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Do not give in to Evil, but proceed ever more boldly against it

Saturday, August 22, 2009

No Consumer Recovery

From John Robb's Global Guerrillas:

Here's a contrarian view on why economic recovery isn't in the cards. Unlike the last Century's experience, the American "consumer" is broken (this isn't reflected in the vast bulk of economic modeling/projections). How broken? The best exploration of this that I've found is from Elizabeth Warren (here's a video of her presentation on the topic before the crisis, worth watching in its entirety). The top line is that the American consumer, prior to the financial crisis, was already fragile due to:

  • Stagnant incomes. Median per capita income has stagnated for 30 years and is now headed lower. The only increase in household income came from adding the income of a spouse (that typically gets less than the male income earner). The value generated by mighty productivity increases over the last thirty years was routed to the financial markets (aka casinos) and not shared with American workers.
  • Increased fixed expenses. The costs and amount spent on variable consumption have fallen (clothing, food, autos, etc.) over the last thirty years -- which puts the lie to the "over consumption" charge. Instead, the median cost of housing, health, and the costs of work (childcare, two cars, etc. brought on due to a need for sending two people to work) have skyrocketed with very little improvement in the quantity or value of the goods/services received.
  • The entry ticket to the middle class has skyrocketed. This is due to the costs of education. Instead of publicly subsidized education (k-12 used to be sufficient for entry), we now have 6 years (pre-school and college) that are directly charged to the American family. Those costs have ballooned into budget breakers...
Read the rest for Robb's conclusions regarding the source of 70% of America's GDP.

"Fugly" doesn't begin to cover how the next five years will play out.

Got gardens?


Anonymous Anonymous said...

I watched the entire thing and although Warren is left leaning in her politics (typical "educator") she makes a number of very good points;
a) the rise in taxes on individuals and families has risen 25% in one generation.
b) the cost of maintaining that middle class lifestyle is now dependent upon 2 income earners in the family and
c) subsequently the cost of that is paying for day care and a second car.
She does not mention what sociological effect there is likely to come from kids being shuffled off to day care at such an early age, lack of nurturing, propensity of latchkey kids to get into trouble from lack of supervision and direction, etc.

Ultimately the problem comes down to the squeeze put on the middle class to pay for the non-producers and the oligarchy.

"Got gardens?" yes that will be a necessity and so will working in a black market economy to avoid the crush of un-fair taxation.....of course, that can create its own set of problems as the enforcers will grow and try to ensnare more and more folks in their net. Better to take the risk and try to be relatively free than to totally buckle under the whip used by the boss man on Maggie's global plantation.....no I ain't gonna work on Maggie's farm no more!!!

August 22, 2009 at 9:58 PM  
Blogger Pete Murphy said...

The reason for stagnant incomes can be found in our trade policy. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the wealthiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.4 trillion.

Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

At this point, I should introduce myself. I am author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity, inevitably yields rising unemployment and poverty.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world's population.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

Please forgive me for the somewhat spammish nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

Pete Murphy
Author, "Five Short Blasts"

August 24, 2009 at 3:09 PM  

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