Store of Value vs Worth vs Labor vs Debt

The “modern” economy and modern economics make several assumptions that I think are not true. For some of these, the results are economic dislocations (IMHO) and there are a few “products” that depend on these confounding of understandings for their existence.

I’m going to present a “thought paradigm” or “explanation in a box” that I think might help illustrate some of the issues. I’m not sure this is the best way to look at things, but I think it helps to remove some of the “crap” that passes for generally accepted truth.

Store Of Value and Money

There is a common confusion over what is a ‘currency’ vs what is a ‘money’. IMHO much of it ‘by design’. Governments love to issue “paper money” when what is really being issued is “paper currency”. Why do I say that? The definitions I learned getting the ‘ol Econ degree.

Currency is a “medium of exchange”. Doesn’t matter what it is, you can swap things for it, and swap it for things.

Money is a medium of exchange, but also has a “store of value” function. People want to “put something away for later”.

So in a prison, cigarettes are often used as both money and currency. They store well, have high value to unit size, are always in demand, and can be easily traded in sizes from individual cigarettes to packs to cartons. (They also have the feature that the “money supply” is constantly consumed so inflation can not build up ;-)

Over time, all sorts of things have been used for money, from carved stones to precious (and semi-precious) metals and stones. These fairly universally involve significant embodied labor in the extraction / creation processes and have high value / unit or density. (Though the giant carved stone donuts used by one tribe were questionable on that front, they did have high embodied labor). Traditional money was a form of embodied labor that was durable over time.

Also, as a side note: The historic 16 : 1 ratio of value of sliver to gold was based on the relative costs to mine them in antiquity. The reason that does not hold today is that the mining of both has “moved on” to other technologies and the relative costs have shifted. I mention this simply because it is still commonly brought up by “hard money bugs” as an advocacy position when they advocate for hard money and the preferred ratio of sliver to gold prices / values. There is a long economic history on this too, so it ought to be mentioned as a well thrashed out point. It was, once, a major political topic and ignoring it would be undeserved. It has some humor available too:

http://www.conservapedia.com/Bimetallism

Wizard of Oz

Since the 1960s historians and economists have explored the bimetallism symbolism in The Wonderful Wizard of Oz/ The original 1900 book centers on a yellow brick road (gold), traversed by magical silver slippers (the 1939 movie changed them to ruby slippers), as Dorothy leads a political coalition of farmers (Scarecrow), workers (Tin Woodman) and politicians (Cowardly Lion) to petition the President (Wizard) in the capital city of Oz (the abbreviation for ounce, a common unit of measure for precious metal). The real enemy of the little people (Munchkins) is the giant corporation or Trust (Wicked Witch of the West), whom Dorothy dissolves, just as the progressives of the era tried to dissolve the corporate trusts.

As opposed to metals and stones and other things that “embody labor” and have an “intrinsic value”, we have the more common means of exchange today. The fiat currency. Often called a “paper currency” since that was the major manifestation until computer bits took over. Now much of our “money supply” really consists of computer bits storing accounting entries for currency inventories.

IMHO, what makes a fiat currency or paper currency different from hard money is that it simply is not a “store of value” as it has no embodied labor to speak of. (Actually, with modern mining, embodied labor and capital consumption) In short, an ounce of gold will always be an ounce of gold and baring any miraculous breakthrough in mining or transmutation of elements, has a stable embodied work content. It may slowly change over time as technology advances, but that is limited to just a percent or 2 a year (and sometimes not at all) by the rate at which new inventions and discovery happen.

Just to be clear: I am not a “Gold Bug” nor am I a “hard money advocate”. The “worth” of a commodity can shift rapidly with economic demand, and gold is just another commodity. This means that use as money means prices can shift rapidly based on the demand for gold industrially and not on inherent value. I’m not particularly fond of paper currencies either, and have my own ideas about a better money then either (but that’s in a prior posting – the commodity basket backed debit card). I’m doing descriptions, not advocacy, here.

Fiat currency costs nearly nothing to manufacture and has nearly no intrinsic value. Sure, some is collected as art, of a sort, but usually long after the use as a currency has waned. It retains exchange value and use only so long as someone strongly backs it with willingness to do various exchanges with it. Typically the Central Bank (that swaps it for mortgages, insurance contracts, and sometimes real goods like metals – gold, silver). Economics typically glosses over the point that a mortgage is very different from gold when it comes to a central bank taking “assets” in exchange for currency. IMHO, that is in error. The two have very different natures, and in the long run, that bites. Both the mortgage and the currency are just paper promises.

Just keep in mind that history is littered with broken currencies as nations and banks came and went. In the early years of the USA, there was no central bank and each bank could issue their own currencies. These often took the form of deposit receipts for gold or silver. This practice carried forward into the Federal Reserve System up until Nixon killed it. He wanted to spend a LOT more money than was available with gold backing, and did so. The French, knowing this meant the $US was going to drop value, started trading them in for Gold and Sliver as the contract said could be done. Eventually (many many tons of gold shipped to France later…) Nixon gave up and decoupled the $US from gold and removed silver from our coins. Since then, the $US has lost roughly 95% of the “value” it had then.

I can verify this from personal observation over that span of time. Stamps were 3 cents, moving to 5 ¢ and now have moved from 35 ¢ toward 1/2 dollar. Bread was a dime, and is now about $1 to $3 a loaf. Cars were about $1500 to $2000 and now run closer to $20,000 to $30,000. So it goes. So in many ways the $US is already a “broken currency”, but since it took 50 years, we haven’t noticed so much. This will be forced to accelerate going forward due to the ghastly debt level being racked up, but is presently in check as our demographics does not have folks looking to cash those checks just yet. And that is the thesis presented below. That TIME is the missing element in “store of value” vs “store of labor” (or “store of work”)

The key point about gold vs paper currency is that gold is a “store of value” and a “store of work”, where paper currency is only a “store of value” in the short run, and is never a “store of work”. I think this matters. So much of modern economic though tries to portray paper currency as having some “store of value” and therefor being a “money”; while I’m of the opinion that “store of work” matters and that paper money is only a “store of hope” and is only worth what someone else will give you for it. Gold, silver, copper, even iron and land have intrinsic worth and so can not be reduced to zero (or even much below the cost to mine or produce). They can be bid up to higher than reasonable levels, and so have volatility issues as a currency.

Demographics As Destiny

It is a common theme of political economics. Nations with growing populations can grow. Nations with stagnating / declining populations can not. Nations with dramatic influx of foreigners will be changed into something else.

For the USA (and perhaps the EU as well), there is a “Baby Boom” generation. Born after W.W.II when the G.I.s came home. I’m part of it, though at the trailing edge. My older siblings are the start of it and the middle. The “boomers” have often defined economic trends and style fads as they moved though “the system”. They will do that, too, when they retire. (That is happening now, with my older siblings already retired and me about 5 years out). As we move from the most productive years to the retired years, the “bubble” of production will move with the boomers to a bubble of consumption. Our economics will move from “saving for retirement” to “cashing it in”.

That is the fundamental problem facing Social Security, Medicare, Medicaid, Federal and State Retirement systems, and Corporate Retirement plans. The Corporate Retirement plans have faced this before the rest, with many going bankrupt, or being eliminated entirely. It is my opinion that a similar issue faces all the rest. Further, that it is not possible to solve it. Why? Simply because paper “assets” are not real labor. There is a fundamental fraud in thinking that a T-Bill can grow food or make cars. It is a “store of value”, but not a “store of labor”. We will have a bubble of ‘takers’ and no supporting bubble of ‘makers’.

Don’t look to China to bale us out on this with their ‘makers’. Thanks to the “1 child policy” they face a demographic wall of their own.

http://www.nejm.org/doi/full/10.1056/NEJMhpr051833

Health Policy Report

The Effect of China’s One-Child Family Policy after 25 Years

Therese Hesketh, Ph.D., Li Lu, M.D., and Zhu Wei Xing, M.P.H.

N Engl J Med 2005; 353:1171-1176September 15, 2005DOI: 10.1056/NEJMhpr051833

China’s one-child family policy has had a great effect on the lives of nearly a quarter of the world’s population for a quarter of a century. When the policy was introduced in 1979, the Chinese government claimed that it was a short-term measure and that the goal was to move toward a voluntary small-family culture.1 In this article, we examine to what extent this goal has been achieved and the implications for the future of the policy. First we explain why the policy was introduced and how it is now implemented. We also examine the consequences of the policy in regard to population growth, the ratio between men and women, and the ratio between adult children and dependent elderly parents. Finally, we examine the relevance of the policy in contemporary China and whether the time has come for the policy to be relaxed.
Background

In 1979, the Chinese government embarked on an ambitious program of market reform following the economic stagnation of the Cultural Revolution. At the time, China was home to a quarter of the world’s people, who were occupying just 7 percent of world’s arable land. Two thirds of the population were under the age of 30 years, and the baby boomers of the 1950s and 1960s were entering their reproductive years. The government saw strict population containment as essential to economic reform and to an improvement in living standards.2 So the one-child family policy was introduced.

Figure this really had impact starting with births in 1980. That’s 35 years ago. Add 20 years for start of child bearing, the last of those pre-1 children are now about 55 years old. In the next decade, they age out into retirement. All those “2 parents” being supported by all those “1 child” workers.

IMHO, this is a large part of why both Republicans and Democrats have largely ignored the influx of illegal aliens and often granted “amnesty” for the flood over the border. Having spent 2 generations berating us to stop having children “for the planet” and us generally having “at replacement” or below rates of reproduction; they have decided to flood the place with imports to make up for the labor shortage that makes the retirement promise a hollow one. Need more taxes? Just bring in more workers… Legalities be damned and that stuff about stopping population growth ignored. Something similar plagues the EU and UK, but with muslim influx from North Africa and the Levant & Pakistan areas instead of Mexicans and Central Americans. Having done as you were told “for the good of the planet”, you are now to be replaced.

But what happens when those new imports decide they don’t give a damn about paying for a bunch of old folks that they hate to live a life better than theirs? Are they really going to honor “retirement” benefits for folks who borrowed the money from their future? Can they, even just as a practical matter?

National Debt – Money borrowed from future labor

Nations love to borrow money. IMHO, the best thing a nation can do is forbid national debt. Just make it a zero. Why?

National debt is borrowing from the future. It robs those who are not a party to the contract.

Right now, in the USA (as an example) we have Obama and his Republican Congress racking up about $1 Trillion per year on average of National Debt. This is “value” that is being consumed today. Embodied labor and capital stock depreciation, gone into pet projects. The folks who will pay this bill will be working in 30 years when the 30 year bonds come due. Those folks will be about 40 to 50 years old then. That makes them 10 to 20 years old now. Generally speaking, not involved in the decision to borrow from their future wealth to spend now. The notion that this “stimulates the economy” so is somehow free is simply wrong. Perhaps if it were spent on fundamental wealth building projects, it could, but generally it is not so spent. We are not building steel mills, coal mines, or automobiles with the money. It is going to welfare payments (“EBT” cards and food programs), retirement benefits, bribe money foreign aid expenditures, expenditures on political staffs, and wars. Hardly any of the Federal budget is for economic production.

In short, this is increasing consumption today at the expense of future consumption. While that might be an existential thing during a time of war (real national survival war, not the petty adventures of personal prestige that most “leaders” indulge in); it is very hazardous to future wealth at any other time.

The simple fact is that labor is in its essence an ephemeral thing. It exists at the moment of production and is consumed and gone. Once gone, it can not be recovered. This matters.

A borrowing today of money from someone else, spent today on consumption today; also consumes the embodied labor from the here and now. In some future time it is not sufficient to hand over pretty pictures on paper. The repayment is expected to obligate labor and capital stock in return. That must be the labor of those in the future, especially for 30 year government bonds.

This leads to the fundamental fallacy of “investing for retirement” in paper assets of governments.

While hard assets like gold and silver have “embodied labor” in them, so in some future date can be exchanged for other labor (avoiding the labor needed to mine and refine gold and letting it make cars instead); this is not the case for a government bond or a box of currency. Handing that to someone does not replace some other labor. When that bond is cashed in, the currency paid will expect to command the consumption of labor and capital depreciation. That can only come from actual labor then.

Similarly, stock in a company may represent a share of working capital stock (real production, land and machinery with their embodied labor); it may also represent a fantasy in a fraud, or a share of a dying enterprise being mined of all real productive assets, and similar. So to some extent ownership of stock in productive capital via corporate stocks and shares can contain an embodied labor component. Similarly, a corporate bond is expected to be used to grow the company and make added production capacity. To the extent this is true, it is investment in actual production and when redeemed can claim actual production. IMHO, this distinction (nearly universally ignored) also matters.

Why is fairly simply illustrated. China is borrowing money to build manufacturing facilities and expand farming (and mechanize). This increases their future production of goods. It “embodies labor” into a productive asset. The USA is borrowing money from China to fund wars and consumption expenditures. (Look at the US Budget – dominated by military and transfer / welfare / social security / healthcare spending). Now in 10 or 20 years when the Chinese look to cash in their US Treasuries (or in 5 to 10 when Japan looks to do the same) to fund their retirement: They will be wanting to buy food, clothes, medical care, vacations, etc. etc. ALL of those will require real labor THEN, not promises from now. From where will that labor come?

The USTreasury bond implies that it will come from someone in the USA. Via taxing a portion of their income to pay interest and principle on the bond so that money can be used to buy food, clothes, etc. etc. But we have a giant bubble of retiring folks (in the USA, and China, and Japan…) and no matching bubble of labor that’s 30 years younger. Despite the signatures on the bonds, someone will come up short at cashing time on the labor front.

I think much of the EU is in the same boat. The UK I’m not so sure about.

We see this playing out in Greece.

Historically too much borrowing (for consumption that long ago disappeared in the rear view mirror). A current generation of retirees being told “sorry, no retirement for you” (by several means, from cutting benefits to increased taxes to higher prices). ‘Austerity’ plans saying to increase taxes (so as to pay the bond holders) yet the already high taxes drive out private productive capacity and push personal services into a black market. More taxes decrease production, right when more production is needed. That, then, increases unemployment especially among the young. Just those folks who had no say in the original expenditure, and who are expected to provide the labor to make the food, serve the meals, and provide the medical care to that retiring group. With even less labor in productive use, the cycle deepens.

Even more State Dependency via welfare / the dole / unemployment payments, leading to yet more borrowing to pay it. Increasing the “roll forward” of that labor debt in the future. A debt that can never be paid as the labor sitting idle is lost forever, as the system grinds to a halt. The only real question is the form that the repudiation will take.

One can simply decline to pay the bond holder. Tell them THEY don’t get a retirement on someone else’s labor.

One can tell those currently living on government payments that they get nothing. ( Part of “austerity”, but also sometimes a motivation to provide labor).

One can roll the debt even further into the future (“rescheduling”) and make it the people of 20 years further on who are out of luck.

Or one can recognize that currency is a fluid thing that doesn’t embody stored labor and just inflate away the value of both the debt and the welfare / retirement claims. Essentially a combination of the first two by more subtle means.

What you can not do is make more productive capacity and labor appear to provide those expected goods and services without paying for them with something that does have embodied value… i.e. real money. If you pay them with printed currency, it is just an indirect form of ‘inflate away’. Though sometimes this is the best solution if coupled with significant tax and regulatory “reforms”.

IFF the idle labor is made cheap compared to world competition (usually via currency exchange rate reduction) and taxes on it are low enough to encourage business to hire and labor to work, then the labor will be productively empoyed. (Especially so if burden of wasted labor via regulatin and taxation are reduced as well.) That, then, begins to supply real productive labor.

IFF taxes are lowered to where private enterprise can see a profitable endevor, then productive capital stock will be formed.

IFF regulatory burden is reduced to where most labor is spent productively instead of on “make work” compliance, both the cost savings and efficiency will flow through to more product.

In that context, a recovery can start. BUT, only if the “demand” for goods and services from the non-productive portion of the country does not drive productive capacity to insolvency via excess taxation. So some “shortfall” of available labor and goods will fall on a very large dependent class ( for example the Baby Boom retirement bubble) when there is not sufficient working age to support them. You can’t make enought “stuff” without enough “labor”.

And that is the fundamental problem.

For Greece. For the EU writ large. For the USA. For China in a few years.

Worth vs Value vs Labor & Work

Gross Domestic Product is the usual way to measure economic performance. It is deeply flawed. I’ll mention just 2 of the many for illustration.

1) Inflation is poorly handled.

2) War expenditures are positive GDP.

Let’s take the second one first. As we make $100 Billion expenditures on bombs, and drop them on cities destroying productive capacity, that is added to GDP. Soldiers paid to stand around, dig holes and fill them up, or kill people and blow up buildings; add to positive GDP.

I think it is quite obvious that does not add to productive capacity. Part of The Broken Window Fallacy; the basic issue is that destruction is a net cost, and money spent on it is not available for productive investment.

For item 1, how do we value things that change over time? I recently bought, for $60, a computer with more total compute power than a supercomputer from earlier in my career. Do we value it at $60? Or at the multiple $Millions of compute value for the predecessor? Is producing an ounce of gold “worth” $300 as a decade back, or the $1800 of a couple of years back, or the $900 of now?

I would add to this that GDP does not recognize at all the relative time scales on which labor and physical stock create and lose value.

In short, GDP is time blind and can’t tell value from worth from price. It has no idea about embodied labor nor consumed capital stock and thinks destruction is a positive good.

I’d like to illustrate a different point of view on that. While this is my own creation, and only half finished at that, I’d not be surprised at all if someone else, likely more famous, has observed the same things. I was trained as a Keynesian, and only lately began catching up with the Austrian School (who I think are much more right).

First, lets put a few things on a “Store Of Value” spectrum. The first line is a heading that gives an idea of the degree to which things store value. Then I’ve made guesses about where some things belong on that scale.

Store Of Value

Destructive     Neutral         Wasting            Durable
war             crypto currency stored grains      Gold, metals
some demolition labor           paper currency     Oil development
                                iPhones, computers Lifetime credentials & licenses

The idea here being that some things destroy value, like demolition of a working sports stadium (where demolition of a waste dump might create value, the stadium is still usable, so has some value). Wars clearly destroy value as it is all about “killing people and breaking things”.

Some things are neutral about storing value. Labor is ephemeral. It produces something or it doesn’t. The value of the labor is embodied in the work, or is lost to “beach time” or “R&R”. In either case, the labor itself is not storable.

Crypto Currencies, like Bitcoin, have no inherent “value”, they are only worth what people think they are worth. Paper currencies typically have the “full faith and credit” of a country or union of countries behind them. This means that a Central Bank or Government is willing to exchange something else for them (often yet another paper currency or sometimes ‘specie’ meaning gold or silver). While this tends to support the “value” stored in currencies in the short run, it is a ‘wasting’ asset as politicians simply never saw a dollar (or euro) they could resist spending, even those from the future via deficit spending, and thus inflation consumes the value over time. While the case can be made that theoretically that need not be so, there is no existence proof ever… All that changes is the timing.

Finally, some things have inherent value. They may change slowly over time (gold, for example, as mining techniques improve) but are generally durable. I’ve listed oil development here as the discovery and build out of an oil field creates a durable value that may last for decades. Saudi has been pumping how long?…

Note that stored grains slowly go bad, computers decay on a Moore’s Law schedule (double the power at the same cost every 18 months means value is 1/2 every 18 months) and then there are things like the iPhone. Hot today, but in 5 years? So these store value, but on various decay rate schedules.

Now, for a currency, where most “exchange” happens in days to months, that it is slowly wasting away as a store of value doesn’t matter too much. Thus central banks targeting a 2% inflation rate. That just means they are only stealing 2% of future value in any one year. It also means that future obligations, like retirement payments, are being repudiated at 2% / year. (Unions try to get inflation escalators to claw back that repudiation, which lead to redefinition of the inflation rate calculation method. And the lier’s Race goes on…)

I’ve also included lifetime credentials and licenses as an example. Though ever more rare, at one time you could get a “Lifetime Teaching Credential” or similar licenses and those entitled the worker to lifetime benefits in employment. Ever more licenses and credentials require “ongoing continuing education” and similar upkeep, so have moved into the “wasting asset” category.

So for something to be “money”, it needs to be a “durable store of value”. I’ll leave it for folks to think up what fits that right most column, is easily divisible, transportable, and durable. As an example / hint, whiskey was a way to embody the value of grains (that would otherwise be subject to rats, rots, and oxidation) into a more compact, tradable form.

Anything not so “durable” may be a currency, but is not a real money.

There are other implications from this chart. Where would you place a Government Bond, for example? And since labor is ephemeral, how does labor today pay off that future bond when it comes due? Can it really ever be paid in a decaying currency?

There is an inherent disconnect on “stored value” between the labor pool and the paper asset pool. IMHO this is very important for understanding the theft via government bond of future value of labor (and capital stock – as I don’t subscribe to the Marxist idea that goods produced are 100% embodied labor…)

A government today may issue a bond (perhaps bought by folks working in China) and spend the value of that labor, but expect it to be repaid with the value of labor from some future citizens. If it is not repaid (or repaid with inflated currency devoid of value) the government has effectively stolen the future citizens labor (via future taxes) or stolen the labor of the foreigner via repudiation / inflation. This is a necessary consequence of the differences in stored value of labor vs government bonds. (This also extends to capital stock owners, but constantly putting “and/or capital stock” in every sentence is tedious… and doesn’t add much to clarity.)

Is it immoral to steal their future labor (and through it, liberty) in that way?
Is it immoral for them to repudiate a contract they never entered?

Both of those questions are being played out in the EU today.

Next, lets look at storage of work.

Storage Of Work vs Labor

In this case, I’m using “work” to mean getting something done, be it by machine, by capital stock, or by labor; while labor means human effort only. Any or all of these can create value, or create things with no inherent value. I think this distinction matters too. Also note that “worth” and “value” are often used to mean the same things. There is an inherent value to a lump of gold. It took labor, machines, energy, buildings, land, and know-how to win it from the ground; and can always be made into attractive jewelry. Yet the “worth” on any one day depends on who is selling how much, and how much is to be bought.

Similarly, a crypto-currency has embodied work. That is the entire basis of them. Computers are used to search out the solution to a puzzle. As you present your solutions to the manager of the currency, you are assigned credit for that work unit. You, and only you, may claim ownership of that unit of work. But does that work have value? And if not, what is it worth?

OTOneH, that stored work is forever yours. OTOH, it really is useless. It is not like gold (that also is ‘stored work’) in that gold may be made into jewelry or tooth crowns or computer chips. Gold has “inherent demand”. Not so a crypto-solution. That is why I’ve never gotten excited about bitcoin. In some ways better than a paper currency, and much better if backed by a Nation as national currency; but not at all like a metal (despite the analogies made by the supporters of it…)

Store Of Work

Destructive     Neutral         Wasting            Durable
war             paper currency  stored grains      Gold, metals
demolition      labor           cars               crypto currency
eating          services        Adult Workers      iPhone, computers
redistribution  oil production  companies          New Graduate

Note that I’ve taken “some” from in front of “demolition”. Even an eye-sore hovel has embodied work. It may be of “negative worth” or “negative value” even, and removal may in fact improve the economics of a property, but it STILL is a destruction of prior work. Depreciation is just nature doing that destruction while we watch.

It is forgetting the “embodied work” when indulging in “creative destruction” that is the large flaw in “renovation” projects and much of “mergers and acquisitions”. The worth may be going up, even as ‘work’ is destroyed and sometimes even as ‘value’ is destroyed with it. This difference has made the plot of many a movie, despite being poorly articulated in practice. Folks “get it” at an emotional level. It is the basis on which many historical preservation laws are built. As one example.

Note that here paper currencies are a neutral while crypto currencies are durable. That work unit is always yours in a crypto currency. While the paper currency has nearly no embodied work to store. IMHO this paradigm illustrates the difference between a paper currency, a crypto currency, and gold as money.

Eating is a necessary, but essentially destructive act. It does not matter if you cook at home, or eat at a 5 Star restaurant. It consumes work and does not store it.

Labor and “services” are used in the moment, and not storage vessels. Grains, cars, and even many companies slowly degrade over time. If constantly fed, some companies may “store work” for a long time; but mostly they consume work and fade into history. That, BTW, is why the “Nifty Fifty” stocks are not talked about today (that 50 stocks you could just buy and own ‘forever’) and why history is littered with names like Polaroid, DeSoto, Long’s Drugs, Wards, etc. etc.

An adult worker is a wasting asset. They diminish in stored work each year as they are obsoleted and used up. A new graduate can be thought of as a durable store of work. They have many decades of working life ahead of them and have spent 2 decades being filled with the work of child rearing and education. (Reminder: Worth is not work…) To some extent, all “durable” things wear out. Gold has a few atoms rub off each time handled. So a new graduate will eventually be ‘used up’, but a few decades of ‘stored work’ in the future, thus durable. IMHO this illustrates the basis for ‘age discrimination’ in workplaces. One could consider infants and children to be ‘destructive’ of work as they simply consume it for a decade… as any parent will attest…

Things (companies) like Youtube and Twitter are not stores of work. The entire service industry (of which video and tweets are examples) stores nothing of work. (And some would assert little of value…) While a movie is more of a “wasting store of work” as it DOES store work, but slowly decays in the can. (TCM making a business out of reversing that loss by restoration). WATCHING a movie, being a service, stores nothing.

IMHO, this is why a “service economy” can never survive. It does not store work, nor value, and that breaks the intergenerational contracts (not to mention government bonds…)

Note that while creating an oil field is durable value, production of that oil is neither stored value nor stored work. The oil is out and gone in too short a time scale to store anything. Yet that old computer or iPhone from 4 years back still has all the embodied work in it. It may be of little value as the replacement is soo much better, but yet the work is still in it and it still functions. Functional obsolescence is simply when “stored value” drops below the alternative, despite “stored work”… and worth heads to zero.

Grains, cars, and similar manufactures slowly decay (faster in the rust belt than in Arizona ;-) as to many other ‘assets’.

Then we have ‘redistribution’. Why do I have it as “destructive” of stored value? “Marginal propensity to invest”. Rich people buy companies, plants, equipment, oil fields, gold mines, and do R&D that increases our “intellectual capital” or “know how” that is also a durable store of work (and often a durable store of value). When their wealth, money, and labor is given to poor people, it is used for food and services and cars and clothes. All things they need, but not “investments”. The stored work and value in the society decreases and the consumption increases. We become more poor, collectively.

That, IMHO, is why such schemes always result in the eventual failure of the economy.

Please note: I don’t have to like that to recognize that it is reality.

In Conclusion

This is a general sketch of a way of looking at the economy that I think has merit.

It makes clear many things that folks intuitively grasp, but lack a structure for explaining. I think it also illustrates where Progressives go off the rails, and also where all politicians make horrible economic errors.

Like Solindra and building a “bridge to nowhere” (Or Governor Jerry “Moonbeam” Brown’s high speed rail to nowhere). It isn’t enough just to put the label “infrastructure” on it. Does it create durable value? Is it enabling embodied labor to pay future debt payments? If it just redistributes wealth (even from poor to rich as many government boondoggles do: wind farms anyone?) it is still a gross under optimal thing to do with national treasure. Worse, borrowing “stored labor” or “stored value” from someone else, sticking it in a hole in the ground after destroying “stored work” in an existing structure and then expecting the children of today to pay back that labor in 30 years is nearly criminal stupidity.

Yet that is the accepted “consensus” of economics as practiced by governments around the world. It is also, IMHO, why capitalism works and socialism doesn’t. Folks running businesses who make those mistakes go out of business. Folks in government just run for higher office. Often funded by the benefactors of their largess. At least until the bonds come home to roost and a Greece Moment happens.

In the ’60s through to the ’80s or so, we had a bubble of productive age folks making excess production. That labor bubble is over and done. Now that bubble expects someone else to do the work. AND provide for their retirement with goods and services. To compensate those providers, they have stacked up all sorts of paper with promises. But promises do not a dinner make nor a heart bypass perform.

There are simply not enough laborers to provide the promised claims on goods and services. Not in the USA. Not in the EU. Not in China. Not in Japan.

Importing a load of Mexicans or Muslims or building a load of robots is not going to fix it. (Well… the robots might, IFF they ever work right). What will happen is simply that once they are a majority, they will repudiate the obligations that they never contracted to accept. We see that today via “voting with their feet” as a flood of young folks abandoned Detroit for “greener pastures”. The same thing is happening in California as folks with money leave and folks wanting welfare move in.

Demographics may be destiny, but it also has feet and a vote.

Hopefully there are some ideas or points of view in this that are helpful to folks. It is a level of abstraction that I use in looking at companies, countries, economies, etc. etc. that I’ve not seen in formal form anywhere. If it has been done by others too, I’d love a pointer to their works.

I find it a useful way to sort things (like crypto currencies vs paper vs gold) and understand future probabilities ( like $18 Trillion that will NEVER be repaid in real value terms – not enough future labor to do it….) and I hope it is of use, or at least entertainment, to others.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Political Current Events. Bookmark the permalink.

38 Responses to Store of Value vs Worth vs Labor vs Debt

  1. pyromancer76 says:

    I appreciate the thought problem and the discussion. Without being political — if that is possible in today’s world — do you have any thoughts about how Donald Trump’s economic successes and failures have (perhaps) prepared him to help the U.S. out of some of the terrible holes we have dug ourselves into? For one, IMHO, the political class appears fundamentally corrupt across the board. Perhaps that is because we are stuck with so many crony corporations who provide the funding for the politicians who do their bidding, who, while feeding the greedy corporations also dip into taxpayers money without limit. How can young people, or new immigrants, find anything in this awful system to want to support. Right now the only way forward seems to be to severely limit government to give the young and immigrants a chance. Then what happens to older people’s retirement?. What a pickle.

    California, I think, is still 6th in the world in terms of GDP, although perhaps that measure might not work anymore as you suggest. However, if California was ever freed up for its immigrants and young people — wow! The (still) relatively good weather for agricultural abundance remains if we could finally find the will to store, transport, and transform water (desalination); CA has abundant energy resources. CA could be golden again if the leftist corruption and hatred could be reigned in. How are crony corporations complicit in this thievery of our state? You would think that “capitalists” and knowledgeable managers would not stand for this nonsense very long. My thought is that voting fraud is one of the keys to the success of failure.

  2. BobN says:

    I think the old way of looking at things don’t work. We had a huge middle class, but gave that up when we shipped jobs to China. We are now on the starting edge of a Robotics and AI revolution where the work is starting to return from China and Japan, but this time the masses will not be Employed in the manufacturing sector, so the lack of jobs will persist. To make things worse the robotics/AI will continue to eliminate jobs, estimated by government to be 40% of jobs by 15 years. As an example the new robotic cars will eliminate cab drivers and truck drivers, with truck driving being the single biggest employer. The job markets will continue to shrink, but the politicians are allowing illegals to stream into the country, they being mostly unskilled labor. With automation eating jobs the welfare rolls will swell, pushing the debt problem to even bigger numbers.

    We just dumped hundreds of billions trying to create jobs, but the data shows that few jobs in the private sector were added and the vast majority of the jobs were obtained by the expansion of government, a further solidification of the debt. Adding immigrants will not solve the pension problem, with the new economics it makes it worse.

    We need to stop mass immigration and figure out how to pay off our pension bubble, but that is another issue to be addressed along with the welfare rolls.

  3. E.M.Smith says:

    @Pyromancer76:

    No comments in a while… I’d kind of wondered if you had wandered off… nice to know you are still hanging out 8-)

    Go ahead, be political! I’m ok with that…

    Per Trump:

    I think he doesn’t have a hope in hell of being elected. Can’t pick up any of the Democratic “base”. IMHO, someone like Cruz or Huckabee has a chance at winning the general, but can’t make it through the primary.

    (The basic problem both parties face is that they are each polarized, while most folks are ‘in the middle’; so anyone who the party endorses can’t win. So we end up with ‘squeaker’ races that are essentially random dice rolls).

    With that said…

    His big feature is that he is NOT a politician and is accustomed to thinking in real terms. Real wealth building. Real stores of value. Real economic return on investment. And he has a lifetime of hearing stupid crap pie-in-the-sky schemes and saying bluntly “That, sirrah, is CRAP!”. It is exactly what is needed in the White House and exactly what will never be elected. (Crow to be served promptly at 7 P.M. November 8th, 2016 should this prove an incorrect prognostication… ;-)

    Yes, the “political class” is almost 100% “corrupt” simply because the only folks who can afford to run are either part of the Power Elite who want to control all for their own benefit or are 100% indebted to them from bribes campaign contributions. We had a shot at changing that, but the Supreme Court decided otherwise (don’t get me started on the Supremes… )

    Per “greedy corporations”:

    IMHO that’s misdirected. That any particular power broker chooses the corporate form is not the point. It is THAT there are monied interests who can pull the strings (corporate or otherwise). I had my own corporation for a while. Just me. Not exactly a power broker. Similarly, the “Corporation For Public Broadcasting” isn’t exactly a Right Wing Conspiracy ™…

    It’s the monied families (such as the Rockefellers and House Of Windsor and House Of Saud) that are the problem, however they manifest.

    As you pointed toward: It is the “young and immigrant” vs “The System” that is the problem. (To some extent, the point raised in the ‘sermon’ above ;-) I look at my kids, and their options, and the $18 TRILLION and rising that I did not vote for and just cringe. IMHO they need to just repudiate the whole thing and say “FOD” (F… off and die) to it. It was immoral from the start and not their problem. Yet I doubt that they will.

    The result is Greece. Watch and learn… and prepare…

    Per “old folks retirement”: They bought the lie and will reap the whirlwind. (Me too, to some extent. I can see it coming but have no way to change it.) Oh Well is all I can say. Again, see Greece as model. LOTS of folks being told their retirement is a fantasy. At least one a nice lady with a Ph.D. who commented on WUWT in the past but not seen much lately… likely focused on the fact that as a retired physicist she is being screwed and not in a way she anticipated…)

    Per California:

    A very strange place. Always the land of Gold Diggers. From the ’49ers to Hollywood to Google. Always keep your hand on your wallet, enjoy the sunshine and wish for water, and never ever expect anything other than a (biased?) roll of the dice at the craps table of “Baghdad By The Bay”… My son has moved out of the State. My daughter and her mate are likely to follow (IMHO) as they discover money is too dear here (and against their will, but ‘no money’ tends to drive results) and I’m ready to leave but have to clean up some crap first. The spouse (who would not even consider it when it made the most economic sense) has even said she’s ready to sell out (now that it’s not the optimal time…)

    Eventually it will sort out (as economics is an adaptive process not subject to human control) but only a generation in the future. The State is already “Majority Hispanic” so not an issue for us residual Anglos. I expect they will take the traditional Latin approach and just blow off the debt… (as alluded to above in the posting).

    Per water:

    We have plenty, and desal is economic here (cheaper to make desal for coastal areas than do pipelines now. Were we doing it over, Mulholland and the pipeline to L.A. or Gov. Brown Sr. and the California Aqueduct would lose out to desal and the ocean.) Add a bit of nuclear electricity and the whole place would be a paradise. Figure about 2040 and be prepared to speak Spanish. Yo hablo…durante sesenta años … What we lack is politically rational rulers (no, not leaders…) Instead we pour our water out to the ocean to “save the delta smelt” that is really being out competed by a (government introduced) invasive cousin… while planning to build a hole in the ground to take that same river to L.A. even though (stupid) laws say it must go to the ocean… as we pour $20 BILLION into the “hole to nowhere”…

    Such stupid is beyond imagination… But some individual well connected corporations (and more importantly their managers and owners…) will pocket a boat load of cash.

  4. Larry Ledwick says:

    I pretty much agree with your observations. I have been scratching my head for some time (years) trying to figure out how to store wealth and realized that the entire system is rigged against that. It used to be you could put money in a savings account or certificate of deposit and earn enough interest to at least cancel out the waste of inflation and bank fees. That all went away years ago. A savings account is a guaranteed losing proposition with the slight exception of security against catastrophic loss like having someone steal your money under the mattress. Now even that is suspect given recent actions in Cyprus and repudiation of contracts in the 2008 bail outs. Even people who should be protected by contract can no longer be sure the contract will be honored (or they will even get the chance to sue for damages if it is not). You can mitigate wastage of assets a bit by avoiding high depreciation such as rather than buying a new car buy a car that is a few years old but in generally good condition, letting some other fool eat the rapid depreciation in the asset as he drives it off the lot.

    Like you say the only way to preserve value is to find assets which have inherent value or utility to some one. That list is getting very small for lots of reasons, the one way you can move in that direction is to buy things that you know you will use and need some day in the future to preserve the value of the currency you used to buy them.

    Unfortunately that calculation is complicated by changes in availability and cost of some items. Like your computers in every sense imaginable today’s computers are darn near free compared to what we spent in the early 1990’s for desk top computing power. If you tally up the rapid drop in advertised price, and multiply by the reduced value of the $ use to pay that price, then factor in increased performance and reduced power consumption there is simply no comparison.

    Likewise I used to get irritated about “rising prices” and how expensive things are, but if you think in terms of inflation adjusted prices, most everything you buy today is cheaper in real terms (value/work exchanged for the article) than it was just a few years ago. For example in 2002 I bought a new car off the showroom floor for $24,000, the estimated dealer price of the same model today is about $30,000, the inflation adjusted purchase price of $24k in 2002 dollars is about $32,000 today, so the car is about 6% cheaper in real terms today than it was in 2002.
    This is mostly due to both reductions in cost of labor and increased production efficiency due to computers and robots / automation, along with new materials and methods.

    The problem is how do you store value in large sums of money like a retirement account and so far I really have not come up with any good method to do that. You can store or aquire assets (like land) but it only has value if you can sell it at fair value when you need to. The result is like in a period of runaway inflation there is a continuous pressure to spend your money before it wastes away. The trick is to spend it on productive assets (productive for your needs) and don’t do that on credit but on cash and carry basis (or pay down credit just as fast as possible)

    I see the problem much like a computer code decision tree.
    – – – – If things continue more or less as they are now what do you do?
    – – – – If things rapidly decline (think Greece or worse) what do you do?
    – – – – If things come apart completely (ie total social or economic collapse what do you do?

    Those three options (out of several other more nuanced scenarios) all have different answers.

    Then I fall back on my emergency management background where you work with a product of both the risk and the likelihood of that risk occurring.

    The highest impact is the 3rd option of total collapse but it is probably much less likely than #2. Number 1 is a diminishing probability as we know that mathematically it cannot continue for ever so sooner or later it must decay into either #2 or #3 (although we thought that would happen to Japan about 20 years ago and some how they are still limping along)

    What I ended up with is that #1 was most likely for the near term so don’t do anything to service i #2 or #3 that breaks your ability to function in #1 (ie don’t sell everything and build a zombie retreat in the woods). Make changes that improve your ability to cope with #2 and avoid total disaster in the case of #3.
    That calculation varies day to day based on what I see in the news and my feel for the mood of others. I am at the moment trending toward #2 is inevitable but might take some time, and #3 is possible but not highly likely. So each day if I identify a weak link to handle those situations I try to address the most likely first and do it in a way that does not break either #1 or #3.

    Frankly I think that is about as good as you can do unless you know a really reliable psychic.
    I am trying to take care of things like getting good tires on all the cars, good batteries in the car along with needed repairs, buy things that would be really useful in tough times but nearly impossible to buy when the brown stuff hits the air circulator, and most important of all trying to constantly expand my skills and knowledge base because that is the most important capital I can store as it provides adaptability to handle even situations I cannot reasonably anticipate.

  5. punmaster52 says:

    New Iphones: is the ability to text faster actually the ability to do more work? I never have understood the play games/watch videos and movies thing on a phone. But I am a dinosaur; I don’t play video games.

  6. EM – for cryptocurrencies there is no store of work involved. It’s a number which took a fair amount of computer time to work out, but it’s still just a number and the work has been used (perhaps I could put that as wasted) and can’t be got back. In real terms, any other number would work just as well since the real value is held in the software that accounts for each of those numbers and hopefully stops replications and other fraud.

    Otherwise, this analysis of what is worth having is worth having…. We can be pretty sure that debts can and will be repudiated one way or another, and when the ordure hits the ventilator then governments will change the rules as they did with Cyprus and were preparing to do in Greece. If you own land you will be taxed on it, and if you don’t have the required currency then you’ll lose it. Much the same for any other physical asset which can be taken away – the Evil Bastards will take it when it is deemed necessary.

    Like BobN I see automation coming in very soon and the jobs disappearing. There will be new jobs and professions of course, but the real production will be automated and the new jobs will mostly be some service or similar (care jobs for example) – no value really created. Although you might like to buy hand-made pottery because of the imperfections and uniqueness, that can also be done by automation if desired.

    The question really is what way we can persuade people to do what things are still necessary to support society? It is getting urgent to start getting a system that will work in the age of automation.

  7. E.M.Smith says:

    @BobN:

    You correctly identified a “whole ‘nother problem” that I was carefully ignoring ;-)

    That being the mis-match of skill sets in the economy. As the baby boomers retire, and age, they move into that “destructive of stored work” category as the demands on things like medical care and “recreation” go up and production of goods goes down. Yet an out of work truck driver is not a very good nurse or personal chef.

    So we have the paradox that just when we have too many retired people per worker of support (not enough labor) we also have too few jobs (too much labor) making things with a durable store of work and value. That transition to the “service economy”.

    I’m not all that bothered by the robotics advances. Yes, they will take unskilled and low skilled jobs from folks. (Be prepared for a non-human order taker at the fast food place, especially with $15 / hour minimum wage laws… and for robotic burger flippers… we already have french fry machines that do all the work. Just dump in fries and hit the “go” button. Not a big leap to add a chute from a freezer and a self regulating transport to the bag filling machine… ) But the use of robots will also increase jobs in robot sales and service, programming, and recycling.

    It is also the case that to the extent they can produce “durable store of work” products, they can help solve the shortfall of “promise to pay” future work from workers who didn’t enter the contract. IF, for example, a robotic built car costs $20,000 and is just as good as a labor produced one of $40,000 you have available $20,000 of “embodied work” that can be used to cover the shortfall from labor. That retired person paycheck can inflate by that amount yet they will still get the same delivered value. (Other than sales clerks, I’m much less impressed with robots as deliverers of services… so it’s a long ways away to robot as nurse or barber…) Japan is of the belief they can build robots to overcome their labor shortage for retirement. (They, at least, correctly understand the problem; even if I think they are indulging a fantasy when it comes to robotic nurses).

    The problem I see with robots is simply one of ownership. The majority will be owned by a very small segment of society – the very wealthy capital accruing segment. Yet their work will be consumed by the folks without jobs. Something has to give there. It isn’t as much a problem with the “means of production” is not owned by labor, since labor can command a share of the product via wages. It’s a very large problem with the means of production needs no labor and the consumers have no job. Not sure how we get out of that pickle. A bifurcated society of owners and welfare is not going to be stable.

    As you pointed out, adding 10 Million illegal immigrants to the labor pool doesn’t help. Especially when they are mostly skilled to be burger flippers and lawn mowers as those end up robots. But hey, maybe they can be trained to be nurses and do robot repair … Which puts us back to the point about too much low skill labor and not enough high skill and high end service workers… and the folks who want those high end services having mostly pretty pieces of paper with dead president pictures on them an not real embodied work to trade for actual work… The Government can’t take 1/2 of each laborers work product away, give it to ‘retired folks’ to have them give it back to the workers as “payment” and have a system that works. (The Japan problem… and the China problem ‘soon’).

    @Larry:

    Yeah… why anyone would put any money in a bank savings account these days is beyond me. Especially in Europe with the “Robbers Included In Every Bank!” sign on the door from the ECB. You get paid maybe 1% or 2% as inflation is targeted for 2% nominal and is more like 3 or 4% real. Lose money slowly until the government takes it all? Why bother? Just to avoid the volatility of metals? Buy metals for the safe deposit box and “puts” when prices are high…

    The problem with computers is Moore’s Law causing a wastage rate of value of 1/2 every 18 months. Buying computers for the future is a big mistake. Frankly, until very recently, I just lived off cast offs. Someone would buy the newest MicroSoft thing as their 2 year old box was “too slow” due to MS code bloat… and I’d get it for nearly nothing (or sometimes actually nothing) and put Linux on it. In the last couple of years Linux has started to join the code bloat brigade, so that’s less useful a strategy. Add in EUFI as a lock-out of ‘unapproved’ programs (i.e. it runs MS or nothing) and it’s even less attractive. (Yes, folks are finding ways around it… but it’s a pain).

    I took a similar tack on cars. Last actually new car I bought was in 1986. I’ll never buy another one unless someone gives me a few $Million… Instead I pick up old Mercedes for about $2000 and keep them for 10 to 20 years. Maintenance runs about $2000 / year and that is less than the new ones depreciate…

    Per your 1,2,3 options: Yes, some more nuanced variations exist (and are being pushed by various folks… like hustle in a load of illegals to provide the labor pool to exploit to keep the Ponzi scheme going… ) but the basic set is about right.

    For #3 I’m reminded of a story about Edward Teller. He had a chalk board on it with sizes of nukes and required delivery system. The biggest had written next to it for delivery system needed “None”. When asked, he said that since it would destroy all life on the planet, just set it out back and detonate it… So yes, for #3 the preparation is “none”. The outcome isn’t any better with or without prep, so why bother? (Were I rich enough to own a private island with small army I might prep for it…)

    My expectation is that, like Japan, the impact will take far longer to show up than folks expected. For Japan, the megacorps moved a lot of work to China. (Effectively making Chinese young labor contributors to the Japanese economy). That comes to an end as China hits their demographic wall too. While my old Nikon lenses say “Made in Japan”, the newer “digital” ones say “Made in China”, so Nikon could still make their pension payments to old Japanese workers. Similarly, Apple is effectively importing embodied Chinese labor in every iPhone it sells, so supporting the wages and benefits of the folks in the USA and paying taxes to cover government welfare et. al. That’s going to be an issue once played to the end.

    Will there be some other “swap” to a younger cheaper labor pool to exploit? I don’t see one left. India has “issues” (though that hasn’t stopped the import of H1B visa folks putting a lid on tech jobs for citizens) and that labor pool is harder to utilize especially remotely. IMHO that whole game is going to have issues. Eventually those folks are going to want something of more value for their labor; what do we give them then? We can only sell off our assets once, and the Saudis have already collected a bunch…

    The basic problem is one of the “rat in the snake” bulge of population. When it is in productive years, it can support a load of retired folks and welfare collectors. When it moves to retirement age, it wants to consume “stored value” that wasn’t actually stored. That has to come from someone else. We (Japan, EU, USA) have been able to substitute cheaper labor from China via Chinese goods based on a “promise to pay” someday of $Trillions of debt (i.e. those Chinese labor providers loaning us the money to buy their labor). WHEN the debt is collected is the SHTF moment. We have no means of repayment of real value and we have increasing consumption with decreasing production as far as the eye can see (at least until the boomers and maybe some of the ‘echo boom’ is out of retirement … i.e. passed on.. and that’s about 30? years out.)

    That will look very much like Greece, but with China in stead of the EU demanding payment.

    At that point, the USA can:

    1) Repudiate. Highly unlikely.

    2) Inflate away the debt. Almost certainly. Unlike Greece, our debt is in our currency and we can just print a few trainloads and ship it. Easy peasy… Destroys national savings, but as noted above, not much reason to save anyway. See long history of hyperinflation outcomes…

    3) Pay in real terms. Not possible, IMHO. China might want to demand all the gold in Fort Knox, but they aren’t going to get it. We also can’t tax everyone enough to cover the bill either. It, plus the “unfunded obligations” that hit about then, exceed the available production.

    IMHO China, not being dumb, will be washing that debt into assets like land and mines and ports and rails systems and… leaving someone else holding the bag. “Who” is an interesting question. At the moment, new debt is largely going to The Fed. We are making from whole cloth money that the Federal Government spends. The Fed then forces rules on the banks that help prevent this wash of new money from causing too much immediate grief (higher ‘reserves’ requirements for example). Yet that causes a reduction in economic activity and a ballooning of The Fed balance sheet. Only the contraction / stagnation of global economic demand is holding the inflation pressures in check via collapse of commodities. They have a ‘bust’ offsetting the ‘boom’ pressures. That game can’t go on forever.

    It eventually resolves into inflation. When is the hard thing to work out. Either The Fed goes bust, or an unwind happens. How do you unwind a few $Trillions of Fed balance sheet?

    Now Japan has shown that you can carry that bubble for 20 years and to about double our (USA) debt load. They are a bit further down this road than we are. But the cost of it has been 20 years of stagnant economics. It also depended on leveraging cheap labor in China, and as we’ve seen that is going to run down starting soon. Also, as an export based economy, they could just cream out “middle man” payments between Chinese labor and Japanese reputation. ( A Nikon is still a Nikon… sort of…) The USA is not export lead, so doesn’t have that option. Our biggest export is agriculture… not much leverage there. So IMHO we can’t expect the Japan Delay to work here.

    What I think might work is a change of the rules on companies so that it was attractive to put more enterprise here. Cut the crap out of regulatory burden. Toss the high energy cost program on the scrap heap and get back to 10 ¢/kW-hr electricity. Cut tax rates (and increase revenues…via higher participation). With all that done, production rises and covers those future demands. Also tax revenues rise and can pay off the debt. That is what was done post W.W.II and in the Reagan Years. And under Kennedy too.

    I don’t see it happening, though. Wrong political mindset in the population.

    I think TPTB have the TPP in mind as the ‘fix’. Hook Japan and the USA to some countries with resources (Australia) and cheap labor (the places like Mexico et. al) all in a big soup bowl of corporate liberty (and personal oppression…) and expect it to generate production, taxes, and pay the bills.

    IMHO it won’t. BTW the “personal oppression’ comes from the recent example where the WTO ruled that it is against the rules for folks in the USA to know where their meat comes from. You can not require point of origin labels on meat from Canada and Mexico anymore. Don’t want to take a risk on Mexican meat when there has been a major recall for some reason? Too bad… you can’t know… That kind of repudiation of health and safety laws is just the beginning… TPA and TPP make that look like chump change. There is also reputed to be a “bring in all you want” labor bypass of immigration rules. Don’t know if it is true, but if so, it will make the H1b visa program look like chump change too. This will enrich corporations, but not nations and certainly not citizens. I don’t see at all where it fixes the “rat in a snake” obligations issue either. I think it will just hasten the movement of production out of the USA and Japan and into the lower cost basis locations, worsening our national debt problems. Young workers in Mexico will not be paying taxes to cover retirement and welfare payments in the USA.

    Unfortunately, our “leaders” seem to only see a hard wall in front of them when the are rebounding off of it after impact…

  8. Larry Ledwick says:

    Well there is one way out of the dilemma but no one wants to go there. Two historical examples.
    1.) the black plague killed off 30% or so of the population of Europe. Those who survived and were reasonably well off, inherited the assets of their kin and had a big party for the better part of a century. The poor who had no assets did not inherit much and simply went away in large numbers. That is one way to balance the books on the imbalance between need for real labor (ie creative manual tasks like making watches, troubleshooting and repairing cars, designing and building new factories etc. ) This is the one glitch in the robotics will solve the problem until/if robots become sentient they will not be able to solve abstract problems with creative adaptive solutions. They can design and build new factories using a template that is already coded, and adapt to predictable problems like the part is upside down on the conveyor belt, but will they ever be able to have a Nikola Tesla moment and see the future of a new industry that doesn’t even exist yet??

    2.) The second option is the method which made the U.S. the industrial power house of the world for 50 years, it is called let’s you and him fight and then when we finally get in the contest bomb almost all the other players until you are bouncing rubble. The U.S. was the world industrial leader primarily because for 20+ years we had no real competitors (took that long for Germany and Japan to get back on their feet, Britain and the rest of Europe almost got back in the game but got side tracked by soft socialism.

    Like you say something has to give and I suspect option #2 above in some form will be a major player at some point. Like Japan at the beginning of WWII somebody some place will get pushed with their back against the wall and have no option for survival other than making a move on someone else. Right now China is doing that by buying up productive resources with all the surplus money from foreign trade. Japan tried the same thing in the 1990’s (buying sky scrapers in Manhattan etc.) but eventually they had to dump all that in fire sale liquidations when their financial crash started.

  9. Larry Ledwick says:

    What happens in a society where the banks and the government are not trusted to preserve wealth.

    http://www.nytimes.com/2015/08/01/world/europe/greek-debt-crisis-adds-to-a-spike-in-burglaries-and-robberies.html?_r=0

  10. Larry Ledwick says:

    Adding to the coming changes in our economy is a radical shift where automation eliminates whole classes of predictable work load. Things like the kids who used to get summer work at the local car wash (now wiped out by automatic car washes), assembly line work (replaced by assembly robots, production machinists (now replaced by 5 axis machining stations and one or two guys who do the setup)
    http://thefederalist.com/2015/07/31/5-things-matt-yglesias-gets-wrong-about-automation/

    It will be a long time before a robot can crawl under a home and figure out why the plumbing is having a problem and efficiently replace that string of pipe that does not have enough slope to properly carry waste with the dish water to the sewer. Likewise for other skilled repair jobs like refurbishing a kitchen and replacing the tile in a bathroom, but predictable repetitive jobs like harvesting crops an simple assembly line tasks are already being replaced by machine. Those used to be the jobs taken by the low skill workers coming over the border or inner city youth looking for their first job skills. The only way around that which I see is to fall back to the apprentice training and intern systems of the old world where totally unskilled workers were systematically nurtured by a journeyman in a skilled trade and taught all the little tricks on how to build a boat or a custom 1 guitar.

    Businesses will have to re-discover like the old Gates Rubber company that it is to their benefit to set up an apprentice program to teach special one off skills to workers. When I went through machinist apprentice training at Gates they did that because almost all their production equipment was one off home built by them as they were they invented many of their own production processes. They made their own tire molds, built their own hose extrusion machine equipment etc.

  11. Svend Ferdinandsen says:

    I mean Piketty also could help sort out some of the problems.
    (Le Capital au XXIe siècle)

  12. E.M.Smith says:

    @Larry:

    Ah, a machinist! I knew there was some reason I like you ;-)

    Something about folks who must make things of metal that leads to a coherent thought process…

    I think I need to make a posting out of my thoughts on robotics and labor displacement. It’s not going to fit well in a comment.

    BTW, had an interesting moment with the old ’79 Mercedes and the A/C. Needed a hose with a special end fitting. Think anyone has THAT in stock? (Or if they do, for less than $500…)

    My mechanic (who has a nice small machine shop in the back, with lathe, and makes some of his own metal parts when needed) took me with him as we went “down the street” one town over. There the guy had a hose machine. Takes my old fitting, new hose, some clamp sheet metal, sticks it into the hose fitting press machine… Presto, new hose with special fitting… I think it was about $40 all told… IIRC, the other end needed a new fitting and he had one for it in his stock.

    When craft beats factory manufacture…

    Per “creative destruction” and other kinds of destruction:

    I think the key word there is “destruction”. I’d rather a world where all those folks in Japan and Europe had kept on being productive for that decade or two and skipped the war thing. I believe there would have been more total global wealth created. (Though, yeah, not as much in of it in the USA). And yes, killing off 1/2 the population does give the survivors a greater capital to population ratio (and thus more party time…) yet again, the total productivity is reduced. I think there are better ways… just have to find them ;-)

    @Punmaster52:

    Um, the point about the iPhone is that the work that went into making it is preserved for a while. Yes, the phone slowly degrades over time (scratches and battery decay and all) but it is a semi-durable good, not immediately consumed.

    I was not intending to imply that the USE of the phone was work or stored work.

    @Simon:

    Same thing on crypto currencies. It isn’t that the work is somehow stored and can be recovered, it is that the work to find the solution need never be done again. That solution is “forever” and the work spent to find it is preserved in the result (though not recoverable as work). Just like the shovels, labor and Diesel used to mine a lump of gold is spent and gone, yet need never be done again for THAT lump of gold. The gold embodies the work product in a durable form.

    Compare with a hamburger. You eat it now (and it is gone) or let it sit a day and throw it out. In either case the hamburger is gone and the work to make it goes with it. No stored work (product) in any form in short order. Giving someone a 2 month old hamburger does not avoid the work needed to make a new one that is edible, where a 2 month old lump of gold, or a 2 month old crypto solution, is just as useful as ever and no new work is needed.

    On the automation issue: Same as prior answer… I’m not so worried, but to explain why takes a chunk of text that I think will work best in a posting, so will wait on that answer.

  13. Larry Ledwick says:

    In the context of exporting jobs to low cost manufacturing locations and a side order of don’t send critical production infrastructure off shore where bad things might happen to critical components (cough backdoors , imbedded hacks cough )
    http://dailycaller.com/2015/07/29/qualcomm-lays-off-4500-workers-while-demanding-more-h-1bs/

  14. Larry Ledwick says:

    http://www.nytimes.com/2015/06/24/business/international/qualcomm-in-venture-with-chinese-chip-maker.html

    More detail on recent development with outsourcing advanced technology

  15. R, de Haan says:

    “Importing a load of Mexicans or Muslims or building a load of robots is not going to fix it. (Well… the robots might, IFF they ever work right).”
    http://www.techrepublic.com/article/chinese-factory-replaces-90-of-humans-with-robots-production-soars/

    Just to provide you with my 2 cents worth input I think you have started a very nice subject here that screams for some discussions and exchange of views.
    I think you’re right on many subjects but all from your point of view.
    Qualifying a crypto currency under the header Neutral instead of “Durable” or “Destructive” simply depends from the point of view of the individual, the State, the banks or those countries and individual that are at the receiving end of the pipeline.
    For example.
    At this moment in time the Greek Government has introduced heavy regulations which short people on cash in order to protect their banking system.
    For the Greek, the crypto currency allows them to transfer money from their banks into their crypto wallet and even transport the money abroad.
    If we look at the steep rise of Greek individuals signing up to the crypto system you could argue that this is good for the individual but destructive from the point of view from the banks.
    This brings me to food, but also health, prosperity and freedom.
    Because we live in a “human society” food, health, prosperity and freedom are closely interlinked and if you ask me you should add them to your matrix.
    Food and eating as a means to sustain life should not be “negatively” qualified in any way.
    Just take same distance from your matrix and make a 360 to view your claims from all possible sites.

    If you ask me the only thing that is going wrong in Europe, the USA and the West is that some people in banking and politics think we’re better off in a centralized system.
    Everything that happens in Europe points in that direction but not many people understand what is going on.
    The people of Greece and Europe are conned by their own governments and their own banks.
    Simply because they overstepped their powers and decided they could make better decisions than the individual tax payer.
    Just like war, con jobs and fraud are just as destructive.
    What to think of a bank that has grown big thanks to the people with a savings account and was bailed out by the taxpayer making the claim that they have made a bet against the Euro.
    If they win this bet they know they have robbed the very people who kept them alive.
    The management of this bank believes they have no responsibility to society, their individual customer, small business and the middle class, simply because they think it is much easier to prop up governments with debt and use the fiat money provided by the central banks to speculate in what we call the world wide casino.
    With betting against the survival of the Euro this bank commits treason and what fascinates me is how the hell it is even possible that a bank can make a bet against a currency especially if this bank bears the name of the country it is situated in. Yes, I am talking about Deutsche Bank.

    What worries me even more is that there is absolutely no public outcry or opposition.

    So what we desperately need is a new set of rules. Rules that secure the personal freedoms, rules that forbid the use of a food to be used to create havoc outside our borders simply by processing maize into bio fuel thus hiking the bread prices in Tunisia and Egypt where 50% of the population tries to survive from 1 dollar a day. These guys are wiped out by dirty tricks like that just like a FED that has been devaluing the dollar over decades.

    Controlling a global currency which interests are defended by the US Army comes with a responsibility and this responsibility off course is toward the people who us this currency to by stuff and secure their future.
    Unfortunately the hacks in control simply ignore any responsibility and completely focus on their fraudulent behavior. Screw the rules, screw the “muppets” screw the people screw society.

    The matrix could be a great tool to check decisions and to monitor those making the decisions.

    What we need however is what we lack the most and that is a well informed electorate and trustworthy politicians and bank management.
    In the mean time our freedoms, our prosperity and our future is going down the drain.

    So I claimed earlier in Europe every policy is direct to support the process of centralization.
    So high on the agenda now since our central banks have been eradicated is to centralize the energy sector. Now how did they do that.
    The climate scam and the obligatory introduction of renewable power generation, which in my opinion represents the biggest waste of resources and capital since the Cold War, forced the big power companies to contribute to the adjustment of the grid and to make massive investments in adjusting their power generating capacity without any possibility to make a solid profit.
    First in the name of free markets and open competition they were forced to spit their power grid form their power generating activities. Next they were forced to use their coal and gas plants to function as a back up for wind and solar since wind and solar were granted a feed in priority.
    A child could have seen that this policy was going to break the back of the local energy suppliers and that the tax payer was going to pay through his nose through ever higher prizes for electricity and ever rising taxes to fund the subsidy machinery. Hell, Spain almost went bankrupt because of their renewable program and that was before the financial crises.
    And what has the public done about this… absolutely nothing.

    Here in the States we had Obama, and this was before he was elected President of the United States making the claim that if he was elected President he would bankrupt the entire coal industry and skyrocket electricity prices. I immediately knew this guy was a dangerous demagogue but despite this and other most worrying claims, like creating a civil army just as strong and well trained as the US army, bankrupting coal is one of the few promises that this ass hole has kept and we still don’t know how many jobs went down the drain with this lunatic policy.

    Here too “The Matrix” could be a way to support educating people.
    People love games and when you can take a claim of a politician and throw it into the matrix to make the consequences visual and understandable I think we have made a great win.

    But we still have to find a solution for what we call the collective memory.

    Just take our highly popular friend Donald Trump who is a big ass hole too.
    Off course he is a fine entrepreneur, we can’t deny that but besides terrorizing his friendly neighbors at the Golf Club he build in Ireland in the past he also has made several massive donations to the Clinton’s.
    I know this because I read about this a few years ago when this was published main stream including the infamous Drudge Report.

    Now who tells me that Trump is not in the process of eradicating the Conservative Opposition to clear the way for the Bitch to become President…..?

    Ever thought about that?

    I simply don’t trust this guy and he takes a hike just as quick as he enters the door.

    We could do well with a matrix.

    So let’s continue the discussion about this.

    Great posting,

  16. R, de Haan says:

    Sorry for the typos I really need to get a new pair of spectacles.

    [Reply: What typos? -E.M.Smith ;-) ]

  17. p.g.sharrow says:

    @R, de Haan, You Are IN the Matrix.

    The 1% that create the future prowl the internet in search of new Ideas and information, kindred spirits.

    ” You must prime the pump, have faith and believe.”
    “You have to give of yourself, before your ready to receive”.
    “Drink all the water you can hold, wash your head to your feet.”
    ” But leave a bottle full for others.” Desert Pete

    If you want solutions. Contribute. pg

  18. R. de Haan says:

    You’re not only a clever but also a funny guy.

    By the way, ever heard of the Lithium titanate battery, 20.000 charging cycles, no thermal reactions en optimal performance even at temperatures of minus 40 degrees Celsius with high charge and discharge capacity?
    I this is a massive jump forward in battery technology which means that Elon Musk is building the biggest battery factory in the world producing the wrong battery.
    http://www.ev-power.eu/LTO-Cells/

    As it looks now this battery tech will eventually be available at a price similar to lithium ion cells.

    Just for the record.
    This battery will allow you to become completely independent from the grid.
    With Photovoltaic at a purchase price under 60 dollar cents per watt and new module tech that increases the life cycle of a solar panel up to 75 years + without any PID effects (loss of output capacity) this really becomes an attractive alternative.
    http://www.jvg-thoma.de/en/photovoltaic-technology/desert-technology/

    if mass produced this battery has the potential to eliminate the necessity of a grid let alone neces a smart grid which will become entirely obsolete (will save a buck load of money), it will make diesel powered STORE back up systems obsolete, and it will give a boost to electric mobility from your smartphone to mobility with wheels.

    Never thought I would ever write any positive piece about solar and solar storage but here it is.
    Because of course the entire story is to good to be true I think some big players will take control and hike the price of this tech. Anyway that is what I should do if I was up to my neck in Lithium tech with a life cycle of 2000 load cycles max.
    Elon Musk IMO is definitly betting on the wrong tech.
    http://fortune.com/2015/05/06/elon-musk-tesla-home-battery/

    Life’s a struggle and it’s not different in our economy.

    All we can hope for is that the struggle is fair and fowl play is punished.

    Anyhow this tech will enable me to put up a nice home in the middle of nowhere and still remain a member of a civilized society which means taking hot baths at will, powering my washing machine, the dryer and the dish washer or the air conditioner without any limitations and cool the bear watching my favorite tv show without dragging in the usual gallons of diesel to run the power generator.

    For a countries like Panama and Kuwait where electricity is mainly produce by diesel power generators and where the sun shines almost 365 days a year this really could be a great solution.

    All the Kuwaiti’s have to do is to deal with the Haboob. https://startpage.com/do/search
    Haboobs didn’t stop them from signing a UNEP agreement that forced them to install at least 200 Mw of PV tech. Maybe the people from UNEP come over with shovels, brushes and brooms to dig out the solar parks after the Haboob has passed.

  19. Peter Shaw says:

    You argue re pension funds and the like:
    “…paper “assets” are not real labor…It is a “store of value”, but not a “store of labor”.”
    I’ve arrived at this point from a different angle.

    You describe:
    “…the US Budget – dominated by military and transfer / welfare / social security / healthcare spending.”
    Which indicates they’re throwing money at the problem. I agree with you that it isn’t “store of labor”, but argue it may not be “store of value”, or even “value”.

    Consider: In every sound human society, the young and fit of the tribe support the old and infirm; only the means may change.
    The financial contributions made by the workforce are “*present* store of labor” (I think uniquely). Government-supplied money generally isn’t. Time is irrelevant. This offers the scenario (following eg US practice) of people having adequate pensions but little to buy with them. You’ll discern the elephant in that room. If it hasn’t happened yet, it will.

    Your geriatric bubble may less of a practical problem than you fear:
    1. Productivity persistently improves, so a relatively smaller workforce is required to provide for the retired. Take an unprejudiced look at an Okun plot (for the general reader: Annual GDP change vs employment change), and assume GDP is a flawed but consistent metric. It indicates that GDP (at constant employment) grows on average at around 1% pa. If you doubt that this matters, how many economic actions (present and past) have the effect of limiting nett productivity? Or of “dumping” the surplus?
    2. Argument to the employee “provide, that ye may be provided for” must have some merit, as we’re probably hardwired to respond. A more cogent argument is that if an employee doesn’t contribute while making stuff, pensioners won’t buy stuff, and said employee is out of a job.

    This (of course) is conditional on there being plentiful jobs in which the workforce can be continually productive, so I think your problem is merely part of the wider “deficient-demand” problem, and only soluble within it.

  20. Larry Ledwick says:

    Quick summary of what is going on in China and possible secondary impacts.
    http://www.theguardian.com/business/2015/aug/01/fears-for-chinese-economy-as-shares-fall

  21. hillrj says:

    EM A few years ago I read a paper about analysing datasets. The dataset in question was 500 years of tax records of the Bavarian city of Augsburg. 500 years of plagues wars invasions climate disruptions revolutions and whatever. There was an observation by the authors. The best store of value in this whole time was fertile agricultural land. The next best was inner city town lots. You didnt mention land much in your analysis. Your thoughts about land?

  22. Larry Ledwick says:

    Yes Land generally retains value but it is a pain to put in the trunk of your car, or your suitcase.
    ;)

  23. E.M.Smith says:

    @Hillrj:

    The problem with land is that you don’t own it. The government and the bank own it and they let you rent if from them. One calls it a mortgage and the other calls it property taxes…

    The omission on my part was more due to my focus being a bit narrow. I was mostly looking at things from a monetary point of view, not total asset preservation, and a couple of common properties of currency and money are not present in land, so I didn’t mention it.

    Both money and currency are a “medium of exchange” and that typically expects the properties of easy transportation and divisibility. 40 acres and a mule doesn’t divide well and isn’t (as Larry pointed out) very easy to transport. So land is essentially never used as money or currency. (Though you have me thinking… One could create a land trust or ETF and shares in THAT would be divisible and transportable… There would still be an intermediary (holder of the trust), but that is true of all paper assets. Hmmmm…. DIgitally signed certificates in a basket of land. Kind of like Bitcoin but backed by real assets… Hmmmm….

    So yes, if you have medium stability, and don’t mind the taxes, “owning” land is a decent investment. Dad sold realestate and overall the family has had more total wealth preservation through it than anything else. Personally, I’d go for Ag land as repair and depreciation of structures consumes real value… but even there, the exponential growth in regulatory burden on Ag land is going crazy… “All your puddles are belong to us!!” and if some yahoo plants a marijuana plant in a back corner under a tree and a cop finds it, the whole farm can be confiscated thanks to crazy “forfiture” laws.

    The basic problem with land is that it s a large valuable target for government, so thoughout history the fleecing of the landowners has been common when the Sovereign needs some pocket change from too much debt… I’d rather have a $300,000 bag of diamonds hidden well than a $300,000 land ownership recorded at the county; when the debt monster hits the fan… Though even there, synthetics are starting to make a dent…

    @Peter Shaw:

    Not just “throwing money at the problem”, but throwing obligated retirement fund money at OTHER problems and basically blowing it. Money that ought to be invested in manufacturing plant and equipment (for Depends? or training nurses and doctors?) is instead being exploded over Iran and given to “undocumented hungry” to eat. That’s why the debt monster grows at the same pace as the unfunded liabilities. CURRENT consumption (bombs, EBT cards, military wages, welfare case officers) using future money that is not backed by future labor but needed for future payments too… there is an assumption some labor will magically appear then, but the demographics says nope, and the total “due” at that future time exceeds the possible.

    That “elephant” is already happening. For Greece, the problem is that the Euro prevents them from letting the currency inflate (so the pension stays high in nominal terms, but won’t pay for the prices on the shelves anymore) so they have to go the other way. Cut the nominal pension. The taxes to run this cause production to flee (so the youth that ought to be working are not) and even fewer goods to be bought with the smaller pension / govt check. In Russia as the USSR fell, pension payments continued, but the Ruble was so devalued that it didn’t cover much of anything. There are lots more examples. But it will always be one of those two ways.

    Bugger the currency to maintain the fig leaf of the same nominal amount while not delivering the real promise.

    Bugger the payment so the currency retains value and admit publicly that you are bankrupt.

    Several airlines and other big companies have done the second of those (the Pension Guarantee Fund puts a lid on pensions … so yeah, you get SOME of the promise, but not all of it). Other companies have just chucked the pension plan and essentially told the new workers “screw you” so they could cover their exposure to the first tranche. Whole countries have gone with the inflation game ( including the USA… my dollar worth a dime of 1960’s money) and it was the preferred method in Greece, Italy, etc. etc. prior to the Euro and monetary union. Don’t get me started on Latin America…

    The basic issue being that as demographics has a growing labor base ( think baby boom post W.W.II) you can over promise retirement goodies ( hey, 4 kids for each retiree…) but when that boom wants to retire, just not enough workers to carry them. So we built a world of pension plans and Social Security with one demographics and now refuse to accept that it doesn’t work with another (that we were told, by government and progressives, to create via small families…) set of demographics. But economics is not subject to desire… and the financial stuff will hit the fan even if studiously ignored and shouted “away”…

    @Larry:

    Yup. As the west runs out of cash to buy junk, China gets a bit of a whipsaw, and that, then, reflects into domestic bubbles bursting that leads to more downward pressure…

    For a couple of decades the USA could print $$$ like crazy and the inflation showed up in China where they were spent. Then we started borrowing beyond the China recycle (i.e. The Fed soaking up $Trillions on the balance sheet) so China takes a big slowdown and the flood of foreign money in wanes.

    Essentially, the mercantilist policy with currency exchange rates exports our monetary policy to them (via the “peg” of currencies”). They loosened the peg a little, but that slows down internal growth from our money… As we inflate our money to garbage, their accumulated hoard drops in value too. With both the peg, and inflation, sucking expected value, they start dumping it into things like “New City In Nowhere” with excess demand for steel and cement and copper. But without any real demand, what is the “worth” of a city in nowhere? And as the peasants were not the ones getting the money, how do they buy that apartment? All those dislocations from bad (often centrally planned) decisions hit the rotating media when the influx of cash slows (as our economies stall out and we shift from Chinese baubles to focus on food, rent, medical care).

    Basically, I already own 2 cameras and enough clothes and don’t need any new ones until I get a job… but I am buying food and dish soap… but not new dishes… (Household formation is a young life cycle event – and with replacement rate kids, many of them are getting things given to them instead of buying… especially in Greece and Spain where they don’t have a job anyway…)

    It takes time, sometimes decades, but that reflects back into China if the exchange rate can’t move.

  24. E.M.Smith says:

    @R. de Haan:

    Thanks for the vote of support.

    Part of why I’m not so worried about robots taking over manufacturing is simply that it is almost all in China for things that are easy to do. For the USA, our economy already lost a load of that work to China… Even here, look at a port. How may folks unloading ships are there? Used to be thousands, now it’s a couple of guys with cranes moving containers. We are already largely an automated country.

    Per your points on crypto currencies: I was specifically calling out “durable” or not for the limited tings of embodied labor ( or work). I think you are talking more about enduring usability as a currency. An important point, but one I didn’t address. Yes, having a currency beyond the reach of the bankers and governments is valuable (and I’d even say important). At one time we had that (and our constitution demands it, but is ignored).via metals widely held. A crypto currency can behave the same way, but depends on shared belief in the value more than embodied inherent useability (gold can make jewelery… what can a crypto solution make?… only a crypto coin…

    But yes, as long as folks share that sense of value, it will be valuable. Rather like paper money in that regard, but like gold in that it can’t be printed in unlimited amounts. In some ways, closer to “rare art” but evenly divisible.

    Per things like Food and Health:

    I’m not qualifying them as negative in any moral sense. Just as to the very specific thing that happens to any work embodied in them. Food is a great and wonderful thing. A fine meal a wonder to behold. But a few hours after eating it, the embodied work and labor is not to be found in any usable form… so you can’t transfer work into the future via food… (Well, a small amount a short ways via frozen foods and survival dehydrated packets; but we are not going to feed all the future retired folks via survival rations and freezers of beef held for a couple of decades…)

    Compare with gold. Make a ring of it, the value is still available. The ring can become a coin, or a printed circuit or… once mined and refined, that work is preserved in use.

    Per centralization:

    It is a fundamental push from all folks in power. Be it king or Czar. Or Congress. And it fails eventually since distributed decision making works better. But for a little while, it enriches those at the top…

    Per Trump:

    While I like what he is doing to “Politics as usual”, it is my opinion that he is not electable, and if elected would not govern well (for some of the same reasons you stated). But I sure like the show now!

    Now, on the question of how those things interact:

    One of my great sadnesses was the realization that US politics is scripted. I don’t know if it was always thus, but I think it was not. Ike was, IMHO, honestly elected. Perhaps even Kennedy too. Since his assassination, there has been, IMHO, fairly strong “management” of the process.

    While I don’t have much in the way of proof, just look at who gets to be “running mate”. IFF an outsider gets the nomination, they are assigned a VP who is “reliable”. Obama got Biden (who said horrible things about him prior and would NOT be chosen by Obama). Baby Bush got assigned Cheney to care for him. Daddy Bush chose a non-threat Quayle as Daddy was ex CIA. Reagan had Daddy Bush as Reagan was an outsider. Sometimes you get two insiders, or an outsider can be accepted. Clinton Gore for example. Gore was well connected, and the Clintons went on to join the ‘team’ once elected.

    So we get a “show vote” and they try to assure it is a choice between two of “their guys”, but if we choose an outsider, he gets a “minder” assigned just in case they need to change who is at the top. (Note that Reagan almost got swapped… and Ford got a warning shot. Kennedy was swapped for Johnson post Bay Of Pigs. I think they learned from that to always have a “spare” for the case where the President doesn’t take direction well… Johnson was a well connected power broker…)

    The “King Makers” find ways to shuffle the populist out of the way, or co-opt them if they can’t, and have a “spare” assigned for the worst case… The very LAST thing they want is a competitive market economy with popular vote for what is law…

  25. E.M.Smith says:

    Per the batteries and solar panels:

    There have been so many such hype stories over the years that I basically take the position of “I’ll believe it when I can buy it cheap at Walmart”.

    The LiTItanate cell looks good (rather like a hundred others over the years).
    The Panel specs look great.

    Let me know when I can buy them off the shelf and have home made electricity for under 20 ¢ a kW-hr 24 x 7 x 365 fully burdened cost basis including installation and disposal.

  26. Paul Hanlon says:

    Excellent thesis, E.M.

    To bad handling of inflation and war is positive, I would also add bureaucracy as positive to the GDP number, being another reason GDP is broken. Here in Ireland, because we have a low “corporation” tax rate (but not low tax in anything else), multinationals base their operations here. Some work is done, and they charge themselves a fortune for it, meaning the Irish operation has made a massive profit, which is taxed very low. Work that hasn’t really been done here is counted as being done here, and added to GDP, meaning there is a very wide discrepancy vs GNP (I think, but don’t quote me, €220bn GDP vs €160bn GNP). So that’s another.

    This matters hugely, because the multinational money can be gone in the blink of an eye, or an amnesty from the POTUS. Not only that, any calculations with regards to debt or anything else is calculated against GDP, which further distorts the picture.

    The same too with inflation. I think under the system that they use here, they look at the price of a computer, or other good, say last year, calculate the improvements that have been done to a new one and factor in a “value add” to the old price, and then subtract the current price from that to get the inflationary impact.

    So in a world of falling prices (for computers) you have a “two-fer” effect, because not only has the price gone down, the value has increased, and both are recorded as “disinflation”. This way, you can have rising prices in everything else, but still show low inflation. Not only that, but it’s comparing shop bought prices in the sixties to supermarket prices in the eighties to discount supermarkets now. And it is probably this that leads to governments thinking that deflation is the thing to fear most, when the reality is that inflation is actually ticking along very nicely, unbeknownst to all.

    I did some LiteCoin mining last year. When I started, it was possible to mine one litecoin in three days of uninterrupted computing on a box with dual graphics cards, and the price then was ~€13. By the time I had finished just over three months later, it was taking 10 days to mine a Litecoin. The cost of the electricity to run the “rig” was more than the Litecoin was worth (good job I wasn’t paying for it ;-)). It has since gone down to ~€3 per coin.

    It’s like everything, when demand goes up, supply rises to meet it. That supply came in the form of warehousefuls of ASIC miners with special cooling equipment, so the difficulty level shot up, squeezing the little guy like me out. And besides all that I couldn’t really see the point. Yes, you’re solving problems, but do those solved problems have value. It’s a pity SETI or Folding@Home didn’t grab on to this, but after seeing this, I don’t think we’ll be finding alien life anytime soon.

    If all bitcoins were mined, they would be worth just over €5billion, and there will not be any more issued, if you can believe that. So it is not going to replace real currency unless it increases in value a thousandfold. Not only that, to confirm a transaction can take quite a bit of time, so payments aren’t instant. The people that do the confirming are the miners who don’t currently charge for this, but this is not likely to continue. Unless you get Google, Microsoft, Amazon, EBay and Alibaba together behind a “global” cryptocurrency, they’ll carry on as a curiousity, but little else.

  27. R. de Haan says:

    VAROUFAKIS: IN 1967 THERE WERE THE TANKS AND IN 2015 THERE WERE THE BANKS
    http://pushback.us/varoufakis-in-1967-there-were-the-tanks-and-in-2015-there-were-the-banks/

    Obama’s environmental plan is nothing less but the introduction of a Dictatorship…

    That should put this book on every one’s reading list, FREE DOWNLOAD PDF:
    From Dictatorship to Democracy
    A Conceptual Framework for Liberation
    http://www.aeinstein.org/wp-content/uploads/2013/09/FDTD.pdf

  28. Larry Ledwick says:

    As noted above one of the major concerns for storage of wealth is liquidity. If you stick funds in a savings account they slowly lose value if held for a long time, but on the short time perspective they are highly liquid (assuming nothing major is going on). Want to buy a car, trot on down to the bank and have them cut you a bank check to the dealer or withdraw cash, no problem.

    That assumption as seen in Greece and Cyprus breaks down when you really really need liquid assets. The government or some local emergency can easily shut down the banks. In WWII folks in the Philippines and Europe etc buried jewelery and gems in the back yard to preserve wealth until after the war. It held its wealth well for 20+ years if you forgot to dig it up, but was impossible to liquidate under occupation, and even if you found a black market dealer to buy them during a major crisis, they would buy them at severe discount or simply shoot you when you showed up with the diamonds and keep them for themselves.

    So your consideration of how to hold and preserve wealth also needs to include taking into account the circumstances under which you might need to “free up that wealth”. In post WWII Germany you could buy almost anything with items in great demand like cigarettes, hand soap, cooking oil, and select luxury items like a small bottle of perfume or some chocolate or coffee.

    Under those circumstances you need something which is relatively compact, keeps well, is easily divisible to make change (is that 3 cigarettes or 4?) in high demand so you have a lot of people who are potential customers to sell the resource. It should not attract unwanted attention, ie not be illegal, things like very expensive jewelery or lots of loose diamonds not good, but a nice watch maybe not a problem, wedding ring (many people have at least one) but no thief expects you to have a box of them at home so is unlikely to follow you home to take the rest of your stash like he might if you are selling Krugerrands, or gold bullion bars on the street corner.

    Most importantly it absolutely must be something that will be in demand for purchase under the circumstances you are concerned about. Preserving wealth for a college fund, a piece of property is probably a good investment, sell it when the kid turns 17 – 18 and convert it to a demand deposit.

    In a true zombie apocalypse situation little things like can openers, 8 rounds of 9mm, a book of matches, a small tarp, 2 rounds of 12 ga buck shot or some other high demand item could be sold easily almost anywhere.

    A while back I happened upon a web video by a guy who talked about economics in down to earth terms (wish I could remember his name). He had a definition for money that I really like.

    Money is any item that can be reliably exchanged for goods or services.

    Implicit in that definition is not only the fact that the item must store wealth (ie have value to others) but to be useful as money you must be able to reliably exchange it for goods or services. A 10# brick of gold is not money if no one can make change for a 5 pound bag of flour and you are at high risk of getting killed by showing it to a random stranger.

  29. Serioso says:

    I really enjoyed this piece! The idea that gold could be a store of labor is wonderful, and at first I thought: How true! How Marxist! How quaint!

    But of course it isn’t true anymore, although once it surely was. In the past century everything has changed. First, due to changes in mining technology, the cost of new gold depends as much on capital as labor. Second, the shear volume of horded gold insures that, both long and short term, price is far more dependent upon fashion than fundamentals.

    So: The question remains: Is there a store of [labor] value? And the answer, alas [or not] is NO! In a rapidly changing world there CANNOT be a secure store of labor value.

    What is to be done? Diversify, diversify, diversify. I don’t believe in hedging, but I am in favor of looking for golden opportunities. And gold ain’t one of them. Google?

  30. R. de Haan says:

    E.M.Smith says:
    2 August 2015 at 1:47 pm

    Per the batteries and solar panels:
    “Let me know when I can buy them off the shelf and have home made electricity for under 20 ¢ a kW-hr 24 x 7 x 365 fully burdened cost basis including installation and disposal.”

    We are getting there…slowly but surely.
    Solar prices have dropped to USD 0.55 cents per watt.

    How much lower the current modules will go I can’t tell but the manufacturing process is almost entirely automated. With German installation numbers collapsing and new factories popping up all over the world prices will continue to fall.

    The LiTitanate battery is already in production and already applied by Nissan and Honda in their 2014 and 2015 models.
    These batteries will survive the vehicles they’re build in with plenty of cycles left when these cars end up at the scrap yard, just like perfectly working solar panels so if you’re lucky…

    I just watched an excellent documentary about Mercedes. For the first time in it’s history they have designed and produced a new car outside Germany.

    It is an all electric car for the Chinese market simply because the Chinese Government has pulled the plug on cars with an combustion engine.

    In this electric car market they make their planning in weeks and the message to the viewers of this documentary was that they expect to undercut the price of an conventional car within a period of 100 weeks. This means they need 100 weeks to bring down the price of the car batteries.

    I think they are really going to do that.

    The Chinese authorities decided to take out the “stinking” two stroke scooter and within a period of three years the entire scooter market was electrified which probably is the reason why we are flooded with cheap Chinese scooters and cycles with a the engines they banned in China offered under 400 Euro’s on virtually every corner of the street. Unfortunately also the market for scooters and motor cycles has collapsed now our youth need to get a scooter driver license and new rules allow the youngsters from 16 years old to take driving lessens. Because of this they save their money and skip the scooter. Anyhow

    In the US Tesla in the luxury car segment competing with Mercedes, BMW and Audi, beats the German flagships in sales.

    According to the moderator of the documentary, “Manufacturers and their suppliers in Germany don’t know what’s going to hit them”.

    In Europe and especially German car sales have slumped and even rebates of 25% off the list price of new models can’t revive the market. Small cars, yeas but the big flagships no.

    The majority of the industry think Angela Merkel has talked BS when she announced the Government objective to have 1 million electric vehicles on the road by 2020.

    A consulting company said they won’t even make the 1% market share in 2020.

    But the Borg running the EU have set their targets and objectives and if the EU, hence the euro survives the next three years, new rules will force the electric car into the market simply by closing the Green Zones for cars with a combustion Engine.

    I have absolutely nothing with electric cars unless they make them fly.

    So I have stocked up on young used eight, ten and twelve cylinder cars with low miles before they’re all or exported, scrapped and unavailable.

    I will run them on propane and keep them rolling as long as I can.

    As for my off grid ambitions I think Middle America.
    I have spend many years thinking about off grid solutions but have no ambitions to live the life without the usual house hold appliances and a diesel propelled power generator isn’t my cup of tea either.
    I also think about a sailing boat where lack of power, read fuel and cold storage of fresh food supplies) forces you to visit ports you don’t want go and never planned for.
    This battery could work miracles in that respect and increase the range considerably.

    With the current tech terefor both concepts could be realized and if I get the opportunity to pull a few battery banks from the cars of unlucky motorists who wrecked their electric dream machines, at a fraction of the costs.
    Let’s see.

  31. John F. Hultquist says:

    Hi,
    I stopped by and read this thread yesterday and thought you might find this Market Watch article of interest. Gloom all around, it seems.
    Regards, Dry-side John*

    [*I’ve been working on trails in the Cascades with, mostly, folks from the Puget Sound area or wet side.]

    3 lines from the link below:
    The U.S. is in a straitjacket.
    Politicians have taken notice.
    “… no one ever does anything …”

    http://www.marketwatch.com/story/go-go-economy-becomes-so-so-economy-us-faces-dimmer-future-absent-big-fixes-2015-08-04?page=1

  32. E.M.Smith says:

    @Serioso:

    Well….

    At the risk of showing my Marxist Education….

    ( I was required as part of my Economics training to demonstrate an understanding of Marxism as it IS an economic system, and like it or not, needs to be mastered…)

    The Marxist doctrine asserts that all value comes from labor. How can one possibly say that when clearly physical capital stock (steam shovels, hoses, flotation tanks, trains, furnaces…) all are needed to make raw ore in the ground into shiny finished gold?

    To answer that, one must ask simply “From where did the physical capital stock come?”. It came from prior labor and prior lesser capital stock. From where did the prior lessor capital stock come? From PRIOR labor even LESSER capital stock! Eventually you reach the very first formation of the very first mine done with stone tools and wood fires. Made with, yes, LABOR!

    So, you see, physical capital stock is simply itself the embodiment of prior labor, saved and carried forward through the generations.

    It is the appropriation of the prior labor embodied in the physical capital stock that is the abuse of the proletariat by the bourgeoisie. The theft of that prior labor from the true inheritors of it, the present day labor class, is the very basis of the social revolution that is essential to redistribute that accumulated labor back to the true inheritors of it.

    ( I’ve said several times that I can make a very good argument for Socialism, but folks don’t believe me, especially folks who are in favor of Socialism. But, in fact, I can do it. My only real complaint is a simple one: Every time it has been tried if fails catastrophically in about one generation. Sometimes a little more, often a little less.)

    For those of you who are True Believers In Capitalism and are presently spitting up your whiskey onto the screen at my above defense of the idea of all wealth being embodied labor:

    1) Take a deep breath (and wipe up any wasted whiskey… you know better than that…)
    2) Pour a fresh one. Now, carefully, drink deeply. Swallow. Set the glass aside…
    3) While the above is, in many ways, quite true, it ignores a couple of very important points.
    4) SOME of those points follow.

    Now a Capitalist would look at the above and say (if very very thoughtful):

    Why yes! Great Grand Dad worked his butt off making this ranch by hand from raw dirt and some trees. Then Grand Dad added fences and bought tractors with the cattle raised. Now I’ve watched as Dad set up feed lot operations and started selling even more beef, using that capital stock accumulated over the generations. Me? Hell, I’ve set up a meat packing plant employing 50 people and using the best of mechanized slaughterhouse and butcher shop with direct marketing of flash frozen range fed and grain fed cattle. ALL that capital stock represents the stored labor of my ancestors. WE chose to NOT consume it, but to invest it in capital stock. Now some lazy a-hole want to steal 4 Generations of foregone consumption and self restraint and consume it destroying generations of labor in the process.

    And that, in a nut shell, is the problem.

    One side sees that “stored value of labor” in the capital stock of the nation as something in which they ought to participate due to the Robber Barons of the past cheating THEIR ancestors. The other sees that “stored value of labor” as the benefit of self sacrifice and prudence by THEIR ancestors and fear it being squandered by the fools and drunkards who want to consume it all now.

    The sad thing is that both of them are right….

    But, to your question:

    Is there a store of labor? Unlike your “no”, I assert the answer is “yes”. In two forms.

    1) Durable goods and materials (like gold and antique cars) that preserve the prior accumulated labor (and labor embodied in prior capital stock) and carry it forward in time.

    2) Physical capital stock. The “means of production” that incorporates not just the physical labor that made it, but the intellectual labor that created it as well. “Intellectual capital” is just as real, even if ephemeral…

    The necessary conclusion from this is that BOTH the “gold bugs and hard money” folks and the “petty capitalists” are correct. So you ought to buy a bit of gold, and some Google, and some IBM, and more S&P 500, and maybe even a painting or two.

    Any work of humans, be it gold, paintings, rare coins, a great ceramic, or even a working company making spoons and forks; they all contain a store of embodied labor… that can be exchanged later for dinner and a bed-pan swap.

    Just don’t expect pretty printed pieced of paper with dead presidents on it to carry forward value nearly as well as all those other things. Or as well as a son or daughter who loves you in return for your unconditional love and support.

    I’ll be back for the rest of the comments after a refill the wine cup…. Marxism needs a couple of stiff drinks to do it right ;-)

  33. p.g.sharrow says:

    Over the last 80 years, American Progressive Liberals have spent their inheritance from the past, their created wealth, the wealth of their children as well as their grandchildren. Have two drinks! the party is nearly over for everyone.
    Economics is a bitch that will always win in the end. Liberals can not wish their own outcomes into existence for long. Sooner or later they run out of others wealth to acquire by argument or force.

    Time to start building the next Era. pg

  34. E.M.Smith says:

    @P.G.:

    Well, I took your advice, and now it’s tomorrow ;-)

    So It’s time for morning coffee again…

    There is a curious cycle to history, and also a horrible truth. The horrible truth first:

    Most stable and effective forms of government are opressive and unfair. Fair and equitable forms of government are unstable and fall to the former.

    Even as far back as Plato this was known:

    https://suite.io/thais-campos/42vs22t

    Plato’s Five Forms of Government or the Five Regimes

    In The Republic, Plato describes the five forms of government from best to worse and advocates that the ideal state is aristocratic. The five forms of government are:

    Aristocracy
    – this is the best form of government, according to Plato, in which the ruler is a philosopher, someone whose soul has been educated through the contemplation of arts and the exercise of the intellect. Having studied philosophy, this ruler would know the true virtues and, therefore, he would be able to lead people towards wellness and prosperity. Since the ruler would be virtuous, he would not want to deceive and abuse the citizens;

    Timocracy – this is the form of government ruled by warriors in which all the political decisions aim to bring military power and status. Timocrats may seek virtues just as the aristocrats, but they also pursue power, which can lead them to wars and combats. Timocracy, according to Plato, is a kind of government that arises when aristocracy starts to degenerate;

    Oligarchy – this is the system of government that establishes a division between the rich and the poor. The rich ones, which are fewer, rule and the poor must subject. This, according to Plato, is a problem because rich people are not necessarily virtuous, and when the power is in the hands of non-virtuous people, the rich will attempt to become richer and the poor might become even poorer due to bad policy, generating revolutions;

    Democracy – democracy is the child of oligarchy. Since people cannot agree with the rich ruling and deceiving the poor, people start to believe that if they could choose the ruler, their interest would prevail. The poor are greater in numbers so they elect one of them to be in charge. However, since the masses aren’t educated to become virtuous or to exercise the intellect, they are not apt to make political decisions that prioritize their real needs;

    Tyranny –democracy naturally degenerates into tyranny and society becomes a total chaos in which there’s no rule, no priorities and no laws. Whoever is stronger takes charge and does as he pleases. Nobody is able to remove a tyrant man from the power, as there’s no law to be obeyed.

    Plato on Democracy

    Plato understood that democracy is one of the worst forms of government because nothing guarantees that a ruler elected by people is virtuous enough to know what’s best for the masses. Only a philosopher would be truly compromised with people’s wellness as he would have been educated to know what to prioritize in a hierarchy of values. The uneducated masses are ignorant about the reality of the soul and therefore, they would not be able to make the right political decisions.

    So, unless the masses were educated into philosophy and arts, they would not be apt to choose a ruler who would represent their true needs instead of their illusory needs. The true needs, according to Plato, are the needs that lead to spiritual growth and wisdom and the illusory needs are those that please the senses and seek status.

    Thus we get the oscillation between the likes of Obama and the offered alternative Trump… Thanks, Democracy, just what we needed…. not! ;sarc>

    The Founders tried to set up a kind of ‘representative aristocracy’ by having a Republic where those who were most educated, and one presumes, enlightened, would act in the best interests of the Republic. Slowly over the decades the various forms of Republic Rule have been replaced with Democratic Rule. The President is no longer selected by the Senate, but by a “popular vote”. Senators are no longer selected by their State Representatives but by a “popular vote”. In California, in my lifetime (and memory) here we changed from Counties selecting their Senator to the State Senate to a “popular vote” and IMHO you can measure the collapse of California from that change (and the increasing bankruptcy of the County Governments as more mandates are handed them and more money shipped to Sacramento).

    IMHO the rise of Timocracy can be seen in the increasing Gang Wars and Drug Lords. As the formal government decays, the “Strong Man” (or warrior class) starts to assert control. First in the crime world, increasingly beyond it. As this power center rises, it corrupts the formal government even more. (See Mexico as an example. Some parts are now local Timocracies and you dare not visit as an Anglo or as an anti-drug Mexican.)

    In the USA, the demise of a real Republic form has lead to a bifurcation. The Republican Party has tended ever more toward the Oligarch party. LOTS of big money choosing the candidates and setting the agenda. Similarly, the Democratic party has its share of Oligarchs. Both trying to shape the country into one appealing to them, and no longer opposed by an effective Republic of all. But the Democrats have also pushed for ever more Democracy. (See the “Democracy Now” show and efforts at making everything a popular vote). Why? IMHO, leadership by FUD.

    Fear, Uncertainty, and Doubt. Coming out of the War Between The Stated (aka Civil War) the Democrats cast their fate with this strategy as they chose to herd blacks like chattel using fear to get them to vote against the Damn Yankees. (Folks forget that the Southern Democrats were hard core racists and pro slavery while the Northern Republicans were the ones who freed the slaves…) Faced with a loss in battle, they turned to FUD as a tactic. It worked for them, and they have been riding that wave ever since. So watch the Democrats, and you will see them deliberately create dependent classes, sow hatred and division, and exploit that with FUD.

    In that context, the battle is between the Democrat Oligarchs using FUD and pushing for ever more “democracy” so they can more effectively herd poor voters with FUD, and the Republican Oligarchs who want to buy more representatives outright. Stuck between those two poles are the run of the mill middle class who have no one. The do not want to be driven to ruin with taxes and rules and herded with FUD; nor do they want to be along for the ride in the back of the bus owned and driven by the Oligarchs and their lackeys. (On average… in reality they divide between the parties based on which of those is least offensive to them and dilute themselves into irrelevance).

    Eventually the push for ever more “democracy” and the dominance of both present major parties by Oligarchs will result, as it always has, in a slide into Tyranny. We’re a chunk closer to that now with Obama The One True Ruler doing whatever he wants, Congress be damned, and Executive Orders that overrule all else. If that is NOT reversed (and not just the next President reversing O’s rulings, but the actual use of executive orders in that way) then we are just one popular Evil Bastard using FUD away from an Executive Order disbanding Congress and the Courts. I’d rather we didn’t “go there”…

    The way to “fix it” is pretty clear, but unlikely to be taken. Start with the States. Put State Senate members back in the hands of the Counties to select. Undo the various “democratic” mechanism that have slowly replaced parts of the Republic with FUD and mobs driven by Oligarchs. Senators not directly elected, but truly being State’s Representatives. President selected by the Senate. Etc.

    I know it will never happen for the simple reason that We The People think we are the best ones to decide who ought to be President or Senator. But we are supposed to be represented by the House Of Representatives, while the Senate is supposed to represent the States (and keep balance within the nation between large population States and small population States) while the Senate is supposed to prevent a Tyrant President by having a close tight grip on his choke chain. We’ve broken all that over the decades. But because people are fundamentally greedy and arrogant, we think we are the best solution via a direct vote. Down that path has always been collapse as “the people vote for themselves the largess of the public purse”.

    Which is exactly what we see playing out now in slow motion.

    Hillary offering 3/4 $Trillion or so of “free money” to students after herding them with Student Loans into a place where FUD makes them willing to sell their votes to her. That 3/4 $Trillion being seen as a nice fat money spigot to the various colleges and universities (and their staffs) that have dutifully filled those student heads with the notion that they ought to pay 3/4 $Trillion to be told they are the best little voters in the world and ought to run things “democratically” but FEAR folks who run non-democratic companies. And fear Republicans. Money to come from the Middle Class who is not catered to by either party (the Republicans will assure the “soak the rich” is not effective and will only soak the ‘wannabe rich’ instead; and they can do it because the truly rich running the Democratic party will be for it as well…).

    Similarly the offer on the Republican side is “If you like your job you can keep your job” as they talk about pitching out the “illegal aliens” while at the same time advocating for a flood more “legal immigration” and H1b “your job killer” visas. More FUD to herd folks into voting for the thing the Oligarchs want ( cheap and plentiful labor migration and destruction of middle class wage rates. BTW, check out the labor rules in the TPP. Democratic Oligarchs are OK with this too…) So the Republicans talk a good game about liberty and restoring the rule of law; but in reality they are talking about restoring the rule of laws approved by THEIR Oligarchs… But packaging it in terms that make it sound like their “base” gets to keep their wage money. Republicans promise to cut taxes (“you can keep your money”) but never cut expenditures – thus contributed the move from about $4 Trillion debt to about $8 Trillion…

    In short, we’ve moved to a point where we are not a Republic any more. We are an Oligarchy / Democracy split. The Oligarchy is driving both main parties, while the democracy prevents any effective Republic/Aristocrat response. Herding the populace works for a while (maybe even a generation or two) but eventually decays into Tyranny; and we’ve been at this for about 60 years now, so I doubt there is a whole lot more left to play out.

    The examples of Greece, Portugal, Argentina, Brazil, Spain, and others (pre or perhaps post Maggie UK?) argue that we don’t have a whole lot more room for increasing debt, increasing FUD, and keeping stability and prosperity. (Though it does puzzle me just why the Oligarchs of the world are happy controlling a damaged and weak economy instead of getting twice the wealth out of a prosperous but less dominated economy. Must be a power trip thing?) Oh, and in passing I note that Russia went from Communist Socialism to Democracy to Oligarchy and back to Tyranny in record time… Putin now the strong man Tyrant running things and vilifying the “Oligarchs”.

    Sigh.

    Oh Well.

    I think I need a fresh cup of coffee…

    But, P.G., to your point:

    Yes, time to prepare for “the new era”. It always is. The cycle never stops. Sometimes it slows down, sometimes speeds up. Stop? Never. Sadly, I’ve also never seen it reverse. The UK came close under Maggie, as did the USA under Reagan, but those kinds of changes always seem more like an oscillatory event. The run to “Democracy” then to “Tyranny” slops too far too fast and slops back for a couple of decades while the folks who remember a prior time of liberty die off; then the rush to dependency resumes with greater force. I have a half baked idea about the distribution of wealth and the proximity of the generation that created it, but it’s not ready for sharing yet… and may be quite wrong. But there is something of an institutional memory of “hard times and hard work leading to good times” that is lost before the fall can come.

    We now have a couple of generations that have never really experienced “hard times”; and only a few of us who listened closely to our parents as they told us about them… So the center of gravity is moved to “party time, I want more party time”… I think that matters.

    But how to prepare? Those who know to prepare are generally the ones most likely to be irrelevant. (Old folks like me, folks who live on the edge of civilization already far from towns). Those most needing to prepare are least likely and least able. Young folks living in rented apartments in major cities. How, as a resident of 1970 Detroit, would you “prepare” for the Detroit of today? If your job was in the Dodge factory? If you ran the local Diner for Ford employees? Unfortunately that Bitch of economics does not reward “preparation”…

  35. M Simon says:

    If prices are falling – delaying current consumption makes little sense. If I spend $20 of my $100 and in a year buy $100 worth of goods for $80 – I’m ahead by consuming.

    I’m not quite sure what is causing it (in the 20s it was farm machinery) but the prices for everything are falling.

  36. M Simon says:

    Reagan? Over rated. Ramping up Prohibition has lead to a host of ills including a police state with police not part of the people. “Tough on crime” has created crime. And it is not as if we didn’t have a prior example to learn from.

    I’m hoping that the unraveling of Prohibition will buy us some time and a few minds.

  37. M Simon says:

    R. de Haan says:
    5 August 2015 at 7:35 am

    We are getting there…slowly but surely.
    Solar prices have dropped to USD 0.55 cents per watt.

    Is that per 24/7 watt or just 4 hours a day watt? 6X4 = 24. That would make those watts $3.30.

    So really you want 15 cent a KWH electricity? Solar has to come in at below – 15/6 = 2 1/2 cents a watt. And the cost of storage will lower that further.

    Well the numbers may be off. But the method accounts for the intermittent nature of solar.

  38. E.M.Smith says:

    @M.Simon:

    Maybe we need a new metric of $/KW-day …

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