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I'm not an economist, but here's my view from the ground: 1. High unemployment, preventing consumption 2. High debt load (student, home, credit card) for prim

I'm not an economist, but here's my view from the ground: 1. High unemployment, preventing consumption 2. High debt load (student, home, credit card) for prime age consumers, preventing consumption 3. Low wages and stagnant wage growth for prime age consumers, preventing consumption 4. Low job stability, leading to cash-in-mattress, preventing consumption 5. Low worker actualization and agency, leading to more time and energy spent at work, preventing consumption 6. Long term poor access to wealth-building financial instruments for most people, reducing accumulated wealth over time, reducing consumption So as you can see, my opinion is that consumption is weak because people don't have enough money. The WSJ article has a small paragraph about tepid consumer spending, so I guess we agree there. Aside from these core issues, I'd also speculate that a tremendous quantity of money is trapped in financial instruments. If it's in a financial instrument, it isn't exactly employing people or building goods or creating demand for goods. The same could be said about the billions of dollars held close to the chest by the oligarchy. There's a huge opportunity here to have a government public works program or some other major initiative to mobilize the underclasses, but it won't be taken. None of these issues are specific to Q1 2015, and they won't be fixed in Q2, Q3, or Q4.

randomname2 11y ago
An interesting analysis at http://charleshughsmith.blogspot.com/2015/05/us-households-under-pressure-stagnant.html http://charleshughsmith.blogspot.com/2015/05/us-households-u... echoes these observations, concluding "How do you support a consumer economy with stagnant incomes for the bottom 90%, rising basic expenses and crashing employment for males ages 25-54? Answer: you don't."
- humanrebar 11y ago
  Why can't hiring people be cheaper? 1. Get rid of the minimum wage. It makes as much sense as rent control... none. 2. Help out the needy by introducing a minimum income and/or an aggressive earned income tax credit. 3. Everyone knows kids are expensive. They shouldn't be. Scale 2 according to household size. 4. Set the levels of 2 high enough that citizens can pay their own taxes (both halves of the pension tax) and buy their own benefits (disability, health, life, 401k 'matching', etc.). ...watch the number of entry-level jobs explode and the demand for robotic work tank (like McD's filling sodas with robotics). Side benefits: A. Small companies will be better able to compete with big companies with employment lawyers and HR departments. B. Bootstrapping and entrepreneurship becomes more viable. C. Corporations lose some of their relative power due to A and B.
  - ryanobjc 11y ago
    "You must not be from around here, are you?" The problems with the suggestions here is #1 and #2 are both vigorously defended by different parties. So your proposal is a no-go politically. The Dems won't lower or get rid of minimum wage, and the earned income tax credit is already hated by the GOP (even though they proposed it). There is the additional problem of all the missing details as well. Now before anyone trots out the whole "well if politics werent so stupid..." I have to stop you there. You reform with the politics you have, not the politics you want.
    - humanrebar 11y ago
      > and the earned income tax credit is already hated by the GOP They hate writing checks just to write checks. You can get it passed if you sell it as a progressive subsistence voucher that will replace the minimum wage, medicaid (we still have an insurance mandate), food stamps, etc. In fact, use the word voucher. The GOP loves those. ...and the GOP is more complex than people understand. I voted for Romney and McCain and I'd go for an EITC if it came with the right reform package. All this "if it weren't for those guys..." is really counterproductive.
      - deleted 11y ago
        [deleted]
      - Retric 11y ago
        Overall I thing the GOP has a great message, but they don't follow through. Over the last 30 years the GOP has raised government spending far more than the Dems. Consider the Medicare prescription drug plan without any negotiation for lower rates. It's just redicusly over the top levels of corruption.
        Intermernet 11y ago
        >Overall I thing the GOP has a great message, but they don't follow through. Can you name a political party, in any part of the world, in the last century that did follow through with their "great message"? Politicians are PR / sales people. The product work is rarely actually done by them. If mortgage interest rates on average went up, the politicians will blame the greed of banks, the international exchanges market, the gravity was higher than normal etc. If mortgage interest rates on average went down, then that's a great reason to vote that politician in for another term!
- yummyfajitas 11y ago
  With stagnant incomes? Very easy - non-wage compensation. Instead of giving people money, you give them non-wage compensation (e.g., health care benefits rather than wages, and similar things). That's exactly what happened, in fact - wages are "stagnant", but compensation per hour is not. http://research.stlouisfed.org/fred2/series/COMPRNFB http://research.stlouisfed.org/fred2/series/COMPRNFB http://research.stlouisfed.org/fred2/series/LES1252881600Q http://research.stlouisfed.org/fred2/series/LES1252881600Q
  - cryoshon 11y ago
    Health care benefits don't help with rising food and housing costs...
    - nickff 11y ago
      Could you please provide a citation for the claims that food and housing prices are going up? I looked, but could only find information to the contrary on food (especially as a proportion of household spending), and very short term, noisy, and confusing information on housing (not house prices, but housing).[1] [1] https://www.aei.org/wp-content/uploads/2013/03/food.jpg https://www.aei.org/wp-content/uploads/2013/03/food.jpg
      - toomuchtodo 11y ago
        The cost of food continues to drop, but wages have also been stagnant since the 70's. Housing vs wages: https://makewealthhistory.files.wordpress.com/2011/05/wages-vs-house-prices.jpg https://makewealthhistory.files.wordpress.com/2011/05/wages-...
        nickff 11y ago
        That data is on house prices, not on cost of housing; do you have any long-term data on cost of housing?
        11y ago
- drawkbox 11y ago
  We need a debt stimulus for the lower class, by lower I mean the bottom 90%. Back when they gave the stimulus to the banks, it almost would have been better to get money/stimulus to the people to use strictly to pay down debt (credit card, home, student loans). Even if it was only a chunk, not only would this have helped free up debt load, it would also go directly back to the banks that had been lending to the lower 90% all along. Instead they gave money to banks to help with loans/lending, overlooking the fact that it does nothing to help consumers. They gave it to groups that weren't really lending to the 90% of consumers. Trickle up is not just trickle up, it is trickle up and down. When you give money to the lower 90%, most of them give it right back. When you give it only to banks and upper 10%, it typically stays locked up in that 10%. Anybody surprised by this consumer economy sputtering hasn't been looking at it and doesn't get that you need to get money to the lower classes to prop up the upper classes and banks. Wages have stagnated this entire century so far, when people were surprised in 2008 when it came crashing down, it wasn't housing alone, it was that people had no money, less raises, while costs rose immensely. I won't go into the trillions on war spent on credit by the country as well that further harmed the downturn. We financed the wars with China's credit, it is almost as if China wants to break us with debt and ongoing, un-winnable wars. We aren't playing the game very smart and the greed is thick. In the future, stimulus should mean lowering debt loads of personal and state debt from the bottom up. Again, rich people mad by this aren't thinking it through, it is a two step hop and it is right back to them. But you'd have the lower classes now with more debt room and or room to spend. This is the only fix. If you were playing a simulation to create a good economy in a game, you'd probably do something like this instead of enrich modern day kings to hold onto, hoard and lock up more money in the upper 10% backdrift that does not make it's way to the lower 90% with enough force.
  - themartorana 11y ago
    It's surprisingly short sighted of businesses (banks) to not have pushed for consumer bailouts with say... vouchers for paying down mortgages or other bad debts. The banks collect, and people are left with a lighter load, and are more likely to re-spend. Do banks assume that bailout + people making payments on underwater mortgages is, in the end, more profitable than bailout + lower debt loads and increased spending? An awful lot of people just walked away from their homes and mortgages.
- NoPiece 11y ago
  If you look at inflation adjusted after tax income, it looks more like income is stagnant for the bottom 50%, not 90%. There are some great graphs in this New York Times article about the stagnation of the US middle class. http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html?&abt=0002&abg=1 http://www.nytimes.com/2014/04/23/upshot/the-american-middle...
humanrebar 11y ago
> Aside from these core issues, I'd also speculate that a tremendous quantity of money is trapped in financial instruments. Wasn't one of the lessons of the downturn that companies weren't keeping enough cash on hand to meet the demands of their financial shenanigans? Isn't that the point of the stress tests? Everyone can't just hedge ad infinitum. At some point, someone has to have the cash to pay the bills. Sure, there's more cash on hand than in 2007, but how is that not healthy? What is a healthy level of cash?
- brc 11y ago
  You're correct. Keeping cash on hand and paying down debt is healthy. A high savings rate encourages investment, which encourages productivity increases, which increases quality of life. It's hard to think clearly against the blizzard of noise which says savings are bad, consumer spending is good and economies only grow when everyone is in debt. But the opposite of all these things is true, you've just got to ignore all the talking heads that want you out of your house and wasting your saving on consumer trash.
eli_gottlieb 11y ago
>Aside from these core issues, I'd also speculate that a tremendous quantity of money is trapped in financial instruments. If it's in a financial instrument, it isn't exactly employing people or building goods or creating demand for goods. The same could be said about the billions of dollars held close to the chest by the oligarchy. We can further unpack the huge amounts of money trapped in financial instruments. There are really two functions for financial instruments: investment in productivity growth, and rent extraction. The pool of capital for private-sector productivity growth is glutted; in fact, it's being held back by stagnant consumer demand and high rents. So beyond stagnant consumer demand, we've got a lot of rent-extraction (asset and real-estate bubbles being created to extract resource, information, and land rents as debt-service or legal expenses) and a major dearth of productive public-goods investment (public health (ie: vaccination and disease prevention), infrastructure, education, etc.) loading down the economy with dead-weight losses. (We can also simplify our model by construing capital/labor bargaining as capital owners extracting a rent from laborers for usage of their capital, ie: money, machines, land, etc.) >There's a huge opportunity here to have a government public works program or some other major initiative to mobilize the underclasses, but it won't be taken. The basic problem is that many, possibly even most, of the rent-extractors adding dead weight to the economy are using their wealth to buy themselves government policies favorable to rent extraction rather than wealth creation and distribution, ie: further neoliberalism. Let's be frank: an economy in which the workers are healthier and more educated, the work is more mechanized, and collective problems (like transit, urban development, and disease control) are handled collectively is more productive! It outputs more stuff! So you don't have to be a socialist like me to realize that reducing the net output of the economy to enrich a few people at the top is a bad idea! You just have to use accounting metrics that don't count increased rents as growth.
danbruc 11y ago
There is no such thing as wealth-building financial instruments. You may be better off by cashing in some interests or dividends but someone else will lose the same amount of money. And it probably won't be someone rich who doesn't have to care much.
- Nimitz14 11y ago
  That's not true... lol.
  - danbruc 11y ago
    Counterexample?
    - asmithmd1 11y ago
      lets say I have $50k saved. I can buy a bar of gold and bury it in my backyard - producing exactly nothing for anybody. Or I can buy solar panels for the elementary school down the street and have them pay me 90% of their prior electric bill. The elementary school has a lower electric bill every month and I have a steady income stream and no one does any work.
      - danbruc 11y ago
        Someone - probably the taxpayer - is working and giving a share of what he earns to the school's budget which in turn forwards a share to you. And by the way, when you buy your bar of gold you pay some guys to dig some gold out of the earth and melt it into a nice bar. However I am not sure how the value and the price of a bar of gold compare.
      - jbooth 11y ago
        The definition of watt, if I recall correctly, is "work".
    - seanflyon 11y ago
      Bank lends farmer money to buy a tractor, farmer doubles productivity.
happyscrappy 11y ago
People love to predict the downfall of the US, even if their only proof is a single bad quarter. The reality is the US is still too big of a portion of the world economy. Eventually things will even out but that day is not near.
wcummings 11y ago
>The same could be said about the billions of dollars held close to the chest by the oligarchy. What billions of dollars and what oligarchy?
- pjmorris 11y ago
  May I suggest 'The Quiet Coup' by Simon Johnson (2009) [1] as an answer to 'what oligarchy?' [1] http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/ http://www.theatlantic.com/magazine/archive/2009/05/the-quie...
yummyfajitas 11y ago
So the core question is, if unemployment is high and wages are low, why not invest? You promote investment by the government later in your post. Yet is it the case that all possible private investments will have low rates of return, and only government investment can possibly have a high rate of return? If so, why? (Note that I have no particular objection whatsoever to having the government end welfare/unemployment/etc, and simply provide low wage employment for anyone who wants it building public works of various sorts. But my reasons for supporting this are simply because I favor creating disincentives for idleness, not because I think only the government can engage in productive investment.)
- jonathansizz 11y ago
  An aside (not necessarily aimed at you): why is taken for granted that the poor must be motivated via the stick (reducing benefits), while in contrast the rich are motivated by carrots (by reducing the top level of income tax, wealth taxes, etc.)? Surely if we tax the rich more, they'll have an incentive to work harder to make up the shortfall? Similarly, if we reduce taxes on the poor, they'll be motivated to work more as they'll be keeping more of what they earn (especially when we consider the much greater marginal value that extra dollars have to them).
  - yummyfajitas 11y ago
    In all cases, I favor increasing dUtility/dWork. Currently the utility gains to the poor from increasing work are nearly flat, and often negative. Note the graph in this post, illustrating the disposable income gains both with and without transfers: http://johnhcochrane.blogspot.co.uk/2012/11/taxes-and-cliffs.html http://johnhcochrane.blogspot.co.uk/2012/11/taxes-and-cliffs... Replacing welfare with work would increase this, since incomes would go down without work. In contrast, taxing anyone (rich or poor) would decrease dUtility/dWork. Unconditional wealth transfers also decrease dUtility/dWork due to diminishing marginal gains.
- sedachv 11y ago
  > Note that I have no particular objection whatsoever to having the government end welfare/unemployment/etc, and simply provide low wage employment for anyone who wants it building public works of various sorts. But my reasons for supporting this are simply because I favor creating disincentives for idleness, not because I think only the government can engage in productive investment. I think we argued about this before. Why do you hate people who choose to spend time as they wish instead of being coerced into unwanted employment? The only thing massive unwanted public infrastructure projects are good for is ruining the environment. Public works policy in Japan is a great example of top quality bridges to nowhere and concrete ditches that no one cares about that also happen to do nothing "for the economy": http://www.nytimes.com/2013/12/09/business/international/a-building-boom-in-japan-has-echoes-from-the-lost-decade.html http://www.nytimes.com/2013/12/09/business/international/a-b... Why not invest the money into things that actually produce results: education and fundamental research? Let's figure out how to get robots to meet our material needs so we can spend more time not working.
msellout 11y ago
If 'trapped in financial instruments' includes standard investments, like deposited in a bank, loaned to a business, or buying equity in a business, then your money is not trapped at all but spreading through the economy in multiples. Only stuffed-in-a-mattress style 'instruments' are taking the money out of circulation, like buying an expensive piece of art or a condo that you don't rent or live in. Yet, you still paid someone for that art, so the cash is flowing...
brc 11y ago
You're leading with a consumption=everything view on the economy. This is wrong. Growth and employment comes with investment in increasing productivity, not from consumer spending. I would read some books that take an opposite view to Keynes. Things will make more sense after absorbing the fact that consumption is not the source if economic growth, production and investment is.
- nindalf 11y ago
  I'm surprised that a comment that started with "I'm no economist" and proceeds to claim a great many things without sources did so well on Hacker News. I wonder how well a comment like "I'm no computer scientist, but why can't we have consistency, availability AND partition tolerance" would have done.
MaysonL 11y ago
And here's another from Bloomberg: lack of government spending. http://www.bloomberg.com/news/articles/2015-05-28/government-austerity-exacts-toll-on-u-s-jobs-wages-and-growth http://www.bloomberg.com/news/articles/2015-05-28/government...
mkramlich 11y ago
> There's a huge opportunity here to have a government public works program or some other major initiative to mobilize the underclasses, but it won't be taken. agreed. but it won't happen. they clearly do not want to. you know what I mean when I say "they". I think what "they" are doing is instead now letting the USA enter a phase of milking and rundown. The truly rich, the truly powerful, already have homes anywhere they want to in the world. Whether that's in western/northern Europe, or modern Asia, or in a micro-nation. It is in those places and nations where they are ensuring they have the government investment and infrastructure to ensure a quality way of life. They -- you know who I mean -- have already marked USA as 'deprecated' and moved on, psychologically, at least medium/long term.
- SturgeonsLaw 11y ago
  Very true. There's a tremendous amount of wealth extraction happening at the moment, and in general, the beneficiaries don't care at all. In fact, if the masses are poorer, then the rich are richer in both relative and absolute terms.
rahimnathwani 11y ago
You talk mainly about consumption, but GDP (the subject of this article) is a measure of production (gross domestic PRODUCT) not of consumption. Sure, these things are related, but the article is correct to point out things like exports and capital investment. If the US were producing more, even if all of the additional product were to be exported, GDP would be higher. Any problem with GDP (or growth in GDP) is related to value-creating economic activity. Yes, if the government were to spend (invest?) money in public works, GDP would rise, regardless of the output of the works. There would be secondary effects, too, as some of the money earned would be spent on locally-produced goods/services like lattes and haircuts. Japan tried this: http://mobile.nytimes.com/2009/02/06/world/asia/06japan.html http://mobile.nytimes.com/2009/02/06/world/asia/06japan.html
- Joeri 11y ago
  The point is that production is a derivative of consumption. Consumption doesn't adapt to production. So, if you want production to rise, you have to work on the consumption side of things.
  - NoPiece 11y ago
    That is something economists have major disagreements about. Classical economists (see Say's law) would argue that the production of a product creates the market/demand for it.
    - brational 11y ago
      Yea and that makes sense for products that are actual necessities. It is bullshit if applied to an arbitrary "product".
    - Joeri 11y ago
      That's obviously false as plenty of goods are never sold but destroyed instead because nobody wanted them. Production follows demand, any businessman will tell you. Maybe if a few economists actually learned about business we wouldn't have so many recessions.
stolsvik 11y ago
US needs to redistribute much more wealth using much higher taxes for the rich. They also need to get companies to pay their share - letting Apple sit on an Uncle Scrooge stash of money is absurd. Spending more on the government level, outside of the military, is also good as a smoothing factor for the economy.

randomname2 11y ago

An interesting analysis at http://charleshughsmith.blogspot.com/2015/05/us-households-under-pressure-stagnant.html http://charleshughsmith.blogspot.com/2015/05/us-households-u... echoes these observations, concluding "How do you support a consumer economy with stagnant incomes for the bottom 90%, rising basic expenses and crashing employment for males ages 25-54? Answer: you don't."

humanrebar 11y ago
Why can't hiring people be cheaper? 1. Get rid of the minimum wage. It makes as much sense as rent control... none. 2. Help out the needy by introducing a minimum income and/or an aggressive earned income tax credit. 3. Everyone knows kids are expensive. They shouldn't be. Scale 2 according to household size. 4. Set the levels of 2 high enough that citizens can pay their own taxes (both halves of the pension tax) and buy their own benefits (disability, health, life, 401k 'matching', etc.). ...watch the number of entry-level jobs explode and the demand for robotic work tank (like McD's filling sodas with robotics). Side benefits: A. Small companies will be better able to compete with big companies with employment lawyers and HR departments. B. Bootstrapping and entrepreneurship becomes more viable. C. Corporations lose some of their relative power due to A and B.
- ryanobjc 11y ago
  "You must not be from around here, are you?" The problems with the suggestions here is #1 and #2 are both vigorously defended by different parties. So your proposal is a no-go politically. The Dems won't lower or get rid of minimum wage, and the earned income tax credit is already hated by the GOP (even though they proposed it). There is the additional problem of all the missing details as well. Now before anyone trots out the whole "well if politics werent so stupid..." I have to stop you there. You reform with the politics you have, not the politics you want.
  - humanrebar 11y ago
    > and the earned income tax credit is already hated by the GOP They hate writing checks just to write checks. You can get it passed if you sell it as a progressive subsistence voucher that will replace the minimum wage, medicaid (we still have an insurance mandate), food stamps, etc. In fact, use the word voucher. The GOP loves those. ...and the GOP is more complex than people understand. I voted for Romney and McCain and I'd go for an EITC if it came with the right reform package. All this "if it weren't for those guys..." is really counterproductive.
    - deleted 11y ago
      [deleted]
    - Retric 11y ago
      Overall I thing the GOP has a great message, but they don't follow through. Over the last 30 years the GOP has raised government spending far more than the Dems. Consider the Medicare prescription drug plan without any negotiation for lower rates. It's just redicusly over the top levels of corruption.
      - Intermernet 11y ago
        >Overall I thing the GOP has a great message, but they don't follow through. Can you name a political party, in any part of the world, in the last century that did follow through with their "great message"? Politicians are PR / sales people. The product work is rarely actually done by them. If mortgage interest rates on average went up, the politicians will blame the greed of banks, the international exchanges market, the gravity was higher than normal etc. If mortgage interest rates on average went down, then that's a great reason to vote that politician in for another term!
yummyfajitas 11y ago
With stagnant incomes? Very easy - non-wage compensation. Instead of giving people money, you give them non-wage compensation (e.g., health care benefits rather than wages, and similar things). That's exactly what happened, in fact - wages are "stagnant", but compensation per hour is not. http://research.stlouisfed.org/fred2/series/COMPRNFB http://research.stlouisfed.org/fred2/series/COMPRNFB http://research.stlouisfed.org/fred2/series/LES1252881600Q http://research.stlouisfed.org/fred2/series/LES1252881600Q
- cryoshon 11y ago
  Health care benefits don't help with rising food and housing costs...
  - nickff 11y ago
    Could you please provide a citation for the claims that food and housing prices are going up? I looked, but could only find information to the contrary on food (especially as a proportion of household spending), and very short term, noisy, and confusing information on housing (not house prices, but housing).[1] [1] https://www.aei.org/wp-content/uploads/2013/03/food.jpg https://www.aei.org/wp-content/uploads/2013/03/food.jpg
    - toomuchtodo 11y ago
      The cost of food continues to drop, but wages have also been stagnant since the 70's. Housing vs wages: https://makewealthhistory.files.wordpress.com/2011/05/wages-vs-house-prices.jpg https://makewealthhistory.files.wordpress.com/2011/05/wages-...
      - nickff 11y ago
        That data is on house prices, not on cost of housing; do you have any long-term data on cost of housing?
        11y ago
drawkbox 11y ago
We need a debt stimulus for the lower class, by lower I mean the bottom 90%. Back when they gave the stimulus to the banks, it almost would have been better to get money/stimulus to the people to use strictly to pay down debt (credit card, home, student loans). Even if it was only a chunk, not only would this have helped free up debt load, it would also go directly back to the banks that had been lending to the lower 90% all along. Instead they gave money to banks to help with loans/lending, overlooking the fact that it does nothing to help consumers. They gave it to groups that weren't really lending to the 90% of consumers. Trickle up is not just trickle up, it is trickle up and down. When you give money to the lower 90%, most of them give it right back. When you give it only to banks and upper 10%, it typically stays locked up in that 10%. Anybody surprised by this consumer economy sputtering hasn't been looking at it and doesn't get that you need to get money to the lower classes to prop up the upper classes and banks. Wages have stagnated this entire century so far, when people were surprised in 2008 when it came crashing down, it wasn't housing alone, it was that people had no money, less raises, while costs rose immensely. I won't go into the trillions on war spent on credit by the country as well that further harmed the downturn. We financed the wars with China's credit, it is almost as if China wants to break us with debt and ongoing, un-winnable wars. We aren't playing the game very smart and the greed is thick. In the future, stimulus should mean lowering debt loads of personal and state debt from the bottom up. Again, rich people mad by this aren't thinking it through, it is a two step hop and it is right back to them. But you'd have the lower classes now with more debt room and or room to spend. This is the only fix. If you were playing a simulation to create a good economy in a game, you'd probably do something like this instead of enrich modern day kings to hold onto, hoard and lock up more money in the upper 10% backdrift that does not make it's way to the lower 90% with enough force.
- themartorana 11y ago
  It's surprisingly short sighted of businesses (banks) to not have pushed for consumer bailouts with say... vouchers for paying down mortgages or other bad debts. The banks collect, and people are left with a lighter load, and are more likely to re-spend. Do banks assume that bailout + people making payments on underwater mortgages is, in the end, more profitable than bailout + lower debt loads and increased spending? An awful lot of people just walked away from their homes and mortgages.
NoPiece 11y ago
If you look at inflation adjusted after tax income, it looks more like income is stagnant for the bottom 50%, not 90%. There are some great graphs in this New York Times article about the stagnation of the US middle class. http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html?&abt=0002&abg=1 http://www.nytimes.com/2014/04/23/upshot/the-american-middle...

humanrebar 11y ago

> Aside from these core issues, I'd also speculate that a tremendous quantity of money is trapped in financial instruments. Wasn't one of the lessons of the downturn that companies weren't keeping enough cash on hand to meet the demands of their financial shenanigans? Isn't that the point of the stress tests? Everyone can't just hedge ad infinitum. At some point, someone has to have the cash to pay the bills. Sure, there's more cash on hand than in 2007, but how is that not healthy? What is a healthy level of cash?

brc 11y ago
You're correct. Keeping cash on hand and paying down debt is healthy. A high savings rate encourages investment, which encourages productivity increases, which increases quality of life. It's hard to think clearly against the blizzard of noise which says savings are bad, consumer spending is good and economies only grow when everyone is in debt. But the opposite of all these things is true, you've just got to ignore all the talking heads that want you out of your house and wasting your saving on consumer trash.

eli_gottlieb 11y ago

>Aside from these core issues, I'd also speculate that a tremendous quantity of money is trapped in financial instruments. If it's in a financial instrument, it isn't exactly employing people or building goods or creating demand for goods. The same could be said about the billions of dollars held close to the chest by the oligarchy. We can further unpack the huge amounts of money trapped in financial instruments. There are really two functions for financial instruments: investment in productivity growth, and rent extraction. The pool of capital for private-sector productivity growth is glutted; in fact, it's being held back by stagnant consumer demand and high rents. So beyond stagnant consumer demand, we've got a lot of rent-extraction (asset and real-estate bubbles being created to extract resource, information, and land rents as debt-service or legal expenses) and a major dearth of productive public-goods investment (public health (ie: vaccination and disease prevention), infrastructure, education, etc.) loading down the economy with dead-weight losses. (We can also simplify our model by construing capital/labor bargaining as capital owners extracting a rent from laborers for usage of their capital, ie: money, machines, land, etc.) >There's a huge opportunity here to have a government public works program or some other major initiative to mobilize the underclasses, but it won't be taken. The basic problem is that many, possibly even most, of the rent-extractors adding dead weight to the economy are using their wealth to buy themselves government policies favorable to rent extraction rather than wealth creation and distribution, ie: further neoliberalism. Let's be frank: an economy in which the workers are healthier and more educated, the work is more mechanized, and collective problems (like transit, urban development, and disease control) are handled collectively is more productive! It outputs more stuff! So you don't have to be a socialist like me to realize that reducing the net output of the economy to enrich a few people at the top is a bad idea! You just have to use accounting metrics that don't count increased rents as growth.

danbruc 11y ago

There is no such thing as wealth-building financial instruments. You may be better off by cashing in some interests or dividends but someone else will lose the same amount of money. And it probably won't be someone rich who doesn't have to care much.

Nimitz14 11y ago
That's not true... lol.
- danbruc 11y ago
  Counterexample?
  - asmithmd1 11y ago
    lets say I have $50k saved. I can buy a bar of gold and bury it in my backyard - producing exactly nothing for anybody. Or I can buy solar panels for the elementary school down the street and have them pay me 90% of their prior electric bill. The elementary school has a lower electric bill every month and I have a steady income stream and no one does any work.
    - danbruc 11y ago
      Someone - probably the taxpayer - is working and giving a share of what he earns to the school's budget which in turn forwards a share to you. And by the way, when you buy your bar of gold you pay some guys to dig some gold out of the earth and melt it into a nice bar. However I am not sure how the value and the price of a bar of gold compare.
    - jbooth 11y ago
      The definition of watt, if I recall correctly, is "work".
  - seanflyon 11y ago
    Bank lends farmer money to buy a tractor, farmer doubles productivity.

happyscrappy 11y ago

People love to predict the downfall of the US, even if their only proof is a single bad quarter. The reality is the US is still too big of a portion of the world economy. Eventually things will even out but that day is not near.

wcummings 11y ago

>The same could be said about the billions of dollars held close to the chest by the oligarchy. What billions of dollars and what oligarchy?

pjmorris 11y ago
May I suggest 'The Quiet Coup' by Simon Johnson (2009) [1] as an answer to 'what oligarchy?' [1] http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/ http://www.theatlantic.com/magazine/archive/2009/05/the-quie...

yummyfajitas 11y ago

So the core question is, if unemployment is high and wages are low, why not invest? You promote investment by the government later in your post. Yet is it the case that all possible private investments will have low rates of return, and only government investment can possibly have a high rate of return? If so, why? (Note that I have no particular objection whatsoever to having the government end welfare/unemployment/etc, and simply provide low wage employment for anyone who wants it building public works of various sorts. But my reasons for supporting this are simply because I favor creating disincentives for idleness, not because I think only the government can engage in productive investment.)

jonathansizz 11y ago
An aside (not necessarily aimed at you): why is taken for granted that the poor must be motivated via the stick (reducing benefits), while in contrast the rich are motivated by carrots (by reducing the top level of income tax, wealth taxes, etc.)? Surely if we tax the rich more, they'll have an incentive to work harder to make up the shortfall? Similarly, if we reduce taxes on the poor, they'll be motivated to work more as they'll be keeping more of what they earn (especially when we consider the much greater marginal value that extra dollars have to them).
- yummyfajitas 11y ago
  In all cases, I favor increasing dUtility/dWork. Currently the utility gains to the poor from increasing work are nearly flat, and often negative. Note the graph in this post, illustrating the disposable income gains both with and without transfers: http://johnhcochrane.blogspot.co.uk/2012/11/taxes-and-cliffs.html http://johnhcochrane.blogspot.co.uk/2012/11/taxes-and-cliffs... Replacing welfare with work would increase this, since incomes would go down without work. In contrast, taxing anyone (rich or poor) would decrease dUtility/dWork. Unconditional wealth transfers also decrease dUtility/dWork due to diminishing marginal gains.
sedachv 11y ago
> Note that I have no particular objection whatsoever to having the government end welfare/unemployment/etc, and simply provide low wage employment for anyone who wants it building public works of various sorts. But my reasons for supporting this are simply because I favor creating disincentives for idleness, not because I think only the government can engage in productive investment. I think we argued about this before. Why do you hate people who choose to spend time as they wish instead of being coerced into unwanted employment? The only thing massive unwanted public infrastructure projects are good for is ruining the environment. Public works policy in Japan is a great example of top quality bridges to nowhere and concrete ditches that no one cares about that also happen to do nothing "for the economy": http://www.nytimes.com/2013/12/09/business/international/a-building-boom-in-japan-has-echoes-from-the-lost-decade.html http://www.nytimes.com/2013/12/09/business/international/a-b... Why not invest the money into things that actually produce results: education and fundamental research? Let's figure out how to get robots to meet our material needs so we can spend more time not working.

msellout 11y ago

If 'trapped in financial instruments' includes standard investments, like deposited in a bank, loaned to a business, or buying equity in a business, then your money is not trapped at all but spreading through the economy in multiples. Only stuffed-in-a-mattress style 'instruments' are taking the money out of circulation, like buying an expensive piece of art or a condo that you don't rent or live in. Yet, you still paid someone for that art, so the cash is flowing...

brc 11y ago

You're leading with a consumption=everything view on the economy. This is wrong. Growth and employment comes with investment in increasing productivity, not from consumer spending. I would read some books that take an opposite view to Keynes. Things will make more sense after absorbing the fact that consumption is not the source if economic growth, production and investment is.

nindalf 11y ago
I'm surprised that a comment that started with "I'm no economist" and proceeds to claim a great many things without sources did so well on Hacker News. I wonder how well a comment like "I'm no computer scientist, but why can't we have consistency, availability AND partition tolerance" would have done.

MaysonL 11y ago

And here's another from Bloomberg: lack of government spending. http://www.bloomberg.com/news/articles/2015-05-28/government-austerity-exacts-toll-on-u-s-jobs-wages-and-growth http://www.bloomberg.com/news/articles/2015-05-28/government...

mkramlich 11y ago

> There's a huge opportunity here to have a government public works program or some other major initiative to mobilize the underclasses, but it won't be taken. agreed. but it won't happen. they clearly do not want to. you know what I mean when I say "they". I think what "they" are doing is instead now letting the USA enter a phase of milking and rundown. The truly rich, the truly powerful, already have homes anywhere they want to in the world. Whether that's in western/northern Europe, or modern Asia, or in a micro-nation. It is in those places and nations where they are ensuring they have the government investment and infrastructure to ensure a quality way of life. They -- you know who I mean -- have already marked USA as 'deprecated' and moved on, psychologically, at least medium/long term.

SturgeonsLaw 11y ago
Very true. There's a tremendous amount of wealth extraction happening at the moment, and in general, the beneficiaries don't care at all. In fact, if the masses are poorer, then the rich are richer in both relative and absolute terms.

rahimnathwani 11y ago

You talk mainly about consumption, but GDP (the subject of this article) is a measure of production (gross domestic PRODUCT) not of consumption. Sure, these things are related, but the article is correct to point out things like exports and capital investment. If the US were producing more, even if all of the additional product were to be exported, GDP would be higher. Any problem with GDP (or growth in GDP) is related to value-creating economic activity. Yes, if the government were to spend (invest?) money in public works, GDP would rise, regardless of the output of the works. There would be secondary effects, too, as some of the money earned would be spent on locally-produced goods/services like lattes and haircuts. Japan tried this: http://mobile.nytimes.com/2009/02/06/world/asia/06japan.html http://mobile.nytimes.com/2009/02/06/world/asia/06japan.html

Joeri 11y ago
The point is that production is a derivative of consumption. Consumption doesn't adapt to production. So, if you want production to rise, you have to work on the consumption side of things.
- NoPiece 11y ago
  That is something economists have major disagreements about. Classical economists (see Say's law) would argue that the production of a product creates the market/demand for it.
  - brational 11y ago
    Yea and that makes sense for products that are actual necessities. It is bullshit if applied to an arbitrary "product".
  - Joeri 11y ago
    That's obviously false as plenty of goods are never sold but destroyed instead because nobody wanted them. Production follows demand, any businessman will tell you. Maybe if a few economists actually learned about business we wouldn't have so many recessions.

stolsvik 11y ago

US needs to redistribute much more wealth using much higher taxes for the rich. They also need to get companies to pay their share - letting Apple sit on an Uncle Scrooge stash of money is absurd. Spending more on the government level, outside of the military, is also good as a smoothing factor for the economy.