8 ms·

Economic Reality

38 points by dforrestwilson 10y ago

applecore 10y ago
According to Buffett: "When I see a memo from Howard Marks in my mail, it's the first thing I open and read. I always learn something..."
moneytide1 10y ago
"they had, in fact, been able to acquire vast amounts of wood for $50 a cord, and they’d been able to sell all they had for $40 a cord. How could they be broke? " By losing $10 per cord?
- ZeroGravitas 10y ago
  It's not brilliantly told, and not great material but, yes, that's the joke.
- shostack 10y ago
  While I get the joke, the question is accurate. If I had $1000 and bought 50 cords of wood at $50/cord, and could only sell then for $40/cord, I'm left with $800. I took a $200 loss, but I'm hardly broke. I'd go so far as to argue that this is a common occurrence in business when they haven't identified scalable marketing channels. Often you have to spend at a loss to gather data, optimize your efforts, and THEN hopefully make a profit. So if I can take that remaining $800, optimize my efforts, and sell them for $51/cord moving forward (assuming no further optimizations), it will take me a little bit to earn my initial cash back, but I'm in essence printing money at that point.
  - wargame 10y ago
    I took it to mean, that they had to buy more to cut costs, fuel (less trips), economies of scale etc. Your way is interesting!
    - shostack 10y ago
      Heh, well, I'm a marketer, so that model is the basis of my job. It is very rare to be profitable right off the bat. A lot of times you hear all the success stories on how a company hit viral growth, but what you don't always hear are how many of their strategies and tactics bombed and were tossed.
csense 10y ago
Answers to his issues with tariffs: > First, such tariffs are probably barred under trade agreements that are in place. To impose them, we would have to abrogate those agreements. So what? Those trade agreements were made under the assumption that they'd be good for America. Now that we know they're bad for America, the assumptions under which they were made are invalid. > We have to wonder about retaliatory actions – wouldn’t other countries impose offsetting tariffs on U.S. exports that would further harm our manufacturing base? We're a net importer. Tariffs in other countries would only really hurt if we did a ton of exports. > What would happen to our ability to refinance our perpetually growing national debt if China, our biggest creditor, decided one day it wasn’t quite as eager to participate in new Treasury financings? Lower taxes and cut the size of government. Stop printing money and allow interest rates to rise. > What would rising barriers do to one of the main motivations behind the broadening of U.S. trade agreements since World War II: preventing conflict? A tariff is not a wall. Trade would still take place and there'd still be interdependence. > Finally, but most simply, what American wants to pay 50% more for a cellphone than he does today? An American who used to be unemployed or paid minimum wage, but has gotten a much better job with an greatly increased salary because he no longer has to compete with desperately poor people who will accept pay far below the US minimum wage.
- dforrestwilson 10y ago
  > So what? Those trade agreements were made under the assumption that they'd be good for America. Now that we know they're bad for America, the assumptions under which they were made are invalid. Do we know that? It's easy to quantify slower income gains, but harder to quantify lower costs for goods and services. I'm not even sure what the closes proxy would be. Inflation? >We're a net importer. Tariffs in other countries would only really hurt if we did a ton of exports. History has shown that tariffs do result in counter-tariffs, which end up being unprofitable for both sides, driving up costs. > Lower taxes and cut the size of government. Stop printing money and allow interest rates to rise. 100% agree. > A tariff is not a wall. Trade would still take place and there'd still be interdependence. But it is a barrier, starting as a low hurdle and tending to rise over time. > An American who used to be unemployed or paid minimum wage, but has gotten a much better job with an greatly increased salary because he no longer has to compete with desperately poor people who will accept pay far below the US minimum wage. Where and how do these new higher paying jobs come about?
ctchocula 10y ago
> Riding to work the other day, I heard about protests occurring in France. Workers were complaining about potential changes in labor regulations that would make their jobs less secure. In brief, French workers like it the way things are: they can’t be pushed beyond 35 hours a week, and employers’ ability to terminate them is subject to a drawn-out, torturous and uncertain program. They also like their lengthy vacations and the extensive benefits provided by the state. The question is where the ability to pay for above average benefits will come from if neither the hours worked nor the productivity per hour is above average. Governments and regulations can’t produce prosperity. This memo neatly glosses over where the productivity gains in the last 100 years have gone, and makes it seem as if it's fair for wages of the American worker to stagnate while the megawealthy get all the profit. If a worker in 2016 can build a car in a-fourth the time it took a worker in 1935 to build a car, why is it implausible for them to work 35 hours a week with better benefits and more vacation time?
- mac01021 10y ago
  > why is it implausible for them to work 35 hours a week with better benefits and more vacation time? People could do that if they were all willing to live like people lived in 1935. It turns out that many (most?) people prefer to live a more expensive lifestyle which requires more hours of work. One consequence of this is that, since the number of people who prefer this is large enough that they've established a norm in many industries which makes it harder to find an employer willing to hire a worker that's going to put in fewer hours. If you do really want a 1935 quality of life, though, you can probably attain it working 20 or 30 hours per week at a restaurant or supermarket. It's important to note that this life could be very different from what you have now. You would likely live in a household containing three generations of your family and seldom travel outside the town/county you live in, among other things.
  - uola 10y ago
    Not sure why discussions on HN always have to turn into fictional comparisons, but to play along I would note that everything else has also gotten more efficient and will continue to get even more so.
ZeroGravitas 10y ago
Surely bankruptcy is the equivalent of forgiveness, not the equivalent of hell? A debtors prison is the equivalent of hell. This undermines his point that it's the fear of failure that drives business, since bankruptcy laws reduce the impact of failure.
antisthenes 10y ago
10 pages of libertarian supply-side drivel from someone with a conflict of interest that conveniently ignores all counter arguments or dismisses them as political and "matter of opinion"
- dforrestwilson 10y ago
  I don't agree with everything he says, but he makes a compelling point that the rich will simply leave if taxes are raised too much. I'm not sure what the solution is, but travel is one aspect of globalization that seems to benefit the rich more than the poor.
  - miloshadzic 10y ago
    The rich are already paying taxes in other countries so it's like they already left...
  - tdb7893 10y ago
    One fact of life is pretty much everything benefits the rich more than the poor
    - twblalock 10y ago
      I'm not sure why you've been downvoted. This is generally true, and it's a point made several times in the article -- if policies aimed at taking money from the rich end up damaging the economy, the poor will suffer more than the rich once it all shakes out.
      - thwarted 10y ago
        I'm sure the downvotes are due to this thread being a rephrasing of supply-side economics (aka Reaganomics), which has (shown to be|considered to be) (unworkable|undesirable) or otherwise fallen out of favor (at the very least as a political platform).
  - crdoconnor 10y ago
paulpauper 10y ago
Faster economic growth? Both may be desirable, but efforts to clean up the environment may conflict with faster economic growth. It doesn't have to be that way. https://www3.epa.gov/airtrends/images/y70_14.png https://www3.epa.gov/airtrends/images/y70_14.png But yeah there are tradeoffs
evo_9 10y ago
I found it disappointing this lengthy article didn't touch on Basic Income at all. It would have been helpful to see how that (potentially) slots into all this.
- DominikR 10y ago
  Based on what the author wrote I suspect he would say that it would reduce the nations productivity (and ultimately peoples living standard) as less people would choose to be productive if they are not forced to.
  - evo_9 10y ago
    If a Basic Income is so obviously flawed and unachievable why is YCombinator doing this: https://blog.ycombinator.com/basic-income https://blog.ycombinator.com/basic-income
    - DominikR 10y ago
      Two things: 1) I did not qualify the viability of basic income in my statement. I just gave my opinion on what the author might say on this issue given that he is highly critical of the financial viability of the US social system. (he wants to reduce spending) 2) YCombinator doing a test doesn't mean that it is a viable model.
    - twblalock 10y ago
      You could try reading the YC article, which says, "I’ve been intrigued by the idea for a while, and although there’s been a lot of discussion, there’s fairly little data about how it would work." It's clearly an experiment to get real data about basic income, which has not been done before. Even if basic income is not viable, having data will be useful.
- twblalock 10y ago
  It doesn't slot in to economic reality. It is simply an unrealistic proposal, for several reasons: 1. A guaranteed basic income to every citizen, which would be enough for a person to live on without a job, would cost more than the entire annual income of the Federal government. Even if it didn't, people would simply vote to increase their incomes until it did. 2. It would be regressive: under most of the basic income plans that have been proposed, people who are currently on welfare would get less money from the government than they do now. On the other hand, middle class people who don't need extra money will get it. Basic income would represent a transfer of income from the poorest to everyone else. 3. It would not replace existing welfare systems. People like to think that it would, but political realities would prevent that from happening. When has the Congress ever passed a simple, elegant piece of legislation that undid layers of bureaucracy, and then prevented it from being changed? It's simply unrealistic to assume that could happen in our political system. 4. Political, ideological, and moral forces in our culture and society have caused us to have our current welfare systems, and those same forces would cause us to revert to those systems even if basic income were implemented. Some examples of these forces are the social constructions of race and class, views about who deserves money and who does not, and the moral value of work. Basic income is a blank-slate social engineering fantasy that ignores all of these things. 5. Basic income is likely to be a race to the bottom. You cannot redistribute wealth that does not exist. By decreasing incentives for work, basic income will reduce the amount of wealth created, which will reduce the amount of money that can be distributed to people as their basic income. 6. If steps are taken to incentivize work to avoid the problem in #5, e.g. increasing the basic income payments to people who have jobs to incentivize other people to get jobs, basic income won't be "basic" anymore. Such incentives would open the door to many other proposals that would result in some people getting more basic income money than others. Many of these proposals will be popular, such as extra money for single mothers, less money for convicted felons and drug users, etc. The forces I mentioned in point 4 would thereby reconstruct our current welfare systems within the framework of the basic income policy.
6stringmerc 10y ago
>Rather than believing central banks can make economies more productive, it’s my bottom line that there’s a naturally occurring growth rate for each economy, and that rate dictates the long-term output, not central bankers’ actions. While I don't disagree in general principle, I simply don't find this observation or belief all too compelling or unique as it's being framed in political context. Ever since Greenspan the Central Banking "toolchest" has been of questionable merit and practical utility. If anything, the asset buying irrational market behavior result (see: US stocks) disconnecting record highs from real-world growth or economic engine performance only seems to acknowledge the "naturally occurring growth rate" concept has merit. Granted, some people don't like talking about how a negative growth rate can be natural too. >The U.S. government couldn’t figure out how to stop it in the 1970s, and the nations of the world can’t find a way to start it today. Oh, they can find a way, they just would prefer not to, methinks.
pm90 10y ago
>For example, lending people money can enable them to buy things today that they otherwise mightn’t have bought until later (if at all). If a consumer buys a boat today with money made available through a low-interest loan, that’s a boat he won’t buy next year. Lending people money doesn’t alter their lifetime incomes, meaning consumers may buy fewer boats later, when the loans have to be repaid, causing disposable income to contract. Is that really how capitalism works, though? I believed it was more like this: making available loans at low interest rates stimulates the production of boats to large levels. The sale of these boats at profits creates wealth for the owner AND the employees of the boat making company. The employees spend that money and stimulate economic demand; the owners/investors make great profit and thus concentrate capital even more. This capital is then invested in other ventures, perhaps even as low interest loans to other consumers. Loans/Debt enable businesses, consumers and nations to create economic activity NOW and accumulate the capital NOW; we don't know what the future will look like but the concentration of economic power (i.e. capitalism) has certainly played a most important part in technological progress.
- marcosdumay 10y ago
  > The sale of these boats at profits creates wealth for the owner AND the employees of the boat making company. The boat is wealth. The person selling the boat gives some wealth away, in exchange of a monetary profit. That profit will enable him to buy wealth produced by some other person. Let's make things clearly. - There's the real economy. Here, work, capital, natural resources, etc are used to create wealth. People create their valuables and exchange them for things they value more, increasing the wealth of everybody. - There's the nominal economy. Here money is invested in acquiring resources, that other people will spend money consuming. In a simple theory, the real economy works alone and money is irrelevant. But that theory seems to be wrong. In fact, people gladly raise prices, but resist lowering them. That creates an asymmetry and the consequence is that the real economy works well¹ when the amount of circulating money is constant or increasing, but does not work well when it is reducing. Now, finally, people getting loans makes the amount of circulating money to increase, and paying them back makes it reduce. 1 - At least according to the mainstream theories. Also, only up to a certain point.

According to Buffett: "When I see a memo from Howard Marks in my mail, it's the first thing I open and read. I always learn something..."

moneytide1 10y ago

"they had, in fact, been able to acquire vast amounts of wood for $50 a cord, and they’d been able to sell all they had for $40 a cord. How could they be broke? " By losing $10 per cord?

ZeroGravitas 10y ago
It's not brilliantly told, and not great material but, yes, that's the joke.
shostack 10y ago
While I get the joke, the question is accurate. If I had $1000 and bought 50 cords of wood at $50/cord, and could only sell then for $40/cord, I'm left with $800. I took a $200 loss, but I'm hardly broke. I'd go so far as to argue that this is a common occurrence in business when they haven't identified scalable marketing channels. Often you have to spend at a loss to gather data, optimize your efforts, and THEN hopefully make a profit. So if I can take that remaining $800, optimize my efforts, and sell them for $51/cord moving forward (assuming no further optimizations), it will take me a little bit to earn my initial cash back, but I'm in essence printing money at that point.
- wargame 10y ago
  I took it to mean, that they had to buy more to cut costs, fuel (less trips), economies of scale etc. Your way is interesting!
  - shostack 10y ago
    Heh, well, I'm a marketer, so that model is the basis of my job. It is very rare to be profitable right off the bat. A lot of times you hear all the success stories on how a company hit viral growth, but what you don't always hear are how many of their strategies and tactics bombed and were tossed.

csense 10y ago

Answers to his issues with tariffs: > First, such tariffs are probably barred under trade agreements that are in place. To impose them, we would have to abrogate those agreements. So what? Those trade agreements were made under the assumption that they'd be good for America. Now that we know they're bad for America, the assumptions under which they were made are invalid. > We have to wonder about retaliatory actions – wouldn’t other countries impose offsetting tariffs on U.S. exports that would further harm our manufacturing base? We're a net importer. Tariffs in other countries would only really hurt if we did a ton of exports. > What would happen to our ability to refinance our perpetually growing national debt if China, our biggest creditor, decided one day it wasn’t quite as eager to participate in new Treasury financings? Lower taxes and cut the size of government. Stop printing money and allow interest rates to rise. > What would rising barriers do to one of the main motivations behind the broadening of U.S. trade agreements since World War II: preventing conflict? A tariff is not a wall. Trade would still take place and there'd still be interdependence. > Finally, but most simply, what American wants to pay 50% more for a cellphone than he does today? An American who used to be unemployed or paid minimum wage, but has gotten a much better job with an greatly increased salary because he no longer has to compete with desperately poor people who will accept pay far below the US minimum wage.

dforrestwilson 10y ago
> So what? Those trade agreements were made under the assumption that they'd be good for America. Now that we know they're bad for America, the assumptions under which they were made are invalid. Do we know that? It's easy to quantify slower income gains, but harder to quantify lower costs for goods and services. I'm not even sure what the closes proxy would be. Inflation? >We're a net importer. Tariffs in other countries would only really hurt if we did a ton of exports. History has shown that tariffs do result in counter-tariffs, which end up being unprofitable for both sides, driving up costs. > Lower taxes and cut the size of government. Stop printing money and allow interest rates to rise. 100% agree. > A tariff is not a wall. Trade would still take place and there'd still be interdependence. But it is a barrier, starting as a low hurdle and tending to rise over time. > An American who used to be unemployed or paid minimum wage, but has gotten a much better job with an greatly increased salary because he no longer has to compete with desperately poor people who will accept pay far below the US minimum wage. Where and how do these new higher paying jobs come about?

ctchocula 10y ago

> Riding to work the other day, I heard about protests occurring in France. Workers were complaining about potential changes in labor regulations that would make their jobs less secure. In brief, French workers like it the way things are: they can’t be pushed beyond 35 hours a week, and employers’ ability to terminate them is subject to a drawn-out, torturous and uncertain program. They also like their lengthy vacations and the extensive benefits provided by the state. The question is where the ability to pay for above average benefits will come from if neither the hours worked nor the productivity per hour is above average. Governments and regulations can’t produce prosperity. This memo neatly glosses over where the productivity gains in the last 100 years have gone, and makes it seem as if it's fair for wages of the American worker to stagnate while the megawealthy get all the profit. If a worker in 2016 can build a car in a-fourth the time it took a worker in 1935 to build a car, why is it implausible for them to work 35 hours a week with better benefits and more vacation time?

mac01021 10y ago
> why is it implausible for them to work 35 hours a week with better benefits and more vacation time? People could do that if they were all willing to live like people lived in 1935. It turns out that many (most?) people prefer to live a more expensive lifestyle which requires more hours of work. One consequence of this is that, since the number of people who prefer this is large enough that they've established a norm in many industries which makes it harder to find an employer willing to hire a worker that's going to put in fewer hours. If you do really want a 1935 quality of life, though, you can probably attain it working 20 or 30 hours per week at a restaurant or supermarket. It's important to note that this life could be very different from what you have now. You would likely live in a household containing three generations of your family and seldom travel outside the town/county you live in, among other things.
- uola 10y ago
  Not sure why discussions on HN always have to turn into fictional comparisons, but to play along I would note that everything else has also gotten more efficient and will continue to get even more so.

ZeroGravitas 10y ago

Surely bankruptcy is the equivalent of forgiveness, not the equivalent of hell? A debtors prison is the equivalent of hell. This undermines his point that it's the fear of failure that drives business, since bankruptcy laws reduce the impact of failure.

antisthenes 10y ago

10 pages of libertarian supply-side drivel from someone with a conflict of interest that conveniently ignores all counter arguments or dismisses them as political and "matter of opinion"

dforrestwilson 10y ago
I don't agree with everything he says, but he makes a compelling point that the rich will simply leave if taxes are raised too much. I'm not sure what the solution is, but travel is one aspect of globalization that seems to benefit the rich more than the poor.
- miloshadzic 10y ago
  The rich are already paying taxes in other countries so it's like they already left...
- tdb7893 10y ago
  One fact of life is pretty much everything benefits the rich more than the poor
  - twblalock 10y ago
    I'm not sure why you've been downvoted. This is generally true, and it's a point made several times in the article -- if policies aimed at taking money from the rich end up damaging the economy, the poor will suffer more than the rich once it all shakes out.
    - thwarted 10y ago
      I'm sure the downvotes are due to this thread being a rephrasing of supply-side economics (aka Reaganomics), which has (shown to be|considered to be) (unworkable|undesirable) or otherwise fallen out of favor (at the very least as a political platform).
- crdoconnor 10y ago

paulpauper 10y ago

Faster economic growth? Both may be desirable, but efforts to clean up the environment may conflict with faster economic growth. It doesn't have to be that way. https://www3.epa.gov/airtrends/images/y70_14.png https://www3.epa.gov/airtrends/images/y70_14.png But yeah there are tradeoffs

evo_9 10y ago

I found it disappointing this lengthy article didn't touch on Basic Income at all. It would have been helpful to see how that (potentially) slots into all this.

DominikR 10y ago
Based on what the author wrote I suspect he would say that it would reduce the nations productivity (and ultimately peoples living standard) as less people would choose to be productive if they are not forced to.
- evo_9 10y ago
  If a Basic Income is so obviously flawed and unachievable why is YCombinator doing this: https://blog.ycombinator.com/basic-income https://blog.ycombinator.com/basic-income
  - DominikR 10y ago
    Two things: 1) I did not qualify the viability of basic income in my statement. I just gave my opinion on what the author might say on this issue given that he is highly critical of the financial viability of the US social system. (he wants to reduce spending) 2) YCombinator doing a test doesn't mean that it is a viable model.
  - twblalock 10y ago
    You could try reading the YC article, which says, "I’ve been intrigued by the idea for a while, and although there’s been a lot of discussion, there’s fairly little data about how it would work." It's clearly an experiment to get real data about basic income, which has not been done before. Even if basic income is not viable, having data will be useful.
twblalock 10y ago
It doesn't slot in to economic reality. It is simply an unrealistic proposal, for several reasons: 1. A guaranteed basic income to every citizen, which would be enough for a person to live on without a job, would cost more than the entire annual income of the Federal government. Even if it didn't, people would simply vote to increase their incomes until it did. 2. It would be regressive: under most of the basic income plans that have been proposed, people who are currently on welfare would get less money from the government than they do now. On the other hand, middle class people who don't need extra money will get it. Basic income would represent a transfer of income from the poorest to everyone else. 3. It would not replace existing welfare systems. People like to think that it would, but political realities would prevent that from happening. When has the Congress ever passed a simple, elegant piece of legislation that undid layers of bureaucracy, and then prevented it from being changed? It's simply unrealistic to assume that could happen in our political system. 4. Political, ideological, and moral forces in our culture and society have caused us to have our current welfare systems, and those same forces would cause us to revert to those systems even if basic income were implemented. Some examples of these forces are the social constructions of race and class, views about who deserves money and who does not, and the moral value of work. Basic income is a blank-slate social engineering fantasy that ignores all of these things. 5. Basic income is likely to be a race to the bottom. You cannot redistribute wealth that does not exist. By decreasing incentives for work, basic income will reduce the amount of wealth created, which will reduce the amount of money that can be distributed to people as their basic income. 6. If steps are taken to incentivize work to avoid the problem in #5, e.g. increasing the basic income payments to people who have jobs to incentivize other people to get jobs, basic income won't be "basic" anymore. Such incentives would open the door to many other proposals that would result in some people getting more basic income money than others. Many of these proposals will be popular, such as extra money for single mothers, less money for convicted felons and drug users, etc. The forces I mentioned in point 4 would thereby reconstruct our current welfare systems within the framework of the basic income policy.

6stringmerc 10y ago

>Rather than believing central banks can make economies more productive, it’s my bottom line that there’s a naturally occurring growth rate for each economy, and that rate dictates the long-term output, not central bankers’ actions. While I don't disagree in general principle, I simply don't find this observation or belief all too compelling or unique as it's being framed in political context. Ever since Greenspan the Central Banking "toolchest" has been of questionable merit and practical utility. If anything, the asset buying irrational market behavior result (see: US stocks) disconnecting record highs from real-world growth or economic engine performance only seems to acknowledge the "naturally occurring growth rate" concept has merit. Granted, some people don't like talking about how a negative growth rate can be natural too. >The U.S. government couldn’t figure out how to stop it in the 1970s, and the nations of the world can’t find a way to start it today. Oh, they can find a way, they just would prefer not to, methinks.

pm90 10y ago

>For example, lending people money can enable them to buy things today that they otherwise mightn’t have bought until later (if at all). If a consumer buys a boat today with money made available through a low-interest loan, that’s a boat he won’t buy next year. Lending people money doesn’t alter their lifetime incomes, meaning consumers may buy fewer boats later, when the loans have to be repaid, causing disposable income to contract. Is that really how capitalism works, though? I believed it was more like this: making available loans at low interest rates stimulates the production of boats to large levels. The sale of these boats at profits creates wealth for the owner AND the employees of the boat making company. The employees spend that money and stimulate economic demand; the owners/investors make great profit and thus concentrate capital even more. This capital is then invested in other ventures, perhaps even as low interest loans to other consumers. Loans/Debt enable businesses, consumers and nations to create economic activity NOW and accumulate the capital NOW; we don't know what the future will look like but the concentration of economic power (i.e. capitalism) has certainly played a most important part in technological progress.

marcosdumay 10y ago
> The sale of these boats at profits creates wealth for the owner AND the employees of the boat making company. The boat is wealth. The person selling the boat gives some wealth away, in exchange of a monetary profit. That profit will enable him to buy wealth produced by some other person. Let's make things clearly. - There's the real economy. Here, work, capital, natural resources, etc are used to create wealth. People create their valuables and exchange them for things they value more, increasing the wealth of everybody. - There's the nominal economy. Here money is invested in acquiring resources, that other people will spend money consuming. In a simple theory, the real economy works alone and money is irrelevant. But that theory seems to be wrong. In fact, people gladly raise prices, but resist lowering them. That creates an asymmetry and the consequence is that the real economy works well¹ when the amount of circulating money is constant or increasing, but does not work well when it is reducing. Now, finally, people getting loans makes the amount of circulating money to increase, and paying them back makes it reduce. 1 - At least according to the mainstream theories. Also, only up to a certain point.