WI: No 1980s Financialization

[NedStark]

The late 70s and 80s was peak or high point of de industrialization in US. Like OTL these businesses would flood into south with increase new dealers and trade Union influence in north and rust belt

You will notice that the 1980s was the peak of deindustrialization, which began in the 1970s, if you check the data - the late 1980s boom was no longer from traditional manufacturing, but from tech and service sectors. Strong dollar policy, high borrowing and deficit spending, which caused immense damage to the manufacturing sectors, for example the machine tool industry, were also during the 1980s.

And actually, relocation of industries to the South began during if not before the Great Depression - and that's before the invention of air conditioner. New Deal and WW2, if anything, massively delayed that trend as both helped poured resources into the industrial North and the latter also destroyed its competition abroad.

ook more European approach to economics the rust belt would be even worse and more widespread then otl

You are actually already advocating for the UK approach a.k.a the Thatcher approach, which actually went way further than Reagan in both deregulation and austerity.

The Continental European, and Australia & NZ, and even Canada (whose deindustrialization phase was hardest in the early 21st century for different reasons), OTOH, actually managed to mitigate the worst excesses of deindustrialization than America in many aspects - the old industrial regions there never suffered as much as the Rust Belt. Quite a number of European countries managed to retain the relevance of manufacturing as a major sector in the economy in terms of sector size and employment.

Just less “insurance” and social safety nets as trade off.

I don't think this is necessary - if anything this is counter-productive. Even Far East capitalist countries that you cited also maintain welfate states with actual universal healthcare systems. If anything, universal healthcare systems paid for either by taxes or mandatory social insurance contributions (those are 2 main models) reduce healthcare costs, which will have to be borne by private sector employers otherwise.

 

[CountDVB]

Yes automation would happen but look at capitalist Far East like Japan and South Korea. It get more high tech yes but you still need some even if less to manage and upkeep/maintenance it. Something can always happen and honestly it be dumb given possibility of cyber attacks or advance ai to trust machines completely. At certain point we do make ourselves helpless if things ever go south for whatever reason.

But US actually has a lot of natural resources(raw industries) plus massive breadbasket in plains and and large land mass. We do grow trees like crops especially in mountains because wood is renewable if done wisely(actually hurts long terms gains and stability if they just rip it clean).

You need people to maintain all this stuff. Like pipelines, dams, infrastructure, trade skills, and maintenance to keep stuff running well. Machines aren’t as close as we think getting more detailed bits of that. Sheetrock is one example. Also many of these unskilled labors do take hard work, repetition, and experience to do. Truckers get paid well and so do garbage men because they are vital jobs and some don’t want to do it.

The major regulations really needed is prevention of Monopolies and oligarchs in corporate world which relates to penalizing exporting or aggressive trade wars plus giving incentive in ways by lessening bureaucratic strain and financial maintain. Plus low taxes with taxes more balanced and focused on vital basics(make them as nice as possible or at least efficient but simple). Reagan for example could be much less bloated but calculated with military spending. US throws money recklessly in that starting with him when it became excessive especially after Cold War.

Also give Mexicans and Hispanics more work visas. Many just want work then to go home eventually with money. Migrant labor is still not uncommon in US rural and poorer areas. Rest of Latin America this is more true. Just need to make sure they are on record and taxed. Give visa out way more easily to people of Western Hemisphere(both Americas and maybe Pacific Islanders and Philippines). Places like Europe, Japan, Australia, New Zealand, Singapore could be added to this(don’t want people flooding in from old world developing parts as much. That might be too much to handle).

Stabilizing Mexicans and Hispanics economies also makes foreign exporting less bad(these places are nicer so less cheap labor). We are literally one of few countries where our poor are fat. Business world cut throat yes but from my experience when rich make money they are willing to spend it on services or even stupid outrageous stuff for high prices which if your wise or corner certain skill can benefit you on pay day. Just less “insurance” and social safety nets as trade off.

They also have universal health care along with prominent areas within business, finance and so on. Meanwhile, you seem to be ignoring or not caring about stuff like environmental damage and so on caused regarding the resources, especially with that of metals and other nonrenewables, especially petrol. There's also the fact that infrastructure projects are paid by taxes so just chanting low taxes will actually be detrimental to that because taxes go toward paying workers who work on public projects and maintaining infrastructure.

The decaying infrastructure is due to the neglect of Reaganite folks or people who wold sell them to private entities for money. Meanwhile, as for why Hispanic people went to the US in droves, it was because NAFTA screwed over alot of Mexican farmers and thus they ended up going north. That and well, Reagan continuing the pointless drug war that helped perpetuate the Gang violence in Latin America, not to mention Operation Condor and other issues.

Reagan wasn't much of a good president. The economy recovery of the 1980s wasn't even him, but a combinaiton of the economy stabilizing from the 1979 Oil Crisis of Iran and Paul Volcker (put in as the 12th Chair of the Federal Reserve by Carter in 1979 and renewed by Reagan in 1983)'s policies in combatting high inflation was the main reason for that.

The economy runs on the "lower" and "middle" classes of people spending money on commodities and services while the very wealthy pretty much just hoard what they make to gross degrees like D&D dragons unless it's investing and even then, well that's for more money down the line.

 

[Paradoxer]

You will notice that the 1980s was the peak of deindustrialization, which began in the 1970s, if you check the data - the late 1980s boom was no longer from traditional manufacturing, but from tech and service sectors. Strong dollar policy, high borrowing and deficit spending, which caused immense damage to the manufacturing sectors, for example the machine tool industry, were also during the 1980s.

And actually, relocation of industries to the South began during if not before the Great Depression - and that's before the invention of air conditioner. New Deal and WW2, if anything, massively delayed that trend as both helped poured resources into the industrial North and the latter also destroyed its competition abroad.


You are actually already advocating for the UK approach a.k.a the Thatcher approach, which actually went way further than Reagan in both deregulation and austerity.

The Continental European, and Australia & NZ, and even Canada (whose deindustrialization phase was hardest in the early 21st century for different reasons), OTOH, actually managed to mitigate the worst excesses of deindustrialization than America in many aspects - the old industrial regions there never suffered as much as the Rust Belt. Quite a number of European countries managed to retain the relevance of manufacturing as a major sector in the economy in terms of sector size and employment.


I don't think this is necessary - if anything this is counter-productive. Even Far East capitalist countries that you cited also maintain welfate states with actual universal healthcare systems. If anything, universal healthcare systems paid for either by taxes or mandatory social insurance contributions (those are 2 main models) reduce healthcare costs, which will have to be borne by private sector employers otherwise.

The issue with welfare in US is similar to Italy. It causes high youth unemployment(because they rather take that unemployment check over labor or “dirty work” even if it pays well). Germany and Japan welfare state works well due to productivity of its people and urban cosmopolitan culture along with being much smaller countries and more concentrated populations.

Mississippi and West Virginia and much rural US would be second world or Mexico level bad without federal government and funding. The ironic part of US is large mass makes projection and management much harder especially when your superpower who gets distracted by non domestic issues especially at federal and national levels. Many rural areas are left to rot or get overlooked.

Ive been across rural US the regulations and bureaucratic measures especially related to economics and welfare is un doable with out being water down bare minimum due to fact of culture and geography. The meth and crack heads often at best just change to pill poppers. While people on both sides and of all races here will abuse system and literally just sit on their porch drink and smoke all day with friends. Our bureaucracy has history of incompetence and corruption just more subtle then Italy and better at sweeping stuff under rug. Unions use to mafia tools and they had moles across FBI, CIA, and federal government to point 60s, 70s, and 80s partly saw big mafia bust is because government got sick of it and broke down on this stuff. Even FDR had bad habit of only sending federal aid to areas that supported new dealers and himself politically which lead to uneven development

Geography wise you got country folk in every “holler”(valleys and creeks between hills and mountain usually buried in brush and scattered cheap homes and houses along with trailers). This is case in rural US east of Mississippi and along it. Out west it can be way more empty and far between on people. Many Americans don’t like living in cities. Some don’t even like Suburbs. We will drive 30 minutes to work over living 5 minute walk from work in city for same living price. Also land is expansive here so it’s cheaper then much of world still. The boom to Ghost towns are still not uncommon phenomenon in US. I migrate labor myself.

The shell of US industries is still there in 80s. Re-gentrification wiped away much of that in following decades. New York in 80s was disgusting compared to 90s when they flipped place. The US does need to get more high tech with manufacturing but supplement it by promoting skilled labor and cheap labor to “fill in gaps” at home. Migrant labor makes our nikes or electronics instead of Chinese child labor. Same goes for textiles and other similar industries.

You aim to beat Chinese in efficiency and Quality. Same goes for all developing world competition. The key is figuring out how to make cost of production cheaper then child or third world labor. Probably have to copy a lot of Japan more high tech methods.

Too many shortsighted people in US. They rather go for fast pay out instead of investing little more to make sure it’s right and done well like Japanese and Germans do. Car industries comparison between these countries is good example of this behavior

 

[CountDVB]

The issue with welfare in US is similar to Italy. It causes high youth unemployment(because they rather take that unemployment check over labor or “dirty work” even if it pays well). Germany and Japan welfare state works well due to productivity of its people and urban cosmopolitan culture along with being much smaller countries and more concentrated populations.

Mississippi and West Virginia and much rural US would be second world or Mexico level bad without federal government and funding. The ironic part of US is large mass makes projection and management much harder especially when your superpower who gets distracted by non domestic issues especially at federal and national levels. Many rural areas are left to rot or get overlooked.

Ive been across rural US the regulations and bureaucratic measures especially related to economics and welfare is un doable with out being water down bare minimum due to fact of culture and geography. The meth and crack heads often at best just change to pill poppers. While people on both sides and of all races here will abuse system and literally just sit on their porch drink and smoke all day with friends. Our bureaucracy has history of incompetence and corruption just more subtle then Italy and better at sweeping stuff under rug. Unions use to mafia tools and they had moles across FBI, CIA, and federal government to point 60s, 70s, and 80s partly saw big mafia bust is because government got sick of it and broke down on this stuff. Even FDR had bad habit of only sending federal aid to areas that supported new dealers and himself politically which lead to uneven development

Geography wise you got country folk in every “holler”(valleys and creeks between hills and mountain usually buried in brush and scattered cheap homes and houses along with trailers). This is case in rural US east of Mississippi and along it. Out west it can be way more empty and far between on people. Many Americans don’t like living in cities. Some don’t even like Suburbs. We will drive 30 minutes to work over living 5 minute walk from work in city for same living price. Also land is expansive here so it’s cheaper then much of world still. The boom to Ghost towns are still not uncommon phenomenon in US. I migrate labor myself.

The shell of US industries is still there in 80s. Re-gentrification wiped away much of that in following decades. New York in 80s was disgusting compared to 90s when they flipped place. The US does need to get more high tech with manufacturing but supplement it by promoting skilled labor and cheap labor to “fill in gaps” at home. Migrant labor makes our nikes or electronics instead of Chinese child labor. Same goes for textiles and other similar industries.

You aim to beat Chinese in efficiency and Quality. Same goes for all developing world competition. The key is figuring out how to make cost of production cheaper then child or third world labor. Probably have to copy a lot of Japan more high tech methods.

Too many shortsighted people in US. They rather go for fast pay out instead of investing little more to make sure it’s right and done well like Japanese and Germans do. Car industries comparison between these countries is good example of this behavior

...Wow, that is just baseline insulting. Maybe it's more because the youth are told by their parents and other authority figures to go out for college and so on. And also seemed to be missing a whole bunch of other points, such as the political corruption, the corporate corruption and so on, and claiming industry will work misses the bigger picture but a fair bit.

That and just insulting the poor and not caring to address the societal problems regaridng to poverty and addiction and plenty of other of complicated issues.

As things become cheaper to produce, there will be more of it. There's also automation to contend with. And there are short-sighted people, because there is more care for profit than anyone else and your suggestions for deregulation would just worsen those problems along with getting rid of public benefits like welfare and so on, which shows a gross understanding of what actually drives poverty.

 

[Workable Goblin]

As things become cheaper to produce, there will be more of it.

Well, up to a point. It seems that there is something of a bell curve type of thing that goes on, where at first making something cheaper increases per-capita consumption, but at a certain point everyone can access X and have all of the X that they want, so further decreasing prices just decreases spending on that thing. We haven't really gotten to that far side with most products, though, except maybe food to a certain extent.

 

[CountDVB]

Well, up to a point. It seems that there is something of a bell curve type of thing that goes on, where at first making something cheaper increases per-capita consumption, but at a certain point everyone can access X and have all of the X that they want, so further decreasing prices just decreases spending on that thing. We haven't really gotten to that far side with most products, though, except maybe food to a certain extent.

Well, there are grey areas because of policies like with automobiles, planned obsolescence, making it difficult to repair your own stuff and other stuff.

Like, restaurants and stores throwing away extra food away pisses me off to no end. Especially when they claim the bullshit excuse of “We don’t wanna get sued”. Not only has there not been a lawsuit for that, there’s also the Bill Emerson Good Samaritan Food Donation Act. An act that protects restaurants from civil and criminal liability should a recipient get ill or hurt as a result of consumed donated food. Donors are only culpable in cases of gross negligence or intentional misconduct. And was passed in 1996!

 

[Paradoxer]

...Wow, that is just baseline insulting. Maybe it's more because the youth are told by their parents and other authority figures to go out for college and so on. And also seemed to be missing a whole bunch of other points, such as the political corruption, the corporate corruption and so on, and claiming industry will work misses the bigger picture but a fair bit.

That and just insulting the poor and not caring to address the societal problems regaridng to poverty and addiction and plenty of other of complicated issues.

As things become cheaper to produce, there will be more of it. There's also automation to contend with. And there are short-sighted people, because there is more care for profit than anyone else and your suggestions for deregulation would just worsen those problems along with getting rid of public benefits like welfare and so on, which shows a gross understanding of what actually drives poverty.

It’s a fundamental disagreement on nature people. I have more classical liberal view. Provide and fund basics well while letting rest of society is often left to its own vices for better or worse as long as they keep relative peace and “law and order”(modern Pax Romana. Keep the peace). Meritocracy, social mobility, and booming economy can only do so much for populace. It comes to point where you must put some responsible on individual solely. The government is ref and mediator for economic and social affairs nothing more. That does not mean it’s government duty or place to provide security directly to individuals if their private avenues for it that can be made more cost effective all around(want to avoid price control and market manipulation those).

I can speak from my background, many people are in place they are in while in first world or much of world due to their own decisions and actions. Nothing more. That what always makes culture and social aspects a unpredictable or inconsistent variable especially in economics. Like people liking those stupid buck fake teeth and inventor of that making a fortune off a cheap mass produced product. Or how anime does better in some nations over other. Markets are often most honest about people and humans because they are impartial and just care about money. Many people just don’t want to admit many are impulsive and downright dumb at times which businesses exploit then people blame them for their own impulsive flaws when it leads to over indulgence and over spending.

In college I’ve seen people here waste Loan money on drinking and partying more then books and school. They at 18 can pull out a massive loan for college but not smaller one to start up small business??? Being scammed or played is not illegal in itself. Colleges are often great example of that. Worth effort for engineering or medical degree but not liberal arts or more mundane work. Less people going to trade schools and less to college would help economy especially during that time.

Less of the cubicle office jobs that break people souls and more skilled labor hand on work man pool for labor.

I make more in construction and private sector then doctors do in Europe. My check depends on haggling and barter on weekly basis. Some try to get you to do that labor for dirt cheap and often don’t understand value of work especially if done well and correctly. Corporate can deal with paper pushers and bureaucratic beast. Less so small contractors and local or even state level people can. It creates ceiling, stagnation, and barriers for middle class. You literally catering to least productive elements of population hoping it encourages them to be more productive. Speaking for myself why would many want to be garbage man or do hard manual labor like dig ditches or sewage when you can get check at home while “waiting for better opportunity” or thinking their will be one.

One Mexican once told me after seeing man hold sign saying “out of work need money for food”. He said “in Mexico if you don’t work you don’t eat” which saids a lot because they eat lot and have obesity rates near ours even those they struggle much more. That speaks of their work ethic especially compared to many Americans.

For example, German culture has a strong work ethic and look down on excessive leisure or laziness while Italy who has similar welfare system on paper is just unproductive mess and economics less stable because the younger people rather leave labor and service jobs to Arabs, North Africans, and Africans there while they reap benefit of citizenship there with free healthcare and unemployment subsidies while they go to cafes and ride bikes around Mediterranean beaches or in mountains. Same with Greece to lesser extent.

If you have money US healthcare can be some of fastest and best due to money involved(price control and monopolization were our biggest issues especially before universal healthcare). But you can also get cheaper services at a little Kroger or Walmart clinic for cheap but service won’t be as good or thorough.

 

[Paradoxer]

...Wow, that is just baseline insulting. Maybe it's more because the youth are told by their parents and other authority figures to go out for college and so on. And also seemed to be missing a whole bunch of other points, such as the political corruption, the corporate corruption and so on, and claiming industry will work misses the bigger picture but a fair bit.

That and just insulting the poor and not caring to address the societal problems regaridng to poverty and addiction and plenty of other of complicated issues.

As things become cheaper to produce, there will be more of it. There's also automation to contend with. And there are short-sighted people, because there is more care for profit than anyone else and your suggestions for deregulation would just worsen those problems along with getting rid of public benefits like welfare and so on, which shows a gross understanding of what actually drives poverty.

Corporate America was a lot more “snaky” and downright weasels. Tech was full of people who were outclass or “nerds” during 80s and before(mix group on tech). Capitalist and business in US past was more Brutish and bullish. These people especially tech when digitization takes off know how to play system and loop holes like a fiddle.

We still over estimate bureaucratic and governmental overreach in society. They are not as competent as people give them credit for. Which can be both good and bad.

Between 20s until 80s the economics was easier to control. With modern advances especially digital it does become more like whack mole with regulations and loopholes at times. Bureaucrats also can be just as empathetic as corporate. Why do you think “snapping” is more common phenomenal in service or corporate jobs in first world along with suicide at times too.

 

[CountDVB]

It’s a fundamental disagreement on nature people. I have more classical liberal view. snip

Corporate America was a lot more “snaky” and downright weasels. Tech was full of people who were outclass or “nerds” during 80s and before(mix group on tech). Capitalist and business in US past was more Brutish and bullish. These people especially tech when digitization takes off know how to play system and loop holes like a fiddle. snip

You have a very idealized view of the past. The "classic liberals" tend to forget that back the, the robber barons and how terrible people were treated until people striked to be treated like decent human beings. Meanwhile, your broad stroke accusations at everyone just being lazy rather than acknowledge the complications and the serious other problems is messed up. And no, markets aren't honest because advertisement exists along with information manipulation, which lies to people and promotes trends and problems.

The fact is that anecdotal evidence doesn't mean much in the long run. Your experience is not the end-all be-all and in fact is basically a variation of survivorship bias. Not everyone is just a bunch of lazy people and thinking that is grossly oversimplistic and actually very insulting. It's little better than talks decades prior about how people of color were basically called lazy by nature. People aren't cogs in a machine and thinking that you have to be productive or you deserve to go hungry is a pretty screwed up way of thinking and also heavily impractical. Mexico meanwhile has its problems due to coming from packaged foods among other factors so your oversimplification doesn't work there either.

The rise of finance was the result of deregulation mindsets like yourselves combined with greed, rising technology and its implantation along with varying other factors. Blue colalr jobs aren't gonna be enough for this since the only reason there is a shortage right now is because of years of baby boomers telling their kids to go pursue college and that is the successful way of life. There aren't gonna be enough blue collared jobs for eveyrone and as automation becomes more prominent in the manufactuing sector, it's still gonna see losses. So just taking welfare and claiming it will make lazy people get jobs is frankly an insulting and ignorant thing of saying.

Please don't post in my thread again.

 

[Strategos' Risk]

It's very likely that this would save it since alot of those companies did get screwed by the bigwigs looking for short term profit to squeeze them dry.

Makes me wonder what would happen if Jack Welch was never in power.

https://archive.is/gZSME

Under Welch, GE’s mission changed. Its new goal was to become “the world’s most valuable company.” Which is to say, he turned the focus of the company to its stock price. Everything became secondary to that. Corporate raiders like T. Boone Pickens and Carl Icahn may have been the first to call for companies to “maximize shareholder value,” but they were outsiders, knocking on corporate America’s door. Welch was the ultimate insider, and when he started to emphasize shareholder value, so did the entire American business culture.

Second, Welch turned GE Capital, which had formerly been used to underwrite consumer loans for refrigerators and other GE appliances, into a black box from which Welch could extract whatever profit he needed to make his quarterly numbers. What’s worse, GE Capital began making the same kind of risky loans as the rest of Wall Street — loans that got the company into trouble when the financial crisis arrived.

Because Welch was so idolized, the path he trod became the path every other CEO trod as well. They all began focusing on shareholder value. That became the basis on which they were judged and paid. And it warped the business culture, causing companies to put employees, vendors and even customers behind the primacy of shareholders. If you want to see what happens when you take maximizing shareholder value to its logical extreme, I give you Facebook. Or, for that matter, Enron.

Jack Welch probably deserves his own thread if not an outright timeline about the world where he never made his influence.

 

[Strategos' Risk]

As for the main point about financialization - it's not that big a thing. In 1978, the financial sector comprised 3.5% of US GDP and by 2007 it was 5.9%. But much of this seems to just be due to the appreciation of existing assets, namely real estate.

If your beef is with finance as a share of American GDP, you need to boost the other sectors.

It's not simply the size and power of the financial industry, it's that every industry seems to resemble it.

Why the f**k is everyone a bank?

Everybody is a bank nowadays. Why?

medium.com

The financialisation of Big Tech - SOMO

This report investigates the financial numbers behind the operations of seven leading Big Tech companies, five of which are headquartered in the US, namely Alphabet (Google), Apple, Amazon, Facebook and Microsoft, and two in China, namely Alibaba and Tencent. We...

www.somo.nl

Also, what is the decline of defined-benefit pensions in favor of 401(k)s and IRAs directly tied to the stock market, if not financialization in action?

 

[CountDVB]

Makes me wonder what would happen if Jack Welch was never in power.

Under Welch, GE’s mission changed. Its new goal was to become “the world’s most valuable company.” Which is to say, he turned the focus of the company to its stock price. Everything became secondary to that. Corporate raiders like T. Boone Pickens and Carl Icahn may have been the first to call for companies to “maximize shareholder value,” but they were outsiders, knocking on corporate America’s door. Welch was the ultimate insider, and when he started to emphasize shareholder value, so did the entire American business culture.

Second, Welch turned GE Capital, which had formerly been used to underwrite consumer loans for refrigerators and other GE appliances, into a black box from which Welch could extract whatever profit he needed to make his quarterly numbers. What’s worse, GE Capital began making the same kind of risky loans as the rest of Wall Street — loans that got the company into trouble when the financial crisis arrived.

Because Welch was so idolized, the path he trod became the path every other CEO trod as well. They all began focusing on shareholder value. That became the basis on which they were judged and paid. And it warped the business culture, causing companies to put employees, vendors and even customers behind the primacy of shareholders. If you want to see what happens when you take maximizing shareholder value to its logical extreme, I give you Facebook. Or, for that matter, Enron.

Jack Welch probably deserves his own thread if not an outright timeline about the world where he never made his influence.

Well, wondered why that name was familiar. But yeh, it sounds like a bunch of shady stuff happened. I wonder how things could've backfired regarding stock price or ig it just woukdn't rise as much. As for the black box stuff, that sounds like something that could've been investigated,

 

[Strategos' Risk]

No Financialization meaning less insecure money on the system, meaning those nerds have to negotiate the old way...with serious companies or real investors and those will want the real product and real patents with it, meaning a smaller to no bubble because of the monetary flow dynamics. In few words, we broke Fischer equation at least for the investment market

This is where public policy comes in- the post-Great Recession zero interest rate policies have done a number on the way investment is done.

ZIRP explains the world

A Margins' theory of everything

www.readmargins.com

For the uninitiated, ZIRP stands for zero-interest-rate policy. I will assume most Margins' readers are peripherally familiar with the term, but to clarify, it’s when a nation's central bank pushes nominal interest rates to 0% using monetary policy.

All investment decisions are, in theory, an evaluation of risk versus reward. The US Treasury 3 Month Bill is often thought of as a "risk-free rate of return", or the yield you deserve for effectively assuming zero risk. It's called "zero risk" because we're assuming the U.S. Government will not default on their debt in the next 3 months. For reference, this currently gives you 0.71% (and was 1.25% when I started writing this on Monday 🥶).

That's your starting point. The more risk you take, the more yield you should get. If we're just looking at U.S. treasuries, the longer the maturity, the more yield you should get because there's more time that the U.S. government could default (note: at the moment, this is not the case because of an inverted yield curve, which is a whole other thing).

Then you start looking at U.S. investment-grade corporate debt, like a bond issued by Apple. It's a tiny bit riskier, so you should get a tiny bit more return. Then you move out to high-yield corporate debt which is a bit riskier. You keep moving out the curve, getting to hedge funds, private equity, venture capital, and real estate, and on and on. For each additional increment of risk you take, you get a bit more yield.

The thing is, money has expectations. At an individual level, most of us have become accustomed to bank savings accounts effectively returning zero. That wasn't enough for us though. Our money felt antsy, so it found index funds and other passive funds, to once again, find a bit of yield. They are certainly riskier than a bank savings account (where your only risk is the bank going under), but hey, no one has ever really lost in a Wealthfront account. Money swims towards yield.

...

So all these dollar-organisms all start swimming towards riskier waters. Treasury investors shift to corporate debt. Public equity hedge funds shift to late-stage private equity. Late-stage private equity shifts to mid-stage, mid-stage to early stage. Seed rounds become bigger. Angel investors become a thing. Unicorns, unicorns, and more unicorns. Ashton Kutcher.

And that's how we end up where we are. In the past, if somewhat risky corporate debt got you 10%. It now gets you 7% (I'm making up numbers here) so you start taking meetings with late-stage growth companies. The Saudi SWF wants to modernize their economy, but they are also looking to achieve returns once found in public equities, so they have to get creative. Blackrock gets jealous of KKR who gets jealous of a16z who gets jealous of YC. There is just so much money looking to do so many new, riskier things.

That blog also has another great piece about how a lot of tech startups aren't so much technological innovators as they are business model innovators.

The token business school example for business model innovations is Henry Ford's Model T. Famously, Ford, an engineer and an accountant by trade, wasn't the first to come up with the automobile, nor the moving assembly line. Yet, he (or his employees, the history is a bit murky here) had the insight that you could build automobiles that way, and the rest is pretty much history. Model T is a testament to the idea of business model innovation, where you take out parts of what works in other businesses, rewire them in some fashion and make a ton of money and create something new much more cheaply.

[...]we will inevitably see more business model innovations that will look like someone re-inventing something. There's a model of looking at a company like Uber as primarily regulatory arbitrage, which I do not fully endorse, but I do acknowledge. But even if that specific company gets regulated away tomorrow, there's no going back to a world where, in sterile economist-cum-technical jargon, there's no price discovery of transportation from point A to point B, all done on a centralized system with mobile devices. Something has changed. The business model innovation, built on generally boring technologies, stuck.

We sometimes talk about margins here, somewhat unsurprisingly. Computers, internet, smartphones; whatever revolution you want to attribute it to, lowered the margins in most things information related to virtually zero. This meant what used to be prohibitively expensive to build and deploy possible. Yet, basic human needs remain the same. We still want to move around, socialize, nourish ourselves, feel loved, and such. What comes out often will be rewiring some old business ideas with some new technologies. It is no wonder that, many times, that things will look like us re-inventing something with technology.

Jokes. You invented bad jokes.

Jokes are bad now.

www.readmargins.com

Not sure how quantitative easing and "financialization" fit in with each other. Does the former exacerbate the latter? Was the former created in response to the latter? Is it because this is the solution the American federal government ended up going with because of the Great Recession (and modern economic crises in general- just look at all of the money printed last year in response to the pandemic)? What were the alternatives?

 

[Workable Goblin]

Also, what is the decline of defined-benefit pensions in favor of 401(k)s and IRAs directly tied to the stock market, if not financialization in action?

Defined-benefit pensions were always either a bit of mummery around what was basically a life insurance company's annuity (which is the very definition of a financial company) or Social Security-alikes that transferred current employee salaries to retired employees. The latter had the obvious issue of being "overwhelmed" if companies shrunk but still needed to fund retirees, and especially if companies failed and no longer had employees to pay for the pensions. Which actually started happening quite a bit in the 1960s and 1970s. Ultimately, the defined-benefit pension system was unsustainable and had to go away, and anything that replaced it was almost inevitably going to shift more towards relying on financial returns because the alternatives were financially or politically infeasible (saving Social Security is one thing, cranking up taxes to provide a more generous benefit is something else...)

 

[NHBL]

I just found this threat--late at night, so can't read in detail. Since I'm working on a timeline that has, among other things, Jimmy Carter's second inaugurationcoming up in the next post, and a rather different first term, including a different and successful Eagle Claw and an early 1980 terrorist attack that left 5000 dead in Maine and New Hampshire, I'm marking this timeline, and will look through it in detail. (It also includes continuing to recognize Nationalist China, which has, so far, precluded an exchange of ambassadors with Red China.)
I see a lot of good info here about the 1980's financial environment

 

[CountDVB]

I just found this threat--late at night, so can't read in detail. Since I'm working on a timeline that has, among other things, Jimmy Carter's second inaugurationcoming up in the next post, and a rather different first term, including a different and successful Eagle Claw and an early 1980 terrorist attack that left 5000 dead in Maine and New Hampshire, I'm marking this timeline, and will look through it in detail. (It also includes continuing to recognize Nationalist China, which has, so far, precluded an exchange of ambassadors with Red China.)
I see a lot of good info here about the 1980's financial environment

Glad that you like it and it's been helpful

 

[CountDVB]

Ending financialization might make the savings and loan crisis less severe, but there were multiple causes of the crisis, some of which had little to do with deregulation. Probably the most impactful was high inflation beginning in the late 1960s and the interest rate spike in the very late 1970s and early 1980s that eventually put paid to that--remember, the S&Ls were making long-term fixed-rate mortgage loans, so they had lent low and were borrowing high, something which is obviously unsustainable. Additionally, the implosion of the real estate market in oil states was also pretty bad. Even if they hadn't been playing with fire in junk bond markets and the like, all of this would have been a very painful event and likely led to some type of crisis and the failure of multiple S&Ls. In fact the deregulation of S&Ls was motivated by the hope of avoiding exactly this type of correction by allowing S&Ls to "grow" out of the balance sheet problems that they had in 1980. Of course this failed, and in hindsight a wiser thing would have been to just fund FSLIC appropriately so that it could wind up bad S&Ls.

As for the other point, I doubt deregulation really has too much to do with it. Giant landlords have always been around, the actual number of homes being purchased by these companies is not in fact particularly large compared to the overall housing market, and the real crunch for home prices is actually...regulations. More specifically, building regulations in the form of zoning and similar laws on a local level that make it more difficult and expensive for developers to, well, develop new houses in places where people want to live, which obviously tends to push up the prices on existing homes or the few new homes that do get built. But those, unlike complicated financial regulations, are very popular and have an immediate impact on people's lives, so they've gone relatively unopposed. Additional factors include the fact that homes are generally speaking people's retirement funds, so that everyone wants their housing prices to continually go up even though this is (often) unreasonable over the long run, and changes in the construction market even aside from limitations on new construction that have led to a dearth of smaller (and cheaper) "starter" homes relative to larger and more profitable homes for more established people who are looking to move to a new home rather than get a home for the first time.

Looking back, we were both right since it was deregulation and high inflaiton among others: https://en.wikipedia.org/wiki/Savings_and_loan_crisis#Causes

But augh, it reminds me of just how nuts the housing market is. I wonder if anything can be done regarding the thing of homes and the market. I reckon the economy likely did influence some aspects, but unsure to what extent

 

[CountDVB]

Yeah, interesting how many of the regulations which are the biggest drag economically are not federal regulations, but rather ticky-tack state and local regs.

And yes, people stretch themselves thin to live in fancy new suburbs and one big reason is that the neighborhood is in a “good” school district. So, it was a tremendous missed opportunity that with school desegregation, which started with the Brown v. Board of Education decision in 1954 but did not really start in southern states until around 1970 — that we did not follow this up with public policy and spending the big bucks to elevate all schools, so that all schools would be good.

And all the people in the suburbs focus on is taxes, even though they’re receiving a net subsidy. Well, they’re not quite making it, so they have to blame something. Mom and Dad both working 50+ hours a week, plus commute. Hard to fit everything in even timewise, plus studying up on how to adroitly manage their finances, which may not be a winnable situation to begin with.

And with people investing so much money into their home, no, I don’t think we can change the mortgage interest deduction on primary residence.

During the work toward the Tax Reform Act in 1986, several members of Congress joked that we can slaughter the sacred cows, but not the really sacred cows! And mortgage interest is clearly in this second category.

Yeah, looking back, the "good" school districts are a big motivator. It appears to come from parental anxiety and wanting to give their children the best opportunities they can. Would federal policy be enough to help elevate more schools into higher standards to deal with this sort of issue or would it be more the states' issues? I imagine it's a mix of both though to what extent trying to figure out.

 

[GeographyDude]

Yeah, looking back, the "good" school districts are a big motivator. It appears to come from parental anxiety and wanting to give their children the best opportunities they can. Would federal policy be enough to help elevate more schools into higher standards to deal with this sort of issue or would it be more the states' issues? I imagine it's a mix of both though to what extent trying to figure out.

And I don’t blame the parents at all. In fact, it’s the most normal and natural thing in the world.

I just want to change policy so that more parents have the same good opportunity.

Now, one obstacle on a different topic, was the Supreme Court decision in 1973 of Gaffney v. Cummings regarding state legislative districts. The Court basically ruled that within 10% was good enough, unless the people objecting met a very high burden of proof in showing intentional discrimination.

Well, if you do that with teacher salary, a 10% difference is plenty enough motivation so that the better teachers will tend to congregate at the rich schools. And yes, generally leaving the poor schools with the second-rate teachers, with the occasionally exemption.

 

[CountDVB]

And I don’t blame the parents at all. In fact, it’s the most normal and natural thing in the world.

I just want to change policy so that more parents have the same good opportunity.

Now, one obstacle on a different topic, was the Supreme Court decision in 1973 of Gaffney v. Cummings regarding state legislative districts. The Court basically ruled that within 10% was good enough, unless the people objecting met a very high burden of proof in showing intentional discrimination.

Well, if you do that with teacher salary, a 10% difference is plenty enough motivation so that the better teachers will tend to congregate at the rich schools. And yes, generally leaving the poor schools with the second-rate teachers, with the occasionally exemption.

Yeah true, but still, it can lead to a lot of problems, especially with the other issues we have now.