Originally Posted by JustPassingThrough

I'm suggesting there has been a labor bubble.

Yes I know you are. But you have offered no evidence in favor other than a correlation which I pointed out does really show what you claim it does.

But even if we acknowledge some correlation, correlation is not causation. Two parameters can be very well-correlated and yet have no causal relationship to each other. The best way to test for causation this is by experiment or randomized controlled study. In this case we have a "natural" experiment. In the post 2000 era (and aburptly after 2008) a downward trend in LFPR has been underway. If excess labor was the cause of wage stagnation, then this decline in LFPR would be accomplished by a rise in real wages/salaries. It didn't happen and that invalidates the labor bubble hypothesis.

This does not mean that labor supply has no impact. All it means is it is not the dominant variable.

In actually what happened in 2008 is pretty clear. The economy fell into recession. During such times unemployment rises meaning LFPR must fall. People who have lost their income or fear they will lose they income spend less and this lowers demand. In such an enviroment businessmen will be more likley to lower offered wages or lay off even more workers if the recession persists. So one can argue that a falling LFPR rate might lead to lower wages (or at least slower growth) and even to a lower LFPR. To the extent this is true, so would be the reverse. A rising LFPR could be accompanied with rising wages (in a full-employment economy) and rising LFPR.

You can play with the idea in a number of ways, but the bottom line is labor supply is a very good explantory variable. Your idea is really an obvious one. Don't you think lots of other people would have thought of it before you? If it was valid don't you think they would have established this long before you arrived on the scene? I looked at it too, superficially it seemed sensible enough, but it didn't work. Which is probably what those who came before us found out and why your idea is not common knowledge.

Originally Posted by Brian Rush

The only thing I have to add that doesn't seem to have been stated already is that in addition to increased labor supply, there has also been reduced demand for labor. Partly this has come about through advanced technology, particularly computers. Partly it's through outsourcing. Had this not taken place, the increased supply caused by women entering the workforce would, through increased household income, have sparked increased employment (to some extent it did anyway).

I could also point to the loss of union power as a factor. This has happened through the loss of unionized manufacturing jobs coupled with a more hostile government attitude towards organized labor that has retarded organization of the new service jobs that replaced the manufacturing jobs. The problem would have been less, I believe, without that change in government policy.

In the end, though, as we move deeper into a world in which machines do more and more of the work of producing wealth, there will be no conventional solutions to the problem. Ultimately we are going to have to divorce human labor from income in our thinking, just as it is being divorced from wealth production. That's a far more radical change than opening workplace doors to women.

Exactly. Now how we make the transition is the real issue, and no one, to my knowledge, has a clue at this point.

Originally Posted by Kepi

Just wanted to point out that labor is not the total cause, but it's a major component. Money supply is another prime problem. We've exponentially increased money supply, and because in a advanced capitalist society money trends upwards, it means we've been increasing the amount of money in the economy which always finds its way upward at a much faster rate than downward.

This is true, but the only viable alternative at the moment is deflation. If we institute expansionary fiscal policies, then the money goes to paychecks. That isn’t happening, and can’t happen in the current environment. So we have a bad alternative to a disastrous one.

Originally Posted by Kepi …

Now, many folks blame the lowering of tax rates as being the primary cause of inequality, but a high tax rate doesn't return money into the hands of the people, it usually just reuses money to provide certain services, so increased inequality is guaranteed unless you use taxation to take money owned beyond a certain amount (as opposed to rate) out of circulation. So, say, if you started taxing monthly instead of annually and you taxed folks that were holding more than $1,000,000 in cash of 100% of all money above $1,000,000 and took that money completely out of circulation (or just deleted it as often these days it's not backed by any physical cash money), you'd pull incomes closer together.

Again, this will not work! As long as MV=PQ is valid, and it is in any exchange economy, then a drop in V has to be offset by a rise in M, or you get deflation. We know what that’s like. It’s the Great Depression.

Originally Posted by Kepi …

So taxation can be part of the solution, just not as it stands today. Why? Because most tax money doesn't go to labor, it goes to contractors, and the money that goes to the laborers predominantly goes to goods and services just like everyone else who doesn't have massive stockpiles of cash flowing into their accounts merely by virtue of ownership. So taxation doesn't really give the average person more money, it just gives the more services while we inflate cash right out of their pockets by printing money all the time.

Where is the inflation? Right now, there is less than the targeted 2%. This is not a theory. It’s basic data, and has been validated by several methods. Even the volatile prices that tend to be excluded from the “official inflation number” , like food and energy, are not rising in the aggregate. Here, you are simply wrong.

Originally Posted by Kepi …

However, you need both situations resolved, you need the money supply tightened and you need labor participation rates to match labor demand (and therefore the social structure or government service needs to step in and be able to provide for all those people who will never be employed).

Tighten money now, and we get a repeat of 2008, on steroids.

Originally Posted by Kepi

Just wanted to point out that labor is not the total cause, but it's a major component. Money supply is another prime problem.

These are also obvious ideas. Have you worked with them? If you do you will find they don't work to explain the problem. If these were valid don't you think other would have gotten there before you?

We've exponentially increased money supply and because in a advanced capitalist society money trends upwards,

This is not true. We had an advanced capitalist economy in postwar era and this did not happen.

a high tax rate doesn't return money into the hands of the people, it usually just reuses money to provide certain services, so increased inequality is guaranteed unless you use taxation to take money owned beyond a certain amount (as opposed to rate) out of circulation.

In the postwar era we had simultaneously, high taxes, steady increase in money supply and no rise in inequality, which should be impossible according to your hypothesis.

So, say, if you started taxing monthly instead of annually and you taxed folks that were holding more than $1,000,000 in cash of 100% of all money above $1,000,000 and took that money completely out of circulation (or just deleted it as often these days it's not backed by any physical cash money), you'd pull incomes closer together.

Rich folks would move themselves and their assets outside the country and so it would have no impact.

You could still go after their money indirectly by seizing their physical assets and devaluing the non-physical ones. The state could nationalize all the corporate assets in the US, collect the assets into in one giant mutual fund and issue non-sellable/non-transferable fund shares to all Americans as they are born (and take them back when they die).

As for debt securities, the state simply stop paying interest on all government debt. This is called debt default and it has been done before, numerous times. Perhaps you could read up in the outcomes to see if there are to your liking.


Coporate debt would have been wiped out when the cororate assets were taken. Without the income from these assets the former owners could not service the debt and it would be wiped out in overseas bankruptcy proceedings. For personal debt there is the Jubilee, an idea that is 2800 years old.

Doing these things would elminate credit. Cars could only be sold to those you had physcial currency or specie sufficient to buy it. Needless to say most sellers of expensive goods and services would cease operations because nobody has enough actual cash or gold to pay for them.

I don't think this would be a good state of affairs.

There is a reason why income is taxed. Most wealth nowadys can be moved. The state cannot confiscate wealth located in places were it is not sovereign. It can (and does) tax wealth that is physically tied to its territory (e.g. property taxes). Look up Georgism for a system built on exclusive taxation of this kind of wealth.

Income occurs when money is exchanged for a product/service. If the product/serves is physcially on US territory, then a soveriegn state can take a cut. People who want to do business in the US cannot avoid taxation on income in the way that holders of financial assets can avoid taxation on their assets.

But if you really want to understand why income inequality has risen its really very simple. All you have to do is answer the following question. If you can, you will have deep insight into the probelm, how it was caused and how best to fix it.

It is a fact that CEOs nowadays make ten times more than CEOs in the postwar period. The question is twofold: Why were CEOs in the postwar era willing to do the CEO job for a tenth the money? Were they stupid to something? If a modern CEO can get the shareholders to pay him what they do now, why couldn't the CEOs have done the same back then.

Why are today's shareholders willing to get reamed up the ass by the folks they hire to manage their assets, when their parents and grandparents wouldn't go for that.

Originally Posted by Mikebert

Yes I know you are. But you have offered no evidence in favor other than a correlation which I pointed out does really show what you claim it does.

But even if we acknowledge some correlation, correlation is not causation. Two parameters can be very well-correlated and yet have no causal relationship to each other. The best way to test for causation this is by experiment or randomized controlled study. In this case we have a "natural" experiment.

There is no such thing in economics...

In the post 2000 era (and aburptly after 2008) a downward trend in LFPR has been underway. If excess labor was the cause of wage stagnation, then this decline in LFPR would be accomplished by a rise in real wages/salaries. It didn't happen and that invalidates the labor bubble hypothesis.

This does not mean that labor supply has no impact. All it means is it is not the dominant variable.

In actually what happened in 2008 is pretty clear. The economy fell into recession. During such times unemployment rises meaning LFPR must fall. People who have lost their income or fear they will lose they income spend less and this lowers demand. In such an enviroment businessmen will be more likley to lower offered wages or lay off even more workers if the recession persists. So one can argue that a falling LFPR rate might lead to lower wages (or at least slower growth) and even to a lower LFPR. To the extent this is true, so would be the reverse. A rising LFPR could be accompanied with rising wages (in a full-employment economy) and rising LFPR.

You can play with the idea in a number of ways, but the bottom line is labor supply is a very good explantory variable. Your idea is really an obvious one. Don't you think lots of other people would have thought of it before you? If it was valid don't you think they would have established this long before you arrived on the scene? I looked at it too, superficially it seemed sensible enough, but it didn't work. Which is probably what those who came before us found out and why your idea is not common knowledge.

Your reasoning is mistaken. When a market becomes oversupplied, prices do not necessarily fall immediately. There is often a crash in the market, and prices only start to recover once excess supply is dried up. It's easy to see how that works in the case of housing. When it comes to employment, it's much more complicated. All of society has to readjust.

We know that people were financing consumer spending with home equity loans and credit card debt, and that debt bubble collapsed. The fact the government was heavily involved in subsidizing housing, and keeping interest rates artificially low, compounded the problem. The securitization of debt by Fannie Mae created a false sense of security. Things got out of hand because of an implicit federal guarantee of all of the bad loans that were made.

Nothing in economics is as simple as looking at two variables. Everything is connected, and every action has a reaction, and unintended consequences. An economic house of cards was built to support Boomers' lifestyles and social agendas. It failed.

Originally Posted by JustPassingThrough

I think this is clearly the new reality of American life, and it is a society in decline, economically, culturally, and ultimately as a whole nation. The economic problems are a result of societal changes, and the economic problems cause new societal pathologies in a vicious cycle, a downward spiral.

There is much that is accurate in the above analysis. I have said many of the same things about supply and demand. At core, technology is improving productivity. The number of farmers per acre went way down with the invention of the tractor, hasn't stopped going down since. When the tractor first came on the scene, there was a massive migration from rural to urban areas. The vacuum cleaner, washing machine, dryer, dishwasher and many similar devices freed up the mostly feminine home labor force. Much more can be done with fewer people. Up until the new deal, pressure was taken off by standardizing hours, by establishing the 40 hour work week and similar legislation. If one had a full time job, this came with benefits. While productivity has continued to improve, one gets around the 40 hours and required benefits by forcing multiple part time jobs. This is part of a grand governmental social experiment in redistributing the wealth from the poor to the wealthy.

While some of what we see is at base the same, coming from different value systems we tend to see different faults and favor different solutions. I am seeing an element of sexism in your version of the tale. It is not the women's fault that labor saving devices have freed them up to join the work force. Any solution should not presume a return to the old sexist standards that males get the best jobs first. It is not necessary to look at our current problems through dated prejudices. It is not necessary, but I sort of expect it of you.

It isn't primarily about cultural decline. Technology is changing, thus economic reality is changing. Resources are getting rarer and thus more expensive. Improved productivity means fewer hours are required to generate the necessities. The urge towards full employment (if you don't get near it you are voted out of power) results in people and resources spent on luxuries, luxuries we might not be able to afford given limited resources and damage to the ecology. The elite diverting wealth to the elite means the less than elite can't simply solve the over productivity problem by working less. One can see obvious changes required. Reverse the unraveling radical economic program shifting wealth to the elite. Cut the 40 hour work week. Find some way that FDR's proposed economic rights can be implemented. People should have a good shot at a job that provides food, shelter, medical care, education and retirement. Yes, some entertainment as well.

The good old days were ugly. The working conditions in both factory and home could be miserable. Both my grandfathers were alcoholics. One of my grandmothers was battered. As it required both a homemaker and a worker to keep a family above water, divorce was not an option, even without social pressures that forced women to accept abuse. While Prohibition is viewed today as an obviously failed experiment, there were reasons it was tried. I reject the notion that our culture over all is in decay. Life before the New Deal was often quite miserable. We are currently not perfect. We need a regeneracy and a transformation. After the regeneracy and transformation we still won't be perfect. We will have to do it all over again at least once more, four score and seven years after.

Anyway, yes, you have put your finger on some of the appropriate economic pivot points. And, yes, I will howl at some of the sexist assumptions that shift the blame and the possible solutions in crazy ways.

Originally Posted by Marx & Lennon

This is true, but the only viable alternative at the moment is deflation. If we institute expansionary fiscal policies, then the money goes to paychecks. That isn’t happening, and can’t happen in the current environment. So we have a bad alternative to a disastrous one.

The only way we can get out of this is to suffer the disaster. You can either let the structure flood and drown, or you can smash out a wall and maybe survive being flushed out the hole. So it's guaranteed nonviability vs. a chance at viability.

Originally Posted by Marx & Lennon

Again, this will not work! As long as MV=PQ is valid, and it is in any exchange economy, then a drop in V has to be offset by a rise in M, or you get deflation. We know what that’s like. It’s the Great Depression.

MV=PQ doesn't factor in liquidity or money encumbered in investments, which is where the all this excess money winds up. Also, we need a depression, and it's coming no matter which way you slice it. We should have had one in 2008, but we bailed our the wealthy instead. Now we've been trying to spin the V in the MV=PQ equation as hard as possible, but we ignored liquidity and encumbered investments which ultimately winds up raising prices. Once we artificially inflate prices through investments enough, it will be beyond capacity for most people to afford, and boom! Depression. On the otherside, if we stop our excess deluge of federal reserve funding, which we're doing because as it has been cited it's nothing but an inflation machine, boom, depression. You've got the money pressure on one side and you've got a threshold about to break on the other. Either way you slice it, it's depression time.

Originally Posted by Marx & Lennon

Where is the inflation? Right now, there is less than the targeted 2%. This is not a theory. It’s basic data, and has been validated by several methods. Even the volatile prices that tend to be excluded from the “official inflation number” , like food and energy, are not rising in the aggregate. Here, you are simply wrong.

We've changed the way we measure inflation 20 times or so over the past few decades specifically to pretend as though inflation is low. "Vilatile prices" like food and energy are sky high in comparison to their natural, non-overspeculated prices. Gas is sky high, food... I don't know where you're living but food prices have skyrocketed from 2009 and they managed to taper off in 2011, but they're still at unnaturally high price. These prices all trended heavily downward in 2008, which is how you know the prices are so unnaturally inflated.

Originally Posted by Marx & Lennon

Tighten money now, and we get a repeat of 2008, on steroids.

Firstly, great. 2008 was one of two financially profitable years I've had as an adult participating in the work force. The across the board reduction in prices made it possible to thrive in a scenario where before treading water was the only option. Foreclosures... Well, take a look.

http://www.statisticbrain.com/home-f...re-statistics/

They appear to largely be unaffected by 2008, the only year that they faltered was in 2012, and we appear to be continuing that trend in 2013, but I suspect that overall that's because banks have realized that if the person that's in that house can't afford it, it's highly unlikely there's another buyer for it.

Second, I say Bring it! It's better to just meet this thing head on, but attempt to take care of people in a massive social project sort of way instead of letting things continue on like this, letting the homeless camps slowly expand as the poor employed find themselves beyond their ability to afford a basic existence, and then lose their jobs because they don't have access to things like a shower and continuing to support a completely nonviable economy that will ultimately yield a similar set of circumstances with a much less controllable result, right?

Finally, this is a system that's not benefitting 80% of the nation. In my opinion, with numbers like that, shopping for a new economic system is the paramount priority. Pretty much this trend is as bad as it gets.

Originally Posted by Mikebert

These are also obvious ideas. Have you worked with them? If you do you will find they don't work to explain the problem. If these were valid don't you think other would have gotten there before you?


This is not true. We had an advanced capitalist economy in postwar era and this did not happen.


In the postwar era we had simultaneously, high taxes, steady increase in money supply and no rise in inequality, which should be impossible according to your hypothesis.

You're measuring only in income, not total wealth. Yes, income inequality didn't occur for a while after, but if you're saying that more income consistantly for decades didn't yield greater wealth at a faster rate, yes, I would say that's impossible.

Originally Posted by Mikebert

Rich folks would move themselves and their assets outside the country and so it would have no impact.

You could still go after their money indirectly by seizing their physical assets and devaluing the non-physical ones. The state could nationalize all the corporate assets in the US, collect the assets into in one giant mutual fund and issue non-sellable/non-transferable fund shares to all Americans as they are born (and take them back when they die).

As for debt securities, the state simply stop paying interest on all government debt. This is called debt default and it has been done before, numerous times. Perhaps you could read up in the outcomes to see if there are to your liking.


Coporate debt would have been wiped out when the cororate assets were taken. Without the income from these assets the former owners could not service the debt and it would be wiped out in overseas bankruptcy proceedings. For personal debt there is the Jubilee, an idea that is 2800 years old.

Doing these things would elminate credit. Cars could only be sold to those you had physcial currency or specie sufficient to buy it. Needless to say most sellers of expensive goods and services would cease operations because nobody has enough actual cash or gold to pay for them.

I don't think this would be a good state of affairs.

I disagree. Nobody misses the Fuggers very much, do they? All cash transactions would be difficult at first, but even the World Bank is questioning the utility of lending as anything but a wealth generating tactic soley for the wealthy. It's why they've even considering revisiting the Chicago Plan.

Originally Posted by Mikebert

There is a reason why income is taxed. Most wealth nowadys can be moved. The state cannot confiscate wealth located in places were it is not sovereign. It can (and does) tax wealth that is physically tied to its territory (e.g. property taxes). Look up Georgism for a system built on exclusive taxation of this kind of wealth.

Income occurs when money is exchanged for a product/service. If the product/serves is physcially on US territory, then a soveriegn state can take a cut. People who want to do business in the US cannot avoid taxation on income in the way that holders of financial assets can avoid taxation on their assets.

Assets can be moved, but really the people tend to stay in the same place, mostly because they feel invulnerable. Seizure of those people until you've taken the assets is a good way to handle this. Governance needs to have a way to reign in it's various wealthy classes if it's intending on it's continued existence. Either nobody is more powerful than governments or there's no need for governments or corporations become the new governments... I think I've listed those options in order of preferability at this time.

Originally Posted by Mikebert

But if you really want to understand why income inequality has risen its really very simple. All you have to do is answer the following question. If you can, you will have deep insight into the probelm, how it was caused and how best to fix it.

It is a fact that CEOs nowadays make ten times more than CEOs in the postwar period. The question is twofold: Why were CEOs in the postwar era willing to do the CEO job for a tenth the money? Were they stupid to something? If a modern CEO can get the shareholders to pay him what they do now, why couldn't the CEOs have done the same back then.

Why are today's shareholders willing to get reamed up the ass by the folks they hire to manage their assets, when their parents and grandparents wouldn't go for that.

Few things. One is the culture of individualism that Boomers tend to be drawn towards. It really does make them extremely vulnerable to being sold on some terrible things. Over priced administration is one of them.

Next up is money supply. There just wasn't enough wealth in the hands of the wealthy to be act like money is no object. They were mega-wealthy, sure, it's just that the proportional wealth has changed so much that the level of oppulance has just expanded to the point where it doesn't matter what you do as long as a minimum threshold of wealth is maintained, it will profit.

Next is that we've added tons of levels of extra management and administrative frills which are essentially vanity positions to most companies. Since the CEO has to make the most, and each level of promotion is going to demand a certain proportional wage increase. If your vanity manager isn't making a vanity manager wage, he's going to be upset, and it's not much of a vanity if it's not oppulent.

Those are my thoughts on it.

Originally Posted by Kepi

The only way we can get out of this is to suffer the disaster. You can either let the structure flood and drown, or you can smash out a wall and maybe survive being flushed out the hole. So it's guaranteed nonviability vs. a chance at viability.

OK, but neither choice is more or less likely to get us to a place where fundamental change is even possible, to say nothing of certain. If we opt for deflation, who ends up with everything? Capital. Are we going to reclaim it by force?

Originally Posted by Kepi …

MV=PQ doesn't factor in liquidity or money encumbered in investments, which is where the all this excess money winds up. Also, we need a depression, and it's coming no matter which way you slice it. We should have had one in 2008, but we bailed our the wealthy instead. Now we've been trying to spin the V in the MV=PQ equation as hard as possible, but we ignored liquidity and encumbered investments which ultimately winds up raising prices. Once we artificially inflate prices through investments enough, it will be beyond capacity for most people to afford, and boom! Depression. On the otherside, if we stop our excess deluge of federal reserve funding, which we're doing because as it has been cited it's nothing but an inflation machine, boom, depression. You've got the money pressure on one side and you've got a threshold about to break on the other. Either way you slice it, it's depression time.

There is a lot of truth here, but it doesn’t alter the fact. We need a certain and growing MV to keep deflation at bay. Did we give undue deference to capital? Absolutely! Now, we need a mechanism to fix what we opted to do by choice in 2008. Raising taxes on wealth (no special treatment of unearned income and a high inheritance tax on estates above a certain level) and high income in general (more and higher marginal rates on earnings above the low cut-off we currently have) will get us there eventually.

Other alternatives are much more aggressive and threatening, but that may be necessary if we can’t get there any other way. Let’s try taxes first. Well, let’s try changing Congress and then let’s try taxes. If that’s blocked, then things will have to get bad enough that even the most ardent right winger will have to agree … or starve.

Originally Posted by Kepi …

We've changed the way we measure inflation 20 times or so over the past few decades specifically to pretend as though inflation is low. "Volatile prices" like food and energy are sky high in comparison to their natural, non-over speculated prices. Gas is sky high, food... I don't know where you're living but food prices have skyrocketed from 2009 and they managed to taper off in 2011, but they're still at unnaturally high price. These prices all trended heavily downward in 2008, which is how you know the prices are so unnaturally inflated.

The Billion Price Project runs an inflation check totally outside the government. It’s an MIT project. It tracks CPI very closely, so I tend to trust the results. As far as prices dropping through the floor when demand did the same, why is this surprising?

Originally Posted by Kepi …

Firstly, great. 2008 was one of two financially profitable years I've had as an adult participating in the work force. The across the board reduction in prices made it possible to thrive in a scenario where before treading water was the only option. Foreclosures... Well, take a look.

http://www.statisticbrain.com/home-f...re-statistics/

They appear to largely be unaffected by 2008, the only year that they faltered was in 2012, and we appear to be continuing that trend in 2013, but I suspect that overall that's because banks have realized that if the person that's in that house can't afford it, it's highly unlikely there's another buyer for it.

Charting foreclosures is hard, because the banks got into hot water over their ham-handed tactics and backed off for a while. Then the speculators arrived in force. If your argument is that we helped those needing no help by throwing struggling homeowners under the bus, you’ll get no argument from me.

Originally Posted by Kepi …

Second, I say Bring it! It's better to just meet this thing head on, but attempt to take care of people in a massive social project sort of way instead of letting things continue on like this, letting the homeless camps slowly expand as the poor employed find themselves beyond their ability to afford a basic existence, and then lose their jobs because they don't have access to things like a shower and continuing to support a completely nonviable economy that will ultimately yield a similar set of circumstances with a much less controllable result, right?

Misery will generate a response, but it may take a lot longer than you think. I don’t think this is the answer, personally.

Originally Posted by Kepi …

Finally, this is a system that's not benefitting 80% of the nation. In my opinion, with numbers like that, shopping for a new economic system is the paramount priority. Pretty much this trend is as bad as it gets.

There are only two avenues to making the changes you suggest:

1. Install a new government by electing politicians that will support change, and throwing the others into the street.
2. A general collapse followed by a revolution is some form. It may include a violent or non-violent schism between the two philosophical camps.

Let’s try option 1 first. Obviously, Obama was a bust in this regard, so the next general election either finds us on our way, or the general collapse option starts looking inevitable … and scary.

Originally Posted by Kepi

You're measuring only in income, not total wealth. Yes, income inequality didn't occur for a while after, but if you're saying that more income consistently for decades didn't yield greater wealth at a faster rate, yes, I would say that's impossible.

Well that's what happened. Inequality actually shrank.

I disagree. Nobody misses the Fuggers very much, do they? All cash transactions would be difficult at first, but even the World Bank is questioning the utility of lending as anything but a wealth generating tactic solely for the wealthy. It's why they've even considering revisiting the Chicago Plan.

I thought you were opposed to the bankers. Now you are taking their side. You might gain some insight by looking into the history of specie money and the gold standard and see who was on each side of the debate. Here's a hint. If you look at the size of the largest American fortune over time (see Figure 7) you will see an interesting pattern.

Assets can be moved, but really the people tend to stay in the same place, mostly because they feel invulnerable. Seizure of those people until you've taken the assets is a good way to handle this.

You think the prospect of being kidnaped and held hostage is not going to encourage them to move? Long before anything like this can happen, they would see it coming. A lot of assets are offshore now. The rest would be long before you could get something like this off the ground—and the owners with it. They could go to a nuclear state that will shield them in exchange for payment, or being extremely rich they can buy whatever defense infrastructure is required to defend against the a bankrupt government.

Governance needs to have a way to reign in its various wealthy classes if it's intending on its continued existence.

Of course it does. But the method you have chosen is a bad one. Do you really think your idea is novel, that nobody has thought of it before? It is an obvious idea. And of course it has been tried before. In the 13^th century, government raised some revenue through extortion and confiscation of Jewish assets. Eventually the Jews were tapped out and they were expelled. In this case government made use of rising unpopularity of Jews to hold them hostage. Without government protection the mob might injure or kill them. In the next century, after such protection was withdrawn, Jews were slaughtered in large numbers by mobs. Rulers often seized assets of merchants who generally had ready cash to seize. Those that did this a lot saw the newly poor merchants give up or go elsewhere and get rich there. This is part of the explanation for why the Northern European nations rose relative to the South.

Few things. One is the culture of individualism that Boomers tend to be drawn towards. It really does make them extremely vulnerable to being sold on some terrible things. Overpriced administration is one of them.

Next up is money supply. There just wasn't enough wealth in the hands of the wealthy to be act like money is no object. They were mega-wealthy, sure, it's just that the proportional wealth has changed so much that the level of opulence has just expanded to the point where it doesn't matter what you do as long as a minimum threshold of wealth is maintained, it will profit.

Next is that we've added tons of levels of extra management and administrative frills which are essentially vanity positions to most companies. Since the CEO has to make the most, and each level of promotion is going to demand a certain proportional wage increase. If your vanity manager isn't making a vanity manager wage, he's going to be upset, and it's not much of a vanity if it's not opulent.

Those are my thoughts on it.

You are barking up the wrong tree. I cannot provide a link that answers the question. Besides this is the sort of thing one needs to learn on their own. I can return to it later, but first below in an interesting question that can give some insight on how it happened.

Here is a closely related question for which I can provide a single link answer.

If you go to economagic.com and look up AAA corporate rates and inflation rates in the 1940’s you will find that corporate rates were much lower than the inflation rate. Why would lenders make loans at rate for which they lose money? Well they did.

The question is how did this state of affairs happen. I asked a number of the posters on the long waves site back in 1999 about this and I got a number of answers. Write down what you think might have been the reason. Then I’ll provide the link. I’ll say when I learned the answer I almost fell off my chair.

My guess would be to keep prices as high as possible so that when the market is capable of expansion again they don't have to spend years where people are used to lower prices and unwilling to spend so significantly beyond true market value.

Also, just want to point out a difference in what I think we're talking about when we say "inequality", I'm not talking just inequality in wages, I'm also talking about long term inequality which arises simply because one person makes more than another. Even though the wage rate closed, the aquisition of wealth over time continued to ensure that a gap was still maintained. Even though it may have narrowed in pace, the fact that the average person could buy a Chevy Belair at a faster rate didn't mean they weren't still being outpaced by the extremely wealthy of their day (who still saved proportionally much more and therefore was still significantly outpacing their middle class counterparts in wealth aquisition).

Originally Posted by Kepi

Just wanted to point out that labor is not the total cause, but it's a major component. Money supply is another prime problem. We've exponentially increased money supply, and because in a advanced capitalist society money trends upwards, it means we've been increasing the amount of money in the economy which always finds it's way upward at a much faster rate than downward.

The labor supply is mostly overseas, thanks to "free trade."

I don't see any reason to think excess money necessarily finds it's way upward, unless politics and economic power is structured to benefit the wealthy. That's what the Republicans and complicit Democrats accomplished in the late 2T and 3T.

Now, many folks blame the lowering of tax rates as being the primary cause of inequality, but a high tax rate doesn't return money into the hands of the people, it usually just reuses money to provide certain services, so increased inequality is guaranteed unless you use taxation to take money owned beyond a certain amount (as opposed to rate) out of circulation. So, say, if you started taxing monthly instead of annually and you taxed folks that were holding more than $1,000,000 in cash of 100% of all money above $1,000,000 and took that money completely out of circulation (or just deleted it as often these days it's not backed by any physical cash money), you'd pull incomes closer together.

The services DO put money back into the hands of the people, and into the economy through public works, which generates jobs, which puts money back into the hands of the people too. Taking money out of circulation would just make everyone poorer.

So taxation can be part of the solution, just not as it stands today. Why? Because most tax money doesn't go to labor, it goes to contractors, and the money that goes to the laborers predominantly goes to goods and services just like everyone else who doesn't have massive stockpiles of cash flowing into their accounts merely by virtue of ownership. So taxation doesn't really give the average person more money, it just gives the more services while we inflate cash right out of their pockets by printing money all the time.

It's an interesting point you make, that taxes paid flow back into the pockets of the owners. However, tax money doesn't just go to contractors, because it also goes into social services, and people are hired to do both public and contracted jobs, and they get paid. A wider ownership of the economy is prohibited now because of our free market ideology, which has ended anti-trust suits and concentrated the economy. Taxes will keep the money flowing back from the owners to the people, to some extent, but as long as the economy is owned by a few people, at least some inequality persists.

However, you need both situations resolved, you need the money supply tightened and you need labor participation rates to match labor demand (and therefore the social structure or government service needs to step in and be able to provide for all those people who will never be employed).

The phrase in parentheses I agree with.

It's called profit magins, Eric. If people have excess money, the market will seek equalibrium by raising prices despite a need for higher prices, and the wealthy will receive that money in the form of profits. Basically, the game is automatically rigged to support the business ownership class.

And speaking as a public servant, we do a lot, but we definitely don't create jobs. Mostly government work in the US is preservationist (which is important, but it's not productive in the sense that we'll create more than we receive of anything but paper waste. We're really, really good at wasting paper).

Originally Posted by Kepi

My guess would be to keep prices as high as possible so that when the market is capable of expansion again they don't have to spend years where people are used to lower prices and unwilling to spend so significantly beyond true market value.

I don't know what you mean here. The issue was why were market interest rates lower than the inflation rate. Where were the bond vigilantes?

Originally Posted by Eric the Green

The labor supply is mostly overseas, thanks to "free trade."

Strictly speaking, the labor supply is mostly overseas thanks to "Chinese, Indians, and Indonesians having unprotected sex". If most people are overseas, that's where labor is, too.

Originally Posted by Marx & Lennon

Exactly. Now how we make the transition is the real issue, and no one, to my knowledge, has a clue at this point.

Well, the first step is recognizing the problem, and I think we are getting there.

The offshoring of jobs is not the real problem; at least not the problem that has begun to emerge and will make the earlier offshoring issue seem a relative cakewalk. In fact,the jobs most easily automated are those that have been offshored. The big deal a couple years ago about manufacturing returning to the the US has petter out as it has become apparent that returned production is being done without much increase in employment but by robots and other automation.

What the earlier problem of offshoring has done however is provided a structure that will likely help people come to terms with the much larger problem of automation; it has set the stage that: bad things (e.g. unemployment) can happen as a result of "good things" (e.g. cheaper prices); these changes are beyond our immediate means to do something about it; and they are inevitability.

I think the key will be the realization by the elites that they themselves are at risk - the system crashing will impact them as well.

Here's someone who's doing a good job of grappling with the issue -

http://www.creditwritedowns.com/2013...utomation.html

The wastefulness of automation

By Frances Coppola

Chris Dillow observes that ”one function of the welfare state is to ensure that capital gets a big supply of labour, by making eligibity for unemployment benefit conditional upon seeking work.” And despite noting that when jobs are scarce, paying some to “lie fallow” so others can work might be a good thing, he concludes that “this is certainly not in the interests of capitalists, who want a large labour supply - a desire which is buttressed by the morality of reciprocal altruism and the work ethic.” (emphasis mine). Basic Income, therefore, is not going to happen because capitalist interests, claiming the moral high ground, will ensure that it never gains political traction.

But what if capitalists DON’T want a large labour supply? What if automation means that what capitalists really want is a very small, highly skilled workforce to control the robots that do all the work? What if paying people enough to live on simply is not cost-effective compared to the running costs of robots? In short, what if the costs of automated production fall to virtually zero?

I don’t think I am dreaming this. I’ve noted previously that forcing down labour costs is one of the ways in which firms avoid the up-front costs of automation. But as automation becomes cheaper, and the efficiency gains from automation become larger, we may reach a situation where employing the majority of people at wages on which they can afford to live simply is not worthwhile. Robots can produce far more for far less.

This creates an interesting problem. The efficiency gains from automating production tend to create an abundance of products, which forces down prices. This sounds like a good thing: if goods and services are cheap and abundant, people can have whatever they want, can’t they? Well, not if they are unemployed and have no unearned income. It is all too easy to foresee a nightmare future in which people who have been supplanted by robots scratch out a living from subsistence farming on motorway verges (all other land being farmed by robots), while lorries carrying products they cannot afford to buy flash past on the way to the stores that only those lucky enough to have jobs frequent.

But it wouldn’t actually be like that. If only a small number of people can afford to buy the products produced by all these robots, then unless there is a vibrant export market for those products – which requires the majority of people in other countries to be doing rather better than merely surviving on a basic subsistence income – producers have a real problem. They would normally expect increasing efficiencies of production to push up profits, either because demand for products would be sufficient to maintain prices while production costs are falling, or because lower production costs feeding through into lower prices gave them a competitive advantage. But the efficiencies of production created by automating - including, eventually, the low-skill jobs that at the moment are too expensive to automate – may actually result in the destruction of profits. The fact is that robots are brilliant at supply, but they don’t create demand. Only humans create demand – and if the majority of humans are so poor that they can only afford basic essentials, the economy will be constrained by lack of demand, not lack of supply. There would be no scarcity of products, at least to start with….but there would be scarcity of the means to obtain them.

What does a demand-constrained economy look like? Firstly, it is deflationary for everything except basic essentials. Perversely, prices of energy, housing and basic foodstuffs may actually rise, because people will prioritise those over all other spending. But prices of non-essential goods will crash to zero, and profits will evaporate like the morning mist. At that point – when even the very low maintenance costs of robots are too high – businesses will cease production. So although the economy is generally deflationary, headline inflation could actually rise as producers of essential goods hike prices (because they can) and other goods and services disappear.

Secondly, a demand-constrained economy is sluggish. People who are struggling to survive don’t do anything that isn’t essential: they don’t go shopping except when they absolutely have to, they don’t go out for meals or other entertainment, they don’t go on holiday, they may not even visit friends or relatives much if transport is expensive, they don’t maintain their houses and they don’t buy treats for their kids. And they are tired. The physical and mental energy required just to ensure that bills are paid on time is considerable: constant worry makes creativity impossible for many people. If the majority of people are living like this, then the country is not a happy place. Few people can enjoy life in a society where the sheer challenge of surviving is so great that people even lack the energy to protest.

And thirdly, a demand-constrained economy is an unattractive place for businesses. Businesses want to make profits. If profits are impossible because no-one has any money, businesses will not want to locate themselves there, unless they plan to export their entire production. They will go to more vibrant economies where people have money to spend and the energy to pursue interests and hobbies.

So it seems that when an economy is facing deflationary pressures because jobs are disappearing, people’s real incomes are falling and efficient production is causing excessive supply that cannot be mopped up by domestic or external demand, it might be wise for governments to support demand by putting a floor under real incomes at some level above basic subsistence.

Supporting real incomes when wages are being forced down typically involves in-work benefits: supporting real incomes when unemployment is rising involves unemployment benefits. The present welfare programmes were established on the principle that only a minority of workers would need this sort of support. But the reality has turned out differently. It is not clear whether the decline of real wages over much of the last twenty years has been caused by the existence of in-work benefits, or whether in-work benefits have (unwittingly) been created to offset the decline of real wages. What is clear is that we are already well down the road towards income support for the majority, not the few, with increasing reliance on in-work benefits as the median income falls, and a minimum wage to prevent employers (with the collusion of workers who expect to be subsidised) bidding down wages to the floor. But our current income support system is a mess. It’s an unholy mixture of pensions, benefits and tax breaks, inconsistently designed and arbitrarily applied, riddled with exploitable loopholes for those who know how to play the system, and harmful sanctions for those who don’t understand the rules. And government is now making ill-considered changes to it because of its increasing cost.

Looking ahead, the only way in which such extensive outright subsidy of wages can be sustained in the longer term is through heavy taxation of profits and wealth – which rather undermines the purpose of forcing down labour costs, from capitalists’ point of view.

But the short-sighted strategy of forcing down wages to prop up profits is not the only problem. As Tomas Hirst notes, traditional “middle class” skilled production and office jobs are disappearing, but there is relative growth of low-skill, low-pay jobs, mostly insecure, part-time and short-term. These jobs are increasing because the cost of employing people to do them is lower than the cost (at present) of automating them. If the future is that the majority of people will do unskilled, insecure jobs for very low wages, then this amounts to a shocking waste of human capital. And if the more distant future is that even these jobs will eventually be automated, and working for a living will become the privilege of a few, then it is an even bigger waste.We have the most educated workforce in history, but the majority of them will have no opportunity to use their skills in satisfying and well-remunerated work.

The obvious counter to this is that people have other opportunities to use their skills, through voluntary work and hobbies. But the problem is that people who are struggling to make ends meet focus only on survival – many of them working long hours or doing multiple jobs for little pay. People who have no disposable income don’t do hobbies, because doing hobbies requires money. People who barely have enough work to meet essential living costs and don’t qualify for state benefits don’t do voluntary work, unless it has a real prospect of leading to paid work. For people on very low incomes, survival is the primary consideration. This is the lowest level in Maslow’s hierarchy of needs: when you have to do any job – however lowly – in order to eat, self-actualisation (doing things that make the best use of one’s abilities and interests), or doing things that improve one’s social standing and benefit society as a whole can only be a distant dream. Is this really what we want for the majority of people?

Without financial support to enable people to do things that use their skills and talents, hysteresis – the decline in quality of human capital when skills are not maintained – is a real threat. And the work ethic to which Chris alluded encourages this. Better to work in a drudge job for dreadful pay than live off the earnings of others. Better to accept any job, however unsuited to your abilities, than be supported by the state while seeking the right job. Better to be “responsible”, and provide for your family, than do the job you love and have been expensively trained to do. This attitude is all too prevalent, but it is fundamentally flawed. It is not good for the economy for people to be pushed into jobs that are unsuitable for them. Yes, it gets them off the unemployment statistics, for a while – but it doesn’t necessarily get them off benefits, as I’ve mentioned already. And perhaps more importantly, it doesn’t make good use of THEM. A labour market that is skewed towards unskilled jobs when the workforce is more highly skilled and educated is malfunctioning. People who are in the wrong jobs are less productive than they should be: therefore, when most of the workforce is in the wrong job, we inevitably have an economy that is less productive than it should be. But if the “right” jobs are disappearing from the private sector because of automation, what then? Human beings are part of the natural resource base of the economy. Are we to become like Shire horses, decorative relics of a past age? Or could the disappearance of production jobs and – even – many service jobs create an opportunity for human beings to invent new and exciting things to do?

It may be that even with full automation of production and robots replacing many service jobs, there will always be productive and socially useful things for human beings to do. But while we insist that everyone must work to meet basic living expenses when the labour market is bifurcating into a small number of high-skill, highly paid jobs and a much larger number of unskilled, poorly paid and insecure jobs, we are preventing people from inventing new things to do and new ways of working, and dooming ourselves to a low-growth, low-income future. It seems to me that providing people with a reasonable income while they find or create for themselves the right job (not just any job), or to enable them to do creative and/or socially useful things that are currently unpaid, or to study and develop new skills, might be a good investment for the future, improving the productivity of human capital which over the longer term benefits the economy. And it would also provide a useful counter to the tendency of firms to force down wages and design work badly when profits are under pressure. If workers can afford to refuse to do poorly paid drudge jobs, firms will have to offer something better.

If the future of production and services really does lie in automation, though, it raises questions about the future of work for the majority. I mentioned earlier that working for a living could become a privilege to which people aspire. But if most people are paid not to work, while a small number of people own and operate the machines, how will capitalism survive? After all, as Bertrand Russell points out, we are used to having a small leisure class supported by a large working class….but this would be a complete reversal of that state of affairs. There would be a very small working class and a much larger leisure class. If the owners and operators of the machines kept for themselves all the proceeds from robot production, the state could not for long provide enough income to the rest to enable them to buy the goods and services produced by the elite….but if most of the elite’s money were taken from them by the state to provide incomes for the leisure class so that they could buy goods and services, why would the elite bother to produce anything? It seems to me that fully automated production and a world in which few people work for a living is not in the interests of capitalism or of capitalists. So maybe Chris is right. Maybe capitalists DO need a large labour force. Their survival depends on it.

What's implied here is that there will eventually be recognition, by the elites as well as everyone else, that automation is sowing the seeds of destruction of capitalism and will therefore be stopped. I think that is unrealistic.

Instead, there will be increasing pressure on sustaining purchasing power by the masses to afford the production. It will likely need to be "pre-distribution" (e.g. govt buys and hands out shares of the SP500) rather than "re-distribution" but that will only go a little ways in placating conservative voices to make the transition. We are dealing with a very fundamental value of "one should reap what they sow." JPT trying to pin unemployment and low wage growth on women in the workforce, godlessness or what have you is just a sliver of the broad meme of blaming the victims - obviously people getting $135 in food stamps is keeping them home playing video games rather than being productive.

Another huge barrier to effectively dealing with the growing impact of automation, what I believe is THE issue of this Turning, is the willful ignorance of how our monetary system actually works. On this thread alone, we have examples of the usual meme of "government doesn't create jobs" which even if you don't count the millions of actual government jobs, still shows a complete lack of understanding of basic economics of demand and supply. We also have the confusing of bank reserves as money supply and while the twin memes of hyperinflation-interest rate explosions and federal govt deficit dingos coming to take our babies have both been sufficiently discredited to shut up even the most adamant of these nitwits (ZeroHedge readers being the ongoing exception) -

http://krugman.blogs.nytimes.com/201...telli-edition/

Fish in a Barrel, Rick Santelli Edition

they still leave some unspoken menace is lurking out there or that it is causing "economic instability" - whatever that suppose to mean (I think its an update on the "confidence fairies").

It's going to be a rough ride for some time to come.

Originally Posted by Kepi

It's called profit margins, Eric. If people have excess money, the market will seek equilibrium by raising prices despite a need for higher prices, and the wealthy will receive that money in the form of profits. Basically, the game is automatically rigged to support the business ownership class.

Since Reagan, it has been; much more than before. It is rigged because we the people have voted Republican, and Democrats have aped their ways too much. Capitalism without a balance from the public sector is a rigged game.

And speaking as a public servant, we do a lot, but we definitely don't create jobs. Mostly government work in the US is preservationist (which is important, but it's not productive in the sense that we'll create more than we receive of anything but paper waste. We're really, really good at wasting paper).

Government jobs are created through taxes and spending, and what government does facilitates private sector job growth, when it does the right things.

Originally Posted by Mikebert

I don't know what you mean here. The issue was why were market interest rates lower than the inflation rate. Where were the bond vigilantes?

I'm talking about market control. I mean, we're talking just before WWII to immediately following, right? The rest of the industrialized world is spending like crazy, but it's war time spending, so... I mean would you want to own anything in Europe? Anything you cold buy up stands a good chance of being bombed.

So there's no real advantage for the ruling class to have a particularly strong dollar vs other countries, and there's no real competition. Meanwhile, when you get into WWII, you're going to have all these soldiers earning combat pay and basically slugging it away, so weakening the dollar, in the long run is going to favor people who're wealthy/in control of the market.

Doesn't seem to me like there'd be any real desire for bond vigilanteism because the US is the only industrialized nation in a position to really benefit. Why? What did you wind up figuring out, because I'm looking at it and just seeing no benefit to anyone for higher interest rates.

Originally Posted by playwrite

Well, the first step is recognizing the problem, and I think we are getting there.

The offshoring of jobs is not the real problem; at least not the problem that has begun to emerge and will make the earlier offshoring issue seem a relative cakewalk. In fact,the jobs most easily automated are those that have been offshored. The big deal a couple years ago about manufacturing returning to the the US has petter out as it has become apparent that returned production is being done without much increase in employment but by robots and other automation.

And this is the final contradiction in the capitalist order that we now know -- the capitalism of the order in which capitalists decided that people who do real work need incentives to work diligently and not become sullen goldbrickers, angry revolutionaries, or potential fifth-columns for an invader. Once the proletariat has a stake in the system, the Marxist stereotype of capitalism as an economic order that serves only the capitalists breaks down. But if modern capitalism loses the connection between the proletariat as producers and as a market then the old norms become a reality and workers either become sullen goldbrickers, angry revolutionaries, or potential fifth-columns for an invader.

What the earlier problem of offshoring has done however is provided a structure that will likely help people come to terms with the much larger problem of automation; it has set the stage that: bad things (e.g. unemployment) can happen as a result of "good things" (e.g. cheaper prices); these changes are beyond our immediate means to do something about it; and they are inevitability.

Modern capitalism may be reaching a crisis of overproduction -- producing cheaply stuff that people just don't want anymore but with far fewer workers. One solution is to shrink the workforce by causing people to drop out of it -- but that will require welfare most likely paid for by high taxes on the incomes of elites or higher pay to those who remain in the workforce . But the economic elites, especially if they are out only for themselves, don't want that. They still want cheap taxes, low wages, and the freedom to treat people badly. That is regression and not progress, but under one definition such is "freedom".

I think the key will be the realization by the elites that they themselves are at risk - the system crashing will impact them as well.

But such would require conscience and humility, rare commodities in the MBA culture.

Here's someone who's doing a good job of grappling with the issue -

http://www.creditwritedowns.com/2013...utomation.html

One of the insidious practices of the 3T was the expansion of consumer credit, typically through bank credit cards. While wages stagnated, credit expanded so that some businesses could keep selling televisions, appliances, video games, VCRs (those were all very expensive around 1980), furniture, clothes, restaurant meals, and travel... basically we Americans got paid in credit instead of cash.

In the 1950s credit cards were entirely an elite phenomenon dominated by American Express, Diner's Club, and Carte Blanche -- credit cards usually used or distributed to people who did business on an expense account or who could afford long-distance air travel (and this was when travel was so expensive that being part of the "jet set" distinguished one from the rest of humanity). Air travel is now the default for people not destitute.

The common man paid cash or wrote a check (which was by economic and accounting standards "cash"). If one traveled out of the 100-mile range one bought travelers' cheques for the occasion. If one wanted credit one went through a finance company or used revolving credit at roughly 50% per annum. Credit was for buying houses or cars.

American workers effectively got paid in credit instead of cash... and the economy has been in decline on the whole since. But it was good business at the time. So it is with many economic and political innovations of a 3T. But those are one-sided.

What's implied here is that there will eventually be recognition, by the elites as well as everyone else, that automation is sowing the seeds of destruction of capitalism and will therefore be stopped. I think that is unrealistic.

That would take a revolution -- and people would show their hypocrisy by getting cars, electronic equipment, furniture, or clothes before smashing the machinery.

Instead, there will be increasing pressure on sustaining purchasing power by the masses to afford the production. It will likely need to be "pre-distribution" (e.g. govt buys and hands out shares of the SP500) rather than "re-distribution" but that will only go a little ways in placating conservative voices to make the transition. We are dealing with a very fundamental value of "one should reap what they sow." JPT trying to pin unemployment and low wage growth on women in the workforce, godlessness or what have you is just a sliver of the broad meme of blaming the victims - obviously people getting $135 in food stamps is keeping them home playing video games rather than being productive.

$135 in food stamps a month is not worth $3000 a month from honest work. I have predicted that women would be leaving the (badly) paid segment of the workforce to become full-time housekeepers/mothers. Women with good jobs that pay well and offer professional satisfaction will stay in them because such work is more satisfying than cooking, cleaning, sewing, canning, etc. Women's Liberation was intended to allow women with intelligence and talent to compete with men as attorneys, physicians, professors, architects, programmers, engineers, accountants, traveling salespeople, members of skilled trades, and the like -- and to get fair pay for professional women better pay in what had been the "female ghetto" of teaching and nursing that men usually avoided due to poor pay; it was never intended to supply cheap labor for fast-food places, domestic service, and box stores. Adult women typically worked such dreadful jobs to supplement the meager pay of an unskilled worker or put Hubby through college, get money for some consumer objective, or help Hubby through unemployment or some huge cutback in hours. Making a career out of low-paid food service, domestic service, or checker-cashiering will be as unattractive as ever.

JPT ignores that those talented women who broke into the male-dominated elite jobs themselves created prosperity. On the other side, people with ill-paid jobs can create prosperity only if they are badly exploited.

Another huge barrier to effectively dealing with the growing impact of automation, what I believe is THE issue of this Turning, is the willful ignorance of how our monetary system actually works. On this thread alone, we have examples of the usual meme of "government doesn't create jobs" which even if you don't count the millions of actual government jobs, still shows a complete lack of understanding of basic economics of demand and supply. We also have the confusing of bank reserves as money supply and while the twin memes of hyperinflation-interest rate explosions and federal govt deficit dingos coming to take our babies have both been sufficiently discredited to shut up even the most adamant of these nitwits (ZeroHedge readers being the ongoing exception) -

http://krugman.blogs.nytimes.com/201...telli-edition/




they still leave some unspoken menace is lurking out there or that it is causing "economic instability" - whatever that suppose to mean (I think its an update on the "confidence fairies").

It's going to be a rough ride for some time to come.

This is a 4T. We sowed the whirlwind in the 3T and the tornado is upon us.

Originally Posted by pbrower2a

And this is the final contradiction in the capitalist order that we now know -- the capitalism of the order in which capitalists decided that people who do real work need incentives to work diligently and not become sullen goldbrickers, angry revolutionaries, or potential fifth-columns for an invader. Once the proletariat has a stake in the system, the Marxist stereotype of capitalism as an economic order that serves only the capitalists breaks down. But if modern capitalism loses the connection between the proletariat as producers and as a market then the old norms become a reality and workers either become sullen goldbrickers, angry revolutionaries, or potential fifth-columns for an invader.

I'm thinking if left to its own, it just first collapses into a global depression. That might stir up in some countries, including our own, the desire for war to increase spending, rev up economies, and divert anger to foreigners. What's darkly ironic is that war is increasingly being automated as well and won't be the employment panacea that it has been in the past. The rebuilding after the combat is also not as robust in employment either. War(s) will help delay the inevitable, but the globe will return soon enough to the same underlying lack of purchasing power to drive economies. Recognition of the futility may unfortunately take a number of 'rinse and repeats' and a lot of unnecessary dying.

Of course there are ways to simply maintain purchasing power - most futuristic science fiction has figured this out and treated as almost a given aside. The problem is every non-combat option goes up against the mindset of what poses as the Right these days and the temporary solution of armed conflicts to raise spending is like a wet dream to them. There could very well not be any permanent solution with today’s Right still in the picture. Getting them out of the picture may be the first step.

Originally Posted by pbrower2a

Modern capitalism may be reaching a crisis of overproduction -- producing cheaply stuff that people just don't want anymore but with far fewer workers. One solution is to shrink the workforce by causing people to drop out of it -- but that will require welfare most likely paid for by high taxes on the incomes of elites or higher pay to those who remain in the workforce . But the economic elites, especially if they are out only for themselves, don't want that. They still want cheap taxes, low wages, and the freedom to treat people badly. That is regression and not progress, but under one definition such is "freedom".

The key here is that the monetary sovereign does not need revenue to pay for anything. It needs to tax in order to force the use of its currency in economic transaction. The 'revenue' from that taxing simply vanishes into the ether with keyboard stokes.

Our system is set up so that spending by the monetary sovereign comes about by issuing debt; so debt will go up with spending but all that boils down to is a spreadsheet maintain by the FED – they take total spending, subtracts out the taxes that vanished into the ether and we get this notion of a deficit that adds up to this notion of federal ‘debt.’ If people don't like that 'debt' going up on the FED's spreadsheet, then get rid of the whole notion that debt has to be issued - essentially, the fed govt returns to it actually doing the direct ‘printing money' instead of outsourcing (and greatly subsidizing) the private banking system - which, as an aside, has turned into vampire squids just once too often to trust them with the 'money printing' job any more.

The concern is then the inflation that might result from the monetary sovereign's spending (including that which maintains the purchasing power of the unemployed masses) when added to all other spending. But the bigger issue is the emerging lack of sufficient spending that will cause deflation and eventually a global depression. The two concerns balance each other out; you just need technocrats to watch and adjust the needle.

Originally Posted by pbrower2a

But such would require conscience and humility, rare commodities in the MBA culture.

Yes, and it will make the Libertarian/Anarchist/Nihilist wing go nuts over govt social engineering; and the Paleo-conservative retch over people getting purchasing power without contributing to production. I think some of this can be overcome in two important ways.

First, at the macro level, make the needle adjustment apolitical, as technically bland as possible, and striving ONLY for price stability. The political pressure will be from the Left to increase purchasing power and from the Right to maintain price stability. With the constant pressure of automation and job loss being downward, simply maintaining some technological set inflation target (the level that keeps sufficient upward pressure on businesses to increase production taking into account population growth) will maintain sufficient purchasing power. Maintaining purchasing power will keep the pressure from the Left in check; maintaining set inflation will keep the pressure from the Right in check. It's taken a few years, but only a handful of the clueless are still pounding the table about 'hyperinflation just around the corner;' who knows, maybe someday, ZeroHedge will close down it blog and the Libertarian/Anarchist/Nihilist will have to get upset about other magic pony rides.

And the second partial solution, for the Paleo-Conservatives, there is going to have to be some merit-based system for the distribution of the spending power by the monetary sovereign. I have to run so I'll just suggest folks read some socioeconomic background on how the Star Trek future works.

It can also be pointing out to both groups that without the maintenance of purchasing power by the masses, maintained by the monetary sovereign’s spending, the whole capitalist system collapses into a global depression – perhaps postponed or temporarily mitigated by occasional wars.

I'd point this out as a third means to bring the Right around to this potential long term solution. However, you know as well as I that our friends on today's Right would just smile and tell you that, for them, the notion of potential chaos and wars is better than sex.

Guess who's lobbying for a come back?

Summers was one of the key players during the Clinton years in creating the mortgage derivative bubble that ended up costing tens of millions of Americans their homes and life savings. This is the genius who, as Clinton’s Treasury secretary, supported the banking lobby’s successful effort to make the sale of unregulated bundles of mortgage securities and the phony insurance swaps that backed them perfectly legal and totally unmonitored. Those are the toxic bundles that the Federal Reserve is still unloading from the banks at a cost of trillions of dollars.

The Return of Lawrence Summers, Mr. Spectacular Failure

Tell me it’s a sick joke: Former U.S. Treasury Secretary Lawrence Summers, the guy who tops the list of those responsible for sabotaging the world’s economy, is lobbying to be the next chairman of the Federal Reserve. But no, it makes perfect sense, since Summers has long succeeded spectacularly by failing.

Why should his miserable record in the Clinton and Obama administrations hold him back from future disastrous adventures at our expense? With Ben Bernanke set to step down in January, and Obama still in deep denial over the pain and damage his former top economic adviser Summers brought to tens of millions of Americans, this darling of Wall Street has yet another shot to savage the economy.

http://www.truthdig.com/report/item/...lure_20130715/

- from the "no difference" nitwits?

Senate Dems roll the GOP and get the first ever head of the CFPB through the fillibuster barrier -

http://livewire.talkingpointsmemo.co...umer-financial

Senate Advances Cordray Nomination To Run Consumer Financial Protection Bureau

Just as a reminder -

The Consumer Financial Protection Bureau (CFPB) is the federal agency that holds primary responsibility for regulating consumer protection with regard to financial products and services in the United States. It was founded as a result of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which passed during the 111th United States Congress in response to the Late-2000s recession and financial crisis.[1] The bureau began operation on July 21, 2011. The bureau was set up by Elizabeth Warren, who was passed over for Director in favor of Richard Cordray.

Harvard Law School professor and bankruptcy expert Elizabeth Warren, who was special consultant in charge of implementing it, was removed from the running for director after Obama administration officials became convinced she "could not overcome strong Republican opposition".[7] On July 17, Cordray was selected over Warren as the head of the entire CFPB.[8] However, his nomination was immediately in jeopardy due to 44 Senate Republicans vowing to derail any nominee in order to encourage a decentralized structure to the organization. Senate Republicans had also shown a pattern of refusing to consider regulatory agency nominees, purportedly as a method of budget cutting.[9] Due to the way the legislation creating the bureau was written, without a Director the agency is not able to write new rules or supervise financial institutions other than banks

cue the crickets...

... because the "no difference" nitwits are on to their next 'outrage' of Larry Summers possible, maybe, might-be, potentially, could be a consideration as next FED chief. Oh the horror!

Originally Posted by playwrite

... because the "no difference" nitwits are on to their next 'outrage' of Larry Summers possible, maybe, might-be, potentially, could be a consideration as next FED chief. Oh the horror!

Will you feel the same if he does get nominated and confirmed?

Originally Posted by Marx & Lennon

Will you feel the same if he does get nominated and confirmed?

Not my favorite choice - that would likely be somewhat in order: Mosler (MMT); Krugman; Romer; Yellen.

But in comparison to what? If the GOP suits were in charge it would be a Larry Kudlow; if the GOP baggers, it would be Rick Santelli. If that doesn't provide one a sense of "the difference" let alone giving you a panic attack, one would have to be totally lost in magic pony land or very high on some sort of animal tranquilizer.

Originally Posted by Marx & Lennon

Will you feel the same if he does get nominated and confirmed?

Wait, I changed my mind!

I want this former Deputy to the US Treasury (also former Vice Chairman of the Board and CFO of BankAmerica Corporation, and Executive Vice President and CFO of Wells Fargo Bank), Frank N. Newman!

I read his first book -

http://www.amazon.com/Myths-that-Hol...d_sim_kstore_1

Six Myths that Hold Back America: And What America Can Learn from the Growth of China's Economy

but he's come out with a new one that is really focused on the how the monetary system works, and its very short and digestible for most -

http://www.amazon.com/Freedom-from-N...3473859&sr=8-5

Freedom from National Debt

On Kindle, the first is only $3 and the new one is only $4; he's keeping the cost down to help get this information and insight out as much as possible.

Good stuff; highly recommended even to those of us who already understand this stuff!

Here he is, of all places, on Fox Business Channel -

https://twitter.com/thepublicmoney/s...76035414351872