What is wrong with the US economy?

[russ_watters]

Looking at the OP, the comment was there was nothing wrong with the economy. Well of course there was, and that is why the economy is in the trouble that it's in now. Too much easy credit, too much irresponsible borrowing, too much reliance on foreign energy supply, . . . .

The OP was, of course, hyperbole (there is, of course, no such thing as perfection), meant to contrast the hyperoble coming from the other side from previous threads. Those threads are all gone, but people have been nice enough to continue the doom-and-gloom hyperbole in this thread. It's basically been a respostory for all the negative news you guys have wanted to highlight. I hope the irony is not lost on everyone: with each non-factual doom-and-gloom hyperbole post, you guys validate the point of the OP!

 

[russ_watters]

I think you're overstating the importance of the labels. The last time I recall a recession actually affecting a political outcome was in 1992

You don't think the .com crash of 2000 affected Gore's prospects? I certainly do. What are the Democrats saying about McCain? "Four more years of Bush". Well that stings a whole lot more if we are in a recession come October than if Q3 growth is 4%, unemployment is dropping again, and the Dow is at 14,000. Gore had the tough job of trying to build on Clinton's economic success while distancing himself from the man - and that strategy died when the economic success disappeared just before the election.

...and what did it was the economic fact of the recession, not the label itself.

Sure, but that's exactly the point: the late 80s to early 90s recession was a serious recession.
-It was preceded by the worst stock market day ever that took two years to recover.
-It saw the unemployment rate spike to around 7.7%
-1990 was an overall negative gdp growth year.

That's why it was easy to apply the label then. And it is not easy to apply the label today because "the economic fact of the recession" is that (like the one in 2000-2001), what we are in now is extremely mild - so mild that there is ambiguity over the applicability of the label.

People are motivated by their pocketbooks, not the labels that pundits apply. Refusing to label the current downturn a recession is not going to make Hillary Clinton's populist posturing any less effective with the Rust Belt crowd. All it will accomplish is to convince said voters that you are out of touch with their lives. I guess what I'm saying is that popular confidence (or lack thereof) in economic prospects is largely a grassroots phenomenon, driven by the actual on-the-ground performance of the economy. Playing word games with statistics can have a short-lived, marginal effect, but it's not going to change any fundamentals.

But that's just it - if the whateveryouwanttocallit is only affecting a relatively small fraction of the population, then trumpeting it in speeches will only work on those people and it won't work on everyone else. If you can, legitimately, call it a general recession, people have no choice but to acknowledge that it could affect everyone. Right now it can legitimately be said to be mainly affecting a relatively small segment of the economy. As a result, people just won't buy it. The democrats truly need this to be a no-doubt-about-it recession, lasting into the fall in order for that to play well in the general election.

Okay. Is there anyone serious who thought that we wouldn't recover? This kind of thing happens every 5-10 years or so. You seem to be arguing against some kind of hypothetical pessimist/doomsayer position that I don't see represented here.

You're relatively new to this thread. People here have been prediction an extended, deep downturn - a true economic disaster - looming. This was to be the start of it. And that's not hyperbole, they really do mean it.

Now actual predictions are tough to pin down, but the general point I keep harping on is simply that overall, we are seeing unwarranted pessimism. And it isn't just this thread. I posted an article that came out two days before the Q1 GDP numbers. The prediction from a general survey of economists was .1% Q1 growth, when we actually saw .6%. The media and liberal politicians are pumping-up the negativity and people here buy into it. And what is dangerous about that is that the economy runs on optomism. Negativity can become self-fulfilling.

 

[Poop-Loops]

You don't think the .com crash of 2000 affected Gore's prospects? I certainly do. What are the Democrats saying about McCain? "Four more years of Bush". Well that stings a whole lot more if we are in a recession come October than if Q3 growth is 4%, unemployment is dropping again, and the Dow is at 14,000.

This is a very good point. I've also heard it said (On Countdown with Keith Olbermann no less) that the reason the Dems haven't stood up to Bush's Iraq War as much as they could have (and apparently they had plenty of opportunities to) is because they might be waiting for November so they can use the war for political purposes.

Needless to say both of those insinuations aren't really based on anything real (did you read a memo saying "let's make it look like we're in a depression so we can win in November"?), but I wouldn't put it past them to do something like that.

 

[russ_watters]

quadraphonics, from post #136, 10 months ago:

Well - for some it's great, and many it's not. It all depends on whether one is heavily leveraged or not.

As an aggregrate, the economy seems doing well. But much of it apparently based on debt - e.g. deficit spending and debt accumulation of the federal government.

There are signs of weakness, e.g. sub-prime mortgage market, and in fact I just noticed a property in foreclosure, which was built only two years ago.

In conjunction with the Bank of International Settlements, there is concern about the accumulation of debt world-wide.

IMO, if current trends continue, the US and much of the world could see an economic downturn like the Great Depression about 70 years ago.

These predictions are always fuzzy on timeframe, but I got the distinct impression that this is meant to imply an imminent new Great Depression. Certainly, citing the sub-prime crisis would imply that the sub-prime crisis would lead the wave of economic troubles crashing into a depression. But 10 months later, it looks like the sub-prime crisis is bottoming-out and the economy appears poised to recover, and quickly.

 

[russ_watters]

Needless to say both of those insinuations aren't really based on anything real (did you read a memo saying "let's make it look like we're in a depression so we can win in November"?), but I wouldn't put it past them to do something like that.

Honestly, I haven't been listening to their speeches closely enough to pull one-liners about the economy out. We've covered some common ones in the past, though, particularly the 'The rich get richer while the poor get poorer' lie. That's off the top of my head, but it is pretty close to a direct quote from Kerry during the last election cycle. That's just a general liberal position, though, and isn't part of the current economic picture.

[edit] Here's a Clinton ad:

“The Bush economy is like a trapdoor.
“Too many families are one pink slip, one missed mortgage payment, one medical diagnosis away from falling through and losing everything.

http://sweetness-light.com/archive/latest-hillary-ad-bush-economy-is-trapdoor

This is exactly the type of thing I was talking about above. This type of ad plays well in a pessimistic environment. When the economy looks bad (and getting worse!), lots of people really do have such fears and these types of ads strike a chord. But if the economy is booming again by October, an ad like this becomes toothless.

 

[mheslep]

It is certainly easy to take words like disaster, crisis or catastrophe out of context. For those loosing their homes or jobs, it probably seems like a disaster, crisis or catastrophe.
..
But then the sub-prime mortgage problem is a crisis to those institutions who took investors money and then bought securities that are now worth much less than the institutions promised investors.

there are millions more who could or would like to work but are discouraged or cannot find a job that will meet their needs for shelter, food, utilities, transportation, . . .

crisis +3
catastrophe +2
disaster +2

 

[mheslep]

...Sure, but that's exactly the point: the late 80s to early 90s recession was a serious recession.
-It was preceded by the worst stock market day ever that took two years to recover.
-It saw the unemployment rate spike to around 7.7%
-1990 was an overall negative gdp growth year.

Good description of the 90-91 recession. It was bad enough to sink G. H. Bush's reelection who just prior enjoyed the highest popularity ratings of all time. Take a look at your wristwatch with your hand on the wheel during that kind of recession and people are apt to change drivers.

 

[Jimmy Snyder]

If higher education was more widely available, it would reach high-performing students of modest means that could invigorate our economy. Neo-cons deride such ideas as "socialism", but they are the factors that could turn the US back into an economic powerhouse that it used to be.

Do you really think this socialist plan will work. Do you really think it could override a neo-con President's veto? And if it did, would you admit that the US was an economic powerhouse?

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/27/AR2007092700958.html"

http://www.boston.com/news/nation/articles/2008/04/27/student_loans_less_available_bush_says/"

http://www.reuters.com/article/politicsNews/idUSN0541745320080505"

http://www.reuters.com/article/domesticNews/idUSN0720877820080507"

 

[Astronuc]

Good description of the 90-91 recession. It was bad enough to sink G. H. Bush's reelection who just prior enjoyed the highest popularity ratings of all time. Take a look at your wristwatch with your hand on the wheel during that kind of recession and people are apt to change drivers.

Those were actually good years for me, because I worked for a company that had a diversified international clientele, 1/3 US - 1/3 Asia - 1/3 Europe.

Anyway, that recession has a lot to do with Reagonomics and malfeasance on the part of many people.

I think this is pretty accurate -

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 to 1 million, the lowest rate since World War II.

A taxpayer funded government bailout related to mortgages during the Savings and Loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis.

http://en.wikipedia.org/wiki/Savings_and_Loan_scandal#Consequences

In addition to the financial, real estate and construction industries, retail is rather weak at the moment. And today, a local deli/restaurant owner mentioned she's seen a reduction in spending during the last two months that she hasn't seen in the last 13 years or so.

Home Depot is closing one of its local stores, there is more office space available at lower rates, there are more homes on the market (not selling), reduced government services - but taxes are slightly up.

Locally, IBM laid off workers, and hired temps from Manpower at reduced wages - and no benefits (i.e. no health coverage, and no pension - except whatever they get from Manpower )

 

[edward]

The retail sector is feeling the crunch. I was in Sears today and it looked like a museum at midnight. Home Depot is closing 15 stores but that is a drop in the bucket for them.

I have a gut feeling that if the banks start treating the credit card industry the same way that they have had to turn up the screws on home loans a lot more retail stores will be closing.

Typically in the past when people maxed out their credit cards the banks just upped their limit by a few thousand dollars. I think that it is safe to assume that they will quit doing that.

National Public Radio had a guest on last week that discussed what he believes will be an overall painful year for retailers.

Howard Davidowitz, of the New York retail consulting firm Davidowitz & Associates Inc., said he expects as many as 7,000 stores to close this year as consumers continue to struggle in the sluggish economy and lending institutions become more guarded of their cash.

Bombay furniture announced in October it was closing all of its remaining 388 stores. Clothier Ann Taylor announced it was closing 117 of its underperforming stores. Linens n' Things announced Friday it was filing for Chapter 11 bankruptcy and planned to close 120 underperforming stores.

And the list goes on.

http://www.bradenton.com/business/story/579977.html

 

[Jimmy Snyder]

Does this help? http://www.msnbc.msn.com/id/24489814/"
This article seems to echo some of Russ Waters' posts.

Nearly nine in 10 consumers think the economy is in recession, according to the Reuters/University of Michigan survey.

Some economists are at a loss to explain that level of pessimism given that, so far, the data indicate the economy isn't in such bad shape.

“While there’s no question the economy is struggling, just how anyone could confuse the current environment with the worst economy since the Great Depression is baffling to say the least,” said Wachovia chief economist John Silvia.

 

[wildman]

I think people's view of the economy reflect their own experiences. With the high fuel and food prices and dropping wages, a lot of people are not doing very well personally. The economy as a whole may be doing all right, but the majority of people are not.

 

[Astronuc]

Global Pool of Money Got Too Hungry (or perhaps too greedy and selfish)
http://www.npr.org/templates/story/story.php?storyId=90327686

All Things Considered, May 9, 2008 · NPR's Adam Davidson and This American Life's Alex Blumberg jointly report on how rising defaults on subprime mortgages in the U.S. became a global financial crisis.

Meanwhile -

Citigroup, AIG Dampen Wall Street's Optimism
http://www.npr.org/templates/story/story.php?storyId=90327700

All Things Considered, May 9, 2008 · Citigroup announced on Friday that it was selling off $400 billion of its assets in an attempt to restructure itself to move beyond the financial crisis in the credit and mortgage markets that have affected many financial services firms.

Despite some optimism on Wall Street that things are improving, the downturn continues to take a toll on companies. On Thursday, insurance giant American International Group announced a huge loss — $8 billion — related to bad mortgage debt.

Citigroup Inc. has become a financial behemoth with all sorts of divisions and businesses. It has assets that exceed $2 trillion.

"They have become large and inefficient and in a crisis that catches up with you in a way that it doesn't in good times," says Peter Morici, an economist and professor at the University of Maryland. "What has become apparent is that these large companies like Citigroup cannot manage risk effectively when they are so diverse, because they don't know what the various units are doing."

It will be interesting to see what kind of bonuses the CEO and management get this year.

and

Fannie Mae Reports Massive Loss in First Quarter
http://www.npr.org/templates/story/story.php?storyId=90231951

All Things Considered, May 6, 2008 · Fannie Mae, the largest buyer of home loans, lost almost $2.2 billion in the first quarter of 2008. Mounting foreclosures took a toll on the government-sponsored lender. At the same time, the government is relying ever more on Fannie Mae to keep the mortgage market active and liquid.

But on the human side - Poverty Is About Real People, Not Politics
http://www.npr.org/templates/story/story.php?storyId=90327703
by Machlyn Blair

 

[Jimmy Snyder]

But on the human side - Poverty Is About Real People, Not Politics
http://www.npr.org/templates/story/story.php?storyId=90327703
by Machlyn Blair

Right now, everyone is talking about a recession — what this country needs and what we don't have. But a lot of that talk seems to be about interest rates on million-dollar homes. And I understand recession is a scary thing for most folks. It's just that where I live, in eastern Kentucky, we're not on the verge of recession; we've been in one for the last 50 years.

More like 232 years according to the mood of this thread. But only in eastern Kentucky. The rest of the country doesn't have the recession it needs. Don't give up hope though.

 

[Astronuc]

More like 232 years according to the mood of this thread. But only in eastern Kentucky. The rest of the country doesn't have the recession it needs. Don't give up hope though.

No one is hoping for a recession, and certainly doesn't need one. I not sure why one would want to have a recession.

But sometimes there's a thing called inertia, like a large boulder. Sure one can stop a boulder rolling downhill, but to do so safely and without harm to self, it takes careful effort and time.

Certainly there has been 232+ years of economic disparity.


Besides for some optimists, events like the Great Depression and Katrina were not disasters or catastrophes. They were opportunities.

 

[mathwonk]

it is amusing that some people are willing to argue the average guy gets his gloomy view of the economy by reading the ny times. what about by looking in his wallet? or at his salary, or retirement check, or the price of goods?

i have always felt that the real economy and quality of life suffers when goods (and people) are simply burned up in wars, and resources are diverted from health, education, infrastructure, the arts,...

 

[russ_watters]

it is amusing that some people are willing to argue the average guy gets his gloomy view of the economy by reading the ny times. what about by looking in his wallet? or at his salary, or retirement check, or the price of goods?

When little has changed in a person's individual situation, many people will still just echo what they see on TV or read in the paper. That's a fact of life. The current situation is a perfect example of this: for most people, the only noticeable change in their personal economic outlook manifests as higher gas prices. The real effect of that is relatively small except for those heavily dependent on driving.

i have always felt that the real economy and quality of life suffers when goods (and people) are simply burned up in wars, and resources are diverted from health, education, infrastructure, the arts,...

That is generally true, but fortunately we haven't had a war big enough to actually drain the economy much in a very long time. Depending on how you calculate the numbers, the Iraq war costs somewhere between 1 and 2% of our gdp, whereas Vietnam sucked-up 12% and WWII a staggering 40%. http://news.bbc.co.uk/1/hi/world/americas/4201812.stm

 

[russ_watters]

I think people's view of the economy reflect their own experiences.

That's partly true, yes.

With the high fuel and food prices and dropping wages, a lot of people are not doing very well personally.

Well, the part about dropping wages is factually wrong, but ok - people will notice an extra few percent of their monthly income going toward gas and food. But how much is that, really?

The economy as a whole may be doing all right, but the majority of people are not.

Isn't that self-contradictory? If the majority of people are not doing all right, that would imply to me that the economy as a whole was not doing all right. That's kinda how an economist measures how the economy is doing.

 

[russ_watters]

No one is hoping for a recession, and certainly doesn't need one.

A politician campaigning on the platform of pulling us out of the recession most certainly does does need us to be in a recession for such a campaign strategy to work. For example, the link you gave was about John Edwards' campaign strategy - how's he doing these days?

I not sure why one would want to have a recession.

Politicans care about little else besides their own ambition. For a politician who'se ambition hinges on there being a recession, they want negative numbers as much as an average guy looking at his paycheck wants to see the numbers increasing.

I'll go further and say that this is one of the primary reasons why Bush got two terms as President instead of none (but hey - at least they can thank Bush for handing them Congress!). Democratic candidates need people to believe their econmic view is correct in order win elections. Trouble is: their economic view is not correct and they have a hard time selling it to moderates.

This is the reason why the only way a Democrat can be elected President in the modern age is if we are in a recession at the time of the election and a Rebublican is President (if a democrat is president, they are caught in a catch-22 the way Gore was): that's the only time enough people buy their economic view to enable them to win. And it's why prospects for the Democrats this November are not looking good.

And it's also why PF is populated by so many pessimists: pessimists tend to be democrats/liberals while optomists tend to be republicans/conservative and we have a glut of the former here.

Certainly there has been 232+ years of economic disparity.

So does that mean you agree that that must mean either the economy has actually been poor continuously for 232 years or that people are viewing it through poop-colored glasses?

How to fix places like rural Kentucky or rural Maine or Allentown, PA (you know, like the Billy Joel song) is a separate discussion, but a big part of the answer was contained in that link you posted:

I can't figure out how to change things, can't go to college.

My extended family on my mother's side is from Allentown, PA. I was born there and lived there for the first 9 years of my life. It certainly is a depressing place, though not as bad as some others we've talked about. Of the 10 kids in my generation (cousins, me, and my sister), only 3 completed college. Perhaps not coincidentally, none of those three lives within 50 miles of Allentown and all 7 of the others live within 15 miles of Allentown. Of the 3, two (myself and my sister) would probably be considered upper-middle class. Of the other 7, probably 2 would be considered middle-middle or upper-middle class (mostly due to their husbands, but they at least half half decent jobs themselves) and the rest lower-middle or upper-lower.

One of my cousins, much to the disappointment of my sister and I (we've talked about it many times), went to Penn State (like my sister) and is a pretty bright guy, but he dropped out.

The point is, this is one of the reasons optomism and ambition go hand in hand and are so important. If people don't believe they can change their situation, they won't even try. People talk about the reality of class mobility not being especially high in the US. The reason for that is purely cultural. People don't try to improve themselves and their situation.

Now I won't claim that I'm an example of class mobility: my mother didn't get out of Allentown on her own, she married out, and I just took after my father. People tend to follow after their parents because the know little else.

 

[mathwonk]

gee i thought allentown was the big city, my roommate in college was from palmerton. he is now a physicist.

 

[Gokul43201]

Well, the part about dropping wages is factually wrong

Russ, that's not true either. Two quarters of negative per capita GDP growth = two quarters of shrinking per capita income.

Isn't that self-contradictory? If the majority of people are not doing all right, that would imply to me that the economy as a whole was not doing all right. That's kinda how an economist measures how the economy is doing.

The answer here too, is yes and no. Often, economic indicators reflect economic conditions among the majority of the population, but sometimes they don't. The latter is particularly true when distributions are heavily weighted towards a small segment of the population

 

[mathwonk]

i think the contrast between the general economy and the individual refers to the modern phenomenon that ceo's and perhaps stockholders take a much larger slice of the proceeds from a booming economy than do salaried workers, as compared to 30-40-50 years ago.

e.g. one might say that some big medical insurance companies like the one that took over BCBS in georgia a while back, are doing well by looking at its stock price, but doctors and patients may feel differently when care and compensation both suffer under new managed care guidelines, while company officials record new profits.

so if the managed care industry gets rich while patients cannot afford treatment and doctors cannot afford to accept industry mandated rates, is the industry and the economy doing well or not?

i.e. is an industry doing well when it makes large profits by denying the services it is designed to provide? only the shareholders seem to think so.

i don't know what the economists would say, but from reading "the economist" it seems they are content.

 

[mathwonk]

I think i disagree that the iraq war is too small to be a drain on the economy. it is not surprizing that it is smaller than vietnam and ww2, which changed the entire course of the world or of at least one generation of lives.

still the money for iraq comes from somewhere, and in such situations it tends to come from very valuable but politically weak places, like health care, education, and scientific research.

i suspect the iraq price tag is quite large compared to funding for college scholarships for the bright but needy, or healthcare for the poor. and it would be even higher if it were even adequate to provide material and recovery care actually needed by the soldiers.

 

[Astronuc]

Well, the part about dropping wages is factually wrong

I must disagree. If the economy (GDP) grew at 0.6% (1Q 2007), or 2.2% in 2007, someone has to be experience declining wages, since folks at the top 10% (who earn ~ > $100 K /year) see their earnings (income) increase by 2, 3, 4+%. So to average out at a lower number (like 0.6%, 2.2%, . . .) means that someone is receiving decreasing income (especially when we properly weight by income). My income has been increasing 3-4+% per year, and my income is more than twice the national average or median. My retirement income plan increases by an even greater rate.

Certainly brief periods of unemployment cut into one's earnings.

Also, if the Big 3 auto makers are buying out the employment contracts of older employees who earn ~$28/hr and replace them with younger workers who earn ~$14/hr, I'd have to say, the wages are decreasing.

 

[Astronuc]

A politician campaigning on the platform of pulling us out of the recession most certainly does does need us to be in a recession for such a campaign strategy to work.

Russ, you touch on a number of interesting points, each of which is worthy of a separate discussion.

As for Edwards, he strongly focussed on a single issue, which wasn't particularly relevant with most voters.


I disagree that the pessimists are necessarily democrats/liberals, because I know a lot of conservatives who are concerned about the economy. The so-called pessimists are not pessimists, but rather realists. The US economy is not in great shape at the moment, but it is rather mediocre, and it could get worse. At the moment there are 1.3 million homes in various stages of foreclosure, and there are another 3 million homes at risk of foreclosure through this summer.

Economist Puts Economic Downturn in Perspective
http://www.npr.org/templates/story/story.php?storyId=90343995

Weekend Edition Saturday, May 10, 2008 · Many Americans are uneasy about the country's current economic instability. Adam Posen of the Peterson Institute for International Economics talks with John Ydstie about the possible length and severity of the current economic downturn, which some are already calling a recession.

Listen to what Posen says about the next few years and future. Bascially, a majority of Americans need to learn to enjoy a lower standard of living. The reality is that a lot of things (including homes) were purchased on credit, and many do not have the ability to repay that debt.

The financial markets (vis-a-vis Global Pool of Money) got reckless, and somewhere between $500 billion and 41 trillion just evaporated, because money was spent on assets that now are worth much less than money invested in them.

The US economy got caught in a perfect storm - overleveraged financial markets, declining asset value, increased cost (particularly for imported energy), and increased competition for resources.

 

[Jimmy Snyder]

You could take the GDP and divide it by all the tea in China. But what would it mean? The fact that people are willing to divide it by the number of people who live in the US and then insist that the resulting number has some kind of meaning is an encouraging sign.

 

[mheslep]

I must disagree. If the economy (GDP) grew at 0.6% (1Q 2007), or 2.2% in 2007, someone has to be experience declining wages, since folks at the top 10% (who earn ~ > $100 K /year) see their earnings (income) increase by 2, 3, 4+%. So to average out at a lower number (like 0.6%, 2.2%, . . .) means that someone is receiving decreasing income (especially when we properly weight by income). My income has been increasing 3-4+% per year, and my income is more than twice the national average or median. My retirement income plan increases by an even greater rate.

Are you accounting for inflation? The reported GDP growth is in real terms, i.e. adjusted for inflation. I'm guessing your salary observations are not. A 3% US dollar salary increase is about zero in real terms.

 

[Astronuc]

Are you accounting for inflation? The reported GDP growth is in real terms, i.e. adjusted for inflation. I'm guessing your salary observations are not. A 3% US dollar salary increase is about zero in real terms.

Yes - I am accounting for inflation.

I know parts of the economy are doing extremely well. I was at a meeting recently, and one guy asked if anybody wanted a few million dollars. He offered to introduce any interested party to a venture capitalist who's looking to invest, that investor is apparently one of several looking for opportunities - even in the middle of the current situation.

 

[Astronuc]

I heard this discussion this morning. Interesting persepective, but keep in mind George has an interest in selling his book.

Soros: Financial Crisis Stems from 'Super-Bubble'
http://www.npr.org/templates/story/story.php?storyId=90328243

Morning Edition, May 12, 2008 · The famous financier George Soros has made billions betting where the economy — and the markets — are heading. He's been less prescient in his books, where twice before he predicted financial disasters that didn't fully materialize.

But in his latest book, The New Paradigm for Financial Markets, Soros writes that we are now in a financial crisis that's unparalleled.

"It's the worst, most serious crisis of our lifetime," Soros tells Steve Inskeep.

Soros blames what he calls a "super-bubble" that started about 25 years ago. That's when a less-is-more philosophy became popular with economic regulators. That allowed Wall Street to invest increasing amounts of money in credit.

"The idea was that regulators always make mistakes, state interference in the markets just messes things up," Soros says. "And that was a false idea ... Regulators are human and bound to make mistakes, but markets are also human and they are also bound to make mistakes. Instead of markets always being right, they're actually always groping at trying to find out what the facts are. But they never get it right."

I found the last paragraph (bolded) interesting.

Some blame too much regulation for the current situation. I'm on the side that there is too little regulation or it's too lax. Regulation needs to be simple and straightforward. Perhaps it is too prescriptive, which many laws tend to be, but how does one effectively regulate and maintain a fair and honest system.

 

[russ_watters]

More (intentionally?) misleading economic news:

Foreclosure filings surge 65% in April

More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65% vs. the same month last year and contributing to a deepening slide in home values, a research company said Wednesday.
Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 4% since March, RealtyTrac said.

http://www.usatoday.com/money/economy/housing/2008-05-14-foreclosures-mortgage-apps_N.htm

Did the person who wrote the title misread the article? Given that these news stories are written and edited by professional writers, I have a hard time accepted that such a thing can be a mistake. But hey, 65% is a lot sexier than 4%, right?

 

[russ_watters]

Russ, that's not true either. Two quarters of negative per capita GDP growth = two quarters of shrinking per capita income.

GDP and personal income are two completely separate measuring-sticks. GDP is not a measure of per capita income, it is a measure of the total output of goods and services in the country (ie, not including foreign trade). Personal income only accounts for about a third of the GDP.

There is a caveat on my statement though, but it cuts both ways: income data is put out yearly, six months or so after the end of the previous year. So we don't have very recent data on income. Income for 2007 is almost certain to be higher than for 2006. Income for 2008 is still an open question, but given the predictions from the experts about the economy rebounding hard in the second half of the year, it is unlikely to drop for the year.

The answer here too, is yes and no. Often, economic indicators reflect economic conditions among the majority of the population, but sometimes they don't. The latter is particularly true when distributions are heavily weighted towards a small segment of the population

That's true, but the "majority" we're talking about here is a big majority - like 95%. So the other 5% need to experience a pretty extrordinary decline in order to make a big impact on the average. And the areas being mentioned are perpetually poor, so they do not have a big impact on the motion of the average.

 

[russ_watters]

gee i thought allentown was the big city, my roommate in college was from palmerton. he is now a physicist.

The Billy Joel song was written in the 1982, when Bethlehem Steel was dying. I'm not sure if Allentown has been rejuvinated since, but it almost seems like the suburbs of Allentown are more like suburbs of Philadelphia. Until the housing bubble burst, anyway, people were turing farms into subdivisions with $500k homes at an extrordinary rate out there.

 

[russ_watters]

i think the contrast between the general economy and the individual refers to the modern phenomenon that ceo's and perhaps stockholders take a much larger slice of the proceeds from a booming economy than do salaried workers, as compared to 30-40-50 years ago.

That is related to Gokul's statement above about the people on top vs "everyone else". The idea that you have there is based on the well-publicised fact that the income distribution in the US is stretching, but the idea you've constructed from that fact is a popular myth. The "robber-barons" of the early 20th century were every bit as rich as the super-rich of today (if not more - have you seen the Hearst house?!) . What has changed is the shape of the distribution. 100 years ago, it really was the very few super-rich and "everybody else". Today, instead of having a very small handful of super-rich, we have thousands of them as well as millions of people who are merely very rich. Not to mention, now we have something called a "middle class"

The point is, yes, the wealth situation is different today from 30-40-50---100 years ago, but not in the way that most people like to believe.

 

[russ_watters]

I think i disagree that the iraq war is too small to be a drain on the economy. it is not surprizing that it is smaller than vietnam and ww2, which changed the entire course of the world or of at least one generation of lives.

still the money for iraq comes from somewhere, and in such situations it tends to come from very valuable but politically weak places, like health care, education, and scientific research.

i suspect the iraq price tag is quite large compared to funding for college scholarships for the bright but needy, or healthcare for the poor. and it would be even higher if it were even adequate to provide material and recovery care actually needed by the soldiers.

You're changing the point (even while restating it!). Yes, I'm sure some things were cut from the federal budget to pay for the Iraq war - though most of the money was simply borrowed - but the things that got cut aren't "the economy".

 

[russ_watters]

I must disagree. If the economy (GDP) grew at 0.6% (1Q 2007), or 2.2% in 2007, someone has to be experience declining wages, since folks at the top 10% (who earn ~ > $100 K /year) see their earnings (income) increase by 2, 3, 4+%. So to average out at a lower number (like 0.6%, 2.2%, . . .) means that someone is receiving decreasing income (especially when we properly weight by income).

How does pulling numbers out of the air consitute evidence? Do you have a reference for this "2, 3, 4+%" for the people in the top 10%? And who is this "someone"? How many times are you guys going to go after the "someone" strawman? You guys are too smart for that to be a comprehension error, but repeating it over and over again doesn't make it true/relevant. But I guess I have to address it again (same way as always):

Yes, "someone" saw their income decrease in 2007 - probably millions of "someones". This is irrelevant and no one has suggested otherwise. The only relevant thing we could be discussing - and you guys must accept this, given the title of the thread - is that overall, there is no evidence of a drop in income. That means for the average, per capita, per income bracket (fifths), etc. You know: the measuring-sticks by which you can objectively assess the health of "the economy". The overall economy.

You also seem to be making the same mistake as Gokul, somehow thinking that the GDP=personal income. It doesn't.