Debt Distraction

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grondeau's picture
grondeau
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Debt Distraction

 It's time for some perspective on all the talk about too much debt and the need to balance budgets that seems to have gripped our political discourse recently.  Debt was not always the pariah that it has become, and for good reason.  Most of us often need some way to  time-shift our spending and earning, which is the ultimate purpose of debt.  If you remove all of the institutional layers that have grown up around lending, you can get back to that loan that parents make to their kids so they can buy their first house. The parents with more years of wage-earning behind them have accumulated cash, and the young adult children, poised with potential, have no material wealth with which to provide themselves housing.  Loan pay-back is entwined with family dynamics and responsibilities.

At one time, banks merely played the role of super-parents.  The deposits of the cadre of successful earners went toward the lending needs of myriad young families.  Banks had another important role as well,  to make loans even if they didn't have deposits to cover them.  They could lend money into existence. After all, there were many more young people poised with potential than there were elderly savers, and as long as the borrowers made good on their loans - all was well.  The Federal Reserve would allow the banks to create money this way only until it bumped into a "reserve requirement" that was there to ensure that banks had sufficient resources so that loan delinquencies could be met by the bank without making it insolvent.  The reserve requirement is only a few percent of the loan value, so practically, most of the banks assets are "lent into existence."

The fact that almost all the money in the economy is produced by way of a loan is sometimes hard to fathom, but it's nonetheless  true.  When thinking about debt, its a good idea to remember that there are always two sides to the transaction.  There is the person with the mortgage, and there is the investor that holds the IOU.  The other thing to realize is the enormous class differences between lenders and borrowers - precisely because the needs to time shift spending is strongest for young working-class families.  Investors can be older professionals and wage earners, or more frequently, they make up  the upper 1% "ownership" class by themselves.

If there is too much debt out there, then there also must be too many loans held by investors.  Or, to put it another way, the investor class has too much money!   We've gotten into this "too much debt" problem, to a large degree because of pressure from investors looking for a lucrative place to park their "too many assets".  It all comes back to the age-old problem of distribution of resources.

In the chart above, I wanted to give an idea of the size of these private debt totals, compared to the federal government debt (purple line).  The private debt market dwarfs government borrowing.  To get at the class aspect of debt, notice that the debtowed by households was growing much faster than the debt held by households in the decade before the 2008.  If households are not holding more debt, then it is businesses and financial institutions to which households are indebted that is increasing during this time.  You can also see the small uptick in federal debt as the feds try to make up for the stagnation in the private credit markets.

The lassie-fair (libertarian) solution to the distribution problem - do nothing - results in 19th century boom and bust cycles where the disruptions of the busts prevent the investor class from obtaining unlimited wealth.  The busts are often precursors to wars and revolution that generally destroys wealth.  Furthermore, those that have nothing, have nothing to lose, while those with wealth have much to lose during a bust.

The Federal Reserve was created to help deal with the problems of boom bust cycles, and following WWII it has been doing a reasonable job of it.  Other New Deal reforms coming out of the last Great Depression also provided for automatic economic stabilizers that naturally countered the boom-bust business cycle.  Social safety net programs continue to provide income to people in down turns.  Highly progressive tax rates prevented the great accumulations of wealth that are always in search of "debt income".

Conservative policies, spearheaded under Reagan, have had the consistent goal of preserving the wealth of the wealthy above all else.  Such policies have been so successful that the plutocracy has been the only consistent growth segment of the economy for decades.  Concentration of wealth has brought with it a need for investments in the form a wide variety of debt.

This increasing class separation has been in progress for years, and all went well until the debtor class could no longer service their loans.  The process that has now started is for that giant pool of money, owned by the investor class,  to  combined with the giant pool of debt owned by the borrower class until it all cancels out.  There are many ways to effect this wealth transfer - none of them popular with the plutocracy.

The least painful solution is general inflation.  True inflation, with wage as well as price increases, helps borrowers pay back loans with less valuable money while investors lose money in constant dollars on their loans.  Restoring New Deal reforms that were enacted after the last Great Depression and have been eroded ever since, would improve the situation.  Progressive tax rates like those from the Eisenhower era would help as well.  But we will hear none of this from our politicians until civil unrest spreads far and wide.  We are living in a precarious time.

http://squashpractice.wordpress.com/2011/09/12/debt-distraction/

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Outstanding

Grondeau

Your analysis is outstanding. I don’t have time to say much now, and I need to digest it more thoroughly. But you have presented key insights that will help improve our understanding and discussion of the first E.

Travlin

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Thanks for a refreshing,

Thanks for a refreshing, well thought out post. It is important to renew focus on private sector debt, and the reasons for it, and why it has stalled, and how this affects our “recovery” such as it is. Often, to focus on such factors brings to light certain conclusions that many people would rather you not make. In addition to nearly drowning out any sensible discussion of the issues, our current climate also calls for “new economics” to try and better represent reasonable explanations for what ails us, as well as the perennial questions as to why these rather extreme effects we see were not predicted in advance.

How is it that we missed this coming goes the refrain, and then the finger points to macro-economic specialists whose “voodoo” is so far wrong as to suggest we need entirely new theories of political economy to explain our plight.

No we don’t.

As Krugman says in this insightful commentary (below), the mechanisms are well understood, the causality well documented, and the corrective action plain as day- it’s just been forgotten, some might say convienently so. All of the questions, all of these scenarios, have been asked and answered decades ago.

Link

Krugman wrote:

DARK AGE MACROECONOMICS

Early in 2009, when the Obama stimulus was under discussion, I was stunned to read statements from a number of well-regarded economists asserting not merely that the plan was a bad idea in practice — a defensible idea — but that debt-financed government spending could not, in principle, raise overall spending. Here's John Cochrane:

“If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about ‘crowding out.’”

I won’t go into detail here about why that's wrong. Let's just say that statements like this reveal a complete ignorance of almost 80 years of macroeconomic analysis. Even the simplest multiplier model tells you that while it's true that S=I, that equals sign cannot be replace with an arrow running from left to right.

But what became clear in the policy debate after the 2008 crisis was that many economists — including many macroeconomists — don’t know the simplest multiplier analysis. They literally know nothing about models in which aggregate demand can be determined by more than the quantity of money. I’m not saying that they have looked into such models and rejected them; they are unaware that it's even possible to tell a logically consistent Keynesian story. We’ve entered a Dark Age of macroeconomics, in which much of the profession has lost its former knowledge, just as barbarian Europe had lost the knowledge of the Greeks and Romans.

As long as monetary policy could bear the burden of macroeconomic stabilization, this didn’t seem to matter too much: even as equilibrium business cycle theory became increasingly dominant in graduate study, central banks, like medieval monasteries, kept the old learning alive. But once we were hit with such a severe banking and balance sheet crisis that monetary policy hit the zero lower bound, it was crucial that the economics profession be able to weigh in knowledgeably and coherently on other possible actions. And it turned out that it couldn’t.

You often hear people saying that the crisis has revealed the need for new economic thinking, for new ideas about macroeconomics. Yet the first priority seems to be to resuscitate old ideas. Brad DeLong describes an interview of Larry Summers by Martin Wolf as follows: “Asked to name where to turn to understand what was going on in 2008, Summers cited three dead men, a book written 33 years ago, and another written the century before last.” And in my view, Summers basically got it right.

 

To add a minor point to your excellent summary, I would suggest that there is another way to articulate what you have already said, which is perhaps just a little bit more cynical but true nevertheless. This would be the notion that not only is lack of aggregate demand the dominant phenomena for our current malaise, but that said lack of demand is caused by the removal of purchasing power from the consumer- a conclusion that brings forth a very uncomfortable line of questioning. In short, the corporations and rentier class has absorbed all the surplus value from the system- all of it, and there is nothing left to enable a sustainable level of consumer purchasing. Wages are down and dropping, private credit at maximum thresholds- indicating that both present and future purchasing power of the middle and lower class consumer is over leveraged- and already spent.

Note that enormous amounts of inactive capital held by corporations is sitting on the sidelines-undeployed. Also, many (if not most) members of the rentier class can no longer find suitable new  investments that will return a decent ROI- effectively stymieing growth at the top. To suggest that there are no consumers left is not quite correct, a better description is that the proportion of consumers compared to those with excess capital that wish to profit from this base of consumers is distorted. Even though the tangible numbers are relatively low compared to the general head count of the population (around 1%) there are too many people, (within this 1%) with too much money that cannot find a profitable low risk place to invest.

This is because of the enormous wealth re-distribution, because of wage decline, because of the saturation of private credit, but mostly because the surplus value has been sucked out of the system and there is nothing left to suck out anymore.

One final point is to illustrate this with a practical example, during the build up to 2008 meltdown the rentier class was confronted with a new reality courtesy of their friendly bankers. Income property, either commercial or residential, was priced so that even with substantial down payments the property income barely covered the mortgage costs to service the real estate loans. Huh? This phenomena was nearly ubiquitous, and barely raised an eyebrow amongst real estate investors. But let’s be clear, even with this incredible reality, income properties were  selling like hotcakes. Why? Because people had shifted their emphasis to profiting on the equity build up and using income just to (barely) cover operating costs until such time as they could sell it and pocket the capital appreciation-which they did in spades until the day the music stopped playing.

We see in this example an illustration of something quite interesting, a set of conditions wherein the financial institutions extracted so much surplus value that an entire class of income investments was converted to a Ponzi scheme.

Again.

 

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Krugman...meh

“If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about ‘crowding out.’”

I won’t go into detail here about why that's wrong. ...

 

DK,

Since Krugman won't, please give me your view on why this reasoning is so wrong. Please explain how any multiplier used in government spending would not apply to spending by the private sector.

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Here is graphical confirmation

The outstanding graphical presentation linked below was in yesterday’s Daily Digest. It supports Grondeau's and Darbikrash’s posts with hard data. DK has laid out those key points I referred to above. After a year and a half of diligent study of all aspects of our situation, DK’s thesis is looking very strong to me. He extends Chris’ view one step further.

https://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html

I started a related thread in January about how US corporations thought they could survive after destroying (correction: the destruction of)  the US middle class, as I first began to comprehend the bigger picture.  The short answer is they are no longer "US" and they don't know.  They are just hurtling headlong into the unknown.

http://www.peakprosperity.com/forum/after-destroying-us-middle-class-how...

Travlin

 

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Correlation not equal Causation

Travlin,

I must have missed where you showed the causation.  Surely you realize the difference between correlation and causation. 

For an extremely silly example we have the famous global temperature vs number of pirates inverse correlation as seen below.

I could not find a more up to date graph but the increase in Somali pirate activity might then explain the recent drop in global temperatures.

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Travlin
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Ah yes

Fair enough Goes. That’s what I get for posting in haste. I believe you are referring to the wording of my thread title. I corrected the post above, but I can’t change the thread. As you and DK pointed out there, the destruction of the middle class is like the line from one of the Godfather movies, “I always liked you. It’s nothing personal. It’s just business.” The corporations are also prisoners to the larger economic forces at play. I remember that. I just “spoke” too fast.

Travlin

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MarkM
MarkM wrote:

“If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about ‘crowding out.’”

I won’t go into detail here about why that's wrong. ...

 

DK,

Since Krugman won't, please give me your view on why this reasoning is so wrong. Please explain how any multiplier used in government spending would not apply to spending by the private sector.

Well I’m not sure I’m qualified to second guess either of these two PhD economists (one a Nobel laureate) , but the central point to my linking this passage was not Cochrane’s’ quip, but rather the statement that we have summarily ignored decades of learning about economics at even a fundamental level, in fact, outsmarted ourselves with “newer and better” theories that overlook first principles.

So I’d really rather talk about that.

But you asked, and within my diminutive understanding of the “science’, here is what I think:

Private sector entities make investment decisions based, purely and simply, on profit motive. Additionally, we have to add a time component. The time component  to the crossover (payback) is just as important as the multiplier. The sooner the investment crossover, the better. Now, businesses have finite volumes of funds available for external investments, and usually prioritize these investments sequentially as some arrangement of labor, productivity enhancements, and lastly, facilities and infrastructure.

The reality of business investment (as opposed to the theory) is that business are constrained to solve for the convergence of the highest payback and the shortest time crossover. All investments are collimated against these parameters, and those that rise to the top get funded, and those that fall short of the top tier are left unfunded. The business entity cherry picks the top few, until investment funds are depleted. The rest go unfunded, and by definition provide no multiplier effect to the economy at large. In times of high consumer demand that pool of investment funds may grow larger, perhaps due to outside investment interest, but in all cases with an eye to increased profits based on projected demand. More projects get funded, and some of these, in either case , will have a multiplier effect through the economy.

There is one more investment discriminator that we must mention, and it’s a biggy, and that is the consideration as to who benefits from any return on the investment. Is it just the investing entity? Or do the competitors of the investing entity also share on the returns, even though they have not put money into the investment. In many, if not most cases, it is not prudent for private sector entities to make investments that do not singularly benefit themselves. In other words, if an investment is made on a road, bridge, or infrastructure that others may benefit from, then this external beneficiary may receive an efficiency that contributes to lower cost of goods (and higher surplus value) at no cost, and if so, than our intrepid model private investor has just made a fatal mistake……..

So without too much trouble we can see cases where certain types of private sector investment will not be made if deleterious conditions exist such as:

-         Too long a payback cycle as expressed in time.

-         Less than optimal ROI, e.g., there are “lower hanging fruit” that are funded, leaving aside perfectly valid investments before running out of investment capital.

-         Singular investments that exceed the entities’ available capital and go unfunded.

-         A climate of pessimism or fear that discourages even “safe” investments”.

-         A declining market where demand forecasts indicate-clearly- that sales will be dropping off, and as revenue is based on intrinsic demand, there is no point in investing-at all. Who is going to buy it?

-         An investment that will share benefits with other actors who have not invested, and whose benefits may include placing the original investor at competitive disadvantage!

So I’ll make the point that with respect to private sector, never mind multipliers, there are plenty of reasons why the private investment will never get made at all.

This groundwork now laid, we can talk about multipliers, and the comparative magnitudes between private and public sector. Multipliers have an intrinsic underpinning, and this concerns how many actors can benefit from a single investment, and over what time duration. A public sector investment can be made that will benefit a great many actors, without concern for undercutting a competitor. In fact, the public sector investment strives to optimize for the largest number of potential beneficiaries, which is diametrically opposed to the private sectors’ motivation. As the potential number of actors is far greater under this model, and we can take advantage of a longer time domain, a much larger multiplier effect is possible (but not always realized).

An example might be the US Governments’ deployment of global (spaced based) GPS. This cost an enormous sum of money, arguably larger than any private firm would want to invest given a “blue sky” marketing climate where there is no infrastructure, no consumer market, and a very exotic (at the time) deployment  technology. Who would spend $12 billion to launch 18 satellites with an unknown market potential? Why, only the US military is dumb enough to do that, so let’s see what happened:

Link

According to Frost & Sullivan?s North American GPS Equipment Market Report,

total North American GPS equipment market revenues (2003-2010) are:

Revenues (USD Billions)

2003   $3.5 billion

2004   $4.1

2005   $4.9

2006   $5.8

2007   $6.6

2008   $7.5

2009   $8.5

2010   $9.9

 

Frost & Sullivan counts revenues from GPS equipment sold into

consumer, commercial and military markets

 

The GPS equipment revenues by end-user group are broken down into:

52%    Consumer

40%    Commercial

8%     Military

 

So I see almost $46 billion in revenue to date, 92% of it commercial/consumer from a $12 billion investment. I’d call that  a decent multiplier, and one that almost certainly would not have occurred at all with only private sector investment.  
This program stimulated dozens, if not hundreds of companies employing thousands of people, and the revenue benefits will
continue for decades into the future.
.

 

 

 

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grondeau wrote:  The
grondeau wrote:

 

 

The least painful solution is general inflation.  True inflation, with wage as well as price increases, helps borrowers pay back loans with less valuable money while investors lose money in constant dollars on their loans.  Restoring New Deal reforms that were enacted after the last Great Depression and have been eroded ever since, would improve the situation.  Progressive tax rates like those from the Eisenhower era would help as well.  But we will hear none of this from our politicians until civil unrest spreads far and wide.  We are living in a precarious time.

 

I do not believe that wages are going to keep up with inflation.  Wages are capped by foreign competition and the general situation in the labor market.  The demand for labor is very weak and with 10 to 20 percent unemployment (depending on how you want to measure it) there will be no shortage of labor to drive labor prices up.  No, if there is more inflation we are just going to all have to eat it and lower our standard of living - something Americans are not used to doing.

Sorry, but there are only 235,000 so called millionaires (net worth greater than 1 million dollars) in the entire country.  The current deficit is projected to be 1.6 trillion.  If you tax every one of them 7 million dollars it would just cover this year's deficit and it would put a bunch of them into the poor house and that does not even touch the debt.  The way things are going there will be a deficit of about 2 trillion next year.  Whose incomes are you going to confiscate next year to pay that ?  What about the year after that when the deficit is 2.5  or 3 trillion ?  In addition, I have never seen a case where increasing taxes collected resulted in a reduction in spending - it simply does not happen.  The truth is we simply can not tax our way out of an out of control government spending problem.  We need to attack the root of the problem.  America just has a government it can no longer afford.  The sad part is there is pretty much nothing we can do about it.  The millions of high paying jobs we exported are not coming back - not now, not ever.  So government spending has to be cut, and cut big time, or there is going to be a financial collapse in this country the likes of which nobody currently alive has every seen.  Since the politicians have proven to be incapable of controlling spending, I would suggest you start preparations for the collapse.

 

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Thanks

Thanks for the time to respond. I don't mean to detract from the central theme of this thread. However, whenever we speak of increased government spending, my immediate response is to say, "No."  I appreciate you speaking slowly, I happen to be one of those mouth breathing, knuckle dragging "gubymint too big" types. However, I couldn't agree more that we have allowed the corporations and their principles to benefit at the expense of the middle (soon to be lower) class.

I see the logic of your example of the satellite gps program. However. I could argue that you have cherry picked a government "business" venture that supports your hypothesis. I will not hijack the thread with a rebuttal, we can discuss some other time.

 

 

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Are you twins?

 

Darbikrash: "This is because of the enormous wealth re-distribution, because of wage decline, because of the saturation of private credit, but mostly because the surplus value has been sucked out of the system and there is nothing left to suck out anymore."

DShields: (from another thread)   "And, I agree the concentration of wealth is screwed up but we did it to ourselves. We elected and then continued to reelect politicians that allowed millions of high paying jobs to be exported to third world countries. A massive mistake. Probably the biggest mistake ever made in America. We deliberately destroyed the middle class and all the tax revenue they generated out of laziness and stupidity. Now, we are going to pay the price."

The title of this thread - Debt distraction.  The debt that is strangling us today grew from the events observed by Darbikrash and DShields as per their comments above.  As middle class purchasing power eroded, the middle class adopted the "extend and pretend" philosophy of augmenting their diminishing purchasing power by taking on debt.  Now they can take on no more.  They're maxxed out, and must now live on a greatly reduced cash flow.  Today consumers are focused on just getting from one day to the next.

However, even if all that consumer debt was wiped out tomorrow, either via total bankruptcy, or hyperinflation, or even if we taxed the rich and used the proceeds to pay off all this debt, the consumer cannot go back to his old ways.  A greatly reduced standard of living in America is the new normal.   The consumer's purchasing power, based on current earnings, is greatly reduced and he cannot augment that with "extend and pretend", like before,  because the days of easy money are long gone.  

A massive stimulus program for infrastructure would get us some new bridges and a few other things we need, but then those paychecks would go overseas for imported goods, because that's where our manufacturing base went.  New bridges and such will have little to no effect on bringing manufacturing back here.

It's going to be a long hard slog out of this mess.  We have to stop dis-investing and learn again the benefits of living below our means.  And, we need to effect a complete revamping of the election process so we can get a government that answers to the citizens of this country.  Part of that revamping would include a thoughtful populace that votes based on what's right for this society as opposed to who's picture is in People Magazine this week.

 

 

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Yin And Yang

Osb272646

No, they're not twins. These two actually come from left and right on the political spectrum, respectively.

Poet

osb272646 wrote:

Darbikrash: "This is because of the enormous wealth re-distribution, because of wage decline, because of the saturation of private credit, but mostly because the surplus value has been sucked out of the system and there is nothing left to suck out anymore."

DShields: (from another thread)   "And, I agree the concentration of wealth is screwed up but we did it to ourselves. We elected and then continued to reelect politicians that allowed millions of high paying jobs to be exported to third world countries. A massive mistake. Probably the biggest mistake ever made in America. We deliberately destroyed the middle class and all the tax revenue they generated out of laziness and stupidity. Now, we are going to pay the price."

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Interesting, but to what end?
osb272646 wrote:

 ...

The title of this thread - Debt distraction.  The debt that is strangling us today grew from the events observed by Darbikrash and DShields as per their comments above.  As middle class purchasing power eroded, the middle class adopted the "extend and pretend" philosophy of augmenting their diminishing purchasing power by taking on debt.  Now they can take on no more.  They're maxxed out, and must now live on a greatly reduced cash flow.  Today consumers are focused on just getting from one day to the next.

However, even if all that consumer debt was wiped out tomorrow, either via total bankruptcy, or hyperinflation, or even if we taxed the rich and used the proceeds to pay off all this debt, the consumer cannot go back to his old ways.  A greatly reduced standard of living in America is the new normal.   The consumer's purchasing power, based on current earnings, is greatly reduced and he cannot augment that with "extend and pretend", like before,  because the days of easy money are long gone.  

A massive stimulus program for infrastructure would get us some new bridges and a few other things we need, but then those paychecks would go overseas for imported goods, because that's where our manufacturing base went.  New bridges and such will have little to no effect on bringing manufacturing back here.

It's going to be a long hard slog out of this mess.  We have to stop dis-investing and learn again the benefits of living below our means.  And, we need to effect a complete revamping of the election process so we can get a government that answers to the citizens of this country.  Part of that revamping would include a thoughtful populace that votes based on what's right for this society as opposed to who's picture is in People Magazine this week.

Yeah, it is pretty screwed up how things turned out on the back end of the fossil fuel age and global resource depletion - full corporate dominace over our government and the abdandonment of any semblance of an egalitarian society. And it would be socially just and wise to do such things as suggested by grondeau:

grondeau wrote:

Restoring New Deal reforms that were enacted after the last Great Depression and have been eroded ever since, would improve the situation. Progressive tax rates like those from the Eisenhower era would help as well.

Other steps would be to dismantle our bloated and ever-self-replicating military industrial complex and change our for-profit, disastrous healthcare system.

But I simply don't see even those minimal palliative steps happening. The point though is that no economic system dependent on perpetual 'growth' is even viable for the lives of children born today. The changes needed are so radical and foreign to what everyone living has experienced their entire lives that I don't see the requisite things being done, let alone discussed in mainstream circles. All of this talk of how and why things have deteriorated is interesting and educational, but also points to how far off we are at the root problems which go beyond supply-side and demand-side economics. As George Carlin said, "the layers of bullsh*t are so thick that fixing the system is hopeless." Take a look at the presidential candidates on the boob tube and you'll see there is no 'hope'.

America Has Abandoned Its Young People

...

By 2020 parents are looking at a four-year bill that's likely to top $240,000 for private schools and $155,000 at public universities. Let me know when this problem has been fixed. Colleges raise tuition because they can! It's supply & demand, as though a college education were the same as Apple iShit. There are no constraints on tuition inflation outside its cost, but easily available loans are guaranteed by the Federal government, so price is apparently no object. Student loans are expected to top the one trillion dollar mark this year ($1,000,000,000,000). See my posts The College Degree Scam and The College Degree Scam Goes Ballistic.

...

At what point will young people be unwilling to take on so much debt? They are willing to take on this outrageous debt even in the face of a very uncertain job future because the alternative seems so much worse—not going to college.

The Daily Ticker's Aaron Task interviewed Tamara Draut, who describes the plight of those who never get a college degree (video below). The traditional route to a Middle Class life was in manufacturing jobs, but we've been losing those for about 35 years now, and wages are falling. See my post Manufacturing — A Story Of America's Decline. I should also note that the aforementioned Apple iShit is manufactured in China. If it weren't, this already expensive crap would be completely out of the reach of most American "consumers". There's the "genius" of Steve Jobs.

...

Thus the salary of a man with a high school degree has dropped about 25% over the last 30 years. But of course we can solve this problem!

How do we solve the problem?

The key, according to Draut, is to invest in infrastructure. If it worked in the Great Depression it will work again. Draut claims it's more than coincidence that the dwindling middle class comes at a time of steady "disinvestment in infrastructure." To that point, Draut calls for a W.P.A. program for the entire country.

Task wonders if we should take it one step further and reinstate the draft.

There it is again! The Hope! Sure, we'll just spend a few trillion dollars rebuilding our infrastructure, create a W.P.A. for the entire country. These appropriations are just going to fly through the Congress with no strings attached. And then we'll re-instate the draft. Unemployed young people can get their asses shot off fighting Muslims in a foreign land. Good idea!

Revisit the Wheel of Suffering and my remarks just above. Again, let me know when these problems have been fixed. The only reasonable conclusion here is that most Americans live in Disney Land.

America has effectively abandoned its young people. Any society that does that is not a society worth saving.

...

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“We have undergone a slow-motion corporate coup d’etat.”... “They’ve [the corporate elite] won. Meanwhile, we’re barreling toward an environmental crisis. The only question is which will come first, the economic collapse or the environmental collapse.” ~ Chris Hedges
 

MarkM's picture
MarkM
Status: Platinum Member (Offline)
Joined: Jul 22 2008
Posts: 855
The other side of the government spending,...

...central planning coin.

On August 20, 2009, an Energy Department staffer examining a pending loan to a California clean energy start-up came to a startling conclusion: The company would run out of money by September 2011. The government would, in effect, be placing taxpayers on the hook for a business likely to founder. 

Still, things moved – and fast. 

http://real-economics.blogspot.com/2011/09/its-way-harder-than-it-looks.html

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