Foley, Walsh, others - How bad is it?

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Re: Foley, Walsh, others - How bad is it?

Postby Petro » Wed Jan 31, 2018 11:54 am

It seems to me that "how bad will it get?" is more a political or historical question than an economic one. The country has the resources to provide a good standard of living (with access to quality education, healthcare, and retirement benefits) to a very large majority of its citizens. We currently do not do so because a small number of people have outsized control of those resources, and the public has mostly acquiesced to that arrangement.

How bad does it have to get before people demand and organize for change? Historically, people in this country have accepted a high degree of poverty and powerlessness before demanding otherwise.
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Re: Foley, Walsh, others - How bad is it?

Postby stormin mormon » Wed Jan 31, 2018 1:11 pm

I just read the article and feel awfully lucky to have the job I do and to have had a lot of the advantages he described.

One thing he didn't address, or at least only tangentially, is the structural barriers that now exist to prevent any kind of real organization on the part of the lower-class majority in this country. You don't have a chance to organize because you don't live close to anyone because you can't afford to live in the city so you are spending all of your "free time" on buses or commuting in your POS car, working on your side hustle to afford whatever non-necessity you might be able to afford and you can't necessarily even commit to go to any kind of meeting or protest or anything because you don't know your schedule more than three or four days in advance.

Your media world is inundated with cable news nonsense so you rarely get the clear instructions he provided at the end of the article about how to try and work on a local level (where change is possible). Instead you are listening to people talk about the State of the Union Address which is 100% irrelevant to your life. As Neil Postman put it in Amusing Ourselves to Death, it is information without context. Totally useless.

I think you are right Steve to suggest that people will put up with a surprising amount of inequality and desperate circumstances before demanding change, but the ruling class has also built really effective barriers to any sort of uprising.
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Re: Foley, Walsh, others - How bad is it?

Postby Petro » Wed Jan 31, 2018 3:16 pm

stormin mormon wrote:I just read the article and feel awfully lucky to have the job I do and to have had a lot of the advantages he described.

One thing he didn't address, or at least only tangentially, is the structural barriers that now exist to prevent any kind of real organization on the part of the lower-class majority in this country. You don't have a chance to organize because you don't live close to anyone because you can't afford to live in the city so you are spending all of your "free time" on buses or commuting in your POS car, working on your side hustle to afford whatever non-necessity you might be able to afford and you can't necessarily even commit to go to any kind of meeting or protest or anything because you don't know your schedule more than three or four days in advance.

Your media world is inundated with cable news nonsense so you rarely get the clear instructions he provided at the end of the article about how to try and work on a local level (where change is possible). Instead you are listening to people talk about the State of the Union Address which is 100% irrelevant to your life. As Neil Postman put it in Amusing Ourselves to Death, it is information without context. Totally useless.

I think you are right Steve to suggest that people will put up with a surprising amount of inequality and desperate circumstances before demanding change, but the ruling class has also built really effective barriers to any sort of uprising.


Totally agree with this. Don't want to seem like I am blaming the powerless for their lack of power. Think we all have an obligation to do more to fix our democracy. Agree that energies should be directed locally--your workplace, your local schools, your neighborhood associations, etc.
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Re: Foley, Walsh, others - How bad is it?

Postby corn diesel » Tue Feb 06, 2018 7:11 pm

What do we think of the past few days events?
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Re: Foley, Walsh, others - How bad is it?

Postby stormin mormon » Tue Feb 06, 2018 9:17 pm

Isn't stuff like this basically irrelevant unless you are retiring soon and happen to be one of the lucky people with enough money to own stocks?

I know that big pension funds are tied up in the market (and all too often with hedge funds) but it just seems that the stock market is rarely an indication that things are going well for everybody but it seems to always be taken as a sign that things are going badly. But stocks going up has nothing to do with wages, "wage" earners don't typically even own stocks. So much of the value of the stock market is in the hands of a very small group of people, perhaps we should stop paying so much attention to it?

Am I just totally ignorant? Wouldn't be the first time.
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Re: Foley, Walsh, others - How bad is it?

Postby bodhisattva » Wed Feb 07, 2018 5:55 am

Isn't the problem that that small group of people whose value is tied up in stocks wields disproportionate political influence so that when their wealth is threatened politics steps in to secure their wealth at the expense of tax paying wage earners?

I am sure there is some hand waving to this logic that someone with a better sense of economics could unpack but I'm thinking that in times of financial crisis the government is forced to 'stimulate the economy,' in turn leading to austerity measures that disproportionately affect wage earners/those unable to earn a wage (4/5 public housing units in NYC have lost heat this winter, I don't know anything about public housing funding in NYC but I'm not optimistic https://www.nytimes.com/2018/02/06/nyregion/heat-cold-nycha-nyc-olatoye.html).

It seems the wealthier you are the more your financial well being is tied up in the health of the economy as a whole, which seems to align your best interests with that of the US government. This seems to be my understanding of the crisis in 2008 (which I really wish I had been a little older during, and better able to understand). High finance takes risky bets to make $$, crashes the economy, US government has to step in at a high cost, 10 years later NYC doesn't have the resources to keep the heat on in it's public housing. Obviously I am missing some steps but the problem seems to be that if you're in the poorer half of wage earning you're totally left out of this equation.

I'm currently all riled up from reading Evicted by Matthew Desmond, which is one of the best books on American poverty I've read (and this is what I wrote my thesis about). Has anyone here read it? Is there a runnerunner book club thread I can drag up from the past?
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Re: Foley, Walsh, others - How bad is it?

Postby corn diesel » Wed Feb 07, 2018 2:31 pm

I think the answer to the question at the top of your post is roughly yes.

However, I think you're missing a few key pieces in how the rest of that works. The performance of the stock market is not always a reflection of the health of the economy, and it's poor and middle class people who are more dependent on the overall health of the economy. When the economy is down, poor people lose their jobs. Rich people tend not to. Rich people are in the jobs where they are firing poor people to save money for their company.

Now, if the stock market tanks, wealthy people lose wealth (and middle class people lose retirement savings which can be kind of a bummer or a total catastrophe, depending on just how middle class you are). Now, the rich people don't need all their wealth, so we don't need to worry about them personally. However, the money they lose through their investments means there is less available capital to drive private sector investment which, done "appropriately," typically adds to the health of the economy over all, and gives jobs to poor and middle class people.

The problem is that when the economy seizes up, and stock market collapses along the way, the wealthy people have enough access to power that they can often rescue themselves through policy machinations, sometimes under the guise that the institutions they run are too big to fail. There is a lot of debate about whether the financial institutions that were bailed out during the '08 crisis were actually too big to fail. Some people say that's bullshit, and we should have done nothing to rescue them.

But let's entertain the idea that they were, and the whole economy would have collapsed had they been allowed to wither and die. There are still two more fundamental problems that reflect how poor and middle class people get fucked over by the federal government via rich people:

1) It's deregulation (arising from the influence of the financial sector) that allowed these institutions to get that big in the first place. Tighter regulation would not allow banks to get that big. Therefore, if some of them do stupid things like invent mortgage-backed securities (which should also be more tightly regulated) and fall apart, there are other banks who did not do that, and the banking system can survive even if a few key players disappear. For comparison, Canada has a more highly regulated system and had no banking crisis in '08. In fact, they have had far fewer problems with their banking system than the US throughout their entire history. While they did experience a recession in '08, it was not as bad as in other places, and it is thought that this only occurred because the rest of the world economy struggled.

2) This combination of deregulation and bail-out creates what is called a "moral hazard." This is the risk that when irresponsible financial institutions get bailed out following their own collapse, they get the message that the government will always come to their aid with taxpayer money. If they had to bet with their own money, they would not take as many risks because, well, they would never get that money back if they lost it. So if we let banks get really big, and make all kinds of shady big bets, and don't let them die when they turn out poorly, we get big banks that make bad decisions and then get our money. Without better regulation, there remain strong incentives to do the kinds of things that brought on the '08 crisis.

I'm not sure how all that influences public housing in NYC, but it can't be good.

Neynolds, tell me if I'm wrong about all that.

For other amature-hour economists like myself, here are a couple great places to bone up:

http://www.core-econ.org/ This is a MOOC (massive open online course) which has some empirical evidence to demonstrate it's more effective at teaching introductory economics than standard courses offered at most colleges and universities.

http://econtalk.org/ This podcast is the only thing I listen to outside the progressive echo-chamber of NPR and I find it really useful and interesting. The host does a lot of non-econ-related episodes too, and hosts people from across the political spectrum.
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Re: Foley, Walsh, others - How bad is it?

Postby corn diesel » Thu Feb 08, 2018 3:49 pm

I found this article to be a helpful little primer on what might be going on with the stock market and its impact on the economy:

https://www.nytimes.com/interactive/2018/02/08/business/stock-market-is-not-economy.html

I can't help but chuckle at the central prominence of "Other Factors" in their flowchart, though.
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Re: Foley, Walsh, others - How bad is it?

Postby mwalsh88 » Fri Feb 09, 2018 10:29 am

My C$0.02

Things have improved significantly from 2008 in terms of risks from back then:
- banks' balance sheets are much more bulletproof.
- banks face significantly more regulation with regard to the risk assets they hold.
- households are holding much less leverage

These and other measures have a cost - they throttle growth. One could also say they serve only to fight the battles from the previous war. The new blowup will come from some other quarter. Further, insulating banks like this only means that rather than once every 20-30yrs there is a catastrophe, now it will happen once every 50-70 years, and be that much larger.

As for the economy itself, things are looking good. My rule of thumb metric is rate of household formation/housing starts. In 2002-04, there were 2mm houses/yr being built, while household formation was 1mm. Bad. Now it is 1.2-600k vs a solid 1.2m. House building underpins growth - it has lead every economic recovery since WWII, and was notable for its absence in 2009-11. Now that things are picking up, this seems like it will keep the party in the US going for a while.

All of this however is not spread evenly. The default rate for Fannie & Freddie mortgages is 1%, double what it was in the '00s and '90s. So lending is still much more conservative, and foreclosure a greater possibility. Sucks to be poor, and the environment has not really improved for low income home buyers.

DJT moves that will change the landscape:
Immigration - increases unskilled labour scarcity. Returns to labour vs Capital will increase, and DJT is throwing gasoline on this fire. Rate hikes will result, which will exaccerbate eroding margins.
Budget - I think the US under DJT (or Pence) will lose its one remaining AAA. The budgetary recklessness, and the political willingness to shutdown government and talk of capping debt, or defaulting, all make global markets nervous.
The US$ - the recent weakness has greatly reduced the possibility of a global meltdown in Europe or Asia. I read (a summary of) a paper which said all international financial crises were the result of a shortage of US$. The weakness of the US Peso is a boon for most international financial systems now.

The volatility of the past week is welcome by most of Wall Street. It has also brought most portfolio returns back to historic averages. No free lunch.
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Re: Foley, Walsh, others - How bad is it?

Postby Goat Fan » Fri Feb 09, 2018 11:57 am

Agree with Walsh. Politically, things are horrible (for us coastal elites). Economically, could be worse. Trump is the very lucky beneficiary of a synchronized global recovery. That said, US stock valuations are very stretched. If you're investing, overweight non-US and emerging. Avoid non-US debt (x-emerging) where interest rates are <0. Hold on to your hats.
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