The Intrinsic Value of Nothing, Part 1 [View article]
Paco - - -
Good article, but I have a philosophical bone to pick.
You wrote:
"Nothing in this universe has intrinsic value; every single thing you possess, want to possess, use, can use, have used, can offer, have offered, or will offer is valuable only if someone else finds it valuable."
You have defined value in terms of exchange. I would argue that is too narrow a definition. There are things with intrinsic value independent of any medium of exchange. Exchange is merely one way, but not the only way, to define value.
I maintain that anything necessary for my existence has intrinsic value. Air to breathe, water to drink and food to eat have intrinsic value. The value has a binary measurement: either I have these things and exist or one is missing and I don't exist.
Most economists make their definitions based on commerce. The basics of existence don't come into the equation, except for a few fringe operatives who play with things like "happiness indexes".
Ultimately, all of the "commercial" definitions of value are secondary to the "existence" definition of value. We lose sight of that and many externalities result, which repetitively blow apart the best of economic theories. Throughout history societies and civilizations have failed because of resource exhaustion. They thrived on commerce and decayed on the basis of not sufficiently supporting existence.
There absolutely are things with a real intrinsic value.
I know this is outside the scope you intended to address, but I just had to have my rant.
A worthwhile addition to this discussion stream would be to recognize the role of velocity of money in inflation.
Inflation as a monetary phenomenon can be considered an increase in the nominal value of all transactions. In other words, if all transactions in one period of time have a nominal value of $100 and the same transactions in a later period of time have a value of $120, there has been a 20% inflation between the two time periods.
Milton Friedman made popular (created?) the following equation:
nT = V M
where nT represents the nominal value of aggregate transaction, V is the velocity of money and M is the quantity of money in circulation. In the simplest view, velocity can be considered a multiplier representing the number of times a dollar is exchanged between parties (each exchange is a transaction) in a specified time period.
Going back to our simple 20% inflation example, that can occur with no change in the amount of money in circulation if V increases by 20%. Or that can occur with a 20% increase in the money in circulation if the velocity of money is not changed. In practice, both V and M change and the new product of V times M is 20% higher to produce 20% inflation.
What has happened in the past couple of decades, and accelerated in the last few years? There has been a steady increase in M, but the big change was in V. The velocity of money involved in creating a humongous pile of finacial paper became very large, allowing the inflation of a huge bubble of credit. Why didn't this show up as inflation? Only because we do not measure inflation by following the prices of such things as stocks, highly leveraged debt obligations, credit default swaps, etc. True, the cost of houses also increased in price and that is included in inflation measurements, but that was only a small factor in the list of measured factors. So we saw only moderate inflation (as measured and reported) over the past decade. The real inflation was in an area of commerce (finance) not measured and reported.
So now we come to 2008. The value of V has collapsed dramatically, and the nominal value of aggregate transactions has fallen in step. There has been massive deflation in financial assets because V has become so small. If you print enough money to double M (the currency in circulation) and V falls by 75%, the value of aggregate transactions falls by 50%, or the economy suffers a 50% deflation.
Now the race is on. Can we print money faster than velocity slows? If we can, deflation can be slowed, then stopped and, finally, reinflation started. If we don't print money fast enough deflation is not stopped. Persistent deflation is self-feeding and can become entrenched in the economy. Everyone holds tight to every dollar because it will buy more tomorrow than today. Consumption dries up. Investment in new facilities dries up. Deflation freezes out growth and economic contraction spirals downward.
Above I discussed what happens if we lose the money printing race. What happens if we win? All of a sudden a point comes when the product of V times M starts to increase. If we could identify that point and stop printing money in a timely manner, the growth in aggregate transactions (V times M) might continue to grow in a moderate way and inflation coming out of the deflationary period could then be controlled without drastic actions such as very high interest rates. The problem is, it is unlikely that the proper point in time to slow down or stop the printing of new money will be recognized. The most likely result is the deflationary period is followed by a period of above normal inflation.
The choice of policy makers is to risk a deflationary spiral into another Great Depression or risk the over production of money and accompanying inflation down the road. Our policy makers have chosen to risk the future inflation rather than the economic death spiral.
Now, as investors, we must try to follow this fiscal and monetary adventure as it unfolds and hope that we can be more nimble than the government. Based on the contempt some commenters seem to have for the government's ability to do much that is useful, I expect there are some who feel qualified to be more nimble.
To conclude, the government can print vast amounts of money and we can remain in deflation if the money is kept in a warehouse (bank balance sheets) and not on the street (used in exchange for goods and services). Eventually, though, one of two things must happen:
1. Deflation persists until all economic activity grinds to a halt and people live at a subsistence level (think hunter-gatherer). OR
2. Money starts coming out of the warehouse, deflation stops and the risk of inflation returns.
Lessons Learned From the BP Disaster [View article]
Jim - - -
Many appropriate observations here, but one stands out for me.
A major structural problem in our current corporate oligarchy is the profiting of the top executives without personal risk. This is the Achilles heel of private enterprise as practiced today.
The small businessman risks everything for modest (relatively) compensation. The executives at large corporations risk nothing for many millions in compensation.
Other factors you cover, such as the ineffectiveness of government, are important, but compensation without risk for the most powerful "capitalists" may be fatal to our system.
The Threat the U.S. Must Muddle Through [View article]
John - - -
Very timely article. I was especially drawn to a couple of things.
1. You wrote: <<The Chinese will begin to allow the yuan to rise again sometime this year, just as they did three years ago, because it will be to their advantage. A stronger yuan will act as a buffer to inflation, which they may face due to the massive stimulus they created. They are going to need some help in that area. But it will be 5-7% a year, so as not to create a shock to their export economy.>>
I agree that this is likely, but I think that China will also move to increase domestic wages by a similar amount, for two reasons: a. It is a means of increasing internal consumption to offset some declines in exports; and b. It will provide balm for the masses who might experience greater social unrest if they do not see an improved standard of living.
Both of these moves have positive long-term effects for the Chinese and the rest of the world, as well. Third world economies would be dragged along, benefiting from increased Chinese consumption. The developed world would see greater opportunity for a more balanced trading relationship with China.
2. You wrote:
<<A rational energy policy that gets us off foreign oil as quickly as possible must be enacted. Senator Schumer, if you are so worried about deficits, why not demand that we drill for oil offshore on the continental shelf, where we know there are massive deposits? And why not aggressively encourage the use of natural gas in the medium term for transportation? Nuclear energy?>>
You are absolutely correct, but, I believe, incomplete in your statement. From all I can uncover, it appears that fossil fuel, even including coal, can not keep us on a sustainable economic path. The offshore drilling and natural gas exploitation you support are 10-20 year stop gaps. Where do we go from there? Increased nuclear power will help, but we are unlikely to run the kind of world we have today on nuclear power - that too has limits.
I have been looking at using hydrogen gas as a portable energy storage medium produced using energy sources that are variable in time, such as solar and wind. I am not yet convinced that is the answer, either.
Until we have a coherent energy strategy and executable plan that starts on an energy growth pathway for the next 50 years or more in an economically coherent manner, the vision that many have of the third world gradually developing to first world status may be wrong; the actuality may be first world economies gradually devolving into third world status.
As my longtime friend (and SA reader) Charlie McKenna argued in a discussion we had more than 15 years ago: from 1850-1950 we had the industrial revolution and the development of widespread mass production as the driving economic force; for the latter half of the 20th century we had the computer and information age develop into the primary force for economic growth; and (Charlie's prediction) the 21st century economic growth driver will be energy.
I am reminded of the old golden rule: "He who has the gold makes the rules." I would propose a new maxim: "He who has the power (as in energy) makes the rules."
I could go on to comment on the dysfunctional government we have, where the two parties seem to spend most of their time trying to destroy each other and our elected representatives spend most of their time running in the next election, but I have rambled on too much already.
The Coming Consequences of Banking Fraud [View article]
Mr. Kim - - -
I find your article articulate. It is quite aligned with my own analysis. The more this market keeps going up on low volume, the harder the fall when it turns out that the chickens coming home to roost are carrion fowl. In a recent article I referred to the coming crisis as a banking crisis of historic proportions. And in another article, I showed why it already is the biggest as far back as I have analyzed (to 1929). And the conclusion is: the worst is likely yet to come.
Great Depression Not Imminent, But Inevitable [View article]
I want to expand on the comment by Equity Has No Clue:
There are two kinds (a good kind and a bad kind) of leverage and we are experienceing the results of the bad kind.
Good leverage is used to finance the means of production. This leverage, wisely used, is paid back with the increased productivity. Continuing production creates further wealth beyond the pay-back period.
Bad leverage is used to finance things with no utility. (Utility is the economic concept of providing for the needs and wants of society.) We have just gone through a period of expanding leverage to produce additional financial instruments. These financial instruments were treated as being means of production when they were not. Because of this treatment the newly created financial instruments were used as collateral assets to produce more financial paper.
This is the structure of the collapsing pyramid and has a relationship to Ponzi, alluded to by Equity Has No Clue. Others have said we are discovering that the Emperor has no clothes. Still others have said that we are discovering who has been swimming naked as the tide goes out.
The bottom line: Leverage without utility is doomed to failure.
On Dec 17 10:51 AM Equity Has No Clue wrote:
> Great article. Leverage is turning into one giant ponzi scheme. Right > now the government is not letting the market take any more pain so > the government is trying to inflate the market out of its problem > and will lever up to transfer the problems to their balance sheet. > > > The LBO of America.
Mortgage-Title Fraud: A National Catastrophe [View article]
Jeff - - -
Good summary of a problem that was swept under the rug far too long. Now it appears that the pile of dirt is so high that all the edges of the rug don't even touch the floor anymore. The rug looks more like a shroud for a big pile of dirt.
It is a welcome change to see a discussion of the structure of employment (unemployment) from the bottom up. Actually counting jobs that will be needed to arrive at a "new normal" is much better than just assuming a job recovery will follow one of the patterns from a previous recession.
Where will the jobs come from? I have read some speculations that they will come from new energy technologies. That could be true, but to have employment return to anything like 5% unemployment, we also need to find some productive things to do with that energy. That is where the rubber will meet the road and I don't think the taps are even in the rubber trees yet.
Of course, we can return to 5% unemployment even if employment does not increase. Just keep shrinking the officially measured labor force and the unemployment roles and we get there. If you have 15 million unemployed out of a labor force of 150 million, that is 10% unemployment.
If 7.9 million unemployed become discouraged, they disappear from the DOL count for unemployed and labor force participants. We then have 7.1 million unemployed in a labor force of 142 million. Voila!!! 5% unemployment.
By this measurement process, we could end up with no one working and 0% unemployment. And let's suppose that somehow (maybe a volunteer does something unpaid for an hour) some little thing is produced. Since no labor was involved (by official measurement) we would reach infinite labor productivity.
Of course, I am taking things to ridiculous extremes. But when there are ridiculous flaws in measurement processes and assumptions, extremes can make them obvious.
John, the thing I like most about your "Thoughts" are the thinking they can stimulate.
I would offer that Bhide's apparent dismissal of genius may be influenced by the value of genius often being denegrated by ego and arrogance. Geniuses are often loners and not team players. In building large, efficient systems, a genius may innovate a concept but the other personality baggage can interfere with implementation. Few geniuses are leaders and organizers. Implementation requires team work.
So I would say we need geniuses because not all advancement comes from innovation in the realm of what is known. Some comes from insights that few of us not quite geniuses ever come up with. Then the intelligent, innovative and socially skilled can implement.
You wrote: "Emphasis is everything and if the Bhide interpretation is correct, Schumpeter's books seem much less important. Schumpter emphasizes brilliance, great men and great companies, whereas Bhide emphasizes the effect of a system where outliers are not so important."
If this is an accurate representation of Bhide's thesis, then I have to disagree with it. Where would we be if there were no Henry Ford's, Newton's, Galileo's, Einstein's, Fermi's, Euclid's, Shakespeare's, etc? The world would gravitate to mediocrity. We can not dismiss the outliers as less important; we must find a way to bring a bigger cohort to a level of competency that there is a market ready to receive and implement the product of these outliers.
Finally, I think you are taking too narrow a view when you say: "...if he's right, we need fewer engineers, and more B-Schoolers." The implication is that engineering is the chosen field of genius and the b-school the domain of the less gifted. Maybe that is not what you intended, but I can see that interpretation.
Eric, thanks for writing this review. I appreciate the thought you put into it and the mental stimulation of my less than genius brain.
Robert H. Heath - - -
In an attempt to continue your humor, I'll need to know what grade you are in before I can suggest a grade.
JudeJin - - -
I am not sure I want to agree with your statement: "innovation does not sustain prosperity." But I definitely would suggest that innovation does initiate prosperity.
Another Big Bank Failure: More Likely Than Not to Occur [View article]
I wish negative commentators would lighten up on the invective. If one wants to criticize, please do it with some modicum of civility. If you think an article is too rambling, too general and lacking in specifics (which I think this article is), say that and not something snide or sarcastic.
Reggie Middleton - - -
Now that I have buried my general criticism of your article in my comment above, I will say that I found you expressed some defendable opinions. I would summarize by saying: I would have liked to have gotten your opinions in a more succinct package, perhaps with a little specific data for nerd types like me.
Do You Believe Banks Are Recovering? (Part 2) [View article]
wg, 4annie and anyone else confused about unemployment numbers - - -
The 5-6 million unemployed is the INSURED UNEMPLOYED (actually 6,138,000 as of April 18, which is 4.7% of the workforce as determined by the government). Once an unemployed worker is no longer receiving unemployment insurance benefits they are removed from the list. The link for this info is: www.dol.gov/opa/media/...
The "total" official unemployment is much higher (8.7% in March), with links provided by James Quinn in a comment above (data.bls.gov/cgi-bin/... This has been criticized as not counting many underemployed. Also excluded are many who have been unemployed for a long time or are not currently actively looking for work (the discouraged unemployed).
In Part 1 the author referred to unemployment as reported by www.shadowstats.com/ which attempt to include the people missed by the official government report. This number is close to 20% unemployed.
What if I Were a Buy and Hold Investor? [View article]
Cullen - - -
I am sorry that you are being taken to task for being quite honest in your self assessment in this article. As I read what you wrote what jumped out at me was your recognition that you could have made a much better call real time in the early months of 2009. I also perceived that you temperately participated in the 2009 rally but recognize that bigger bets would have paid off better.
I also perceive that you are operating as a risk manager of investments as well as a return maximizer. That is the box I try to operate in as well.
I would have had similar mia culpas and risk management / return discussion if I were to have reviewed my own history over the past 2-3 years.
I think your critics here are being a little too narrow in their perspectives.
Goldman Gets About One-Third of Revenues From Derivatives [View article]
Edward - - -
More proof that we have wolves (hedge funds) in sheep's (banks') clothing. I remember when GS was an investment banking partnership seeking profitable investment of their own and clients' money. Now they have a significant portion of their business gambling with funds guaranteed by the public.
No Wonder Home Sales Are Plummeting [View article]
Charles - - -
Excellent review of the residential RE situation. Maybe we will get the bottom to this market in the next 6-12 months as we go through a demand drought forcing prices to a bottom.
Of course, if there is a double dip recession the bottom will be delayed. The ultimate bottom will be employment dependent.
More Than Half a Million Job Losses Coming [View article]
dvdivx - - -
You are pointing out one of the reasons that I do not pay much attention to the number of unemployed. It is a number biased by the accounting techniques of the Dept. of Labor. The more meaningful number (which is what I discuss in the article) is the number employed.
For the same reason, I don't pay much attention to the unemployment rate. Besides the number employed, the size of the civilian labor force is also something to track because, when it shrinks because people are discouraged from looking for work, it is also a quantity very sensitive to economic conditions.
The Intrinsic Value of Nothing, Part 1 [View article]
Good article, but I have a philosophical bone to pick.
You wrote:
"Nothing in this universe has intrinsic value; every single thing you possess, want to possess, use, can use, have used, can offer, have offered, or will offer is valuable only if someone else finds it valuable."
You have defined value in terms of exchange. I would argue that is too narrow a definition. There are things with intrinsic value independent of any medium of exchange. Exchange is merely one way, but not the only way, to define value.
I maintain that anything necessary for my existence has intrinsic value. Air to breathe, water to drink and food to eat have intrinsic value. The value has a binary measurement: either I have these things and exist or one is missing and I don't exist.
Most economists make their definitions based on commerce. The basics of existence don't come into the equation, except for a few fringe operatives who play with things like "happiness indexes".
Ultimately, all of the "commercial" definitions of value are secondary to the "existence" definition of value. We lose sight of that and many externalities result, which repetitively blow apart the best of economic theories. Throughout history societies and civilizations have failed because of resource exhaustion. They thrived on commerce and decayed on the basis of not sufficiently supporting existence.
There absolutely are things with a real intrinsic value.
I know this is outside the scope you intended to address, but I just had to have my rant.
The Deflation Scam [View article]
Inflation as a monetary phenomenon can be considered an increase in the nominal value of all transactions. In other words, if all transactions in one period of time have a nominal value of $100 and the same transactions in a later period of time have a value of $120, there has been a 20% inflation between the two time periods.
Milton Friedman made popular (created?) the following equation:
nT = V M
where nT represents the nominal value of aggregate transaction, V is the velocity of money and M is the quantity of money in circulation. In the simplest view, velocity can be considered a multiplier representing the number of times a dollar is exchanged between parties (each exchange is a transaction) in a specified time period.
Going back to our simple 20% inflation example, that can occur with no change in the amount of money in circulation if V increases by 20%. Or that can occur with a 20% increase in the money in circulation if the velocity of money is not changed. In practice, both V and M change and the new product of V times M is 20% higher to produce 20% inflation.
What has happened in the past couple of decades, and accelerated in the last few years? There has been a steady increase in M, but the big change was in V. The velocity of money involved in creating a humongous pile of finacial paper became very large, allowing the inflation of a huge bubble of credit. Why didn't this show up as inflation? Only because we do not measure inflation by following the prices of such things as stocks, highly leveraged debt obligations, credit default swaps, etc. True, the cost of houses also increased in price and that is included in inflation measurements, but that was only a small factor in the list of measured factors. So we saw only moderate inflation (as measured and reported) over the past decade. The real inflation was in an area of commerce (finance) not measured and reported.
So now we come to 2008. The value of V has collapsed dramatically, and the nominal value of aggregate transactions has fallen in step. There has been massive deflation in financial assets because V has become so small. If you print enough money to double M (the currency in circulation) and V falls by 75%, the value of aggregate transactions falls by 50%, or the economy suffers a 50% deflation.
Now the race is on. Can we print money faster than velocity slows? If we can, deflation can be slowed, then stopped and, finally, reinflation started. If we don't print money fast enough deflation is not stopped. Persistent deflation is self-feeding and can become entrenched in the economy. Everyone holds tight to every dollar because it will buy more tomorrow than today. Consumption dries up. Investment in new facilities dries up. Deflation freezes out growth and economic contraction spirals downward.
Above I discussed what happens if we lose the money printing race. What happens if we win? All of a sudden a point comes when the product of V times M starts to increase. If we could identify that point and stop printing money in a timely manner, the growth in aggregate transactions (V times M) might continue to grow in a moderate way and inflation coming out of the deflationary period could then be controlled without drastic actions such as very high interest rates. The problem is, it is unlikely that the proper point in time to slow down or stop the printing of new money will be recognized. The most likely result is the deflationary period is followed by a period of above normal inflation.
The choice of policy makers is to risk a deflationary spiral into another Great Depression or risk the over production of money and accompanying inflation down the road. Our policy makers have chosen to risk the future inflation rather than the economic death spiral.
Now, as investors, we must try to follow this fiscal and monetary adventure as it unfolds and hope that we can be more nimble than the government. Based on the contempt some commenters seem to have for the government's ability to do much that is useful, I expect there are some who feel qualified to be more nimble.
To conclude, the government can print vast amounts of money and we can remain in deflation if the money is kept in a warehouse (bank balance sheets) and not on the street (used in exchange for goods and services). Eventually, though, one of two things must happen:
1. Deflation persists until all economic activity grinds to a halt and people live at a subsistence level (think hunter-gatherer). OR
2. Money starts coming out of the warehouse, deflation stops and the risk of inflation returns.
Lessons Learned From the BP Disaster [View article]
Many appropriate observations here, but one stands out for me.
A major structural problem in our current corporate oligarchy is the profiting of the top executives without personal risk. This is the Achilles heel of private enterprise as practiced today.
The small businessman risks everything for modest (relatively) compensation. The executives at large corporations risk nothing for many millions in compensation.
Other factors you cover, such as the ineffectiveness of government, are important, but compensation without risk for the most powerful "capitalists" may be fatal to our system.
The Threat the U.S. Must Muddle Through [View article]
Very timely article. I was especially drawn to a couple of things.
1. You wrote:
<<The Chinese will begin to allow the yuan to rise again sometime this year, just as they did three years ago, because it will be to their advantage. A stronger yuan will act as a buffer to inflation, which they may face due to the massive stimulus they created. They are going to need some help in that area. But it will be 5-7% a year, so as not to create a shock to their export economy.>>
I agree that this is likely, but I think that China will also move to increase domestic wages by a similar amount, for two reasons:
a. It is a means of increasing internal consumption to offset some declines in exports; and
b. It will provide balm for the masses who might experience greater social unrest if they do not see an improved standard of living.
Both of these moves have positive long-term effects for the Chinese and the rest of the world, as well. Third world economies would be dragged along, benefiting from increased Chinese consumption. The developed world would see greater opportunity for a more balanced trading relationship with China.
2. You wrote:
<<A rational energy policy that gets us off foreign oil as quickly as possible must be enacted. Senator Schumer, if you are so worried about deficits, why not demand that we drill for oil offshore on the continental shelf, where we know there are massive deposits? And why not aggressively encourage the use of natural gas in the medium term for transportation? Nuclear energy?>>
You are absolutely correct, but, I believe, incomplete in your statement. From all I can uncover, it appears that fossil fuel, even including coal, can not keep us on a sustainable economic path. The offshore drilling and natural gas exploitation you support are 10-20 year stop gaps. Where do we go from there? Increased nuclear power will help, but we are unlikely to run the kind of world we have today on nuclear power - that too has limits.
I have been looking at using hydrogen gas as a portable energy storage medium produced using energy sources that are variable in time, such as solar and wind. I am not yet convinced that is the answer, either.
Until we have a coherent energy strategy and executable plan that starts on an energy growth pathway for the next 50 years or more in an economically coherent manner, the vision that many have of the third world gradually developing to first world status may be wrong; the actuality may be first world economies gradually devolving into third world status.
As my longtime friend (and SA reader) Charlie McKenna argued in a discussion we had more than 15 years ago: from 1850-1950 we had the industrial revolution and the development of widespread mass production as the driving economic force; for the latter half of the 20th century we had the computer and information age develop into the primary force for economic growth; and (Charlie's prediction) the 21st century economic growth driver will be energy.
I am reminded of the old golden rule: "He who has the gold makes the rules." I would propose a new maxim: "He who has the power (as in energy) makes the rules."
I could go on to comment on the dysfunctional government we have, where the two parties seem to spend most of their time trying to destroy each other and our elected representatives spend most of their time running in the next election, but I have rambled on too much already.
The Coming Consequences of Banking Fraud [View article]
I find your article articulate. It is quite aligned with my own analysis. The more this market keeps going up on low volume, the harder the fall when it turns out that the chickens coming home to roost are carrion fowl. In a recent article I referred to the coming crisis as a banking crisis of historic proportions. And in another article, I showed why it already is the biggest as far back as I have analyzed (to 1929). And the conclusion is: the worst is likely yet to come.
Well written.
Great Depression Not Imminent, But Inevitable [View article]
There are two kinds (a good kind and a bad kind) of leverage and we are experienceing the results of the bad kind.
Good leverage is used to finance the means of production. This leverage, wisely used, is paid back with the increased productivity. Continuing production creates further wealth beyond the pay-back period.
Bad leverage is used to finance things with no utility. (Utility is the economic concept of providing for the needs and wants of society.) We have just gone through a period of expanding leverage to produce additional financial instruments. These financial instruments were treated as being means of production when they were not. Because of this treatment the newly created financial instruments were used as collateral assets to produce more financial paper.
This is the structure of the collapsing pyramid and has a relationship to Ponzi, alluded to by Equity Has No Clue. Others have said we are discovering that the Emperor has no clothes. Still others have said that we are discovering who has been swimming naked as the tide goes out.
The bottom line: Leverage without utility is doomed to failure.
On Dec 17 10:51 AM Equity Has No Clue wrote:
> Great article. Leverage is turning into one giant ponzi scheme. Right
> now the government is not letting the market take any more pain so
> the government is trying to inflate the market out of its problem
> and will lever up to transfer the problems to their balance sheet.
>
>
> The LBO of America.
Mortgage-Title Fraud: A National Catastrophe [View article]
Good summary of a problem that was swept under the rug far too long. Now it appears that the pile of dirt is so high that all the edges of the rug don't even touch the floor anymore. The rug looks more like a shroud for a big pile of dirt.
Welcome to the New Normal [View article]
It is a welcome change to see a discussion of the structure of employment (unemployment) from the bottom up. Actually counting jobs that will be needed to arrive at a "new normal" is much better than just assuming a job recovery will follow one of the patterns from a previous recession.
Where will the jobs come from? I have read some speculations that they will come from new energy technologies. That could be true, but to have employment return to anything like 5% unemployment, we also need to find some productive things to do with that energy. That is where the rubber will meet the road and I don't think the taps are even in the rubber trees yet.
Of course, we can return to 5% unemployment even if employment does not increase. Just keep shrinking the officially measured labor force and the unemployment roles and we get there. If you have 15 million unemployed out of a labor force of 150 million, that is 10% unemployment.
If 7.9 million unemployed become discouraged, they disappear from the DOL count for unemployed and labor force participants. We then have 7.1 million unemployed in a labor force of 142 million. Voila!!! 5% unemployment.
By this measurement process, we could end up with no one working and 0% unemployment. And let's suppose that somehow (maybe a volunteer does something unpaid for an hour) some little thing is produced. Since no labor was involved (by official measurement) we would reach infinite labor productivity.
Of course, I am taking things to ridiculous extremes. But when there are ridiculous flaws in measurement processes and assumptions, extremes can make them obvious.
John, the thing I like most about your "Thoughts" are the thinking they can stimulate.
How Innovation Sustains Prosperity [View article]
I would offer that Bhide's apparent dismissal of genius may be influenced by the value of genius often being denegrated by ego and arrogance. Geniuses are often loners and not team players. In building large, efficient systems, a genius may innovate a concept but the other personality baggage can interfere with implementation. Few geniuses are leaders and organizers. Implementation requires team work.
So I would say we need geniuses because not all advancement comes from innovation in the realm of what is known. Some comes from insights that few of us not quite geniuses ever come up with. Then the intelligent, innovative and socially skilled can implement.
You wrote: "Emphasis is everything and if the Bhide interpretation is correct, Schumpeter's books seem much less important. Schumpter emphasizes brilliance, great men and great companies, whereas Bhide emphasizes the effect of a system where outliers are not so important."
If this is an accurate representation of Bhide's thesis, then I have to disagree with it. Where would we be if there were no Henry Ford's, Newton's, Galileo's, Einstein's, Fermi's, Euclid's, Shakespeare's, etc? The world would gravitate to mediocrity. We can not dismiss the outliers as less important; we must find a way to bring a bigger cohort to a level of competency that there is a market ready to receive and implement the product of these outliers.
Finally, I think you are taking too narrow a view when you say: "...if he's right, we need fewer engineers, and more B-Schoolers." The implication is that engineering is the chosen field of genius and the b-school the domain of the less gifted. Maybe that is not what you intended, but I can see that interpretation.
Eric, thanks for writing this review. I appreciate the thought you put into it and the mental stimulation of my less than genius brain.
Robert H. Heath - - -
In an attempt to continue your humor, I'll need to know what grade you are in before I can suggest a grade.
JudeJin - - -
I am not sure I want to agree with your statement: "innovation does not sustain prosperity." But I definitely would suggest that innovation does initiate prosperity.
Another Big Bank Failure: More Likely Than Not to Occur [View article]
Reggie Middleton - - -
Now that I have buried my general criticism of your article in my comment above, I will say that I found you expressed some defendable opinions. I would summarize by saying: I would have liked to have gotten your opinions in a more succinct package, perhaps with a little specific data for nerd types like me.
Do You Believe Banks Are Recovering? (Part 2) [View article]
The 5-6 million unemployed is the INSURED UNEMPLOYED (actually 6,138,000 as of April 18, which is 4.7% of the workforce as determined by the government). Once an unemployed worker is no longer receiving unemployment insurance benefits they are removed from the list. The link for this info is: www.dol.gov/opa/media/...
The "total" official unemployment is much higher (8.7% in March), with links provided by James Quinn in a comment above (data.bls.gov/cgi-bin/... This has been criticized as not counting many underemployed. Also excluded are many who have been unemployed for a long time or are not currently actively looking for work (the discouraged unemployed).
In Part 1 the author referred to unemployment as reported by www.shadowstats.com/ which attempt to include the people missed by the official government report. This number is close to 20% unemployed.
Hope this explains the points of confusion.
What if I Were a Buy and Hold Investor? [View article]
I am sorry that you are being taken to task for being quite honest in your self assessment in this article. As I read what you wrote what jumped out at me was your recognition that you could have made a much better call real time in the early months of 2009. I also perceived that you temperately participated in the 2009 rally but recognize that bigger bets would have paid off better.
I also perceive that you are operating as a risk manager of investments as well as a return maximizer. That is the box I try to operate in as well.
I would have had similar mia culpas and risk management / return discussion if I were to have reviewed my own history over the past 2-3 years.
I think your critics here are being a little too narrow in their perspectives.
Goldman Gets About One-Third of Revenues From Derivatives [View article]
More proof that we have wolves (hedge funds) in sheep's (banks') clothing. I remember when GS was an investment banking partnership seeking profitable investment of their own and clients' money. Now they have a significant portion of their business gambling with funds guaranteed by the public.
No Wonder Home Sales Are Plummeting [View article]
Excellent review of the residential RE situation. Maybe we will get the bottom to this market in the next 6-12 months as we go through a demand drought forcing prices to a bottom.
Of course, if there is a double dip recession the bottom will be delayed. The ultimate bottom will be employment dependent.
More Than Half a Million Job Losses Coming [View article]
You are pointing out one of the reasons that I do not pay much attention to the number of unemployed. It is a number biased by the accounting techniques of the Dept. of Labor. The more meaningful number (which is what I discuss in the article) is the number employed.
For the same reason, I don't pay much attention to the unemployment rate. Besides the number employed, the size of the civilian labor force is also something to track because, when it shrinks because people are discouraged from looking for work, it is also a quantity very sensitive to economic conditions.