Not much time. Haven’t even read the full report yet
A few questions though based on a quick skim:
- Have we ever had this much investment in an economy so weak?
- How would you put this into a traditional Austrian Box? Are we in a mal-investment phase now. It would seem must be the case that the roundaboutness of production is increasing dramatically as Equipment & Software is rapidly outpacing Consumer Sales?
- From a PSST/Kling framework does this make sense as the Great Depression Part II accept this time the Telecom is playing the role of the Tractor?
This still seems consistent with a New Keynesian credit constrained household model with a contracting government. Construction still remains the really odd sector though it seems to flattening out and the signs for a construction boom are still building
I still lean towards increasing growth in the second half and going into 2012.
What are the issues: obviously sovereign debt here and abroad and oil. Oil and gasoline look to be trading to high to me but I am of course very interested to see what Jim Hamilton has to say about it.
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Friday ~ July 29th, 2011 at 4:46 pm
Curt Doolittle
Karl,
NET/NET: Yes, you’re right.
AUSTRIAN VIEW: The distortions to the inter-temporal pricing system, and the related distortions that they caused to the “Patterns Of Sustainable Specialization And Trade” have not worked their way out – largely because a) people’s habits are ‘sticky’ and they must still learn new skills –if it’s possible for them at this stage in their lives b) there is a permanent reallocation of world labor suppressing the demand for labor at the bottom that would encourage reorientation, which would in turn, encourage spending, and c) the attempts to halt the ‘correction’ of the distortion by preserving the banking system simply slowed the rate of correction, and with it, the pricing information that would instruct people at all levels of the economy to change their behaviors more quickly. (ie: debt prices on the books cannot change fast enough, and continue to perpetuate false signals. This is particularly problematic in housing which, unlike oil, adjusts very slowly.)
INVESTMENTS OR DEFENSES?: Meanwhile, the companies with cash, and access to inexpensive credit are buying assets while they are cheap because they believe that the inflation that’s needed to adjust the ‘sticky’ debt structure will destroy any cash that they do have AND that they might in the end, actually get ‘paid’ by way of inflation to buy these companies and make these investments now.
PRODUCTIVE INVESTMENTS: There are still areas of the economy that are worthy of investment for their own reasons — ie: because the cost of distributing information is still rapidly decreasing, and the demand for information (data, knowledge, entertainment and voice) is still increasing – in particular among the emerging economies who are bypassing the hardwire, and ‘pc’ investment eras. The shift in advertising dollars away from ‘traditional media’ (television and print) to the web and other media continues. Games continue to drive entertainment dollars. All of these factors allow companies to avoid the disintermediation with consumers that was caused by the ‘fixed capital’ distribution channels (trucks, movie theaters, newspapers, book stores). Touching a consumer is no longer an expense that increases costs, it’s an opportunity to retain them, and companies are reorganizing (albiet slowly) to do so. Automation of the remaining clerical tasks in the world is eliminating additional jobs at the bottom. And there does not seem to be any way to absorbe people into the working economy.
MORE THAN TRACTORS: The tractor similarity is close enough. But you’d have to add to that scenario the 1870′s price depression caused in Europe as the western US manufacturing came online and caused rapid reordering of european prices – just as China is doing to the US’s price system today. So I think it’s more that the two major shifts are happening at once, and we cannot reallocate people fast enough. (And our primary education system isn’t helping matters any by teaching the mythology of the 50s, 60′s and 70′s.)
Curt
Saturday ~ July 30th, 2011 at 8:42 am
Th
The numbers just look distorted to me probably caused by so much economic activity that is unique to sorting out a financial melt-down. Accounting for millions of houses changing hands through foreclosures makes me wonder about the investment numbers.
Thanks, Curt for ruining my day. I grew up surrounded by textile mill villages where my friends’ parents were paid in scrip and shopped at the company store. Is the future for my children the high rise dorms/apartments the Chinese build beside their factories to house their workers? I guess the professors will soon go back to being too poor to buy a new coat and have to sew patches on the elbows and live in the dorms with the students.
Sunday ~ July 31st, 2011 at 8:36 pm
Curt Doolittle
@Th,
Not sure why I ruined your day.
two issues:
1) There is no material reason that we cannot fix this economy, and have the labor-living-as-middle-class world you desire. There is every political and cultural reason why we cannot fix it. Small nation states are egalitarian. Empires are not. You can have what you want as long as you devolve the federal government into states once again. But multiculturalism is antithetical to redistribution – even to investment. It’s as material a problem as is gravity. Why? Because human status signals are NECESSARY to human behavior, if only for a) knowing who to imitate, b) access to mates and c) access to opportunities. And since status signals within group are higher value than across groups, people will act tribally — forever. In periods of scarcity people also act increasingly tribally. These are just realities. You cannot have a redistributive multi-cultural society (for long).
2) Industrial versus Monetary Policy: Industrial policy is far more useful than monetary policy. Drop the monetary policy, and the pricing system distortions and instead focus on making each segment of each social class productive. Monetary policy creates systemic fragility. WHile there is value to fiat money and monetary policy both in the insurance it allows us to provide one another, and in eliminating artificial scarcity of money that would constrain growth – there must in fact, be ‘growth’ that results from that monetary policy – not misdirection, and misallocation of capital. Particularly when a generation or more can be lost by the distortions caused by monetary policy. Industrial policy is a form of loan, made by the population in exchange for the promise of productivity. Monetary policy is simply a crude and abusive instrument of those who are too incognizant of the economy to make intelligent decisions about how to allocate capital in it. And instead, they created a moral hazard.
FWIW: The Rothardians would disagree with me on both points, but then, they are Anarchists. Please do not help them hijack the term ‘Austrian’, by confusing Austrianism, (which is a micro economic school of analysis that seeks to avoid the error of aggregation) with Rothbardian Anarchism, which is a political movement.
So you can have what you want. You just can’t have the nonsensical universalist egalitarian fantasy on top of it. Austrians do not ignore natural law: they argue that human behavior is immutable. To argue otherwise would be counterfactual idealism. And applying aggregates at other than the most abstract level is ‘ridiculous’ for this reason.
BTW: Karl knows his macro cold. I’m just explaining the other side’s position on Recalculation (PSST). And in this second response, trying to demonstrate that I care, like you do, about labor living a middle class lifestyle. But then, you can’t solve that problem with monetary policy. You can only sove it with industrial policy and intelligent politics.
And right now we have neither. And we can’t until we understand we’re members of a falling empire, and start acting like it.
Curt