Whether or not this is the start is not so important, but remember it's been a while since the last one, and it's a common thing to occur in the economy, or any other ecological system.
It's also something that has an important role. Investors at some point need to decide which businesses are viable, which are not. Workers need to consider career changes. Corporate entities need to consider which projects are worthwhile. All those kinds of decisions are put to the test when not everything can be given a long horizon.
Finally, there is a twist this time. We've been running a financial experiment with few parallels over the last decade or so.
These considerations are requisite only in a capitalist system. In other economic models it is not a given that ”[i]nvestors...need to decide which businesses are viable... Workers need to consider career changes." In fact, the division between investors on the one hand and workers in the other is a large part of this problem. If we socialized gains and privatized losses (in the sense of never bailing out those agents that got themselves into bad situations), these cycles would at worst be much less severe and frequent.
>If we socialized gains and privatized losses (in the sense of never bailing out those agents that got themselves into bad situations), these cycles would at worst be much less severe and frequent.
You should look at the severity and frequency of economic cycles around the world throughout history and I bet you'd reconsider this position. Often times they lead to the collapse of entire nations or worse, war.
Is that worth it to teach an overleveraged business a lesson? Remember, "businesses" don't make these decisions in a vacuum; they are run by and consist of people. People win and people lose in every cycle (just not always the same or most deserving groups).
Yes, because they tend to go straight down the tube because when you socialize gains and privatize losses people don't do more than the minimum they can get away with.
Imagine if you distributed gains according to contribution. In our system capital is disproportionately rewarded.
IMO, carried interest should be rewarded less than labor.
I mean really, if you're just sitting there drawing interest on great grandpa's labor's capital, why is that better than getting up and going to work everyday?
Flipping the argument around: if the labour capital you earn today will be worth just as much as if you earn it tomorrow, why go the extra mile now, when you may just as well postpone it?
You are aware that just makes my point even stronger, right? Thanks to inflation, the labour capital I earn today is worth even less than the same capital earned tomorrow.
Inflation is by design. Currency derives from current, meaning: to flow. Currency is not meant to be a store of value. We don't want people to horde currency.
Bitcoin just misses the point of being a currency all together.
> Imagine if you distributed gains according to contribution.
Dividing that cake is harder than you think. The whole point of working together is to get more than people can get individually, so how do you come up with a formula?
Banks tend to have savings from everybody. If they're dumb and they lose that money, a lot of people will lose their lives' savings.
There needs to be more and better control to avoid the "dumb banks" issue, but this problem seems to be a hard one. As in: we don't even have the basic science to solve this problem.
The problem is private banks, state run banks can pull all sorts of crazy tricks. Look up how the Bank of France lends the country of France money, which makes them much more self sufficient than the US and its sale of bonds instead.
No matter what anyone tells you, the fed is not a central bank. It is much less powerful and cannot protect the economy as well as a true one.
This is the exact opposite of how things are. Due to the constraints of the monetary union, the Bank of France is not a true central bank (the ECB is) and does not have the ability to print money or otherwise set monetary policy. It absolutely cannot indefinitely finance the deficit spending.
The Fed, on the other hand, is a classic central bank and it can print money to finance the federal deficit. I think you're misinterpreting the supposed "independence" of the fed - it remains a government institution that is largely independent operationally (https://en.wikipedia.org/wiki/Independent_agencies_of_the_Un...), but it's not a private institution. In other words, it's not independent the way a private bank is; it's independent the way FTC is.
Just want to take a moment to go give a tip of the hat to all down voters and those assuming I haven't spent any time researching/thinking about/discussing this topic. Alternatively, thanks for letting me know how I'd probably have a different opinion if I only read xyz...
As somebody who worked in OEM electronics since my first real job 12 ago, I can say for sure that manufacturing in China was on a downward slope since it peaked at around 2010.
A way more alarming indicator is the receding semiconductor spendings, both net and capital, for the last 3-4 years.
This means that not only stuff generally classified as "light industry goods" going down. It means that big players in the industry expect much more "inelastic goods" like server chips, telecom gear, and other businessy/enterprise stuff to also go down.
To a lot of people, it was clear that we are heading for "a long winter" in the industry for quite some time. People saw it as early as 2016.
2016 you started seeing lead times for a whole variety of ordinary semiconductors and discretes stretch way out. I think they were expecting a recession but demand continued.
Feels like manufacturers are edgy and don't want to get caught out.
I think in 2001 3Com got stuck with a $1 Billion worth of inventory that had to be scrapped. Sales of durable goods tend to fall off a cliff during recessions.
Couldn’t this be caused by people’s waning desire to buy the next big thing and keeping their devices longer? Rushing for the latest and greatest phone doesn’t feel as exciting as it used to. Laptops and TVs last half a decade or more now too.
I believe it is more less it. People in my circles who pay big money for serious market research papers showed me some in December. There was a very visible trend of people deciding to downgrade for their third or fourth smartphone.
Here is a repost of my post from December:
> Very true, I'd say a downgrade is the trend. I saw like 10+ people deciding to switch from "superphones" down to mid-range models, and even dumbphones for their new phones. People who had ultrabooks, often try Atom based notebooks and sufraces. The key deciding factor for such people, I think, is having a good screen and bearable ergonomics (no microscopic keyboards, or batteries.) The data I have access to tell that the "big screen, small CPU," is the category with the biggest year on year growth. Atom based 14 and 15 inchers are selling like hot cookies.
> As a person working in the industry, I can say that's a very visible trend. People switch their devices more due to battery and physical wear than actual need for more features.
> In that respect, things got very "Japanised" in respect that Japanese cellphone makers are often making new models every season with no real changes other than cosmetic.
> Japan is also the only developed market where "dumbphones" ever saw few upwards trends in last
What about those billion or so people who are just starting to get the taste of consumption culture, having recently risen from poverty? Those quotes seem very Western-centric.
> recently risen from poverty? Those quotes seem very Western-centric.
Thinking of rich people in Asia only as those "nouveau riches" you see glitzing their wealth in London and Dubai is also a very Western-centric view.
You have to remember that "rich foreigner" population you see in the West is less than 1 percent of 1 percent of their home countries' populations, and those usually go apart even from their home country definition of "rich people class."
This is even more true for bigger emerging economies: in India and China, an even bigger portion of relatively rich people is completely content with staying at home, and not seeing a reason-d'etre in immigration to the West or imitating Western lifestyles.
I was recently on assignment in Kazakhstan, where I rented a room in possibly the most expensive coworking space in the country. All people around used mid-tier Taiwanese brands. And those were the people who drived LC200s or G-Wagons.
I had same feeling in Pakistan, where I met people making country's small, budding middle class. All of them successful young professionals, with nice cars, settled down families, and expensive houses in Bahria towns. None of them ever cared of not owning a 20th iPhone or a 5Ghz gaming PC. Most cared more about household appliances, and not having to obsess about specs of stuff they buy. They like practical, simple, well done stuff with some whiff of nice design taste added.
Sure, iPhones etc are luxury products. But the rising demand for low or mid-tier goods is still rising demand, and the production numbers of high-end SKUs are naturally lower and unlikely to affect total numbers that much.
But the global smartphone market is quickly saturating, if it hasn’t already, and that is bound to affect numbers. Smartphone tech is also quickly nearing the flat end of the sigmoid curve, which naturally disincentivizes upgrading.
Yes, but it’s not really the demand for high-end stuff that visibly drives factory activity, because the production numbers are so low compared to more affordable products.
Apple alone is one of the biggest HW manufacturers of n the world and they don’t really have mid/low end offerings. The numbers aren’t as low as you suggest.
> I saw like 10+ people deciding to switch from "superphones" down to mid-range models
Mid-range phones now cost as much as previous "superphones". The iPhone launched at $499($615 after inflation) and the latest iPhone XS launched at $999.
I work in the travel industry in the West and we see a significant drop in sales compared to the last 2 years. That supports your hypothesis since travel is something usually consume every year.
One of the hallmarks of a recession is also a reduction in consumption.
To iterate on that point, if people decided not to buy the latest and greatest phone, you would assume that in a growing economy they'll use the new available income to buy something else.
So then more people are saving more money. Isnt that a good thing? After all, someone else just noted that 60% of the US population has less than $1000 in savings. which is a pitiful amount.
What do we want them to do? Spend more to keep the economy going or save more so they dont live paycheck to paycheck? Seems like we cant have it both ways.
Sometimes it is, sometimes it isn't. Too much saving can cause economies to collapse just as too much spending (and debt) can.
It also depends on what you do with that saving. If you keep it under your mattress than it's as a whole bad for the economy since money (and hence value) is taken out of circulation.
But even if you invest that money than it might not be good for the economy.
In theory, if there is less consumption then there are less things that are being sold. That means companies make less profit, which in turn means investments yield less value. If enough consumption is reduced, saving could even result in negative value (I.E. you lose money).
In fact during a depression it is common for governments to artificially increase consumption to boost the economy (whether by public works or reducing interest rates).
Of course those are extremes. In reality less consumption could turn into a better and perhaps more equal economy or it could turn into a vicious cycle and a depression.
Historically speaking though, reduced consumption is usually a precursor to reduced economical growth and accompanies a depression and not the opposite.
Ok that is a theory. But again I am asking: should more people be spending more instead of saving more? Given more than 60% of americans have less than $1000 in savings.
you're asking the wrong question. If you die, then it doesn't matter how much money you have. The problem is living.
If you're living and you have No money, then it really really sucks (at least in the current day, the way everything is made you can't do anything without money, can't even have a home and live in peace without money)
It is not a given. Numbers differ depending on what you count as savings. Closest to your estimate is "29% of households have less than $1,000 saved."[1]
Close to 60% of consumer spending is on housing, transportation, and healthcare [1]. Whether by choice or market forces, growth in those categories exceeds "other" categories. Savings -- at least in 2017, the last year I have data for -- turned negative.
Considering housing by itself is over 20% of spending, and that >60% of the of population has fixed spending (either own their house outright, have an existing mortgage, are under rent control, or are homeless and don't live in shelters) that only marginally increases in cost per year -- it is STARTLING to me that spending as a whole is growing by 5.3%. Spending on rent only grew by 3.3% and that is largely NOT fixed. Spending on housing grew by 10.4%!!! And almost 80% of that category is fixed!!! It's insane! That means, when people buy new houses, they are spending WAY more on housing than they were before. And it can't be more clear, really. 65% of home buyers are essentially "trading" homes -- that is selling their existing to buy another. If they make up the majority of purchasers, and prices are up 10.4% -- they're likely spending more on housing. A lot more!
I'm no economist, but that seems to have every indication of speculation to me.
I think you misunderstand "growth" as wall-street profits. The world GDP today is $80T. If you divide that by world's working population (which is ~65% of total population), you will arrive at about $9/hr wage rate for average human. The growth is the improvement in value of time for an average human being. This is obviously very broad view because returns are extremely unevenly distributed but when GDP grows, many people benefit by having their standard of life elevated by that little bump. Continuous growth is what led to dramatic reduction in massive poverty in India and China compared to 1970s and now also starting to take place in Africa. There is most definitely need for continuous growth.
What's interesting is that you don't follow your own reasoning to it's almost completely Marxist end: continuous growth is only necessary _because of_ the extremely uneven distribution of wealth, and it follows that the need for continuous growth is then _exacerbated_ by the continuous increase in income disparity.
"(...) Beginning in the 1970s, economic growth slowed and the income gap widened. Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly. The concentration of income at the very top of the distribution rose to levels last seen 90 years ago".[1]
Income disparity and need for continuous growth are not strictly dependent on each other. Assume that everyone was given exactly equal portion of global GDP. This will still end up everyone at $9/hr. While this might be above poverty line, no one would be able to afford virtually any expensive technological advances. The bottom line is that current total world GDP is not sufficient to experience full technological advances by all humans which calls for further growth.
> When it gets down to it–we're talking trade balances here–once we've brain-drained all our technology into other countries, once things have evened out, they're making cars in Bolivia and microwaves in Tadzhikistan and selling them here–once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel–once the Invisible Hand has taken all those historical inequities and smeared them out into a broad global layer of what a Pakistani bricklayer would consider to be prosperity–y'know what? There's only four things we do better than anyone else: music, movies, microcode (software), high-speed pizza delivery.
> and it follows that the need for continuous growth is then _exacerbated_ by the continuous increase in income disparity.
Not necessarily, not only is growth not bound to income disparity; once people's basic needs are meet (health care, minimum living benefits while out of job), the disparity is no longer a humanitarian issue.
More yet, what today goes to middle class in most developed and developing countries used to be the best upper class could get. There is a lot that can be done, of course, but the general state of humanity is on an upwards trend with economy.
No, that reasoning would hold only if the total amount of resources to divide between people would be static. That is not the case and so growth is good.
No, the need for growth is not related to uneven distribution. You can have perfectly even distribution of a really unproductive economy and everyone will be just as poor.
If we want to get enough food, shelter, and medicine for the population of the world to just not be in the brink of starvation, homelessness and death from simple diseases, we need more economic growth.
The economic output of a society is independent of the wealth distribution mechanisms. We wouldn’t magically gain all of the output we needed by just switching to socialism.
A simple example is a workforce building houses without tools and a workforce building houses with tools. The latter will have more economic output than the former and will be better for society overall, regardless of what share of the profits the workers get.
My interpretation of the parent was that there is some hypothetical point at which basic needs (whatever they are) of all humans are satisfied and additional growth is about more comfort/less work. At that point one could in principle stop with growth. And with very skewed distribution, this hypothetical point is way further into the future than with even distribution.
That sounds like "trickle down economy". I.E. the idea that when the top capital experiences growth it manifests in growth for working and poor people.
While it does to some degree, it's rather debunked as I understand it.
At the current rate 9$/hr on average for Africa would mean a massive increase in standard of living, so you could achieve the same goal you imply by better distribution of wealth without growth (though that has it's own problems).
What I'm trying to say is that continuous growth isn't necessary to improve standard of living.
Besides history has shown us that growth isn't continuous, rather it's cyclic with a general upward trend.
It's more like humanity is playing a growth-sum game. If growth is positive then people can improve their lot without reducing someone else's, which creates all sorts of scenarios where it's rational to cooperate, making things better for everyone. If growth is at or below zero, then people have no incentive to work together except to defeat other people.
I like the theory, but I'm curious how climate change as a prisoners dilemma would play into your hypothesis. Optimizing finance rather than the environmental externality... Maybe we just don't see how it's in our best interest to cooperate?
These days, Africans might have no running water but they have mobile phones. Sounds like a (slight) increase in the standard of living. Definitely "trickle down", maybe not "economy" but at least "technology" (which is what ultimately counts on the long run - we don't care who was rich in Ancient Greece, but we do care about their technology).
This is an incredibly blinkered viewpoint. Sure if you're insulated from the effects of economic downturns (you have a secure job or no dependents, and you have a lot of savings and a diverse investment portfolio, and you're healthy and/or have no need to worry about losing health insurance benefits) then sure, you can relax and tell yourself that everything will work out alright in the end.
However the reality is that recessions mean a lot of suffering and uncertainty for a sizeable chunk of the population. Pretending this isn't the case is extremely bizarre.
I think it can be a fairly reasonable viewpoint; there are many systems where "downturn" type events are good for the system as a whole and also disproportionally good to some members. A natural forest fire is good for the forest from time to time, good for certain well established individual trees, and good for future generations but of course terrible for those trees that get culled out.
I sometimes feel conflicted about bad economic news-- a lot of my reading materials suggest this is 'good', because it's an opportunity to buy distressed assets and make more money. Then I think about the cost to others, and I realize I'd rather not make the money and let others have an easier time of it.
I get where you come from. You have to see though that for a lot of people recession means losing their jobs, being unable to provide for their families, etc. The fear of recession is entirely rational for anyone without a savings account covering the next 2 years.
>Everyone should be spreading their savings around different banks.
Depending on the country this will not save you. You can have it in N banks, and still get back up to a fixed X amount, because the amount is per person, not per account.
And this assumes people have "savings".
Most people outside of the 10% echo chamber live paycheck to paycheck.
> Everyone should be spreading their savings around different banks.
Which savings? 60% of the US population has less than 1.000 $ in liquid savings per [1]. In Germany it's 33% per [2].
When the recession hits (not if but when) people are going to get fucked. The 2008 crisis wiped out what many people had and its aftermath left them unable to rebuild their savings, and social security institutions have been wrecked since neoliberalism took over - I certainly expect (food) riots once recession hits. The Yellow Vests in France are an example what a still relatively rich but angry population can do, and extrapolating from that reveals a not very nice future.
I didn't make a claim, so I don't need to support or refute it. But back to the point. Not having money is functionally the same as stopping your supply of food. So if the recession is deep enough that enough people can't buy food anymore there may be riots and looting.
Above posters said that 60% of Americans don't have meaningful savings. That would mean in the event that they can't afford food, more than half of America might start a revolt. (Of course depending on the size of the recession).
My point is: you’re confusing catastrophe with recession.
In a food supply halting catastrophe we’ve got problems, catastrophic problems.
A recession that hits any significant portion of the population will have political-will to find alternative outcomes, and probably won’t happen with the rapidity catastrophes are usually associated with. Eg. food aid, wealth redistribution, easy / no-interest credit, government jobs.
I’m not saying any and every political outcome won’t result in a catastrophe, but every food halting catastrophe is, by definition, a massive catastrophe.
You may have a wider point though: just in time manufacturing / delivery in the food industry means probably most of the world is a few meals away from panic.
> Is a recession a food supply halting catastrophe?
It can very easily turn into one, look at what is happening in Venezuela or in Russia. Or what may happen with Britain and the Brexit, with the additional difficulty there that warehouses have been replaced by trucks which means that food supply is endangered in case of unplanned border controls.
The majority of recessions probably don't turn in to food supply halting catastrophes.
I'd argue Venezuela has experienced a cascade of poor choices well beyond your average general decline in economic activity.
Do you really believe Britain is on the brink of a Brexit induced food supply halting catastrophe? I'd seriously like to believe trade relations are strong and that selling in to a 60+ million population market is a strong incentive to keep trade relations well lubricated.
> Do you really believe Britain is on the brink of a Brexit induced food supply halting catastrophe? I'd seriously like to believe trade relations are strong and that selling in to a 60+ million population market is a strong incentive to keep trade relations well lubricated.
Nigel Farage and his Brexit Party won the EU elections in the UK. People are talking openly about "hard Brexit", and some day the EU is going to have enough and give the UK the boot in the arse. No way the UK is going to be remotely prepared - it simply won't be possible to prepare for a hard Brexit with weeks, maybe months of border chaos. There simply is not enough warehouse capacity.
I think this is correct, and answers the common question of "how do we expect growth to go on indefinitely?" It follows from this that as we get to the stage where the global population starts to shrink we will not require constant growth. Of course then we will have the serious issue of how to fund people past retirement age as population shrinks.
Funding retirement in an inverted age pyramid is not a theoretical problem. Germany is facing this problem already and it is going to get much, much worse in the next 10 years.
As a side note, this inverted age pyramid aligns partially with a unbalanced power distribution as old people outvote younger generations and their interests by a wide margin.
Speaking reasonably and from an ecologic point of view you're 100% right. But for the current economic system simple sustenance, i.e. not growing, is similar to death. It's much like a shark, if it stops moving it cannot breathe. I think a lot of it is down to being powered by loans which in essence can be paid back only if the total output grows. Imagine a bank that lends you 100K to set up a business. You'll pay back eventually more than you initially got -say 130K- over a period of the next 10 yrs. The extra 30K will only appear in the economy somewhere if the economy grows. At least that's how this game is supposed to be played.
It should, but there is some predatory spending going on that is actually shrinking the economy because of inequality. How fun is a poker game at the end of the night when one guy has all the chips? Everyone usually goes home or takes on debt to double down in a drunk stupor.
If there shall be no growth, there may be no innovation. Essentially every product and service has to be created the same way, using the same amount if manual labor, as yesteryear.
Economical growth is not necessarily growth in consumption of resources. It is also a measure of getting more out of less.
>If there shall be no growth, there may be no innovation.
That's not a problem. We already have too much shit for the good of the planet and for the good of our sanity. We should focus on quality, not innovation of more gadgetry.
Considering diseases for example, we could save hundreds of millions with spreading existing drugs and techniques, and give many years or longevity to billions with access to water and food and vaccines, etc, than what we'll "might" do with some (diminishing returns) cutting edge drug research.
We know how to cure lots of diseases people all over the world suffer from, and we don't do it. It takes a lot of hypocrisy to say we need more "growth" and "innovation" to help them.
Your focus on consumer gadgets is incredibly narrow and overlooks so many other things where innovation happens and brings true progress to the world.
Also, you can't stop human curiosity and the drive to improve and compete. There has always been progress in arts, science and technology throughout history, no matter what political or theological system reigned at that time.
>Your focus on consumer gadgets is incredibly narrow and overlooks so many other things where innovation happens and brings true progress to the world.
I find the world worse than 30 years ago, so I'm doubtful about this "true progress". Our progress is just moving along without a clear goal.
>Also, you can't stop human curiosity and the drive to improve and compete.
You can cut off the economic motives for those things, which turn them from a human thing into an inhuman cut-throat compulsion.
In what ways is the world worse?
"So why does it feel like the world is in decline? I think it is partly the nature of news coverage. Bad news arrives as drama, while good news is incremental—and not usually deemed newsworthy."
http://time.com/5086870/bill-gates-guest-editor-time/
I see, so there has been no new Japanese product or innovation during the 20 or 30 years of Japanese deflation? Every car is from 1990, every CD walkman still available, created with techniques of the 1990s? Are you sure about that?
Yet Japan's current GDP is lower than that in 1995, and has only been over 1995 level in two years.
There was plenty of innovation, new methods, product launches and new companies during the great Depression, even in the peak year of decline, and in all countries affected.
GDP and GDP growth is a decidedly modern invention anyway.
It's fundamentally meaningless to compare nominal GDP between different years because of changes in the value of money. The current GDP of Japan is only nominally less than in 1995 because the values are measured on different scales.
The Great Depression would have been a better example to use because even real GDP declined drastically.
A country that still heavily relies on paper document, still using fax machine, and its most popular internet forum has not changed its design since inception.
Yes, I would say the innovation in Japan has died out since the bubble.
Spoken like a person who has never set foot in Japan. LOL.
Might as well say the same things for a country that still heavily relies on fossil fuels, still doesn't have high speed rail, still has shitty internet speeds, has crumbling roads and infrastructure, and still uses these horrible air-conditioning units, and wooden (!!!) houses, not to mention their mobile internet situation...
Sure, the US also had a recession and it shows. But I can vouch for OP what he said about Japan. Once you step outside Tokyo/Osaka in to the smaller cities, you'll see abandoned buildings, crumbling public infrastructure and many people living off government benefits, struggling to make ends meet. Decades of recession have really taken their toll. I wouldn't call that poverty yet, but definitely there's a lot of austerity.
The beurocracy is insane. My guess is that the government crept in lots of it because it helps to keep the public servants employed. If you look in to the post office or local government ward office, there is always a whole army of office workers sending away faxes and stamping them, then stapling some papers. (They still use these weird stamps to sign their documents btw)
And yes, Japanese still use faxes, drive old taxis and generally you'll see a lot of antiqued technology that still works, but I think that's kind of charming. I especially enjoy seeing some of the old narrow guagae trains still chugging along the country side from time to time (in stark contrast to the shinkansen). Also exiting to see laser disks / VCRs / minidisks when visiting Japanese houses. Just the other day I seen an automated piano controlled by a device which seemed to be reading the data from a 3.5 inch floppy! Sometimes I can spot the odd CRT display still happily flickering, including the old vintage arcade games... The bowling alley down the block still uses what seems to be a DOS based system to manage their displays & business. Visiting a hospital is sometimes like visiting a museum... Oh, btw, got to fly in a Boeing 767 on a domestic route a few months ago, that was a pleasant surprise as I haven't been on one in years!
>Sure, the US also had a recession and it shows. But I can vouch for OP what he said about Japan. Once you step outside Tokyo/Osaka in to the smaller cities, you'll see abandoned buildings, crumbling public infrastructure and many people living off government benefits, struggling to make ends meet.
I've been to Mississippi, Alabama, South Dakota, Michigan, and lots of other states, and it's probably much worse there.
But in a system that presupposes "continuous growth" for sustaining itself, and all its structures have been built with that assumption, fear of recession is totally rational.
For most of time, up to the 20th century, growth was not an expected part of economic activity. Neither expected or required. GDP didn't even get dreamed up until the 1930s, and its inventor warned against it being used as a measure of the success of a nation.
Of course it was soon used as a measure of success, comparison and an easy concept for headlines and politicians. So the irrational belief that infinite growth on a finite planet was not only possible but desirable and necessary became the modern religion. :)
This... We need to optimize efficiency against known negative externalities better. We need to stop optimizing finance and start optimizing how our business affects all life cycles on the planet.
If output were stable then innovation would only be used to improve the efficiency of production. That would mean fewer jobs producing the same amount of stuff, which would lead to increased inequality (fewer people working and earning compared to people who aren't working). That doesn't sounds like a good thing to me.
The societal benefit of "infinite growth" is fully utilising the workforce. If an innovation reduces the number of people needed in a job we can try to grow a different part of the economy to use those people. Unless we can think of a different way to utilise people (eg universal basic income, negative income tax, free stuff for everyone, or something) growth is a useful mechanism to regulate society to an extent.
Output should never be stable in theory as people will not always need the same amounts of the same things. Optimally, output of consumer goods would dwindle if they were made to last as long as possible and convincing people to buy shit they don't need or really even want wasn't a key component of the economy. Also, the notion of "ways to use people" seaks directly to the alienation of labor central to capitalist systems.
It seems like a contradiction. Fear of recession is rational due to the world that we have all made - it is built around and addicted to growth, inovation, overconsumption.
For zero growth or negative growth world a lot would have to change significantly. From presonal choices to government policies.
People die due to the lower economic output of a recession. Lower GDP is a sign that we are not solving the world's problems as quickly as we had been previously. There are real negatives to be feared.
Yeah, very true. We would expect a rise in suicidality in white males in USA, for instance, as has already been happening due to hollowed out midwestern economics and ongoing opioid crisis.
I think people lose sight that a recession is normal and part of the cycle of boom and bust. Net net it’s always higher but you need a cool-off period.
The fact the people believe the cycle of boom/bust is somehow an inevitability of life rather than a flaw in our economic ideology is yet another cynical neo-liberal deception of the working and middle classes.
In the current model of capitalism, yes there is a systemic need for continuous growth - one might say, for VC-style turbo capitalism, there is in fact an even worse need for exponential growth.
I wonder if this is how economic reporting has always been. I wonder if it's just click-bait feeding off of fear in readers' lizard brains.
From the outside, /most/ of the worries really do seem legit this time. I'm young, so I don't know what other times were like. But at the least -- the worries aren't fake news.
Taper tantrum seemed real. The European Banking Crisis -- I'm still not sure how nothing happened there, especially with Italy. China has really been the backbone for global growth since 2008, and Kyle Bass is making a pretty convincing argument that at least some of that has been an illusion.
I know I hear over and over again that this is "the most reluctant bull market in history". I'm sure every time is different. But I'm wondering if one of the things that really is different is how much uncertainty has been at the core of this market. There are very few people this time that believe everything is rosey.
I'm with you, I also feel too young to know if this is how it has always been or not.
We are in the longest period of growth for some time, and the aforementioned temper tantrum, so it does seem like we are due for a recession, but it is hard not to tune the noise out.
I'm with you on the 'too young to know from experience' boat, though there are groups that have been trying to measure the probability of recession through macro indicators across consumption, production, and employment. https://www.chicagofed.org/publications/cfnai/index
From speculation, while there are tons of factors that may be giving this business cycle legs, I think one that's not spoken of enough is that many business may be a bit less cyclical today. Thanks to the cloud, companies can scale up and down on a whim rather than slowly build up an excess of hardware and staff to maintain them. Even industrial companies like rail car manufacturers have gotten smarter by leasing factories on short term and using temporary labor.
This is a great point -- how are cycles different as capital costs plummet, the velocity of information approaches infinity, saleable goods de-materialize, labor pools globalize, and addressable markets approach all the people on earth?
From my non-expert view, most of macro econ is practically religion anyways, and their predictions are basically non-falsifiable. Even so, I'm sure some informed folks have been thinking about these very issues, I just have no idea who. Would love any pointers.
I'm 39, which might make me old enough to have a perspective. 2008 was a unique, terrifying event. A certain amount of trigger happiness from market watchers is expected. But also, 2008 plus 2001 and maybe 1987 also marks a return to the above "business cycle", previously suppressed by a half century of Keynesianism. Now we can reliably expect capitalists to shit the bed every ten years before we have to rein them in and start over.
I'm 39 now, and I have been interested on those since young.
Those news stop some times. I'm not experienced enough to be sure that every stop is a bad news, but it does certainly look like so, and older people seem to agree.
Curious: does anyone actively sell stocks in this situation - even if it's in a retirement portfolio you'd presumably not touch for a long time? I've sold some in the last few weeks though I know the general advice is not really to do anything.
Anecdote: I've seen recession prediction virtually every month by some trustworthy brilliant person during past 2 years. One of them was Mark Cuban who actually went all cash in last October/November. This is what he had done just before year 2000 bubble popped and he was one of the few surviving billionaires. To his credit, market did went bust on December 21, 2018 with massive drop of 20%. I was literally in awe of Cuban's instinct but then the market almost immediately recovered like nobody's business. I'm now suspecting that government has developed some extraordinary tools to keep market stable. Many conventional laws of economics are pretty much defunct at this point. Massive QEs, printing money and racking up debt has done nothing to cause inflation or any adverse effect. Even Iran situation, North Korea stuff, Seria bombing - all of that barely even registered on market. There is something very very strange going on.
"Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he ' could calculate the motions of the heavenly bodies, but not the madness of the people.' Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003's] money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence."
This is quite normal in a late stage bull market. There are often a series of dips and vacillations before it turns bear. No need for a secret conspiracy, and QE is hardly subtle.
Most of the indicators have been flashing red for some time though, so I think the coming recession is no surprise.
Typically, no. It's been shown time and time again that people cannot reliably time the market. If they could, with leverage you could become the richest person on the planet in a short time.
You have to understand that if indeed people could in general know that the market was going to crash, then people would have already sold, and the impending crash would already have been priced in.
It follows from that, that the current price essentially is our collective best guess at what the future will bring, including any expectations of recessions. Selling beyond that point means you're seeing something that nobody else does, which either makes you a genius (or lucky), or wrong, and the odds are typically not in your favour.
You can find articles on recession indicators flaring up every month for the past decade. Suppose we had no sense of time, and just a sense of the daily weather to track the seasons. A few warm days in a row may indicate summer has landed, or it's just a normal fluctuation, a few weird days as winter turns to spring. And vice versa with cold days. There'll always be some indicators which may signal something bigger, and it could be just noise, or it could be truly indicative. You don't really know until after the fact. And if you could predict it, then it's likely everyone else could, too, and it'd have already been priced in so trying to time the market tends not to work.
This simplifies things a bit, but unless you're close to retirement (at which point you should reduce your exposure to volatile asset classes like stocks anyway), time in the market beats timing the market. There's lots of interesting articles on this like https://awealthofcommonsense.com/2014/02/worlds-worst-market...)
It's not a dumb question, frankly. But the saying is that "the markets can stay irrational longer than you can stay solvent". Yes, if you time the market by selling high and re-buying low, you can make more money. But the general advice is not to sell because a typical market participant isn't going to be able to time the market.
That said, I don't believe in the efficient market hypothesis, so I think people who claim that you can't time the market at all are either wrong or lying.
Yeah sure but if you have the ability to time the market then you wouldn't ask this question in the first place. You'd spend your day working 40 hours a week managing million dollar portfolios. Therefore telling people they can't time the market is perfectly good advice.
Passive investing does not imply buy and hold at all times. Timing the market is tricky or impossible but you can have some automatic market timing rule based on some leading market indicators like a factory activity or PMI.
It is enough to miss few good days or few bad days over years to make a tremendous impact on the final result.
Any time you have market timing rules, you get picked off by more sophisticated investors looking for structure.
Think of it like this, imagine you had an hour to build a rock paper scissors AI going up against entire teams of people building RPS AIs for many years. If you build an AI that just returns rand() every single time, you're guaranteed to win about 1/3rd of the time, if you attempt to code anything even slightly more sophisticated, you're likely to get murdered by the other participants. You would have to build something exceedingly beyond your capabilities complex to even get back up to that 1/3rd performance figure.
Same with Passive/Active investment. Either you are 100% Passive or you have to be incredibly, incredibly Active to even match the performance of being Passive, there isn't a middle ground.
> Any time you have market timing rules, you get picked off by more sophisticated investors looking for structure.
I don't see how this is a problem - you don't have to capture all of the value, you just have to do much better than you would have by just holding the shares as the market bottoms out. Even the more sophisticated investors are small-fry when the whole market is considered.
To better qualify parent's post: it's not that informed investors will target a small player specifically. They most likely won't as your instinct tells you, because there is no money in it. However, the sorts of strategies and algorithms that one could feasibly implement without having been in the industry for many-many years are very unlikely to beat the buy-and-hold strategy. The "simple" stuff has been by-and-large arbitraged away.
I won’t retire the next three decades. So I see no need to sell. I keep buying index funds, the same amount every month. Some months they are expensive, some months they are cheap. I rarely check in on the current worth. In the end it will even out.
That's true but if you think about the scenarios in which growth won't happen you probably will have bigger problems than an under performing stock portfolio.
Except the Japanese crash. If you started investing 30 years ago in japan with dollar cost averaging. Right now you'd be almost below your average purchase price. Just take a quick look at the nikkei 225
Makes no sense. If you want to trade, then trade. Timeframe is an illusion to make you feel comfortable. There is no difference between trading daily or yearly.
Also, the market can still go up in a recession, war or whatever.
The issue with more frequent trading is that you are paying more in transaction fees, and that it gives you more chances to make irrational decisions that result in lower returns.
That's not an "issue" but more like why you shouldn't trade in the first place. My point is, long-short timeframe are no different if you don't know the direction it is moving.
You lost because the gains aren't high enough to compensate for the even higher risk. Gambling $1k in Bitcoin is doable. Putting half your retirement funds into Bitcoin just isn't feasible. Because of this you will see the 50% ROI only on a tiny percentage of your portfolio.
I think it's likely we'll see a lot more economic news in the months ahead.
As Bill Clinton famously told us, US politics are largely anchored in the economy. Public perception of the state of the economy is going to be very much in focus through November of next year.
Probably not. Recession first impact vulnerable industries that depends on government subsidies, growth and innovations. The alternative energy companies are therefore first to be impacted. This is often exaggerated by reduced prices of conventional energy as consumption drops. You would typically see pull back in manufacturers releasing electric cars or people investing in building solar/wind farms.
Australia and most of Asia largely went through the financial crisis in 2008 with very few problems compared to the US/Europe and China as a deliberate policy has kept its financial system closed to itself, there are fewer ways for a recession to spread between China and the rest of the world in the same way it did during the financial crisis.
Contagion is real - but - contagion spreads along specific vectors, some more damaging than others.
A China 'slowdown' will probably not hurt the US, in fact, it may give the US leverage.
A China 'crash' will surely have emotional contagion among investors, which of course matters, because if they pull the plug on activities it'll translate into real world effects ...
But the 'material' contagion of a Chinese crash ... it's harder to predict.
I suggest that the issue is far more likely to be damaging as a 'trigger' to a bubble burst or something else, rather than materially damaging in and of itself.
I was trying to point out that since China's factories are so much export oriented that seeing decreased factory activity most likely means a weak global demand.
If the problem was with chinese real-estate, yes, the risk for contagion was minimal.
Australia is far from recession, but a global recession is as matter of time.
The only way that the economy "grows" indefinitely is if it regularly dips, and that is exactly how it has been working since WWII, with dips/recessions at 1975, 1982, 1991 and 2009.
Only because the global commodities market picked up at just the right time. Just like we rode out the GFC pretty well, coincidentally saved by the last mining boom (although to be fair, the stimulus spending at that point did also work pretty well).
It's surreal watching our major parties both trying to claim credit for the global economic climate.
Factory activity in Asia is a good indicator in a world where none of us can easily see the wood for the trees. Shame the article wasn't big on actual numbers.
We all have our local bubbles to contend with. In the US there are tariff taxes that affect the world but are a US thing. Then, in the UK, there is the joy of Brexit. You would not guess there was a problem if you were to be out and about in the UK this last weekend, however, read the papers and you will see stories about how that there is no inward investment, auto manufacturing is kaput and the High Street is losing many shops. Speak to some people and these indicators can be seen as unimportant, after all, isn't everyone buying online these days so the High Street demise is more of a shift to other fulfilment means, with no net loss involved? It can all be handwaved away.
With the example of Brexit the predicament can be blamed on Brexit and is therefore not part of a global recession, even if the frozen UK economy contributes to the big, global picture.
I am sure that in every market there is some local whataboutism, an ability to blame a local recession on silly politicians, a business scandal or some other local factor. In this way we could all walk into a global recession without anyone seeing it, thinking it was just us that was feeling a bit skint.
There are always people thinking we are on the verge of some mega crash. Personally I have been expecting the housing bubble to collapse for many decades but it has not happened. I have given up on that one now. I once worked in weather forecasting and, if you listened to me, then you would always have expected rain (I didn't understand low-lying clouds too well). Because of this tendency and bias that we all have it can be hard to make sense of media pundits and their forecasts of the economy. We also only listen to those that we are inclined to agree with.
There are always some indicators that are fact oriented and helpful, I think factory activity in Asia is one.
What I am surprised at is that there isn't a good indicator based on internet search activity. For instance, with the housing market in northern climes there is what the mortgage industry says for PR and then there is reality. Sales of flooring products, and by proxy, internet searches for flooring products may be a better indicator. Nobody fetishes over getting new carpets or laminate floors, people don't overly window shop for it, they just buy that stuff when they move home or have money to upgrade their existing dwelling. It is a purchase that can be easily put off. I need a 'basket' of these indicators and some Google Trends 'fu' to see the wood for the trees.
But, I'll caveat that it is AN INDICATOR, and not the only indicator...And in fact, not even sure if search activity is a good enough signal to use as an input...Or at least not in isolation. Putting my digital adversarial hat on, if i had even meager resources to organize a bot farm to cleverly submit tons of searches in one direction or another, i think that would sufficiently skew your input signal right there. Just sayin'.
The trade conflict between China and the United States escalated last month when Trump raised tariffs on some Chinese imports to 25% from 10% and threatened levies on all Chinese goods.
If that were to happen, and China were to retaliate, “we could end up in a (global) recession in three quarters”, said Chetan Ahya, global head of economics at Morgan Stanley.
It strikes me as quite a precise predication. Though of course, that does not mean it is correct.
TLDR; Terrifs are the root cause. With continued increase terrif recession might be official within 3 quarters. JP Morgan has taken u-turn and is expecting 2 rate cuts from feds. Other central banks around the world are planning rate cuts as well. South Korea production fell by 2X than expected. Not all economies are loser, however, India and Vietnam might see increased business.
It's also something that has an important role. Investors at some point need to decide which businesses are viable, which are not. Workers need to consider career changes. Corporate entities need to consider which projects are worthwhile. All those kinds of decisions are put to the test when not everything can be given a long horizon.
Finally, there is a twist this time. We've been running a financial experiment with few parallels over the last decade or so.