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A lot of sophisticated financial people share your thinking. The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in th

A lot of sophisticated financial people share your thinking. The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been. These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affecting every asset class from real estate to public market equity to early-stage startups to commodities, and you aren't the only one who's worried about it (I am).

bufferoverflow 9y ago
> The problem is there's no growth to be found anywhere. Cryptocurrencies and ICOs. Applied neural networks. Automation. Good electric cars. To the point where people are prepaying for something that might be built in a few years. Good cheap batteries.
- aphextron 9y ago
  >Cryptocurrencies and ICOs. What value is being created here, exactly? There's plenty of idealistic notions being thrown around, but I've yet to see a single, real, useful product or service materialize >Applied neural networks. Same. >Automation. This is way too broad to be invested in. Of course the world is automating at a greater rate, but is this a cause for growth? Will automated factories produce more goods for the same consumers? >Good electric cars. To the point where people are prepaying for something that might be built in a few years. Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable >Good cheap batteries. Granted this one would be a technological revolution greater than the internet, but it's just a fantasy for now. I think the grandparent is dead on here. Real inflation is 10 times the official rate since the mid 2000s. We are all playing with funny money these days, and this won't end well.
  - adamclayman 9y ago
    > Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable Since driverless vehicles and fleets are arriving roughly concurrent to electric vehicles, they're actually more likely to _reduce_ the volume of cars produced, after accounting for any increased, accelerated "fleet churn" buyers exert via aggregate demand to reach a faster critical mass on increasingly or perfectly safe cars.
    - inventtheday 9y ago
      Disagree. This is hotly debated, but, i think that the growth in demand for transportation will be so staggering (when AV's are introduced) it will more than offset efficiency for a long while.
    - vonmoltke 9y ago
      > Since driverless vehicles and fleets are arriving roughly concurrent I have said multiple times, and did sign again, that I do not believe driverless vehicles will automatically lead mass adoption of fleet/on-demand vehicles. I don't think they will be as much of a savings over human-piloted vehicles as the optimists think.
  - icedchai 9y ago
    What choice do we have? Keep your money in cash? Invest in bonds for 4% return? No thanks, I'll take my chances, especially with true inflation being higher than people think... Right now I'm gradually liquidating my crypto stash and buying stocks instead.
    - rubidium 9y ago
      Please guide me to the 4% bonds.
      - icedchai 9y ago
        You can find several high yield bond funds in that range. Here's a 5% bond fund: FIHBX https://finance.yahoo.com/quote/FIHBX/performance?p=FIHBX https://finance.yahoo.com/quote/FIHBX/performance?p=FIHBX Here's another at 6% : PHYSX https://finance.yahoo.com/quote/PHYSX?p=PHYSX https://finance.yahoo.com/quote/PHYSX?p=PHYSX Less risky (municipal) at 4%: MMHYX https://finance.yahoo.com/quote/MMHYX/profile?p=MMHYX https://finance.yahoo.com/quote/MMHYX/profile?p=MMHYX
      - aphextron 9y ago
        T-bills are headed that way...
  - KaoruAoiShiho 9y ago
    > Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable From investor pov you can short dinos and ride disruptors. ez $$. Not saying tsla isn't overvalued though.
    - aphextron 9y ago
      >From investor pov you can short dinos and ride disruptors. ez $$. Not saying tsla isn't overvalued though. Except the "dinos" of GM, Nissan, BMW, Ford, and Hyundai are outproducing Tesla in the EV market, with a clear lead in affordability. Nissan Leaf is far and away the most popular EV ever built, having sold thousands more than all Tesla models combined (discounting unfulfilled preorders).
  - niyazpk 9y ago
    >> Real inflation is 10 times the official rate. ELI5 please?
    - aphextron 9y ago
      http://www.businessinsider.com/if-people-knew-the-actual-inflation-rate-it-would-crash-the-economy-2016-8 http://www.businessinsider.com/if-people-knew-the-actual-inf... Perhaps it's more like 5x, but the point stands
    - Jach 9y ago
      http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts and links from that page explain further. (The difference has been ~5% understated inflation rather than 10 or 5 times as much, but whatever.)
    - jblow 9y ago
      Baumol predicted this 50 years ago; it's called the "cost disease". The inflation rate for a computer with a fixed set of specs is massively negative -- it gets cheaper every year. So it is for many technological devices. But our whole economy is a mixture of technological stuff (that drops in cost over time, i.e. negative inflation) and non-technological stuff (burritos and health care). The overall inflation rate is an average across the entire economy. Even if you believe the reporting is not distorted (which is dubious), then the fact that there are so many goods whose prices drop quickly over time, implies that there have to be many goods and services whose prices go up much faster than "inflation" would predict. Because something has to balance that average! Baumol calls the technological stuff the "progressive sector" and the non-technological stuff the "stagnant sector". As time goes on, prices in the stagnant sector continue to rise until they consume almost all spending. Baumol made specific predictions based on this model in 1960 that have turned out to be consistently true for 50 years ("the cost of healthcare will continue to rise to degrees that will seem scary" and so forth). Furthermore, it's not like it is some weird complicated or hard-to-substantiate theory. It is just math, not much more complicated than the definition of the average. Given how big the consequences are, and how hard to argue with, it surprises me that this idea occupies so little of the public conversation.
  - colordrops 9y ago
    You're kidding on the "Applied neural networks" bit right? A good subset of the features you see on Facebook and Google have neural networks contributing to their functionality.
    - rubidium 9y ago
      Adding value to our society may be the part the parent comment questions.
      - colordrops 9y ago
        Translation? Image search?
  - kevin_thibedeau 9y ago
    > What value is being created here, exactly? It's the greatest advance in money laundering ever invented. For that to work the proles need to be conned into participating so there is plenty of transaction volume to hide in.
    - jjeaff 9y ago
      It's really not a great way to launder money. To keep it off the books, you will need armies of individuals going out and buying it with cash through forums or whatever. Same to convert it back to cash. Otherwise, you are just buying and selling it through exchanged who, in the US, are going to report it on your 1099k. Otherwise, you have to have a seemingly legitimate Enterprise that is accepting Bitcoin on a large scale. Which would cause you to stand out like a sore thumb to the authorities because no one in their right mind is using Bitcoin with $40 transaction fees.
      - vlovich123 9y ago
        I started a X business that only sells widget Y for bitcoins. You shuffle all the coins through intermediary wallets that use small payments. The current transaction fee is $20 but regardless of what it is you just scale how much you transfer based on that. Also, if you set up many dummy coinbase accounts, you can use GDAX to exchange it for fiat without fees so you really just need to funnel it into a lot of coinbase accounts that then progressively funnel it to you over time. You can set up a lot of coinbase accounts in a week if you task 50 employees for a week. The rest can probably be automated if you cared enough.
        jjeaff 9y ago
        Might as well turn yourself in to the FBI. Creating tons of coinbase accounts is no easy task. You have to validate the accounts with multiple forms of ID and this pattern would eventually be found out and get flagged big time. Then, you need different bank accounts for every single coinbase account you create and those require multiple forms of ID as well as valid SSN numbers which will be checked. If you are referring to GDAX allowing you to transfer to USD, looks like it is FDIC insured, which means it is a US bank account, which means it is subject to KYC patriot act stuff and will be the same as opening any other us bank account.
  - nimchimpsky 9y ago
    > single, real, useful product or service materialize The ASX is implementing blockchain for its ledger, via the digitalassets company. Right now. HST voting dapp is being used at the world economic forum, this week. Thats two I know of, off the top of my head. As well as the obvious btc and eth being used to purchase stuff everyday, all over the world. Its actually happening if you bother to look.
- eldavido 9y ago
  So this actually points to a big problem with how we measure growth. If you start from the assumption that well-being or some other desirable policy goal can be measured by income (profits, wages, etc), I'd argue most of the things in this list aren't likely to increase either wages or profits of companies. But they are likely to create economic surplus - that thing that makes us want to trade/transact in the first place. Economic surplus is why you'd rather buy a Netflix package for $10 than rent a $3 video from the video store. You're massively better off with Netflix even though Netflix's profits and your wages haven't moved. The problem is, we don't have a good way to measure this. Economists are aware of the problem, and it's something that makes comparison of GDP across decades difficult. There are many things that are better or flat-out new compared to what existed 50 years ago. How do you compare the experience of driving a modern, safe, smooth-driving car to an older one? Or the experience of talking cross-continent for practically nothing on Skype? I agree that these technologies are going to reshape our world, I just don't think those gains are necessarily going to show up in GDP, at least not how we measure it today. And I also think this whole "real wages have stagnated" argument is a bit of a red herring. Maybe they have...so what. People are much, much better off today than they were even 20 years ago. We have more things, they're better in almost every way, less disease, the world is just 100% a better place, and anyone who says otherwise is just trying to push some redistributionist political agenda. I'm not saying inequality isn't a problem, but it's borderline lying to suggest our lives haven't gotten any better over the last 30 years because "real wages have stagnated".
- Robotbeat 9y ago
  Don't know why this is down voted so much. I agree cryptocurrencies are mostly a fad, but AI, automation, electric (self-driving) cars, and good cheap batteries are definitely capable of driving productivity & growth. Lithium batteries are the IC of the 21st century. They've driven a lot of innovation already (smartphones, better laptops, tablets, smartwatches, EVs, consumer drones, etc), but there's a lot more to come in terms of mass market self-driving EVs, mass grid storage, electric aircraft (both robotic and not), etc.
- Johnny555 9y ago
  > Automation It seems like this is the opposite of growth - as more jobs are automated, fewer people will be able to buy the products that are created by the automation.
  - vitorgrs 9y ago
    But these products will be way cheaper :)
  - imtringued 9y ago
    Instead of thinking in money you should think in widgets. Do you want more money but the same amount of widgets or do you want the same money but more widgets?
    - Johnny555 9y ago
      I want more money and the same amount of widgets, because then after I buy my widget, I have more money leftover to buy thingamabobs. But if I earn less money, even if widgets drop in price, I don't have enough money to buy a thingamabob. And really, how many widgets do I need? My garage is already stacked full of them and I can't even fit my car inside.
losteric 9y ago
To what degree does income inequality, consumer debt, and rapidly rising barriers of entry to high-income fields contribute slowing GDP growth? Is there research and evidence on the subject? I'm just an engineer with basic financial survival skills... but blind intuition suggests fixing those problems is necessary for a sustainable growing economy. "Trickle-down" theory and growing inequality drains economic activity since the "1%" invest their money instead of spending it. They profit when the public consumes, unless short-sighted over-exploitation by some industries strangle general consumer activity... It sure looks like we're being strangled. Off the top of my head: urban rent, health care, high consumer debt and student debt reduce disposable income while automation, exporting jobs, poor retraining for adult laborers, and lower small-business access to capital due to banking mergers lower actual income. When businesses close, some of their ex-employees will switch to high-skill high-demand jobs... but most will increase the labor supply in less skilled industries because they urgently need money - putting downward pressure on wages and working conditions. If I'm wrong, I'd love to learn why, and what other systemic conditions explain our economic stagnation.
- virmundi 9y ago
  I'm not saying you're wrong. I understand where you're coming from. You raise good points. I think we need to add to this list one simple idea: regulation. Housing costs are terrible. They're getting bad even in small towns like mine. There is no way that my house is worth 172k. For many, especially in California and states that followed their lead, housing cost are largely, not solely, due to regulation on new house starts. Environmental impact and associated costs make a new housing community in California on average 1 million dollars more expensive. For many, they don't even put shovel to sod. Health in the US has a lot of this too. Governmental regulations and the AMA drive up the cost of doctors. All of this is well documented. Interestingly, the free market is coming to a possible rescue on the price of generics: https://www.nytimes.com/2018/01/18/health/drug-prices-hospitals.html https://www.nytimes.com/2018/01/18/health/drug-prices-hospit... A good chunk of student debt is due to the government printing money for loans that students can't escape. School saw this bottomless supply and acted accordingly. Job exporting has some factors due to regulation too. As do the others in your list. I'm not saying that regulation is bad. I believe in free markets, not unfettered markets. However, a lot of the regulation is old, duplicative, and contradictory. It makes being a business far more complex than it should be. Regulation hampers innovation. We need to remove regulatory cruft at all levels. We need to adopt evidence based regulations.
Retric 9y ago
Sustained 3% US GDP growth is overly optimistic. We have 0.7% population growth, and no obvious major investments. The computer boom is mostly over with the low hanging fruit taken. Prior to that we had IC engines and electricity, but nothing on the horizon seems to have that kind of potential to radically reshape society. And to double the economy every 25 years you need regular dramatic shits. PS: Look at the past generation (20 years) and 3% are unusually good years.
- WoodenChair 9y ago
  > he computer boom is mostly over with the low hanging fruit taken. Prior to that we had IC engines and electricity, but nothing on the horizon seems to have that kind of potential to radically reshape society. And to double the economy every 25 years you need regular dramatic shits. Then the next revolution happens. I'm sure people were pessimistic during periods of lesser innovation before electricity, telephone, phonograph, movie camera, consumer appliances, radio, television, PCs, internet, smartphones... there's always something new. There may be many reasons to believe there won't be 3% growth — "the computer boom is mostly over" is not one of them.
  - adventured 9y ago
    That's where Peter Thiel screwed up in his pessimistic premise about flying cars vs tweets (used as an illustractive example of course). At the same time Thiel was making that claim, CRISPR, AI, robotics, VR/AR, blockchain/crypto-currencies and a massive general leap in automation were working their way into the economy. We're also about to take a leap forward when it comes to space tech and transportation improvements (from electric vehicles, electric planes, to hyper-loop and subterranean tunnel transport, those are all likely only the beginning of a new generation of transport tech; the power of combining electric vehicles + radically better software + lower cost, will be vast and will remake every nation). To add to all of that, China throws a big X factor into the global economy, they'll add additional spark to invention/innovation, accelerating competition and improvement between the US-Europe-Asia (Thiel's observations apply primarily to a time range when China was dirt poor, as recently as 1994 they had a mere $500b in GDP). What's more important, flying cars (which are wildly impractical even if you can do it well), or curing Hepatitis C? We did the latter at the same time Thiel was expressing his pessimism. At least 70 million people have Hepatitis C world-wide. Flying cars are a joke by comparison to the extraordinary scientific accomplishment of wiping out HepC over the next two decades. Thiel set up his bold premise at exactly the wrong time.
icelancer 9y ago
Seeking alpha is nearly impossible today, as you noted. Yield curves are flat. I'm not sure what that says exactly - obviously it's multivariate - but combined with the rise of cryptocurrency and the current government, we definitely have a unique situation on our hands. Honestly, though, it's a great time to be young and taking chances. Resources to become an entrepreneur have never been more plentiful/cheap, and the current business environment is incredibly favorable. For now, anyway.
joshuaheard 9y ago
Real estate is doing well. It's still coming on strong after the '08 ditch. Interest rates are low and demand is still strong. When the stock market tops out, people will take their money out and buy real estate causing another rise. Eventually it will fall again. It seems that there is an 8-10 year market cycle, so it should be topping out soon. A rise in interest rates will be the leading indicator.
- zhjansbnas 9y ago
  >When the stock market tops out, people will take their money out and buy real estate causing another rise. If I understand correctly, you are saying that market sentiment that the stock market has reached its peak will result is real estate prices increasing. That’s a very optimistic take. When market sentiment thinks the peak has been reached, people start selling and you get a crash. Everyone can’t sell at the top. I don’t think most people buy homes based on a guess of the stock market cycle. I think a more realistic model is: people sell stock and buy a house when it makes sense for their life and they can qualify. They take money out of the stock market (often a 401k) for the down payment and use it to meet reserve requirements. If the market crashes, people won’t be able to afford as much house and prices will drop. If the stock market keeps going up, that will continue to be one of the factors supporting home prices.
- Amygaz 9y ago
  Just to give a different perspective on the 'real estate is doing well', while still supporting your final point: the total mortgage debt in the US is $13 trillion, which is a quarter of the total US bond market,
bsbechtel 9y ago
Printing money for the past decade and giving it to large banks will have that effect. It's the same as giving $100 to every person at the market and then wondering why an Apple costs $100.50. The large investment banks are consumers of public equities.
- JamesBarney 9y ago
  Assets can appreciate for two reasons, inflation which will increase future cash flow, or interests rates dropping which will decrease the discount rate. Judging from low and stable inflation it's obviously the second as opposed to the first.
- yters 9y ago
  With the bank bailout in 2008, our dollar was effectively halved. Probably what we are seeing now.
  - JamesBarney 9y ago
    By what measure has the dollar lost half it's value?
    - yters 9y ago
      I saw a graph showing the bailout doubled the number of existing dollars.
      - JamesBarney 9y ago
        But that doesn't mean it lost half it's value. If I printed an extra 100 trillion dollars and launched it into space that wouldn't affect the value of the dollar. And the same thing was true during the bailout. 99% of that money was never spent so it didn't have any affect on the economy.
        bsbechtel 9y ago
        My original point was that that money entered the system via large investment banks, whom use it to invest in publicly traded securities. Most of that money doesn't make it to circulation, it just inflates the price of those assets instead of all goods in the wider economy.
kingkongjaffa 9y ago
Forgive my ignorance but how does the stock market as a whole keep growing if the GDP isn't growing at a similar rate? where is all the attributed value coming from? Or am I thinking about it the wrong way ?
- sheeshkebab 9y ago
  Probably hidden inflation... There is only so much stuff someone needs to buy before starting to sink the rest into index funds/stocks/speculative things.
- lmm 9y ago
  Equities are only one sector. As a very simplistic model, imagine that companies were growing at the same time that property was getting less valuable, then we might see flat GDP but a growth in stocks and a fall in real-estate values. (Of course some real-estate holders are equity-funded, but many aren't; since returns are predictable and consistent, real-estate tends to be mostly funded by debt, whereas equity funding is more appropriate for more volatile things like research- or consumption-driven companies). The stock market correlates decently with "the economy" generally, but it's not the whole thing, and many would consider a portfolio that included both stocks and bonds, and perhaps property or other assets as well, to be more reflective of the overall economy.
crispytx 9y ago
I think one of the big problems is that most people's retirement money gets pumped into the stock market to purchase shares on the SECONDARY market. When people buy shares on the secondary market, companies never see any of that money. But when companies sell shares directly to the public through the primary capital markets, that money can be invested to produce NEW goods and services which create economic GROWTH. The whole point of a stock market is for companies to raise money from the public to produce new goods and services and generate economic growth, but in reality companies are doing very little of this. In fact, they often do the OPPOSITE! Instead of raising capital by issuing new shares, companies burn their earnings buying back existing shares from the public. It's insane! Economists in the future will look back in amazement and wonder how we could have possibly been so stupid.
- curun1r 9y ago
  > Instead of raising capital by issuing new shares, companies burn their earnings buying back existing shares from the public. It's insane! You're ignoring all the ways that companies use their stock as a currency. From employee compensation to non-cash acquisitions, companies absolutely benefit from the secondary market. Especially in an era of low interest rates, it makes more sense for companies to borrow capital when they need it rather than raising money by issuing new equity, especially when other ways of issuing equity come with tax advantages.
- lmm 9y ago
  Having too much money in the company is just as bad as having too little. Companies that have something worth spending money on raise money (whether as rights issues, debt or something else) and spend it. Companies that have nothing profitable to do with their money give it to their shareholders (the fact that they tend to do buybacks rather than dividends is mainly an artefact of the tax system rather than a real difference). That's as it should be.

bufferoverflow 9y ago

> The problem is there's no growth to be found anywhere. Cryptocurrencies and ICOs. Applied neural networks. Automation. Good electric cars. To the point where people are prepaying for something that might be built in a few years. Good cheap batteries.

aphextron 9y ago
>Cryptocurrencies and ICOs. What value is being created here, exactly? There's plenty of idealistic notions being thrown around, but I've yet to see a single, real, useful product or service materialize >Applied neural networks. Same. >Automation. This is way too broad to be invested in. Of course the world is automating at a greater rate, but is this a cause for growth? Will automated factories produce more goods for the same consumers? >Good electric cars. To the point where people are prepaying for something that might be built in a few years. Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable >Good cheap batteries. Granted this one would be a technological revolution greater than the internet, but it's just a fantasy for now. I think the grandparent is dead on here. Real inflation is 10 times the official rate since the mid 2000s. We are all playing with funny money these days, and this won't end well.
- adamclayman 9y ago
  > Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable Since driverless vehicles and fleets are arriving roughly concurrent to electric vehicles, they're actually more likely to _reduce_ the volume of cars produced, after accounting for any increased, accelerated "fleet churn" buyers exert via aggregate demand to reach a faster critical mass on increasingly or perfectly safe cars.
  - inventtheday 9y ago
    Disagree. This is hotly debated, but, i think that the growth in demand for transportation will be so staggering (when AV's are introduced) it will more than offset efficiency for a long while.
  - vonmoltke 9y ago
    > Since driverless vehicles and fleets are arriving roughly concurrent I have said multiple times, and did sign again, that I do not believe driverless vehicles will automatically lead mass adoption of fleet/on-demand vehicles. I don't think they will be as much of a savings over human-piloted vehicles as the optimists think.
- icedchai 9y ago
  What choice do we have? Keep your money in cash? Invest in bonds for 4% return? No thanks, I'll take my chances, especially with true inflation being higher than people think... Right now I'm gradually liquidating my crypto stash and buying stocks instead.
  - rubidium 9y ago
    Please guide me to the 4% bonds.
    - icedchai 9y ago
      You can find several high yield bond funds in that range. Here's a 5% bond fund: FIHBX https://finance.yahoo.com/quote/FIHBX/performance?p=FIHBX https://finance.yahoo.com/quote/FIHBX/performance?p=FIHBX Here's another at 6% : PHYSX https://finance.yahoo.com/quote/PHYSX?p=PHYSX https://finance.yahoo.com/quote/PHYSX?p=PHYSX Less risky (municipal) at 4%: MMHYX https://finance.yahoo.com/quote/MMHYX/profile?p=MMHYX https://finance.yahoo.com/quote/MMHYX/profile?p=MMHYX
    - aphextron 9y ago
      T-bills are headed that way...
- KaoruAoiShiho 9y ago
  > Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable From investor pov you can short dinos and ride disruptors. ez $$. Not saying tsla isn't overvalued though.
  - aphextron 9y ago
    >From investor pov you can short dinos and ride disruptors. ez $$. Not saying tsla isn't overvalued though. Except the "dinos" of GM, Nissan, BMW, Ford, and Hyundai are outproducing Tesla in the EV market, with a clear lead in affordability. Nissan Leaf is far and away the most popular EV ever built, having sold thousands more than all Tesla models combined (discounting unfulfilled preorders).
- niyazpk 9y ago
  >> Real inflation is 10 times the official rate. ELI5 please?
  - aphextron 9y ago
    http://www.businessinsider.com/if-people-knew-the-actual-inflation-rate-it-would-crash-the-economy-2016-8 http://www.businessinsider.com/if-people-knew-the-actual-inf... Perhaps it's more like 5x, but the point stands
  - Jach 9y ago
    http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts and links from that page explain further. (The difference has been ~5% understated inflation rather than 10 or 5 times as much, but whatever.)
  - jblow 9y ago
    Baumol predicted this 50 years ago; it's called the "cost disease". The inflation rate for a computer with a fixed set of specs is massively negative -- it gets cheaper every year. So it is for many technological devices. But our whole economy is a mixture of technological stuff (that drops in cost over time, i.e. negative inflation) and non-technological stuff (burritos and health care). The overall inflation rate is an average across the entire economy. Even if you believe the reporting is not distorted (which is dubious), then the fact that there are so many goods whose prices drop quickly over time, implies that there have to be many goods and services whose prices go up much faster than "inflation" would predict. Because something has to balance that average! Baumol calls the technological stuff the "progressive sector" and the non-technological stuff the "stagnant sector". As time goes on, prices in the stagnant sector continue to rise until they consume almost all spending. Baumol made specific predictions based on this model in 1960 that have turned out to be consistently true for 50 years ("the cost of healthcare will continue to rise to degrees that will seem scary" and so forth). Furthermore, it's not like it is some weird complicated or hard-to-substantiate theory. It is just math, not much more complicated than the definition of the average. Given how big the consequences are, and how hard to argue with, it surprises me that this idea occupies so little of the public conversation.
- colordrops 9y ago
  You're kidding on the "Applied neural networks" bit right? A good subset of the features you see on Facebook and Google have neural networks contributing to their functionality.
  - rubidium 9y ago
    Adding value to our society may be the part the parent comment questions.
    - colordrops 9y ago
      Translation? Image search?
- kevin_thibedeau 9y ago
  > What value is being created here, exactly? It's the greatest advance in money laundering ever invented. For that to work the proles need to be conned into participating so there is plenty of transaction volume to hide in.
  - jjeaff 9y ago
    It's really not a great way to launder money. To keep it off the books, you will need armies of individuals going out and buying it with cash through forums or whatever. Same to convert it back to cash. Otherwise, you are just buying and selling it through exchanged who, in the US, are going to report it on your 1099k. Otherwise, you have to have a seemingly legitimate Enterprise that is accepting Bitcoin on a large scale. Which would cause you to stand out like a sore thumb to the authorities because no one in their right mind is using Bitcoin with $40 transaction fees.
    - vlovich123 9y ago
      I started a X business that only sells widget Y for bitcoins. You shuffle all the coins through intermediary wallets that use small payments. The current transaction fee is $20 but regardless of what it is you just scale how much you transfer based on that. Also, if you set up many dummy coinbase accounts, you can use GDAX to exchange it for fiat without fees so you really just need to funnel it into a lot of coinbase accounts that then progressively funnel it to you over time. You can set up a lot of coinbase accounts in a week if you task 50 employees for a week. The rest can probably be automated if you cared enough.
      - jjeaff 9y ago
        Might as well turn yourself in to the FBI. Creating tons of coinbase accounts is no easy task. You have to validate the accounts with multiple forms of ID and this pattern would eventually be found out and get flagged big time. Then, you need different bank accounts for every single coinbase account you create and those require multiple forms of ID as well as valid SSN numbers which will be checked. If you are referring to GDAX allowing you to transfer to USD, looks like it is FDIC insured, which means it is a US bank account, which means it is subject to KYC patriot act stuff and will be the same as opening any other us bank account.
- nimchimpsky 9y ago
  > single, real, useful product or service materialize The ASX is implementing blockchain for its ledger, via the digitalassets company. Right now. HST voting dapp is being used at the world economic forum, this week. Thats two I know of, off the top of my head. As well as the obvious btc and eth being used to purchase stuff everyday, all over the world. Its actually happening if you bother to look.
eldavido 9y ago
So this actually points to a big problem with how we measure growth. If you start from the assumption that well-being or some other desirable policy goal can be measured by income (profits, wages, etc), I'd argue most of the things in this list aren't likely to increase either wages or profits of companies. But they are likely to create economic surplus - that thing that makes us want to trade/transact in the first place. Economic surplus is why you'd rather buy a Netflix package for $10 than rent a $3 video from the video store. You're massively better off with Netflix even though Netflix's profits and your wages haven't moved. The problem is, we don't have a good way to measure this. Economists are aware of the problem, and it's something that makes comparison of GDP across decades difficult. There are many things that are better or flat-out new compared to what existed 50 years ago. How do you compare the experience of driving a modern, safe, smooth-driving car to an older one? Or the experience of talking cross-continent for practically nothing on Skype? I agree that these technologies are going to reshape our world, I just don't think those gains are necessarily going to show up in GDP, at least not how we measure it today. And I also think this whole "real wages have stagnated" argument is a bit of a red herring. Maybe they have...so what. People are much, much better off today than they were even 20 years ago. We have more things, they're better in almost every way, less disease, the world is just 100% a better place, and anyone who says otherwise is just trying to push some redistributionist political agenda. I'm not saying inequality isn't a problem, but it's borderline lying to suggest our lives haven't gotten any better over the last 30 years because "real wages have stagnated".
Robotbeat 9y ago
Don't know why this is down voted so much. I agree cryptocurrencies are mostly a fad, but AI, automation, electric (self-driving) cars, and good cheap batteries are definitely capable of driving productivity & growth. Lithium batteries are the IC of the 21st century. They've driven a lot of innovation already (smartphones, better laptops, tablets, smartwatches, EVs, consumer drones, etc), but there's a lot more to come in terms of mass market self-driving EVs, mass grid storage, electric aircraft (both robotic and not), etc.
Johnny555 9y ago
> Automation It seems like this is the opposite of growth - as more jobs are automated, fewer people will be able to buy the products that are created by the automation.
- vitorgrs 9y ago
  But these products will be way cheaper :)
- imtringued 9y ago
  Instead of thinking in money you should think in widgets. Do you want more money but the same amount of widgets or do you want the same money but more widgets?
  - Johnny555 9y ago
    I want more money and the same amount of widgets, because then after I buy my widget, I have more money leftover to buy thingamabobs. But if I earn less money, even if widgets drop in price, I don't have enough money to buy a thingamabob. And really, how many widgets do I need? My garage is already stacked full of them and I can't even fit my car inside.

losteric 9y ago

To what degree does income inequality, consumer debt, and rapidly rising barriers of entry to high-income fields contribute slowing GDP growth? Is there research and evidence on the subject? I'm just an engineer with basic financial survival skills... but blind intuition suggests fixing those problems is necessary for a sustainable growing economy. "Trickle-down" theory and growing inequality drains economic activity since the "1%" invest their money instead of spending it. They profit when the public consumes, unless short-sighted over-exploitation by some industries strangle general consumer activity... It sure looks like we're being strangled. Off the top of my head: urban rent, health care, high consumer debt and student debt reduce disposable income while automation, exporting jobs, poor retraining for adult laborers, and lower small-business access to capital due to banking mergers lower actual income. When businesses close, some of their ex-employees will switch to high-skill high-demand jobs... but most will increase the labor supply in less skilled industries because they urgently need money - putting downward pressure on wages and working conditions. If I'm wrong, I'd love to learn why, and what other systemic conditions explain our economic stagnation.

virmundi 9y ago
I'm not saying you're wrong. I understand where you're coming from. You raise good points. I think we need to add to this list one simple idea: regulation. Housing costs are terrible. They're getting bad even in small towns like mine. There is no way that my house is worth 172k. For many, especially in California and states that followed their lead, housing cost are largely, not solely, due to regulation on new house starts. Environmental impact and associated costs make a new housing community in California on average 1 million dollars more expensive. For many, they don't even put shovel to sod. Health in the US has a lot of this too. Governmental regulations and the AMA drive up the cost of doctors. All of this is well documented. Interestingly, the free market is coming to a possible rescue on the price of generics: https://www.nytimes.com/2018/01/18/health/drug-prices-hospitals.html https://www.nytimes.com/2018/01/18/health/drug-prices-hospit... A good chunk of student debt is due to the government printing money for loans that students can't escape. School saw this bottomless supply and acted accordingly. Job exporting has some factors due to regulation too. As do the others in your list. I'm not saying that regulation is bad. I believe in free markets, not unfettered markets. However, a lot of the regulation is old, duplicative, and contradictory. It makes being a business far more complex than it should be. Regulation hampers innovation. We need to remove regulatory cruft at all levels. We need to adopt evidence based regulations.

Retric 9y ago

Sustained 3% US GDP growth is overly optimistic. We have 0.7% population growth, and no obvious major investments. The computer boom is mostly over with the low hanging fruit taken. Prior to that we had IC engines and electricity, but nothing on the horizon seems to have that kind of potential to radically reshape society. And to double the economy every 25 years you need regular dramatic shits. PS: Look at the past generation (20 years) and 3% are unusually good years.

WoodenChair 9y ago
> he computer boom is mostly over with the low hanging fruit taken. Prior to that we had IC engines and electricity, but nothing on the horizon seems to have that kind of potential to radically reshape society. And to double the economy every 25 years you need regular dramatic shits. Then the next revolution happens. I'm sure people were pessimistic during periods of lesser innovation before electricity, telephone, phonograph, movie camera, consumer appliances, radio, television, PCs, internet, smartphones... there's always something new. There may be many reasons to believe there won't be 3% growth — "the computer boom is mostly over" is not one of them.
- adventured 9y ago
  That's where Peter Thiel screwed up in his pessimistic premise about flying cars vs tweets (used as an illustractive example of course). At the same time Thiel was making that claim, CRISPR, AI, robotics, VR/AR, blockchain/crypto-currencies and a massive general leap in automation were working their way into the economy. We're also about to take a leap forward when it comes to space tech and transportation improvements (from electric vehicles, electric planes, to hyper-loop and subterranean tunnel transport, those are all likely only the beginning of a new generation of transport tech; the power of combining electric vehicles + radically better software + lower cost, will be vast and will remake every nation). To add to all of that, China throws a big X factor into the global economy, they'll add additional spark to invention/innovation, accelerating competition and improvement between the US-Europe-Asia (Thiel's observations apply primarily to a time range when China was dirt poor, as recently as 1994 they had a mere $500b in GDP). What's more important, flying cars (which are wildly impractical even if you can do it well), or curing Hepatitis C? We did the latter at the same time Thiel was expressing his pessimism. At least 70 million people have Hepatitis C world-wide. Flying cars are a joke by comparison to the extraordinary scientific accomplishment of wiping out HepC over the next two decades. Thiel set up his bold premise at exactly the wrong time.

icelancer 9y ago

Seeking alpha is nearly impossible today, as you noted. Yield curves are flat. I'm not sure what that says exactly - obviously it's multivariate - but combined with the rise of cryptocurrency and the current government, we definitely have a unique situation on our hands. Honestly, though, it's a great time to be young and taking chances. Resources to become an entrepreneur have never been more plentiful/cheap, and the current business environment is incredibly favorable. For now, anyway.

joshuaheard 9y ago

Real estate is doing well. It's still coming on strong after the '08 ditch. Interest rates are low and demand is still strong. When the stock market tops out, people will take their money out and buy real estate causing another rise. Eventually it will fall again. It seems that there is an 8-10 year market cycle, so it should be topping out soon. A rise in interest rates will be the leading indicator.

zhjansbnas 9y ago
>When the stock market tops out, people will take their money out and buy real estate causing another rise. If I understand correctly, you are saying that market sentiment that the stock market has reached its peak will result is real estate prices increasing. That’s a very optimistic take. When market sentiment thinks the peak has been reached, people start selling and you get a crash. Everyone can’t sell at the top. I don’t think most people buy homes based on a guess of the stock market cycle. I think a more realistic model is: people sell stock and buy a house when it makes sense for their life and they can qualify. They take money out of the stock market (often a 401k) for the down payment and use it to meet reserve requirements. If the market crashes, people won’t be able to afford as much house and prices will drop. If the stock market keeps going up, that will continue to be one of the factors supporting home prices.
Amygaz 9y ago
Just to give a different perspective on the 'real estate is doing well', while still supporting your final point: the total mortgage debt in the US is $13 trillion, which is a quarter of the total US bond market,

bsbechtel 9y ago

Printing money for the past decade and giving it to large banks will have that effect. It's the same as giving $100 to every person at the market and then wondering why an Apple costs $100.50. The large investment banks are consumers of public equities.

JamesBarney 9y ago
Assets can appreciate for two reasons, inflation which will increase future cash flow, or interests rates dropping which will decrease the discount rate. Judging from low and stable inflation it's obviously the second as opposed to the first.
yters 9y ago
With the bank bailout in 2008, our dollar was effectively halved. Probably what we are seeing now.
- JamesBarney 9y ago
  By what measure has the dollar lost half it's value?
  - yters 9y ago
    I saw a graph showing the bailout doubled the number of existing dollars.
    - JamesBarney 9y ago
      But that doesn't mean it lost half it's value. If I printed an extra 100 trillion dollars and launched it into space that wouldn't affect the value of the dollar. And the same thing was true during the bailout. 99% of that money was never spent so it didn't have any affect on the economy.
      - bsbechtel 9y ago
        My original point was that that money entered the system via large investment banks, whom use it to invest in publicly traded securities. Most of that money doesn't make it to circulation, it just inflates the price of those assets instead of all goods in the wider economy.

kingkongjaffa 9y ago

Forgive my ignorance but how does the stock market as a whole keep growing if the GDP isn't growing at a similar rate? where is all the attributed value coming from? Or am I thinking about it the wrong way ?

sheeshkebab 9y ago
Probably hidden inflation... There is only so much stuff someone needs to buy before starting to sink the rest into index funds/stocks/speculative things.
lmm 9y ago
Equities are only one sector. As a very simplistic model, imagine that companies were growing at the same time that property was getting less valuable, then we might see flat GDP but a growth in stocks and a fall in real-estate values. (Of course some real-estate holders are equity-funded, but many aren't; since returns are predictable and consistent, real-estate tends to be mostly funded by debt, whereas equity funding is more appropriate for more volatile things like research- or consumption-driven companies). The stock market correlates decently with "the economy" generally, but it's not the whole thing, and many would consider a portfolio that included both stocks and bonds, and perhaps property or other assets as well, to be more reflective of the overall economy.

crispytx 9y ago

I think one of the big problems is that most people's retirement money gets pumped into the stock market to purchase shares on the SECONDARY market. When people buy shares on the secondary market, companies never see any of that money. But when companies sell shares directly to the public through the primary capital markets, that money can be invested to produce NEW goods and services which create economic GROWTH. The whole point of a stock market is for companies to raise money from the public to produce new goods and services and generate economic growth, but in reality companies are doing very little of this. In fact, they often do the OPPOSITE! Instead of raising capital by issuing new shares, companies burn their earnings buying back existing shares from the public. It's insane! Economists in the future will look back in amazement and wonder how we could have possibly been so stupid.

curun1r 9y ago
> Instead of raising capital by issuing new shares, companies burn their earnings buying back existing shares from the public. It's insane! You're ignoring all the ways that companies use their stock as a currency. From employee compensation to non-cash acquisitions, companies absolutely benefit from the secondary market. Especially in an era of low interest rates, it makes more sense for companies to borrow capital when they need it rather than raising money by issuing new equity, especially when other ways of issuing equity come with tax advantages.
lmm 9y ago
Having too much money in the company is just as bad as having too little. Companies that have something worth spending money on raise money (whether as rights issues, debt or something else) and spend it. Companies that have nothing profitable to do with their money give it to their shareholders (the fact that they tend to do buybacks rather than dividends is mainly an artefact of the tax system rather than a real difference). That's as it should be.