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

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  •  "Eke" means just getting by (2+ / 0-)
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    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-)
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      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.

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