How Obama Reconciles Dueling Views on Economy

[groovedaddy]

As Barack Obama prepares to accept the Democratic nomination this week, it is clear that the economic policies of the next president are going to be hugely important. Ever since Wall Street bankers were called back from their vacations last summer to deal with the convulsions in the mortgage market, the economy has been lurching from one crisis to the next. The International Monetary Fund has described the situation as “the largest financial shock since the Great Depression.” The details are too technical for most of us to understand. (They’re too technical for many bankers to understand, which is part of the problem.) But the root cause is simple enough. In some fundamental ways, the American economy has stopped working.

The fact that the economy grows — that it produces more goods and services one year than it did in the previous one — no longer ensures that most families will benefit from its growth. For the first time on record, an economic expansion seems to have ended without family income having risen substantially. Most families are still making less, after accounting for inflation, than they were in 2000. For these workers, roughly the bottom 60 percent of the income ladder, economic growth has become a theoretical concept rather than the wellspring of better medical care, a new car, a nicer house — a better life than their parents had.

Americans have still been buying such things, but they have been doing so with debt. A big chunk of that debt will never be repaid, which is the most basic explanation for the financial crisis. Even after the crisis has passed, the larger problem of income stagnation will remain. It’s hardly the economy’s only serious problem either. There is also the slow unraveling of the employer-based health-insurance system and the fact that, come 2011, the baby boomers will start to turn 65, setting off an enormous rise in the government’s Medicare and Social Security obligations.

Most of these problems aren’t immediate, which helps explain why they have gone unaddressed for so long. And the United States remains a fabulously prosperous country, relative to almost any other country, at any point in history. Yet Americans seem to realize that something has gone wrong. In recent polls, about 80 percent of respondents say the economy is in bad shape, and almost 70 percent say it’s going to get worse. Together, these answers make for the most downbeat assessment since at least the early 1980s, and underscore that the next president will be inheriting a set of domestic problems as serious as any the country has faced in a long time.

http://www.nytimes.com/2008/08/24/magazine/24Obamanomics-t.html?th&emc=th

[blue97keet]

1. trade deficit

The immediate budget buster is the war, the long term train wreck is the trade deficit, not social security or medicare. We are simply trying to consume without producing and cannot keep anything afloat without a mountain of debt of all kinds, or selling off assets to foreign investors etc. to cover the national credit card debt. It is a viscious self feeding positive feedback loop. The more is offshored, the more difficult it is to produce anything in the U.S. because the parts, materials, even eventually the skills have already been offshored. It is like a little bit of global warming causes more and more global warming until a catastrophic tipping point is reached. Soon there will be nothing left in the U.S. to tax to support Social Security or anything else including our national defense, (provided that we do not have to purchase circuit boards from China to use in sonobuoys for tracking Chinese submarines, and so on).