What U.S. Economic Recovery? Five Destructive Myths

turbo

That's something that goes all but un-noticed in the political wrangling. Consumer spending is by far the biggest driver of our economy. Giving tax-breaks for specific industries, or bailing out parts of our national economy have nowhere near the immediacy or the strength of the effect that putting extra dollars in consumers' pockets can have. Driving wealth toward the bottom tier of wage-earners would result in spending NOW because the least affluent of us tend to spend all their disposable income, and they tend to stimulate their local economies by doing so. The "Main Street" effects of local spending have been blunted somewhat by the invasion of the big-box stores into rural and suburban America, but consumer spending is still a powerful influence on local economies.

Ivan Seeking

Yes, and part of the key is to keep the benefit small enough [small but over a large population] that it gets spent, instead of being saved or used to pay debt. This helps to maximize the bang for every buck.

mheslep

I'm curious as to which vetted economic theory states protectionism is the path to full employment.

WhoWee

Well I guess you're happy with the $10 (approximate) benefit size (small) and it certainly does get spent - not saved or reinvested as capital. As for the $10 spent on fuel that allows another $10 to be spent elsewhere - if fuel prices were lower (and the extra $10 wasn't being sent offshore) the $20 could be spent elsewhere.

rhody

5 retirement tactics in a low-interest-rate world
The bottom line, prioritize your expenses, and learn to do more with less, unless you want to take on more risk, a dicey thing to do if you are retired.

Rhody...

WhoWee

The only good thing about the recession is devalued assets - especially real estate - but it's clearly not for everyone.

edpell

There are Asian stocks paying 5% dividends.

rhody

As if to add a punctuation mark to what I have been reporting... particulary my post above, what are your plans when faced with this ? Young, old, rich, poor, anywhere in between ?

We Are in 'Worse Situation' Than in 2008: Roubini
Rhody...

WhoWee

While this isn't the politics forum - I'd like to use the current debate in the US as a framework for this comment.

In 2008, the US economy was in recession and the President and Congress decided a LARGE stimulus plan was required - nearly $1Trillion in spending. The problem with a grand scheme of this type can be summed up by President Obama's recent comments that "shovel ready" projects weren't actually "shovel ready".

What he meant was that it's difficult to spend that much money in a short time period in a productive way.

Accordingly, much of the funding was routed into state Governments that allocated funds to operating expenses and other short term uses - instead of making spending cuts that are underway now (in some cases). Now, the President is being urged to attempt an additional spending program to do what the first program failed to do - that is create construction related (includes manufacturing of materials) jobs.

The danger of enacting a major short term spending plan is - what if it doesn't work? What is the contingency plan?

My point is this - small steps in a long range plan can cost less and be more productive than throwing large sums of money at a problem.

If you own a home and the electric bill is $200 and you only budgeted $100 - what do you do to solve the problem? Your plan might be to borrow $100 from someone - or charge a credit card? However, if you don't reduce your consumption of electric immediately - you will need to repeat the borrowing or make cuts somewhere else to pay the next bill. Unless you decide to have the electric disconnected - there will be another bill.

In economics - for every action there is a reaction. Given a fixed income budget with 100% allocation of funds (no savings) - spending increases in one area require cuts in another area or a supplement to the cash flow.

If the currency is devalued - there will be a reaction somewhere else - possibly higher prices on imported goods (such as energy and food).

John Creighto

The other alternatives are: Let the market adjust to the new reality or change the dynamics in the economy.
Well, in some sense this is simply a metaphor you are right there is diminishing marginal return in short term stimulus.

Of course if you are lucky you get a better job.
Can America compete with free trade given the relative value of its currency to China? Without inflation trade deficits cannot be sustained very long.

WhoWee

President Obama is giving a much anticipated speech about jobs tonight to a joint session of Congress. Also today, the most recent jobs report shows first time unemployment claims remained over 400,000 again this week.

http://money.cnn.com/2011/09/08/news...fits/index.htm

"The number of first-time filers for unemployment benefits rose to 414,000 in the week ended Sept. 3, the Labor Department said Thursday. The number was up 2,000 from a revised 412,000 the week before.

"It's just more of the same," said John Canally, investment strategist and economist at LPL Financial. "We're not seeing much hiring, but not any massive layoffs either."
Economists typically say initial claims need to fall below 400,000 to reduce the unemployment rate, and they were expecting claims to hit that level in the latest report.

Jobless claims have remained around or above 400,000 since early April."

While it may be the ideal to leave Job A for a higher paying Job B - in this economy an educated person may need to accept any job they can find - and hold on tight.

Hlafordlaes

Faced with the lingering 1970's oil crisis and no jobs in my field, I emigrated from the US on completion of my MA. Unfortunately, I found that my degree was not officially recognized, and by nationality I was barred from both university and major R&D (mostly government funded in Spain back then). Though things have changed greatly on that score since, I left my interest in computational linguistics, and job in a small private teaching and research institute, to return to the US for an, ugh, MBA in the early 1980s. Since by then I had family, I re-immigrated back, with a wave and sigh for that lady standing in the NY harbor.

My first advice to those thinking overseas jobs are a quick fix is: make sure it is quick and of short duration (1-3 years max). American, German and Japanese business cultures tend to view those who left the "obviously better" homeland for elsewhere as losers who could not make it at home, sort of like NBA hopefuls who are not drafted and end up in European league play. And if you get tied down outside of home, well, you are tied down, and will be faced with tough moral choices.

I ended up working in automotive, defense and corporate consulting, traveling to over 50 countries and all continents except Antarctica. Winning business cultures tended to have one thing in common: they do the work. I was aghast when I looked inward at my own companies (all American). In contrast, it was politics and image that made or broke careers.

Remember RoboCop and the crappy fully robotic machine he competed with that did not work? There was a scene in that film where the senior executive sponsor of that machine said "Who cares if it works? We had contracts worth millions, replacement part sales guaranteed, etc." THAT was the mentality at my companies, and that is what has made a lot of American businesses uncompetitive. Indeed, many depend on government largess, contrary to the rhetoric about free markets.

To get more on thread: One reform I'd like to see is to really tie executive compensation (including golden parachutes) to long-term profits (say, five year average). Today this would be resisted due to Wall Street insistence that quarterly earnings be pumped to stimulate profit taking in financial markets. So the second reform is that of taxation on capital gains vs dividend income: I'd make the latter rate 0%, and the former 50%. Then we'd see board room members seeking able executives who really know and breathe the business, and not the fast and loose sort that have been running companies such as, say, HP, in recent decades. See what Jobs did for Apple in comparison.

And, yes, sadly, wars are so good for defense companies that somehow we'll need to ween them off military hardware by incentivizing more civilian applications of the technologies. After all, take away the last couple of wars and the US budget problem becomes highly manageable.

I could go on, but fortunately for you I will shut up now.

edpell

The US economy from 1700 to 1960.

mheslep

Really? Have a go at the unemployment rate history then:



against, say, trade tariffs:

rhody

More Americans 'double up' in tough economy
Rhody...

WhoWee

There were some reports yesterday calling the 25 - 34 year age group forced to move back in with their parents the "boomerang" generation. The comment was made in the discussion about the poverty level for a family of 4 being adjusted to $22,314. Please label this entire post IMO as I don't have a link to one of the interviews - the point was that if the "boomeranger" didn't live with their parents - one or the other or both might qualify as "poor".

rhody

WhoWee,

You are correct. I went back and reviewed the link, the information presented is speculative at best, and should be considered the author of the article's opinion, not to be taken as hard fact.

On to today's news:

Why consumers can’t bail out the U.S. economy

Rhody...