[sleton38234234]

I have a theory. The last 100 years has seen govt spending as percent of gdp increase to ever greater levels. People are expecting more and more handouts and no one wants to pay for it. Without the ability to pay for it via taxes, the govt will eventually have to default on it's currency and thus real returns on fixed income/bonds will have to become increasingly negative.

Their article already shows a slight widening between bonds/equities post 1950. My theorey is that for the next 100 years, we'll see a much larger widening between the returns of bonds and equities as more and more governments default on their currency. Thoughts?

EDIT: the article I referenced was the one the other poster mentioned: https://economics.harvard.edu/files/economics/files/ms28533....

Also, equity returns should in the long term be equal to Producivity per capita + population growth + inflation + dividends. And If you look at each of those for the last 100 years and the next 100 years for the US, you'll see a pattern. Pop growth down to 0.4 from 1.3. Per capita growth down several percent in the last 20 years vs the 100 years before that and with current PEs where they are, dividends are down to 1.3% from a historical 4.5%. Translation: Future equity returns will be much much closer to inflation than they have been in the past.

[smaddox]

Private debt dwarfed public debt until very recently, and it's still significany higher: https://braveneweurope.com/steve-keen-what-is-the-role-of-pu...

Also GDP is a terrible proxy for economic prosperity. A broken window adds to GDP, but subtracts from prosperity. If we had a better proxy for prosperity, it would be easier to see if government debt was actually net negative or net positive effect. As is, all arguments one way or the other are speculation and ideology.

[xyzzy123]

I think prosperity (particularly if we include health, education, wellbeing etc) is unfortunately very difficult to measure and any attempt necessarily incorporates a lot of speculation and ideology.

A forest cleared creates wealth & prosperity, but what was the value of the forest that was lost? What value do we put on natural amenity, biodiversity, a pristine environment?

An employee works very long hours, numbers go up. Great. In specific situations though we can ask: was any wealth actually created, or was the wellbeing of the employee and their children simply exchanged for dollars?

etc. It's value judgements all the way down.

[csomar]

As the divide gets more extreme (between GDP per capita numbers and reality), I think we’ll soon have a “Quality of Life” kind of an index.

You can have a high salary in country A, but live in a small studio, eat shit-food and have to take a crappy metro for work.

Or you can take a much lower salary, live in a nice 2-Br apartment, eat at nice restaurants and take a new nice metro for work, and still be able to afford a car.

You’d need $120k/year to afford 1 in New York, and $30k/year to afford 2 in Kuala Lumpur.

[daze42]

This seems to be the root of most, if not all, economic disagreements. It's just so hard to objectively measure these things.

[smaddox]

Agreed. But I don't think it would take a herculean effort to do better than GDP.

[_glass]

The Human Development index is kind of okay, if you don't want to go down the more qualitative path. https://hdr.undp.org/data-center/country-insights#/ranks

[rcme]

Just because a broken window contributes to GDP doesn’t mean GDP is bad. Is your argument that the government is spending to break windows?

[smaddox]

It's not inherently bad. It measures what it measures. It's just a terrible measure of prosperity.

See, for example https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-dav...

[ClumsyPilot]

basically, yes. Its called the housing market - an asset that controbutes nothing to the economy goes up in value and makes life unaffordable for new generations.

There are pther manofestations of thos, and it is not always done by governments.

One of the few true reflections of economic health is commodities - those cannot be fakes.

[rcme]

Productivity has been increasing. The amount of land is fixed. In such a scenario, I would definitely expect the value of land to increase.

[ClumsyPilot]

Uk is a densely populated country, and 95% of land is just empty - field, forest, whatever. Only 5% of land is built on.

[rcme]

Sure, but you also have to consider the proximity to where the productivity gains are happening. The median household income has increased 4 times over in SF since 1990 (30K - 120K). Do you really expect property values in SF to stay the same? And of course, that's just the median. At the high end, the difference is even more pronounced.

https://fred.stlouisfed.org/series/MHICA06075A052NCEN

[yterdy]

I agree, insofar that "handouts" are primarily, in monetary volume:

1) favorable loan terms for financial entities (loans in both directions, but ultimately favoring the bottom line of private capital);

2) favorable taxation terms for the wealthiest earners and owners (e.g., low capital gains and inheritance taxes, when compared to income taxes);

and 3) federal and state benefits that often face large and unnecessary administrative costs (in order to reduce fraud (which is only possible because they're means-tested or otherwise restricted));

in that order. And the first two rob the treasury of far, far more than the last. By orders of magnitude, particularly in the past few years.

[zie]

The other option is they raise taxes, cut spending and they actually pay those debts off.

All debt comes due eventually, you can choose to go bankrupt or you can choose to pay it.

But if neither option happens in your lifetime, you don't need to care, if you are just trying to optimize for yourself.

[shkkmo]

Federal debt "comes due" all the time. The option you haven't listed (which is the one we're engaged in) is: "You can choose to borrow more money to pay your creditors".

The interest on federal debt recently makes up (very roughly) 1/3 of our total deficit.

This is why when the US doesn't raise the "debt ceiling" we risk defaulting on our debts.

[zie]

That was my point.

At some point, we can't keep borrowing to satisfy our debt(s). The question then becomes, what happens? This current inflation is actually a not bad thing for US debt, as we are inflating away some of it. It totally sucks for those of us that want to buy food and shelter though.

Either we endure some hardship(s) and have a miserable decade or three or we crash and burn.

I'm betting we endure the hardships. The other option(s) are much worse.

[shkkmo]

> At some point, we can't keep borrowing to satisfy our debt(s)

Why not? It's just a question of the rate of growth of the debt, the interest rates the USG pays on its debt, the rate of inflation and the rate of growth of the GDP/tax base.

There is absolutely a level of deficit spending that can be supported indefinitely. The question is whether we are above or below that level, not whether that level exists.

[zie]

There is indeed a possibility that a govt could, theoretically, borrow indefinitely. There is a LOT of assumptions in that calculation though, and it's pretty obvious the USA and almost every government never bothers to even try to live in that range.

So while what you say is theoretically possible, it's practically impossible, as there is almost no incentives for any people currently in government to try and sustain that, and incentives absolutely matter.

If you know of a practical example of this theoretical indefinite borrowing, I'd be very, very surprised.

[sleton38234234]

>> you can choose to go bankrupt or you can choose to pay it.

There's another option. One that's far more politically favorable: You simply take out more and more debt, until finally the whole world sells US treasuries. at that point the fed prints unlimited amount of money to buy up all that debt. And when the US pays interest on that debt, it just pays it to the federal reserve which then sends it back to the US. This is the end game, we're looking at. And the result implies inflation and LOTS of it. that's what I mean when I say, they will default on the currency.

[astrange]

Does the market, who should know, agree with you?

(Hint: US 10 year T-bond rate is 3.4%. That's not very high. Also, we have the world's largest military and can do whatever we want.)

If you want an exciting doomer story to believe in, try deflation. It's worse than inflation, so you'll look more cynical.

[sleton38234234]

I mean sure: the fundamentals all point to deflation: the aging population, the increasing debt and technology are all deflationary.

But, in this day and age where the fed has sooo much power, it doesn't matter. see below.

>> If you want an exciting doomer story to believe in, try deflation.

The Govt and the fed are both on the same page, in this regard: they will almost NEVER allow a deflationary spiral to happen. If you watch a lot of financial news from people who read the fed and intrepret what they're signalling, you'll find there is widespread agreement on this (especially as of the 2018 powell put).

In the history of countless countries and currencies from all over the world, all the outgoing empires and countries end up defaulting on their currencies in the end game. See Ray Dalio's latest book, he's got a great explanation on this.

You bring up an excellent point about the T-bond rate. If everyone already knows the endgame, then why hasn't the bond market priced it in yet? Shouldn't everyone be dumping T-bonds en mass? Are they slowly? these are the questions I'm trying to get answered. Part of it is because the fed was already buying up a bunch of t-bonds, hence a sort of partial yield curve control. other participants, must not be ready to give up on bonds yet, especially the institutional investors who are looking at more short term gains rather than long term. You can still make money on bonds in the short run betting on interest rate fluctuations.

[zie]

That is our current trajectory, but anyone with a modicum of common sense knows there is an end.

The question, which was what my comment was about, is how we eventually get to the end. We either buck up and pay it, or we crash and burn.

I'm betting we buck up and pay it, and just have a very bad decade or three, while taxes go up and spending goes down.

[metaphor]

> And when the US pays interest on that debt, it just pays it to the federal reserve which then sends it back to the US.

Uhh yeah, about those remittances[1]...

https://fred.stlouisfed.org/series/RESPPLLOPNWW

[treis]

>People are expecting more and more handouts and no one wants to pay for it

I think this is more that we're entering a post material scarcity economy kind of like we changed from almost everyone being farmers. We're leaving behind the economy where almost everyone manufactures stuff to where they do something else.

[PKop]

>we're entering a post material scarcity economy

This seems a rather dangerous view, as the post scarcity era of maybe the late 20th century globalism, or the larger industrial revolution and coincident population explosion, could be nearing it's end. Peak cheap oil may be just around the corner. The growth built atop improving agriculture yields, cheap oil, and cheap labor has resulted in population growth that cannot be maintained without corresponding sources of the same cheap input sources.

And part of this is exacerbated by what you describe: a huge portion of population not subsisting on their own work output but depending (or being subsidized by) the work and resources of others.

[geysersam]

> subsisting on their own work output but depending (or being subsidized by) the work and resources of others.

How to even begin defining who is subsisted by who? Is the FAANG engineer creating sustenance or is he subsidized?

I see something else. Millions of people working their asses of, many in multiple jobs, in the richest country in the world.

Most of the productivity increase of the last decades has gone to the richest part of the population. Who's subsisting on who?

[kortilla]

> think this is more that we're entering a post material scarcity economy

No we’re not. Materials for housing, etc are just as expensive as ever. Food still has to be heavily subsidized by the government directly and indirectly (“water rights”).

Post-scarcity is a fantasy world used to justify heavily socialist policies that allow people to not work without having to wonder who does have to work.

[treis]

Your etc is doing a lot of work here, but post COVID craziness aside I don't think building materials are more expensive than they were in 1990. As an example, lumber has been flat or slightly down since 1995:

https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_an...

[sleton38234234]

His point is, the material standard of living is low as ever or even lower. This surprises people, but the bare necesities of the lowest level of maslow's heirarchy of needs are now more expensive than they have been in a long time.

Just look at the cost of shelter. Housing costs sooo much more than it did 50 years ago or even 200 years ago. During the time of Henry david thoreau, an average house cost 800 days of unskilled labor wages (meaning 800$, the average unskilled worker made 1$ per day). Today, it's over 5000 days of unskilled labor wages when you take into account property taxes. the difference in shelter cost is so enormous, that back then 1830s, mortgages were often just 10 years. And thoreau thought even that was too much.

[jonas21]

That's not true at all. Most necessities (food, clothing) are far cheaper now in real terms than they were in the past.

Housing is more expensive on average, but only because houses have gotten much larger (the average new house was ~1000 sqft in 1920 and ~2600 sqft today), and are more likely to be in urban areas where land is scarce (20% urban in 1860 to 80% urban today). Of course modern housing is built to a much higher standard as well -- in Thoreau's time, the average home would not have had indoor plumbing or electricity.

You can absolutely find cheap housing if you're willing to live somewhere small in the middle of nowhere. But most people don't want to do that these days.

[ClumsyPilot]

> You can absolutely find cheap housing if you're willing to live somewhere small in the middle of nowhere

I camt get to work from the middle of nowhere. Social services willvtake away my kids if O live in a wooden hut without heating.

Let's compare items with equivalents of their time.

Otherwise I can make unfavourable comparison with cavemen -their realestate would cost millions today

[astrange]

That's not because of material scarcity most of the time, it's because the US has very bad land use policies so we don't build enough houses for you to buy.

(And industrialization, like prefab houses, doesn't work because the policies are set by local governments so you can't produce a single viable product for all of them.)

[pixl97]

Food is heavily subsidized by the government to avoid complete and total social instability. 100 years ago we realized that a underfed population made a terrible workforce and worked on remediating that. All the while farming automation and the green revolution made it so a large portion of our population working in farming/food became just a very tiny fraction. Meanwhile a pure capitalism based farming community would optimize for producing just in time and just enough to maximize profits which would lead to a complete fucking collapse next time a drought came around.

This ''socialism'' you're so seemingly afraid of was a foundation of the capitalistic growth we had in the last century.

[epr]

> a pure capitalism based farming community would optimize for producing just in time and just enough to maximize profits which would lead to a complete fucking collapse next time a drought came around

I'm not sure where you got this idea, but unless you have a personal definition of capitalism that doesn't equate to private ownership of the means of production, this is an obviously false claim.

Capitalist economies are notable for their ever increasing investment in the future and corresponding decrease in the time preference of money as an economy becomes more developed.

[ClumsyPilot]

> Capitalist economies are notable for their ever increasing investment in the future

Oh really? Then why are all emergency services are run by governments?

Why doesnt private market invest in infrastructure and why is US infrasteucture in such poor condition?

Is that why capitalist society fails to invest into clean energy and hault climate change? Is that why soil erosion was running rampant untill government regulation was introduced, we had lead in petrol and rivers used to catch fire?

UK, as the most capitalist societt in Europe, looses the most money on heating the most poorly insulated houses. It knocked down its last gas storage facility because it was unprofitable.

Capitalis plans for the next quartery report, it does not plan fpr once in a decade famine. systemic relisience against rainy day is not one of its strength.

[FatActor]

> People are expecting more and more handouts and no one wants to pay for it.

Do you mean the super rich that want more of the tax revenue for themselves, or boomers, or who are "people"?

[sleton38234234]

the point is everyone wants more govt spending, not necessarily handouts. Voters want larger government spending.