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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Sun Sep 05, 2010 8:55 am Post subject: |
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| The Happy Warrior wrote: |
Here's a current U Cal Berkeley with his own ideas on how to restore the middle class. I think they're pretty good, although the title is a bit ambitious, I think.
How to End the Great Recession |
That's an excellent article. RR is correct in that the depression started in the early 70's (probably on August 18th, 1971) and the debt covered up the reality. Now that debt-saturation is upon us, we have some very serious problems to deal with.
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The national economy isn�t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
That�s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven�t kept up with what the growing economy could and should have been able to provide them.
This crisis began decades ago when a new wave of technology � things like satellite communications, container ships, computers and eventually the Internet � made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago. |
This isn't the whole story.
http://www.washingtonsblog.com/2010/09/government-caused-drought-of.html
Additionally, the government has been confiscating American middle class wealth and handing it to bankers since August 18th, 1971 when Nixon finally killed the gold standard.
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But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).
Second, everyone put in more hours. What families didn�t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.
When American families couldn�t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless � as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.
Eventually, of course, the debt bubble burst � and with it, the last coping mechanism. Now we�re left to deal with the underlying problem that we�ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn�t have enough money to buy what the economy is capable of producing.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation�s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It�s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What�s more, the rich don�t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they�ll summon the highest returns � sometimes that�s here, but often it�s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can�t be sustained, at some point � 1929 and 2008 offer ready examples � the bill comes due.
This time around, policymakers had knowledge their counterparts didn�t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We�re left instead with a long and seemingly endless Great Jobs Recession.
THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures � Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage � leveled the playing field.
In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America�s middle class shared more of the economy�s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.
By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it�s not nearly enough.
What else could be done to raise wages and thereby spur the economy? We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. Or exempting the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000.
In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.
Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for �earnings insurance� that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.
These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.
Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth � and that�s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that�s barely moving. That�s the Labor Day lesson we learned decades ago; until we remember it again, we�ll be stuck in the Great Recession. |
He doesn't mention a gold standard. A return to gold would strongly benefit the middle and lower classes. This isn't just in the US/Canada either. Here is a documentary that touches on gold and how it strongly helps the poor:
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| Time for Change (Bregtje van der Haak, VPRO Backlight 2010) |
http://www.youtube.com/watch?v=IqpVe9kNbhg
I really recommend the documentary. Gold is often seen as the fixation of greedy curmudgeons like Ron Paul but the middle class and poor need a stable, safe store of value. |
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The Happy Warrior
Joined: 10 Feb 2010
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| Posted: Sun Sep 05, 2010 1:24 pm Post subject: |
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| mises wrote: |
A return to gold would strongly benefit the middle and lower classes. This isn't just in the US/Canada either. Here is a documentary that touches on gold and how it strongly helps the poor:
| Quote: |
| Time for Change (Bregtje van der Haak, VPRO Backlight 2010) |
http://www.youtube.com/watch?v=IqpVe9kNbhg
I really recommend the documentary. Gold is often seen as the fixation of greedy curmudgeons like Ron Paul but the middle class and poor need a stable, safe store of value. |
I'm ten minutes in, and there's nothing about gold. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Sun Sep 05, 2010 4:28 pm Post subject: |
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The article is just a rehash of the same old economic fallacies that got us into this situation. The New Deal didn't end the depression. This pretty much sums it up for me "What else could be done to raise wages and thereby spur the economy?" It must be a lack of aggregate demand  |
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The Happy Warrior
Joined: 10 Feb 2010
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| Posted: Mon Sep 06, 2010 6:39 pm Post subject: |
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More data showing the hollowing out of the middle class.
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| [T]echnology and globalization are vacuuming up all the opportunities for our soft middle class. Rising demand for highly educated workers, combined with lagging supply, is contributing to higher levels of earnings inequality. Demand for middle-skill jobs is declining, and consequently, workers that do not obtain post-secondary education face a contracting set of job opportunities. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Mon Sep 06, 2010 8:00 pm Post subject: |
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How much of that so called "hollowed out" middle class, actually moved up to the upper class in the last decade?
I'm not ready to give up on globalisation, free trade/comparative advantage just yet ( and *cough* free markets). They have worked to raise our standard of living so far, I don't see why they won't in the future. We are simply going through a little (much needed) creative destruction right now.
As for the Chinese wage arbitrage, they are already losing that advantage. Wages are climbing in China (and other low wage industrial countries), those low wage jobs will probably move to Africa, and the Chinese will make more cars and computers.
Sure, a large section of the western economy has lost this round, but as a whole it has gained, as a result of all the things people are calling for to be demolished. It seems like a mistake, to me, to simply throw the baby out with the bath water. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Tue Sep 07, 2010 5:35 am Post subject: |
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| Rothbard wrote: |
I'm not ready to give up on globalisation, free trade/comparative advantage just yet ( and *cough* free markets). They have worked to raise our standard of living so far, I don't see why they won't in the future. We are simply going through a little (much needed) creative destruction right now.
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I don't think many of us are arguing to give up on any of that. We just think that the US government needs to seriously overhaul many of its policies. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Sep 07, 2010 6:03 am Post subject: |
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| Rothbard wrote: |
| How much of that so called "hollowed out" middle class, actually moved up to the upper class in the last decade? |
I don't know. My informed guess is that the number is so incredibly small it is not meaningful.
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| I'm not ready to give up on globalisation, free trade/comparative advantage just yet |
I am. Read this interview: http://www.huffingtonpost.com/2010/03/05/wall-street-vet-involved_n_486636.html (the interview is the pdf/docstop in the HuffPo article).
More connected = more fragile.
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| They have worked to raise our standard of living so far |
The United States, like Canada and Europe, became wealthy before globalization. We have not seen inflation adjusted wage growth since the 70's. It isn't working. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Tue Sep 07, 2010 6:20 am Post subject: |
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| mises wrote: |
| Rothbard wrote: |
| How much of that so called "hollowed out" middle class, actually moved up to the upper class in the last decade? |
I don't know. My informed guess is that the number is so incredibly small it is not meaningful.
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| I'm not ready to give up on globalisation, free trade/comparative advantage just yet |
I am. Read this interview: http://www.huffingtonpost.com/2010/03/05/wall-street-vet-involved_n_486636.html (the interview is the pdf/docstop in the HuffPo article).
More connected = more fragile.
| Quote: |
| They have worked to raise our standard of living so far |
The United States, like Canada and Europe, became wealthy before globalization. We have not seen inflation adjusted wage growth since the 70's. It isn't working. |
I still think the problems are governmental. We still needed capital accumulation (physical and human) in order to make the stuff we did in the preceding decades. How much of that capital was provided by the private enterprise? (I will give you a clue. All of it!)
You know. The stuff that Rothbard and Mises talked about.  |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Sep 07, 2010 6:31 am Post subject: |
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| Yeah, I agree with that. I also agree with Rickards in that interview. Globalization increases instability. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Tue Sep 07, 2010 6:37 am Post subject: |
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| mises wrote: |
| Yeah, I agree with that. I also agree with Rickards in that interview. Globalization increases instability. |
Maybe. However, I would say that any one of warfare, tax, hare brained regulations, giving cash to special interests, fiat money, reserve banking, bail outs etc, etc increase instability far more than globalization. Let alone all those things combined! |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Sep 07, 2010 6:40 am Post subject: |
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| Rothbard wrote: |
| mises wrote: |
| Yeah, I agree with that. I also agree with Rickards in that interview. Globalization increases instability. |
...I would say that any one of warfare, tax, hare brained regulations, giving cash to special interests, fiat money, reserve banking, bail outs etc, etc increase instability... |
Yes. That is true. Now what happens when you connect all those things from different states into one large system without circuit breakers? |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Tue Sep 07, 2010 6:49 am Post subject: |
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| mises wrote: |
| Rothbard wrote: |
| mises wrote: |
| Yeah, I agree with that. I also agree with Rickards in that interview. Globalization increases instability. |
...I would say that any one of warfare, tax, hare brained regulations, giving cash to special interests, fiat money, reserve banking, bail outs etc, etc increase instability... |
Yes. That is true. Now what happens when you connect all those things from different states into one large system without circuit breakers? |
Who will be the circuit breaker? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Sep 07, 2010 6:57 am Post subject: |
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Separation between systems is the circuit breaker. And others.
Rickards:
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Well, the good news is that once we understandthe structure and vulnerability of the financialsystem in this way, some solutions and policy rec-ommendations become obvious.
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They fall into three categories: limiting scale, controlling cascades and securing informational advantage. A simple example demonstrates the importance of limiting scale: If the U.S. power grid east of the Mississippi River were at no point connected to the power grid west of the Mississippi, a nationwide power failure would be an extremely low probability event. Either the �east system� or the �west system� could fail catastrophically in a cascading manner. But both systems could not fail simultaneously except for entirely independent reasons because there would be no nodes in common to facilitate propagation across systems. In a financial context, what this tells me is that governments should consider preventing mergers that lead to globalized stock and bond exchanges and universal banks.
You�d roll back the clock on globalization?
Yes. But I wouldn�t state it as a pejorative. The first order efficiencies of such mergers are far out-weighed by the risks of large-scale failure, especially if those risks are not properly understood and taken into account. Maybe another example will drive home the relationship between the scale of a system and the extent of the greatest catastrophes possible in that system, which makes limiting scale so crucial. Let�s say I have a ship, with a hold of a certain capacity. If I punch a hole in it, it fills with water and sinks. But now imagine the same vessel but with the addition of two watertight bulkheads, so its hold is now divided into three watertight sections. If I punch the same hole in the ship, the same size hole, the same place,this time only one compartment fills up with water and the vessel doesn�t sink; it floats. So what is the impact of removing the bulk-heads? Well, I increase the area at risk by a factor of three. But I increase the risk infinitely because I go from a vessel that doesn�t sink to a vessel that�s guaranteed to sink. So I have tripled the size of my system but I have exponentially increased my risk. Now, apply the same thing to capital markets.When we integrate exchanges, erase borders,come up with global players and global positions and global strategies on a massive scale,we have increased the interconnectedness in away that�s going to lead to greater and greater catastrophes, which is exactly what we�re seeing. Because people are very good at estimating the first order efficiencies, but they seem to be blind to the second order costs. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Tue Sep 07, 2010 10:46 am Post subject: |
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| mises wrote: |
| Rothbard wrote: |
| How much of that so called "hollowed out" middle class, actually moved up to the upper class in the last decade? |
I don't know. My informed guess is that the number is so incredibly small it is not meaningful.
| Quote: |
| I'm not ready to give up on globalisation, free trade/comparative advantage just yet |
I am. Read this interview: http://www.huffingtonpost.com/2010/03/05/wall-street-vet-involved_n_486636.html (the interview is the pdf/docstop in the HuffPo article).
More connected = more fragile.
| Quote: |
| They have worked to raise our standard of living so far |
The United States, like Canada and Europe, became wealthy before globalization. We have not seen inflation adjusted wage growth since the 70's. It isn't working. |
Globalization works. It had nothing to do with our current depression. It had nothing to do with the lack of wage growth since 1970.
Our problem is we went off the gold standard. We let the Federal Reserve destroy the dollar. We let the Federal Government borrow money and run deficits. We let the Federal Government tax and spend beyond any rational level. We let the Federal Government interfere in things that are none of its business and destroy the economy and our liberty. The fascist Democrats and communist Republicans joined forces to destroy America. The government is the problem. 100%. We need to abolish most of it and let freedom, free markets, free trade and globalization make the people rich, prosperous, happy and free.
We must abolish all taxes on income and property at all levels.
Institute a 100% gold standard for a new dollar. Privatize and deregulate the monetary and financial system.
Institute a single national sales tax capped at 10% by constitutional amendment to be shared by all levels of government.
Abolish all forms of government borrowing at all levels.
Prohibit deficit spending at all levels.
Abolish all entitlements and welfare and abrogate all debt obligations of the government.
Prohibit all forms of the draft and national service.
Legalize drugs, prostitution and gambling and pardon all the political prisoners convicted of these victimless crimes.
Abolish the death penalty.
Open up the electoral system so that any individual can run for public office under the same rules under the party of their own choosing, instead of keeping most qualified candidates off the ballot and giving easy access and funding only to government approved candidates, as is done today.
Privatize education.
Privatize all segments of the energy and transportation industries and eliminate all subsidies.
Adopt a non-interventionist foreign policy and bring the troops home from around the world. Cut the military accordingly.
Allow free trade, free travel, free immigration ...
Require the Federal government to fit every law, rule and regulation into a single standard volume that can be read, studied and learned in a single year of H.S. civics. Impose the same limitation on state governments. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 09, 2010 8:07 am Post subject: |
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Something interesting has happened in the past few days. The Obama people are putting the idea out that the state should not continue supporting the housing market:
http://www.nytimes.com/2010/09/06/business/economy/06housing.html?_r=3&hp
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| Housing Woes Bring a New Cry: Let the Market Fall |
http://www.reuters.com/article/idUSTRE6880JR20100909?feedType=nl&feedName=usbeforethebell
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FDIC's Bair warns of government "exposure" in mortgages
We should all be concerned about the type of exposure that the government is taking on through guaranteeing so many mortgages right now |
http://www.project-syndicate.org/commentary/stiglitz129/English
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| In short, government policies to support the housing market not only have failed to fix the problem, but are prolonging the deleveraging process and creating the conditions for Japanese-style malaise. Avoiding this dismal �new normal� will be difficult, but there are alternative policies with far better prospects of returning the US and the global economy to prosperity. |
As with Green Shoots and Nascent Recovery, these ideas are generally created in the White House and pushed into the media. It could be that this is a conincidence, but I hope not. The NYT article is the best economic reporting they've done in as long as I can remember.
..
Here is Jim Rickards discussing Green Shoots and how the Obama admin doubled-down on behavioral economics. JR argues that they know the stimulus is likely not good policy but they pushed it to improve sentiment and used their media to put out relentless propaganda about Green Shoots. They thought the economic depression was a problem of perspective. Thanks, Larry.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/9/7_Jim_Rickards__Part_II.html
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http://www.strategyoneinsight.com/?p=136
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There is near universal agreement (92%) that the US is still in a recession, and a strong majority, 79%, disagree with experts� characterization that the recession is over.
Additionally, more than half of the public (57%) believes the U.S. economy is either in a deep recession (48%) or in a 1930s style economic depression (9%). Only 4% say the economy is doing fine and 39% say the economy is in a �mild recession�. |
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