House prices must fall and incomes must rise . . . until they meet. It is amazing but true that the middle class in the US has vanished.
Remember the days of one parent at home, one at work, with enough of an income to keep the family living comfortably? That has ended. To maintain the middle class life, we need credit. And that's just a way to fake it for a few more years.
Once the middle class goes, so goes the housing market, buying cars, and consumerism. The US can't survive.
Good luck with incomes. Unless Peak Oil makes the world a much larger place again (ala Kunstler), globalization will cap median wages from here on out.
Peter Schiff seems frustrated by the bubble-denyer syndrome too. It's like seeing a UFO an no one believes you, even after the aliens start attacking.
"In my 2006 and 2007 on-air appearances, to a chorus of sneers and laughter, I predicted the bursting of the housing bubble, the collapse of the subprime mortgage market, the credit crisis, tightening lending standards, waves of defaults, bankruptcies and foreclosures, weakness in financials, retailers and homebuilders, stagflation, surging gold, oil and other commodity prices, soaring federal budget deficits and a collapse in the value of the U.S. dollar. You would have thought that some of the reasons I gave for making those predictions would now be given some credence. They have not."
"The stopped clock analogy is one I have been dealing with for years. Those using it maintain that my early warnings invalidate my forecasts. It is precisely because my warnings were so early that they were so valuable to investors. In addition, such charges assume that the current downturn is unrelated to those warnings and that my critique of the U.S. economy was inaccurate until now. My critics, the real stopped clocks, still do not understand that the phony prosperity they were defending and that I was challenging lies at the root of the current crises. When the bubble was still inflating it is understandable that those trapped inside viewed me as a stopped clock. However, now that it has burst, it is amazing how many still cannot get the soap out of their eyes."
I'm curious what the median stated income on mortgage applications is (or was). Didn't anyone ever do the back of an envelope calculation to figure out there's no way that the American public in the aggregate could possibly afford to pay off these loans? Or did they just believe that every shlub walking through the door with no documented income really was in the nations top 5%?
I agree to some extent, but not completely. It might seem that two incomes are required (especially in some locales), but it ain't necessarily so. I think we've added a lot of "necessities" to our lifestyles that really aren't.
That being said, we are facing global competition that is forcing wages down. Our lifestyle will suffer some, to be sure. If you are philosophical about it, though, you have to ask yourself whether this is not fair to the rest of the world that has been living in poverty while we live lives of relative luxury.
To your main point though, we are definitely seeing a widening of the gap between the rich and poor. And more are joining the lower rungs than the upper rungs, to be sure.
Good point. I know a few people in households where both adults/parents are working so they can have huge trucks, big screen TVs, and lavish vacations. They could downsize a bit and have one adult working. That would be more sensible and better for everyone.
Is there a catchy name for this type of American? Personally, I like "60K Millionaire."
"The debate should no longer be about whether there is or is not a recession, only about how deep it will be. Private employment has now fallen for three months in a row," said Nigel Gault, economist at Global Insight.
I have read that the value of the dollar tells us what foreign lenders think of the US economy. Where the stock market is a vague measurement of expectations of profit for corporations, the dollar (compared to other currencies) reflects what very very rich foreigners think of their investment in all of America (government, corporations, banks, etc).
If it were nominal, then real income would be down well over 15% (assuming 2.5% inflation over 7 years), something that would have trumpeted by the Lefty press and the collectivists far and wide. I really doubt that it is a nominal number.
Remember the days of one parent at home, one at work, with enough of an income to keep the family living comfortably?
It's pretty understandable that the trend was that couples figured out that if they both worked they could afford a better neighborhood & house.
But when everyone does that, all that happens is that home values double, or nearly so.
This is what makes me a Georgist -- the 1998-2002 land bubble in the SF area made it clear to me that land valuations will suck every last dollar out of everyone's wallet, and then some. Capturing this land valuation as taxes, in place of income & capital gains, seems like an excellent prescription to me.
whenever i hear that complaint I just chuckle. This "Lefty press" . . . who owns it? How much money do they have? Are they really "lefty" or are your politics so far to the right that Hi^w Attila the Hun was slightly pinko?
It's the same old rat-race, but we've been convinced by marketers that we need more cheese than we used to.
Also, there are these damn middle-men (rent-seekers) taking half of all the cheese that we do manage to grab. And of course, the authorities keep taking half of what's remaining (via taxes and inflation).
why have we lost so many "manufacturing" jobs lately?
IMV the Chinese can do light manufacturing for pennies per hour, while the Heavy Industry takes years to assemble. This trend started 10+ years ago and will take plenty of time to unwind completely.
We compete better with the Japanese and Germans, but these days that mainly means cars. Ugh.
I'm not so sure the US exports enough goods to take advantage of the lower currency value.
The US does export pornography and wine and a few motorcycles. Maybe even some raw materials. But, compared to the rest of the world, we are under-producers.
If we still had a significant, competitive manufacturing industry, a lower dollar would be a good thing.
Formerly known as over-consumers, now regarded as true patriots.
I like what somebody once said on this blog. I'll be happy when we are once again referred to by government officials more often as citizens rather than consumers.
If it were nominal, then real income would be down well over 15% (assuming 2.5% inflation over 7 years), something that would have trumpeted by the Lefty press and the collectivists far and wide. I really doubt that it is a nominal number.
Mace | 03.08.08 - 1:04 am
Lefty press and the collectivists? You would not like it if they reported your hidden wage losses?
So, if you like it, it's okay, even if it's dishonest. If you don't like it, it's "lefty", even if it's honest?
OT but just got this in my inbox from ING Direct. Love the part about "see thru to the conclusion". Sounds like someone might have written a few zero down loans...
(as CR says emphasis added)
Dear Nades,
Customer Number: XXXXXXX123
I am happy to report that ING DIRECT's 2007 financial results are complete. Your confidence in us helped us deliver a record number of new savers, deposits and home mortgage loans. Further, we acquired ShareBuilder so we could offer you a low cost way to invest in stocks and ETFs. I'm proud of our first 7 years, but there's work to be done.
Global financial markets ended 2007 with many challenges ahead. While ING DIRECT avoided the sub-prime mortgage problem, we understand that this housing crisis threatens the well-being of countless families and, in the end, it will be seen as a major failing of the mortgage industry and its regulators.
The fact that ING DIRECT was not adversely affected is a testament to our operating philosophy that, as Americans, we should only buy houses we can afford. That way we can keep them for years to come. We believe a mortgage is a contract that both parties should execute in good faith and expect to see through to its conclusion. We will not waiver from our sworn promise to provide you with great value, service and convenience.
Thank you for your continued trust in us. Stay tuned in 2008 for new ideas we'll offer to help you save your money.
I'm in position of being able to stay home with three kids as spouse has good job/pay (I'm a guy).
That said, you're correct in that we've messed up needs/wants. Know multiple families where they sacrifice mightily in order to assure that one of the folks is at home. And it's true when teachers state that they can tell who had a parent at home. I volunteer in classroom and hell, I can tell.
Know of 6 y/o in neighborhood who went to play w/friend on next block with a Nextel so that he could keep in contact with Mother, who stayed at home while he went on own.
From my humble perch, I can say that starting salaries for engineers has not increased over the past 10 yrs. When you factor in increased debt loads due to soaring tuition, most of my peers who have graduated recently are doing worst than those of us who graduated several years ago.
The US does export pornography and wine and a few motorcycles.
You might want to add routers, software, and movies to that list. Among a host of less exciting things. The last time I checked, the US was the largest single exporter in the world.
Amazing that the media seems to only be catching on that income levels for all but the top 5% of earners have been stagnant. I mean, I have heard bits and pieces here and there, but they should have been shouting this piece of information from the mountaintops.
I voted for Bush twice. Since 2006, I have grown to hate the man. He is a true fundamentalist: he does not allow logic or evidence to interfere with his beliefs. So, we end up with a situation where we are fighting 2 regional wars simultaneously (which is very expensive) while maintaining our commitments elsewhere in the world (Bosnia, Japan, etc) AND cutting taxes, creating new entitlements and generally increasing domestic discretionary spending. This mess will take years to work itself out. What is happening now is a taste of things to come; you cannot consume more than you produce indefinitely. Dick Cheney was wrong, deficeits matter. To paraphrase Feinman "Eventually reality will trump public relations, for mother nature cannot be fooled."
I don't want to ruffle any feathers, but Elizabeth Warren writes that during the last 30 years the (real) median income has been flat for males; essentially all of the increase over that period was due to women's median income rising.
From my humble perch, I can say that starting salaries for engineers has not increased over the past 10 yrs
CS is doing good. In 2007 there were only 8 THOUSAND BS in CS grads. Hell, that won't even fill Microsoft's hiring quota for the year.
'course, everyone wants 5 years experience, but that's easier to get now with the web dev and open source communities.
homedad43:
Georgism is a taxation policy favoring taxing "the unearned increment", especially rents derived from land values and resource extraction. Back in the Progressive Era they were known as "Single Taxers". There's a libertarian offshoot called "geolibertarianism". Seaching on any of these terms will bring up good web pages on the subject.
Today I moved my 2008 IRA contribution into AAPL, INTC, MSFT, FSLR (ouch), DBE, (hopefully) hedged by SDS. I think the first 3 will do well in a tanking dollar environment.
Killer article. Had just visited PB and missed that. Thanks!
Reminds me of a passage frm the old SciFi short "Microcosmic God":
"I'll give you a parallel of it," said Kidder. "Suppose you take two rods, one in each hand. Place their tips together and push. As long as your pressure is directly along their long axes, the pressure is equalized; right and left hands cancel each other. Now I come along; I put out one finger and touch the rods ever so lightly where they come together. They snap out of line violently; you break a couple of knuckles. The resultant force is at right angles to the original forces you exerted.
Pay raise? That's hilarious. My job keeps finding new and exciting ways to reduce our commission. I'm surprised they haven't gotten rid of it completely.
"Good luck with incomes. Unless Peak Oil makes the world a much larger place again (ala Kunstler), globalization will cap median wages from here on out."
That is assuming everyone accept the status quo.
That is what they said to my grandfather in 1921 when he started to work. During that era, there was globalization, deregulation, easy credit, the works...like now.
Thing is, the man was not to sit idle while life would pass him by. So, he did the only logical thing; organize his co-workers a.k.a. unions.
I know, it's a pretty dirty word around here. Furthermore, no one can lecture me about the damage unions with too much power can do. I migrated to the USA to escape a socialist country where they basically wrote the rules and it was not pretty thank you.
That said, what's the average American to do? Shrug its shoulders? Bend over, close your eyes and remember...You're doing it for America sweet pea?
I don't think so.
There will be a need to shift the balance of power between workers and employers sooner or later. I do not pretend to know how it'll get done, but quite frankly, at the rate we're going now, we'll look like Mexico or Russia in a couple of decades.
EE is doing good too, at least in the defense sector. I work at a large aerospace company and our baseline offer for a newly minted bachelor's degree has gone up some 10% in the past 2 years.
""....The fact that ING DIRECT was not adversely affected is a testament to our operating philosophy that, as Americans,..."
Last I knew, ING DIRECT was a foreign bank!!"
Delaware bank, foreign owned. So technically, some of them are Americans. The head office is Dutch, and they own other "ING Direct" banks in other countries. They buy a bank, change the brand name, and institute the online program.
That said, the parent company's been doing pretty well lately. And since I've got a fairly good chunk of change parked with him, that makes me happy.
I agree with his conclusion: House prices must fall.
It is equally true, unfortunately, that house prices must be stabilized. That is, if they are not the whole financial system is doomed. As house prices fall, they collapse all the delicate risk/price relationships that were designed and constructed around them.
So society is trapped between an irresistible force and an immovable object. Home prices must fall, but home prices cannot fall. Needless to say, but there is no way out of this dilemma.
Troy:
I can't believe the pendulum has swung that far. Back in my college days (late 90's, early 2000's), everyone and his brother was a CS major.
Luckily, my field (nuclear power) is booming. NRC is hiring 800 engineers to handle all the new applications. However, my (anecdotal) evidence is that starting salaries have stagnated. Then again, the late 90's saw a huge boom in technical employment. Maybe things have finally turned the corner.
About $1.45 trillion of subprime mortgages are outstanding, accounting for about 15 percent of all U.S. home mortgages, according to Bear Stearns. Without refinancings, home sales, foreclosures or other loan payoffs, borrowers' rates would eventually adjust on about 82 percent of subprime home loans made last year, up from 81 percent in 2005 and 52 percent in 1999, according to Credit Suisse Group.
THE cost of the subprime crisis to investors and mortgage companies is estimated to have risen to $US400 billion ($440 billion), while the damage to the value of American real estate could ultimately be as much as $US4 trillion, economists say.
The magikal, mystical power of "free markets" has actually decreased my standard of living?
How can this be?!
I mean, all my leaders read a book by Adam Smith that SAID "free markets" work and blabbed constantly about it while they gutted the American middle class.
I wish I could write here what I really feel and hope for.
Everything MUST be done to keep the banks from failing, or so goes the common wisdom. Wall Street banks could all fail and the only real loss would be to shareholders and several thousand overpriced traders who do nothing but churn paper and collect bonuses. The whole BS about Wall Street providing the grease for the World's economy is just that, BS. Yes, Wall Street assists, but it has mutated beyond that role into an independent, self-serving behemoth with no morals, scruples, or purpose beyond making money.
Let the banks fail. New ones will spring up and they will be better run and better regulated. Let homeowners lose their overpriced homes they could never afford. Let suburbia decline and save a fortune in waste and resources. The failure of the mortgage companies who do nothing but spin paper would probably been a boon to the economy, allowing resources to be redirected to manufacturing.
The US consumer has lived high on the hog for too long, sucking in debt as quickly as he sucks in cheeseburgers. Now all that debt has clogged his arteries. Some will die of heart attacks, others will get painful operations, most will have to go on diets and learn about the wonders of exercise. To speak plainly, America will have to learn to live within its means and probably well below them as it pays off the massive credit it ran up during the binge.
You know it can't go on forever. You still think you missed out. You BELIEVE you can find the millionaire inside you. You DESERVE it all. You should be on Wall Street, on the silver screen, on your yacht.
Wrong. You are poor or middle class and will stay there. So will your kids. You will get poorer while this disaster plays out. You will never be wealthy. Get over it. Find a hobby. Visit a library. Meet some new friends. Get a life.
NBER: "Last few months of 2008" Odds are 90 to 1 that they won't be able to make the recession call before the presidential election.
Yesterday blowncue posted this link gulfnews : US will stand firm even if it has to face the worst-case scenario to a Martin Wolf column that on the whole argued that the economy could absorb any level of loss (which I do not believe), but had an addendum at the end: "If so, how does one sustain broad public support for what appears so one-sided a game?"
I agree, there's been a multi-level effort to transfer wealth from the middle class to the rich. It has succeeded. Take health care. 40% - a huge number - are going without health insurance. They are told that somehow they need to purchase $10,000/yr worth of insurance when they may gross $45,000/yr. If, on the other hand, they have union contracts that include good health benefits, they are derided and attacked for possessing "platinium benefits." The general media theme, though not spelled out, is that workers should not really expect to have very much health care. If they need an operation, they should expect to become indebted or bankrupt.
The prosperous working class has been destroyed. The efforts to extract wealth now center on the white-collar middle class.
I go back and forth on how conscious an effort this is, but I think the hope on the part of the rich is that decoupling will work, that the citizens of the US can be gradually impoverished because of rising levels of wealth in other countries.
I have read that the value of the dollar tells us what foreign lenders think of the US economy. Where the stock market is a vague measurement of expectations of profit for corporations, the dollar (compared to other currencies) reflects what very very rich foreigners think of their investment in all of America (government, corporations, banks, etc).
Looks worse than ever.
Milkman | 03.08.08 - 1:04 am | #
It's not only "rich" foreigners Milkman. It's any foreigner. I'm not rich, but I have some money stashed away. I can tell you I have only been short the dollar since 2006. I can only imagine what really big players are up to. You are right though, foreigners perceive far too much risk in holding the US currency- and that is going to get much worse given the bent of the US Fed. You see it in commodities already, but that is just a start.The US is going to experience a whole lot of pain for debasing their currency.
For those of us who didn't participate in the phony prosperity, all of this turmoil is alarming, but also strangely reassuring.
It's confirmation that we who didn't dip into our home equity to pay for vacations, were not doing poorly.
We who drove used cars and didn't replace them every two years, were not underachievers.
We who didn't go out to eat several times a week, were not depriving ourselves needlessly.
We who didn't understand how our neighbors could afford so many new things and expensive gadgets (like iPods replaced yearly), were not dense.
We who felt uncomfortable at running up too much debt on our credit cards, were not overly cautious.
I don't know if most of the people on this blog really can relate to the lifestyle people like me have been living. You all seem like people with lots of money to invest, or money to blow. I dimly sense that the "wreck and ruin" you fear involves being forced to live a lifestyle like MY people do.
It's not ruin, folks. It's America's real standard of living, and it isn't hopeless... just genuine. You can build up from there, but you have to start on solid ground.
Median income did not get back to the 1989 level until 1996, and it did not get back to the 1979 level until 1986.
Besides, this is not a good intertemporal measure of typical living standards for many reasons -- such as changing household composition (more young and old singles, more unmarried couples) and large numbers of low-income immigrants, legal and otherwise. Median income among prime-aged households is better, for reasons Stephen Rose has explained well.
"``The fact that they requested the withdrawal of the rating takes a lot of gall,'' said Martin Weiss, president of Weiss Research in Jupiter, Florida, a financial company researcher. "
I wouldn't necessarily describe it that way, as evidenced by my outrage.
The fact of the matter is that we have a system which is under tremendous stress with allegations of inherent conflicts of interest and a severe lack of trust.
We now have an issuer which apparently belives they can "manage" their own ratings and dismiss a perceived threat with an open attempt to discredit this agency in the process.
This is particularly disturbing given that the ratings agencies are independent.
Fitch had cited the potential inability to obtain the necessary data to properly evaluate going forward although potentially being able to rate with publically disclosed data.
My hope is that Fitch continues this battle, that it leads to full disclosure on company websites for all agencies that are recognized, and ceases hiding under the guise of competition. It is beyond comprehension that a company would attempt to influence a ratings agency in the publics eye with such a blatant disregard for the independence of the process.
What surprises me more is that everyone is not completely outraged by such a move by MBI.
If Fitch's fees are not in line with S&P and Moody's, they should publically disclose that the fees will be adjusted to meet the other two top raters and force the show of MBIA's hand exposing this move for what it really is, in my opinion, the ability to manage your own credit ratings, and models used in the process.
Paulson Says Deal `Very Close' With Congress on Housing Bill
By John Brinsley and Vivien Lou Chen
March 8 (Bloomberg) -- Treasury Secretary Henry Paulson said the Bush administration is nearing agreement with Congress on a bill that would make more Federal Housing Administration loans available to borrowers facing foreclosure.
They're very close to getting a compromise that would be very important,'' Paulson told reporters yesterday in Sunnyvale, California.One of the things I did from out here was make a couple of calls to leaders in Congress just to talk about it. We're very close.''
The Senate in December passed a bill similar to one passed by the House three months earlier that would lower the down payment required of low- and middle-income home buyers for federally insured loans, and also let them borrow more money. In addition, homeowners with adjustable-rate loans due to reset would have an easier time getting FHA-backed loans.
The Bush administration has expressed concerns about the legislation, saying the House version doesn't give the FHA enough flexibility to charge higher premiums to homeowners who pose credit risks. Higher FHA charges could add $75 million to federal revenue, the Office of Management and Budget said in September.
``We're going to need this FHA modernization bill,'' Paulson said, adding the bill would help 300,000 people. He spent the past two days in California, which has the most number of homes acquired last month by lenders through foreclosure of any U.S. state.
Foreclosures rose to a record in the fourth quarter, the Mortgage Bankers Association said two days ago. Paulson said the government is encouraging lenders and borrowers to work together to prevent people from losing their homes.
OTS Proposal
Paulson has declined to endorse a proposal by Office of Thrift Supervision Director John Reich to have the FHA refinance loans for homeowners whose houses are worth less than they owe on their mortgages. Reich's plan was backed this week by Federal Reserve Chairman Ben S. Bernanke, and is also supported by House Financial Services Committee Chairman Barney Frank.
Paulson's comments in California came after a government report showed the U.S. unexpectedly lost 63,000 jobs in February, after a drop of 22,000 in January.
Paulson said the loss of jobs signals a ``tough'' quarter for growth, while stopping short of saying the economy has entered a recession.
The February jobs report was not welcome news, not good news,'' Paulson said in a press conference in East Palo Alto, California.This is a tough quarter, we knew it.''
Fed's Measures
Minutes before the Labor Department report was released, the Federal Reserve moved to add as much as $200 billion to the banking system over the next month in an attempt to alleviate the threat from banks reducing corporate and consumer lending.
I'm very supportive of the Fed's action,'' Paulson said.They've taken a number of innovative steps'' and ``it's really what the market needs.''
In a speech last night at Stanford University, Paulson said housing remains the biggest downside risk to the economy that will ``take some time to work out.'' He also expressed confidence that the U.S. dollar will over time reflect the fundamentals of the economy.
The U.S. dollar dropped for a fourth straight week against the euro.
I know how important a strong dollar is, and it's in our nation's interest,'' Paulson said.We're facing some challenges right now but the long-term fundamentals are strong, and I'm confident they'll be reflected in our currency market.'
Broward Horne: "I mean, all my leaders read a book by Adam Smith that SAID "free markets" work and blabbed constantly about it while they gutted the American middle class.
I wish I could write here what I really feel and hope for."
That's OK. I have psychic powers and can read your mind. I'm getting images of torches...pitchforks...rope...
citizen: "For those of us who didn't participate in the phony prosperity, all of this turmoil is alarming, but also strangely reassuring.
"It's confirmation that we[...]were not underachievers."
True - I've often found myself over the last decade wondering if I could really be that much of a loser. Why do all those people in walks of life similar to my own (apparently) have so much more disposable income than I do? Unfortunately, the prudent and frugal are going to be made to pay for the foolishness of their neighbors, and even more for the obscene venality and irresponsibility of the folks who're still gonna be living sweet after the carcass of the U.S. middle class is picked clean.
Yeah, I have faith that we "can build up from there, but [we] have to start on solid ground" as a nation, but we have to understand that we're on our own; our "leaders", political and business, regard us as a just-about-sucked dry, disposable cash-cow.
We Americans need to return to solid ground in our lifestyles and stabilize our primary markets based on true affordability. Home prices must fall to affordable levels and then stabilize. I'm betting they will do just that. And the sky will not fall in the process- just some deserving speculators.
If anyone here truly seeks a restrengthening of the middle class, it will require you to reject the feel-good funhouse of the Reagan revolution (I know, it was tasty kool-aid), stop "shorting" the society in which you live to make yet another weakening buck, get to real value-added work, serve a cause and collaborate with those around you. That's the America we just might regain through all of this good pain.
I've realized that many of the regulars on this site (not Tanta or CR- they're exceptional) are just recession-oriented speculators. Get a life is exactly the right advice for you.
Unfortunately, the prudent and frugal are going to be made to pay for the foolishness of their neighbors
That's unfortunately true... but as long as I'm going to be paying for them, I reserve the right to look down on them. I know that sounds snotty. But if I (and people like me) going to be the responsible ones here and bat cleanup, I can't afford to adopt this "we're all in this together, we're all Americans" goop any more. I'll pay for their excesses, but I will never let them think they're important and deserve to be in charge. They blew it, they allowed themselves to be seduced, there needs to be a new lower- or middle-class leadership class in this country, and these easily seduced people blew their chance.
I own my home outright. And have very, very little debt (under $1,000 total), a secure but boring job, and (thank God) my health. My home may be a crappy little old suburban Cape Cod, but compared to a lot of Americans right now, I'm the fucking landed gentry, and if I'm going to pay for your stupidity, you're gonna get off your high horses. You don't get to fight the rich and greedy who are behind all this. You don't get to make the plans any more. Because you're stupid and weakened. Economically compromised. And you can sit down, shut up, and follow the lead of the Americans who behaved cautiously and responsibly -- the Americans you called losers.
Given my overactive paranoid imagination guess its unwarranted to question the dogmatic Kunstlerite posters but what the hay. The future is unwritten and the defacto assumption that Globaloneyization is forever with us is a form of propaganda in the benefit of corporate interests. The race to the bottom, whether in terms of labor, enviromental or political, is not a given. It's only assumed to be by those that want to propogate the idea of the futility and unworkability of collective action. This is to let those know that the idea is neither dead, futile or unworkable though it has been shouted down over the last century, loudly and surreptitiously.
I have a question about the Carlyle Group's implosion.
Using hypothetical figures, say that $8B of the $32B they had borrowed was owed to Citi (as an example). So Citi has this $8B loan on their books for which they need to keep a reserve of $5-600M.
Citi makes a margin call knowing it might well create a cascade of margin calls and force the Carlyle Group to try and liquidate.
Could Citi have claimed 25% (8/32) of the bond portfolio Carlyle Group had as collateral?
If so, they mighty recover $7.75B in the AAA agency debt and write off $250M as a loss.
Now, Citi has $8B less in outstanding loans and $7.75B in new capital.
Haven't they really improved their financial position?
I voted for Bush twice. Since 2006, I have grown to hate the man. He is a true fundamentalist: he does not allow logic or evidence to interfere with his beliefs. So, we end up with a situation where we are fighting 2 regional wars simultaneously (which is very expensive) while maintaining our commitments elsewhere in the world (Bosnia, Japan, etc) AND cutting taxes, creating new entitlements and generally increasing domestic discretionary spending. This mess will take years to work itself out. What is happening now is a taste of things to come; you cannot consume more than you produce indefinitely. Dick Cheney was wrong, deficeits matter. To paraphrase Feinman "Eventually reality will trump public relations, for mother nature cannot be fooled."
Nuke | 03.08.08 - 1:57 am | #
Nuke, I can understand 2000, if you thought that electing a uniter not a divider, and some one who would run a humble foreign policy was a good thing, plus being fed up with various inconsequential but sleazy aspects to the Clinton era (i.e. Monica). But wasn't it obvious by 2004 that he was a monumental incompetent who was hell bent on being as divisive as possible. Fool me once... Now the last thing we need is a 3rd term for Bush, which is effectively what McCain is.
Think about this, once many families become 2-worker households, their combined incomes allow them to pay more for the most desirable homes and locations. Given the shape of the supply curve, this increases the real price of housing, particularly well-located land. That's what puts the squeeze on the 1-worker household.
As an aside, that's the view from the money-based economy. Most stay-at-home parents are working pretty hard even though there's no pay.
When the US economy pulled back into itself, and all the countries of the world focused on producing for themselves first, and import/export trade second.
The $7.75B in AAA agency debt would not be new capital. It would be a new asset. They had an $8B loan as an asset. That's where the $0.25B loss comes and that's a loss of capital.
I agree with Dirk, and frankly, the results of the 2004 election left me completely indifferent to the little people, at least for a time.
I actually sold my business around then and benefited mightily from the Bush tax cuts, particularly capital gains, and still do. But I made my first sizable cash donation to help defeat him.
But the morons (no offense) came out and kept him in office. A failed war, clearly unjustified by fact or morality? Well, we all make mistakes. Policies that absurdly favor the rich? Well, we don't want class warfare.
Just so he hates homosexuals and will put ideologues on the Supreme Court.
Let's face it, the people who will be taking it on the chin in a lot of these states are the ones who gave Bush the election. I'm not saying they deserve what they're getting. But it's like walking along a dangerous cliff. You don't deserve serious injury, but you won't receive a lot of sympathy when it happens.
I think New England should seriously think of breaking off and joining Canada.
Thanks. Sorry if that was a foolish question, but here's another. When a Bank is required to have say an 8% capital ratio, it means their assets can't be more than 12.5 times their equity?
I've been talking about this forever but no one seems to look at household income. Everyone seems to focus on personal income when purchases are based on household income.
I knew it was bad when the White House stopped showing the number a year or two ago.
Finally a believable explanation for all the looting and pillaging of the last few years:
From the NYTIMES:
The whole point of acquiring a good reputation is to deplete it for gain, said Frank Partnoy, a professor of finance at the University of San Diego Law School and a former investment banker at Morgan Stanley. You expand your investor base and find the less sophisticated investor. But you can rebuild your reputation, too. Now is bad, but the memory of financial markets can be measured in days.
Troy | 03.08.08 - 1:08 am wrote, This is what makes me a Georgist -- the 1998-2002 land bubble in the SF area made it clear to me that land valuations will suck every last dollar out of everyone's wallet, and then some. Capturing this land valuation as taxes, in place of income & capital gains, seems like an excellent prescription to me.
I'm not a Georgist, if one uses the strict definition of "single taxer." But I completely agree that land rents and other economic rents should be taxed before anything else is taxed.
homedad43: ...Seaching on any of these terms will bring up good web pages on the subject.
Here's my favorite two. Note that both are written from a geolibetarian position, which I respect and largely but don't completely agree with (insofar as I'm not a single taxer):
Finally, for really good polemic, here's a USENET search for posts on land by a very smart poster. NB: the arguments can be very caustic; don't let that put you off.
Add into that the demand from India, and then the ROW.
In my little end of the world, steel fabricating, of importance to me was that the Asian steel makers agreed to pay 68% more for iron ore this year (yes, 68% more). Is that what an annual 10% increase in demand does when China makes 50% of the worlds steel?
Look at the list, imagine an even more complete list. Where do you think prices will go?
Is this the beginning of a 70's stagflation? Or is it more like Wiemar?
It was a very different world in the 70's where the US was the dog that wagged the tail. We are much closer to the hindquarters now.
The basis thesis of taxing land values is that it's both efficient and fair.
Efficient: because the supply of land is fixed, taxing land values cannot lead to any deadweight loss. This was probably recognized as far back as Adam Smith: Smith regards ground-rent as a highly suitable base for taxation (1937, pp. 795-96): Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. . . . Both ground-rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Though a part of this revenue should be taken from him in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land, are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them.
Fair: ownership of land is purely parasitical; landowners in their role of landowners (as distinct from owners of capital---improvements like buildings) contribute nothing of value, because the land was already there. (Urban land gets its value from economic activity, but landownership per se contributes nothing to this value.) This was recognized by John Stuart Mill: The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?
Of course, it should be mentioned that in terms of descriptive theory, the most important contribution is Ricardo's theory of rent. See also [1] and [2].
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
Alec: "If you don't think that globalization won't be around in your or your grandchildren's lifetime yo are so wrong I don't even know where to begin."
Yeah, but "globalization" doesn't require First World countries to piss away their high-end, value-added manufacturing base. "Globalization" doesn't require mindless, short-sighted uncontrolled immigration. These, and many other things, are the result of delibrate policy, of conscious action or inaction. "Globalization" is not a force of nature that knows all, decides all, and removes all responsibility from leaders (and yes, citizens!) for the state of their polity and their economy. (Don't mean to be putting words in your mouth, Alec. Jus' sayin'.)
citizen: "Sound harsh? Too goddamn bad."
Harsh? Not harsh enough. But good luck on getting the foolish to "sit down, shut up, and follow the lead of the Americans who behaved cautiously and responsibly". As far as I can see, the foolish "they" up the ladder are still making the decisions.
Where is the evidence for a pickup in the second half? Where will the demand come from?
It seems to me that the administration and pundits who are predicting a quick rebound have all been discredited already. I am not expecting a short recession.
I voted for Bush twice.
Any sentient being should have figured out in 2000 that a man who had failed at everything he'd tried (and been bailed out because of his last name and his daddy's money) would be a disaster for this country. They were planning Iraq before 9/11 - that's been demonstrated. Voting once for him ... maybe forgivable. Twice? Hundreds of thousands of needless deaths, trillions wasted. This administration and it's enablers have blood on their hands. I've said it before - at minimum, all two-time Bush voters should be sent a bill for their share of the Iraq debacle.
Housing values (nominal) went up $6T, but household income fell $1000/yr.
Oh yeah...this depression is going to be long and nasty. And I'm not sure from the data that those wages are adjusted even for gov't inflation let alone real inflation.
Yeah, but "globalization" doesn't require First World countries to piss away their high-end, value-added manufacturing base.
If you think it is cheaper to offshore development or customer service think again. It isn't. We all choose to do it because we can't hire enough people here . You see, all the wingnuts are so worked up over immigration that they've cut off the supply of talent. This has the effect of keeping them home, so we go and build the business there. Keep this up and we'll have had the secondary effect of creating our own Indian and Chinese competition in the world market. But we have no choice.
The tech bust caused many kids to stop picking engineering careers, which was unfortunate. That's where the good paying jobs are now. And I don't know where you are but to get talented people, especially in the last year, I've had to pay salaries around 10% more than in the past.
The median salary has been shrinking because, for unskilled workers, the choice of job has shifted to lesser-paying service jobs. The factory jobs don't exist and when they do come back they're not going to be at union wages. The answer is education and hard work to learn more complicated skillsets but no one wants to hear that. They want it easy. Just like credit.
If you think the dumborats are going to change things, you're insane.
Both parties are corrupt. Why didn't the nice dumborat congang majority push for impeachment of that assjack president Dickhead and his trained monkey???????????
Until people stop looking to politics as a football game, and stop cheering for their team, and start THINKING, this shite won't end.
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW | 03.08.08 - 9:57 am
Puh-freekin'-leeeeze.
What Republic? Our Constitutional Republic has been rendered null and void by people waving flags.
Unless you're "Old Money", your self-deluded ass wouldn't even be here if it wasn't for collective bargaining, social programs, and a progressive SCOTUS.
I love it when the second-generation middle class egoists claim to have lifted themselves by their own boot straps. Ask your grandparents what lifted them out of the bread lines of the '30s.
You'd deny your own heritage for a buck.
"Health of the Republic"....hack...wheeze,,,croak.
"I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic."
In other words, I don't care what happens to this country, just don't tell me that what I believe is out of kilter with reality, because I can't handle such news.
Here's a wake-up call - everything that you despise and hate is everything that was responsible for making the largest and most prosperous working middle-class to ever occupy this earth. Why do you hate America so much ?
Oh yeah...this depression is going to be long and nasty.
There's going to be no depression. You know, lots of businesses are doing just fine. Lots of people are too. The discussions here have moved into the "cult of the doom". I suppose it is somewhat fun to be morally superior, in the same way fundamentalists are though. Me, I'll just keep looking for the solution and ways to make money from it.
This unwind is necessary and, if anyone has bothered to listen to the more pragmatic, there's going to be lots of opportunity to pick up assets on the cheap. There's also going to be a different competitive landscape for financial services. Lots of people are going to get hurt. That's the way capitalism works. Spare me the entitlement about all of your savings. If you ever thought that you'd only see years of positive gains, you haven't studied the markets enough. Too bad if the timing isn't to your liking. That's also not a given.
The credit markets have another couple of months of "come to jesus" left. In the meantime, what are you doing to pull the system out? Where is the value? What new business opportunities are there in the wreckage? Where does one invest to that the negative returns of the period will be reversed? Hint: it isn't gold or commodities. It isn't oil. And it isn't going to be anywhere people with their hair on fire are running to.
Now there more harshness and another "if you don't like it, too bad".
"Remember the days of one parent at home, one at work, with enough of an income to keep the family living comfortably"
No not really, I think in the past we just had a lot less. My dad worked three jobs while we three boys and a sister with medical problems gave my mom the harder job. Once we were old enough my mom worked. We were not that different than many of our peers.
"Simian writes:
It has taken us 6000 years to get here, but the Rapture is now near. Neocons will shed their cloths and ascend in all their neked glory, hallelujah."
I envision more of a Housing Rapture, where all the unsold and unoccupied Mcmansions and crapboxes get sucked up into heaven, thus ending the Great Overhang.
I think in the past we just had a lot less. My dad worked three jobs...
tg, it's part of the "mythical past" syndrome. My family was very blue collar. My mom stayed home until we were old enough also. My dad worked two jobs, over-time, etc but everyone forgets this as somehow idealizes life then. It wasn't ideal. I never saw much of my dad growing up because he was always working to support us. And we just did with less.
So the one-wage earner thing is mostly a myth. It was one-and-a-half to two from the 50's on.
Hundreds of thousands of needless deaths, trillions wasted. This administration and it's enablers have blood on their hands. I've said it before - at minimum, all two-time Bush voters should be sent a bill for their share of the Iraq debacle.
And therein lies the beauty of the whole scheme. Most of the electorate aren't asked nor are the required to pay or participate in the great debacle. Just borrow the money to pay for the wars and keep sending the same people back to fight the wars. Most Americans are completely disconnected from reality.
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW | 03.08.08 - 9:57 am | #
You know, ive always known this. Im no better off than I was 15 yrs ago in terms of real $ to spend.
With a household income of about $200K, I live in a 135K house with about 45K mortgage, drive 2-12yr old vehicles. I have a net worth of close to 1MM, and only 45k debt. Because I live and save the way you are supposed to.
It pisses me that the morons that cant live in their means get bailed out, just like the idiots in new orleans that didnt have flood insurance. The ones who sacrifice and live the right way end up paying to bail out the idiots.
When ever I see some projection like that, I'm reminded of my 5th grade teacher, who was an environmentalist before many people knew the word. This was the time of the first Earth Day (1970?) and there was a book he quoted to us, the one that was published every year (State of the Earth?) by a guy who predicted we were near the end of the road with just about every commodity, prices would be unbelievable, etc.
I don't know what will happen over the next 15 years, but frankly, my guess is probably as good as theirs.
It pisses me that the morons that cant live in their means get bailed out
I kind of share your sentiment here, but there's something queasy-making about a guy who makes $200,000/yr lecturing people about living within their means. Sure, it's easy for you, you're rich!
I have a household income of about $50,000/yr, and I'm doing okay. I have no debt, and a comfortable bit of money saved up as a cushion. I live pretty darn frugally, but there are certainly places I could economize if I had to. Even so, I still have some sympathy for the folks who are in distress. If I made just a little bit less, if I had followed absolutely everyone's advice back in 2004 and bought a house, if I didn't have insurance and got sick, I'd be sunk. It's not just lattes and rims that have got people in trouble. I'm sure there's some of that, but it's not the whole story.
Of course, even if I'm sympathetic, that doesn't mean I'm ready to contribute to a bailout...
The 2003 Table: "All data is in 2003 dollars and only applies to householders whose householder is aged twenty-five or older."
I am pretty sure that the number for 1999 and 2006 are in 2006 dollars, i.e., the incomes reported are real incomes and NOT nominal incomes. The 1999 income reported in 2003 table was lower than the current number, further supporting the data represent real incomes.
What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
Bull shit. Indeed, it's excretions like this that have ruined the health of our republic.
Why didn't the nice dumborat congang majority push for impeachment of that assjack president Dickhead and his trained monkey???????????
cuz that would be bad politics and bad strategery and wouldn't change anything but the continued downward slide of the erstwhile permanent Republican majority.
Given the bailout BS we're starting to see from the Dems, I'm no big Dem fan, but please don't try to lump these idiots with the criminally insane Republicans we have today.
Negative total for a 3-Month period ONLY happens after the beginning of a recession and within the first two years of the technical recovery (the employment takes 12-24 months to recover after the beginning of the official recovery).
Ergo, the economy was definitely in recession by February. When did the recession began remains to be confirmed.
Let us not forget the downward revisions that are very common when the economy enters the recession.
The tech bust caused many kids to stop picking engineering careers, which was unfortunate. That's where the good paying jobs are now.
I'm not sure I can swallow that one...
From a purely cash standpoint the "fair value" of a career can be valued something like a stock. The fair value for a stock is the NPV of all future earnings.
The stock market pays a premium for companies with high and increasing earnings. But, the stock market also pays a premium for stable earnings. The reason is that a company with stable earnings can increase leverage and increase to future earnings.
While engineering fields tend to have higher incomes than average, they are a lot more specialized. That makes an engineer's earnings much more cyclical. A marketing or sales guy may spend 2-3 months finding an equivalent position but an engineer may take years.
How many engineers have you known that were laid off 3 minutes after the project was completed?
This means that an engineer has to be much more conservative with lower leverage, increased savings, and a more conservative risk profile for investments. This drag is usually enough to completely offset an engineers slightly higher earnings.
And that is on a purely "cash" basis. There is also a emotional penalty for the cyclical nature of the job (60-80 hours in the boom with followed by 1-2 years unemployed) and for living a "lower leverage" life-style.
From a purely cash basis I'd rank the doctors and nurses as highest, followed by sales and finance (less stable, but much higher salaries in the boom), followed by accounting (high and stable), then public service (lower salaries but very stable), and near the bottom would be tech.
But, because of some personality quirks techs end up being one of the most exploited class in the work force. For work that is much more specialized and more cyclical than sales they tend to demand about half the wages.
Hey Misean, that crap might have a sympathetic audience on LGF or Powerline or among Denninger's lemmings, but not here. Not with me.
Wasn't there an old communist party joke about voters getting to pick from the puppet on the right hand or the puppet on the left hand?
Before we let this degenerate along political party lines can do you honestly believe that your party has done what's best for the country? Not just, "they did better than party X", but really in the long term interest of the republic and not lobbyists?
Perhaps you are a tool. Coming events will inform us.
Our country was founded on a union, and there was a waiting list to get in. So, how is collective bargaining at odds with your belief system? Don't people have the "liberty" to freely associate and use their combined strength to better their lot?
Contrary to the old chestnut, the best government is not the least government. An undersized government is a breeding ground for instability. The US is a major enterprise, with all of the management levels that size requires. Inefficient? certainly. Essential? Absolutely. Can efficiencies of relative scale result in savings to the taxpayer? Yes - but the system will no longer function properly. It'd be great o cut out middle-management, but if we do it, we cannot manage at all. Any savings would be offset by loss of control. That's why large-scale enterprise always has lots of "wasteful" management. Lax government leads to criminality.
If you want a small government, move to Afghanistan.
As far as healthcare goes, I once had a Neocon acquaintence go on a tear about "socialized healthcare", during which he asserted that no healthcare was better than state-provided healthcare, and that anyone who trusted a doctor enough to let that doctor do a rectal exam was a closet homosexual.
Being a high-debt, psuedo middle-class fellow, I'm sure he'll sing a different tune if he ever gets colon/rectal cancer.
A healthy (educated, well-fed) citizenry is essential to a vibrant, economically viable society. It's an investment, not an expense.
Lastly, let's not forget exactly which type of SCOTUS expanded the "liberties" that you seem to champion.
Remember this: Every regulation on the books is there for a reason (sometimes, the reason is nefarious - like the Tax Code), and the reason is that somebody got F'ed over. Behind every 25 mile an hour speed limit is a kid who got hit by a car that was driven too fast. As we have learned from the current Administration, deregulation leads to criminality and vast financial losses to the Union. You have (actually, you HAD) plenty of freedoms and liberties - screwing the pooch is not among them - as it damn-well should not be.
Personally, I enjoy the protection of quaint "liberal" ideas like Habeas Corpus. Funny that the things you are willing to give up in good times are the things that can save you during a downturn. The useless suddenly becomes essential.
"There are many opinions about what is happening in the engineering field, but here are some of the facts that routinely get lost in the debate:
Shortages usually lead to price increases. If there were a shortage of engineers, salaries should have risen. Yet in real terms, engineering salaries have actually dropped (see BusinessWeek.com, 9/15/05, "Good Time to Learn Accounting").
Twenty-five to 40% of engineering graduates don't become engineers. At Duke, I noted that 40% of our Masters of Engineering Management students were accepting jobs in fields such as investment banking and management consulting. Our researchers called other engineering schools and found this was common. Don Giddens, dean of engineering at the Georgia Institute of Technology, says that this is by designU.S. schools provide a broad education that prepares students for careers other than "strictly" engineering."
OT but of some interest. In the 4Q, total net income for the S&P 500 firms (or the 488 that have reported) is down 20.6% from a year ago. this is due to a 111.2% decline in the Financial sector (going from net income of $55.1 billion to a net loss of $6.2 billion). Looking forward to the 1Q, on the surface things get better, with only a 7.4% decline in net income expected for the S&P 500 overall, and a 30.7% decline in the financials (actually the Consumer Discretionary sector is expected to be the worst in the 1Q, with a 34% decline). However, if one goes back 3 months and looks at the expectations at that time for the 4Q we were looking at a 5.4% overall decline and a 35.2% decline in the Financials. If you think things are going to be substantially better in the 1Q for the Financials, I suggest you take a look at exactly what type of mushrooms they put on your pizza.
In his January Barron's forecast, Marc Faber predicted that the pound and euro would get their turn down the waterslide later this year (vs the US$). If that happens, it would provide some additional variables for our thought processes.
I wonder if all those wingers that are always decrying handing out welfare will be returning their welfare checks this coming May? I don't have to answer that one do I?
It rather seems to me that while that may be the original reason in many cases (let us ignore rank wealth-transfers like the mortgage deduction), in the end the laws more often then not are used for said F'ing. See, for example, patent law. Perhaps I'm overly sensitive to this sort of thing since I'm a programmer.
Funny that the things you are willing to give up in good times
I'm not willing to give up anything on account of how well the economy is functioning, and certainly not Habeus Corpus.
I should clarify: I'm not opposed to govt, but rather to an outsized Federal govt. I would prefer more state and local government which would be more responsive to localized needs and concerns (and, for those of you keeping score, less likely to get involved in overseas adventures.) I'm not particularly sympathetic to your Big Business/Big Govt. simile: I'm just as opposed to Big Business as I am to Big Govt. Like Chesterton said: they are very much alike; especially Big Business.
Not everyone opposed to a nanny centralized state is quite as simple as you make them out to be. Men of goodwill and all that.
ARW writes:
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW | 03.08.08 - 9:57 am | #
On what exactly do you base this assertion? The current HC system we have is FAR and away the most inefficent in the world, spending 2x per capita what most of our peers spend and producing the 31st best HC outcomes. A one payer system is no more "socialized medicine" than a single insurer FDIC is "socialized banking", its just a case of getting rid of the HMO parasites, and curing hookworm will generally improve a person's health. Unfortuately neither Obama or HRC go that far. The U.S. economy did pretty well durring the heyday of unions (1945-1980). As for SCOTUS, would you honestly prefer more Scalia's Allito's and Thomas's. Personally I prefer SCOTUS justices who have at least a passing familiarity with the bill of rights and the principals of seperation of powers. Those hacks clearly don't.
It is equally true, unfortunately, that house prices must be stabilized. That is, if they are not the whole financial system is doomed. As house prices fall, they collapse all the delicate risk/price relationships that were designed and constructed around them.
And in order to stabilize house prices the value of the dollar and all US denominated debt has to be destroyed. In which case the financial system is doomed.
The point is we doomed the financial system years ago.
Sebastian,
your posts are so hilarious, I sometimes want to save them so that I could show them to you a year later. But, we are all nobodies here, so why bother.
Not to let my facts get in the way of your facts, but according to inflation as measured by my personal consumption index (and everybody's I know) we have never left the 2001 recession...
"Gary writes:
go browns - sorry, not Ohio. They f'ed the entire country in 2004"
As long as states are seceding, cut Ohio in half right about at Mansfield, the bottom half, right wing, religious kinsfolk can remain in the US. Northern Ohio and Michigan will join up with New England and upstate NY and become South Ontario.
What's amusing about the right-wing fear of a national health care plan is that private insured health care in this country spends 14% on administrative costs. I believe Medicare is less than 2%.
We have health care industrial complex made up of fat insurers, drug makers, etc., just like the military industrial complex and the prison industrial complex. None have anything to do with efficiency or market forces, just a lot of high-price vested interests that find it easy to buy votes in Congress, and even easier at the state house.
While it is very true that we are only now looking at surpassing the median income we had in 1999, choosing 1999 as the benchmark is just a tad arbitrary. From the chart that was posted in this thread earlier:
From the REAL median income, we can see that 1999 was the peak of the 1990s, but it was also the height of the tech bubble. Looking back, we can see that something similar happened in the 1990's, with incomes peaking in '89 and not surpassing that peak again until '96. There is also a similar pattern from '78 - '86.
So Leonhardt is being a tad disingenuous here. It's not that americans haven't "had a raise" in over a decade, it's that incomes peaked in 1999 at the top of the tech bubble (not surprising), and proceeded to pull back until 2004, since which time they have been rising again.
Unfortunately, that rise in income is probably the result of the housing bubble, just like the rise in income at the end of the 90's was tech-bubble related. (How many realtors, flippers, and realtor-flippers were pulling in six figures in the past few years?)
From the historical chart, it basically appears that REAL median incomes have only increased about 13% in the past 30 years, and in the process of doing so, they tend to rise to a peak, recede, and rise again cyclically. So really, it's not at all surprising that an arbitrary starting year can be picked to show that real incomes haven't risen in a decade, because they generally don't rise very significantly, percentagewise, at all.
Praetorian, I could see how you could be ambiguous about the regular military, lol! And how about Marcus Aurelius's son ... keep an eye on him!
To the list of relatively efficient government agencies, add social security. That kicks in smoothly. And the administrative costs are low.
Tripleplay, the conservatives have had what they wished for for 7 years. It has been horrible.
I know there is a danger in taxation. It tends to become crushing. I want there to be people warning and working against that. But, the current system IS crushing. It is corrupt. It is intended to transfer wealth to the richest persons in the country. We cannot rely on the statistics, we cannot rely on the disclosures, we cannot rely on the oversight. It's all a pack of lies. I fear a breakdown of "the system." But not so much, anymore.
--
New Guy: "So Leonhardt is being a tad disingenuous here. It's not that americans haven't "had a raise" in over a decade, it's that incomes peaked in 1999 at the top of the tech bubble (not surprising), and proceeded to pull back until 2004, since which time they have been rising again."
You miss a very important point. Assuming that the economy has entered recession and the real income didn't rise in 2007 (highly likely based on high inflation rate), the 2002-2007 recovery would be the first recovery during which the real income did not reach the peak of the previous recovery.
If you believe as I do that the current recession would be very severe and long lasting the real income will decline to the q1973 levels. 1973 is the dividing line between good income growth and poor income growth since 1950.
This was posted last nite
wanted to bring it into a better time slot
Its from Four Critical Questions at PrudentBear.
It has one vitally important idea:
" the system has never been allowed to return to equilibrium, which all systems seek. The solution was always the same. We solve todays debt crisis by creating more debt more government bailouts. Consequently, the next future financial structure becomes even less stable. As fear sets in, borrowers and lenders become less inclined to play their respective roles, and the inflationary policies and schemes that attempt to thwart the natural forces of unwinding are eventually overridden."
The economy is a system and subject to systemic laws. Especially in this case homeostasis or returning to the most stable level. In the end everything must come back into balance
The idea that wealth can be created out of nothing is essentially the same thinking as designing a perpetual motion machine. Both are bound by the laws of thermodynamics.
In geology plate tectonics describes a system. A local event can stop the smooth motion of the plates. Pressure builds up until it is released in an earthquake. In predator-prey systems populations crash with devastating results. Same with forest fires and underbrush etc.
In our economy, the local event has been the interventions that stopped recessions.
But each intervention has built up the disequilibrium
The wealth that has been created by continued intervention will get destroyed in the system returning to normal
A significant portion of our population conveniently defined by those who don't in evolution, believe that mankind is governed by a unique set of laws. Reaganesque economics is such a special law. Especially applying, I suppose, for those with the proper religiosity.
Will this economic angel of death pass them over?
Time will tell.
When my mom was a kid, her mom stayed home. But in addition to my granddad's income, they had some inherited money, which survived the depression, and was enough extra for comfort. My (divorced) mom worked part time and my grandmother watched me and then she worked full time at the school I attended, and then she worked full time near my high school.
We had a paid off house, and bought a new car cash about every 5 years. We had stuff, but not nearly as much stuff as everybody expects to have today. Only 1 tv, only 1 phone, none of the technical stuff available. No dryer, no dishwasher. Home cooked meals, not eating out much. But we were just north of mid middle class. You could live like that today if you wanted to. And you would save a lot of money.
This 40s and 50s standard of living would still be considered paradise in most of the world. We were not unhappy living within our means. A lot of money gets wasted spent on stuff like lattes, that can easily be done without. Once you reach a certain level, more stuff doesn't equate with more happiness.
Apparently these facts have not been passed on.
Many of the kids I knew did have families where both parents worked. I understand that the one parent staying home thing is actually, over history, rather rare. Of course, having a loving parent watch the kids is ideal. But in the past those loving parents might be hand weaving or brewing beer to sell, etc, etc, at home at the same time. For hours and hours each day and little pay.
We have a great deal to be thankful for, even as we face the horrible problems our idiot leader has led us to.
Also, a lot of these losses are going to mean that some rich people are gonna be a whole lot less rich.
Mock Turtle:
WRT engineering, I have noticed the same thing: stagnant wages and more and more engineers going into other fields, like financial services. It is sad in my opinion; our best and brightest tech people go into financial engineering while we continue to lose our technological edge. I have also witnessed companies lay off engineering staff first. The Japanese (whom I have spent much time with) take the oposite track. The result is Toyota vs GM. Which outfit will survive the next 20 yrs.
You are very likely correct that incomes have peaked for this cycle, and failed to surpass the previous peak in 1999.
I didn't mean to sound like I was arguing that this recession (that we are most likely already in, by any reasonable measures) was not going to be any different than previous recessionary cycles. I was just merely pointing out that, as a rhetorical device, newhardt's statistical trick isn't very meaningful in and of itself -- if he had taken 1997 as a baseline instead of 1999, then the numbers would be up quite a bit.
In fact, I would think we would be expecting numbers to have stayed flat AT BEST for the past decade, since the tech bubble should have seen a great deal more deflating than actually happened, and the economy has been shedding high-paying jobs and replacing them (where they have been replaced) with lower paying ones.
All the evidence certainly points in favor of the view that incomes SHOULD be falling, in real terms, what with offshoring, outsourcing, and the gradual shifting of the american economy from a manufacturing economy to a service economy. (So they have a lot further to fall currently thanks to artificially inflated bubble economy incomes)
The problem I have with newhardt's argument is that isn't indicative of a real problem on its own; the data shows that, going back decades, median income peaks and recedes in cycles, and even though it does slope upward historically, the curve is very nearly flat.
Like I said before, someone, arguing the contrary (Let's say, Kudlow) could easily pick a different year and loudly proclaim that incomes are up a healthy amount in real terms. It's only one rhetorical step up from proclaiming that American incomes are higher than ever! (in nominal terms!)
I hate to see poor logic or cherry-picked statistics used for argument, even if I agree with the person making the argument. If you are right (and in this case I think he is), then you should be able to make a case with a little more substance.
Kicker:
Before joining the armed forces (in 2001)I worked for an engineering firm. They had a habit of laying off people and bringing them back as consultants.
As for voting for Bush, yeah, I F---ed up. My turning point came in 2005, when it became obvious that Iraq was collapsing and the Administration refused to recognize the fact. My peers coming back painted a completely different picture of the country than the official releases.
WRT to the size of the military. Yes, it is WAY to big. You would be surprised how many uniformed military think this. Part of the problem in the Military-Congressional-Industrial complex (that is how Dwight D referred to it). However, the blame also lies with the American people. All candidates, including Obama, want to expand the military. Frankly, we have too many missions: fight 2 regional wars simultaneously, maintain a quasi cold war footing with Russia and China, garrison much of Europe and Japan, and perform various peacekeeping functions around the world. You would be shock the amount of military effort required to deploy troops to Bosnia/Haiti/Indonesia for humanitarian causes. Which is why, despite their hype, the Canadians and Europeans don't actually do a lot of humanitarian/peacekeeping work. The American people need to prioritize our missions. Otherwise, we will continue to have a gargantuan military that tries to do everything.
ipodius: "If you think it is cheaper to offshore development or customer service think again. It isn't. We all choose to do it because we can't hire enough people here."
Actually, I didn't think anything - or rather, I didn't say what I thought the cause of our pissing away of our manufacturing base was. I have no doubt that high-end engineering talent doesn't grow on trees, but I'm not buying that all the layoffs and offshoring of tech and "customer service" jobs of the last few years are all just a matter of "gosh golly, we just can't find anybody around here to do those jobs."
At any rate, I infer from your comment that you agree that we're pissing away (or have pissed away) our manufacturing mojo. I happen to think that's a bad thing. You appear to agree. The question is, why, and what to do about it. I'm sure not satisfied with the "oh, young people are just too lazy to acquire the necessary complicated skillsets we need". Yeah, it's unfortunate if the young are eschewing technical fields - but it's a rational choice, based on what career prospects look like, now. A lot of the haranguing they get about why they should go into tech fields doesn't pass the "lying eyes" test. They look around and witness the offshoring of every job that isn't nailed down, short-term thinking and therefore short-term career prospects, etc. Declining to invest tens of thousands of dollars (often in the form of long-term debt) on such terms signifies prudence, not a refusal to work hard.
My original point was that this pattern, whose result over time is the hollowing out of the nation's base of technical skills, is not an ineluctable by-product of globalization. Other First World nations have not followed the same path, while we seem hell bent on "third-worlding" ourselves. Our schools are "dumbed down" relative to these nations (Japan, Germany, etc.), but I don't think that begins to explain the whole of it.
You see, all the wingnuts are so worked up over immigration that they've cut off the supply of talent.
Somehow I don't think you're looking to recruit among the unskilled illegals pouring over the southern border. Maybe if you didn't dismiss out of hand the immigration concerns of the "wingnuts" further down the economic ladder, you might get a better hearing for your staffing problems. I don't think it should be national policy to drive into the dirt the wages of people who ain't never gonna qualify as engineers, no matter how hard they work or how much education they get.
"This has the effect of keeping them home, so we go and build the business there. Keep this up and we'll have had the secondary effect of creating our own Indian and Chinese competition in the world market. But we have no choice."
"We" could have made a lot of choices beyond giving up on developing home-grown talent or giving up on American manufacturing. (Not that high-skill immigration in itself is a bad idea.)
"And I don't know where you are but to get talented people, especially in the last year, I've had to pay salaries around 10% more than in the past."
Well, that is why smart people go to the trouble of acquiring skills - to get paid more.
I know how important a strong dollar is, and it's in our nation's interest,'' Paulson said.We're facing some challenges right now but the long-term fundamentals are strong, and I'm confident they'll be reflected in our currency market.''
What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW
You're an idiot and I hope you lose everything. Is that competitive enough for you?
I'm not so sure the US exports enough goods to take advantage of the lower currency value.
The US does export pornography and wine and a few motorcycles. Maybe even some raw materials. But, compared to the rest of the world, we are under-producers.
Actually, here are the top five us exports:
1 - Aircraft
2 - Passenger automobiles (no shit, really!)
3 - Auto Parts (probably production parts)
4 - Semiconductors
5 - "HTS 9880".... hell I do trade all day long and I'm not even sure what that is exactly, except its a special tariff provision in chapter 98... let's check number 6
6 - Chemicals
So, America still manufactures, we are just a capital intensive, high tech manufacturer.
I'm not saying manufacturing hasn't taken a heavy hit during the "Bush prosperity", but we aren't completely doomed.
They were skipped over at the end of this thread, but lawyerliz and plschwartz hit the nail on the head.
First, we need policies that let asset prices fall to affordability and then stabilize there. The primary folks hurt in this process will have been on Reagan kool-aid, or otherwise speculating vs. working hard and keeping their skills sharp.
Second, what we are referring to when we bring up the "middle class" is not their economic power...it's their VALUES. These values need to return to the front burner of our politics and policies as a nation, as they surely will soon. That's the silver lining of all the pain we'll be experiencing.
I'm a chemical engineer and I make a decent living.
I put in a lot of years to get that education and a couple of decades of real life experience.
I believe many of the posters above have no idea what that means. They just read about engineer shortages without having a single clue what engineering is about.
Lipstick on the pig! This is the late William F. Buckley's real contribution to Conservatism, and, as his mourners have pointed out quite accurately, the real secret to the Goldwater and Reagan "Revolutions": the temporary triumph of PR and spin over Reality. Unfortunately, Reality has a Liberal Bias.
[/partisan snark]
MA - Brilliant Comments.
I work in the EDU arena, specifically CS, and while it's true that the number of US undergrads pursuing EE and CS has declined, particularly in CS post dot-bomb, those numbers pretty accurately track starting salaries.
We are seeing a gradual increase, in response to the recognition by employers that wage arbitration isn't working because the South Asia set isn't "fungible". Slowly but surely the IT 'globalization' movement is reversing, at least somewhat, as the quality differences - an important component of productivity - make themselves known. You can get a project finished in Hyderabad, for a third of the cost, but if it's buggy crap that at best only appears to meet requirements, then have you really saved any money? In the quarter just ended, perhaps; in the longer term? As I started out noting: Reality will eventually win out over spin and PR.
I am not happy about the prospects of a Bank Bailout by the Democrats; they certainly do their part to make a space at the trough for the 'pigmen' (is that Jas' favorite term?), particularly when they are the party of the 'little guy' and end up sticking the little guy with the bill.
However, sometimes the reality is that the choice is not between the two parties (though it splits that way often enough), but between lube or no lube. The resulting society-wide mess of allowing "meltdowns" where the imprudent and greedy (and therefore 'morally undeserving' - I see lots of that in these comments) 'get what they deserve', aren't messes the rest of us can hide from in our gated communities, bankerdomes or subsistence farms 'off the grid' (I'm in the latter camp). At some point, in paying to clean up the mess, we are really doing for ourselves as much as the undeserving.
Although I'm an atheist, this is is the wisdom of the "Prodigal Son", and if we 'good sons' are truly morally enlightened, then we will simply rejoice at the 'come to Jesus' moment the morons who elected Bush twice are finally having...for real this time.
Cheers!
ps - LawyerLiz, I used to know a Lawyer named Liz in South Fla; I wonder if you are the same - do you know Louis (Dee) and Eva?
"The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise."
This piece makes my point concerning inflation. Someone better figure out how to pump some wage inflation in the system to help remedy the asset defalation that is just now starting to bite. The problem with actually doing it with the credit markets seizing up is a real stumper, but I'm sure Benny & the FED have it all figured out.
House prices must fall and incomes must rise . . . until they meet. It is amazing but true that the middle class in the US has vanished.
Remember the days of one parent at home, one at work, with enough of an income to keep the family living comfortably? That has ended. To maintain the middle class life, we need credit. And that's just a way to fake it for a few more years.
Once the middle class goes, so goes the housing market, buying cars, and consumerism. The US can't survive.
My weight must fall
Good luck with incomes. Unless Peak Oil makes the world a much larger place again (ala Kunstler), globalization will cap median wages from here on out.
good glod
Euro Pacific Capital : Because there's a bull market somewhere.
Peter Schiff seems frustrated by the bubble-denyer syndrome too. It's like seeing a UFO an no one believes you, even after the aliens start attacking.
"In my 2006 and 2007 on-air appearances, to a chorus of sneers and laughter, I predicted the bursting of the housing bubble, the collapse of the subprime mortgage market, the credit crisis, tightening lending standards, waves of defaults, bankruptcies and foreclosures, weakness in financials, retailers and homebuilders, stagflation, surging gold, oil and other commodity prices, soaring federal budget deficits and a collapse in the value of the U.S. dollar. You would have thought that some of the reasons I gave for making those predictions would now be given some credence. They have not."
"The stopped clock analogy is one I have been dealing with for years. Those using it maintain that my early warnings invalidate my forecasts. It is precisely because my warnings were so early that they were so valuable to investors. In addition, such charges assume that the current downturn is unrelated to those warnings and that my critique of the U.S. economy was inaccurate until now. My critics, the real stopped clocks, still do not understand that the phony prosperity they were defending and that I was challenging lies at the root of the current crises. When the bubble was still inflating it is understandable that those trapped inside viewed me as a stopped clock. However, now that it has burst, it is amazing how many still cannot get the soap out of their eyes."
The whole thing is worth reading.
"The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau"
Anybody know if this is in real or nominal?
My gut is that it's nominal with the real being even worse.
I'm curious what the median stated income on mortgage applications is (or was). Didn't anyone ever do the back of an envelope calculation to figure out there's no way that the American public in the aggregate could possibly afford to pay off these loans? Or did they just believe that every shlub walking through the door with no documented income really was in the nations top 5%?
Milkman,
Geez, you're bumming me out.
I agree to some extent, but not completely. It might seem that two incomes are required (especially in some locales), but it ain't necessarily so. I think we've added a lot of "necessities" to our lifestyles that really aren't.
That being said, we are facing global competition that is forcing wages down. Our lifestyle will suffer some, to be sure. If you are philosophical about it, though, you have to ask yourself whether this is not fair to the rest of the world that has been living in poverty while we live lives of relative luxury.
To your main point though, we are definitely seeing a widening of the gap between the rich and poor. And more are joining the lower rungs than the upper rungs, to be sure.
Our Long National Nightmare of Peace and Prosperity is Over!
Rejoice at the Victorious Coming of the Reign of Free Market Capitalism.
All Hail The Great And Good Leader George Bush
Victory!
(for those who got a berth in the lifeboat)
Checking the actual Census Bureau document it appears to be nominal.. Scary, eh?
ShortCourage:
Good point. I know a few people in households where both adults/parents are working so they can have huge trucks, big screen TVs, and lavish vacations. They could downsize a bit and have one adult working. That would be more sensible and better for everyone.
Is there a catchy name for this type of American? Personally, I like "60K Millionaire."
It's a recession, stupid
"The debate should no longer be about whether there is or is not a recession, only about how deep it will be. Private employment has now fallen for three months in a row," said Nigel Gault, economist at Global Insight.
With the new Federal Flow of Funds report out, I updated this chart of lending with the 2007 numbers.
2H02 was indeed worse than I estimated from 1H02. Chillingly so, IMO.
This dollar chart makes me gasp:
INO Equities Stocks Indexes - US DOLLAR INDEX (NYBOT:DX) Price Chart and Quote
I have read that the value of the dollar tells us what foreign lenders think of the US economy. Where the stock market is a vague measurement of expectations of profit for corporations, the dollar (compared to other currencies) reflects what very very rich foreigners think of their investment in all of America (government, corporations, banks, etc).
Looks worse than ever.
1H08 & 2H08, sorry.
"Anybody know if this is in real or
nominal?"
If it were nominal, then real income would be down well over 15% (assuming 2.5% inflation over 7 years), something that would have trumpeted by the Lefty press and the collectivists far and wide. I really doubt that it is a nominal number.
Remember the days of one parent at home, one at work, with enough of an income to keep the family living comfortably?
It's pretty understandable that the trend was that couples figured out that if they both worked they could afford a better neighborhood & house.
But when everyone does that, all that happens is that home values double, or nearly so.
This is what makes me a Georgist -- the 1998-2002 land bubble in the SF area made it clear to me that land valuations will suck every last dollar out of everyone's wallet, and then some. Capturing this land valuation as taxes, in place of income & capital gains, seems like an excellent prescription to me.
Mace,
Check for yourself:
Selected Characteristics of Households by Total Money Income in 2006
that would have trumpeted by the Lefty press
whenever i hear that complaint I just chuckle. This "Lefty press" . . . who owns it? How much money do they have? Are they really "lefty" or are your politics so far to the right that Hi^w Attila the Hun was slightly pinko?
Either way (real or nominal) it represents the end of the neCONs conservative movement for some time.
The lies they have played on the American people have worn thin.
As this recession gets deeper they will grow to hate them with each new downtick in their personal finances.
Milkman,
It's the same old rat-race, but we've been convinced by marketers that we need more cheese than we used to.
Also, there are these damn middle-men (rent-seekers) taking half of all the cheese that we do manage to grab. And of course, the authorities keep taking half of what's remaining (via taxes and inflation).
How about "Rat Race 2.0"?
I thought the dollar decline was good for exports - why have we lost so many "manufacturing" jobs lately??
13% unemployment from the podcast...
why have we lost so many "manufacturing" jobs lately?
IMV the Chinese can do light manufacturing for pennies per hour, while the Heavy Industry takes years to assemble. This trend started 10+ years ago and will take plenty of time to unwind completely.
We compete better with the Japanese and Germans, but these days that mainly means cars. Ugh.
crispy&cole,
I'm not so sure the US exports enough goods to take advantage of the lower currency value.
The US does export pornography and wine and a few motorcycles. Maybe even some raw materials. But, compared to the rest of the world, we are under-producers.
If we still had a significant, competitive manufacturing industry, a lower dollar would be a good thing.
Milkman,
Re: your "60K Millionares"...
Formerly known as over-consumers, now regarded as true patriots.
I like what somebody once said on this blog. I'll be happy when we are once again referred to by government officials more often as citizens rather than consumers.
If it were nominal, then real income would be down well over 15% (assuming 2.5% inflation over 7 years), something that would have trumpeted by the Lefty press and the collectivists far and wide. I really doubt that it is a nominal number.
Mace | 03.08.08 - 1:04 am
Lefty press and the collectivists? You would not like it if they reported your hidden wage losses?
So, if you like it, it's okay, even if it's dishonest. If you don't like it, it's "lefty", even if it's honest?
Nice values system ya' got there.
OT but just got this in my inbox from ING Direct. Love the part about "see thru to the conclusion". Sounds like someone might have written a few zero down loans...
(as CR says emphasis added)
Dear Nades,
Customer Number: XXXXXXX123
I am happy to report that ING DIRECT's 2007 financial results are complete. Your confidence in us helped us deliver a record number of new savers, deposits and home mortgage loans. Further, we acquired ShareBuilder so we could offer you a low cost way to invest in stocks and ETFs. I'm proud of our first 7 years, but there's work to be done.
Global financial markets ended 2007 with many challenges ahead. While ING DIRECT avoided the sub-prime mortgage problem, we understand that this housing crisis threatens the well-being of countless families and, in the end, it will be seen as a major failing of the mortgage industry and its regulators.
The fact that ING DIRECT was not adversely affected is a testament to our operating philosophy that, as Americans, we should only buy houses we can afford. That way we can keep them for years to come. We believe a mortgage is a contract that both parties should execute in good faith and expect to see through to its conclusion. We will not waiver from our sworn promise to provide you with great value, service and convenience.
Thank you for your continued trust in us. Stay tuned in 2008 for new ideas we'll offer to help you save your money.
Arkadi Kuhlmann
The CEO of Saving
FDIC
Historical Income Tables - Households
Try this instead folks.
Milkman/SC :
I'm in position of being able to stay home with three kids as spouse has good job/pay (I'm a guy).
That said, you're correct in that we've messed up needs/wants. Know multiple families where they sacrifice mightily in order to assure that one of the folks is at home. And it's true when teachers state that they can tell who had a parent at home. I volunteer in classroom and hell, I can tell.
Know of 6 y/o in neighborhood who went to play w/friend on next block with a Nextel so that he could keep in contact with Mother, who stayed at home while he went on own.
"....The fact that ING DIRECT was not adversely affected is a testament to our operating philosophy that, as Americans,..."
Last I knew, ING DIRECT was a foreign bank!!
Troy:
What is a "Georgist"?
From my humble perch, I can say that starting salaries for engineers has not increased over the past 10 yrs. When you factor in increased debt loads due to soaring tuition, most of my peers who have graduated recently are doing worst than those of us who graduated several years ago.
End to the Mediocre Times
no, unfortunately i'm pretty sure they still employ Gretchen.
no, unfortunately i'm pretty sure they still employ Gretchen.
you're on a roll tonight... good stuff!
The US does export pornography and wine and a few motorcycles.
You might want to add routers, software, and movies to that list. Among a host of less exciting things. The last time I checked, the US was the largest single exporter in the world.
Just sayin'.
Amazing that the media seems to only be catching on that income levels for all but the top 5% of earners have been stagnant. I mean, I have heard bits and pieces here and there, but they should have been shouting this piece of information from the mountaintops.
I voted for Bush twice. Since 2006, I have grown to hate the man. He is a true fundamentalist: he does not allow logic or evidence to interfere with his beliefs. So, we end up with a situation where we are fighting 2 regional wars simultaneously (which is very expensive) while maintaining our commitments elsewhere in the world (Bosnia, Japan, etc) AND cutting taxes, creating new entitlements and generally increasing domestic discretionary spending. This mess will take years to work itself out. What is happening now is a taste of things to come; you cannot consume more than you produce indefinitely. Dick Cheney was wrong, deficeits matter. To paraphrase Feinman "Eventually reality will trump public relations, for mother nature cannot be fooled."
I don't want to ruffle any feathers, but Elizabeth Warren writes that during the last 30 years the (real) median income has been flat for males; essentially all of the increase over that period was due to women's median income rising.
This is pretty well borne out here.
While still not at parity, it appears that wonen's income reached a plateau about 7 years ago.
From my humble perch, I can say that starting salaries for engineers has not increased over the past 10 yrs
CS is doing good. In 2007 there were only 8 THOUSAND BS in CS grads. Hell, that won't even fill Microsoft's hiring quota for the year.
'course, everyone wants 5 years experience, but that's easier to get now with the web dev and open source communities.
homedad43:
Georgism is a taxation policy favoring taxing "the unearned increment", especially rents derived from land values and resource extraction. Back in the Progressive Era they were known as "Single Taxers". There's a libertarian offshoot called "geolibertarianism". Seaching on any of these terms will bring up good web pages on the subject.
Geoff,
Better. Thanks for resolving that!
Blowed Up Real Good
404 - Error: 404
When the stock market was rescued Jan 22/23, I thought (incorrectly) that we had crossed a 'chaos theory' threshold.
This article explains the basic idea. (I'd the cut the paragraph about Sentator M., however, which seems to be a new topic.)
Looking at the comments of mp/Conjure and Krugman today, that threshold may have been crossed.
Today I moved my 2008 IRA contribution into AAPL, INTC, MSFT, FSLR (ouch), DBE, (hopefully) hedged by SDS. I think the first 3 will do well in a tanking dollar environment.
Milkman,
Killer article. Had just visited PB and missed that. Thanks!
Reminds me of a passage frm the old SciFi short "Microcosmic God":
"I'll give you a parallel of it," said Kidder. "Suppose you take two rods, one in each hand. Place their tips together and push. As long as your pressure is directly along their long axes, the pressure is equalized; right and left hands cancel each other. Now I come along; I put out one finger and touch the rods ever so lightly where they come together. They snap out of line violently; you break a couple of knuckles. The resultant force is at right angles to the original forces you exerted.
It's been just over seven months since Cramer went wild on TV.
Pay raise? That's hilarious. My job keeps finding new and exciting ways to reduce our commission. I'm surprised they haven't gotten rid of it completely.
"Good luck with incomes. Unless Peak Oil makes the world a much larger place again (ala Kunstler), globalization will cap median wages from here on out."
That is assuming everyone accept the status quo.
That is what they said to my grandfather in 1921 when he started to work. During that era, there was globalization, deregulation, easy credit, the works...like now.
Thing is, the man was not to sit idle while life would pass him by. So, he did the only logical thing; organize his co-workers a.k.a. unions.
I know, it's a pretty dirty word around here. Furthermore, no one can lecture me about the damage unions with too much power can do. I migrated to the USA to escape a socialist country where they basically wrote the rules and it was not pretty thank you.
That said, what's the average American to do? Shrug its shoulders? Bend over, close your eyes and remember...You're doing it for America sweet pea?
I don't think so.
There will be a need to shift the balance of power between workers and employers sooner or later. I do not pretend to know how it'll get done, but quite frankly, at the rate we're going now, we'll look like Mexico or Russia in a couple of decades.
CS is doing good.
EE is doing good too, at least in the defense sector. I work at a large aerospace company and our baseline offer for a newly minted bachelor's degree has gone up some 10% in the past 2 years.
""....The fact that ING DIRECT was not adversely affected is a testament to our operating philosophy that, as Americans,..."
Last I knew, ING DIRECT was a foreign bank!!"
Delaware bank, foreign owned. So technically, some of them are Americans. The head office is Dutch, and they own other "ING Direct" banks in other countries. They buy a bank, change the brand name, and institute the online program.
That said, the parent company's been doing pretty well lately. And since I've got a fairly good chunk of change parked with him, that makes me happy.
I agree with his conclusion: House prices must fall.
It is equally true, unfortunately, that house prices must be stabilized. That is, if they are not the whole financial system is doomed. As house prices fall, they collapse all the delicate risk/price relationships that were designed and constructed around them.
So society is trapped between an irresistible force and an immovable object. Home prices must fall, but home prices cannot fall. Needless to say, but there is no way out of this dilemma.
Troy:
I can't believe the pendulum has swung that far. Back in my college days (late 90's, early 2000's), everyone and his brother was a CS major.
Luckily, my field (nuclear power) is booming. NRC is hiring 800 engineers to handle all the new applications. However, my (anecdotal) evidence is that starting salaries have stagnated. Then again, the late 90's saw a huge boom in technical employment. Maybe things have finally turned the corner.
OT,
Old news FYI: Nov 13th, 2007:
About $1.45 trillion of subprime mortgages are outstanding, accounting for about 15 percent of all U.S. home mortgages, according to Bear Stearns. Without refinancings, home sales, foreclosures or other loan payoffs, borrowers' rates would eventually adjust on about 82 percent of subprime home loans made last year, up from 81 percent in 2005 and 52 percent in 1999, according to Credit Suisse Group.
THE cost of the subprime crisis to investors and mortgage companies is estimated to have risen to $US400 billion ($440 billion), while the damage to the value of American real estate could ultimately be as much as $US4 trillion, economists say.
how strange.
The magikal, mystical power of "free markets" has actually decreased my standard of living?
How can this be?!
I mean, all my leaders read a book by Adam Smith that SAID "free markets" work and blabbed constantly about it while they gutted the American middle class.
I wish I could write here what I really feel and hope for.
"CS is doing good.
EE is doing good too"
English isn't doing well.
If home prices fall, a large bank or 2 will fail. Thats why all the whining.
But 13% unofficial unemployment? no problem
Everything MUST be done to keep the banks from failing, or so goes the common wisdom. Wall Street banks could all fail and the only real loss would be to shareholders and several thousand overpriced traders who do nothing but churn paper and collect bonuses. The whole BS about Wall Street providing the grease for the World's economy is just that, BS. Yes, Wall Street assists, but it has mutated beyond that role into an independent, self-serving behemoth with no morals, scruples, or purpose beyond making money.
Let the banks fail. New ones will spring up and they will be better run and better regulated. Let homeowners lose their overpriced homes they could never afford. Let suburbia decline and save a fortune in waste and resources. The failure of the mortgage companies who do nothing but spin paper would probably been a boon to the economy, allowing resources to be redirected to manufacturing.
The US consumer has lived high on the hog for too long, sucking in debt as quickly as he sucks in cheeseburgers. Now all that debt has clogged his arteries. Some will die of heart attacks, others will get painful operations, most will have to go on diets and learn about the wonders of exercise. To speak plainly, America will have to learn to live within its means and probably well below them as it pays off the massive credit it ran up during the binge.
You know it can't go on forever. You still think you missed out. You BELIEVE you can find the millionaire inside you. You DESERVE it all. You should be on Wall Street, on the silver screen, on your yacht.
Wrong. You are poor or middle class and will stay there. So will your kids. You will get poorer while this disaster plays out. You will never be wealthy. Get over it. Find a hobby. Visit a library. Meet some new friends. Get a life.
NBER: "Last few months of 2008" Odds are 90 to 1 that they won't be able to make the recession call before the presidential election.
Yesterday blowncue posted this link gulfnews : US will stand firm even if it has to face the worst-case scenario
to a Martin Wolf column that on the whole argued that the economy could absorb any level of loss (which I do not believe), but had an addendum at the end: "If so, how does one sustain broad public support for what appears so one-sided a game?"
I agree, there's been a multi-level effort to transfer wealth from the middle class to the rich. It has succeeded. Take health care. 40% - a huge number - are going without health insurance. They are told that somehow they need to purchase $10,000/yr worth of insurance when they may gross $45,000/yr. If, on the other hand, they have union contracts that include good health benefits, they are derided and attacked for possessing "platinium benefits." The general media theme, though not spelled out, is that workers should not really expect to have very much health care. If they need an operation, they should expect to become indebted or bankrupt.
The prosperous working class has been destroyed. The efforts to extract wealth now center on the white-collar middle class.
I go back and forth on how conscious an effort this is, but I think the hope on the part of the rich is that decoupling will work, that the citizens of the US can be gradually impoverished because of rising levels of wealth in other countries.
I have read that the value of the dollar tells us what foreign lenders think of the US economy. Where the stock market is a vague measurement of expectations of profit for corporations, the dollar (compared to other currencies) reflects what very very rich foreigners think of their investment in all of America (government, corporations, banks, etc).
Looks worse than ever.
Milkman | 03.08.08 - 1:04 am | #
It's not only "rich" foreigners Milkman. It's any foreigner. I'm not rich, but I have some money stashed away. I can tell you I have only been short the dollar since 2006. I can only imagine what really big players are up to. You are right though, foreigners perceive far too much risk in holding the US currency- and that is going to get much worse given the bent of the US Fed. You see it in commodities already, but that is just a start.The US is going to experience a whole lot of pain for debasing their currency.
For those of us who didn't participate in the phony prosperity, all of this turmoil is alarming, but also strangely reassuring.
It's confirmation that we who didn't dip into our home equity to pay for vacations, were not doing poorly.
We who drove used cars and didn't replace them every two years, were not underachievers.
We who didn't go out to eat several times a week, were not depriving ourselves needlessly.
We who didn't understand how our neighbors could afford so many new things and expensive gadgets (like iPods replaced yearly), were not dense.
We who felt uncomfortable at running up too much debt on our credit cards, were not overly cautious.
I don't know if most of the people on this blog really can relate to the lifestyle people like me have been living. You all seem like people with lots of money to invest, or money to blow. I dimly sense that the "wreck and ruin" you fear involves being forced to live a lifestyle like MY people do.
It's not ruin, folks. It's America's real standard of living, and it isn't hopeless... just genuine. You can build up from there, but you have to start on solid ground.
Median income did not get back to the 1989 level until 1996, and it did not get back to the 1979 level until 1986.
Besides, this is not a good intertemporal measure of typical living standards for many reasons -- such as changing household composition (more young and old singles, more unmarried couples) and large numbers of low-income immigrants, legal and otherwise. Median income among prime-aged households is better, for reasons Stephen Rose has explained well.
tj-
"``The fact that they requested the withdrawal of the rating takes a lot of gall,'' said Martin Weiss, president of Weiss Research in Jupiter, Florida, a financial company researcher. "
MBIA, Facing Downgrade, Asks Fitch to Stop Rating (Update3) - Bloomberg.com
I wouldn't necessarily describe it that way, as evidenced by my outrage.
The fact of the matter is that we have a system which is under tremendous stress with allegations of inherent conflicts of interest and a severe lack of trust.
We now have an issuer which apparently belives they can "manage" their own ratings and dismiss a perceived threat with an open attempt to discredit this agency in the process.
This is particularly disturbing given that the ratings agencies are independent.
Fitch had cited the potential inability to obtain the necessary data to properly evaluate going forward although potentially being able to rate with publically disclosed data.
My hope is that Fitch continues this battle, that it leads to full disclosure on company websites for all agencies that are recognized, and ceases hiding under the guise of competition. It is beyond comprehension that a company would attempt to influence a ratings agency in the publics eye with such a blatant disregard for the independence of the process.
What surprises me more is that everyone is not completely outraged by such a move by MBI.
If Fitch's fees are not in line with S&P and Moody's, they should publically disclose that the fees will be adjusted to meet the other two top raters and force the show of MBIA's hand exposing this move for what it really is, in my opinion, the ability to manage your own credit ratings, and models used in the process.
Let them eat SRS.
Paulson Says Deal `Very Close' With Congress on Housing Bill
By John Brinsley and Vivien Lou Chen
March 8 (Bloomberg) -- Treasury Secretary Henry Paulson said the Bush administration is nearing agreement with Congress on a bill that would make more Federal Housing Administration loans available to borrowers facing foreclosure.
They're very close to getting a compromise that would be very important,'' Paulson told reporters yesterday in Sunnyvale, California.One of the things I did from out here was make a couple of calls to leaders in Congress just to talk about it. We're very close.''
The Senate in December passed a bill similar to one passed by the House three months earlier that would lower the down payment required of low- and middle-income home buyers for federally insured loans, and also let them borrow more money. In addition, homeowners with adjustable-rate loans due to reset would have an easier time getting FHA-backed loans.
The Bush administration has expressed concerns about the legislation, saying the House version doesn't give the FHA enough flexibility to charge higher premiums to homeowners who pose credit risks. Higher FHA charges could add $75 million to federal revenue, the Office of Management and Budget said in September.
``We're going to need this FHA modernization bill,'' Paulson said, adding the bill would help 300,000 people. He spent the past two days in California, which has the most number of homes acquired last month by lenders through foreclosure of any U.S. state.
Foreclosures rose to a record in the fourth quarter, the Mortgage Bankers Association said two days ago. Paulson said the government is encouraging lenders and borrowers to work together to prevent people from losing their homes.
OTS Proposal
Paulson has declined to endorse a proposal by Office of Thrift Supervision Director John Reich to have the FHA refinance loans for homeowners whose houses are worth less than they owe on their mortgages. Reich's plan was backed this week by Federal Reserve Chairman Ben S. Bernanke, and is also supported by House Financial Services Committee Chairman Barney Frank.
Paulson's comments in California came after a government report showed the U.S. unexpectedly lost 63,000 jobs in February, after a drop of 22,000 in January.
Paulson said the loss of jobs signals a ``tough'' quarter for growth, while stopping short of saying the economy has entered a recession.
The February jobs report was not welcome news, not good news,'' Paulson said in a press conference in East Palo Alto, California.This is a tough quarter, we knew it.''
Fed's Measures
Minutes before the Labor Department report was released, the Federal Reserve moved to add as much as $200 billion to the banking system over the next month in an attempt to alleviate the threat from banks reducing corporate and consumer lending.
I'm very supportive of the Fed's action,'' Paulson said.They've taken a number of innovative steps'' and ``it's really what the market needs.''
In a speech last night at Stanford University, Paulson said housing remains the biggest downside risk to the economy that will ``take some time to work out.'' He also expressed confidence that the U.S. dollar will over time reflect the fundamentals of the economy.
The U.S. dollar dropped for a fourth straight week against the euro.
I know how important a strong dollar is, and it's in our nation's interest,'' Paulson said.We're facing some challenges right now but the long-term fundamentals are strong, and I'm confident they'll be reflected in our currency market.'
Broward Horne: "I mean, all my leaders read a book by Adam Smith that SAID "free markets" work and blabbed constantly about it while they gutted the American middle class.
I wish I could write here what I really feel and hope for."
That's OK. I have psychic powers and can read your mind. I'm getting images of torches...pitchforks...rope...
citizen: "For those of us who didn't participate in the phony prosperity, all of this turmoil is alarming, but also strangely reassuring.
"It's confirmation that we[...]were not underachievers."
True - I've often found myself over the last decade wondering if I could really be that much of a loser. Why do all those people in walks of life similar to my own (apparently) have so much more disposable income than I do? Unfortunately, the prudent and frugal are going to be made to pay for the foolishness of their neighbors, and even more for the obscene venality and irresponsibility of the folks who're still gonna be living sweet after the carcass of the U.S. middle class is picked clean.
Yeah, I have faith that we "can build up from there, but [we] have to start on solid ground" as a nation, but we have to understand that we're on our own; our "leaders", political and business, regard us as a just-about-sucked dry, disposable cash-cow.
Great posts by expat, Sue and citizen.
We Americans need to return to solid ground in our lifestyles and stabilize our primary markets based on true affordability. Home prices must fall to affordable levels and then stabilize. I'm betting they will do just that. And the sky will not fall in the process- just some deserving speculators.
If anyone here truly seeks a restrengthening of the middle class, it will require you to reject the feel-good funhouse of the Reagan revolution (I know, it was tasty kool-aid), stop "shorting" the society in which you live to make yet another weakening buck, get to real value-added work, serve a cause and collaborate with those around you. That's the America we just might regain through all of this good pain.
I've realized that many of the regulars on this site (not Tanta or CR- they're exceptional) are just recession-oriented speculators. Get a life is exactly the right advice for you.
Unfortunately, the prudent and frugal are going to be made to pay for the foolishness of their neighbors
That's unfortunately true... but as long as I'm going to be paying for them, I reserve the right to look down on them. I know that sounds snotty. But if I (and people like me) going to be the responsible ones here and bat cleanup, I can't afford to adopt this "we're all in this together, we're all Americans" goop any more. I'll pay for their excesses, but I will never let them think they're important and deserve to be in charge. They blew it, they allowed themselves to be seduced, there needs to be a new lower- or middle-class leadership class in this country, and these easily seduced people blew their chance.
I own my home outright. And have very, very little debt (under $1,000 total), a secure but boring job, and (thank God) my health. My home may be a crappy little old suburban Cape Cod, but compared to a lot of Americans right now, I'm the fucking landed gentry, and if I'm going to pay for your stupidity, you're gonna get off your high horses. You don't get to fight the rich and greedy who are behind all this. You don't get to make the plans any more. Because you're stupid and weakened. Economically compromised. And you can sit down, shut up, and follow the lead of the Americans who behaved cautiously and responsibly -- the Americans you called losers.
Sound harsh? Too goddamn bad.
Given my overactive paranoid imagination guess its unwarranted to question the dogmatic Kunstlerite posters but what the hay. The future is unwritten and the defacto assumption that Globaloneyization is forever with us is a form of propaganda in the benefit of corporate interests. The race to the bottom, whether in terms of labor, enviromental or political, is not a given. It's only assumed to be by those that want to propogate the idea of the futility and unworkability of collective action. This is to let those know that the idea is neither dead, futile or unworkable though it has been shouted down over the last century, loudly and surreptitiously.
I have a question about the Carlyle Group's implosion.
Using hypothetical figures, say that $8B of the $32B they had borrowed was owed to Citi (as an example). So Citi has this $8B loan on their books for which they need to keep a reserve of $5-600M.
Citi makes a margin call knowing it might well create a cascade of margin calls and force the Carlyle Group to try and liquidate.
Could Citi have claimed 25% (8/32) of the bond portfolio Carlyle Group had as collateral?
If so, they mighty recover $7.75B in the AAA agency debt and write off $250M as a loss.
Now, Citi has $8B less in outstanding loans and $7.75B in new capital.
Haven't they really improved their financial position?
I voted for Bush twice. Since 2006, I have grown to hate the man. He is a true fundamentalist: he does not allow logic or evidence to interfere with his beliefs. So, we end up with a situation where we are fighting 2 regional wars simultaneously (which is very expensive) while maintaining our commitments elsewhere in the world (Bosnia, Japan, etc) AND cutting taxes, creating new entitlements and generally increasing domestic discretionary spending. This mess will take years to work itself out. What is happening now is a taste of things to come; you cannot consume more than you produce indefinitely. Dick Cheney was wrong, deficeits matter. To paraphrase Feinman "Eventually reality will trump public relations, for mother nature cannot be fooled."
Nuke | 03.08.08 - 1:57 am | #
Nuke, I can understand 2000, if you thought that electing a uniter not a divider, and some one who would run a humble foreign policy was a good thing, plus being fed up with various inconsequential but sleazy aspects to the Clinton era (i.e. Monica). But wasn't it obvious by 2004 that he was a monumental incompetent who was hell bent on being as divisive as possible. Fool me once... Now the last thing we need is a 3rd term for Bush, which is effectively what McCain is.
One parent at home, one working....
Think about this, once many families become 2-worker households, their combined incomes allow them to pay more for the most desirable homes and locations. Given the shape of the supply curve, this increases the real price of housing, particularly well-located land. That's what puts the squeeze on the 1-worker household.
As an aside, that's the view from the money-based economy. Most stay-at-home parents are working pretty hard even though there's no pay.
Call it . . . The Great Contraction.
When the US economy pulled back into itself, and all the countries of the world focused on producing for themselves first, and import/export trade second.
YYY,
If you don't think that globalization won't be around in your or your grandchildren's lifetime yo are so wrong I don't even know where to begin.
It won't go away due to political will, peak oil, pandemic or global warming/cooling. Total thermonclear war perhaps but that would be it.
Bob-in-MA
The $7.75B in AAA agency debt would not be new capital. It would be a new asset. They had an $8B loan as an asset. That's where the $0.25B loss comes and that's a loss of capital.
I agree with Dirk, and frankly, the results of the 2004 election left me completely indifferent to the little people, at least for a time.
I actually sold my business around then and benefited mightily from the Bush tax cuts, particularly capital gains, and still do. But I made my first sizable cash donation to help defeat him.
But the morons (no offense) came out and kept him in office. A failed war, clearly unjustified by fact or morality? Well, we all make mistakes. Policies that absurdly favor the rich? Well, we don't want class warfare.
Just so he hates homosexuals and will put ideologues on the Supreme Court.
Let's face it, the people who will be taking it on the chin in a lot of these states are the ones who gave Bush the election. I'm not saying they deserve what they're getting. But it's like walking along a dangerous cliff. You don't deserve serious injury, but you won't receive a lot of sympathy when it happens.
I think New England should seriously think of breaking off and joining Canada.
Peter Schiff sighs
"They Just Don't Get it" by Peter Schiff, FSU Editorial
03/07/2008
Bill,
Thanks. Sorry if that was a foolish question, but here's another. When a Bank is required to have say an 8% capital ratio, it means their assets can't be more than 12.5 times their equity?
I've been talking about this forever but no one seems to look at household income. Everyone seems to focus on personal income when purchases are based on household income.
I knew it was bad when the White House stopped showing the number a year or two ago.
Bob_in_MA:
It's not based on equity, it's all based on risk weighted assets.
But we all know that the risk measures are all off (lol)!
Finally a believable explanation for all the looting and pillaging of the last few years:
From the NYTIMES:
The whole point of acquiring a good reputation is to deplete it for gain, said Frank Partnoy, a professor of finance at the University of San Diego Law School and a former investment banker at Morgan Stanley. You expand your investor base and find the less sophisticated investor. But you can rebuild your reputation, too. Now is bad, but the memory of financial markets can be measured in days.
Tight Credit, Tough Times for Buyout Lords - NY Times
What ever happened to fiduciary duty?
Sorry I should have also mentioned Tier 1 Capital and Tier 2.
So it's not as simple as assets and equity. They try to quantify risk but the joke is that risk has been badly quantified.
Long wit, short fiduciary duty
It has taken us 6000 years to get here, but the Rapture is now near. Neocons will shed their cloths and ascend in all their neked glory, hallelujah.
Oh wait, I thought the title was End of Times not End of Mediocre Times.
Never mind.
"I think New England should seriously think of breaking off and joining Canada."
Can Ohio and Michigan get in too?
Troy | 03.08.08 - 1:08 am wrote, This is what makes me a Georgist -- the 1998-2002 land bubble in the SF area made it clear to me that land valuations will suck every last dollar out of everyone's wallet, and then some. Capturing this land valuation as taxes, in place of income & capital gains, seems like an excellent prescription to me.
I'm not a Georgist, if one uses the strict definition of "single taxer." But I completely agree that land rents and other economic rents should be taxed before anything else is taxed.
homedad43: ...Seaching on any of these terms will bring up good web pages on the subject.
Here's my favorite two. Note that both are written from a geolibetarian position, which I respect and largely but don't completely agree with (insofar as I'm not a single taxer):
"Are you a Real Libertarian, or a ROYAL Libertarian?"
"A Geolibertarian FAQ"
Finally, for really good polemic, here's a USENET search for posts on land by a very smart poster. NB: the arguments can be very caustic; don't let that put you off.
From Deutsche Bank Research
http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000199956.pdf
Chaina's commodity demand, in 2006 (million tons), 2020, and average annual increase to reach 2020 demand.
Iron Ore 148, 710, 10%
Oil 91, 1060, 20%
Soy 26, 50, 4%
Coal 11, 810, 20%
Copper 3, 20, 10%
Manganese 3, 13, 10%
Meat 0.3, 4, 20%
Wood 34, 150, 10%
Add into that the demand from India, and then the ROW.
In my little end of the world, steel fabricating, of importance to me was that the Asian steel makers agreed to pay 68% more for iron ore this year (yes, 68% more). Is that what an annual 10% increase in demand does when China makes 50% of the worlds steel?
Look at the list, imagine an even more complete list. Where do you think prices will go?
Is this the beginning of a 70's stagflation? Or is it more like Wiemar?
It was a very different world in the 70's where the US was the dog that wagged the tail. We are much closer to the hindquarters now.
Whoops, that was me.
I should add the following:
The basis thesis of taxing land values is that it's both efficient and fair.
Efficient: because the supply of land is fixed, taxing land values cannot lead to any deadweight loss. This was probably recognized as far back as Adam Smith: Smith regards ground-rent as a highly suitable base for taxation (1937, pp. 795-96): Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. . . . Both ground-rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Though a part of this revenue should be taken from him in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land, are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them.
Fair: ownership of land is purely parasitical; landowners in their role of landowners (as distinct from owners of capital---improvements like buildings) contribute nothing of value, because the land was already there. (Urban land gets its value from economic activity, but landownership per se contributes nothing to this value.) This was recognized by John Stuart Mill: The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?
Of course, it should be mentioned that in terms of descriptive theory, the most important contribution is Ricardo's theory of rent. See also [1] and [2].
WTF?
Some of you have gone off the deep end.
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
Alec: "If you don't think that globalization won't be around in your or your grandchildren's lifetime yo are so wrong I don't even know where to begin."
Yeah, but "globalization" doesn't require First World countries to piss away their high-end, value-added manufacturing base. "Globalization" doesn't require mindless, short-sighted uncontrolled immigration. These, and many other things, are the result of delibrate policy, of conscious action or inaction. "Globalization" is not a force of nature that knows all, decides all, and removes all responsibility from leaders (and yes, citizens!) for the state of their polity and their economy. (Don't mean to be putting words in your mouth, Alec. Jus' sayin'.)
citizen: "Sound harsh? Too goddamn bad."
Harsh? Not harsh enough. But good luck on getting the foolish to "sit down, shut up, and follow the lead of the Americans who behaved cautiously and responsibly". As far as I can see, the foolish "they" up the ladder are still making the decisions.
Where is the evidence for a pickup in the second half? Where will the demand come from?
It seems to me that the administration and pundits who are predicting a quick rebound have all been discredited already. I am not expecting a short recession.
ARW - I would agree with you normally. But we need a large pendulum swing in order to get back to center.
I voted for Bush twice.
Any sentient being should have figured out in 2000 that a man who had failed at everything he'd tried (and been bailed out because of his last name and his daddy's money) would be a disaster for this country. They were planning Iraq before 9/11 - that's been demonstrated. Voting once for him ... maybe forgivable. Twice? Hundreds of thousands of needless deaths, trillions wasted. This administration and it's enablers have blood on their hands. I've said it before - at minimum, all two-time Bush voters should be sent a bill for their share of the Iraq debacle.
go browns - sorry, not Ohio. They f'ed the entire country in 2004.
What ever happened to fiduciary duty?
Paul | 03.08.08 - 9:13 am | #
Fiduciary duty is honored in direct proportion to enforcement. And we all know how the GOP feels about regulation.
I am highly encouraged to see that not a single Bush-loving fool has been out here defending these crooks.
Me, I'm looking forward to the trials, starting in 2009.
Housing values (nominal) went up $6T, but household income fell $1000/yr.
Oh yeah...this depression is going to be long and nasty. And I'm not sure from the data that those wages are adjusted even for gov't inflation let alone real inflation.
I'm stocking the bunker today.
Cheers,
Yeah, but "globalization" doesn't require First World countries to piss away their high-end, value-added manufacturing base.
If you think it is cheaper to offshore development or customer service think again. It isn't. We all choose to do it because we can't hire enough people here . You see, all the wingnuts are so worked up over immigration that they've cut off the supply of talent. This has the effect of keeping them home, so we go and build the business there. Keep this up and we'll have had the secondary effect of creating our own Indian and Chinese competition in the world market. But we have no choice.
The tech bust caused many kids to stop picking engineering careers, which was unfortunate. That's where the good paying jobs are now. And I don't know where you are but to get talented people, especially in the last year, I've had to pay salaries around 10% more than in the past.
The median salary has been shrinking because, for unskilled workers, the choice of job has shifted to lesser-paying service jobs. The factory jobs don't exist and when they do come back they're not going to be at union wages. The answer is education and hard work to learn more complicated skillsets but no one wants to hear that. They want it easy. Just like credit.
Gary,
If you think the dumborats are going to change things, you're insane.
Both parties are corrupt. Why didn't the nice dumborat congang majority push for impeachment of that assjack president Dickhead and his trained monkey???????????
Until people stop looking to politics as a football game, and stop cheering for their team, and start THINKING, this shite won't end.
Cheers,
ARW writes:
WTF?
Some of you have gone off the deep end.
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW | 03.08.08 - 9:57 am
Puh-freekin'-leeeeze.
What Republic? Our Constitutional Republic has been rendered null and void by people waving flags.
Unless you're "Old Money", your self-deluded ass wouldn't even be here if it wasn't for collective bargaining, social programs, and a progressive SCOTUS.
I love it when the second-generation middle class egoists claim to have lifted themselves by their own boot straps. Ask your grandparents what lifted them out of the bread lines of the '30s.
You'd deny your own heritage for a buck.
"Health of the Republic"....hack...wheeze,,,croak.
Tool.
"I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic."
In other words, I don't care what happens to this country, just don't tell me that what I believe is out of kilter with reality, because I can't handle such news.
Here's a wake-up call - everything that you despise and hate is everything that was responsible for making the largest and most prosperous working middle-class to ever occupy this earth. Why do you hate America so much ?
Oh yeah...this depression is going to be long and nasty.
There's going to be no depression. You know, lots of businesses are doing just fine. Lots of people are too. The discussions here have moved into the "cult of the doom". I suppose it is somewhat fun to be morally superior, in the same way fundamentalists are though. Me, I'll just keep looking for the solution and ways to make money from it.
This unwind is necessary and, if anyone has bothered to listen to the more pragmatic, there's going to be lots of opportunity to pick up assets on the cheap. There's also going to be a different competitive landscape for financial services. Lots of people are going to get hurt. That's the way capitalism works. Spare me the entitlement about all of your savings. If you ever thought that you'd only see years of positive gains, you haven't studied the markets enough. Too bad if the timing isn't to your liking. That's also not a given.
The credit markets have another couple of months of "come to jesus" left. In the meantime, what are you doing to pull the system out? Where is the value? What new business opportunities are there in the wreckage? Where does one invest to that the negative returns of the period will be reversed? Hint: it isn't gold or commodities. It isn't oil. And it isn't going to be anywhere people with their hair on fire are running to.
Now there more harshness and another "if you don't like it, too bad".
god i hate it when I don't close a tag!
Tool.
I dunno. Seems like a fairly reasonable guy to me.
But then maybe I'm a tool as well: small govt., liberty and all that.
Warmest,
prat
"Remember the days of one parent at home, one at work, with enough of an income to keep the family living comfortably"
No not really, I think in the past we just had a lot less. My dad worked three jobs while we three boys and a sister with medical problems gave my mom the harder job. Once we were old enough my mom worked. We were not that different than many of our peers.
"Simian writes:
It has taken us 6000 years to get here, but the Rapture is now near. Neocons will shed their cloths and ascend in all their neked glory, hallelujah."
I envision more of a Housing Rapture, where all the unsold and unoccupied Mcmansions and crapboxes get sucked up into heaven, thus ending the Great Overhang.
I think in the past we just had a lot less. My dad worked three jobs...
tg, it's part of the "mythical past" syndrome. My family was very blue collar. My mom stayed home until we were old enough also. My dad worked two jobs, over-time, etc but everyone forgets this as somehow idealizes life then. It wasn't ideal. I never saw much of my dad growing up because he was always working to support us. And we just did with less.
So the one-wage earner thing is mostly a myth. It was one-and-a-half to two from the 50's on.
ipodius,
Thanks for the ballast.
I think the core discussion on commodities here relates more to anticipating trends - or perhaps preservation of capital - than on bald speculation.
But, quantitatively, you're right. Lots of shouting.
Do you read Hussman's weekly essay?
citizen | 03.08.08 - 8:40 am |
clap clap clap
Hundreds of thousands of needless deaths, trillions wasted. This administration and it's enablers have blood on their hands. I've said it before - at minimum, all two-time Bush voters should be sent a bill for their share of the Iraq debacle.
And therein lies the beauty of the whole scheme. Most of the electorate aren't asked nor are the required to pay or participate in the great debacle. Just borrow the money to pay for the wars and keep sending the same people back to fight the wars. Most Americans are completely disconnected from reality.
So the one-wage earner thing is mostly a myth. It was one-and-a-half to two from the 50's on.
ipodius | 03.08.08 - 10:56 am | #
With retired aunt's and unemployed sister-n-laws doing ad hoc daycare.
But the myth is more real than the reality in people's memory today.
ARW writes:
WTF?
Some of you have gone off the deep end.
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW | 03.08.08 - 9:57 am | #
And the current regime is working so well?
CR said: "...So we probably won't have the official recession call until late this year."
Not to let the facts get in the way of a good story, but:
In the past 3 months we've had a net job-loss of -44,000 off of a base of 138 million in non-farm payrolls.
In the first 3 months of the last recession (2001) there was a net job-loss of -355,000 off of a base of 132.5 million in non-farm payrolls.
In the first 3 months of the recession before that (1990-91) there was a net job-loss of -332,000 off of a base of 109.8 million in non-farm payrolls.
We aren't going to have a recession this year, officially, unofficially or any other -ficially.
S.
You know, ive always known this. Im no better off than I was 15 yrs ago in terms of real $ to spend.
With a household income of about $200K, I live in a 135K house with about 45K mortgage, drive 2-12yr old vehicles. I have a net worth of close to 1MM, and only 45k debt. Because I live and save the way you are supposed to.
It pisses me that the morons that cant live in their means get bailed out, just like the idiots in new orleans that didnt have flood insurance. The ones who sacrifice and live the right way end up paying to bail out the idiots.
Chaina's commodity demand, in 2006 (million tons), 2020, and average annual increase to reach 2020 demand.
Iron Ore 148, 710, 10%
Oil 91, 1060, 20%
Soy 26, 50, 4%
Coal 11, 810, 20%
Copper 3, 20, 10%
Manganese 3, 13, 10%
Meat 0.3, 4, 20%....
When ever I see some projection like that, I'm reminded of my 5th grade teacher, who was an environmentalist before many people knew the word. This was the time of the first Earth Day (1970?) and there was a book he quoted to us, the one that was published every year (State of the Earth?) by a guy who predicted we were near the end of the road with just about every commodity, prices would be unbelievable, etc.
I don't know what will happen over the next 15 years, but frankly, my guess is probably as good as theirs.
It pisses me that the morons that cant live in their means get bailed out
I kind of share your sentiment here, but there's something queasy-making about a guy who makes $200,000/yr lecturing people about living within their means. Sure, it's easy for you, you're rich!
I have a household income of about $50,000/yr, and I'm doing okay. I have no debt, and a comfortable bit of money saved up as a cushion. I live pretty darn frugally, but there are certainly places I could economize if I had to. Even so, I still have some sympathy for the folks who are in distress. If I made just a little bit less, if I had followed absolutely everyone's advice back in 2004 and bought a house, if I didn't have insurance and got sick, I'd be sunk. It's not just lattes and rims that have got people in trouble. I'm sure there's some of that, but it's not the whole story.
Of course, even if I'm sympathetic, that doesn't mean I'm ready to contribute to a bailout...
--
REAL OR NOMINAL?
The 2003 Table: "All data is in 2003 dollars and only applies to householders whose householder is aged twenty-five or older."
I am pretty sure that the number for 1999 and 2006 are in 2006 dollars, i.e., the incomes reported are real incomes and NOT nominal incomes. The 1999 income reported in 2003 table was lower than the current number, further supporting the data represent real incomes.
Jas
What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
Bull shit. Indeed, it's excretions like this that have ruined the health of our republic.
If you think the dumborats are going to change things, you're insane.
Hey Misean, that crap might have a sympathetic audience on LGF or Powerline or among Denninger's lemmings, but not here. Not with me.
Why didn't the nice dumborat congang majority push for impeachment of that assjack president Dickhead and his trained monkey???????????
cuz that would be bad politics and bad strategery and wouldn't change anything but the continued downward slide of the erstwhile permanent Republican majority.
Given the bailout BS we're starting to see from the Dems, I'm no big Dem fan, but please don't try to lump these idiots with the criminally insane Republicans we have today.
Sebastians Non-farm Employment numbers
Negative total for a 3-Month period ONLY happens after the beginning of a recession and within the first two years of the technical recovery (the employment takes 12-24 months to recover after the beginning of the official recovery).
Ergo, the economy was definitely in recession by February. When did the recession began remains to be confirmed.
Let us not forget the downward revisions that are very common when the economy enters the recession.
Jas
The tech bust caused many kids to stop picking engineering careers, which was unfortunate. That's where the good paying jobs are now.
I'm not sure I can swallow that one...
From a purely cash standpoint the "fair value" of a career can be valued something like a stock. The fair value for a stock is the NPV of all future earnings.
The stock market pays a premium for companies with high and increasing earnings. But, the stock market also pays a premium for stable earnings. The reason is that a company with stable earnings can increase leverage and increase to future earnings.
While engineering fields tend to have higher incomes than average, they are a lot more specialized. That makes an engineer's earnings much more cyclical. A marketing or sales guy may spend 2-3 months finding an equivalent position but an engineer may take years.
How many engineers have you known that were laid off 3 minutes after the project was completed?
This means that an engineer has to be much more conservative with lower leverage, increased savings, and a more conservative risk profile for investments. This drag is usually enough to completely offset an engineers slightly higher earnings.
And that is on a purely "cash" basis. There is also a emotional penalty for the cyclical nature of the job (60-80 hours in the boom with followed by 1-2 years unemployed) and for living a "lower leverage" life-style.
From a purely cash basis I'd rank the doctors and nurses as highest, followed by sales and finance (less stable, but much higher salaries in the boom), followed by accounting (high and stable), then public service (lower salaries but very stable), and near the bottom would be tech.
But, because of some personality quirks techs end up being one of the most exploited class in the work force. For work that is much more specialized and more cyclical than sales they tend to demand about half the wages.
Hey Misean, that crap might have a sympathetic audience on LGF or Powerline or among Denninger's lemmings, but not here. Not with me.
Wasn't there an old communist party joke about voters getting to pick from the puppet on the right hand or the puppet on the left hand?
Before we let this degenerate along political party lines can do you honestly believe that your party has done what's best for the country? Not just, "they did better than party X", but really in the long term interest of the republic and not lobbyists?
praetorian | 03.08.08 - 10:37 am
Perhaps you are a tool. Coming events will inform us.
Our country was founded on a union, and there was a waiting list to get in. So, how is collective bargaining at odds with your belief system? Don't people have the "liberty" to freely associate and use their combined strength to better their lot?
Contrary to the old chestnut, the best government is not the least government. An undersized government is a breeding ground for instability. The US is a major enterprise, with all of the management levels that size requires. Inefficient? certainly. Essential? Absolutely. Can efficiencies of relative scale result in savings to the taxpayer? Yes - but the system will no longer function properly. It'd be great o cut out middle-management, but if we do it, we cannot manage at all. Any savings would be offset by loss of control. That's why large-scale enterprise always has lots of "wasteful" management. Lax government leads to criminality.
If you want a small government, move to Afghanistan.
As far as healthcare goes, I once had a Neocon acquaintence go on a tear about "socialized healthcare", during which he asserted that no healthcare was better than state-provided healthcare, and that anyone who trusted a doctor enough to let that doctor do a rectal exam was a closet homosexual.
Being a high-debt, psuedo middle-class fellow, I'm sure he'll sing a different tune if he ever gets colon/rectal cancer.
A healthy (educated, well-fed) citizenry is essential to a vibrant, economically viable society. It's an investment, not an expense.
Lastly, let's not forget exactly which type of SCOTUS expanded the "liberties" that you seem to champion.
Remember this: Every regulation on the books is there for a reason (sometimes, the reason is nefarious - like the Tax Code), and the reason is that somebody got F'ed over. Behind every 25 mile an hour speed limit is a kid who got hit by a car that was driven too fast. As we have learned from the current Administration, deregulation leads to criminality and vast financial losses to the Union. You have (actually, you HAD) plenty of freedoms and liberties - screwing the pooch is not among them - as it damn-well should not be.
Personally, I enjoy the protection of quaint "liberal" ideas like Habeas Corpus. Funny that the things you are willing to give up in good times are the things that can save you during a downturn. The useless suddenly becomes essential.
the argument that we are not graduating sufficient engineering and tech people is pure rubbish
the usa has been exporting and off-shoring so many tech and engineering jobs that in fact we have a surplus of graduates in related fields
http://www.businessweek.com/smallbiz/content/jul2006/sb20060710_949835.htm"
"There are many opinions about what is happening in the engineering field, but here are some of the facts that routinely get lost in the debate:
--
Historical Income Tables - Households
UNITED STATES\t\t\t\t
____\tMedian_________Mean (Average)\t
____\tNominal\t2006 $s\tNominal\t2006 $s
2006\t$48,201\t$48,201\t$66,570\t$66,570
2005\t$46,326\t$47,845\t$63,344\t$65,421
2004\t$44,334\t$47,323\t$60,466\t$64,542
2003\t$43,318\t$47,488\t$59,067\t$64,753
2002\t$42,409\t$47,530\t$57,852\t$64,837
2001\t$42,228\t$48,091\t$58,208\t$66,290
2000\t$41,990\t$49,163\t$57,135\t$66,895
1999\t$40,696\t$49,244\t$54,737\t$66,235
1998\t$38,885\t$48,034\t$51,855\t$64,056
OT but of some interest. In the 4Q, total net income for the S&P 500 firms (or the 488 that have reported) is down 20.6% from a year ago. this is due to a 111.2% decline in the Financial sector (going from net income of $55.1 billion to a net loss of $6.2 billion). Looking forward to the 1Q, on the surface things get better, with only a 7.4% decline in net income expected for the S&P 500 overall, and a 30.7% decline in the financials (actually the Consumer Discretionary sector is expected to be the worst in the 1Q, with a 34% decline). However, if one goes back 3 months and looks at the expectations at that time for the 4Q we were looking at a 5.4% overall decline and a 35.2% decline in the Financials. If you think things are going to be substantially better in the 1Q for the Financials, I suggest you take a look at exactly what type of mushrooms they put on your pizza.
In his January Barron's forecast, Marc Faber predicted that the pound and euro would get their turn down the waterslide later this year (vs the US$). If that happens, it would provide some additional variables for our thought processes.
I wonder if all those wingers that are always decrying handing out welfare will be returning their welfare checks this coming May? I don't have to answer that one do I?
and the reason is that somebody got F'ed over.
It rather seems to me that while that may be the original reason in many cases (let us ignore rank wealth-transfers like the mortgage deduction), in the end the laws more often then not are used for said F'ing. See, for example, patent law. Perhaps I'm overly sensitive to this sort of thing since I'm a programmer.
Funny that the things you are willing to give up in good times
I'm not willing to give up anything on account of how well the economy is functioning, and certainly not Habeus Corpus.
I should clarify: I'm not opposed to govt, but rather to an outsized Federal govt. I would prefer more state and local government which would be more responsive to localized needs and concerns (and, for those of you keeping score, less likely to get involved in overseas adventures.) I'm not particularly sympathetic to your Big Business/Big Govt. simile: I'm just as opposed to Big Business as I am to Big Govt. Like Chesterton said: they are very much alike; especially Big Business.
Not everyone opposed to a nanny centralized state is quite as simple as you make them out to be. Men of goodwill and all that.
Cheers,
prat
Before we let this degenerate along political party lines can do you honestly believe that your party has done what's best for the country?
Ask Misean that question, pal. I make no claims for my party, or assert they know what's best for the country.
I do, however, know that the crap espoused in the comment to which I replied is emphatically NOT in the best interest of our country.
If that's not good enough, then read Marcus Aurelius' comment above. It states the case as well as any other I've read.
Marcus,
I should mention that I'm a huge fan of your philosophical work, regardless of our political disagreements.
Cheers,
prat
How 'bout "Big Military", prat? You opposed to that?
How 'bout "Big Military", prat? You opposed to that?
Maybe.
Ambiguously,
prat
ARW writes:
I don't know the solution to this mess. I'm not sure there is one. What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW | 03.08.08 - 9:57 am | #
On what exactly do you base this assertion? The current HC system we have is FAR and away the most inefficent in the world, spending 2x per capita what most of our peers spend and producing the 31st best HC outcomes. A one payer system is no more "socialized medicine" than a single insurer FDIC is "socialized banking", its just a case of getting rid of the HMO parasites, and curing hookworm will generally improve a person's health. Unfortuately neither Obama or HRC go that far. The U.S. economy did pretty well durring the heyday of unions (1945-1980). As for SCOTUS, would you honestly prefer more Scalia's Allito's and Thomas's. Personally I prefer SCOTUS justices who have at least a passing familiarity with the bill of rights and the principals of seperation of powers. Those hacks clearly don't.
Come this fall, the majority of the posters on this thread will get what they wished for.
.
leonhardt's a smart dude. math major at Yale and editor in chief of the yale daily news.
amazing what happens when you combine smarts, hard work and quant skills in a journalist. you kinda get the anti-GM!
Ahh, the romance of progressive judges. Tell everyone in New London, Connecticut how that's working out.
It is equally true, unfortunately, that house prices must be stabilized. That is, if they are not the whole financial system is doomed. As house prices fall, they collapse all the delicate risk/price relationships that were designed and constructed around them.
And in order to stabilize house prices the value of the dollar and all US denominated debt has to be destroyed. In which case the financial system is doomed.
The point is we doomed the financial system years ago.
Sebastian,
your posts are so hilarious, I sometimes want to save them so that I could show them to you a year later. But, we are all nobodies here, so why bother.
Not to let my facts get in the way of your facts, but according to inflation as measured by my personal consumption index (and everybody's I know) we have never left the 2001 recession...
"Gary writes:
go browns - sorry, not Ohio. They f'ed the entire country in 2004"
As long as states are seceding, cut Ohio in half right about at Mansfield, the bottom half, right wing, religious kinsfolk can remain in the US. Northern Ohio and Michigan will join up with New England and upstate NY and become South Ontario.
Excuse me for not caring whether dear ol' dad worked two jobs. I now work one at twice the hours.
What's amusing about the right-wing fear of a national health care plan is that private insured health care in this country spends 14% on administrative costs. I believe Medicare is less than 2%.
We have health care industrial complex made up of fat insurers, drug makers, etc., just like the military industrial complex and the prison industrial complex. None have anything to do with efficiency or market forces, just a lot of high-price vested interests that find it easy to buy votes in Congress, and even easier at the state house.
While it is very true that we are only now looking at surpassing the median income we had in 1999, choosing 1999 as the benchmark is just a tad arbitrary. From the chart that was posted in this thread earlier:
Historical Income Tables - Households
From the REAL median income, we can see that 1999 was the peak of the 1990s, but it was also the height of the tech bubble. Looking back, we can see that something similar happened in the 1990's, with incomes peaking in '89 and not surpassing that peak again until '96. There is also a similar pattern from '78 - '86.
So Leonhardt is being a tad disingenuous here. It's not that americans haven't "had a raise" in over a decade, it's that incomes peaked in 1999 at the top of the tech bubble (not surprising), and proceeded to pull back until 2004, since which time they have been rising again.
Unfortunately, that rise in income is probably the result of the housing bubble, just like the rise in income at the end of the 90's was tech-bubble related. (How many realtors, flippers, and realtor-flippers were pulling in six figures in the past few years?)
From the historical chart, it basically appears that REAL median incomes have only increased about 13% in the past 30 years, and in the process of doing so, they tend to rise to a peak, recede, and rise again cyclically. So really, it's not at all surprising that an arbitrary starting year can be picked to show that real incomes haven't risen in a decade, because they generally don't rise very significantly, percentagewise, at all.
"Medicare is less than 2%. "
Myth.
Praetorian, I could see how you could be ambiguous about the regular military, lol! And how about Marcus Aurelius's son ... keep an eye on him!
To the list of relatively efficient government agencies, add social security. That kicks in smoothly. And the administrative costs are low.
Tripleplay, the conservatives have had what they wished for for 7 years. It has been horrible.
I know there is a danger in taxation. It tends to become crushing. I want there to be people warning and working against that. But, the current system IS crushing. It is corrupt. It is intended to transfer wealth to the richest persons in the country. We cannot rely on the statistics, we cannot rely on the disclosures, we cannot rely on the oversight. It's all a pack of lies. I fear a breakdown of "the system." But not so much, anymore.
New Guy - for further income trend data check out my post at 1:58 am
--
New Guy: "So Leonhardt is being a tad disingenuous here. It's not that americans haven't "had a raise" in over a decade, it's that incomes peaked in 1999 at the top of the tech bubble (not surprising), and proceeded to pull back until 2004, since which time they have been rising again."
You miss a very important point. Assuming that the economy has entered recession and the real income didn't rise in 2007 (highly likely based on high inflation rate), the 2002-2007 recovery would be the first recovery during which the real income did not reach the peak of the previous recovery.
If you believe as I do that the current recession would be very severe and long lasting the real income will decline to the q1973 levels. 1973 is the dividing line between good income growth and poor income growth since 1950.
Jas
This was posted last nite
wanted to bring it into a better time slot
Its from Four Critical Questions at PrudentBear.
It has one vitally important idea:
" the system has never been allowed to return to equilibrium, which all systems seek. The solution was always the same. We solve todays debt crisis by creating more debt more government bailouts. Consequently, the next future financial structure becomes even less stable. As fear sets in, borrowers and lenders become less inclined to play their respective roles, and the inflationary policies and schemes that attempt to thwart the natural forces of unwinding are eventually overridden."
The economy is a system and subject to systemic laws. Especially in this case homeostasis or returning to the most stable level. In the end everything must come back into balance
The idea that wealth can be created out of nothing is essentially the same thinking as designing a perpetual motion machine. Both are bound by the laws of thermodynamics.
In geology plate tectonics describes a system. A local event can stop the smooth motion of the plates. Pressure builds up until it is released in an earthquake. In predator-prey systems populations crash with devastating results. Same with forest fires and underbrush etc.
In our economy, the local event has been the interventions that stopped recessions.
But each intervention has built up the disequilibrium
The wealth that has been created by continued intervention will get destroyed in the system returning to normal
A significant portion of our population conveniently defined by those who don't in evolution, believe that mankind is governed by a unique set of laws. Reaganesque economics is such a special law. Especially applying, I suppose, for those with the proper religiosity.
Will this economic angel of death pass them over?
Time will tell.
When my mom was a kid, her mom stayed home. But in addition to my granddad's income, they had some inherited money, which survived the depression, and was enough extra for comfort. My (divorced) mom worked part time and my grandmother watched me and then she worked full time at the school I attended, and then she worked full time near my high school.
We had a paid off house, and bought a new car cash about every 5 years. We had stuff, but not nearly as much stuff as everybody expects to have today. Only 1 tv, only 1 phone, none of the technical stuff available. No dryer, no dishwasher. Home cooked meals, not eating out much. But we were just north of mid middle class. You could live like that today if you wanted to. And you would save a lot of money.
This 40s and 50s standard of living would still be considered paradise in most of the world. We were not unhappy living within our means. A lot of money gets wasted spent on stuff like lattes, that can easily be done without. Once you reach a certain level, more stuff doesn't equate with more happiness.
Apparently these facts have not been passed on.
Many of the kids I knew did have families where both parents worked. I understand that the one parent staying home thing is actually, over history, rather rare. Of course, having a loving parent watch the kids is ideal. But in the past those loving parents might be hand weaving or brewing beer to sell, etc, etc, at home at the same time. For hours and hours each day and little pay.
We have a great deal to be thankful for, even as we face the horrible problems our idiot leader has led us to.
Also, a lot of these losses are going to mean that some rich people are gonna be a whole lot less rich.
Mock Turtle:
WRT engineering, I have noticed the same thing: stagnant wages and more and more engineers going into other fields, like financial services. It is sad in my opinion; our best and brightest tech people go into financial engineering while we continue to lose our technological edge. I have also witnessed companies lay off engineering staff first. The Japanese (whom I have spent much time with) take the oposite track. The result is Toyota vs GM. Which outfit will survive the next 20 yrs.
Jas,
You are very likely correct that incomes have peaked for this cycle, and failed to surpass the previous peak in 1999.
I didn't mean to sound like I was arguing that this recession (that we are most likely already in, by any reasonable measures) was not going to be any different than previous recessionary cycles. I was just merely pointing out that, as a rhetorical device, newhardt's statistical trick isn't very meaningful in and of itself -- if he had taken 1997 as a baseline instead of 1999, then the numbers would be up quite a bit.
In fact, I would think we would be expecting numbers to have stayed flat AT BEST for the past decade, since the tech bubble should have seen a great deal more deflating than actually happened, and the economy has been shedding high-paying jobs and replacing them (where they have been replaced) with lower paying ones.
All the evidence certainly points in favor of the view that incomes SHOULD be falling, in real terms, what with offshoring, outsourcing, and the gradual shifting of the american economy from a manufacturing economy to a service economy. (So they have a lot further to fall currently thanks to artificially inflated bubble economy incomes)
The problem I have with newhardt's argument is that isn't indicative of a real problem on its own; the data shows that, going back decades, median income peaks and recedes in cycles, and even though it does slope upward historically, the curve is very nearly flat.
Like I said before, someone, arguing the contrary (Let's say, Kudlow) could easily pick a different year and loudly proclaim that incomes are up a healthy amount in real terms. It's only one rhetorical step up from proclaiming that American incomes are higher than ever! (in nominal terms!)
I hate to see poor logic or cherry-picked statistics used for argument, even if I agree with the person making the argument. If you are right (and in this case I think he is), then you should be able to make a case with a little more substance.
Kicker:
Before joining the armed forces (in 2001)I worked for an engineering firm. They had a habit of laying off people and bringing them back as consultants.
As for voting for Bush, yeah, I F---ed up. My turning point came in 2005, when it became obvious that Iraq was collapsing and the Administration refused to recognize the fact. My peers coming back painted a completely different picture of the country than the official releases.
WRT to the size of the military. Yes, it is WAY to big. You would be surprised how many uniformed military think this. Part of the problem in the Military-Congressional-Industrial complex (that is how Dwight D referred to it). However, the blame also lies with the American people. All candidates, including Obama, want to expand the military. Frankly, we have too many missions: fight 2 regional wars simultaneously, maintain a quasi cold war footing with Russia and China, garrison much of Europe and Japan, and perform various peacekeeping functions around the world. You would be shock the amount of military effort required to deploy troops to Bosnia/Haiti/Indonesia for humanitarian causes. Which is why, despite their hype, the Canadians and Europeans don't actually do a lot of humanitarian/peacekeeping work. The American people need to prioritize our missions. Otherwise, we will continue to have a gargantuan military that tries to do everything.
ipodius: "If you think it is cheaper to offshore development or customer service think again. It isn't. We all choose to do it because we can't hire enough people here."
Actually, I didn't think anything - or rather, I didn't say what I thought the cause of our pissing away of our manufacturing base was. I have no doubt that high-end engineering talent doesn't grow on trees, but I'm not buying that all the layoffs and offshoring of tech and "customer service" jobs of the last few years are all just a matter of "gosh golly, we just can't find anybody around here to do those jobs."
At any rate, I infer from your comment that you agree that we're pissing away (or have pissed away) our manufacturing mojo. I happen to think that's a bad thing. You appear to agree. The question is, why, and what to do about it. I'm sure not satisfied with the "oh, young people are just too lazy to acquire the necessary complicated skillsets we need". Yeah, it's unfortunate if the young are eschewing technical fields - but it's a rational choice, based on what career prospects look like, now. A lot of the haranguing they get about why they should go into tech fields doesn't pass the "lying eyes" test. They look around and witness the offshoring of every job that isn't nailed down, short-term thinking and therefore short-term career prospects, etc. Declining to invest tens of thousands of dollars (often in the form of long-term debt) on such terms signifies prudence, not a refusal to work hard.
My original point was that this pattern, whose result over time is the hollowing out of the nation's base of technical skills, is not an ineluctable by-product of globalization. Other First World nations have not followed the same path, while we seem hell bent on "third-worlding" ourselves. Our schools are "dumbed down" relative to these nations (Japan, Germany, etc.), but I don't think that begins to explain the whole of it.
You see, all the wingnuts are so worked up over immigration that they've cut off the supply of talent.
Somehow I don't think you're looking to recruit among the unskilled illegals pouring over the southern border. Maybe if you didn't dismiss out of hand the immigration concerns of the "wingnuts" further down the economic ladder, you might get a better hearing for your staffing problems. I don't think it should be national policy to drive into the dirt the wages of people who ain't never gonna qualify as engineers, no matter how hard they work or how much education they get.
"This has the effect of keeping them home, so we go and build the business there. Keep this up and we'll have had the secondary effect of creating our own Indian and Chinese competition in the world market. But we have no choice."
"We" could have made a lot of choices beyond giving up on developing home-grown talent or giving up on American manufacturing. (Not that high-skill immigration in itself is a bad idea.)
"And I don't know where you are but to get talented people, especially in the last year, I've had to pay salaries around 10% more than in the past."
Well, that is why smart people go to the trouble of acquiring skills - to get paid more.
I know how important a strong dollar is, and it's in our nation's interest,'' Paulson said.We're facing some challenges right now but the long-term fundamentals are strong, and I'm confident they'll be reflected in our currency market.''
Paulson deserves a rope necklace.
What I do know is that, re-igniting the unions, socializing medical care, and populating the SCOTUS with more Ginsburgs, are inimical to the long term health of the republic.
ARW
You're an idiot and I hope you lose everything. Is that competitive enough for you?
Milkman writes:
I'm not so sure the US exports enough goods to take advantage of the lower currency value.
The US does export pornography and wine and a few motorcycles. Maybe even some raw materials. But, compared to the rest of the world, we are under-producers.
Actually, here are the top five us exports:
1 - Aircraft
2 - Passenger automobiles (no shit, really!)
3 - Auto Parts (probably production parts)
4 - Semiconductors
5 - "HTS 9880".... hell I do trade all day long and I'm not even sure what that is exactly, except its a special tariff provision in chapter 98... let's check number 6
6 - Chemicals
So, America still manufactures, we are just a capital intensive, high tech manufacturer.
I'm not saying manufacturing hasn't taken a heavy hit during the "Bush prosperity", but we aren't completely doomed.
They were skipped over at the end of this thread, but lawyerliz and plschwartz hit the nail on the head.
First, we need policies that let asset prices fall to affordability and then stabilize there. The primary folks hurt in this process will have been on Reagan kool-aid, or otherwise speculating vs. working hard and keeping their skills sharp.
Second, what we are referring to when we bring up the "middle class" is not their economic power...it's their VALUES. These values need to return to the front burner of our politics and policies as a nation, as they surely will soon. That's the silver lining of all the pain we'll be experiencing.
hah!
I'm a chemical engineer and I make a decent living.
I put in a lot of years to get that education and a couple of decades of real life experience.
I believe many of the posters above have no idea what that means. They just read about engineer shortages without having a single clue what engineering is about.
Food for thought.
[partisan snark]
...are inimical to...
Lipstick on the pig! This is the late William F. Buckley's real contribution to Conservatism, and, as his mourners have pointed out quite accurately, the real secret to the Goldwater and Reagan "Revolutions": the temporary triumph of PR and spin over Reality. Unfortunately, Reality has a Liberal Bias.
[/partisan snark]
MA - Brilliant Comments.
I work in the EDU arena, specifically CS, and while it's true that the number of US undergrads pursuing EE and CS has declined, particularly in CS post dot-bomb, those numbers pretty accurately track starting salaries.
We are seeing a gradual increase, in response to the recognition by employers that wage arbitration isn't working because the South Asia set isn't "fungible". Slowly but surely the IT 'globalization' movement is reversing, at least somewhat, as the quality differences - an important component of productivity - make themselves known. You can get a project finished in Hyderabad, for a third of the cost, but if it's buggy crap that at best only appears to meet requirements, then have you really saved any money? In the quarter just ended, perhaps; in the longer term? As I started out noting: Reality will eventually win out over spin and PR.
I am not happy about the prospects of a Bank Bailout by the Democrats; they certainly do their part to make a space at the trough for the 'pigmen' (is that Jas' favorite term?), particularly when they are the party of the 'little guy' and end up sticking the little guy with the bill.
However, sometimes the reality is that the choice is not between the two parties (though it splits that way often enough), but between lube or no lube. The resulting society-wide mess of allowing "meltdowns" where the imprudent and greedy (and therefore 'morally undeserving' - I see lots of that in these comments) 'get what they deserve', aren't messes the rest of us can hide from in our gated communities, bankerdomes or subsistence farms 'off the grid' (I'm in the latter camp). At some point, in paying to clean up the mess, we are really doing for ourselves as much as the undeserving.
Although I'm an atheist, this is is the wisdom of the "Prodigal Son", and if we 'good sons' are truly morally enlightened, then we will simply rejoice at the 'come to Jesus' moment the morons who elected Bush twice are finally having...for real this time.
Cheers!
ps - LawyerLiz, I used to know a Lawyer named Liz in South Fla; I wonder if you are the same - do you know Louis (Dee) and Eva?
"The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise."
This piece makes my point concerning inflation. Someone better figure out how to pump some wage inflation in the system to help remedy the asset defalation that is just now starting to bite. The problem with actually doing it with the credit markets seizing up is a real stumper, but I'm sure Benny & the FED have it all figured out.