http://www.nytimes.com/2009/07/09/us/politics/09stimulus.html?ref=us In this NYTimes article, it explains that rising employment has led people to doubt President Obama's stimulus plans, and the deficit hawks are all over the $1.9 trillion debt. But what about this Keyesian concept of the Paradox of Thrift?!? 70% of the overall consumption in the U.S. is from the consumer. But as savings reach all... [more]
http://www.nytimes.com/2009/07/09/us/politics/09stimulus.html?ref=us
In this NYTimes article, it explains that rising employment has led people to doubt President Obama's stimulus plans, and the deficit hawks are all over the $1.9 trillion debt.
But what about this Keyesian concept of the Paradox of Thrift?!? 70% of the overall consumption in the U.S. is from the consumer. But as savings reach all time highs, who must substitute for this consumption?!? Uncle Sam! If not, doesn't this mean there will be less investment and hence, productivity in the future?!? In other words, the more we save, the poorer we make ourselves. Isn't that a powerful argument for us to give the Obama plan a chance, and (dare I say it) perhaps open up for additional government spending. Whoa! While I am no fan of fiscal recklessness, I cannot see a way out of this, unless the BRIC countries suddenly pick up our slack and demand American products and services.
Maybe the Obama guys have it right ... more fiscal stimulus. At this point, monetary policy is fairly ineffectual since the rates are near 0% and investors are actually demanding more return on government debt, which is actually driving rates up.
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Response by LICComment
over 16 years ago
Posts: 3610
Member since: Dec 2007
Very little of the stimulus money has been spent yet. Why don't we see how that works first before committing to blowing out the deficit even more? Or how about trying to reduce government spending and lower the tax burden so the private sector can do more?
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Response by ManhattanKing
over 16 years ago
Posts: 43
Member since: Feb 2009
Yes LICComment, the Obama Administration has adopted the "wait and see" approach, like you suggest. And yes, jobs are a lagging indicator ... blah blah blah. I suppose the only risk is that by waiting, and if the amount of fiscal stimulus is insufficient, you risk sending your economy into a deeper recession. As for tax breaks, that may not do much if we keep saving it, on the consumer side, which may contribute to this savings paradox.
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Response by ManhattanKing
over 16 years ago
Posts: 43
Member since: Feb 2009
At this point, based on all indications, inflation is not a serious concern, so the economy could use that proverbial "shot in the arm."
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Response by aboutready
over 16 years ago
Posts: 16354
Member since: Oct 2007
MK, I agree, but I don't think there's a chance in hell congress will pass it right now. the best you can probably hope for is additional monies for the unemployed and interim health care for the uninsured.
consumers are also getting hit with increased state and local taxes, as well as increased fees for everything from water to licenses, as those governments frantically try to overcome shortfalls. the only thing that will help the consumer in the short term is that oil prices show some serious signs of weakness, which isn't a positive sign overall, but could provide some real relief nonetheless.
jobs may not be a lagging indicator this time. i've read some well-written and thought out articles that argue this time it may also be leading.
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Response by dcorreale
over 16 years ago
Posts: 99
Member since: Feb 2009
I reject the premise that savings does not fuel growth. 70% consumption economy is unsustainable, the root cause was loose credit. Savings go to 1) banks, which hopefully are productively lending money out and 2) direct investment. We have turned into a service economy which shifts jobs overseas and there is going to be short to medium term pain to adjust...too much stimulus will result in longer term pain.
I do not disagree with the idea of defecit spending during a recession, but the goal should not be to stop savings and have consumers continue to spend at unsustainable and irresponsible levels
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Response by LICComment
over 16 years ago
Posts: 3610
Member since: Dec 2007
There are hundreds of billions of stimulus money planned to be spent in the second half of 2009. How is this a "wait and see" approach? The stimulus has barely started MK, do you want to call it a failure and call for spending even more when the stimulus money hasn't even been put to work yet?
I just hope the stimulus money is spent properly. From what I have read, too much of it is going to wasteful political pork projects rather than on items that would really enhance the long-term future of the country.
I agree with dc that an increased savings rate is not a bad thing. I also was referring more to business taxes above.
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Response by aboutready
over 16 years ago
Posts: 16354
Member since: Oct 2007
dcorreale, yes, saving is healthy, and prudent. but the japanese saved their way through their recession, which, along with a declining population, caused inordinate pain. this too will be painful, but the risk to the system is amplified if the change comes so abruptly that there is such an overreaction (reduction in labor) that it bakes failure and deflation into the system. it is, unfortunately, impossible to determine what level of spending would be more rather than less beneficial. it does seem to me, however, that there must be a great deal of real suffering occurring with an unemployment rate this high. and there should be the potential for real job creation. the administration estimated that with the stimulus package the unemployment rate would top out at somewhere in the vicinity of 8%, i believe. as Biden said, they were wrong, very wrong.
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Response by notadmin
over 16 years ago
Posts: 3835
Member since: Jul 2008
"the japanese saved their way through their recession, which, along with a declining population, caused inordinate pain"
they saved CAUSED of the declining population (AGING!) and so the germans. many old americans will find out what saving means too late. but hey, that might solve at least part of the obesity epidemic, "no hay mal que por bien no venga".
Very little of the stimulus money has been spent yet. Why don't we see how that works first before committing to blowing out the deficit even more? Or how about trying to reduce government spending and lower the tax burden so the private sector can do more?
Yes LICComment, the Obama Administration has adopted the "wait and see" approach, like you suggest. And yes, jobs are a lagging indicator ... blah blah blah. I suppose the only risk is that by waiting, and if the amount of fiscal stimulus is insufficient, you risk sending your economy into a deeper recession. As for tax breaks, that may not do much if we keep saving it, on the consumer side, which may contribute to this savings paradox.
At this point, based on all indications, inflation is not a serious concern, so the economy could use that proverbial "shot in the arm."
MK, I agree, but I don't think there's a chance in hell congress will pass it right now. the best you can probably hope for is additional monies for the unemployed and interim health care for the uninsured.
consumers are also getting hit with increased state and local taxes, as well as increased fees for everything from water to licenses, as those governments frantically try to overcome shortfalls. the only thing that will help the consumer in the short term is that oil prices show some serious signs of weakness, which isn't a positive sign overall, but could provide some real relief nonetheless.
jobs may not be a lagging indicator this time. i've read some well-written and thought out articles that argue this time it may also be leading.
I reject the premise that savings does not fuel growth. 70% consumption economy is unsustainable, the root cause was loose credit. Savings go to 1) banks, which hopefully are productively lending money out and 2) direct investment. We have turned into a service economy which shifts jobs overseas and there is going to be short to medium term pain to adjust...too much stimulus will result in longer term pain.
I do not disagree with the idea of defecit spending during a recession, but the goal should not be to stop savings and have consumers continue to spend at unsustainable and irresponsible levels
There are hundreds of billions of stimulus money planned to be spent in the second half of 2009. How is this a "wait and see" approach? The stimulus has barely started MK, do you want to call it a failure and call for spending even more when the stimulus money hasn't even been put to work yet?
I just hope the stimulus money is spent properly. From what I have read, too much of it is going to wasteful political pork projects rather than on items that would really enhance the long-term future of the country.
I agree with dc that an increased savings rate is not a bad thing. I also was referring more to business taxes above.
dcorreale, yes, saving is healthy, and prudent. but the japanese saved their way through their recession, which, along with a declining population, caused inordinate pain. this too will be painful, but the risk to the system is amplified if the change comes so abruptly that there is such an overreaction (reduction in labor) that it bakes failure and deflation into the system. it is, unfortunately, impossible to determine what level of spending would be more rather than less beneficial. it does seem to me, however, that there must be a great deal of real suffering occurring with an unemployment rate this high. and there should be the potential for real job creation. the administration estimated that with the stimulus package the unemployment rate would top out at somewhere in the vicinity of 8%, i believe. as Biden said, they were wrong, very wrong.
"the japanese saved their way through their recession, which, along with a declining population, caused inordinate pain"
they saved CAUSED of the declining population (AGING!) and so the germans. many old americans will find out what saving means too late. but hey, that might solve at least part of the obesity epidemic, "no hay mal que por bien no venga".