Totally Spent by Robert Reich

[groovedaddy]

WE’RE sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.

The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.

The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power — and not just temporarily.

Much of the current debate is irrelevant. Even with more tax breaks for business like accelerated depreciation, companies won’t invest in more factories or equipment when demand is dropping for products and services across the board, as it is now. And temporary fixes like a stimulus package that would give households a one-time cash infusion won’t get consumers back to the malls, because consumers know the assistance is temporary. The problems most consumers face are permanent, so they are likely to pocket the extra money instead of spending it.

http://www.nytimes.com/2008/02/13/opinion/13reich.html?th&emc=th

[ayeshahaqqiqa]

1. Yep, that's the way it is

I know a lot of folks who have borrowed and borrowed just to keep up their standard of living. I also know a lot of folks who live within their means, not borrowing for anything except their home and their vehicle. No credit card debt. Sad thing is, thrifty folks will be hurt because of the actions of the un-thrifty. I'm a case in point. No debts except my land (due to be paid off by this summer, btw). No car payment. But my boss spends money like it is water and then goes and gets a loan to cover shortfalls. With the downturn in construction and housing sales, which directly effects the company's bottom line, I'm wondering if he will be able to keep the business afloat. If not, his employees (thrifty ones all) will be out of work.

[predfan]

2. Hey, I'm in retail, and our recession started years ago.

Our small town has lost hundreds of industrial jobs, so those who do have a job must commute ( see earlier thread about $3.40 gas, coming this spring) We have over 300 kids graduating from our county High School this year, and those who go off to college most likely won't be back. It's just a big ripple that starts with layoffs, permeates the local economy from church collection plates to country club resignations to loss of teacher funding as families leave. Today the largest restaurant in town closed (Ryan's Buffet), 30 employees who didn't even know it till they got to work.

When historians write about the Bush administration, their legacy will be a society much worse off than when they got their greedy little hands in the till. It's time to do something even if it's wrong.

[hay rick]

7. trial and error

Nice thumbnail of the Bush era in your small town.

You nailed the legacy. And I agree that it's time to try something very different. Even if the first attempts don't work out, it's better than following the current path which leads to declining standards of living and quality of life for the majority of our citizens.

[DJ13]

3. "three decades during which American consumers have spent beyond their means"

Partly right, partly wrong.

Its not so much Americans have spent beyond their means, it would be just as valid to say that American wages havent kept pace with the generations prior to 1980, which has put increasing economic pressure on the American workforce.

Consumption is only half the equation, the other half is wages have to keep pace with the needs of the society (Reich knows this, but its not politically correct to mention it in the current corporate influenced political envioroment) .

[sandnsea]

4. That is what he says

"The underlying problem has been building for decades. America’s median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what’s been earned in America since then has gone to the richest 5 percent...

"The only way to keep the economy going over the long run is to increase the wages of the bottom two-thirds of Americans...

"We also need stronger unions, especially in the local service sector that’s sheltered from global competition...

"Over the longer term, inequality can be reversed only through better schools for children in lower- and moderate-income communities. This will require, at the least, good preschools, fewer students per classroom and better pay for teachers in such schools, in order to attract the teaching talent these students need...

"These measures are necessary to give Americans enough buying power to keep the American economy going. They are also needed to overcome widening inequality, and thereby keep America in one piece."

[Warpy]

5. Yep, he's gotten the point of wealth concentration, all right,

and how debt has been substituted for substandard wages for about as long as it could be expected to.

A company can exist with antiquated equipment, low profit margins, and even bad managment. What it can't survive without are customers!

Business is about to learn that harsh fact one more time.

Reich stopped just short of mentioning demand side economics. I suppose he's saving that for when we get rid of the GOP.

[acmavm]

6. Sheesh, I know a lot of folks who were living beyond their means

and all they were doing was trying to survive.

[hay rick]

8. household debt

For years there has been much comment on the ever-advancing levels of national debt. Msm loves a 1 minute story on the national debt clock. At the same time, levels of household debt have been advancing to record levels without fanfare. The coverage in one case and not in the other reflects the media's bias: government spending always bad, consumer spending always good.

I always wondered how household debt could continue to advance when wages were stagnant and demographics were pushing a greater share of the population into save first/plan for retirement mode.

You know the party has to end sometime. Hello hangover.

[cilla4progress]

9. Love Bob

Robert Reich has always been one of my favorite economists. I hope Barack will put him in his cabinet. Thanks for the link.