Re: Paul Krugman: "The bottom line is ...no wealth creation at all since the turn of the millennium"

freeisbest wrote:
On Feb 17, 8:51 am, mg <mgkel...@xxxxxxxxx> wrote:
On Feb 16, 8:42 pm, Werner <whetz...@xxxxxxx> wrote:



On Feb 16, 5:04 pm, Alan Lichtenstein <a...@xxxxxxxxx> wrote:
freeisbest wrote:
http://www.nytimes.com/2009/02/16/opinion/16krugman.html?_r=1&partner...
February 16, 2009
Op-Ed Columnist
Decade at Bernie’s
By PAUL KRUGMAN
By now everyone knows the sad tale of Bernard Madoff’s duped
investors. They looked at their statements and thought they were rich.
But then, one day, they discovered to their horror that their supposed
wealth was a figment of someone else’s imagination.
Unfortunately, that’s a pretty good metaphor for what happened to
America as a whole in the first decade of the 21st century.
Last week the Federal Reserve released the results of the latest
Survey of Consumer Finances, a triennial report on the assets and
liabilities of American households. The bottom line is that there has
been basically no wealth creation at all since the turn of the
millennium: the net worth of the average American household, adjusted
for inflation, is lower now than it was in 2001.
At one level this should come as no surprise. For most of the last
decade America was a nation of borrowers and spenders, not savers. The
personal savings rate dropped from 9 percent in the 1980s to 5 percent
in the 1990s, to just 0.6 percent from 2005 to 2007, and household
debt grew much faster than personal income. Why should we have
expected our net worth to go up?
Yet until very recently Americans believed they were getting richer,
because they received statements saying that their houses and stock
portfolios were appreciating in value faster than their debts were
increasing. And if the belief of many Americans that they could count
on capital gains forever sounds naïve, it’s worth remembering just how
many influential voices — notably in right-leaning publications like
The Wall Street Journal, Forbes and National Review — promoted that
belief, and ridiculed those who worried about low savings and high
levels of debt.
Then reality struck, and it turned out that the worriers had been
right all along. The surge in asset values had been an illusion — but
the surge in debt had been all too real.
So now we’re in trouble — deeper trouble, I think, than most people
realize even now. And I’m not just talking about the dwindling band of
forecasters who still insist that the economy will snap back any day
now.
For this is a broad-based mess. Everyone talks about the problems of
the banks, which are indeed in even worse shape than the rest of the
system. But the banks aren’t the only players with too much debt and
too few assets; the same description applies to the private sector as
a whole.
And as the great American economist Irving Fisher pointed out in the
1930s, the things people and companies do when they realize they have
too much debt tend to be self-defeating when everyone tries to do them
at the same time. Attempts to sell assets and pay off debt deepen the
plunge in asset prices, further reducing net worth. Attempts to save
more translate into a collapse of consumer demand, deepening the
economic slump.
Are policy makers ready to do what it takes to break this vicious
circle? In principle, yes. Government officials understand the issue:
we need to “contain what is a very damaging and potentially
deflationary spiral,” says Lawrence Summers, a top Obama economic
adviser.
In practice, however, the policies currently on offer don’t look
adequate to the challenge. The fiscal stimulus plan, while it will
certainly help, probably won’t do more than mitigate the economic side
effects of debt deflation. And the much-awaited announcement of the
bank rescue plan left everyone confused rather than reassured.
There’s hope that the bank rescue will eventually turn into something
stronger. It has been interesting to watch the idea of temporary bank
nationalization move from the fringe to mainstream acceptance, with
even Republicans like Senator Lindsey Graham conceding that it may be
necessary. But even if we eventually do what’s needed on the bank
front, that will solve only part of the problem.
If you want to see what it really takes to boot the economy out of a
debt trap, look at the large public works program, otherwise known as
World War II, that ended the Great Depression. The war didn’t just
lead to full employment. It also led to rapidly rising incomes and
substantial inflation, all with virtually no borrowing by the private
sector. By 1945 the government’s debt had soared, but the ratio of
private-sector debt to G.D.P. was only half what it had been in 1940.
And this low level of private debt helped set the stage for the great
postwar boom.
Since nothing like that is on the table, or seems likely to get on the
table any time soon, it will take years for families and firms to work
off the debt they ran up so blithely. The odds are that the legacy of
our time of illusion — our decade at Bernie’s — will be a long,
painful slump.
________________
The comments of the two previous ideologically and intellectually
challenged respondents notwithstanding, Krugman paints a grim picture.
I share his view that we are being punished because we had been living
on credit far too long. Krugman also alludes to the fact that our GDP
was not balanced between sectors to the extent that is should have been.
But what troubles me the most, is that Krugman proposes no solution
other than to wait it out, and in that respect shares the same solution
that the conservative organs that he cites propose. I for one, am
disappointed with that grim outlook, and hope that Geithner will live up
to his reputation and come up with a TARP and TALF Plan that provide the
medicine we need. We obviously cannot have another 'public works
program' in the magnitude of the one of which Krugman speaks.
In his book 'The Origin of Financial Crises', George Cooper suggests
the least worst 'solution' is inflating out of debt.
> I tend to doubt if any serious scholars in or out of government
> or at the Fed ever thought that the massive debt we've created
> with the wars, the tax cuts, and now the bailouts would ever
> be paid. How can a nation that has created no new wealth in
> 8 years expect to pay back a debt that is approaching
> 100% of GDP?

OMG. 100% of GDP. I had to sit back and rest for a moment after
reading that. Is there such a thing in economics as the illusion of
infinite renewal? Or was it simply magic thinking? Because from what
you are all saying, it appears the free market solution for every
economic problem was an airy wave of the hand and a cheery, "oh, all
that will work itself out." Or pretty much what roaches would say,
if roaches owned the media.
So our economy actually is run by people who refuse to trace the
obvious progression through a few short steps from (a) American
Manufacturers Export American Jobs, (b) Retail Conglomerates Sell
Chinese Goods For Trillions of American Dollars, (c) Millions of
Unemployed Americans Stop Buying Chinese Goods to (d) American Economy
Tanks. And they're still arrogant. And they still feel entitled to
our money. And they're threatening... what?... if we don't cough up
the last $1.50 in the Treasury?

Hal keeps describing the Bush administration as inept, incompetent and corrupt and I keep telling him that he needs to add "arrogant." The Republicans have had 28 years of unbridled arrogance and it seems to be all that they know. Recall all the comments in 2001 about how we finally had "adults" in charge? Well, it appears that those "adults" were the bullies in the playground who responded to any criticism with arrogance rather than reason.

So, let them bluster and pontificate all they want. We have seen what they did to our country and our economy.

It is now time to ignore the noise that they make and settle down to do the hard job of cleaning up the mess. It is going to be very hard and take a long time, but someone has to do it.
.

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