Thursday, February 5, 2009

Something to Ponder About Our Economy

This quote caught me off guard today, it was a part of a larger article that I tended to disagree with not because of the facts, but rather because of what to do about the facts. But never-the-less the reality is stunning and the question comes to us, "has the American economic juggernaut finally exhuasted itself?" I am not sure the answer is to give away free money, but when people are working more and more for less and less money we will inevitably end up in the crisis that we find ourselves in.

"The bursting of the housing bubble caused the current crisis, but the underlying problem began much earlier -- in the late 1970s, when median U.S. incomes began to stall. Because wages got hit then by the double-whammy of global competition and new technologies, the typical American family was able to maintain its living standard only if women went into the workforce in larger numbers, and later, only if everyone worked longer hours.

When even these coping mechanisms were exhausted, families went into debt -- a strategy that was viable as long as home values continued to rise. But when the housing bubble burst, families were no longer able to easily refinance and take out home-equity loans. The result: Americans no longer have the money to keep consuming. When you consider that consumers make up 70 percent of the economy, the magnitude of the problem becomes apparent.

What happened to the money? According to researchers Thomas Piketty and Emmanuel Saez, since the late 1970s, a greater and greater share of national income has gone to people at the top of the earnings ladder. As late as 1976, the richest 1 percent of the country took home about 9 percent of the total national income. By 2006, they were pocketing more than 20 percent. But the rich don't spend as much of their income as the middle class and the poor do -- after all, being rich means that you already have most of what you need. That's why the concentration of income at the top can lead to a big shortfall in overall demand and send the economy into a tailspin. (It's not coincidental that 1928 was the last time that the top 1 percent took home more than 20 percent of the nation's income.)"

The question I pose to you is, "how do we ethically and responsibly create an economy that tends away from the concentration of wealth in the top eschelons of society, without creating an excessively powerful or cumbersome government to enforce those standards?"


Jason said...

Ah man, I have a slew of comments to your question (mostly the article actually) but it's going to take forever to write out... so I'm going to do it later. :)

Also, hi! Miss you pal.


Jason said...

So, trying to be concise, I have a few thoughts:

1) I find the initial premise of the entire article to be suspect from the beginning, as shown here (

2) I think the very philosophy/economic worldview the author has is fatally flawed to begin with. Her basic premise is the same ol', long discredited, well intentioned but bad in result, Keynesian demand side BS. So all the (or any) government needs to do, is "put money in the hands of people who spend it" through various welfare agencies, and everything's good. Right, lady. All we have to do is look back to last year at Bush's "stimulus checks" and what did they do? Not even a blip on the radar. If that was the answer, why stop at $1,000 checks? Why not a million? Because economies don't grow from consumer spending. They grow from business production. The issue isn't that people aren't spending their money- it's that no one wants to invest their capitol because business right now simply isn't profitable in our economic environment. And because of that, people get laid off, which causes them to have less money, and the domino continues. Where do jobs come from? Of course it's not politically correct/expedient to say so, but everyone knows they come from people who already have money. Who want to make more. So they start businesses and invest it. This lady's a freaking idiot to think that every person who is rich saves every penny they make because they already have money, and that everyone else just spends spends spends.

3) Obviously there is far, far too much to get into from this article- I think she's ridiculously off base in nearly every paragraph. But to get to your original question, I do have a thought. Personally, I don't think we need to create a new economy in the first place. I think the free market is the best and most viable place for all parties involved, as history has shown. Unfortunately, I think it has been a long time since we have actually had anything close to an actual "free" free market- government walls exist at nearly every turn. So I think a huge and necessary step it to pull government's gigantic hands out of the cookie jar and let private industry get to work.

But I think even bigger than that is a societal issue: the entitlement culture. Our country today thinks that we are entitled to be happy and taken care of at every step, by no apparent reason other than birthright. Our culture thinks we are entitled to everything: happy pain/struggle-free lives, health care, food, movies, cell phones, you name it. This recession is a perfect example. It's really not nearly the big deal the government/media is trying to make it. The recession in the late 70s was worse. Unemployment was up to 25% in the Great Depression, and after 8 years of FDR spending his brains out he got it down to a 14%... great job there buddy. We had a housing bubble that needed to burst- housing prices were being raised artificially, and much faster than inflation and cost of living increases. They needed to go down. Obviously a lot of people are getting hurt and it sucks- but it will bounce back, as it always has. That's how the business cycle works. But people today think they are beyond struggle, and Obama is feeding the beast.

Anyway, there's some overly simplistic answers (from my point of view) to your good question. :)

Augustus Rex said...

spot on jason. i don't like the way she spun the quote or the reality found therein. what i found most fascinating is that people now slaved harder to provide for a lifestyle that they thought was possible, but it was only possible because they banked on their equity to compensate for their debt (this ties into your entitlement idea, and a culture of greed). the sad part is now both parents were out of the home working to provide but now that reality has collapsed. in addition to that there were now more workers competing for the same dollar but not creating more wealth (tying into your governmental hand in the cookie jar). i think these two things were startling for me to think about. unfortunately i think that before we can change the govt we have to change the culture, and how do you change a culture so steeped in affluence? i think this downturn is a gentle wake up call... hopefully we wake up.