D = C + I + G + NE
D = Demand
C = Consumer spending on private goods and services
I = Business investment in capital goods
G = Government expenditures on public goods & services
NE = Net exports (Exports - Imports)
Read for more details: https://sites.google.com/site/kocherlakota009/home/policy/th...
There was a time when labor was treated as a capital good, and it ended with the Emancipation Proclamation.
Bring that schedule forward through issuing more debt at record-low interest rates, and bang, you've solved several problems at once. People have jobs, they spend money, that helps the economy, and we get the infrastructure out of it as well.
You'll even get some of that inflation that's been missing during the QE period, while all the fed economists looked at their macro textbooks in utter confusion.
What's interesting is that through greasing the wheels of the economy via infrastructure investments (e.g. better broadband, connected/wired roadways, upgraded utilities and transportation hubs) you would see productivity gains which, over time, would further diminish the value of labor.
Have always been interested in how long-term goals of social/economic policy should influence short-term decision making, but there aren't any easy answers.
Calling it '4 trillion' is technically correct but I find that taking out the passthru social programs (SS, medicare, medicaid) leaves you with the real number of what's available to allocate differently. Hard to say that we could pay for something out of SS benefits while still collecting FICA tax, and if you want to eliminate the program entirely that's a different discussion.
I don't agree. G has been reduced considerably recently. Under Bill Clinton, G was higher and the U.S. ran a budget surplus.
It's an old tactic: Cut taxes (now to historically low levels) and then say the country can't afford to pay for anything. The solution is to increase taxes. The U.S. economy is the largest in history (for the U.S. or any nation); the nation can afford more G than it ever could before.
All the money is concentrated in the hands of a few, but as long as they pay their share the federal budget, at least, shouldn't be a problem.
The trust issue is like this: If we expand government to get the economy moving, then once demand picks up, we have to shrink the government back down. Do I trust Congress to do that? Absolutely not.
Good fucking grief, HN is full of naïve idealists.
When a company like Nabisco closes in Chicago and opens in Mexico for instance, yes the company saves money but Chicago loses millions and possibly billions in consumer power in the community. This is never factored in, loss of consuming power for a community/city.
There has been a slow drain winding down of consumer purchasing capability as you mentioned since the 70's. Eventually you use it all up and everything stagnates.
Wage stagnation has played a huge role, it has gotten much worse since 2000, even people moving up are finding it harder to buy as incomes have fallen while inflation/costs rise dramatically to make up for lack of consumer power [1].
Since 2000, the middle class has been shrinking for a decidedly more alarming reason: Incomes have fallen.
1968 was the peak in purchasing power for lower to middle class. This graph shows a lack of wage increases at the bottom and minimum wage[2]. That has also delayed trickle up wage increases above. This has also caused people to load up on debt to make up for their lack of purchasing power, furthering the problem.
Too much money is locked up in capital and investments that never re-enter the economy. This is bad for the rich and poor, locked up capital stays under lockdown during downturns. Lower and middle class have to spend during downturns. Recessions are worse when so much capital is locked up. This is leading to a 'lost generation' of consumers that can't consume or buy what they need or add to corporate profits from consuming [3].
[1] http://www.nytimes.com/interactive/2015/01/25/upshot/shrinki...
[2] http://money.cnn.com/interactive/economy/minimum-wage-since-...
[3] https://www.youtube.com/watch?v=oeCfq-9l_b8 (:30 in)
Thanks. I point out this occasionally. I don't claim to have an solution. But I think I've described the problem correctly. We have insane amounts of productive capacity compared to previous generations but that doesn't push up the standard of living by much.
Too much political economic talk starts with a desired solution and tries to justify it. That isn't working.
The original article looks at this from a finance perspective. Finance is supposed to be a service function, like water supply. It's not supposed to be in charge. Especially in a capital glut.
Let machines pick up the slack.
Ah, the lovely "dog eats dog" story… We're humans, though, we should do better than that.
Now in practice, the winner is the one who wield the bigger guns. Meaning, the US will put its army where the oil is, though not before having talked of weapons of mass destructions, a dictator, terrorists, or whatever.
---
Globalization or not, machines are eating our work. A good thing if you ask me: we don't want more work, we want less. People who ask for work don't give a shit about spending all day doing a thankless job. What they really want is dignity (there is shame in unemployment) and money.
Now the lucky few that love their jobs… more power to them. The rest of us would rather work 3 days a week instead of 5 if it didn't mean losing so much of their income.
> for a lot of businesses, that wouldn't work, especially when people choose to work long hours for high pay, which is common in finance.
In finance, long hours are not exactly voluntary, they're expected. Moreover, you don't get the high pay right away, you have to "pay your dues" first —as if you owed you employer for the privilege of being hired.
In French, "paying one's dues" spells "faire ses preuves", meaning, prove one's worth. That way no one is tricked into believing they owe anything to their employer. Sure, it's only an idiomatic phrasing, we don't think of the debt any more. Yet I'm sure it wasn't so at first, and I'm sure the idea lingers.
Like the Japanese saying "sumimasen" (forgive me, excuse me) to say "thank you" in some circumstances.
Cooperation shapes and drives biology just as much as competition does. Civilization did not give us prosocial tendencies. The founding myth of civil government is exactly that. A myth. It is historical revisionism. It is reductionist. It is a mutilated view of people. Hobbes was wrong.
> But as long as there is human desire for status over other humans, there will be haves and have nots.
Honestly i am so tired of conversations that appeal to human nature as some immutable, invariant, unassailable truth. This isn't an argument, this is an assertion. Speak for yourself. If you desire status over other people, admit it. I find your characterization of the billions rest of us crude.
The economy is just as much about Cooperation as Competition. That's why we call it Free Trade.
> If you desire status over other people, admit it.
No, it's an observation of human behavior. When I see a large scale change in human behavior, I will change my opinion. What purpose do you debate on an internet forum that doesn't boil down to 'status seeking'. Think of all the the things we do all day that are essentially motivated by 'status seeking'.
> No, it's an observation of human behavior. When I see a large scale change in human behavior, I will change my opinion. What purpose do you debate on an internet forum that doesn't boil down to 'status seeking'. Think of all the the things we do all day that are essentially motivated by 'status seeking'.
Um, do you honestly think i gain any status at all whatsoever with anyone because i argue on the Internet? Like, you have no idea what else could possibly be the result of conversation?
i don't think you have as deep an insight into human behavior as you think you do. You still haven't supported the assertion. Either your definition of status seeking renders the statement banal and vacuous, or incorrect. I'd like to hear what your definition is and your justification. What you see in human behavior isn't good enough: we see the same raw reality. We interpret it in different ways. Acting like your interpretation is just obvious doesn't cut it, especially when we're talking about the intentions of human beings. It is quite impossible to directly observe intention. It can only be interpreted from behavior.
Oh, don't worry. We can fix that.
I strongly believe that forcing wages up (within reason) would increase economic output. We certainly don't need to push more money to the top people like most republican candidates want to do. The money would "trickle up" because people would actually buy things and entrepreneurs could take advantage of that purchasing power.
So there is some argument for giving the bottom / poorest of people a simple basic income.
Yes. Rising house prices powered the boom up to 2008. It was called the "wealth effect", but it was just inflation. That didn't end well.
Case in point: video rental. Netflix removed the necessity of physical stores, therefore less plastic being used to make boxes and vhs tapes and so on.
There is also a culture factor. The economy and the environment get along best when people live near the things they want. I live in a small city surrounded by nature and so many of our products can be locally sourced, sustainably.
Did not Keynes work quite well after Roosevelt's partialy successful timid attempts at it were forced into enormous government demand by WWII?
We know exactly how to handle this: war.
a) business hires workers to make goods to satisfy demand
b) business overproduces to make sure they meet all the demand
c) business has 6-12 months of inventory, lays off workers
d) business can no longer sell inventory since workers don't have money, can't afford holding costs, dies
e) liquidator sells off glut of inventory, lowering prices and preventing new firms from entering the market
f) no new inventory is created since firms are dead
g) shortage arises, driving prices sky high
It's a bit like a wave oscillating in a container.
Like boots and shoes and clothes and pots?
Those are all directly applicable items of need - as opposed to headphones and phones and laptops and (name electronic product)...
So what items were a glut in ~1930 that would have contributed to this?
My skepticism tells me it was financial speculation, and not physical goods that had more an impact.
And even if I were correct, which I do not know, I'm amazed that there was enough thought in the space to create such a depression.
The phrase "money is the root of all evil" only exists for a reason...
What's the limiting factor on investment? It's not capital; there's a glut of that. It's not land; outside a few big cities, there's plenty of space. It's not labor; there's no labor shortage. It's not management; there are lots of unemployed managers with good track records. It's not manufacturing capacity; there's plenty of idle capacity and more could easily be built if needed.
It's demand. We're out of demand. US workers are spent out and can't buy more. This stalls out the whole economy.
This is a new thing, historically. For most of history, the problem was making enough stuff. That's now a solved problem. In the developed world, just about anything you can consume can be delivered to your door within hours or days.
Market-based capitalism treats labor as a cost, not an output. (The measured output is return on investment.) As technology progresses, more work previously done by humans is done by machines. This reduces the relative value of labor.
But buying power comes from labor. As the buying value of labor declines (in the US, it peaked in 1973), the whole economy winds down.
We have no clue how to handle this.
An unanswered question: is there another stable point in this system? If wages were forced up above their economic value, by legislation, minimum wages, or unions, would overall economic output increase or decrease?