Wealth Should Trickle Up, Not Down

[Stockolio]

Michael Pettis is on fire with these ones... Very deep thinker

I know some of you hate me and constantly follow me in threads asking how my puts are doing, no need for needling in this thread please, just wanted to share these writings, they are really important to understand

https://carnegieendowment.org/chinafinancialmarkets/79338#comments

https://carnegieendowment.org/chinafinancialmarkets/75972

Advanced Economies will have to change fairly sooner then later on minimum wage and pay wages ( through lower corporate taxes and increased wages ), taxing savers doesn't redistribute wealth, increasing wages do... The US seems intent on very heavily taxing savers, which will only increase the coffers of the state, without really maximizing consumption growth... By increasing wages instead of increasing social benefits, you get consumption up and an economy less dependent on debt

Quote from comment section in his blog :

Another gem of an article from Prof. Pettis. He is one a few 'experts' who readily admits that some of our most fundamental economic assumptions are no longer working. Otherwise humility is in very short supply among economists, who unlike, say, physicists, almost never publicly admit that there may be gaps in their knowledge and problems with their assumptions. It's doesn't take much intelligence and specialized knowledge to realize ( that most of the economic models developed over centuries, when human populations were surging and the fundamental problem for economics was to figure out how to distribute scarce resources among an ever growing population, may not hold in our age where stagnant/declining and aging populations and overproduction and lack of demand for such production is the new reality across large parts of the globe. (If I, a physicist with no formal training in finance or economics can figure it out, why can't the experts ?) Yet most economists remain adamant, fighting imaginary monsters like inflation, prescribing the wrong medicines for imaginary diseases while entire generations are being gutted by joblessness and hopelessness. So much so, that substantial segments of the populations across the west are now losing faith in liberal democracy. I am afraid, that if the liberal elite can't fix these problems soon, fascists will get another chance.

 

[clacy]

The last people we need "fixing these problems soon" are the "liberal elite". The facists have become the liberal elite, not the other way around.

We have under 4% unemployment in the US. Where is the "generation being gutted by joblessness" that he talks about in the blog?

 

[SimpleMeLike]

Michael Pettis is on fire with these ones... Very deep thinker

I know some of you hate me and constantly follow me in threads asking how my puts are doing, no need for needling in this thread please, just wanted to share these writings, they are really important to understand

https://carnegieendowment.org/chinafinancialmarkets/79338#comments

https://carnegieendowment.org/chinafinancialmarkets/75972

Advanced Economies will have to change fairly sooner then later on minimum wage and pay wages ( through lower corporate taxes and increased wages ), taxing savers doesn't redistribute wealth, increasing wages do... The US seems intent on very heavily taxing savers, which will only increase the coffers of the state, without really maximizing consumption growth... By increasing wages instead of increasing social benefits, you get consumption up and an economy less dependent on debt

Quote from comment section in his blog :

Another gem of an article from Prof. Pettis. He is one a few 'experts' who readily admits that some of our most fundamental economic assumptions are no longer working. Otherwise humility is in very short supply among economists, who unlike, say, physicists, almost never publicly admit that there may be gaps in their knowledge and problems with their assumptions. It's doesn't take much intelligence and specialized knowledge to realize ( that most of the economic models developed over centuries, when human populations were surging and the fundamental problem for economics was to figure out how to distribute scarce resources among an ever growing population, may not hold in our age where stagnant/declining and aging populations and overproduction and lack of demand for such production is the new reality across large parts of the globe. (If I, a physicist with no formal training in finance or economics can figure it out, why can't the experts ?) Yet most economists remain adamant, fighting imaginary monsters like inflation, prescribing the wrong medicines for imaginary diseases while entire generations are being gutted by joblessness and hopelessness. So much so, that substantial segments of the populations across the west are now losing faith in liberal democracy. I am afraid, that if the liberal elite can't fix these problems soon, fascists will get another chance.

A person needs to make a lot of money and invest alot of money is the only answer.

 

[SimpleMeLike]

The last people we need "fixing these problems soon" are the "liberal elite". The facists have become the liberal elite, not the other way around.

We have under 4% unemployment in the US. Where is the "generation being gutted by joblessness" that he talks about in the blog?

Exactly unemployment is 4%, the lowest in about 6 decades. Anyone complaining about making money is bullshitting. Interest rates are very low. Forget all this politics stuff, go get wealthy is the only answer to every problem.

 

[Stockolio]

The last people we need "fixing these problems soon" are the "liberal elite". The facists have become the liberal elite, not the other way around.

We have under 4% unemployment in the US. Where is the "generation being gutted by joblessness" that he talks about in the blog?

I took a quote from comment section... Great comment, but read the articles to understand... Here is a nice segment from Pettis :

I would argue that the key difference between the two investment-growth models is their treatment of wages and savings. Gerschenkron argued that investment in developing countries was typically constrained by low domestic savings. This made developing countries generally both overly reliant on the import of volatile foreign savings and subject to high capital costs. This is why Gerschenkron argued in favor of policies that forced up domestic savings as a way to speed up the development process.

It turns out that the way to force up savings is to force down the household share of GDP. This explains the high savings accrued not just in China and Japan but also in Germany and other economies with high savings rates and large current account surpluses. Because household consumption is largely a function of household income, this forces down the overall share of consumption in an economy’s GDP. Of course, the inverse of a low consumption share is a high savings share, so policies that force down the relative share of household income automatically force up a country’s savings rate.

This didn’t happen in the United States. The American System was developed in opposition to the then-dominant economic theories of Adam Smith and David Ricardo, in part because classic British economic theory seemed to imply that reductions in wages were positive for economic growth because they made manufacturing more competitive in international markets.

A main focus of the American System was precisely to explain what policies the United States, which enjoyed much higher wages than Europe, had to engineer so as to generate rapid growth.1 In the U.S. model, high wages turned out to be a source of economic strength, not a weakness. In fact, sustaining high wages became one of the key aspects of the American System; one consequence of this approach was continuous pressure to drive productivity growth through institutional reform and well-aligned entrepreneurial incentives rather than mainly by pouring money into capital investment.

This is not to say that Washington and local governments in the nineteenth century did not play an active role in building and funding American investment: they did. And governments, especially local governments, were a major reason for very high levels of American investment. But their role was mainly to fund infrastructure that supported private sector entrepreneurial activity. In the high-savings model, by contrast, it seems that investment in infrastructure is the driver of growth.

 

[Stockolio]

• In the high-wage growth model, high wages are the driver of growth. In the high-savings model, infrastructure investment is the driver of growth, with investment subsidized by hidden or explicit transfers from the household sector that simultaneously reduce the household share of GDP and force up the savings rate. Both of these growth models aim for high investment and high wages, but in one case wages lead and in the other they follow. The former uses high wages to create the market that makes private sector investment profitable and to incentivize innovation. The latter forces up savings and channels these resources into investment to drive up wages.
• Because the high-savings model results in weak domestic demand, especially once investment needs have been largely met, countries that pursue the high-savings model almost always require large trade surpluses to resolve the economy’s inability to absorb all that it produces.
• It seems that the high-savings model has been capable of generating more vigorous periods of substantially higher growth over the short- and medium term, but the high-wage model has generated more sustainable growth over the long term. The period of rapid growth under the high-savings model has always been followed by a very difficult adjustment, during which much of the relative advancement achieved during the growth period has been reversed. This may be because the imbalances generated by this growth model have been especially hard to reverse.
• In a globalized world economy, the high-wage investment growth model can be derailed because of its impact on international competitiveness. When transportation costs are very low and there are few trade barriers, high wages cause demand to shift to foreign, lower-wage producers by undermining competitiveness; as a result, rather than force local producers to invest in productivity-enhancing innovations, foreign, low-wage producers simply force them out of business.
  
  Germany’s experience of reducing wages during this century illustrates the problem by showing how the process worked in reverse. For over a decade, Germany suffered from high unemployment as its producers were priced out of the market by foreign competitors. In 2003–2004, Berlin implemented a number of labor reforms—referred to as the Hartz reforms—whose net impact was to weaken the bargaining power of workers and substantially slow wage growth to well below GDP growth. When this happened, Germany’s trade deficit became one of the largest surpluses in history as its unemployment level fell sharply. In a globalized world, the way to gain competitiveness is to reduce the real value of wages, either by reducing nominal wages (as Germany did), or by undervaluing the currency (as many Asian countries do).
• The difficult adjustment experienced by Japan and other investment-driven miracle economies may be implicit in the high-savings model. It is almost certain, for example, that China, too, is undergoing a difficult adjustment. While Beijing pledged ten years ago this March that rebalancing demand would be its top economic policymaking priority, this task has been very politically difficult to pull off.
  
  Japan seems to have reached the end of a fairly limited rebalancing that occurred in the 1990s and 2000s, during which consumption rose from 52 percent of GDP to 58 percent, while the country’s share of global GDP collapsed from 17 percent to 7 percent. China began the process around 2011, even though it had been promising to do so since at least 2007; consumption in the country has grown from 48 percent of GDP to 53 percent today, a still astonishingly low figure.
  
  Unfortunately, until the rebalancing is complete, both countries require large trade surpluses to resolve low domestic demand. As the world becomes increasingly protectionist, however, both countries may be forced into much more rapid adjustment and a possibly dramatic resolution of their debt burdens.
• The trade intervention process begun under the Trump administration is likely to spread to Europe and continue long after the Trump administration has been replaced. This is because as the problem of income inequality becomes an increasingly important political issue, especially in democracies, attempts to reverse income inequality will be undermined by the requirements of a globalized world economy. Democracies will face two options: either ignore income inequality and allow it to get worse, or begin to impose constraints on trade and capital flows so that reforms aimed at reversing income inequality do not lead simply to higher unemployment.

 

[dozu888]

inequality is never a problem.... using Ben Shapiro's argument, there is a lot of inequality between me and Bill Gates and I have no problem with that.

poverty is the problem... and the Dem elites policies have always been - tell them they are victims, keep them poor, keep them on the plantation, so they will vote for me again to keep the food stamps going.

others have said it right - lowest unemployment we've seen in decades... nobody is stopping nobody from making money.

but about the trickling up or down - the past couple of decades, most of the income growth have been among the high-skill workers... the low skill folks basically have seen them flat, barely keeping up with inflation - but that is mostly due to technology and out-sourcing.

 

[Stockolio]

inequality is never a problem.... using Ben Shapiro's argument, there is a lot of inequality between me and Bill Gates and I have no problem with that.

poverty is the problem... and the Dem elites policies have always been - tell them they are victims, keep them poor, keep them on the plantation, so they will vote for me again to keep the food stamps going.

others have said it right - lowest unemployment we've seen in decades... nobody is stopping nobody from making money.

but about the trickling up or down - the past couple of decades, most of the income growth have been among the high-skill workers... the low skill folks basically have seen them flat, barely keeping up with inflation - but that is mostly due to technology and out-sourcing.

Western Economies do not have an inequality problem as much as Surplus countries tend to have like Germany, china and Japan... It is the disparity between the savers ( the rich ) and the consumers ( working class ), were stagnation hits advanced economies like we have been since the mid 2000s, the current model just isn't working... Consumption needs to be a bigger part of GDP for advanced economies in this period, and the only way to increase Consumption is by increasing wages or increasing debt... Socialist wanna tax the savers at a high rate, which is not the right way, wages should be increased not debt or taxes. Savers will have less of the pie, but with consumption going higher, growth will rebound without having to increase debt deficits on a yearly basis.

The US is the best economy in the world cause they switched in the 70s from a surplus high savings economy to high wage economy, when at the time they seemed to be the only ones... US has the highest consumption GDP in the world at 70 %, which is very good, that's why American standard of living is so nice, excess savings from foreign countries come park their money, and a very vibrant economy made possible by high wages... What Pettis points out, is that either the stagnating economies continue down the debt hole or increase consumption by increasing wages, it will hurt savers a bit in the process but that's what it comes down to...

Great great read, Europe should look into this... As well as the Asian Tigers, high savings surplus model is great when coming up, but to flourish GDP per Capita has to be efficient and high

 

[SimpleMeLike]

poverty is the problem... and the Dem elites policies have always been - tell them they are victims, keep them poor, keep them on the plantation, so they will vote for me again to keep the food stamps going.

Exactly. Money is not the root of our evil, Being broke and poor is the the root of our evil.

The democrats just like to talk all day and play around and keep people begging for them for money and "look what trump said" oh and "he is racist bullshit" All this stuff is all marketing and monkeying around. Just a pony and clown show. I realized this about 10 years ago.

 

[dozu888]

Western Economies do not have an inequality problem as much as Surplus countries tend to have like Germany, china and Japan... It is the disparity between the savers ( the rich ) and the consumers ( working class ), were stagnation hits advanced economies like we have been since the mid 2000s, the current model just isn't working... Consumption needs to be a bigger part of GDP for advanced economies in this period, and the only way to increase Consumption is by increasing wages or increasing debt... Socialist wanna tax the savers at a high rate, which is not the right way, wages should be increased not debt or taxes. Savers will have less of the pie, but with consumption going higher, growth will rebound without having to increase debt deficits on a yearly basis.

The US is the best economy in the world cause they switched in the 70s from a surplus high savings economy to high wage economy, when at the time they seemed to be the only ones... US has the highest consumption GDP in the world at 70 %, which is very good, that's why American standard of living is so nice, excess savings from foreign countries come park their money, and a very vibrant economy made possible by high wages... What Pettis points out, is that either the stagnating economies continue down the debt whole or increasing consumption by increasing wages, it will hurt savers a bit in the process but that's what it comes down to...

Great great read, Europe should look into this... As well as the Asian Tigers, high savings surplus model is great when coming up, but to flourish GDP per Capita has to be efficient and high

ok, so I don't see anything revolutionary here

down the debt hole - yeah we been doing that and the admin/congress has just put the debt ceiling on hold - sensible move, why even pretend there is a ceiling.... nice to have the world's reserve currency eh? we print money, the entire globe foots the bill... brilliant... and God Bless America!

wages - how to execute this? global economy and you can only pay so much as the market can bear.... artificial increase will just move jobs overseas... too easy to do.... and not the minimum wage idea? has been proven to be a certain job-killer.

so really - the reserve currency status is the key.... we have been sucking goods and services globally by handing out IOUs lol.... and Mr. Overnight is upset that Trump is taxing China.... I have said many times before... the trade war is about world dominance... and only Trump has the political will to do something about it because he is a true patriot... otherwise if we lose the dollar dominance you can kiss this robust economy good-bye..... so in order that your children and grand children can still buy cheap shit from Walmart, perhaps a few bucks draw down in the YM is worth it? lol.