This Is What You Get When Policy Makers Become Complacent
This Is What You Get When Policy Makers Become Complacent
The prospects for domestic demand in the US are not bright. The labor market barely generates jobs and fiscal policy is a drag. Americans are consuming; but there’s unlikely sufficient nominal income growth to stabilize consumption expenditure growth at current levels.
We’ve seen years where consumption growth outpaced income growth; but those periods of consumption were financed through leverage build – with financial conditions tight, the possibility of financing consumption outside the labor market is deteriorating (see the Banking and Finance section of the latest Fed Beige Book, not encouraging).
Consumption growth cannot outpace income growth indefinitely. Unless we get a true policy kick (by fiscal policy, admittedly), the cyclical recovery could be a thing of the past.
That was nominal growth – in real terms and on a historical basis, the story is just as bad. Don’t let anybody tell you that real consumption growth. At 1.8% Y/Y in August is anything but miserable, especially given that its annual pace is 1 ppt below the long run average, 2.8% Y/Y. Long run real income growth is even worse at 2.5 ppt BELOW the long run average, 2.8% Y/Y.
Uh huh – yes, the US economy has definitely avoided the ‘recession scare’…right. As I see it, the problem with policy these days is not size nor level, rather complacency.
originally published at The Wilder View… Economonitors
Since Enron, [and the ensuing decade of that very common malfeasance] went under how many trillions of private pension funds went under?
I wonder
if we had 10% growth and it was all in income and consumption at the top 10% would we be happy?
GDP may be “the best measure we have” but I think we are going to need something that actually measures “wholesome standard of living.”
ferraris and cocaine to not make people happy for long.
The other thing that can’t go on for long is the top 1%’s income growing faster than the GDP. For supposedly being business people, you would think the know this.
“The other thing that can’t go on for long is the top 1%’s income growing faster than the GDP.”
Not to worry. It will equalize when they are the only earners.
wall st, congress, fed axis is a ponzi scheme.
The problem with the top 1% (financial fascists): their income/wealth growth has been largely imaginary.
They have done all those derivatives and gotten away with borrowing on their phoney asets (lottery tickets at the possible win as collateral)……………………..
The moneyed society is a house of cards.
Now they are bailed out, they don’t want their trillions monetized through inflation.
Who is harmed with low inflation or deflation?
The gumints’ safety nets which bailed the banksters out with debt.
occupy wall st
“GDP may be “the best measure we have” but I think we are going to need something that actually measures “wholesome standard of living.”
IMO, GDP is not the best measure we have. GDP is an aggregate measure. Divide it by the number of the income earning population and you get the mean income. A more telling measure is the median income. It represents the “average” person. Increased income at the top affects the mean, but not necessarily the median.
Recessions occur when the business community –or the consensus — misjudges final demand and produces too much and is left with excess inventories they have to liquidate by cutting output.
From that perspective the greatest threat of a recession may actually stem from growing business confidence that we will have a good Xmas season. But if Xmas sales are below the improving expectations it would create the conditions for a recession. I’m not projecting a poor Xmas. Rather I’m just pointing out the possibility.
Interestingly, if recession occur when the consensus forecast is wrong, it means that the consensus can never forecast a recession because it would require the consensus to forecast that the consensus is wrong.
Spencer
are you saying that they should predict a slower Christmas and cut output now to avoid having to cut it after Christmas to reduce inventories?
Min
so you are saying that median income is a better measure of well being.
up to a point, perhaps. but if people are spending their money on a new car every three years, i would argue that their idea of well being is sick.
Beg to differ. Any investment can go “blooey!” unless you cash it in, and even cashing it in means converting it to some other asset which is vulnerable to a loss in value. “Imaginary doesn’t matter in any sense that matters if you are rich. The richest 1%, no what we may think of the way in which they’ve generated their wealth, no matter how “imaginary” their wealth may be, have a chance to convert “imaginary” wealth into non-imaginary wealth, and thereby remain rich.
People who are unable to build wealth don’t have to worry about holding on to it. They only have to worry about food, rent, medicine and rich people who take away their income.
So I’m not sure the rich have a “problem” with their wealth being imaginary, at least not relative to everybody else. They have to screw up to become un-rich. The rest of us can do everything right and never be rich. It’s good to be rich.
I know that retailer forecasts have been pushed higher since the back-to-school results came in, but port and non-bulk shipping data suggest that retailers may not be putting inventory money where their forecast mouths are.
You are of course correct about the inability to forecast recessions. That’s why telling other people they are wrong before the fact in forecasting recession is silly. (Dean Baker, you in here?) It appears to be what Krugman forgot when he said that nominal GDP is what Greenspan wants it to be, plus or minus a small error factor. Krugman has since recanted.