Employment, Debt, Deficit & Austerity

[expat_panama]

...The fact we're at 2005 levels means it has not grown in 6 years, that would be about the worst showing in 60 years...

You made that up because Total Products has only been compiled since '72 (39 years).

Then again if someone went to the trouble to tote the numbers back six decades we'd probably see that you're right because the Industrial Production Index goes back to 1919 and--

--it shows that while we're still where we were in '05, and it also shows how much production had soared after the '03 tax-cuts and how being up at the '05 level is really pretty good. It also shows that we've done a lot better with Clinton's competition from cheap foreign labor than without.

 

[cbirch2]

...The fact we're at 2005 levels means it has not grown in 6 years, that would be about the worst showing in 60 years...

You made that up because Total Products has only been compiled since '72 (39 years).

Then again if someone went to the trouble to tote the numbers back six decades we'd probably see that you're right because the Industrial Production Index goes back to 1919 and--

--it shows that while we're still where we were in '05, and it also shows how much production had soared after the '03 tax-cuts and how being up at the '05 level is really pretty good. It also shows that we've done a lot better with Clinton's competition from cheap foreign labor than without.

That graph looks more like an argument for stimulus than for tax cuts to me....

When you look at it the reason its not above '05 levels, its clear that it is because of how far the bush economy fell, not how fast the obama economy grew. On that graph production grew faster under obama than under bush. Its just taking a long time because under bush the economy saw by far its fastest and largest contraction in at least 100 years.

Just reading your graph tho

 

[expat_panama]

...When you look at it the reason its not above '05 levels, its clear that it is because of how far the bush economy fell, not how fast the obama economy grew. On that graph production grew faster under obama than under bush....

Anyone who works better with tables of numbers that with graphs can go to Graph: Industrial Production Index (INDPRO) - FRED - St. Louis Fed and download it themselves.

A Democrat can say production fell with Bush and grew with Obama (including the biggest drop in 100 years), and a Republican could say average production with Bush was far higher than Obama's (and it dropped only when people saw Obama coming). They'd both be telling part of the truth.

 

[cbirch2]

...When you look at it the reason its not above '05 levels, its clear that it is because of how far the bush economy fell, not how fast the obama economy grew. On that graph production grew faster under obama than under bush....

Anyone who works better with tables of numbers that with graphs can go to Graph: Industrial Production Index (INDPRO) - FRED - St. Louis Fed and download it themselves.

A Democrat can say production fell with Bush and grew with Obama (including the biggest drop in 100 years), and a Republican could say average production with Bush was far higher than Obama's (and it dropped only when people saw Obama coming). They'd both be telling part of the truth.

....Are you serious? Thats your defense?

In your mind, the economy was wonderful under bush and once they saw obama coming (somehow in 2007) a subprime mortgage crisis (somehow) started. And then for some reason grew again once obama got into office....

Or maybe your just implying that that massive decrease in production had nothing at all to do with the subprime mortgage crisis, and instead manufacturers decided to produce less because of obama, for some reason.

Either way, those two interpretations are both just wrong.

People can say whatever they want, but one of those explanations is right and the other is wrong. One simply doesnt match reality.

In reality, a subprime mortgage crisis start in 2007. Job losses turned negative in early 2008. Well before obama was having any impact on the economy. Obama then oversaw a surprisingly strong resurgence in monthly payrolls, until republicans started implementing austere local budgets.

The idea that obama is somehow the cause doesnt match up with the start of the crisis or with the recovery on his watch later. face it.

 

[expat_panama]

...When you look at it the reason its not above '05 levels, its clear that it is because of how far the bush economy fell, not how fast the obama economy grew. On that graph production grew faster under obama than under bush. Its just taking a long time because under bush the economy saw by far its fastest and largest contraction in at least 100 years. Just reading your graph tho

...A Democrat can say production fell with Bush and grew with Obama (including the biggest drop in 100 years), and a Republican could say average production with Bush was far higher than Obama's (and it dropped only when people saw Obama coming). They'd both be telling part of the truth.

....Are you serious? Thats your defense?...

LOL--what, you're thinking I'm trying to side with some political party or something?

Hey, I got no use for mindless political rants. I say let's take a hard look at what's going on and deal with it --but so what? I'm not important, industrial production's important and we're talking about whether it's better with or without foreign competition. What we know is foreign competition got bigger in the 90's and so did production. Both fell in '08. Foreign markets are good for US production.

 

[cbirch2]

...A Democrat can say production fell with Bush and grew with Obama (including the biggest drop in 100 years), and a Republican could say average production with Bush was far higher than Obama's (and it dropped only when people saw Obama coming). They'd both be telling part of the truth.

....Are you serious? Thats your defense?...

LOL--what, you're thinking I'm trying to side with some political party or something?

Hey, I got no use for mindless political rants. I say let's take a hard look at what's going on and deal with it --but so what? I'm not important, industrial production's important and we're talking about whether it's better with or without foreign competition. What we know is foreign competition got bigger in the 90's and so did production. Both fell in '08. Foreign markets are good for US production.

Ok fair enough. I just wanna make sure you know that this sentence: "Republican could say average production with Bush was far higher than Obama's (and it dropped only when people saw Obama coming)" is pure fucking bullshit.

 

[expat_panama]

...I just wanna make sure you know that this sentence: "Republican could say average production with Bush was far higher than Obama's (and it dropped only when people saw Obama coming)" is pure fucking bullshit.

OK, if it'll make you happy I can 'know' that for you but that's probably not what you really wanted. The Federal Reserve found out that since Jan 09, average US factory output's been $138 billion less than what it averaged the previous eight years. Your saying it's "pure fucking bullshit" does not change factory output.

Look, if scoring political points is your thing you can always say the Federal Reserve also found out that during GW Bush's eight years US factory annual output fell $21billion/yr, but since Obama took office annual output's increased by $270billion per year. Meanwhile I'll keep my eye on what else's going on so I can make even more money to feed my family.

 

[likeabird03]

^^Most ridiculous thing ever said. More ridiculous than you bringing up the discredited theory that government spending crowds out private sector spending, which is totally untrue.

Government borrows the difference so money it spends isnt directly taken from the private sector, at least not that year. So your assumption that government spending equals lower private sector spending relies on tax payers being perfectly reasonable, they must cut spending an equivalent amount because they assume they will have the pay for that spending later. The only problem is thats not how the real world works. We dont see people spending less when the government spends, it just doesnt happen. Your assuming rational consumers and taxpayers, when basic economics says people sometimes behave very irrationally. In summation, crowding out is not something that exists in the real world.

Government borrowing irrational amounts of money is a far less direct way of crowding out the private sector than taxing it of course, but to say it has no affect is wrong. People want to invest their money regardless. If the government didn't have such a huge appetite for credit the money that would have otherwise flowed into T-Bills wouldn't just be sitting around in a savings account earning 0.05%. People would find other ways to invest it, and if it wasn't for this misconception that the government could never default, other investments would look more attractive to those investors. At this point banks have gotten lazy, they're investing money in treasuries to get that guaranteed 3% on a AAA security rather than invest in MBS, Corporate Bonds etc. Then the govt turns around and uses that same money to lend it out via Fannie Mae, it's insane. Get govt out of the equation.

And it shows the underlying economy hasnt improved? No. It shows how much the underlying economy has improved. -800,000 to +100,000 is quite the improvement.

The whole idea that we should just not do anything is proved wrong by the last 3 years. prior to tarp, economists were predicting 20-25% unemployment. If it hadnt been for the stimulus we would still be losing jobs. to claim the underlying economy isnt any better is just wrong.

You gotta be kidding me. If the economy continued to lose jobs at 800K/month we would be down something like 35 million by now, that simply wouldn't happen, and not because of the stimulus package of Obamacare. This 900,000 per month swing would have happened anyway. Perhaps not as fast but it would have happened, just like after every downturn. What exactly did Obama do in his first two months of office to be deserving of the declining rate of job losses? Nothing. Recessions/Depressions bottom out, that's just how it is. If anything the stabilization of the jobs market was a lagging result of the stabilization of the financial sector due to actions taken place at the end of the Bush admin. You couldn't argue that the stimulus was having much of an affect in March 2009 when the economy seemed to be stabilizing and job losses started tapering off, maybe later in the year, but not as early as March.

 

[likeabird03]

...The fact we're at 2005 levels means it has not grown in 6 years, that would be about the worst showing in 60 years...

You made that up because Total Products has only been compiled since '72 (39 years).

Then again if someone went to the trouble to tote the numbers back six decades we'd probably see that you're right because the Industrial Production Index goes back to 1919 and--

--it shows that while we're still where we were in '05, and it also shows how much production had soared after the '03 tax-cuts and how being up at the '05 level is really pretty good. It also shows that we've done a lot better with Clinton's competition from cheap foreign labor than without.

Yes, and that graph illustrates that it's been about sixty years since we've had as long as a flat line as we have now. This graph is misleading also because it shows it in chained 2007 measurements. It compares the raw increases in prior years against the size of production in 2007. It causes increases in recent years to look exaggerated because we had a far smaller economy at the earlier stages so the increases as a percentage of the size of the economy in the earlier years look smaller when in fact they aren't smaller when compared to now. Free trade agreements of the 1990's took a while to impact the economy, we're seeing the full effects of it now. Besides, China didn't join the WTO until 2001. Many would also argue that 2005 levels weren't all that respectable anyway. In fact, that graph shows we're barely above 2000 levels, so virtually zero progress in eleven years. Meanwhile, out population has increased over 10% since then.

I think what a lot of people fail to admit is that increases in automation and technology has had just as much of a detrimental effect on our economy as outsourcing has. This evident when you consider the fact that manufacturing employment is well below its 1979 level but production is much higher. But what can you do.

 

[Dragon]

--it shows that while we're still where we were in '05, and it also shows how much production had soared after the '03 tax-cuts and how being up at the '05 level is really pretty good. It also shows that we've done a lot better with Clinton's competition from cheap foreign labor than without.

Let's not forget that what this is measuring is industrial production, not the overall health of the economy. While the two are related they are certainly not identical. Let's also not forget that while Clinton did introduce NAFTA, that treaty took effect only in 1994 and would have taken at least a couple of years to fully manifest, so the association of "cheap foreign labor" with the Clinton years is overly simplistic. And let's also not forget that at least as important as NAFTA in terms of "cheap foreign labor" was the WTO, which took effect in 1995. Again, allow a few years at least for the change in trade arrangements to take effect.

So really, what we see in the 1990s (if anything) is the effect of higher taxes and lower federal deficits, and the effect of "cheap foreign labor" may be seen more clearly in the Bush years. Insofar as the anticipated impact is a slowdown in growth of American wages or even a decline in wages, and hence reduced consumer demand, a slowing of growth in industrial productivity is what we would predict and what we actually see.

 

[expat_panama]

...this is measuring is industrial production, not the overall health of the economy...

You came in late. We were talking America's ability to compete in world markets, and I was pointing to incomes and employment along with production---

...they are not as productive as the American worker, but when you take into account they make so much less it still make business sense to move production...

--only for the menial low paying work. For high-paying brain work Americans are hired. Let's accept reality as it is:

Americans are high paid; household incomes for the past three years is the highest level ever.

American jobs aren't shipped overseas because a Chinese working doesn't mean an American becomes helpless. The average number of Americans working for the past six years is the highest on record.

American factories have not shut down; the value of goods produced in the past six years is the highest ever.​

--and that's when likeabird got us off into just production---

...Thank you, the production graph shows that we are still below the 2007 Level...

 

[Dragon]

I came in late, yes, but I've followed the discussion. Your graph, which is the piece of evidence presented regardless of what you were talking about, was in reference to industrial productivity and I saw some conclusions being drawn from it that didn't seem warranted.

You also made some misleading statements in the course of the conversation which you just re-quoted, so I'll address them.

Americans are high paid; household incomes for the past three years is the highest level ever.

Americans are NOT high paid compared to what we used to earn; exactly the reverse, and the only reason household incomes have increased (barely) despite that is because of two misleading factors:

1) Your use of an average, which mixes the owner class in with the working class; and

2) The dramatic increase in two-earner households.

That least means that if wages had not gone down, real household income would have almost doubled over the past few decades. When a household is working twice as much for essentially the same income, that represents a decline in living standards every bit as bad as if it were working the same and making half as much.

American jobs aren't shipped overseas because a Chinese working doesn't mean an American becomes helpless. The average number of Americans working for the past six years is the highest on record.

This is true, but again misleading. Since the service jobs that replaced manufacturing jobs were almost all non-union, while the manufacturing jobs were union jobs, the net effect has been a decline in real wages. Not that the remaining unionized manufacturing jobs are paid less (they're not), but the jobs that most people are actually doing pay less.

Had the government supported the right of workers to organize and bargain collectively as aggressively in the '80s and '90s as it did in the '40s and '50s, we would still be working mostly service jobs but they would be as well paid as the manufacturing jobs on the average or better.

American factories have not shut down; the value of goods produced in the past six years is the highest ever.

Quite true, and only slightly misleading and that only because of the context, which is discussing declining real incomes. The idea that America has lost manufacturing capacity is a myth. We have lost manufacturing jobs -- lots of them -- but we're producing lots of goods with less labor. That change is permanent. You harp on how the grease-monkey jobs are gone but there are still high-tech jobs in manufacturing, and that's true, but there are far FEWER high-tech jobs, and that will always be so. The implication that people can learn how to do those high-tech jobs and we can have the same levels of manufacturing employment as before only doing different things is completely false. No amount of training will land a person a job that doesn't exist.

In itself that's no more a problem than the loss of agricultural jobs decades ago. It means that manufacturing is becoming more automated and efficient. Just as people moved from the farms into the factories, so in recent decades they've moved from the factories into service occupations. Again, if we had managed to unionize the service sector the way our grandparents unionized the manufacturing sector, that would be no problem at all. In fact, service work is generally more pleasant than factory work, so if labor had retained the same bargaining power and hence the same earning power, it would be an improvement.

Here's something to think about for the future, though. Moving to service jobs, with the above caveat, would be fine. What happens when the service jobs are automated, too? There's no reason most of them can't be. I found (and wrote an article about for a client) software that does MY job -- it writes. It's not up to writing novels or poetry yet, but it can write the kind of short article that's my bread and butter. There is software that does a legal assistant's job, or even an associate attorney's (research, brief-writing, etc.), basically everything a lawyer does except appear in court or harass people. There is software that does scientific research.

When agriculture was automated, people got jobs in the factories. As manufacturing has become automated, people have gotten service jobs. As the service sector is automated, people will do . . . what?

If we can grow our food, manufacture our goods, and provide services with no labor, or with a skeleton labor force, we will be facing chronic double-digit unemployment and a permanently depressed economy, as long as we depend on wages for work to distribute wealth. Distribution of wealth is as crucial to economic health as producing it (hence the problems we're having right now). So if wages for work no longer serve to distribute wealth, another way must be found.

What way?

 

[expat_panama]

Americans are high paid; household incomes for the past three years is the highest level ever.

... household incomes have increased...

We're together on the historical fact that average household income for the past three years is at an all time high.

...because of two misleading factors: 1) Your use of an average, which mixes the owner class in with the working class...

You share Marx's belief that owners don't work and aren't part of society.

...and 2) The dramatic increase in two-earner households...

You're making it up. Let's stick to facts. Multi-earner families were over 60% of total back in the '90's but now it's less than half and falling. You've got to know that jobs are scarce these days.

 

[Dragon]

[
You share Marx's belief that owners don't work and aren't part of society.

Neither Marx nor I believed that. However, what I do believe is that if we are examining the wages earned by workers, then we need to examine the wages earned by workers. If we are going to include the salaries paid to the very wealthy, such as the CEO of a major corporation, then we need to include ONLY his salary -- not stock options, not dividends, not capital gains. And your data did not make that exclusion, which means it is inherently distorted.

Multi-earner families were over 60% of total back in the '90's

Excuse me. I realize that you were only talking about the "last three years," and I brought in a larger context because that is logically appropriate, but didn't make it clear I was doing so, and that's my bad.

The trend of declining real wages is thirty years old, not three. That multi-earner families were over 60% of households back in the 1990s is true, because the trend was well advanced by that time. If all you are saying is that the economy didn't suddenly invert itself in the three years Obama has been in the White House, then, well, for what it's worth, that's true. I had the impression though that you were claiming something more fundamental than that.

 

[Norman]

Before we get into the details, let me point out that when a government reduces spending, it has to fire people. If there is already high unemployment, this makes it worse. Furthermore, these fired people now stop paying taxes, and collect unemployment benefits instead, making the government's financial problems worse. And finally, these newly unemployed people don't have much money for shopping, so the retail industry suffers a hit, and they order less stuff from manufacturers, and so on. A policy like this, sometimes called austerity, just makes matters worse.

Just to be clear, the debt I'll be talking about is the total amount of money that the U.S. government owes, and that it pays interest on. The deficit is the difference between total government spending and total government income, in one year. It should be clear that the debt is the result of having a deficit, year after year. In order to reduce the debt we need to have an annual surplus instead of a deficit.

Deficit and debt are bad over the long haul. It's quite important to reduce the deficit, and reduce it a lot. But it does not have to be done immediately. It's a long term problem. The main reason to pay off the debt is because of the interest payments that have to be made. Those are a significant part of the government's total expenses, but in 2011 they are still manageable, still less than what we spend on the military, for example. But if the deficit remains high, the debt will rise, and the interest payment will eventually become unmanageable. As we approach that point, interest rates will rise, because lenders will worry about the safety of their investments. Fortunately, that point is still a few years away, but the danger must be taken seriously.

Having 20% of the population under or un-employed is a very serious immediate problem. That is the principal cause of our large deficit, because unemployed people don't pay taxes! There is no doubt that stimulus works if it's the right kind. Giving money to wealthy people doesn't do it. Same for giving money to large corporations. What does work is either the government hiring people directly, like Roosevelt did, or letting contracts to private companies for goods or services that require workers immediately. Since the nation has thousands of roads and bridges that are in serious disrepair, this one is a no-brainer. Do you remember the bridge that collapsed in the midwest a couple of years ago? That's pretty serious. That should have been a wake-up call, but it was not heeded by our dysfunctional congress.

But hiring people, or letting contracts, requires money. If the deficit is already a problem, how can the government spend more money, and where will it come from? The answer is that you have to go where the idle money is, and that location is well known today. It is in the financial accounts of large corporations and very wealthy individuals. If we were to simply return to the taxation policies of 1960's and 70's there would be plenty of money for hiring people and letting contracts. Our financial problems today are in large part due to a steady reduction of the tax rates on high incomes that began in the 1980's and continue today.

What I'm saying is: Increase taxes on the rich and use the money to fix and build roads, bridges, railways, airports, high speed internet lines and hospitals. Also use it to train medical workers and technicians in industries with shortages of skilled labor.

When you hire unemployed people you not only remove them from the unemployment lists, but they then have money to spend, which they do. This spending increases demand for goods and services, resulting in more hiring, to produce those goods and services. It's a positive feedback process. OTOH, if you give tax breaks to wealthy people, they invest most of that money, and so the economy is not stimulated very much. (This would be different if the nation had a shortage of capital, but that is not the case.) The newly employed people also begin paying taxes again.

There are false myths being repeated endlessly by some in public life. One is that if you tax the "job creators" you will hurt the economy. Well, the evidence is clear: those job creators have been sitting on huge piles of cash for several years now, and they are not creating jobs. 30 years ago, when they WERE creating lots of jobs, they were paying MUCH HIGHER taxes than they are today.

It's when the economy is strong, and growing, that governments can, and should, reduce spending.

Mitchell Timin

Would you agree that there is no short term difference between:

A) Rich being taxed out of their idle money and giving it to the govt.
B) Fed just printing the money and giving the printed money to government.

I believe that FED has printed the money and then some.

 

[Brutus]

Before we get into the details, let me point out that when a government reduces spending, it has to fire people. If there is already high unemployment, this makes it worse.

1) if true then we could eliminate unemployment by having the government hire all the unemployed

2) cutting government spending makes more money available for real, sustainable private employment and reduces make work liberal employment that drags down the economy by restricting the private economy- the source of all real wealth. If it doesn't make sense please try to exlain why.

 

[expat_panama]

...if we are examining the wages earned by workers, then we need to examine the wages earned by workers. If we are going to include the salaries paid to the very wealthy, such as the CEO of a major corporation...

Marx also believed that company owners and managers didn't do any work and proposed replacing them with clerks (from Nicholas Jay Boyes on the Economic and Philosophic Manuscripts of 1844 by Karl Marx

...The owner of tools is more of a throwback to the days of feudalism than he is to modern bourgeois society. He is easily replaced by unskilled labour under industrial conditions…...

In real life, CEO's do in fact work, they work hard, and they earn every penny of their incomes.

Something else is that we need to be clear when we are talking about income and when we're talking about wages. You can change the subject from incomes to wages if you want but quoting what I said about incomes and saying that I was wrong about wages doesn't make any sense. Incomes and wages are not the same. Incomes include wages, and they also include other kinds of income.

 

[Toro]

In real life, CEO's do in fact work, they work hard, and they earn every penny of their incomes.

Most CEOs work very hard, but I'll believe they earn every penny when there is a causal link between performance and compensation of CEOs, which there is not.

http://www.usmessageboard.com/economy/187918-ceo-pay-often-not-linked-to-performance.html

 

[expat_panama]

...I'll believe they earn every penny when there is a causal link between performance and compensation of CEOs, which there is not...

It's a bad idea to decide a causal link doesn't exist just because we don't see it. Many things exist that we don't see at first glance.

Anyone who's hired a CEO, or even just plain thought about it, would probably understand that compensation contracts are based on past track records. So CEO's that fail may get paid contracted compensation, but they rarely get another top corp position again. Sometimes they quit business management and become economic advisers for Democrats; Ira Magaziner advising Clinton comes to mind

 

[cbirch2]

...I'll believe they earn every penny when there is a causal link between performance and compensation of CEOs, which there is not...

It's a bad idea to decide a causal link doesn't exist just because we don't see it. Many things exist that we don't see at first glance.

Anyone who's hired a CEO, or even just plain thought about it, would probably understand that compensation contracts are based on past track records. So CEO's that fail may get paid contracted compensation, but they rarely get another top corp position again. Sometimes they quit business management and become economic advisers for Democrats; Ira Magaziner advising Clinton comes to mind

Paying out any sort of a "bonus" after your bank was saved by the tax payers, much less hundreds of millions of dollars worth, totally discredits the idea that there could be any sort link between performance and pay. But Im not suggesting we get the pitch forks and lynch the bankers and the CEOs.

Im saying the bankers and the CEO's have been perfectly willing to throw their workers and the average american under the bus just to increase their profit margin.

Thats why a 12 year old girl makes your iPhone.

It doesnt necessarily have to be this way.