As was foretold, we've added advertisements to the forums! If you have questions, or if you encounter any bugs, please visit this thread: https://forums.penny-arcade.com/discussion/240191/forum-advertisement-faq-and-reports-thread/
Options
Spending Money to Make Money: [Consumer Culture] Is Good?
Chanus
Harbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered User regular
Harbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered User regular
I am not an economist, I'm just some dude who reads more than he probably understands and tries to maintain a tenuous grasp on the broader issue of What's Going On? in our (America's) economy and the global economy. I'll be speaking pretty much only about the American economy as I know even less about global economics at this time. I may also start to ramble.
Today, listening to WBUR's Here & Now, I was introduced to a fellow by the name of James Livingston and his idea that a culture of spending is what is going to get us out of our current recession, and (as far as I understand his point) could be the solution to no longer experiencing these cycles of Boom and Bust that have basically plagued us since the 1920s.
As I understand the idea, it seems like it's not as revolutionary as it may seem on the surface, but rather an alternate take on sound fiscal policy arising in the face of the demonstrable failure of the theory of Trickle-Down Economics. It is clear that shifting the burden of economic growth onto business through tax incentives and deification has only resulted in business hoarding wealth and playing fast-and-loose with our economy in a never-ending quest to generate more profits for less work. It has led to an alarmingly-widening gap in income and wealth, appalling living conditions for those on the lower end of the richest society on the planet, and the withering of the idea that, if you just work hard enough, you too can be all that you can be. Conditions are being manufactured more and more to prevent that from being possible, so why do we continue throwing the same failed solutions at an unchanging problem?
At its most simple level, an economy runs on demand. Demand for goods translates to demand for jobs translates to greater wealth for the worker which translates to demand for goods, etc. It's a pretty simple idea (if a bit reductionist). Why not reinforce that cycle, rather than stifling it? Why not use this period of unprecedentedly-free borrowing to invest in the things that will put people to work and get the wheel turning again?
Why couldn't we spend our way out of this problem?
Today, listening to WBUR's Here & Now, I was introduced to a fellow by the name of James Livingston and his idea that a culture of spending is what is going to get us out of our current recession, and (as far as I understand his point) could be the solution to no longer experiencing these cycles of Boom and Bust that have basically plagued us since the 1920s.
As I understand the idea, it seems like it's not as revolutionary as it may seem on the surface, but rather an alternate take on sound fiscal policy arising in the face of the demonstrable failure of the theory of Trickle-Down Economics. It is clear that shifting the burden of economic growth onto business through tax incentives and deification has only resulted in business hoarding wealth and playing fast-and-loose with our economy in a never-ending quest to generate more profits for less work. It has led to an alarmingly-widening gap in income and wealth, appalling living conditions for those on the lower end of the richest society on the planet, and the withering of the idea that, if you just work hard enough, you too can be all that you can be. Conditions are being manufactured more and more to prevent that from being possible, so why do we continue throwing the same failed solutions at an unchanging problem?
At its most simple level, an economy runs on demand. Demand for goods translates to demand for jobs translates to greater wealth for the worker which translates to demand for goods, etc. It's a pretty simple idea (if a bit reductionist). Why not reinforce that cycle, rather than stifling it? Why not use this period of unprecedentedly-free borrowing to invest in the things that will put people to work and get the wheel turning again?
Why couldn't we spend our way out of this problem?
Allegedly a voice of reason.
Chanus on
0
Posts
but they're listening to every word I say
The problem is that middle class people haven't found what they need to leverage in order to start spending again. Income gains have been static for 40 years but the middle class have adapted to increase their spending power:
In the 70s and 80s women entered the workforce in huge numbers, this boosted household income for middle class families (even as individual income remained stagnant). In the 90s the trend flattened out.
In the late 90s and 2000 recessions it was cheap credit - everyone leveraged their houses (home equity loans anyone) and maxed out their credit cards to keep spending despite still not seeing big income gains.
Wealth continues to be concentrated more and more in the hands of the top percentiles, who just sit on it rather than spend (as a percent of income/wealth). We have the highest income disparity since robber baron days, and at least when the robber barons were getting rich they were doing it building infrastructure or harvesting resources, rather than tricking people into debt they couldn't pay or leveraging giant piles of electronic money around the world.
Stockpiling money so your children can become a wealthy inheritance class doesn't do anything for the economy.
but they're listening to every word I say
I do wonder if what we have is a cash flow problem. I wonder if there are any studies about the flow of money, and how long rich people and corporations sit on it compared to the poor. Surely amassing huge piles of money that never go anywhere would represent a failure of the market to address real life problems.
but they're listening to every word I say
Namely: Why aren't we investing in the cliché-ed "Shovel-Ready" jobs? Construction is a segment of our economy that was particularly hard-hit by the housing bust. We could put those people back to work building and repairing bridges, maintaining roads, and repairing and updating infrastructure for numerous industries. All it takes is money, which we are currently able to borrow at unprecedentedly low rates... rates low enough in some cases where people would be essentially paying us for the privilege of lending us money.
If unemployment insurance returns somewhere around $1.60 for every $1.00 spent, why are we even considering cutting benefits? Why not continue them and improve them (and even loosen restrictions on them) to create more demand for goods and services (because people will actually have money to spend), which in-turn would create demand for jobs?
Corporate Profits are at an all-time high at the moment:
And as a percentage of the total economy:
While wages are at an all-time low:
(cite: St Louis Fed)
The record money being taken in at the top is not going anywhere. It's not being reinvested into those companies (because why should it be if technology makes work obsolete and demand for services is stagnant?), it's just sitting in someone's vault like Scrooge McDuck's money pool. At what point do we re-examine our cultural expectation of how we treat profits and acknowledge our system is failing all but those at the very top?
I know, its of little technical difference at this point.
The more cynical answer is that the powers that be own a lot of debt, and they're happier having everyone else in debt bondage to them. They don't want to see that power eroded by inflation.
Are corporate savings taxed in any way? If we truly do have a problem with money just piling up wouldn't a tax on that fix it? Spend it or we will spend it for you?
but they're listening to every word I say
Do you mean The Stimulus Package? It was like 1/3rd taxcuts, iirc. Most of the money ended up going to fund projects already in progress and to cover shortfalls in state budgets, including in some cases to fund bonuses and raises for existing employees rather than new hiring. New projects mostly didn't get done at all.
I think this is essentially what James Livingston is proposing. Shifting from profits back to wages through taxation of profits.
Since this is demonstrably not the case, the proposal is to shift it the other way and, basically, force it to trickle down. The idea is we stop thinking of "fair" to mean "take everything I can get with as little regard to the social consequences as possible".
Basically: socialism is better for society, but couched without using poisoned terms.
On the OP, I should observe that aggregate demand Y = consumption + investment + government expenditure + net exports, not just consumption.
There is a surprisingly short and sadly accurate answer to this. Money = Power, and the moment the free market itself is dictated to by the vast majority of people versus dictating to them their living conditions and social status is the moment the people who currently live the high life doing nothing but sitting on vast generational wealth lose their ability to do that, and it scares them by no small means.
We could spend our way out of the recession but that would require the political will to directly print money and allocate it to doing things like infrastructure and such. But if people begin to realize that government can spend its way out of a recession by spending money borrowed from the wealthy at interest, then eventually they're going to realize they no longer need to borrow that money at interest from the wealthy and then it's game over. I am actually pretty certain this is why we have to fight tooth and nail for any direct spending because then it would finally prove to enough peoples minds that yes, government can do some things well, no "Socialism" doesn't mean all those evil things you worried it meant, and that as a function of society the vast majority of our financial/monetary system serves no effective purpose other than to circle-jerk cash (and to some lesser extent material wealth) between the wealthy while only allowing the barest minimum to become available to anyone else at a given point in time.
edit:
Well correct me if I'm wrong here. But in a general context savings = money I don't need to live comfortably I can put away for later. Which within that accepted tense savings accounts which are taxed via inflation are not the only way to "save" money. Investments in this case work out to be a form of savings, and because of this investments can escape being taxed in the form of inflation if you hedge them just enough to get a higher ROI than inflation. What's missing from this equation? Our modern financial system functions to allow for types of "investment" which are in no way required to actually stimulate the lower levels of the economy to succeed.
Thus excessive "savings" in the form of profits not being spent towards tasks which will guarantee the lower levels of the economy receive any benefit even if those "savings" may technically be investments is a definite problem. But really a deeper question to be pondered is this: What is the social function we wish money to have? Because allowing unchecked freedom of capital to be hoarded or spent wherever obviously creates this problem. Once we decide on what we want money to be then maybe we can figure out sensible rules for regulating its use to get out of this problem.
Isn't that a bit early? My understanding was that the industrial revolution is what brought about our current business cycle of booms and busts. Agrarian economies follow different rules with much less controllable supply so their isn't really a curve.
Edit: This link on the Commercial Revolution is also instructive.
Booms and busts are at least as old as banking afaik.
Don't forget about the tulips.
It's an idea. An idea I don't really know all the implications of. I'm not sold on it. But possibly.
but they're listening to every word I say
DEI Co., Patent Companies, Tulipmania, Etc.
My handy book on the histories of financial crises, which I have right here, actually starts with 2nd century BC, although things clearly documented as speculation or boom bust cycles really appears around 1400, and really takes off in 1600. Apparently,"in 1351, a law was introduced against rumors intended to sink the price of government funds" and in the 1400's there were laws to ban insider trading.
1600 is when tulipmania happens and bust cycles become obvious.
but they're listening to every word I say