What U.S. Economic Recovery? Five Destructive Myths

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  • #26
rhody
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One more http://www.marketwatch.com/story/ta...age-in-2012-2011-08-16?reflink=MW_GoogleNews", this time, from the elite International Monetary Fund.
Listen to that hissing: The fuse is rapidly burning, warning us. Wake up before the rage explodes in your face. This firestorm is endangering America’s future. From forces outside, yes. But far more deadly, from deep within our collective psyche. We have lost our moral compass. We are self-destructing.

Crackpot warning? No. This warning comes from the elite International Monetary Fund. A recent IMF report looked at “the causes of the two major U.S. economic crises over the past 100 years, the Great Depression of 1929 and the Great Recession of 2007,” writes Rana Foroohar, an economics editor at Time magazine.

“There are two remarkable similarities in the eras that preceded these crises. Both saw a sharp increase in income inequality and household-debt-to-income ratios.” And in each case, “as the poor and middle-class were squeezed, they tried to cope by borrowing to maintain their standard of living.”

But the rich “got richer, by lending, and looked for more places to invest, bidding up securities that eventually exploded in everyone’s face. In both eras, financial deregulation and loose monetary policies played roles in creating the bubble. But inequality itself — and the political pressure not to reverse it, but to hide it — was a crucial factor in the meltdown. The shrinking middle isn’t a symptom of the downturn. It’s the source of it.” Today the consequences of the meltdown still haunt us — there’s more to come.
Rhody...
 
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  • #27
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Just watched a video about South Korea. The student interviewed said she attends school from 7am to 11pm. I have consulted at TSMC in Taiwan they work from 9am to 11pm. Global competition means we will have to work more for less.
 
  • #28
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Just watched a video about South Korea. The student interviewed said she attends school from 7am to 11pm. I have consulted at TSMC in Taiwan they work from 9am to 11pm. Global competition means we will have to work more for less.
Hmmm - maybe sending union leaders there IS a good idea?:uhh:
 
  • #29
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From the quotation in the OP:
If and when these young people return to work, they'll earn 20% less over the next 15 to 20 years than peers who were employed.
I'm not sure what information this reporter was trying to convey when adding this sentence in during a discussion about youth unemployment. Those unemployed are unemployed partly because they're the most undesirable to the labour market (on average) in apposition to their competition. Of course their income expectation is going to be significantly less.
 
  • #30
rhody
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From the Guardian UK:

http://www.guardian.co.uk/business/2011/aug/14/larry-elliott-global-financial-system" [Broken]
A crisis that has been four decades in the making will not be solved overnight. It will be difficult to recast the global monetary system to ensure that the next few years see gradual recovery rather than depression. Wall Street and the City will resist all attempts at clipping their wings. There is strong ideological resistance to the policies that make decent wages in a full employment economy feasible: capital controls, allowing strong trade unions, wage subsidies, and protectionism.

But this is a fork in the road. History suggests there is no iron law of progress and there have been periods when things have got worse not better. Together, the global imbalances, the manic-depressive behaviour of stock markets, the venality of the financial sector, the growing gulf between rich and poor, the high levels of unemployment, the naked consumerism and the riots are telling us something.

This is a system in deep trouble and it is waiting to blow.
Rhody...
 
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  • #31
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I am no economics expert but I think this http://www.time.com/time/nation/article/0,8599,2076568-4,00.html" [Broken] is fair IMO, however, you decide...
Back to the OP with regards repatriation of capital and low wages. In order for a business to succeed in the long term a comprehensive plan must be developed. If labor agreements guarantee too much - it might force the business to make cuts in other areas or reduce the number of jobs. This is one of the reasons salespeople are typically commissioned - they are typically paid more than the average hourly worker - but it's performance based.

Using this model and including a base pay - perhaps using minimum wage as a baseline - labor negotiators would be wise to request a percentage of earnings to both increase the number of people employed and maximize the long term earnings potential.

IMO - a tax policy that favored companies who repatriate capital for start-ups and structure a base plus profit participation compensation plan would be highly attractive to business. However, if the Government tries to dictate the type of manufacturing or specify a specific group of people to hire, or require union participation, or over-regulate with EPA (etc.) - it would not be a widely successful incentive. Again IMO - they best hope in the future of above average workers wages in the US is pay for performance.
 
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  • #32
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Also IMO - I don't think President Obama understands that cutting the "payroll taxes" for workers doesn't help create jobs. While the $10 per week boost in the paycheck may help offset $4.00/gal gasoline - it (MIGHT save a job or 2 but) doesn't create new jobs.

If you want to create jobs with a payroll tax reduction - lower the matching tax rate that businesses pay and raise the workers contribution to offset the revenue loss. Unfortunately, that would be difficult for him to explain.

The minimum wage increases have also hurt small and micro businesses that were struggling before the recession. Everyone seems to forget all of the existing businesses you see in the strip plazas and malls are still paying pre-recession rents based on pre-recession market prices. An example - a free standing building with a $1Million value is typically priced at 10% or $100,000 per year - if the value fell to $500,000 during the recession - the lease is still priced at $100K and has probably increased by a few percentage points per year - maybe to $110,000 now. If the small business owner pledged their house on a 10 year lease - a boost in minimum wage coupled with lower revenues (and higher utilities) means less employees (at minimum). Employees/labor and marketing are usually the first variable costs to be cut.

btw- Yes, some are on base plus percentage leases in the malls - many of those have annual increases and minimum volume requirements as well.
 
  • #33
turbo
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Admittedly, this depends on what you count as a middle-class job. I'm bartending, and make enough to be in the top half of households.
One of my nieces moved to California about 20 years ago, established residency, and worked as a bartender until she had gotten enough of a nest-egg to go to school mostly full-time and keep bartending on weekends. She got by nicely on tips, though that was probably a function of her attractiveness as much as her skill as a bartender. She was featured in the SuperBowl kick-off of Chevrolet's "Real Cars for Real People" ad campaign and kept getting royalty checks as long as GM ran the ads she was featured in. She now has a very comfortable job as a dental hygienist, though her husband (an electrician in the manufacturing field) has struggled to stay employed as more and more manufacturing jobs are moved off-shore. It's hard to out-source a job like hers, and very easy to out-source her husband's job.
 
  • #34
Ivan Seeking
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Also IMO - I don't think President Obama understands that cutting the "payroll taxes" for workers doesn't help create jobs. While the $10 per week boost in the paycheck may help offset $4.00/gal gasoline - it (MIGHT save a job or 2 but) doesn't create new jobs.
The goal is to stimulate consumer spending - the heart of any recovery. Increased consumer spending in turn creates new jobs. And that ten dollars per week almost all goes to consumer spending.

The price of fuel is what it is no matter what the payroll taxes may be. If that ten dollars goes to fuel, then another ten is being spent elsewhere that wouldn't be; that would go to fuel instead.
 
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  • #35
turbo
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The goal is to stimulate consumer spending - the heart of any recovery. Increased consumer spending in turns creates new jobs. And that ten dollars per week almost all goes to consumer spending.
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.
 
  • #36
Ivan Seeking
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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.
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.
 
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  • #37
mheslep
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Guardian's Elliot said:
... There is strong ideological resistance to the policies that make decent wages in a full employment economy feasible: capital controls, allowing strong trade unions, wage subsidies, and protectionism...
I'm curious as to which vetted economic theory states protectionism is the path to full employment.
 
  • #38
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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.
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.
 
  • #39
rhody
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http://www.marketwatch.com/story/5-...link=MW_GoogleNews&google_editors_picks=true"
The yield on the 10-year U.S. Treasury note is about 2%, or one-half its yield in February. The yield on the two-year note is 0.22%, about two-thirds its yield at the beginning of 2011. Meanwhile, inflation has risen 3.63% over the 12 months ending July 2011.

Let’s put this in perspective. If in February you had a $500,000 portfolio of 10-year U.S. Treasury notes throwing off $20,000 in income to fund your living expenses, and for some reason you had to reinvest all that money in the 10-year notes being issued today, your portfolio would generate only $10,000 in interest income. Meanwhile, the cost of goods and services that your $20,000 in interest income once paid for has now risen to $20,600.
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...
 
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  • #40
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http://www.marketwatch.com/story/5-...link=MW_GoogleNews&google_editors_picks=true"

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...
http://www.marketwatch.com/story/5-...link=MW_GoogleNews&google_editors_picks=true"

5 retirement tactics in a low-interest-rate world
The yield on the 10-year U.S. Treasury note is about 2%, or one-half its yield in February. The yield on the two-year note is 0.22%, about two-thirds its yield at the beginning of 2011. Meanwhile, inflation has risen 3.63% over the 12 months ending July 2011.

Let’s put this in perspective. If in February you had a $500,000 portfolio of 10-year U.S. Treasury notes throwing off $20,000 in income to fund your living expenses, and for some reason you had to reinvest all that money in the 10-year notes being issued today, your portfolio would generate only $10,000 in interest income. Meanwhile, the cost of goods and services that your $20,000 in interest income once paid for has now risen to $20,600.


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...
The only good thing about the recession is devalued assets - especially real estate - but it's clearly not for everyone.
 
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  • #41
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There are Asian stocks paying 5% dividends.
 
  • #42
rhody
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http://www.marketwatch.com/story/5-...link=MW_GoogleNews&google_editors_picks=true"

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...
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 ?

http://www.cnbc.com/id/44368995" [Broken]
Europe has come into increasing focus in recent weeks, with some even questioning whether the single currency can survive this crisis.

Roubini believes there will eventually be an enlargement of the European Financial Stability Facility (EFSF) or a common euro zone bond.

He thinks that the euro zone governments should try to weaken the value of the euro. The strength of the currency is worrying some economists because of the potential effect on exports from the euro region.

"Unless there is economic growth there will be this problem again,” said Roubini. “Fiscal austerity is negative for growth… (Governments) should work on denominated GDP not just on austerity."

He was pessimistic about the UK’s immediate economic future, and believes the British economy is "on the verge of a double dip."
Rhody...
 
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  • #43
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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 ?

http://www.cnbc.com/id/44368995" [Broken]

Rhody...
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).
 
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  • #44
The danger of enacting a major short term spending plan is - what if it doesn't work? What is the contingency plan?
The other alternatives are: Let the market adjust to the new reality or change the dynamics in the economy.
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.
Well, in some sense this is simply a metaphor you are right there is diminishing marginal return in short term stimulus.

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.
Of course if you are lucky you get a better job.
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).
Can America compete with free trade given the relative value of its currency to China? Without inflation trade deficits cannot be sustained very long.
 
  • #45
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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/economy/unemployment_benefits/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.
 
  • #46
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.
 
  • #47
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I'm curious as to which vetted economic theory states protectionism is the path to full employment.
The US economy from 1700 to 1960.
 
  • #48
mheslep
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I'm curious as to which vetted economic theory states protectionism is the path to full employment.
The US economy from 1700 to 1960.
Really? Have a go at the unemployment rate history then:

[PLAIN]http://www.uri.edu/artsci/newecn/Classes/Art/INT1/Mac/Measure/Lab/LM1.E_7.jpg [Broken]

against, say, trade tariffs:
Wiki said:
The "dutiable tariff rate" peak of 1932 was 59.1%, second only to the 61.7% rate of 1830. .... Unemployment was at 7.8% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933....
 
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  • #49
rhody
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http://www.chicagotribune.com/business/breaking/chi-more-americans-double-up-in-tough-economy-20110914,0,81285.story" [Broken]
There's been talk of people sharing homes during the recession, and now the Census Bureau has released the data to prove it.

This spring, there were 21.8 million "doubled-up" households across the nation, a 10.7 percent increase from the 19.7 million households in the spring of 2007, the Census Bureau said. That means 18.3 percent of all households were combined households.

Much of the increase was the result of adult children who either moved back home during the recession or never left. Among adults between the ages of 25 and 34, some 5.9 million were living with their parents this spring, up from 4.7 million before the recession hit in 2007. That 25 percent increase translated to 14.2 percent of all young adults living with their parents in March, the bureau said.
Rhody... :frown:
 
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  • #50
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http://www.chicagotribune.com/business/breaking/chi-more-americans-double-up-in-tough-economy-20110914,0,81285.story" [Broken]

Rhody... :frown:
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".
 
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