And California won’t be far behind. Tech startups, anchor corporations leaving and the wealthy will domicile elsewhere to avoid the income tax burden.

At the same time, social program budgets will need major increases and CAs ‘surplus ‘ will be needed for unfunded pension obligations that are growing. (And the surplus isn’t mouse nuts overall). How’s this gonna work in liberal strongholds looking for a dramatic increase in social welfare spending? And global warming funding/regulations. And growing pension obligations.

But, so many here in the LR try to convince us that this is not the case. My company has a suite of AI based technologies we sell to all major Wall St firms and all ratings agencies tracking bonds (we also track material events that affect private companies). We are starting to see commercial loan facilities being preferred over bonds. The bond industry is in for a tough ride. While it’s good for our business, it’s not a great sign of the overall economy.

What’s your view on the likely economic ‘reset’ coming our way?

New York hasn what a 50% higher cost of living to something like Charlotte, where Bank of America is headquartered? Why didn't the big financial firms move to Charlotte before? Would a couple more percent of tax paid really make a difference? Is that really the straw that broke the camel's back?

Sure, you could see a couple people leaving, but New York is already such an expensive place. There is a reason that they live there. Lots of people will threaten, but they won't leave.

Also, the 2.3 billion is tied to the drop in the stock market, not really people moving out.

And look what happened to California. :) Every year I hear that rich are leaving in droves. I've been waiting 20 years cash in hand to buy one of the vacated seaside mansions. No luck yet.

Haha, right on cue per my last post. California has been "not far behind" for 20 years.

The Ayn Rand Galt fantasy and real life aren't always the same thing.

Buy the mansion somewhere east of Palm Springs and it’ll be beach front property after the big quake.

You’re welcome. ; )

cause that's old money and old money know how to be hidden.

Silicon Valley money is new money, though.

I didn’t use the word ‘droves’ and we’ve all heard this for years. But, slowly / surely there are breaking points. The cost of tech startups is decreasing rapidly thanks to Amazon and other cloud providers and the workforce can be more and more distributed. It’ll take a long time, ultimately, but I believe CA is in for some very difficult challenges economically. For me, it’s been great and my properties are killing it so I can’t complain.

JD21 wrote:

What’s your view on the likely economic ‘reset’ coming our way?

It's complicated (obviously).

Forces within the United States will seem rather minor compared to forces outside of the United States. Within the United States you will see tax arbitrage seriously wound certain States and Cities. Chicago is high on that list. How people don't see it as a dead man walking is an unbelievable level of cognitive dissonance to me. I suspect NYC will follow in due time. California I'm not so sure about. CALPERS has at least made a decent effort to get out ahead of their problems, it's a much larger and more diverse state economically than IL or NY (or NJ or CT). Demographically it's much healthier too.

Demographics... population pyramids in particular... don't get much attention at all in the mainstream media. Yet it's probably the most powerful economic force at play in the world today. It's a massive but slow force, kind of like the continental plates. A plain is a plain for decades and millennia until, one day, a giant impassible mountain range rises.

If you look at the population pyramid of China... it's a disaster and that disaster is on our doorstep. This will have ramifications far and wide. Commodities spring to mind. China has been the incremental demand source for a host of commodities for decades now. That's coming to an end. This will have ramifications for any country which is reliant on commodity exports. Also a result of China's demographic profile, China now needs export led growth going forward. They've missed the window of opportunity to increase internal consumption. The proverbial "tide" will go out on Chinese companies and you'll see a massive increase in company failures, defaults, and layoffs. The Communist party will throw whatever they can at the problem but the end result will likely be at best stagnation and they'll blow through their Forex reserves as well.

Europe is boned. Germany is pretty much holding the whole thing together and they need to export high-value finished goods in order to keep their engine going. Again, this is driven by demographics. Their population is simply too old for any consumption-led growth and the Germans are far too responsible and principled to try what the Chinese have done with Investment.

Russia is facing an imminent manpower shortage and another uprising in Chechnya is probably an "any day now" sort of thing. When that happens it will take Russia off the global chess board.

South America will be South America. I don't expect anything to materially change in such a way that it would affect the U.S. or the global economy.

I think you'll find that North America will slowly step back from the world. When you subtract trade with Mexico and Canada, the U.S. has less trade with the world as a percentage of GDP than... Afghanistan. Seriously. The last thing that really kept the U.S. engaged in the global system was oil in the Middle East but the U.S. doesn't need that oil anymore. Most people are still in the early 2000s mind frame that high oil prices are bad for the U.S. economy but, in truth, increases in oil prices now add to U.S. GDP on net.

In bullet points, some themes:

• Everyone wants to export their way to wealth but the world has run out of takers on the other side of the ledger
• Globally, an aging demographic is bringing an end to consumption led growth.
• Globally, the aging demographic has historically led to an increase in the supply of capital and thus a reduced cost of capital. This isn't a "forever" type thing. Once populations get too old that trend flips into reverse as the dependency ratio increases.
• Populism is likely to remain... popular... and the U.S. will likely stand out as a destination for capital
• You're going to hear a lot about MMT, modern monetary theory, in the coming years. It's a nuanced theory that has some legitimacy behind it but it will quickly be exploited by politicians that want to spend their way to reelection.

In summary, the dollar will remain king, capital will become more expensive globally but to a lesser degree in the U.S. (currency hedged) and thus when excesses in the U.S. are "reset" they'll clear at a higher price than they would elsewhere.

Incredibly insightful, as always. Thanks.

What's your take on AI? It seems poised to cause global economic effects on a 10-20 year time horizon that will dwarf those you mentioned.

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"100% of the people who confuse correlation and causation end up dying."

I actually strongly doubt that Ai will dwarf the impact of demographics. It's just really hard to mute the lifecycle-driven borrowing, saving, investment, and consumption decisions of 7 Billion+ consumers. I've read up on the topic of Ai quite a bit and it doesn't seem we're any closer to General Ai than we were a decade ago. Narrow Ai's have come a long ways and have already started affecting the job markets in certain professions... but I don't see the world suddenly lurching because of Ai.

Quantum computing is worth watching as that field has the potential to revolutionize several industries (healthcare in particular) by solving once intractable, incalculable problems in a matter of seconds (I'm simplifying here).

But neither Quantum Computing nor Ai will fix the imbalance between young and old, male and female in China. Question: how long does it take to increase the number of twenty-year -olds in a country? Answer: twenty years and nine months. The architecture of our global financial system was built on a certain lifecycle of production and consumption and therefore for it to function properly in the long run it needs a certain demographic profile. For the past 100 years life expectancies have steadily increased around the world and this has led to increased capital formation and therefore cheaper capital. Again, this isn't a one-way street. Keep pushing up life expectancies and eventually you get to a point where it makes capital more expensive.

Could you imagine a large European employer like Peugot or ThyssenKrupp suddenly having to pay "normal" interest rates while demand for their products drops? That's the sort of future they face.

I’ll agree that the days of reckoning for New York, Illinois, etc., are drawing inexorably closer. It’s going to be ugly.

I don’t see Washington coming to anyone’s rescue, either. Anybody here remember New York City’s financial crisis of the 1970s, when they went to Washington looking for a bailout? (And the famous New York Post headline, “(President) Ford to City: Drop Dead”.)

I remember overhearing a guy at a bookstore in Sunnyvale, CA around 1991. I guess he was one of those prepper guys. He said was waiting for the economic collapse. He was selling all his stuff and building a bunker. He gave all kinds of reasons, high taxes, bad government, illegal immigrants, etc.

Think about this, we were at the dawn of one of the greatest financial booms in world history and this guy was waiting for the economic downfall of society.

Serious question: all of you guys who are currently whacking off at the thought of DEM cities and states having financial difficulties. What is your opinion on the spending habits of your current GOP leader?

Shirley this is unsustainable. Shirley he doesn't give a shit because it will be someone else' problem. And yes, I am aware of the wild spending spree that BUT BUT BUT OBAMA!!! went on during his Presidency. But the spending has continued unabated with the Party of Fiscal Responsibility at the helm.

What say you?

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How does Danny Hart sit down with balls that big?

Do you really have a surplus if you didn't pay all of your costs?

New York City has a serious infrastructure problem. Their subway is running on a switching system installed in the 1930s. In general the subway system needs alot of fixing. They also need to harden their infrastructure against flooding. Easily hundreds of billions of dollars. If people don't want to buy bonds I don't know where the money will come from for that.

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

You obviously don't know who has the power of the purse in the USA. That power resides in the Congress; the President only has the power to veto entire bills, not the line items on that bill. That means that every congress-critter can put a few lines into a hundred (or more) page bill to spend a few million dollars on their pet project. Its always been the Congress with that power, hence the current snit over $5.7B for border barrier funding. They control that money, and are using it to deny lending any power to the President.

Fine, congress which is controlled by the GOP is spending uncontrollably after years of uncontrollable spending during the Obama years.

I guess what I am after is why does impending problems for Dem cities and states give you guys a boner while you generally ignore the mess federally?

Seems to me that spending is out of control all over the place. Is one worse than the other?

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How does Danny Hart sit down with balls that big?

I agree there's little difference between Trump led spending and Obama led spending.


There are definitely levels of "out of control". I think a lot of the complaints originate because people would like to head off problems associated with poor spending decisions elsewhere before they get worse. The boner comes from the red tribe liking it when the blue tribe looks bad.

but this thread is about state taxes and it's impact on Cities/States. I'm not sure what federal spending has to do with it. States typically are required to have a "balanced budget" they can't print money. Federal is slightly different.

Let me ask you this: what causes a financial boom? In other words, economic fundamentals held the same (population, real productive capacity, etc.) what causes the boom?

First, I didn't make a blanket statement regarding Democratic cities and states. In fact, I clearly stated that CA is in a different pot than IL and NY. Things at the Federal level certainly aren't sustainable. With that said, IL (and Chicago) exists in a completely different universe of fiscal irresponsibility.



That's just pensions. That doesn't look at things like deferred maintenance liabilities. The most significant problem IL faces is an erosion of its current and future tax base. At the Federal level we're not seeing this. NY has a similar (but almost worse) problem: it's losing "young" workers and increasing the size of its elderly population.

Should be ‘surplus’. Since we can’t come close to covering the unfunded pensions, it’s hard to brag about a ‘surplus’ but you’ll see others stand their ground on the topic.

I don’t see it as Pub v Dem as much as you’re implying. That said, all the political talk about significant expansion of taxpayer funded programs in certain states concerns me. Perhaps it is just political talk and unlikely to happen but NY and IL are watching their states hit the wall and are still bragging about socialist-style aspirations. CA was better off with Gov Brown but now we have Newsome and a far left legislature. It’s a bit disconcerting to me but we will have to see how far they go. I recently read that by the year 2025, 50% of the education budget will go to retired teacher pensions. That is not sustainable.

Look at AOCs position against Amazon setting up HQ2 in her district which would hold a lot of younger workers. She doesn’t want it. I cannot understand the NY voters. Not Pub v Dem, it’s more center left v far left.

Your "over65/under 65" graphs really suck. Why aren't they done as percentage of population? You are comparing Maine/West Virginia and NY, with vastly different total populations. You are mostly showing that states with larger populations have more folks (both under and over 65).

If you really study the graph (trying to account for population size), almost all of the states are becoming older. Illinois and WV are shrinking in total population. The growth in NY's retired population is real, but it has a great deal to do with the year range 2010-2017, which coincides with the housing collapse and recovery. In 2010 and for several years afterward, many folks opted to hold on to their under-valued property (if they could). At this point, a large "wealth" effect is taking hold, where many affluent retirees can hold on to wildly inflated houses AND retire comfortably. If folks were a little less well-off, they would "cash out" their home. Now, many don't need to.

In this case, technical innovation. The horrible combination of those terrible liberal universities and always wrong scientists in high priced California.

The STEM sections of the universities produce the innovation. They have little interest in liberal politics. Very little of the talent goes into the humanities.

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

I don't know if you can completely separate the two. If universities were just a technical grindhouse, I don't think you would get the same results. Students should be exposed to a variety of topics and experiences outside of their expertise.

Incorrect. Technical innovation led to an increase in real GDP. Nominal GDP is a different beast. Guess again and think about it this way: what provided the fuel for the eventual fires that were the Dot-com bubble and the housing bubble?

Where are your graphs?

I don't have any on that exact issue. I did try analyze your graphs, taking into account the fact that they weren't normalized for population. They don't say that much, except that Illinois and WV are losing folks (which bodes very poorly for those states), and almost all other states shown are becoming older. NY seems to be gentrifying more than other states, but that may be due to the recent housing cycle.

Again, it is difficult to interpret real useful information from those graphs because they SUCK.

Illinois isn't just losing people, they're losing young(er) people. That's an enormous problem. For both NY and IL the dependency ratio is increasing which is bad for the finances of those states... which are already in poor shape. That's kind of the important point I'm making. Most states in the U.S. are seeing an increase in their dependency ratio but some states are already in very bad shape and things are only getting worse for them.

Nominal GDP is merely GDP without accounting for inflation. Real GDP accounts for it. Is that what you mean?

excess (cheap) capital.

But the innovations of the last decade are consumption drivers. Look at personal debt levels. Household debt services is the lowest it has been in decades. Innovation has made consumption "efficient." Effectively the spending multiplier has increased. This is my own theory, feel free to blow it away.

The problem is politicians in general, both sides of the aisle, Federal, State and Local. When a new politician comes into power the old politicians (some have been around for more than 20 years), make sure they either kowtow to the spend, spend, spend mantra or they unify and force that individual out of power.

In this case the current President, whether you like him or not, isn't playing by the political rules which is making the old politicians go insane.

The state and local governments are no different, they are just at a different level of the food (tax), chain.

Yes but I and others question if the university presently teaches to their benefit.

"At our institutions of higher learning, a multitude of panels and conferences were organized on the economic crisis, bemoaning such things as the absense of oversight, lax regulatory regime, failures of public and private entities to exercise diligence in dispensing credit or expanding complex financial products. Yet one searches in vain for a university president or college leader-especially in the elite echelon-acknowledging that there was a deep culpability on the part of their own institutions for our failure and our students' as well. After all it was the leading graduates of the elite institutions of the nation who occupied places of esteem in top financial and political institutions throughout the land who were responsible for precipitating the economic crisis. Leaders of such educational institutions readily take credit for Rhodes and Fulbright scholars. What of those graduates who helped foster the environment of avarice and schemes of the get-rich-quick. Are we so assured that they did not learn exceedingly well the lessons they learned in college"

Patrick Deneen Why Liberalism Failed

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

Doesn't really respond to FIshyJoe's comment, does it? It is merely a screed which oversimplifies and demonizes one area, on a topic wholly unrelated to the one at hand, i.e. the importance of university education (specifically STEM) in SIlicon Valley. Blaming higher education for the economic collapse seems to be a different thread. Do you live in Silicon Valley? The answer of how educational choices play out here is much more complex. Lots of liberal arts majors work in multiple industries here.

You graph helps partially explain all of the move to Indiana ads we get in Colorado

It is possible to assemble some economic data and a few logical seeming arguments and arrive at EVERY conclusion imaginable.

Professional economists and financial service professionals should have moved beyond this approach decades ago.

Explanation and prediction should be presented as probabilities and possibilities NOT as cause and effects.

Demand is always the most inexplicable of economic concepts.

I do not understand why there is such high demand for the goods and services (including real estate) of CA, WA, Chicago and NYC.

The crowds and high cost are deal breakers for me.

But I am not convinced that high demand, high cost areas will suddenly become unattractive because of taxes.

Okay, but the data is messy, and doesn't take into account the original level of the dependency ratio. The better place to go is the census data (https://factfinder.census.gov/...tview.xhtml?src=bkmk), which can be set-up to show age dependencies state-by-state. NY and IL have an old-age dependency ~25%, compared to Maine's 33% (!). California is a ~22%. Lots of good info, wish ythe graph was more informative.

BTW, that graph appears here (http://worldpronews.com/...33242fe485141385613e). The primary upshot of the article isn't about state deomographics, but emphasizes that rural counties are depopulating and aging very quickly, while urban areas grow. That is the bigger economic trend.

Easy access to massive amounts of capital with poor regulatory oversight.

Wow that's Chris Hamilton's work verbatim. I wonder if he's aware. In meetings for the balance of the day, more later.

Thanks for the thoughtful response. I don't have a crystal ball, of course, but I disagree a bit with some of your analysis. FWIW, here's my take:

I predict general AI in about 20 years that will able to do *any* job a human can do better than any human. The socioeconomic ramifications of that are staggering, if true.

But even setting that aside, narrow AI will continue to grow over that time period, displacing jobs, shifting wealth, transforming society, etc., and strongly affecting the demographic trends you've mentioned.

My investment portfolio (conservatively -- I'm not some kind of AI zealot) reflects my faith in AI's future.

Personally, I don't think QC (quantum computing) will ever mature enough to solve useful problems better than traditional computing architectures (mostly due to fundamental problems with de-coherence). That said, I've placed a couple of investment bets on QC in case I'm wrong.

To put my opinions in context, I'm an EE with a long industry background designing datacomm and embedded systems. I also teach undergrad Engineering, Computer Science, and occasionally Physics. Both QC and AI are topical interests of mine and I've followed their developments closely for decades, even doing early research in Computer Vision back in the '80's.

Cheers,

-Mike

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"100% of the people who confuse correlation and causation end up dying."

Who is he? (edit: you are right, it is his article!). I have no doubt, lots of folks are saying pretty much similar things. In your list of global trends, you didn't even mention widening inequality, which drives a lot of policy and demographic shifts. Hard to see present trends in wealth accumulation working for much longer, without some policy changes....

Given your knowledge/interest in AI, I thought you might get a kick out of this article. I work for an AI based startup and enjoy ‘AI Fails’ when I see them. ; )

https://techcrunch.com/...teach-it-racism/amp/

Ha! Thanks.

Wait a few years. You won't be able to tell chat bots from people. Although, there are some LR posters that I've long suspected may be bots already... ;-)

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"100% of the people who confuse correlation and causation end up dying."

I have to admit you might be right about that. I am currently somewhat preoccupied with why things are unraveling and despite if we have gov't of the right or the left things continue to deteriorate. I am not from Silicon Valley. My two kids are both in STEM and among all the kids they grew up with that is what the brightest and the best are doing.

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

The Comp Sci major asks, "Does it work?"

The Engineering major asks, "How does it work?"

The Physics major asks, "Why does it work?"

. . .

The Liberal Arts major asks, "Want fries with that?"

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"100% of the people who confuse correlation and causation end up dying."

Surgeon family doc and internist go duck hunting. Family doc is up first and sees ducks turns to the surgeon and internist and asks their opinion. Ducks are gone by the time he decides to shoot. Internist next sees the ducks and starts talking about what kind of ducks and describes their flight etc. Too late ducks gone. Surgeon up next sees a duck shoots immediately. Duck falls from the sky. Says I wonder what kind of duck that was?

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

Got a few minutes to chime in. Well you're probably more qualified than I am to discuss technological viability and trajectory. When it comes to economic viability and affect I often start with this quote from William Gibson:



And then I often look at Gartner's Hype Cycle



IMO, autonomous vehicles are one of the more impactful narrow Ai's on the horizon but in the last year it's become apparent that we're probably 5+ years from any sort of large-scale rollout. It will be more like the tide coming in than a tsunami and this has less to do with the technology (e.g. Google/Waymo is very close to a viable product now) and more to do with the reality of dealing with regulation, consumer perception, and actually building the things and getting them out into the world. If you consider that the average LDV in the U.S. lasts ~11.5 years, and let's just say we're five years from autonomous vehicles shipping in volume (e.g. Tesla actually having a Level 5 vehicle, Ford having a dedicated Level 5 vehicle, etc.), and let's be optimistic and say that, initially, those Level 5 vehicles make up half of all vehicle sales

*throws pencil at napkin*

We're looking at ~15 years before a meaningful amount of the U.S. LDV fleet is autonomous and 20 years before the conversion is complete. Sound right? That's a lot of time for truckers etc. to see the writing on the wall.

[Picks up napkin. Looks at Rorschach pencil smudge...]

That seems like a reasonable timeline to me. WRT autonomous vehicles, I agree that the biggest hurdles will likely be political/regulatory rather than technological.

But over that same 15-20 year period, I think you'd be hard pressed to find an industry that *won't* undergo a similar shift to automation. China has an AI that has passed their medical boards. Musk has one that can beat humans in a battle simulation game (Imagine that tech in a drone...). Japan is developing robo-assistants for the elderly. Facebook has an AI bot that developed its own language. IBM has one that can beat humans in chess; Google has one that can best humans in Go. And Google also has has an AI that designs AI's better than humans can. (Yah, this one is particularly frightening. Fortunately, it's a limited-scope narrow AI in image recognition. But, still...)

I suppose the non-technological issues may affect the rise of AI in other industries besides AV too -- Will they face political pushback? Pay taxes? Sabotage? Anti-tech revolutions? A new arms race?

30 years ago, I thought that blue collar factory jobs would be the first to be lost en masse due to manufacturing robots. But, now I think that white collar desk jockeys will be the first to *really* be hit hard. In finance, medicine, manufacturing, etc., if your job involves manipulating/processing/interpreting some kind of data on a screen, your days are numbered. Radiology is the poster child here. In 10 years or less, there will only be a tiny group of Radiologist MD's left in someplace like India whose job is merely to rubber stamp the findings of the AI Radio-bots that will read all of the images.

I think that the jobs that are most resilient against AI displacement are those that involve manipulating physical objects in complex environments -- i.e., the trades. Stuff may soon be made entirely in automated factories, but installing, servicing, and maintaining that stuff out in the real world are challenging problems for AI/robotics for the foreseeable future.

Cheers,

-Mike

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"100% of the people who confuse correlation and causation end up dying."

With the caveat being regulatory and industry group pushback (I'll use the example of anesthesiologists pushing back on 3M's automated anesthesia machine), I completely agree with you.

Waiting for an explanation/answer to this rhetorical question, what does nominal GDP have to do with this?

Um no. Actually it is the Liberal Arts major who actually markets and sells the product.

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