Once more: I WANT MORE SPENDING!
by: Daniel Becker
Ok some more information to bolster my position that my flower shop being down this year another 4.5% compared to last year (at least the decline is leveling off) is not the results of government debt or too much taxation or banks not lending or unions… nope, my shop is off because of one thing: Lack of income in the hands of the many and nothing to date has been done to change that.
Or I should say, not cutting it for anyone who earns a penny because someone else had an extra penny to spend beyond their non-discretionary expenditures. That is, they are at the point of autonomous consumption, but not at the point of offsetting income earned from their cognitive or physical labor with that earned from money. That means we’re talking about the bottom 90% of the income earning population. (The top 10% own 82% of the stock.)
Two nice charts from the NY Fed bank
The first shows just how much of a dive spending has taken. Considering we’re a “consumption economy”, I don’t think this bodes well for us. The second shows how lacking in recovery such spending is compared to prior recession.
I don’t know about you, but I don’t care how much money we pump into the economy at the top, if it doesn’t get in the hands the bottom 90% of the income earners, there will be no recovery. It does not matter if the Fed’s are pumping it in or the Government is doing it via tax reductions because both methods are not putting the majority of the money in the hands of the many. The Fed article notes that this discretionary spending is “services”. It is 30% of all personal consumption expenditures (PCE). Non-discretionary is 34% of PCE, that leaves 36% somewhere in the middle? They state PCE is 70% of all output. So, 30% of 70% is 21% of all output? Using $14.7trillion means about 3.09 trillion has taken a 7% hit of $216 billion! ( I readily accept any math corrections in comments)
The author states:
Because consumption accounts for about 70 percent of output, this in turn raises some concern about the future strength of the recovery.
That’s an understatement! He hedges some more: Also, households may remain wary about their employment and income prospects, suggesting that they may have lowered their future income expectations.
Really? “May” is the word one wants to use here?
A Mr. Roche is more direct:
The real weakness in this recovery is rooted in the fact that consumer balance sheets are so mangled that they’re spending primarily on non-discretionary items and saving the rest of their incomes to pay down debts. This is important to understand because policy must be geared in such a way that it does not further hinder the household balance sheet. And therein lies the problem with a policy such as QE2. Anything that can potentially cause cost push inflation will only further weaken the household sector and detract from any possible recovery. In the case of QE2 I think we saw the increased speculation contribute directly to rising commodity prices which ultimately squeezed consumers further and led to the current soft spot in the economy.
BINGO!
Let’s not stop there. From Mr. Weisenthal Under “Scariest Job’s Chart Ever” we get this one on the duration of unemployment.
Which brings me to my posting from 4/2008: The longest Recession Ever
I noted in this post that it took 20 months from the Bush 2 recession for the peak of what I call Person Weeks Unemployed (a multiple of the number of people out and the number of weeks out). I also noted that Reagan with back to back recessions did not see the peak until 30 months past the first recession. Almost 3 full years! He also double the quotient.
I ended with:
Thus, the peak of a recession is in the eye of the beholder. If you’re a person earning money from labor, a recession these days can last a very long time. This data would suggest that what we are seeing in the Spencer post is not a decreased risk but a lull before the storm. One other thing. It appears the Republicans fail again. As a group they have the longest turn-around to seeing a reduction in lost labor.
There you have it. You want to fix the economy? Don’t follow the conservative ideology. The Republicans win in delaying recoveries. Yet, here we are with a “Democratic” president using the very language, words, framing of the group that is proven to not know how to create jobs and thus get money in the hands of the many in the shortest amount of time. Some say the Republicans are doing it this time with intention. I doubt that, though it is a meme that would make them seem to be the ultimate chess players.
Yes, I WANT MORE SPENDING!
DoLB, who should be spending more?
DoLB,
I sympathize with your plight, but you still are selling a luxery good. You pay the rent/mortgage before you buy flowers. You buy food before you buy flowers. You buy clothes for the kids before you buy flowers. Do I need to go on?
People in general are up to their eyeballs in debt and are smartly paying that debt off – before buying flowers! If I had an extra $100 in my pocket for descretionary spending flowers would be way, way down the list. Better to throw that against the mortgage or put in my cash reserves in case of a rainy day. Or maybe fixing some delayed house/car maintenance.
Buying luxery goods is way down the list for most people – and you want to lower their descretionary dollars by raising taxes? Or do you just want to spend even more money the Feds don’t have?
But I bet the top 10% still have funds for flowers….
And if you haven’t noticed – the Dems are running the show these days, so the delayed recovery is all about Obama and the Democrats. Heck Pelosi and Reid have been running the fiscal show since Jan 2007 – right before the wheels came off the economy, and the Dems have been running things ever since.
So everyone here knows who to blame for the lame Obama recovery…
Islam will change
DoLB,
And the Greeks are going to defualt(IMHO). Bond spread with the Germans is now over 30%. The Greeks just don’t want to get their fiscal house in order. They will pay the reaper for their governments stupidity and corruption. The Greeks don’t have any money and no one is going to lend them cash when its becomming obvious the Greeks cannot pay people back.
Greece should re-issue the dracma, and inflate away the problem. It will make Greek money worthless which will be a big boom to the tourist and agriculture industries. Look at Argentina for a rough example.
The interesting thing will be how the German and French banks save themselves.
Islam will change
Flowers are not a luxury good. They are in the group of spending called discretionary, but that does not make them a luxury item.
That people only have money to pay their debt (a debt built up just trying to keep their status quo) is the issue. $218 billion no longer being spent in the 70% of our economy.
I know why my shop is suffering as does every other similar honest to goodness small business. I just will not accept that this is how it needs to be or should be.
The issue is lack of money in the hands of the many. It is not simply lack of money in general. Thus, We are not broke. However, we of the 90% are broke or close to it. Not because of over spending, but do to lack of income. And not because income has not been ever increasing on whole in this nation, but because the distribution has been ever more skewed via policy.
As to dem running the show, not in my book. They may be of the Democratic Party, but the ones running the show of that party are of the DLC. To which I note: http://www.angrybearblog.com/2008/06/senator-obama-chooses-jason-furman-econ.html
“Is this the concession the Clinton/Blue Dog group was looking for? The DLC still keeps control of the money issues? This article suggests some recent Hamilton Project influencing.Do we really need Chicago School lite? Are we that timid that we couldn’t try another school of thought? Now that would be “change”.”
“I think we can now start making some educated guess on what to expect for proposed solutions to the shift of income share to the top 1%. You know: It’s the economy stupid, Show me the money, declining real wages, consumer economy with little to spend, (add your’s here…). We’re going to try a new version of trickle down which has some form of tax code tightening, but no direct social policy influencing. Social influencing, like say, we use the tax code to make it more profitable for the company to pay the help as oppose to paying the very top management and shareholders.”
Daniel is pointing to the fact that there isn’t a lot of money floating around in the domestic economy. The President and his people are working as hard as they can to take 2 trillion dollars out of the domestic economy. There is no way to replace it, you know, especially if unemployment stays high. So, the middle class and working people are going to have to tighten their belts until their waistlines meet their backbones.
Meanwhile, there are still people who have money to burn. Problem is it isn’t all that common down here where the rest of us live. Pull more money out of the domestic economy and things will be worse. You and I, buff, might find our retirement checks shrinking before our eyes. All because Greece screwed up. I didn’t do anything wrong. I worked hard, stuck to my job, saved my money, didn’t mess around with exotic mortgages, and my reward will be I go broke because this administration things that we need to sacrifice. So that what? Hmmm. No good answer to that question. NancyO
Daniel,
You’ve done a good job diagnosing the problem (and BTW, if you are only down 4.5% in your business, you are doing really well), but I have a hard time discerning what you want the government to do about it. I know it’s not monetary policy, and I know it involves income redistribution and I know it’s not Conservative, but I don’t know what it is you are recommending. Maybe it is a good idea -You certainly have a better perspective than our policymakers.
Not a luxury for a parent’s funeral.
Buy flowers not F-35’s.
Last week the house of reps passed a $649B budget for just DoD’s part of the perpetual war troughs.
That does not include upward of $100B for the Veterans’ Administration or $54B for military retirees, or another $50B for DoD retired civilians. Or for nukes, or for coasties, and domestic air traffic surveillance.
It does include nearly $400B for contracted services and things to blow up Talibans and al Qaedas who have no country. High margins and good socialized profits.
Lots of stimulus but not for the 95% not at the military trough.
Buff:
Not everyone is drowning in debt.
And I hope Mrs. Pilot gets her share of flowers.
“The modern conservative is engaged in one of man’s oldest exercises in
moral philosophy; that is, the search for a superior moral justification
for selfishness.”- John Kenneth Galbraith
sammy,
Go to the USPS and buy some RR stamps, I just disowned a nephew for sending a letter to me with an RR stamp.
Then, divert 70% of the war trough to people!! That would be $500B for health, education, general welfare, and domestic tranquility.
And the top 5% can help out.
Reading Wealth of Nations this afternoon on the bus, and bookmarked this:
“…money, by means of which the whole revenue of the society is regularlydistributed among all its different members, makes itself no part of that revenue. The great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in these goods, and not in the wheel which circulates them. In computing either the gross or the neat revenue of any society, we must always, from the whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever be made any part of either.”
Yup.
Reading Wealth of Nations this afternoon on the bus, and bookmarked this:
“…money, by means of which the whole revenue of the society is regularlydistributed among all its different members, makes itself no part of that revenue. The great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in these goods, and not in the wheel which circulates them. In computing either the gross or the neat revenue of any society, we must always, from the whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever be made any part of either.”
Yup.
Reading Wealth of Nations this afternoon on the bus, and bookmarked this:
“…money, by means of which the whole revenue of the society is regularlydistributed among all its different members, makes itself no part of that revenue. The great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in these goods, and not in the wheel which circulates them. In computing either the gross or the neat revenue of any society, we must always, from the whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever be made any part of either.”
Yup.
just too many Americans were sold, via Ronnie Reagan, Government is the problem, for over 40 years now. and alas, so it was. and so it shall be.
you reap what you sow.
the crash can’t come too soon. what have the rest of us, 90%, remaining going to miss.
better to die quickly, then be waterboarded as the rest of the Elites’ enemies are.
What is missing in the analysis is that the 1999-2007 period was a dream floated on debt.
http://research.stlouisfed.org/fred2/series/CMDEBT
It was unsustainable.
What we have here is the end-stage of a Monopoly game, with two players with solid properties and everyone else trying to hang on until payday.
In non-allegorical terms, globalism and our trade deficits are ripping hundreds of billions of dollars out of what I call the “paycheck economy”. Government is trying to put that back via the $1.6T deficit, but that money too isn’t hitting the paycheck economy all that well.
The biggest lie around is that the rich are looking for capital investments and job-creation here. This lie cleverly ignores the fact that there is another kind of investment — rentierism — that seeks rents and not the profits of an honest capitalism.
This is why the richer have been getting richer at the expense of everyone else since 1980.
It’s the rents, stupid.
End the wars, end the tax cuts.
And throw in a tariff or two.
For every debtor there is a line of rentiers, renting wither money or their hoard of the largesse of the good earth.
Tax the rentier!!
Buy flowers not bombs.
Daniel,
Ok, I’ll concede that flowers are a discretionary good. Doesn’t change my analysis a bit.
STR,
Yes, not everyone is drowning in debt. But enough are to influence the rest to tighten their belts. I’m not in big debt but I am paying down everything I can and not taking on additional debt.
And Mrs. Pilot got 5 Knockout Rose bushes from the nursery for about $30 bucks. They will last years. Plus the entire backyard is blooming as the crepe myrtles, some purple things, and lanatana are going wild. Should last much longer though as the heat will make everything dormant shortly.
Islam will change
Troy,
I 100% agree the government’s debt is unsustainable, and Obama is adding to it at a $1.6 TRILLION per year pace. With no end in sight according to Obama himself. This is not some one time thing. He plans to keep it up as far as the projections go.
So Reagan was and is correct – government IS the problem.
Islam will change
Buff
you kind of miss the point.
almost everything we buy is a “luxury.” the whole point of “the economy” is to create the possibility for “luxuries.” That means that some people will find work creating ‘luxuries.” And when the economy falters, those people will be out of work. Then while you do without luxuries, they do without bread.
or we could all go back to being farm labor, producing only essentials. i hesitate to ask what essentials Buff produces for his livelihood.
buff
i read that the trouble with the Greek economy is that they are a nation of tax cheats.
What’s funny about that is so is the US. only here the tax cheats do it by buying congressmen.
sammy
the O and the R’s have been running a kind of anti-New Deal: they are trying to stimulate the economy by giving money to the people who already have money.
the government needs to create real jobs for people who don’t have jobs. it can no longer borrow or print the money to pay for this, but fortunately there are a lot of people with more money than they know how to spend who could pay a slightly higher tax that would pay for it.
this would move idle money out of the pockets where it is useless even to those who have it and send it out into the world where it would do what money does: encourage work.
$973B through 3 quarters FY 2011 (CBO last week), that would be $1,3T if trend goes.
Perpetual war, bailing wall st, letting wall st bubbles happen and tax cuts are the deficit problem, but they are the fault of this gumint????
Paycheck economy is a catchy term/
Interesting….I don’t see many actually concerned about effective policy for the paycheck economy…the problem with the current debate is the economy of Reagan and the economy of Bush/Obama are quite different, and the Reagan rhetoric was not defing policy in the 80’s.
The President has some control over the two and 1/2 wars we’re running now. Let him clean up his act. This whole deal is a game to the big players. It’s not a game to us in the lower 95%. Peterson wants more interest on his billion dollars worth of Treasuries. If we give it to him, will he go away? Nope. He’ll want more because he deserves it. Money doesn’t do this to people. People do it to themselves. We’d be better off without a lot of the Petersons now clawing at each other to get their share of the government pie. The President’s job is to stand between us and them. But, this President doesn’t see it that way. Election coming up, you know. NancyO
Yes Troy, rents it is. Financialization is all inclusive term. It is what our economy has become. In simple term it’s making money from money.
When Stormy used to post, it was on outsourcing. I can’t find it, but I linked a paper by the Japan Finance Ministry that noted the major money US corp were making in China was simply royalties. Rents, money from money.
It is the push behind the privatization of US purchased assets. There is a proposal by a few in congress to pass a law that will not allow a state to sell it’s government funded assets until or unless it has paid the federal government back for the money put into the asset. Good idea I think. There is another one by Sen Sanders aimed at stopping corps from playing one state against another. It simply says that if a state starts giving away things (tax breaks etc) to attract a corp from another state, it will lose federal funding.
The industrial revolution initially created indentured servitude, it’s what capitalism truly likes as it takes no additional effort especially if they can have monopoly power too.
Saint Peter don’t you call me cause I can’t go, I owe my soul to the company store.
ILSM, thank heavens for those ole republican budget cuts. Otherwise where do you think we would be????
Dan, we’ve (the republicans) proposed solutions, but they are diametrically opposed to Democratic policies. Cheaper and more energy goes a long way to move this economy along. Reduce the regulations load. But the one difference is the constant attacks on nearly every facet of of our productive business community.
Here’s a challenge, other then the green energy segment which requires huge subsidies to stay in business, list those segments that have not been attacked by increased taxes, regulations and bully pulpit complaints from this administration.
And you folks ask why/is there really uncertainty in the business community.
“The Fed article notes that this discretionary spending is “services”. It is 30% of all personal consumption expenditures (PCE). Non-discretionary is 34% of PCE, that leaves 36% somewhere in the middle?”
That 34 percent are the three non-discretionary services. That means 36 percent of all PCE is in goods.
“They state PCE is 70% of all output. So, 30% of 70% is 21% of all output? Using $14.7trillion means about 3.09 trillion has taken a 7% hit of $216 billion!”
Well, that’s 7% per capita. I get a fall of about $105 billion.
CoRev,
Over at The Big Picture: sovereign debt always goes up during down turns: revenue losses from slow activity TBD, TARP most of $700B still outstanding, $355B (the rest of Obamastim was tax cuts and blither) spending to stimulate demand, increased automatic spending from UE etc, and treasury bought up a Trillion in MBS, too.
For the common folks a bit over half a T.
In the past 3 years.
Almost $3T for war.
War spending outstripped stimulus by 3 times………………
Thanks to the bi partisanship in war profits.
The confidence faerie is into the tax payer and the fed for a cool coupla trillion, and you think Obama scares them?? Their only fear is Merikan the people will wake up, which might happen with Murdoch going down!!
The US has bailed wall st and their confidence faeries out and now the trolls are saying they won’t invest because of taking care of the other 95%??
The cinfidence faerie needs to worry the PIIGS, the ECB may not be as kind as Obama and the US fed. And the rope.
Yup.
coberly,
You miss the point. DoLB is selling a discretionary good (or a luxury) that can easily be cut out of the family budget with little change in the families well-being. So DoLB is providing a product that customers can afford to economize on. Even as part of a set of luxury goods a family buys its pretty down the list – behind ice cream for the kids, or th ecable bill etc. My sister sells jewelry – she says the market has collapsed for the lower end (in her case anything under $1K) but the higher end is still going strong.
DoLB markets a highly discretionary good, one that doesn’t last, to the market that can most easily dump this product. So people stop buying flowers. Or like me go to the nursery and buy $30 worth of plants that will last for decades.
And most are trying to get the debt down or savings up and are very worried about their jobs in Obama’s economy. I bet DoLB has tightened her (?) belt in the face of this economy and slow sales. It’s only smart. If DoLB can’t weather the storm maybe a switch to a differnet job/business would be in order. I’ve re-invented myself 5 times now into different skill sets. I dislike accounting, but right now that what’s in demand at my company and I found I’m fairly good at it. So I count!
Ask Mike about keeping his skill set relevant to the customer. My bet DoLB survives, but some will not. And some, the proverbial buggy-whip makers, will not. And shouldn’t.
Islam will change
coberly,
The Greek culture and government got them in this crack. Now they will have to pay the piper.
They used to have a law that a house under construction wasn’t taxed – so houses never finished. There was always something not complete – for years/decades. Not sure if that has changed or not now but its just one facet of how they run things – poorly.
Islam will change