EXACTLY when is the economy good again?

[andy753]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

 

[Avorysuds]

If you don't think that 85 billion a month just to keep markets looking good is doom and gloom you're economically illiterate. If you think getting UE down 1-1.5% when the number of people every month for people actually working is decreasing then you're economically illiterate.

Don't be naive and expect people to think you're better than them simply because you chose to pretend things are getting better. The UE rate will keep falling as more people leave the workforce every month than file for UE.

 

[oldfart]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

First, I think you ask a very good question. Personally I have two benchmark sets: one is an "out-of-the-woods" set where I think the danger of another collapse is very small and the economy is in good enough shape to return to historic growth patterns without any major policy changes. We are not there yet.

The second set is I think what you are getting at: what would a well functioning economy look like?

Personally, this is what I would look for:

1. A near full-employment level of employment indicators
-----the official U-3 rate at 5.5% or lower
-----U-6 under 8.5%
-----long term unemployment dropping
-----average work week above 36 hrs/wk
-----employment/population ratio above 61%

2. Inflation at target level (2%) or above, but less than 4% and steady

3. Measures if income inequality showing rapid improvement; Gini coefficient of 0.40 and declining (presently at 0.477, was 0.403 in 1980)

4. Growth rate of GDP of 2.8--4.5%

Note I have no goal for the deficit. Throwing a deficit goal in makes the system overdetermined and forces out another variable. IOW the proper deficit or surplus pops out when the other goals are achieved. This comports with the view that the surplus or deficit should be whatever it takes to achieve the other goals, to keep the economy healthy.

 

[asterism]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

First, I think you ask a very good question. Personally I have two benchmark sets: one is an "out-of-the-woods" set where I think the danger of another collapse is very small and the economy is in good enough shape to return to historic growth patterns without any major policy changes. We are not there yet.

The second set is I think what you are getting at: what would a well functioning economy look like?

Personally, this is what I would look for:

1. A near full-employment level of employment indicators
-----the official U-3 rate at 5.5% or lower
-----U-6 under 8.5%
-----long term unemployment dropping
-----average work week above 36 hrs/wk
-----employment/population ratio above 61%

2. Inflation at target level (2%) or above, but less than 4% and steady

3. Measures if income inequality showing rapid improvement; Gini coefficient of 0.40 and declining (presently at 0.477, was 0.403 in 1980)

4. Growth rate of GDP of 2.8--4.5%

Note I have no goal for the deficit. Throwing a deficit goal in makes the system overdetermined and forces out another variable. IOW the proper deficit or surplus pops out when the other goals are achieved. This comports with the view that the surplus or deficit should be whatever it takes to achieve the other goals, to keep the economy healthy.

I agree with all of the above.

As for when the economy is improving, I'd settle for GDP growth of 2%, total employed full time growing faster than the population growth rate, and no need nor calls for government programs aimed at increasing employment.

 

[Rshermr]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

Well, it is a pleasure to see a post that managed to start a thread with rational responses. You will get the agenda driven stuff from people like avory, but what you see from those who are economically enlightened like oldfart and asterism make for actual rational thought and hopefully equally rational discussion.
When you see some of the economic numbers totally out of range of what could be considered "good", then we tend to, with good reason, spend more time on them, trying to determine what needs to happen. The areas that concern me are
1. ue which is getting better and the goal of under 5.5% is possible at this point.
2. Better jobs, which tends to show up in the GINI numbers. So, more better paying jobs. Fewer burger flipping sorts of jobs.
3. Income distribution, which is related highly to #2. In general, a division of the revenue pie that favors the middle class more than it does today, and favors the wealthy less. In my reading, a solid indication of pending failure of an economy is high and increasing concentration of wealth at the top.

In addition, I think that we really need to look at the rest of the world to determine what works NOT just from a strictly monetary standpoint. The studies out there of what countries have the happiest people are from my knot hole highly important. And have become more so as I have aged. Of course, those numbers are more subjective than, say, GDP per capita sorts of things. Wealth is important, but it is obvious to me that wealth alone is not the answer.

 

[Auteur]

I agree with the above, but also I think there are issues looming on the horizon that will strongly affect how, or if, we get to a better economic situation.

Lobbyists and special interest groups now have an incredibly strong hold on Washington, and have skewed policy far to the right in recent years. Even Obama, riding a huge groundswell of popular support, has had to kowtow to Wall Street, and not do too much to upset the apple cart. It will be hard to alter the course of major problems today, such as the increasing polarization of wealth, unemployment, enviromental issues, and the migration of industry and profit to sunnier locations, without dealing with the affluent vested interests in the US, and their arm-twisters.

The world is changing in fundamental ways currently, ways that will affect employment, industry, and society profoundly. We live in a tightly integrated world economy, where great masses of formerly underemployed agricultural workers are seeking better paying work. This is coming at a time when computerization is making ever more jobs redundant. We have already seen extreme downward pressure on wages, and increasing unemployment, and underemployment. This has no transcended the economic field, and is a political problem. It will take a whole new way of looking at work, value to society, and wealth distribution. And given the current atmosphere in the US, this is going to be a rough road.

 

[boedicca]

When we have meaningful Real Economic Growth without QE^Infinity.

 

[Rozman]

I just hope we don't get into another housing market bubble again relying on people who can't
afford to buy a house start buying homes again to fuel the economy.

 

[Moonglow]

The economy in certain areas are booming.

 

[AmazonTania]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

You're not going to see the unemployment rate reach anywhere under 2%. It's just not going to happen. I would be comfortable with having an unemployment rate below 5.7% if I knew the civilian employment to population ratio wasn't below 60%. The unemployment rate could be 1%, if there are less individuals working as a percentage of your population, this is a drag on the economy.

I would also like to see a change in the types of jobs being produced in the economy. Out of all the jobs being created since the 'recovery,' majority of these jobs are low-paying, low-skill service sector jobs. Majority of the jobs created for this year are also part-time jobs, which means the Average Weekly Hours should be above 35 hours per week. Full-time employment allows for an increasing standard of living, household formation, and higher personal savings rates.

Also, consumers NEED to start saving more. Americans have rebuilt less than half of the net worth they have lost during the financial crisis. With the average household had a net worth of $539,50 accumulated at the end of last year. That's up from $469,900 at the start of the first financial quarter in 2009, which is down from it's peak of $641,000 in 2007. In terms of median per capita wealth, America is ranked 27, which is well below countries like Cyprus, Spain, and France. Can't really tell you how this has happened, but it can really be attributed to the lack of savings (particularly, the inflation Ben Bernanke believes doesn't exist.

Lower savings rates ultimately reduces future productive investments and consumption. Feedback loops are more important now than ever before, considering that 70% of the economy is now led by consumption. Because of this, slower rates of consumption will drag on economic growth and wages. Consumption will no longer be the engine which drives the American economy as it has done in the past. Current trends suggest that economic growth is beginning to stifle a tad. This particular problem has been going on for a long time, as a result of a deterioration of economic growth caused by the accumulation of debt. During the 1980's actually.

 

[oldfart]

When we have meaningful Real Economic Growth without QE^Infinity.

Actually I agree with you. The monetary theory behind QE only applies in a classical Keynesian liquidity trap. We have had a five year experiment to prove that it is not an adequate stand-alone policy to return growth to acceptable levels. When we escape from the liquidity trap (which we will know by short-term interest rates rising and surplus deposits at the Fed decreasing as banks loan them out) we should return to more conventional monetary policy, including measures to nip inflationary pressures.

 

[oldfart]

I just hope we don't get into another housing market bubble again relying on people who can't
afford to buy a house start buying homes again to fuel the economy.

I don't think I've commented on the housing market per se. I hope for a housing recovery that is broad, including single-family units and rental properties. I support at least minimal (5%) down payments on most mortgages (20% on investment properties) and enforced financial standards for buyers (which really means loan originators must be on the hook for liar loans for a couple of years). Housing prices should return to the historic trend line and mortgage lending should be tightened when that index exceeds 110% of the long-term trend (base 2000).

 

[AmazonTania]

I just hope we don't get into another housing market bubble again relying on people who can't
afford to buy a house start buying homes again to fuel the economy.

The Fed is already working on that.

 

[boedicca]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

You're not going to see the unemployment rate reach anywhere under 2%. It's just not going to happen. I would be comfortable with having an unemployment rate below 5.7% if I knew the civilian employment to population ratio wasn't below 60%. The unemployment rate could be 1%, if there are less individuals working as a percentage of your population, this is a drag on the economy.

I would also like to see a change in the types of jobs being produced in the economy. Out of all the jobs being created since the 'recovery,' majority of these jobs are low-paying, low-skill service sector jobs. Majority of the jobs created for this year are also part-time jobs, which means the Average Weekly Hours should be above 35 hours per week. Full-time employment allows for an increasing standard of living, household formation, and higher personal savings rates.

Also, consumers NEED to start saving more. Americans have rebuilt less than half of the net worth they have lost during the financial crisis. With the average household had a net worth of $539,50 accumulated at the end of last year. That's up from $469,900 at the start of the first financial quarter in 2009, which is down from it's peak of $641,000 in 2007. In terms of median per capita wealth, America is ranked 27, which is well below countries like Cyprus, Spain, and France. Can't really tell you how this has happened, but it can really be attributed to the lack of savings (particularly, the inflation Ben Bernanke believes doesn't exist.

Lower savings rates ultimately reduces future productive investments and consumption. Feedback loops are more important now than ever before, considering that 70% of the economy is now led by consumption. Because of this, slower rates of consumption will drag on economic growth and wages. Consumption will no longer be the engine which drives the American economy as it has done in the past. Current trends suggest that economic growth is beginning to stifle a tad. This particular problem has been going on for a long time, as a result of a deterioration of economic growth caused by the accumulation of debt. During the 1980's actually.

Your figures are somewhat misleading. Median net worth is distorted by the wealth of the extremely wealthy.. (I don't think using an average is as meaningful as a median figure for this type of statO.

For example:

The average American family's net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve.

The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families.

The Fed study, called the Survey of Consumer Finances, offers details on savings, income, debt, as well as assets and investments owned by American families...

Family net worth plummets 40% - Jun. 11, 2012

 

[oldfart]

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

You're not going to see the unemployment rate reach anywhere under 2%.

I think you misread Andy's post. He said his father would be doom & gloom even with a 1% unemployment rate. He would be happy with a 1--1.5% decrease in the rate, making his goal 6.0--6.5%, which is a tad high to me for a target. Nobody thinks a 2% rate is even feasible; in the heyday a half century ago, the target was 4%.

It's just not going to happen. I would be comfortable with having an unemployment rate below 5.7% if I knew the civilian employment to population ratio wasn't below 60%. The unemployment rate could be 1%, if there are less individuals working as a percentage of your population, this is a drag on the economy.

We apprear to be in agreement, as mutually uncomfortable as that may make us! And your point about looking at the employment/population ratio first before considering the unemployment rate is excellent.

I would also like to see a change in the types of jobs being produced in the economy. Out of all the jobs being created since the 'recovery,' majority of these jobs are low-paying, low-skill service sector jobs. Majority of the jobs created for this year are also part-time jobs, which means the Average Weekly Hours should be above 35 hours per week. Full-time employment allows for an increasing standard of living, household formation, and higher personal savings rates.

Agreed, agreed, and agreed!

Also, consumers NEED to start saving more. Americans have rebuilt less than half of the net worth they have lost during the financial crisis. With the average household had a net worth of $539,50 accumulated at the end of last year. That's up from $469,900 at the start of the first financial quarter in 2009, which is down from it's peak of $641,000 in 2007. In terms of median per capita wealth, America is ranked 27, which is well below countries like Cyprus, Spain, and France. Can't really tell you how this has happened, but it can really be attributed to the lack of savings (particularly, the inflation Ben Bernanke believes doesn't exist.

I think your answer about the savings rate is in (gasp!) Milton Friedman's epic study of consumption behavior. It's called the permanent income hypothesis. Applying it to the last 35 years, as real income for the lowest 80% of the population has decreased, they have attempted to maintain their standard of living by borrowing more and saving less. Until they believe their real income will increase, they are unlikely to save more.

Lower savings rates ultimately reduces future productive investments and consumption. Feedback loops are more important now than ever before, considering that 70% of the economy is now led by consumption. Because of this, slower rates of consumption will drag on economic growth and wages. Consumption will no longer be the engine which drives the American economy as it has done in the past. Current trends suggest that economic growth is beginning to stifle a tad. This particular problem has been going on for a long time, as a result of a deterioration of economic growth caused by the accumulation of debt. During the 1980's actually.

I think growth of real income for most Americans has to come first. The question is how to accomplish that!

 

[AmazonTania]

I can't even read 99% of the posts in the Economy section, they are almost all DOOM and GLOOM. Once in awhile, somebody posts an educated post with something positive to say.

Anyways, my question to you, is what in YOUR eyes will make you feel good about the economy again? In my eyes, I'd like to see a 1% or 1.5% decrease in unemployment, and that's about the only thing I snivel about.

My father is a doom and gloomer, unemployment could be at 1%, and the end of the world is still around the corner. He lives in fear everyday, I feel bad for him. What would make you feel good about the economy again?

You're not going to see the unemployment rate reach anywhere under 2%. It's just not going to happen. I would be comfortable with having an unemployment rate below 5.7% if I knew the civilian employment to population ratio wasn't below 60%. The unemployment rate could be 1%, if there are less individuals working as a percentage of your population, this is a drag on the economy.

I would also like to see a change in the types of jobs being produced in the economy. Out of all the jobs being created since the 'recovery,' majority of these jobs are low-paying, low-skill service sector jobs. Majority of the jobs created for this year are also part-time jobs, which means the Average Weekly Hours should be above 35 hours per week. Full-time employment allows for an increasing standard of living, household formation, and higher personal savings rates.

Also, consumers NEED to start saving more. Americans have rebuilt less than half of the net worth they have lost during the financial crisis. With the average household had a net worth of $539,50 accumulated at the end of last year. That's up from $469,900 at the start of the first financial quarter in 2009, which is down from it's peak of $641,000 in 2007. In terms of median per capita wealth, America is ranked 27, which is well below countries like Cyprus, Spain, and France. Can't really tell you how this has happened, but it can really be attributed to the lack of savings (particularly, the inflation Ben Bernanke believes doesn't exist.

Lower savings rates ultimately reduces future productive investments and consumption. Feedback loops are more important now than ever before, considering that 70% of the economy is now led by consumption. Because of this, slower rates of consumption will drag on economic growth and wages. Consumption will no longer be the engine which drives the American economy as it has done in the past. Current trends suggest that economic growth is beginning to stifle a tad. This particular problem has been going on for a long time, as a result of a deterioration of economic growth caused by the accumulation of debt. During the 1980's actually.

Your figures are somewhat misleading. Median net worth is distorted by the wealth of the extremely wealthy.. (I don't think using an average is as meaningful as a median figure for this type of statO.

For example:

The average American family's net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve.

The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families.

The Fed study, called the Survey of Consumer Finances, offers details on savings, income, debt, as well as assets and investments owned by American families...

Family net worth plummets 40% - Jun. 11, 2012

The Global Wealth DataBook. Fascinating read which chalk full of data on household wealth, debt and inheritance.

If you want to get down to the nitty-gritty, it's on page 45. Data on other countries are featured in previous reports.

http://economics.uwo.ca/news/Davies_CreditSuisse_Oct12.pdf

 

[AmazonTania]

I think you misread Andy's post. He said his father would be doom & gloom even with a 1% unemployment rate. He would be happy with a 1--1.5% decrease in the rate, making his goal 6.0--6.5%, which is a tad high to me for a target. Nobody thinks a 2% rate is even feasible; in the heyday a half century ago, the target was 4%.

Hm, it appears that I have misread his post. Apologies, Andy.

We apprear to be in agreement, as mutually uncomfortable as that may make us! And your point about looking at the employment/population ratio first before considering the unemployment rate is excellent.

Thanks. It's also good to make sure that full-time employment as a percentage of population returns to normal levels of over 49 - 50%. Currently, it's 2% below where it needs to be.

Agreed, agreed, and agreed!

I think your answer about the savings rate is in (gasp!) Milton Friedman's epic study of consumption behavior. It's called the permanent income hypothesis. Applying it to the last 35 years, as real income for the lowest 80% of the population has decreased, they have attempted to maintain their standard of living by borrowing more and saving less. Until they believe their real income will increase, they are unlikely to save more.

That may be true, but even if real wages are not rising there is really no incentive to save anyway. Record low interest rates takes purchasing power away from savers and investors and places it in the hands of spenders and speculators.

Although, it would good for savers if they felt that the value of their savers was not eroded away by inflation.

I think growth of real income for most Americans has to come first. The question is how to accomplish that!

It's not going to come from wage increases. And I forgot to mention that Australia has the highest median per capita wealth in the world. While most people will correlate that to high wages, there is also one thing many have overlooked: The Aussies are currently not paying the Global Currency Devaluation Game.

 

[Zona]

The economy was great as Bush was leaving office in 2008. Geeesh. Everyone knows this.

 

[boedicca]

You're not going to see the unemployment rate reach anywhere under 2%. It's just not going to happen. I would be comfortable with having an unemployment rate below 5.7% if I knew the civilian employment to population ratio wasn't below 60%. The unemployment rate could be 1%, if there are less individuals working as a percentage of your population, this is a drag on the economy.

I would also like to see a change in the types of jobs being produced in the economy. Out of all the jobs being created since the 'recovery,' majority of these jobs are low-paying, low-skill service sector jobs. Majority of the jobs created for this year are also part-time jobs, which means the Average Weekly Hours should be above 35 hours per week. Full-time employment allows for an increasing standard of living, household formation, and higher personal savings rates.

Also, consumers NEED to start saving more. Americans have rebuilt less than half of the net worth they have lost during the financial crisis. With the average household had a net worth of $539,50 accumulated at the end of last year. That's up from $469,900 at the start of the first financial quarter in 2009, which is down from it's peak of $641,000 in 2007. In terms of median per capita wealth, America is ranked 27, which is well below countries like Cyprus, Spain, and France. Can't really tell you how this has happened, but it can really be attributed to the lack of savings (particularly, the inflation Ben Bernanke believes doesn't exist.

Lower savings rates ultimately reduces future productive investments and consumption. Feedback loops are more important now than ever before, considering that 70% of the economy is now led by consumption. Because of this, slower rates of consumption will drag on economic growth and wages. Consumption will no longer be the engine which drives the American economy as it has done in the past. Current trends suggest that economic growth is beginning to stifle a tad. This particular problem has been going on for a long time, as a result of a deterioration of economic growth caused by the accumulation of debt. During the 1980's actually.

Your figures are somewhat misleading. Median net worth is distorted by the wealth of the extremely wealthy.. (I don't think using an average is as meaningful as a median figure for this type of statO.

For example:

The average American family's net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve.

The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families.

The Fed study, called the Survey of Consumer Finances, offers details on savings, income, debt, as well as assets and investments owned by American families...

Family net worth plummets 40% - Jun. 11, 2012

The Global Wealth DataBook. Fascinating read which chalk full of data on household wealth, debt and inheritance.

If you want to get down to the nitty-gritty, it's on page 45. Data on other countries are featured in previous reports.

http://economics.uwo.ca/news/Davies_CreditSuisse_Oct12.pdf

I'm finding very different info from the Fed.

http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf


An average of $77K, with a median of $499K.

 

[AmazonTania]

Your figures are somewhat misleading. Median net worth is distorted by the wealth of the extremely wealthy.. (I don't think using an average is as meaningful as a median figure for this type of statO.

For example:

The average American family's net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve.

The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families.

The Fed study, called the Survey of Consumer Finances, offers details on savings, income, debt, as well as assets and investments owned by American families...

Family net worth plummets 40% - Jun. 11, 2012

The Global Wealth DataBook. Fascinating read which chalk full of data on household wealth, debt and inheritance.

If you want to get down to the nitty-gritty, it's on page 45. Data on other countries are featured in previous reports.

http://economics.uwo.ca/news/Davies_CreditSuisse_Oct12.pdf

I'm finding very different info from the Fed.

http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf


An average of $77K, with a median of $499K.

I believe you are referring to page 17, no? Your source calculates median and mean wealth per family. Mine calculates it per adult. As I said before, it's median per capita wealth.

Here is a previous study from 2010, but with a few different countries in focus.

https://www.credit-suisse.com/news/doc/credit_suisse_global_wealth_databook.pdf (Page 116)

It has the mean and median wealth per adult. As well as the population, GDP per adult, number of millionaires occupying the country, etc.