28-12-2002 02:30									#241
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quote: Originally posted by Saras GP, I believe the idea is that the Fed should not become a cheerleader for one or another seawater transmutation method. But it did, and it "believed" that particular water transmutation was for real. And if I may, that's one big GP post .

I don't mind that criticism of the Fed. I thought the Internet stuff was silly. But that's not what Colon's main point is.

He wants the Fed to starve the money supply (even with CPI in control) based on high stock market prices. My point is that the stock market value is just paper wealth. It's the market's collective opinion of future cash flows. It's also rather chaotic. Colon should read the first chapter or two of Brealey and Myers. Let the market bounce around. If he understood the amount of variability NORMAL in stock market prices, he wouldn't be so quick to want to manipulate real economy monetary policy based on stock indices.

	28-12-2002 04:01									#242
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I would disagree that the Fed was a cheerleader for the internet bubble because they were pleased with productivity growth. If we agree that the dotcom companies and their ilk were a negligible piece of the economy, then equating an economy wide phenomenon - rising productivity - with the little tiny piece that is/was the internet would be a mistake.

When the Fed was talking about productivity gains, they were talking about just in time inventory management, electronic communication and documentation, financial modeling, production optimization, eliminating middle management paper pushers, etc. Not about a couple of books being sold below cost on Amazon.

Rising productivity and low inflation allowed the Fed to keep rates lower than they would have been.

The investment stampeed toward hypergrowth companies would have been significantly worse if the Fed had tightened. Take a look at the performance difference between the Barra Growth and Barra Value components of the S&P between 95 and 00. Is it any wonder that investors were using Value as a source of funds and buying Growth? Taken to its logical extreme the highest returns would occur at the highest growth rates. Money went to tech because tech had performance momentum. If the Fed had tightened then the old line value companies would have felt the majority of the wrath of the markets while the tech companies continued to outperform since they were perceived to be relatively immune to the economic cycle. That would have led to a disaster many times the magnitude of the current situation.

	28-12-2002 05:00									#243
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I completely agree with you, fertility-monster. Investor's make their own decisions. The Roland crowd thinks that the market dances to the Fed drum. But the Roland crowd has never done a DCF calculation and understood how much of a stock's value is in the long term...nor how hazy that long term is...and therefore how volatile price is.

	01-01-2003 01:41									#244
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Econo-Babblers,

Glad to see some life in this thread because looking back the only good parts were when Schokoladenkopf took too many steroids and went on a roid rage on Dr. Spike.

I have a subject that I have been dying to discuss with you guys but haven't had the chance until now -- and that is LABOR.

I have been reading recent blurbs about an upcoming labor shortage. The theory is, baby boomers are all hitting retirement age and leaving the labor force, and there aren't enough skilled workers left in the population to take their place. The number I see listed is around 20-30 million. Now, if true, that number is HUGE. My initial thoughts, are, "hey, I'm in prime age and therefore will have extreme job security and will be paid like a king." However, after the intial thoughts, I have two concerns:

1) A labor shortage would basically stall and kill any sort of expansion. I don't even know where to begin to go with immigration issues and their impacts on wage.

2) With the collapse of the retirement accounts, most notably 401K, there isn't much money leftover and this is going to mean retirees leaving the workforce later and some will work for the rest of their lives (although most likely not in the same capacity as their prime years).

3) I have my suspicions regarding the "origin" of this theory and I wonder if it borders on being fradulant, but I will continue this in my next post.

What are your thoughts on this issue? Herr Rechtsberater-Hapsburg, any fancy charts to add to the mix?

	01-01-2003 02:12									#245
	How the ITAA defrauded the public Avatar Enlargement: We've got the solution

One thing that was left out of the whole corporate scandal discussion, but carries just as much weight, is the scam that the ITAA perpetuated on the public, and that is myth of the shortage of tech workers in the American workforce. Herr Rechtsberater will appreciate this story.

The USA had a shortage of over 500,000 skilled IT workers, they said, and so this meant that the Feds needed to raise temporary worker visa (H1-B) quotas because American citizens and regular green card holders were simply too stupid and need more math and science skills. (Which by the way are absolutley useless in the IT world, where personal attributes determine how well you do. Although the scientific method helps but that's more theory than actual formula math and science).

Some of the ITAA studies and numbers are borderline FRAUDULANT, for example, the claim was made that the number of computer science and related majors had steadily been declining since the 1980s. The reasoning, "these skills were looked at as being 'geeky' by potential college students. "

Professor Matloff at UC Davis debunked this myth in 1998, in his detailed study, actually showing that the number of CS graduates doubled.

http://heather.cs.ucdavis.edu/itaa.real.html

Now, it is true that there was a technology labor crunch, with the combination of Y2K spending and the dot-com bubble, labor was indeed wanted. People with only certificates or minimal experience were being pulled off the streets. However, this crunch was nowhere to the extremes the ITAA claimed. Older workers in their 40s and 50s were especially having a tough time finding work even in the height of the bubble.

HOWEVER, even in the height of the technology meltdown, the ITAA continued to push "studies" that pushed this labor shortage myth. In early 2002, an ITAA
study came out with a study called "Bouncing Back," which continued to show that there was an IT labor shortage, in the midst of heavy layoffs and decreasing salaries. (Two sure signs of a labor shortage). The IEEE even issued a letter to Congress letting them know that they were out to lunch on the situation and that the ITAA was full of it. Guys who were building rockets and satellites were even feeling the crunch.

http://www.itaa.org/news/pr/PressRe...seID=1020695700

So why exaclty would the ITAA continue to push this labor shortage? The answer is simple, they are a lobbying organization backed by companies which either make a profit from IT training, or they are IT companies that stand to benefit by decreasing IT wage.

If IT isn't hot, who in their right mind wants to get a degree at Devry or ITT Tech?

Now let's look at the sponsors of this "labor shortage" study:

quote: American Association of Community Colleges, Brainbench, the Chubb Institute, Cisco Systems, Dice Inc., Intel, ITT Technical Institute, Microsoft, ProsoftTraining and SRA International

Hmmm...some training academies, Microsoft, Intel, and Cisco, three of the largest companies in the IT world. Where exactly is the IEEE or similar group in this study?

From the corporate standpoint, anecdotal generalizations say that H1-B immigrants will often work for far less money and are willing to work an insane amount of hours that American citizens. The theory is that they are too afraid to speak up for themselves for fear of losing their visa.

From my own experience, I haven't seen this personally, I have found the H1-B's to be hard workers, but they aren't being abused, their skills are typically the same or slightly better than the average citizen. However I do see the fear that keeps them employed by the same employer for many years so that they don't lose their temporary visas.

However, companies such as Sun Microsystems have class-action lawsuits filed against them because they were caught hiring temporary foreign workers when domestic citizens with the same skill sets were available.

Also it appears that every company I see will not sponsor an H1-B at this time.

PS, Thanks for the shoutout Navy.

EDIT: I forgot to mention that the ITAA is big lobbying organization, like the NRA of technology. If you go to their website, you will see them list Congressional Bills and the ones they support.

	01-01-2003 02:17									#246
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Striker! Striker!

	01-01-2003 02:23									#247
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Hi DanS!!!

I noticed there has been alot of payback in the past year against those Al Queda bastards for what they did to your city. Personally I want to be at the controls of the Predator drone and round up every last one of those muthur****ers. Dead or alive.

USA!

	01-01-2003 02:39									#248
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Flies on their eyeballs!

	01-01-2003 03:20									#249
	Suffering from ads?

Striker, you're coming in too fast! - Rex Kramer


On the Labor demographics thing... there have been some guys talking about it for a while that think it is the end of the world. Hawkinson? at DLJ/CIBC (not sure if he is still there) has been a big demo guy. Their arguements usually require the economy to stay in steady state for their to be real problems, but we all know that the economy is dynamic. If a bunch of old farts retire, then we should probably build more golf courses and ranch homes. Also the retired can be great for the economy because they take their economically stagnant savings and piss it away on good things like sweat suits, leisure travel, and bingo parlors.

	01-01-2003 03:33									#250
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Thanks Sten, it's great to hear about it from a pro with a real industry perspective and not just from some a writer spouting a sensationalist number to get a knee-jerk soundbite reaction.

That labor theory seemed to be too one-dimensional, I figured there were more factors involved.

So what's the inside track on Bingo Parlor Funds!??!

Congrats on the new lad, by the way!!!

	02-01-2003 00:17									#251
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May I just start my new year at poly by saying how much I appreciate these threads.

Dhrek, been a while.

Oh, and - USA!

	02-01-2003 02:07									#252
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D2K: Re the labor demographics, I wouldn't worry about it. Way overblown in the US.

According to Census' WAGs, over the next 50 years, the US median age is expected to increase a little less than 4 years to 39.1 years old.

By comparison, and using the "next guy is three times as fvcked as us" theorem, Austria's is expected to increase a little over 11 years to 49.4 years.

Happy New Year!

Last edited by DanS on 02-01-2003 at 02:21

	02-01-2003 02:40									#253
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Nice to see you Saras.

Regarding immigration, please send more of your hot Lithuanian females to the USA.

	02-01-2003 02:46									#254
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quote: Originally posted by DanS D2K: Re the labor demographics, I wouldn't worry about it. Way overblown in the US. According to Census' WAGs, over the next 50 years, the US median age is expected to increase a little less than 4 years to 39.1 years old. By comparison, and using the "next guy is three times as fvcked as us" theorem, Austria's is expected to increase a little over 11 years to 49.4 years. Happy New Year!

Well that's good news. So do you know where this whole, "the population is top heavy with older workers and there will be a shortage," theory originated?

	02-01-2003 02:56									#255
	Full PM-box? Change here!

Don't know, but I guess they must have been basing it all on 1990 census numbers. Even using the new numbers, we'll have to make some adjustments.

Of course, this doesn't take into account longevity medicine, which I'm convinced will add about 40 years to our lives, to be introduced shortly.

	02-01-2003 02:58									#256
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I must interject.........the demographic changes you have mentioned are exceedingly important, just not for a labour shortage per se. The reason the changes have received a lot of attention in recent times is because of the effect on how pensions are funded. Now the US doesn't stand the worst by any means, but it will have to make some key decisions in this regard in the coming decades along with all advanced economies.

	02-01-2003 03:01									#257
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I agree DanS, the rate of scientific advancement in my opinion has been leaping forward at exponential rates over the last 5 years. What is ironic is that we know more about the other non-medicinal factors in living longer and healthier (primarily eating healthy), yet the US population is becoming more and more sick due to poor eating habits.

Did you hear about the "smart bomb" cancer drugs?

Currently, most anti-cancer drugs work to kill off cancer, but they also kill off alot of healthy tissue as well. Now there are drugs coming out that know how to specifically go after cancer cells and ONLY the cancer cells.

Hey, I have a good idea. Let's plan our budget and complementary tax strategy 10 years into the future, because of course we know the exact amount of revenue that the US government is going to take in and can plan accordingly.

Oh wait.

	02-01-2003 03:05									#258
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Spike,

Would you care to elaborate on your analysis of the demographic changes? In particular, what do you think needs to be done (the decisions you mentioned) to make sure this demographic change doesn't become a problem? Thanks for your input, as looking back,you seem to offer a different angle from the rest of the pros on this thread.

	02-01-2003 03:15									#259
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Quite true re living healthily and doing more to expand the end-of-life. I was talking more about some rumblings in Washington (unconfirmed, speculative, and hush hush of course) over the past couple of years that there will be a young adulthood expansion therapy, involving stimulating--female, at this time--reproductive organs.

Anyway, some of the bigger medical/teaching institutions, such as Johns Hopkins, have recently added longevity institutes, funded by uncle sugar, so...

In the immortal words of former Congressman Trafficant: "Beam Me Up!"

Last edited by DanS on 02-01-2003 at 03:21

	02-01-2003 05:17									#260
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quote: Originally posted by Ted Striker Spike, Would you care to elaborate on your analysis of the demographic changes? In particular, what do you think needs to be done (the decisions you mentioned) to make sure this demographic change doesn't become a problem? Thanks for your input, as looking back,you seem to offer a different angle from the rest of the pros on this thread.

Sure. The age distribution of the population is changing as the baby-boomers come closer to retirement, as you have mentioned. As you probably know this generation's working population funds the pensions of the preceding generation, so that when the system of funding originates you get a freebie. However, whilst this is appropriate in an economy where the demographics are such that they are more than enough workers to support retirees it becomes problematic when the proportion of retirees to working age population increases substantially, as it is the process of doing. The problem reaches a head around 2025.......and most govts need to decide what to do about it now.

Broadly you can pick and mix amongst raising taxes, cutting state pensions, enforcing private saving, privatising pensions completely, raising the retirement age.

Some of these are inevitable, such as changing the retirement age, and some move towards more private saving. Far and away the most interesting facet (hey, it's a very dry area ) of the problem is exactly how this increase should be achieved. When it comes to nuts and bolts I am more au fait with the UK than the US; here we have a basic pension and a secondary means tested pension. My personal preference would be increasing the basic pension to a subsistence level, and abolish the means tested secondary pension. Ultimately, as with all welfare you have to navigate a path between providing a safety net and providing the right incentives to individuals........the approach I discussed does that without resorting to compulsion, which in any case would be politically unpopular and no economist wants to provide more ammunition for the foot draggers.

A brief overview, hope it helps.......if you are interested I can try and dig up some references.

	02-01-2003 05:34									#261
	Avatar Enlargement: We've got the solution

Thanks Spike, very informative and very interesting as well.

Regarding raising the basic pension, I can see that it actually might be a little more sellable nowadays after the 401K disasters of last year. However social security still is a very dirty word. Last summer I know there was alot of talk about reforming the 401K but now I don't hear about it anymore. Bush says now that Homeland Security has been taken care of that his number one priority is the economy. So we will see if that happens or if Iraq stays at the top of the National Dialogue.

One interesting note was that, I was watching a talk show where they had a financial advisor come in and work with couples that had millions of dollars in their 401K and had lost it all. While I appreciated his distribution of the investments (well diversified), his estimates of returns were still way too optimistic for my tastes. He had 3 couples and he predicted a 10% return every single year and had them making over 1 million in their accounts in something like 10 years (can't remember the exact time frame). While this is certainly doable, he seemed to be a little too optimistic in that way that irritates Roland.

This reminds me of the 10 year tax cut predictions that to me it would seem common sense that you can't predict the budget needs 6 months down the road much less 10 years!

	07-01-2003 14:04									#262
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GP:

"I think the Fed should be indifferent to investor booms."

Exactly.

"The Roland crowd thinks that the market dances to the Fed drum."

It does short term especially when the Fed engineers a happy little bubble economy. You and Sten are still ignoring the big picture.

Ted Striker! Welcome back, how's your drinking problem ?

"is the scam that the ITAA perpetuated on the public, and that is myth of the shortage of tech workers in the American workforce. Herr Rechtsberater will appreciate this story."

Nice story, old story. What made me laugh was that people here took that story, just adjusted the "lack" for population size and were crying for the immigration of Indian IT workers. Absurd even by bubble standards....

	07-01-2003 14:30									#263
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quote: Originally posted by HershOstropoler It does short term especially when the Fed engineers a happy little bubble economy. You and Sten are still ignoring the big picture.

Uhh, why do you keep saying that we had a bubble economy? We had an investment bubble in a microscopic sector of the economy. That is a very big difference. Look back again at GDP. I am not sure why you are continuing to judge the Fed based on the NASDAQ chart - which is nearly irrelevant. The Fed kept real rates low because the economy needed them there. If the Fed would have tightened to try to shut down the tech boom it would NOT have worked. Those companies were not being valued on economic fundamentals - they weren't even involved economically. Shut down the real economy and the only assets getting funds are going to be the story stocks that sound like a neat new idea.

If the Segway people mover scooter company gets a market cap of $6 trillion on IPO and they have only sold 20 scooters for 5k a piece should the Fed tighten?? Of course not, it is absurd!

	07-01-2003 15:26									#264
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"We had an investment bubble in a microscopic sector of the economy. That is a very big difference. Look back again at GDP."

Yeah look at GDP. What happened to investment, what happened to savings ?

	07-01-2003 15:58									#265
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Sorry GP, I nicked this from one of my PMs to you:

The fed has one lever, interest rates, and it uses it to hit an inflation target. The idea that the fed should use interest rates to affect individual private investment decisions through the stock market it 95% ludicrous. I say 95% not 100% because if you can show the imbalances created will ultimately lead to a greater recession than the one we inevitably would have had if interest rates _weren't_ slashed post dot com crash (as Roland wants) then there maybe is a case for tighter monetary policy in the face of a possible bubble. It is not a good case though.

Ultimately it is not the fed's place to say what is and what is not a good use for capital. The idea that lower interest rates lead to misallocated capital is flawed, as I have told Roland a few times. Sure there is more investment when interest rates are lower, but it is private individuals' and institutions' rational response to the changing situation. Now in retrospect it is undeniable capital was misallocated. Could the fed have done anything about it? Yes. Should it? Short of not encouraging the market (I sympathise with Roland's view here) the answer is no.

Ironically the policy that Roland wants in retrospect (higher interest rates) would quite probably have lead to the very scenario he fears most from the swift unwinding of the undeniable imbalances that have built up in the face of looser monetary policy. That is not to say the doomsday scenario is impossible......but it still unlikely, precisely because of the way the fed acted.

	07-01-2003 16:16									#266
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"The idea that the fed should use interest rates to affect individual private investment decisions through the stock market"

Who suggested that ?

"The idea that lower interest rates lead to misallocated capital is flawed"

"lower" relative to what ?

"have lead to the very scenario he fears most"

What we have here is a failure to communicate.

	07-01-2003 16:29									#267
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You have repeatedly said the fed should have acted to contain your 'bubble'. You have repeatedly said monetary policy was too loose. You have repeatedly said that the imbalances that have been built up through the fed's policy made a Japanese style slump far more likely than it otherwise would have been.

Or are you taking that back now?

	07-01-2003 16:33									#268
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I stick with all of that as you repeat it, just your apparant interpretation above is off the mark.

	07-01-2003 16:46									#269
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Oh I see. The bit where I said you wanted tighter policy was off the mark? What about the bit where I said you advocated using monetary policy to cool the stock market? Or perhaps the bit where I said you thought 'loose' policy made a doomsday scenario far more likely was off the mark?

You are slipperier than an eel coated in baby oil having slept in a bath of Mr Slippery's slipperiest conconction of slipperiness inducing slippery juice.

	07-01-2003 16:53									#270
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"The bit where I said you wanted tighter policy was off the mark?"

No. But what you implied about directing individual decisions.

"What about the bit where I said you advocated using monetary policy to cool the stock market?"

Wrong. That would be a possible side effect.

"Or perhaps the bit where I said you thought 'loose' policy made a doomsday scenario far more likely was off the mark?"

What scenario ? Japan or a sharp recession ?

If I wanted to be slippery you'd notice. You spent most of your contributions to this thread as an econ textbook argueing against a strawman.

If you can answer a question for a change: Are you denying that a central bank, by forcing interest rates below their natural market level, can create a self-reinforcing consumption and invest boom ? Yes or no.