Here's Larry Kudlow:

The key thing to remember is that businesses drive the economy. Businesses create jobs and incomes for consumers to spend.

Larry Kudlow has managed, unfortunately, to transform himself from an inciteful observer of market events into a fairly one dimensional shill for wall street's political interests. This essay (appearing in NRO, not a business journal) is a perfect example. He cites "facts" that have no relationship to reality (holiday sales suprised on the upside?!?), talks about lazzie-faire economics while pining for government assistance in the form of yet another rate cut, and also, in the passage quoted above, manages to treat his readers like children.

The fact is that we are teterring on the edge of an economic precipice built upon phoney growth and no one is quite sure how deep it is. The current housing crisis, which threatens bank failure, was completely predictable and driven by the extremely irresponsible actions of the creditors whose interests Kudlow here represents. Of course they don't want the government to regulate them, they're rich, but the minute hard times beset them they start screaming for government assistance in the form of rate cuts, literally screaming as Kudlow's former cohost famously did on national television in the late summer, and they get them!

The reason Wallstreet has to generate phoney growth in the form of housing inflation is that we're not getting enough real growth in terms of actual middle class purchasing power, and the fundamental reasons for that aren't addressed by a simple tax cut. Despite Kudlows insistance to the contrary, real wage growth has been anemic through-out this recovery, held back by offshoring and H1-B visas. The reason those programs are required to keep American workers "competitive" is our abysmally stupid healthcare system, wherein employers have to pay truck loads for services that no one can refuse to buy.

Healthcare is not like other market commodities because people who need services cannot refuse to purchase them or choose between acceptible and luxury classes of service. You buy it or you die. So in an unregulated environment there is no force that counteracts price increases. And the vested interests that are making a killing offering those services have hired the exact same libertarian idealogs to defend those interests that Kudlow has now joined.

End the upward spiral of healthcare costs and require job mobility and permanent residency for foreign workers imported into the US and you'll see real, sustainable increases in middle class purchasing power, which will drive real economic growth.

Ultimately, if the rewards of business growth, systemically, aren't seen by employees, consumers don't have money to spend on new products, and so businesses can't grow. Instead you see the money all going to shareholders, and so there is all this excess investment capital out there that isn't going to be spent buying things, but instead wants to fund mortages and the like. This sort of concentration of wealth, which is caused by government intervention on behalf of some people and lazzie-faire for others, can strangle the economy by pulling the liquidity out. Thats exactly what caused the great depression.

'Goldilocks needs tax reform ... not root-canal economic populism'

There are other people who should read this book. Your girlfriend will better understand why you turn into a jerk in your home office. Your mom will understand why you don’t call. Giving this book to your boss is a tricky proposition. Even if he needs it, you can’t tell him that, so surreptitiously leave it in his office… like a pen.

Managing Humans is 209 pages with 34 chapters. The 6 pages per chapter average is ideal for your attention deficient lifestyle. People dig it.

This book isn't just about management, it's about creating places where people can comfortably build stuff. It's about what to do during the first ninety days of your new gig, and explains why you should pick a fight, because bright people often yell at each other.

Managing Humans

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

Many people will see this as a tilt in global power. When others must invest in the United States, however, they are not the ones with the power; the United States is. To us, it looks far more like the Chinese and Arabs are trapped in a financial system that leaves them few options but to recycle their dollars into the United States. They wind up holding dollars — or currencies linked to dollars — and then can speculate by leaving, or they can play it safe by staying. In our view, these two sources of cash are the reason global markets are stable.

Energy prices might fall (indeed, all commodities are inherently cyclic, and oil is no exception), and the amount of free cash flow in the Arabian Peninsula might drop, but there still will be surplus dollars in China as long as it is an export-based economy. Put another way, the international system is producing aggregate return on capital distributed in peculiar ways. Given the size of the U.S. economy and the dynamics of the dollar, much of that money will flow back into the United States. The United States can have its financial crisis. Global forces appear to be stabilizing it.

The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don’t. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.

Friedman Writes Back » China and the Arabian Peninsula as Market Stabilizers

Dagmar wrote:
So, I'm already looking into transferring a significant amount of my assets into gold. Anyone got any suggestions/pointers?

I think this is both too paranoid and not paranoid enough.

Its too paranoid because I don't think anyone is seriously suggesting that as an investment vehicle. In fact, stocks may perform well once the contraction in growth is priced in (which hasn't fully happened yet). The prudent thing to do is to work with a professional money manager, but of course you have to have a lot of money in order to get help like that.

Its not paranoid enough because the real reason to hold gold is because you are worried about total economic collapse of the sort experienced in Germany during the great depression. In such a case, a record in a computer indicating that you own gold is worth less than the magnetic disk it's printed on. You have to physically possess the gold. This creates a security and logistics problem...

I met an old German man on a plane a couple months ago who collects gold coins... Not because he is interested in them, but because he sees it as an insurance mechanism in the event of a cataclysm. I told him that I hope things like that don't happen anymore. When I got home I googled US gold coins. You'd be amazed what a single gold coin marked $5 goes for new.

Anyone else got any investment advice for Dagmar?

RE: Wake up to the dangers of a deepening crisis

Dark days ahead. Stock up.

Here's Harvard's Lawrence Summers, whose assets are clearly in derivatives based on shorting the market:

Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability.

Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.

Wake up to the dangers of a deepening crisis

I am reminded of the scene in "Titanic" after they hit the iceberg. The crew is kicking around the ice on the deck and they are talking about getting in to New York late.

The Big Picture | Home Price Fall For 8th Consecutive Month

There's something interesting happening right now. Startups are undergoing the same transformation that technology does when it becomes cheaper.

It's so cheap to start web startups that orders of magnitudes more will be started. And if the pattern holds true, that should cause dramatic changes.

...

Instead of going to venture capitalists with a business plan and trying to convince them to fund it, you can get a product launched on a few tens of thousands of dollars of seed money from us or your uncle, and approach them with a working company instead of a plan for one. Then instead of having to seem smooth and confident, you can just point them to MemeStreams.

This way of convincing investors is better suited to hackers, who often went into technology precisely because they felt uncomfortable with the amount of fakeness required in other fields.

... if you hear someone saying "we don't need to be in Silicon Valley," that use of the word "need" is a sign they're not even thinking about the question right.

If startups are mobile, the best local talent will go to the real Silicon Valley, and all they'll get at the local one will be the people who didn't have the energy to move.

This is not a nationalistic idea, incidentally. It's cities that compete, not countries. Atlanta is just as hosed as Munich.

There's something about big companies that just sucks the energy out of you.

The Future of Web Startups

SOA you thought you still had a soul, eh?

In an economy more and more populated by "knowledge workers", one would expect the productivity and real income of employees to move upward together, as an increasingly skilled workforce benefits from its own improved efficiency. But since 1995, the year when the "new economy" based on information technology began to take off, incomes have not kept up with productivity, and during the past five years the two have spectacularly diverged. Between 1995 and 2006, the growth of employee productivity exceeded the growth of employee real wages by 340 percent. Between 2001 and 2006, this gap widened alarmingly to 779 percent.

...

Nowhere have "Enterprise Systems" technologies been more rigorously applied to the white-collar workplace than in the health care industry. The practices of managed care organizations (MCOs) have provided a chilling demonstration of how enterprise systems can affect the work of even the most skilled professionals, in this case the physician.

For-profit health care providers that relied on this kind of standardization, such as Aetna and Humana, performed significantly worse than their counterparts in the treatment or prevention of cancer, diabetes, and heart disease. But many of these health care companies think that ES technologies have made them profitable, and it seems unlikely that these practices will be discarded anytime soon.

In The Culture of the New Capitalism, a book based on a series of lectures given at Yale in 2004, Richard Sennett describes how the widespread use of enterprise systems has given top managers much greater latitude to direct and control corporate workforces, while at the same time making the jobs of everyday workers and professionals more rigid and bleak.

The spread of ES has resulted in a declining emphasis on creativity and ingenuity of workers, and the destruction of a sense of community in the workplace by the ceaseless reengineering of the way businesses operate. The concept of a career has become increasingly meaningless in a setting in which employees have neither skills of which they might be proud nor an audience of independently minded fellow workers that might recognize their value.

...

The evidence themselves suggests that from an executive perspective, the most desirable employees may no longer necessarily be those with proven ability and judgment, but those who can be counted on to follow orders and be good "team players."

Here the purpose of the personality tests administered by career coaches becomes clear. They are useless as measures of ability and experience, but they may be reliable indicators of those who are "cheerful, enthusiastic, and obedient." The dismal experiences of many middle-aged job seekers suggest that corporations would rather find conformists among younger workers who haven't been discarded by employers and aren't skeptical about their work.

They're Micromanaging Your Every Move

Amazing. This is a short slideshow about Shenzhen, which includes photos of the biggest electronics components market in the world.

Made in China

when you make any decision involving equity,
run it through 1/(1 - n) to see if it makes sense. You should
always feel richer after trading equity. If the trade didn't
increase the value of your remaining shares enough to put you net
ahead, you wouldn't have (or shouldn't have) done it.

The Equity Equation