The Shadow Banking Market: A Hidden Cause of the Economic Collapse?

[russ_watters]

Time Magazine 25 people To Blame For The Financial Crisis.

http://www.time.com/time/specials/packages/completelist/0,29569,1877351,00.html

Thanks, I'd been looking for that! It is starting to get out of date, though...and it seems to be in a different order from what I saw before.

 

[ThomasT]

It seems to me that we all had something to do with shipwrecking the economy -- whether via willful ignorance or willful greed or whatever. So, if we accept that, then the question is, what can we do to prevent similar problems in the future? It seems clear enough to me that the financial sector isn't concerned with improving America's general economy. So, imo, the financial sector needs to be minimized, ie., reduced. There are, I think, a number of ways to do this. Will any of them be done? Imo, not without the institution of, and large scale election of representatives of, a major third party.

 

[CAC1001]

BILL MOYERS: As we’ve been reporting in our series on winner-take-all politics, the Millennials grew up in the years when crony capitalists and powerful officials in Washington rewrote the rules of the economic game to favor the relative few at the top over everyone else. That collusion brought devastating results, from the financial crash four years ago, to the greatest inequality in America since the great depression of the 1930’s. Our economy stopped working for everyday Americans.

Moyers's statement makes for a nice set of talking points, except that the "rules" of the "economic game" were not written to favor any relative few at the top while ignoring everyone else, and to just claim it was those policies that brought devastating results is really over-simplifying the issue. I would also completely disagree that we have "the greatest inequality in America since the Great Depression of the 1930's." Our economy worked just fine for everyday Americans. It had stopped working prior to the Reagan era. The areas where the economy has been bad for Americans are where there is a lot of excessive government involvement. The idea behind the Reagan polices was to free up the economy. Freeing it up is not rigging it to benefit special interests (large corporations utilize subsidies and regulations to rig the system). In fact, some of the large financial corporations at the time were very much even against the Reagan policies.

HEATHER McGHEE: Most of my friends, who are not political and don't have an economics background, who are starting out their lives right now, having children, getting a house don’t even think about the fact that these are common problems that could have public solutions. They don't think there could be financial aid for childcare. They don't think that health care could be portable and go with them and be guaranteed.

They don't think that there could be a pension that is more solid and durable than a 401(k). That's actually been sort of the most pernicious effect of the Reagan revolution is to take the horizon of public policy solutions that could really help people sort of off the radar entirely.

Where does she think the money for all of this stuff will come from? The Europeans have lackluster defense spending and high taxes and still can't afford it (well a few can, but generally they are very small and also lack defense spending). And their high taxes, such as the VAT tax, taxes the poor and the middle-income to pay for this kind of stuff, and raises the cost of living a good degree.

HEATHER McGHEE: They know that they have the problems. They just don't know that there could be public solutions.

I think that's one of the major projects that we have to do is really to create a generational comparison. Where we say, for example, 'My generation-- my grandparents were able to go to college, go to higher education, have a middle class life, save for the future, retire comfortably because of public investments that were made, like the G.I. Bill, because of the federal highway system, because of the retirement system that labor and union jobs were able to provide.'

BILL MOYERS: Well, that's what can happen in the public sector. That the public sector over the last 50 years has created a very large middle class for people who would otherwise never have gotten into it. And now with the assault on public unions and public sector, that ladder's being taken down, right?

HEATHER McGHEE: Absolutely. It's been so shocking to see the demonization of public servants. It's really part of this 40-year attack on the public. And I think the fact that we're seeing right now that teachers, public janitors, school workers, bus drivers, cops, firefighters are the new welfare queens in our public life.

Maybe because of the reputations some of these public-sector unions have for demanding excessive pay and benefits? For using the public treasury to essentially buy politicians who will do their bidding (i.e. pay them more money and further enlarge the govenrment in the name of strengthening the unions?). Not to mention the thuggish behavior many of these public-sector unions utilize in order to get their way.

I also disagree with Moyers's assertion that the public sector "created a middle-class that would never have gotten into it." Public-sector workers produce nothing. Whatever money they make is money that is either from debt or from tax revenues taken out of the private-sector.

I mean, really they are. I mean, if you think about the stereotype that's being trafficked right now. They're talking about these lazy, you know, bloated pensions that are just, you know, cheating the system. I mean, that's the welfare queens of the 1980s. And what has been-- what's the same between the welfare queen and this image of the postal worker who doesn't really deserve the benefits they're getting? These old shop worn stereotypes of race and gender.

As with so many leftists, it's again about racism or sexism for her.

BILL MOYERS: Does it seem to you that inequality is sort of the bequest your generation has been handed.

HEATHER McGHEE: Absolutely. I mean, our generation is, you know, the most diverse generation in American history. Half of young people under 18 are children of color. But we are also the generation that is experiencing this record inequality, inequality in our economy and inequality in our democracy.

Minus the current recession, which may well be being prolonged by the current administration, my opinion would be that her generation is experiencing record equality, not inequality. Just the job market right now stinks.

BILL MOYERS: What do you mean inequality in democracy?

HEATHER McGHEE: Well, let's take, for example, the fact that since I was born, there's an entirely new industry that didn't used to exist. That of corporate lobbyists, for which there are now 24 for every member of congress.

I mean, if you think about who people in congress spend their time with, who they listen to, who they spend one out of every three minutes that they're in office fundraising around, it is people in the top one percent. It is their lobbyists. It is the corporate CEOs. And so much of the policy decisions, whether they are the decision to keep the minimum wage low.

I mean, if we-- the minimum wage was at its peak in 1968 and has lost nearly half of its purchasing power. I mean, just think of that one policy decision that is a number one target for the Chamber of Commerce, year after year, to make sure that the minimum wage stays low. That absolutely benefits people who are invested in big corporations and the executives of big corporations. But the American worker has seen their buying power erode and erode.

Actually, big corporations such as Wal-Mart favor a minimum wage because it hurts smaller businesses: LINK (although Wal-Mart claims its to help the customers ). Wal-Mart's latest move is to create new "Express" stores, small Wal-Marts which if successful are menat o take on dollar stores and mom-and-pops.

And raising the minimum wage is not going to change anyone's buying power. You can't subvert the laws of economics just because you don't like them. In addition, unions have traditionally favored the minimum wage to price cheaper-priced labor out of the market. She talks about youth being unemployed right now, what does she think is one of the main drivers of youth unemployment throughout the world? The first minimum wage, the Davis-Bacon Act, was for racist reasons, to price cheaper-priced black labor out of the market to protect white unionized labor (certain racist people throughout history have even advocated the minimum wage for this purpose).

The minimum wage is a price control, and as such, you artificially increase the price of something, you'll create a surplus. This in particular hits the youth, as the youth make up much of the minimum wage workers.

HEATHER McGHEE: Yeah, it's been a really grand experiment that has-- in, sort of, neo-liberal economics, the trickle-down experiment. The experiment that said that, in fact, the best way that we can shape our economy is to make sure that the most gains are amassed and kept at the very top. And then that somehow those would trickle down.

That's been an experiment. It's been-- it was a theory that was tested. My generation were the guinea pigs. And that experiment has absolutely failed if the aim was to produce greater prosperity for America. That means American people. If the aim was to actually stop at the top and just create greater corporate profits and greater G.D.P. growth, then it's been a success. But I think most Americans would not have bought into that kind of experiment.

Except that this was never the experiment or policy. Neo-liberal economics is not about any "trickle-down" policy; no economist is. "Trickle-down" economics does not exist. The thinking behind the Reagan policy was that the economy was over-taxed and over-regulated, and that reducing taxes and regulations would unleash a lot of new investment and hence business creation and growth, and hence job creation. It would increase the number of goods and services in the economy (hence the term supply-side economics).

And it worked spectacularly well, producing tremendous prosperity. Along the way however, due to bad governmental policy and lax oversight in the financial system, we ended up with the financial system tying itself into the national housing market and a housing bubble developed which popped.

This woman is a textbook example of when Ronald Reagan said, "The trouble with our liberal friends isn't that they're wrong, it's that they know so much that isn't so."

HEATHER McGHEE: Yeah. We need to fundamentally shift back to a system of grants, not loans. I mean, we cannot indenture a generation just to pay for the ticket to the middle-- to a middle class life. But we also need to do something for people who are not going to get bachelor's degrees, which are still-- it's not the majority of young people who have a college degree.

So I think we need to raise the wage floor. We absolutely have to get back to a place of embracing unions in this country. And we have--

BILL MOYERS: Why?

HEATHER McGHEE: Because unions created the middle class in this country. Because the jobs that were the steelworker jobs that so many of the people in my family had weren't good jobs. They were made into good jobs, because the people who were working those jobs had a voice on the shop floor, and had some power when it came to setting their wages. Which makes all of the sense in the world. That the people baking the pie should be the ones who get to have a decent slice of it.

I think the solution to reducing the cost of a college education is to get the government out of subsidizing it in the first place. It shouldn't be a surprise to anyone that the cost of a college education has exponentially increased as the government has subsidized it. And unions did not create the middle-class in this country. Increasing productivity did that. Unions helped with getting good working conditions established however. As for the rest of her statement, she's a socialist. In a market, your skills are valued by what the market sets them at. You don't have a right to form a cartel and artificially jack up the cost of your skills/products/services, so no, it does not "make all the sense in the world" as she says. It's a sense of entitlement. The only reason why unions were able to get away with doing that as they did during that period of time was because America had no major economic competition at the time. But times are different now.

She believes that the workers of the company are actually entitled to the profits of the company. They're not. They're entitled to decent working conditions, but otherwise, in terms of pay, they're only "entitled" to what the market sets their pay at. The purpose of the business is to make money for the owner or owners (shareholders). The wealth belongs to them. It's basic economics: you provide something, a product, service, or skill, to trade on the market. Businesses sell products and services. They offer to trade money and benefits to workers for the workers trading their skills and labor. The market establishes the prices of everything. That's just how the world works. Workers forming a cartel to artificially increase the price of their skills and labor is engaging in robbery. The workers do not own the wealth of the company. They're ultimately just someone the company trades with. It trades with the workers to be able to produce its goods and services, which it then trades on the market for money.

Everyone, whether the workers or the businesses, are ultimately trading skills/goods/services on the market for money (the medium of exchange) which they then exchange for other skills/goods/services.

BILL MOYERS: How do you have a new social contract if we don't have a sense of community?

HEATHER McGHEE: I think that is the great question of our time. Because if you look at this sort of hostility and anxiety around public solutions, at its root, it's anxiety around who the public is. And I think that that's happened, because of the real explosion in diversity.

But I think it's something that there is an answer to. It takes leadership. I mean, you have to think about the same system that allows people based on their physical appearance to be valued so differently, to create this hierarchy, is at its root, in terms of cognitively, the same system that allows, for example, the CEO of Walmart, who makes about $16,000 an hour. Whereas his coworker, the associate on the shop floor, makes about seven dollars an hour. And then the woman or man in Malaysia or India, who actually is making the product on the shelves makes pennies an hour.

And yet, they're all in the same enterprise. You have to think about what that says to us as people, when we value the labor of three people who are in the same enterprise, essentially, so differently. I mean, when you and I walk into a store and we see a phone on the shelves. And one is $30 and one is $300, what do we decide about the more expensive one? That it's better.

BILL MOYERS: Yeah, automatically, right?

HEATHER McGHEE: Automatically.

BILL MOYERS: Something about it.

HEATHER McGHEE: Exactly. If it's more expensive, it's better. And the logic of applying that same logic to human beings, which we do all the time in this free market with no fundamental values of human dignity is really dangerous. But it's the same kind of logic that leads us to have racial hierarchies and gender hierarchies, as well.

This one just makes my head spin. Does she have no concept of how the real world works? I've got news for her, but that's not any "system" that does that, that's just reality. Human nature values people based differently on their skin color. And it is not the same thing that causes people working in a company to be valued differently as causes people to be valued differently based on skin color. People being valued on skin color is due to racism. Valuing the three people in the company differently is just the rules of the market, which looks at what does the person have to trade, and prices it accordingly. The CEO offers skills far more highly-valued than the shop-floor worker or the Malaysia person.

The only acception to the coldness of the free market is if the shopfloor person or the Malaysia person are being forced to work in horrible conditions or being worked 24/7 or something like that. Otherwise, of course they are paid differently. A shopfloor worker doesn't know how to run a multibillion-dollar, global corporation like Wal-Mart.

This one especially makes my head spin: And yet, they're all in the same enterprise. You have to think about what that says to us as people, when we value the labor of three people who are in the same enterprise, essentially, so differently.

Because people aren't valued based on how someone like her thinks they should arbitrarily be valued, they're valued based on what they offer to trade. If they have something to trade that is of little value, then they don't get paid that much.

And as the Dēmos report "The State of Young America" has shown, this generation, my generation is really feeling the brunt of the recession that capped off 30 years of widening economic inequality and insecurity. And so young people can't say that they're better off financially than they were four years ago. I really believe that given the levels of unemployment in the young adult generation, the president needs to call for-- and I understand it would be difficult to pass through Congress.

But on the campaign trail, he needs to call for a WPA style, generational jobs program all across this country. And it would be a transformational generational experience. It would be something that would expose people to different Americans from different walks of life. But it would also be something that would say, finally, for once and for all, 'Yes, your American Government is on your side, young people. We're not always going to leave you to the mercy of the banks and selfish employers and the vagaries of the so-called 'free market. We're going to say that your future matters to us as a country.'

How will she pay for the jobs program? And who is saying to leave everyone to the vagaries of the free-market? No one is saying to eliminate the safety net, just that government is not the solution to society's problems.

BILL MOYERS: You're calling for more and more government help. You just asked Obama to take a more aggressive position with using the government to put people to work. You're up against, of course, the predisposition of people out across the country that, 'I don't want to pay taxes to those folks who haven't been spending it well, fighting wars, passing the cost on. Extending benefits to Wall Street, bailing out the banks. I don't want to support government anymore.'

HEATHER McGHEE: Absolutely. I mean I think that in order for us as Americans, who want to see public solutions to our common problems, to really achieve what we want to achieve, we are going to have to clean up Washington first. It is absolutely important. For example, why would the American people trust Washington to do what's right when they know that so much of their energy is focused on rewarding the people who brought them to the party, which is the wealthiest people in the country and the organized corporate elite?

And so we've got to clean up the money in politics problem. And it's time to take that incredibly personal issue of your own personal finances and make them political.

She needs to realize that creating the government bureaucracies and all these regulations is what leads to so much of this lobbying in the first place. It is also impossible to really clean up the money in politics. Trying to do so only limits freedom of speech.

 

[ParticleGrl]

Actually, big corporations such as Wal-Mart favor a minimum wage because it hurts smaller businesses

How do you know this? Have you sat in on meetings where they discuss it? Given that Walmart is a steam-roller of efficiency it seems more likely they are worried about their customers buying power than small local stores taking away their business. Minimum wage laws generally transfer money to walmart's customer base.

And raising the minimum wage is not going to change anyone's buying power. You can't subvert the laws of economics just because you don't like them.

Of course it will. A minimum wage law transfers money from both consumers and businesses (whether the brunt gets born by consumers or businesses depends on relative elasticities) to minimum wage labor. Thats a decrease in buying power for customer/business and an increase for minimum wage labor.

The minimum wage is a price control, and as such, you artificially increase the price of something, you'll create a surplus.

This is only true if minimum wage laborers are priced near their marginal productivity. If they are priced below, then raising their wage won't create a surplus. Do we want to raise wages to $50 an hour, no. But there is plenty of evidence that small raises in the minimum wage haven't had much effect on unemployment in the US (Card and Krueger's famous paper, for instance. Even the papers written in response show only small effects). It seems likely, then, that cheap labor is priced near or below its marginal efficiency.

 

[CAC1001]

How do you know this? Have you sat in on meetings where they discuss it? Given that Walmart is a steam-roller of efficiency it seems more likely they are worried about their customers buying power than small local stores taking away their business. Minimum wage laws generally transfer money to walmart's customer base.

It's an assumption I make because the entire National Retail Federation was aganst the minimum wage increase and also Wal-Mart being a monster-sized global corporation, can absorb a minimum wage increase. Here is a link where the NRF is supporting policies part of a minimum wage law because of how it affects small businesses: LINK

Here is where they were against a minimum wage increase: LINK

Of course it will. A minimum wage law transfers money from both consumers and businesses (whether the brunt gets born by consumers or businesses depends on relative elasticities) to minimum wage labor. Thats a decrease in buying power for customer/business and an increase for minimum wage labor.

Which means that overall there is no change in buying power. One group has to take a hit in order to transfer money to the other group.

This is only true if minimum wage laborers are priced near their marginal productivity. If they are priced below, then raising their wage won't create a surplus. Do we want to raise wages to $50 an hour, no. But there is plenty of evidence that small raises in the minimum wage haven't had much effect on unemployment in the US (Card and Krueger's famous paper, for instance. Even the papers written in response show only small effects). It seems likely, then, that cheap labor is priced near or below its marginal efficiency.

Remember that there have been multiple papers calling into question Card and Krueger's data and methods. Economists David neumark and William Wascher, for example, performed a study of over 100 studies on the effects of the minimum wage, and found most point ot negative employment affects. Unions have also been a backer of raising the minimum wage in various states. The teenage unemployment rate seems to be the most affected:

LINK

Second, the studies that focus on the least-skilled groups that are likely most directly affected by minimum wage increases provide relatively overwhelming evidence of stronger disemployment affects for these groups.

~~second page (not the numbered page 2, but the second page)

 

[ThomasT]

Moyers's statement makes for a nice set of talking points, except that the "rules" of the "economic game" were not written to favor any relative few at the top while ignoring everyone else, and to just claim it was those policies that brought devastating results is really over-simplifying the issue.

I agree that Moyer's statement is an oversimplification, but it seems hard to argue that the people who control most of the wealth aren't influencing policy making in order to increase that share. Are there correlations between wealth/income disparity and the relative health, wrt various measures, of the general economy?

I would also completely disagree that we have "the greatest inequality in America since the Great Depression of the 1930's."

A Wikepedia article on this seems to support the quoted assertion.

Actually, big corporations such as Wal-Mart favor a minimum wage because it hurts smaller businesses ...

I don't think that smaller businesses pose much of a threat to Walmart. If they do favor an increase in the minimum wage, my guess is that it's primarily because they'll recoup much of that due to a commensurate increase in the aggregate demand wrt their customer base.

And raising the minimum wage is not going to change anyone's buying power.

It would increase the buying power of the wage earners (who would be earning higher wages) to a greater extent, in greater proportion, than it would decrease the buying power of business owners and investors, imo.

From what I've read, economists are split regarding speculations on how a significant increase (or decrease) in the minimum wage might affect the general economy.

... due to bad governmental policy and lax oversight in the financial system, we ended up with the financial system tying itself into the national housing market and a housing bubble developed which popped.

I agree. The "bad governmental policy" that preceded the inordinate peddling of toxic assets by big financial houses was a relaxation of regulation and oversight. The people in government who could have done something to stop the trend ignored the warnings, and marginalized the people within and without government who were doing the warning. And it all began with lenders making bad loans. A practice that could have been minimized with sufficient regulation and oversight.

I think the solution to reducing the cost of a college education is to get the government out of subsidizing it in the first place.

What happens if the government stops subsidizing college educations for low income high school graduates?

No one is saying to eliminate the safety net, just that government is not the solution to society's problems.

Isn't solving certain of society's problems what we elect governments to do?

... creating the government bureaucracies and all these regulations is what leads to so much of this lobbying in the first place.

Well ... yeah. I agree that making and enforcing fewer laws and regulations, and generally minimizing governmental oversight, would minimize lobbying (influence peddling, bribery, and various other forms of pressuring law makers and policy makers).

But we don't expect government to turn a blind eye to expected/predictable behavior of relatively small time criminals, so why should it do that wrt large corporations and the financial sector in general, whose crimes and misdemeanors potentially negatively affect the lives of millions?

It is also impossible to really clean up the money in politics.

Only if the status quo is impossible to change. Is it? I don't know. But I think that an individual who's dissatisfied with the current status quo can do something, and I think that that starts with simply not voting for major party candidates. Assuming that most major party candidates are quite in line with the status quo, and quite amenable to the persuasions of lobbyists and various moneyed interests.

Trying to do so only limits freedom of speech.

Freedom of speech includes, among other things, the freedom to vote one's conscience. Overhauling the system will entail the minimization of the power of the current major political parties, and the emergence of at least one new major political party. The way I see it, the only way that this might happen is if the collective expression of freedom of speech is maximized. What minimizes one's freedom of speech is the acquiescence wrt a certain status quo.

 

[Lapidus]

This is an excellent show, IMO.
http://billmoyers.com/episode/full-show-economic-malpractice-and-the-millennials/

No offence, but I remember receiving warnings for just posting links in opening posts.

 

[OmCheeto]

Thanks, I'd been looking for that! It is starting to get out of date, though...and it seems to be in a different order from what I saw before.

But what a myriad of rabbit holes it provides.

Just spent the last 4 hours drilling down the Gramm hole.

What a freaking character.

------

But as I've pointed out before, someone did have to elect him.

 

[rootX]

Heather C. McGhee can say whatever she wants but I don't find her very reliable
http://www.demos.org/heather-c-mcghee

 

[CAC1001]

I agree that Moyer's statement is an oversimplification, but it seems hard to argue that the people who control most of the wealth aren't influencing policy making in order to increase that share. Are there correlations between wealth/income disparity and the relative health, wrt various measures, of the general economy?

Probably, but such statistics can be skewed, so it depends. Regarding wealthy people and their share of wealth, remember that there isn't a fixed pie, you create wealth. Businesses and industries however, run by said wealthy people, have been known to lobby to have regulations and taxes passed that allow them to dominate an industry more, but that requires government. For example, under Reagan, many of the big banks resisted the Reagan deregulation because banking, being so regulated, was a protected industry to a good degree. Deregulating introduced new competitors, which the big firms didn't want. Recently, the appliance manufacturers lobbied to have the energy efficiency regulations raised for consumer appliances (such as washing machine), so as to outlaw the cheaper appliances and force people to buy the more expensive ones (as people preferred to buy the cheaper, less-efficient ones). The same is also being done regarding light bulbs.

A Wikepedia article on this seems to support the quoted assertion.

Yes, but the people using this statistic fall for the fixed-pie fallacy and use it to promote the claim that a fixed aristocracy at the top are hogging more and more of the wealth for themselves, leaving less available for the rest of society. That's not how it works. What happens is during periods of massive wealth creation, which we saw during the late 19th and early 20th century, and since the 1980s up until 2007, you get a whole slew of new wealthy people created, which creates a concentration of wealth at the top. But most all of this wealth is newly created wealth, and it is created by providing products and services (i.e. wealth) to the masses that improve their lives in various ways.

The statistic also I think wrongly measures what wealth is. It goes by financial assets, but financial assets aren't the sole form of wealth. One can look at wealth by what goods and services does the average person have access to (as the production of goods and services is the wealth a society creates) and in that sense, people are far more wealthy today then before, and closer to wealthy people than before as goods, services, forms of healthcare, etc...that previously were solely the purvey of the wealthy now become available to the masses. That's how all that wealth forms at the top---entrepreneurs creating goods and services that allow us to have such a rich society.

Imagine waking up 100 years from now and finding out that trillionaires exist and people talking about the immense "wealth gap," how the wealth disparity is like that of the 19th century...only to your early 21st century eyes, these people have goods and services available that rich people do not have access to today, goods and services you cannot even fathom! What will happen is as society becomes wealthier and wealthier, there will get to be fewer and fewer things that can distinguish being "wealthy" from being "poor." For example, give it enough years, and even a poor person will have a refrigerator better than the finest Internet-connected computerized refrigerators available now. We will always have wealthy and poor, but we are unequally wealthy as a society. A "poor" person in America right now is rich by Third World standards.

I don't think that smaller businesses pose much of a threat to Walmart. If they do favor an increase in the minimum wage, my guess is that it's primarily because they'll recoup much of that due to a commensurate increase in the aggregate demand wrt their customer base.

It would increase the buying power of the wage earners (who would be earning higher wages) to a greater extent, in greater proportion, than it would decrease the buying power of business owners and investors, imo.

Wal-Mart operates on a thin profit margin (3.77% - LINK)) so they are vigilant about keeping people shopping at their stores. Also, would a higher minimum wage really impact the buying power of their customers? Wouldn't the other retailers likely support such a policy if that was the case, as it would help them to? I'd imagine a higher minimum wage for an individual isn't that much money to make them change their buying much, but for a small business with multiple employees, it could be a significant amount of money to pay.

I agree. The "bad governmental policy" that preceded the inordinate peddling of toxic assets by big financial houses was a relaxation of regulation and oversight. The people in government who could have done something to stop the trend ignored the warnings, and marginalized the people within and without government who were doing the warning. And it all began with lenders making bad loans. A practice that could have been minimized with sufficient regulation and oversight.

Keep in mind though, that while its impact has probably been exaggerated, that it was a regulatory requirement for banks to make a certain number of bad loans.

What happens if the government stops subsidizing college educations for low income high school graduates?

The cost of college would decrease as the demand would drop-off, so the colleges would reduce their prices in accordance to try and win back new students.

Isn't solving certain of society's problems what we elect governments to do?

Certain of them, sure, but more of them, I'd say no. I should have written that, "...that government is not the solution to **all** of society's problems."

Also, most problems in society cannot be fixed, only managed, just some managed very well.

Well ... yeah. I agree that making and enforcing fewer laws and regulations, and generally minimizing governmental oversight, would minimize lobbying (influence peddling, bribery, and various other forms of pressuring law makers and policy makers).

But we don't expect government to turn a blind eye to expected/predictable behavior of relatively small time criminals, so why should it do that wrt large corporations and the financial sector in general, whose crimes and misdemeanors potentially negatively affect the lives of millions?

You regulate each industry as little as safely possible IMO. For some industries, that means heavy amounts of regulation (automobiles, aircraft manufacturing, nuclear power plants, etc...) other industries (such as personal computers and ocnsumer electronics) can be much more lightly-regulated. Also the regulation proponents should remember that regulation is just one form of oversight, of which there are other forms to that, and by itself is not a panacea (the BP oil spill for example, it was found that BP was bribing the regulatory agency so it could skirt the regulations; a lot of good the regulations did there).

 

[mathwonk]

my apologies, i may have inadverdently wrecked the economy. in 1992, i took a voluntary leave without pay to improve my training at the math institute at berkeley. i walked 6 miles a day round trip to work to save money from bus fare, but occasionally gave cash for gasoline to people who stopped their cars to request it without offering me a ride. this kind of irresponsible bailout to undeserving people earning more than average may have started a trend that has threatened the work ethic of the nation.

 

[Evo]

No offence, but I remember receiving warnings for just posting links in opening posts.

I posted quotes that described what the video was about.

my apologies, i may have inadverdently wrecked the economy. in 1992, i took a voluntary leave without pay to improve my training at the math institute at berkeley. i walked 6 miles a day round trip to work to save money from bus fare, but occasionally gave cash for gasoline to people who stopped their cars to request it without offering me a ride. this kind of irresponsible bailout to undeserving people earning more than average may have started a trend that has threatened the work ethic of the nation.

AHA! So, it WAS you. I had heard rumors...

 

[WhoWee]

I think Clinton and Gore deserve their fair share of credit for Commodities Futures Act
http://2010.newsweek.com/top-10/history-altering-decisions/clinton-signs-securities-legislation.html - this paved the way for unregulated trading of derivatives.

We must also give a fair share to someone who gave Bill Clinton grief and caused the 9/11 attacks - that is Bin Laden. Needless to say 9/11 hurt the economy and led to a great deal of war spending and Government expansion.

Next, while I enjoy tagging Barney Frank, Chris Dodd, and the ACORN type firms that enabled people to buy houses they couldn't afford - everyone who speckulated in the real estate boom is also guilty.

 

[OmCheeto]

AHA! So, it WAS you. I had heard rumors...

I had a hand in it also.

Over the last 12 years, I've saved the company I work for $8,000,000.
And when I was in the navy, I saved the taxpayers $10,000,000. It took me only 2 hours.

If everyone were to do the same, there'd be only 3 Americans working right now.

One to turn on all the machines in the morning, one to turn them off at night, and some manager puke to take away their staplers.

 

[CAC1001]

I think Clinton and Gore deserve their fair share of credit for Commodities Futures Act
http://2010.newsweek.com/top-10/history-altering-decisions/clinton-signs-securities-legislation.html - this paved the way for unregulated trading of derivatives.

This piece of legislation seems to have had both good and bad aspects. On the one hand, it removed the decades-old barrier that separated investment banks from commercial banks, allowing financial institutions to be involved in all manner of financial and banking activities. Some say this is bad, but Europe and Canada from my understanding never had such a law, and the lack of such a law allowed Bank of America to purchase Countrywide Financial and Merrill-Lynch during the financial crisis.

OTOH, it also completely deregulated derivatives as pointed out. While Clinton did sign it, to be fair I don't think Republicans were exactly against it either.

 

[turbo]

my apologies, i may have inadverdently wrecked the economy. in 1992, i took a voluntary leave without pay to improve my training at the math institute at berkeley. i walked 6 miles a day round trip to work to save money from bus fare, but occasionally gave cash for gasoline to people who stopped their cars to request it without offering me a ride. this kind of irresponsible bailout to undeserving people earning more than average may have started a trend that has threatened the work ethic of the nation.

I suspected that it was you all along! What a wrecking-ball you are.

 

[DoggerDan]

i walked 6 miles a day round trip to work to save money from bus fare, but occasionally gave cash for gasoline to people who stopped their cars to request it without offering me a ride.

Were they all wearing Armani suits and Gucci loafers?

 

[ThomasT]

Probably, but such statistics can be skewed, so it depends. Regarding wealthy people and their share of wealth, remember that there isn't a fixed pie, you create wealth. Businesses and industries however, run by said wealthy people, have been known to lobby to have regulations and taxes passed that allow them to dominate an industry more, but that requires government.

Ok, but the sort of regulation that I'm talking about is regulation that reduces fraud and abuse. Not regulation that maximizes big corporations' already inordinate advantages.

For example, under Reagan, many of the big banks resisted the Reagan deregulation because banking, being so regulated, was a protected industry to a good degree. Deregulating introduced new competitors, which the big firms didn't want. Recently, the appliance manufacturers lobbied to have the energy efficiency regulations raised for consumer appliances (such as washing machine), so as to outlaw the cheaper appliances and force people to buy the more expensive ones (as people preferred to buy the cheaper, less-efficient ones). The same is also being done regarding light bulbs.

Again, the goal is to reduce the advantages inherent in bigness, as well as reducing fraud. If certain regulations give an inordinate advantage to certain corporations then I would consider those to be bad regulations. And, yes, I agree that industries should be unregulated wrt those sorts of regulations.

But I would also argue that it might be the case, wrt some significant factors contributing to the downturn in the economy, that certain sectors, like banking and investment, weren't sufficiently regulated wrt fraud and abuse. Obviously, it seems to me, we can't afford to allow the development of institutions that are too big to fail, thus creating a situation where, if they do fail, then government must bail them out.

Yes, but the people using this statistic fall for the fixed-pie fallacy and use it to promote the claim that a fixed aristocracy at the top are hogging more and more of the wealth for themselves, leaving less available for the rest of society. That's not how it works. What happens is during periods of massive wealth creation, which we saw during the late 19th and early 20th century, and since the 1980s up until 2007, you get a whole slew of new wealthy people created, which creates a concentration of wealth at the top. But most all of this wealth is newly created wealth, and it is created by providing products and services (i.e. wealth) to the masses that improve their lives in various ways.

Most of the wealth is concentrated in the top .1%. It's that percentage that has realized the biggest gains. It's that percentage that controls your government to a large extent, imo. And, it's that percentage that, by design, is most able to exploit tax loopholes and, via monetary and other influence, to determine the scope and depth, ie., the power, the limitations of regulatory agencies. Deregulation from Reagan through Bush has had the net effect of increasing the possibility of non-accountability and fraud wrt large corporations. Did they intend what eventually happened to happen? I don't know. But it seems to me pretty hard to argue that, since they were in control, that they didn't intend for things to turn out in such a way that the financial sector, in general, profited greatly while the rest of America suffered.

The statistic also I think wrongly measures what wealth is. It goes by financial assets, but financial assets aren't the sole form of wealth. One can look at wealth by what goods and services does the average person have access to (as the production of goods and services is the wealth a society creates) and in that sense, people are far more wealthy today then before, and closer to wealthy people than before as goods, services, forms of healthcare, etc...that previously were solely the purvey of the wealthy now become available to the masses. That's how all that wealth forms at the top---entrepreneurs creating goods and services that allow us to have such a rich society.

Yes, America is wealthy, and the average standard of living is much higher than in much of the rest of the world. But this thread is concerned with a perceived downturn, a negative trend, wrt the American economy. Is this a permanent, lasting, thing? Or just a temporary negative blip in an otherwise inexorably upward trend? I don't know. But from what I've read and what I see things don't look all that promising.

Imagine waking up 100 years from now and finding out that trillionaires exist and people talking about the immense "wealth gap," how the wealth disparity is like that of the 19th century...only to your early 21st century eyes, these people have goods and services available that rich people do not have access to today, goods and services you cannot even fathom!

I think that, more realistically, the US of 100 years from now will have at least 100 million more people living in relative poverty. I think it will be a predominantly Spanish speaking country, basically an extension of Mexico, and Central and South America. I think that this is inevitable. And with the influx and proliferation of a more or less unskilled labor base, then America is on a track to be more like the China (Southeast Asia, India, South America) of today than the America of yesterday.

I agree that there will be goods and services available 100 years from now that maybe we can't fathom today. And I think that the vast majority of Americans will not be able to afford those goods and services. Much like the situation today, but with a more extreme disparity of wealth.

What will happen is as society becomes wealthier and wealthier, there will get to be fewer and fewer things that can distinguish being "wealthy" from being "poor."

What distinguishes being wealthy from being poor now? I don't think that's going to change much in the next 100 years. Just that there will be proportionately more poor people. At least if we continue evolve according to the current global model.

For example, give it enough years, and even a poor person will have a refrigerator better than the finest Internet-connected computerized refrigerators available now.

I doubt that. But even if so, what good is an internet connected computerized refrigerator if one can't afford to stock it with sufficient food to feed one's family?

We will always have wealthy and poor, but we are unequally wealthy as a society. A "poor" person in America right now is rich by Third World standards.

No argument there. But might this not be part of the problem? Don't we want Americans to be more civic minded, more civically active? Has America's abundance and high standard of living created a general attitude of complacency, even apathy?

Wal-Mart operates on a thin profit margin (3.77% - LINK)) so they are vigilant about keeping people shopping at their stores. Also, would a higher minimum wage really impact the buying power of their customers?

Sure. Even an increase of just, say, $2/hour means $80/week, $320/month, and almost $4000/year. That's a LOT of money to somebody making the minimum wage. Is there any doubt that almost all of that money would be spent in the general economy? A certain portion of it, maybe a significant portion of it, at the very businesses that gave those workers higher wages?

Wouldn't the other retailers likely support such a policy if that was the case, as it would help them to? I'd imagine a higher minimum wage for an individual isn't that much money to make them change their buying much, but for a small business with multiple employees, it could be a significant amount of money to pay.

I can't think of any small or large businesses that would be significantly affected by an increase in the minimum wage. But, as noted above, it would significantly positively affect the buying power, and therefore the living standards, of at least 5 million American workers.

Keep in mind though, that while its impact has probably been exaggerated, that it was a regulatory requirement for banks to make a certain number of bad loans.

As noted above, these sorts of regulations can be bad regulations. This sort of government pressure isn't what I'm talking about. The goal is to reduce bad loans and reduce fraud and abuse. And this requires regulation and enforcement of a different sort.

The cost of college would decrease as the demand would drop-off, so the colleges would reduce their prices in accordance to try and win back new students.

I doubt it. The cost of college is going to remain high, because there are many more people with the ability to pay current college costs than there are openings for them.

Also the regulation proponents should remember that regulation is just one form of oversight, of which there are other forms to that, and by itself is not a panacea (the BP oil spill for example, it was found that BP was bribing the regulatory agency so it could skirt the regulations; a lot of good the regulations did there).

That's not an argument against regulation. It's an argument against insufficient enforcement of existing regulation.

 

[ParticleGrl]

That's not how it works. What happens is during periods of massive wealth creation, which we saw during the late 19th and early 20th century, and since the 1980s up until 2007, you get a whole slew of new wealthy people created, which creates a concentration of wealth at the top.

The single largest,longest period of wealth creation in the history of the country was post WW2 to the mid 60s or so. During this time period, the income distribution grew much flatter (see Russ Water's link to census data). Therefore, your statement is simply false. It is not something that just happens during periods of growth. Something is different about this more recent period, and we can argue about what that is.

Its also no true that most of the top income earners are necessarily providing new products people want. One of the largest growth sectors in this period was the financial industry- and certainly some of those innovations were somewhat destructive. For instance, Dick Fuld got incredibly rich by destroying one of the largest investment banks in the US. Many of his underlings got rich doing same.

Regarding wealthy people and their share of wealth, remember that there isn't a fixed pie, you create wealth.

Right, but real wages for many wage earners have been flat for at least two decades (again see Russ Water's earlier link to census data), despite a might larger pie. This means that the increase in the pie is all going to the top earners.

One can look at wealth by what goods and services does the average person have access to (as the production of goods and services is the wealth a society creates) and in that sense, people are far more wealthy today then before, and closer to wealthy people than before as goods, services, forms of healthcare, etc...that previously were solely the purvey of the wealthy now become available to the masses.

Sure, we have considerably grown access to ipads. BUT we have diminished access to education and housing. Its hard to compare a family living in a house in the 70s that can afford to send their kids to college to a family living in an apartment today that can't send their kids to college. Sure, the modern day family probably has internet access, but its not obvious who is better off.

Keep in mind though, that while its impact has probably been exaggerated, that it was a regulatory requirement for banks to make a certain number of bad loans.

This statement is just ludicrous. The community reinvestment act required loans to be made to lower-income people, but it did not require they be "bad loans." The February 2008 House Hearing, the Federal Reserve made clear that when it surveyed banks they maintained that their CRA loans were profitable and not overly risky. The Traiger-Hinkley study demonstrated that CRA regulated institutions were less likely to issue sub-prime, their sub-prime loans were generally better structured (lower rates, not option ARM) and CRA institutions were much less likely to resell the loan.

If the CRA had perverse effects, those institutions regulated by it should have had a much higher rate of poor performing loans than those institutions that weren't.

 

[Vanadium 50]

Most of the wealth is concentrated in the top .1%.

That's not mathematically possible. The top 1% hold 34.3% of wealth (. That's less than 50%, so it's impossible that the the 0.1% subset holds more than 50%.

 

[WhoWee]

Sure, we have considerably grown access to ipads. BUT we have diminished access to education and housing. Its hard to compare a family living in a house in the 70s that can afford to send their kids to college to a family living in an apartment today that can't send their kids to college. Sure, the modern day family probably has internet access, but its not obvious who is better off.

Are you certain "we have diminished access to education and housing"? Everyday, I drive past brand new low income/subsidized housing that replaced 1940's era projects.

On the other hand, if your talking about the family of four earning $51,000 per year - you might be correct?

 

[ThomasT]

That's not mathematically possible. The top 1% hold 34.3% of wealth (. That's less than 50%, so it's impossible that the the 0.1% subset holds more than 50%.

Yes, I should have phrased it that the largest relative concentration of wealth is with the top .1%, and that the wealth of that group has increased at a higher rate than any other group, afaik.

 

[ThomasT]

We will always have wealthy and poor, but we are unequally wealthy as a society. A "poor" person in America right now is rich by Third World standards.

No argument there. But might this not be part of the problem? Don't we want Americans to be more civic minded, more civically active? Has America's abundance and high standard of living created a general attitude of complacency, even apathy?

I'm going to retract this statement of mine. I agree with your statement. Obviously, Americans' high(er) standard of living isn't a problem.

 

[russ_watters]

Right, but real wages for many wage earners have been flat for at least two decades (again see Russ Water's earlier link to census data), despite a might larger pie. This means that the increase in the pie is all going to the top earners.

As far as I can tell, all of that is false. Please provide the data to substantiate your claim. [edit] For data over the past 20 years, it is probably possible to spin that in a way as to make it sort of true by cherry-picking a timeframe from the top of a cycle to today, which is the bottom of a cycle. For example, there is a big difference between using 1990 and 1993 as your starting point, since the lower 20% of incomes dropped by 6% in that time. And, since the current downturn is a pretty deep one, spinmeisters try to make a long term trend out of something that actually has only happened in the past 5 years.

Sure, we have considerably grown access to ipads. BUT we have diminished access to education and housing. Its hard to compare a family living in a house in the 70s that can afford to send their kids to college to a family living in an apartment today that can't send their kids to college. Sure, the modern day family probably has internet access, but its not obvious who is better off.

Please provide the data to support your claim that both home ownership and college attendance rates are down since the 70s. I suspect both are false.

 

[Jimmy Snyder]

Please provide the data to support your claim that both home ownership and college attendance rates are down since the 70s. I suspect both are false.

Your suspicions may be well founded. Here is a site that claims home ownership was 62.9% in 1970
http://www.census.gov/hhes/www/housing/census/historic/owner.html
And here's one that says it was 66.9% in 2010.
http://www.danter.com/statistics/homeown.htm

Here's a site that shows college attendance at something under 60% in 1970 and at 70% in 2009.
http://economix.blogs.nytimes.com/2010/04/28/college-enrollment-rate-at-record-high/

 

[CAC1001]

The single largest,longest period of wealth creation in the history of the country was post WW2 to the mid 60s or so. During this time period, the income distribution grew much flatter (see Russ Water's link to census data). Therefore, your statement is simply false. It is not something that just happens during periods of growth. Something is different about this more recent period, and we can argue about what that is.

The largest period of wealth creation was from the 1980 to 2008. The GDP grew from about half a trillion to one trillion during the period post WW2 to the mid-60s. That's a doubling in size. It was about $3 trillion in 1980 and grew to $14 trillion by 2010. That's more than a quadrupling in GDP.

Its also no true that most of the top income earners are necessarily providing new products people want. One of the largest growth sectors in this period was the financial industry- and certainly some of those innovations were somewhat destructive. For instance, Dick Fuld got incredibly rich by destroying one of the largest investment banks in the US. Many of his underlings got rich doing same.

Yes, there are always crooks, liars, and thieves in capitalism, but in general, in order to get rich, a person must be providing a product or service that other people value. Also, the financial industry can be an area in which people provide legitimate products and services. It is innovation in the financial industry allowing risk to be spread out wide that allows for capital to become more accessible to the poorer people. The problem is when the financial people create something so complex that they "think" it is spreading risk, when it really isn't.

Right, but real wages for many wage earners have been flat for at least two decades (again see Russ Water's earlier link to census data), despite a might larger pie. This means that the increase in the pie is all going to the top earners.

Two things though:

1) Wages are not incomes. Incomes per capita have been increasing year after year (LINK - input for nominal and real GDP per capita from 1940 to 2010), with the exception of stalling during recessions. Wages are part of incomes, and it isn't surprising if they are stalled or even declining in certain industries because of the skyrocketing costs of healthcare, which is ultimately part of a person's income from their employer.

2) Remember, wealth is the goods and services available to people in society. People, communities, countries, that produce more goods and services that are valued on the global market, are wealthier. For example, Facebook is a service people have access to. It is something that has enhanced and changed people's lives. Because of how the masses value it, it has made its creator, Zuckerberg, a billionaire. So who is wealthier? Zuckerberg created a whole lot of wealth. That wealth for himself manifests itself in the form of the value of the company because of the money it makes via providing its service, but the wealth for the general populace is the Facebook service itself.

Sure, we have considerably grown access to ipads. BUT we have diminished access to education and housing. Its hard to compare a family living in a house in the 70s that can afford to send their kids to college to a family living in an apartment today that can't send their kids to college. Sure, the modern day family probably has internet access, but its not obvious who is better off.

Yes, but college and housing are more a result of bad governmental policy, not a failure of the market. Housing shot up in cost. So as a response, the market developed a bunch of additional housing. The bubble then burst and the value of housing has since been coming back down to Earth. The problem was in the tying of the financial system to the housing industry in the thinking that a national housing bubble could never develop. College has been driven up in price due to the government subsidizing it. If student loans are a bubble that pop (as there are studen loan backed securities), then the price of college will probably decline, but this might be affected if the government keeps subsidizing it heavily.

This statement is just ludicrous. The community reinvestment act required loans to be made to lower-income people, but it did not require they be "bad loans." The February 2008 House Hearing, the Federal Reserve made clear that when it surveyed banks they maintained that their CRA loans were profitable and not overly risky. The Traiger-Hinkley study demonstrated that CRA regulated institutions were less likely to issue sub-prime, their sub-prime loans were generally better structured (lower rates, not option ARM) and CRA institutions were much less likely to resell the loan.

My reasoning was that they were required to make a certain number of loans to people who would not be as likely to pay back the loans. The government doesn't need to make a requirement for banks to loan to low-income people unless those people are more risky from the start, as otherwise the bank will loan them money without any pushing from the government.

However, you make some good points on the issue that I didn't know.

 

[CAC1001]

Ok, but the sort of regulation that I'm talking about is regulation that reduces fraud and abuse. Not regulation that maximizes big corporations' already inordinate advantages.

The problem is that, in the attempt to do as you say, businesses often end up exploiting the process in their favor through lobbying. The other problem is people don't pay attention. You have a whole alphabet soup of government regulatory agencies. Most of them, nobody has even heard of. And even the big ones (FDA, EPA, SEC, etc...) people don't really pay much attention to). But each industry regulated by these agencies takes a keen interest in them, and will lobby them for regulations favorable to the industry and for people favorable to the industry to head the regulatory agencies.

Again, the goal is to reduce the advantages inherent in bigness, as well as reducing fraud. If certain regulations give an inordinate advantage to certain corporations then I would consider those to be bad regulations. And, yes, I agree that industries should be unregulated wrt those sorts of regulations.

But I would also argue that it might be the case, wrt some significant factors contributing to the downturn in the economy, that certain sectors, like banking and investment, weren't sufficiently regulated wrt fraud and abuse. Obviously, it seems to me, we can't afford to allow the development of institutions that are too big to fail, thus creating a situation where, if they do fail, then government must bail them out.

An interesting conundrum is how to allow institutions large enough to service the needs of America's largest businesses while at the same time preventing such institutions from becoming literally too big to fail. If you limit their size, you could make it where America's largest companies go to overseas financial firms. One suggestion might be to more lightly regulate the financial institutions up until they reach a certain size, upon which they become too big to fail. As too big to fail institutions, they operate with the guarantee of a bailout if they mess up, but the price to pay for this is a heavy degree of regulation that only they are subjected to. The idea of this heavier regulation is to prevent them from ever making a mistake that makes them require a bailout. The smaller firms are more free to make a mistake, but if they do, they fail.

Most of the wealth is concentrated in the top .1%. It's that percentage that has realized the biggest gains. It's that percentage that controls your government to a large extent, imo. And, it's that percentage that, by design, is most able to exploit tax loopholes and, via monetary and other influence, to determine the scope and depth, ie., the power, the limitations of regulatory agencies. Deregulation from Reagan through Bush has had the net effect of increasing the possibility of non-accountability and fraud wrt large corporations. Did they intend what eventually happened to happen? I don't know. But it seems to me pretty hard to argue that, since they were in control, that they didn't intend for things to turn out in such a way that the financial sector, in general, profited greatly while the rest of America suffered.

Remember that "the top .1%" isn't a class, it's just a statistic. Also, Bush increased regulations, at least over finance. He did not decrease them. The financial sector profited greatly while America profited, and when America was hit by the housing bubble popping, the financial sector took a major blow and almost collapsed. The unfair part was that the financial sector had grown too big to fail, so some of the institutions got a bailout.

I think that, more realistically, the US of 100 years from now will have at least 100 million more people living in relative poverty. I think it will be a predominantly Spanish speaking country, basically an extension of Mexico, and Central and South America. I think that this is inevitable. And with the influx and proliferation of a more or less unskilled labor base, then America is on a track to be more like the China (Southeast Asia, India, South America) of today than the America of yesterday.

Maybe, but this is like trying to project America in the year 2012 back in 1912. All the children of those Mexican immigrants might learn to speak English and immigrate into society, or the immigration may stop a great deal due to the recession, etc...other things could happen, who knows.

I agree that there will be goods and services available 100 years from now that maybe we can't fathom today. And I think that the vast majority of Americans will not be able to afford those goods and services. Much like the situation today, but with a more extreme disparity of wealth.

Why wouldn't they be able to afford them? Rich people will always have access to goods and services the regular folk do not, but as the years go by, those goods and services are made from luxuries into commodities. People today can afford lots of good and services that people just a few decades ago couldn't fathom. I think that the wealth disparity will only continue to shrink. If you judge the wealth dispairty by the financial assets, then during any period of great wealth creation, of lots of new goods and services being introduced, then there will always be large wealth disparity during prosperous times. But if you judge it by what goods and services are available to people, then I think the wealth gap will only continue to shrink.

What distinguishes being wealthy from being poor now? I don't think that's going to change much in the next 100 years. Just that there will be proportionately more poor people. At least if we continue evolve according to the current global model.

The thing is that what's poor today was wealthy in many ways decades before. What's poor in a few decades will be what is middle-income or wealthy today. Some things the wealthy will always have access to that ordinary folk won't, such as mansions, yachts, private jets, etc...simply due to the limitations in the resources.

I doubt that. But even if so, what good is an internet connected computerized refrigerator if one can't afford to stock it with sufficient food to feed one's family?

Why do you doubt it? Computers are getting so cheap, that computerized refrigerators will probably be the norm eventually, sort of like how cellphones used to be a luxury of wealthier people, but now are ubiquitous. The technology gets commoditized. Also, why wouldn't people be able to stock it with food? That would only occur if food goes way up in price or incomes go way down. A commodity shock (major oil shortage) or if healthcare costs are not brought under control, could maybe create problems here, but otherwise, I do not see why prosperity should not continue to improve.

Sure. Even an increase of just, say, $2/hour means $80/week, $320/month, and almost $4000/year. That's a LOT of money to somebody making the minimum wage. Is there any doubt that almost all of that money would be spent in the general economy? A certain portion of it, maybe a significant portion of it, at the very businesses that gave those workers higher wages?

Meeting the cost of the minimum wage would be harder on small businesses versus an entity like Wal-Mart though. Also, I don't know if such an increase really makes that large a difference in the person's buying power, maybe it would though.

I can't think of any small or large businesses that would be significantly affected by an increase in the minimum wage. But, as noted above, it would significantly positively affect the buying power, and therefore the living standards, of at least 5 million American workers.

How do you know it wouldn't significantly affect any small businesses? Also, while it might increase the buying power of the people receiving the wage, it also decreases the buying power of the businesses paying the wage, as it's a transfer of money. And if it raises the unemployment rate, it helps one group of people at the expense of others.

I doubt it. The cost of college is going to remain high, because there are many more people with the ability to pay current college costs than there are openings for them.

Without government subsidies, the market, via supply and demand, would ultimately determine the cost of college. If there aren't enough people willing to pay the current price that the universities want, then the price would go down.

That's not an argument against regulation. It's an argument against insufficient enforcement of existing regulation.

Yup, that's one reason why regulation isn't a panacea. It does not good if it isn't enforced. It's one form of oversight, and a flawed form of oversight at that, although it's needed.

 

[CAC1001]

Please provide the data to support your claim that both home ownership and college attendance rates are down since the 70s. I suspect both are false.

I don't think ParticleGrl was saying the attendance rates are down so much as the costs for both have shot up so much, making it much harder on people to afford them.

 

[WhoWee]

I don't think ParticleGrl was saying the attendance rates are down so much as the costs for both have shot up so much, making it much harder on people to afford them.

Does access mean cost increases?

Her actual quote was "BUT we have diminished access to education and housing" - perhaps we should wait until she clarifies and supports?
my bold

 

[OmCheeto]

Your suspicions may be well founded. Here is a site that claims home ownership was 62.9% in 1970
http://www.census.gov/hhes/www/housing/census/historic/owner.html
And here's one that says it was 66.9% in 2010.
http://www.danter.com/statistics/homeown.htm

Here's a site that shows college attendance at something under 60% in 1970 and at 70% in 2009.
http://economix.blogs.nytimes.com/2010/04/28/college-enrollment-rate-at-record-high/

I thought it was just me.

A couple of weeks ago I read that some Texan was responsible for the demolition of the World economy.

Who Wrecked the Economy?

Then I read here[and there] that a former president was responsible for the demolition of the World economy. [CFMA or something]

Then I read that weeks after leaving congress, the senator went to work for UBS, a Swiss bank.

Then I saw the house vote on the bill the former president signed that branded him as the perp: Dem's 157 yea, 9 nay. [Rep's also voted yea, as a majority]

hmmm... If I had 3 weeks left before retirement, and 157 out of 166 of my friends said "go for it", I'd have not read the 262 pages of legalese nonsense which couldn't make it through the government except as a freakin' last minute rider insert by a certain senator from Texas, who's wife sat on the Enron board, whom that certain senator put a provision in the 262 page rider for...

and then I fell asleep...

:zzz:

 

[russ_watters]

I don't think ParticleGrl was saying the attendance rates are down so much as the costs for both have shot up so much, making it much harder on people to afford them.

It is the next sentences that makes it pretty clear to me:

Its hard to compare a family living in a house in the 70s that can afford to send their kids to college to a family living in an apartment today that can't send their kids to college. Sure, the modern day family probably has internet access, but its not obvious who is better off.

If families that would have been living in houses and sending their kids to college in the 70s are living in apartments and not sending their kids to college today, then the rates of both must be dropping. She's saying the standard of living based on those two issues is lower because of the [untrue] fact that rates for both have dropped.

 

[ThomasT]

The problem is that, in the attempt to do as you say, businesses often end up exploiting the process in their favor through lobbying.

Of course, but I don't think that's a reason not to regulate against fraud and abuse.

The other problem is people don't pay attention. You have a whole alphabet soup of government regulatory agencies. Most of them, nobody has even heard of. And even the big ones (FDA, EPA, SEC, etc...) people don't really pay much attention to). But each industry regulated by these agencies takes a keen interest in them, and will lobby them for regulations favorable to the industry and for people favorable to the industry to head the regulatory agencies.

Again, I agree. But I'm not sure what you're proposing as an alternative. Just not regulate against fraud and abuse? Or what?

An interesting conundrum is how to allow institutions large enough to service the needs of America's largest businesses while at the same time preventing such institutions from becoming literally too big to fail. If you limit their size, you could make it where America's largest companies go to overseas financial firms.

Is that a problem? If so, why?

One suggestion might be to more lightly regulate the financial institutions up until they reach a certain size, upon which they become too big to fail. As too big to fail institutions, they operate with the guarantee of a bailout if they mess up, but the price to pay for this is a heavy degree of regulation that only they are subjected to. The idea of this heavier regulation is to prevent them from ever making a mistake that makes them require a bailout. The smaller firms are more free to make a mistake, but if they do, they fail.

That seems ok on first glance, but what do you mean by "more lightly regulate"? Didn't the recent financial crisis begin with smaller institutions making bad loans?

Remember that "the top .1%" isn't a class, it's just a statistic. Also, Bush increased regulations, at least over finance. He did not decrease them.

From what I read the Bush administration pulled hundreds of auditors/investigators from the oversight (ie., regulatory enforcement) of the bundling and sale/insurance of potentially toxic investments. Also, there were warnings given of a potential financial catastrophe, and the people doing the warning were marginalized (ie., discredited) by the Bush administration.

The financial sector profited greatly while America profited, and when America was hit by the housing bubble popping, the financial sector took a major blow and almost collapsed. The unfair part was that the financial sector had grown too big to fail, so some of the institutions got a bailout.

The financial sector is still profiting. Afaik, it represents the largest growth sector in the American economy. From what I've read the US GDP and GNP are skewed because of the inordinate gains in the financial sector.

Maybe, but this is like trying to project America in the year 2012 back in 1912. All the children of those Mexican immigrants might learn to speak English and immigrate into society, or the immigration may stop a great deal due to the recession, etc...other things could happen, who knows.

Yes, maybe I was being too pessimistic. 100 years is a long time from now. And maybe the American economy isn't really shipwrecked. Eg., it seems ok where I am.

I think that the wealth disparity will only continue to shrink.

But, apparently, it's not shrinking. It's growing.

If you judge the wealth dispairty by the financial assets ...

Yes, I think that's how we have to objectively judge wealth, and therefore wealth disparity.

... if you judge [wealth disparity] by what goods and services are available to people, then I think the wealth gap will only continue to shrink.

This is, imo, a less objective measure of wealth disparity than referring to financial assets.

I don't know if you were around in the 60's, but I was. Ok, there are computers and cell phones now which didn't even exist then. But, just from my personal experience (and I realize that this differs from region to region), one could live better on a basic wage than one can now. Iow, the cost of goods and services is proportionately greater now than it was in the 60's (with some upscale blips in the picture). So, as far as I can tell, the general trend is downward, wrt the majority of Americans. And again, my view might just be a bit unwarrentedly pessimistic.

The thing is that what's poor today was wealthy in many ways decades before.

I don't know how you're guaging that. For example, when I was a mid-teenager in a rather large metropolitan area the minimum wage allowed me to rent an apartment in a nice area, make payments on a car, and eat out a few times a week, as well as covering all the other essentials. I don't think that's possible today ... anywhere.

What's poor in a few decades will be what is middle-income or wealthy today.

In terms of just incomes, maybe. But this has to be related to prices. Historically, what was poor 50 years ago, in terms of buying power, is essentially what's poor today.

... why wouldn't people be able to stock it with food? That would only occur if food goes way up in price or incomes go way down.

The trend is, afaik, that food prices continue to rise proportionately faster than wages and salaries.

A commodity shock (major oil shortage) ...

This doesn't have to happen. If it does it will simply be due to an artificial manipulation of the market, as in the early 70's when prices on lots of stuff went way up.

Meeting the cost of the minimum wage would be harder on small businesses versus an entity like Wal-Mart though.

Only if the small business is paying it's employees at around the minimum wage rate. Afaik, most small businesses either pay their employees at (significantly) above that rate, or they have an "off the books" labor force.

Also, I don't know if such an increase really makes that large a difference in the person's buying power, maybe it would though.

Of course it would. Just look at the numbers.

How do you know it wouldn't significantly affect any small businesses?

I don't know. I'm just guessing. Lowering or raising the federal minimum wage to, say, $6/hour or $12/hour would be an experiment, either way. But can there be any doubt that raising it would benefit minimum wage earners?

Also, while it might increase the buying power of the people receiving the wage, it also decreases the buying power of the businesses paying the wage ...

Yes, that's a given. But my guess is that it would benefit the people receiving the wage, and the general economy, more than it would hurt the businesses paying the wage. As I mentioned in a previous post. Economists are split on this. It's an empirical question. So, we can either raise or lower the minimum wage and see what happens. But one thing we can know will happen is that that the buying power and living standard of millions of current minimum wage earners will decrease if the minimum wage is decreased.

Without government subsidies, the market, via supply and demand, would ultimately determine the cost of college. If there aren't enough people willing to pay the current price that the universities want, then the price would go down.

My guess is that there will be. So a discontinuance of government subsidies would have the net effect of decreasing the number of relatively poor applicants from attending college.

Which is fine with big business and candidates like Romney who see this as an opening for the importation of more and more foreign born workers who can be retained for far lower salaries and wages than their American born competitors.

Yup, that's one reason why regulation isn't a panacea. It does not good if it isn't enforced. It's one form of oversight, and a flawed form of oversight at that, although it's needed.

What do you mean "it's one form of oversight". Afaik, it's the only form of oversight. Do you not regulate against fraud and abuse because of past corruption, or do you focus on cleaning up the corruption?

 

[Hobin]

Yup, that's one reason why regulation isn't a panacea. It does not good if it isn't enforced. It's one form of oversight, and a flawed form of oversight at that, although it's needed.

If it's not enforced, then why call it regulation? Without enforcing the rules, it's simply telling-people-what-they-should-do.

 

[CAC1001]

Of course, but I don't think that's a reason not to regulate against fraud and abuse.

I agree, it just points out some of the limitations of regulations.

Again, I agree. But I'm not sure what you're proposing as an alternative. Just not regulate against fraud and abuse? Or what?

I don't think there is any real solution. One can find numerous examples of where companies were extremely corrupt and cheated people because there were either no or too few regulations, and examples of where companies were extremely corrupt and cheated people through exploiting the regulations (even pushing for them for such reasons). As I've said, try to do light and efficient regulation for each industry, although some industries will need to be more regulated than others. Don't over-regulate any industry as that can limit competition.

Is that a problem? If so, why?

Why would we want American companies to take their business to other countries? I'd prefer American businesses do business with American financial institutions, not say the Chinese or Europeans. Plus over the longer term, such a thing could cause another country to become the financial center of the world.

That seems ok on first glance, but what do you mean by "more lightly regulate"? Didn't the recent financial crisis begin with smaller institutions making bad loans?

You can regulate all of them more so than currently if needed, but leave the smaller institutions that are allowed to fail less regulated than the big institutions that would get a bailout.

From what I read the Bush administration pulled hundreds of auditors/investigators from the oversight (ie., regulatory enforcement) of the bundling and sale/insurance of potentially toxic investments. Also, there were warnings given of a potential financial catastrophe, and the people doing the warning were marginalized (ie., discredited) by the Bush administration.

Haven't read that, but I do not know of any significant deregulation of the financial system that occurred under President Bush.

The financial sector is still profiting. Afaik, it represents the largest growth sector in the American economy. From what I've read the US GDP and GNP are skewed because of the inordinate gains in the financial sector.

Sure it's profiting now, but it almost got taken out by the crisis. I do not see how it could skew the GDP because it is a section of the economy that has grown.

But, apparently, it's not shrinking. It's growing.

Only if one looks at the statistics in a way to suit an agenda. Again remember, income quintiles do not represent fixed classes and wealth is the goods and services of society. As long as the regular folk continue to get access to more and more goods and services that they previously did not have access to, they are going to be wealthier. One could look at say the 1950s and 1960s and say that the wealth disparity was small, but yet, during that period of time, being wealthy gave one access to goods and services that an ordinary person could only dream about. In that sense, there was an enormous disparity. In modern times, a whole lot of goods/services that were previously available to the wealthy are now available to everyone, so in that sense, the wealth gap has closed.

Wake up 100 years from now and provided no major wars have destroyed Western civilization or anything, and the average person will have access to a whole bunch of goods and services that right now are only available to the wealthy, and a whole slew of additional goods and services that aren't available to anyone yet because they haven't even been created. The type of Internet they'll have, appliances, cars, healthcare available, etc...Now imagine someone then comes and says to you, "So you're from 100 years ago? Well not a whole lot has changed, the wealth gap is worse than ever now!" You'd reason, "Well by the standards of my time, you're extremely wealthy. It's just that society is unequally wealthy."

I believe society will eventually reach a point where the amount of goods and services available to the average person is so advanced that the differences in the quality of things like food, technology, healthcare, etc...available to a wealthy person versus an ordinary person, will be very minor. For example, at some point, they'll probably get where they can grow you a new organ or body part if you need one. But it will cost a whole lot and only be available to those with serious $$$. Give it enough time however and the technology will advance to where everyone can have a new bodypart grown if they need it. Things like that.

So that is what I mean by the wealth gap will only continue to close. Financial assets-wise, we will always have "rich" and "poor."

Yes, I think that's how we have to objectively judge wealth, and therefore wealth disparity.

I think trying to judge wealth disparity by financial assets can be very misleading, because it can give the impression that people are doing worse now than before, which is not necessarilly the case. It also can mistake that the "richest X% of society" is a class, as opposed to just a statistic. Wealth disparity in terms of financial assets will always exist in a free society because there are always people who will take the risk to build companies and create new products and services. In some periods this happens more then others.

This is, imo, a less objective measure of wealth disparity than referring to financial assets.

I don't know if you were around in the 60's, but I was. Ok, there are computers and cell phones now which didn't even exist then. But, just from my personal experience (and I realize that this differs from region to region), one could live better on a basic wage than one can now. Iow, the cost of goods and services is proportionately greater now than it was in the 60's (with some upscale blips in the picture). So, as far as I can tell, the general trend is downward, wrt the majority of Americans. And again, my view might just be a bit unwarrentedly pessimistic.

It depends. For certain goods and services, the prices have come down, as they are a lot more available to the masses now then they were before. For other good and services, their prices have increased some, but so have incomes per capita. What is hurting people right now are of course the recession and gas prices, and healthcare and education costs. Healthcare in particular eats into wages.

I don't know how you're guaging that. For example, when I was a mid-teenager in a rather large metropolitan area the minimum wage allowed me to rent an apartment in a nice area, make payments on a car, and eat out a few times a week, as well as covering all the other essentials. I don't think that's possible today ... anywhere.

Many of the goods and services available to the wealthy back in the 1950s and 1960s are virtually all available to the middle-income and even the poor today, minus a few exceptions in terms of things that exist in such a limited supply that they could never be mass-produced (yachts, private jets, mansions, certain jewels, gold, etc...).

Compare the difference in the standard of living of the average person versus a wealthy person in the 19th century to today. We still have "wealth disparity," but the goods/services available to the average person today have really closed up the actual disparity a good deal. A whole lot of stuff that one used to need to be rich to get access to, one now can get easily. Just as we see the massive difference in standard of living between a regular and wealthy 19th century person, a gap that is now very narrowed, 100 years from now, people will look back at the gap in standard of living between a regular and wealthy person of the 20th and 21st centuries and see that the gap has been closed even further. Also, one isn't supposed to live off of minimum wage.

In terms of just incomes, maybe. But this has to be related to prices. Historically, what was poor 50 years ago, in terms of buying power, is essentially what's poor today.

But thanks to market capitalism, a whole slew of goods and services that used to cost a lot are now cheap and widely-available, so even a poor person today can buy all sorts of stuff that a poor person fifty years ago could not.

The trend is, afaik, that food prices continue to rise proportionately faster than wages and salaries.

Food prices are partially-influenced by the government, as it pays farmers not to grow certain foods, part of the corn crop goes to ethanol, and also things like oil prices will drive up the price of groceries. Add to this wages that are stagnant or declining due to increasing healthcare costs.

Only if the small business is paying it's employees at around the minimum wage rate. Afaik, most small businesses either pay their employees at (significantly) above that rate, or they have an "off the books" labor force.

If they hire teenagers who are part-time workers though, they will pay them at minimum wage.

Of course it would. Just look at the numbers.

What I mean is let's say you get paid $1 per hour. So then you get a 100% increase to $2 per hour. Percentage-wise, you got a pretty huge increase, but in terms of the actual money, it doesn't really pay you enough to significantly change your buying power at this point.

I don't know. I'm just guessing. Lowering or raising the federal minimum wage to, say, $6/hour or $12/hour would be an experiment, either way. But can there be any doubt that raising it would benefit minimum wage earners?

It would at the expense of a bunch of additional unemployed people if you raised it too high.

Yes, that's a given. But my guess is that it would benefit the people receiving the wage, and the general economy, more than it would hurt the businesses paying the wage. As I mentioned in a previous post. Economists are split on this. It's an empirical question. So, we can either raise or lower the minimum wage and see what happens. But one thing we can know will happen is that that the buying power and living standard of millions of current minimum wage earners will decrease if the minimum wage is decreased.

Yes, but the buying power will be made up elsewhere through businesses having more money or more workers being employed.

My guess is that there will be. So a discontinuance of government subsidies would have the net effect of decreasing the number of relatively poor applicants from attending college.

If the price came down, then it should not decrease the number of poor applicants from attending.

What do you mean "it's one form of oversight". Afaik, it's the only form of oversight. Do you not regulate against fraud and abuse because of past corruption, or do you focus on cleaning up the corruption?

Regulation is one form of oversight. Other forms of oversight are consumer watchdog groups, ratings agencies (which failed in their duty), the press, etc...

 

[DrClapeyron]

October 13, 2005 Congress passed bankruptcy legislation affecting repurchase agreements (repos). The legislation stated that mortgage-backed securities would become sole possesion of lenders in a repo in which the borrower defaulted on payment of the loan. Legislation similar to that which affected the repo market.

November 10, 2005 the Federal Reserve announced that on March 26, 2006 they would no longer publish data on the M3 money supply...which includes data on what was then a rapidly growing repo market. Dun dun dun! Conspiracy? Did this lack of transparency in a shadow banking market lead to a collapse of the economy and did the Fed regret/know it?

Sources:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1525120
http://www.federalreserve.gov/releases/h6/discm3.htm
http://money.cnn.com/2005/10/17/pf/debt/bankruptcy_law/index.htm
http://www.newyorkfed.org/research/epr/06v12n1/0605garb.html
http://www.newyorkfed.org/research/epr/forthcoming/1102morg.html