Gyroscopic Investing

Reub wrote: The 1%? Man, some of you guys are easily brainwashed by left-wing propoganda!

Yeah, I'm also uncomfortable with this epithet.

If a man has committed some crime, let me take issue with that.  But if an honest man has more (or less) money than I do, what of it?  If he acquired his wealth through honest trade, both he and those he traded with are better off.

I do not like framing anything as "you are bad not because of deed X but because you are the top <insert arbitrary number here>%".  I've not seen many rational thoughts that begin with that kind of "us vs. them" boilerplate.

MediumTex wrote: We could simply let them exit the 1% through the Darwinian process that got them there--i.e., when they make bad business decisions let them fail and let their wealth through the existing bankruptcy process be turned over to other capitalists who made better decisions.

Bingo!

MachineGhost wrote:

Gumby wrote: Government spending alone doesn't cause inflation. Inflation usually takes place when the middle class is able to drive up prices by spending beyond the productive capacity of a nation. And that only happens when the middle class actually have jobs and disposable income. You can't technically have an employed and richer middle class without causing inflation.

That is conflating cause and effect.  Spending is an effect of the increased velocity of money which is brought about by equilibrium theory.  Inflation = Government Spending + Change in Velocity - Productive Output.  The 70's had high unemployment and high inflation.  Consumer spending as a percentage of GDP stays relatively stable in recessions or expansions.

MG

MG, I could be mistaken, but it sounds like you talking about the Quantity of Money Theory. That was disproved in the 1930s. And no economists believe that QMT is true over the short term.

The fact is that the '70s saw a rise in the rate of change of disposable income. The data doesn't lie.

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WildAboutHarry wrote: Nixon ended Bretton Woods in 1971, but U.S. citizens couldn't legally own gold until 1974.

Jan 1, 1975.  Same year gold tanked 50% (did fools rush in?).  Same year brokerage commissions were deregulated from the .25% set up back in 1792.

MG

Most of the discussion of "The 1%" had to do with stone believing that deficits are directed towards the uber-rich, and Gumby & myself saying that they really have little to do with it... that even in a gold standard the wealthy would be getting richer.

While these suggest certain value judgements, we weren't throwing around the term "1%" as anything more than a term to help measure whether the distribution of wealth would get worse given a certain set of inputs.

I believe my list still stands:

1) Cut taxes, mostly on the wealthy, and corporate profits
2) Slash spending, mostly on entitlements to the poor/middle class, as well as public education.
3) Deregulate the means of production
4) Strengthen the currency that is owned in droves by the wealthy in the form of bonds and owed in droves by the middle class in the form of student loan, credit card and mortgage debt.
5) Deregulate the financial services industry
6) Eliminate anti-trust laws, since "cartels don't work" anyway

Libertarians.... PLEASE explain to me how these 6 things equal an expanding middle class?

moda0306 wrote: If someone can walk me through how all this will actually REVERSE the wealth gap trends, I'm all ears.

Most of it would unlock productivity and increase employment.  Think Thatcherism/Reaganism.

Why is a wealth gap a problem if all members of society are increasing their living standards?  Are the rich prohibiting the poor and middle class from increasing their living standards?

MG

Gumby wrote: All I've ever said is that deficit spending is a good idea when unemployment is high (and therefore disposable income is low). As full employment is reached, the population would maximize its productive capacity, and then the middle class would start to have rising levels of disposable income — which would obviously start to cause inflation. So, at that point you simply cut back government spending and tax more to make sure everyone doesn't have rising levels of disposable income to cause inflation.

That didn't work in Japan.  It sounds like you are describing the Philips Curve which has been discredited under a floating exchange rate system.

MG

MG,

Ok... so we're getting somewhere... libertarians simply aren't worried about the wealth gap (or at least should acknowledge that their suggested policies would make it much worse), so at least we should rely on supply-side economics to expand production, employment and prosperity...

Unfortunately, demand is what businesses need right now.  Give them all the money in the world, if customers aren't walking through the door, they won't hire more people to make stuff.

moda0306 wrote: The gov't doesn't transfer wealth to the 1% via deficits, at least not most of the time.... this would happen anyway... you already agreed with me on this.  You have to look at where deficit spending is going first before attributing the maldistribution of wealth to it.

Time for some fun.  Check out the non-farming leechers in your area!

Just ten percent of America's largest and richest farms collect almost three-fourths of federal farm subsidies – cash payments that too often promote harmful environmental practices. EWG's Farm Subsidy Database put the issue on the map, and is driving reform.

http://farm.ewg.org/

MG

Gumby wrote: Sorry, but the asset tax is insane. It would be an invasion of privacy since the government would need to constantly audit people's wealth to see if they were cheating or not. People should have the freedom to have wealth, and store it for safe keeping, without the government taxing it (annually). No one wants to live in a society where every trinket is tracked and taxed every year.

Better get ready.  The wealth tax is coming.  Everything worldwide is now reportable except for offshore real property held directly in your own name.

MG

MG,

I think Gumby was referring to stone's suggested 7% wealth tax... I think a .5% wealth tax on $10 Million plus wealth wouldn't be all that disasterous.

Also, I realize decent amounts of money are spent on crony capitalism, but the fact is the vast majority of federal expenditures are transfer payments to other individuals, interest on debt, and military (I realize there's TONS of cronyism here)... farm subsidies and other expenses simply aren't that much. 

Gumby wrote: It's worth mentioning that Sweden and Norway were able to reach full employment and eliminate the power of the top 1%.

They also have the highest suicide rates in the world.  Humans seem to need to struggle for there to be progress.

MG

Gumby wrote: The fact is that the '70s saw a rise in the rate of change of disposable income. The data doesn't lie.
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Look at government spending in the 70's.  If consumers get money created by government spending, then it is the government spending that matters, not the consumer spending.  Even so, if the velocity of money is low like in Japan, there will be no inflation in the system.  If it is high, inflation will manifest.  But that doesn't mean the consumer spending per se causes inflation, it is the unproductive government spending.  There is no tradeoff between inflation and unemployment; that only exists under a "gold standard" where wages increase in real terms.

MG

MG,

Spending in excess of capacity causes the inflation... it doesn't matter if it's gov't or consumers... though gov't is more likely to spend in excess of capacity.

If you were to see a huge destruction of our productive capacity, let's say massive earth quakes, and the gov't didn't spend one extra dime, but people demanded just as much in goods/services, inflation would hit hard, as this would be an example of demand in excess of a newly low level of productive capacity.

MachineGhost wrote:Look at government spending in the 70's.  If consumers get money created by government spending, then it is the government spending that matters, not the consumer spending.  Even so, if the velocity of money is low like in Japan, there will be no inflation in the system.  If it is high, inflation will manifest.  But that doesn't mean the consumer spending per se causes inflation, it is the unproductive government spending.  There is no tradeoff between inflation and employment; that only exists under a "gold standard" where wages increase in real terms.

MG... you seem to be referring to the Quantity of Money Theory. It was disproved in the 1930s.

John Maynard Keynes challenged the [Quantity of Money] theory in the 1930s, saying that increases in money supply lead to a decrease in the velocity of circulation and that real income, the flow of money to the factors of production, increased. Therefore, velocity could change in response to changes in money supply. It was conceded by many economists after him that Keynes’ idea was accurate.

Source: http://www.investopedia.com/articles/05 ... z1l4trrMxc

Most economists do not believe in the Quantity of Money Theory anymore. Monetarism is dead.

Gumby, you say that the middle class having too much disposable income would be inflationary. I think you are missing something very important. Inflation is a rate of change. If the middle class got a large proportion of the profits from across the economy and spent those profits but the amount of money did not increase ever then do you really think inflation would increase unabated for ever? Are you saying that the velocity of money would go up and up and up? I believe supply would expand to meet the demand and so inflation would not keep increasing. Also what people spent their money on would also shift. People might see that some resource constrained items became extremely expensive and so they might choose to instead spend their money on purchases that were not resource constrained (piano lessons for their kids and such like). Anyway I think people have a limit as to what they want to consume. I wouldn't consume any more if I had ten times as much money or any less if I had half as much. I think a lot of people are like that. People might choose to get everything they wanted whilst working shorter and shorter hours. I don't see that as a problem.

Gumby, I'm not sure whether you agree that the system we have is not one where we can say that because something worked for the previous few decades, that means that it can continue to work. Our system has self exacerbating feedback loops. Do you not see that with our system in fifty years to be in the forbes 100 or whatever you might be a trillionaire and yet the median wage might be the same? Do you really think that someone on the median wage will count much in an economy with a bunch of trillionaires?

Reub. I totally agree that the problem is that the 99.9% are not productive enough. I'm just trying to unpick why that is so. To my mind the problem is that to be productive you have to provide goods and services for people who are to pay for them. If only the 0.1% are able to pay and they have very limited requirements from the rest of society, then that in itself is what shuts out most of the population from economic participation. I also think it is important how much artiface goes into our system. Whatever moda or Gumby may say, to my mind if it wasn't for the deficits, then the economy would either have had to redistribute profits (by wage demands, taxation, employee ownership or whatever) or would have ground to a standstill depression. The situation where all increases in productivity get passed on to an ever smaller owning class is a pure artifact of the deficits.

MG, I don't think the Regan/Thatcher supply side reforms really acted to foster efficient production. Rather I think they just fostered asset price inflation that lured in capital flows that bolstered the exchange rates and made commodity imports ever cheaper.

Gumby wrote: Agreed. But, that's also the way it has to be. Not everyone can be rich. The middle class can't have too much disposable income. Otherwise, that would be inflationary. The best we can do is give everyone a job so they can pay their bills, and maximize productive capacity, so that everyone can improve their standard of living together. The top 1% are obviously going to be collecting those bills and hopefully providing those jobs. That's how capitalist economies work. Governments can help by providing jobs when the private sector can't or won't. Maximizing productive capacity improves everyone's standard of living.

If the top 0.1% has rigged the system to direct government spending directly into their pockets — thereby bypassing the middle class altogether — then something needs to be done to stop that. Full employment needs to be the top priority.

MachineGhost wrote:

Gumby wrote: It's worth mentioning that Sweden and Norway were able to reach full employment and eliminate the power of the top 1%.

They also have the highest suicide rates in the world.  Humans seem to need to struggle for there to be progress.

MG

Skandi's have a middling rate, US and UK are low. Eastern european counties are highest, not sure they are progressing though.

http://en.wikipedia.org/wiki/List_of_co ... icide_rate
   

Reub, I'm totally with you on the vital importance of not casting judgment. We are all supposed to be striving to join the 0.1% after all and them getting there is only a reflection of them doing what our democratically elected government has set up to be best rewarded. I think a flat % asset tax on all assets would not amount to targeting any particular group of people. If a billionaire was able to get a better return on the assets they owned than someone less well off then the billionaire could continue to use wealth to gather more wealth. It would simply remove the automatic nature of the way that deficits transfer wealth to existing wealth.

The other key point IMO is that government does provide things such as law and order and roads etc that provide benefits in proportion to how much assets you hold. Warren Buffet's assets benefit $ for $ from roads and the rule of law as much as does the single $ in someones pocket. Isn't it only just that he pays for what he is receiving?

Reub wrote: "And by "1%," we're probably talking more about the top .1%-.5%... as they're the ones who have seen the vast majority of the gains in real income since 1980.  "The 1%" is just a general term to describe the wealthy few who seem to do extremely well compared to their contributions to the economy/society.

Most of these people are in high finance, legal or real estate... not too many engineers and heart surgeons in there.  We'd be just fine without a good chunk of them."


Oh! I see. "We would be just fine without a good chunk of them." And what gives you the right to determine that? What gives you the right to judge them? What gives you the right to judge their contributions to the economy/society? How would we rid ourselves of this 1%, which is now down to .1-.5%? Should they be exiled? Should their wealth be confiscated? Should they be jailed? Would our society be the better off for doing any of these things? BTW, can we start calling them the ".1-.5%ers" for the purpose of accuracy or is that not catchy enough?

stone wrote:Inflation is a rate of change. If the middle class got a large proportion of the profits from across the economy and spent those profits but the amount of money did not increase ever then do you really think inflation would increase unabated for ever? Are you saying that the velocity of money would go up and up and up?

Stone...  

My apologies for not being more clear. If you look at the chart more closely, you will see that disposable income is also measured as a "percent change from a year ago". In other words, it's pretty easy to compare apples to apples when discussing disposable income as a rate of change.

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In order to get disposable income, the middle class's disposable income would need to change. So, that change in disposable income would be inflationary. I never said it would be permanent inflationary. But, the added disposable income tends to cause inflation. Now, after a short while, the middle class might spend their money and probably not have as much disposable income anymore. You see this in the chart as the disposable income rate kept jumping up and down. But the overall disposable income trend in the 70's was rising because many salaries were tied to the inflation rate. So, as you can see from the chart above, the rate of change of disposable income kept increasing. Obviously that was inflationary.

I think you'll have a hard time arguing that there isn't a correlation between the disposable income rate and the inflation rate.

Gumby, I totally agree that tying salaries to inflation causes more inflation. I'm not advocating that at all. I'm advocating having the increases in productivity passed on to the general population rather than just to a smaller and smaller owning class. You say that the middle class would not have disposable income once they had spent it. Remember that profits can come from the spending of profits and not just from increasing indebtedness or deficit spending. I'm just saying that in a system fit for purpose profits would come from the spending of profits. So the middle class would receive a large proportion of the economies profits which they would spend and that would create an equilibrium where there was no inflation and a large proportion of the economy consisted of the middle class providing each other with goods and services. That was what was going on in the 1960s. That basically is what constitutes a prosperous country and it is the diminishing legacy of that that we have been living off ever since. The irony is that when that is all depleted there will be nothing left to pillage anymore; then the 0.1% will invest in the middle class in China or wherever has the good sense to see that they are the entirety of what makes a nation investable.

doodle wrote:They have exchanged their lives for CRAP!

Indeed!  See here: http://www.youtube.com/watch?v=qRL0-JQk-Qg

Gumby, do you see that a country could either have 99% of GDP accounted for by middle class (ie 90% of the population) spending and earnings or have 1% of GDP accounted for by middle class spending and earnings (with the "middle class" still being defined as 90% of the population)?

stone wrote:I'm advocating having the increases in productivity passed on to the general population rather than just to a smaller and smaller owning class.

stone wrote:So the middle class would receive a large proportion of the economies profits which they would spend and that would create an equilibrium where there was no inflation and a large proportion of the economy consisted of the middle class providing each other with goods and services. That was what was going on in the 1960s

Stone. Inflation was already becoming a problem by 1967. I hardly think that's a good example. Anyway, I see what you mean. In theory, the standard of living can be raised for an entire middle class. I get it. But, the increase in disposable income itself, to get there, tends to be inflationary — even if only temporarily.

The point I was trying to make is that you can't just make the middle class rich. If they spent their disposable income, that would be inflationary. If the average middle class American had $2 million in the bank, you can bet that the price of things would go up, as demand soared — even if everyone was sharing in the profits.

Gumby, technically I think that would be classed as a one off price adjustment not inflation. The definition of inflation includes it not being temporary.

stone wrote: Gumby, technically I think that would be classed as a one off price adjustment not inflation. The definition of inflation includes it not being temporary.

You're being overly technical just to have an argument. The fact that the price adjustment took place instantly makes the disposable income more worthless. You seemed to understand that last week.

If the middle class felt wealthy, and had full employment, they could easily spend beyond the productive capacity of the nation. That would cause prices to rise over a period of time — which is what economists call "inflation".

Gumby, I wasn't simply trying to be awkward. I sincerely think that if there is only so much of something to go around (eg oil) then it is no bad thing for it to be equally (un)affordable for everyone. That causes people to strive to develop alternatives. I think that that is a much better situation than pricing a section of the population out.