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View Diary: Morning Feature: Animal Spirits, Part II - Recession, Banking, Unemployment, Inflation (94 comments)

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  •  Economics make my eyes glaze over (10+ / 0-)

    and my brain pretty much numbs out, but these diaries and comments are enlightening.

    How can John and Jane Doe realistically expect that one solution to the economic problems is to lower their 'wage expectations' when commodities are constantly rising in price?  Commodities such as food, clothing, utilities, medical care, interest rates on credit cards, bank interest rates, all the small expenses which directly affect one's daily life most of which will be affected by our lowering our wage expectations?

    •  Good question, JF (9+ / 0-)

      I think we've all noticed that expenses for basics are continually rising...in fact didn't even fall when gas prices came down.

      This economy appears to be so far out of whack that it's not responding properly to anything.  And the "go slow and see what happens approach" isn't helping either.

      Wish I had a better understanding of these things so I could say something useful.  Instead I'm a bucket of questions.

      Huggs and good morning!

      "No man is my enemy, my own hands imprison me, love rescue me." -- Love Rescue Me/U2

      by winterbanyan on Thu Jul 09, 2009 at 05:22:00 AM PDT

      [ Parent ]

    •  Lowering wage expectations ... (11+ / 0-)

      ... is only needed when: (a) unemployment is too high; or, (b) we're in a deflationary cycle.  While unemployment is too high, we're not in a deflationary cycle right now (prices aren't falling).  So you have contradictory policy indicators.  Too high unemployment says we need to lower wage expectations so more people can be employed, but still rising prices says that's just making people work-to-starve.

      There's a big flaw in Akerlof and Shiller's theory, as I see it, and we'll discuss it more Saturday. But in brief, the flaw is that in their theory, the one group of people who can never get hurt are investors; they must be confident of making a substantial profit on their investment, so workers must sacrifice wages to ensure investors' profits.

      Good morning! ::hugggggggggs::

      •  Because workers are pawns (5+ / 0-)

        and investors are the owners of everything?

        I wish we had a more humane economic model.  That you for attempting to explain the one we have.

        "A government not respecting people's vote has no religious or political legitimacy" -- Hossein Ali Montazeri

        by Chi on Thu Jul 09, 2009 at 07:08:22 AM PDT

        [ Parent ]

        •  Partly, yes. (4+ / 0-)
          Recommended by:
          Chi, Orinoco, DBunn, winterbanyan

          The need for capital to turn ideas into new products and services is not entirely a fiction.  The question is finding a balance in overall economic risk (see my replies below).

          Some level of economic risk is inevitable and indeed necessary for investment to justify a profit.  But when the risk gets too high, the self-investing class - people who get an education, contribute as much as they can, produce more than they consume, and save for a modest retirement - are too often wiped out by ordinary bad events and land back in the subsistence class.  Even if we're not purely rational actors, we are intuitive and we recognize a "rigged game" that we can't win.

          When that happens, they stop self-investing.  They see less reason to produce as much as they can, and consume as much as if not more than they produce, trying to enjoy the moment as best they can.  Production and savings fall off, consumption and debt go up, and you get the mess we have now.

          Good morning! ::hugggggggggs::

    •  I think what the experts aren't taking into (7+ / 0-)

      account is the communal decision that was taken to use money as the new indicator of a stratified society.  The accumulation of money as a signifier of elite status seemed, I'm sure, to be entirely more democratic than inherited wealth, national origin, gender or race because, in theory, anyone (including crooks, it turned out) could accumulate large amounts of money.  What wasn't taken into consideration was that, especially in a society that aims to control the exchange of goods and services by controlling the money supply, access to money is easy to deny.  Indeed, it seems to have been discovered that denying some populations access to money is easier and less suspect than denying them access to neighborhoods, or swimming pools, or schools or any public facility (including national assets like parks) where they are not wanted.  When there's a universal access charge, it's easy to keep people out by making sure they have no money.

      The motivation behind this strategy is not racist, by the way.  The motivation is stratification--the definition of distinct classes.  Which is why we now have one percent filthy rich and 99% impoverished, compared to earlier decades.

      Was it planned?  I don't think so.  It just happened, much as the termination of involuntary military service evolved into "voluntary servitude" whose bonds to God, country and personal honor turned out to be stronger than any chains that bound slaves.
      The use of money to define a stratified society is particularly pernicious because the hand of man is not obvious.

      Perhaps what makes elitism particularly destructive is the fact that the elite NEED the subordinate/impoverished class in order to distinguish themselves and it's this need that generates a sense of resentment, antagonism and dissatisfaction, leading them to be insufferable.

      Americans, in particular, are a generous people and willingly accommodate any number of free-loaders.  But, the elites aren't satisfied with that and their resentment makes them extractive--i.e. from being freeloaders they turn to thievery.  So, we have to stop being generous and make it clear that enough is enough.

      How do you tell a predator from a protector? The predator will eat you sooner rather than later.

      by hannah on Thu Jul 09, 2009 at 05:59:49 AM PDT

      [ Parent ]

      •  Who are the 'elites' of whom you speak (5+ / 0-)

        and who made 'communal decisions'?  I have a pretty good grasp of who the have-nots are, but am fuzzy about the haves...

        •  Elites are people who have a need (5+ / 0-)
          Recommended by:
          Chi, Orinoco, DBunn, winterbanyan, NCrissieB

          to be better than someone else.  Some of our media elites are quite obvious.

          Perhaps "communal decision" is not a good phrase.  There was/is a well of resentment which grows out of the perception that one's social status has been erased by fiat (civil rights laws) and a consensus that what always seemed right and proper and natural (that some people are better than others) needed to be reasserted.  Money turned out to be a convenient vehicle.
          Also, there's just a smidgen of envy.  You can see it in the story about the day campers being evicted from the pool in Philadelphia.  That they PAID for membership struck some commenters as outrageous.  How could people who'd been supported on welfare and kept as a subordinate class presume to purchase a pool pass??!!!

          How do you tell a predator from a protector? The predator will eat you sooner rather than later.

          by hannah on Thu Jul 09, 2009 at 06:22:57 AM PDT

          [ Parent ]

          •  By your definition, the term 'elite' crosses all (4+ / 0-)
            Recommended by:
            Chi, Orinoco, winterbanyan, NCrissieB

            boundaries of social strata - from the religious right who condone killing physicians in the name of God, to the Latino immigrant haters, to the snobs in Philadelphia who don't want those ruffians dunking their white kids in a pool.    

            •  Elites are self-identified as a stratum. (6+ / 0-)

              But, yes, they can be found anywhere.  Mainly, I think, they're insecure people who find it necessary, perhaps even reassuring, to lord it over somebody.

              Achievement doesn't enter into the equation.  Elite is what one is, not what one accomplishes.  The accumulation of money has just become an "acceptable" identifier.  That some people in more traditional subordinate groups are easy to exclude from the accumulating is lagniappe.

              BTW, members of the traditional groups who manage to evade the stricture (for example by trafficking in forbidden drugs) are segregated via the legal system.

              How do you tell a predator from a protector? The predator will eat you sooner rather than later.

              by hannah on Thu Jul 09, 2009 at 06:51:33 AM PDT

              [ Parent ]

      •  Actually ... (7+ / 0-)

        Was it planned?  I don't think so.  It just happened, much as the termination of involuntary military service evolved into "voluntary servitude" whose bonds to God, country and personal honor turned out to be stronger than any chains that bound slaves.

        It was planned, from the birth of our republic.  That's why we have a Senate.  Wealthy landowners like John Adams argued that leveling property and income would be unfair to those who already had property and income, and said they would reject any government that would not preserve their privilege.

        So yes, it was planned.

        Good morning! ::hugggggggggs::

      •  Nice analysis. Thanks. eom (3+ / 0-)
        Recommended by:
        Orinoco, winterbanyan, NCrissieB

        "A government not respecting people's vote has no religious or political legitimacy" -- Hossein Ali Montazeri

        by Chi on Thu Jul 09, 2009 at 07:10:16 AM PDT

        [ Parent ]

    •  Bingo (8+ / 0-)

      That's the question.  It does no good to have a job that doesn't cover the cost of food and transportation and a place to live, because you can't get to work and function at your job if you can't pay for the necessities to live.  And that's where many of us are right now.

      Good morning and hugs to all.  I'm not much of a participant in this series because economics is just a subject I can't seem to grasp.  It's sort of like listening to Sarah Palin - individual words that I understand but still they don't seem to make any sense.

      •  Good morning, myrealname :) (5+ / 0-)
        Recommended by:
        Orinoco, myrealname, DBunn, NCrissieB, kktlaw

        I'm struggling, too.  Economics boggles my mind.  But I'm learning a lot here.

        Huuuggggs!

        "No man is my enemy, my own hands imprison me, love rescue me." -- Love Rescue Me/U2

        by winterbanyan on Thu Jul 09, 2009 at 06:35:41 AM PDT

        [ Parent ]

      •  The key element is economic risk. (7+ / 0-)

        I wrote about it more below, but when overall economic risk is manageable, there is an incentive for people to move from the subsistence (earning barely enough to eek by, relying on social security and post-retirement labor to survive in old age) class into the self-investing class (earning enough to eek by and save for a modest retirement).  When the overall economic risk is too great, there is less incentive because ordinary bad events wipe out the self-investing class and throw them back into the subsistence class.  So instead of a self-investing class, you get a consumer class who earn enough to save (some) but instead spend whatever they earn to have things a little better until they get wiped out.

        And that's the dystopic society we have now.

        Good morning! ::huggggggggggggs::

        •  Don't know any way around it (3+ / 0-)
          Recommended by:
          myrealname, winterbanyan, NCrissieB

          but the same dollars I use to buy a loaf of bread, are the dollars some corporate suit uses to buy another corporation. For the past forty years or so, the business buying and selling economy has been sucking dollars out of the bread and cheese buying economy.

          Inflation in the business buying economy is probably more of a problem than inflation in the bread and cheese economy. When Joe Suit buys Acme, Inc. for Conglomerated Enterprises, he pays a premium to the former owner, but neither Acme nor Conglomerated is changed in any substantive way by the signing of the papers changing ownership. In order to pay that premium, though, Joe Suit has to raise prices, cut costs (usually labor costs, by firing people) or otherwise suck dollars out of the bread and cheese economy.

          When there is a perception among the Joe Suits of the world that the things they buy (other businesses) are rapidly increasing in value, the premiums go way up in absolute dollar terms.

          Good morning! and ::huggggggggggggs:: :)

          "The problems of incompetent, corrupt, corporatist government is incompetence, corruption and corporatism, not government." Jerome a Paris

          by Orinoco on Thu Jul 09, 2009 at 08:25:26 AM PDT

          [ Parent ]

          •  It's not (really) whether you compete ... (4+ / 0-)
            Recommended by:
            Orinoco, myrealname, winterbanyan, kktlaw

            ... with Joe Suit.  You can't.  The wealth-earning class were born with advantages that you can't overcome unless you get unbelievably lucky (e.g.: Bill Gates).  The question is whether you have a reason to compete with yourself.

            If the overall economic risk is manageable, you do.  By self-investing - getting an education, competing for jobs that maximize your talent and training, consuming less than you produce, and saving the difference for a modest retirement - you can have a better-than-subsistence lifestyle, now and in your old age.  And in so doing, you will have contributed more to society as a whole.

            But if the overall economic risk is too great, the equation changes.  No matter how diligently you self-invest, you'll still likely be wiped out by an ordinary bad event and land back in the subsistence class.  So why bother?

            We don't work that out with formal, quantitative analysis, we're actually pretty good at intuitive reasoning and most of us can recognize a rigged game when we see it.  We stop self-investing.  We produce and save less, consume and borrow more, and we get our current mess.

            It's not that you can't catch Joe Suit.  It's that you can't even catch yourself.

            •  Well, I'm not really trying (2+ / 0-)
              Recommended by:
              NCrissieB, kktlaw

              to catch Joe Suit. But Joe Suit's competitive games within the Joe Suit clique sucks the money out of the economy the rest of us live in.

              I wonder if the lack of motivation we see among our students is a result of them seeing that the game is rigged, that they are stuck in the subsistence class, and that getting an education is thus pointless?

              Is the problem in our educational system, the achievement gap between the haves and the have nots, based on the idea that we are really just trying to sell the have nots a very expensive lottery ticket?

              If high school graduates and dropouts alike all wind up on the same dead end treadmill, why spend the time working in class? Just because some dork who worked way harder than you're willing to work lucked out and got a scholarship? Got a good job after college? Moved out of the neighborhood as soon as possible and is no longer around as a role model?  

              I am vexed.

              "The problems of incompetent, corrupt, corporatist government is incompetence, corruption and corporatism, not government." Jerome a Paris

              by Orinoco on Thu Jul 09, 2009 at 10:01:00 AM PDT

              [ Parent ]

              •  I agree with you here. (1+ / 0-)
                Recommended by:
                Orinoco

                But Joe Suit's competitive games within the Joe Suit clique sucks the money out of the economy the rest of us live in.

                This is very true, and it's a real problem.  In order for the Joe Suits (the wealth-earner class) to play those games, they need a high-risk economy.  Exactly the kind that leaves the self-investing class one ordinary bad event from being back in the subsistence class.

        •  "Eke" means just getting by (2+ / 0-)
          Recommended by:
          NCrissieB, kktlaw

          "Eek" is for when a mouse runs out from behind the refrigerator. Just sayin' :)

          I like these terms, haven't heard them before: subsistence class, self-investing class. Are they yours?

          It strikes me that many self-investors are also subsistors, in the sense that they leverage their self-investment to gain access to a what is still a subsistence pattern of living, but at a more luxurious or entitled level. This behavior is often disparaged (by folks like me-- heh) as mere pursuit of "status", but it is so universal that perhaps it should be seen as another of those "animal spirits" that we need to factor into our economic analyses.

          Herman Daly refers to it as pursuit of relative wealth. His point is that unlike absolute wealth, there can be no such thing as "enough" in the realm of relative wealth. As I suspect you would agree, this is a pretty serious problem for a society facing ecological limits.

          •  Oops ... I always misspell that! (2+ / 0-)
            Recommended by:
            myrealname, DBunn

            There are words I always misspell, and that's among them.  Oh well. ::sigh::

            As for "wealth-earning," "self-investing," and "subsistence" classes, yes, those are my terms.  For me, "upper," "middle," and "working" class don't say anything meaningful.

            And yes, many people who could be self-investing don't.  They're subsisting at a higher income level, spending every dime they earn (and can borrow) to enjoy life as it comes.  That's relatively recent.  As late as 1980, the average American family saved almost 10% of household income.

            As we'll discuss tomorrow, Akerlof and Shiller say the change is due to cultural stories celebrating full consumption.  I think it's a bit more subtle.  If you're in the self-investing class and every day you hear stories of people like you whose life savings were wiped out by an ordinary bad event (job loss, illness, etc.), or whose employers are defaulting on pensions, it's not unreasonable to decide there's no point in self-investing.  Why be so frugal just to push back eligibility for public assistance by a few weeks or months?

            People don't work that out by formal, quantitative analysis (risk tolerance equations), but we're very intuitive and if we perceive the game is rigged, we choose not to play unless the game is fun (e.g.: Vegas).  Working hard while living frugally isn't like blackjack, or craps, or even a slot machine.  It's not fun and there's no jackpot.  Why do it if you're not reasonably confident you can put aside enough for life's inevitable bad events and still set yourself up for a modest retirement?

            And we shouldn't dismiss the subsistence class.  Many do essential and/or worthwhile jobs that just don't pay more than subsistence incomes (ministers, artists, migrant workers, etc.), or that don't pay any income at all (stay-at-home moms).  They're not necessarily lazy; they just barely earn enough to live and have nothing left to save.

            But a society with just a wealth-earning class and a subsistence (at whatever income) class will not generate enough capital to sustain itself.  It will have to borrow from elsewhere, where there's a big enough self-investing class to have excess capital (hello, China).

            Simply telling people they should save, or even offering tax breaks for self-investing, is not enough.  People must feel secure in order to live frugally and save.  If they perceive they're always one bad event from being wiped out, they'll quite rationally choose to enjoy life as it comes and take their lumps when bad events hit.  That's the best macroeconomic argument for quality, universal health care and other basic social safety nets.

      •  Econ doesn't make sense because they don't take (4+ / 0-)

        themselves seriously in a scientific sense and include reality based feedback. In that sense, they are like Palin and Bush, fantasy based because they reject the possibility of including real human nature, ( ie greed and short sighted self interest), in their calculations. Shiller and the others who are advocating this inclusion, (animal spirits), will, if they're finally included, increase the level of reality and applicability of economic theory significantly. The new 'behavioral economists', could possibly bring things up to speed and make the pseudoscience of economics closer to a real, useful, and accurate study. Eventually. ::sigh::

        Information is abundant, wisdom is scarce. The Druid

        by FarWestGirl on Thu Jul 09, 2009 at 07:12:20 AM PDT

        [ Parent ]

        •  I agree to a point. (3+ / 0-)
          Recommended by:
          Orinoco, winterbanyan, FarWestGirl

          Partly it's ideological - believing the story that works for one's own in-group - but partly it's that until recently we really haven't had enough good tools (or theories) to be rigorous about social sciences, especially psychology.  It was a case of suspecting there's a "there" there, but not being able to observe and (mathematically) describe it well enough to test predictions.

          Good morning! ::huggggggggggs::

          •  Partly,but greed is such an intrinsic human trait (4+ / 0-)
            Recommended by:
            Orinoco, DBunn, winterbanyan, NCrissieB

            that ignoring it and refusing to even acknowledge that it's a factor, much less a major factor, (and whether or not one can quantify it sufficently for equations), reads a lot like fingers-in-the-ears, lalalala, pigheaded ignorance to me. Boom and bust has been the norm for ages, it's very difficult for me to accept that no one saw a connection between greed and economic cycles. That's my big complaint about econ, and why I've never respected it.

            Have fun with the Tour!

            Good morning! :::Huuugggsss:::

            Information is abundant, wisdom is scarce. The Druid

            by FarWestGirl on Thu Jul 09, 2009 at 07:59:40 AM PDT

            [ Parent ]

            •  Classical and neoclassical economics ... (3+ / 0-)
              Recommended by:
              Orinoco, winterbanyan, FarWestGirl

              ... don't ignore greed.  Quite to the contrary, they assume it's inevitable and socially beneficial.  But their assumptions about its benefits are premised on everyone being equally rational (greed-driven), and everyone having equal access to all relevant facts (so deception is impossible).  Classical and neoclassical economists would say the problem isn't that the wealthy are greedy, but that the rest of us aren't greedy (rational) enough, and that the markets were broken not by greed but by deception.

              •  lol I can agree about the deception. *sigh*, (2+ / 0-)
                Recommended by:
                winterbanyan, NCrissieB

                I guess I should have stuck it out and slogged through the basics, at least. I still think they ignore blatantly obvious things, but I can see where they wouldn't have been able to quantify them without our modern social and neurosciences.
                There's got to be some algorithm describing the drift of 'open' markets to occulted markets as people game the system and set themselves up with insider info and access. Now that would be a useful application, being able to describe and predict the expected decline into corruption. God knows we have enough data from the boom and bust iterations that someone should be able to map it out.

                Information is abundant, wisdom is scarce. The Druid

                by FarWestGirl on Thu Jul 09, 2009 at 08:55:04 AM PDT

                [ Parent ]

            •  We need a definition of "greed" (1+ / 0-)
              Recommended by:
              NCrissieB

              It can't simply be "wanting more", because sometimes that's necessary and good. And it can't just be sour grapes on the part of those who also wanted more, but didn't get it.

              Any suggestions?

    •  Wages (2+ / 0-)
      Recommended by:
      winterbanyan, NCrissieB

      to some extent, are a proxy for that elusive "standard of living" at least as far as living standard encompasses things we buy or rent. Lowered wage expectations then, would mean lowered purchase expectations: stew instead of steak and potatoes; the kids have to share a bedroom instead of having their own room; a garage full of bicycles and you check the weather before you bicycle off to go shopping. That sort of thing.

      We need to start stories about how saving up for high quality stuff is actually cheaper than buying less expensive low quality stuff. For example: I bought a top of the line coffee grinder 40 years ago, which is still grinding away. It was relatively expensive, but spread out over forty years, it's almost like I'm grinding coffee for free. I used to buy cheap gym bags, and they'd last about a year or two before they fell apart. I finally splurged and spent five times the cost of a cheap bag to buy a top of the line gym bag, which is now somewhat weather beaten but still has working zippers, handles that are attached and seams sewn shut.

      Good morning, and ::huggggggggggs:: to all.

      "The problems of incompetent, corrupt, corporatist government is incompetence, corruption and corporatism, not government." Jerome a Paris

      by Orinoco on Thu Jul 09, 2009 at 08:09:51 AM PDT

      [ Parent ]

      •  Delayed gratification ... (2+ / 0-)
        Recommended by:
        Orinoco, winterbanyan

        ... is an important element of economic theory.  In most cases it's more economical to save rather than borrow, and to buy quality (even at a price premium) when you can.  Both require a tolerance for delayed gratification.

        As for lower wage expectations, is not a standard of living problem when prices are falling, which is when Akerlof and Shiller say it's most necessary.

        Good morning! ::huggggggggggs::

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