My blog interprets recent American history using Peter Turchin’s concept of the secular cycle. I call is America in Crisis because we are in the crisis period of this cycle.
BTW...I'm not here to troll you. I got a lot out of your cycle theory books (and from others like Turchin, Friedman and Neil, Howe) back in the day and think these long cycles do provide a great framework to analyze markets and world events. That said, because the circumstances are different, the cycles are different. If we don't use them as precise predictors, but rather as guidelines, they are very useful in making sense of the world.
I know. I was pretty much on the same page as you a dozen years ago. I went deep into long cycles and developed a unified cycles concept when I used Strauss and Howe-type generational cycles as the core driver of aligned economic, financial and political cycles. I had a math model for the Stock Cycle which was a binary subharmonic of the K-cycle. I had a math model for the generational cycle that was based on a Mannhein-type imprinting mechanism. It was not the same as Strauss and Howe. Although it gave the same turnings for the post Civil War era. it had six turnings between the Revolution and Civil war rather than four. The cycles it generated in the political domain were close to the Schlesinger-Critical election constructs proposed by Daniel Elazar.
In the economic domain during the 19th century they approximately mapped into Kuznets-style real estate cycle associated with the periodic financial crises, and in the 20th they mapped into Kondratiev seasons or Secular Cycle secular market trends (half cycles).
Given these structures I formulated predictions that would serve as experiment tests of the theory. The experiments came up negative by 2014 and I abandoned long cycles. As a scientist I believe it is necessary for one’s theories to match up with empirical reality.
For example, from my work on monetary versions of the K-cycle, I had developed some understanding of inflation dynamics using a QM type models.
Basically, I used a correlation between a QM-type analysis and NAIRU from Phillips Curve-type analyses. This approach worked well in the sixties through eighties, and passably well in the 1940’s and 1950’s. But then comes the 1990’s & after, and it all falls apart. I tried adding trade and financial flows into the analysis; it did no good. I haven’t surrendered yet, I plan to return to the problem if I get some inspiration for a new approach. But it is frustrating. 25 years I’ve been at this, and man, the economic and political gods are just laughing at me. But then, hey, it’s just a hobby to try to keep my brain from turning into cheese in retirement. It’s not like I am charging anyone for what I write. :)
What I am trying to say is that it is not about math. The K-cycle was still useful when looking at interest rates and the deflationary impulse was still there underneath the economy, but we responded with different tools and the nature of money changed so the stock market outcome was different. It’s also why it’s hard to predict the political outcome. The generations and political parties have responded differently than they have in the past because circumstances have been different. The broad strokes of the cycles are still there but the specifics are very difficult to predict because they will be different than past specifics.
The "Wealth Pump" is particularly associated with periods after inflation spikes (Kondratiev falls). The Era of Good Feelings and the jacksonian era after the War of 1812 (real estate and cotton), The Gilded Age after the Civil War (railroads and steel), The Roaring Twenties after WWI (autos, utilities) and the current era (information technology) after the Vietnam and the Cold War. All the tools we developed after learning from previous crises (monetary policy, fiscal policy, elastic fiat currency, positive inflation targets) have been used to prevent depressions during this period, but have elongated the downwave. Thus wealth creation opportunities have been abundant in an age of falling interest rates and rising valuation multiples against a backdrop of steady inflation (which keeps nominal revenues and values rising). These past 40 years have been a dream scenario for owners of capital.
What happens now that interest rates are no longer going down? What if tariffs can help close the trade deficit and reduce the inflow of foreign capital that floods our capital markets? Even if the current system stays in place, the wealth pump will start to diminish. Yes, tech entrepreneurs and venture capitalists will still get rich coming up with new businesses, but the easy money that has been made by private equity barons, corporate executives, real estate investors, university endowments, etc. as they rode a wave of leverage and rising valuations for 40 years should be harder to come by going forward. I agree a new dispensation to target broad prosperity needs to be developed (because the Reagan dispensation no longer works), but I am not sure we should keep reaching back to the 1930s to find the answer. It is likely to be a different dispensation for a different time.
The wealth pump is different from the normal rise in share process during the fall season. Financialization didn’t apply at all before the Civil War because were were still a traditional agrarian economy then. After the Civil War it also was not a factor since the financial markets were as yet undeveloped.
For the post-WW I fall we had a developed financial system, but we did not get financialization. The stock market remained within its historical range until the every end of the 20th century. I interpreted the 2000 people as a one-off. But the in 2014 the stock market began to rise in a way it has never done before. I did not understand it until I did this analysis
Legal share buybacks, low taxation rates, and the concommitant scale up of the financial system have broken the Stock Cycle and its relationship to the K-cycle. Without the support from the war cycle and the Stock Cycle I don’t see how a K-cycle can still be operative. I think all of the long cycles have broken down.
Financialization definitely played a role in the jacksonian and gilded age eras. Andrew Jackson vetoed the second bank of the United States, leading to a boom in regional banking that financed real estate speculation. Jackson then signed the Specie Circular, returning to metal-based money and it came crashing down. After the Civil War the greenback era and foreign inflows fed a financial boom that financed railroads and such, but eventually a series of financial panics let the air out of the balloon. During the roaring twenties we had the financial instability caused by major international capital flows, with money flowing into the united states as german reparations were used to repay us war loans to the allies. This money flowed into the banking system and stock market creating an unsustainable boom, fed by increases in margin lending against stocks.
Granted, these periods were shorter and less finanicalized than the current era because under a metallic monetary standard, the balloon can not blow as big before it pops. In all of these eras, there was the financial boom driven by falling interest rates and asset values, then the financialization feeds it. But it has to end when asset values can no longer keep rising to repay the debts.
How does accelerating technological and capital stock growth impact these models? They have a basis in generational human biology and sociology, certainly, but technology has become such an overpowering force it may have broken the model. Just as an example, even though its hard to capture in productivity statistics, its likely that interest rates are primarily driven by technology downwards.
Technology does not play a specific role in the models. The idea that technology drives down interest rates is new to me. There isn't really any support for this idea in the interest rate records with which I am familiar. Mostly they seem to reflect business conditions. Central banks and other changes in debt markets that could be attributed to "financial technology" has reduced the effects of things like wars.
The statistics in the capitalist crisis article are interesting, but I would say the biggest culprit behind the decline in retained earnings and the rise in buybacks has been globalization. On the margin, US companies outsourced abroad rather than investing in productive capacity at home. Nothing drives employment and wages like domestic investment. All of the physical manifestations of our recent boom, iPhones, semiconductors, networking equipment, pharmaceuticals, have largely been made abroad so US corporations could focus on higher margin marketing and R&D. Because of this chronic underinvestment, the federal government has had to run deficits to maintain full employment by encouraging consumer demand for domestic services like health care, education and leisure and hospitality. Plus a high level of immigration has increased the labor supply and kept wages in those sectors relatively low. We have the opposite problem we had in the 1930s, where we had long had high domestic investment and had cut immigration in the 1920s. We are now at a point where protectionism and low immigration would encourage the definancialization you seek.
[Tyler] The statistics in the capitalist crisis article are interesting, but I would say the biggest culprit behind the decline in retained earnings and the rise in buybacks has been globalization. On the margin, US companies outsourced abroad rather than investing in productive capacity at home. Nothing drives employment and wages like domestic investment. All of the physical manifestations of our recent boom, iPhones, semiconductors, networking equipment, pharmaceuticals, have largely been made abroad so US corporations could focus on higher margin marketing and R&D
[Mike]True. But there has been no decline in domestic investment.
Companies are simply using debt to fund investment instead of profits. The question is why? What you said doesn’t explain this.
With stock buybacks, companies *are* investing, they are simply investing in the stock market instead of the real economy. As stock buyback and dividend payments rose so did market capitalization. The return from buybacks is the capital gains (dividends would be the company paying itself).
Here is a plot of the better of stock capital gains or bond returns relative to ROE. Before 1980 financial returns averaged lower than ROE, making real investment (the kind that generates jobs) the best option.
For the quarter century after 1980, financial returns were higher than ROE and increasing fractions of earnings were deployed into financial markets. Since the GFC ROE and financial returns have been similar, but this is because ROE has come up. The competition from financial returns has led to firms being pickier about real investment. They demand outsize returns.
There is much needed domestic investment in this country. Investment that would be profitable, but not profitable enough. Back before we had legal stock buybacks firms could not invest in shares because this was market manipulation, which it is:
Because you could not invest in shares and bond returns sucked, the only game in town was investment in real business. So that’s what they did and we got strong growth and job creation. But today there are more profitable financial alternatives and so investment is not made in lower return industrial/manufacturing projects. The reason these are low return is because there is lots of competition in this sector by foreign companies willing to accept the lower margins US firms used to accept before 1980. So US companies opt to surrender the markets to others and right-size.
[Tyler] We are now at a point where protectionism and low immigration would encourage the definancialization you seek.
[Mike] This does not address the profitability problem. If we were to ban stock buybacks and raise top tax rate on capital gains and income to levels that would make stock option executive compensation prohibitively expensive so firms stop doing it, you uncouple executive incentives from financial performance. Now executives would compete with the other guys on metrics other than shareholder value. Under this sort of regime what you call for would be effective. Firms would now invest in stuff like energy infrastructure, healthcare, and other areas with unmet needs. And to be maximally effective on growth and job creation, protectionism would probably help. But in the absence the tax and buyback policy changes it mostly would just serve to generate inflation and slow growth some.
The reason for immigration control has never been economic. Economic arguments have been used to sell the policy, sort of like WMDs were used to sell the Iraq war, but the actual reason has always been cultural and political. For example, why did the party of employers (whom you would think would want lots of immigration) shut down immigration from non-Northern European countries in 1924? They believed that these non-WASP Europeans were a bad element (criminals and terrorists) and did not want any more of them here. And folks outside of Europe were excluded out of racism (an accepted position back then).
The reason there isn’t much of an economic effect is that immigrants boost both supply of labor and demand for labor, so the two forces largely cancel out.
If you look at private sector saving as a % of GDP (personal saving + corporate profits) and compare it to domestic investment (which includes residential investment), you'll find a huge, positive gap. The one exception was during the late 1990s, when domestic investment was high (before outsourcing really took off). Private sector debt/GDP is well down from its peak in 2008. Business profits have been chronically in excess of business investment. Business profits as a % of GDP are at record levels and have been for some time. That extra money can be used for three things, repaying debt, paying dividends, or stock buybacks (which is the equity version of repaying debt). Stock buybacks are not quite the bogeyman you suggest...the money flows back into the financial system the same way dividends or debt repayments do. If you made dividends deductible like interest, but not buybacks, then more profits would shift to dividends from buybacks. The real issue is that companies can execute their business plans with higher profits by outsourcing abroad vs. investing at home. Improving the terms of trade would matter a lot.
I agree trade is a bigger deal than immigration, but it's worth noting that the one period where unions got real traction was during the new deal era when immigration was low. Yes, laws passed during that period helped, but they worked because there was no longer a steady stream of low cost labor from abroad that could be used to undercut unions. Once immigration started picking back up in the late 1960s, unions started losing their power. And yes, ironically it was the pro-labor Democrats that pushed looser immigration laws, just as the pro-business Republicans push tighter laws, both for cultural, rather than economic, reasons apparently.
[Tyler] If you look at private sector saving as a % of GDP (personal saving + corporate profits) and compare it to domestic investment (which includes residential investment), you'll find a huge, positive gap.
[Mike] This is interesting to me. Do you have a reference or source for that, I don’t have a figure handy for that comparison. But this says the same thing I pointed out.
[Tyler] Stock buybacks are not quite the bogeyman you suggest...the money flows back into the financial system the same way dividends or debt repayments do. If you made dividends deductible like interest, but not buybacks, then more profits would shift to dividends from buybacks.
[Mike] This changes nothing. Whether you use buybacks or dividends does not matter. The core issue is business is accumulating financial capital rather than productive capital.
[Tyler] The real issue is that companies can execute their business plans with higher profits by outsourcing abroad vs. investing at home.
[Mike]If they were investing profits abroad rather than at home, then the fraction of profits that did not go to buybacks and dividends on the S&P500 over the past 7 years would be higher than 3%. Where they are NOT investing doesn’t matter, so changing the rules so they can NOT invest here rather than NOT invest elsewhere is not going to make them invest.
{Tyler] but it's worth noting that the one period where unions got real traction was during the new deal era when immigration was low. Yes, laws passed during that period helped, but they worked because there was no longer a steady stream of low cost labor from abroad that could be used to undercut unions. Once immigration started picking back up in the late 1960s, unions started losing their power.
There is no correlation between wages and immigration flows while there is one with trade. The data, as well as logic, does not support your assertion.
BTW...I'm not here to troll you. I got a lot out of your cycle theory books (and from others like Turchin, Friedman and Neil, Howe) back in the day and think these long cycles do provide a great framework to analyze markets and world events. That said, because the circumstances are different, the cycles are different. If we don't use them as precise predictors, but rather as guidelines, they are very useful in making sense of the world.
I know. I was pretty much on the same page as you a dozen years ago. I went deep into long cycles and developed a unified cycles concept when I used Strauss and Howe-type generational cycles as the core driver of aligned economic, financial and political cycles. I had a math model for the Stock Cycle which was a binary subharmonic of the K-cycle. I had a math model for the generational cycle that was based on a Mannhein-type imprinting mechanism. It was not the same as Strauss and Howe. Although it gave the same turnings for the post Civil War era. it had six turnings between the Revolution and Civil war rather than four. The cycles it generated in the political domain were close to the Schlesinger-Critical election constructs proposed by Daniel Elazar.
In the economic domain during the 19th century they approximately mapped into Kuznets-style real estate cycle associated with the periodic financial crises, and in the 20th they mapped into Kondratiev seasons or Secular Cycle secular market trends (half cycles).
Given these structures I formulated predictions that would serve as experiment tests of the theory. The experiments came up negative by 2014 and I abandoned long cycles. As a scientist I believe it is necessary for one’s theories to match up with empirical reality.
For example, from my work on monetary versions of the K-cycle, I had developed some understanding of inflation dynamics using a QM type models.
https://mikealexander.substack.com/p/summary-of-concepts-involved-in-addressing#:~:text=Share-,Modeling%20inflation,-Growing%20up%20during
Basically, I used a correlation between a QM-type analysis and NAIRU from Phillips Curve-type analyses. This approach worked well in the sixties through eighties, and passably well in the 1940’s and 1950’s. But then comes the 1990’s & after, and it all falls apart. I tried adding trade and financial flows into the analysis; it did no good. I haven’t surrendered yet, I plan to return to the problem if I get some inspiration for a new approach. But it is frustrating. 25 years I’ve been at this, and man, the economic and political gods are just laughing at me. But then, hey, it’s just a hobby to try to keep my brain from turning into cheese in retirement. It’s not like I am charging anyone for what I write. :)
What I am trying to say is that it is not about math. The K-cycle was still useful when looking at interest rates and the deflationary impulse was still there underneath the economy, but we responded with different tools and the nature of money changed so the stock market outcome was different. It’s also why it’s hard to predict the political outcome. The generations and political parties have responded differently than they have in the past because circumstances have been different. The broad strokes of the cycles are still there but the specifics are very difficult to predict because they will be different than past specifics.
The "Wealth Pump" is particularly associated with periods after inflation spikes (Kondratiev falls). The Era of Good Feelings and the jacksonian era after the War of 1812 (real estate and cotton), The Gilded Age after the Civil War (railroads and steel), The Roaring Twenties after WWI (autos, utilities) and the current era (information technology) after the Vietnam and the Cold War. All the tools we developed after learning from previous crises (monetary policy, fiscal policy, elastic fiat currency, positive inflation targets) have been used to prevent depressions during this period, but have elongated the downwave. Thus wealth creation opportunities have been abundant in an age of falling interest rates and rising valuation multiples against a backdrop of steady inflation (which keeps nominal revenues and values rising). These past 40 years have been a dream scenario for owners of capital.
What happens now that interest rates are no longer going down? What if tariffs can help close the trade deficit and reduce the inflow of foreign capital that floods our capital markets? Even if the current system stays in place, the wealth pump will start to diminish. Yes, tech entrepreneurs and venture capitalists will still get rich coming up with new businesses, but the easy money that has been made by private equity barons, corporate executives, real estate investors, university endowments, etc. as they rode a wave of leverage and rising valuations for 40 years should be harder to come by going forward. I agree a new dispensation to target broad prosperity needs to be developed (because the Reagan dispensation no longer works), but I am not sure we should keep reaching back to the 1930s to find the answer. It is likely to be a different dispensation for a different time.
The wealth pump is different from the normal rise in share process during the fall season. Financialization didn’t apply at all before the Civil War because were were still a traditional agrarian economy then. After the Civil War it also was not a factor since the financial markets were as yet undeveloped.
For the post-WW I fall we had a developed financial system, but we did not get financialization. The stock market remained within its historical range until the every end of the 20th century. I interpreted the 2000 people as a one-off. But the in 2014 the stock market began to rise in a way it has never done before. I did not understand it until I did this analysis
https://mikealexander.substack.com/p/looking-at-the-stock-market-in-terms
Legal share buybacks, low taxation rates, and the concommitant scale up of the financial system have broken the Stock Cycle and its relationship to the K-cycle. Without the support from the war cycle and the Stock Cycle I don’t see how a K-cycle can still be operative. I think all of the long cycles have broken down.
Financialization definitely played a role in the jacksonian and gilded age eras. Andrew Jackson vetoed the second bank of the United States, leading to a boom in regional banking that financed real estate speculation. Jackson then signed the Specie Circular, returning to metal-based money and it came crashing down. After the Civil War the greenback era and foreign inflows fed a financial boom that financed railroads and such, but eventually a series of financial panics let the air out of the balloon. During the roaring twenties we had the financial instability caused by major international capital flows, with money flowing into the united states as german reparations were used to repay us war loans to the allies. This money flowed into the banking system and stock market creating an unsustainable boom, fed by increases in margin lending against stocks.
Granted, these periods were shorter and less finanicalized than the current era because under a metallic monetary standard, the balloon can not blow as big before it pops. In all of these eras, there was the financial boom driven by falling interest rates and asset values, then the financialization feeds it. But it has to end when asset values can no longer keep rising to repay the debts.
How does accelerating technological and capital stock growth impact these models? They have a basis in generational human biology and sociology, certainly, but technology has become such an overpowering force it may have broken the model. Just as an example, even though its hard to capture in productivity statistics, its likely that interest rates are primarily driven by technology downwards.
Capital growth plans a role in the capitalist crisis, which delineates the start of the crisis phase in the secular cycle.
https://mikealexander.substack.com/p/the-capitalist-crisis
Technology does not play a specific role in the models. The idea that technology drives down interest rates is new to me. There isn't really any support for this idea in the interest rate records with which I am familiar. Mostly they seem to reflect business conditions. Central banks and other changes in debt markets that could be attributed to "financial technology" has reduced the effects of things like wars.
https://mikebert.neocities.org/In%E2%80%8Cterest-rate-1300-1600.gif
The statistics in the capitalist crisis article are interesting, but I would say the biggest culprit behind the decline in retained earnings and the rise in buybacks has been globalization. On the margin, US companies outsourced abroad rather than investing in productive capacity at home. Nothing drives employment and wages like domestic investment. All of the physical manifestations of our recent boom, iPhones, semiconductors, networking equipment, pharmaceuticals, have largely been made abroad so US corporations could focus on higher margin marketing and R&D. Because of this chronic underinvestment, the federal government has had to run deficits to maintain full employment by encouraging consumer demand for domestic services like health care, education and leisure and hospitality. Plus a high level of immigration has increased the labor supply and kept wages in those sectors relatively low. We have the opposite problem we had in the 1930s, where we had long had high domestic investment and had cut immigration in the 1920s. We are now at a point where protectionism and low immigration would encourage the definancialization you seek.
[Tyler] The statistics in the capitalist crisis article are interesting, but I would say the biggest culprit behind the decline in retained earnings and the rise in buybacks has been globalization. On the margin, US companies outsourced abroad rather than investing in productive capacity at home. Nothing drives employment and wages like domestic investment. All of the physical manifestations of our recent boom, iPhones, semiconductors, networking equipment, pharmaceuticals, have largely been made abroad so US corporations could focus on higher margin marketing and R&D
[Mike]True. But there has been no decline in domestic investment.
https://substackcdn.com/image/fetch/$s_!HXgp!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Ff93e206f-497e-4067-a021-1d28ea138745_646x253.gif
Companies are simply using debt to fund investment instead of profits. The question is why? What you said doesn’t explain this.
With stock buybacks, companies *are* investing, they are simply investing in the stock market instead of the real economy. As stock buyback and dividend payments rose so did market capitalization. The return from buybacks is the capital gains (dividends would be the company paying itself).
https://substackcdn.com/image/fetch/$s_!wf65!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0d528d-892f-4692-b95d-8d5f83cdf7cc_617x251.gif
Here is a plot of the better of stock capital gains or bond returns relative to ROE. Before 1980 financial returns averaged lower than ROE, making real investment (the kind that generates jobs) the best option.
https://substackcdn.com/image/fetch/$s_!5hKZ!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0afa6cbb-2654-4a3c-8384-06cfc0e6271b_587x265.gif
For the quarter century after 1980, financial returns were higher than ROE and increasing fractions of earnings were deployed into financial markets. Since the GFC ROE and financial returns have been similar, but this is because ROE has come up. The competition from financial returns has led to firms being pickier about real investment. They demand outsize returns.
There is much needed domestic investment in this country. Investment that would be profitable, but not profitable enough. Back before we had legal stock buybacks firms could not invest in shares because this was market manipulation, which it is:
https://mikealexander.substack.com/p/looking-at-the-stock-market-in-terms
Because you could not invest in shares and bond returns sucked, the only game in town was investment in real business. So that’s what they did and we got strong growth and job creation. But today there are more profitable financial alternatives and so investment is not made in lower return industrial/manufacturing projects. The reason these are low return is because there is lots of competition in this sector by foreign companies willing to accept the lower margins US firms used to accept before 1980. So US companies opt to surrender the markets to others and right-size.
[Tyler] We are now at a point where protectionism and low immigration would encourage the definancialization you seek.
[Mike] This does not address the profitability problem. If we were to ban stock buybacks and raise top tax rate on capital gains and income to levels that would make stock option executive compensation prohibitively expensive so firms stop doing it, you uncouple executive incentives from financial performance. Now executives would compete with the other guys on metrics other than shareholder value. Under this sort of regime what you call for would be effective. Firms would now invest in stuff like energy infrastructure, healthcare, and other areas with unmet needs. And to be maximally effective on growth and job creation, protectionism would probably help. But in the absence the tax and buyback policy changes it mostly would just serve to generate inflation and slow growth some.
The reason for immigration control has never been economic. Economic arguments have been used to sell the policy, sort of like WMDs were used to sell the Iraq war, but the actual reason has always been cultural and political. For example, why did the party of employers (whom you would think would want lots of immigration) shut down immigration from non-Northern European countries in 1924? They believed that these non-WASP Europeans were a bad element (criminals and terrorists) and did not want any more of them here. And folks outside of Europe were excluded out of racism (an accepted position back then).
The reason there isn’t much of an economic effect is that immigrants boost both supply of labor and demand for labor, so the two forces largely cancel out.
If you look at private sector saving as a % of GDP (personal saving + corporate profits) and compare it to domestic investment (which includes residential investment), you'll find a huge, positive gap. The one exception was during the late 1990s, when domestic investment was high (before outsourcing really took off). Private sector debt/GDP is well down from its peak in 2008. Business profits have been chronically in excess of business investment. Business profits as a % of GDP are at record levels and have been for some time. That extra money can be used for three things, repaying debt, paying dividends, or stock buybacks (which is the equity version of repaying debt). Stock buybacks are not quite the bogeyman you suggest...the money flows back into the financial system the same way dividends or debt repayments do. If you made dividends deductible like interest, but not buybacks, then more profits would shift to dividends from buybacks. The real issue is that companies can execute their business plans with higher profits by outsourcing abroad vs. investing at home. Improving the terms of trade would matter a lot.
I agree trade is a bigger deal than immigration, but it's worth noting that the one period where unions got real traction was during the new deal era when immigration was low. Yes, laws passed during that period helped, but they worked because there was no longer a steady stream of low cost labor from abroad that could be used to undercut unions. Once immigration started picking back up in the late 1960s, unions started losing their power. And yes, ironically it was the pro-labor Democrats that pushed looser immigration laws, just as the pro-business Republicans push tighter laws, both for cultural, rather than economic, reasons apparently.
[Tyler] If you look at private sector saving as a % of GDP (personal saving + corporate profits) and compare it to domestic investment (which includes residential investment), you'll find a huge, positive gap.
[Mike] This is interesting to me. Do you have a reference or source for that, I don’t have a figure handy for that comparison. But this says the same thing I pointed out.
[Tyler] Stock buybacks are not quite the bogeyman you suggest...the money flows back into the financial system the same way dividends or debt repayments do. If you made dividends deductible like interest, but not buybacks, then more profits would shift to dividends from buybacks.
[Mike] This changes nothing. Whether you use buybacks or dividends does not matter. The core issue is business is accumulating financial capital rather than productive capital.
https://mikealexander.substack.com/p/ziggurats-of-finance
[Tyler] The real issue is that companies can execute their business plans with higher profits by outsourcing abroad vs. investing at home.
[Mike]If they were investing profits abroad rather than at home, then the fraction of profits that did not go to buybacks and dividends on the S&P500 over the past 7 years would be higher than 3%. Where they are NOT investing doesn’t matter, so changing the rules so they can NOT invest here rather than NOT invest elsewhere is not going to make them invest.
{Tyler] but it's worth noting that the one period where unions got real traction was during the new deal era when immigration was low. Yes, laws passed during that period helped, but they worked because there was no longer a steady stream of low cost labor from abroad that could be used to undercut unions. Once immigration started picking back up in the late 1960s, unions started losing their power.
There is no correlation between wages and immigration flows while there is one with trade. The data, as well as logic, does not support your assertion.
https://mikebert.neocities.org/Immigration-wage-fig.gif
Wage growth under the New Deal were very specifically policy-driven:
https://mikealexander.substack.com/p/how-the-new-dealers-gained-the-ability