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THE CONSERVATIVE NANNY STATE- Dean Baker - 2006
- Thread starter LAM
- Start date
how economics and the US version of capitalism works in reality is not how most think it does, it's not even close.
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Don't hate the player, hate the game.
My man Lam always on his P's and Q's.
Great post, Lam.
The American economic framework in a nutshell, keep shit rolling downhill long enough and people will eventually accept it as the norm.
Never mind their God given rights as a citizen in this once great, great country, or everything we fought the Revolution over.
Great post, Lam.
The American economic framework in a nutshell, keep shit rolling downhill long enough and people will eventually accept it as the norm.
Never mind their God given rights as a citizen in this once great, great country, or everything we fought the Revolution over.
the biggest problem is that many believe in a system that does not exist in reality. changes in the markets that occur as the result of legislation are obviously not a natural progression of said markets. if they were naturally occurring no changes to legislation would be needed, it's amazing so many people just don't get it. as if cause and effect do not apply somehow to capitalism, it mind blowing that people actually "think" this way. but it's more like a complete lack of thought.
yeah like our pathetic economic growth and unemployment numbers. eventually people will think its the norm,...... until Obama gets out of office.
and what do you know about economic growth? nothing....did you hear that word in tv?
please do tell how does economic growth increase if it's based on consumption and the majority of the country has no wealth? with the ability to consume being directly related to income and wealth that is quite the task now that the credit has been cut off and US homeowners can no longer tap into home equity to fuel excess consumption.
Housing Wealth and Consumption
Matteo Iacovielloy
Federal Reserve Board
August 2, 2011
http://www.federalreserve.gov/pubs/ifdp/2011/1027/ifdp1027.pdf
"Abstract
Housing wealth is about one half of household net worth, and consumption is a considerable fraction (about two thirds) of Gross Domestic Product in the United States. Empirically, movements in housing wealth are associated with movements in consumption in the same direction. This observation has led many economists, commentators and policy makers to study how housing wealth and consumption are linked together. A sizeable portion of the comovement between housing wealth and consumption re‡ects common factors driving both variables, rather than the “wealth e?ect” of the former on the latter; however, a growing body of evidence suggests that the comovement is larger in developed …nancial markets and in the presence of liquidity constraints."
* what happened in 2008? 40% of US home wealth was lost. so you expect consumption to increase how?
INTERNATIONAL MONETARY FUND
Research Department
U.S. Consumption after the 2008 Crisis
http://www.imf.org/external/pubs/ft/spn/2010/spn1001.pdf
"EXECUTIVE SUMMARY
U.S. household consumption declined sharply in late 2008, marking a departure from the trend of a steady increase in U.S. consumption as a share of income since the 1980s. Combining econometric and simulation analysis, we estimate that this departure will be sustained beyond the crisis: the U.S. household consumption rate will likely decline somewhat further from its current level, as the saving rate rises to around 6 percent of disposable personal income (from nearly 5 percent in 2009). Compared to the pre-crisis years (2003?07), this saving rate implies a decline in U.S. private-sector demand on the order of 3 percentage points of GDP."
Research Department
U.S. Consumption after the 2008 Crisis
http://www.imf.org/external/pubs/ft/spn/2010/spn1001.pdf
"EXECUTIVE SUMMARY
U.S. household consumption declined sharply in late 2008, marking a departure from the trend of a steady increase in U.S. consumption as a share of income since the 1980s. Combining econometric and simulation analysis, we estimate that this departure will be sustained beyond the crisis: the U.S. household consumption rate will likely decline somewhat further from its current level, as the saving rate rises to around 6 percent of disposable personal income (from nearly 5 percent in 2009). Compared to the pre-crisis years (2003?07), this saving rate implies a decline in U.S. private-sector demand on the order of 3 percentage points of GDP."
so the wealth of the majority of the working class decreased and the personal savings rate increased as those that can save are doing so as an attempt to make up for lost home wealth.
Personal Saving Rate (PSAVERT)
Personal Saving Rate (PSAVERT) - FRED - St. Louis Fed
* so housing wealth goes down, personal savings goes up and economic growth slows and unemployment remains high, what a shocker. no not really
Personal Saving Rate (PSAVERT)
Personal Saving Rate (PSAVERT) - FRED - St. Louis Fed
* so housing wealth goes down, personal savings goes up and economic growth slows and unemployment remains high, what a shocker. no not really
HOW DO HOUSE PRICES AFFECT CONSUMPTION?
EVIDENCE FROM MICRO DATA
John Y. Campbell
Jo?o F. Cocco
Working Paper 11534
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
August 2005
How Do House Prices Affect Consumption? Evidence From Micro Data
EVIDENCE FROM MICRO DATA
John Y. Campbell
Jo?o F. Cocco
Working Paper 11534
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
August 2005
How Do House Prices Affect Consumption? Evidence From Micro Data
IMF - Crisis Alters Pattern of U.S. Consumption
Feb, 01 2010
IMF Survey: Crisis Alters Pattern of U.S. Consumption
Negative shocks
The decline in U.S. consumption has coincided with a sharp decline in wealth and several closely related economic shocks:
* Household wealth fell sharply, reaching 480 percent of disposable income in 2009. This decline was somewhat larger than the decline in wealth during 2001?02 after the bursting of the internet bubble. In contrast to earlier episodes of wealth decline, housing wealth also declined since peaking in 2007, as U.S. house prices fell for the first time since the mid-1970s.
* Economic and financial uncertainty surged in late 2008, as an extreme fear took over the financial market in such intensity and scope that have rarely been experienced since the Great Depression. The spread between corporate bonds and government securities of 10-year maturity rose to the highest level since the post-war period by a wide margin.
* Long-term growth prospects of the U.S. economy were appreciably revised down with the crisis. According to the IMF?s latest World Economic Outlook, U.S. potential growth was estimated to have been above 3 percent in the late 1990s, but is now estimated to reach about 2 percent over the medium-term, that is after the U.S. economy recovers from the crisis.
* Credit availability tightened relative to pre-crisis years. The debt-to-income ratio of U.S. households stopped growing in 2008, following a rapid rise before the crisis. The pre-crisis credit expansion was driven by mortgages, which accounted for nearly 90 percent of the rise in household debt over the 2000?07 period.
According to the authors, these negative shocks are expected to have lasting effects on U.S. consumption beyond the crisis.
Feb, 01 2010
IMF Survey: Crisis Alters Pattern of U.S. Consumption
Negative shocks
The decline in U.S. consumption has coincided with a sharp decline in wealth and several closely related economic shocks:
* Household wealth fell sharply, reaching 480 percent of disposable income in 2009. This decline was somewhat larger than the decline in wealth during 2001?02 after the bursting of the internet bubble. In contrast to earlier episodes of wealth decline, housing wealth also declined since peaking in 2007, as U.S. house prices fell for the first time since the mid-1970s.
* Economic and financial uncertainty surged in late 2008, as an extreme fear took over the financial market in such intensity and scope that have rarely been experienced since the Great Depression. The spread between corporate bonds and government securities of 10-year maturity rose to the highest level since the post-war period by a wide margin.
* Long-term growth prospects of the U.S. economy were appreciably revised down with the crisis. According to the IMF?s latest World Economic Outlook, U.S. potential growth was estimated to have been above 3 percent in the late 1990s, but is now estimated to reach about 2 percent over the medium-term, that is after the U.S. economy recovers from the crisis.
* Credit availability tightened relative to pre-crisis years. The debt-to-income ratio of U.S. households stopped growing in 2008, following a rapid rise before the crisis. The pre-crisis credit expansion was driven by mortgages, which accounted for nearly 90 percent of the rise in household debt over the 2000?07 period.
According to the authors, these negative shocks are expected to have lasting effects on U.S. consumption beyond the crisis.
Corporate profits are at near record highs.
The New York Times
June 11, 2012
Family Net Worth Drops to Level of Early ?90s, Fed Says
By BINYAMIN APPELBAUM
WASHINGTON ? The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.
A hypothetical family richer than half the nation?s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss.
Families income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation.
The new data comes from the Feds much-anticipated release on Monday of its Survey of Consumer Finances, a report issued every three years that is one of the broadest and deepest sources of information about the financial health of American families.
While the numbers are already 18 months old, the survey illuminates problems that continue to slow the pace of the economic recovery. The Fed found that middle-class families had sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.
It fills in details to a picture that we already knew was quite ugly, and these details very much underscore that, said Jared Bernstein, an economist at the Center on Budget and Policy Priorities who served as an adviser to Vice President Joseph R. Biden Jr. It makes clear how devastating this has been for the middle class.?
Given the scale of those losses, consumer spending has remained surprisingly resilient. The survey also illuminates where the money is coming from: American families saved less and only slowly repaid debts.
The share of families saving anything over the previous year fell to 52 percent in 2010 from 56.4 percent in 2007. Other government statistics show that total savings have increased since 2007, suggesting that a smaller group of families is saving more money, while a growing number manage to save nothing.
The survey also found a shift in the reasons that families set aside money, underscoring the lack of confidence that is weighing on the economy. More families said they were saving money as a precautionary measure, to make sure they had enough liquidity to meet short-term needs. Fewer said they were saving for retirement, or for education, or for a down payment on a home.
The report underscored the limited progress that households had made in reducing the amounts that they owed to lenders. The share of households reporting any debt declined by 2.1 percentage points over the last three years, but 74.9 percent of households still owed something, and the median amount did not change.
The decline in reported incomes could have increased the weight of those debts, tying up a larger share of families? take-home pay. But one of the rare benefits of the crisis, historically lower interest rates, has helped to offset that effect. Families also have been able to reduce debt payments by refinancing into mortgages with longer terms and deferring repayment of student loans and other obligations.
The survey also confirmed that Americans are shifting the kinds of debts they carry. The share of families with credit card debt declined by 6.7 percentage points to 39.4 percent, and the median balance fell 16.1 percent to $2,600.
Families also reduced the number of credit cards that they carried, and 32 percent of families said they had no cards, up from 27 percent in 2007.
Conversely, the share of families with education-related debt rose to 19.2 percent in 2010 from 15.2 percent in 2007. The Fed noted that education loans made up a larger share of the average family?s obligations than loans to buy automobiles for the first time in the history of the survey.
The cumulative statistics concealed large disparities in the impact of the crisis.
Families with incomes in the middle 60 percent of the population lost a larger share of their wealth over the three-year period than the wealthiest and poorest families.
One basic reason for this disproportion is that the wealth of the middle class is mostly in housing, and the median amount of home equity dropped to $75,000 in 2010 from $110,000 in 2007. And while other forms of wealth have recovered much of the value lost in the crisis, housing prices have hardly budged.
Those middle-income families also lost a larger share of their income. The earnings of the median family in the bottom 20 percent of the income distribution actually increased from 2007 to 2010, in part because of the expansion of government aid programs during the recession. Wealthier families, which derive more income from investments, were also cushioned against the recession.
The data does provide the latest indication, however, that the recession reduced income inequality in the United States, at least temporarily. The average income of the wealthiest families fell much more sharply than the median, indicating that some of those at the very top of the ladder slipped down at least a few rungs.
Ranking American families by income, the top 10 percent of households still earned an average of $349,000 in 2010.
The average net worth of the same families was $2.9 million.
Family Net Worth Drops to Level of Early 90s, Fed Says - NYTimes.com
June 11, 2012
Family Net Worth Drops to Level of Early ?90s, Fed Says
By BINYAMIN APPELBAUM
WASHINGTON ? The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.
A hypothetical family richer than half the nation?s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss.
Families income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation.
The new data comes from the Feds much-anticipated release on Monday of its Survey of Consumer Finances, a report issued every three years that is one of the broadest and deepest sources of information about the financial health of American families.
While the numbers are already 18 months old, the survey illuminates problems that continue to slow the pace of the economic recovery. The Fed found that middle-class families had sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.
It fills in details to a picture that we already knew was quite ugly, and these details very much underscore that, said Jared Bernstein, an economist at the Center on Budget and Policy Priorities who served as an adviser to Vice President Joseph R. Biden Jr. It makes clear how devastating this has been for the middle class.?
Given the scale of those losses, consumer spending has remained surprisingly resilient. The survey also illuminates where the money is coming from: American families saved less and only slowly repaid debts.
The share of families saving anything over the previous year fell to 52 percent in 2010 from 56.4 percent in 2007. Other government statistics show that total savings have increased since 2007, suggesting that a smaller group of families is saving more money, while a growing number manage to save nothing.
The survey also found a shift in the reasons that families set aside money, underscoring the lack of confidence that is weighing on the economy. More families said they were saving money as a precautionary measure, to make sure they had enough liquidity to meet short-term needs. Fewer said they were saving for retirement, or for education, or for a down payment on a home.
The report underscored the limited progress that households had made in reducing the amounts that they owed to lenders. The share of households reporting any debt declined by 2.1 percentage points over the last three years, but 74.9 percent of households still owed something, and the median amount did not change.
The decline in reported incomes could have increased the weight of those debts, tying up a larger share of families? take-home pay. But one of the rare benefits of the crisis, historically lower interest rates, has helped to offset that effect. Families also have been able to reduce debt payments by refinancing into mortgages with longer terms and deferring repayment of student loans and other obligations.
The survey also confirmed that Americans are shifting the kinds of debts they carry. The share of families with credit card debt declined by 6.7 percentage points to 39.4 percent, and the median balance fell 16.1 percent to $2,600.
Families also reduced the number of credit cards that they carried, and 32 percent of families said they had no cards, up from 27 percent in 2007.
Conversely, the share of families with education-related debt rose to 19.2 percent in 2010 from 15.2 percent in 2007. The Fed noted that education loans made up a larger share of the average family?s obligations than loans to buy automobiles for the first time in the history of the survey.
The cumulative statistics concealed large disparities in the impact of the crisis.
Families with incomes in the middle 60 percent of the population lost a larger share of their wealth over the three-year period than the wealthiest and poorest families.
One basic reason for this disproportion is that the wealth of the middle class is mostly in housing, and the median amount of home equity dropped to $75,000 in 2010 from $110,000 in 2007. And while other forms of wealth have recovered much of the value lost in the crisis, housing prices have hardly budged.
Those middle-income families also lost a larger share of their income. The earnings of the median family in the bottom 20 percent of the income distribution actually increased from 2007 to 2010, in part because of the expansion of government aid programs during the recession. Wealthier families, which derive more income from investments, were also cushioned against the recession.
The data does provide the latest indication, however, that the recession reduced income inequality in the United States, at least temporarily. The average income of the wealthiest families fell much more sharply than the median, indicating that some of those at the very top of the ladder slipped down at least a few rungs.
Ranking American families by income, the top 10 percent of households still earned an average of $349,000 in 2010.
The average net worth of the same families was $2.9 million.
Family Net Worth Drops to Level of Early 90s, Fed Says - NYTimes.com
