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View Diary: Simon Johnson: U.S. isn't in fiscal crisis, but we're on our way (52 comments)

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  •  That's supply sider thinking. (1+ / 0-)
    Recommended by:
    SherwoodB

    Coupla things:

    The majority of consumer goods are not made here, and we owe the people who did make them for us a lot of money.

    That's what a deficit is.

    And that supports we do not produce enough to account for our consumption.

    Without understanding that, we cannot realize why we don't have the production we do.

    Demand comes from wages.  When we sent the means of production overseas, transitioning to a service economy, demand dropped with wages, and at the same time, the cost of operating our society rose, because we were paying others to do what we could do ourselves.

    The key thing driving this mess is the trade policy.  When it's cheaper to have other nations produce for us, we do not value our labor properly, but they do.

    And in the end, at the macro scale, labor accounting comes down to this:

    Who is spending their time laboring for who?

    Time is wealth.  Wealthy people have lots of time they can do what they want with.  Poor people do not have as much time.

    The other nations laboring for us expect a return on that investment, and that's our deficit, because of this one pesky dynamic:

    What do they buy with our dollars?

    If we don't produce enough to back the dollars, they will buy us, and our means of production, and look at all the foreign ownership of our means of production!

    So, even if we increase production, and even if we do it as you say to stimulate consumption, the profit from that leaves the nation, does not end up in the treasury, leaving us poor.

    We will remain poor this way, because of the basic labor accounting that cannot be written away.  Because we let them buy us, they own that wealth, not us.

    The product of that is we buy goods, or even produce goods here, and the profits for a great quarter go overseas, where they get taxed and pay for their universal health care, while we squabble over scraps.

    We must abandon that supply side / free market ideology, and take a macro view of our national economics, and structure the trade agreements in ways that encourage domestic production, domestic consumption, and domestic exports in amounts that are greater than our imports.

    Or...  we need to fight a war and acquire significant new wealth...

    Or...  we suffer a much reduced standard of living, or Austerity, in a attempt to better balance things.

    Or, we let a lot of people die, which would reduce the cost of the society as a whole.

    That's reality man.

    IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

    by potatohead on Sun Feb 27, 2011 at 04:11:04 PM PST

    [ Parent ]

    •  You couldn't be more wrong about everything! (0+ / 0-)

      First, how you could possibly equate my demand focused analysis with supply side thinking is just ludicrous.  Obviously, there is way too much supply on the market now which is why inflation is so low.

      Demand comes from wages.

      No, demand come from consumers buying things.  They may buy on credit, they may sell stock and buy with that cash, they may realize capital gains and use that to buy.  Wages can also be saved, rather than spent, and that is a big problem right now too.

      What do foreigners do with our dollars?

      If we don't produce enough to back the dollars, they will buy us, and our means of production, and look at all the foreign ownership of our means of production!

      Wrong again.  Foreigners have been buying our Treasury bonds by the trillions of dollars.  That is why our interest rates are so low, which is another big plus for our economy.  They have also been buying our stuff:

      Overseas demand for American goods is helping support manufacturers. Exports rose 1.8 percent in December to the highest level since July 2008, according to Commerce Department data released Feb. 11. For all of last year, exports increased 17 percent, the biggest one-year gain since 1988.

      http://www.bloomberg.com/...

      Your "analysis" of our economic situation is just pathetic, but typical of the nonsense here on DKos.

      •  I think you need to reconsider some of your (0+ / 0-)

        commentary.

        There is a reason why "typical of DKos", and that is you have some basic misconceptions.

        Demand is only possible when people have access to dollars to spend.

        Notice how the banks tightened up the credit?  Notice how wages are flat and ordinary people are seeing much higher costs and risks in their lives?

        That all suppresses demand.

        Pay the people more, or lower their risks, or give them access to cheap credit, and they will spend, generating demand.

        Now, if that money is spent on things not made here, or on goods owned by a foreign corporations made here, most of the benefit of the demand being satisfied doesn't go to helping run the nation.

        It goes instead to fund some other nation, say Belgum, who owns Busch.  Now drink a Bud, and help pay for universal health care in Belgum, not here.

        Our exports do not bring in enough to run the nation.  It doesn't help that we have most large corporations paying little to no tax at all, and it doesn't help that our treasury is seeing low revenue numbers, through depressed wages, due to lots of jobs overseas.

        That's the balancing act we are failing.

        Our domestic production simply does not support our level of consumption.

        That is what a deficit is.

        Really, your whole argument is George Bush, "Support the US, go shopping!"

        Here's a little reality check for you:

        No, demand come from consumers buying things.  They may buy on credit, they may sell stock and buy with that cash, they may realize capital gains and use that to buy.  Wages can also be saved, rather than spent, and that is a big problem right now too.

        You wrote that.

        Most people right now are month to month.  There are no stocks to sell, no dividends to spend, and no savings to draw from, because they've been bled dry due to the massive wealth leaving the nation.

        That is what happens when you send so much production off shore.  

        We can't make a living here doing each others nails and laundry, and that's the problem.

        Pay them more, put production here, raise the income level, and demand will come up, and we will see the mutual benefit of that in terms of our domestic economy.

        Roll back the tax cuts, so that the safety nets are well funded and expanded to actually help people, and that will increase demand more still.

        I do give you two bonus points for trying to express supply side ideas as demand though!

        IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

        by potatohead on Mon Feb 28, 2011 at 12:13:18 PM PST

        [ Parent ]

        •  Wow (0+ / 0-)

          Your level of ignorance is just mind boggling.  You actually believe that buying a Honda made in Ohio is less beneficial than buying a Ford made in Canada that is sold here?

          Do you just make this stuff up by yourself?

          The problem is that Americans have stopped spending money like they did before the Collapse of 2008.  If we don't spend, unemployment goes up.  Why you can't grasp that basic concept, which Keynes established 75 years ago, is just beyond comprehension.

          •  Devaluing people doesn't make for (0+ / 0-)

            effective advocacy.

            My post is clear on my economic position, as is yours.  Now, I went through and answered it, while you more or less decided on some attempt to marginalize me.

            This appears typical, after a quick review of your comment history.

            One would think so many interactions would reduce the level of surprise you experience, given you've been here for a while.  But, that's understandable, in that maybe it just takes a while to recover from the differences.

            Take your time, by all means.

            Now, let's talk about just why Americans don't spend money like they used to.

            A large and growing percentage of them simply don't have it to spend!

            Have you considered that there may be a link between the collapse and the lack of spending today?  If not, you really should give that some consideration.

            The middle class really has taken it in the shorts income wise.  Has been going on for 30 years now, and the truth is, housing values were inflated, and that used to fund spending, despite wages or buying power per hour work not actually being adequate to support that spending.

            When the collapse happened, the "house as ATM" game was over, and it's still over!

            The average income is very low compared to what people need to meet their needs.  You can pick whatever chunk of the income curve you want, but it's safe to say $30K to 50K is considered "good income" by a lot of people right now, many of whom make considerably less than that.

            So then, let's take the $40K and look at why somebody isn't spending.

            $40K, maybe a kid or two, and a home and a car.

            After taxes, that's maybe $29K or so, depending on deductions, and let's just be generous and say it's $30.

            Divide that by 12, and you get about $2500 / month.  A very large number of my peers have income levels in this range right now, many down from nearly double that as their family wage jobs were outsourced for ones that pay considerably less.

            If both parents work, then maybe we can add another $1000 a month or so to that, for $3500.

            There are two kinds of spending.  Wants spending, and needs spending.  Generally speaking, demand for wants is dependent on what needs spending looks like.

            If that family owns a home, their mortage could run from say, $900 to $1700 or so, depending on a lot of factors, the primary ones being their overall home value, and whether or not they have done a lot of refinancing to pull equity out of the home.

            A renter where I live, can expect to pay $700 to $1200 for modest living, and deffo that amount for a small family.

            Food for a small family can run a few hundred dollars a week, so let's just call that $250 or so, and be very conservative about it.  That totals $1000, with two kids, your typical American family, that's not out of the norm, if they expect to eat reasonably healthy.

            So we are at $2200 now, out of $3500.  let's round down a bit to account for variance and just say $2000.  Fair?

            Utilities are on the rise, particularly in those regions where they are privately operated and poorly regulated.  Where I live, this is not true, and those amounts are small.  $300 a month or so, maybe $350.  Where I lived before, it was double that, so let's just say $400 and call it good.

            That's $2400 out of $3500.

            Many people drive to work, and that's easily $40 a week for gas, totaling $160.  Round up for trips to school, and if both parents drive, let's say $300.

            $2700 now, only 700 left for spending!!

            A modest family has a entertainment budget of a coupla hundred dollars per month, and potentially some subscription TV on top of that, so let's say $300.

            $400 left now.

            If they have kids, they need things, clothes, health care, school fees, and the many other little bits of cash needed throughout the month.  Honestly, that can consume the $400, depending on the time of year, but a family could choose to spend instead of taking care of their kids, so maybe they finance a HDTV, or something, and call it good.

            Your call there.

            Now, what's unaccounted for?

            401K contributions?  Health care premium contributions.  Car and home insurance?  Tools and materials needed for home repair or to perform labor?

            Where's the money at pal?

            Are they hoarding?  Are you fucking high?

            This is where half, or more of America is at right now.  

            The spending is not happening, because they don't have any money to spend, and that's a fact for a growing number of people.

            To these people, tax cuts don't do any good, because they don't have liquid dollars.  To these people, there is no pulling from savings, if they even have it, to take advantage of some good discount incentive.  Many of these people use their personal credit to account for those bad things that happen, which I did not account for here.

            Car repair?  Medical Supplies?  New Appliance?  

            We get demand by putting money in peoples pockets.  They then will decide to spend on their needs, and if those are met, their wants.

            We could work to raise wages, for example.  Bringing those up seriously impacts demand in a positive way.

            No amount of supply helps the person who doesn't have liquid dollars to buy it with.

            We could reduce their risks!  Universal health care is a big deal here, with many families paying anywhere from a few thousand to 10K or more per year for health care coverage, not to mention the supplies, deductable, etc...

            That would generate a TON of demand, which is why many of us progressives pulled for a medicare for all type program.  Huge stimulus right there.

            We could simply give them money, but that only works for a while.  Why?

            Once the buying is done, they are back month to month again, and because most of that money leaves the nation, the longer term effects of it are limited.

            So there you go.  I seriously doubt you are going to be well received, walking around like a clown saying, "go shopping to generate jobs", LOL!!

            IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

            by potatohead on Mon Feb 28, 2011 at 09:27:46 PM PST

            [ Parent ]

            •  Where's the money at pal? (0+ / 0-)
              Are they hoarding?  Are you fucking high?  - Marginalize Much? -
              The spending is not happening, because they don't have any money to spend, and that's a fact for a growing number of people.

              Here's why you are wrong.

              Back in 2009, as the Great Recession was hitting bottom, Congress enacted the "Cash-4-Clunkers" program that increased auto sales by nearly 50% overnight to an annual sales rate of 14 million.  Thereafter, auto sales gained momentum to the point that sales are nearly normal now.

              How could that have happened if people "don't have any money to spend"?  Clearly, people did have money to spend and are still spending it creating tens of thousands of jobs for auto workers and making the companies they work for, both foreign and domestic, profitable again, some for the first time in many years.

              Your "solution" -

              a medicare for all type program.  Huge stimulus right there.
              would not generate any jobs except in the healthcare sector which is already sucking up massive amounts of spending without producing better health outcomes for Americans.

              As a real economist, Dean Baker, has said many times, if America spent the same amount as other major countries do on health care, we would have federal budget surpluses now instead of record deficits into infinity.  But you think it is "progressive" to waste billions of tax dollars giving Big Pharma and the hospital industry massive profits by ripping off Medicare and Medicaid.

              Like I said, your ignorance is staggering.

              •  Yeah, and I think you are acting like the ass (0+ / 0-)

                There is a difference between finding ways to get the money that is out there moving, and doing things that contribute to that pool of money in a material way.

                Cash for clunkers turned old cars into money, which lowered the bar for people to spend on new cars.

                I don't dispute the potency of that, but it was only effective for those able to spend, or who had access to credit.

                The family I just outlined, is very typical, and there are a ton of families right there, with the numbers growing every day.

                Cash for clunkers didn't work for them.  What will work for them are things that free up liquid dollars, and that means either:

                lowering their month to month costs and risks, like health care would for example

                , or

                increasing their wages, like public works programs, domestic production would do.

                The kinds of things you advocate operate for those people who have credit, or enough income to make choices on spending.  That's actually not the growing norm, because we have a cheap labor policy here, and we continue to push cost and risk onto the middle class.

                I'll bet a cookie you are fairly affluent, probably upper middle class professional or better, with peers who are the same.

                I'm the same, for what it's worth, with a difference.  I got hit by the health care issue, with a sick person forcing the loss of all I had built up.  Now I am here, no real working credit, lots of bills, and basically month to month.

                Frankly, I'm one of the lucky ones, because my income is actually considerably higher than what I wrote above.  However, the MAJORITY of my peers are pretty much where I detailed above.

                You walk in to that group of people with this message, and they will laugh you out of the room.

                I'm laughing at you, because I don't believe you actually understand where most people are at, nor do you understand how those numbers are growing right now.

                The stock market looks good.  Corporate profit is at a all time high right now, but it doesn't trickle down like you say.

                Never has.  Never will.

                People are not hoarding money.  Well, let me correct that.

                Affluent people are hoarding money, not spending as much as they could.  You are correct on that.

                Most ordinary people simply don't have the money to spend, unless they have access to cheap credit, and even then it's difficult because they have costs and risks, and that line of credit needs to be liquid so they can deal with that.

                And again, devaluing people doesn't make for good advocacy.

                Your disdain for people who bother to tell you how it is spending wise is not all that attractive, and it sure as hell doesn't boost your credence.

                It's actually the number one response I see from people who are presented with information that's difficult to rebut.

                Now you tell me, step by step, how that family I just outlined, assuming a small $1K or so line of credit being available is going to go out and spend.  Tell me where the money will come from, and how they would structure their choices differently to boost the economy.

                Will it be less for the kids?  Cancel the insurance policy that's "optional"?  Maybe they win the lottery?  

                And what happens with that credit line full, and they need to fix their car, or the kid breaks a tooth?

                Show your work.

                IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

                by potatohead on Tue Mar 01, 2011 at 08:45:37 AM PST

                [ Parent ]

                •  Here's your answer right here (0+ / 0-)

                  Get a job at GM, especially a salary job:

                  GM to pay more than $400 million in worker bonuses

                  DETROIT (AP) — Less than two years after entering bankruptcy, General Motors will extend millions of dollars in bonuses to most of its 48,000 hourly workers as a reward for the company's rapid turnaround after it was rescued by the government.

                  The payments, disclosed Monday in company documents, are similar to bonuses announced last week for white-collar employees. The bonuses to 76,000 American workers will probably total more than $400 million.

                  Most of GM's hourly workers will get a record payment of more than $4,000 — more than double the previous record in 1999, at the height of the boom in sport utility vehicles and pickup trucks. Nearly all 28,000 white-collar workers such as engineers and managers will get 4 to 16 percent of their base pay. A few — less than 1 percent — will get 50 percent or more.

                  Most GM salaried workers earn in excess of $100,000 per year. A bonus of 8 percent, the midpoint of the range, would give them roughly $8,000 each. That means GM would pay out roughly $224 million.


                  http://www.bloomberg.com/...

                  Beats the hell out of the minimum wage public works programs that you advocate:

                  Cash for clunkers didn't work for them.  What will work for them are things that free up liquid dollars, and that means either: lowering their month to month costs and risks, like health care would for example, or increasing their wages, like public works programs
                  •  Great!! (0+ / 0-)

                    Let's make a lot of stuff here, so we can get that money flowing.

                    Domestic production.  Said it a lot of times.

                    We need more of it, and I never advocated otherwise.

                    BTW:  That does fall under "raise their wages", which stimulates demand.

                    I in no way advocated we only do public works.  Seems to me, you just made my point nicely.

                    Thanks!

                    IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

                    by potatohead on Tue Mar 01, 2011 at 10:37:39 PM PST

                    [ Parent ]

                    •  This was your point (0+ / 0-)
                      Cash for clunkers didn't work for them.

                      C-4-C  worked for everyone by pumping up demand across the economy and stimulating consumption which is 70% of demand in America.  Most people are spending again and that is why over a million new jobs were created last year in the private sector.

                      Obama's health care reform did nothing to stimulate jobs or the economy.  That was the clear message from voters last November, but the Dems still don't get it.

                      •  no (0+ / 0-)

                        "the dems" are divided.

                        There are "the coin operated dems" and "the progressive dems".

                        The coin operated dems think like you do, and didn't actually pull anything back from the insurers, who still make a huge profit on doing nothing but handling money.  They don't actually add any value to the system'

                        The progressive dems wanted to put a public plan out there that would lower people's costs and risks, which would have made their dollars more liquid, creating demand, among other things.

                        Had we actually passed reform, instead of the illusion of reform, the story would be very different there.

                        Actually, had we passed most of the good legislation that came out of the house, the story would be very different, but coin operated Democrats see it the way you see it, and failed us, leading people to wonder just how the two parties are different, opening the door for the GOP.

                        Now, having opened that door, they are finding out that the GOP is still all about having it trickle down, and pushing costs and risks onto people, suppressing demand.

                        My core objection was the implication that people need to spend more to stimulate the economy, framed as people hoarding money.

                        If there is demand, then spending will occur.  If there isn't, then it won't, and all you have to do is look to the wealthy to see that in action right now.

                        IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

                        by potatohead on Wed Mar 02, 2011 at 07:27:45 AM PST

                        [ Parent ]

                        •  So, No Paradox of Thrift for You? (0+ / 0-)
                          My core objection was the implication that people need to spend more to stimulate the economy, framed as people hoarding money.

                          Prof. Krugman says you are wrong.  So do I.  This concept has been well established for many decades, so why don't you get it?

                          http://krugman.blogs.nytimes.com/...

                          •  Not for me, thanks. (0+ / 0-)
                            Wow interesting stuff. No matter which way you consider it they are interlinked. Which comes first a decrease in GDP or a decrease in investment? You can’t consider each individually. From a novice perspective, this seems like an increase in our personal savings is our enemy. I doubt you’re advocating this, but superficially it seems like George W.’s assertion during the 2001 recession that everyone go out to the mall, would seem apt right now?! Confusing.

                            That comment pretty much sums up my general exception to this line of commentary.

                            IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

                            by potatohead on Wed Mar 02, 2011 at 11:32:54 AM PST

                            [ Parent ]

              •  By the way... (0+ / 0-)

                "are you fucking high?" was in response to your diminutive comments directed my way.

                It's not sufficient to claim another is ignorant.  You've got to demonstrate that, which you've failed to do.

                Usually, I like to have a bit of fun with that, giving as good as I get.  More entertainment that way.

                By all means, get as shitty about it as you want to.  I've the higher ground, and find it entertaining.

                IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

                by potatohead on Tue Mar 01, 2011 at 08:48:13 AM PST

                [ Parent ]

              •  Medicare for all isn't ripping off (0+ / 0-)

                medicare and medicaid.

                If we all could buy into that, at cost plus a few percent, the shared risk pool would be huge, saving us a lot of money, and the lower premiums would deffo free up dollars for spending.

                Let those programs bargian and use the leverage from all those people, and it would shave a ton off the massive profits from big pharma.

                That's what most other nations do, and it's a big factor in how much less they pay for their health care.

                However, that's another discussion.  I wrote what I did under the assumption that smart policy would be used to get the margins OUT of those two industries, operating on larger volumes, and lower costs per person, but that's just me.

                If you want, we can factor that difference of opinion out, and simply focus on either lowering the average persons cost and risk, or raising their income to generate demand.

                After all, that is what is needed for very large numbers of Americans, whose income does not meet their basic needs.

                IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

                by potatohead on Tue Mar 01, 2011 at 08:52:11 AM PST

                [ Parent ]

                •  Yeah, like that could happen (0+ / 0-)
                  Let those programs bargian and use the leverage from all those people, and it would shave a ton off the massive profits from big pharma.

                  Here's some news you obviously missed: Obama promised Big Pharma that there would be no bargaining on prices to get its support for his health reform bill.

                  Do you live on Planet Earth?

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