Why We Are Moving Toward a Recessionary Era, and Why Keynes is Being Exhumed

[laughingliberal]

Double-dip watch: Retail sales in May took their biggest nose-dive in eight months, according to Friday's report from the Commerce Department. Remember: Consumers account for 70 percent of the nation's economic activity.

American Corporations are sitting on huge piles of cash but they're not investing, and they're creating only a measly number of new jobs. And they won't invest and create jobs until they know there are customers out there to buy what they sell.

For three decades, starting in the late 1970s, the biggest economic problem America faced on an ongoing basis was inflation. Demand always seemed to be on the verge of outrunning the productive capacity of the nation. The Fed had to be ready to raise interest rates to stop the party, as it did on several occasions.

During this era of inflation economics, it appeared that John Maynard Keynes - and his Depression-era concern about chronically inadequate demand -- was dead. So-called "supply siders" told policy makers that if they cut taxes on corporations and the wealthy, they'd unleash a torrent of investment and innovation - thereby increasing the productive capacity of the nation. The benefits would trickle down to everyone else.

But the pendulum may now be swinging back to the earlier era in which demand always seems on the verge of trailing the nation's productive capacity. The biggest ongoing threats are chronic recession or even deflation, because consumers don't have enough money to what the economy is capable of selling at full or near-full employment. Despite gains in productivity, little has trickled down to America's middle class. <snip>

More: http://www.huffingtonpost.com/robert-reich/why-we-are-moving-toward_b_610017.html

[notadmblnd]

1. By eliminating the American mIddle class

These great minds (those with MBAs from places like Harvard), mistakenly think that demand in the rest of the world will increase. However, they never give it a thought that these people will not gain the standard of living that most Americans have enjoyed the last few decades, for a few more generations. In the mean time, welcome back to the age of Robber Barons.

[Hydra]

10. That was never the plan

They shut the money supply off, rightly thinking we'd do nothing creative about it.

Starve out, Act II coming.

[Taitertots]

13. I say we need to bring robber baron back into the modern lexicon n/t

[Selatius]

2. My only problem with this is what exactly is inflation anymore? The numbers are fudged.

If you exclude energy and food from calculating inflation, of course you're going to end up with a different number than if you actually did include them into the calculations.

Aside from that, the problem has been since the 1970s real wages not keeping up with inflation. If inflation is 5% in a year, and you only get a 2% raise that year, you really got a 3% pay cut. This has been all too common from the 1980s going through the 1990s into now. Sending high paying, unionized manufacturing jobs out of the country also hit the middle class in the pocket book as well.

[xjymnastjme]

3. pay cut?! Yep!

I've noticed the issue of inflation vs. lack of appropriate wage increases as well.

[midnight]

4. I will have to re-read this, but it seems the bottom line here is the money

has not reached the people who move it around. The working people have been buried in debt. of their own and the banks, and other corporate hood winkers.

[Starry Messenger]

5. I think even Keynes would just be a bandaid on a fatal wound.

He only treats symptoms, he isn't a cure.

[jwirr]

8. Keynes did not have so many people who had maxed out their credit

cards and will take years to repay them. His problem was no money at all. Ours is no money left over at all. Also in that era there was all kinds of cheap energy available to rebuild the economy. We have a whole set of new problems that are interrelated and cannot be separated.

[Starry Messenger]

11. I don't see Capitialism as a "new problem", but ok.

I'm not clear where we disagree. I don't think it was people who maxed out their credit cards who created this mess, if that is what you are saying. There are people with money left over and they don't seem to be quick to part with it.

[jwirr]

18. The reason many of us are not spending is personal debt. And I

also understand being afraid to spend when you have some left over. As to capitalism - we had capitalism before we had credit cards so I do not see that so much as the problem as too easy credit. Believe me I know why I do not buy - I am broke.

[Starry Messenger]

21. I am broke because my wages are low

That is why I am not spending. My wages are low and you are right, I am very miserly with anything I have left over. I spend very little and have kept my debt down by austerity. I guess I'm asking why we are in this sinking ship to begin with. Why are workers incurring debt to survive?

[jwirr]

28. And to that I have no answer except that corporations have opted

to abandon America.

[JDPriestly]

24. The underlying problem in my view is that we have increased our capacity to produce

cheaply and with little human labor by using and developing sophisticated technology to do work that used to be done by large numbers of humans. The typing pool, a mainstay of the 1940s through the 1990s, has disappeared from offices. I could go on and on with examples of work that used to be done by people and that is now done by computers.

At the same time, the population has increased and demand has grown in places like Africa and India and China. Production has increased phenomenally in those countries.

Thanks to the increased productivity and the increased demand, commodity prices, especially for materials that are not renewable like oil have increased. When I worked in an oil company in 1973, good quality crude oil sold on the spot market for $3.50-$4.75 a barrel. The oil that was purchased on contract was presumably even cheaper.

On top of that, American tax policy since 1980 has increasingly favored the wealthy.

As a result, in the U.S., the top tiny percent of the population, the percent that owns the automated factories, the sources for the commodities (such as oil wells and mines) and controls trade, has accumulated enormous wealth. Problem is, as the extremely rich have become richer, the rest of the population has gradually become poorer and poorer, deeper in debt and now, unable to buy much of anything.

There is no incentive for the very wealthy who have or control most of the wealth to share it. They are not even willing to hire the middle class and poor to work. Enough production to satisfy the desires of the wealthy proceeds without employees -- or with far fewer of them and at lower wages than we could have imagined in the 1950s.

We end up with a pyramid of wealth. The wealthy few at the top enjoying their money, their comfort, and at the bottom, multitudes of under- and unemployed folks struggling up their individual mountains of debt. Fewer at the top and more at the bottom as a proportion of our national population than at any time since the early 1930s.

There is an undersupply of jobs and an oversupply of idleness among the vast majority of us who do not belong to the wealthy elite.

Remember the old and very true adage: Idle hands are the Devil's workshop.

Keynesian economics presents problems of its own, but it keeps our hands busy and the Devil away.

It may rile you, it certainly upsets me, but, if you look at history, we are likely to have serious social problems if we don't redistribute wealth so as to keep people working and solving our problems here on earth in some creative way. Keynesian economics sure beats a French Revolution. It also beats returning to a feudal lifestyle.

[Starry Messenger]

27. I'm not riled. :)

Frustrated maybe. I agree totally that wealth needs to be redistributed. I would argue that we are already in a feudal lifestyle. A New Deal program might work for the short time, but the capitalists keep dismantling it when we try it. If the wealthy don't want Revolutions, then they need to quit hogging the sand toys. *They* are the cause of the violence, not the people struggling. That is why I say Keynes is a band-aid. We have deep structural problems that keep going unaddressed.

[Jkid]

6. That's the problem right there!

American Corporations are sitting on huge piles of cash but they're not investing

[MissMarple]

14. All the multinationals are. And the executives are making out like bandits,which, of course,they are

And many multi nationals are wealthier than many nations, they can bring down governments, Politicians are trying the same thing. It's what Bushco did to us. They make money from the public by selling us things we didn't know we wanted ... like war.

[femrap]

7. The wealthy

and the heirs of the wealthy are lazy, uncreative, anti-risk, mediocre, dim-witted piles of crap. All they do is count their money.

They aren't capable of an original thought. They're terrified of competition and that's why they buy up all of the small companies that do offer good ideas and competition.

The wealthy are leeches that suck a country dry. Buffet's company is sitting on $26.5 Billion in cash. Gee. And he can't think of a thing to do with it. He sells himself as a luncheon date for $2.63 million. Wow...what a turd.

Tax the rich and feed the poor.

[FBI_Un_Sub]

9. Causative Factors

1. "Dergulation" including repeal of the Glass-Steagall Act.
   
2. Monetization of all manner of hedges
   
3. The deification of Wall Street MBA "money men" with the demeaning of "Rust Belt" engineers and machinists.
   

[unblock]

12. there's little in the economy that wouldn't benefit from a massive, keynesian works program

the government should shell out massive bucks to give people jobs rebuilding out crumbling infrastructure, exploring green technology, and so on.

the individuals hired (or contracted) would obviously benefit directly, but business big and small would benefit as well. they would be able to pay down their debts, so banks would benefit. they would be able to buy more, so local businesses and bigger businesses would benefit as well. and of course, all businesses would benefit from the improved infrastructure and technological advances that result (think nasa in the '60s).

despite the massive initial cost, much of this would be recovered. the governments (i'll lump together federal and state for convenience) would no longer have to pay unemployment or welfare to those hired; they would pay taxes; and their extra spending would mean more taxes from the local businesses and so on. so much of the money would come right back.


with big business cash hordes being as huge as they are, this is the ideal time for tickle UP economics -- give money to the little guy and watch the big businesses go ape trying to extract their share. they will succeed, but they'll have to engage in (gasp!) actual economic activity to make it happen.

[laughingliberal]

15. +1000 nt

[Taitertots]

20. Only the hedge funds and large investment houses wouldn't benefit

They are making too much money destroying the economy and shorting it on the way down.

[unblock]

22. trust me, they will find a way to make oodles.

[Taitertots]

26. Yeah, they will turn the growth into a bubble and short in on the way down again

But it will hurt them for a little bit because they are positioned for the protracted recession they have created.

[Taitertots]

16. Keynes is spinning in his grave

You don't stimulate growth by giving money to the rich and making the poor work for them to get it.

You stimulate growth by giving money to the poor and making the rich work to get it.

[laughingliberal]

17. That's always seemed to make sense to me. nt

[Warren Stupidity]

19. They didn't stop inflation they cooked the books instead.

We have gone through 30 years of book-cooking inflation numbers to short COLA based wage and pension adjustments. We've had price inflation without wage inflation. Now we are going to have 'job deflation' and be told to stuff it and get by with one earner households that became two earner households to keep up with the wage stagnation of the last 30 years.

30 years of Reaganomics, and our 'labor party' is on that wagon.

[laughingliberal]

23. Yes, the true inflation numbers have been hidden to obscure the decline in wages.

The CPI they tie the numbers to leaves out many necessary costs of living and allows them to keep "Federal Poverty Guidelines" at draconian levels.

[amborin]

25. real estate is about to take another nosedive, too