I'm not good with the facts and statistics in this area, but there is an important move you can make in framing the debate.
The position your brother and SIL are taking--where everyone is allowed to fail, from bankers, to homeowners, to car makers--presents an image of fairness, but really isn't on the table. No one close to the issue thinks we should let everyone fail; everyone favors some form of government intervention. The obvious reason for this is that if everyone in danger is allowed to fail, then literally everyone else will fail as well. It goes beyond saying the collateral damage will exceed some acceptable level. You, your borther and your SIL will be hurt, too.
The only real question on the table in the houses of power is who gets bailed out and under what terms. So now the issue isn't the moral worthiness of the homeowners or the auto companies, but whether badly-run risk-taking banks have some special status that lets them get government aid when everyone else is allowed to fail.
Once you frame it as a fairness issue for a bailout that is already happening, you've won the game.
Letting companies go bankrupt causes sharp pain today for the reward of a quick recovery and a healthier economy tomorrow.
Conversely, propping up dead and dying companies may make us feel warm and fuzzy today because we want Joe Sixpack to be able to keep on working his cushy union job at GM, as if GM were actually a profitable company that could afford to pay him.* But the price of maintaining that fiction is that the economy remains in a slow- or no-growth phase for decades to come as capital is not allocated properly to its most efficient uses, inefficient companies remain unprofitable and unable to reinvest nonexistent profits in improving themselves, and the entire country suffers as a result. Japan's "lost decade" of the 1990's was the result of just this sort of shortsighted decision-making, as the Japanese political/economic system demonstrated a pathological inability to simply let failed companies go out of business.
Trying to defy economic reality makes about as much sense, and is about as likely to work, as deciding that rocks should not fall to the ground when we drop them, but instead should be supported indefinitely by little hover jet-packs at precisely their original height, because that's where we like them.
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*Actually, GM wouldn't be in such a bad spot if it weren't stuck dishing out massive benefits and pensions to Joe and the decades of workers that preceded him, but that's another discussion.
Trying to defy economic reality makes about as much sense, and is about as likely to work, as deciding that rocks should not fall to the ground when we drop them, but instead should be supported indefinitely by little hover jet-packs at precisely their original height, because that's where we like them.
What about defying gravity by building platforms of wood or other decorative material, supported by three or more legs? We could put them at the levels we typically like to have things, perhaps waist level in a dining area for putting our food on.
We find ways to work around natural laws all the time. Saying that the economy demands the failure of GM is a kind of Calvinism. "Your suffering isn't anything we can help with, it was ordained by the Holy Marketplace."
No one close to the issue thinks we should let everyone fail....The obvious reason for this is that if everyone in danger is allowed to fail, then literally everyone else will fail as well.
They believe that they are the only ones close enough to the issue to see the forest for the trees. They both work in the financial industry, to the point where until they protested yesterday, I'd assumed they were both neck-deep in re-packaged bad mortgages. (I'm still not sure what to infer from their protesting. They've both held plenty of jobs in the industry.)
Re-framing the issue sounds like the key to unravelling a lot of this; what would be a more substantial argument that letting companies fail will lead to un-containable society-wide economic failure?
Thanks for your input, Zombie Herbert Hoover.
Actually, GM wouldn't be in such a bad spot if it weren't stuck dishing out massive benefits and pensions to Joe and the decades of workers that preceded him, but that's another discussion.
I thought GM had gotten rid of almost all of the legacy costs in a round of union talks a few years ago, to the point where this isn't really a burden anymore.
GM wouldn't be in such bad shape if it hadn't taken the money it should have set aside to cover its pension obligations, and paid them out in dividends to its shareholders.
As a poor sap sitting at work here on this supposed-to-be-a-holiday, answering your questions seems way better than doing my work.
First, widespread unemployment is deadly for our economy. Your conversation partners should remember that when Citigroup talks about 53,000 layoffs, a lot of those are tellers and other branch employees--many of whom only have an AA, not a BA, but who were smart and picked a field that used to be one of the more stable, good paying fields for people who don't finish a 4-year degree. Counting out cash for customers isn't hard, but requires responsible employees. These people probably have modest savings, but they're not living off their bonuses like I-bankers. They will really hurt in this economy.
In addition, when the upper middle class loses jobs, the unemployed severely restrict their spending. In fact, they pull back more (proportionally) than the middle class or working class, because a greater percentage of their income goes to discretionary spending that can be restrained without cutting out food, housing, transportation, etc. This puts a real dent in retail spending, which is a big cause of the retail bankruptcies we've seen recently--Linens 'n' Things, Circuit City. When retail chains go down, they bring down all those low-wage retail workers with them. And those retail workers are even worse off than those bank clerks--they probably don't have savings, don't have a retirement account they can raid, and are more vulnerable to health emergencies because they've probably gone without insurance (and therefore basic health care) for a while.
And remember, recovering from a period of unemployment can take years for someone who is living on the edge of financial stability. This is not just a matter of a bunch of people waiting out a recession on unemployment benefits for six months, and then jumping back into the economy where they left off. Any savings they have will be gone. They will have much more credit card debt from trying to meet basic necessities like groceries without an income. If they're lucky, they will have spent hundreds of dollars a month on COBRA health insurance, and if they're not, they've gone without insurance and may have acquired a "pre-existing" condition that will now never be covered by their next insurance plan.
This is real pain for these families. These aren't econ text book statistics, these are real people who have real needs, real families, and real pain.
GB is giving is the Andrew Mellon position now known as Hooverism: ""Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. ... It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." It's been strangely unpopular since 1932, though the Austrian economists are holding the line. It sounds contrarian now, but it was pretty orthodox back then. It';s very persuasive if you have an idealized picture of capitalism.
Some people do well during depressions. If everyone else goes downhill faster than you do, your relative position improves, even though in a declining economy the total pie is smaller.
The Mellon quote is the #7 Google hit for "liquidate". He's become timely again.
10: That's what's hard for me to figure out. What part of this scare is true that all of us will suffer if executives at these giant corporations are forced to lose their jobs (or at least their bonuses), and what part of it is a scare about people like me (renters with no assets and little risk) becoming the ones who can survive it? OTOH, I'm very aware that if there's not enough money moving around in the system, higher education gets hit with the sharp axe and I end up jobless.
As far a foreclosures, don't think of foreclosures as just losing a house. For most families, it's basically losing their only investment.
And don't be fooled into thinking the only people getting foreclosed on are people who put no money down, borrowed their closing costs, etc. The housing market is extraordinarily dysfunctional right now, and people who have valuable houses, but bought them in the last few years for more than they should have (but were told it was a good investment by everyone from Realtor to their bank to their mortgage broker) are seeing their equity vanish. Add in a bout of unemployment, and voila--foreclosure. And so whatever down payment they put down, whatever equity they gained through paying down their mortgage (ignoring equity gained through increasing value, which was probably illusory) is now gone as well. And that was real money that was sitting in a bank account a few years ago, but is now gone.
What about defying gravity by building platforms of wood or other decorative material, supported by three or more legs? We could put them at the levels we typically like to have things, perhaps waist level in a dining area for putting our food on.
That analogy doesn't work, smarty, because a platform, once built, can pretty much prop up whatever you put on it indefinitely with no further effort. By contrast, a company that was failing before a bailout will soon resume failing after a bailout, unless it somehow becomes a more efficient, profitable company. Which is not likely to happen so long as the government is rewarding it for its failure.
By the way, I agree with the proposition that it's morally unjust to bail out person, company, or industry X and not Y. I don't think fat-cat bankers should get handouts while line workers at the auto plant suffer. I just don't think our government should be in the business of bailing out failed companies, period. Paulson did a good job of selling Congress on the idea that unless he GOT LOTS OF MONEY, NOW!!! to buy up bad assets, the entire country would implode. But he got the money, he didn't use it to buy the assets... and the world did not end.
We should not let horror stories of a financial apocalypse lurking around the corner dissuade us from letting the economy correct itself. When we let the chips fall where they may, we embrace Truth. When we prop up this company and that, creating a Potemkin village version of the economy as we would like it to be, we spin a web of lies with no end.
They both work in the financial industry, to the point where until they protested yesterday, I'd assumed they were both neck-deep in re-packaged bad mortgages. (I'm still not sure what to infer from their protesting. They've both held plenty of jobs in the industry.)
So are they opposed to things like the Citigroup bailout, too? The consistency, at least, is admirable.
Gaijin Baker, I suggest you consult something known as "history", which includes many other episodes than the 1990s Japan. The world economy is about to contract, which if you step back and think about it, doesn't make any sense. The factories are still there. The workers are still there. The customers are still there. We didn't forget how to make anything. As Keynes said about the Great Depression, the world economy is like a car with a broken alternator. If we replace the alternator, the car will start running again.
Actually, GM wouldn't be in such a bad spot if it weren't stuck dishing out massive benefits and pensions to Joe and the decades of workers that preceded him, but that's another discussion.
This crap has been comprehensibly debunked elsewhere on the net.
And, as already said, this isn't the fault of the workers but the fault of GM.
Does 90s Japan actually fit the Austrian/Herbert Hoover picture of the causes and cures for economic depression? I ask out of genuine ignorance. Are we in a position of arguing for competing historical analogies: "This is like the Great Depression" vs. "This is like Japan in the 1990s"?
Maybe they's figured out a way to get out.
Gaijin, platform or no platform, gravity analogies aside, the doctrine you're shoveling out is a minority position in the field, and has whatever popularity it has because it's so beautifully Randian and confirms people's prejudices and arket worship so well. There are dozens of economists trying to figure out what happened and what to do. I tend to believe that economists overestimate the value of their science by far, but Austrains are among the worst.
The main people I hear pushing Mellonism are idiots in the media and Republican Senators.
GB is giving is the Andrew Mellon position now known as Hooverism: ""Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. ... It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." It's been strangely unpopular since 1932...
Unpopular doesn't mean wrong.
Also, while talk of "liquidating" farmers sounds deliciously evil, in a 60's spy-movie sort of way, it's not exactly an accurate description of "letting the economy correct itself".
17: Seriously. God forbid that the people who actually put together the product for one of the most powerful companies in the world should be able to retire without hardship when their execs (who are fucking things up mightily by refusing to move in the direction of products people actually want) can afford private jets, shocking yearly bonuses, etc. GM isn't failing because of shoddy factory work; it's failing because of shoddy executive work.
Unpopular doesn't mean wrong.
I'm sorry, is there an actual argument forthcoming? If we wanted this level of "analysis", we could have grabbed any college sophomore off the street.
Take it Mellon, GB. Those were his words, back when people said what they thought instead of using euphemisms. It's pretty clear fro what he said that his intention was not just to revive the economy, but to punish the guilty, the lazy, the improvident, and the talentless.
Unpopular doesn't mean wrong. Really? I was misinformed.
18: Not exactly. The government of Japan prevented banks from writing down their losses, and kept a lot of zombie banks alive. So in that sense it fits. But Japan always had lots of inefficient local businesses thanks to government interference, even during its boom time. At the same time, the Japanese have an incredibly low propensity to consume -- they will save lots of money irrespective of the interest rate. There are banks in Japan that get customers, even though they make no loans whatsoever (they just invest the money in government debt, and pay the interest out to depositors).
(Interestingly, the main way in which Bernanke differs from your run-of-the-mill economist on how that Great Depression could have been prevented
This crap has been comprehensibly debunked elsewhere on the net.
And, as already said, this isn't the fault of the workers but the fault of GM.
Yeah, that link you didn't provide really spells it all out. Comprehensibly [sic].
GM management has made many bad moves over the years, to be sure. But being saddled with an expensive, unionized work force and mounting past pension obligations (which, to be fair, top management was stupid for agreeing to provide in the first place) did not make its situation any better. There is enough fail in this scenario for GM executives and the UAW to share.
If GM's management is and has been so poor, then why should we deplete our bailout funds by consigning them to the tender grasp of such management?
15: They do! I can't tell if they personally would be stoic if either one of them were to be laid off, or if they've got some sense of invincibility that's protecting them.
Trying again: Interestingly, the main way in which Bernanke differs from your run-of-the-mill economist on how that Great Depression could have been prevented was it was insufficient to run an expansionary monetary policy; we need to specifically prevent individual banks from failing, since the banks have specific knowledge about their customers that is destroyed.
If GM had been making cars in a libertarian paradise like Germany, they'd still be profitable.
I managed to eat some stomach flu virus along with everything else yesterday, so believe me when I say that purging all the rottenness out of the system is no fucking fun at all.
And don't be fooled into thinking the only people getting foreclosed on are people who put no money down, borrowed their closing costs, etc.
This was exactly the argument.
The housing market is extraordinarily dysfunctional right now, and people who have valuable houses, but bought them in the last few years for more than they should have (but were told it was a good investment by everyone from Realtor to their bank to their mortgage broker) are seeing their equity vanish. Add in a bout of unemployment, and voila--foreclosure.
Let me play devil's advocate: "Wouldn't these people be in the same spot if they'd been renting for the past few years?"
So is it ever a financial relief to be foreclosed on?
Interestingly, the main way in which Bernanke differs from your run-of-the-mill economist on how that Great Depression could have been prevented was it was insufficient to run an expansionary monetary policy; we need to specifically prevent individual banks from failing, since the banks have specific knowledge about their customers that is destroyed.
So he, at least, doesn't think the Japanese analogy works at all, since it is clear that the Japanese should have let their zombie banks fail. Am I getting this right?
I actually support bailing out the Big Three pretty much because GB opposes it. The opposition to this particular bailout comes from Republican morons whose primary motive is busting labor.
#22: I'm sorry, is there an actual argument forthcoming? If we wanted this level of "analysis", we could have grabbed any college sophomore off the street.
Oh, stuff it. I put forth an argument in #2 and #14. All I've gotten in response is a lot of name-calling.
Associating my position with "Zombie Herbert Hoover". "Mellonism", or "Austrian economists" says nothing about whether it's right or wrong. It's just a lazy rhetorical tactic, in which to slap something with a label (preferably a label of something scary, like zombies or Austrians) is considered to be the equivalent of refuting and dismissing it.
And now we have you, Josh, jumping on the name-calling bandwagon by saying my comments are what you could hear from "any college sophmore off the street." Your inability to see the irony of faulting me for providing what you consider to be an insufficiently nuanced analysis, while you yourself have contributed nothing to the discussion at all aside from simple put-downs, does not speak well for the quality of your thought processes in general.
The housing market is extraordinarily dysfunctional right now, and people who have valuable houses, but bought them in the last few years for more than they should have (but were told it was a good investment by everyone from Realtor to their bank to their mortgage broker) are seeing their equity vanish. Add in a bout of unemployment, and voila--foreclosure.
We're underwater with the mortgage right now, and this is with a completely standard 30yr fixed, full downpayment provided and properly budgeted monthly payment. We are moving (for work reasons) and fully expect to take a loss on the sale, but that really isn't the problem: the problem is that no-one knows where the bottom is, so the local market is frozen and there's no way for realtors to figure out what the market price of houses is. So we started looking into what the consequences might be if we just walked away from the house, because it's not as if we're going to let ourselves be trapped in it indefinitely. I guess this puts us in the category of people who would be very pissed off indeed if there's a bailout of people who bought Cadillac Escalades and vacations in Maui with the money they got from borrowing against their home and its 5-yr variable interest-only balloon mortgage.
In case there was any doubt, #35 was me.
Re:Mellonism
I am trying to get a reputation as a Minsky troll.
Minsky of course approved of delaying the apocalyptic deflation as long as possible, but he did assert that such a deflation was periodically inevitable under current forms of capitalism, and that each palliative delay increased the intensity of the final reckoning.
Besides automatic stabilizers, Minsky's recommendations include limiting the size & scope of volatile sectors, and creating one fucking awesome safety net to ensure that only the gamblers were damaged at the end of the cycle.
I am both quite near and very far from Gajin's position. I would let the deflation and liquidation take place and am not crazy about emergency measures or temporary relief.
But I would tax the rich out of existence, swap the long bond down to 2%, print as much as possible. Use that money to provide FDR's 2nd Bill of Rights, in which the Federal Gov't would guarantee everyone a job, buy them housing, provide health care cradle-to-grave, subsidize ag prices, the means and market to start a small business, etc. As inalienable rights.
#33: So he, at least, doesn't think the Japanese analogy works at all, since it is clear that the Japanese should have let their zombie banks fail. Am I getting this right?
I think that's not quite right, since most Japanese personal savings are not in private banks, but in the government-run postal savings system. Policies that might have been necessary to stave off the Great Depression would probably not have been of much use in 90's Japan.
re: 25
I'm not inclined to be polite. Comprehensively was a typo. Now fuck off.
GB, I in fact explain why your position was wrong. You conspicuously neglected to respond to it.
33: My impression of Bernanke's position on Japan is that the Japanese Central Bank did not provide sufficient liquidity. If you look at the Fed's response to the crisis, they have gone to extraordinary lengths to provide bank liquidity.
Oh, stuff it. I put forth an argument in #2 and #14. All I've gotten in response is a lot of name-calling.
6, 13, 16, 24 at least to that. Take heat! stay in kitchen!
31: Let me play devil's advocate: "Wouldn't these people be in the same spot if they'd been renting for the past few years?"
No, they'd have the cash in their savings account that they sank into their down payment. Additionally, most people are (smartly) willing to pay a higher mortgage payment than rent payment because it's an investment, not an expense. So they're also missing whatever cash is the difference between what they would have paid in rent and what they paid on their mortgage, because the equity that was the reason for making the higher payments is gone.
Yes, your argument was "You can't repeal the law of gravity".
You're talking about these tattered old ideas as if they're fresh and new. The Austrians were mentioned because they're more or less the only ones who believe them any more. Mellon was mentioned because you agreeing with him. The depression was mentioned because Mellon's method didn't work.
You also give no signs of awareness that there are people working on these questions who are completely familiar with your point of view but know a lot more than just that. Go to DeLong or Krugman or Rodrik or Yves Smith or Thoma or Dean Baker and see what they're saying. You really can't just pull out a 70-year-old orthodoxy and and win this game.
Mostly I'm just waiting for an actual economist to show up. PGD?
So is it ever a financial relief to be foreclosed on?
Can't speak to foreclosure, but bankruptcy can definitely provide relief. Since you can't file again for 7 years, after the Ch 7 liquidation, you become very attractive to the cradit markets again. That emergency credit is available is the difference between worry and terror.
Their argument was that housing prices will naturally settle at 2.5-3x the average salary for an area, and the responsible grasshopper down the street who made bread during the summer months will now be able to snap up the gaudy house, cheap.
You see, because the market is infallible the market will fix the market when the market becomes fallible. It's a highly technical, mystical process involving Truth that everyone should just trust to happen and not fiddle with too much.
So is it ever a financial relief to be foreclosed on?
I would imagine in the short term, yes, but I also imagine* it would be far better for someone's long-term financial health for their home value to go back up or their debt on it to decrease so that it can be sold and they can get some equity out of it.
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* ...for IANAEconomist
So is it ever a financial relief to be foreclosed on?
Part of the problem is that credit-scoring methods, while simple, are not exactly transparent.
Go to DeLong or Krugman or Rodrik or Yves Smith or Thoma or Dean Baker and see what they're saying.
You know I read every word these guys write on the web. Not one of them is happy with the bailouts, and I don't think many of them believe that either the financials or autos will emerge from the depression as healthy sectors.
They just see a very limited number of options.
They also are not Mellonists.
And this argument is about the auto bailout, not the rest of them.
#41: You're right. I was exaggerating. This thread has actually been pretty good so far, on the whole.
#42: Walt, in which comment did you explain why my position is wrong? Was it where you invoked Keynes saying that all we need is a new alternator in the car of the economy to get us jump-started again?
I am not inherently averse to taking further heat in the kitchen, but I am getting sleepy and will presently retire to the bedroom. Goodnight.
Can't speak to foreclosure, but bankruptcy can definitely provide relief. Since you can't file again for 7 years, after the Ch 7 liquidation, you become very attractive to the cradit markets again. That emergency credit is available is the difference between worry and terror.
Can you be foreclosed on without declaring bankruptcy? If you're upside-down on your loan and they foreclose on your house and you don't declare bankruptcy, do you still owe the balance?
Do the predatory credit markets jump on you immediately after declaring bankruptcy/being foreclosed on? I had naively imagined that when they said "no one'll lend to you" they meant all institutions, not just home loans/car loans/non-predatory loans.
The problem with liquidationism is that it doesn't make any goddamn sense, and if true it suggests that capitalism doesn't work. The world economy is capable of a certain amount of output. There are badly run companies, so we need to let world output drop? China needs to cut exports because GM is badly run?
Capitalism is supposed to work because the activities of individual actors is supposed to make markets clear. If unemployment is going up, the markets aren't clearing.
"Alternator in the car" = "propensity to consume" or "animal spirits" or "chicken in every pot & two cars in every garage"
=
GB's "web of lies?"
Necessary and useful illusions of a civilized society?
Shhhh.
42: Yes. If you can't see the argument there, I'm inclined to throw my hands up.
Can you be foreclosed on without declaring bankruptcy? If you're upside-down on your loan and they foreclose on your house and you don't declare bankruptcy, do you still owe the balance?
This stuff varies according to state law. Foreclosure is not bankruptcy, not directly connected to it. I think, think, in many states foreclosure doesn't affect your credit rating for cards. You rarely owe the balance after foreclosure and eviction. Non-recourse loan.
Texas protects many assets from creditors in bankruptcy procs, including the house & car & wages.
Do the predatory credit markets jump on you immediately after declaring bankruptcy/being foreclosed on? I had naively imagined that when they said "no one'll lend to you" they meant all institutions, not just home loans/car loans/non-predatory loans.
After bankruptcy your assets are no longer protected for seven years. All your loans are now recourse and essentially collateralized. Creditors love you.
52: But it is possible to have more capacity to make cars (or airline flights, or whatever) than the world needs, or at least than the world is willing and able to pay for at a price high enough to cover the cost of production. I have some sympathy for the U.S. auto industry, but there needs to be a plausible plan for getting to profitability before it makes sense to shovel money at GM, Ford, or Chrysler. Absent a plausible turnaround scenario, better to give the money to the employees, not the companies.
Walt nails it in 52. If the only way you can get the capitalist economy to run well is by allowing massive, unnecessary waste of productive capacity through periodic depressions where resources and people sit idle for years on end, with associated unnecessary suffering, then capitalism is pointless. This is exactly what people said in the Depression -- they looked around them and said that surely even bad central planning can do better than this.
Do I wish there was a better way to inject demand into the system than pouring $$ into already failed institutions? Yes, but in the short run it seems that we're unable to do anything else, and it's better than nothing.
BTW, I think GM and the U.S. auto industry are a salvageable institution if we had the national will to do it. In some ways more salvageable than the various institutions tied to our model of consumer debt driven conspicuous consumption. GM was profitable pretty much every year until they started losing money in 2005. They weren't much in the red in 2006, but then things collapsed with the recession in 2007-08. It was the double whammy of high gas prices and the recession that did it. The American auto industry very significantly improved quality and productivity over the past 15 years or so...they can make cars and do it well. But they also responded to the market signal of low gas prices by building gas-guzzlers. Society and government didn't stop them -- we as a society collaborated in maintaining low gas prices and building an entire lifestyle around that.
GM management should go, though.
We should finance the bailout with gas taxes. That way we could change the incentives at the same time.
there needs to be a plausible plan for getting to profitability before it makes sense to shovel money at GM, Ford, or Chrysler.
Between the near-50 percent salary cuts they got from the UAW, the VEBA writedowns in health care legacy costs, the capacity reductions already made, and the investments already being made in fuel efficiency, I think there's a reasonable argument that the U.S. auto industry will be profitable again if there is economic recovery.
Of course, so many of the cars produced by foreign companies are made here -- the difference between a "foreign" and a "domestic" car is one produced 65% in the U.S. vs. one produced 80% in the U.S. -- that one can argue that we should be paying attention to the overall U.S. based manufacturing rather than the Detroit Three in particular. It's useful to remember that domestic content is so high because of protectionist laws passed under the Reagan Administration...
Trying to defy economic reality makes about as much sense, and is about as likely to work, as deciding that rocks should not fall to the ground when we drop them, but instead should be supported indefinitely by little hover jet-packs at precisely their original height, because that's where we like them.
You will have no feel for macroeconomics until you understand why this analogy is total nonsense. All our economic production and distribution is completely in accord with the physical laws of nature, as demonstrated by the fact that it physically occurred. The *social arrangements* that govern this distribution -- like whether purchasing power happens to be labelled as "wages" or "debt" -- have nothing to do with the laws of nature. They are a reality, but a completely different sort of reality than physical laws.
60: I have to admit that my visceral dislike for the Bob Lutzes of the world affects my thinking about auto bailouts more than it should. Maybe the answer is to bail out GM and Ford and flush Chrysler, or maybe they're all salvageable--I dunno.
EFCA passage will restore balance to the auto industry, as it will set off a wave of organizing in the non-union, mostly-Southern "foreign" auto industry.
Also possible a wave of union leader assassinations. The South is tetchy about that stuff.
GB, you kind of go off the rails when you invoke "Truth" to describe a particular instance of just world fallacy.
61:Sometimes I feel that trying to maintain an efficient just economy is like trying to think rocks into flight, or saving Tinkerbell.
Further on the troublesome distinction between American and Foreign auto companies, it is a mistake to think of GM and Ford as just American companies. Their non-American operations are significant and have sometimes been what kept them in the black. Can GM make fuel efficient, profitable, attractive, cars? Sure. It (Opel, Saab, Vauxhall) already does (more or less).
I can put bricks to sleep by hypnosis.
57: Maybe it is, but it's not as obvious as you might think. If there's overcapacity at current prices, why don't they cut prices until the capacity is just right? If cost of production is too high, why don't they negotiate price cuts with their suppliers? Presumably their suppliers would rather sell more at a lower price than sell less at a higher price.
One of the questions that came to mind on reading heebie's post is whether the propensity to consume can be diminished by deflations for extended periods, like generations.
The Japanese etc have low propensities, but I don't think we saw much lasting change in America until the gross change in savings rates at the end of the century.
66: Saab, not so much with the profitable. Nice cars, but possibly the next Oldsmobile.
68: But there are limits on how much any business can cut its prices--it does cost money to make stuff. And despite Americans' best efforts to prove the contrary, there's a limit to how many automobiles we need.
Here is a naive question that I have had and am really curious now that we apparently must work so diligently to avoid becoming "the Japan in the '90s" of the 21st century . How bad was it to be Japan in the '90s? I mean for a typical Japanese person. In the little bit of reading that I have done on it, I don't see the big significant hurt to the population. I mean the wankerific ecnomic growth wankers didn't have the Japanese miracle growth charts to wank off to anymore, and the government had to take some actions, and they didn't end up owning every square inch of every major city in the world, and I'm sure there was less opportunity to become mega-super-unbelievably wealthy in Japan. But was it that bad for most Japanese? Willing to be educated (and clearly I have a bias going in).
71: Rather famously, the Japanese government has been conducting surveys of how happy their population is ever since the end of WWII. These surveys cover a period of incredible economic growth with some downturns, like in the 90s.
Remarkably, the number of Japanese people reporting they are happy with their lives has been completely flat.
This might prove more than you want, though.
I think that unemployment has become a problem for more or less the first time, with some long-term unemployed, and that young people have trouble getting started in life.
Grain of salt.
I was in one of these kinds of discussions awhile back, and the argument was completely dominated by relative growth. If one economy grows at 2% and the other at 3.5% (my made up numbers), at the end of a century they're going to be far apart. There was no attention at all to human needs or human welfare or hours of labor or what people wanted.
But that's econ for you. And finance.
71: As as I can tell, life in Japan was still pretty good.
70: But the amount of money it cost isn't fixed. Their inputs come from suppliers, who can cut their prices.
And why did Americans decide they have enough cars at the exact same moment that the banking crisis happened? Quite a coincidence.
Overcapacity is a social fact, not a physical one. If Americans weren't worried about losing their jobs, they would buy cars. If they were buying cars, then the car companies wouldn't be in trouble. Likewise for the airlines.
74: What's psychotic about that argument is that it's not like policy makers stroke their chins, and say, "Hmmm, we could pull the 2.5% growth lever, or the 4% growth lever. Which should we pull?" Economists have no fucking idea why some economies grow fast and some grow slow -- it seems to have to do with factors that are outside economics, like level of corruption or legal system. In terms of economics, the recipe that seems to be the most successful -- industrial cartels, export-led growth, and protectionism -- wouldn't be recommended by any economist.
I completely failed to make a coherent argument in 75. There's one in there somewhere.
75.2: I think you're responding to an argument I'm not making. I may be wrong on the facts, but my premise is that the current downturn is the last straw for Detroit, not the sole, or even primary, cause of their problems.
Also, is it not the case that the automakers have been squeezing the hell out of their suppliers and unions for some time now? Price-cutting can't go on forever.
In terms of economics, the recipe that seems to be the most successful -- industrial cartels, export-led growth, and protectionism -- wouldn't be recommended by any economist.
You forgot imperialism, which is recommended by most economists, but not under that name.
Walt is rocking this thread. On overcapacity being a social and not a physical fact: what really drives manufacturing overcapacity is the global maldistribution of income. Think if an extra billion or two Chinese and Indian consumers had real purchasing power, and those markets were open to imports, that there would be too much manufacturing capacity to go around? Instead, we're trying to stuff more and more goods down the throats of the minority of the world population that already has too much.
One physical fact that has driven some overcapacity in the auto industry is the improvement in auto quality, though. It's really no problem for a car to last ten years these days.
In terms of economics, the recipe that seems to be the most successful -- industrial cartels, export-led growth, and protectionism -- wouldn't be recommended by any economist.
yep, that's the development strategy that works, but it does lead to global imbalances by keeping currencies artificially low and stacking up way too much capital in the rich import markets who have less useful things to do with it than the developing exporters. The recent Chinese stimulus package was a very good sign.
As part of the rebalancing, of course, we need to do lots of research on how to expand consumption in an environmentally friendly way.
Bottom line: it's not like there's a shortage of work to be done in the world, you just need social arrangements that will create the right incentives to do that work. Instead of incentives to build lots of McMansions and Cadillac SUVs.
78: What argument are you making, then? I gotta argue with somebody with something.
Worldwide demand for autos is down. Honda and Toyota are both predicting terrible quarters, so it's not just a problem with Detroit.
71: Well, it did end up creating things like homelessness for pretty much the first time, but as the linked article says, the problem still isn't as bad as it is in America.
I'd say the bigger problem that has come out of Japan's decade-plus malaise has been the fundamental blow to the Japanese economic psyche. As Walt's comments in this thread have shown, a lot of economic growth comes from very vague, uncontrollable things like "innovation" and "institutions". Japan is in a pretty good position as far as both those things go. Their banks and companies still have some pretty horrendous inefficiencies, but a lot of the worst stuff finally got purged in the first half of this decade.
In my (almost) utterly uninformed opinion, I would not be surprised if part of the reason that Japan keeps faltering is because an entire generation has come of age in a period where Japan faced crushing economic depression again and again. Every time Japan's exports tick up and the GDP numbers start rising, economists seem perplexed at how permanent job numbers don't rise much, nor does consumer spending, nor does corporate investment, etc. So the entire economy basically pulls in the money from exports and sits on it rather than plowing the money back into its businesses and out to its workers, which is why the good news promptly fizzles out next time exports experience the slightest speed bump. I think a lot of this is due to the decision makers in Japan always assuming that a new depression is just around the corner, since for an entire decade, it was. So they save every bonus check, they refuse to invest in new plants and new equipment, they refuse to hire permanent new workers, and thus the new recession does come once foreigners stop pouring money in, because no one in Japan is willing to put their money in.
If asked how this differs from the American situation after the Great Depression, I'll just say something hand-wavey about the war employment and economic stimuli from deficit spending and a population boom. Not sure if that's convincing, but it seems to have something there.
81: Not particularly looking to argue at all, just trying to understand the justification for seeing a Detroit bailout as more productive than lending another $1000 to one's deadbeat brother-in-law. You seem to be contending that the Detroit automakers are fundamentally healthy businesses that just need some help to deal with the short-term effects of the current economic crunch. That's not how I see them, but I'm willing to be educated.
they refuse to invest in new plants and new equipment,
how come they invent the newest technology
So am I missing something? Everyone here (except GB) seems to be saying that the overcapacity is just a result of everyone being scared. If they weren't scared, they'd just go back to consuming and everything would be hunky-dory. But my understanding is that everyone has been overconsuming (illusory home equity withdrawal, credit card debt, historically low savings rate, huge trade deficit). And that this overconsumption is unsustainable. Which would mean that a current drop in consumption could be 1. normal or actually overdue and 2.possibly good in the long run, but it would certainly indicate that a decrease in output is required. Do I have it wrong?
83: It's hard to say if they are fundamentally sound businesses. As far as I can tell, the sudden shift in demand away from SUVs and towards more fuel-economical cars -- while a good thing -- is a total accident caused by a weird temporary rise in the price of oil. They should have been better prepared for oil price shocks, so that's partly managerial incompetence, but its hard to see the actual shock we got as a normal event. They were adjusting to it to the extent that GM was trying to leap-frog Toyota and Honda in green car technology, and then the world economy went kerblooey. If the financial system hadn't seized up, they might have been fine without government intervention. Arguably the government lending them money in the short run to see if they can survive when the economy turns around is a better solution than allowing them, their suppliers, and their network of dealers to go under at the exact moment that the economy is least able to absorb large numbers of unemployed.
when i was in Japan everybody complained recession recession , but i did not feel any much decrease in the average people's life quality, the workers just did not get their bonuses or worked part-time, work-share they said, which i thought was very humane, instead of firing people they reduced individual work loads and kept people lives at the minimum sustainability levels until the better times, there were of course homeless people, but i think they were mostly people with some mental trouble or with their families or just chose themselves complete freedom, coz if one would be willing they would always find shelter and job
i agree with F's assessment, it all sound very true
83: Detroit has made very big steps in quality and productivity over the last 15 years. Detroit used to take twice as many hours as Toyota to produce a car, now the gap is like 5% at GM and the other two automakers are just about tied. U.S. automakers are still behind Toyota in quality, but according to JD Power there are quite a few Detroit Three nameplates that are above average in quality. The biggest issue is gas mileage, and there they were IMO part of a society-wide failure in the U.S.
I mean, the issue is whether you think the U.S. can and should manufacture a car in a domestically owned company, like every other advanced country on the planet does. If you think we should, it makes sense to salvage the Detroit Three as the base for doing that. If you scrap them you'd just have to reinvent them, at a much higher cost because of disruption of ongoing research and development. Granted we must find a way to get rid of GM's dysfunctional culture, but that can be done if we insist on real control in exchange for $.
But the amount of money it cost isn't fixed. Their inputs come from suppliers, who can cut their prices.
For the Big 3, that's unfortunately not much of an option. Since they're essentially a monopsony, they've already squeezed the suppliers for much of what they can. There's a reason Delphi went bankrupt even when things were pretty good in 2005, and a number of other suppliers have done substantial reorganization.
I dunno, I'm of very mixed feelings about the Big 3. They've been suspected of near bankruptcy for a few years now. Given what PGD mentioned above, it was probably 2005 when Ford and GM last flirted with bankruptcy. I'd almost prefer if the government just bought up their equity (and a chunk of debt, since it's trading at incredible yields), kept them alive with a bridge loan through the next few years, then forced a liquidation after the crisis was over.
After all, I do agree that many of those factories will still be useful, most of those worker will still be needed, and much of the suppliers are not redundant. However, management has fairly comprehensively fucked up and the equity holders need to change so that the boards and executives can change. It would probably be good if the companies got broken up a bit more, with some smaller entrepreneurial groups who want to try new car designs getting to take over factories and workers for less money than building new. Plus, the dealerships (which are what people really like to include to beef up the number of potential indirect job losses from the Big 3 failing) have been going bankrupt and have been forced into restructuring (typically requiring them to consolidate marquees with nearby dealerships) for years now. Those jobs are going to disappear whether we bail out the company or not.
F: There are two senses of overconsumption, one of which is (probably) literally impossible. People can overconsume in the sense that they use up primary inputs like oil and air that can't be regenerated. Maybe that's true, but it's not what's triggering the breakdown of the world economy. The other story, that the the world economy is contracting because we've been overconsuming and underspending is much harder to make a plausible case for. The world has a certain productive capacity at this moment in time. How does overconsumption make that capacity go down? Are they gingerbread factories, and we all got drunk one night and ate them all? If we overconsume, it means that we lower output in the future, not in the present.
Plus, while Americans may have overconsumed, China and Japan have saved liked crazy. If overconsumption is the problem, then why are China and Japan both seeing recessions?
57: Maybe it is, but it's not as obvious as you might think. If there's overcapacity at current prices, why don't they cut prices until the capacity is just right? If cost of production is too high, why don't they negotiate price cuts with their suppliers? Presumably their suppliers would rather sell more at a lower price than sell less at a higher price.
Posted by: Walt Someguy
I'm replying to this comment but really to several comments about General Motors, and to GB. The big car companies have failed completely to respond to the coming issues of Peak Oil and climate change, specifically, they have continued to churn out large sedans, SUVs and other gas guzzlers which people increasingly do not want to buy.
The workers in these companies largely don't have "cushy" jobs if they're the ones who actually make things. I'd like GB to try working on a production line for a year and then see if he'd call it cushy. These people are working on the assumption, which is obviously outmoded, that if you work hard, put in a good day's work and do the right thing by your employer, you'll be relatively safe. I also find it offensive thas some people think these people should not have adequate wages and conditions for the hard and often dirty work they do- to repeat, unlike Wall street, actually MAKING things.
To say that these people are the problem rather than the CEOs and executives who set the direction for the company - the wrong direction - is not only pointing the finger at the wrong people, it's simply disgusting.
My understanding is the American consumer has been spending more than he/she earns, partially due to home equity withdrawal, resulting in historically low savings rates. Said consumer buys things that are made in China and Japan, thus resulting in the huge trade deficit (and forcing China to find places to invest said deficit, which has been largely in US treasuries). If the US consumer has now run out of credit, and has no savings, there is no money left to spend on things. This hurts the US economy (for obvious reasons) and the emerging markets economies (because they make a lot of the stuff we buy). If this is true, there's no more money left to buy the products, leading to overproduction, i.e. production hasn't changed, consumption has (and it has no choice). This, of course, leads to deflation, unless the helicopters start flying. It also means that propping up the companies won't help, unless accompanied by massive inflation, because there isn't enough money for consumption.
I'm just getting this from the standard internet sources (Roubini, Setser, Calculated Risk). Am I wrong?
If overconsumption is the problem, then why are China and Japan both seeing recessions?
b/c everything is interconnected and they are major producers and if others won't buy their products, they'll go into recession too
F is right again imo
I mean, the issue is whether you think the U.S. can and should manufacture a car in a domestically owned company, like every other advanced country on the planet does.
I share this feeling, but how much of it is about real economic interests? Most European countries get along fine without domestically-owned automotive industries. Should we really care deeply whether Chrysler is owned by Daimler or Cerberus? (Real question, not rhetorical.)
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Note to my students: quoting a full page of Don Henley lyrics will not help you meet the page requirement for the paper.
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I like Walt's comment 86 a lot, all of it.
I share this feeling, but how much of it is about real economic interests? Most European countries get along fine without domestically-owned automotive industries. Should we really care deeply whether Chrysler is owned by Daimler or Cerberus?
Domestic content legislation helps here. Personally, I feel we are going to need a long-term economic transition to exporting a lot more than we do, and manufacturing capacity is a big part of that. But there is a real question about whether the D3 are critical to our manufacturing capacity any more, given how much transplant employment from foreign-owned companies is here. I do think that having good engineering and design skill located in the U.S. (as opposed to just assembly plants) could be important, since there could be important spillovers to other green technologies (like batteries). I guess you could argue that being domestically owned means more of that higher-level work here.
Hey Gonerill - can I ask you about #36 above? It looks like we might be in a similar situation in a year or so, and I'm trying to see what we're in for. We bought this house just a few months ago, only paid down a couple of grand worth of capital so far. House prices are actually apparently stable around here right now, but maybe it's just taking a while for the real nastiness to hit this backwater. At any rate, we're not sure about being able to sell or about the kind of loss we'd be taking, and if "walking away" is a legal and realistic option, it might be the thing to do. I don't feel like that's the kind of thing you just bring up with your mortgage lender, though, and I don't even know what kind of professional to consult. If Unfogged could offer some pointers, I'd totally let you all crash on my couch any time.
96, 97: Generous credit will be given for extending upon the work of Skid Roper and Mojo Nixon.
Apparently whoever suggested that PGD and I should date had it right.
93: You either have it wrong, or you have an incomplete picture. I know Roubini has taught macro (his lecture notes are online), so I doubt he's saying exactly what you think he's saying. I'm less familiar with Setser, and the Calculated Risk people are not economists, so I don't know if they have that macro perspective.
Look it from the point of view of the people of China. They've been working hard, trading their labor for a bunch of US government securities. Suppose one day they wake up and decide that those securities are worthless. What should they do then? Stop working? Or distribute the fruits of their labor to the people of China?
If this is true, there's no more money left to buy the products, leading to overproduction, i.e. production hasn't changed, consumption has (and it has no choice).
See, this is a prime example of the confusion of monetary arrangements for the real economy. There's no such thing as "no more money", money is just an IOU and we can make as many as we want. There is no law of nature saying consumption must fall, if people were consuming X amount last year they can perfectly well consume that much this year too, at least until for-real physical resources (like oil) run out.
The arrangement by which China produces a lot and then helps finance our consumption of their production violates no laws of nature, and there's actually no evidence that China particularly wants to stop this arrangement. Now, it's true that this arrangement looks increasingly like a silly way to allocate resources, and the set of mutual promises between financial institutions by which Chinese financing is funneled to U.S. consumers has blown apart at least temporarily. But there's nothing in any of that that necessitates a drop in consumption, certainly not a global drop.
99: One thing you need to know is whether your state law allows a lender to get a deficiency judgment if foreclosure proceeds are less than the loan amount. If it does, you'll want to try to figure out how likely it is that your lender will do so. (E.g., Washington law, IIRC, allows deficiency judgments only for "judicial" foreclosures, which are a lot more cumbersome, so in practice mortgages are basically non-recourse unless you have weird facts or a particularly nasty lender.)
I guess this puts us in the category of people who would be very pissed off indeed if there's a bailout of people who bought Cadillac Escalades and vacations in Maui with the money they got from borrowing against their home and its 5-yr variable interest-only balloon mortgage.
The irony is, Gonerill, that you are among the people who will benefit most from a housing fix, and such a fix will probably be impossible to do while simultaneously wreaking the Deserved Judgement of the Calvinist God of Thrift on the Unworthy Profligates.
One thing that would be easy is simply to restrict any write-downs and assistance to mortgages on one owner-occupied house per family, which done right should immediately cut out speculative flippers.
105: I find it helpful to cling to the belief that assholes know that they're assholes and suffer for it, despite any amount of evidence to the contrary. Sure, life may look totally arbitrary and unfair, but the secret suffering of the unworthy is the societal dark matter that balances it all out.
Kobe: If old age has taught me anything, it is that the idea that young people listen to new, difficult music that alienates the older generation is complete bunk.
In this last batch of papers, I've seen quotes from Don Henley and Boston.
How illegal would this be: subletting my rented apartment for inauguaration weekend without my landlord knowing, and pocketing the $$ myself? Might it not be illegal at all?
It would seem, though, that Chinese deferring consumption and saving might be peeved if they find that their savings have evaporated.
Presumably the Chiese whose emotions are relevant will be the governmental leaders, at first anyway. Though at some point the general population might figure out what just happened too.
Not likely: "Oh! W don't have the trillions we thought we had? No biggy".
@102 Then can you please point me to where I can find the correct information?
@104 Yes, I'm aware that fiat currency has no real meaning.
if people were consuming X amount last year they can perfectly well consume that much this year too
If consuming X costs them Y dollars, and and the following year they have Y/2 dollars to spend (because of less credit, less home equity extraction, falling wages or unemployment), they cannot perfectly well consume X this year too unless the producers agree to accept lower prices for their goods, i.e. deflation. Or did you mean in aggregate?
And John covers my other issue: the fact that the Chinese are financing our consumption of their goods indicates that at some later date they would like the option to consume goods that we produce (or whatever else "money" is good for) and they might be pretty pissed to discover that we don't actually intend to allow them to consume these future goods.
@102 Why would the Chinese suddenly decide that Treasuries are worthless?
108: Maybe some sort of land-use violation and maybe a violation of the terms of your lease, but probably not a major sin. Your landlord shouldn't care very much as long as you're paying rent and the subtenants don't make any more trouble than you do, and rumor has it that DC municipal government may have a few shortcomings that would reduce one's worries about aggressive code enforcement.
(Not to be taken as legal advice, etc., etc.)
If consuming X costs them Y dollars, and and the following year they have Y/2 dollars to spend (because of less credit, less home equity extraction, falling wages or unemployment), they cannot perfectly well consume X this year too
just give them credit from the government, mail them a check replacing their home equity extraction, employ them digging ditches for the government, presto problem solved, everybody gets to consume just as much as they always did.
These solutions raise policy issues, but they are issues about social arrangements and not about ability or inability to consume.
The productive capacity of the world economy is a real thing, we don't have to vaporize any part of it because our artificial system for *distributing* that production has gotten snarled up. It's true that there are all kinds of political and coordination issues in reworking that distribution system, but they don't make it impossible to consume just as much as we always have,
Not likely: "Oh! W don't have the trillions we thought we had? No biggy".
China wasn't saving to save money, to have stuff in a piggy bank. They were saving to keep their currency value low relative to the dollar. Which they did. For small to moderate size losses, "no biggie" does seem to be their reaction, since such losses have been predictable for some time.
It helps to realize that the oversaving was by the Bank of China, not individual thrifty Chinese people. (Different from Japan, where individual savers were a big part of the story).
110: If consuming X costs them Y dollars, and and the following year they have Y/2 dollars to spend (because of less credit, less home equity extraction, falling wages or unemployment), they cannot perfectly well consume X this year too unless the producers agree to accept lower prices for their goods
I second this question (or counter). I'm struggling to understand the sense in which "they can perfectly well consume that much this year too."
the fact that the Chinese are financing our consumption of their goods indicates that at some later date they would like the option to consume goods that we produce
I think their savings was done as a subsidy to their export industries (by keeping their currency low), and they're OK of some losses on the savings so long as they succeeded in building up manufacturing exports as a development strategy. Which succeeded smashingly.
So eventually consuming American goods was definitely a secondary motive for Chinese saving. Not that they don't want to do it at some level, if we defaulted on our debt that would be bad.
This is what I was referring to from Roubini.
@114 True, I have already admitted that massive inflation will have the effect of stimulating consumption as long as you can get the money into the consumers' hands. The problem I have with your idea that we have all this great means of production, so we should just keep on producing is that we have no idea if we are producing things that people want. We can make cars forever and ever, but if people suddenly decide they don't want cars, we should stop producing them.
Re: GM
GM's management has failed. According to GB, they were tricked by their workers into paying the workers more than they were worth. This suggests that the workers are smarter than the management. Why not just give the company to the workers, and see how they do with it? They can hardly fuck it up worse than management has.
Re: Mortgages
Seems like we've got a couple of problems: Houses people can no longer afford, and people who can no longer afford a house. If we're advocating state action of any sort, why not use existing mechanisms like HUD to match people to houses and set the price at something affordable? Pay the lenders some percentage of the last mortgage (more than they would get in a foreclosure, less than the mortgage was worth.)
Re: Japan in the 1990s
There's a lot of context here that makes this a poor analogy. For one thing, US government spending is not mobbed-up to anywhere near the extent that Japanese spending (esp. on infrastructure) was and is. Also, Japan is a small, island nation with little arable land and few other natural resources that had to forge a national consensus to rebuild its shattered economy after WWII -- which part of that sounds like the US to you?
Re: Flipping
Heard about my cousin's experiences with flipping over T-giving dinner. He made $400,000 on 2 houses in the Bay Area, then took a bath to the tune of $150,000 on a house in Texas. So net net, he was up $250,000 and shouldn't really have much reason to complain. Any bailout that can be expressed in a sentence or two is not going to be complex enough to deal fairly with that situation vs. Gonerill's.
I still suspect that the Chinese state might eventually try to use our debt and dependency for political leverage.
120: Gasp! John Emerson, no! The Chinese state is the protector of socialism! We must defend China!
I don't know if China still follows the Singapore model, but their goal seems to be to disproved the Tom Friedmanish free-trade idea that freedom inevitably comes once development has happened.
As well as the idea that state capitalism will inevitably fail.
In this last batch of papers, I've seen quotes from Don Henley and Boston.
Oof. I'm trying to think of a Boston song that would have anything even vaguely on-topic for a paper, and I'm coming up empty. In fact, I went skimming just now through some Boston lyrics and, wow. Worse than I'd remembered.
I suspect most teenagers like uncontroversial music. When I was a teenager, I liked classic rock. (At least I hated Boston even then.) I didn't like anything "difficult" until I was older. My mom still hated classic rock, though (she liked Elvis), so maybe I just had a low hurdle to jump.
What is controversial music? Marilyn Manson? When Bob Dylan went electric?
F, I read over some posts on Roubini's site (including the one you linked to), and on Setser's, and I don't see anything that disagrees with anything I and PGD are saying, which is orthodox Keynesianism.
The genius of the classical economists is to realize that you should view the money economy as a veil over a barter system. You have some stuff, including labor, and you trade it for some other stuff. Money is just the the mechanism that allows this to happen. From this point of view, inflation and deflation don't really matter.
The genius of Keynes is to realize that if the classical story was complete, you couldn't have outcomes like overcapacity and unemployment (and you really couldn't have both at once), and to realize that this is somehow tied up with the fact that we have a money economy, and not just an efficient barter system. Keynes argued that this is because wages and prices are sticky, so inflation and deflation matter. More generally, contracts are normally written in nominal terms (dollar amounts), so inflation and deflation matter.
So if we do nothing, since wages and prices are slow to adjust, firms have to deal with the problem by cutting production, and consumers have to deal with the potential loss of income by cutting consumption and increasing savings. The government can step in by increasing the money supply to ease the pressure on prices and wages, or they can step in by increasing demand or by additional outlays. The debate is which is better, and since it's a world-wide problem, which governments should do what.
There is no controversial music.
I bet you're right about the teenagers then.
So what did you like as a teenager, Heebie? Sinatra? Mantovani?
My tastes ranged from the far-flung shores of Boys II Men all the way to Red Hot Chili Peppers. Because I was edgy.
130: How many edges? Were you a regular solid, or more geodesic?
Okay, Red Hot Chili Peppers was pretty controversial. Not wearing pants is still shocking. In the next generation's post-consumerist nudist future, everyone will take it in stride, of course.
Edgy like blades, like a razor. Like razor blades. Sharply edgy.
Technically I listened to the Chili Peppers because they were really profound and deep and made me think about stuff, not because they were edgy.
On Halloween did you hide inside a caramel apple for the kiddies?
They call me the killer worm, and I hide inside your apple.
The kids came home with bloody mouth, and the parents laughed and laughed. Stupid kids.
Worms aren't edgy.
Picture a worm made out of fiberglass. The shards are too tiny to see, but you'll want to change your clothes after hanging around an attic that's been insulated with me.
heebie's so edgy she's straight-edge. (Uh, for now. Minus punching the kids who smoke. I'm guessing.)
It's this kind of frivolity that destroyed the world economy.
Has anyone ever made a razor-sharp Moebius strip?
That would really confuse the homicide detectives.
Did you hear about the Aggie with the Möbius strip razor?
Cut off 3 fingers and he was still ... (hand-off to heebie)
Responding to F and others again, though, I think I've been too arrogant in this thread. The through-the-looking-glass element of the current situation, which was not contemplated by Keynes, is the fact that the U.S. dollar is the world's reserve currency and there seems to be no limit to the willingness of other countries to accept it in return for real, tangible goods. We are currently acting (have acted for a while now, but even more so during the current crisis) as if we have access to an unlimited store of value that we can create by fiat. But if other countries start refusing to accept the trade deficits they're running with us, then it could indeed be a nasty hard landing.
The reason I seemed to wave that aside above is that I think China and other countries would have a lot of problems on their end untangling themselves from dollar dependency as well. But not as many problems as we would have if they did...
I'm clearly not very edgy, as you can see.
104 - Thanks, NPH, that's a place to start.
144: Sharp! After starting that, I played and lost at Scrabble and watched a bunch of AFI genre top 10s and was still stuck in the trap unable to come up with a good ending.
Watched German-language Requiem and then caught Sean Penn, Gus van Sant and Josh Brolin on Charlie Rose (talking about Milk). Don't watch Rose very often and tonight was reminded why. Penn & Van Sant just seemed to be amused at Rose.
The clips of Penn as Milk...Jesus.
OTOH, Brolin seemed completely comfortable. Brolin was unhappy with his career and turned to day-trading 4 years ago. He just picked a $40 million hedgefund to manage.
bob, I liked the comments you've been making at Thoma's place. Actual disaster brings out the best in you.
There have been a lot of news stories about people being foreclosed on for various reasons. Some heartbreaking stories in, for instance, TAL's Giant Pool of Money show. FWIW, we were nearly among the group of people borrowing more than we could afford a couple of years ago, for the simple reason that despite Mr. B.'s making six figures, three-bedroom houses in this city simply were not available at a price we could afford. And the "save for a down payment" advice is a little hard to follow when you're paying $2600 / month in rent. (As you know, we don't drive an escalade--we drive a ten-year old Saturn wagon that we got, free, from Mr. B.'s sister-in-law.)
CJR did a good piece about predatory lending that goes a long way, I think, towards calling bullshit on the "people shouldn't borrow more than they can afford" line. People who don't work in the financial industry tend to trust the advice of their bankers and such. In the last ten or fifteen years, that's been a bad idea.
Effects of foreclosure: sure, in the abstract, your credit rating goes south for a few years, you rent, and eventually you recover. In the meantime, however, maybe your kids are pulled from school; maybe you're homeless for a little while; maybe you have to give up pets; maybe you lose a lot of your furniture and personal possessions b/c you don't have a place for them. Maybe you lose ten years of saving for a down payment. If you have a job like Mr. B.'s, you lose your security clearance and therefore your job.
You certainly would have to somehow come up with the money to move, which would be tough if you'd been scrambling not to lose your house. But of course you wouldn't be able to borrow that money, b/c your credit would be shit... and with shitty credit, your interest rate on any outstanding cards would presumably go up (if that hadn't happened already due to maybe missing payments b/c you were trying to pay the mortgage). So massive debt spiral, basically. Which might lead to bankruptcy, or not, but of course under the new bankruptcy laws you'd still have to pay off a lot of the debt even if it did.
If nothing else, we're at least talking an enormous amount of stress, which has a huge impact on (say) kids. There's a kid in PK's class whose parents are struggling to keep their business, and the kid is basically falling apart and acting out, with really bad effects on his social life, schooling, sleep, and health. Who knows what the long-term effects of that are? What if the stress leads to divorce, or abuse, or serious health problems?
I think the reality is that the abstract "long term" thing inevitably glosses over a whole bunch of real, personal realities, the effects of which we can't really imagine because we aren't in that situation. Sort of like the don't-abort-just-put-it-up-for-adoption scenario.
BTW, almost ten percent of American residential mortgage loans are now either delinquent or in the foreclosure process. And we're just at the beginning of things here. If you let this shit go, without getting a handle on it somehow, you're talking a massive drag on the economy and a big disruption to peoples' lives in the ways that B describes. You didn't have to be a speculator to get caught up in this -- the speculators drove up prices for everybody. And it should be possible to screen speculators out of the solution...
it should be possible to screen speculators out of the solution...
It's very easy. If the house is your primary residence, you get help. If not, you don't.
Also, in re. "fairness," very interesting ObWi post from yesterday.