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Thread: Fear and Failure: The Real Problem with the US Economy

  1. #1 Fear and Failure: The Real Problem with the US Economy 
    Veracity Vigilante inow's Avatar
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    An interesting article today from the NY Times suggesting that there is a lot of hysteria over issues in the economy which aren't event currently issues.... Things which continually get claimed but never seem to happen... A lot of talking heads babbling about things which never seem to come to pass. The data clearly and regularly rebuts them, but they keep on stammering about it like crazy people stuck in some kind of echo chamber fun house filled with contorted images in mirrors...


    And they're doing this when the central problem remains to be unemployment... and long term unemployment...

    Yet when we try to do anything about said unemployment, people scream about inflation which isn't happening, or how investors are scared of deficits which they aren't, or how the dollar is falling (which fell much farther under GWBush and Reagan, and nobody said a peep, nor do they recognize that it actually helped manufacturing because US goods suddenly looked more attractive with a cheaper dollar).


    It's bizarro world. Black is white, cats are dogs... and people are not able to find work no matter how skilled or hard working they may be.

    We should be addressing that right now... Forest for the trees, people.


    Fears and Failure

    http://www.nytimes.com/2011/05/06/op...06krugman.html
    From G.D.P. to private-sector payrolls, from business surveys to new claims for unemployment insurance, key economic indicators suggest that the recovery may be sputtering.

    And it wasn’t much of a recovery to start with. Employment has risen from its low point, but it has grown no faster than the adult population. And the plight of the unemployed continues to worsen: more than six million Americans have been out of work for six months or longer, and more than four million have been jobless for more than a year.

    It would be nice if someone in Washington actually cared.

    It’s not as if our political class is feeling complacent. On the contrary, D.C. economic discourse is saturated with fear: fear of a debt crisis, of runaway inflation, of a disastrous plunge in the dollar. Scare stories are very much on politicians’ minds.

    Yet none of these scare stories reflect anything that is actually happening, or is likely to happen. And while the threats are imaginary, fear of these imaginary threats has real consequences: an absence of any action to deal with the real crisis, the suffering now being experienced by millions of jobless Americans and their families.

    <...>

    Do the scare-mongers even believe their own stories? Maybe not. As Jonathan Chait of The New Republic notes, the politicians most given to apocalyptic rhetoric about the deficit are also utterly opposed to any tax increase; they argue that debt is destroying America, but they’d rather let that happen than accept even a dime of higher taxes. Yet the inconsistency and probable insincerity of their fear-mongering hasn’t stopped it from having a huge effect on policy debate.

    <...>

    Which brings me back to the destructive effect of focusing on invisible monsters. For the clear and present danger to the American economy isn’t what some people imagine might happen one of these days, it’s what is actually happening now.

    Unemployment isn’t just blighting the lives of millions, it’s undermining America’s future. The longer this goes on, the more workers will find it impossible ever to return to employment, the more young people will find their prospects destroyed because they can’t find a decent starting job. It may not create excited chatter on cable TV, but the unemployment crisis is real, and it’s eating away at our society.

    Yet any action to help the unemployed is vetoed by the fear-mongers. Should we spend modest sums on job creation? No way, say the deficit hawks, who threaten us with the purely hypothetical wrath of financial markets, and, in fact, demand that we slash spending now now now — which might well send us back into recession. Should the Federal Reserve do more to promote expansion? No, say the inflation and dollar hawks, who have been wrong again and again but insist that this time their dire warnings about runaway prices and a plunging dollar really will be vindicated.

    So we’re paying a heavy price for Washington’s obsession with phantom menaces. By looking for trouble in all the wrong places, our political class is preventing us from dealing with the real crisis: the millions of American men and women who can’t find work.

    What are your thoughts?


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  3. #2  
    Forum Isotope Bunbury's Avatar
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    You have to spend your way out of recession, and fix the deficit by raising taxes. Isn't it obvious?


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  4. #3  
    Veracity Vigilante inow's Avatar
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    I found this to be a rather interesting look at the fear of inflation right now:


    http://krugman.blogs.nytimes.com/201...isible-attack/





    It’s truly amazing that Washington debate is dominated by fear of the bond market. And it’s also truly amazing that nobody is suggesting that a government able to borrow long term at a real interest rate of 0.7 percent really should be taking advantage of those rates to finance some much-needed infrastructure investment.
    Rates are incredibly low right now... and will go up... relatively soon. Now is the time to borrow cheaply and maximize ROI.



    http://krugman.blogs.nytimes.com/201...under-the-bed/





    I’m glad to see Greg Mankiw agreeing with me on the absence of any inflation risk in the current environment. Maybe he should have a word with everyone else in his party.

    Here’s another way to think about the issue. As you can see above, wages have gone nowhere. Commodity prices, on the other hand, have gone up a lot lately (although they crashed last week).

    So here are a couple of questions.

    First, do you see any sign that workers are about to (or are even able to) demand higher wages to compensate for the higher prices of gas and food?

    Second, do you any sign that employers are getting ready to make more generous wage offers?

    Third, have you heard anything about companies feeling that they have room to raise prices by substantially more than the rise in their raw material costs?

    The answer to all three questions is clearly no. So what we have is a rise in raw material prices, which will largely get passed on the consumers, but no hint that this is spreading into a wider rise in prices; and with labor costs flat, that means we get a one-time jump in consumer prices, but no persistent rise in inflation.

    If you want to insist otherwise, you have to tell me how this is supposed to work. And I haven’t heard any coherent explanations to that effect.
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  5. #4  
    Veracity Vigilante inow's Avatar
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    Another column regarding similar.


    http://www.nytimes.com/2011/06/03/op...03krugman.html
    in important ways we have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns, whose wrongheadedness has been highlighted by recent economic data.

    To be sure, things could be worse — and there’s a strong chance that they will, indeed, get worse.

    Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. In particular, the effects of the stimulus would start fading out in 2010 — and given the fact that financial crises are usually followed by prolonged slumps, it was unlikely that the economy would have a vigorous self-sustaining recovery under way by then.

    By the beginning of 2010, it was already obvious that these concerns had been justified. Yet somehow an overwhelming consensus emerged among policy makers and pundits that nothing more should be done to create jobs, that, on the contrary, there should be a turn toward fiscal austerity.

    This consensus was fed by scare stories about an imminent loss of market confidence in U.S. debt. Every uptick in interest rates was interpreted as a sign that the “bond vigilantes” were on the attack, and this interpretation was often reported as a fact, not as a dubious hypothesis.

    For example, in March 2010, The Wall Street Journal published an article titled “Debt Fears Send Rates Up,” reporting that long-term U.S. interest rates had risen and asserting — without offering any evidence — that this rise, to about 3.9 percent, reflected concerns about the budget deficit. In reality, it probably reflected several months of decent jobs numbers, which temporarily raised optimism about recovery.

    But never mind. Somehow it became conventional wisdom that the deficit, not unemployment , was Public Enemy No. 1 — a conventional wisdom both reflected in and reinforced by a dramatic shift in news coverage away from unemployment and toward deficit concerns. Job creation effectively dropped off the agenda.

    So, here we are, in the middle of 2011. How are things going?

    Well, the bond vigilantes continue to exist only in the deficit hawks’ imagination. Long-term interest rates have fluctuated with optimism or pessimism about the economy; a recent spate of bad news has sent them down to about 3 percent, not far from historic lows.

    And the news has, indeed, been bad. As the stimulus has faded out, so have hopes of strong economic recovery. Yes, there has been some job creation — but at a pace barely keeping up with population growth. The percentage of American adults with jobs, which plunged between 2007 and 2009, has barely budged since then. And the latest numbers suggest that even this modest, inadequate job growth is sputtering out.

    So, as I said, we have already repeated a version of the mistake of 1937, withdrawing fiscal support much too early and perpetuating high unemployment.

    Yet worse things may soon happen.

    On the fiscal side, Republicans are demanding immediate spending cuts as the price of raising the debt limit and avoiding a U.S. default. If this blackmail succeeds, it will put a further drag on an already weak economy.

    Meanwhile, a loud chorus is demanding that the Fed and its counterparts abroad raise interest rates to head off an alleged inflationary threat. As the New York Fed article points out, the rise in consumer price inflation over the past few months — which is already showing signs of tailing off — reflected temporary factors, and underlying inflation remains low. And smart economists like Mr. Eggerstsson understand this. But the European Central Bank is already raising rates, and the Fed is under pressure to do the same. Further attempts to help the economy expand seem out of the question.

    So the mistake of 2010 may yet be followed by an even bigger mistake.
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  6. #5  
    Time Lord
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    The justification for the fears is still linked back to the real estate crisis I think. All those buildings getting made was creating jobs, and then the bottom fell out, and a whole lot of banks got left holding bad debts. Everyone is scared we'll spend our way into another bubble, only to see it burst.

    If you want money to get spent on job creation, I think the plan would have to address how those jobs will get to be permanent jobs. People are more likely to trust industries that form on their own, with no temporary incentive, to last.
    Some clocks are only right twice a day, but they are still right when they are right.
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  7. #6  
    Veracity Vigilante inow's Avatar
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    Quote Originally Posted by kojax
    If you want money to get spent on job creation, I think the plan would have to address how those jobs will get to be permanent jobs.
    I'd be curious to read an example or two of how that could be done. Aren't jobs always subject to volatility of some sort?

    I guess perhaps your point is that if we get a bunch of construction jobs, or jobs building roads, then sooner or later all the roads we need will essentially be available... at least for a while... and the temporary bubble created with those road building jobs will burst... So, instead we need to invest in jobs that will be steady for decades. Is that a fair approximation of your intended point? If so, I'm still looking for an example to help me better grasp the how of all of this.
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  8. #7  
    Time Lord
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    Quote Originally Posted by inow

    I guess perhaps your point is that if we get a bunch of construction jobs, or jobs building roads, then sooner or later all the roads we need will essentially be available... at least for a while... and the temporary bubble created with those road building jobs will burst... So, instead we need to invest in jobs that will be steady for decades. Is that a fair approximation of your intended point? If so, I'm still looking for an example to help me better grasp the how of all of this.

    Yeah. That is what I'm getting at. You're right that everything is volatile to some degree, but some things have built in volatility. There's the recurrence problem, like in your road example, and also there's the problem of artificial markets, where the government funds something into existence, and then ends up being its only customer. We don't want to do what we've done with the military industrial complex, and pay people to produce something that doesn't return any economic value, just to keep them working. Then they become dependent on government money and our taxes permanently increase, but overall we're not prospering from it.

    The industry must be sustainable, but also it has to be self sustaining, because we honestly can't afford for the government to be paying out a whole lot more in subsidies over the next few decades than it already does. A few temporary subsidies to jump start something is fine, though. I think they should do like with the X-Space-Games and pay out bounties to any company that manages to break into a new sustainable industry.
    Some clocks are only right twice a day, but they are still right when they are right.
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  9. #8  
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    If inflation "isn't happening", why are prices so high?
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  10. #9  
    Veracity Vigilante inow's Avatar
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    Quote Originally Posted by The Finger Prince
    If inflation "isn't happening", why are prices so high?
    Greater demand with same supply. For example, oil prices. Lots more demand in China. Another example, food. More mouths to feed, plus the additive factor of higher energy costs.

    If you want to discuss inflation and prices, I encourage you to avoid looking at commodity prices as you seem to be doing. Those are much more subject to volatility and short term influences, and also play only a small role in personal consumption, yet those are really the only things going up right now in any significant degree. That's headline inflation, and is not the place to focus when discussing policy or overall economy.

    When you look at core inflation, you see that the numbers are actually quite low, and are, in fact, below the expectations.
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