Yes, you are misreading. I said stagflation is a bad economy. I agree that (some of) the 1970’s constituted a bad economy. What I objected to was the comment that
This included inflation (together with the other factors mentioned) as a requirement for a bad economy. It isn’t, and history shows that there can be “bad economies” without inflation. Long periods of deflation can be crippling for an economy as well. I don’t buy into the neo-classical dogma that inflation is, and always is, a terrible thing to be avoided at all costs. It isn’t a good thing certainly (though low, stable inflation can be argued as being of little problem, even with some beneficial side effects) but it is one problem amongst many that need addressing.
I’m curious. Do you read anything which isn’t far leftist propaganda? Every time I see you provide a link, it’s to some partisan drivel. Do you even attempt to get a well rounded view by reading opposing viewpoints and thinking about what they may have right to come to a balanced opinion, or is it just a straight regurgitation of what the Daily-Kos crowd tells you to think? I only ask because you seem like a smart enough guy, but you seem to have a real aversion to doing anything except regurgitating the talking points of the far left. Your posts are heavy on quotes from other people, and light on what you actually think.
The US is a large country made up of many different economies. The economy where I live is doing just fine. I doubt that many folks in Michigan would say the same thing. I’m not sure it really makes much sense to talk about the economy as if it were just one thing.
Ok. Let’s take a first world economy with less than 1% GDP growth, declining PPP, unemployment over 5%, a rapidly sliding currency, and a precipitous weakness in domestic demand (PSAVERT increase from .6% to 5%). Let’s not call it a “bad” economy: let’s call it a “shmad” economy. In fact, we can call it whatever we like, because such normative nitpicking is neither interesting nor particularly useful.
This is by no means a silly point of view. But there is a downside to the added resilience. In the past, the peaks and troughs of the business cycle might have been more pronounced, but due to capital inflows from places unaffected or less affected by downturns, the economy was able to recover relatively swiftly. Modern information technology has blunted this effect: the peaks may not be as deep as they used to be, but we can no longer count on a Japanese or European bailout. The dominant world economies appear to be much more “in phase” than they used to be, so there are fewer dollars/yen/whatever available to take advantage of value opportunities when the US economy is struggling.
The examples of IT driving global economic sensitivity are legion: a bit of a bond sell-off in NZ last June kicked the Dow’s teeth in, statistical arbitrage funds all over the world poleaxed each other later that summer due to the impact of margin calls and similar worldwide trading algorithms, etc and etc.
But at the end of the day, it’s still just a plasma TV. How much having this gadget contributes to social welfare is (and should be) the subject of extremely vigorous debate.
To be fair, what I usually see from him, at least on this subject isn’t partisan, per se; I don’t see anything particularly “left wing” about Kunstler’s predictions, apart from the rather misty eyes I’m seeing over the new 19th century society he foresees (unless you count the apparent lack of faith in the free market).
Yes, he tends to just cut and paste large portions of Kunstler, but I see that more as… a large dose of enthusiasm than political. His political posts tend to be MUCH lighter on quoting.
Kunstler is no Luddite and he no more wants his predictions to come to pass than you do. His new novel, A World Made by Hand, set in a post-oil future, is steeped throughout with regrest and sense of loss.
You’ve said this before. But as someone else in another thread pointed out, why did he use the exact same predictions and imagery about Y2K? It certainly makes him look like he has a “goal” in mind and is looking for something to achieve it.
But to try to stop this hijack, Kunstler certainly brings up an interesting question that might affect response to the OP: what exactly counts as “the media” these days? Politically oriented books in the bookstore? The Daily Kos? Wikipedia?
Sure they do. Theoretically their employer might be paying more for health insurance, but they’ve seen co-payments increase and their cost of insurance increase - even for people with excellent insurance, like me. You’re insulated from this by being ruled by them dem socialists, but it is true.
Lets talk about jobs. Unemployment went from 4.5% to 5.5% last year, but the underemployment rate, counting those unemployed but not looking or those who have been forced to take part time work went from 8.3% to 9.7%. (source - today’s Times, article on Job Loss Cycle extending to '09, p. A13 in print version.)
Strictly true, but with auto sales down between 17 and 35% this month (except Honda with a 1% gain) it might not last. As for jobs, most of my daughter’s college student friends couldn’t find jobs this summer (as opposed to past years when they did.) My daughter did, but she has a crackerjack resume. And the job situation in the Bay Area isn’t all that bad in general.
It is not at all clear what the best inflation vs. growth policy is, given that a lot of inflation is based on food and oil prices, and isn’t structural. He managed to avoid a collapse of the financial system, so he deserves a lot of credit. He inherited a mess.
Ah, back to a barter society built around E-Bay and PayPal. That’s not a recipe for real growth. And the resilience of the economy, as is now obvious, was built around the housing bubble and debt. Too bad for the Republicans that the music stopped before they were able to run a 2008 campaign based on the strength of the economy, never mind the rotting timbers.
Ah yes, the “poor people today are richer than Henry VIII” argument. That’s crap. I grew up before many people had color TVs, before microwaves, before PCs, before air bags, and even before transistor radios, not to mention MP3 players. For some odd reason I didn’t miss them, and didn’t feel poor for not having them. The economic well being of a person or family depends on his financial security, his relative placement to others, his free time, and how much he has relative to what is available. I somehow doubt that a TV, DVR, and internet connection makes someone buried in debt feel a lot better.
Your sentiment isn’t new - Will Rogers talked about how his generation was the first who drove themselves to the poorhouse.
I didn’t say it was a great economy, but since good and bad are relative terms, the only way you can say an economy is ‘bad’ is to compare it to historical ‘bad’ economies.
Since I was born, there have been four recessions - 1973-1975, 1980-1982, 1990-1991, and 2001-2003.
The 1973 recession was marked by Stagflation, a quadrupling of oil prices, and the Dow Jones lost nearly half its value. Inflation went to 12%, unemployment to 9%.
The 1980-1982 recession saw inflation spike to almost 15%, unemployment went to 11%, interest rates to 16%. I was just out of college at the time, and remember the insanity well. Unemployment among young people was over 20%. A loan for a crappy car was still huge, if you could get one. The Dow Jones lost 25% of its value.
The 1990-1991 recession was very mild. It only lasted a few quarters. Interest rates started at 8.1% and declined to 5.6%. The Dow Jones lost 20% of its value, but recovered almost immediately. But unemployment was still almost 8% at the peak.
The 2001-2003 recession was even milder. Interest rates started at just over 6% and declined to under 2%. Unemployment spiked at just over 6% (just above teh historical average). Inflation was almost nonexistent.
I would categorize the first two recessions as ‘bad economies’. People were really hurting. There were price controls, savings were wiped out by inflation, mortgages were extremely expensive. My first mortgage in 1991 came with an interest rate of 11.5% - and we thought we were getting a deal, because it had been 13% just shortly before.
Today, unemployment is below historical averages. inflation and interest rates are still low. The market is down about 10%. We’re still at positive GDP growth.
That’s why it’s not a ‘bad’ economy, and we really haven’t had a ‘bad’ economy for over 20 years. Anyone under 40 doesn’t have any experience in a truly bad economy.
However, as I said, it could get a lot worse. I have to admit I’m more worried about the fundamental now more than any time in the past 20 years. There’s a lot of troubling signs on the horizon. Hopefully we’ll navigate our way through them and manage a soft landing - a mild recession or people almost zero growth for a quarter or two, followed by a slow recovery.
It’s not just health benefits. More employees get stock benefits and 401(k) plans, more employees get better vacation plans, and the working hours per week have declined in the past 20 years.
Let’s compare apples to apples. we have historical data for unemployment, which indicates that unemployment is still below the historical average. There were underemployed people back when the unemployment rate was 11%, too - plenty of them. And lots of people taking part time work as well.
I don’t disagree that things could get worse. And they probably will. I’ve been talking about the economy of the past 8 years up to today, which has actually been pretty good, despite the efforts of the media to talk it down almost that whole time.
Perhaps. But a lot of other central bankers are becoming increasingly vexed with the Fed’s actions. In a way, this does remind me of 1973, when stagflation was kicked off by aggressive rate cutting from the fed in an attempt to forestall a recession.
It’s not just ebay. It’s the general availability of information. Information asymmetries are a prime cause of market inefficiency, and more information is available now than ever before. Consumer information like quality and safety info, private reviews on sites like Amazon elevating good products and punishing bad ones, ‘push’ e-mails alerting interested people when market conditions change, etc. It’s harder for companies to charge high prices, because people can easily comparison shop globally. Bad business practices have light shone on them much more efficiently now.
In the old days, if you screwed someone over, you might lose the business of their family and friends. Now they might start a web campaign against you and cost you millions. This forces business to be more on their toes and offer quality products.
Really? And what made the economy resilient in 1991? In any event, houses didn’t hit their peak values until 2007. By the way, house prices are still well above inflation-adjusted averages, and in fact are still above the 2003 average. That could mean there’s farther to fall, but if they don’t, the net result of the bubble will be higher home values.
This is a crock. You say that what matters is financial security, relative placement to others, and free time. If salaries had gone up 20% for everyone in the last ten years, couldn’t you make the same argument? The economy sucks, because everyone still has the same amount of stuff relative to everyone else?
And the value of this stuff isn’t that intangible. I can remember a time when families went into debt to buy an encyclopedia, and ownership of an encyclopedia set was considered a sign of wealth. Today we all have access to resources vastly superior to that for next to nothing. People live longer, because we have better medical treatments. We have better dental care. Our houses are bigger, our cars are better. We can afford to fly more. I can remember when only the wealthy flew, and the rest of us piled into station wagons and family cars and drove cross-country in the summer without air conditioning, eating up days of our 2-week vacations in travel.
If you think that what counts as a good economy is financial stability and leisure time, all you have to do is accept a 1980 standard of living, and you can have it.
All he was saying is that no matter how much you have, you will want more. I’m sure this is true, but it would be true even if salaries went up 50%, so I fail to see how it’s relevant.
Cite? You forgot to mention bonuses. Options, ESPP, and bonuses are all very nice, but they are used as a substitute for raises. 401 Ks are used instead of defined benefit pension plans. I’m not disputing that they have advantages, but I’m not sure they involve a true increase in compensation. When I worked for AT&T, I got both. For vacations, I haven’t seen any change in 28 years. For working hours, I’ll buy that for hourly employees, since having people work 30 hour weeks means you don’t need to provide benefits. I’d say salaried people are working longer hours. It used to be that when you had a pager you got compensated for being on call, now everyone has a cellphone and is on call all the time.
I never said we’re in a depression, just that we aren’t anywhere near full employment.
I was lucky enough to be in grad school back then, but we don’t have the makings of the wage/price spiral there was then. We’ll get screwed in a different way. It is way too early to tell the right way to go. I’m not a graduate of the U of C, I only paid for a graduate of the U of C.
All those are good things. The bad thing that goes along with it is pressure on wages, which has hurt purchasing power. Robert Reich had a commentary on this on Marketplace today, recommending an increase in infrastructure spending and a middle class tax cut (paid for by a upper class tax increase) to increase purchasing power.
First, most of those who have bought in the past two years have negative equity now. The big difference between this bust and others is that this one is nationwide, while others were regional. Second, if you have been taking out home equity loans based on the increase in value of your house, all you care about is the current value versus your indebtedness, not the increase in value. My town hasn’t been hit very hard, but there are still plenty of sales each week from a bank, showing the property was foreclosed.
If no one had borrowed on their homes, the problem would be much less. Plus, plenty of people planned based on new home equity loans capitalizing on the increase in value that didn’t happen. Add that to the credit crunch, and you have a real problem.
Were they stupid to do this? I sure didn’t. But if they hadn’t we’d have gone into recession much sooner. Surely you’ve seen the numbers on the increase in indebtedness?
If salaries just go up without any backing, we have inflation or stagflation. Salary increases should come out of productivity increases, which can be split between bigger profits and higher wages. In the past seven years it has all gone into bigger profits, which is one of the things increasing the gap between the top 10% and everyone else.
The topic we’re discussing here is if the media is giving an unduly bleak picture of the economy. The health of the economy depends on where you stand. If you are a CEO, (not of Bear Stearns) the economy has been great. If you are a lower middle class worker, it hasn’t been so hot. In the past you could keep up, and buy all the cool stuff, without going into debt. Today those people who have the big TV, but the credit card bill at 15% interest or whatever it is, aren’t as well off as those who had a smaller, paid for, TV. At the least, they don’t feel very well off, which is where the woes are coming from. You seem to be telling people that they are not supposed to feel bad about the economy since that contradicts your fervently held economic theories.
People judge themselves against what they see around them, not what their parents and grandparents tell them. I’m not denying that we’re better off by those metrics, just that we feel that we are better off, which is what drives consumer confidence. That’s at its lowest level in decades - is everyone deluded?
I started working in 1980. I moved from a nice little house to a nice apartment in Princeton, had a good paying, less stressful job, had a small color TV (but not much smaller than anyone else’s). No web, no email at home, no cell phone, no microwave, but we didn’t miss them. No school debt either (or a trivial amount.) I was not living in primitive squalor. Now the economy wasn’t that great back then, and in fact the house prices where I used to live tanked, just like they’re doing today, but, even so, I think the average person felt better about things than they do today.
If this thread is still active when I come back from my daughters wedding, I’ll give a reference to how people feel about their positions. My daughter is in grad school working on behavioral economics, and she’ll have some research readily available.
One difference between the situation today ( a bear market, but not a recession yet) and the previous ones is that people went into them in fairly good shape, while people are going into this one loaded with debt and in a very precarious position. That a result of the “good” economy of the past seven years not benefiting the general population. Maybe that is why consumer confidence is so low today.
All good points. I’m not optimistic either. Not only do you have a bunch of structural issues, but we’re right on the cusp of the baby boomer retirement, which is going to balloon government spending and take a whole bunch of productive people out of the economy. Health care expenses will almost certainly increase dramatically. And the government is already heavily in debt and the public is overextended. So yeah, the danger flags are flying for sure.
On the other hand, we’re kind of charting new territory since the world economy is much more open and intertwined than it was during the last big recession. It’s hard to see how that plays out. It could have a magnifying effect if a sharp recession in the U.S. triggers a global recession. Or it could bail you out because world GDP is growing and trade may act as a stabilizing influence. Then there are various technologies, from increased computing power to alternative energy systems, which have the potential to change the game somewhat.
But overall, I’m pretty bearish right now. I’m holding a fair bit of cash in my RRSP, trying to figure out where to park it. Any ideas?
I don’t want to spend too much more time debating whether this is a “good” or a “bad” economy, but I do want to submit for your consideration that comparing this economy to historical economies strikes me as a bit of a non-starter. Data collection methods and methodologies have changed, technology has changed, and you can do a lot more with your capital now than you ever good. It is hard to imagine comparing the state of worldwide capital markets to a period when, say, mortgage bonds did not exist. This is not exactly apples to apples.
The more compelling, if fuzzier, metric to think about is how the economy is performing versus expectations and versus current capacity. With that in mind, I thought the NYT’s front page phrase about the economy was felicitous: a “slow motion recession”.
And damn, I wish I had some good ideas for where to put your excess cash. I have taken such a beating lately, I am the last person who should be giving advice.
Stones economy is fine. Therefore everyone else’s is fine. If yours is bad you are ululating at the economic moon. Six straight drops in unemployment. Industries that supported higher wages going abroad. Wages dropping as productivity rises. Benefits slashed. http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/stratification/income&wealth.htm A dangerous redistribution of wealth with the rich getting rapidly richer as the economy sheds jobs.
Been food shopping lately? Prices are going up at a shocking rate. Gas ,up,up,and up.