Unsurprisingly, what still can be modeled is the direct correlation of real profit growth to real economic growth, assuming a constant division of the “pie” between profits, labor and government. If long-term economic growth declines by 1½% then profit growth will as well. This, after settling at perhaps half of absolute peak profit levels of 2007, because of the rise of savings rates from 0 to 8% or higher. But to add to the woes of the investor class, one has only to observe that their share of the pie is shrinking. What does the General Motors example tell us all about the rebalancing of power between the investor class and the proletariat? What do trillion-dollar deficits and the recent reinitiation of PAYGO government programs tell you about the future of corporate tax rates? They’re headed higher. Do you really think that a national health care program can be paid for with cost-cutting as opposed to tax hikes at insurance companies and benefit-paying corporations throughout all sectors of the American economy? The new normal will not be investor-friendly unless your forecasting dial is turned to “Pollyanna” or your intelligence quotient is significantly less than 100.
h/t to Kevin B (whose comments here are always worth your while)
Good technical assesment, but what he misses is that “some” economists involved with policy believe in the artificial creation of bubbles… It is my opinion that the Market has not created “accumulated” wealth for the last 30 years. That is that an investor that bought and held was snookered. The real game was to follow the bubble up & dump & short.
Of course it helps to know what is artificial
Always remember the fundamentals. When debt goes up, capital becomes scarce and valuable. Interest rates go up. Return on investment must go up to match so price/earnings ratios must fall. If they won’t fall from rising earnings, they will fall from falling prices.
High debt is the situation that makes the rich richer and the poor poorer.
The problem is taxes and regulation. The commentators who claim it’s a problem with capitalism are lying. There is no such thing as “stimulus” really; what you need is incentives for people to produce and trade, and that can only mean profitability. Taxes and regulations detract from that. Get rid of 90% of the deadweight bureaucrats and streamline the tax system, and your economy will be fine.
new math for the investor. economics is very simple. it has been complicated in order to confuse and steal.
The Obama talked about change but the sheeple didn’t comprehend and got sucked in by a smooth talker. Now we have fundamental change i.e. socialism/communism and the government and unions and NOT the market place are calling the shots and will be deciding which industry moves forward and which won’t. All in a matter of six short months so it’s obvious the leftists have been planning this for years. It’s as if Jack Laytoon was given the reins of government in Canada and Libby Davis and company were now running the country’s affairs. The result: total chaos.
This is very profound. Bill Gross basically is attacking Obama.
His last sentence is essentially saying: “You gotta be a moron if you think that Obama’s plan will result in economic recovery.”
(I’ll need to remember his subtle approach for future reference.)
nv53 – I agree. Notice that an economic system is a triadic structure. It requires three processes: profits, labour and government.
In other terms, ‘profit’ means surplus. This can be a herd of 10 cows, or five bags of seed, or a patented model of a manufactured product or money.
It is what is left over from consumption, or prevented from consumption. It is stored. Not used in the present. Kept to enable the future continuity of the economy.
‘Labour’ means the actions of producing and consuming for today as well as producing and not consuming that surplus.
‘Government’ is the system of organizing the above two processes.
What happens in every society is that these two major activities of garnering surplus and working to produce today’s needs and tomorrow’s surplus can get split into two groups of people. In small societies, the ‘elders’ will extract surplus to store it for next year’s crops.
In large societies, you must have an Investor Class that takes surplus, to enable future production. In tribal societies, the elite class will have this profit – but resultant stability will dissipate if they keep that ability-to-live from the population.
The US has enabled a large Investor Class by its focus on the productivity and ‘savings mentality’ of a robust middle class. This has enabled a future-oriented economy based around the investment capacity of small and medium businesses.
Canada has prevented the development of an Investor Class by its rejection of profit (high taxes)and its lowering of the middle class economy to one of dependency on the govt.
The ‘labour’ class works for and consumes daily needs. The greatness of the US was that it built up a huge middle class that could function both as labour and as investor. You didn’t need an elite class that took all of the surplus and made the rest of the people dependent.
The ‘government’ is there to merely regulate the above two processes. It ought to be as small als possible.
BUT – what has happened is that government has moved into and become the Investor Class. This is socialism, found in Europe and Canada. Government takes so much money from labour that they cannot form their own Investor Class and develop their own businesses, invent their own new technologies. They rely on Government to do this.
So, not only is there no private citizen Investor Class but the mass of people, the Labour Class, have no capacity to develop ‘surplus’ to invest for next year. The Government takes it all.
When you take the ability to invest in the future away from the people, you end up with a passive dependent ‘welfare’ population.
“Canada has prevented the development of an Investor Class by its rejection of profit (high taxes)and its lowering of the middle class economy to one of dependency on the govt.”
ET that is historically true. But Harper , now joined by even McGuinty , are going to get our Fed and Prov. combined Corporate tax rate down to 25% whereas the US is tied with Japan ( a deadbeat economy) at 40 %. And as the above article says “What do trillion-dollar deficits and the recent reinitiation of PAYGO government programs tell you about the future of corporate tax rates? They’re headed higher”.
Also note “the rise of savings rates from 0 to 8% or higher”. The US middle class has started to save instead of spend. In China the savings rate is 40%. Why? Because they have no faith in their government looking after their future … Hmmmm.
So there are a lot of variables to consider and it is all changing rapidly.
Even when a country is hitting on all cylinders, economic growth and prosperity is not easy. But it is especially shaky when some are trying to intentionally disrupt it.
The man-is-bad group wants less of us. Nothing, but nothing, would destroy an economy (and pension plans!) faster than declining population numbers.
The eco-fascists are using environmentalism to destroy the engine of growth for the last century. Life before fossil fuels was brutal. The latte-liberal crowd thinks it can all be replaced by simply following instructions in Popular Science.
A mind-set of perpetual less-consumption-guilt has been instilled in the young by the UN, Universities, public school system, NGOs, Hollywood and the media. Cult leaders live lavishly while forcing the sheeple to do without and eventually convince them to drink the cool-aide. Gore and Suzuki and Hansen would fly between cave dwelling communities in excec jets to administer the religion. Media in tow, of course.
And then there is the politicians-can-save-us crowd. Mere coincidence ? – that the markets crashed about the same time Obama was overtaking Clinton in the media push-polls?
But, as Bill Gross points out, the economy was ripe for the picking and the interventionist crowd does not let a crisis go to waste.
nomdeblog – yes, I agree that under Harper, the old infrastructure that reduced Canadians to non-investors and made them rely on foreign investment and technology, is changing.
My point, however, is that we citizens don’t understand the triadic infrastructure of a society; we don’t understand that there MUST be a class or private (not government/public) process that creates and stores Surplus. Surplus is known as wealth.
How many times do we read from the left, about their hatred of the ‘wealthy’; how what ought to be done is to ‘redistribute’ the wealth so that everyone has the same. This structure is only found among hunters and gatherers, who produce no wealth/surplus, and instead, rely totally, totally, on nature to support them. If there’s a drought or bad season, they have to migrate.
A robust society has to have THREE economic actions and TWO of them ought to be the prerogative of the private citizen: (1) the labour required to produce goods and services; and (2) the extraction of wealth/surplus and its investment in a future oriented economy.
The third sector of the economic triad, the government, ought to have only one key role: regulate sectors one and two – and take as little surplus wealth as possible to provide some common services – such as defense.
Sectors one and two are indicative of a middle class. What we are seeing in socialist systems is that sector three, the government, is taking more and more power away from the people, taking their wealth/surplus, taking their power and control over their future..and leaving them only with their labour. Their day to day labour. Nothing else.
“How many times do we read from the left, about their hatred of the ‘wealthy’”
Right. And the point I was trying to make is that we finally have some economic conservatism (maybe by stealth?) in Harper because the comparative differences in corporate tax are enormous.
Conservatives that dumped the GOP because it wasn’t conservative enough got the economic disaster Obama. In Canada, if we have too many upset conservatives, we will get Iggy … who brags about never having purchased a stock. We’ll get our Obama if we get Iggy and no hope of creating an “investor class”.
So beware the “politicians-can-save-us crowd”.
nomdeblog – I agree; ‘beware the politicians can save us crowd’.
But this crowd is huge; it consists of the Elitists (Liberals and NDP and Red Tories), who see themselves as superior to the ‘beer and popcorn’ masses. They are the public civil service in all levels of government, in all public services and bureaucracies, in health care, education..everywhere. Their contempt for ‘the public’ is endless.
Their agenda is to reduce the power of the individual to take any self-governing action, and ‘control’ them by endless rules. We can see this in Toronto, where the strike for double the wage increases of the private sector, and three weeks extra pay, per year, which can be cased out at retirement – is affecting not only garbage. But, all services, including restaurants that can’t open their summer patios without a license, parks that can’t operate their summer camps, day care, swimming pools; parks closed because they’ve become garbage dumps..and the citizen is helpless because they are forbidden from doing anything on their own.
This Elitist crowd is also made up of the Welfare Set, those who are only too pleased to have someone else look after them. I’m including in this Set not merely those who don’t work, but those who feel they are entitled to special treatment (Elitism) and to a lifestyle that they themselves have not earned.
Put the two groups together, and you’ve got quite a ratio of the population. And a key problem in Canada is that this type of society, which inserts a top-down governance filled with bureaucracy, is the normal mode of operation. We don’t encourage individual entrepreneurship, we don’t encourage debate, dissent, questions and individual activities.
Our motto is ‘tolerance’ which essentially means passive-hiding-in-a-cave and waiting until someone else offers us the new technology. Or the franchise. Or asks us to copy the drug invented elsewhere.
Harper is certainly trying, but with the Elitists of the Liberals, NDP and Bloc, all operating in that mindset of Elitist Government and Entitlement…it’s hard.
“Notice that an economic system is a triadic structure. It requires three processes: profits, labour and government.”
Government has certainly got their grubby hands into the process, but I don’t think it is correct to say that they are a requirement. Government is no more an essential part of business than fleas are essential parts of dogs. Both would function perfectly well without them.
It really bothers me to here talk of government managing the economy. In non communist states governments don’t manage the economy. The economy just happens and the participants are along for the ride. Governments certainly have an impact on the economy, but I think it is false to say that they manage it.
I think economics is an exact science, but trying to manage a national economy would be like trying to solve a set of 100 equations with 1000 unknown variables. It just can’t be done.
minuteman – I agree with you that governments don’t manage the economy. When I use the term ‘regulate’ the two other key parts of the economy, namely the production of surplus/wealth and the action of labour, I don’t see government as ‘managing’ this process. But as inserting common or societal regulations.
These would include common standards of production of goods – something that China is coming to realize is a requirement; standards of investment of surplus (to prevent a Madoff Ponzi scheme); standards of shipping, labour safety etc. That’s what I mean. I certainly don’t mean any management of the free system of entrepreneurship, open market competition, etc.
But I think a society has to have this third sector of regulation.
Is Torybaiter suffering from ET-DS?
Minuteman: “It really bothers me to here talk of government managing the economy.”
But all ET is saying is “ought to have only one key role: regulate sectors one and two – and take as little surplus wealth as possible to provide some common services – such as defense.”
That isn’t managing the economy … you are correct, the economy can’t be managed by anyone, not by government and not by businesses. All that businesses a can do is adapt to a changing world and business adapts faster and more productively than government… so yes, get the government to heck out of the economy ..sell the LCBO etc.
Complementing “regulation” by government, a key component is to ensure sufficient competition. Not so much anti-trust laws, as making sure we have more competition in airlines for example .. open skies.
Unfortunately, we need some regulation to give the public confidence that businesses have lots of disclosure and to expose conflicts of interest. But the downside is that regulators tend to go native with their industry after awhile, it is tricky, there are no perfect solutions.
There is little an individual can do against the malignant State as it is now.
However, the key to success in a repressive society (which Canada most certainly is) is to keep a low profile and drive a gray four door sedan.
I saw this change happening in under the large thumb of the Trudeau ere. It’s a disease like chicken pox. It never goes away and can manifest itself in the form of shingles … painful and expensive to get rid of. That would equate to to the continual interference in our personal affairs, our freedoms and our desire to live our lives as we choose.
Not being an elitist, I have made if my life’s goal to be a survivor. I did this by ALWAYS living within my means and putting away as much money as I could save. In other words … depending on myself for everything.
Sometimes I feel a bit like a sucker to not take advantage of some of the trough drippings as so many do, but in the end I have real self-esteem and a measure of security. The current economic downturn has cost me some of my investment money which means I will have to work an extra couple of years before retiring, but that is life and there are no grantees in life. It is those guarantees that the weak left and the elitists so very much crave. That is folly.
Life is often not fair, but that is a rule that cannot be legislated away.
The bottom line is that you can pretend reality isn’t real, but that 800 pound gorilla in the room will eventually let you know you are wrong.
Reality is a sure thing. No guarantees. That is the only grantee. Once you know that and accept it, you will know how to live. Despite what your ‘betters’ tell you.
And to the greedy shit heads in Toronto … no matter how much the Socialists pay you, you are still a f*cking garbage man. And that, is the real crux of your biscuit.
It’s not the money, it’s the shallowness of your chosen profession. Unionized (un)civil servant!
“keep a low profile and drive a gray four door sedan.”
Aw shucks, do I have to sell my red Hummer? I need it to haul garbage in Toronto.
I would think Canadians would be feeling reasonably good about their situation.
Balanced budgets going in to this mess.
Conservative bank lending practices
No sub prime mess,
A strong natural resource base &
(I know I will catch flack for this one even though it is true)
A growing population of well educated immigrants who add value to the Canadian economy and add demand for good and services.
Of course lieberal elitists understand full well the citizenry will only tolerate so much nanny state BS before they rebel so to ensure the rabble will be unable to mutiny they must be disarmed. Therefore gun control is a key component of lieberal strategy and it’s interesting to note a nationwide gun registry is a major plank in Obama’s platform. It will be sold to the sheeple on the basis of combating crime as if criminals will line up to register their weapons. The Canadian experience will serve as the American template.
Government run healthcare in the US is not supposed to be funded by tax increases per se, it is supposed to paid for by revenues from the Cap and trade program which, unlIke the liberal’s green shift is not intended to be revenue neutral ie offset by deceases in income tax rates.
Cap and trade will be the largest single tax increase ever passed in the US as a result. It will not survive the senate vote and thus will never reach obama’s desk. Without cap and trade there can be no goverment healthcare unless Obama wants directly increase personal and corporate tax rates and that has zero Chance of passing even the house.
“will never reach obama’s desk….”
Good points and that explains why the Dow hasn’t crashed back to 6500, Wall St must agree with you, I sure hope so.
Nomdeblog: if I and the analyists I read and listen to are wrong, then we will see the worst bear market ever and the end of the American empire.