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[mad_doctor]

I see now that they're trying to pass another $200B stimulus bill.  This one's supposed to be focused on job creation.  Oh, and they say not to worry, that they'll take $200B in earmarks that's not spent from the last stimulus bill to pay for it.  First of all, wasn't the last one supposed to create jobs?  Secondly, perhaps they should have actually read the last bill before they rammed it through?  Thirdly, there are a lot of people out there that think the government can only "create" government jobs - how will that help the economy?

mad_doctor's commentary: down we go - the rabbit hole just keeps getting deeper and deeper.  There is a way out, but the American people need to enforce some discipline on themselves, because we obviously can't trust congress to do it for us.  Personal fiscal accountability is at an all-time low in America - everybody expects congress to pick up the bill for their personal spenging orgy.  Simplify life, live within you means, save some money, and be a productive element of the economy.  It will be a painful sacrifice, and things may become like the Great Depression, but things will level out after a few years and things will start looking up, perhaps in time for our grandchildren to start screwing things up again...

[raoul]

I wouldn't say that we're not in a bad place, but the savings rate is up and consumer purchasing is down. So are we going deeper and deeper into the rabbit hole or are people in fact doing what you suggest?

And American workers are still pretty dang productive. I moved to Canada four years ago, and in my experience there's not much question that Americans work a lot harder than Canadians do, or at least Ontarians. There's a real "Euro-style" culture here of long vacations and not putting in too many hours at the office, and not getting too anxious about anything when you are at work. Seems to me if anything Americans work way too many hours and are way too stressed out when they're at work. And I'm talking about all levels of the work force, from cleaning staff to professionals. (Before I became a prof, I had any number of "entry level" jobs in warehouses and restaurants, and I think you might be surprised that even low-wage American employees usually take pride in being "a productive element of the economy.") When you are in the midst of the American system maybe it seems like people could be working even harder than they do, but when you step out you realize there are other quite affluent countries where people have nothing like the American work ethic or productivity.

[qrypt]

M-D, is this a critique of monster bonuses for bailed-out bankers? 

Personal spending orgies indeed...

[prytania3]

M-D, is this a critique of monster bonuses for bailed-out bankers? 

Personal spending orgies indeed...

The real irony of those bonuses is that if they don't get paid, the state coffers in NY, NJ, and CT are going to be empty.

I doubt M-D approved of the bank bailouts, however.

[mad_doctor]

M-D, is this a critique of monster bonuses for bailed-out bankers? 

Personal spending orgies indeed...

The real irony of those bonuses is that if they don't get paid, the state coffers in NY, NJ, and CT are going to be empty.

I doubt M-D approved of the bank bailouts, however.

Thank you, prytania.  I couldn't have said it better myself.

[anthroid]

I believe that I heard on NPR the other day that the national savings rate is now at 5%.  During the worst of the credit excesses perpetrated by the banks, I seem to remember that it was somewhere around -4% (and it had been hovering around -2% for the last decade). 

I cannot imagine how saving money is indicative of serious consumer lack of control.  Mad_Doctor, it is not the little guy who is going nuts spending money she doesn't have.  It is the idiot bankers and stock brokers, still.  The regular person needs significant help, and the bankers, and brokers, and the entire financial industry (including the insurers) must be regulated, and regulated heavily.

[oldadjunct]

M_D, we certainly have gotten into a fine fix.  I believe that the American savings rate has jumped from near zero to almost 5% (correct me if I am wrong).  Good as that may be, I think it is btw, it only exacerbates the pain in the near term since as a consumer based economy we have become addicted to buying not saving.

I also don't think it helps that "whomever" (I am not an economist) decided that it was a good thing that the US should be on the bleeding edge of a transition to "information" as a leading industry.  I have no problem with making money on information, I made a lot by running a white collar production line.  But too few thought through the fact that information was sand in our fingers and could quickly be outsourced to foreign nations.  The information industry is not just new technology, it also includes call centers.  Opps, how did that work out, the world is flat after all (terrible, terrible book)?  So, we largely ditched real goods manufacturing in favor of information.  But I think it is obvious (again, not an economist) that we continue to consume real goods more often than information, and much of the information we consume has also been outsourced.

I am also not very sanguine about rises in productivity (again, non-economist) since in my business experience that often tends to be achieved in the following way:  200 employees, reduce to 100, give each remaining employee a relatively small increment of pay in exchange for significantly more work, pocket the rest after huge bonuses to management.  Result: 100 out of work, 100 over worked, 20 much richer.  Rinse and repeat.

Edit: Anthroid, that is where I got my numbers from, though I thought that story said "zero".  No matter, the point remains the same.

[prytania3]

I believe that I heard on NPR the other day that the national savings rate is now at 5%.  During the worst of the credit excesses perpetrated by the banks, I seem to remember that it was somewhere around -4% (and it had been hovering around -2% for the last decade). 

I cannot imagine how saving money is indicative of serious consumer lack of control.  Mad_Doctor, it is not the little guy who is going nuts spending money she doesn't have.  It is the idiot bankers and stock brokers, still.  The regular person needs significant help, and the bankers, and brokers, and the entire financial industry (including the insurers) must be regulated, and regulated heavily.

They don't need to be regulated heavily. They need to be regulated intelligently.

[mad_doctor]

Well, as I said before, I'm technically not trained as an economist either.  It was my business to follow the economy of my industry back in my profesisonal life.  I had a few doctoral seminars on the subject, and in my academic life I have frequent interactions with economists on these subjects.  Some of my research is what I would call economics-intensive from a theoretical perspective.  So, take what I say under advisement and make up your own mind.

By "personal spending orgies" I'm talking about people buying mortgages worth two or three times more than they could afford, or more than a bank would finance under normal rational circumstances.  The same goes for credit cards, auto loans, and other forms of credit-funded "personal" spending.  Did I see a statistic that predicts 1 in every 6 homes will be in foreclosure within the next two years?  Whatever it is, it's not a trivial number.  Maybe banks were greedy, but that doesn't excuse the millions of people who jumped in over their heads on home mortgages.  Maybe I'm one of them.  That level of credit-funded consumption is simply unsustainable.  Each of us knows we can't get away with it as an individual, so why do we think that we can do it collectively as a nation?

BTW, China is educating their citizens to do the same thing - live simply, save money, be productive, and be disciplined in your finances.  They're simple virtues.

[aandsdean]

Well, as I said before, I'm technically not trained as an economist either.  It was my business to follow the economy of my industry back in my profesisonal life.  I had a few doctoral seminars on the subject, and in my academic life I have frequent interactions with economists on these subjects.  Some of my research is what I would call economics-intensive from a theoretical perspective.  So, take what I say under advisement and make up your own mind.

By "personal spending orgies" I'm talking about people buying mortgages worth two or three times more than they could afford, or more than a bank would finance under normal rational circumstances.  The same goes for credit cards, auto loans, and other forms of credit-funded "personal" spending.  Did I see a statistic that predicts 1 in every 6 homes will be in foreclosure within the next two years?  Whatever it is, it's not a trivial number.  Maybe banks were greedy, but that doesn't excuse the millions of people who jumped in over their heads on home mortgages.  Maybe I'm one of them.  That level of credit-funded consumption is simply unsustainable.  Each of us knows we can't get away with it as an individual, so why do we think that we can do it collectively as a nation?

BTW, China is educating their citizens to do the same thing - live simply, save money, be productive, and be disciplined in your finances.  They're simple virtues.

Ask Japan how well that scheme has worked for them over the past 15 years or so.

A number of economists, including Paul Krugman (for what it's worth), strongly argue that the economy is still significantly UNDERstimulated.  They're arguing that this situation is going to lead to stagnant or negative job growth (we're still in the momentum downward phase of this--think bungee jump, right before the bottom, probably).

From a Keynesian perspective, savings in the current situation are a bad strategy.  The problem is we got into a vicious spiral of overconsumption and, indeed, the economy (at least at the growing edge) runs on that.  So now that we've pulled back on overconsumption, all the growth is out of the economy.

I think Krugman's theory is that we could stay in this static place for a very long time.  Since he's a good Keynesian, I expect he'd argue that it's better to invest in growth through deficit spending than it is to let the deficit rise on its own through negative growth in productivity.

I, too, am not an economist, but I do find this argument pretty compelling.

[prytania3]

Well, as I said before, I'm technically not trained as an economist either.  It was my business to follow the economy of my industry back in my profesisonal life.  I had a few doctoral seminars on the subject, and in my academic life I have frequent interactions with economists on these subjects.  Some of my research is what I would call economics-intensive from a theoretical perspective.  So, take what I say under advisement and make up your own mind.

By "personal spending orgies" I'm talking about people buying mortgages worth two or three times more than they could afford, or more than a bank would finance under normal rational circumstances.  The same goes for credit cards, auto loans, and other forms of credit-funded "personal" spending.  Did I see a statistic that predicts 1 in every 6 homes will be in foreclosure within the next two years?  Whatever it is, it's not a trivial number.  Maybe banks were greedy, but that doesn't excuse the millions of people who jumped in over their heads on home mortgages.  Maybe I'm one of them.  That level of credit-funded consumption is simply unsustainable.  Each of us knows we can't get away with it as an individual, so why do we think that we can do it collectively as a nation?

BTW, China is educating their citizens to do the same thing - live simply, save money, be productive, and be disciplined in your finances.  They're simple virtues.

Ask Japan how well that scheme has worked for them over the past 15 years or so.

A number of economists, including Paul Krugman (for what it's worth), strongly argue that the economy is still significantly UNDERstimulated.  They're arguing that this situation is going to lead to stagnant or negative job growth (we're still in the momentum downward phase of this--think bungee jump, right before the bottom, probably).

From a Keynesian perspective, savings in the current situation are a bad strategy.  The problem is we got into a vicious spiral of overconsumption and, indeed, the economy (at least at the growing edge) runs on that.  So now that we've pulled back on overconsumption, all the growth is out of the economy.

I think Krugman's theory is that we could stay in this static place for a very long time.  Since he's a good Keynesian, I expect he'd argue that it's better to invest in growth through deficit spending than it is to let the deficit rise on its own through negative growth in productivity.

I, too, am not an economist, but I do find this argument pretty compelling.

Comparing Japanese stagflation to what's happening in China is ludicrous. China has become a manufacturing mecca--their economy is genuinely growing. They are making real stuff from t-shirts to microchips to green energy. They are exporting products.

And what is our productivity? 2/3rds of the GDP is consumer spending--THAT IS A PROBLEM.

Theoretically, it is good for the economy if people spend and spend, but it is not a sustainable way to live. You can't live on debt forever--trust me--I've tried it. You keep getting more credit to pay old credit and you think they'll never cut you off, and guess what, they will. And if you think someone can't cut off the gravy train to the US, you are most deluded. Now, giving credit where credit's due, the US government has made money off the TARP money that's been paid back (GS, JPM, et al)

But we have to replace spending-as-productivity with something real.

[mad_doctor]

I'm not a Keynesian, aandsdean.  I also believe we could be in this state for a long time, but the difference is that  Krugman believes this is a bad thing, while I and others like me think it's not great, but not necessarily bad either.  I also doubt that Krugman would ever entertain the idea of shrinking government spending.  I don't believe we need another $200 billion "stimulus" like the last one, and I don't believe we as Americans should be overextending ourselves on credit.  So, you and I disagree on this.  That's fine - go in peace.

[prytania3]

I'm not a Keynesian, aandsdean.  I also believe we could be in this state for a long time, but the difference is that  Krugman believes this is a bad thing, while I and others like me think it's not great, but not necessarily bad either.  I also doubt that Krugman would ever entertain the idea of shrinking government spending.  I don't believe we need another $200 billion "stimulus" like the last one, and I don't believe we as Americans should be overextending ourselves on credit.  So, you and I disagree on this.  That's fine - go in peace.

I'll take it one step further. I think all these foreclosures are if not good, necessary. The price of housing had gotten ridiculous; in fact, it's still pretty ridiculous. Yes, people got over their heads with mortgages, but a lot of them bought houses that weren't freaking mansions. Hell, ranches in Compton were selling for $350K. That's absurd.

Rule of thumb is if your mortgage is more than what you can rent the place for, you've paid too much.

Yes, the Wall Street clowns were the poster children of greed and excess, but the rest of the country was just as drunk on consumption. Everyone believed real estate could only go up and times could only get better, but the economy ALWAYS goes in cycles. No exceptions.

[aandsdean]

I'm not a Keynesian, aandsdean.  I also believe we could be in this state for a long time, but the difference is that  Krugman believes this is a bad thing, while I and others like me think it's not great, but not necessarily bad either.  I also doubt that Krugman would ever entertain the idea of shrinking government spending.  I don't believe we need another $200 billion "stimulus" like the last one, and I don't believe we as Americans should be overextending ourselves on credit.  So, you and I disagree on this.  That's fine - go in peace.

I'm in a bit of a hurry, so I'll be brief.  I don't think Americans should be overextending ourselves on credit either; like Prytania, I've tried it, and it doesn't work so well.

I also am not so blase about the human costs of what's going on right now.  Like a whole lot of other people, I have a house I can't sell, and it's taking around $1,000/mo out of our spendable income right now.  In January, if our tenants don't renew their lease, it will take $2,000/mo out of our spendable income.  Now, I make a pretty decent salary, but we certainly can't sustain that over very long.  Multiply that by millions, and you have a pretty big problem.

Japan in the 80s was as productive as China is now, though not growing so fast.  They were making all their money from exporting, not from domestic consumption, because of the kind of "frugal living" policies (more cultural) that you mention China is trying.  When exports dried up that was that.  No domestic consumption to shore it up.  Oops.  15 years of economic stagnation.

Our lives would be a lot better if we relied more on exports than on domestic consumption, that's for sure.  The trick is how to get there without the entire population going bankrupt. 

I could talk about our state budget cuts here, which are ultimately going to end up being around 30% of the state budget, or nearly $2 billion.  That's a lot of cash to suck out of a 3.1-million person economy. 

[prytania3]

Aandsdean, can you not sell your house because absolutely no one is buying? Or can you not sell your house at the price you want? Of course, now the term *priced to sell* takes on a whole new meaning.