In The bub­ble with­out any fizz, The Economist ad­dress­es the fact that financial-asset prices (s­tock­s, bond­s, and the like) keep drift­ing up and up in a world where in­fla­tion doesn’t; are we in a mega-bubble? What’s re­al­ly go­ing on? Looks ob­vi­ous to me, but then I’m a left-winger. I think it’s all a straight­for­ward con­se­quence of eco­nom­ic ef­fi­cien­cy and class war­fare.

In­fla­tion? · It stays low be­cause our glob­al­ized econ­o­my is hy­per­ef­fi­cient at mak­ing the things we wan­t, ex­tract­ing the fu­els we burn, and grow­ing the food we eat. And al­so flex­i­ble enough that it can scale up and down to meet de­mand with­out ap­par­ent­ly kick­ing off waves of in­fla­tion or bankrupt­cy.

All of which is true, but I think the ef­fect of class war is even big­ger. Let’s start with a pic­ture.

Labor is losing out

From Drivers of De­clin­ing La­bor Share of In­come, pub­lished by those com­mies at the In­ter­na­tion­al Mone­tary Fund.

Unions are in re­treat and con­ser­va­tives rule in the great economies of the de­vel­oped world. Gen­er­a­tion Z is be­ing forced in­to the gig econ­o­my, in­to low-agency, low-paying, no-commitment jobs where be­ing a shift lead at Star­bucks is an as­pi­ra­tional goal.

When you don’t have to pay peo­ple much, well yeah, you get low in­fla­tion.

Fi­nan­cial Boom? · When it’s the prices of house­hold good­s, they call it “inflation”. When it’s fi­nan­cial as­set­s, they call it “a bull market”. But the cause is the same: Too much mon­ey chas­ing too few tar­get­s.

It’s like this: There’s a sur­plus of ac­cu­mu­lat­ed wealth (see Piket­ty), and the peo­ple who hold it can’t pos­si­bly spend it on goods and ser­vices  —  how many yachts can you wa­ter­s­ki be­hind? So they throw it at fi­nan­cial prod­uct­s, which then in­flate.

I think this is bleed­ing­ly ob­vi­ous, but that’s pos­si­bly be­cause I’m a cit­i­zen of the tech­nol­o­gy scene, and of Van­cou­ver. In the venture-capital busi­ness, there’s just way too much mon­ey chas­ing way too few uni­corn­s. Go to a start­up show­case some­time and hear the pitch­es, see who’s get­ting fund­ed. If you’re like most peo­ple, you’ll leave shak­ing your head.

I al­so sit in Van­cou­ver, which is ex­pe­ri­enc­ing se­vere in­fla­tion, in our hous­ing sec­tor. Since Van­cou­ver is a rel­a­tive­ly low-paying city, not just on a world scale but com­pared to its Cana­di­an peer­s, it’s ob­vi­ous that glob­al cap­i­tal is part of the prob­lem. Our real-estate fren­zy has be­come an in­ter­na­tion­al news sto­ry (it ap­pears in the Economist piece linked above), but I un-humbly think my own 2015 Game of Homes cap­tures the es­sen­tials pret­ty well.

So, what do Van­cou­ver re­al es­tate and fi­nan­cial in­stru­ments have in com­mon? Limit­ed sup­ply, that’s what. Check out A Dearth of I.P.O.s, but It’s Not the Fault of Red Tape ; not on­ly has the IPO rate plunged (from 706 in 1996 to 105 in 2016), so has the num­ber of pub­lic com­pa­nies (from 7,322 to 3,671). De­clin­ing sup­ply, in­creas­ing de­mand, d’oh.

Other fi­nan­cial as­set­s, e.g. bond­s, may not be as supply-starved (I couldn’t turn up good num­ber­s) but it stands to rea­son that when com­pa­nies all over the world are re­port­ing ro­bust prof­its (class war, re­mem­ber?) they prob­a­bly don’t need to bor­row as much. And (as The Economist notes) when in­vestors are driv­en to buy­ing 100-year bonds from Ar­genti­na, a na­tion that has de­fault­ed on its bonds six times in the last 100 years, you know they’re get­ting des­per­ate.

More ev­i­dence, were any need­ed, of the glob­al cap­i­tal sur­plus? How about the $21 tril­lion be­ing hid­den from the tax-man here and there around the world?

What nex­t? · Beats me. The sad thing is, I don’t see any rea­son why things can’t go on the way they are for the fore­see­able fu­ture. Ob­jec­tive­ly, it would prob­a­bly be good for the world if a lot of the ac­cu­mu­lat­ed wealth was just va­por­ized. Un­for­tu­nate­ly, the on­ly way that seems to hap­pen his­tor­i­cal­ly is in ma­jor wars, as Piketty’s graphs il­lus­trate. Which no­body wants.

Then there’s the left­ist world-view, for ex­am­ple On the Left from last year. Tl;­dr: Tax wealth, force rad­i­cal trans­paren­cy on as­set own­er­ship, jail busi­ness crim­i­nal­s, of­fer uni­ver­sal ba­sic in­come. Works for me; but I’m still look­ing for the right po­lit­i­cal par­ty.

There’s just too much mon­ey out there not do­ing any­thing par­tic­u­lar­ly use­ful.


Comment feed for ongoing:Comments feed

From: Andrew Reilly (Oct 07 2017, at 16:11)

There was an interesting (I thought) angle on this issue presented in this interview with Tim O'Reilly:

Specifically, he argues that the stock market is (already) an AI who's objective function is to maximize shareholder value. (Its fingers are right inside the exchanges, thanks to high frequency trading.)

Here in the Antipodes, the stock market has been approximately flat for ten years. No-one seems to know why, but the popular explanation is that companies are responding to shareholder demand for dividends, and optimizing for that, rather than growth.

Wage averages have been flat or declining in real terms, over the same period, company profits are good, and yet the only demands of the Business lobby are lower taxes and even more employment flexibility (lower wages). Goes straight to your first graph.


From: Juha Autero (Oct 07 2017, at 23:24)

Another option is end of capitalism. I didn't manage to even start Piketty's book before I had to return it to the library, but I looked at table of contents. To me it's obvious that current financial system is not stable enough to last to the end of the century (or even mid-century) and I think a book called "Capital in 21st Century" is not convincing without addressing that issue.

If you take term "information society" on face value and extrapolate there, you get interesting results. You can thing value (what something is worth) as a value (a number) that you use in yout decision making process. Then markets are just a way to collect all available information to calculate that value. What if you remove calculation and use the information itself?

In order to find out how many breads you get with the code you wrote you would have to track who benefited from your code and how much and how that matches to the work done by people who contributed to making of the bread. Keeping track of that information and doing necessary calculations would be impossible by hand, but might be in theory possible with our technology.

This means that information would not be oil of the future, or even currency. It would replace concepts of currency, value and capital. Like I tweeted earlier, we get there either through destitution or UBI. Either economic inequality continues to grow until most people have nothing or government provides for basic needs and rest is done through information economy.

It would be interesting to calculate when linear trend graph meets x-axis, meaning that labor comes "worthless". Of course, there will be huge problems before that.


From: Guy Middleton (Oct 10 2017, at 12:51)

I saw the title "Macro Trends" in the RSS feed and I thought it would be an article about photography.

Oh well. I will diligently read about macroeconomics instead.


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