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    Default Trend is heading macro...

    Lost illusions on Europe, Editorial, January 9, 2013 7:13 pm, Financial Times, www.ft.com

    Britain needs to adopt a hard-headed approach founded on the national interest – and hold a referendum
    The UK’s troubled relationship is a matter of culture, geography and history. Britain is a post-imperial power with an affinity to other English-speaking countries, especially the US. Mutual incomprehension between the UK and Europe comes down to a basic difference in outlook: while the UK sees membership of the club in economic terms, France and Germany, the co-founders, see the European Union as a political project forged from the ashes of the second world war.
    This newspaper has always argued in favour of Britain’s membership of the EU, and we continue to believe it is central to the national interest. Our reasons go beyond a purely economic calculation of cost and benefit. They have to do with Britain’s place in the world. Membership gives the UK influence over the biggest global market. It helps to keep the US relationship special. It amplifies the UK’s sway in a world where economic power is shifting eastwards.

    The benefits stretch across national frontiers. Thanks to the single market, the British can live, work, travel and study freely across Europe. Enlargement of the EU southwards and eastwards has consolidated democracy in Spain, Portugal and Greece and created a zone of peace and prosperity in former communist central and eastern Europe. Nonetheless, today’s EU is vastly different from the one the UK joined in 1973, or indeed the one Britons voted to stay in when they were last given a chance to express their views in a referendum in 1975.
    Sapere Aude

  19. #419
    Council Member davidbfpo's Avatar
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    Surferbeetle,

    The last sentence from the FT article provides the context for my comments:
    Nonetheless, today’s EU is vastly different from the one the UK joined in 1973, or indeed the one Britons voted to stay in when they were last given a chance to express their views in a referendum in 1975.
    In 1975 I happily voted to remain a member of the European Economic Community (EEC). Somehow the European political elite converted this idea to a single market, with an explosion in bureaucracy and rules - which of course needed a state-like structure, with a parliament, court and more. This structure then became a federal Europe, the European Union (EU).

    The EU being democratic oddly forgot to give everyone a chance to vote in national referenda on this decision. Those few national electorates that had the chance to decide and voted 'no' had to hold a second vote to get it right! IIRC Denmark and Ireland.

    The European political elite have failed to persuade most voters IMO that the EU - which is a federal state - is necessary, even preferable. Along came the recession plus further weakening public belief in politicians.

    In the UK the Conservatives in opposition promised a referenda, but once in coalition with the very pro-EU Lib-Dems David Cameron forgot.

    Now I regret voting 'Yes' in 1975, if asked today I would vote 'No'.
    davidbfpo

  20. #420
    Council Member Surferbeetle's Avatar
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    Quote Originally Posted by davidbfpo View Post
    The European political elite have failed to persuade most voters IMO that the EU - which is a federal state - is necessary, even preferable. Along came the recession plus further weakening public belief in politicians.
    David,

    Appreciate your insights and point that 'the brussels political elite' have failed to convince many that the EU as structured or as proposed can/will provide the highest and most authoritative good for the polis. Here across the pond we also have questions regarding 'the washington political elite' and their (apparent lack) of ability to concentrate on providing the highest and most authoritative good for the polis.

    Ran a quick google search and found that France, Ireland, and the Netherlands all have had significant questions regarding the EU Constitution. As you have noted previously, Nigel Farage seems to be one of the stronger/more effective communicators on this topic of late. I am not sure about Taoiseach Kenney's latest. Nonetheless it's reassuring to see that civil discourse and the democratic process (as flawed and messy as it is) are the preferred method to examine and address concerns.

    Meanwhile, back at the armchair, I have pulled out my quadrangle graph paper & pen and started drafting up likely trading & investing scenarios involving Brixit and the latest US debt ceiling debacle...

    Although you are likely more familiar with the topics at hand than am I, here are a few of this evening's search links that I found to be of interest:

    Sapere Aude

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