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Index Prelude: Polarity in America 1. Wellbeing: Government Income Inequality Stagnate Wages 2. Measuring: Inflation Employment Failure of Capitalism3. Macro: GDP Usefulness Distributing GDP Growing GDP4. Micro: Most Westerners Live Better Than Ever 5. Western Political Economy Post WW 2 US Competitive Adjustments Post WW 2 International Economic Adjustments Western European Political Economy
Source has active links Polarity in America:
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1. Wellbeing: Government Spending Helps and Hurts
Source: What You Should Know About
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Tax Gap Cheats Double the Deficit
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Wellbeing: When Will Income Inequality Affects Growth
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Blame
Democracy,
Not Capitalism, for
Income Inequality
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Well Being: Are
Wages
Stagnate A
Politician's Dream!
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More Earned
Higher Incomes
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Inflation is About the Value of Money
Leaving Gold Standard Changed Variability and Value of Money
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Measuring: Employment
Increasing Minimum Wages Job Loss is Temporary |
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Measuring: Failures of Capitalism
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Macro: Distributing GDP
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Will Climate Change Cause the
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Education Can Be a Poor Economic Investment
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U.S. Economic Normality
Bailouts |
New Normal
#1 Rising Income
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New Normal #2 Oil Embargos and Competition
Began Wage Stagnation |
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New Normal #3 Financial Instability from
Philosophical Change |
1999 Gramm–Leach–Bliley Act Increased Systemic Financial Risk once limited by the Glass-Steagall Great Depression Act. Initiated by Republicans it was signed by President Clinton. Think financial industry expansion. See Five Bad Bush/Clinton Policies 2004 Uptick Short Rule of 1938 rescinded. Think stock market gambling. 2006 FASB requirement that housing assets be mark-to-market decreased financial system collateral. Action resulted from a 1991 Government Accountability Office investigation of the $160,000,000,000 savings and loan bailout. Think moral hazard. |
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From
Financial Crisis to
Recession
to
Great Recession to Recovery |
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Understanding Balance Sheet Recessions
They are
infrequent, severe, and long-lasting. Understanding them is necessary when
judging society's efforts to manage The Great Recession. It is like understanding a doctor's attempt
to relieve a headache requires knowing the level of difficulty. Was it a
Migraine Headache? A balance sheet is
caused by high levels of private sector
debt. Assets must equal liabilities plus
equity. If assets values like housing collateral fall below their
associated debt, equity must make up the difference or insolvency results
and debt must be repaid. Think 1837, 1873, 1890 & 1929 See
Most Severe US Recessions. |
What Led To The
Great Recession? |
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China 2012 |
$214B |
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Great Recession Stages
from
The Shifts and the Shocks by Martin Wolf 1. A more complex unstable financial/credits system resulted in extreme optimism in good times and panic in bad times. Think derivatives, securitization, credit default swaps all managed by hedge funds. 2. Savings glut created as emerging countries lowered borrowing and increased trade surpluses after the 1997 Asian Debt Crisis made their foreign dollar dominate debt unsustainable. They expanded trade and kept personal consumption below economic growth. Less consumption and borrowing plus a trade surplus increased Dollar, Euro, and Yen reserves. Think China and Russia. 3. Aggregate demand stagnated as trade surplus countries didn't spend. Germany's 2005 economic renewal was saved and Japan's private sector saved much more after their 1990's credit bubble exploded. Adding to the demand shortage were companies who maintained profit by decreasing capital investment spending despite historically low interest rates. Globalization and technology also helped them maintain profit as wage increases were limited to most valuable employees. State and local governments, especially those with underfunded pension systems, also cut expenditures. Think Mercantilism. 4. Increased current account deficits by wealthy nations balanced world trade. Higher demand for foreign goods was made possible by massive central bank supported |
low interest
loans. The FED's historic monetary expansion was made possible by
continued low inflation caused by expanded Flat World competition
and low oil prices. Innovative financing and lax financial regulation also fostered
expanded financial asset demand.
Think excess OPEC savings
financed the 1970's
Latin American Debt Crisis leading to Savings and Loan Crisis. 5. Real Estate and Stock bubbles came as expected from low long-term real interest rates. New home buyers borrowed surplus savings and investors devoured growing unique debt securities created by an expanding finance industry promising insured difficult to understand almost guaranteed financial instruments. Leverage rose dramatically. Fraud, near fraud and data manipulation exploded. See Brief History of Financial Bubbles. 6. Poor Crisis Management by politicians as their economic advisors believed market capitalism would prevent serious recessions. The Great Moderation solidified this view. Possibility of new financial instrument contagion were not understood. When panic started, political, intellectual and bureaucratic leaders resisted quick action in areas that required cooperation. A US depression was avoided by FED, Treasury and Congressional efforts that were slowed by austerity. Iceland, Ireland, Greece, Spain and Portugal experienced economic depression. See The Great Recession. Part 2 Financial Bailout, Economic Recovery, Poverty Stuck at 15%, Income Stagnates and Wellbeing Grows 12/18/15 |
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Financial Bailouts, Economic Recovery, Poverty Stuck at 15%, Profit vs. Labor, Wellbeing Grows, Asian Competition |
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New Normal # 4 U.S. Bailout History The $700 billion 2008 financial-sector rescue plan is the latest of many bailouts that go back to the Panic of 1792 when the federal government bailed out states over-burdened by their Revolutionary War Debt. Thereafter private banks and investment bankers took over financial bailouts until the Panic of 1907 when the economy was so big that even J.P. Morgan needed U.S. Treasury help. This led to the 1913 Federal Reserve System designed to be the lender of last resort. |
Recently the 1987 Savings and Loan Crisis bailout cost about $160 billion. Other recent government private sector bailouts have included: 1970 Penn Central 1971 Lockheed 1980 Chrysler 1984 Continental Illinois 1991 Executive Life Insurance Company by states assessing other insurers and the 1998 Long-Term Capital Management bailout by commercial and investment banks. See History of U.S. Government Bailouts. Think overcoming greed is difficult. U.S. does better than most! 12/28/15 Use pdf for color printing. |
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Great Recession Cost Were High But Growth Cured Budget Problems Economic Cost of Great Recession Estimated at 12.8 Trillion. Some add home values loss but this is a reach since the housing bubble had inflated values. U.S. FED Profit of $100b in 2014 was up from $47b in 2009. The 2010-14 total was $ 420b. Source |
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See
Treasury
Financial Analysis of Great Recession in Charts.
More Shenanigans Coming? |
 New Normal # 5 Poverty Stuck at 15% Some believe the 15.5% poverty rate should be lowered. After "...correcting the 2013 poverty rate for noncash food and housing benefits, refundable tax credits, and the upward bias in the CPI-U ..."the rate drops from 14.5% to 4.8%. War on Poverty-Was It Lost Others believe it should be raised as it doesn't account for geographic and demographics differences. See Poverty Rates How Flawed Measure Drives Policy Other Data 1 Data 2 Think many use true but not necessarily appropriate data to foster their POLITICAL beliefs. Example: With our obesity problem how could anyone have believed that many went to bed hungry during the Great Recession. Calculation ignored food stamps and subsidized school lunches. |
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New Normal #7
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1. Society's continued stability has resulted in tremendous economic growth
which is
the key determinate of well-being.
Public safety net,
child
safety, and
adjusted poverty rate have all improved
dramatically since the
Gilded Age. Think
economic continued economic distress in
Russia, Europe, Japan and China. 2) Scientific achievements have continuously added to citizen well-being. Think cured diseases, smart phones, streaming audio-video, Gillette Stadium ... See Health Problems Solved. 3) Personal Income increased continuously if not always rapidly because nature and nurture improved the personal characteristics needed to enhance wellbeing. Think Russia, China, and Europe's really slow recovery from the Great Recession. Source Is The Country In Trouble, Will Stagnate Income Hurt Our Children and Recent Decades Ranked By Problems. see Crisis of Capitalism 11:10 video is an interesting Marxian view i.e. Bernie Sanders Return to page 1 Send thoughts to antonw@ix.netcom.com |
New Normal # 8 Asian Competition
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1. The Good
Cold War to 1980
Full Employment Goal =
US
Credit Expansion |
2. The Bad
Neoliberal Economic Reset 1980-2008
Business Responded to Inflation |
3. The Ugly Reactions to Neoliberalism 2008- Sustained
Deflation |
| Structural Causes |
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to 1980 Politics
Strong Unions
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1980-2008 Politics
Weak Unions |
2008-
Lack of Bank Regulation High Leverage Short-Term Reserves Were in Academic Economist Ignored Economic Effects of Financial |
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Economics Sustained Inflation Wages Got All-Time High Capital Got All-Time Low Real Debt Decreases Inequality Low |
Economics Secular Deflation Labor Got All-Time Low Capital Got All-Time High Inequality High
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Economics
Government Helped
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Most Westerners
Live Better Than Ever
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Choosing a College and Major |
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Developmental Characteristics |
1500 Begins A Fight for Individual
Property Rights |
1800 Conflict
Human Rights vs. Property Rights
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| Philosophy | Humanism stresses individualism opposes Christian Church penance | Science joins Humanism and Christianity as most dominate philosophical influences | |||||
| Key Feature | Free Will opposes Predestination as a lifestyle option | First Revolution | 2nd Industrial Revolution | Free Trade and Globalization | |||
| Innovators | Erasmus influenced Luther | T_More defines utopian socialism | Alexander Graham Bell | Mark Zuckerberg | |||
| Key Inventions | Guttenberg Press3 | Financial Revolution | Steam Engine | Steel, Chemicals, Electricity | Transistor, Internet, Genetic Engineering | ||
| Economic System | Feudalism | Mercantilism /Bullionism. | Laissez-faire Capitalism |
managed currency/credit |
Democratic Socialism | Free Market Capitalism |
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Economic Theory |
Manorialism had Lords with legal economic power supported financially from his landholdings with legal obligatory contributions of the peasantry. |
Tariffs increased powerful, helped private "infant" industries. Trade was limited with industrial specialization providing growth. |
Private property, individual liberty |
backed by a
constitutional
Democracy. |
Property/Contract Rights eventually yield to human Rights/Liberties See Lochner v. NY |
Free Markets Rule GATT Globalism WTO aid Agriculture |
Nationalistic Backlash |
| Surplus | Agriculture + Gold +Luxuries | Diseases Cured, Basic Necessities | Preventive Medicine | Retirement |
| Oligarchs |
Church + Monarchy +Guilds +Traders + Merchants |
+ Corporations | Wealthy Few + Politicians | + Interest Groups | + Social Media moguls |
| Control Method |
Eternity in Hell or Heaven+ Physical punishment |
+ Economic Rewards | + Political Rewards | + Self Interest |
| Work Structure | Wool Weaver Households | Cotton Factory Workers | Unionized Manufacturing Workers |
| Taxpayers |
Surfs + Farmers + Guilds +Bankers +Importers |
+ Corporations |
+ Individuals |
| Waste |
+ Military Spending |
+ Education Spending |
| Oligarchs Provided |
Safety |
+ Infrastructure | + Sanitation + Health | + R&D + Universal Education |
+ Education + Security |
| Oligarchs |
Anarchy |
+ Trade Unions | + Government Replace Unions |
+Social Networks |
| Key Asset | Land + Gold | Natural Resources + Transportation |
| Energy Source |
Humans Animals, Water, Wind |
+ Steam |
+ Electricity |
+ Oil | + Atom | + Nature |
| Economic Catalyst | England's Hegemony Begins English Cotton mfgt avoided tool monopoly constraints allowing innovation based on science |
| Key Exports |
Spices Tea Silk from Orient |
Wool, cotton |
+ Nature |
| Key Exporters |
India, China |
+ England |
+ US + Germany |
New Normal # 6
Profit
Beating Labor Twenty-first century war expenditures helped profit recover after a
