The Daily View: Economics, Poverty, Treasuries, Geithner, Bitcoin

The discussion of economics in the context of wealth inequality has become the new American pastime, along with idling on Facebook and watching re-runs on Netflix. Even those who have never taken an economics class have an opinion. And why wouldn’t they? Economics is a social science in that it involves people and their interactions with each other and the society and world they inhabit. Everyone and anyone can take sides, lending his or her own anecdotal evidence to the discussion, while the more experienced can cite statistics and case studies. Economics is like a battle royale, pitting the educated against the provincial, the capitalist against the laborer. An economics story that gets people riled up cannot just be about minutia and complicated models, it must have a protagonist and an antagonist, like a drama. The antagonist is usually an out of touch CEO, a banker or a multinational. The ‘hero’ is the working man or the rogue economist, exposing the misdeeds, but ultimately failing to foil the villain. If you win, the drama ends and the discussion ceases. A news aggregator with a rudimentary understanding of human psychology can choose out of a pool of thousands of stories exactly which ones people will be most inclined to click and comment. After a tendentious story is chosen, the aggregator may editorialize the headline with generalities, superlatives and calls to actions such that the headline is now only tangentially related to the original story. Stuff like “What EVERY 20-Year-Old MUST Know!” or “The Inequality Chart Just Got Worse!” But often, the original headline will suffice at generating discussion if the story is readily reducible to a banal battle between the metaphorical bad guys v. good guys. In the social media era, the personal experience is as credible, if not more, than the data. Yet we also revere scientists more than ever. It’s a contradiction in the calculus of authenticity and credibility. We lionize the loquacious commentator or ‘man on the street’ and the taciturn scientist, because in a world of astroturfing, we perceive them to be unmolested by outside forces such as money, demagoguery and political interests. The personal experience of losing one’s job becomes as credible as the economist and is elevated to the forefront of the collective debate.

In Today’s America, A Rising Tide Lifts All Yachts

Donald Sterling’s troubles show that the rich are still being victimized

Living standards of the lowest of income earners have risen considerably over the past fifty years. They have access to services, technologies and welfare programs that didn’t exist decades ago. While real wages have stagnated, real entitlement spending has risen (graphs provided here) . Nominal wages, however, rebounded sharply after 2008. According to neoclassial assumptions, we would expect wealth inequality to rise as the economy grows, resulting in extreme wealth for a small percentage of the population resembling a power-law distribution. Poverty and wealth inequality isn’t as big of a deal as the media makes it out to be and will always exist no matter what anyone tries to do to remedy it.

Worst article of the day: Bitcoin is no longer the worst investment in the world

Let’s see…bitcoin was at $100 last year and is now at $700. Seems like a good investment to me. After a recent huge $300 rally, it’s only 30% from the record high, which isn’t good, but nowhere in the league of being the ‘worst investment in the world’. Twitter, for example, is off 50% from the highs. There’s hundreds or even thousands of stocks that have fallen over 15% in 2014. Just another example of shoddy journalism by someone looking for clicks instead of providing accurate reporting.

Geithner’s Dubious Accounting

Dubbed The Competent Duo, Geithner and Bernanke were the only competent people of the entire Obama administration.

Along with Bernanke, Geithner did a good job ending the 2008 banking problem. The left wanted the crisis to get worse and for stocks to fall but, to their frustration, things got better. Much better. By April 2011, the bailout money had been repaid to the treasury. Maybe those crybabies should buy stocks and real estate instead of whining about not getting enough interest in their savings accounts.

Not a mystery: Unstoppable $100 Trillion Bond Market Renders Models Useless

If the insatiable demand for bonds has upended the models you use to value them, you’re not alone.

We’ve predicted this as far backs as 2011.

BRIC surpluses are depressing yields even as economic growth remains strong and stocks rise. In any earlier decade, it wouldn’t be possible to have yields be so low with such strong gains in equities. We’re in a global liquidity boom, as we predicted in 2011. The simplest explanation is that there’s a shitload of money generated since 2009 and it has to go somewhere, so some of it will flow to treasuries and bonds even as stocks rise.

The Fly: Let me remind you that TLT is going up because of foreign money and not because we are heading toward catastrophe.

Agree 100%. The world is awash with so much liquidity that it’s pushing all asset classes higher including, but not limited to gold, stocks, gas prices, treasuries, municipal bonds, junk bonds, and oil. Going long TLT (the 20-year treasury) is a proxy for global liquidity as well as a hedge against volatility. Even the smallest hiccup overseas or the smallest downtick in the S&P 500 sends it rocketing higher. Foreigners, funds and institutions just cannot get enough of our low-yielding debt, and they will look for any excuse, however small, to buy.

From When Automation Comes for the Professional Class

Seems like the world is changing faster than we can keep up. People are getting smarter and richer than ever as stocks keep going up. So much wealth to be had. So much stuff going on. The invocation of the Luddite Fallacy has become commonplace among economic pundits since 2008. One can argue that there will always be new jobs being created that a few years ago seemed inconceivable. For example, there are people who make a living moderating Facebook brand pages by removing spam and answering question. However, another question is : will there be enough jobs for those who fail to meet a rising IQ threshold for entry level employment as technology automates the simplest of jobs? According to Tyler Cowen, we have a situation where average is over. Many young adults with degrees are doing work that just a generation ago was typically relegated to high-school dropouts. This seems to be a permanent trend in that a surging stock market and steady economic growth isn’t creating enough high paying jobs. To get a good paying job, you have to have superior credentials and or provide exceptional value. Just showing up and coasting by with a detached indifference like in Dilbert won’t cut it anymore.

Comments are closed.