A Glimpse Into The Future

Justin Fox has an excellent blog post up on Bloomberg.com talking about some changes he is seeing in the global economy.

In the post Justin observes that the global economic slowdown we are in the midst of may well be more about the accelerating change from a goods based economy to a services based economy than the traditional business cycle playing out.

There are a ton of good charts in the post and I would strongly suggest everyone go read it.

Here’s the final paragraph which sort of nails the argument, as good final paragraphs do:

Finally, consider the things that people do want to spend their money on. The defining consumer product of our age is the smartphone. A smartphone is a good, and it takes resources to make and transport it. Still, it takes a lot less resources than, say, a car. Most of its value is in the software that is loaded onto it and the people, information and entertainment you can connect to with it. That’s a different sort of value creation than 20th-century resource-based value creation. If that’s the direction the global economy is headed in, the connections between growth, trade and resource consumption aren’t going to be the same as they have been. That is probably a good thing.


Comments (Archived):

  1. gregorylent

    bucky fuller .. ephemeralization … doing more and more with less and less

  2. William Mougayar

    That ending paragraph nails it, but he should have added “Services” to what a smartphone connects to, not just people, information and entertainment.The Services that a smartphone connect to are the enabling gateway to this increasing and changing nature of trade.

    1. awaldstein

      True.I spend a lot of time thinking not about the phone but about those services.The largest sector that is still bucking the trend towards change is the supply and delivery chains for perishable goods–that is our food!Regardless of the potential of services like Instacart, the massive failure of platforms like Goodeggs is a case in point that besides the proliferation of Green Markets, food distribution is basically as it was 20 years ago.The players on top have changed, there are very much players on top calling the shots.Massive segment for disruption that is a bear to transform.You seeing anything that shows a chip in the status quo?

      1. William Mougayar

        Is the future everything on-demand from your smartphone?Have you heard of the DO Button App by IFTTT? So, you could have a push button on your phone that orders you a Lulitonix and delivers it.

        1. awaldstein

          Answer to first, is that yes, that’s a great aspiration and one to work towards.Answer to second, nope, but there are tons of delivery services. In NYC where delivery is core to life, new ones are popping up all the time including of course Uber.These are all point solutions and important. But does the grocery store itself get disrupted? Do you think that the Instacarting of your fresh food is going to be a reality?

          1. Jess Bachman

            Where is the middle and lower class in all this disruption? Certainly not instacarting their groceries.

          2. awaldstein

            Here’s the rub.Quality food costs more than crap at least till your body reacts to it then it’s astronomically more expensive via health care.Until we can answer the big questions–how can we provide affordable, healthy food for the mass market without killing the planet–we are attacking a solution for the expendable income class.Which btw is huge and a segment worth addressing.

          3. Jess Bachman

            Thats the case with most thing. Being poor is incredibly expensive.I’m just tired of all this “innovation” that leaves out the median american, who earns 26k a year.

          4. pointsnfigures

            On food, I don’t think we should mandate local farming etc-just end subsidies for everyone and give consumers free choice. Let them, and the market decide.

          5. awaldstein

            I don’t see any other way to do this.But–can this really drive a mass market change?Somewhere in this tech–as in hydroponics possibly–is going to have to get integrated, and with that funding cycles to solve this.Forever interesting to me.And I think really important for our world.

          6. pointsnfigures

            What I don’t want is big brother at the USDA dictating the change. Get rid of all the inefficiencies in the market, and see what happens. Maybe farmers in Iowa switch from row crops to other crops.

          7. Richard

            We need to get real on raising the costs on smoking and make public smoking very difficult. The idea that women being topless in public is criminal but smoking isn’t is a joke

          8. awaldstein

            I rarely see people smoking anymore.Illegal in all parks all restaurants and bars all public squares and gathering places in ny.i guess i’m in a big smokeless bubble. lucky me.

          9. kidmercury

            there is a middle class anymore. as for the lower class, they are being paid to pickup groceries via instacart.

          10. Jess Bachman

            Well… don’t be fooled. The middle class is shrinking for sure, but it’s still at 45% of Americans. Used to be 55% in the 70’s. So.. shrinking, but still a force to reckon with.

          11. kidmercury

            i guess it depends on how one defines “middle class.”

          12. LE

            Answer to first, is that yes, that’s a great aspiration and one to work towards.I guess that would be considered “great” however I can tell you that when I call the local chinese restaurant (actually two places) and the person answering the phone taking the order (very quickly and efficiently) knows me (which they do since I tend to be a loyal customer) that the fact that they answer and are quick on the uptake actually greatly adds to my loyalty of the restaurant.On the other hand when I use the web page to order food from another local chain type restaurant I am anonymous and I don’t have the same experience. And when I go to starbucks they also (even if they are a large enterprise) tend to know me as well and that adds to the enjoyment of the product. I am guessing that I am not unique in that respect.My point is I would question if for a boutique brand such as luli if there isn’t a net benefit (given the price point) to having a human actually take the orders and interact with the customers. Might not scale but the personal contact is not to be dismissed for efficiency always.

      2. Jon Michael Miles

        Dominos has done a bang up job of integrating mobile into retail food ordering.

        1. awaldstein

          as in pizza?

      3. creative group

        AWard:no matter what you replace in any forward looking charts you can’t forget food, consumer goods, autos, etc. It requires so many other indicators to define. The boatload of unwanted apps included in mobile devices that the end user doesn’t use is numerous.Applications and chips that make the mobile devices work are invaluable.

      4. sigmaalgebra

        Even for food, although so far not perishable, Amazon commonly beats the local small/big stores. E.g., there are some canned foods I like, and it’s easier and cheaper just to order a case at a time from Amazon. E.g., commonly the local stores do not even have a case on their shelves.

  3. JimHirshfield

    Yeah, we’re heading in that direction, but the world population is growing and more cars, refrigerators, and ovens are still needed… No?

    1. awaldstein

      The future looks very much like today when you put our hard good supply chains into that vision.To be clear, today is almost unimaginable from a pre Amazon world but the step beyond this, including produce, is beyond the pale of my visualization this morning

    2. Matt A. Myers

      If more shared economy than less per capita than now, perhaps. More isn’t a problem if it’s done sustainably. Getting everyone on board to do things sustainably is the caveat.

    3. panterosa,

      since you can now get solar ovens, i want a solar fridge.

      1. JimHirshfield

        Tesla’s on it, no doubt.

        1. Matt A. Myers

          You’re talking about getting a fridge on Mars, right?

          1. JimHirshfield

            Kinda. Fridge on high speed train on mars.

    4. pointsnfigures

      Maybe not as many cars, but someone has to own the assets.

      1. JimHirshfield

        Uber all the cars. Uber all the things.

        1. pointsnfigures

          It works to a point.

      2. Matt A. Myers

        Someone has to be given the responsibility and feel responsible for the assets and quality – you can incentivize people in various ways to do this.

    5. Lucas Dailey

      Everything I own, I own for the service it provides. IMO, the business model test that determines what goods could become services is:1) Will moral hazard allow it2) As a manufacturer, can I exploit my position to delivery the service more efficiently than the user.So for #1: If I pay for mobile computing/communication as a service, and don’t own my phone, I’m less likely to treat it gently. So phones are unlikely to go to a service (in most cases).For #2: If I pay for heat as a service, can a furnace manufacturer make a more efficient, longer lasting furnace, maintain it, buy the gas/electricity, at a lower price than I could as a homeowner? I expect yes, so think about furnaces going to a service.The future is bright. And better for the environment (see my other comment re Natural Capitalism).

      1. James Ferguson @kWIQly

        Meter Asset Management is a big industry.A big lump of metal buried (possibly) in the ground, securely attached to supplier infrastructure on one side and to consumer infrastructure on the other.Requires maintenance, and complex commissioning, heavy regulation of safety, planning etc, etc.Interesting to look at eg energyassets.co.uk as a UK plc stock pick.Note – We provide data analytics services but hold no stock nor do I personally. But its an interesting asset class for the reasons above. PLUS – it’s an all or nothing deal – gas you can consume less but if you want any you need to finance the service. Oh and the user doesn’t even use it – and they are bloody robust !

    6. Richard

      Why are microwave ovens still around ?

      1. James Ferguson @kWIQly

        Using one right now ! – Just landed in Switzerland – wife away, so her pre-cooked excellence on its way to my plate in t- 5mins approx

  4. Twain Twain

    And the next product of our age are the sensors that can be attached / embedded anywhere so we don’t even need to take our phones out of our pockets to interact with the Internet.Yes, seriously. Why else am I playing around with hardware (when not engineering Machine Intelligence with an internal model that can better classify Natural Language)?After all, I’m the “mad” person who made the world’s first-ever app to do gesture = tweet.

    1. Michael Elling

      Why are we stuck on this notion that we will have smartphones in 10 years? I believe a better ecosystem is one where we have a radio hub with some storage and ample battery that lasts 5-14 days between charges and costs $10-20 to produce. This “hub” then connects to or interacts with “n” devices in your PAN/LAN/MAN. This creates the infinite demand model for your chart above. For most people “n” will range from 100 to 1,000.

        1. Michael Elling

          VR just one of the “n” devices. One thing though that will need to develop will be security and incentives in the form of settlements to the endpoints; yes all the way out to the edge in the PAN to provide interaction and interconnectivity. Doesn’t exist in today’s protocol stack and we can’t monetize people’s privacy much longer. IoT big, big hacker’s delight at present. And if balkanized, will not scale efficiently.

  5. Tom Labus

    Yet, Home Depot and Lowe’s are having banner years beacuse homweowners are doing big projects on their homes.

  6. Brandon Burns

    Take that last paragraph, put it in the context of 60 years ago, swap the word “smartphone” for “television,” and the whole thing still makes sense.Whether you make a hard good, or you “make” customer service phone calls for a living, most people still have jobs that involve them making things of value, physical or otherwise, and getting paid for that.The rest is clickbait.

    1. Ana Milicevic

      It’s an interesting cultural and generational conversation though. I spent a few weeks this summer kicking the tires in startup ecosystems in Europe where one of the main questions asked is ‘what do you make/produce’. Saying ‘software’ or a ‘service’ is generally looked down upon as opposed to a physical, tangible good like car or stove. Why does this matter? Because this attitude is what makes good engineers go work at BMW and Siemens and Phillips and not working on their own ideas (and the same goes for good non-engineers: it’s a matter of prestige). It’ll take about a decade for that perception to change but it’s a critical decade slowing down necessary changes in how we as humans innovate at scale.

      1. Brandon Burns

        “… in Europe, where one of the main questions asked is ‘what do you make/produce’. Saying ‘software’ or a ‘service’ is generally looked down upon as opposed to a physical, tangible good like car or stove.”My first instinct was to reject this. The thought being that this quote might represent the word on the street somewhere, but it would be hard to argue that the making of software and related services wasn’t the predominant “hot thing to do” that emerged over the last 10 years. Right now, today, I’m sure you can easily find several articles “supporting” that everyone wants to work at Google and Facebook, not Phillips and 3M.But then I went hunting for that data (and not from a Forbes “Hottest Places to Work” pseudo-journalistic article). Here’s what I found: the number of college degrees awarded, by major, in 2013**. Here are the majors, in the top 100, that specifically pertain to the making of hard goods and software:2013 GRADUATES MAKING HARD GOODS: #27 Mechanical Engineering (29,810)#33 Electrical Engineering (24,733)#41 Civil Engineering (19,248)#74 Chemical Engineering (9,856)#88 Biomedical Engineering (7,796)TOTAL: 91,4432013 GRADUATES MAKING SOFTWARE: #40 Computer Science (19,926)#60 Information Systems (13,333)#64 Graphic Design (12,245)TOTAL: 45,504Based on 2013 college graduates, there are over 2x the number of people starting their careers, right now, looking to make physical goods vs. software.I’m not really sure what else this means, other than 1) you’re right, and 2) the “software eating the world” echo chamber is pretty delusional and very, very off base.I’ve been piecing together an essay rooted in an argument that supports this assertion that software is not, in fact, eating the world. This exchange and the data it led me to dig up just helped me make major headway. Thanks, Ana!_____________** http://www.matchcollege.com…To correctly look at this data, we’d have to agree to assume two things:1. Whether you make a hard good or a software service, the ratio of total company staff dedicated to the making of the actual good (the car, the app, etc.) vs. making the support around it (sales, customer services, etc.) is similar.2. Whether you make a hard good or a software service, that the ratio of the makers of the actual good who had a formal education in their craft vs. those who have a degree in something other than the specific craft they practice, it’s similar.If both of these are the case, then the graduate data has a strong correlation to the direction of the overall workforce, at least in terms of the kinda of jobs people want / are perceived to be available.

        1. Phil Chacko

          I believe you might be misreading the engineering majors. I can only speak anecdotally, but I was an electrical engineering graduate in 2009, and around 75% of our electrical engineering class now either makes software directly or manages software projects. The remaining are mostly still in academia working on their PhDs.

          1. Brandon Burns

            Interesting, and noted as another data point to investigate.

          2. Dave Pinsen

            There’s also the possibility that, to work as an engineer at BMW, you need an actual engineering degree, whereas to work as an “engineer” (software developer) at a software startup – or even to found one – you don’t. So, I guess another datum would be what % of software developers at startups actually have degrees in the subject.

        2. Sandy

          Ana is spot on. What Ana wrote is crucial to understand regarding timing.It will take a few decades for mainstream beliefs and values to switch to this new cycle.And as soon as the crowd switches to these new beliefs and values, then a new technology will start a new cycle. The early adopters will then switch to that new cycle.I don’t know if this is right, but what I’ve learned so far is that founders and idea are really secondary, whether it’s creating goods or services.It seems that market and timing are far more important. Get the market and timing right, and you can put a monkey in charge, botch the product, and it still seems to thrive.

          1. Brandon Burns

            I believe that Ana is right that, in the real world outside the echo chamber of AVC and TechCrunch, building hard goods is still a bigger deal than building software, at least in terms of number of people who ascribe to one or the other, at this present moment in time. That fact is plainly visible in the data.The verdict that is still out, for me, is the one that proves that there is even a “shift” at all. Obviously the number of people building software has grown, but who’s to say that the rate of engineers building physical products isn’t the same or growing even faster? People say a rising tide lifts all boats — who’s to say other technologies, instead of being replaced by software, aren’t simply growing along with software?I’d like to see the data. It could be surprising.

          2. Sandy

            Excellent points. Cycles haven’t worked that way historically though.When a cycle like this starts, it plays out to completion, meaning that the new cycle obsoletes the previous cycle.If this cycle is the same as past cycles, then software will eat the world.What should happen to services – people will no longer be allowed to drive cars (outside of emergencies), due to endangerment. Physicians will no longer be allowed to treat patients (outside of emergencies), due to endangerment. Future generations will look at us in horror, just as we now look at surgery without anesthesia in horror.What may happen to goods – people may buy goods based on either very high quality or very low price. That will never go away. But tons of consumption of mediocre goods, just to keep up with the Joneses, should continue to fade over time.

        3. JamesHRH

          My wife is a Mech Eng and employees lots of people who are technical silos (not all Eng degree holders, many are some are journeyman trades – operators, electricians, etc.). She delivers a service – energy.This could be harder to parse than it first appears.

      2. James Ferguson @kWIQly

        people I know recently going to each of those companies and Bosch are all software – and all about IoT. The boxes they sell are commodities, unlike the capabilities.

        1. Ana Milicevic

          But they’re still all going to the Bosches of the world and not yet thinking of endemic innovation the way people from similar backgrounds & educations in the US are. This is an issue of perception which will need about a decade more to filter through. I’ve lived both sides of this coin and dealt with my family rather comically describing me for years as a student rather than an entrepreneur because while both were true the former was more reputable/respectable among their circle of European intellectuals.

          1. James Ferguson @kWIQly

            Agree – And I believe these commodities would be better enabled by small innovative “apps” that come from the innovative entrepreneurial sector that can deliver, but is under appreciated as you suggest

  7. Twain Twain

    A problem with economics is its legacy line graphs that don’t quite capture the organic and dynamic nature of commerce.So, sometimes, it’s helpful to have a different model and then to go and pull in data to hypothesis-test that model.

    1. Twain Twain

      Image fell off the comment above.

  8. JamesHRH

    The problem with the shared services future is the lack of control.Put new tires on a car yesterday. Went to grab a Car2Go to come back, ‘Sorry!’.Controlling your own outcomes means owning your own assets. Its the issue.

    1. Ana Milicevic

      Control always costs more.

      1. JamesHRH

        So does choice.

    2. Matt A. Myers

      That would have been solved if there was planning ahead, no?

      1. JamesHRH

        No, you can only reserve cars 30 mins in advance. Car2Go usage is mostly young people from neighbourhoods around downtown commuting downtown. several 100 units downtown, none in the neighbourhood where my mechanic has his shop.

        1. Matt A. Myers

          Did you know this beforehand or no?

          1. JamesHRH

            I had to fit this task into a specific time slot on a specific day. Checked 15 mins before I left (10 min drive), Nada.

          2. Matt A. Myers

            I am assuming Car2Go’s most efficient/cost effective which is why you wanted to use it – so what about Uber/Lyft to get around or to whatever destination was needed?

          3. JamesHRH

            City of Calgary – hometown of Uber founder Garrett Camp – has blocked Uber from entering the city. Where cab service is notoriously meh.Lyft non-existent.

          4. JLM

            .A prophet. Hometown.JLMwww.themusingsofthebigredca…

          5. Matt A. Myers

            So it’s more of a policy issue as to why supply doesn’t meet demand, not a tech issue..

          6. JamesHRH

            Yes, but, of course, that is irrelevant if you rely on it and then you are 24 minutes late for an a job interview.

    3. Matt A. Myers

      Impulse always seems to cost more or have higher risk than when things are planned. Even when things are planned of course there can be unexpected variables – especially when the people or services you depend on become unreliable, even if inventory should have been available.

  9. Richard Lee

    I agree with the general idea of global economies shifting from goods to services – even more, I think we are drastically underestimating the value of services. For example, in widely distributed economic data (i.e. GDP), how do we capture the services provided by social media driven businesses? ‘shared economy’ platforms? my guess is, not well.

  10. Ana Milicevic

    “In general, developing countries are making the switch from goods to services much earlier in their development than the U.S. and Europe did.”Talk about a tectonic shift. We are used to measuring success and status via material goods accumulated but the switch to valuing services across more levels of the economic spectrum aims to disrupt that. What if people in the developing world can skip the car ownership step altogether in favor of on-demand drivereless cars, the way they’re skipping telephone land lines and desktops in favor of smartphones?Eddie Obeng’s TED talk from a few years back does a good job of describing the complexity we’re facing with the speed of change/innovation outpacing our ability to process, understand, and take action on that change: http://www.ted.com/talks/ed

  11. pointsnfigures

    Depends. Goods are going to change too. They will be embedded with software and sensors. Tesla operates on software when old cars operated on parts. There still will be cars, but in urban areas there might be less of them. It will take a long time to scale many services to be economical enough to move them to exurban and rural areas. For example, in the northwoods of Minnesota at the tip of the arrowhead, they have very poor cell service. Many rural areas have extremely slow internet or no cell service. They will still be “traditional” for a bit longer.At the same time, Africa is all about cell service. Will be interesting to watch the emerging world for sure.

  12. brendan

    I believe transition he talks about is accurate, however, that is not the reason for the economic slowdown.The reason for the economic slowdown is the same old story. The Fed is prints our way into a bubble, this influx of currency distorts economic signals, causing too much money chasing bad investments. Eventually, the music end and the investment stops. Money then gets redistributed into savings or other worthwhile means of production. Currently, the overinvestment is in equities(10 years ago it was real estate), so the correction is a drop in the stock market.

  13. sigmaalgebra

    Ah, last night I found where the bug was in my code — I’d been looking in the wrong file — and found how to fix it. Now that I know, I’ll take out some time and respond to the thread here: The global economy is slowing down. No doubt he’s talking the recent changes in the currency exchange rate in China, the stock markets in China and the US, some commodities, and other short term, e.g., weeks, events.He might as well be looking at some sample paths of Brownian motion — continuous everywhere and differentiable nowhere and, thus, no trends at all anywhere.Ah, he gets one BS mark.Instead of the economy “slowing” for no very good reason, there are ballpark 6 billion people in the world each of whom is highly motivated to produce and consume more, and they stand to do so.For some more of the quasi-profundity, oil prices will rise again someday. Let’s see: Either the statement is true or oil prices will never rise again, and since never is so long we have to believe that oil prices will rise again eventually, that is, not stay down forever. The sun will not burn forever, also, and that’s not news or profound, either.But closer in than the billions of years until the sun does a nova, on oil prices, there are, on the time scale of the 165 year or so part of the major history of oil, say, from Pennsylvania in 1859 to the present, some relatively recent caps on prices:(1) We have shale oil, and apparently in both the US and the rest of the world, amounts of shale oil at least comparable with the oil of the Mideast. Maybe the break-even price at the well is ballpark $50 a barrel, that is, not much more than current prices. E.g., don’t expect big price increases before the shale oil guys get busy again, and due just to basic learning curve effects they will likely be more efficient the next time.(2) Apparently there is a lot of oil in the continental shelves surrounding the Arctic.(3) In the US, we have yet to work very hard to drill in the continental shelves off the east and west coasts and even in the Gulf.(4) There is no doubt more potential in Siberia and the South China Sea.(5) There is a lot of potential in the heavy oil of the tar sands of Canada and Venezuela.(6) Mostly we need oil for motor fuel for transportation, that is, we need gasoline and Diesel oil, but we know how to make those from electric energy, water, and coal. And if we get serious about electric energy from nuclear fission, e.g., demote Jane Fonda as our de facto Secretary of Energy at Large, then we can have the electric energy “too cheap to meter” or some such. Then we’re talking water for which we have the oceans. Then there’s coal — and the US, Australia, China, Germany, etc. are awash in coal. E.g., supposedly there is a layer about 30 feet thick under the top soil of most of Utah. South Africa does this, e.g., the Fischer-Tropsch process, say, as inhttp://www.netl.doe.gov/pub…There’s an old article from Scientific American that says we should be able to put gasoline in a pipeline in Utah for $0.65 cents a gallon.(7) At least in principle, we can make gasoline from sunlight, water, CO2, and microbes.(8) We can have electric cars where the energy comes from nuclear fission. Let’s see: Assume can charge an electric car for 250 miles of driving in five minutes at 1 megawatt (MW) and, for that much power, pay, say, $0.05 per kilowatt hour (KWh). Then the charge would cost0.05 * 1000 * ( 5 / 60 ) = 4.17dollars, that is, nice and cheap for 250 miles of driving.(9) Due to the Internet and better planning for locations of housing and offices, there is less commuting and, thus, less need for motor fuel.(10) On average, cars are getting much better MPG then 10, 30, 50 years ago.Net, there are some good reasons for oil prices to stay down for a long time.For the last paragraph, no, resources are still much more important than smartphones.The big, huge story is birth rates: At least people of Western European descent are going extinct. In particular, the number of children per woman is significantly under 2.1, about the minimum for a stable population. E.g., Finland is at 1.5. So, from( 2.1 / 1.5 ) ** 10 = 29we see that in 10 generations 29 Finns will become 1.The reason is traditional resources, that is, for the usual purposes of families — food, clothing, shelter, transportation, medical care, insurance against risk, recreation, education, and retirement.Then the problem is just economic productivity, that is, output per working hour. We have to get the productivity up.Sure, smartphones can help a little in some ways, but, still, the main needs are just more of the usual resources for families — or we will have much smaller populations.

  14. JLM

    .There is a tendency to “see” something when confronted with a big change when it is often the latest manifestation of the classic “make v buy” decision and not much more.As capabilities become available — driven by technology, no argument — we are confronted with more and more attractive “make v buy” decisions. It does not mean there is a fundamental change in what consumers want. It may simply mean there is a different way for consumers to get what they want.What is absolutely true is that we can “see” more of these opportunities because of the Internet’s becoming not just an incredible information conduit but also a marketplace which houses its merchants in virtual real estate astride the web but coming to a monitor near you instantly.There is also a tendency not to “see” the big trends in their entire complexity. Take as an example, the seeming decline in energy per capita in the US. What is happening is not that Americans are consuming less energy — quite possible.What is happening is that the efficiency of appliances, cars, engines of energy consumption are all becoming more stingy in how much energy they require.The American auto fleet is moving toward a level of efficiency that will mask the number of miles driven per capita and how goods are moved about the country because the MPG is increasing not because there is essentially less gasoline being purchased.There is some of that to be sure but cheap oil and cheaper gasoline will have the predictable impact on demand for driving.The last thing I think is important is the sheer length of this “recovery” which has now been going on for the better part of a DECADE and still has not gotten us back to levels of employment (while the work force continues to grow through population growth alone) and median family income.We are almost to the end of the Lost American Decade. That may be the bigger story.JLMwww.themusingsofthebigredca…

    1. sigmaalgebra

      So, maybe to get the economy going again, we want another period of about five years of residential real estate liar loans backed by the Federal Government? Maybe? Uh, while some people would like it, I don’t think so!By analogy, maybe now our economy is in a period of withdrawal, rehab, going straight since ending in 2008 our long meth addiction?One thing I don’t like about our economy is how much damage to individual people from micro effects can come from macro effects from brain-dead macro policies that 99 44/100% of the individuals had nothing to do with. In this sense, we were better off with 90+% of us on farms where the cities could go to junk with relatively little effect on the farms.We understand a micro farm economy, and it is relatively stable. We don’t understand a macro economy, and it is unstable.The bubble of 2000 — largely politics and the Fed. The bubble of 2008 — again largely politics and the Fed. The bubble of 1929 — hurt lots of individuals but they didn’t cause it, Wall Street did, led to WWII, killed, what, 50 million people, more? From these various macro crashes, many individuals suffered but had next to nothing to do with the causes. Bummer.IIRC, back there in US history there was a period of about 50 years — no cars, electric power, synthetic fabrics, plastics, electronics — where the US population, without counting immigration, grew by a factor of four. Now, with all the progress, the birth rate is so low we are going extinct.Finally Marissa Mayer is doing something worthwhile — she is has twins on the way! Good for her! Now she can quit totally wasting her time and get on with something worthwhile — motherhood!

      1. JLM

        .Until the US does something to get its fiscal house in order, we are a cancer patient who is spending a lot of time at the beauty parlor working on our hair color while dying from the cancer.The Treasury is enjoying all time record high revenues.If you cannot get your fiscal house in order when you have record all time high revenues — when?”Does this make me look fat?””No, that brain tumor makes you look terminal.”Sorry.JLMwww.themusingsofthebigredca…

        1. sigmaalgebra

          That’s a very, very, very serious, likely life or death for thousands, millions, maybe billions of people, subject.I don’t know what the heck to do: Going back to the most recent serious illness, the 2008 crash, apparently the build up to the crash, via the banking multiplier effect, the liar loans, etc., greatly increased the money supply and related assets, e.g., home value and stock market wealth effects, ability to pay off credit card debt with a loan on the house, etc. Then the crash in effect destroyed a lot of money and, in particular, in our credit economy, left a lot of people owing more on their house than it was worth. Likely toss in also cars, boats, furniture, etc. Then a lot of mortgage backed securities went belly up causing biggie problems for pension funds and more.So, apparently Bernanke’s approach was to make sure there was plenty of liquidity — increase the Fed’s balance sheet, in simple terms, print money to replace what was destroyed. Then, maybe, if hold down on the multiplier effect, e.g., with some banking regulations on, say, loan quality, investing in stocks, and reserve ratios, can replace the money without creating inflation.Yes, with Tarp I and Tarp II, apparently some Obama buddies got more than they should have.And apparently Obama told lots of departments of the Federal Government to spend, spend, and spend more. Partly this was a liberal village idiot sitting under a tree amusing himself by abusing himself with wet dreams, partly sticking it to the white power structure, but, in total, with the Fed and the US Treasury, we avoided another Great Depression and also massive inflation.Or, both Bernanke and Obama fired up a helicopter and flew across the country dropping bundles of $100 bills to keep us out of another Great Depression.My simple view of the Great Depression is that Wall Street and the banks, with their multiplier effects and making loans for high leverage on stock buying, in effect massively increased versions of the money supply. Then with the market crash, the money supply was massively reduced, and we went into the Great Depression. So did most of the industrialized world — the disease spread. E.g., if a US guy quit buying violins from Germany, then the German violin maker lost his job and quit buying beer at Oktoberfest, etc. We stayed there, with a sick economy, until we were willing to print money again, and that was when people started shooting at us. E.g., the German guy voted for Hitler, who did get the German economy going again, right, from military spending, a dictatorship, and a command economy, with the labor unions throttled, etc.Then, IIRC the claim is that just 90 days after 12/7/1941, we had a job for everyone and, if they wanted, two or three jobs. We were willing to print money.Just why we didn’t have massive inflation by 1950 I don’t know except maybe, really, we didn’t print too much money compared with what the US economy needed and what was destroyed in the crash of 1929.For the deficit now, of course, we could take the usual South American banana republic approach — print money to pay for it. If that doesn’t cause inflation or higher taxes that throttle the economy, then it’s not so bad. Maybe we are basically just printing money that was generated before 2008 and then destroyed in 2008.Print the money? E.g., have the Fed buy US Treasuries.The next president should be able to cut back on the deliberately wasteful spending that Obama put in for whatever reasons. Then reducing the rest of the usual waste in the Federal budget should help some more. And otherwise getting the US economy going, say, from various cases of essentially protectionism should help federal revenues some more. With people back to work, the safety net expenditures should fall. Getting a president who knows which side of the negotiating table to sit on should help. And having a president who actually wants to help the US instead of just stick it to Whitey and the white power structure — uh, “fundamental change?” — should also help. So, having a US energy policy that is not deliberately brain-dead, some guilt-trip, wacko, earth worship religion, and harmful should also help. Also, do something about the nonsense of Sarbanes-Oxley — full employment for lawyers and accountants and a disaster for any public company worth less than $20 billion.Remember that at one time during one of Clinton’s terms, we were paying off the national debt so fast that the financial markets were afraid of not being able to buy US Treasury securities as the basic risk-free asset. Also look at the debt/GDP ratio in, say, 1946 and how we handled that.Then, once we begin to make progress, we should not fall for the nonsense, e.g., blow it on the brain-dead, flim-flam, fraud of stopping climate change or more absurd “foreign adventures”, e.g., W-Cheney wet dreams of US international leadership and police activity to build, e.g., a democratic “shining city on a hill in Iraq or Akrapistan.It appears that, net. we’ve had way too many in DC that think that they should run the country and the world and spend US blood and treasure however while all the little people in the US just make do as best they can.Maybe with all of the above, we should be okay, including for the deficit.It would help to have a president who knows which side of the negotiating table to sit on and wants to help the US instead of hurt it. If we keep acting deliberately to hurt ourselves, then we will like be successful in that.

          1. JLM

            .It is really just an exercise in commitment and leadership.Governors do it every year. Every freakin’ year — they balance the budget.When they get to DC, their copy of Excel stops working, they start drinking the kookaide, they get addicted to pork, and they forget basic financial discipline.If a President had cojones, he would call in both parties and tell them they have 24 months to get it done and just start delaying all defense expenditures — no cancellations, just no expenditures on any weapons systems.The Congress would fix SS and all entitlements by telling everyone under 50 — you are screwed — while telling everyone over 50 — no changes for y’all. Enjoy it.On energy the policy, why aren’t you drilling right now?The whole thing would take 24 months.We would then have enough jobs to increase revenue at existing tax rates enabling the corp and capital gains rates to be dropped to ZERO.JLMwww.themusingsofthebigredca…

          2. sigmaalgebra

            Wow!But that sounds a lot like the situation in 1930-1941 which did not get us out of the Great Depression until we printed money because people were shooting at us.We have 300+ million people eager to work more and spend more, but somehow they can’t. Somehow it appears that DC has the economy throttled, e.g., with all the regulations, etc., everything costs more than it’s worth except to the people with the most money. E.g., energy: I suspect we could have all the gasoline we could waste in cars at 15 MPG and nuke electric power too cheap to meter if US industry were just free to get it done. But, with Jane Fonda, Al Gore, and all the rest of the morality play screamers about evil humans and carbon, we are stuck-o. E.g., Cheney now has a book. I will guess: He wants the US to spend its blood and treasure to police the world and create democratic, free-market, secular, shining cities on hills, e.g., in Iraq. BS.We do have some issues in foreign policy. Just what to do about ISIS, I don’t know. Maybe nothing. Maybe nearly nothing at all effective, e.g., what Obama is doing. Or maybe, just win: How? Anything other than a tent or a camel, we will level and keep that up until you’se guys get the message. How? We’ve got high resolution satellite images with resolution down to maybe six inches, maybe less, of essentially the whole planet, including ISIS areas and, thus, the associated GPS coordinates. Then with appropriate airplanes and bombs, we can put bombs on GPS coordinates, with no US soldier in harm’s way.But we definitely should get the US working and strong again.It’s bad: Bottom line, we not even having babies enough to keep up the population.

          3. sigmaalgebra

            Sure, a family, company, city, county, state can, and usually does, balance their budgets.And, yes, the US Federal Government can balance its budget too, much the same way.And you are correct that politicians in DC like pork, waste, and absurd foreign adventures and are willing to run federal budget deficits to fund such.But in some circumstances, for the US Federal Government to balance its budget is a very, very different thing.E.g., the 1929 US stock market crash caused nearly all people who owed money on loans not to be able to pay back, put much of the US financial system out of business, caused The Great Depression in the US and the rest of the industrialized world, got Germany to set up Hitler as a dictator, started WWII, and killed 50+ million people. That’s some of what’s “different”.The US stayed in The Great Depression, e.g., from 1929 to 1942, until the US Federal Government ran deficits for military spending.So, after 13 years of The Great Depression, in four more years the war was over and so was The Great Depression.It is easy to fear that the crash of 2008 could have caused something very similar including a world war, WWIII, with maybe 1 billion people killed. Not just the US knows how to make nukes now.E.g., if a nation is going to die in a war or use nukes, then they will use nukes.We’re talking big stuff here.A market crash in effect destroys part of the money supply, in whatever inclusive detail we want to consider; that creates deflation; and for a credit economy deflation is the Black Death — not an exaggeration because real people die, real deaths.So, after a crash, there needs to be a buyer of last resort, and, since J. P. Morgan is no longer around, in the US that buyer about has to be the US Federal Government and/or the Fed which basically run budget deficits and/or print money to replace what was destroyed — so, no deflation for a credit economy and no Black Death.E.g., without the intervention after the crash, GM would likely have gone belly up with massive job loss and another big shot in the gut of the US economy.E.g., Secretary Paulson clearly saw the danger, i.e., massive runs on banks, called in the leading relevant financial institutions, and said “You will sign the papers in front of you before you leave today.” or some such, and the papers meant that each institution would accept a loan, at relatively high interest, so that everyone all the way to Timbuktu would know that there was going to be no bank runs. E.g., Paulson reminded the CEOs that their banking examiner was sitting right there and, without the loan, on Monday morning would declare them “capital deficient”. The situation was serious, and Paulson saw that and was not joking. At least Wells Fargo and Goldman Sachs paid the money back with interest as soon as Paulson would accept it and maybe thought that they’d been ripped off for the interest, but there were no runs.For now, we’re still running the deficits in response to the crash of 2008. If now the Federal Government eliminated the deficits from less spending or higher taxes, then a lot of people would lose their jobs and the economy would slow again, maybe go into depression, pull much of the rest of the world into a depression, start WWIII, and kill how many hundreds of millions of people?The main problem of deficits is that in some circumstances they can cause more demand than the economy can meet, higher prices, and inflation. The main cause of the economy not being able to meet the demand is a labor shortage, and the US is now nowhere near a labor shortage. So, for now, inflation is not a problem. So, first-cut, for now, deficits are not a problem.Maybe for now the solution would be to keep the deficits, reduce taxes, reduce federal spending, especially the parts that were deliberate as a way to drop money from a helicopter, let the economy outside of DC have more money to spend (within 100 miles of the Washington Monument is now, per capita, the wealthiest part of the country), hire more people outside the DC area, grow the economy, and increase tax revenues, maybe enough to bring the deficit down to zero.But, after the crash of 2008, the economy needed some money from the federal deficit and/or the Fed or go into a US depression, WWIII, …, and dead people.Balanced state budgets don’t cause world wars. A balanced state budget is nothing like a balanced federal budget.

          4. James Ferguson @kWIQly

            One thing you cannot print is Trust !

  15. PhilipSugar

    Paul Graham wrote an excellent article on this 8 years ago called “stuff” http://www.paulgraham.com/s…Cliffs notes are: “It wasn’t always this way. Stuff used to be rare and valuable. You can still see evidence of that if you look for it. For example, in my house in Cambridge, which was built in 1876, the bedrooms don’t have closets. In those days people’s stuff fit in a chest of drawers.”

    1. LE

      When I was growing up (mid 70s) I remember very distinctly the “don’t play with the power windows” (on the new car, which had pretty much just come out as an option). Was something my dad said for fear that they would break. This was before bumper to bumper warranties and when people took the car to the local service station once the dealer warranty expired. And the dealer didn’t fix anything and everything. At least on the American cars my dad bought. And if you bought a product it was expensive and if it broke you took it to get repaired you didn’t throw it out. Who repairs things today? For one thing they generally are more reliable and don’t break as much actually. Likewise stores were typically run by merchants who had tough return policies. Very different from big box stores and I am not sure department stores even had lax return policies back then (don’t remember actually). And places that would pay for shipping back? Ha ha to that. (This was all good for the small merchant by the way who got forced out when he couldn’t compete with the scale and stupidity of those with lax return policies.).The first house that I bought when first engaged was one built in 1959 and was a typical suburban house. While it did have closets in the bedroom they were very small (not walk in). My parents home, which they bought new in 1967, had a walk in closet for both my mom and my dad. So that was the progress (same general area) in 10 years. So stuff became more important in the 60’s then it was in the 50’s I can conclude (non scientifically). One of the key factors most certainly was the rollout of television and television advertising. And shopping malls. And more cars to haul stuff.Now take McMansion closets which I am sure you are familiar with.A few things came together to make those happen.One was Nixon and China and cheap manufacturing. More goods to buy. More social proof from neighbors. Even more advertising to entice you.Another was big box stores.Another was SUV which made it easier to haul stuff.Also packaging greatly improved as a result of desktop publishing starting in the mid 1980’s (yes this did happen and is often ignored). Packaging alone can probably account for a great deal of food purchases at food purchase stores. The packaging looks nice and enticing. No question just walk around any whole foods or even garden variety supermarket. The packaging sells the product like a book and a cover.And many other factors I am obviously leaving out.Anyway all of this comes together which is why it’s near impossible to predict the future as much as people think that they can. (God knows they can’t even predict the price of oil or gold or the stock market.)

      1. James Ferguson @kWIQly

        My wife bought a chocolate conching machine (it basically turns cocoa nibs into chocolate using stone mills) form India recently. Called a cherry by santha – it arrived with a loose drive belt which caused a meltdown (excuse pun).One email later I had the promise of a no-quibble replacement from India (it weighs about 20 kg). Three weeks later I had the problem solved. Did they sell a product – yes – but the service warranted this comment !

  16. Richard

    The biggest headwind on the U.S. Economy is student loan debt. It hits the spenders and hits them hard.

    1. Matt A. Myers

      It’s just one of the many – I don’t think it’s the strongest headwind … you can’t really easily see which is the pattern that’s adding the most strength to a wind as they combine..

      1. Richard

        Think about it, put $300-1500 a month in the hands on spenders.

        1. Matt A. Myers

          Right, but then every other system that makes money off of them will just increase their pricing.

          1. James Ferguson @kWIQly

            And will buy ?? …

          2. Matt A. Myers

            And will perpetuate their part of their ecosystem and cause a constant negative pressure on the quality of life of everyone they’re able to increase costs on.

  17. iggyfanlo

    I would refer to many of Albert Wenger’s posts over the last 6-12 months. Similar discussions about work dislocations and the future of work and GDP measurement as well as the Keynesian vision of capitalism running itself to the ground as workers do not have enough to do with productivity gains.Finally on the demand side, demographics are working against global consumption for the next 5-8 years…I have faith in the ingenuity entrepreneurs and the possibilities with technology but we are now venturing into the land of politicians and income inequalities… the end game should be awesome, but the path through is certainly fraught with danger

  18. Drew Meyers

    “the connections between growth, trade and resource consumption aren’t going to be the same as they have been. That is probably a good thing.”A reduction in consumption is a good thing for society, imho. We’ve shifted too far in that direction, and the long term repercussions of America spreading that consumption culture to all corners of earth are not good…though I don’t see anything stopping that trend.

  19. Lucas Dailey

    Business models that shift goods to services has been going on for a long time, and could be great for the world and environment.Check out Natural Capitalism by Paul Hawken: http://www.amazon.com/Natur…Imagine transportation as a service from automated cars, instead of cars as goods.Imagine heat and coolth as a service from manufacturer owned furnaces/airconditioners, instead of owning them as goods (and paying for gas/electricity directly).Imagine computing as a service, instead of owning computers or phones.Moving the economic model from good to service incentivizes the manufacturers to focus on long-term value, efficiency, and performance, not just selling flashy products that craps out after 2 years. It’s a win for everyone (and the environment).

  20. Sam

    Greetings from behind the Great Firewall! (via VPN)Definitely a thought-provoking perspective, but my money’s on “traditional business cycle slowdown.” For sure the smart phone is on the rise, and there is increasing importance on services value creation in the global economy, but I don’t think those variable yet have enough weight to define the swings of the business cycle this time around. Foreign exchange rates, interest rates, manufacturing activity… these good old-fashioned variables are the ones that will determine where the global economy is headed in 2015.

  21. Shalabh

    This reminds me I have to read this book – Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

  22. JLM

    .I wonder if the opposite isn’t really true — in a world with Uber, Gett, Lyft, taxis (beginning to roll out their own on demand apps) why aren’t consumers feeling more control over their choices and simply refusing to deploy capital to get what they want.Why buy a cow when milk is inexpensive and widely available?Competition always benefits the consumer when allowed to rub up against itself.JLMwww.themusingsofthebigredca…

  23. JLM

    .The behavior of consumers and suppliers is constrained by markets. There is a big difference between the market for transportation in Manhattan and the market for milk in the hinterlands.No doubt that there are markets that are not “free” and the milk market is a fair example of such because government intervention has created such substantial constraints that they are essentially picking winners and losers.By definition, that is not a free market.As to your example of a beach vacation, the same family may have the choice of renting a van from Enterprise on the Internet and only consuming that portion of that asset necessary for their short term needs.That is a great example of a consumer driver “make v buy” decision opportunity, no?JLMwww.themusingsofthebigredca…

  24. JamesHRH

    Yes sir, my home town of 40,000 souls is not an Uber target market!

  25. LE

    There is a big difference between the market for transportation in Manhattan and the market for milk in the hinterlands.What’s always interesting to me is how much of what happens in the world is determined because the media and financial capital of the world is Manhattan (and likewise the startup world of Silicon Valley and now San Francisco) so what they seem to feel is important gets extra push on the rest of the country. All all comes from NYC. Nightly news (3 networks) WSJ and NYT. That’s the top of the influence stream. Lots of power. (Similar in a way to how Hollywood gave us a glamorous world war 2.)You can see it in the comments of this blog where many of the commenters are absolutely convinced that people can get by without cars for example and without owning many material goods. And that electric cars will rule, even though I would have no easy way to be able to charge a car in my suburban home or at my office. And quite frankly am not bothered at all using a gasoline vehicle.Stuff? In Manhattan you can’t own many things.Why? There is no space. Apartments are small. So automatically there is a bias on the writer (Justin Fox, yes I checked) [1] who lives in Manhattan with his wife and his son who is going to find data that supports and conforms to his world view which I guess is pretty obvious. Sure he travels out of the city but he is surrounded by like minded individuals who see things pretty much the way he does.[1] http://byjustinfox.com/about/

  26. awaldstein

    I think that markets are constrained by their size.If it is large enough be it in one place or flattened out worldwide online, restrictions fade.

  27. JLM


  28. Vasudev Ram

    >Why? There is no space. Apartments are small. So automatically there is a bias on the writer (Justin Fox, yes I checked) [1] who lives in Manhattan with his wife and his son who is going to find data that supports and conforms to his world viewThat seems like a good point, and seems related to, or the same as, confirmation bias:https://en.wikipedia.org/wi

  29. Sandy

    You don’t think low density of people per capita will prevent small towns like James’s from adopting Uber?In places like that, owning a car is still about freedom and independence, not just a commodity, no?

  30. JLM

    .I think that James said that his hometown had politically outlawed Uber even though one of the founders of Uber is from his hometown.The big thing with Uber will be where THEY want to go which will undoubtedly be where the most customers are.In the end, any multi-state, multi-unit operating business will continue to grow until the last marginal unit is not profitable. Theoretically.I suspect there is a long, long line of cities in front of James’ city and Uber will be calling that shot.One further complication is the routine presence of horrific winter weather.Of course, you are right — the car has always provided freedom of travel and timing. It can also be a commodity in that one might buy a beat up pickup to provide the same utility when the streets are snowy and sanded. Why not?Very little about “new thinking” really demolishes or otherwise destroys the “old thinking.” They co-exist until one eats the other completely. People rode horses for a long time after the advent of the automobile and in some rural places in Texas they still work from horseback.JLMwww.themusingsofthebigredca…

  31. Sandy

    Your posts are really insightful.Horses are actually making a comeback. It’s chic to have a barn now. 🙂

  32. JLM

    .I live in Texas, pardner. They never really went out of fashion even though a lot of our roads are paved now.JLMwww.themusingsofthebigredca…