The Singular Test

The key sentence in Kevin Warsh And Stanley Druckenmiller’s Wall Street Journal op-ed on our “asset rich income poor economy” is this:

Higher asset prices are not translating into meaningful increases in capital expenditures, and the weak growth in business investment is proving to be an opportunity-killer for workers.

I do think there’s one word missing from that sentence. Here. Higher asset prices are not translating into meaningful increases in capital expenditures here. Over the last half dozen years large, cash-rich companies have expanded operations, manufacturing, and development but they haven’t done so here. They done it in China, India, and any number of other countries around the world.

For me the singular test that should be applied to any proposed policy is does it increase capital investment here? Want to increase personal income taxes on the highest income earners? Does it increase capital investment here? Want to end a payroll tax holiday? Does it increase capital investment here? More infrastructure spending, wind farms, solar energy, tighter restrictions on coal? You get the picture.

The frustrating thing is that measures that could actually be expected to increase capital investment here don’t seem to be able to make it into the national discussion.

15 comments… add one
  • ... Link

    Their sentence as written could also be taken as a bubble in asset prices. Real estate assets were priced very high in 2006, for example.

    We’re moving back towards an older model of human society in which assets were expensive and labor was cheap. That was great for the lords and masters and terrible for those that relied on labor for a livelihood. Given that this has been the direction society has been headed for a few decades now, I continue to believe this is what the elites want.

  • TastyBits Link


    I see things getting better, but they are going to get a lot worse first. For some people, their whole world is going to be turned upside down. Reality can only be denied for so long.

    If this seems cryptic, look around. What the experts guarantee can never happen keeps happening, and it keeps happening faster and faster.

    I believe that an error cascade began sometime back, and there is no way to stop it. We are on a roller coaster, and it will be over when it is over. Or, you can jump off.

    When your daughter grows older, she will live in another world. You and I do know what it will be, but I believe that by then things will have cleared up.

    In many ways, the US system has built-in feedback loops, but they are hidden. Success mechanisms also include catastrophic failure mechanisms. In the US, “fooling all the people, all the time” is impossible, and that is the failsafe.

    When the people realize that you have been “pissing down their back, and telling them it’s rain”, look out. The elites are about to have their d*cks cut-off, but they are too happy dancing a jig about winning to see it coming.

  • Guarneri Link

    As someone who lives this stuff everyday I’m puzzled. What on earth would make anyone believe narrow and Fed induced higher asset prices would encourage capital investment. Only to the degree that construction has been pumped by the Fed and people want to build capacity commensurately. In point of fact, Malibu, NYC, Naples, FL and such may have benefitted, but not Iowa. You know, where the middle class is.

    As for the asset price called the stock market, look at what Fed policy has done for the well off. Naples real estate? Booming. I’m looking at the new Porsche Macan. They aren’t discounting them. High end retail in general? Booming. Low end…….not so much.

    Who did Obama appoint to the Fed? Oh, yeah. Aunt Janet. More of the same. Has he gone public with income inequality? Yes. Said anything to the Fed? Nary a word. Sorry retirees and your 1% yielding portfolios. Fuck you. Oh, Mr. Goldman and Mr. Sachs! Come into my office. Coffee or tea?

    And yet investment is occurring, to coin a phrase, THERE.

    What is this man thinking? Seriously.

  • ... Link

    I believe that an error cascade began sometime back, and there is no way to stop it.

    You assume errors, and I am assuming intent. Someone can only accidentally piss on your back for so long before you can assume it is no accident.

    As for the people … that is why the rush is on to overwhelm the citizens with poor Third World peasants. Now that they’ve dissolved the border with the Third World, it’s all over. There’s no turning back from disaster now.

    America, it was an interesting experiment while it lasted.

  • ... Link

    What is this man thinking? Seriously.

    Assume they mean to screw the country, not just Obama and his crew, but the political elite altogether, and a lot of mystifying behavior becomes startlingly clear.

    You can believe that the elites have been completely incompetent for decades … while becoming extraordinarily rich and powerful … or you can believe that they’re running the country in exactly the manner they want, and getting exactly the results they want.

  • ... Link

    Seriously, look at how much the parties claim to differ. And then look at the remarkable continuity of policies that matter. Greenspan to The Bernank to Aunt Janet: remarkable continuity in outlook, and remarkable continuity in protecting the very richest at the expense of everyone else. And that continuity ranges from the most allegedly conservative President of my lifetime (Reagan) to the most allegedly liberal of my lifetime (Obama) and several shades in between.

    The only people that got bailed out after the last financial crisis were the wealthiest people in the world. Some less wealthy people got helped too, but that was purely incidental. (A friend saw his 401(k) grow by 20% last year, and he’s in a couple of relatively safe index funds. You tell me, did the economy justify that kind of broad increase in stock prices?) But the rest of us got scraps.

    Now I can believe that the most liberal and the most conservative Presidents in my lifetime just stumbled about not knowing what the fuck they were doing (Reagan’s senility and Obama’s general incompetence make that plausible), but that they would both support the same set of economic policies when they would both claim to be polar opposites of each other?

    As they like to say on the sports shows these days, “Come on, man!”

  • Guarneri Link

    “And that continuity ranges from the most allegedly conservative President of my lifetime (Reagan)”

    People seem to forget that he had the balls to let Volcker tear down inflation at great political peril. That’s what “stay the course” really meant. Its the exact opposite of the easy credit regimes (and politically expedient schemes) more recently.

  • ... Link

    Yeah, but he still put Greenspan in charge.

  • TastyBits Link


    The errors began some time back, but they are compounding. They wax and wane, but the trend is against the elites.

    The housing bust was not supposed to happen, and the deep connection to the financial sector was not supposed to exist. These same geniuses put together a stimulus package to fix a recession that nobody predicted, and when the stimulus package did not fix the recession, they blamed the recession for being too big for anybody to be able to predict.

    Peak oil was supposed to have hit years ago, and every year, more and more oil was found. All the time the Peak Oilers kept claiming that this was a fluke, and that oil would run out in a matter of weeks if not days. These same geniuses are still pushing environmental theories, and those will be just as right.

    The idea that history had come to an end was silly and foolish. The assumption that all people yearn for freedom is turning out to be a bust, and the assumption that if you bow your head everybody will love you is wrong. What impresses western elites is of little value to the rest of the world. This is now becoming undeniable.

    Today’s elites believe that they are not only better than today’s rabble. They believe they are better than anybody throughout history. They have transcended history. Sir Isaac Newton may have been a nice guy who had a cookie named after him, but he did not invent the iPad. He is nothing next to Steve Jobs.

    Without Steve Jobs, you do not play Angry Birds. Without Isaac Newton, you do not go to the moon. When the best and brightest cannot grasp that simple reality, reality sends a wake-up call.

    The elites have built a house of cards, but most of them have no idea how fragile the structure actually is. They are trying to keep it together, and it appears that they are winning. I have been saying this for some time, but I do not know when it is going to topple. If you look around, things are getting worse not better, and they are coming faster and faster.

    Time is not their friend. History is not their friend. Science is not their friend. Economics is not their friend. Reality is not their friend.

  • ... Link

    Tasty, the problem is that they keep concentrating the wealth and the power more and more amongst themselves. What fucking difference does it make if they couldn’t foresee The Crash of 2008? They run the government and the Fed, and they’ve all been made healthy wealthy and whole again.

    It doesn’t matter if they’re wrong, because they’re not paying the consequences of their mistakes. That would be most of the rest of us. And in the meantime, they’ve pretty much wrecked the country’s long-term prospects. Mission Fucking Accomplished!


    Side note on the value of being correct. In early 2008 I was still employed. I worked in the so-called benefits planning section of my corporate Goliath, and one of my responsibilities was to do the annual five year plans. Because I was in benefits, I couldn’t do jack shit until everyone else in the company was done doing their projections. Which meant that I got to see everyone else’s work before starting my own.

    In 2008, the underlying assumptions were that the US economy was going to grow 4.5% for 2008, and at 5% for the years 2009 thru 2012. I did my work and quietly told my bosses that there was no way that was right. Ultimately, I got fired. All the people predicting wild-assed growth, from my immediate manager up to (but maybe not including) the CFO have since been promoted.

    Which is to say, they were right and I was wrong, because I was forcibly retired at age 39 and they all got to make the big money.

    So I ask, what fucking difference does it make that I was right and they were wrong? Not one goddamned bit of difference, except for the lifetime of poverty I’ve earned for my family.

    That was at a little company with the world’s most famous mouse as its most identifiable trademark, so no small company that.

    Right and wrong means nothing. Winning, screwing the other guy, and getting rich while doing it? That is all that matters.

  • Guarneri Link

    Time is not their friend. History is not their friend. Science is not their friend. Economics is not their friend. Reality is not their friend.

    But an uninformed and distracted electorate is, as well as a press that has ceased doing their job and making reality irrelevant.

    And just ask Reynolds………..that’s all that matters. Winning!

  • ... Link

    And just ask Reynolds………..that’s all that matters. Winning!

    Like it’s any different for you and your boy Mitt.

  • Ben Wolf Link


    It can be argued that Volcker actually made inflation worse by pumping interest income up via high interest rates.

  • Guarneri Link

    You have, Ben, um, “interesting” theories.

  • TastyBits Link


    There are several things mixed in your comment. There will always be individual winners and losers, and this will not always be fair. I am not not addressing internal company politics being used against an individual. I am addressing the government being used against an individual.

    You make the same mistake that many people do. You assume the trend will continue unabated, but there are few examples of this in reality.

    One thing everybody forgets is that they were benefiting from the elites at one point. It is only now that things are going into the shitter that anybody is noticing.

    There will be no judgement day, but the system will readjust to something the “common man” would consider reasonable. It will not be perfect, and it will be far less than I would prefer. Otherwise, the system will collapse.

    I have stopped trying to convince people.

    (By the way, my life is not a bed of roses. It was seriously upended in 2005, and I have yet to recover.

    My career was taking off, and my wife had just bought a health food store. I am now just one of the people in the division I was building, and my wife works for a rival pharmacy. My house still does not have floors, and I have a $250 Big Lots sofa.

    I am not preaching from the gated community. You do what you gotta do.)

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