Reality check the creation of credit killed savings intrest in usa period . Untill credit is used in emergency people who save money for retirement wil suffer
2
Hard Thinking Dr. Schiller:
Exponentially accelerating complexity, which includes vast gains in knowledge and tech, yields uncertainty.
“There were 5 exabytes of information created by the entire world between the dawn of civilization and 2003; now that same amount is created every two days.” Eric Schmidt, former Google CEO
Humans are asked to calibrate the value of reality (information-in-relationship) in and across geo, eco, bio, cultural & tech networks, and across time! using a 5,000?-year-old coding structure, monetary code. Survival is a function of processing complex network relationship-value information with sufficient speed, accuracy, and power. We can't do that at these levels of complexity using an increasingly absurd & dysfunctional manner of relationship interface. In addition, our current cultural genome is inadequate for processing these levels of complexity.
We need to see monetary code in its physics / evolution context.
“The story of human intelligence starts with a universe that is capable of encoding information.” Ray Kurzweil
Code is fundamental, entropy-generated (sometimes via human constructors), physics-efficacious infrastructure for complex relationships: genetic, language (spoken, written), legal, monetary, software, etc.
Need to update our cultural genome because:
“The rule of thumb is that the complexity of the organism has to match the complexity of the environment at all scales in order to increase the likelihood of survival.” Yaneer Bar-Yam
Exponentially accelerating complexity, which includes vast gains in knowledge and tech, yields uncertainty.
“There were 5 exabytes of information created by the entire world between the dawn of civilization and 2003; now that same amount is created every two days.” Eric Schmidt, former Google CEO
Humans are asked to calibrate the value of reality (information-in-relationship) in and across geo, eco, bio, cultural & tech networks, and across time! using a 5,000?-year-old coding structure, monetary code. Survival is a function of processing complex network relationship-value information with sufficient speed, accuracy, and power. We can't do that at these levels of complexity using an increasingly absurd & dysfunctional manner of relationship interface. In addition, our current cultural genome is inadequate for processing these levels of complexity.
We need to see monetary code in its physics / evolution context.
“The story of human intelligence starts with a universe that is capable of encoding information.” Ray Kurzweil
Code is fundamental, entropy-generated (sometimes via human constructors), physics-efficacious infrastructure for complex relationships: genetic, language (spoken, written), legal, monetary, software, etc.
Need to update our cultural genome because:
“The rule of thumb is that the complexity of the organism has to match the complexity of the environment at all scales in order to increase the likelihood of survival.” Yaneer Bar-Yam
2
When were these times, when things were certain...? Obama at least sits down and thinks things through before he does them...People are worried about interest rates going up 1 or 2 % please...The media have people living their lives quarter to quarter on the edge of their seats...
3
A disheartening thing I see in American capitalism happened this past week, but not for the first time.
When employment figures looked improved, including a slight increase in wages paid, the stock market pulled back.
The market has been running with a bull market for 5 years with low interest rates created by the FED, those rates ostensibly created to increase employment. But the rates have really just made stock prices artificially high. And with companies seeking to bolster their share prices, those companies have been pursuing cost savings by reducing wages, among other things. Stock investors have not needed and not wanted good employment figures, with maybe the exception of the consumer sectors, because the higher interest rates they will bring will depress stock prices, even if only temporarily. (Higher interest rates should also mean an upbeat economy, eventually.)
At the same time, low interest rates, meant to bolster employment, have been gutting the middle class’ savings, with savings account rates lower than the rate of inflation. Low interest rates have not been producing jobs or salary increases.
Wall Street would be happier if the middle class would languish longer, because American capitalism isn’t crazy-in-love with the American middle class and its desire for wages. And American capital is the thing that controls the law-makers, not the middle class.
There almost seems to be a fatal flaw in American capitalism.
When employment figures looked improved, including a slight increase in wages paid, the stock market pulled back.
The market has been running with a bull market for 5 years with low interest rates created by the FED, those rates ostensibly created to increase employment. But the rates have really just made stock prices artificially high. And with companies seeking to bolster their share prices, those companies have been pursuing cost savings by reducing wages, among other things. Stock investors have not needed and not wanted good employment figures, with maybe the exception of the consumer sectors, because the higher interest rates they will bring will depress stock prices, even if only temporarily. (Higher interest rates should also mean an upbeat economy, eventually.)
At the same time, low interest rates, meant to bolster employment, have been gutting the middle class’ savings, with savings account rates lower than the rate of inflation. Low interest rates have not been producing jobs or salary increases.
Wall Street would be happier if the middle class would languish longer, because American capitalism isn’t crazy-in-love with the American middle class and its desire for wages. And American capital is the thing that controls the law-makers, not the middle class.
There almost seems to be a fatal flaw in American capitalism.
6
Terrific essay for which I am grateful.
2
Dr. Shiller captures the interest rate / investment zeitgeist perfectly in this piece. We're seeing a desperation among investors chasing and inflating the same equities and bonds in an effort to achieve "yield." And, yes, we need more than an accommodative Fed -- let's start with deregulating and reducing taxes in order to incentivize and unleash the "animal spirits" of entrepreneurs. What we don't need is a Obama-type big government shoving any more credit down the throats of Americans in a feeble attempt to level the playing field and rid the so-called political issue of "inequality."
1
Such an odd and persistent tic, this image of President Obama ramming a large object down some RealAmerican's throat. Something's afoot here, and it ain't politics.
2
The designated experts have been warning that the big one is coming ever since the last one came. (We can disagree whether we ever overcame the last one.) Over the past eighteen months, it seems that this chatter has become more intense. Meanwhile, although the market has been slowly grinding up, possibly due primarily to the funny money policies, everything in reality has become (or remained) somewhat stagnant.
I mention this, because a tolerance for risk is required in any endeavor. If risk intolerance becomes too great, the greater economic machinery will slow down. It appears that right now tolerance for risk is pretty low, and this may be a part of the problem.
I don't know how to instill greater confidence. But I can predict that if we don't do a better job of getting things going, when the next big one happens, and by historical cycles, we are due, what we will see is even more wealth transfer upwards than we have seen to date. When asset prices drop, those with the money, i.e., the numbers on paper, are able to buy more than they already have.
I do think that we should put some more money into fixing the roads and bridges and take some money out of the military budget. I saw once that the return on money spent on civilian projects was much greater than the return spent on military demands.
I mention this, because a tolerance for risk is required in any endeavor. If risk intolerance becomes too great, the greater economic machinery will slow down. It appears that right now tolerance for risk is pretty low, and this may be a part of the problem.
I don't know how to instill greater confidence. But I can predict that if we don't do a better job of getting things going, when the next big one happens, and by historical cycles, we are due, what we will see is even more wealth transfer upwards than we have seen to date. When asset prices drop, those with the money, i.e., the numbers on paper, are able to buy more than they already have.
I do think that we should put some more money into fixing the roads and bridges and take some money out of the military budget. I saw once that the return on money spent on civilian projects was much greater than the return spent on military demands.
4
if you can borrow from the fed for nothing and use treasuries as collateral (no risk weighting as well) and leverage up (systemic risk increasing) you can make money with them
http://davidstockmanscontracorner.com/wall-street-at-work-aggravating-ri...
http://www.wsj.com/articles/SB10001424127887323301104578255641599364884
another reason banks need to be in economic models
http://davidstockmanscontracorner.com/wall-street-at-work-aggravating-ri...
http://www.wsj.com/articles/SB10001424127887323301104578255641599364884
another reason banks need to be in economic models
1
In order to separate cause and effect, we need to take a look at what drastic fundamental changes have taken place over the past few decades. Since 1972 the price-performance of computing has improved by a factor of 100,000,000 and continue to evolve. This, in turn has enabled automation and outsourcing. CEO's are no more greedy than at any time in the past -- their primary task is to grow profits and this means they will reduce labor costs if and when technology gives them that option.
The result is that non-managerial worker wages have fallen from 52% to 42% of GDP since 1972. If workers today were to make the same portion of GDP that they did in 1972 then they would receive an additional $1.5 trillion a year or an average annual pay increase of over $10,000.
This $1.5 trillion a year is being drawn from labor and added to corporate profits, and is the primary driver of our growing income equality. Is it any wonder then that, as the economic screws are tightened on workers, we are witnessing growing demonization of the rich by the poor and the poor by the rich.
We cannot expect to see any substantial corrections to our economic system until flagging wage-based demand causes an economic collapse of similar magnitude to the early 1930's. Then oligarchs, recognizing that their assets may become worthless, will become suddenly become open to change which ensures labor's share of the economy.
The result is that non-managerial worker wages have fallen from 52% to 42% of GDP since 1972. If workers today were to make the same portion of GDP that they did in 1972 then they would receive an additional $1.5 trillion a year or an average annual pay increase of over $10,000.
This $1.5 trillion a year is being drawn from labor and added to corporate profits, and is the primary driver of our growing income equality. Is it any wonder then that, as the economic screws are tightened on workers, we are witnessing growing demonization of the rich by the poor and the poor by the rich.
We cannot expect to see any substantial corrections to our economic system until flagging wage-based demand causes an economic collapse of similar magnitude to the early 1930's. Then oligarchs, recognizing that their assets may become worthless, will become suddenly become open to change which ensures labor's share of the economy.
17
Exactly. As Dean Baker says economists like Robert Shiller find low interest rates and stagnant growth a mystery (and thus focus on "The Uncertainty Fairy") because they are bad at math. Take away demand through extractive financialization of the economy including $2 trillion in housing wealth, offshoringbof jobs and paying down private debt ( which counts towards the saving rate) and it is easy to see right through spectres and fairies to the rising inequality, low interest rates and stagnant wages and growth that result.
Don't tell the Yale professor.
Don't tell the Yale professor.
5
People voted Republican which I assume means they think the minimum wage should be lower and in fact all wages should be lower, and the government shouldn't help anyone because it only encourages them to be lazy.
Their only fear is that the government will take their guns. The problem with the economy isn't fear. Doesn't anyone believe what the markets are telling them? It's supply and demand. Big supply of money for investment and little demand for said money equals low interest rates. Pretty simple. People are consuming as much as they can, but because they have no money, we have too few buyers being chased by too many things to buy, which leads to few investment opportunities.
Their only fear is that the government will take their guns. The problem with the economy isn't fear. Doesn't anyone believe what the markets are telling them? It's supply and demand. Big supply of money for investment and little demand for said money equals low interest rates. Pretty simple. People are consuming as much as they can, but because they have no money, we have too few buyers being chased by too many things to buy, which leads to few investment opportunities.
10
Surely I"m not the only individual whose response to uncertainty was to aggressively pay off debt. I locked in a guaranteed "return" on my "investment" with the hard-to-price bonus of a good night's sleep, night after night.
13
Personal Investment actions presume an ability to predict the future. Everyone understands this is impossible. So for eternity the future will be uncertain and the investor will only be rewarded for taking a risk of guessing incorrectly. The only sane strategy is to be prudent and avoid being greedy. Make risk your friend and depend on the power of time to dampen short term oscillations due to speculation, anxiety, and crowd behavior. As Keynes said about the very long term: chill out , your dead anyway.
1
You want to know why people are afraid? There is no security anymore! No pensions! Your home's value---Poof! Your retirement savings careen up and down every decade and if you do not catch the wave at the right moment when you retire.... Wipeout! And now to put icing on the cake, the ONE THING that people thought they could count on, Social Security, is the subject of "entitlement reform" talk. This causes Fear in most people who do not have 10X their earnings in savings. And I mean, really, who has > 10X their earnings in savings? Oh yeah, the 1%. So everyone is saving and not spending. What to do with the savings? Buy assets! There is too much fear, too much savings, and not enough spending today. Since the 1% captures most of the savings, there is a glut of capital and pathetic interest rates.
We need to strengthen social security and not "reform" it. We need to do what we can to strengthen and stabilize retirement security. We need to give people greater job security so people can enjoy life, spend their money and grow the economy.
We need to strengthen social security and not "reform" it. We need to do what we can to strengthen and stabilize retirement security. We need to give people greater job security so people can enjoy life, spend their money and grow the economy.
25
I greatly admire Professor Shiller, but his pessimism, not so much about the future but about our inability to alter the future which is implicit in this short essay (prepare for the worst because there's nothing that can be done to avoid it), is nothing less than a surrender to those who insist there's nothing that government can do to make the future better, not fiscal stimulus, not monetary stimulus, nothing. His colleague James Tobin never surrendered. And Shiller shouldn't either. I've watched Shiller's lectures in finance at Yale many times on i-tunes university (there are two different years of classes, one during the financial crisis and one several years later), and the one lesson he taught his students that really stuck with me is this (I'm paraphrasing): in a perfect world all risks would be shared, the per capita cost of which would be nominal and the effect of which would be a much more efficient use of scarce resources and a much higher rate of economic growth and well-being. In a perfect world.
3
“One puzzle is that many people are willing to lock up their savings at such paltry rates for decades .”
“When rates are this low, there may seem to be little incentive for people to save”.
In other words, if interest rates are low,people shouldn’t save?Where is the logic in that? It’s better to save money at 0% interest than to have zero savings.
In terms of “locking up money at paltry rates”such as 30 year T -bill at 2.25%- it’s truly hard to believe that anyone in his or her right mind would do so.
“When rates are this low, there may seem to be little incentive for people to save”.
In other words, if interest rates are low,people shouldn’t save?Where is the logic in that? It’s better to save money at 0% interest than to have zero savings.
In terms of “locking up money at paltry rates”such as 30 year T -bill at 2.25%- it’s truly hard to believe that anyone in his or her right mind would do so.
4
There seemed to be a time when you could count on, oh, 5 percent interest on a CD. When having savings helped you. But no. My mother, for example, on the sale of her modest home of 40 years, once earned something, now earns nothing. So what can you count on? Not much.
3
Who wouldn't be fearful in these times. Back many years ago, the company I was working for announced a big job layoff. Everyone figured our stock would go down with layoffs showing that the company wasn't thriving and was having to reduce jobs because we weren't doing very well. The stock went way up. From that day on I knew the average person working in America was in real trouble.
What was bad for them is good for the Stock Market.
What was bad for them is good for the Stock Market.
14
I often comment that excessive inequality is self-correcting, absent intervention. How do I know? History. Unfortunately, the self-correction can be extremely painful and cause social disruption that result in unspeakable horrors. Hence, intervention in the event of a financial crisis is accepted as the correct policy even if (or because) it prevents the correction. But not by everyone. A growing movement, referred to as the Austrian School, abhors intervention. Are these a few cranks? Well, they may be cranks but they are not few. Anyone interested should read the recent interview of Peter Boettke, a leader of the movement in America. It's chilling. And Boettke isn't some obscure economics professor. He teaches at a state university,in a department funded by several well-known billionaires who, I suspect, have no idea the consequences of what their star benefactor is teaching. My point is that it's a mistake to assume that governments and central banks will always intervene in a financial crisis, and that we better address the causes of recurring financial crises soon.
4
I do not know how personal savings rate as a fraction of income is calculated, but I suspect it is flawed. If it i an average, like average income you will get high incomes altering the data making it appear higher. You need a metric like median or done by quartiles. I suspect as incomes have dropped more people are saving less, but the much higher income groups are saving much more A small percent saving much more can offset the fact that the vast majority don't have the ability to save. Median Vs average income .
You say "many people are willing to lock in paltry rates for decades" . But that also isn't true. The vast majority aren't the investor class and contribute little to where interest rates go. remember the bottom 80% own something like 10% of stocks. Most people can't purchase the securities that lock in there paltry rates.
I like shiller, but he's using the flawed metrics many economists use. esp the interest rate. That's the "investor" class and the top 1% control about 40% of the market, the bottom 80% are effectively no counted because they matter so little. what people get from savings accounts is set by the federal reserve. The majority have zero choices when it comes to these sorts of things. an analysis of asset prices really reflects a very small number of relative decision makers who have choices
You say "many people are willing to lock in paltry rates for decades" . But that also isn't true. The vast majority aren't the investor class and contribute little to where interest rates go. remember the bottom 80% own something like 10% of stocks. Most people can't purchase the securities that lock in there paltry rates.
I like shiller, but he's using the flawed metrics many economists use. esp the interest rate. That's the "investor" class and the top 1% control about 40% of the market, the bottom 80% are effectively no counted because they matter so little. what people get from savings accounts is set by the federal reserve. The majority have zero choices when it comes to these sorts of things. an analysis of asset prices really reflects a very small number of relative decision makers who have choices
9
Oh, the overall tenor of the article is absolutely correct despite by being critical of misleading metrics that are flawed. the solution involves growing the economy without excess credit creation, and it's something I have been saying for years
Overall very good article, and i would like to point out the traditional economic theory ignores '"credit" because one person's liability is another' asset and they cancel out.
That's simplistic and clearly not correct.
Overall very good article, and i would like to point out the traditional economic theory ignores '"credit" because one person's liability is another' asset and they cancel out.
That's simplistic and clearly not correct.
1
The best one can do is be flexible and willing to change and adapt in both jobs and finances. I recall getting over 10% interest dependent assets during the Reagan era but 30 year mortgages were also over 10% at the time, but now, not so much. For our liquid assets, rebalancing regularly eliminates much of any anxiety. With the prospect of higher interest rates, moving to the short end of the curve with interest dependent assets such as bonds is a solution. At least in this household, there is no more anxiety than usual.
I'm sure it's been said enough times that this note won't even be published but, all the easing and all the efforts to revive the economy ended up enriching the coffers of the already economically elite. The one percent.
On the other hand, look at the millions of baby boomers and retirees who are earning incredibly paltry returns as retirement incomes. Who lost out on that one, the rich? No, everyone else. Should we call it "Democracy in Action"?
On the other hand, look at the millions of baby boomers and retirees who are earning incredibly paltry returns as retirement incomes. Who lost out on that one, the rich? No, everyone else. Should we call it "Democracy in Action"?
13
The policy outrage of the last 15 years has been the intentional sacrifice of the old timers in favor of Citibank. So Shiller just rambles on instead of making a serious contribution to role of anxiety of tens of millions who have been crushed.
It is not difficult to find a typical old timer whose spendable income has been cut by 25% or more by Bernanke and the rest of them. Now THAT matters.
Are they asked about it by the fawning financial press still giddy about being in the room? No!
I defy Yellen to explain at the next meeting why hosing the retired is good policy.
It is not difficult to find a typical old timer whose spendable income has been cut by 25% or more by Bernanke and the rest of them. Now THAT matters.
Are they asked about it by the fawning financial press still giddy about being in the room? No!
I defy Yellen to explain at the next meeting why hosing the retired is good policy.
8
Fiscal stimulus would have been better.
The Fed has relied on trickle down effects, but there are only so many jobs to be had building yachts and selling fancy watches to the rich. The easy money pools in the (as-often as not overseas) investments of the well-off. Trickle down has always been baloney but it's especially bad baloney in a global economy.
The Fed has relied on trickle down effects, but there are only so many jobs to be had building yachts and selling fancy watches to the rich. The easy money pools in the (as-often as not overseas) investments of the well-off. Trickle down has always been baloney but it's especially bad baloney in a global economy.
5
What is fiscal stimulus? Taking a $1 from 1 person and giving it to another to spend = no net change. Borrowing does the same thing only the linkage is obscure because it goes through the debt market, not to mention we are in no position to borrow more.
Governments don't produce anything - they just move the existing around and trick you into thinking there is a net change to the good.
No one ever describes where the money comes from and the implications of that theft, including you.
Governments don't produce anything - they just move the existing around and trick you into thinking there is a net change to the good.
No one ever describes where the money comes from and the implications of that theft, including you.
Schiller is no doubt very bright.With that said, the more I read articles and papers by economist, my gut feeling is, economist seem dis-oriented We are definitely experiencing post WW 2. No new workable model seems capable of a model that can deal with all the many moving parts. Major transition because of exported jobs and a ever increasing fast moving digital age.Inequality is a big issue. Reality is, people who work at McDonalds will never be paid what past UAW workers were.
10
Maybe the increased atmosphere of fear is an overt manifestation of the subconcious realization that we are coming to the end of growth-based economic models as the status quo.
My feeling is that we ought to begin to take economists like Herman Daly on the professional side and Robert Heinberg's "The End of Growth" on the layman's side more seriously. That said, I would say there is good reason to be afraid when looking at the sorry state of the capacity of politicians to comprehend and address significant societal challenges and propose other than broadly self-serving (read: re-electable) solutions.
"Political leadership" is without a doubt one of the best illustrations of an oxymoron I can think of...
My feeling is that we ought to begin to take economists like Herman Daly on the professional side and Robert Heinberg's "The End of Growth" on the layman's side more seriously. That said, I would say there is good reason to be afraid when looking at the sorry state of the capacity of politicians to comprehend and address significant societal challenges and propose other than broadly self-serving (read: re-electable) solutions.
"Political leadership" is without a doubt one of the best illustrations of an oxymoron I can think of...
24
I think some understand the problem but many are ignorant. The problem is also that their constituencies do not understand (or do not care).
I think rates are so low for the same reasons that inflation is so low: REAL growth is non-existent. The "growth" that you see in the news is mostly asset inflation or cyclical growth (we bob up and down around a middle that never reaches decisively higher).
It has been happening since 2000: the wealth that is being created is either ephemeral (really, how much time in a day can we waste on watching ads from social media?) or the real gains are not shared widely so the broader economy itself does not really grow.
Does anyone expect some of the things that the top 1% enjoy daily are ever going to migrate down to the middle class given the sort of political atmosphere and economic thought that dominates today? Do you expect that we will gain the courage to cuff some of the bad actors that have ruined life for millions or have broken the law but somehow always gets to escape to another country for hiding?
The dynamic is on a very large scale similar to what happens when a comfortable middle class neighborhood gentrifies: the people who once live there are forced out in less desirable places dominated by crime to live while the wealthy transform it into their own safe playground. If you really think about it, this is what has happened to the American economy over the past generation and puts it at a scale that most people can comprehend.
I think rates are so low for the same reasons that inflation is so low: REAL growth is non-existent. The "growth" that you see in the news is mostly asset inflation or cyclical growth (we bob up and down around a middle that never reaches decisively higher).
It has been happening since 2000: the wealth that is being created is either ephemeral (really, how much time in a day can we waste on watching ads from social media?) or the real gains are not shared widely so the broader economy itself does not really grow.
Does anyone expect some of the things that the top 1% enjoy daily are ever going to migrate down to the middle class given the sort of political atmosphere and economic thought that dominates today? Do you expect that we will gain the courage to cuff some of the bad actors that have ruined life for millions or have broken the law but somehow always gets to escape to another country for hiding?
The dynamic is on a very large scale similar to what happens when a comfortable middle class neighborhood gentrifies: the people who once live there are forced out in less desirable places dominated by crime to live while the wealthy transform it into their own safe playground. If you really think about it, this is what has happened to the American economy over the past generation and puts it at a scale that most people can comprehend.
7
the malls are packed...
Whenever any economist speaks of the American economy he is effectively speaking of the post WWII economy that saw the unprecedented growth of the middle class. The wealth of that class was established by the vast increase in GDP during the war and following it from the reconstruction of Europe and of japan. This was further sustained by defense spending arising out of the Cold War.
This unique period in America's history ended with the collapse of the USSR. Simultaneously we have seen manufacturing moving offshore while that component that remained gradually became overwhelmed by cheaper foreign versions of equal or better quality. That is why the future of jobs here is mostly in services, many of which are and have always been lower paying.
Even extraordinarily rich companies like Apple generate relatively few jobs here while manufacturing everything in China. This is why economic equality will increase for which redistribution of monies will only create a non-working resentful class. If all this sounds familiar it should.
There was another period in Western history when 1% of the populous owned most everything. It was the historical period that ended with the French Revolution.
Perhaps one day soon all those folks walking around staring into their iPods checking messages will come upon one that says, "it's over." They will suddenly look up and realize its true.
This unique period in America's history ended with the collapse of the USSR. Simultaneously we have seen manufacturing moving offshore while that component that remained gradually became overwhelmed by cheaper foreign versions of equal or better quality. That is why the future of jobs here is mostly in services, many of which are and have always been lower paying.
Even extraordinarily rich companies like Apple generate relatively few jobs here while manufacturing everything in China. This is why economic equality will increase for which redistribution of monies will only create a non-working resentful class. If all this sounds familiar it should.
There was another period in Western history when 1% of the populous owned most everything. It was the historical period that ended with the French Revolution.
Perhaps one day soon all those folks walking around staring into their iPods checking messages will come upon one that says, "it's over." They will suddenly look up and realize its true.
23
Bill Gates suggested a replacement of the payroll taxes as the best way to encourage jobs and increase salaries. A small 4% VAT and elimination of some business tax expenditures could easily replace the revenue. This revenue neutral tax reform would restore the economy from the bottom up without harming those at the top. Even if the share of wealth for the top 10% decreases from 75% to 73% over a decade the 73% would be of a larger economy. If the poorer half (62 million families) expand their wealth from 1% to 3% the demand for excessive consumer will be offset.
2
What your suggestion and Gates' doesn't address is the historically low inflation rate in spite of historically low loan interest rates.
We are hovering around the prospect of deflation because demand is low. When more money is thrown at people they are not spending it but putting it away because they are more concerned about their jobs instead of acquiring more unneeded things.
The old loose money paradigm that has served us so well for decades just doesn't work like it used to and until it does, get used to 2% GDP annual growth with occasional dips into negative territory along with a "real" unemployment rate of 10% (U-6).
We are hovering around the prospect of deflation because demand is low. When more money is thrown at people they are not spending it but putting it away because they are more concerned about their jobs instead of acquiring more unneeded things.
The old loose money paradigm that has served us so well for decades just doesn't work like it used to and until it does, get used to 2% GDP annual growth with occasional dips into negative territory along with a "real" unemployment rate of 10% (U-6).
5
I find it interesting that the one country (America) that fought a war to escape the rotten aristocracies of Old Europe is now itself stuck in the same boat. Meanwhile, Old Europe which had learned the lesson of those 18th and 19th century wars and tried to build a more just society after WWII are starting to slide back into the swamp from which they came.
All of the talk about monetary policy and debt ratios misses the real point. It does not solve the fundamental problem of corrupt governments run by the worst of us (the most selfish, the most Machiavellian, the most short-sighted). Such people are unable to understand that the people are the true assets of a nation. If you let them fail or fall behind, your nation will eventually fall too.
All of the talk about monetary policy and debt ratios misses the real point. It does not solve the fundamental problem of corrupt governments run by the worst of us (the most selfish, the most Machiavellian, the most short-sighted). Such people are unable to understand that the people are the true assets of a nation. If you let them fail or fall behind, your nation will eventually fall too.
2
Indeed, we should examine the income and wealth disparities and how best to structure economic policy to correct an unequal distribution of income and wealth. We have yet to adapt to equitable sharing of our overall and increasing national wealth, largely because it is held in too few hands. That group believes it has created this wealth themselves (denying the contributions of labor, public sector research, science, technological innovation, infrastructure and services) and that they alone should determine how it is allocated. We can afford and should invest in free community college education, higher minimum wages and comprehensive health care for all - critical investments in our future and our expectations. Some - particularly those well-healed - will argue this will destroy incentives to work, save, apply good financial judgement and even moral development - yet they will insist that policies allow them to pass all their wealth (taxed, low taxed and untaxed gains) to their heirs who apparently to not require incentives to become good people, moral and ethical citizens. A society that invests in its future has the expectation of a return for all - those who will be elderly in the future as well as those who will be starting and living out their lives in the future.
12
"because markets are really not very efficient" - glad to see a professor of economics say that. The near religious belief (actually, it is not 'near', it is religious) in the power and right of the marketplace among economist and policy makers would be seen as silly, except that the word 'silly' imply something with a light heart. The irrational belief in the marketplace to correct all issues and problems is both wrong and cruel.
11
Markets fail for the same reasons that any institution fails: because in the end they are not run by omniscient machines but by fallible human beings. And, even if the markets are run by high speed trading algorithms, that software was developed by human beings.
The tendency to over-simplify the world is what got us in the mess of the past generation. They were looking for a savior when none truly existed. Instead of perpetual vigilance, we got algorithms that failed.
The tendency to over-simplify the world is what got us in the mess of the past generation. They were looking for a savior when none truly existed. Instead of perpetual vigilance, we got algorithms that failed.
1
It's no wonder. We are facing the greatest uncertainty of all: catastrophic climate change. Will we act collectively to save our planet and ourselves, or will we bury our heads in the sand and await the inevitable? Either outcome requires vast change and a complete overhaul/overthrow of our current economy.
8
So interesting. The complexities of the marketplace, of economics, we hardly understand. But incorporating an analysis of the fears at play is a great step in the right direction.
As a member of the very lowest rung of the top 1 percent, I agree that anxiety about the future has pushed me deeper into cash. If assets like stocks and real estate are inflated beyond reason, then the value of cash increases as an asset class. Consider cash the asset that will rise in value as prices drop.
There is no value to society in allowing the ultra rich to continue to accumulate wealth inordinately, only distortion. It's time we recognize the value that society, culture and infrastructure add as their contribution to this wealth accumulation. Then use tax policy to redistribute this wealth for societal well being.
As a member of the very lowest rung of the top 1 percent, I agree that anxiety about the future has pushed me deeper into cash. If assets like stocks and real estate are inflated beyond reason, then the value of cash increases as an asset class. Consider cash the asset that will rise in value as prices drop.
There is no value to society in allowing the ultra rich to continue to accumulate wealth inordinately, only distortion. It's time we recognize the value that society, culture and infrastructure add as their contribution to this wealth accumulation. Then use tax policy to redistribute this wealth for societal well being.
15
How on earth does the premise of stocks and real estate being "inflated beyond reason" suggest that anxiety is high!? If stocks and real estate values were depressed, this would argue for high anxiety about the future...like in March 2009 or March 1933. Stocks booming and this is supposed to suggest high anxiety: give me a break!
2
There was a movie that came out in 2011 named In Time. It was panned because it seemed to portray another story about teenage angst by some not well respected actors. But the story was really about a great many other things but central to it all was what you stated. IMHO, it was a very clever way of saying what it had to say.
In the story, this one mogul had accumulated the ability to live 1,000,000 YEARS (so no one in his entire family ever aged). While others were constantly running out of time and dying prematurely. In the process, what happens is that their society as a whole stagnated so that those with the greatest wealth hid in their carefully guarded enclaves and refused to take risks at all.
As a result, the society slowly decayed so that a few lived like royalty and everyone else lived in misery.
In the story, this one mogul had accumulated the ability to live 1,000,000 YEARS (so no one in his entire family ever aged). While others were constantly running out of time and dying prematurely. In the process, what happens is that their society as a whole stagnated so that those with the greatest wealth hid in their carefully guarded enclaves and refused to take risks at all.
As a result, the society slowly decayed so that a few lived like royalty and everyone else lived in misery.
1
Of course there is uncertainty and anxiety, certainty and calm come through evolutionary changes not revolutionary changes. The current administration doesn't want evolutionary changes. Some like to claim ACA was similar to healthcare changes in Massachusetts. It didn't at the same time increase requirements of what health insurance had to cover AND force everyone to adopt it. ACA both increased what health insurance had to cover and and forced everyone to obtain. Consider an evolutionary approach - what if ACA had first merely expanded coverage so that everyone had minimal insurance based on state minimum requirements at the time and then incrementally increased the minimum elements the insurance had to cover?
Of course many will object that the insurance on the market prior to ACA was too little and insufficient (but they didn't admit this when they were touting "if you like your policy you can keep it"). It is a fair objection - but the disruption caused by a revolutionary approach rather than evolutionary approach leads to anxiety and concern.
And then we sit back and print money for quantitative easing which only helped the wealthy! The current administration seems intent to villainize anyone associated with banks or business rather than seek actual change. You think CEOs make too much money? Why doesn't the SEC change rules allowing more rights to shareholders? Why not allow share holders to nominate board of directors or vote on executive pay?
Of course many will object that the insurance on the market prior to ACA was too little and insufficient (but they didn't admit this when they were touting "if you like your policy you can keep it"). It is a fair objection - but the disruption caused by a revolutionary approach rather than evolutionary approach leads to anxiety and concern.
And then we sit back and print money for quantitative easing which only helped the wealthy! The current administration seems intent to villainize anyone associated with banks or business rather than seek actual change. You think CEOs make too much money? Why doesn't the SEC change rules allowing more rights to shareholders? Why not allow share holders to nominate board of directors or vote on executive pay?
The issue with your approach is that the standards vary so greatly among states (and in some states, there ARE NO STANDARDS AT ALL). Managing a state-by-state solution as required by the Republicans view of the ACA has been a nightmare. It has been a nightmare not because it is centrally implemented but because people will complain FOR THE SAKE OF COMPLAINING.
Only in the U.S. would something like the ACA would be considered controversial. In other countries, it would have simply been adopted and implemented. There would be problems and some disagreements as you would expect of any large project but the issues would eventually be resolved and things will eventually run smoothly.
But, we do not have that. Instead, we have toads hopping around trying to make the system not work and then claim that the system could never work. I don't know where the U.S. manages to find such people let alone allow them to grow into positions of power but it says a lot about our country. It is not the country that won WWII and implemented the Marshall Plan, that's for sure.
Only in the U.S. would something like the ACA would be considered controversial. In other countries, it would have simply been adopted and implemented. There would be problems and some disagreements as you would expect of any large project but the issues would eventually be resolved and things will eventually run smoothly.
But, we do not have that. Instead, we have toads hopping around trying to make the system not work and then claim that the system could never work. I don't know where the U.S. manages to find such people let alone allow them to grow into positions of power but it says a lot about our country. It is not the country that won WWII and implemented the Marshall Plan, that's for sure.
1
This article seems to assume that the ordinary private investor strongly influences the markets. I'm sure, without checking, that this is not true. Markets are controlled by large funds, that generally automate their trading, so that, if angst is the basis of the present situation, it's angst in computer software. For example, I have no desire to waste much time agonizing over the management of my savings. I invest most of them in funds, and the fund managers and their computers make the detailed decisions.
4
The effect of fear of future impacting interest rates seems plausible. The fact that a majority of the wealth belongs to people in their later years of life, and, considering that this cohort is steadily increasing as a percentage of world population, the trend may be due as much to demography as any other factor.
2
"And, because markets are not really very efficient"
That's a little like commenting, casually, "PGA players are not really very good golfers". Easy to say.
Using options, leverage and the like, immense fortunes are to be had by anyone who can find even a hint of inefficiency in global financial markets. Good luck with that, Mr. Shiller.
That's a little like commenting, casually, "PGA players are not really very good golfers". Easy to say.
Using options, leverage and the like, immense fortunes are to be had by anyone who can find even a hint of inefficiency in global financial markets. Good luck with that, Mr. Shiller.
1
Professor Shiller became famous by being an early warner of just how irrational the housing market in the US had become. His work, including this article is a continuation of his belief, quite correct by the way, that markets are not particularly rational and that bubbles and crashes are largely a result of what happens when we forget that fact.
18
Unless you can effect the nation's laws around taxation/markets, send out balloons in the media that are not true or create secretly skewed investments based upon insider information like some hedge fund managers had done and then trade on the results.
A system that allows vested interests to CREATE and then MAGNIFY the inefficiencies in the market are flawed. Crises do not happen every day. They are caused by the inflation of small market flaws which always exist into gigantic imbalances. The only way that hedge funds can make big money is if they can take advantage of gigantic imbalances (or use massive levels of leverage that are destabilizing).
But, the sort big imbalances come only once a generation (or at least they once did). Now, they happen once or twice a decade. Hmm, coincidence? I think not.
A system that allows vested interests to CREATE and then MAGNIFY the inefficiencies in the market are flawed. Crises do not happen every day. They are caused by the inflation of small market flaws which always exist into gigantic imbalances. The only way that hedge funds can make big money is if they can take advantage of gigantic imbalances (or use massive levels of leverage that are destabilizing).
But, the sort big imbalances come only once a generation (or at least they once did). Now, they happen once or twice a decade. Hmm, coincidence? I think not.
I would like to throw in my two cents for those that insist that raising the cap on Social Security taxes should be implemented in order to save the S.S. system.
Can we start taxing those that live off of their investments more than a 15 or 20% rate and leave the working folks alone? Higher income earners (spelled "workers" not investors) already pay higher federal rates on their labor wages. S.S. retirement benefits have a maximum pay-out regardless of how much one contributes so why tax them more? S.S. retirement benefit payments are disproportionately higher for the low-end wage earners than the high-end of the spectrum -- for example, one who has earned the S.S. max each year will only receive twice as much as the one who has earned one-fourth of the max each year.
I do not have a problem with the pay-out ratios as it is those that have earned less during their lifetimes that are likely to have little or no savings. But holy cow, let's find another way to shore up the S.S. fund than taking it off the hide of the working folks.
Can we start taxing those that live off of their investments more than a 15 or 20% rate and leave the working folks alone? Higher income earners (spelled "workers" not investors) already pay higher federal rates on their labor wages. S.S. retirement benefits have a maximum pay-out regardless of how much one contributes so why tax them more? S.S. retirement benefit payments are disproportionately higher for the low-end wage earners than the high-end of the spectrum -- for example, one who has earned the S.S. max each year will only receive twice as much as the one who has earned one-fourth of the max each year.
I do not have a problem with the pay-out ratios as it is those that have earned less during their lifetimes that are likely to have little or no savings. But holy cow, let's find another way to shore up the S.S. fund than taking it off the hide of the working folks.
17
Amen to that.
The root of the so-called Social Security crisis is that substantially all economic growth has gone to people who are already over the cap. Raise if - or, better yet, remove it altogether - and a growing economy will once again feed the Social Security trust fund.
As an extra bonus, eliminating the cap will allow rates to come down. That's a big benefit for working folks right there.
The root of the so-called Social Security crisis is that substantially all economic growth has gone to people who are already over the cap. Raise if - or, better yet, remove it altogether - and a growing economy will once again feed the Social Security trust fund.
As an extra bonus, eliminating the cap will allow rates to come down. That's a big benefit for working folks right there.
2
What leads you to believe that those who have income from investments aren’t working and paying into Social Security?
You are aware, I'm sure, that raising the cap on earnings would only have an effect on a worker that earns over $118,500 this year. That does not mean that anyone who earns over that is rich so who cares. Income and wealth are two quite different things.
However, that is still well over the median family income, even in New York City, and earnings at that level hardly make you poor. Moreover, under current law, anyone who earns over that amount is paying tax at a lower overall rate than anyone who earns less.
However, that is still well over the median family income, even in New York City, and earnings at that level hardly make you poor. Moreover, under current law, anyone who earns over that amount is paying tax at a lower overall rate than anyone who earns less.
4
This nation badly needs an influx of revenue into the national treasury from a graduated income tax where the more the taxpayer makes, the higher the percentage of taxes owed. This is how Clinton balanced the budget. But before we set unattainable goals that would require austerity in spending, we need to instead expand all social programs that help the vast majority of the American people.
Anpther thing that is long overdue is the repeal of the tax incentives for corporations to ship jobs overseas and to merge with foreign countries to avoid American taxes.
Anpther thing that is long overdue is the repeal of the tax incentives for corporations to ship jobs overseas and to merge with foreign countries to avoid American taxes.
15
Why do we even HAVE tax breaks for Corporations to ship jobs and factories overseas?
A Bill to eliminate such tax breaks was introduced in the Senate TWICE and killed by Republican-led Filibusters TWICE! (July 2012 and July 2014).
Yes, that is the SAME tax break that Mitt Romney said "he never heard of" in the First 2012 Presidential Debate in October 2012. It was too bad that Obama was asleep during that debate, or he could have told Mitt that 41 of his fellow Republicans (and one unneeded Democrat) in the Senate killed the Bill (S2569) that would have eliminated the tax break that Mitt "never heard of".
A Bill to eliminate such tax breaks was introduced in the Senate TWICE and killed by Republican-led Filibusters TWICE! (July 2012 and July 2014).
Yes, that is the SAME tax break that Mitt Romney said "he never heard of" in the First 2012 Presidential Debate in October 2012. It was too bad that Obama was asleep during that debate, or he could have told Mitt that 41 of his fellow Republicans (and one unneeded Democrat) in the Senate killed the Bill (S2569) that would have eliminated the tax break that Mitt "never heard of".
Margaret Thatcher famously said: "There is no such thing as society." She could not have been more wrong. Society is all we have.
As long as criminals in high places think only of plunder and themselves, society inches ever closer to collapse. I personally cannot identify with how the predatory human thinks, but these are who we are up against and nobody seems to know what to do about it.
As long as criminals in high places think only of plunder and themselves, society inches ever closer to collapse. I personally cannot identify with how the predatory human thinks, but these are who we are up against and nobody seems to know what to do about it.
26
Actually we all know what to do about it: throw the predators in jail. But that's the one thing politicians don't want to do, whether R's or D's; they need the criminals' campaign contributions. "Workers of the world, unite" got replaced by Citizens United.
They own the jails, Josh, and make the laws.
The extraordinary Randian selfishness that marks American Capitalism has created an anethical ideology in which protagonists are unburdened of any value but shareholder returns. Accordingly, it should be no wonder that the possibility of loss of common social values, (i.e., a home, college for children, a vacation, family leave, health care) rankles as it does.
The introduction of human beings as a valuable asset class might go a long way to ameliorate our angst!
S.M.E.
The introduction of human beings as a valuable asset class might go a long way to ameliorate our angst!
S.M.E.
26
If "Randian" refers to Ayn Rand, I agree. But we could use more James ('"The Amazing") Randi in our political economy.
http://www.nytimes.com/2014/11/09/magazine/the-unbelievable-skepticism-o...
http://www.nytimes.com/2014/11/09/magazine/the-unbelievable-skepticism-o...
For this article to make sense, Robert Lucas's mathematical model needs to be a model of reality, and there needs to be a comprehensible explanation of why uncertainty should push up asset prices. But the article seems to do neither.
1
Raise the drawbridges with protective tariffs.
Rig the the tax code to encourage manufacturing of durable goods.
Legislate Big Money out of politics.
Simplistic, certainly no more than a beginning, and sure to anger nations competing against our national interest, but I know I would be less uncertain about America's future and more positive about equal opportunity for Americans if our government took some concrete measures like these.
Rig the the tax code to encourage manufacturing of durable goods.
Legislate Big Money out of politics.
Simplistic, certainly no more than a beginning, and sure to anger nations competing against our national interest, but I know I would be less uncertain about America's future and more positive about equal opportunity for Americans if our government took some concrete measures like these.
12
You can't turn back the clock to an economy that is extinct and the fact is we aren't all equal and therefore can't expect equal oppotunities. The free market won't allow it. As someone raised in a low income area of Queens, NY, how can I expect the same opportunities, freedoms, experiences or rights as someone who grew up on Park Ave with ivy educated parents?
How can you expect the same rights as someone from Park Ave?!
This is gibberish, this is the USA. You have the same rights if not pocketbook!
This is gibberish, this is the USA. You have the same rights if not pocketbook!
1
Very intelligent article, imo. Anxiety and fear of the future are everywhere. In contrast to the optimism of earlier decades, almost everyone anticipates decline, many see disasters.
We all know the system can't continue. Business as usual has come to mean continuing over the cliff.
But we don't know what to do. How does a society wind down a system built on exponential growth and burning our oil and other forms of seed corn?
We all know the system can't continue. Business as usual has come to mean continuing over the cliff.
But we don't know what to do. How does a society wind down a system built on exponential growth and burning our oil and other forms of seed corn?
13
I say it's time for an ancient fable to simply things and at the same time shed some light. I will rely on the ancient story teller and sage, Aesop 620 - 564 BC
The Dog and His Reflection
A dog, whom a butcher had thrown a bone, was hurrying home with his prize. As he crossed a bridge he saw himself reflected in the quiet water. The greedy dog thought he saw another dog with a bigger bone. The dog leap at his reflection to get the other bone and ended up falling into the water. He lost his bone and after getting out of the water he realized what a stupid dog he had been.
Anxiety and uncertainty is the result of the monied class behaving like that dog. They have all the money already, we read disturbing stats every day. In the EU Brussels and Berlin insist that they be made whole despite every and any analysis that points out that there is not a more wrong approach than theirs. Some may say that it's not my money but it is my money. We're afflicted here with the same greedy forces that are intent on holding the purse strings at the very real risk of strangling them.
The monied class can afford to lose a few basis points that would open the economy so that real organic growth could occur, not the artificial stimulation needed at every turn. This .01% is more worried about the precedent that any relaxation would bring. We know their only two motivators are fear and greed. Like the dog they want the bone in their mouth and the chimera in the water.
The Dog and His Reflection
A dog, whom a butcher had thrown a bone, was hurrying home with his prize. As he crossed a bridge he saw himself reflected in the quiet water. The greedy dog thought he saw another dog with a bigger bone. The dog leap at his reflection to get the other bone and ended up falling into the water. He lost his bone and after getting out of the water he realized what a stupid dog he had been.
Anxiety and uncertainty is the result of the monied class behaving like that dog. They have all the money already, we read disturbing stats every day. In the EU Brussels and Berlin insist that they be made whole despite every and any analysis that points out that there is not a more wrong approach than theirs. Some may say that it's not my money but it is my money. We're afflicted here with the same greedy forces that are intent on holding the purse strings at the very real risk of strangling them.
The monied class can afford to lose a few basis points that would open the economy so that real organic growth could occur, not the artificial stimulation needed at every turn. This .01% is more worried about the precedent that any relaxation would bring. We know their only two motivators are fear and greed. Like the dog they want the bone in their mouth and the chimera in the water.
26
While I appreciate the fable women might disagree with you.
Lets see 620-564 BC when women might as well be sheep.
Sally Ride and Julie Payette may have a different point of view.
Don't get me wrong, I am as backwater male as they come but some times us males are the plough horses to see brilliance.
Lets see 620-564 BC when women might as well be sheep.
Sally Ride and Julie Payette may have a different point of view.
Don't get me wrong, I am as backwater male as they come but some times us males are the plough horses to see brilliance.
I sort of agree, and I hope this comment doesn't stir ire. One school of thought says that there isn't ENOUGH uncertainty these days in that "the rich" do get bailed out unfailingly (GM, banks that are "too big to fail", Greece) and debt (not just deficits) continue to rise so that the eventual interest payments owed by the government and individuals are too big to pay -- for anyone or any country. It's just barely possible that Mitt Romney was right about one thing: that GM should have been allowed to go through an organized and orderly bankruptcy while staying open for business. I'm glad he's gone from presidential politics, but maybe that idea would have been good for us all in the long run...in that it would have taught lots of us and some of the 1% that not all greedy investments (e.g., Peter Lynch hawking Fannie Mae, and bond dealers selling GM and US Steel bonds and stock) are going to be bailed out. Sorry, but maybe we should NOT all own houses.
When our democratic system is not working anymore, we wonder what will happen to our future. When supreme court issues wrong decisions for the majority and Koch brothers, a casino tycoon and other rich people spend billions for elections, we wonder what will happen in the future.
When we see stupid politicians being elected as results of supreme court decision and they make wrong decisions one after another for gun control, fiscal policy and others, we wonder what will happen to this country and us.
Lack of systemic support for the general welfare and uncertainty for future survival just in case of personal breakdown, will certainly increase our anxiety.
And yet, nobody tries to change our democratic system in spite of so many wrong decisions made by politicians, judges and bureaucrats for such a long time. This certainly make us anxious to wonder what is going on in this great country.
When we see stupid politicians being elected as results of supreme court decision and they make wrong decisions one after another for gun control, fiscal policy and others, we wonder what will happen to this country and us.
Lack of systemic support for the general welfare and uncertainty for future survival just in case of personal breakdown, will certainly increase our anxiety.
And yet, nobody tries to change our democratic system in spite of so many wrong decisions made by politicians, judges and bureaucrats for such a long time. This certainly make us anxious to wonder what is going on in this great country.
37
"Wind Surfer: And yet, nobody tries to change our democratic System in spite of so many wrong decisions made by politiicans, judges and bureaucrats..." I disagree because great changes have been deliberately made to change our democracy to the point of no democracy. I say that is what the gerrymandering of the congressional districts to the point that the President won the popular vote, but the Congressional seats were overwhelmingly "won" by the opposite party. We cannot expect to thrive as a democracy with this gerrymandered denial of true voters desires on top of the Citizen United monies e.g. Koch's 889 millions for the next election. Plenty has changed our system, and it is not in the forward thrust of a thriving country. Why is there not a real debate about whether capitalism, with its inevitable ups and downs(more stay down after) that continually causes much suffering and insecurities.
9
While you may not agree with the results of elections it is not the sign that they are wrong results. The fact is that the majority of Americans do not read the NYT or share many of its opinions, which may be unfortunate, but cannot be said to be wrong.
What is odd (and I would say wrong in an intellectual but not moral sense) is that so many voters do not vote to enforce their interest. Taxes, health care, business regulation and national spending are all places where it seems to be a gap between what is good for the majority and what is enacted.
What is odd (and I would say wrong in an intellectual but not moral sense) is that so many voters do not vote to enforce their interest. Taxes, health care, business regulation and national spending are all places where it seems to be a gap between what is good for the majority and what is enacted.
Anxiety among the masses is of benefit to the upper crust; less confident people are more pliable. When everyone and everything is a threat, nothing gets any focus. The one percenters like that. Pharmacuetical companies like that even more. Ask your doctor if "NumbTheWorry" is right for you!
Recall the comment attributed to Boss Tweed: "You can always pay half the poor people to kill the other half." That might not be literal... yet... but certainly divisive arguments and polarization are a reflection of trying to hold on to what we have... and a really convenient distraction.
Meanwhile, no point nothing percent interest rates naturally drive people to the Wall Street Casino. Low interest mortgages are useless to those who don't qualify, or who will cough up more in closing and other "costs" than the refinancing is worth.
Recall the comment attributed to Boss Tweed: "You can always pay half the poor people to kill the other half." That might not be literal... yet... but certainly divisive arguments and polarization are a reflection of trying to hold on to what we have... and a really convenient distraction.
Meanwhile, no point nothing percent interest rates naturally drive people to the Wall Street Casino. Low interest mortgages are useless to those who don't qualify, or who will cough up more in closing and other "costs" than the refinancing is worth.
17
Mr. Shiller, why don't you start another index. One that measures the 30-year fear index. Ask people, if they are afraid they may have grand children. Ask them; about our constant state of war. Terrorism . The dying environment. Our dying democracy. About engorged baby boomers demanding to suck the wealth from the future generations through uncontrolled medicade/medicare.
Yes, the rich worry me, but not as much as my neighbors.
Ask me, because I am worried.
Yes, the rich worry me, but not as much as my neighbors.
Ask me, because I am worried.
6
There is no uncertainty. The economy sucks. Recent gains have benefited the middle class only slightly. Raise the minimum wage. Dramatically. That will help.
32
It seems that the professor is saying that interest rates are low because people are anxious and uncertain. Does that make any sense? Future uncertainty commands a higher discount rate. This is standard finance theory and practice. When investors are cheerful of the future, discount rates go down and asset prices go up. The behavior of asset prices suggest that people are NOT unduly anxious about the future!
Someone please help me out because I must be missing something.
Someone please help me out because I must be missing something.
3
When people are anxious they avoid risk will take the certainty of low interest.
Higher risk is rewarded with higher return.
Higher risk is rewarded with higher return.
Andrew,
Then why are asset values of the stock market and real estate markets inflated? Obviously, investors are buying these financial and real assets to lofty price levels: how does this reflect investor anxiety?
When asset values are low, you can say investors are anxious. Can you conclude the same thing when they are high?
Then why are asset values of the stock market and real estate markets inflated? Obviously, investors are buying these financial and real assets to lofty price levels: how does this reflect investor anxiety?
When asset values are low, you can say investors are anxious. Can you conclude the same thing when they are high?
It is clear to me that there is EXCESS CAPITAL in the economy. It goes roaming around even in dark corners looking for a return. But, many of these dark corners involve practices if revealed would show the nasty underbelly strip mining companies, ruining people's pensions, taking money from the poor and destroying the air/water we need to live on.
The economy is now so skewed toward capital that the flip side of the same coin, consumption, suffers. You cannot grow forever one side of that coin without growing the other.
The economy is now so skewed toward capital that the flip side of the same coin, consumption, suffers. You cannot grow forever one side of that coin without growing the other.
There are more startups after Obamacare became effective. American workers no longer have to be chained to their jobs for health insurance. I believe Obamacare will stimulate our economic growth in the short and long run. We will get used to the fact that Obamacare creates jobs.
21
Most startups go bust,so I’m not so sure that Americans leaving their jobs because they’re not chained to their jobs is a good thing .
1
How do you know the startups were because of ACA? Were the startups because formerly employed people realized they had no hope of finding a job, so they may as well try to create their own business? Do they have the business acumen to succeed? Long term we may see ACA create jobs, for the short term the turmoil created was so disruptive many took a wait and see attitude - which means delay investing in the future - pull back and purchase bonds you know will lose lose value compared to inflation. In other words don't invest for the future, invest to keep what little you have acquired and minimize loss. An environment of hope encourages investment for new ideas and projects; the opposite of US for the last 6 years. Business and banks are now scapegoats and villains for Obama to attack. Yet wall street continues to poor money into the democratic coffers? Why? because although the democrats vilify them, the democrats give them everything they need - Quantitative easing, withhold democratic powers to stock holders and maintain the big business status quo so they maintain their wealth.
1
Fear has become ingrained in the populace at large. Maybe it stated in September 2001, maybe before, but for too long we have been told by politicians and the media that we need to be be scared. Even to the point that those with the most are fearful. As a child I was taught to fear debt by adults for whom the Great Depression loomed ever large. They are not the driving force behind today's fear and uncertainity. The military industrial complex and the gun lobby seem to be thriving, though. And they're the ones who keep telling us we need to be scared even if we don't know exactly what it is we're supposed to be scared of. No wonder there's uncertainty.
18
"We all need to think hard about the underlying mechanisms producing individual uncertainty and inequality, and we need to devise financial and insurance plans to help us to deal with whatever looms ahead."
Any suggestions? In a follow up column? Dr. Schiller seems to have assessed the weak condition of the economy quite well, but seems to avoid having any opinion about what needs to be done.
Any suggestions? In a follow up column? Dr. Schiller seems to have assessed the weak condition of the economy quite well, but seems to avoid having any opinion about what needs to be done.
5
Those at the top are worried those at the bottom will break out the pitchforks. Those at the bottom are worried if they will have a roof over their head.
Those in the middle are worried they will fall out of the middle.
The only two sectors of society who are not worried are those that make the law- politicians and those that own the law makers- bankers. Neither group is ever punished for their misdeeds. Politicians step into the revolving door and receive high paying jobs from the sectors they worked for and bankers get bailed out and now bailed in.
Those in the middle are worried they will fall out of the middle.
The only two sectors of society who are not worried are those that make the law- politicians and those that own the law makers- bankers. Neither group is ever punished for their misdeeds. Politicians step into the revolving door and receive high paying jobs from the sectors they worked for and bankers get bailed out and now bailed in.
61
Christopfe Vortlet's cartoon at the top of this article is a delight.
7
... by the way it is not just technology that is to blame for rising inequality. Greed is a bigger factor. The game is rigged.
Instead of philosophizing about Christianity a couple days ago, Obama should have been asking why he hasn't done anything to get money out of politics.
Instead of philosophizing about Christianity a couple days ago, Obama should have been asking why he hasn't done anything to get money out of politics.
16
Didn't Obama call out the Supreme Court Justices in his 2010 State of the Union Address on their favorite ruling for Citizens United?
10
I believe that only Congress can change law, not the President. I do recall Obama calling out the Supreme Court for their decision to allow unbridled campaign contributions. It was during a national address and the citizenry and the media chastised the heck out of the President for his remark.
6
I agree with the author that "we need to think hard about the underlying mechanisms producing individual uncertainty and inequality," but his argument is wrong. He doesn't show that low interest rates are bad nor that they are caused by this uncertainty. (Indeed, if the 1% own half the assets, then not everyone could be driving down interest rates.)
More importantly, we should be concerned about the uncertainty simply because it is destroying lives. It's awful to think that the economy could change so fast that in a few years (let alone in a life time) one's skill are obsolete. Or to think that no matter what one does, his children will never have a chance to prosper.
The defining social problem of our time is the way technology and greed are sorting people.
More importantly, we should be concerned about the uncertainty simply because it is destroying lives. It's awful to think that the economy could change so fast that in a few years (let alone in a life time) one's skill are obsolete. Or to think that no matter what one does, his children will never have a chance to prosper.
The defining social problem of our time is the way technology and greed are sorting people.
40
Technology does not sort people. People use technology to sort people such as who has pre-existing conditions at insurance companies. People allow these people to satisfy their greed on the misery of others.
Now anybody with good ideas can test out their ideas for new products. They no longer have to worry about losing their health insurance or getting sick when they start up their new company, which usually cannot afford insurance.
Now anybody with good ideas can test out their ideas for new products. They no longer have to worry about losing their health insurance or getting sick when they start up their new company, which usually cannot afford insurance.
5
Corporate cultures have yielded to hyper-capitalism: Companies that are profitable regularly conduct layoffs, often significant in size, creating a lot of job insecurity. Microsoft hit record revenue while also laying off 18,000 people. It's impossible to know whether your job is safe these days, and if you lose your job, you're not sure you can get a new one at the same income level. So people try to save against the uncertainty.
46
This country favors large corporations. We think being large guarantees survival, which was proven true - our infamous "too large to fail or jail".
Across the Atlantic Ocean, Germany's economic strength significantly comes from their small to mid-size companies. Their goal is not necessarily short-term maximal profit but long-term prosperity for these mostly family-own companies called Mittelstand. They are proud of their work and fighting hard to keep literally everyone's job in the great recession by raising wages to create domestic demand. They are always hiring, even foreigners with skills.
http://www.make-it-in-germany.com/en/for-qualified-professionals/working...
Across the Atlantic Ocean, Germany's economic strength significantly comes from their small to mid-size companies. Their goal is not necessarily short-term maximal profit but long-term prosperity for these mostly family-own companies called Mittelstand. They are proud of their work and fighting hard to keep literally everyone's job in the great recession by raising wages to create domestic demand. They are always hiring, even foreigners with skills.
http://www.make-it-in-germany.com/en/for-qualified-professionals/working...
6
Italy favors small companies. These small companies are also mostly family owned. They favor small business by exempting them from many regulations. These countries have the highest rate of employees working for businesses with less than 10 workers: Greece, Italy, Portugal, Mexico, and Spain. Only 11 percent of employed Americans work at companies with fewer than 10 employees while 58 percent of Greeks do.
For businesses with 50 or fewer workers, the countries with the highest rates are: Greece, Italy, Portugal, Spain, and Hungary. About one-third of employed Americans work at firms with fewer than 50 employees while 75 percent of employed Greeks do.
For businesses with 50 or fewer workers, the countries with the highest rates are: Greece, Italy, Portugal, Spain, and Hungary. About one-third of employed Americans work at firms with fewer than 50 employees while 75 percent of employed Greeks do.
2
[Quote]: "markets are really not very efficient". No they aren't, but regulated markets are. Wall Street trades dependable healthy profits, for the chance of a big lottery win.
Unfortunately they are using other peoples money to do this, and you can call it "overreaction" if you like, but at some point you suspect your cab driver may be insane, and your hand hesitates on the door handle every time you come to a stop light.
Unfortunately they are using other peoples money to do this, and you can call it "overreaction" if you like, but at some point you suspect your cab driver may be insane, and your hand hesitates on the door handle every time you come to a stop light.
22
It's not us individuals that moving the market, hardly so, even when we are uncertain and/or overreact. The Big Players are also bewildered, and make mistakes, and those move the market.
But Thanks for writing for the common man, even tho there's not much help here.
But Thanks for writing for the common man, even tho there's not much help here.
7
Eventually, even the finest engine breaks down and gets replaced. We've had a pretty smooth ride (with a few bumps) for well over 200 years. I'm reminded of how the auto industry would come up with a great new model, only to kill it's popularity with too many bells and whistles. I have no idea what the quality of the next ride will be, But it's coming. It's coming.
8
Socialism or barbarism.
3
If financial analysts, scholars, and advisers can't find reliable answers to " the underlying mechanisms producing individual uncertainty and inequality," and they can't (my retired mother-in-law was sold blue chips, WAMU and GM in 20007), what hope do we ordinary mortals have of coping? What is clearest now to us savers is that the abysmally low interest rates are still bailing out the economy, an effective tax on traditional prudence. One solution (but nobody asks me) is side and back doors to SS and to Medicare for all. Oh, and lifting the income cap on SS contributions which will make SS solvent for 70+ years. But as long as voters do not understand or vote their own economic interests (choosing to focus on personalities and single issues), such solutions are just passing fancies.
57
FDR called them the 'enemies of the peace,' those who fed on and purposefully increased anxiety among the public. Cut the working man and woman's welfare. Cut their real wages. Take away their pensions. Degrade their Social Security and Medicare. Those who promote these policy goals are the same 'enemies of the peace,' that FDR called out during his Presidency. I'll give you one guess which political party is promoting all these anxiety increasing policies. And they depend upon the media to be ignorant of how the economy really works, so their economic mythologies are never revealed for what they are; fictions. We should be running deficits now, and we should be installing modern public works that will help future generations manage their lives better. We can reduce deficits and pay down some debt (if we wish) when unemployment is 3 percent or so. Not before. Nobody owns the U.S. every dollar of which is in a U.S. bank. Our money is never 'used up.' The trade in our Treasuries is $500 billion per day. Trade in dollar denominated assets is $4 trillion per day! To say the U.S. is 'broke' or anyone owns us borders on treason it is so false.
76
We are running deficits now. No danger of that ending. Projections for reducing deficits are based on the assumption that we can cut medicare and medicaid reimbursement rates to physicians and physicians will keep on happily accepting less money. When physicians decide enough is enough - congress and the president will run back to increase reimbursement rates and the savings will be gone. Yes, we should increase gasoline taxes and increase funding for transportation infrastructure. Deficits, we have enough of those without any thinking person having the illusion they may go away.
The anxiety the 1% purportedly feel at the prospect of losing even the smallest piece of their privileged status in order to advance the more general good is about 1% of the anxieties others feel - and so warrants the world's smallest violin. Th 1% is in a position to relent to just a slight degree to the benefit of so many others, a general welfare we used to celebrate as quintessentially American. These days, not so much. And we're all the more uncertain for it.
62
Prof. Shiller,
Here is what is going on. Uncertainty is large, because the powers-that-be are not trustworthy. They are not trustworthy because they nearly never show real asset price histories, which are so VERY instructive -- see here:
http://www.showrealhist.com/yTRIAL.html
This status quo is fully consistent with 'education' as a four letter word.
Also see here:
http://patrick.net/forum/?p=1223928
Here is what is going on. Uncertainty is large, because the powers-that-be are not trustworthy. They are not trustworthy because they nearly never show real asset price histories, which are so VERY instructive -- see here:
http://www.showrealhist.com/yTRIAL.html
This status quo is fully consistent with 'education' as a four letter word.
Also see here:
http://patrick.net/forum/?p=1223928
7
The phenomena Prof. Schiller describes seem to correlate with the expansion of the financial,sector in most developed economies. Is that cause or effect?
5
cause
2
The reason people are willing to buy low-yielding long bonds at record low yields has nothing to do with uncertainty, in my opinion.
A credulous faith in the economic wisdom of central bankers coupled with a dangerous inductive inclination to extrapolate past trends may be part of it.
Add in the absence of good investment alternatives and the tendency of portfolio managers to seek job security by engaging in market group think and I think you have all the elements in place to explain what is quite obviously a bubble in the bond market.
Bubbles always pop sooner or later, you can be very certain of that.
Just a matter of time....
A credulous faith in the economic wisdom of central bankers coupled with a dangerous inductive inclination to extrapolate past trends may be part of it.
Add in the absence of good investment alternatives and the tendency of portfolio managers to seek job security by engaging in market group think and I think you have all the elements in place to explain what is quite obviously a bubble in the bond market.
Bubbles always pop sooner or later, you can be very certain of that.
Just a matter of time....
7
I think I understand what you are saying here...but what do you mean by "time?" After all, everything is "just a matter of time." So: How much time?
1
@Nathan:How much time? Why does that matter? If bonds are overvalued, I do not want to own them. Simple...
1
Surprise is a condition that occurs only in the mind. This is something we can actually prepare against, if we are willing.
The problem for the affluent is that they are not prepared, they are only aware without a sense of capacity to withstand change. They are aware that if change should result in a reversion to the mean then their condition will probably worsen. For they are better off then the average.
So all their efforts turn, not to understanding change and accepting it, but to fighting change and fearing the next big move.
The only substantial antidote to all this fear of the great unknown is to replace it with an excitement for learning. Sure, things are changing. They always do. But if we take our lead from the very young and return to a process of learning, exploring and accepting the new we will be doing as much as possible to prepare for what tomorrow always brings. Change.
The problem for the affluent is that they are not prepared, they are only aware without a sense of capacity to withstand change. They are aware that if change should result in a reversion to the mean then their condition will probably worsen. For they are better off then the average.
So all their efforts turn, not to understanding change and accepting it, but to fighting change and fearing the next big move.
The only substantial antidote to all this fear of the great unknown is to replace it with an excitement for learning. Sure, things are changing. They always do. But if we take our lead from the very young and return to a process of learning, exploring and accepting the new we will be doing as much as possible to prepare for what tomorrow always brings. Change.
16