PeakTrader.com

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PeakTrader said...

U.S. living standards improved at a steeper rate between 1995-07. The question should be how to continue improvements in living standards, given the capacity of the U.S. economy (destroying capacity is a poor option).

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morganovich said...

peak-

us consumer debt also tripled during that period. the "gains" of the last decade we never going to be sustainable.

when you spend more than you earn for a decade, you are going to run into some lean times when the bills come due.

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PeakTrader said...

Morganovich, (real) assets increased faster than liabilities (or debt). Of course, it was sustainable.

Over the past two years, we've diminished the capacity of Wall Street and Main Street to generate real growth (to close the output gap). Consequently, if the economy expands at its long-run growth rate (i.e. 2 1/2% to 3% real growth), we'll likely get accelerating inflation.

Two years ago, there should've been a large tax cut (to compensate for trade deficits) and a shift from profits to wages (given the inverse relationship and increased disparity).

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morganovich said...

peak-

you argument doesn't make any sense.

debt to GDP rose from 25% to nearly 100% and you are calling it sustainable?

when has anyone ever sustained triple digit consumer debt to GDP?

the "real" assets you describe were paid for with borrowed money. there is nothing sustainable about that once you hit too high a debt rate. a lot of these "real" assets were overpriced new homes that are now badly underwater.

the rest of your argument is just bizarre.

what does capacity and inflation have to do with this discussion? i have no idea why you view that to be germane.

and then how to you get a shift to wages during overcapacity and how does a tax cut relate to a trade deficit? those points seem almost random.

your comments read like an economic mad lib. i have no idea what you are trying to demonstrate.

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PeakTrader said...

Morganovich, if you look at U.S. household net wealth, since 1952, as a percentage of GDP, you'll see two peaks in 2000 and 2007, and two troughs in 2002 and 2009.

The peaks were substantially higher than the long-term average and the troughs were roughly equal to the long-term average.

So, even at the bottom of the asset bubbles, we were at the long-term average of net wealth (between 1952-95).

If you have a firm with 300 employees and you tell 100 of them not to do anything (e.g. because of Wall Street restrictions, Main Street losing skills from extended unemployment, putting them on welfare, etc.), then you create economic strain by producing the same quantity with 200 workers that you did with 300 workers, which is inflationary (unless productivity rises 50%).

If real wages are flat and profits double, a shift of some profits to wages would increase workers incomes, and their spending and saving will increase.

Consumers exchange goods and use money as a medium of exchange. However, a consumer may decide to save and invest instead.

When a U.S. consumer buys a foreign good and the foreigner invests the dollars in Treasury bonds (rather than consume a U.S. good), then the dollars are shifted from the U.S. consumer to the U.S. government rather than from a U.S. consumer to a foreigner and then back to a U.S. producer.

Consequently, the U.S. government decides what to do with those dollars instead of a U.S. producer.

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MP: Can there be any rational, logical solution to stop this insanity other than the obvious one - legalization?

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PeakTrader said...

Yes, an effective government, including law enforcement, to capture or kill criminals instead of surrendering to crime.

"People don't kill people. Guns do."

"Organized crime groups may be involved in drug trafficking, arms trafficking, human trafficking, contract killing, piracy, counterfeiting, money laundering, extortion, illegal gambling, acts of terrorism, and political assassination."

So, let's legalize drugs, kidnapping, slavery, murder, theft, forgery, dog fighting, suicide bombers, etc.

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Did Prohibition Work?
Reflections on the End of the First Cocaine Experience in the United States, 1910-1945
RAND Corporation

"The use of cocaine began in the United States during the mid-1880s, reached a peak between 1900 and 1915, and then went into a sustained period of decline.

Cocaine remained at the margins of the American drug scene for over four decades.

Historical accounts have not attempted to explain why the once-popular drug disappeared.

Stricter laws regarding distribution eliminated the legal market, and made the cocaine that remained through illicit channels more expensive and harder to find."

My comment: If you tax (or regulate) something, you get less of it.

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Marijuana Use Sparks Concern in Japan

Last year (2007), police in Japan arrested 2,373 people on marijuana charges. By comparison, in the United States, which has roughly 2 1/2 times the population of Japan, more than 800,000 people were arrested on marijuana charges last year.

How Japan won the war on drugs:

Japan began experiencing serious problems with heroin. By 1961 it is estimated that there were over 40,000 heroin addicts in Japan.

The number of arrests for heroin sale and possession fell from a high in 1962 of 2,139 to only 33 in 1966 and have never risen above 100 since.

The Japanese...inaugurated a system of forced hospitalization for chronic drug users. Under this policy, drug users were rounded up in droves, forced to go through cold-turkey withdrawal and placed in work camps for periods ranging from a few months to several years.

This approach to drug users, still in force today, is seen by the Japanese as a humane policy focussed primarily on rehabilitation.