Author Topic: Things Might be Different This Time  (Read 11776 times)

tooqk4u22

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Things Might be Different This Time
« on: March 29, 2013, 07:13:08 AM »
http://finance.yahoo.com/news/markets-sending-unusual-signals-el-055816980.html

Through various posts here I have suggested that things are different this time.  I am not a perma-bear or perma-bull and feel the markets are slightly overvalued right now primarily do to expected growth and compared to the risk free rate (10 year UST, which isn't so risk free right now).  While I think the markets are fairly valued or slightly overvalued I think there are significant risks that are being ignored - very high debt at both personal and sovereign levels globally, artificially low interest rates that are essentially being used to manipulate markets but not improving employment levels, political unrest and instability in many parts of the globe, currency wars, etc. 

People will say markets always go up and don't fight the fed, but these are long term and short term views - we could go quite a while with flat growth whether it be markets, economies, etc.   The last two/three decades of growth were fueled by debt and increased productivity - debt can't continue and ever increasing productivity means less employment overall. 

Anyway the attached article finally has someone suggesting it is different.  I don't pretend to know what the answers are or outcomes are but I do think things are different this time.

Honest Abe

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Re: Things Might be Different This Time
« Reply #1 on: March 29, 2013, 07:28:17 AM »
Didn't read yet but the author of that article is one of the smartest dudes in the world when it comes to markets. When he speaks I listen carefully.

DoubleDown

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Re: Things Might be Different This Time
« Reply #2 on: March 29, 2013, 08:52:36 AM »
Thanks for sharing the article.

I'm no economist, so I have little educated opinion to offer. I do agree that things are different right now, but that in itself is not really different. Meaning, there have always been differing, unprecedented combinations of economic/global challenges being faced at the time -- inflation, deflation, unemployment, oil shortages, wars, sector bubbles, etc. I don't see the markets as overvalued when I consider the recent highs in the context of where they were about 5 years ago -- basically where they are now. I'm in it for the long haul -- I have a strong confidence in the U.S. markets and U.S. companies in general. That said, I'm not particularly aggressive either; I probably have only about 30% of my overall net worth in the stock market.

I have far more concern over the ability of the large Wall Street investment firms to (legally) manipulate markets in ways they were never able to before. Things like the derivatives debacle, for example, and other junk that was sold to mainstream investors while all the big guys got rich, tanked the markets, and then ran away with the money. There don't seem to be any hindrances to Wall Street being able to do it all over again. "Too big to fail" is just as bad or worse now than it was in 2008 -- has even one large bank or investment firm been broken up?

tooqk4u22

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Re: Things Might be Different This Time
« Reply #3 on: March 29, 2013, 09:48:43 AM »
Didn't read yet but the author of that article is one of the smartest dudes in the world when it comes to markets. When he speaks I listen carefully.

Agreed - that is primarily why I posted it.

Thanks for sharing the article.

I'm no economist, so I have little educated opinion to offer. I do agree that things are different right now, but that in itself is not really different. Meaning, there have always been differing, unprecedented combinations of economic/global challenges being faced at the time -- inflation, deflation, unemployment, oil shortages, wars, sector bubbles, etc. I don't see the markets as overvalued when I consider the recent highs in the context of where they were about 5 years ago -- basically where they are now. I'm in it for the long haul -- I have a strong confidence in the U.S. markets and U.S. companies in general. That said, I'm not particularly aggressive either; I probably have only about 30% of my overall net worth in the stock market.

I have far more concern over the ability of the large Wall Street investment firms to (legally) manipulate markets in ways they were never able to before. Things like the derivatives debacle, for example, and other junk that was sold to mainstream investors while all the big guys got rich, tanked the markets, and then ran away with the money. There don't seem to be any hindrances to Wall Street being able to do it all over again. "Too big to fail" is just as bad or worse now than it was in 2008 -- has even one large bank or investment firm been broken up?


What you say is also true, especially about other times in history being "different this time" it doesn't mean we won't eventually get better. Just a reminder that I think the market is fairly to slightly overvalued and the over part IMO when you look at valuations based on expected growth.

As for your primary concerns:
-yes, wall street (and the fed) absolutely can manipulate the markets too easily, not sure how it changes but it seems to get worse with time.
-derivatives, still a major component of the market and maybe even bigger than at that peak, we still don't understand the potential for contagion/consequences.
-banks, too big to fail is now too big to who knows what but they are bigger and more complex than ever (but they do have more capital than ever too, but we really don't understand all of that capital).

Basically all the variables that were in place before and contributed to the meltdown are still there or worse, but we now have far more sovereign debt and nowhere to go to inject money into the system to save it - and all nations seem to be in the same spot.

chucklesmcgee

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Re: Things Might be Different This Time
« Reply #4 on: March 29, 2013, 11:48:28 AM »
You'll realize that "Things Might be Different This Time" is a statement that's been true at any and every point in history.

That said, the Euro zone is an unsustainable mess on the verge of collapse and America's debt will eventually attract the same level of panic.

the fixer

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Re: Things Might be Different This Time
« Reply #5 on: March 29, 2013, 12:51:37 PM »
That said, the Euro zone is an unsustainable mess on the verge of collapse and America's debt will eventually attract the same level of panic.
Budget forecasts suggests that won't be for another ten years, when the retirement population getting SS/Medicare gets too large. And the markets never seem to care about problems until they're a month or two away, so there's at least ten years left of good times. As for Europe, they've been in crisis and austerity mode for years; the global market expects this to continue for a while so it's already priced in, and shouldn't affect returns that much.

The only short-term threats I see to the US economy right now are war with North Korea, and some kind of bursting of the education bubble. Both of these are possible, but I think unlikely. NK appears to be posturing in order to get the rest of the world to take their new leader seriously, and while a miscalculation could lead to armed conflict I don't think either side wants that to happen, which stacks the odds in favor of a continued uneasy peace. The student loan problem is indeed serious, but since the loans cannot be discharged I can't foresee any way for this bubble to "pop;" instead it would just act as an anchor on the economy slowly getting heavier and heavier as income and discretionary spending drop. This kind of slow effect is something that markets can deal with just fine.

smedleyb

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Re: Things Might be Different This Time
« Reply #6 on: March 29, 2013, 07:18:01 PM »
I'm not sure El-Erian is saying things are different as opposed to simply laying out the fundamental crosscurrents impacting equity and bond markets.  Expect more turbulence in Europe as the U.S. remains a relative bastion of moderate growth and financial calm in the West.  He finds the high stock prices uncorroborated by the low treasury yields (since rates should rise in an expanding economy), which points to central bank meddling in the affairs of "free" markets.  In his opinion, "looking ahead, the validation of prices in risk markets needs the fuller engagement of healthy balance sheets and more robust economic activity, including what my PIMCO colleague Saumil Parikh refers to as the transition from "assisted growth" to "genuine growth."  In short, can the economy grow without the Fed? 
 
I think El-Erian's primary concern is what happens to financial markets when the Fed and by extension the ECB and BOJ are seen to be no longer in control of the situation.  What if rates start spiking in spite of the central bank desire to "keep rates low for an extended period of time?"  What if "genuine growth" fails to kick in and the Fed is forced to double and triple down on QE, expending trillions to achieve anemic 1-1.5% growth rates with barely a concomitant uptick in employment?  What is the long term cost of such financial engineering? 

I am certainly not smart enough to know which way the wind blows.  My brain tells me the gig must end eventually, but what triggers it is anybody's guess.  I still think the Cyprus deposit annexation has the potential to be a huge game changer.  If it's truly a one-off event my fears will be baseless and the markets should move higher (perhaps much higher, say, 20%) as European banks stabilize (which they haven't based on the price action in BCS, DB and SA) and a full blown Euro bank implosion is avoided.   Yet as the SPX makes new highs the BKX remains lethargic and below its best levels.  To me that is a very telling divergence and remains the core condition of my current bearish bent.  I think a modest overthrow of the old SPX all-time high was in the cards, but I expect nothing more than a 1-2% move beyond 1565 (currently underway) before a more meaningful correction (in the 10-12% range) begins.  I think a market that moves above SPX 1600 and stays above that level invalidates my bearish thesis.


« Last Edit: March 29, 2013, 07:21:52 PM by smedleyb »

Nords

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Re: Things Might be Different This Time
« Reply #7 on: March 29, 2013, 08:46:36 PM »
... but I do think things are different this time.
Gosh, if I had a nickel for every time that statement was accompanied by some smart portfolio manager talking his book then I'd be financially independ... oh wait.

You have two choices:
1.  Keep investing.  Execute your asset allocation plan.  Maybe rebalance a little if that's part of your plan.
2.  Whenever you read articles on why it's different this time, refer to #1. 

Mr Mark

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Re: Things Might be Different This Time
« Reply #8 on: March 29, 2013, 09:27:45 PM »
Look. If you are a long term investor, ignore this crap. Stop worrying.

Invest in the growth of the world economy, via index funds. The sky is not falling.

Personally, buying more shares to rebalance this Monday.

Hamster

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Re: Things Might be Different This Time
« Reply #9 on: March 29, 2013, 10:06:09 PM »
- ever increasing productivity means less employment overall.

Why?

Hasn't productivity been increasing for the past several hundred years through mechanization, industrialization, automation, refrigeration, fertilizers, the birth control pill, etc? In the meantime, the labor market has grown tremendously, particularly becuase of the entry of women into the paid workforce over the last 70 years.

My take is the general trend since at least the 1940s is that we've been employing more people while increasing productivity. We've been using that money mostly to buy crap, I guess... but I don't see much sign, other than the mustachians, that people's appetite for crap is decreasing.

I'm not saying you're wrong, and there are certainly factors like the increased ease of off-shoring jobs to lower wage countries, but that's not entirely new either.  I could be completely wrong, but, I don't think that the connection between high productivity and low employment fits with historical patterns, at least those of the past century or more.

smedleyb

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Re: Things Might be Different This Time
« Reply #10 on: March 29, 2013, 10:11:53 PM »
- ever increasing productivity means less employment overall.

Why?

Hasn't productivity been increasing for the past several hundred years through mechanization, industrialization, automation, refrigeration, fertilizers, the birth control pill, etc? In the meantime, the labor market has grown tremendously, particularly becuase of the entry of women into the paid workforce over the last 70 years.

My take is the general trend since at least the 1940s is that we've been employing more people while increasing productivity. We've been using that money mostly to buy crap, I guess... but I don't see much sign, other than the mustachians, that people's appetite for crap is decreasing.

I'm not saying you're wrong, and there are certainly factors like the increased ease of off-shoring jobs to lower wage countries, but that's not entirely new either.  I could be completely wrong, but, I don't think that the connection between high productivity and low employment fits with historical patterns, at least those of the past century or more.

Considering the advances in productivity over the past 30,000 years, unemployment should be hovering near 99.44%. 

The idea that productivity kills employment is a myth.  It may cause dislocations in some sectors of the economy, but overall productivity and employment tend to move in the same direction over time. 

mm31

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Re: Things Might be Different This Time
« Reply #11 on: March 30, 2013, 12:16:30 AM »
the 4 most dangerous words in finance are "it's different this time". I will stay the course and focus on the longer term.

smedleyb

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Re: Things Might be Different This Time
« Reply #12 on: March 30, 2013, 01:08:01 PM »
the 4 most dangerous words in finance are "it's different this time". I will stay the course and focus on the longer term.

The only people acting like things "are different this time" are the sanguine bulls who think incessant global central bank intervention will drive stocks to infinity and beyond. 


Kazimieras

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Re: Things Might be Different This Time
« Reply #13 on: March 30, 2013, 01:45:01 PM »
the 4 most dangerous words in finance are "it's different this time". I will stay the course and focus on the longer term.
Things are always different this time, as each milestone tends to have a different set of problems. Look at all the market crashes in history.
1929 - margin/credit bubble. Things were put in place to ensure they didn't happen again
1980s - computerized crash. The systems auto-sold and were never designed to halt if things were in a death spiral
2001 - tech crash. New market, new fields... people figured out things wouldn't monetize as fast as they expected
2008 - Housing crash. Excessive use of derivatives and CDSes obscured the risks associated with specific asset classes.

It's always different. Right now I'd say the event the world hasn't seen before is the actual aging of the western nations. This will impact western productivity and allow for a rise in the east. This hasn't happened before and so things will happen and they will be different.

Now, even if they are different, investing should still happen. Just hedge :)

Mr Mark

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Re: Things Might be Different This Time
« Reply #14 on: March 30, 2013, 09:33:23 PM »
Yeah...  I think the US economy is about to take off.

New, limitless, low cost greenenergy in abundance. Lowest interest rates EVER. Lots of spare capacity, etc etc.

This market is about to take off in the biggest bull market ever....


Or not.


Asset allocation. Buy, rebalance. Just reinvest in low cost index funds that track global economic growth.  Over time, the USA,  Canadian, Australian, etc all economies will grow, plus the developing world, plus China, plus .....

BUY THE MARKET.

And spend your other time and capital doing cool value additions, as MMM demonstrates. Real estate, local angel investing, sweat equity, being a land lord.

grantmeaname

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Re: Things Might be Different This Time
« Reply #15 on: March 31, 2013, 07:05:16 AM »
I'm not sure El-Erian is saying things are different as opposed to simply laying out the fundamental crosscurrents impacting equity and bond markets.

That was my thought on reading the article. He's not really selling one viewpoint or another, he's just saying why he's nervous and giving a quick multidirectional view of what's impacting the markets. Considering he runs an allocation fund, I was surprised how even it all was.

tooqk4u22

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Re: Things Might be Different This Time
« Reply #16 on: April 01, 2013, 01:05:14 PM »
- ever increasing productivity means less employment overall.

Why?

Hasn't productivity been increasing for the past several hundred years through mechanization, industrialization, automation, refrigeration, fertilizers, the birth control pill, etc? In the meantime, the labor market has grown tremendously, particularly becuase of the entry of women into the paid workforce over the last 70 years.

My take is the general trend since at least the 1940s is that we've been employing more people while increasing productivity. We've been using that money mostly to buy crap, I guess... but I don't see much sign, other than the mustachians, that people's appetite for crap is decreasing.

I'm not saying you're wrong, and there are certainly factors like the increased ease of off-shoring jobs to lower wage countries, but that's not entirely new either.  I could be completely wrong, but, I don't think that the connection between high productivity and low employment fits with historical patterns, at least those of the past century or more.

Considering the advances in productivity over the past 30,000 years, unemployment should be hovering near 99.44%. 

The idea that productivity kills employment is a myth.  It may cause dislocations in some sectors of the economy, but overall productivity and employment tend to move in the same direction over time.

It is not a myth and I am not saying it is permanent but the fact of the matter is that increased productivity primarily through technolgy is a net reduction of jobs (i.e. new technologies will create new jobs, but the net will be less) - now there may be a variation where jobs are retained and the technology is not fully utilized or underutilized (i.e. overemployed - think auto workers/unions) or there more jobs but all make less money instead (i.e. employing 20 people at $10/hr when 10 people at $20/hr might due - largely the reason why large companies were so easily able to slash and burn without much impact to thier businesses and why they are slow to hire now).  By someone working more hours than standard it is essentially a wage reduction - even if they are hourly because of the savings on the benefit and other non-salary costs.  All of this contributes to the concentration of wealth at the top, which so many here find offensive - this is the reality.

Population growth offsets a lot of this (especially over the last 30,000 years or so) but increased productivity combined with no or slow population growth absolutely results in net job losses (when viewed on income adjusted per above).

tooqk4u22

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Re: Things Might be Different This Time
« Reply #17 on: April 01, 2013, 01:10:57 PM »
the 4 most dangerous words in finance are "it's different this time". I will stay the course and focus on the longer term.
Things are always different this time, as each milestone tends to have a different set of problems. Look at all the market crashes in history.
1929 - margin/credit bubble. Things were put in place to ensure they didn't happen again
1980s - computerized crash. The systems auto-sold and were never designed to halt if things were in a death spiral
2001 - tech crash. New market, new fields... people figured out things wouldn't monetize as fast as they expected
2008 - Housing crash. Excessive use of derivatives and CDSes obscured the risks associated with specific asset classes.

It's always different. Right now I'd say the event the world hasn't seen before is the actual aging of the western nations. This will impact western productivity and allow for a rise in the east. This hasn't happened before and so things will happen and they will be different.

Now, even if they are different, investing should still happen. Just hedge :)

I acknoweldged that things are always different at any point in time, but to blindly accpet that they are and always have been and simply state thats the way it is so just invest in my view is ignorant and simply puts the hands in fate.  I would much rather try to understand why they are different and what the risks and opportunities are out there because of it. 

I look at all the things that you mentioned and all of those things are capable of occuring again and all at the same time and all at the speed of light, which to me is the real risk - things simply move to fast and are too complicated to truly understand and when combined with a global economy and financial markets that are now so intertwined and connected it is very difficult to de-link and adequately mange risk through diversification because of the signifcant correlation - this is what I think El-erian was touching on. 

DoubleDown

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Re: Things Might be Different This Time
« Reply #18 on: April 01, 2013, 01:26:39 PM »
Regarding technology/productivity gains and employment -- sure, gains can cause certain sectors to suffer decreases in employment, but they increase in others. There are fewer coal miners, VCR and typewriter repairmen, and automobile factory workers nowadays, but there are more software engineers, services workers, health care and pharmaceutical workers, etc. New sectors will be created just as others disappear. Who even knew there would be a giant market for iPhone and Android app developers 10 years ago?

smedleyb

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Re: Things Might be Different This Time
« Reply #19 on: April 05, 2013, 09:38:43 AM »
I think El-Erian's primary concern is what happens to financial markets when the Fed and by extension the ECB and BOJ are seen to be no longer in control of the situation.  What if rates start spiking in spite of the central bank desire to "keep rates low for an extended period of time?"  What if "genuine growth" fails to kick in and the Fed is forced to double and triple down on QE, expending trillions to achieve anemic 1-1.5% growth rates with barely a concomitant uptick in employment?  What is the long term cost of such financial engineering? 

Illustrating this point:

Just over 4 hours ago we discussed the stunning collapse in 10Y Japanese bond yields. Since then - things have taken a very dramatic turn for the worse for bonds. 10Y JGB yields have exploded higher. The move from 32bps to 65bps triggered circuit breakers on the Tokyo Stock Exchange in JGB Futures trading as JGB prices plunged by their largest amount since September 2002. We can only imagine there is liquidations galore occurring given the massive outsize moves we are seeing in Japanese bonds, stocks, FX, swaps, and CDS. Did the BoJ just lose control?

http://www.zerohedge.com/news/2013-04-05/it-beginning-biggest-jgb-price-collapse-over-10-years-triggers-tse-circuit-breakers

tooqk4u22

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Re: Things Might be Different This Time
« Reply #20 on: April 05, 2013, 10:11:31 AM »
I think El-Erian's primary concern is what happens to financial markets when the Fed and by extension the ECB and BOJ are seen to be no longer in control of the situation.  What if rates start spiking in spite of the central bank desire to "keep rates low for an extended period of time?"  What if "genuine growth" fails to kick in and the Fed is forced to double and triple down on QE, expending trillions to achieve anemic 1-1.5% growth rates with barely a concomitant uptick in employment?  What is the long term cost of such financial engineering? 

Illustrating this point:

Just over 4 hours ago we discussed the stunning collapse in 10Y Japanese bond yields. Since then - things have taken a very dramatic turn for the worse for bonds. 10Y JGB yields have exploded higher. The move from 32bps to 65bps triggered circuit breakers on the Tokyo Stock Exchange in JGB Futures trading as JGB prices plunged by their largest amount since September 2002. We can only imagine there is liquidations galore occurring given the massive outsize moves we are seeing in Japanese bonds, stocks, FX, swaps, and CDS. Did the BoJ just lose control?

http://www.zerohedge.com/news/2013-04-05/it-beginning-biggest-jgb-price-collapse-over-10-years-triggers-tse-circuit-breakers

Your illustration is one of the reasons why I think things are different this time (let's not debate the "its always different argument").  Central banks are effecitively manipulating/driving markets and all sense of a balance between risk and return is completely absent right now in almost all asset classes.  Yet economic growth is non-existent and today's employment report, along with all the prior ones, proves that it is not leading to job creation - at the current rate it would take 10-15 years to get back to the employment levels of 2007 - that won't cut it obviously.

One thing I think about is what if these various confluence of events and actions destroy the hirtorical notion that asset allocation and diversification protects you - during the meltdown it helped but not as much as in the past. 

The notion goes that you rebalance thus selling high and buying low - but the inverse could be possible with the right variables, I am not sure that it has ever happened but it is possible as everything is so highly correlated due to the central banks such that if they take the pedal off the floor all asset classes could fall together and in a big way - although I guess in this case the central banks will just keep printing more and more until control is lost and you get hyperinflation, stagflation, whatever.

tooqk4u22

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Re: Things Might be Different This Time
« Reply #21 on: April 05, 2013, 05:34:02 PM »
Regarding technology/productivity gains and employment -- sure, gains can cause certain sectors to suffer decreases in employment, but they increase in others. There are fewer coal miners, VCR and typewriter repairmen, and automobile factory workers nowadays, but there are more software engineers, services workers, health care and pharmaceutical workers, etc. New sectors will be created just as others disappear. Who even knew there would be a giant market for iPhone and Android app developers 10 years ago?

The number of App developers may be far larger but very few are making a living at it reliably.  Regarding software engineers - per the BLS there are 917,000 (including app) and that is expected to grow by 270,000 over the next 10 years.....10 years so in other woods an ok month in a recovering economy.  Bloggers are a new category as well but like iphone app developers very few are making sufficient money.

Pharmaceutical workers peaked in 2005-2007 and that industry has contracted since.  Financial services has contracted.  Some of it is the economy but the reality is that far more is due to the fact that you just don't need as many employees to get a job done. 

If you look back in history there are many times where there was a dramatic shift in technology - whether it be the wheel, agriculture, trains, autos, computers, the internet, whatever.  But everytime there is a new advancement, it eventually plateaus, and it takes a while for the next advancement to appear - things move faster than they once did but we may be in a cyclical hold position waiting for the next advancement that can change humanity - until then we may be treading water.

the fixer

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Re: Things Might be Different This Time
« Reply #22 on: April 05, 2013, 06:09:12 PM »
Pharmaceutical workers peaked in 2005-2007 and that industry has contracted since.  Financial services has contracted.  Some of it is the economy but the reality is that far more is due to the fact that you just don't need as many employees to get a job done. 
By itself, that should just increase productivity. For instance, if I'm a business owner and can produce 2000 widgets per year in 1983 with 200 employees, and by 2013 something has happened that lets me produce the same amount with half the labor, then why would I lay anyone off? I'd be better off keeping all 200 employees and expanding my business to produce 4000 widgets per year, doubling revenues.

The problem is if technology is changing the skills that are required of the labor force. Workers are difficult to retrain; there may be more app developers today but I can't teach a 50-year-old machinist how to be an app developer. But given enough time, the next generation trains itself based around the job markets, and that would even things out.

This brings up a new problem: technology advancing faster than the labor force can keep up. An 18 year old may see all these app developers out there and decide he wants to get a career doing that, then in 5 years some major new technological breakthrough could happen that makes mobile app development obsolete (biological computing, brain-machine interfaces, nanotech, etc). Now that cutting-edge mobile app developer is now just like the factory machinist of 30 years ago.

I think this is what we're seeing on a less dramatic scale, and the consequence is rising structural unemployment. There is a higher percentage of the population at any given time which has skills that don't match up with what's demanded in the labor market. This is regrettable, and something that better public policies could help address, but the downside is balanced out by companies being more productive and profitable with all this new technology they keep getting.

So in the end, I think rapid technological progress with higher structural unemployment is still better for the economy overall than slow technological progress and lower unemployment.

the fixer

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Re: Things Might be Different This Time
« Reply #23 on: April 05, 2013, 06:32:33 PM »
If you look back in history there are many times where there was a dramatic shift in technology - whether it be the wheel, agriculture, trains, autos, computers, the internet, whatever.  But everytime there is a new advancement, it eventually plateaus, and it takes a while for the next advancement to appear - things move faster than they once did but we may be in a cyclical hold position waiting for the next advancement that can change humanity - until then we may be treading water.
This is where I'd be inclined to believe that things are different this time! The rate of human progress and innovation is a function of how easy it is for us to collaborate and communicate with each other. Suppose 1 in 1000 of us is a genius capable of amazing new inventions, whatever time we live in.

If every one of those humans is surrounded by 50 intellectually average humans in a hunter-gatherer group, each one is effectively on their own.

If humans form a civilization, reading and writing, and a transportation system, those geniuses might be able to learn about each other through writings and letters. Maybe they can even travel to work together in person, building off each's ideas to advance their understanding of the world faster.

Nowadays humans are more interconnected than ever before. I can collaborate and share new ideas with people all around the world, and I'm doing it right now with almost no effort. This forum is a great example of how something that a handful of people have figured out on their own--financial independence and early retirement--can be shared with like-minded people and we can all build on those fundamental ideas instead of having to come up with them ourselves. MMM couldn't do that as effectively if it weren't for the Internet, web hosting platforms, blogging software, and forum software designed and built by other smart people. Similarly, the best minds in the world can easily work together across geographic and political boundaries to solve difficult problems that would be impossible for anyone to figure out individually. All of this exponentially increases the rate of technological growth and innovation.

This R&D comes in cycles that corresponds with economic growth; for-profit companies are less likely to spend on R&D if their margins are thin. Humans as a group also aren't necessarily the most efficient problem-solvers; in our free market we tend to first throw resources toward the problems that, in our estimation, will make the most money, and super-revolutionary ideas (e.g. fusion, thorium nuclear power) are too foreign to us so their value gets discounted and our estimation of how hard they are is usually too high. So things may slow down a bit every now and then but all the technologies we already have stay in place during that time, ready for us to get back to work on the next big breakthroughs that will come sooner than we think.

tooqk4u22

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Re: Things Might be Different This Time
« Reply #24 on: April 05, 2013, 06:58:03 PM »
By itself, that should just increase productivity. For instance, if I'm a business owner and can produce 2000 widgets per year in 1983 with 200 employees, and by 2013 something has happened that lets me produce the same amount with half the labor, then why would I lay anyone off? I'd be better off keeping all 200 employees and expanding my business to produce 4000 widgets per year, doubling revenues.

The problem with your statement is that you are thinking like a bureacrat and ignoring a fundamental piece of the equation - demand.  Thus, I agree with you if I could employ 200 people to make and sell 4000 widgets then yes but if I could only sell 3000 then I will only make 3000 I am sure you can do the math from there.

So in the end, I think rapid technological progress with higher structural unemployment is still better for the economy overall than slow technological progress and lower unemployment.

I agree that productivity can be good but only if demand is keeping pace or better - the issue is not training.  We only need so much crap.  We need the next big thing to drive the next round.

PKFFW

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Re: Things Might be Different This Time
« Reply #25 on: April 05, 2013, 07:22:26 PM »
and super-revolutionary ideas (e.g. fusion, thorium nuclear power) are too foreign to us so their value gets discounted and our estimation of how hard they are is usually too high.
I just thought I'd point out that scientists have been working on fusion power for nearly 60 years with billions and billions of dollars spent over that time.  All the while many have believed the necessary "big breakthrough" was and is just around the corner.

I don't think anyone in the field is discounting it's value.

brewer12345

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Re: Things Might be Different This Time
« Reply #26 on: April 05, 2013, 07:34:23 PM »
Back on topic:
What choice do we have except between "stock up on non-perishable goods and go find a cabin in the woods" or "keep buying in to the system, diversifying away as much risk as possible"? I prefer central heating to starting a fire on a dewy morning so I'll keep on keeping on.

Oh, I much prefer to do both.  There is a LOT to be said to waking up in the Fall to a crimson landscape with a nip in the air, starting a fire, and going for a hike or a hunt...

grantmeaname

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Re: Things Might be Different This Time
« Reply #27 on: April 06, 2013, 05:36:31 AM »
The problem with your statement is that you are thinking like a bureacrat and ignoring a fundamental piece of the equation - demand.  Thus, I agree with you if I could employ 200 people to make and sell 4000 widgets then yes but if I could only sell 3000 then I will only make 3000 I am sure you can do the math from there.
And you're ignoring the market elasticities of demand and supply. We're all making grand prescriptions about the economy here. So? What's the point? What about that invalidates his argument that technological increase can lead to gains in productivity but not layoffs?

tooqk4u22

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Re: Things Might be Different This Time
« Reply #28 on: April 06, 2013, 08:43:40 AM »
The problem with your statement is that you are thinking like a bureacrat and ignoring a fundamental piece of the equation - demand.  Thus, I agree with you if I could employ 200 people to make and sell 4000 widgets then yes but if I could only sell 3000 then I will only make 3000 I am sure you can do the math from there.
And you're ignoring the market elasticities of demand and supply. We're all making grand prescriptions about the economy here. So? What's the point? What about that invalidates his argument that technological increase can lead to gains in productivity but not layoffs?

I am not ignoring that, in fact that strongly supports the argument because if demand doesn't keep up then as the elasticity of the market will cause supply to decrease through reduced production, which will translate to fewer jobs and additionally the supply providers will seek greater productivity increases reduce expenses to increase or maintain profits.

As I said above, technological advancements does lead to productivity increases which can lead to employment growth but eventually it plateaus and declines - cjottawa's reference about labor being displaced is in line with this.  New technology does lead to new jobs but they "displace" a greater number of the older jobs so the net is a loss.  And it is even worse now with globalization and the ease of capitalizing on lower labor and other input costs, which is fine and consistent with theories of efficient use of capital. 


Kriegsspiel

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Re: Things Might be Different This Time
« Reply #30 on: April 08, 2013, 10:40:49 AM »
A good related op-ed on the state of manufacturing:
http://www.washingtonpost.com/opinions/robert-jsamuelson-myths-of-post-industrial-america/2013/04/07/775d1062-9fb2-11e2-82bc-511538ae90a4_story.html

In short, jobs may be fewer in American manufacturing but productivity is way up, so total output is on an upward trend long-term. For an investor, this is a good thing since it shows our economy can efficiently allocate resources (including labor) to maximize ROI.