Speaking of summaries, at Bloomberg Mark Whitehouse has an excellent summary of what’s wrong with the U. S. economy in one chart, above. If I were to draw the trend lines, it would be even starker. Business investment is plummeting as a share of GDP.
He goes on to flail around a bit, trying to explain why that has happened, trying out inadequate infrastructure spending, a shift to “less capital-intensive activities”, and decrease in demand. None of those is really adequate, viz.:
Consumers are spending more not less.
Let me offer two very different explanations: political corruption and healthcare spending.
Businesses, big businesses in particular, are shifting to protected activities and those include the creation of intellectual property and activities that aren’t subject to competition from overseas and they’re using political contributions to extend those areas. That’s inherently corrupt. Healthcare spending, as I’ve pointed out in the past, is not capital intensive (although revenues are rising capital spending in the sector is either flat or declining) and wage gains are highly concentrated at the top of the income ladder within the sector.
I had a thought just now, driving from Tiburon into SF. I’ve lived here for 5 years. Shall I tell you what new businesses have opened in Tiburon in that time? We got a CVS, a restaurant changed ownership, a deli went under, and some idiot decided an optician would be a good idea. That’s it in 5 years. I won’t bore you with the equally dismal picture in the rest of the county.
No one is building homes and no one is building businesses. Is that because there’s no money in Marin? Obviously not, the median price of a home in the county is right at a million, and Mercedes and Teslas are thick on the ground.
Tons of money and no growth or change. Stasis. Which of course is what old rich people want. We pass zoning laws that make growth impossible. We ‘rich people’ are actively quashing growth, refusing to build, refusing to invest in creating businesses, refusing to create new jobs. That’s not lack of capital or lack of qualified labor or federal regs or Obamacare, it’s something else. I don’t know what the ‘something else’ is, but for lack of a better term it seems like a lack of energy. And it strikes me that the closest explanation I’ve seen comes from the dude who is attempting to demonstrate that age all by itself creates a drag, absent other factors.
Old people with money are not opening shops or restaurants or factories or even building homes. They’re old, and they have their money. They’re old and they’re fat and lazy. Who has all the money? Old people. What are they going to do with their money? Make dull, safe investments in companies run by other old people with money.
Trump wants to give us all a huge tax cut. My piece of that would have been $182,000 in 2015. Odds that any of that would have found it’s way to creating new jobs? Zero. And if you eliminated every federal regulation and state regulation you’d still not see Marin suddenly sprout businesses because we don’t want that to happen. We don’t want new or different. We don’t want to bust ass creating businesses. The problem isn’t in government, it’s in us.
I think you’re onto something, Michael, but you’re directing your fire at the wrong targets. Warren Buffett is “Greatest Generation”. Michael Bloomberg and Larry Ellison are Silent Generation. Bill Gates is a Baby Boomer. Jeff Bezos, Elon Musk, Sergei Brin, and Larry Page are Generation X. Mark Zuckerberg is a Millennial. Unless you really torture the definition of “old” into “anyone over the age of 30” only Buffett and Bloomberg are old. These few and a couple of dozen others account for an enormous proportion of the wealth and income, particularly incremental wealth and income. Over the last dozen or so years there have been quarters in which all of the increase in GDP can be attributed to a few people at Microsoft, Google, or Facebook.
They have more in common with each other than they do with the average people in their age cohorts. I think the concentration of income and wealth and its concentration in the wrong sectors (finance, information, healthcare) are sources of the problem.
One of the things these ultra-rich have in common is that their capital investment and job creation isn’t particularly great, at least not relative to their enormous wealth.
Those of them in the IT sector could be training and employing Americans but that would cut into their income. It’s a lot more profitable for them to manipulate the rules.
Something that these ultra-rich have in common is that they’re citizens of the world. The philanthropy of prior generations of the American ultra-rich was spent here. Now it’s spent in Africa, Asia, and Central and South America. I don’t disagree with their priorities but they do have implications.
I wasn’t going back to the Baby Boomer rant in WaPo, but to the guy who for some reason I cannot find, but who is an economist, and who proposes that age qua age all by itself exerts a drag on economies.
I think earlier generations would have talked about a want of animal spirits. I’d have had much more ambitious notions of how to waste, er, invest money 20 years ago. When wealth is concentrated among the old – and it clearly is – you just aren’t going to see that capital invested as aggressively.
If one really wanted to see more business investment one would find a way to get money away from people like me and the members of the Tiburon Yacht Club, and into the hands of younger folks. The poor and working class will spend, the middle class will invest, the older upper classes just sit on property. I would suggest that a dollar in the hands of a 20-something, educated individual, is a more useful dollar than one in the SEP-IRA of a 62 year-old writer.
It needs to be more targeted than that. Taking money from you and giving it to Mark Zuckerberg will be counter-productive.
There’s a strategy that should satisfy both of us: suspend the payroll tax. It falls most heavily on the young and the poor, less so on the old and the wealthy.