Anytime a trend reaches a tipping point, the system will react with a jerk, rather than a smooth flow. Too many people spending results in inflation; too few in deflation. Right now the increase in savings and the lost jobs are all tipping the balance toward deflation, which is the most painful and persistent of economic ills.
]]>Saturday as I was doing my usual shopping at the warehouse grocery store and discount outlet stores I was shocked to find the parking lot full! On the way home I stopped at the library and it was packed… again, the parking lot was full. It seems everyone has taken on my thrifty ways.
I think the government is going to force the banks to lend… soon. Because if they don’t we will get deflation. Once people see credit opening up this will stop some of the fear. And I believe that fear is what’s driving a lot of otherwise solvent people to save up a few extra thousand and delay major purchases. Fear that they won’t be able to get a credit line on their home if they need to make a major repair, an unexpected medical bill, etc. So they are saving up.
What I fear is a few years from now when all that cash hits the streets… inflation will shoot up. If the money supply is doubling won’t inflation do the same? Economic theory always makes my head hurt.
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]]>This weekend two of my Mother’s first cousins were visiting, and they all grew up the Depression. They aren’t spending anything that isn’t an absolute requirement. They are in full miser mode. I was going to take everyone out to dinner, a normal part of any visit, but they all felt that was an extravagance. I’m fighting an uphill battle to get my Mother to maintain her normally low level of spending, but the dismal rate the bank is now paying on her funds makes her nervous.
One of the cousins lost $100K in her portfolio, and has reduced her spending to her Social Security check, which she didn’t start drawing on until she was 72. She was forced to retire for health reasons and has been feeling poor ever since.
None of the three is poor in the standard sense of the word, but they are all worried about their children, grandchildren, and great grandchildren. They have seen it before, and know people are not ready for it.
The problem is that when people like this, with some disposable income, stop spending, things are only going to get worse. A lot of people have to save because of major concerns about their job, but when people without those concerns start doing it, deflation is coming. One of the cousins mentioned that if things keep up, wages will go down, just like the last time.
This is no time for screwing around. Every delay makes things worse. People have to see something happening, and soon.
]]>I.e., deflationary spirals are Bad.
But because an individual having more savings is Good on a microeconomic level, idiots think it must be good on a macroeconomic level. It *can* be… but only with a helluva lot of government intervention in the economy to keep the economy from entering a deflationary spiral. Intervention which the idiots who believe savings is Good period refuse to consider because, well, it’s “spendthrift”. Sigh.
– Badtux the Economics Penguin
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]]>A PhD is focused research that results in the thesis providing an explanation of what you did and what conclusions that you have drawn from the research, which then must be defended. The individuals you cite have done that multiple times on multiple subjects, so they have the requisite credentials. Ms Shlaes fails to do sufficient research to understand what she is writing about and draws erroneous conclusions. If you “cherry-pick your data” you will not be able to defend your results, and that’s what she does.
You don’t need a degree, but in its absence you need the experience that is the equivalent, and she has neither. I can see the problem with a couple of courses in macro-economics, multiple accounting courses, and running my own business. I do my own taxes and I’m the winner in the audits by the IRS, but none of the discrepancies made it to three figures on either side.
The academics got involved because the journalists have been screwing things up since Reagan. The financial reporting hasn’t been worth spit in so long it’s not worth reading. There aren’t even the most basic checks on logic, or any research on the relevant data. We have had wholesale abrogation of the responsibility to determine the truth. All that is left is politics with no economics at all.
]]>Being educated is hard work. Ms. Shales has shown that she a) does not have the educational background necessary to do the work (apparently — it does require significant mathematics to do well, and she has no education in mathematics, and mathematics is *not* something that you can easily self-teach yourself because of the sequential and arduous nature of the subject), and b) doesn’t appear to have read even the basic tomes of the field. Instead she regurgitates right-wing talking points that have some surface plausibility but are utter nonsense once you look at the math. That, rather than credentials, is why I consider her a joke.
]]>As for “credentials” being needed to write enlightening economics journalism, I am not convinced. Not so very long ago the entire field was known as “political economy.” ( I think I read somewhere it still is known as that in some European countries) Political Economy recognized, rightly in my view, that there is much more to understanding the economy than crunching numbers and drawing graphs — whether for professional journals or on Laffer-able cocktail napkins.
Some of the best economics journalism writing of all time was done by Heywood Hale Broun (the elder), Walter Lippmann, Scotty Reston, I.F. Stone, Michael Harrington, and even Edward R. Murrow, to name just a few liberally educated Pulitzer Prize winners of the last century who didn’t, so far as I know, have doctorates in anything, much less from the approved Chicago vatican.
Economics journalism, like Economics itself, suffered a crippling blow when the “political” part of “political economy” was erased under the pressure of mostly dull-witted academics — every one of whom, of course, had a personal as well as financial interest in spritzing the place up with more exclusive-smelling (and expensive) Ph.D. perfumery.
]]>The saving rate is going up sharply which is a lead indicator of possible deflation. People are worried about having a job and aware that prices are starting to come down. If they don’t do something soon to stop the trend this is going to continue for a decade, not just a couple of years, and it will be harder to restart with every day that passes.
There are several states, California and Florida included, that need help now before the state and local governments start laying off people.
I lost a couple of clients during one of the California budget meltdowns when I was in San Diego. They didn’t feel they could wait for the state to pay them and live on borrowed money until that happened. It was the right decision, because by the time the state paid, they were able to avoid personal bankruptcy, but the business couldn’t get the credit needed to operate. They forgot to gouge huge profits to cover this recurring problem, like the corporations.
]]>Sort of like the idiots who say that the government spending money means that it takes money away from other places in the economy, as if there is only a fixed supply of money in the economy and the money spent by the government just disappears into a hole in the ground rather than going into the economy and being spent by the people who got it. You’d think these folks had never heard of the invention of the printing press, wherein you place paper in one side, and money comes out the other. I expect their tiny little heads would simply explode at the notion of the fractional reserve multiplier effect and its effects upon increasing the money supply, or de-leveraging and its effects upon decreasing the money supply. But wait, I forget, that requires math, and (all together now!) “that’s hard math! I don’t like math! I prefer to believe the bullshit that the Rethugs are pulling out of their ass, because it doesn’t involve math and makes me feel smart!” Well, congratulations. That qualifies these people to be a Republican. Because all that’s required to be a follower of a failed ideology is to be stupid.
– Badtux the Snarky Penguin
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