Myths of Recovery

[Hannah Bell]

The State of the Union address is in danger of purveying the usual euphemisms...can there be any such thing as a jobless recovery? What has recovered are stock market averages and Wall Street bonuses, not disposable personal income or discretionary spending after paying debt service...

We are not really emerging from a “recession.” The word means literally a falling below a trend line. The economy cannot “recover” its past exponential growth, because it was not really normal. GDP is rising mainly for the FIRE sector – finance, insurance and real estate – not the “real economy.” Financial and corporate managers are paying themselves more for their success in paying their employees less.

This is the antithesis of recovery for Main Street. That is what makes the FIRE sector so self-destructive, and what has ended America’s great post-1945 upswing.

There are two economies – and the extractive FIRE sector dominates the “real” economy...Obama believes that this “Economy #1” is dependent on that of Wall Street. His major campaign contributors and “wealth creators” in the FIRE sector – Economy #2, wrapped around the “real” Economy #1.

Economy #2 is the “balance sheet” economy of property and debt. The wealthiest 10 per cent lend out their savings to become debts owed by the bottom 90 per cent. A rising share of gains are made in extractive ways, by charging rent and interest, by financial speculation (“capital gains”), and by shifting taxes off itself onto the “real” Economy #1.

For 19th-century novelists such as Charles Dickens and Benjamin Disraeli, it referred to property owners vs. renters. Today, it is finance vs. debtors. Any discussion of economic polarization betweens rich and poor must focus on the deepening indebtedness of most families, companies, real estate, cities and states to an emerging financial oligarchy...

http://www.counterpunch.org/hudson01262010.html

[Gregorian]

1. It seems that any discussion of economics must include the word "China".

How can recovery be based on jobs, or tax hikes, when in the long run it must ultimately be based upon production and manufacturing of products.

As I see it (and I am an idiot, just to be clear) there is really nothing we can do that won't be tromped upon by China's massive workforce. Our total population is 300 million. They have more people who are eligible for employment than we have, man, woman, and child combined. And the means by which to achieve the results.

I'm not optimistic. And I'd even say we're doomed to the historical death of a military nation.

[DJ13]

3. We CAN break free from China

But not as long as we remain in the WTO.

Their rules prohibit the kinds of protectionist steps that would be needed to rebuild our own manufacturing base.

[Cessna Invesco Palin]

4. "We can break free of China as soon as those fuckers go back to being peasants."

Seriously, who told the Chinese they were allowed to have an economy?

[DJ13]

9. Its getting to the point we either help ourselves or give up

Our country doesnt benefit by improving China's economy to the detriment of our own.

[Hannah Bell]

19. straw.

[Gregorian]

11. But even then, would we be affordable on the world market?

It's about wages. Our standard of living grew (thanks to unions, and with gratitude from us all), while other nations were still fixing their bikes in the morning to ride to their slave waged jobs. My point is, we cannot protect ourselves from the lower waged countries who are in competition on the world market. We have resources in our own country. We could supply our own country with goods. But is Germany or even Canada going to pay twice as much for something made in America if they can get the same thing for half the price, including shipping, from China.

That's what I mean by being tromped on. They've got us. Although in a way one could say we've got them. They loaned us a bunch of money. I don't think they're going to be needing it back in order to kick ass in the world market.

And this is all coming from a novice's keyboard to your screen. :) Although I do know manufacturing, as an engineer and machinist.

[DJ13]

12. We need to concentrate on revitalizing consumption of domestic produced goods

Then we worry about increasing exports.

Ours is the biggest consumer market in the world, so its not like a corporation manufacturing here to sell here would be at a big disadvantage provided tariffs on imported goods created a rough price parity (coupled with tax incentives to manufacture here).

We cant compete against China when they have such low wages and a currency deliberately tied below proper valuation to our dollar without taking action, its just not possible.

The alternative is to continue down the path weve been on since the 90's until our people are as poor as the people being taken advantage of in China.

Who wins at that point?

Only the multinational corporations.

[Gregorian]

16. I see. And at the very least we would be rebuilding our manufacturing capabilities.

We dumped all of our vocational facilities. I remember the auctioning off of my machine tool school.

I even think that being a much more fluid society, we should be able to pull ourselves up and get production capabilities in a remarkably quick period of time compared to a old Communist style country. It's not like they don't have problems of their own.

First we would need to reopen vocational schools. Teach kids how to machine.

I hang out in a machine tool forum. There has been a post of a guy in Silicon Valley who is taking Toyoda's newest milling machine, and trying to get it up and running. It has been over a year, and it's still not fully in production mode. The guy is literally working out the bugs for Toyoda. By the time he's in production, they will have gained enough information to build a new improved machine, using his help. We should be producing our own machinery. These other countries have the momentum going to produce and sell. We lost it. And now it's a highly specialized world. It's not like when Caterpillar first began to sell crawlers. Those were slow days. Nonexistent market that were free for the first inventors.

So really our first step would be to educate kids in math, physics, engineering, and the knowledge skills to even begin to restart our manufacturing capabilities.

And before that happens, we'd have to go from a consumer society/culture, to a producing society. And that has all kinds of benefits. Healthier, happier people. And smarter ones too. Ones who would even vote in their best interests.

So what's stopping us? It's hard work. But it's worth it. I went back to college at 30. It was horribly difficult. But it could have been wonderful had we taught it like they do in the army. If we shed ourselves of the Socratic method, and just teach things, we would have a bunch of bright people. Not just school to weed out brains for the corporations.

I'm dreaming. Too many Xboxes. But maybe there's hope.

[w8liftinglady]

20. I remember when public high schools taught trades,too

auto shop,cosmetology,plumbing/ac/heating,carpentry and agriculture.Those are non-existant anymore.

[Gregorian]

24. I forgot about that.

I played trumpet in high school, and did not participate in shop. But even our junior high had shop. But not metal shop.

[AdHocSolver]

22. There is NO necessity for the U.S. to import cheap labor goods rather than manufacture goods here.

The only purpose of corporate cartel agreements such as NAFTA, the WTO, the IMF, and similar one-sided trade agreements is to enable the corporations to rip off this country and reduce labor to penury and political powerlessness.

This country possesses the natural resources, the educated work force, and the manufacturing infrastructure to produce 80 to 90 percent of the goods that we buy. Importing goods to the detriment of local manufacturing has produced the massive debt, since we have no longer the means to produce wealth (manufacturing).

The only way to eliminate this crushing debt is to take the profit out of importing goods that can be made here, which is just about everything. Get rid if NAFTA, the WTO, and its ilk. Place tariffs and import quotas on cheaply made foreign goods. This will help foreign labor as well, since, without the U.S. serving as a dumping ground for their wares, foreign manufacturers will have to pay their workers more so that their labor force can afford to buy what they make.

Paying American workers to manufacturer what we buy will enable those people to buy what we have to sell. This means more jobs for everyone. Working Americans pay taxes, which means governments are able to provide services, pay for education, support infrastructure, all on a pay-as-you-go basis without increasing the national debt. Clinton had budget surpluses mainly because there was high employment then and working people pay taxes.

The corporations have turned the United States into their colony. They sell our resources to foreigners, and dump their cheaply produced products made by foreign slave labor into our economy all the while avoiding paying any taxes. There is no economic reason why this country should continue to put up with this treatment. The founding fathers certainly refused to put up with such treatment at the hands of the British.

So-called "free trade" and the so-called "global economy" (corporate invented buzz words with no reality in economics) are destroying this country. Americans better wake up soon before it is too late. The economy is all about JOBS. An economy is NOT the stock market. All economies are DEMAND driven. Demand implies people have money to spend. To have money to spend, people need income, which for most people means a job.

[Gregorian]

25. Great discussion. I do have to ask,

First, I like this line- foreign manufacturers will have to pay their workers more so that their labor force can afford to buy what they make.

That makes absolute sense. And in many ways. Morally, economically.


But I do not see how we can be making 50 bucks an hour, and expect Chinese workers to buy our products. I mean, even if China regulates fair payment minimums, that would still translate to very low wages in comparison to the US wages, and eventually product prices.



We do have resources, both real, and human brain power, in this country. But it's going. I keep reading posts by the old machinists, and that art is fading away as the old timers die. It's just too tempting to ship steel off to China for injection mold making. 20 grand there versus 100 grand here for a mold. That is a difficult problem to overcome. How do we remain competitive when a business is not able to afford an expensive and important part of their business? I recently saw a contest in the machining forum where the best shop video would win the machinist a free machine. This guy in Georgia or some place, had a shop with an old dead machining center, and he just didn't have the money for a new one. Or even a rental. It was sad to see that his capability was being wasted. And that is the story around the nation. People can't afford to get their business up and going full steam. I don't have answers. But they can't be that difficult. Another part of the problem is that machine tools aren't even made in America now. So we have to cross borders with cash. We can't isolate.

There is a way. And this kind of thinking is what it's going to take.

[AdHocSolver]

27. The Chinese have NO incentive to buy our products for any reason.

No matter how low U.S. wages go, the Chinese will always be able to make the same goods more cheaply, since our corporations have sold or given American technology to the Chinese during the past 20-plus years.

The corporations cite a part of capitalist economic theory which says that each country should specialize in producing the products it makes most cheaply and then trade with other countries. If country A makes product X more cheaply, and country B makes product Y more cheaply, then each should specialize in one product and trade for the other product, and then both countries allegedly come out ahead.

That is the theory. However, if country A, let's call it China, can make both products more cheaply than country B, then A has no incentive to specialize and buy from country B. If the only goal is to make and buy goods the most cheaply, if cost is the only criterion, then country B, if it is a high wage country, is totally out of luck.

This capitalist economic model for international trade is NOT viable. Even for trade within a country, economic models allow for reasons to purchase one product over another besides price. Product features, product quality, and even environmental issues are valid reasons, other than just price, for preferring one product over another.

The goal for the U.S. (as opposed to the corporations) is to level the playing field so that most of the everyday goods purchased by Americans are manufactured in the U.S. by other Americans. Then, when we buy clothes, shoes, toys, electronics, and many other items, we will provide jobs and income to other Americans, who will, in turn, buy products and services that we produce. Working Americans pay taxes to support government activities, such as education and maintenance of infrastructure.

Because the corporations have unilaterally destroyed the manufacturing base in America, we require the government to step in and level the playing field so that those companies which still want to manufacture in America can do so profitably. This means getting rid of the corporate cartel trade agreements such as NAFTA, the WTO, the IMF, and there ilk, and replacing them with tariffs and import quotas on everyday goods. The corporations have made it almost impossible to find, let alone buy, American made goods. This has to change.

An economy is a circulation system. Money circulates within an economy and, thereby, provides jobs. Currently, most of the money we spend flies to China, less what the corporations extract as profit. The outflow of dollars, with its resultant loss of jobs, is what is causing the current recession/depression. The economy will NOT recover until that outflow stops. Moreover, the increasing U.S. debt is causing the devaluation of the dollar and creeping inflation. Those once cheap imports are becoming more costly.

The answer is NOT to try to sell more stuff to China. They have no reason to buy from us. Most goods purchased within a country should be manufactured within that country. What we have to do is make it less profitable to import cheap foreign made products, so that American companies can start manufacturing products in America again, thereby providing jobs for Americans.

[Gregorian]

29. Some common sense there.

I very much appreciaate your statement on the potential for Chinese markets. I agree.

There are questions about how those countries with little resources would survive (I don't know the jargon. Protectionist?) this kind of economic environment. I suppose it would just be a collective support from the world. Like how we consume coffee that isn't produced within our borders.

I think the word is reasonable. We've gone crazy with greed. And with housing prices, why not? So things must change. And I keep thinking the good old days are in the past. Slower, smaller, closer. Community gardens. And by gardens I mean much more than just food.

[AdHocSolver]

30. Consider a geographically small country with few resources. It is called Japan.

Japan developed a highly educated, highly skilled work force and developed a manufacturing base second to none.

The quality of Japanese manufactured goods is of the highest quality. I do NOT include Japanese branded products made in China.

A couple of years ago I read that the pay of the average Japanese worker exceeds that of the average American worker.

Right now we have trade protectionism. It is protecting the corporations from competition, and allowing them to rip off the American worker and the American consumer.

The reason the Chinese buy so few goods from the U.S. is because the corporations want the trade in manufactured items to be one way only. The corporations sell our natural resources to the Chinese so that they can make goods cheaply, and then bring the goods back here to sell. This process has historically been called imperialism/colonialism.

Americans have to understand that the "economics" spouted by the corporations and their lackeys in government is pure propaganda. It is NOT like chemistry or physics. Most of what you read about economics today is fictional blather. There are no valid economic terms such as "free trade" (it is not) or "global economy" (there are numerous "economies", some of which interact with each other and many of which don't).

I earned a B.A. in economics many years ago, and I find it annoying how many in the media and here on DU bandy about corporate slogans, as if mouthing corporate propaganda makes them experts on economics. Most of the statistical analyses by so-called economists are designed to obfuscate, not clarify, what is happening with the U.S. economy.

The stock market is pure "supply side economics", and is mainly a set of Ponzi schemes a la Enron. The main technique for corporations to boost stock prices in difficult times is to fire lots of employees, thereby boosting next quarters profits, and luring investor "sharks" to buy the stock in large quantities, thereby boosting its price (at least, until the executives can sell their stock options).

This scam is as old as the stock market, and it amazes me that the public falls for it again and again.

All one needs to know to understand economics can be learned from an Economics 101 text. Learn the definitions for a market, trade, money supply, and so forth, and especially understand the concepts of supply and demand, and the interaction of quantities of goods produced and consumed and its affect on price, and vice versa.

Supply and demand, production and consumption, and pricing are probably the most difficult concepts to understand, but they explain almost everything.

[Gregorian]

33. I've learned from your posts.

I was in an econ class the day the first 400 point stock market crash happened, in the 90's.


Once again I have to think the media has played a big role in not giving the facts to the people. We're uninformed. Even so, it's our responsibility to know the truth.

I found what you said about colonialism most revealing. I've read about how we have been shipping steel to places like China so they can manufacture, and eventually ship it back in the form of products. Unbelievably bad for just the environment alone. But what struck me is the voluntary colonial thought. Giving away our trades, our resources, our surplus money. Now they own us.

Once I had enough cash I never bought real estate using a loan. I don't want to rent money. And that's what we're now doing. Renting money from other countries. If Americans had realized this simple concept, we might be in better shape. The other day I met a man who moved here from Russia. He said that up until ten years ago there were no mortgages in Russia. Cash only.

Globalization might work if there were no borders. If we were all one country. It's that artificial boundary that separates us. I wonder if our internet mentality of fast communications, smaller world will turn around and become more national.

I enjoy listening to this guy Max Keiser. He has been posting here. You might look him up. He appears to be very sharp. No bs. And comical. His prognosis for our future is really bleak. And I have been saying for literally decades that we're headed toward becoming a third world country. I think one big factor that has contributed to our situation is how much of our economy is devoted to the military. I wonder what you think about that. I often think that if we could pare down excess in places that are not truly productive, we would benefit. But if we slimmed down our military budget the job losses might be huge.

Well, I've run out of thoughts here.

[DemReadingDU]

5. doomed to the historical death of a military nation

I see it coming, but not in my lifetime, most likely it will begin in my childrens such that my small grandchildren will be living unlike anything we know today.
:(

[Hydra]

8. We're already living something that was unthinkable even 10 years ago

And the train is still going.

[DemReadingDU]

13. The train is moving faster

And sooner rather than later, the train will be running us over with depression 2.0 with more people jobless, homeless, no savings nor income nor credit cards, and hungry. I do think that most people will try to survive as best as they can with government and community assistance, and bartering. As I said above, I don't think I will see things completely fall apart during the remainder of my lifetime, most likely during my children's lives.

[Hydra]

14. I think depression 2.0 is already here

And as you said, the pressure on on Gov't programs will get bigger...and those are going to disappear. States can't afford it, Feds aren't interested.

I do look forward to bartering and creative solutions- the labor and demand is there, just not the pieces of paper.

[blindpig]

2. k&r n/t

[Hydra]

6. Good post Hannah

They ran the ponzi scheme higher than anyone could have imagined, and then they sucked all of the remaining wealth out of the system...and they're pretending it's all going to go back to "normal."

...right...

[DemReadingDU]

15. I tell my family we've been living in a Ponzi for appx 50 years

Not just the U.S, it's a global Ponzi. This global Ponzi can't be blamed on a person like Bernie Madoff, but rather it has been building due to greedy corporations, CEOS, bankers, lobbyists, politicians. Eventually, as all Ponzis, this global Ponzi will implode too. And most of us will end up like the victims in the Madoff Ponzi.

Unfortunately, my family roll their eyes, in disbelief, not comprehending it will indeed affect them.

[Hydra]

18. I agree

and the best example is what my family refers to as "Cold, hard cash."

It's crap. Money only has value if people believe in it.

Our country is controlled by mystical pieces of paper and the people who print them. It would be hillarious if it wasn't so tragic.

[girl gone mad]

7. It really is different this time.

Debt levels among households, businesses and governments are astronomical.

[CrawlingChaos]

10. Excellent article - K & R (n/t)

[leftstreet]

17. K&R

Very interesting!

[AdHocSolver]

21. Some misconceptions in this thread that need to be addressed.

You wrote:

**********
Economy #2 is the “balance sheet” economy of property and debt. The wealthiest 10 per cent lend out their savings to become debts owed by the bottom 90 per cent. A rising share of gains are made in extractive ways, by charging rent and interest, by financial speculation (“capital gains”), and by shifting taxes off itself onto the “real” Economy #1.
**********

The major misconception here is the statement: "The wealthiest 10 per cent lend out their savings to become debts owed by the bottom 90 per cent."

This is simply NOT true. If it were, bailing out the bankers would be necessary to save the economy, which it is not.

The bankers lend out OTHER people's money, specifically the money placed into the bank by DEPOSITORS, and the money given to the bank as loan repayment and mortgage payments. This is not the money of the rich people, but mainly the money of the middle class and "small" business.

Depositors put money into a bank in savings accounts, CD's, and similar types of accounts, to earn interest (an incentive), and the bank loans the money to borrowers to collect interest which is at a higher rate than what is paid to depositors for the use of the money. The difference in these two rates is where the bank makes its profit. If a bank is run honestly and conservatively, everybody wins.

However, that does not describe the real world.

The Federal Reserve is a banking cartel that controls the interest rates in such a way as to cheat the middle class. The Fed keeps the interest paid to depositors artificially low, while allowing the banks to charge usurious rates on loans, especially the loans we call credit card debt.

The Fed was a key player in promoting the stock market boom (and bust) and the real estate boom (and bust). How? By keeping the interest rates so low that people were influenced to take their savings out of the banks and betting it on the Ponzi schemes in the stock market. The massive buying and selling of stocks itself drove stock prices up, even as the companies were showing little profitability, and the economy was starting to decline.

The same mechanism was working in real estate. Low interest rates for mortgages, made possible by artificially low Fed rates, induced people to buy more expensive houses than they could afford and commit to balloon mortgages that they could never be able to pay back once the higher rate went into effect.

It was all smoke and mirrors, and the bankers never committed, or risked, a dime of their own assets. The bailout money was never to save the bankers, since they hadn't lost a dime. It was to provide their bonuses for pulling off the biggest fraud in history.

[treestar]

31. The rich make bank deposits, too, in fact more of them?

Where is their money then?

If it's on Wall Street, then it's in a company, and that company employs people.

A lot of the blathering on DU presumes the rich keep their money under mattresses. And think that the money to pay them wages for their jobs just grows on trees, or is in the unearned possession of "the rich" or "the corporations" who withhold it from us out of malice.

But there has to be a company that can sell things to a willing buyer for there to be a job at any company.

[Spider Jerusalem]

23. America's 'great post-1945 upswing' ended around 1973 or so.

It's been downhill since in terms of real wages and the overall economic picture for the average American worker, despite a few temporary blips.

[Spike89]

26. We do make stuff here

Everyone points to China and outsourcing of jobs to it and other countries as the prime reason behind the decline of America's economy. There is certainly something to that, but it isn't the major factor. Few people seem to realize the U.S. is still the largest industrial producer in the world. It is true that we don't produce as many consumer goods as we once did, but we dominate in some very high end segments (turbines for nuclear power plants are mostly G.E. worldwide, heavy equipment, even the European train engines are built around many components from the U.S.) The poster child industry, automobiles, are overwhelmingly built here--you do realize that most Hondas, Toyotas, Nissans, etc. are built here, right?

I'm certainly no luddite, but a much bigger factor in the changing economy is efficiency. My brother is a commercial printing press operator. 15 years ago, he made better than average wages operating a very complicated press. His press required 4 people to operate and each of them got pretty good money for the time ($30-50K depending on seniority and duties). 10 years ago the company bought a new press that not only could be run 3 times as fast by 1 semi-skilled operator, it also made a couple jobs in the prepress area redundant. Eventually, the entire company went out of business because others found ways to use less expensive equipment with even fewer workers to produce equal results.

Although some jobs are going offshore, those are mostly low-wage, low-skill jobs. Most of the "good" jobs aren't leaving, they're disappearing.

[treestar]

32. We are still the biggest manufacturer

There's nothing wrong with specializing either.

I'm not sure about the outsourcing but since so much of it took place while we had a low unemployment rate, it could have just been physically impossible to do the jobs without outsourcing them (when immigration is limited). Immigration would have been better because they would be here and have to make the prevailing wage (which is required for immigrants, the DU constantly repeated falsehood to the contrary notwithstanding).

Letting the outsource instead means they live in a country with a lower standard of living and can work for less.

[Jax]

28. Thanks Hannah. We have no manufacturing base anymore.

That better be addressed soon.