Letters to the Editor
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Just askin'
Has anyone ever extrapolated the growth from 1992 to 2000, extended that growth to today, and compared where we actually are? It's easy to generate growth statistics if you first drive the economy into a hole, then measure your progress on the way back out.
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The pie is getting smaller
That's how I think of it, anyway. During the Clinton years, the pie got bigger. We all prospered. During the Bush years, the pie has been shrinking, but nobody noticed because the biggest players at the table were still getting big slices, and that's what the media reported on. Now, the pie has finally gotten small enough that even the biggest players have to take a smaller slice. I don't even want to think about what the little guys get.
You know, I probably shouldn't write comments about economic issues during lunch.
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The Big Pyramid Scheme
Ah - an economic expansion based on a big pyramid scheme. If that isn't the perfect symbol of the Bush Administration, I don't know what is. They say neurotics build castles in the sky, while psychotics try to live in them.
And then Bush has the hubris to say, "I want the American people to take a good look at this economy of ours.” It’s as if the fool doesn’t understand the mess he’s made of the whole goddamn thing over the last 6 ½ years. The last thing in the world he wants people to do is to take a good objective look at what he’s done to the country. If people really understood, there’d be rioting in the streets.
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The Bush-Cheney Presidency: Dumb and Dumber
So does this mean the Great Right-Wing Noise Machine will or won't be complaining about a "Clinton-Gore recession" in 2007?
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ThI have been saying this for a while
Everyone judges the economy based on their own situation. If you judge things based on your portfolio, things are good. I fyou judge things based on your checking account, things are bad.
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Credit crunch?
What credit crunch, Andrew? Interest rates are pretty low, the stock market has been at or near record highs, inflation is low, profits remain strong, &c. The subprime situation has some sectors of the market repricing some kinds of particularly dodgey debt, which is probably a good thing. More expensive risk-insurance means less incentive to make bad loans. Economics is all about trade-offs. Is that the sound of a shifting equilibrium I hear?
Granted, if you're looking to get an interest-only low-documentation sub-prime mortgage on a house that's 11 times your annual income on the day after you get out of bankruptcy, it may be a little more difficult. I think most of us can live with that.
As for the allegedly shrinking pie: What part of "growth" do you not understand? A growing economy means a growing metaphorical pie, not a shrinking one.
The fact is the U.S. economy is in good condition and has been on an almost nonstop roll for about 30 years -- and it's mattered very little who the president is. Presidents don't make or break economies; economies make or break presidents. Does anybody really think Clinton caused the tech boom (or the Asian currency crisis) or W. caused the (irrationally exhuberent) late-1990s stock bubble to burst? The idea is risible. Presidents are not rain-kings.
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Credit crunch is bad?
Normally I would agree that a credit crunch is bad for companies, since it tends to raise the cost of doing business. Lately, however, companies have been not been borrowing funds to expand their businesses. It seems that if a company has any spare cash or borrowing power, they are using it to buy back stock. They are not investing in the business, but are instead playing with their stock price.
Another benefit to tougher credit is the demise of this buyout craze. This latest fad appears to be financially shaky for all concerned. There is one guarantee in these buyouts - that there will be massive layoffs and the acquired company will be reduced to a fraction of its original size. This seems to happen regardless of how well run the company was before the takeover.
The stockmarket will suffer from the tougher credit because the bubble caused by the private equity mania will be deflated. It appears to me that much of the rise in stock prices since February was based on the anticipation of private equity buyouts. Once that euphoria is eliminated, the market prices will again be based on company performance and macro trends, not on the odds of a buyout next week. This adjustment will be painful.
In the end, I believe that the credit crunch will aggrevate the housing market problem, will hurt stock prices, but the overall impact on Main Street America is hard to call at this point.
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I'll See Your Pre-Emptive Strike And Raise You One Shock, and Half An Awe
(I can already hear my readers sharpening up their quills as they prepare their screeds on how GDP growth means nothing if the benefits of that growth are not equitably distributed. Fine. It's still better to have some growth than none.)
Well, yes, there's this, from Heather Boushey, of the Center for Economic Policy and Research:
http://www.cepr.net/index.php?option=com_content&task=view&id=1243&Itemid=45
If This Is Such a Rich Country, Why Are We Getting Squeezed?
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Saying that the majority of the country's economic gains in recent years have gone to the top one percent of the income ladder understates the trend. You have to cut the pie into even smaller slices to get the full picture. Because while the bottom half of the top one percent of the income distribution have done far better than the average wage slaves, it is a smaller slice still -- the top .01 percent -- that has grabbed most of the gains--seeing an impressive 250 percent increase in income between 1973 and 2005 -- from an economy that's grown by 160 percent.
An analysis by economists Thomas Piketty and Emmanuel Saez gives us the best perspective of what's going on for everyone else. They found that despite several periods of healthy growth between 1973 and 2005, the average income of all but the top ten percent of the income ladder -- nine out of ten American families - fell by 11 percent when adjusted for inflation.
It's hard to see why some growth must be better than none if 160 percent growth in the economy produces a net 11 percent drop in income for 90 percent of the population. This is the macro-economic reflection of the corporate-growth-by-downsizing paradigm. It may still be true that growth is generally better than no growth, but it can no longer be assumed that it must be better. The inequalities are just too large.
But there's another point to be drawn from such statistics: it's precisely this sort of wealth concentration that makes the following so dangerous:
There's a simple answer to why we should care. Credit crunches spark recessions. If money gets expensive, companies don't just stop buying each other, they also find it harder to raise capital to do anything. Growth slows. People get laid off.
While this has always been true in a broad sense, what's happened to our economy since 1973 has both centralized credit markets, meaning that a crunch in one market is much more tightly linked to potential crunches in others (the dark side of liquidity), and it has dramatically increased the reliance of consumers on personal debt, making them much more vulnerable when such downtowns occur. And, of course, the reign of conservative orthodoxy has also managed to significantly reduce the amount of coverage under unemployment insurance, which not only directly cushioned a much larger percentage of workers in 1973 than it will today, but also indirectly protected all sorts of people who continued to be paid by those covered by unemployment insurance.
In short, there are multiple ways in which income inequality and credit crunches interact to produce misery. Lucky us! We get to enjoy them all!