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  • Worst Recession Since WWII

    From Time magazine's cover story:

    ...why are Americans so gloomy, fearful and even panicked about the current economic slump?

    ..The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost more than 1.2 million jobs during the slump, U.S. consumers have fallen into their deepest funk in years. "Never in my adult life have I heard more deep- seated feelings of concern," says Howard Allen, retired chairman of Southern California Edison. "Many, many business leaders share this lack of confidence and recognize that we are in real economic trouble." Says University of Michigan economist Paul McCracken: "This is more than just a recession in the conventional sense. What has happened has put the fear of God into people."

    ...U.S. consumers seem suddenly disillusioned with the American Dream of rising prosperity even as capitalism and democracy have consigned the Soviet Union to history's trash heap. "I'm worried if my kids can earn a decent living and buy a house," says Tony Lentini, vice president of public affairs for Mitchell Energy in Houston. "I wonder if this will be the first generation that didn't do better than their parents. There's a genuine feeling that the country has gotten way off track, and neither political party has any answers. Americans don't see any solutions."

    ...The deeper tremors emanate from the kind of change that occurs only once every few decades. America is going through a historic transition from the heedless borrow-and-spend society of the 1980s to one that stresses savings and investment.

    ...The reckless borrowing made a reckoning inevitable. "You can't spend eight years priming the pump and getting all your growth through debt in the private, corporate and public sectors and expect to come out of it overnight," says John Bryan, chairman of Sara Lee. "We're not going to get any momentous return to growth anytime soon." Concurs an Administration economist: "People are smarter than we give them credit for. They've known we couldn't keep borrowing our way to prosperity forever." Asked in the TIME/CNN poll whether Americans today can enjoy the same standard of living as recent generations, 62% said no.


    The article is describing the recession of 1991, an unusually mild recession that preceeded one of the biggest expansions in American history.

    Tybalt stole all of this from here.
    A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

    "$250,000 a year won't get me to Central Park West."

  • #2
    Re: Worst Recession Since WWII

    Look at how wrong some of these people are - about the speed of recovery and consumer habits. Then again, there are differences between true economic growth and a bubble. So much of the prosperity since the early 90's has been in the form of a bubble that's almost hard to refer to it as growth.

    I've said before that it's my layman's belief that wage stagnation and the imbalance of wealth in America (and other industrialized nations as well) is what is at the core of the difference between real growth and bubble expansion. When the link between productivity and salary is broken, you end up with economic expansion without the fundamental support (wages) to support it. This is more than just a wealth gap, it's a failure to sustain the consumer class - like reducing the octane of the fuel and hoping to get the same performance. It does not work.

    I'm not talking about socialism or 'wealth redistribution,' that so many are quick to criticize. This has to do with sustainably growing an economy by having wages keep pace with GDP. From 1980 to 2004, the US GDP per person rose by almost two thirds. From 1972 to 2001, the wages and salaries of Americans at the 90th percentile (those making more than 90% of their fellow citizens) experienced gains of 1% a year on average - in total, less than a third, especially after adjusting for inflation. Those at the 99th percentile saw an income rise of over 181% over the same period - those at the 99.99th percentile saw growth of 497%(1). Those in the 1% category are a critical part of the consumer base, which in recent years resorted to credit and home equity to fuel their consumption. That consumption should have been fueled by some of the 497% increase sucked out from the top .01%.

    In the 2006 holiday season, Wall Street firms paid out somewhere between $36 and $44 billion to their employees. Many of these firms were in the busineess of restructuring employment prospects for US workers as well as repackaging the debts owed by those workers. They - and we - should have known better. So far, I see no indications of change.



    1 - Ian Dew-Becker and Robert Gordon, “Where Did the Productivity Growth Go?” National Bureau of Economic Research, Working Paper 11842, December 2005.

    Comment


    • #3
      Re: Worst Recession Since WWII

      Originally posted by AMosely View Post
      Look at how wrong some of these people are - about the speed of recovery and consumer habits. Then again, there are differences between true economic growth and a bubble. So much of the prosperity since the early 90's has been in the form of a bubble that's almost hard to refer to it as growth.

      I've said before that it's my layman's belief that wage stagnation and the imbalance of wealth in America (and other industrialized nations as well) is what is at the core of the difference between real growth and bubble expansion. When the link between productivity and salary is broken, you end up with economic expansion without the fundamental support (wages) to support it. This is more than just a wealth gap, it's a failure to sustain the consumer class - like reducing the octane of the fuel and hoping to get the same performance. It does not work.

      I'm not talking about socialism or 'wealth redistribution,' that so many are quick to criticize. This has to do with sustainably growing an economy by having wages keep pace with GDP. From 1980 to 2004, the US GDP per person rose by almost two thirds. From 1972 to 2001, the wages and salaries of Americans at the 90th percentile (those making more than 90% of their fellow citizens) experienced gains of 1% a year on average - in total, less than a third, especially after adjusting for inflation. Those at the 99th percentile saw an income rise of over 181% over the same period - those at the 99.99th percentile saw growth of 497%(1). Those in the 1% category are a critical part of the consumer base, which in recent years resorted to credit and home equity to fuel their consumption. That consumption should have been fueled by some of the 497% increase sucked out from the top .01%.

      In the 2006 holiday season, Wall Street firms paid out somewhere between $36 and $44 billion to their employees. Many of these firms were in the busineess of restructuring employment prospects for US workers as well as repackaging the debts owed by those workers. They - and we - should have known better. So far, I see no indications of change.



      1 - Ian Dew-Becker and Robert Gordon, Where Did the Productivity Growth Go? National Bureau of Economic Research, Working Paper 11842, December 2005.
      Nicely put.

      What I can't understand is the reasoning of people that support a super rich class. These same people say government is bad because a few cannot make good decisions for the many. Yet they have no problem with a few making the biggest and most important financial system decisions, which happens when you have such a small percentage controlling so much money.

      This goes way beyond simple tax hikes of 1 or 2%. There needs to be a basic restructuring of the economy so that the middle class gets ever bigger and richer. My opinion, of course.
      Im not racists, I have republican friends. Radio show host.
      - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
      - "A foolish consistency is the hobgoblin of little minds" - Emerson
      - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
      - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
      - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
      - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

      Comment


      • #4
        Re: Worst Recession Since WWII

        Originally posted by El_Gringo_Grande View Post
        What I can't understand is the reasoning of people that support a super rich class. These same people say government is bad because a few cannot make good decisions for the many. Yet they have no problem with a few making the biggest and most important financial system decisions, which happens when you have such a small percentage controlling so much money.
        I don't think there is reasoning, and if you think about it, the economy is generally based more on emotion (fear, optimism, greed) than reason. Someone receiving tens of millions of dollars (if not hundreds) in executive compensation is not going to complain about anything except government either taking too much or telling them what to do. The middle class is trained, through various mechanisms, to be happy with their lot and to think they are on an upward trend when in fact they are not.

        Originally posted by El_Gringo_Grande
        This goes way beyond simple tax hikes of 1 or 2%. There needs to be a basic restructuring of the economy so that the middle class gets ever bigger and richer. My opinion, of course.
        I think it comes down to both the wealthy/powerful and government leadership (representative and executive) coming to the realization that a top-heavy economy simply doesn't work well. As for how to build that into some kind of policy, that's the trillion dollar question. In a perfect world it would be built in to our psyche - in other words, the emotions behind the economy would be guided by more reasonable principles. The current free market, and especially the financial market within it, is an unreasonble place whose principles are more flawed than sound.

        Comment


        • #5
          Re: Worst Recession Since WWII

          The article was written in 1992. The S&P500 - even today, after a 50% decline - has tripled since it's 1990 low.

          According to the first random Commie website to pop up on a Google search, real wages increased 7.7% between 1992 and 2004.

          And finally - I hesitate to even say this because it will further derail the discussion, but whatever - looking at income gains by percentile is misleading, because people tend to move from one percentile to another during their lives and also will mislead you on the bottom end because the US welcomes a lot of immigrants, many of whom are low earners and thus "inflate" the lower percentiles. And also!, real wages are constructed from CPI, a very wishy-washy statistic which attempts to determine inflation. But many consumer items, such as TVs, automobiles, home appliances, and so on, actually deliver more value for the dollar than they did way back when. So the actual level of real wages today versus any time in the past is actually more contentious than you might have been led to believe.

          That said, yes, a lot of people have gotten really really rich in the past ten years. There are a bunch of billionaires with loads of money sitting around in party jets and what not. A lot more rich people than there were twenty or thirty or even ten years ago. But unless they stole the money (not likely, unless you're in South Beach Miami), or used ill gotten politcal connections to get their money (more likely!), then they deserved every cent. The theory that rich people become rich by "taking" money from everyone else - while sometimes true (see previous sentence!) - is largely a load of BS and you know it.
          Last edited by Nikolas; 01-23-2009, 01:17 PM.
          A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

          "$250,000 a year won't get me to Central Park West."

          Comment


          • #6
            Re: Worst Recession Since WWII

            I agree with a total reconstruction of the economy and everything it includes. We are indeed in troubled waters, I also feel that one of the things that needs to be restructured is the amount of which tax payers pay for presidents who have served their time in office.

            It was a good idea in 1958, but now? Not so much, for example, one would think that Bill Clinton who is a multi-millionaire would opt out of this act, but no..........he still continues to ride the taxpayers paying for me train. here is the link to what I am talking about:
            http://www.khq.com/Global/story.asp?S=9711747#poll79889

            I don't have the faintest idea how to restructure the economy, there are plenty of places that I could think to start, but i don't want to pigeon hole classes, or professions, I almost feel we have to look at from every angle and include everything.
            Randy = Ace ! - Warlab
            Level II Volunteer FireFighter
            Level I HazMat Technician
            NYS EMT-B
            Town of Mamaroneck Fire Dept.

            sigpic




            Bring On Project Reality 1.0!!!
            RSS Feeds:Bamboo | | 9/11 - Never Forget |
            Apophis - "TG was created to cater to a VERY specific type of gamer rather than trying to appeal to the greater gaming population.
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            We are not trying to attract mainstream gamers."

            Comment


            • #7
              Re: Worst Recession Since WWII

              Originally posted by xTYBALTx View Post
              The article was written in 1992. The S&P500 - even today, after a 50% decline - has tripled since it's 1990 low.

              According to the first random Commie website to pop up on a Google search, real wages increased 7.7% between 1992 and 2004.

              And finally - I hesitate to even say this because it will further derail the discussion, but whatever - looking at income gains by percentile is misleading, because people tend to move from one percentile to another during their lives and also will mislead you on the bottom end because the US welcomes a lot of immigrants, many of whom are low earners and thus "inflate" the lower percentiles. And also!, real wages are constructed from CPI, a very wishy-washy statistic which attempts to determine inflation. But many consumer items, such as TVs, automobiles, home appliances, and so on, actually deliver more value for the dollar than they did way back when. So the actual level of real wages today versus any time in the past is actually more contentious than you might have been led to believe.

              That said, yes, a lot of people have gotten really really rich in the past ten years. There are a bunch of billionaires with loads of money sitting around in party jets and what not. A lot more rich people than there were twenty or thirty or even ten years ago. But unless they stole the money (not likely, unless you're in South Beach Miami), or used ill gotten politcal connections to get their money (more likely!), then they deserved every cent. The theory that rich people become rich by "taking" money from everyone else - while sometimes true (see previous sentence!) - is largely a load of BS and you know it.
              Who said anything about stealing?

              I, and I believe AMosely also, is talking about having a extremely top heavy wealth distribution is basically bad for a society. Actually having a distribution that skews to either end is bad.

              This goes for immigration as well. If the majority of immigrants can't move into the middle class within a couple of generations then you have a big problem and need to change some things.
              Im not racists, I have republican friends. Radio show host.
              - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
              - "A foolish consistency is the hobgoblin of little minds" - Emerson
              - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
              - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
              - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
              - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

              Comment


              • #8
                Re: Worst Recession Since WWII

                Originally posted by El_Gringo_Grande View Post
                Who said anything about stealing?
                I believe Bernie Madoff did.

                Originally posted by El_Gringo_Grande View Post
                This goes for immigration as well. If the majority of immigrants can't move into the middle class within a couple of generations then you have a big problem and need to change some things.
                This is precisely one of the traps I wrote about in my previous post.

                Percentile statistics don't track the same people over time; for example if I enter the workforce earning $8.50?/hr (~30th percentile?) at In-N-Out, it is quite likely that I'll work my way up to at least $15?/hr by the time I retire (~40th percentile?). So in 1985 I was in the 30th percentile, and now (2009) I'm in the 40th percentile. Who's in the 30th percentile now? Well, people who are now in the same position I was in back in 1985 - at least in part.

                So we're not talking "a couple generations" when we talk about immigrants "inflating" the percentiles. We're talking about a continuous influx of people directly into the lower percentiles, which causes the lower percentiles to appear more stagnant than is actually the case.

                To maybe use another example:

                Jim moves to the US from Guatemala. He gets a job as a landscaper at a Los Angeles hotel. His starting pay is $7/hr, let's say that's the 25th percentile. Now multiply Jim by 10,000. That means we have 10,000 people injected right into the $7/hr pay scale, and this injection would make what was once the 25th percentile appear larger. By injecting people into the bottom of the pay range, you're making the whole distribution look worse. And as Jim and his 10,000 peers work their way up the ladder, one $.25 raise at a time, what was once, say, the 26th percentile becomes much much larger and bloated.

                You get the appearance of stagnant wages because there are literally more people being injected into the lower percentiles, even if people's real wages are in fact growing. This effect also impacts country-country comparisons, because many other nations don't welcome as many immigrants as the US.
                A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                "$250,000 a year won't get me to Central Park West."

                Comment


                • #9
                  Re: Worst Recession Since WWII

                  Originally posted by xTYBALTx View Post
                  The theory that rich people become rich by "taking" money from everyone else - while sometimes true (see previous sentence!) - is largely a load of BS and you know it.
                  Of course. There's certainly not a law stating one cannot be rich, or even get rich by being greedy or powerful.

                  I just want to clarify the point that I keep making with this - if we assume that many of our new billionaires didn't make all of that money by themselves, then theoretically more of their personal profits could have been directed elsewhere, such as towards the labor supply. If that had been the case, there is ample evidence to show it would have been better for the economy as a whole (diminishing marginal returns, etc). There's no mechanism to directly control this percentage, obviously, and I'm not arguing that there should be. All I am saying is that the theory of all wealth is good wealth isn't necessarily true - that it's almost more important to ensure that upward wealth trends positively affect everyone in the labor pool - from the janitors to the CEO. While you can't write that kind of thing into law, you can try and encourage the old moral compass to point more towards the right direction.

                  Comment


                  • #10
                    Re: Worst Recession Since WWII

                    CEOs are just employees. They make jack compared to the real rich people.
                    A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                    "$250,000 a year won't get me to Central Park West."

                    Comment


                    • #11
                      Re: Worst Recession Since WWII

                      Originally posted by xTYBALTx View Post
                      CEOs are just employees. They make jack compared to the real rich people.
                      what are you basing this on? And who are the "Real Rich People?"
                      Randy = Ace ! - Warlab
                      Level II Volunteer FireFighter
                      Level I HazMat Technician
                      NYS EMT-B
                      Town of Mamaroneck Fire Dept.

                      sigpic




                      Bring On Project Reality 1.0!!!
                      RSS Feeds:Bamboo | | 9/11 - Never Forget |
                      Apophis - "TG was created to cater to a VERY specific type of gamer rather than trying to appeal to the greater gaming population.
                      Tactical Gamer is not mainstream.
                      We are not trying to attract mainstream gamers."

                      Comment


                      • #12
                        Re: Worst Recession Since WWII

                        Forbes Rich List

                        While many of them may hold executive positions at companies, it's not their profession which brought in the big bucks; which is to say that none of them made billions of dollars through paychecks. They made it, typically, by owning or founding highly lucrative companies - or by being the heirs to someone who did so. Running a large company is how you become a millionaire. Owning a company is how you become a billionaire.

                        Of course, slick political connections help as well!

                        Put another way, a CEO earning $50million a year - and that's a ton, even by modern Wall Street standards - would have to keep earning that salary for 100 years just to sneak into the middle-bottom of the Forbes list. The richest people fly around in their own $50M airplanes (or several times that amount). They don't make $50M in a year.

                        Put in historical perspective, though, I think this is really nothing. In the good old days, your eyes could be poked out just for looking at an aristocrat's wife.
                        Last edited by Nikolas; 01-24-2009, 12:32 AM.
                        A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                        "$250,000 a year won't get me to Central Park West."

                        Comment


                        • #13
                          Re: Worst Recession Since WWII

                          NYTimes has an interesting annotated comparison of past recessions.
                          http://www.nytimes.com/interactive/2...raphic.html?hp

                          Made me think of this thread, so I posted it. While we technically won't be able to truly measure this one against those of the past, it seems awfully bitter in terms of its depth and reach.

                          Comment


                          • #14
                            Re: Worst Recession Since WWII

                            Do GDP stats not account for depth and reach?

                            It may feel awfully bitter because there hasn't been even a moderate recession for neigh 30 years.
                            A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                            "$250,000 a year won't get me to Central Park West."

                            Comment

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