Jared

My brother is a real estate broker in Silicon Valley, after being laid off from a computer company there, and he finds the real estate market booming.

I am also in real estate but in New York City. While the sales market has a lot of product on the market and the price increases are leveling off, the rental market is rising agreesively.

It also looks like other parts of the world are either growing either quickly or picking up their pace of growth. Meanwhile while job growth has been anemic, despite Bush Adminiistration and CNBC cheerleading, unemployment continues low.

I am not disputing your points, or Paul Krugman's, Joe Kernan laughed when I suggested to him that Krugman come on the show more often, but curious how you deal with the disparate data points?

Daniel A. Greenbaum

There will be no recession this year (or next) because there is an election next year. The GOP has learned its lesson there, noting that the recession of 1980 helped sink carter and the recession of 90-91 was a big reason George Bush I departed the White House after just one term. As Nixon did in 1971, to head off a recession back then, I expect the Bush administration to open whatever spigots they can to delay a recession until after the election even if it means risking inflation.

That's an interesting possiblity, but one constraint could be the new paygo rules that Congress seems to be adhering to. 

So, unless they decide to waive them on the basis of a downturn, it will be harder for the admin to generate a tax or spending stimulus without cutting somewhere or raising some other taxes.

Thanks a bunch, Jared. Always glad to get bad news. :-)

The wonder is that the economy is still doing as well as it is currently from our own ground zero. We have an antique business that is usually a harbinger of things to come. It is a disaster for most.

The Dow Jones stocks are in a raging bull market but not some some small stocks.

Don't let those politicos shove you around, Jared. Some of us have to worry about such things as business. :-)

Best, Terry

I certainly agree that NYC and Palo Alto are not the country. I would say that even the far from rich sections of NYC are showing strong rental markets. It is my assumption given the lack of enough replacement housing that when the Fed lowers interest rates again the sales market, in NYC, will start a slow rise, and the rental market will get softer.

As for the rest of the world it is not quite so irrelevant. A great deal of U.S. employment and income is dependent on both export and import business. Thus it helps the U.S. to have the rest of the world to pick up the slack from U.S.

Daniel A. Greenbaum

I just wonder how long our growing national debt and this administrations increasingly obscene war-tab will remain the elephant in the economic room that no one wants to talk about. I've read a few op-eds regarding their impact but nothing close to the attention that I think they deserve.

In this country privatization does not mean better more effective services for the masses it means higher profits for those Saks shoppers you refer to. And with so many people working 2-3 low paying & no benefit jobs just to get by I struggle to understand how a tax cut or two will alter their quality of life very much. I think that it is BECAUSE so many people are living so close to the edge that something like a gas price increase has such a rapid effect on consumer spending.

In the end I've often wondered if the "market" would eventually realize that it can hit 15000 but if the only people truly making money in this country are the small number of very rich, who exactly would be buying all of those services and products that got them that wealthy. A tax cut just doesn't seem like it's enough. In the simplest of terms it reminds me of a group of wealthy people playing Monopoly in a homeless shelter and feeling absolutely magnanimous about letting someone land on Vermont Ave and letting them "slide this one time". It reminds me of this for two reasons: those homeless people will still be hungry no matter the outcome of the game, and the money being used is in reality worthless. >.>

Analyze the components of GDP. It is weighted toward the upside.

Unemployment data as collected has little relevance to the real health of the economy.

A true picture of the economies health must include much broader and more in-depth tools.
Many have already written that we have been living on borrowed time for awhile. We are not effectively competing in the world economy; our domestic policies have stripped the middle class of real wealth. The wealthy are making their profits off of mostly foreign markets. We are dumping our Chinese investments into the war in Iraq. We are not investing in domestic infrastructure.

What we have is an economy and country that has been treated like a takeover from corporate raiders. Everything we once possessed has been sold off and only the super wealthy have profited.

For anyone that remembers 1981 or the late 1980's into 1992 it's time to relive the bad old days.

The question is how much longer before the fall and how deep is the well going to be.

I believe the exponential growth model of increased consumption, environmental destruction, and pollution pushed by economists, politicians, and businessmen is failing us.

It's a race to the bottom. Future economic corrections likely will become more severe.

--
Are Humans Smarter Than Yeast? (video clip: 8.5min)

It is easy to stimulate the economy with a tax cut when taxes are high. But after the Bush tax cuts, taxes are no longer so high that a cut which would put more money in consumer's pockets is possible without causing an extreme increase in the budget deficit. And, those deficits keep adding to the national debt, which can't be good for the economy.

To me it is clear that stopping the oil profits driven occupation of Iraq has to be the first order of business. Once we pay the appropriate reparations to Iraq, and remove our troops and contractors from there, it may be possible that that alone will stimulate the economy sufficiently.

Also, the American automobile industry will soon vanish unless General Motors and Ford bite the bullet and start producing fuel efficient cars, preferably using hybrid technology. Loss of that industry would only make the economy far worse than it is today.

Since none of the above will occur with a Republican administration, job one has to be electing a Democratic administration.

Hoppy in Sacramento

I agree. To me, numbers that big almost lose meaning. It's difficult to really wrap my head around those kinds of numbers! I have often wondered about what all of that money could have been spent on: alternative fuel research, improved school funding, an effective & affordable heath care policy, New Orleans... There is a substantial list.

There have also been some rumblings about how Bush and the neo-con movement abandoned many of the classically core Republican positions and it is the position on government spending that I think is particularly alarming. Of all the complaints about bureaucracy and it's cost to the taxpayer, it would appear that one party power with no oversight may end up costing our country even more.

Jared, as you said, you are no gloom-n-doomer, but I have serious concerns about the next decade or so, economically. I worry that we may suffer a serious recession (okay, maybe a depression), and that one path out of that may be (possibly hyper-)inflation. Serious inflation would be one way for the government to reduce the value of the National Debt.

I'd like to hear your thoughts on which is more likely: serious inflation, or serious deflation (recession/depression). Or tell us why we needn't worry all that much about either one.

If I have a wad of cash, should I (a) stuff it under the mattress (fearing deflation), or (b) buy silver/gold (fearing inflation). Note, I'm NOT planning to put it into the stock market.

Thanks!

-- ARG

This government has "cooked the numbers" to be a mirage.

A rule of thumb in my book is: what goes up, must come down and HARD! So get ready for some home economics that aren't the economics your mother was doing!

In fact..here in California back in the 1970's, I remember the gas lines...gas was at 0.53 cents a gallon and jumped to 0.79 cents...lines went down blocks and blocks and just maybe to were lucky to get filled up. Also, back in the 1940's, my mom had to use the Gas ration coupon book because the oil went to war!

You never know, but I find it hard to get worked up about serious inflationary threats these days. 

Globalization has raised the supply of labor and capital and this has shown up in lots of good and bad ways.  Lower wages and job security here for many (bad), but less inflation also (good).

The Fed is targeting inflation--see my link to the TAPPED site--and has shown great vigilence, to the point where I think they could loosen up a bit.

In other words, I'm more worried about slow growth/recession than inflation or serious deflation.

One wild card is energy.  Here global demand is outpacing global supply, so that's an actual problem today and potential one in the future.  Solution: conservation and better enviro policies!

only because we lack the imagination to use our resources more wisely.

for example, when I got my bicycle fixed, I had the choice of a repair or a new part.

Ironically, the cost of these options were the same.

being "environmental," I went with the repair because the "long term implications" were overwelming, like one less thing in the garbage dump.

and, as long as the opportunity costs of militarism are ignored, it seems like the better option.

To boldly go...

But after the Bush tax cuts, taxes are no longer so high that a cut which would put more money in consumer's pockets is possible without causing an extreme increase in the budget deficit.

Tax cuts might work if the corporations didn't siphon off the cash like they do. Otherwise, the multiplier effect, I think, would make tax cuts more effective tools.

And, in the end, if you collect less in taxes, and expenses don't fall, then the government has to borrow more money and, as Ron Paul might say, the next generation winds up paying the bill!

To boldly go...

so doing that will help us build better cars? more highly skilled math and science professionals who can compete with overseas competition? a health care system that works?

I think that someone else on this blog noted that the post WWII growth happened because people stopped consuming during the war. I don't think this happened during Iraq II.

To boldly go...

Re: As someone who lost their job in the economic downturn of 2001, I have wondered what happened to the large swath of 20- and 30-somethings who suddenly found themselves out of work with only middling job experience.

Most, almost all, eventually found other jobs. But they have had to move to do so. One of the interesting features of today's economy (though maybe this has alawys been true) is that recessions and booms do not affect the whole country equally. Some areas go down the dumper while others continue to thrive. If you can pack up and move to an area that escapes the recession then you'll be OK. (It helps if you have friends or relatives already there-- advise to all: keep up with your extended family and old friends and college pals; having a network of contacts scattered about the country is worth a lot when trouble comes). As far as earnings go, I only know my own situation. I took a pay cut when I gave up on the Great Lakes states in 2003 and moved to Florida (though in terms of take-home pay it was a wash because Florida has no state income tax). But I managed to work my way back up in a couple of years and I am now sitting at 12K a year ahead of what I was making in 2001. Given good credentials and skills I suspect others may have been able to at least break even if not come out ahead. Of course I'm talking about college educated professionals. I am well aware that the blue collar work force is more likely to have sunk and stayed sunk.

Is pork really stimulative though? If you have a national tax policy, it effects everyone.
But Pork, sort of by definition, is an un-useful or irrational dedication of resources - i.e. the Alaska bridge to nowhere. It doesn't improve productivity or other fundamentals - it just pads well connected contractors or developers in a few isolated areas.

Also military spending now isn't like it was in WWII - the companies make about as much in war as peacetime.

In the seventies, inflation percolated through the economy, with wages and prices rising together. Today all the billions, if not trillions of surplus wealth are being used as a form of asset by foreign governments, from Argentina to China, by insitutions and the wealthy. When the bubble does burst and everyone rushes out of the dollar, it will be a tsunami of surplus cash washing back over the American economy, with the rich buying everything not tied down to get rid of dollars, prices of gas and just about anything else going through the roof, along with interest rates. Meanwhile few wages will be going up and lots of pinkslips will be handed out. The economy will resemble a slightly overheated engine that suddenly lost all its oil. It is not that after a generation of the country living on credit that the economic laws of gravity were repealed, only suspended.

The short-term trends worry me less than the long-term trends -- specifically our debt.

Interest on the debt eats a huge fraction of the taxes we pay. Joe Citizen's eyes roll when trying to deal with millions, billions, and trillions of dollars. But if put in terms he can understand, he'd likely be much more enlightened: "Every year, of the taxes paid by a family of four, [four times dollars per person per year] goes to FINANCE CHARGES on our national credit card. So, do you think we should keep running up charges, or should we start paying down the balance?"

The keys to getting this message across are:
1. Numbers a person can get his head around (dollars per person per year).
2. Familiar terminology, e.g. finance charges.
3. (I think this one most important.) Do not cast our debt as a burden left to our children. Instead, cast it as something that's eating holes in our pockets RIGHT NOW. Think of both the tax cuts and increased services we could have RIGHT NOW if it weren't for the huge fraction of taxes that's going down the drain as finance charges.

The more-sophisticated Joseph Citizen might also be interested in where (to whom) those interest payments are going, and what leverage it gives them over us.

...if we do head into recession, look for politicians to start talking about Keynesian tax cuts to stimulate the economy. That could prove to be an interesting debate.

It will only be interesting if Democrat economists are finally able to persuade themselves to answer clearly the Republican claim that income tax cuts are stimulative to the econony especially when they are 'paid for' with spending cuts. If we could hear a chorus of Democrat economists repeat the mantra, "No, income tax increases provide a stimulus to the economy, not income tax cuts...", we just might be able to bring an end to the misinformation that Republican economists have been promoting for decades. It will probably be necessary to go through the following explanation at first to open the eyes of mainstream journalists to a new way of looking at economic policy:

When advocates of Supply-Side economics recommend across-the-board income tax cuts AND matching reductions in government spending, they are proposing a policy that---all else equal---is guaranteed to either cause a recession or make any ongoing recession worse. An across-the-board income tax cut is contractionary (assuming matching spending cuts) because we know that wealthier recipients of income tax cuts will save some of the extra disposable income they are given. What this means is that some of the money that would have been spent by the government will be taken out of the economy by savers. We know that this causes a net leakage of money out of the economy because not all of the money that is saved will be lent out to people who will spend it. (One rather obvious reason: the Fed's Reserve Ratio.)

Even if an income tax cut were designed to give refunds only to people who would be certain to spend all of it (poor people), it would still not provide any net stimulus to the economy. When spending-cut-dollars match tax-cut-dollars, the money that refunded taxpayers would get to spend would have been spent by the federal government anyway. This means that no net increase in aggregate spending can occur, so there is no net increase in jobs or incomes.

Contrary to everything the Republicans have been telling us for years, tax increases (when they are imposed on the wealthy) are expansionary; tax cuts are contractionary. The only times when tax cuts ever been associated with economic expansions is when another truly expansionary fiscal policy initiative has been implemented at the same time, i.e., when the government has borrowed money to sustain its spending levels instead of cutting spending to pay for the tax cuts. (Spending borrowed money provides a net stimulus because it takes money that was removed from the economy---i.e., saved---and spends it.)

Here's the simple economic truth that journalists need to learn about government fiscal policy options:

Borrowing money...............expansionary Income Tax Cuts...............contractionary Income Tax Increases..........expansionary

Why oh why have Democrat economists like Brad DeLong failed to answer the Republican Party's economic mythology with a simply explanation like this?

Answering Republican Tax Cut Populism

True. If I get more money from somewhere, it sounds like I'd be able to stimulate the economy in a small way. The only thing is everyone ignores---at the encouragement of Republican politicians---the fact that the money comes from somewhere else. In order to make their specious reasoning sound more plausible, they try to suggest that all money obtained by the government through taxes just disappears down a big black hole, and so it is all just totally 'wasted.' None of this, of course, is true, but that has never stopped them from repeating it endlessly...

Jared--
I agree. And I would add that, unlike bear markets in stocks, real estate bear markets tend to unroll relatively slowly, region by region, across the nation. The last one began in the West (actually in the Southwest) then moved to California, and finally came to the East in the late eighties).
This time around, most of California is holding up fairly well, as is New York City (though in certain pockets prices are falling.) But recent reports show that in some of New York's most expensive suburbs (Westchester County and Connecticut) prices have fallen by as much as 7% to 8% just in the last year.
I'm guessing that my apartment in New York will lose 20% to 30% of its value over the next few years. We're overbuilt.
As for rental prices in New York, they are way up--because so many people can't afford to buy in this over-priced market--and because those whocan afford to buy are wisely waiting until the price of my apartment comes down.

JPF 311--
The Bush administration has already opened whatever spigots it could--increasing liquidity, printing money. . .
They will certainly try-- but I am not at all convinced that they can succed in-- delaying recession. I think Jared's right.
The real estate bubble is beginning to pop in various parts of the country (see my comment above on NYC suburbs) and that will have a negative wealth effect. In other words, the nationwide shopping spree is destined to come to an end.
Meanwhile, the cost of imported goods, healthcare, education, and energy will continue to climb. (The cost of imported good will rise because the value of the dollar will, I think, continue to slide.)
That said, I admit that it is always very difficult to predict what is going to happen over the short term (in this case, six months or even a year.) Ironically, it can be much easier to predict what will happen over the medium or long term (in this case a recession.) But given the pressures on the economy, I think the next year or so counts as the medium term.
Regarding the short term and the medium/long term, investor Jeremy Grantham tells a story about how, in the late nineties, his clients asked him: "How can you be so sure about what will happen over the long term (that the stock market bubble will collapse) without knowing what is going to happen over the short term (i.e. in the nest six months, or year)?
"After all," they asked, "isn't the long-term made up of a series of short-terms?"
Grantham says that he finally came up with an analogy that satisified them: "If you stood at the top of a tall building, tore open a sack of feathers, and let the feathers fall, you would know, with certainty that eventually, they would all settle on the ground. But you wouldn't know when."
"That," he said, "shut them up."

So you think the rest of the world will continue to take our paper into perpetuity? As we continue to hollow out our industry? The point you are making is a big part of the problem. If we were some banana republic, we'd have had our credit cut off by now, instead the problem is allowed to build because there are no easy solutions and when it finally does break, it will be that much larger. Like I said, the laws of economic gravity haven't been repealed, only suspended. This equilibrium is reaching its punctuation point.

can't offshore "personal services"

I think offshoring is possible. I seem to remember that companies wanted to put people on planes to countries where it was cheaper.

If my memory serve me right, this got the "medical industrial complex" worried, since the PR effort would have surely tarnished reputations and "kept alive" something they didn't want to talk about, and somehow the companies withdrew their threats to send people abroad.

if big corporations start sending people abroad for non-emergency care, it could reek havic with hospital budgets if those services had subsidized other services in their business model.

based on what I believe, I think that "single payer countries" "save money" by reducing the costs of "non-emergency" treatments. so, if time is on your side, you can competive bid health care.

big Pharma and medical industrial complex have us by the short hairs.

I think this is one of the reasons against "single payer" since some people think that the industry should be allowed to collapse under its own weight. but there's a lot of anxiety about health care so we keep bailing it out.

and, of course, doctors can shop around for the best pay rate and they will work anywhere in the world if the price is right.

To boldly go...

I think a case can be made that we have entered an era in which Keynesian stimulus is having very little effect anyway. The Bush administration has been borrowing at a good clip for almost 7 years and we've seen the least job creation since Hoover and stagnant wages for the bottom 80%.

I have to point out that while the spending of borrowed money is purely stimulative (money that was taken out of the economy---saved---gets spent), the cutting of taxes is not. In fact, tax cuts are almost always contractionary.

The only time tax cuts are not contractionary is when the tax cut is granted only to people who will spend all of money they did not have to give up in taxes. When that happens, the tax cut is neither contractionary nor expansionary since the decrease in government spending is exactly matched by the increase in consumer spending. There is no net stimulus.

When ANY of the money that the government gives up when it cuts taxes is saved instead of spent, then the tax cut is contractionary, since the decrease in government spending will be greater than the increase in consumer spending that will occur. This is the big reason why the stimulative effect of the Bush Administration's massive borrowing ended up having only a muted effect on the economy. The contractionary effect of cutting the taxes of the wealthy was only barely compensated for by the stimulative effect of the massive borrowing spree.

(t is true that a modest economic stimulus can be effected if a tax cut is enacted while the government maintains its spending levels by borrowing, but the only reason this kind of fiscal policy has any stimulative qualities at all is because of the borrowing; not because of the tax cut.)

If you want to stimulate the economy, you will want to either raise the tax rates of the wealthy (big savers) and spend the extra money you collect, or you will want to start borrowing money from the wealthy and spending it. It's all the same. Money that was (or would otherwise be) taken out of the economy gets spent.

It is actually no mystery why the Bush "recovery" has been one of the weakest on record...

There's "offshoring" of health care already-why else would re-importation of drugs from Canada be such a big deal?

It won't, but as your grandmother and her generation pass away, there will be less of them voting and more people who are now in their 20s and 30s and 40s voting, and most of us still won't be able to buy a house and we'll still have student debt 10 or 30 years from now.

Also, your grandmother is quite old (and good for her, of course!). People in their 50s and 60s and 70s who had assets to invest the past 15 years during the stock market and then real estate market run-up made tremendous money because assets increased while inflation and wages were stable.

This has made most things impossible to afford for young people. My parents house is now worth 5x as much as 15 years ago, but I can't afford to buy a house. If their house was devaluted through inflation so that it was only worth 2x or 3x as much, then they would still be ahead, and I would be able to buy a house.

For those without assets to invest who are older, they are likely still working and inflation will help anyone who is still working. For those very old, like your grandmother, well, social security is indexed and inflation won't really hurt her savings if they are properly invested, it just won't allow her any extra boost.

My underlying point, I just realized, is that income inequality is increasing and even more so on a generational level. Profits have been great because inflation and wages have been stagnant. This has helped those with assets and hurt those who depend on wages and are just starting out. At some point, this is going to have to be addressed. Might as well be now...

You are assuming that when the government cuts taxes it also cuts its spending

The reason why Republican economists have been able to mis-characterize The Tax Cut as a stimulative fiscal policy initiative is because they implicitly assume that the government will maintain spending with borrowed money while it is giving 'free money' to taxpayers, but this a conflation of two separate effects that should outrage any true academic.

Economists are supposed to be acutely interested as researchers in isolating the effects of changes in specific economic variables. That is why they are always endlessly repeating their ceteris paribus assumption. But when it comes to the effect of cutting taxes, that effect-isolating assumption has traditionally been thrown out the window.

Unfortunately, Democrat economists---normally more wed to the truth than Republican economists---have simply accepted at face value the claim that a tax cut is stimulative without countering that the claim actually misrepresents the truth. That is ultimately why the Republican Party has been able to win elections during the past couple of decades with distortions of the economic truth.

Many interesting threads here.

Re Mr Kroeger, I agree in the long run--cut taxes now and you'll either have to cut spending or raise them again later.  But the whole Keynesian schtick is based on short-run changes: borrow, spend, stimulate--then, when the private sector is humming again, re-collect the revenue or cut the stimulus. 

I still think that makes sense--I even think the Bush '01 tax probably helped make the recession as shallow as it was (though it was not well designed).

That said, there are problems with fiscal stimulus these days. 

1) As you say, targeting matters.  Why target the stimulus to those who have few liquidity constraint (ie, they're loaded)--they're less likely to spend it?

2) More of it leaks out through imports now than in the past.

3) The deficit hawks may want to offset any tax cuts with spending cuts, which, as you say, is not stimulative.

Re the Chinese and others holding dollars...These economies are so export driven that this arrangement works fine for them for now.  But there are some worrisome aspects.  One, by lending their surpluses to us, they're underinvesting in their own infrastructures (eg, China).  Also, if current patterns continue and the US economy does less well than that of Europe, Asia, etc, won't these countries begin to worry that they're way long in a depreciating asset (dollars)?

At that point, you probably do worry about a selloff.  What that means for us is a another question--could lead to high inflation and interest rates, and slower growth.  But a weaker dollar would be some relief for our exporters too.

RE economists bloviating (guilty as charged!) I like this joke:

Three econometricians go hunting.  They spot a deer.  The first econometrician shoots and missed one foot to the left.  The second one missed one foot to the right.  The third one shouts: "we got 'em!"

Re: It will be hard to pay for them

Unless it is stuffed in a mattress (or, perhaps, invested in foreign banks) saved money is not taken out of the economy. It is put right back in again via loans, etc.

You'd think that antiques' value would be supported by boomers, but according to the NYT, their value is falling:

The antiques market is depressed not just in the United States but in other countries as well, according to Antique Collecting magazine. The managing editor, John Andrews, said prices at British antique shops have fallen about 30 percent since 2002, based on his annual survey of hundreds of dealers, which he has conducted since 1968. It is the worst decline he has seen in 40 years, he said. “American and French dealers have not fared much better,” he said. “There’s a marked drop in turnover.”

http://www.nytimes.com/2007/02/08/garden/08antiques.html?ex=1179115200&en=aeabd2aaaa374bd0&ei=5070

Let's assume not 150,000 but 600,000 vets get turned loose under your scenario, and they all use some aspect of the GI Bill within 5 years (not realistic given that many of these troops are Guard [40%] with jobs and families already). They would comprise one-fifth of one percent of the American population of 300MM.

After WW2, let's say 2MM of the 10+ MM GIs used some aspect of the GI Bill within 5 years. They comprised 1.4 percent of the US population of 140 MM.

Even under these numbers, which are substantially skewed in favor of your hypothesis, the modern-day GI Bill beneficiaries would need to deliver seven times the bang for the buck their grandparents did, all things held equal, to have the result you posit.

Still, one thing not mentioned by the younger generation whiners -- they'll be in for windfall inheritances when the old folks die off.

My own kids who amass credit card debt, gamble, still have jobs that won't pay the bills and timeshares in Cancun -- are in line to collect on my savings and home ownership -- some of which was facilitated by my wife's canny investment of her inheritance, which survived despite Worldcom.

Not that inherited money will make much difference to most-- it''s like the lottery for most, gone quickly. Had a neighbor who got a windfall $250,000 from an elderly shirttail relative--the money went quickly, and the neighbors went on the search for other relatives thay hadn't seen in years--which eventually paid off with another $250,000, which didn't last any longer that the first windfall. Now no more relatives, they're living on credit, social security, and no longer own their home--so their kids are getting nada, but it was a trip while it lasted (less than 5 years).

ah anecdotes. ya gotta love 'em.

For what it's worth, I'm with the major investment bank analysts on this, who put the recession risk at about 30% right now. That's a big risk. But, I suspect we have a slowdown that isn't a technical recession.

Problem is, slow growth is almost as bad as a recession for most people. Slow growth means that corporate cap-ex spending will also be slow as the corporations build up huge cash balances (which have been at record levels for years) and that means slow creation of new jobs and negative wage growth against inflation.

I suspect that people mostly think that anything that isn't a recession is okay. It isn't. Slow growth or marginal growth, is also a bad thing for most people. Those who control the wealth tend to horde it, after all.

I suspect we'll avoid a recession over the next 3-5 years but that doesn't mean all will be rosy. Average folks can really suffer during slow growth periods. I think they used to call it "stagflation." But the truth is that most people only benefit during a boom, not during times of moderate or slow growth.

I think we need to recognize that even sustainable slow growth can be as painful as a more headline grabbing recession.

thosethingswesay.blogspot.com

The country as whole probably will avoid an outroight recession. But let's not forget that some parts of the country have never recovered from the last recession, indeed may now be worse off than they were in 2001. It's possible that the swath of economic ruin that encompasses almost everything from Syracuse NY to Pittsburg PA to Milwaukee WI (but excepting Chicago) may in fact be our recession, but somehow just thrust off onto one region of the country.

That's a very important point that I should have made in the original post.  The disruption in the economy--lost jobs/incomes--going from 3% to 1% is not that different from going from 1% to -1%. 

The latter is worse in that at -1% we're further away from our potential, but slow growth in and of itself is enough to start generating problems.

I remember reading (so long ago that I can't remember where I read it) that it would make sense to analyze the budget in ways similar to the ways businesses do--treat capital investments differently than other kinds of expenses.  Is anyone doing that sort of thing now?

I have in mind that we're living better lives off of capital expenditures made in the past--from the projects of the Tennessee Valley Authority to the Civilian Conservation Corps projects like the Blue Ridge Highway.  How many of us, especially those living in smaller towns and cities, still use post offices and libraries built in the 1930s?  In my town (my goodness) we still walk on sidewalks with WPA seals in them, at least those which haven't been stolen to go into the collector's market. 

I would think that careful expenditures made on twenty-first century versions of that kind of thing--green power, Internet II, a rail system which actually works as an energy efficient mover of goods and people (James Howard Kunstler has remarked that our rail system would shame Bulgaria--or was it Romania?) would leave a legacy for the generations following us similar to the legacy the Depression Generation left for us to enjoy.

aMike

Re: Savings have never created a single job, ever.

Of course it has. People who work at banks, brokerages, etc. owe their jobs to savings. Sure, that's not a huge number of jobs, but they are jobs. Anyway. please reread what I wrote. I agree that EXCESS savings is economically undesirable. I just don't think we are anywhere near that point. And again, I cite historical data. And true, there may be some errors in that data, but I fail to see how the data is any more error prone now than it was 40 years ago.

Re: Since the signing of NAFTA and the GATT agreements in the late 1990's as well as opening more free trade with China in 1996, jobs have literally drained out of America.

Actually, no. America was in an employment boom all through the 90s, well after the signing of NAFTA. Perot was wrong, totally wrong. The job market didn't head south until after the year 2000 dawned, and imports were only a tiny fraction of job losses. You are fighting the wrong battle. The real problem is technology eliminating jobs-- and the gains therefrom being captured by a very natural fraction of the population rather than being spread across us all.

People who work at banks, brokerages, etc. owe their jobs to savings.

Once you've decided to purchase an income stream in the form of a piece of paper with your savings, you have 'lent' the money and that has to be considered a 'purchase' of something. Borrowers---banks, in this case---do create jobs because they are spending the money that was saved (or which the Fed created out of thin air), or are handing it over to people who will spend it.

I fail to see how the data is any more error prone now than it was 40 years ago.

Re: Until then I would encourage you to take note of the fact that 40 years ago, prices in the stock market, art, and real estate markets were much, much lower than they are today.

So were most other prices, in absolute terms. My parents bought their house for 21K in 1961. Gas was, what?, $0.29 a gallon? Yes, there's been a lot of inflation, and yes, for many people wages have not kept up with that inflation, which goes a long way to explaining the decline of the savings rate. But again, I fail to see how a declining savings rate fits with a claim that we are saving too much.