Excellent Article on America's "Consumer Economy"

[momeNt]

http://www.zerohedge.com/news/guest-post-which-too-fearful-speak-demise-consumer-economy

The entire creaking economy is based on a few ideas which no longer work:
1) Create "aggregate demand" (i.e. consumer demand, which then creates business demand) and the economy "grows," people are hired and get paid, and that's good.
2) When consumer demand slumps because people are over-indebted and can't afford to buy more of anything, then "stimulate" demand with massive Central State spending to replace the vanished private demand.
3) Demand is endless. You can never have enough stuff, food, vacations, education, healthcare and toys. Give people free money, or the ability to borrow nearly-free money, and they will spend, spend, spend. This creates "growth" which is always good.
A funny thing happened on the way to the infinite demand/consumption model--or actually, two things:
A. People borrowed all they could afford, and then borrowed more. Now they can't borrow any more, even if the interest rate is low. By some estimates, American consumers need to pay down $4 trillion in debt just to restore the income-to-debt ratios of the early 1980s, never mind the early 1960s.
B. Infinite demand met marginal return in a dark alley, and infinite demand is in the gutter, whoozy and bleeding profusely.

That's only part of the article, feel free to read the whole thing.

Throwing debt at the problem isn't going to create jobs anymore, it won't make banks lend, and it won't make people spend, central planning is at the verge of collapse, people were convinced that it worked but the cracks are now noticeable.

 

[sandorski]

http://www.zerohedge.com/news/guest-post-which-too-fearful-speak-demise-consumer-economy


That's only part of the article, feel free to read the whole thing.

Throwing debt at the problem isn't going to create jobs anymore, it won't make banks lend, and it won't make people spend, central planning is at the verge of collapse, people were convinced that it worked but the cracks are now noticeable.

 

[momeNt]

Perhaps I should have worded that differently!

central planning has caused our economy to be at the verge of collapse.

happy now canuck?

 

[sandorski]

Perhaps I should have worded that differently!

central planning has caused our economy to be at the verge of collapse.

happy now canuck?

Still schlock.

 

[Dissipate]

The best that can be done now is a shutdown and dismantling of the federal government. Sell off everything. Furniture stores do it all the time, it's not a big deal.

 

[momeNt]

The debt ceiling raise was proof they all know the system is about to collapse, they just want to prepare a little more for it. The fact that the government would sooner not pay the bills and "default" than resort to selling off "traditional" assets like gold, either means there is no federally held gold, or they are keeping it for when it the system all goes boom.

 

[Infohawk]

It doesn't have to be this way. Consumer demand would grow if people had decent jobs. Decent jobs means not competing with immigrants for Subway sandwich jobs or for non-existent factory jobs with Chinese. We need to bring the lower and middle class jobs back to this county with tariffs on third world countries that don't have environmental regulations and comparable labor markets.

 

[Doppel]

Always double-down on 11. Always. We just need MORE stimulus spending, more money printing and all will be well.

 

[momeNt]

It doesn't have to be this way. Consumer demand would grow if people had decent jobs. Decent jobs means not competing with immigrants for Subway sandwich jobs or for non-existent factory jobs with Chinese. We need to bring the lower and middle class jobs back to this county with tariffs on third world countries that don't have environmental regulations and comparable labor markets.

Protectionist tariffs aren't the answer. Making prices raise across the board for 300+ million people to employ possibly ~5 million people just doesn't work!

It's broken!

 

[Gonad the Barbarian]

We need a whole new economy over the long term because the article is right, infinite demand is a myth. But considering free market capitalism is entirely based on finite supply vs. infinite demand I don't see how anything other than a move away from that and towards more centralized planning, that actually deals with this reality, is going to solve anything. I'm not sure the OP is interpreting the article correctly, the author sounds like a Zeitgeister (see: http://www.youtube.com/watch?v=4Z9WVZddH9w).

 

[Infohawk]

Protectionist tariffs aren't the answer. Making prices raise across the board for 300+ million people to employ possibly ~5 million people just doesn't work!

It's broken!

They would work. First of all prices would increase yes, but so would wages. I don't know where you get the 5 million figure from. There are tens of millions of unemployed Americans. More important, we'd see a lot of underemployment go away. Much of our population isn't really good for anything other than factory work or basic middle-class jobs.

 

[Howard]

They would work. First of all prices would increase yes, but so would wages.

How?

 

[werepossum]

http://www.zerohedge.com/news/guest-post-which-too-fearful-speak-demise-consumer-economy


That's only part of the article, feel free to read the whole thing.

Throwing debt at the problem isn't going to create jobs anymore, it won't make banks lend, and it won't make people spend, central planning is at the verge of collapse, people were convinced that it worked but the cracks are now noticeable.

The article is spot-on, but you'll never convince the left. Government is sacrosanct, and all government spending comes from an inexhaustible Magic Cupboard, so no matter how much government spends, only good things happen. Any time something bad happens, such as our bond rating being lowered for the first time ever due to our huge and rapidly increasing debt, it must immediately be denounced as really being caused by evil Republicans refusing to borrow and spend even more, even more quickly. (Lax regulations caused by evil Republicans and Halliburton are also acceptable answers, as long as it is made clear that the solution can only be more government.) Any time something good fails to happen from government spending, it can only be because the government spending was insufficient. Second verse, same as the first.

Our basic underlying problem is that we consume far more wealth than we create. All else is dross, merely one side or the other trying to avoid this simple fact.

 

[piasabird]

The more desparate people get the more they consume alcohol and drugs. There may be infinite demand but in tough times places like Wal-mart do well. People have to have food and gas and TV's and internet and/or cable.

Sooner or later people buy cars or vehicles of some kind. Simply because they keep breaking down. I think Cars are actually way over-priced.

People have to keep using power for heat and light or make it themselves.

Finally everyone must live somewhere.

People keep using more and more Technology. TV, Computer, Phones, gizmos.

I do not care what the government says, I will make my own spending decisions. Maybe instead of overspending on healthcare, we should just let people have a cabin in the mountains for a peaceful place to die???

 

[Infohawk]

How?

Supply and demand.

 

[PeeluckyDuckee]

The country's dependency on credit to oil that wheel to go round and round is going dry. This habit of consumer spending is stretched too far and is now coming back to bite everyone in the ass.

Some people have the mindset that if they ain't got the cash for it they ain't buying it. Such mentality if exercised amongst the generally public is huge strength to a country's economic growth and stability. 1st world countries can learn a thing or two from 3rd world developing countries with regard to their finances.

 

[Infohawk]

1st world countries can learn a thing or two from 3rd world developing countries with regard to their finances.

No they can't you're comparing apples and oranges.

 

[werepossum]

The country's dependency on credit to oil that wheel to go round and round is going dry. This habit of consumer spending is stretched too far and is now coming back to bite everyone in the ass.

Some people have the mindset that if they ain't got the cash for it they ain't buying it. Such mentality if exercised amongst the generally public is huge strength to a country's economic growth and stability. 1st world countries can learn a thing or two from 3rd world developing countries with regard to their finances.

QFT

 

[Howard]

Supply and demand.

I don't think for a second that the new equilibrium would allow for an equivalent cost of living.

 

[Infohawk]

I don't think for a second that the new equilibrium would allow for an equivalent cost of living.

You mean the kind of equilibrium that existed in the 50s-90s that created a great standard of living?

 

[First]

Why isn't there infinite demand again? The author doesn't make a case for it, at all. He just says there isn't.

 

[Howard]

You mean the kind of equilibrium that existed in the 50s-90s that created a great standard of living?

Meaning that we were better off in the 70s that we are today?

 

[Craig234]

The best that can be done now is a shutdown and dismantling of the federal government. Sell off everything. Furniture stores do it all the time, it's not a big deal.

LOL. That's like saying the solution to a burglar in your house is to sell the house quick.

 

[Craig234]

Meaning that we were better off in the 70s that we are today?

In many/most economic area, yes, though we'd begun to see some problems - most obviously stagflation.

But as far as the basics, let's take a sampling:

- How was concentration of wealth (low)

- How was growth? (Solid)

- How was the ability of the middle class to do fine (even one-earner)? Good

- How large a share of all profits did Wall Street get? (10-15%, instead of today's 40%)

- How were the risks of an economic depression, the regulations preventing one? (strong)

- Were banks 'too big to fail' allowing them to blackmail the national, even global economy? (no)

- How was the US public debt? The deficit? (a tiny fraction of the amount later)

- How was the US private consumer debt? (a tiny fraction of later - it's grown more than public debt)

In fact, at that time the US was the world's largest creditor nation. Soon after, the world's biggest debtor.

There are many other statistics, but things were a lot more solid.

AFTER that time, the bottom 80% of Americans have gotten NOTHING after inflation from the economy doubling in size. If right-wing policies had not been enacted, workers would make far more today.

 

[Howard]

In many/most economic area, yes, though we'd begun to see some problems - most obviously stagflation.

But as far as the basics, let's take a sampling:

- How was concentration of wealth (low)

- How was growth? (Solid)

- How was the ability of the middle class to do fine (even one-earner)? Good

- How large a share of all profits did Wall Street get? (10-15%, instead of today's 40%)

- How were the risks of an economic depression, the regulations preventing one? (strong)

- Were banks 'too big to fail' allowing them to blackmail the national, even global economy? (no)

- How was the US public debt? The deficit? (a tiny fraction of the amount later)

- How was the US private consumer debt? (a tiny fraction of later - it's grown more than public debt)

In fact, at that time the US was the world's largest creditor nation. Soon after, the world's biggest debtor.

There are many other statistics, but things were a lot more solid.

AFTER that time, the bottom 80% of Americans have gotten NOTHING after inflation from the economy doubling in size. If right-wing policies had not been enacted, workers would make far more today.

My question is, if we create a demand for domestic manufacturing by restricting imports, how can we be sure the only outcome will be an economic situation such as in the "glory days"?