He's going down, down, down

[grbeck]

Yes, and in your mind, that's what we have been doing that got us in this mess, right? Raising taxes (nope - the opposite), throttling the growth of the money supply (QE 1 and 2), and signing into law draconian protectionist measures (which ones would those be)? So, since (in your imagination) we have done all those bad things, that's why we are in trouble, right? I think I understand the problem.

 

 

I never said that those policies - throttling the money supply, signing into law strict tariffs, raising taxes - caused the crash of 1929, or that they caused the current downturn. I bring them up because posters on this board, and some politicians and pundits in the "real world", have advocated a return to protectionism and the enactment of higher taxes in response to the current downturn. Those who don't learn from the past are doomed to repeat it.

 

Those policies were enacted by President Hoover, and continued by President Roosevelt, in response to the economic downturn of 1929. They turned what should have been a short and sharp recession into the Great Depression. This is the assessment of everyone who has studied the period with an understanding of history and economics. It's worth noting that, by the end of his presidency, President Roosevelt was working to eliminate tariffs, as he had come around to this view.

 

These things didn't happen "in my imagination" or in "my mind."

 

They actually happened. These were the policies that were enacted by President Hoover and President Roosevelt during the 1930s.

 

These policies didn't work in the 1930s. They won't work today. They didn't cause the current downturn, but I never said that they did. They certainly will not help us out of the current downturn.

Edited September 13, 2011 by grbeck

[grbeck]

Can you justify a system where half the people don't pay a dime - and some of them actually get money back?

 

It was originally enacted as a substitute for welfare, and to encourage people to work. When it was originally enacted, it had bipartisan support. In that respect, it is not necessarily a bad thing, but, it needs to be remembered when someone brings up the lie that the rich are not paying their "fair share" of the federal income tax.

 

The federal income tax is highly progressive, and the rich today pay a higher percentage of total taxes collected than they did in the 1950s, when the top rates were set at 90+ percent. (The dirty little secret, of course, was that very few people actually paid those rates, thanks to a tax code riddled with loopholes, which have largely been closed.)

Edited September 13, 2011 by grbeck

[goinbroke2]

The other questions we have to ask are:

1) Is it better to tax income or tax spending, which is the most effective way to collect tax?

 

2) Tax deductions for business expenses, should they be allowed , does the government

want business to reinvest earnings into the economy and grow industry and jobs?

 

3) Should we encourage high personal income earners to become "companies" to

encourage them to invest their money as above by ofering lower rates of tax?

 

I get a headache just thinking about the intricate web of arguments for and against,

I guess if you having either a consumer based market or resources export market would

change the way a government views tax, whether money is flowing in or out of the country

with growth in GDP due to resources boom or a loss in GDP due to a large trade deficit....

 

One country's meat is another one's poison....

 

Hmmm, interesting.

1) We have both right now, I would guess taxing spending would be better because there are no loop holes...but, thinking about it, that would spawn a large underground barter economy. Hmm, I'm fine with both I suppose if both are equally applied. In other words 10% on everything not 5% on certain things and 40% on stuff the perceived "rich" buy. Income tax, flat 10% with no deductions for everybody.

I'm thinking in this simplistic way everybody would have 10% income tax and 10% tax on items. (or whatever the rate would have to be) I know others will scream because the "rich" should pay more but that's NOT FAIR or equal.

 

2) Again, at first I would say yes...but what if it too were flat taxed?

a) You buy raw material for $1.00 and add $3.00 to make a product you sell for $10.00. You are taxed $1.00 and the rest is your to do with what you please. (reinvest or keep as profit...which would be income and taxed at...10%)

 

B) You do the same, $1.00 material/$3.00 input/$10.00 sale price. Then your taxed $5.00 but you get $4.00 deductions.

 

With (a) you get $5.00 to do what you want. With (B) you have $1.00 but get a $4.00 return at tax time.

I think I would prefer (a) where I have control of my money and more importantly I'm not giving the government a free loan of $5.00 that after X amount of months of collecting interest on my money, they give me back $4.00.

 

3) No because if I'm a gazillionaire, I already know that by letting money sit it is doing nothing but by investing I can use my capital as collateral and borrow even more to invest. (and be a multi-gazillionaire hehehe) Also, with a flat tax they would be paying the same rate as everybody else and would be investing/spending as they saw fit anyway.

 

Excellent points though JPD80

[retro-man]

I never said that those policies - throttling the money supply, signing into law strict tariffs, raising taxes - caused the crash of 1929, or that they caused the current downturn. I bring them up because posters on this board, and some politicians and pundits in the "real world", have advocated a return to protectionism and the enactment of higher taxes in response to the current downturn. Those who don't learn from the past are doomed to repeat it.

 

Those policies were enacted by President Hoover, and continued by President Roosevelt, in response to the economic downturn of 1929. They turned what should have been a short and sharp recession into the Great Depression. This is the assessment of everyone who has studied the period with an understanding of history and economics. It's worth noting that, by the end of his presidency, President Roosevelt was working to eliminate tariffs, as he had come around to this view.

 

These things didn't happen "in my imagination" or in "my mind."

 

They actually happened. These were the policies that were enacted by President Hoover and President Roosevelt during the 1930s.

 

These policies didn't work in the 1930s. They won't work today. They didn't cause the current downturn, but I never said that they did. They certainly will not help us out of the current downturn.

We're talking past each-other. I was accusing you of suggesting that these policies: throttling the money supply, protectionism - are compounding our difficulties today when, in fact, we have been pursuing the exact opposite policies. And we're still up sh*t crick. I was also hinting at what is rarely discussed by the right: the causes of the Great Depression (free-wheeling, bubble-blowing, income-disparate, GINI-inflating laissez faire free-for-all). It is easy to speculate that this policy or that might have shortened the Great Depression, but the fact is that neither you or I know. What we do know - coming back to the present day - is that "the Reagan Revolution" has defined the political and economic dialogue in this country for 30 + years. I'm not saying that it has held absolute sway, but any rational person can see that Reagan and successors - including Clinton - moved the whole discussion to the right: Government is bad, Unions are bad, free-trade is good, deregulation is good. We have that evil Socialist Obama advancing yet more free-trade deals - one of them with Korea no less (the most militantly xenophobic economy in the world perhaps) to "create American jobs". What kind of cognitive disconnect is this? As far as any policy getting us out of this quickly: we are in a deep deep hole. It took us a long time to get here. When we started slipping over the edge (I first noticed it coming in late '07), I - at least - knew that it was going to be long, hard, and transformative. I also suspected that it would be the end of American economic hegemony (we shall see) and that, in terms of material standard of living, it would set us back 60 years. Here's the deal: if we have shared sacrifice, it will set us back to the 40s or 50s. If, on the other hand, we let 1% waltz away with bailouts and golden parachutes and obscene bonuses, and throw 99% to the wolves, it will set us back to the 1890s. Some people seem hell-bent on that (you can see them in their tricorn hats celebrating the unravelling of 200 years of American progress). I am not.

[grbeck]

We're talking past each-other. I was accusing you of suggesting that these policies: throttling the money supply, protectionism - are compounding our difficulties today when, in fact, we have been pursuing the exact opposite policies. And we're still up sh*t crick.

 

I never suggested that any of those policies are compounding our difficulties. You are correct that we are not pursuing them today. But you have suggested enacting higher taxes and protectionist measures in other threads. They are not going to help, particularly since the root causes of the current mess are not free trade or low taxes.

 

We have not figured out how to repeal the business cycle. Like it or not, boom and bust and part of the free-market system. Our system encourages the innovation and the development of new products. It also encourages people to find ways to "game" the system, or bend legitimate rules or standards to achieve various goals. The problem is that we often don't know whether that is bad until it all hits the fan.

 

This is what has happened in the current crisis - various people thought that reducing lending criteria in the name of fighting "racism" and enabling low-income people to buy homes was a good idea. Banks and financial institutions figured out that they could make money by charging fees and selling the loans, and got in on the act. (This is the "predatory lending" that the Eliot Spitzers of the world are referring to - only problem is, banks aren't going to give people with poorer credit the same terms as people with good credit. Poorer people in general, and even minorities higher up on the income scale, have lower credit scores than whites and Asians. He tended to skip this part.)

 

This fueled a real-estate boom, which made houses inordinately expensive in relation to income, which, in turn, fueled demand for more exotic mortgage products. (Giving preferential treatment to capital gains from the sale of a house also helped fuel the boom, and was, in retrospect, a mistake). The end result was lots of people buying houses that they could not afford, lots of speculators buying houses that they had no intention of using as a residence, and lots of debt that now hangs over the economy.

 

Note that all of this had nothing to do with Reaganomics, nor did it start in 1980. This speculatory fever has been part-and-parcel of the free market economy in both Europe and America for centuries. Same with government meddling in the free-market system.

 

In the American auto market, same system that produced the Edsel also produced the Mustang. You cannot "ban" Edsels in the long run, as the failures teach us as much as the successes. The key is to learn from the failures, and not spend too much time milking the successes. It's the same with the economy in general.

 

I was also hinting at what is rarely discussed by the right: the causes of the Great Depression (free-wheeling, bubble-blowing, income-disparate, GINI-inflating laissez faire free-for-all). It is easy to speculate that this policy or that might have shortened the Great Depression, but the fact is that neither you or I know.

 

The period from 1929 through 1940 has been extensively studied, and what both the Hoover and Roosevelt administrations actually did - as opposed to what people THINK that they did - has been carefully examined. We have a very good grasp of what policies and actions turned what should have been a short and sharp recession into the Great Depression.

 

The Great Depression was not caused by income disparity or the alleged laissez-faire leanings of the Hoover Administration That is simpy incorrect.

 

The economy was already slipping into a recession in early 1929. Alfred P. Sloan, for example, had surveyed GM dealers during year (which was a relatively new idea at that time), and noted that they uniformly reported softening demand for new cars as the year progressed. The stock market crash that fall wiped out gains from speculation in stocks, but it initially was a good thing, as it reduced stock prices to rational levels. The economy even appeared to be recovering slowly in 1930.

 

The idea that the Hoover Administration slavishly followed laissez-faire policies while the country sank is a myth. He was nicknamed the "Great Engineer" because of his professional background and his belief in government action (he had coordinated the task of bringing food to devastated European nations after World War I, a successful effort that gained him considerable respect).

 

He believed that an aggressive federal government action could "manage" the economy and prevent downturns. He tried to save failing companies through the Reconstruction Finance Corporation, throttled the money supply out of fear of inflation (when the real problem was deflation), and signed the Hawley Smoot Tariff into law in order to "protect" American industry from foreign competition. He also rammed through a huge tax increase for 1932, in order to balance the budget, as he had greatly increased spending (which should give Tea Party folks pause over fetishes regarding balanced budgets). He jawboned companies to keep wages high, which backfired, as they resorted to layoffs instead of wage cuts as demand slackened, compounding the problem.

 

The result was a disaster. American automobile sales fell 75 PERCENT from 1929 levels by 1932. Farmers found that their products were shut out of foreign markets, which aggravated their situation, and spurred bank failures in rural areas. Unemployment had hit 25 by 1933. We now exactly what happened, and the effects of those actions. This is not speculation; this is applying the facts to history.

 

What we do know - coming back to the present day - is that "the Reagan Revolution" has defined the political and economic dialogue in this country for 30 + years. I'm not saying that it has held absolute sway, but any rational person can see that Reagan and successors - including Clinton - moved the whole discussion to the right: Government is bad, Unions are bad, free-trade is good, deregulation is good. We have that evil Socialist Obama advancing yet more free-trade deals - one of them with Korea no less (the most militantly xenophobic economy in the world perhaps) to "create American jobs". What kind of cognitive disconnect is this?

 

Speculatory fevers and government meddling in the economy, which are the real roots of the current mess, did not spring to life in 1980. They have been around since the founding of the Republic. Ben Franklin, for example, made a fair amount of money in land speculation. A large part of the reason that Thomas Jefferson died broke is because he co-signed a note for a friend (as all good wealthy Virginia planters did in those days), and was on the hook when the economy went sour in 1819-20.

 

And please note that "free trade" has been supported by both the left and the right over the years. The Great Commoner - William Jennings Bryan, who almost single-handedly revived the Democratic party in the wake of the Civil War, and turned it into a force for liberalism - supported the abolition of tariffs. It was the Republican Party, which was the party of big business, that wanted to maintain tariffs. Bryan, known as a liberal (yes, even with his evangelical Christian beliefs), correctly noted that tariffs hurt consumers (the little guy) to protect big business. When President Hoover signed the Hawley Smoot Tariff into law, it was at the urging of people who thought it would be good for business.

 

As far as any policy getting us out of this quickly: we are in a deep deep hole. It took us a long time to get here. When we started slipping over the edge (I first noticed it coming in late '07), I - at least - knew that it was going to be long, hard, and transformative. I also suspected that it would be the end of American economic hegemony (we shall see) and that, in terms of material standard of living, it would set us back 60 years. Here's the deal: if we have shared sacrifice, it will set us back to the 40s or 50s. If, on the other hand, we let 1% waltz away with bailouts and golden parachutes and obscene bonuses, and throw 99% to the wolves, it will set us back to the 1890s. Some people seem hell-bent on that (you can see them in their tricorn hats celebrating the unravelling of 200 years of American progress). I am not.

 

Every recession is the end of the world. Until the recovery.

 

It's not the end of the world that people have to keep their car for seven years instead of three (and thanks to the competitive pressures brought about by an open automobile market and free trade, every new vehicle built in the last decade will that long). It's not the end of the world that there will be more Fusions, Fiestas and Focuses on the road instead of Expeditions and Explorers. It's not the end of the world that new houses only have two bathrooms instead of four. It's not the end of the world that Buffy and Chip have to go to the community college or State U. instead of Swanky Private College and work instead of partying for four years. It's not the end of the world that people have to keep their cellphones instead of swapping them for the latest iphone. It's not the end of the world that many people are figuring out that being a plumber is more lucrative than majoring in, say, Women's Studies, and for very good reasons.

Edited September 13, 2011 by grbeck

[retro-man]

It's funny how much we really are on the same page:

 

This fueled a real-estate boom, which made houses inordinately expensive in relation to income, which, in turn, fueled demand for more exotic mortgage products. (Giving preferential treatment to capital gains from the sale of a house also helped fuel the boom, and was, in retrospect, a mistake). The end result was lots of people buying houses that they could not afford, lots of speculators buying houses that they had no intention of using as a residence, and lots of debt that now hangs over the economy.

All true, and all bad.

 

Note that all of this had nothing to do with Reaganomics, nor did it start in 1980.

Yes, but more people might have been able to afford those houses they couldn't afford if their unions hadn't been smashed and their jobs outsourced. I observed, in the late 20th century, more and more 2-earner households, more people working more overtime (I remember trotting out some statistics about hours worked per household per year between 1962 and 2002, and it was a striking increase). My interpretation was that people were trying to maintain the trappings of a middle class lifestyle that they had grown up with, in the face of a hollowing-out of real wages. I think the reality is somewhere between: there was an increase in expectations, an increase in toys and baubles, in "features", a shift from the ranchburger to the McMansion - I can't deny that.

 

The period from 1929 through 1940 has been extensively studied, and what both the Hoover and Roosevelt administrations actually did - as opposed to what people THINK that they did - has been carefully examined. We have a very good grasp of what policies and actions turned what should have been a short and sharp recession into the Great Depression.

 

The Great Depression was not caused by income disparity or the alleged laissez-faire leanings of the Hoover Administration That is simpy incorrect.

 

The economy was already slipping into a recession in early 1929. Alfred P. Sloan, for example, had surveyed GM dealers during year (which was a relatively new idea at that time), and noted that they uniformly reported softening demand for new cars as the year progressed. The stock market crash that fall wiped out gains from speculation in stocks, but it initially was a good thing, as it reduced stock prices to rational levels. The economy even appeared to be recovering slowly in 1930.

 

The idea that the Hoover Administration slavishly followed laissez-faire policies while the country sank is a myth. He was nicknamed the "Great Engineer" because of his professional background and his belief in government action (he had coordinated the task of bringing food to devastated European nations after World War I, a successful effort that gained him considerable respect).

 

He believed that an aggressive federal government action could "manage" the economy and prevent downturns. He tried to save failing companies through the Reconstruction Finance Corporation, throttled the money supply out of fear of inflation (when the real problem was deflation), and signed the Hawley Smoot Tariff into law in order to "protect" American industry from foreign competition. He also rammed through a huge tax increase for 1932, in order to balance the budget, as he had greatly increased spending (which should give Tea Party folks pause over fetishes regarding balanced budgets). He jawboned companies to keep wages high, which backfired, as they resorted to layoffs instead of wage cuts as demand slackened, compounding the problem.

 

The result was a disaster. American automobile sales fell 75 PERCENT from 1929 levels by 1932. Farmers found that their products were shut out of foreign markets, which aggravated their situation, and spurred bank failures in rural areas. Unemployment had hit 25 by 1933. We now exactly what happened, and the effects of those actions. This is not speculation; this is applying the facts to history.

I was referring specifically to the period between 1920 and 1929. As for the recession itself, I defer to your superior knowledge of the subject.

 

And please note that "free trade" has been supported by both the left and the right over the years. The Great Commoner - William Jennings Bryan, who almost single-handedly revived the Democratic party in the wake of the Civil War, and turned it into a force for liberalism - supported the abolition of tariffs. It was the Republican Party, which was the party of big business, that wanted to maintain tariffs. Bryan, known as a liberal (yes, even with his evangelical Christian beliefs), correctly noted that tariffs hurt consumers (the little guy) to protect big business. When President Hoover signed the Hawley Smoot Tariff into law, it was at the urging of people who thought it would be good for business.

I have maintained - and still do - that overseas trade used to be only a fraction of what it is now as a percentage of our GDP. Given what we are going through, perhaps the most that can be inferred is that it doesn't matter much whether it amounts to 3% of GDP (as in 1960), or 33% (like now) - when the sh*t hits the fan, the sh*t hits the fan. Perhaps it has helped us to rise farther (which is debatable). That doesn't diminish our fall.

 

 

 

Every recession is the end of the world. Until the recovery.

Does this one not seem different to every other one we have had our lifetime? It does to me. Personally I believe that, if those Rooseveltian safety nets like SS and unemployment were not in place, and if not for government intervention to keep the ATMs going, we would be seeing this downturn for what it really is, in all its Hooverville glory.

 

It's not the end of the world that people have to keep their car for seven years instead of three (and thanks to the competitive pressures brought about by an open automobile market and free trade, every new vehicle built in the last decade will that long). It's not the end of the world that there will be more Fusions, Fiestas and Focuses on the road instead of Expeditions and Explorers. It's not the end of the world that new houses only have two bathrooms instead of four. It's not the end of the world that Buffy and Chip have to go to the community college or State U. instead of Swanky Private College and work instead of partying for four years. It's not the end of the world that people have to keep their cellphones instead of swapping them for the latest iphone. It's not the end of the world that many people are figuring out that being a plumber is more lucrative than majoring in, say, Women's Studies, and for very good reasons.

Funny, in past discussions, my whole-hearted agreement with every word of that last paragraph would have painted me as a Socialist with proletarian sympathies. But, you are right - it is definitely not the end of the world.

 

I am not so much worried about people who have to keep their cars for 7 years (had my T-Bird for 9). I am more concerned about neighbors who have lost their homes, and about people like an Architect friend of mine who has gone through his entire savings, and his 401K, and is now into his wife's 401K. He has no medical coverage, his car (which was far older than 7 years) is broken, so he is driving his mother's '88 Cavalier Station Wagon. He is old, he's ugly, he is a capable Project Architect and Project Manager with a lot of knowledge and experience and a great work ethic, but the world has no use for him or his knowledge right now. I predicted that the profession would shrink 20 - 30% during these 10 years (I don't think we're coming out until around 2020). I don't want to tell him, but I think he might be in that 20 - 30%. Not me of course. In a normal healthy economy - even in an ordinary recession - this person would have been fine. He works hard, has a lot of knowledge, serves his clients well. But this time, he is screwed. You don't know what it's like to see a person "of a certain age" - even one with education and qualifications up the wazoo - go out and compete for jobs with fresh out of school 20-somethings, who are a.) frankly, more tech savvy, b.) cheaper - or at least assumed to be, and c.) a lot easier on the eyes and on the spirit than someone who is used up and broken - until you've seen it up close. My dear, beautiful wife: 2 college degrees, 2 languages, 30 years of very accomplished and useful experience: I watched her put out hundreds - literally hundreds of resumes over a 2 year period. I looked at her resume - it was great. I heard a couple of her phone interviews - she aced them. During that time she got 2 job offers: both for $10 / hr. One working in a flower shop, the other stocking racks at a clothing store, 16 hours / wk. between midnight and 5:00AM. (Thankfully she finally picked up something decent - though still less than half of what she used to earn.) You used to hear stories about people in the Great Depression who were wiped out and who died in poverty. That's the kind of thing we're in this time. It's almost an insult to hear it referred to as a "recession", or to listen to the hopelessly out of touch unemployment numbers. During the Depression, they took steps - like Social Security and unemployment insurance - to keep things like this from happening again. But the system works towards entropy.

Edited September 14, 2011 by retro-man

[akirby]

it needs to be remembered when someone brings up the lie that the rich are not paying their "fair share" of the federal income tax.

 

[Edstock]

You used to hear stories about people in the Great Depression who were wiped out and who died in poverty. That's the kind of thing we're in this time. It's almost an insult to hear it referred to as a "recession", or to listen to the hopelessly out of touch unemployment numbers. During the Depression, they took steps - like Social Security and unemployment insurance - to keep things like this from happening again. But the system works towards entropy.

 

But that's what the Koch Bros. want. Here's Bing's take:

 

 

http://www.youtube.com/watch?v=MZHEkU__Ijw&feature=fvst

[grbeck]

Yes, but more people might have been able to afford those houses they couldn't afford if their unions hadn't been smashed and their jobs outsourced. I observed, in the late 20th century, more and more 2-earner households, more people working more overtime (I remember trotting out some statistics about hours worked per household per year between 1962 and 2002, and it was a striking increase). My interpretation was that people were trying to maintain the trappings of a middle class lifestyle that they had grown up with, in the face of a hollowing-out of real wages. I think the reality is somewhere between: there was an increase in expectations, an increase in toys and baubles, in "features", a shift from the ranchburger to the McMansion - I can't deny that.

 

The run-up in housing prices was so great in some places - primarily the big East Coast urban areas and Los Angeles and San Francisco - that even those employees represented by a union were being priced out of the market. In metropolitan areas, for example, teachers, police officers and firefighters are all unionized, and in many areas (particularly those in California) they still had trouble affording a house in a decent neighborhood.

 

It's better to avoid policies that encourage speculation in real estate, so that no one - whether represented by a union or not - is forced to devote an inordinate amount of income to housing.

 

Does this one not seem different to every other one we have had our lifetime? It does to me. Personally I believe that, if those Rooseveltian safety nets like SS and unemployment were not in place, and if not for government intervention to keep the ATMs going, we would be seeing this downturn for what it really is, in all its Hooverville glory.

 

Funny, in past discussions, my whole-hearted agreement with every word of that last paragraph would have painted me as a Socialist with proletarian sympathies. But, you are right - it is definitely not the end of the world.

 

I am not so much worried about people who have to keep their cars for 7 years (had my T-Bird for 9). I am more concerned about neighbors who have lost their homes, and about people like an Architect friend of mine who has gone through his entire savings, and his 401K, and is now into his wife's 401K. He has no medical coverage, his car (which was far older than 7 years) is broken, so he is driving his mother's '88 Cavalier Station Wagon. He is old, he's ugly, he is a capable Project Architect and Project Manager with a lot of knowledge and experience and a great work ethic, but the world has no use for him or his knowledge right now. I predicted that the profession would shrink 20 - 30% during these 10 years (I don't think we're coming out until around 2020). I don't want to tell him, but I think he might be in that 20 - 30%. Not me of course. In a normal healthy economy - even in an ordinary recession - this person would have been fine. He works hard, has a lot of knowledge, serves his clients well. But this time, he is screwed. You don't know what it's like to see a person "of a certain age" - even one with education and qualifications up the wazoo - go out and compete for jobs with fresh out of school 20-somethings, who are a.) frankly, more tech savvy, b.) cheaper - or at least assumed to be, and c.) a lot easier on the eyes and on the spirit than someone who is used up and broken - until you've seen it up close. My dear, beautiful wife: 2 college degrees, 2 languages, 30 years of very accomplished and useful experience: I watched her put out hundreds - literally hundreds of resumes over a 2 year period. I looked at her resume - it was great. I heard a couple of her phone interviews - she aced them. During that time she got 2 job offers: both for $10 / hr. One working in a flower shop, the other stocking racks at a clothing store, 16 hours / wk. between midnight and 5:00AM. (Thankfully she finally picked up something decent - though still less than half of what she used to earn.) You used to hear stories about people in the Great Depression who were wiped out and who died in poverty. That's the kind of thing we're in this time. It's almost an insult to hear it referred to as a "recession", or to listen to the hopelessly out of touch unemployment numbers. During the Depression, they took steps - like Social Security and unemployment insurance - to keep things like this from happening again. But the system works towards entropy.

 

I believe that this one is different because of two key facts. One, we are coming off a credit binge and a real estate bubble, and those tend to take a long time to digest. There is still a lot of debt hanging over the heads of consumers. The 1980-82 recession, for example, was more about the collapse of old-line industries and their reconfiguration as leaner, more competitive sectors.

 

Two, baby boomers are getting older, which means less consumption of housing, cars, clothes, etc. The baby boomers have driven the market for decades - if their needs and desires fueled good times, it's not hard to envision that their desire to spend less, whether driven by need or simply a change in values, is not going to have the opposite effect.

 

Most of the 60+ people I know are HAPPY that they no longer have to buy as many clothes for work, want a smaller house and don't feel like buying a new car every few years. Part of it is driven by necessity, but part of it is driven by a "been there, done that" feeling.

 

Short-term, the decline in housing prices is happening as a result of the bubble bursting, but long-term, housing prices will lag behind inflation as baby boomers downsize and many in the following generations will prefer smaller places with less maintenance (smaller yards, for example). While anecdotal evidence is always dangerous, I know that the last thing my wife and I want to do is spend an entire Saturday mowing and trimming a huge lot.

 

With cars, I believe people will still like cars and want them, but they will demand more lasting value (reliability) and luxury that is more than skin-deep (think 1961 Continental versus today's Navigator or Escalade). People will keep cars for 5-7 years, instead of 3-4, and will demand more luxury and refinement in smaller packages (the new Focus and Cruze, for example). That's good for the environment, and easier on the eyes as there will be fewer elevated breadboxes on the highway, but a challenge for the automakers and the UAW, as Ford, for example, has historically made a lot more money selling Expeditions than it does selling Focuses.

 

I am not so much worried about people who have to keep their cars for 7 years (had my T-Bird for 9). I am more concerned about neighbors who have lost their homes, and about people like an Architect friend of mine who has gone through his entire savings, and his 401K, and is now into his wife's 401K. He has no medical coverage, his car (which was far older than 7 years) is broken, so he is driving his mother's '88 Cavalier Station Wagon. He is old, he's ugly, he is a capable Project Architect and Project Manager with a lot of knowledge and experience and a great work ethic, but the world has no use for him or his knowledge right now. I predicted that the profession would shrink 20 - 30% during these 10 years (I don't think we're coming out until around 2020). I don't want to tell him, but I think he might be in that 20 - 30%. Not me of course. In a normal healthy economy - even in an ordinary recession - this person would have been fine. He works hard, has a lot of knowledge, serves his clients well. But this time, he is screwed. You don't know what it's like to see a person "of a certain age" - even one with education and qualifications up the wazoo - go out and compete for jobs with fresh out of school 20-somethings, who are a.) frankly, more tech savvy, b.) cheaper - or at least assumed to be, and c.) a lot easier on the eyes and on the spirit than someone who is used up and broken - until you've seen it up close. My dear, beautiful wife: 2 college degrees, 2 languages, 30 years of very accomplished and useful experience: I watched her put out hundreds - literally hundreds of resumes over a 2 year period. I looked at her resume - it was great. I heard a couple of her phone interviews - she aced them. During that time she got 2 job offers: both for $10 / hr. One working in a flower shop, the other stocking racks at a clothing store, 16 hours / wk. between midnight and 5:00AM. (Thankfully she finally picked up something decent - though still less than half of what she used to earn.) You used to hear stories about people in the Great Depression who were wiped out and who died in poverty. That's the kind of thing we're in this time. It's almost an insult to hear it referred to as a "recession", or to listen to the hopelessly out of touch unemployment numbers. During the Depression, they took steps - like Social Security and unemployment insurance - to keep things like this from happening again. But the system works towards entropy.

 

I can't speak to individual situations, except that, from what I've read, the downturn seems to have hit the West Coast harder than the East Coast. I also have never understood the fetish for youth among employees, or the idea that dollars-and-cents outweighs experience (although, at every place I've worked, there has always been some deadwood among the workforce in the age 50 and older bracket, to be honest).

 

And, yes, in some areas - particularly California - this is really a depression, not a recession.

 

I believe that your wife was caught between a rock and a hard place. Many employers offering low-paying or entry-level jobs don't want to hire someone like her, who has solid credentials, because they know she will leave at the first available opportunity for something better. Given that like tends to attract like, I'm sure that she is quite intelligent and hard-working, so she isn't going to be happy stocking racks in a clothing store for a very long time, and will always be looking for something better. Employers know this.

[retro-man]

I did some research on demographics to assess the health of the retail design and construction market. In the course of this, I got it in my head to Google the term "peak spending", and ran across the ideas of Harry Dent - who had plotted demographics against the Dow Jones over several decades, and who had predicted the crash (albeit in highly exaggerated form - he's a bit of a crackpot) based strictly on demographics. Among the statistics, were that the baby boom was about 80,000,000 people. The "echo boom" is about 76,000,000 people - close enough in size, but a smaller percentage of the then-extant population. Evidently individual spending peaks at age 47. The dead center of the baby boom generation reached peak spending around 2002. The relatively small Gen-X is now entering peak spending years. The Echo Boom (the Millennials) spending will crest in the late 2020s, early 2030s. It is mainly the depth of the current mess, and those demographics that make me think we won't really come out until 2020 at the earliest.

[xr7g428]

Great post Retro. Nothing like a few facts to put things in perspective.

[RangerM]

.....individual spending peaks at age 47........

 

My wife (age 40) keeps telling she's ahead of her time. Now maybe I know what she means.