6 ms·

I have a theory. The last 100 years has seen govt spending as percent of gdp increase to ever greater levels. People are expecting more and more handouts and

I have a theory. The last 100 years has seen govt spending as percent of gdp increase to ever greater levels. People are expecting more and more handouts and no one wants to pay for it. Without the ability to pay for it via taxes, the govt will eventually have to default on it's currency and thus real returns on fixed income/bonds will have to become increasingly negative. Their article already shows a slight widening between bonds/equities post 1950. My theorey is that for the next 100 years, we'll see a much larger widening between the returns of bonds and equities as more and more governments default on their currency. Thoughts? EDIT: the article I referenced was the one the other poster mentioned: https://economics.harvard.edu/files/economics/files/ms28533.pdf https://economics.harvard.edu/files/economics/files/ms28533.... Also, equity returns should in the long term be equal to Producivity per capita + population growth + inflation + dividends. And If you look at each of those for the last 100 years and the next 100 years for the US, you'll see a pattern. Pop growth down to 0.4 from 1.3. Per capita growth down several percent in the last 20 years vs the 100 years before that and with current PEs where they are, dividends are down to 1.3% from a historical 4.5%. Translation: Future equity returns will be much much closer to inflation than they have been in the past.

smaddox 4y ago
Private debt dwarfed public debt until very recently, and it's still significany higher: https://braveneweurope.com/steve-keen-what-is-the-role-of-public-debt-and-private-debt-in-the-next-great-financial-crisis https://braveneweurope.com/steve-keen-what-is-the-role-of-pu... Also GDP is a terrible proxy for economic prosperity. A broken window adds to GDP, but subtracts from prosperity. If we had a better proxy for prosperity, it would be easier to see if government debt was actually net negative or net positive effect. As is, all arguments one way or the other are speculation and ideology.
- xyzzy123 4y ago
  I think prosperity (particularly if we include health, education, wellbeing etc) is unfortunately very difficult to measure and any attempt necessarily incorporates a lot of speculation and ideology. A forest cleared creates wealth & prosperity, but what was the value of the forest that was lost? What value do we put on natural amenity, biodiversity, a pristine environment? An employee works very long hours, numbers go up. Great. In specific situations though we can ask: was any wealth actually created, or was the wellbeing of the employee and their children simply exchanged for dollars? etc. It's value judgements all the way down.
  - daze42 4y ago
    This seems to be the root of most, if not all, economic disagreements. It's just so hard to objectively measure these things.
  - smaddox 4y ago
    Agreed. But I don't think it would take a herculean effort to do better than GDP.
  - csomar 4y ago
    As the divide gets more extreme (between GDP per capita numbers and reality), I think we’ll soon have a “Quality of Life” kind of an index. You can have a high salary in country A, but live in a small studio, eat shit-food and have to take a crappy metro for work. Or you can take a much lower salary, live in a nice 2-Br apartment, eat at nice restaurants and take a new nice metro for work, and still be able to afford a car. You’d need $120k/year to afford 1 in New York, and $30k/year to afford 2 in Kuala Lumpur.
- rcme 4y ago
  Just because a broken window contributes to GDP doesn’t mean GDP is bad. Is your argument that the government is spending to break windows?
  - ClumsyPilot 4y ago
    basically, yes. Its called the housing market - an asset that controbutes nothing to the economy goes up in value and makes life unaffordable for new generations. There are pther manofestations of thos, and it is not always done by governments. One of the few true reflections of economic health is commodities - those cannot be fakes.
    - rcme 4y ago
      Productivity has been increasing. The amount of land is fixed. In such a scenario, I would definitely expect the value of land to increase.
      - ClumsyPilot 4y ago
        Uk is a densely populated country, and 95% of land is just empty - field, forest, whatever. Only 5% of land is built on.
        rcme 4y ago
        Sure, but you also have to consider the proximity to where the productivity gains are happening. The median household income has increased 4 times over in SF since 1990 (30K - 120K). Do you really expect property values in SF to stay the same? And of course, that's just the median. At the high end, the difference is even more pronounced. https://fred.stlouisfed.org/series/MHICA06075A052NCEN https://fred.stlouisfed.org/series/MHICA06075A052NCEN
  - smaddox 4y ago
    It's not inherently bad. It measures what it measures. It's just a terrible measure of prosperity. See, for example https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-david-pilling-growth-delusion/ https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-dav...
- _glass 4y ago
  The Human Development index is kind of okay, if you don't want to go down the more qualitative path. https://hdr.undp.org/data-center/country-insights#/ranks https://hdr.undp.org/data-center/country-insights#/ranks
zie 4y ago
The other option is they raise taxes, cut spending and they actually pay those debts off. All debt comes due eventually, you can choose to go bankrupt or you can choose to pay it. But if neither option happens in your lifetime, you don't need to care, if you are just trying to optimize for yourself.
- shkkmo 4y ago
  Federal debt "comes due" all the time. The option you haven't listed (which is the one we're engaged in) is: "You can choose to borrow more money to pay your creditors". The interest on federal debt recently makes up (very roughly) 1/3 of our total deficit. This is why when the US doesn't raise the "debt ceiling" we risk defaulting on our debts.
  - zie 4y ago
    That was my point. At some point, we can't keep borrowing to satisfy our debt(s). The question then becomes, what happens? This current inflation is actually a not bad thing for US debt, as we are inflating away some of it. It totally sucks for those of us that want to buy food and shelter though. Either we endure some hardship(s) and have a miserable decade or three or we crash and burn. I'm betting we endure the hardships. The other option(s) are much worse.
    - shkkmo 4y ago
      > At some point, we can't keep borrowing to satisfy our debt(s) Why not? It's just a question of the rate of growth of the debt, the interest rates the USG pays on its debt, the rate of inflation and the rate of growth of the GDP/tax base. There is absolutely a level of deficit spending that can be supported indefinitely. The question is whether we are above or below that level, not whether that level exists.
      - zie 4y ago
        There is indeed a possibility that a govt could, theoretically, borrow indefinitely. There is a LOT of assumptions in that calculation though, and it's pretty obvious the USA and almost every government never bothers to even try to live in that range. So while what you say is theoretically possible, it's practically impossible, as there is almost no incentives for any people currently in government to try and sustain that, and incentives absolutely matter. If you know of a practical example of this theoretical indefinite borrowing, I'd be very, very surprised.
treis 4y ago
>People are expecting more and more handouts and no one wants to pay for it I think this is more that we're entering a post material scarcity economy kind of like we changed from almost everyone being farmers. We're leaving behind the economy where almost everyone manufactures stuff to where they do something else.
- kortilla 4y ago
  > think this is more that we're entering a post material scarcity economy No we’re not. Materials for housing, etc are just as expensive as ever. Food still has to be heavily subsidized by the government directly and indirectly (“water rights”). Post-scarcity is a fantasy world used to justify heavily socialist policies that allow people to not work without having to wonder who does have to work.
  - treis 4y ago
    Your etc is doing a lot of work here, but post COVID craziness aside I don't think building materials are more expensive than they were in 1990. As an example, lumber has been flat or slightly down since 1995: https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_and_2021_set_record_highs_even_when_adjusted_for_inflation_102300/ https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_an...
    - sleton38234234 4y ago
      His point is, the material standard of living is low as ever or even lower. This surprises people, but the bare necesities of the lowest level of maslow's heirarchy of needs are now more expensive than they have been in a long time. Just look at the cost of shelter. Housing costs sooo much more than it did 50 years ago or even 200 years ago. During the time of Henry david thoreau, an average house cost 800 days of unskilled labor wages (meaning 800$, the average unskilled worker made 1$ per day). Today, it's over 5000 days of unskilled labor wages when you take into account property taxes. the difference in shelter cost is so enormous, that back then 1830s, mortgages were often just 10 years. And thoreau thought even that was too much.
FatActor 4y ago
> People are expecting more and more handouts and no one wants to pay for it. Do you mean the super rich that want more of the tax revenue for themselves, or boomers, or who are "people"?
- sleton38234234 4y ago
  the point is everyone wants more govt spending, not necessarily handouts. Voters want larger government spending.
yterdy 4y ago
I agree, insofar that "handouts" are primarily, in monetary volume: 1) favorable loan terms for financial entities (loans in both directions, but ultimately favoring the bottom line of private capital); 2) favorable taxation terms for the wealthiest earners and owners (e.g., low capital gains and inheritance taxes, when compared to income taxes); and 3) federal and state benefits that often face large and unnecessary administrative costs (in order to reduce fraud (which is only possible because they're means-tested or otherwise restricted)); in that order. And the first two rob the treasury of far, far more than the last. By orders of magnitude, particularly in the past few years.

smaddox 4y ago

Private debt dwarfed public debt until very recently, and it's still significany higher: https://braveneweurope.com/steve-keen-what-is-the-role-of-public-debt-and-private-debt-in-the-next-great-financial-crisis https://braveneweurope.com/steve-keen-what-is-the-role-of-pu... Also GDP is a terrible proxy for economic prosperity. A broken window adds to GDP, but subtracts from prosperity. If we had a better proxy for prosperity, it would be easier to see if government debt was actually net negative or net positive effect. As is, all arguments one way or the other are speculation and ideology.

xyzzy123 4y ago
I think prosperity (particularly if we include health, education, wellbeing etc) is unfortunately very difficult to measure and any attempt necessarily incorporates a lot of speculation and ideology. A forest cleared creates wealth & prosperity, but what was the value of the forest that was lost? What value do we put on natural amenity, biodiversity, a pristine environment? An employee works very long hours, numbers go up. Great. In specific situations though we can ask: was any wealth actually created, or was the wellbeing of the employee and their children simply exchanged for dollars? etc. It's value judgements all the way down.
- daze42 4y ago
  This seems to be the root of most, if not all, economic disagreements. It's just so hard to objectively measure these things.
- smaddox 4y ago
  Agreed. But I don't think it would take a herculean effort to do better than GDP.
- csomar 4y ago
  As the divide gets more extreme (between GDP per capita numbers and reality), I think we’ll soon have a “Quality of Life” kind of an index. You can have a high salary in country A, but live in a small studio, eat shit-food and have to take a crappy metro for work. Or you can take a much lower salary, live in a nice 2-Br apartment, eat at nice restaurants and take a new nice metro for work, and still be able to afford a car. You’d need $120k/year to afford 1 in New York, and $30k/year to afford 2 in Kuala Lumpur.
rcme 4y ago
Just because a broken window contributes to GDP doesn’t mean GDP is bad. Is your argument that the government is spending to break windows?
- ClumsyPilot 4y ago
  basically, yes. Its called the housing market - an asset that controbutes nothing to the economy goes up in value and makes life unaffordable for new generations. There are pther manofestations of thos, and it is not always done by governments. One of the few true reflections of economic health is commodities - those cannot be fakes.
  - rcme 4y ago
    Productivity has been increasing. The amount of land is fixed. In such a scenario, I would definitely expect the value of land to increase.
    - ClumsyPilot 4y ago
      Uk is a densely populated country, and 95% of land is just empty - field, forest, whatever. Only 5% of land is built on.
      - rcme 4y ago
        Sure, but you also have to consider the proximity to where the productivity gains are happening. The median household income has increased 4 times over in SF since 1990 (30K - 120K). Do you really expect property values in SF to stay the same? And of course, that's just the median. At the high end, the difference is even more pronounced. https://fred.stlouisfed.org/series/MHICA06075A052NCEN https://fred.stlouisfed.org/series/MHICA06075A052NCEN
- smaddox 4y ago
  It's not inherently bad. It measures what it measures. It's just a terrible measure of prosperity. See, for example https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-david-pilling-growth-delusion/ https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-dav...
_glass 4y ago
The Human Development index is kind of okay, if you don't want to go down the more qualitative path. https://hdr.undp.org/data-center/country-insights#/ranks https://hdr.undp.org/data-center/country-insights#/ranks

zie 4y ago

The other option is they raise taxes, cut spending and they actually pay those debts off. All debt comes due eventually, you can choose to go bankrupt or you can choose to pay it. But if neither option happens in your lifetime, you don't need to care, if you are just trying to optimize for yourself.

shkkmo 4y ago
Federal debt "comes due" all the time. The option you haven't listed (which is the one we're engaged in) is: "You can choose to borrow more money to pay your creditors". The interest on federal debt recently makes up (very roughly) 1/3 of our total deficit. This is why when the US doesn't raise the "debt ceiling" we risk defaulting on our debts.
- zie 4y ago
  That was my point. At some point, we can't keep borrowing to satisfy our debt(s). The question then becomes, what happens? This current inflation is actually a not bad thing for US debt, as we are inflating away some of it. It totally sucks for those of us that want to buy food and shelter though. Either we endure some hardship(s) and have a miserable decade or three or we crash and burn. I'm betting we endure the hardships. The other option(s) are much worse.
  - shkkmo 4y ago
    > At some point, we can't keep borrowing to satisfy our debt(s) Why not? It's just a question of the rate of growth of the debt, the interest rates the USG pays on its debt, the rate of inflation and the rate of growth of the GDP/tax base. There is absolutely a level of deficit spending that can be supported indefinitely. The question is whether we are above or below that level, not whether that level exists.
    - zie 4y ago
      There is indeed a possibility that a govt could, theoretically, borrow indefinitely. There is a LOT of assumptions in that calculation though, and it's pretty obvious the USA and almost every government never bothers to even try to live in that range. So while what you say is theoretically possible, it's practically impossible, as there is almost no incentives for any people currently in government to try and sustain that, and incentives absolutely matter. If you know of a practical example of this theoretical indefinite borrowing, I'd be very, very surprised.

treis 4y ago

>People are expecting more and more handouts and no one wants to pay for it I think this is more that we're entering a post material scarcity economy kind of like we changed from almost everyone being farmers. We're leaving behind the economy where almost everyone manufactures stuff to where they do something else.

kortilla 4y ago
> think this is more that we're entering a post material scarcity economy No we’re not. Materials for housing, etc are just as expensive as ever. Food still has to be heavily subsidized by the government directly and indirectly (“water rights”). Post-scarcity is a fantasy world used to justify heavily socialist policies that allow people to not work without having to wonder who does have to work.
- treis 4y ago
  Your etc is doing a lot of work here, but post COVID craziness aside I don't think building materials are more expensive than they were in 1990. As an example, lumber has been flat or slightly down since 1995: https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_and_2021_set_record_highs_even_when_adjusted_for_inflation_102300/ https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_an...
  - sleton38234234 4y ago
    His point is, the material standard of living is low as ever or even lower. This surprises people, but the bare necesities of the lowest level of maslow's heirarchy of needs are now more expensive than they have been in a long time. Just look at the cost of shelter. Housing costs sooo much more than it did 50 years ago or even 200 years ago. During the time of Henry david thoreau, an average house cost 800 days of unskilled labor wages (meaning 800$, the average unskilled worker made 1$ per day). Today, it's over 5000 days of unskilled labor wages when you take into account property taxes. the difference in shelter cost is so enormous, that back then 1830s, mortgages were often just 10 years. And thoreau thought even that was too much.

FatActor 4y ago

> People are expecting more and more handouts and no one wants to pay for it. Do you mean the super rich that want more of the tax revenue for themselves, or boomers, or who are "people"?

sleton38234234 4y ago
the point is everyone wants more govt spending, not necessarily handouts. Voters want larger government spending.

yterdy 4y ago

I agree, insofar that "handouts" are primarily, in monetary volume: 1) favorable loan terms for financial entities (loans in both directions, but ultimately favoring the bottom line of private capital); 2) favorable taxation terms for the wealthiest earners and owners (e.g., low capital gains and inheritance taxes, when compared to income taxes); and 3) federal and state benefits that often face large and unnecessary administrative costs (in order to reduce fraud (which is only possible because they're means-tested or otherwise restricted)); in that order. And the first two rob the treasury of far, far more than the last. By orders of magnitude, particularly in the past few years.