Retail sales have plummeted.
Retail sales plunged by the largest amount on record in October as the financial crisis and the slumping economy caused consumers to sharply cut back on their spending.
The Commerce Department said Friday that retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.
Name the sector, for the most part it’s not looking good.
Prof. Krugman, you know the one who got that Nobel prize thing, says a massive stimulus package is needed. Like $600 billion worth. It’s a figure well shy of what the batshit insane Paulson bailout (or whatever the hell it is today) received, but it’s real money.
Krugman is undoubtedly correct, but the key political question is how to keep the kleptocratic lobyists from Wall Street and Washington, D.C. from intercepting it.
Everyone probably recalls how the Republican Party ran its infamous “K Street Project” under Tom Delay in order to further its corrupt goals.
Maybe the Obama administration needs to run a “Main Street Project” that seeks to place stimulus funds out of reach of the crooks and liars. It would be far healthier for the economy in the long run to have millions of ordinary Americans make rational spending decisions rather than enabling a small group of executives to do so. They’ll just spend it on seaweed wraps and “vinotherapy” and shit anyhow.
And no, the way to do a stimulus plan is not to mail checks to everyone. A true stimulus plan would start with extending unemployment benefits and increasing grants to the states, where you get your most economic bang for your buck, paying particular attention to community colleges and other places folks can receive career related education and training.
If transportation and other infrastructure projects are quickly funded as well, we’re still not going to avoid some fairly significant economic pain, but getting money out into the real economy is absolutely essential if we’re going to avoid a complete disaster. It sure seems like we’re looking at a year or two of hard times, minimum, no matter what.
Another challenge is to come up with sensible regulations for the banking and wider financial sector so that the crooks and liars can’t get away with this again, at least in our lifetimes. And you have to do this while somehow sorting out the so-called credit freeze, which at times is described as easing in the traditional media and at times appears to still be a significant problem. This is another area where extra attention needs to be paid to Main Street, to make sure the myriad small and medium size businesses in our country can obtain the credit they need to operate.
The burst housing bubble and related mortgage scandal are huge factors here, and while finding ways to help folks keep their homes is an admirable goal, the best way to stabilize housing prices is to ensure ordinary folks can afford to buy them. Programs that offer relief to individuals facing foreclosure might be some help, and are certainly a humane idea, but defining which Americans get that relief is complicated and problematic in practice. I’m not saying it shouldn’t be done, I’m just suggesting that approach has obvious limitations.
The frightening thing for the new administration, and all Americans, is how many goals need to be achieved in short order.
Jon, the underlying problem is stagnant wages, and if our economic system fails to address that, inevitable consequences will follow.
About 70% of the U.S. economy is consumer spending. Most consumers are wage earners. Theoretically, in an economy where wages don’t grow, consumer spending can’t grow either.
But consumer spending did grow during the 38 years that real wages have been essentially frozen. How did that happen? Here’s how. Middle-class consumers first stopped saving, then spent their savings, then spent their home equity, then took on credit card and other consumer debt — all to maintain a lifestyle that was outpacing real incomes.
The problem isn’t simply that this debt-fueled consumer spending couldn’t go on indefinitely. The deeper problem is all that debt must be repaid. The millions of Americans who lived beyond their means for years and years now must dip into future income to pay what they owe. This, of course, will impair future consumer spending.
Consequently, there’s no way to avoid a contraction in consumer spending. Trying to avoid it by using deficit spending to keep companies and consumers afloat merely shifts the debt burden from private individuals to taxpayers. It’s still using debt to prop up an unsustainable level of consumption, and the longer we continue that behavior, the farther we’ll have to fall back to reality.
Sure, you can pay for government-funded bailouts by printing money (or its electronic equivalent). But that also creates inflation. And inflation not only destroys savings, it also accelerates wage destruction. People who lived through the ’70s know that in inflationary times, wages don’t keep up with inflation — they fall farther and farther behind, further eroding real purchasing power. Ultimately, inflation is just another form of debt — of an especially virulent and destructive kind. Feeding more bailout and stimulus money into the economy via deficit spending merely digs a deeper hole.
The plain truth is we’ll have to live through a period of consumer retrenchment while consumers dig themselves out of the debt hole. Lower consumer spending inevitably will mean fewer jobs. There’s no way around that.
Sending people to community colleges and retraining programs won’t reduce unemployment. Training more welders doesn’t create more welding jobs. If demand for welders doesn’t exist in the economy, you’ll merely have more unemployed welders. On the other hand, government spending on infrastructure and worker training — which creates more welding jobs and trains more welders at the same time — can boost overall employment, although at some point, in some fashion, you’ll have to deal with the increased government debt.
Long term, you can’t have economic growth without wage growth. You can’t have a rise in real living standards without a rise in real wages. Productivity isn’t the problem. The U.S. economy has made large productivity gains since 1970. The problem is, none of the increased output went to workers.
What happened is conservative political control of government labor and economics policy redistributed that wealth to the asset-owning classes. The public was falsely told some of that wealth would “trickle down” to the working/consuming classes. It didn’t. The result has been a maldistribution of resources. America is awash in capital. That’s why asset values — from real estate to stocks — got bid so high. The pool of capital grew much faster than the nation’s inventory of productive assets, resulting in too much money chasing too few assets. Meanwhile, the consumer side of the economy was starved of resources needed to sustain the consumer spending required to allow economic growth to continue.
The sitaution is analogous to a household that saves all of its income and uses it to accumulate productive assets, while spending nothing on consumption. Even, that household ends up with a large productive capacity that sits idle because there’s no demand for the consumer products its capable of producing. Sort of like a farmer putting all his money into cheesemaking machinery that makes no cheese because no one is eating cheese. That’s what America’s economy has become — too much money going to the capital and not enough to labor results in consumption below what the capital assets are capable of producing.
Therefore, the long-term solution to America’s economic woes lies in correcting the imbalance of distribution of national economic output between capital and labor. Tax policies that favor excess accumulation of capital and punish work must be changed. CEO compensation must come down, and workers’ wages must go up. In the postwar period before 1970, the economy grew rapidly and everyone prospered together. After wingnut ideology skewed economy policy in favor of the rich things rapidly went downhill. If we want to be prosperous again, we have to stop letting wingnut ideology distort our tax and economic policies.
It’s a mess but I’ve noticed when it’s time to clean up a mess, bailout time, someone has to get a haircut. In the case of Freddie and Fannie, it was the shareholder – they ended up bald for life. Sucked for them but them’s the breaks.
So who get the haircut? I say we all take it. Start when things got out of control in 2002/2003 and reset valuations to those price levels. Primary residences only. Flippers lose. Prices come down to a sane level so people can like, you know, actually afford to own a home?
Local governments will have to make up for lost property tax revenues with a combo of tax increases and spending cuts.
Tall order.
Great article. Starts a little slow but gets really good, really fast.
http://www.portfolio.com/news-.....Boom#page1
A Different Take
What went poof .. the air in this bubble — was not anything as solid as house prices or as ephemeral as silk hatted capitalists, what went poof is the myth that “money” itself is productive.
Our economy has depended for decades on the weird idea that buying stocks was the same thing as investing in companies we “bought.” Of course, this was rarely true. If I bought $100,000 of GM five years ago. those shares had no effect on GM’s ability to business unless GM diluted my value by selling more shares. The stockholder may have gotten richer but GM’s change in capitalization, i.e. its newt worth, was not in parallel with its ability to invest.
If that sort of idea is too obvious, things got a lot worse under Clinton and Bush when the awesome ideas of securitization, hedge funds, and derivatives replaced stocks and bonds as the best way of investing. These three horsemen of our apocalypse have one thing in common .. they equate productivity with the ability of money to make itself. Underlying this elegant fantasy is the scary idea that an economy can grow with NO investment in “real” goods or services. This was a bubble without even the thin skin of some real value in tulips or Internet real estate.
OK. I am not an economist but if I am correct, the fix for this crisis is … deflation! We need, in effect, to revalue money to better reflect its productivity. Krugman’s ideas seem to me, just like Jon Devore’s, to do just that.
The criteria for our stimulus should be very simple … does this investment increase our productivity? We need to act more like Sweden, Japan or China by thin king of the US as one big corporation and choose investments that benefit our competitiveness.
What does this mean?
1. We do NOT lower taxes or give rebates so folks can buy more Chinese prom gowns.
Sure this will make jobs at Wall Mart, but Wall Mart does not add value to our productivity so, in the long run those jobs are not helpful
Nonetheless, no long term investment will help if we slip into a deep recession. That means we need to under gird the safety net .. unemployment, job retraining, universal health care, tuition relief are all urgent needs.
.
2. We do NOT prevent companies form becoming bankrupt.
Bankruptcies in this country can be manged very well since the courts have the ability to restructure rather than destroy. I like the idea of using Fed funds to help with the restructuring. E.g. lets let GM go toes up and restructure it to cut it excessive number of brands and build a better structure for high tech competition for efficient cars.
A key part of this is moving to world standards for government, rather than employer, based health care and retirement programs. As painful as it might be, the new GM ought no longer to function as a pension plan for its ex workers.
3. We DO spend money on infrastructure.
Here in the NW, we ought to build 1-605 … a new, rural highways from Vancouver to Portland and upgrade passenger rail to bullet train status.
The entire US rail system, power grid, water distribution system is ripe for reconstruction.
4. We DO invest in high end education.
I am less than enthusiastic about spending money on community colleges. Like a tax refund, this sort of activity does help individuals but it does not provide a long term increase in productivity.
It would be asinine to give up the intellectual leadership offered by our top schools in an era where intellectual property may be our best investment.
5. We DO fix the effin immigration laws.
Americans ought to be able to compete for entry level wages and construction jobs while the best of world talent continues to come here to work for the US and become citizens of the world’s greatest multiethnic society.
The Kennedy McCain Act needs to be reintroduced ASAP.
6. We DO invest in alternatives to suburbia.
The hidden costs of living in Issaquah and working in Redmond are nuts. Toll roads and light rail provide incentives for people to live closer together AND preserve green space.
7. We DO cut our military.
Past recessions have been solved by wars. This one will not be for the simple, cold reason that there is no large war we can win.
Money invested in Americans defending Australia from Indonesia or containing Russian imperialism would be far more effective building our own economy. This implies we need to return to the 1880s model of a balance of power by building alliances rather than trying to dominate the whole world.
8. We DO invest in key technologies.
Most of the growth in real productivity since WWII has been in technologies that began as government investments. Radio and TV began with RCA .. a government initiative. The Internet began as a DARPA project. Satellites grew out of the competition between the USSR and the USA to throw military stuff into orbit. Modern agriculture began in government funded genetics labs.
This does not mean we need phony pseudo wars that can not be won either. A war on energy, as one example, is inane because much of what the candidates promised is in a league with Reagan’s Star Wars initiative.
There are, however, clear opportunities for investments in biotech. The USA has frittered away a huge amount of IP by having too little government support for technology development. The genome project alone offers immense opportunities we can not profit from because the US lacks funding for long term enterprises as opposed to 3-5 year corporate projects.
Much the same is true of energy technology. Our need is only partially for basic science support and more for funds that allow American firms to undertake projects where pay off may be ten years or more in the future.
@2 “I say we all take it.”
To some extent, yes. I can’t expect my burrow to be worth some inflated value beyond its fair market value. If that means prices have to come down, so be it. That’s fair. Homes aren’t investments anyway. They’re for living in.
On the other hand, why should I pay other people’s debts? I repaid all of my loans with interest — from hard-earned wages. Why should the responsible be taxed to give the irresponsible a free ride?
This mess was created by reckless lenders and borrowers. They should both take a hit. The lenders should go out of business, their executives and brokers should be fired, and their shareholders should lose their investments. Borrowers should not get off the repayment hook.
And any the industry is to be bailed out with public money, then taxpayers should get a share of future profits until they’re reimbursed, and the industry should be subjected to more regulation so it doesn’t happen again.
@4 SJ, while I agree with much of what you say, diplomacy can’t replace military hardware or manpower. The world’s Hitlers, Stalins, and tinpots will brush off any diplomacy that you can’t back up. Nothing makes a troublemaker become reasonable faster than parking an aircraft carrier or two off his coast. Also, global trade depends on keeping the sea lanes open, and you need military power to do that.
That said, there’s plenty of waste in our military spending that can be identified and eliminated.
@6 Security is not enhanced by bankruptcy.
We are a small part of the world’s population and a shrinking part of the global GDP. Massive spending on a unilaterlist role for the USA in not practical.
Currently the only Hitlerish treat to the world is Islamofascism. If contatining that threat is our goal, we sure as hell are doing so in an inefficient manner. We need an alliance with other relevant powers willing to work for peace in that area.
To all–
Great thread to this point. Wow. Plenty of meaty arguments to mull over. Thanks everyone.
@1–I completely agree about real wages.
@2-An interesting thought but I’m not sure that could be done. The way I understand it we’re likely headed there anyhow.
@4–I’m pro-investment in education at all levels, generally speaking. The community colleges are likely more vital in areas without great access to four year and post graduate institutions. Historically Clark Co. was like that, although WSU-Vancouver has grown quite a bit. But yes, high tech economy needs highly educated citizens.
Training for ‘high-tech’ jobs doesn’t do any good if those jobs are filled by H1-B visa workers. Training for ‘high-tech’ jobs making more word processors or video editors or VistaLonghorn0SXX, doesn’t make sense if folks can’t afford to buy those things because they are out of work.
It’s been 30 years of bi-partisan kicking the middle class down, and it’s going to take some big ideas to stop before there’s rioting in the streets.
One idea would be to encourage more small, organic farms, by offering a Homestead style act for folks to move to places like Kansas, get training and start making food in a less energy wasting manner than current high tech, industrial food processing.
US investment in solar power and other technologies would be good, but it might run afoul of the WTO.
http://www.alternet.org/audits.....age=entire
@8 Jon
Please understand, I am in support of retraining dollars BUT these are less of in investment than a short term strategy similar to unemployment insurance.
Historically, recession have usually been solved by investments that end up creating jobs .. the easiest of which has sadly been wars. If we are not going to have a war, then we need to do something war-like in scale and war-like in its ability to generate productivity.
The easiest targets are infrastructure and “high” ed. By high I do not only mean grad school. Hi Ed also means improving how we train and recruit kids in high school. If it were up to me, every kid in the US would have access to an elite high school if she has the ability to get in and stay in. The goal is to produce as many Bill Gates and Barack Obamas as we can.
Back at the community colleges, beyond a jobs program, a better investment vehicle is improving their interactions with high schools… it is dumb to delay voc ed till CC and CC can offer “high: ed to high school kids as well.
@9 kirk
I beg to disagree.
“We” are not just those born here, “we” are and have been an immigrant society. The idea that these folks drive wages down sounds good but I have never seen data that it is more than an urban myth.
As for the organic farms .. I call BS. We want investment that improves our overall productivity. That is NOT done by subsidizing niche farming. If anything, we should be looking at ways to improve our national farming efficiency in times of climate change.
Finally, the idea that an investment in solar power is worthwhile is true .. just as with tides or wind, only if we can create a comeptive resource. Al Gore’s argument that we need to first create the power grid able to distribute energy makes a lot of sense to me.
Building hundreds of nuc plants, assuming we have the grid, makes sense but only if we also spend money on the infrastructure to transport the fuel. I suspect Yucca mountain is safe but the effin trains used to get glow in the dark material there are not.
Finally, the cheapest source of new energy is exactly what BHO has said … conservation. The US is among the least efficient societies on Earth. Perhaps the simplest step is to de-incentivize suburban living. I would betcha 20 Palinsta Dollars that the energy expended in commuting in LA exceeds the oil we can get from drilling in Anwar AND conservation is a renewable resource!
One of the things we need to do is to reassure our children that an investment in education and/or technical training will pay off in the long run.
My own kids are in their early 20’s, and I’m seeing a troubling sense of dispair in their generation about the future economy. Many of them consider a college education to be a waste of time and money since under current salary levels it may take them two or three decades to pay off their student loans. Most of them know fellow classmates who got degrees but are now working retail, just like them.
Likewise, a lot of young people who might be interested in technical careers are less likely to invest the time and energy to learn those skills when they see their parents, friends of parents, etc. being laid off as their jobs get outsourced.
And even among those going on to college, there’s a feeling that even with an incredible amount of hard work, increasing education and skill levels, and devotion to the company, their job could quickly end with a merger to another company.
Many of them feel like they are trying to make progress against hurricane-force winds while on a life raft and using a plastic spoon as a paddle.
Just as investors need some stability in the marketplace to encourage investment, and consumers need stability in the economy to encourage them to take risks such as buying homes or cars, our young people need stability in the job market in order for them to take the risk of investing in their own careers.
@12 rhp
Unfortunately to be competitive means you need to rule out featherbedding. The best I think you can do is to encourage investment and expand the job pool.
In part this is also related to a socialist (gasp) idea that “we” run the economy for OUR benefit. It is OK to help the rich get filthy rich if and only iff the rich actually invest and do so here.
This means removing the idiocy of the Reagan trickle down zoodoo tax policies and replacing them with a policy that incentives productivity rather than mere accumulation of wealth.
One idea I think is worthwhile is to encourage companies to pay dividends rather than raise their share prices. Ironically this may mean that increasing the capital gains tax and lowering dividend taxes is a good thing.
Well gee whiz. I always look for bankrupt companies with horrible management to invest my personal savings in and you should too. Hey I have an idea. Let’s all get together and form a pool of say oh, something like $700 billion, to buy non-voting shares in the biggest, most poorly managed companies we can find. Of course buying non-voting (Preferred) shares just adds to the fun since we’ll have no say in what they do with our investment. Why they just might use it to give themselves bonuses for being smart enough to sucker us into the deal in the first place. Just look at it like sort of a finders fee. Snark-snark.
We do need niche farming and other niche industries because helping people form small businesses is what creates jobs. Creating subsidies for large companies to be ‘efficient’ when they efficiently send jobs overseas or don’t pay taxes because they are based in some island somewhere doesn’t help the broad broken base of the society.
H1B visa folks is not the same as encouraging immigrants. They are more like indentured servants that are tied to one company. Spouses and children of the H1B workers can’t work here; creates a problematic class of folks who may have US citizen children but can’t get divorced because they can’t work legally in the US.