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I've heard it said (and I don't know how true it is) that during the Reagan (I think) administrations, they "convinced more than half of the people that they we

I've heard it said (and I don't know how true it is) that during the Reagan (I think) administrations, they "convinced more than half of the people that they were in the top 50%", meaning that people began to think of themselves as more well-off than they actually were, and started spending more than saving. I have no idea if that's accurate, but it's an interesting thought. For the economy overall, it's probably best if everyone buries themselves as far into debt as they can, because it increases spending tremendously. Max out credit cards, buy as much "stuff" as possible (cars, real estate, college degrees, whatever). The problem is that when the first real bump in the road comes along, suddenly most people are leveraged to the hilt and can't absorb the hit. And it feels like as long as I've been conscious (and maybe longer, who knows), we've been in this cycle of "easy money, spend spend spend" followed by "crap, bubble". Sure there's money to be made on the upside, but there's even more to lose on the way down.

jsprogrammer 11y ago
Unfortunately, under currently dominant monetary regimes, such outcomes are entirely predictable and inevitable. Edit: Ok, I had a nice reply to someone, but then their comment was deleted, meaning my comment had nowhere to go. I'll put it below. --- >[Deleted Comment] Unfortunately without further information on your part is hard to know if you have deep insights, carefully thought out, or it is just a naive cynic comment like those that abound all over the internet. It is a fair point. Unfortunately, any given text posted on the Internet is unlikely to be read much or given much credence by the few that do read it. Therefore, I try not to waste my time expositing large amounts of English text. I don't know if I have deep insights. I do know that most seem to have no idea of the basic mechanism of the dominant monetary regimes and that such a mechanism easily explains many of the "bad things" which occur in the economy. For example, it's just a fact that debt must rise (assuming non-decreasing population and many other "standard assumptions"). >it's probably best if everyone buries themselves as far into debt as they can This is basically the only possibility, except that the debt isn't forced to be spread uniformly. Instead, debt accumulates in regions. The steady state is basically: banks hold interest stakes in all debt, perpetually. Banks survive, while everyone else must deal with the wake forced on them by the massive amount of debt product which the banks produce.
- JonFish85 11y ago
  I completely agree, and I find it an interesting contrast of the current political feelings of protecting the middle/lower classes (I don't know what the acceptable term for "lower class" is). College cost Problem: college needs to be more affordable for lower-class kids Solution: give them cheap loans to go. End result: college prices rise because there's no downward pressure, kids graduate with enormous loans, and we're having this same conversation ("how can we stimulate spending?"). Housing Problem: the poor can't afford housing. Solution: Legislate it such that the poor can get access to loans to buy housing, with the government (really, society at large) subsidizing the cost. End Result: Housing prices rise because loans are cheap, people get loans they can't afford, eventually people default on loans, pushing costs of loans up, the poor can't afford to buy housing. Cycle repeats. This is where the conservative side of me thinks that government intervention really pushes this cycle along faster and faster, and makes things worse and worse (with the best of intentions). I think it was in the 90s that suddenly it became politically smart to think that "everyone should be able to own their own home", which sounds great on the surface, but there's so much more to it than a simple quote.
  - eldavido 11y ago
    I very much believe that housing and education are necessities, and that builders and colleges, if the screws were turned to them more, would find ways to cut costs and make things more broadly affordable. I don't think throwing tons of debt at the problem fixes anything long-term. Right or not, you'll get killed expressing that thought (no matter how well-intentioned) as a politician.
    - JonFish85 11y ago
      Who is going to hold the screws to them? As it's set up currently, costs have been rising for 30 years at insane rates. I know I'm biased because I've been in Boston for quite some time (it's probably different elsewhere), but all of the colleges in the area have been spending money on completely non-academic things. Building elaborate new dorms & cafeterias, immaculate landscaping, bringing in various pop stars for campus events. None of it moves the needle on "education", but it for damn sure enriches the colleges. Speaking for my own alma mater, they spent $8m/year to lure the president away from a California school, because he's apparently very good at luring in sponsorships/donations from alumni (I never really understood WTF that meant). Then the college paid ~$10m for him to have a house in the "hip" part of the city. On top of that, the university spent many millions building new dorms with sushi bars and excellent views. The costs rose a steady 4-5% a year while I was there, and I believe it's been at that clip for decades now. Sure, you can make the argument that it's to pay for their investments, but remember that the university also received in the neighborhood of $100m to rename an existing building on campus. And of course don't forget the monthly phone calls to solicit donations "for the students of tomorrow". Unfortunately I think that the idea of everyone feeling that they are "above average" feeds into this--kids who can't afford it really, really want to go to this school. And subsidized loans make it very possible for people to borrow $65k a year to do it. It's a vicious cycle, because as prices rise, the more it seems that politicians want to make it easier for kids to go to any college they want to. Unfortunately I don't really know of a good way to stop people from making dumb decisions. There aren't many careers that can pay off $150-$200k in loans in any reasonable amount of time, and I'm not sure that it would work out well for the government to step in and say that you can't borrow more than $X for college from any source.
hvs 11y ago
If you drink too much at night, you'll get a hangover in the morning. The same is true of spending and debt.
- wdmeldon 11y ago
  Well that doesn't bode well. I've personally never learned anything from a hangover.
  - collyw 11y ago
    Nothing about your tollerance to alcohol?
- a3voices 11y ago
  That's true if the capital is misallocated. Spending and debt can greatly increase a country's well-being if used effectively.
  - AnimalMuppet 11y ago
    If. There's three kinds of debt. One is corporate. A company took on debt to buy some equipment. That can be mis-investment, but it's usually pretty good. Second, there's personal debt. That counts both mortgages (usually worthwhile, unless you buy more house than you need) and stuff like credit card debt, where you're still paying for Christmas five years later. So, some is worthwhile, some not so much. Third, there's government debt. This can be used effectively to create infrastructure. The problem is, though, that it's allocated not by a careful cost/benefit analysis. Instead, it's allocated by politicians. This kind of debt therefore has the highest propensity to be sheer waste.
    - a3voices 11y ago
      Well, there's some situations where it is so obvious to use debt that you don't need a cost/benefit analysis. For example, let's say you discover a large deposit of gold on land you own. You could use debt to buy the mining equipment to mine the gold. Another example is if terrorists demolished all the bridges between Manhattan and Brooklyn. The government doesn't need a cost/benefit analysis to decide to use debt to rebuild some bridges.
eldavido 11y ago
For an apt comparison, take 9 of your friends out to dinner and agree upfront that everyone will split the bill proportionally 1/10th. Watch how people think about spending, it really changes their utility calculus, from "Is this piece of cake worth $5" to "Is this piece of cake worth my 1/10th share of $5, or 50 cents?" Problem: everyone thinks that way, leading to a lot of wasteful spending, where "Wasteful" is defined as, "Things I wouldn't buy if I was paying for it myself". Related: China is in the late stages of a credit-driven investment bubble where tons of construction (roads, houses, trains, dams) have been built. It's an open question whether it was "worth it", it probably produced a lot of construction jobs, perhaps some good infrastructure, and spread trade knowledge throughout the economy, but at a huge cost to their taxpayers.
- cmsmith 11y ago
  On the other hand, I wouldn't pay to build a road 10m long from my front door if I couldn't count on 100,000 of my neighbors to do the same so that I could get to work. And if I work for Ford, I'm not going to buy an iPad if I don't think that Apple engineer is going to turn around and buy a car.
  - deleted 11y ago
    [deleted]
  - Jtsummers 11y ago
    > And if I work for Ford, I'm not going to buy an iPad if I don't think that Apple engineer is going to turn around and buy a car. What? I don't make anything that you will buy. I can guarantee it. So why should I buy your products if you won't buy mine. That makes no sense. The way money works, it doesn't matter who is buying from who, only that things are being bought.
    - sp332 11y ago
      But each person participating has to at least make a living, so it's circular to some extent (even if the circle is pretty long).
angelbob 11y ago
Yeah, that'd definitely be the Reagan administration you're thinking of. The UK was doing something similar at roughly the same time under Thatcher, or so I've heard. That era was famous for its very-indebted Yuppies (and the origin of the idea of "Yuppies" as we think of them.) Some of this can't be blamed on the politicians. Easy credit and the rise of credit cards generally did a lot for this. But politicians did get to decide how credit regulations worked. It took awhile to outlaw live (not pre-approved -- you could pick them up and just use them!) credit cards arriving at people's houses, for instance. You could literally steal one out of somebody's mailbox and go rack up money in their name. Not any more, obviously. But they lasted longer than you'd think. Credit was pushed very hard at consumers, and politicians do control the extent to which that's legal, even if they're not really to blame for it being possible.
- jsprogrammer 11y ago
  >Credit was pushed very hard at consumers, and politicians do control the extent to which that's legal, even if they're not really to blame for it being possible. Credit must be pushed hard. Credit is the origin of money, under these systems. Credit must expand so that the periodical interest obligations can be met by those with existing credit obligations. When credit no longer expands at a sufficient rate, the systems enter contractions, which will quickly end the system, unless credit expands enough to save the system for a while longer.
- ckinnan 11y ago
  Incorrect. Reagan's 1986 tax reform actually eliminated the tax deductibility of credit card debt. While U.S. household debt did increase in the 1980s, it grew much more rapidly during the 1990s and first half of 2000s.
  - angelbob 11y ago
    Not sure which bit you're saying "incorrect" to. But okay. Are you arguing with "the era was famous for indebted Yuppies", then?
7Figures2Commas 11y ago
> ...we've been in this cycle of "easy money, spend spend spend" followed by "crap, bubble". Sure there's money to be made on the upside, but there's even more to lose on the way down. I'm sure this comment will be downvoted, but there's just as much if not more money to make on the way down. When people, companies and governments take on too much debt, and capital is misallocated, incredible opportunities to profit are created.
- hsitz 11y ago
  Yes, should probably be downvoted. The fact that a small minority can profit greatly in a downturn has virtually nothing to do with the question of how best to grow the economy.
  - 7Figures2Commas 11y ago
    I can assure you that you don't have to be a member of the the 0.1% to profit in a downturn. If you can buy shares of stock and call options, you can short shares of stock and purchase puts. Of course, you'll never win much sympathy profiting from sanity. If you want sympathy, help "grow the economy" by leveraging yourself to the hilt and blaming evil bankers when your debt catches up to you. But please recognize that you're not really growing the economy; you're just mortgaging your future.

jsprogrammer 11y ago

Unfortunately, under currently dominant monetary regimes, such outcomes are entirely predictable and inevitable. Edit: Ok, I had a nice reply to someone, but then their comment was deleted, meaning my comment had nowhere to go. I'll put it below. --- >[Deleted Comment] Unfortunately without further information on your part is hard to know if you have deep insights, carefully thought out, or it is just a naive cynic comment like those that abound all over the internet. It is a fair point. Unfortunately, any given text posted on the Internet is unlikely to be read much or given much credence by the few that do read it. Therefore, I try not to waste my time expositing large amounts of English text. I don't know if I have deep insights. I do know that most seem to have no idea of the basic mechanism of the dominant monetary regimes and that such a mechanism easily explains many of the "bad things" which occur in the economy. For example, it's just a fact that debt must rise (assuming non-decreasing population and many other "standard assumptions"). >it's probably best if everyone buries themselves as far into debt as they can This is basically the only possibility, except that the debt isn't forced to be spread uniformly. Instead, debt accumulates in regions. The steady state is basically: banks hold interest stakes in all debt, perpetually. Banks survive, while everyone else must deal with the wake forced on them by the massive amount of debt product which the banks produce.

JonFish85 11y ago
I completely agree, and I find it an interesting contrast of the current political feelings of protecting the middle/lower classes (I don't know what the acceptable term for "lower class" is). College cost Problem: college needs to be more affordable for lower-class kids Solution: give them cheap loans to go. End result: college prices rise because there's no downward pressure, kids graduate with enormous loans, and we're having this same conversation ("how can we stimulate spending?"). Housing Problem: the poor can't afford housing. Solution: Legislate it such that the poor can get access to loans to buy housing, with the government (really, society at large) subsidizing the cost. End Result: Housing prices rise because loans are cheap, people get loans they can't afford, eventually people default on loans, pushing costs of loans up, the poor can't afford to buy housing. Cycle repeats. This is where the conservative side of me thinks that government intervention really pushes this cycle along faster and faster, and makes things worse and worse (with the best of intentions). I think it was in the 90s that suddenly it became politically smart to think that "everyone should be able to own their own home", which sounds great on the surface, but there's so much more to it than a simple quote.
- eldavido 11y ago
  I very much believe that housing and education are necessities, and that builders and colleges, if the screws were turned to them more, would find ways to cut costs and make things more broadly affordable. I don't think throwing tons of debt at the problem fixes anything long-term. Right or not, you'll get killed expressing that thought (no matter how well-intentioned) as a politician.
  - JonFish85 11y ago
    Who is going to hold the screws to them? As it's set up currently, costs have been rising for 30 years at insane rates. I know I'm biased because I've been in Boston for quite some time (it's probably different elsewhere), but all of the colleges in the area have been spending money on completely non-academic things. Building elaborate new dorms & cafeterias, immaculate landscaping, bringing in various pop stars for campus events. None of it moves the needle on "education", but it for damn sure enriches the colleges. Speaking for my own alma mater, they spent $8m/year to lure the president away from a California school, because he's apparently very good at luring in sponsorships/donations from alumni (I never really understood WTF that meant). Then the college paid ~$10m for him to have a house in the "hip" part of the city. On top of that, the university spent many millions building new dorms with sushi bars and excellent views. The costs rose a steady 4-5% a year while I was there, and I believe it's been at that clip for decades now. Sure, you can make the argument that it's to pay for their investments, but remember that the university also received in the neighborhood of $100m to rename an existing building on campus. And of course don't forget the monthly phone calls to solicit donations "for the students of tomorrow". Unfortunately I think that the idea of everyone feeling that they are "above average" feeds into this--kids who can't afford it really, really want to go to this school. And subsidized loans make it very possible for people to borrow $65k a year to do it. It's a vicious cycle, because as prices rise, the more it seems that politicians want to make it easier for kids to go to any college they want to. Unfortunately I don't really know of a good way to stop people from making dumb decisions. There aren't many careers that can pay off $150-$200k in loans in any reasonable amount of time, and I'm not sure that it would work out well for the government to step in and say that you can't borrow more than $X for college from any source.

hvs 11y ago

If you drink too much at night, you'll get a hangover in the morning. The same is true of spending and debt.

wdmeldon 11y ago
Well that doesn't bode well. I've personally never learned anything from a hangover.
- collyw 11y ago
  Nothing about your tollerance to alcohol?
a3voices 11y ago
That's true if the capital is misallocated. Spending and debt can greatly increase a country's well-being if used effectively.
- AnimalMuppet 11y ago
  If. There's three kinds of debt. One is corporate. A company took on debt to buy some equipment. That can be mis-investment, but it's usually pretty good. Second, there's personal debt. That counts both mortgages (usually worthwhile, unless you buy more house than you need) and stuff like credit card debt, where you're still paying for Christmas five years later. So, some is worthwhile, some not so much. Third, there's government debt. This can be used effectively to create infrastructure. The problem is, though, that it's allocated not by a careful cost/benefit analysis. Instead, it's allocated by politicians. This kind of debt therefore has the highest propensity to be sheer waste.
  - a3voices 11y ago
    Well, there's some situations where it is so obvious to use debt that you don't need a cost/benefit analysis. For example, let's say you discover a large deposit of gold on land you own. You could use debt to buy the mining equipment to mine the gold. Another example is if terrorists demolished all the bridges between Manhattan and Brooklyn. The government doesn't need a cost/benefit analysis to decide to use debt to rebuild some bridges.

eldavido 11y ago

For an apt comparison, take 9 of your friends out to dinner and agree upfront that everyone will split the bill proportionally 1/10th. Watch how people think about spending, it really changes their utility calculus, from "Is this piece of cake worth $5" to "Is this piece of cake worth my 1/10th share of $5, or 50 cents?" Problem: everyone thinks that way, leading to a lot of wasteful spending, where "Wasteful" is defined as, "Things I wouldn't buy if I was paying for it myself". Related: China is in the late stages of a credit-driven investment bubble where tons of construction (roads, houses, trains, dams) have been built. It's an open question whether it was "worth it", it probably produced a lot of construction jobs, perhaps some good infrastructure, and spread trade knowledge throughout the economy, but at a huge cost to their taxpayers.

cmsmith 11y ago
On the other hand, I wouldn't pay to build a road 10m long from my front door if I couldn't count on 100,000 of my neighbors to do the same so that I could get to work. And if I work for Ford, I'm not going to buy an iPad if I don't think that Apple engineer is going to turn around and buy a car.
- deleted 11y ago
  [deleted]
- Jtsummers 11y ago
  > And if I work for Ford, I'm not going to buy an iPad if I don't think that Apple engineer is going to turn around and buy a car. What? I don't make anything that you will buy. I can guarantee it. So why should I buy your products if you won't buy mine. That makes no sense. The way money works, it doesn't matter who is buying from who, only that things are being bought.
  - sp332 11y ago
    But each person participating has to at least make a living, so it's circular to some extent (even if the circle is pretty long).

angelbob 11y ago

Yeah, that'd definitely be the Reagan administration you're thinking of. The UK was doing something similar at roughly the same time under Thatcher, or so I've heard. That era was famous for its very-indebted Yuppies (and the origin of the idea of "Yuppies" as we think of them.) Some of this can't be blamed on the politicians. Easy credit and the rise of credit cards generally did a lot for this. But politicians did get to decide how credit regulations worked. It took awhile to outlaw live (not pre-approved -- you could pick them up and just use them!) credit cards arriving at people's houses, for instance. You could literally steal one out of somebody's mailbox and go rack up money in their name. Not any more, obviously. But they lasted longer than you'd think. Credit was pushed very hard at consumers, and politicians do control the extent to which that's legal, even if they're not really to blame for it being possible.

jsprogrammer 11y ago
>Credit was pushed very hard at consumers, and politicians do control the extent to which that's legal, even if they're not really to blame for it being possible. Credit must be pushed hard. Credit is the origin of money, under these systems. Credit must expand so that the periodical interest obligations can be met by those with existing credit obligations. When credit no longer expands at a sufficient rate, the systems enter contractions, which will quickly end the system, unless credit expands enough to save the system for a while longer.
ckinnan 11y ago
Incorrect. Reagan's 1986 tax reform actually eliminated the tax deductibility of credit card debt. While U.S. household debt did increase in the 1980s, it grew much more rapidly during the 1990s and first half of 2000s.
- angelbob 11y ago
  Not sure which bit you're saying "incorrect" to. But okay. Are you arguing with "the era was famous for indebted Yuppies", then?

7Figures2Commas 11y ago

> ...we've been in this cycle of "easy money, spend spend spend" followed by "crap, bubble". Sure there's money to be made on the upside, but there's even more to lose on the way down. I'm sure this comment will be downvoted, but there's just as much if not more money to make on the way down. When people, companies and governments take on too much debt, and capital is misallocated, incredible opportunities to profit are created.

hsitz 11y ago
Yes, should probably be downvoted. The fact that a small minority can profit greatly in a downturn has virtually nothing to do with the question of how best to grow the economy.
- 7Figures2Commas 11y ago
  I can assure you that you don't have to be a member of the the 0.1% to profit in a downturn. If you can buy shares of stock and call options, you can short shares of stock and purchase puts. Of course, you'll never win much sympathy profiting from sanity. If you want sympathy, help "grow the economy" by leveraging yourself to the hilt and blaming evil bankers when your debt catches up to you. But please recognize that you're not really growing the economy; you're just mortgaging your future.