
Why We're Probably in For a Long Recession - robg
http://www.fivethirtyeight.com/2009/02/why-were-probably-in-for-long-recession.html
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jonmc12
One theory about this effect is called the Jobless Recovery -
<http://en.wikipedia.org/wiki/Jobless_recovery>

Part of this theory is that recession forces companies to automate jobs in
order to increase productivity. The net effect is that these genre of jobs are
lost forever. So, instead of these jobs being replaced when the economy is
expanding, the economy must wait for new jobs types to be created in order to
experience employment growth. Subsequently, one could make the argument that
business owners will experience faster growth than the employment rate.

Marshall Brain has an interesting speculative piece called 'Robotic Nation'
regarding this theory: <http://marshallbrain.com/robotic-nation.htm>

~~~
ryanwaggoner
Marshall's description of the coming problem is an interesting read, though I
think he's definitely painting the worst possible picture to support his
thesis.

What's more troubling to me than the problem he describes is his solution,
which basically boils down to giving $25k / year to every citizen of the US
from a "central fund" that we fund through:

\- advertising on everything from our money to our bridges

\- taxes, taxes, and more taxes. we tax everything from email to carpool lanes
to "excess" salaries and profits

My favorite had to be his diatribe about executive pay:

 _When an executive makes $20 million per year, the money does not materialize
out of thin air. It comes from consumers in the form of higher prices that
they pay for everything that they purchase.

For an executive to make $20 million per year, a company has to overcharge
consumers for the products they purchase from the company. It is not as though
the $20 million paid to the executive appears out of thin air -- it comes from
consumers in the form of higher prices. An "extreme income" tax simply takes
that excess compensation and returns it back to consumers, where the money
originally came from._

What an ignorant and simplistic view of our economic system. To me, this is
clearly a case of the cure being much worse than the disease.

~~~
jcl
Marshall is considering an distant future economy where, essentially, _only_
executives get paid; all low-wage jobs have been automated away.

For such an economy to function, you'd need an "extreme income tax" to
redistribute wealth. Otherwise, the executives would be making ultra-cheap
products that no average person could buy, because he wouldn't have a salary
to afford it.

~~~
ryanwaggoner
This ignores basic supply and demand, though. If no one can buy them, why
would they make them? And if Company A is pricing them way too high or
unfairly, what's to stop Company B from offering the same thing at a lower
price point?

~~~
nostrademons
That's sorta the problem. No one can buy them, so nobody makes them. End
result is that the economy stops functioning, nobody builds anything, and a
perma-depression occurs. This can't be a good thing...

As for what stops company B from competing - it's the cost of tooling up all
these automation centers and the risk that after all that, your "prey" may
itself get better and nobody will buy your product. Microsoft was massively
profitable for the 1990s. Google was massively profitable for the 2000s. Why
did nobody compete with them? Because if they did, Microsoft/Google would
crush them like a bug.

~~~
ajju
Let's examine your thesis by replacing Google with Microsoft in your third
last sentence.

Microsoft was massively profitable in the 90s. Why did nobody compete with
them?

Oh wait, Google did.

Why did they not get crushed like a bug?

Because they innovated.

~~~
nostrademons
Google didn't compete with Microsoft. They took advantage of a shift in the
environment that made Microsoft irrelevant.

Microsoft is still as dominant in the desktop app world as they ever were.
It's just that nobody cares about desktop apps.

(And eventually, the same thing will happen to Google and nobody will care
about webapps, but not yet...)

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nihilocrat
Good to see Nate Silver produce interesting forecasting data post-election. I
was afraid he would disappear into nothingness after his fifteen minutes of
fame.

~~~
mixmax
I can only second that, and add that it's good to see some competent
forecasting. Far too often the media simply extend existing data into the
future and call it a trend.

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kqr2
Nate has been writing about the economy lately and receiving criticism that
he's just a "baseball" guy, but in fact he has a degree in economics from
University of Chicago and so is as qualified (or even more so) than most
pundits out there.

<http://en.wikipedia.org/wiki/Nate_Silver>

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snewe
I don't trust forecasts without standard errors. Using the smaller 1987 - 2005
data implies less precise forecasts, so that last graph needs some caveats.

~~~
jacoblyles
I don't trust macroeconomic forecasts _at all_ , however I think this article
contains an interesting and valuable hypothesis.

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hardik
Long term trends in macroeconomic indicators are not the estimates that can be
used in these exceptional times. Moreover, the author is talking about median
values of change, there could have been much bigger numbers at the tail ends,
and all it takes (mathematically at least) is couple of big numbers to zoom
the economic closer to its state few years back.

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justindz
I have created reminders in my PIM to check this post again in late June of
this year and May of next year. It's fun to speculate and debate this, but
I'll be extra interested to check back on this and see which, if either, of
the models proves to be more accurate.

What is lacking in a lot of these macro-economic discussions is the
presentation of evidence that any of them are correct or incorrect based on
past historical events. It may be out there, and I just don't hear people talk
about it. Leads would be awesome. My fear is that it's all so complex you
can't get beyond loose correlation. If we have a rebound this year or next,
even if it's the stimulus, how will we know? Could it have been that almost
all of the money was a complete waste, but the green industry investments hit
out of the park? I'm really out of my area here :-)

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bjoernw
"Forecasting" got us into this mess. By thinking we can predict the future by
looking at the past we have taken way too much risk and are paying the price
right now.

Now people look at past events to "forecast" where we will be in the future?
Seems odd. Just because 3 curves show a similar correlation does not mean the
4th has to follow the same trend. We need to learn from mistakes.

