The Great Recession - and the Recovery - Explained

[Annie]

That all sounds reasonable, what is unreasonable is an almost total lack of political will to confront the manipulators that willfully built a bubble and are still benefiting from it's collapse to the detriment of the country.

It's hard to punish the malefactors when so many of them are running things. At minimum, we need to maintain the rules that prevent commercial banks from gambling in the financial markets. It'd be nice to break up the cabal of elites who profit no matter how much damage they inflict on the rest of the country, as well...

So you disavow OWS?

 

[Annie]

I love how people claim we have recovered... Wait a fucking month people, you did the same crap last year...

I wished the 8.6 were real, but indeed look at the other Q markers, no change or worse. This is the feel good marker.

 

[JoeB131]

What recovery?

 

[Sundial]

" MMTers would say, I think, that HOW the deficits are created may make a difference in terms of public policy, but not in terms of getting the economy moving. IOW, whether you cut taxes (for example) or increase spending makes a difference politically, but so long as they both create the same size deficit, they'll be equally as effective in terms of promoting economic growth. "


I would take issue with this Sundial, the effectiveness of tax cuts or more spending depends on the circumstances. Right now, I think we've got enough money on the sidelines so a tax cut does little good. Problem is, a tax hike on the other hand could be detrimental, especially if you raise the rates on capital gains, which are the life blood of economic growth.

On the spending side, it kinda depends on what you spend it on. IMHO, it's gotta be spent on ways that will improve our productivity and increase our GDP. If you introduce politics into the equation, or for some other reason the money is not spent as wisely or managed as proficiently, then the economic growth that might be achieved is minimized to some extent. If you're going to spend billions on high speed rail systems that can never be profitable, or Solyndra type companies that are not viable, then you're certainly not doing as much as possible to improve economic growth.

There's a propensity to save, or a demand for savings, like there is for other things. When people feel financially insecure, they want to try to save more. The problem is that when people try to save more, individually, they reduce aggregate income, without increasing savings as a whole. (One person's savings come at the cost of someone else's income.) the private sector can't solve this problem on its own. The solution must come from outside the domestic private sector.

When the government net spends, private incomes go up. It's true that people may choose to save the additional income. But that just means one demand - the demand for savings - is being satisified rather than another. Once the demand for savings is satisfied, people will start to spend. There are only two things to do with money, after all.

Capital gains are not the lifeblood of economic growth. It's true that rising stock prices and rising home prices will cause people to spend more freely. But ultimately, capital gains must be realized - IOW, the thing must be sold. When it's sold, the money gained by the seller will always exactly equal the money spent by the buyer. The net increase of realized capital gains, in other words, always equal zero. Another way to put it is that financial markets are zero-sum games. The amount of money made by some people always equals the amount lost by others. Financial booms are followed by busts.

Whether a train system makes money is not necessarily the right way to judge it: how profitable is the interstate highway system? Is it a failure because it doesn't (directly) generate profit?

 

[Sundial]

You lefties are entitled to your opinion about the stimulus, that's fine. But here's what bugs me, it coulda and shoulda been done more effectively, they shoulda managed it better to give us more bang for the buck economically speaking. And I thought we were supposed to get a lot infrastructure work done back then, and now we need another $450 billion? Ticks me off, it's like I'm being lied to.

Doesn't help much either when the president laughs about it and says those jobs weren't as shovel ready as we thought. I'm left thinking either he deliberately mislead us about it or he really didn't know what he was doing. IOW, he was incompetent. Maybe both.

And here's another thing for you guys to chew on. You say Obama spent trillions that flowed into the economy, yet the lower and middle classes are no better off. I guess all that money ended up with the rich guys and the big corps, how come you're not pissed off about that?

The reason I'm not pissed off that the money was wasted - aside from the fact I don't think it was - is that money can't be wasted. Time can be wasted. Effort can be wasted. Resources can be wasted. But money can only be spent. And since spending money doesn't destroy it, the same money can be spent again and again.

How the money gets into the economy in the first place is important, but the main thing is that it gets there.

I'd like to see high-speed rail. But almost any employment - even bigger swimming pools for millionaires - is better than no employment at all - because it not only wastes the talents of the unemployed person, it prevents him spending money that would employ other people as well.

I didn't say anything about money being wasted, what I'm talking about is it's most effectve use for economic growth and job creation. All that money Obama has spent on the stimulus and everything else, these things did somebody some good, I'm not saying otherwise. But the money could have been more wisely used, and more should have gone to those who needed it most. We could've built or fixed more roads, bridges, and schools, but instead it went to other projects that were far less productive.

You tell me, where'd all that money end up? Who got the most benefit? Trillions of dollars spent, and the 99%ers are no better off, true? We know the big corps got most of it right, they've got trillions on their books. You guys bitch about it all the time, why aren't you mad at Obama and the dems for doing such a poor job of redistributing all that money? Don't be telling me it's the repub's fault, they couldn't do squat about it until Jan 2011. Since the GOP gained control of the House how much spending have they really cut? Not very damn much, the dems squeal like stuck pigs over a few paltry billion in a 3.7 trillion budget.

You're saying the money could have been better spent.

I'm saying maybe - but the important thing is that it WAS spent.

I'm giving him credit for doing that much because there's substantial political opposition to doing anything at all - or worse yet, arguing we should cut spending. Attempting to balance the budget during the recession would have been a disaster.

As far as where the money went:

It went to tax cuts. It went to unemployment insurance. It was paid out to people on social security, Medicare, and Medicaid. it went to VA hospitals. Cash for clunkers. Rebates for weatherproofing and energy efficiency. It went to AIG and GM. It went to banks (though most of that was paid back.) It went a lot of places.

It didn't really end up anywhere, though. To end up somewhere, it would have to never be spent again.

The limit to our collective wealth is productivity, not dollars; in other words, the number people productively employed.

Suppose there was a country with 100 workers, 10 of whom were unemployed. The government hires one of them to build a statue. You say, "That statue was a waste of money. He should have built a school." I'm saying, "Maybe he should have built a school. But there's still 9 people standing around doing nothing. We can have a statue AND a school."