Here's something esoteric that I didn't know:
Even as overall productivity has risen 34% (since 1987), capital productivity has declined 15%. And it's not just the US:
Capital productivity has plummeted across all rich countries. In the food and construction sectors it's down more than 50%. In other sectors it's down 30%, and only in IT is it up.
Why? Remember the investment drought we talked about frequently during the financial panic? Another term for that is capital glut, and we still have it. There's so damn much capital sloshing around the world that it's become super abundant compared to labor—and since abundant inputs are inherently the least productive, capital productivity has suffered. Lenders are eager to lend and even mediocre projects get funded, driving down the overall average.
Does this matter? There's the rub: I don't know. But no one seems to be very concerned about it, so. . .
Lately I have yet to see an economic indicator that is inconsistent with our need to increase the marginal tax rates. And estate taxes.
As the phenomena Drum evokes is global and not American only, your observation merely is saying "I have a thing I want ideologically and I will see justification for it everywhere"
However, the US taxing intergenerational wealth is something that indeed comparatively would be wise as it is unhealthy in the medium to long run.
And certainly the USA would be not well served by more tax cuts in the face of its debt load - and effective taxation rises are justified - not by this however, but other facts.
So you agree with him on both the need for tax increases and his observation about various economic indicators? But......you got a schtick and you cant stop....
"a schtick" being having opinions that are not aligned with the US Lefty Orthodoxy.
It is clear enough - there is a justification for US tax increases - however that justification is not related to this subject - ergo using this subject to justify tax increases is wrong.
As one can see from the non-USA which does not have the USA tax situation, the decline in productivity across major OECD is not evidently something driven by USA taxes
You're schtick is pretending you're not a fortysomething living in your mom's basement located somewhere in South Dakota where you were born and bred.
[Henry Hill gif]
"Debt load" and "capital slosh" are two sides of the same coin, as your comment seems to imply.
I don't understand your need to adopt a obfuscatory writing persona at all.
Setting that aside, just because something is a global phenomena doesn't preclude national action. In fact, that is pretty much how you tackle most global problems.
National action has fuck all to do with the fucking observation, on taxation.
The bloody observation is that everywhere in high income the productivity went down, utterly unrelated to taxation since it is broad.
Taxation policy can have other justifications - but is NOT the fucking policy here or one would see the high taxation nations having a different pattern
Taxation is NOT RELEVANT to THIS SUBJECT you dim sods.
My allowance you may need tax rises is simply to convey that this is not an anti-tax rise position.
You should go away, you're annoying, ill-tempered, and a bad writer.
More progressive taxation is justifiable in most OECD countries. Most, including the US, have near-flat tax regimes for total national and local taxes. These are remediated to a greater or lesser degree by transfer payments that reduce inequality. A much better regime would include living-wage legislation to reduce inequality, as well as a more progressive tax structure, plus an estate tax structure that would greatly reduce dynastic wealth.
I'm pretty sure it's reduced population growth that's to blame. The faster the population is growing, the more that capacity has to be increased: more roads, more water systems, more plants of every kind, more office buildings, more retail space, and so on. This has the mechanical effect of boosting investment. This dynamic also tends to be inherently positive for productivity, in that newer installations of physical plant will generally be more modern than older ones. The slowdown in population growth is also associated with an aging population, and older societies tend to save more, which obviously adds to the capital surplus Kevin cites (further reducing the rate of return).
Just another way to show that we need to return to at least Clinton era tax rates, if not earlier.
While you probably do need that for other reasons (of which the debt load), the fact that the productivity decline is global and other countries are not USA in tax policy rather says that this is an ideological reflexive response.
Global population growth decline in the upper and middle income countries, low costs of capital and insufficient physical infrastructure investment / upgrading (of which one can think notably of energy: electricity but not only) in all brackets from lwo to lower-middle income to high income would rather be more well-founded transversal explanatory contributor.
Of course pointing to only one factor is almost certainly erroneous as this is likely a confluence of factors, multivariate that are aligning and possibly self-reinforcing as in e.g. the extended long-period of the highly distortive zero interest rate globally.
Of course historically if one looks back to 19th century, infra investments take time to pay-off which means needs the proverbial patient capital (as well as wild fools of that period but that seems unlikely to repeat as such people now go for idiocies like bitcoin)
Shorter Lounsbury:
"You're right, but I'm going to try to sound both adversarial and obfuscatory."
You're wasting your keystrokes here. It's pretty obvious you're an ideologue on this topic.
You fundamentally misunderstand how and why there is so much extra capital in the system. Capital has too much capital and nothing productive to do with it. If only there were a mechanism whereby some of that extra capital could be redistributed to more productive pursuits... Gee, I wonder what we'd call such a mechanism? Taxes, maybe.
👍👍👍👍👍
I;m ideologue?
Oh dear, no wonder you people keep losing elections.
Well, have fun with Trump, you rather deserve to go through the experience
You're mom called. She said to tell you to quit fucking off on your computer and to bring her up another sixer of Coors, like she told you to half an hour ago. Do be a good boy and comply with your Ma's request.
This probably ties in with the post the other day about the historically high P/E ratio for the stock market. There is so much money floating around that people are pushing up the prices of stocks. On top of that there is a bit of an AI bubble going on. Companies are throwing huge sums of money at AI investments. This doesn’t hit the whole market because not all companies are investing in AI but it is causing some P/E ratios to go really high.
It may be that next year we’ll see the AI bubble start to unravel. After huge investments investors are asking about a payout which isn’t happening. Customers are interested in AI but are reluctant to pay for it.
There have now been reports that the big developers are seeing diminishing returns on investments. The newer software models are not that much better than earlier versions in spite of all the money spent.
I guess the canary in the coal mine is NVIDIA. When they start missing profit forecasts then we’ll see it all unravel.
I don’t think the current software we call AI will disappear, just that it will grab fewer headlines and fewer investments. People will figure out how to get some use out of it without getting damaged as the technology stabilizes.
I agree with everything you said except being concern about NVIDIA. At least they are a productive and profitable company, the real problem occurs when you throw tons of money on sectors that have absolutely no chance of being productive or profitable under the current economic regime.
Looks like the Euthanasia of the Rentier:
https://archive.nytimes.com/krugman.blogs.nytimes.com/2014/01/22/the-euthanasia-of-the-rentier/
+100
I wonder if this is also connected to the now nearly 50 year trend of wages of the lower 3 (or 4 ?) quintiles not keeping up with either productivity or gdp growth. If all that prosperity has gone to the top - the investor class - instead of the consumer class then that's a lot of money sloshing around with people and institutions that don't need it to buy stuff but have it to invest.
1000%
+10
Yes, as I have been saying for a long time there is too much capital relative to demand. Since around 1972 most of the increase in GDP/cap has been going to those at the top, building up the capital. Meanwhile real wages for production workers are still below the 1972 level:
https://www.skeptometrics.org/BLS_B8_Min_Pov.png
Relatively little increase in income of wage and salary workers means little increase in aggregate demand and little reason to use the capital to expand production, especially in the US. Instead the money is used to expand the bubble in stock prices and to build up the price of crytocurrencies, among other speculations. A highly unequal distribution of wealth is not conducive to real growth.
There are many reasons for this situation, but above all there is tax policy. The idea that greater net monetary rewards for capitalists and upper managers leads to greater incentive to invest for real growth is just false. And has been known for a long time, there is no need to build up total capital. There was never such a need, as the economy did better during the time from the 30's through 60's when tax rates were highly progressive.
One quick way to reduce wealth inequality and increase aggregate demand would be to tax all income for Social Security and increase benefits. Most SS recipients spend all of their income and would spend more if they had it.
Instead of discussing real economic impacts like this, the media and politicians are hung up about the supposed "bankruptcy" of SS, which is phony because Congress could fix this at any time in several ways.
And again a reminder that capital gains, dividends, interest and rents, which rather than wages and salaries are mostly what build up capital, are not now taxed for SS. I doubt if most people are aware of this.
Delong has had posts on the various shits in how we run the economy. One shift was about how we shifted from making useful things to making financial betting devices.
Spell Check Shits!!!
Funny. My iPhone won’t let me type “shit” no matter how exactly I type it without trying to change it to shot, shut, sit, or something else. I have to go back and change it every time, and it doesn’t learn like it’s supposed to.
On the other hand, my eyes ignored the lack of “f” in your “shits” without hesitation.
"There's so damn much capital sloshing around the world that it's become super abundant compared to labor"
The investment of capital in energy generation and machinery, including robots, reduces the need for labor in a particular sector. This is what productivity is all about, not getting wage-earners to work harder. And increasing productivity is what has led to a better standard of living everywhere since the start of the industrial revolution - it has not led to increasing unemployment overall, contrary to what Kevin seems to expect. As one sector becomes more efficient, labor has moved to another. Also work hours were reduced, but that process stopped around 1940.
The question is why there hasn't been more constructive investment of all that capital in things that reduce the need for labor per unit of production. The problem is not a shortage of either capital or labor, it is a failure to direct that capital to investment that produces real goods and services. Actually an overabundance of (cheap) labor may reduce the impetus for productive investment.
The finance industry is supposed to be an intermediary in the process of investment, but it frequently becomes an end in itself. There are periodic bubbles and crashes and we are inevitably building up to one now. This is predictable because it is what has always happened, but when the crash will come is not predictable.
Absolutely it does.
How much of this is real estate? I don’t know how ‘productivity’ is measured in the RE sector, but returns must have taken a beating from COVID WFH.
For the last several decades we've heard constant repetition of the deification of the "job creators" and the virtues of funneling more and more money to the wealthy, while restricting in one form or another aid to the less fortunate and any effort to increase wages. Apparently, rich people have too little money and poor people have too much money. What you're describing is a logical consequence of this policy. Putting more money in the hands of the investor class without a corresponding increase in the number of good investments inevitably leads to more money funneled to poor investments and large economic bubbles, which invariably burst with devastating effects. The wealthy and their surrogates would have us believe that this is the natural order of things and is inevitable. It's not. It's a policy choice, and we can change it any time.
There has been a four-decade long effort to reduce taxes on upper incomes, justified under various guises. And it's worked. Tax burden on upper incomes is the lowest it's been in my lifetime. This is particularly galling when the beneficiaries of this policy continue to bleat about deficits, always insisting the cause is run away spending. (Spoiler alert: it's not. Government spending as a percentage of GDP is the same as it was 40 years ago.) There have been various ways proposed to reverse this trend, but how it's done matters less that the fact of doing it. Raise whatever taxes you like - it really doesn't matter, as long as it's weighted heavily on upper incomes.
Isn't this the law of diminishing returns at the macro level?
...so what you're saying is, in a world where people are claiming federal fiscal responsibility is extremely important, the world is awash in cash chasing low returns.
That's weird right? It's as though all the people who say we should be worried about government deficits and debt don't actually know what they're talking about.