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Lawrence J. Kramer

 
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  • A Flawed Analysis Of What Ails The Economy [View article]
    Two unexamined premises deserve, well, examination. First, the production time chain is a technological artifact. The supply chain is moving faster all the time. An awful lot of supply can be ginned up awfully fast these days, much more so than in times past. That makes interest rates a much less important determinant of what gets made when.

    Second, the point of the "money bomb" is not to create wealth, so whether money is wealth is irrelevant. The point of the money bomb is to redistribute purchasing power. It is a tax, not a very burdensome one, but a tax nonetheless. The money bomb taps excess capacity, capital already in existence but running at less than full utilization because there isn't enough demand, or wealth waiting to be deployed AS capital, again because there isn't enough demand.

    If the money bomb causes inflation beyond the target 2% central bankers like, then the tax is too heavy. But we would have to put a lot of people back to work and make much better use of our productive capacity before that happened, and that, of course, is the object of the game. A change in the average national propensity to spend would be a plus for our sub-optimal economy. We boomers are saving too much. The ultra-rich are saving too much. There is PLENTY of capital. We are not suffering from malinvestment but maldistribution.

    The driving force behind this maldistribution is not the evil men do; it is the Invisible Hand, which is wholly indifferent to fairness, conducing to the maximization of wealth without the benefit of coordination, not the maximization of prosperity. When the correlation between wealth and prosperity is close, that distinction is not terribly important, but we have become accustomed over the past century to the idea that such close correlation is a law of nature. It is not.

    The share of income going to labor grew at a time when innovation increased capacity faster than it decreased the need for workers per unit of output. But there is no necessary connection between these rates of change. For one brief and shining moment, they aligned as they did. But now the growth in capacity features the replacement of labor rather than the leverage of labor. The IH does not care. But we must.

    We are all familiar with the guy who falls off the building and thinks to himself all the way down, "so far so good." But what if he were headed for a soft landing in a pile of riches? Would he not be thinking as he fell "So, where's the money?" Those very people who conjure the image of a falling economy in which the doves are saying "So far, so good," cannot see that they are the ones falling into wealth and wondering where the money is. We will get there if we can see how comparative advantage works on aggregates to maximize efficiency and nothing more. Capital is becoming more efficient than labor, so capital is becoming how things get made. We just don't have the "technology" yet to demand all the things we could make.
    Nov 28, 2014. 09:48 AM | Likes Like |Link to Comment
  • Wages And The Federal Reserve: What To Plan For Next [View article]
    "It seems you are saying: Innovation has driven out the need for productive labor."

    Not driven out the need - driven down the price.

    "Surely that was not so during the early centuries of the industrial revolution."

    The past is a foreign country. They do things differently there.

    "I do see a lot of American labor taxed high and also driven down, with the importation of Chinese slave labor."

    I have consistently advocated reducing the payroll tax, and workers would participate in the stipend I propose. It's not welfare; it's a national dividend. Cheap labor is a temporary problem on the road to automation. The more we prop up labor here in any way, the faster the jobs will disappear.


    " Traditionally, improved capital improvements improve compensation."

    Except it wasn't a "tradition," like a Christmans goose.

    "Perhaps the expanded safety net of our dependent society, which you suggest, has tipped the participation net away from America and to the Chinese slave who has a very low even subsistence, life. "

    So if we had less of a safety net, our workers would be earning more? Or more of our workers would be making sneakers for subsistence wages? Can you connect these dots?

    "It seems to me that you are promoting more crony profits and more slave labor. That doesn't seem decent."

    It seems to me that I am not promoting more crony profits and more slave labor. So I guess I can live with myself another day.

    "If there were an infinite store of wealth in the rich hands, our society could survive on those funds forever-by definition. "

    How about a very large torrent rather than an infinite pool? If you have to exaggerate to make a point, chances are you aren't making it.

    I cannot follow your version of Keynes.
    Nov 28, 2014. 07:49 AM | Likes Like |Link to Comment
  • Sequester, Growth, And The Deflation That Did Not Bark [View article]
    One can only imagine how that blue line would look if that red line had not turned south so dramatically. In the absence of inflation, crowding out appears not to have been a problem. If the government had actually spent some money on our national capital plant, there is no telling how bright the future might be. We'll never know, but comforting ourselves that the worst did not occur seems a tad unambitious.

    Perhaps that blue line on a log scale would be revealing. These days, with things changing so fast, the interesting stuff happens at the second derivative.
    Nov 27, 2014. 10:00 AM | 1 Like Like |Link to Comment
  • CBO: QE Failed As It Has Shown Nothing For The Economy [View article]
    Christopher

    I am hardly a monetary hawk, but I am an underwriting hawk. IoER is necessary to keep banks from having to choose between fee income and bad loans as a source of income. IoER pays some bills, but it seems unlikely that a bank would rather earn a free 25 bps than make a real loan at a real spread to a real creditworthy customer. Banks have been reluctant to lend, but I suspect something other than being in business to collect IoER is at play.
    Nov 26, 2014. 05:48 PM | Likes Like |Link to Comment
  • Wages And The Federal Reserve: What To Plan For Next [View article]
    "...laborers have constantly become more efficient yet getting paid less."

    My buggy whip has become infinitely "more efficient" than it was 120 years ago: I don't have to crack it even once to get from point A to point B by car. We need to understand that labor is obsolescing as an input. We don't use gold to back our money, and we don't use elbow grease to make our products. For labor, that's not "efficiency"; it's irrelevance.

    But what to do about it? We cannot help labor by boosting wages arbitrarily. The higher we force wages by statute, the faster the jobs evaporate. The author says that "at least a partial reversal of the divergence in income shares between capital and labor is inevitable." I disagree. Something else will have to happen, because labor no longer has something to sell that cannot be bought more cheaply, now or in the foreseeable or predicted future.

    The answer, I think, is to uncouple wages from entitlement to some extent. Let's just give people something, not a whole lot, but something, for being good citizens in the richest civilization in history. Why shouldn't being born an American come with the same benefits as being born a Kuwaiti? If you're born here, or are naturalized here, then you get a stipend, funded by the wealth of the nation in all its forms. We'll leave plenty of money for the entrepreneurs who are willing to work for the Rolls and the Malibu beach house. But a guaranteed income, to relieve the stress of labor's losses, or let parents rear their own children, or create demand for the products our enterprises can make, would all go a long way to making this a better, safer, richer place to live.

    Wealth is the present value of future cash flows. Anyone who thinks we cannot spend our way to prosperity does not understand that "future cash flows" is just a fancy way of saying "spending." We can ONLY spend our way to prosperity. So long as we don't create more money than the supply side can absorb - not much chance of that, really - printing money means creating spending, which means creating future cash flows, which means creating wealth.

    Two things that have never been true before are true now: (i) labor, per se, is obsolescing, and (ii) supply is growing exponentially. Every counterargument to the suggestion that we print money and give it away relies on the assumption that at least one of these claims is untrue. I submit that they are true, and that the counterarguments, therefore, are invalid.
    Nov 26, 2014. 03:24 PM | 2 Likes Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    dcv -

    You wrote:

    "I appreciate your convictions, I really do, but they are your convictions. To pass them on to me or any other investor is just not right, IMO."

    I wrote:

    "I have very little stake in whether tobacco companies prosper or don't, so I don't put any effort into dissuading others;"

    Seems to me we're on the same page.

    There is no slippery slope. I'm here about geopolitics, nothing else. Even there, my bar is pretty easy to clear; our national policy is to trade robustly with China, so I have no problem investing there. (But I don't trust them, so I don't take a lot of risk - just a few bucks at a time on the occasional lottery ticket stock.)
    Nov 25, 2014. 11:30 PM | 1 Like Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    "I don't see why investing in Russia is bad for most ordinary Americans, because I simply cannot see how most things that Russia does affects ordinary Americans."

    That's your test? Whether MOST of what Russia does affects ordinary Americans? Really? So Russia's cyberattacks on our electric grid are to be ignored?

    I have not mentioned Russia's bad conduct toward others. I may or may not find them obnoxious enough to dissuade me from investing there, but I have not mentioned them. I am concerned only with Putin's posture as an enemy of the US.

    I am also not concerned with the morality of what Russia is doing. Espionage and sabotage are how the game is played. But that is hardly a reason for me to participate in my enemy's capital markets. (As Ben Gee points out, there ARE such reasons; I believe those reasons may apply to China, but not to Russia. Some of the slower members of the class cannot see the difference.)

    The problem here is that I made a very specific claim about AMERICANS investing contrary to our strategic interests, and people with more bile than brains have been berating me over positions I have not even hinted at, much less taken. The words are there to be read. Don't expect me to defend claims I have not made.
    Nov 25, 2014. 07:47 PM | 2 Likes Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    "I am not American. '

    You might have said that a bit earlier. I don't know who your country's strategic enemies are, if any, but if there are any, you would acting against your countrymen's interests, and your own, to invest in that enemy's industry. I'm not sure why you or anyone finds that claim controversial, much less "sickening."

    Since my claim is about geopolitics, and not national morality, Ferguson, like everything else in your rant, is wholly beside the point.

    I am not a jingoist. I have made no claims that America is better than anyone else. I have simply noted the strategic implications of investments we make in foreign lands. So, no, I don't care about whether Putin's past makes you think of Bush, or the Ukraine makes you think about Iraq. If you want to treat all those things as equivalent, my disagreement would be as off-topic as the claim. But if you think there are no strategic implications for an ETF that invests in a foreign country's market, you are simply wrong. And if you cannot think of a way to invest your money without damaging your country's strategic interests - if it has any - that's on you.
    Nov 25, 2014. 07:39 PM | 3 Likes Like |Link to Comment
  • Envy Has Got Nothing To Do With It [View article]
    "Under-regulated? Seriously?"

    Some important industries are under-regulated. Or were, as was the financial services industry before the S&L crisis and before the recent unpleasantness. Now, that industry is probably over-regulated. Why do you find that hard to believe?

    "I constantly work with a large number of CEOs and not one of them thinks they are under regulated, not one."

    Duh.

    Read my comment. I said that regulation comes in two flavors: over and under. That is not a denial of over-regulation or a rejection of any claim about its damages. But some industries are sometimes under-regulated, and when they are, (i) they do not complain about it, and (ii) there is hell to pay. If you think that's a liberal statist position, it's because you desperately want to think so. But it's not.
    Nov 25, 2014. 04:53 PM | 1 Like Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    "By your own standard you are a hypocrite."

    Let's suppose that's true. Does that make Putin not a thug? Does that make investing in Russia consonant with YOUR strategic interests as an American? You cannot justify your action by making me out to be a slug.

    You can huff and puff all you want, but the fact remains that Americans who invest in Russia are supporting a bad regime. If you don't like hearing that, then close your ears. If you disagree, then make the case. As I said, I have no problem with anyone who cares to explain why his investing in Russia is not a bad thing for the rest of us. But all this "shut up, you're making me feel icky" crap is just embarrassing.
    Nov 25, 2014. 04:47 PM | 2 Likes Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    "I find it sickening."

    Struck a nerve, did I? A tad embarrassed by your indifference to your own strategic interests? Too selfish to care whether your country's enemies prosper? Am I getting warm?

    This "not here" bullsh-t is very amusing. Not one of you blowhards has any defense for your interest in supporting Putin. So you change the subject and say "not here," not in this investment forum.

    If it sickens you, it's because you know I'm right. You're feeling just a bit uneasy about supplying capital to the kleptocrats. Otherwise, you'd just ignore me.
    Nov 25, 2014. 03:47 PM | 3 Likes Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    dcv -

    The difference between MO and RSX is that tobacco farmers don't wish me ill. I don't invest in tobacco, on ethical grounds - I don't want to be selling poison - but I have very little stake in whether tobacco companies prosper or don't, so I don't put any effort into dissuading others; I try to be moral, but not be a moralist. Putin's Russia, however, is another story. I have a stake there, so I advocate that we shun it.
    Nov 25, 2014. 03:42 PM | 1 Like Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    Ben -

    That's why I own Chinese stocks! But Putin's an unreconstructed KGB thug, and there is no law that says we have to treat all of our enemies alike.
    Nov 25, 2014. 03:32 PM | 2 Likes Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    Ben -

    Thank you for supporting my view that we should consider geopolitics in making our investment decisions.
    Nov 25, 2014. 01:44 PM | 1 Like Like |Link to Comment
  • Russia Obituaries Premature; RSX Could Be A Strong Bet Next Year [View article]
    "I'd never denigrate, or avoid investment in, America because 'they' drop bombs on Arab innocents or wiretap foreign officials who are supposed to be allies."

    You might if you had a drone kill your kid.

    "Comparing investing in Russia with giving money to IS, who are beheading innocent journalists and aid workers and posting it on Twitter, is a bit of a stretch."

    Either you believe that politics matters, or you don't. If you don't, then ISIL must be ok. If you do, then we're just talking pet peeves. There is no "comparison"; there is only the logic of the arguments raised against me. The ones about Russia per se are fine with me; the ones on principle need to pass the ISIL test.
    Nov 25, 2014. 01:22 PM | 1 Like Like |Link to Comment
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