And even then, I can't figure out where "it's easier for a camel to pass through the eye of a needle than for a rich man to enter heaven" comes into the rationalization.

There is something wrong with the numbers and what we see with our own eyes. Go to any big shopping mall and you will still see people walking out with bags of stuff they really don't need. Yet they complain about being pinched financially.

Open up the Sunday NY Times and you are likely to see a special glossy magazine insert devoted to high end spending for fashion or travel or the like.

Then there are those at the bottom who are always poor regardless of the economic cycle. The only thing that happens is that their numbers go up and down (slightly) as the economic winds blow.

I know the conventional wisdom says that people have been borrowing, either on their credit cards or via second mortgages, to finance their continued spending, but is this true? Perhaps the behavior depends upon the demographic sector being examined.

I'd like to see figures which relate income/wealth to spending patterns.

Another way to look at this, if the rise in borrowing is true, is that it is rational to borrow now and get the use of something now rather than save for it. One gets the immediate use which has a value and if inflation heats up (as it has after every unfunded war) then being a borrower is better than being a saver (or lender). One gets to pay back with watered money.

--- Policies not Politics
Daily Landscape

It is a strange financial market right now. The dollar is at record lows, while the DOW is at a record high. The free fall of crude prices this week should help, if they continue to drop into the 50's.

I agree with rdf -- Americans aren't showing any signs of belt-tightening. Gas consumption continues to climb, nobody I know is cancelling any summer vacations, and parents are lavishing new cars and electronic gadgets on their kids. If we're heading into a recession, there are no signs of it on Main Street.

That's a national average. In some parts of the country (as where I live in S. Florida) it's much lower and the economy is still roaring strong with only a slight slow down due to construction. But in other areas, as in the Great Lakes states, it's truly terrible, and something neesd to be done or the whole country may be dragged down.

I don't believe the government's published numbers, knowing that this administration's numbers are always suspect.

And the Bush administration is always revising the monthly employment numbers downwards after they're published after a couple of weeks.

Looking at the actual BLS report and the numbers "say" average pay is approximately $15.60 with no benefits and the average work week for people is 33-34 hours per week.

Unemployment is counted by claims, but people who have run out their benefits aren't counted.

Underemployment is not counted at all.

If people are in the malls shopping, just remember, it's always easy to spend money they don't have if they use credit cards. That's why consumer debt is over-the-top.

Re: Unemployment is counted by claims, but people who have run out their benefits aren't counted.

This is a very common error, but it is not at all true. Unemployment is counted by a survey which asks if A) You are working regularly (no matter how many or few hours) and B) If not, are you looking for work. Collecting benefits has nothing to do with it. Obviously this survey does not count underemployment, and it does not count discouraged ex-workers who answer "No" to the second question. On the other hand it also does not count people in the underground economy who are working off the books, perhaps while collecting unemployment, disability or even welfare.
But the weaknesses of the survey have been constant over time. So while the numbers may not be exactly accurate, comparing today's numbers with five or ten years ago does show a real trend.

Dan: "I vaguely remember from my Samuelson that when the housing market is in a slump the economy does worse all other factors being equal. Is that still considered the case?" Helpful question, as usual. I, too, am eager to hear Jared's expertise here. 

http://www.haberarts.com/

It's true that consumption growth has consistently been strong, but that's very unlikely to continue if we stay on this lower employment growth trend, or worse.  In a number of cases, when job growth was growing at this rate, there just wasn't enough momentum to keep the economy moving (and that retail sales # just cited could be a harbinger).

What you worry about here is a viscious cycle that goes=>weak jobs=>weak wages=>less consumption=>less investment=>weak jobs...

Where does the economic stimulus come from to offset this cycle?  Not from the housing market, with prices falling.  Not from fiscal policy--unlikely to see tax cuts in the near term.  That leaves the Fed, and if unemployment starts to rise in earnest, they'll cut rates.

Word Rafael.M! Statistics are meant to be manipulated, and if you twist a number here, or alter an unknown unknown percentage there, - almost anything can be proved statistically.

Underemployment is the critical calculus that is being missed, or intentionally cloaked.

The great beauty of math is that it is always perfect, and the math will eventually provide a balancing, and a reckoning.

As the tectonic divide between rich and poor Americans expands, the underlying math will force a re-evaluation, or re-visitation of the statistics. The heart, soul, and engine of America is a well educated, prosperous, confident, and secure middle class. Gut this critical factor, - and the entire structure of America's unique experiment is democracy is doomed to collapse.

Crumbs off the rich mans's table is a partisan myth.

Ruthlessly robbing from poor and middle class Americans to feed the superrich which is the fascist Bush governments economic policy - is a recipe for disaster that those poor and middle class Americans are just now beginning to feel and comprehend.

There is something wrong with the numbers and what we see with our own eyes. Go to any big shopping mall and you will still see people walking out with bags of stuff they really don't need. Yet they complain about being pinched financially.

If you consistently spend more than you earn, then you will never build any wealth. That is why you see people out shopping, but complaining about financial problems. Even if you're an executive making $200,000 a year, you can easily dig your own grave by spending $250,000. Sure, you'll have a lot of stuff, but you'll never be able to retire, you'll always have to work to pay off your expenses. At some point, your credit cards will be declined. Bankruptcy will look mighty attractive.

It's far easier to outspend your income when you make far less like most Americans. The average household income in the US is $43,500.

Open up the Sunday NY Times and you are likely to see a special glossy magazine insert devoted to high end spending for fashion or travel or the like.

The problem with Americans is that since the time we're born, we're saturated with marketing. We'd like to think otherwise, but there is a reason that companies spend outrageous amounts of money on advertising: it actually works at separating us from our money.

I know the conventional wisdom says that people have been borrowing, either on their credit cards or via second mortgages, to finance their continued spending, but is this true?

Yes, it is true. Google "savings rate". You'll see that it is now the lowest it has been since the Great Depression. You can quibble with how the number is calculated, but you can't argue that it's still the lowest in decades.

We are spending at a higher rate than our parents and grandparents and saving less.

Perhaps the behavior depends upon the demographic sector being examined.

If you examine the millionaires in the US, you'll see a group of people from all the different sectors in the US. Their common trait? They are wealth accumulators who consistently spend less than the amount they bring in.

If you make $43,500, but only live off of $30,000, then you are a wealth accumulator. Given enough time and even mediocre investments, you can build your wealth to become a millionaire.

It doesn't matter how much you make. It only matters how much of that you spend.

Another way to look at this, if the rise in borrowing is true, is that it is rational to borrow now and get the use of something now rather than save for it.

Generally, that is only true for big-ticket items which are hard to save for such as a house or car. Even still, you don't want the most expense house, nor the most expensive car.

A house will generally not lose it's value, but living in an expensive neighborhood will tend to increase your other expenses. There are huge pressures to keep up with the neighbors, who will tend to have higher incomes and more expenses.

Most cars lose their value over time. A new car will lose a significant amount of money by just driving off the lot. Further, the amount of utility you get from a Mercedes is not that more than you get from a Hyundai. At some point, a car is just a car. If you want to save money, get a late model used car.

One gets the immediate use which has a value and if inflation heats up (as it has after every unfunded war) then being a borrower is better than being a saver (or lender).

It depends on how you borrow and how you save. If you borrow on credit, then when inflation goes up, your APR will go up by just as much. However, if you borrow on a fixed loan, then you will be protected from inflation.

If you save by putting money under your mattress, then inflation will eat away at the value of your money. However, if you invest that cash in an interest-bearing account, then your interest will go up with inflation. Put that money into stocks and bonds, and your money could go up even more.

A few more thoughts re housing. 

Like I said, the slump has had significant negative effects on growth.  Along with the direct effects of sharply diminished activity in the housing sector itself--double digit declines in housing investment--down 17% last quarter, eg--when home values were rising, lots of folks were refinancing (borrowing against their rising home equity).  That literally added 100s of billions in stimulus to the economy over the last few years.

That's over.  And it's a big reason why the slump is proving to be pretty damaging so far.

Finally, a big question is have we bottomed out re housing.  The folks I hear make the most sense of this say 'no.'  Home prices still have a ways to fall to be within historical norms, and--this one's most convincing to me--the inventory of unsold homes is very large and growing.  I think it could be a year or longer before these inventories unwind--until then, the sector is likely to be soft with falling home prices.

My point was that Clinton had proved that governing works.

These people I mentioned were dyed-in-the-wool religious Republicans.

Which is why Bush 43 really appealed to them.

Their mistake is they related religiosity with competence.

As Groucho Marx would say, "Who are you going to believe? Me or your own eyes?"

Aha! If your gut tells you something is wrong, it probably is.

Bush 43 has been like a dark cloud over this country since 2001. After the first $2 Trillion tax cut, then things started going south and have been ever since.

Y'know, The Onion captured it perfectly back in 2000 after the election. "These have been trying times of peace and prosperity." Or something to that effect.

Re: The budget originates with the president.

True. However the bulk of the economy operates outside the government. This is not the Soviet Union. It's not even China or Sweden. I should however probably amend my statement: the elected branches of government have fairly little influence over the short-term economy. Long term (I am speaking in terms of generations, not just months or even a few years) there is much good or much bad they could do. Putting the US on the road to alternative energy and/or enacting universal healthcare not tied to employers would do vast amounts of good. Running up large deficits, while it may not hurt in the short-run, will, if not corrected, drag us all down eventually.

Re: A lot of federal monies were redirected back to cities like Philadelphia in the 90s, which caused them to invest in local jobs and work which reduced unemployment.

Put me down as a skeptic that this really created very many jobs. Or at least, very many productive jobs. Most of this money ended up lining the pockets of local politicians and being used for teh usual sorts of barely legal patronage schemes. I saw it all in Detroit during the 90s. The 90s boom was largely fueled by the IT revolution and government spending had little role here.

Re: Now the Fed on the other hand is pretty much worthless, but can do a lot of damage as Greenspan has demonstrated, by artificially keeping interest rates low to help fund a bubble as we're seeing with real estate.

Greenspan kept interest rates low for the very good reason that the economy was in a nagging recession followed by a tepid, jobless recovery-- with Bush's much ballyhooed tax cuts doing not a damn thing to fix the mess. So the Fed had to fall back on the usual remedy of low interest rates. Blame the real estate bubble on a lot of greedy fools who decided to make a quick buck rather a longterm investment.