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The powers that be have to be optimistic. That is a prerequisite for growth. In fact, the real powers (CEO's and boards of the big corporations) are pessimistic

by sprout 16y ago

The powers that be have to be optimistic. That is a prerequisite for growth. In fact, the real powers (CEO's and boards of the big corporations) are pessimistic, and therefore the economy is in danger of dying. The whole thing is largely psychological. It's not like we actually have crumbling infrastructure that would be difficult to repair; it's just that the social structures (money, corporations, banks, government) we have in place are not properly arranged to spur allocation of wealth to new projects. So I find all this naysaying essentially to be a self-fulfilling prophecy. It's entirely in our collective minds that we can't build enough for everyone to be prosperous. Naturally, it's a real problem, but when people say that specifically the stimulus money is "phony" it seems very myopic. It's all phony. The question is, how do we convince ourselves it's real, and how can we harness that?

hga 16y ago
Well ... let me just comment that it's long nasty times like this that force the reallocation of capital to areas that can use it. It's particularly long and nasty when the bubble is leverage based (as compared to the dot.com crash which did no lasting direct damage), since deleveraging is so painful and dangerous. The real trick is to negotiate the crisis. Spain didn't and they've been poor for centuries. I don't think the Japanese did and I suspect they truly are dying (in a very literal sense, I will be surprised if they still exist as a nation by the end of this century and demographically there well be none left by the end of the next). The Netherlands managed (don't know that history well). Great Brittan may have depending on how you score it, as I recall it took 100 years.... We did, but it took WWII to pull us out of our tailspin; who knows what would have happened without that?
dantheman 16y ago
It's not all psychological, the problem is that massive amounts of capital have allocated to the wrong uses - building 100 homes, when only 50 were needed or building a factory that produces 10,000 items when only 5,000 are needed. Unfortunately do to all the interference in the market no one is sure what the correct prices are and hence what the actual demand is and what is and isn't profitable. Adding to this all the messiness of new insurance laws, etc it becomes very hard to predict what the next correct move will be so instead people save their cash until they know what to do. The way we find out what is real is by seeing what people will buy at what price and letting everyone go bankrupt who can't pay their bills. This will depress the costs of goods until demand picks up. For instance, everyone thinks their house is worth probably 30 - 40% than it is. So they refuse to sell at lower prices, keeping inventory off the market. Thus no one is buying houses since the asking price is too high. Housing is tough one because it takes forever for the prices to adjust back to normal, but everywhere this type of effect can be seen.

by sprout 16y ago

hga 16y ago

Well ... let me just comment that it's long nasty times like this that force the reallocation of capital to areas that can use it. It's particularly long and nasty when the bubble is leverage based (as compared to the dot.com crash which did no lasting direct damage), since deleveraging is so painful and dangerous. The real trick is to negotiate the crisis. Spain didn't and they've been poor for centuries. I don't think the Japanese did and I suspect they truly are dying (in a very literal sense, I will be surprised if they still exist as a nation by the end of this century and demographically there well be none left by the end of the next). The Netherlands managed (don't know that history well). Great Brittan may have depending on how you score it, as I recall it took 100 years.... We did, but it took WWII to pull us out of our tailspin; who knows what would have happened without that?

dantheman 16y ago

It's not all psychological, the problem is that massive amounts of capital have allocated to the wrong uses - building 100 homes, when only 50 were needed or building a factory that produces 10,000 items when only 5,000 are needed. Unfortunately do to all the interference in the market no one is sure what the correct prices are and hence what the actual demand is and what is and isn't profitable. Adding to this all the messiness of new insurance laws, etc it becomes very hard to predict what the next correct move will be so instead people save their cash until they know what to do. The way we find out what is real is by seeing what people will buy at what price and letting everyone go bankrupt who can't pay their bills. This will depress the costs of goods until demand picks up. For instance, everyone thinks their house is worth probably 30 - 40% than it is. So they refuse to sell at lower prices, keeping inventory off the market. Thus no one is buying houses since the asking price is too high. Housing is tough one because it takes forever for the prices to adjust back to normal, but everywhere this type of effect can be seen.