Ok. . . This is terrifying.

[Conan71]

Rofl!  

C'mon, really?  Austerity -- "learning to live with less" -- has no place in capitalism.  it contradicts a core value, which is the profit motive.  We will always want more, to do better, to be bigger and to control more.  That's the foundation of our system.  There's simply no way to discard that as a guiding macro principle and be successful within our world economy.  

And that's where we get all turned around when we try to put a moralistic, "didja learn that lesson yet, plebes?" filter on this stuff.  There's no lesson here.  The lesson is -- as it ever has been -- sell before the other guy, and buy before him, too.  

Actually, it's not so far out there.  Those who suffered through the depression generally were very good savers and minimalist consumers and are/were leaving behind pretty large nest eggs.

There's no incentive to consume heavily when one thinks there's a possibility their job or business could go south in the near future.  What I'm trying to convey has nothing to do with the overall concept of capitalism nor macro econ, it's simply the psychological effect of recessionary times and perhaps people learning a lesson that over-borrowing and over-spending can and does lead to economic disaster.

[Gaspar]

Lots of interesting analysis, but no real solutions.

I'll ask the question again in a different format.

What does business need to see in order to engage, and expand commerce?

We have established that the wealthy/businesses are hording cash and waiting.

What are they waiting for?

It's an easy question, and yes Waterboy, it's a simple answer.

[waterboy]

Great point on shrinking consumption amongst baby boomers.  Even people my age (just shy of being a BB myself) are moving out of the aquisition phase of their lives.  Families are getting smaller, yet the overall population of the United States and globally keeps growing.  People who migrate to the States often arrive with little more than a suitcase of clothing.  They buy durable goods.

I don't really buy the notion that durable goods are made cheaper to recapture money lost due to a smaller buying pool.  It's got a whole lot more to do with consumers treating durable goods like commodities where price is the primary consideration. Consumers demand lower prices and you can no longer rely on a particular brand name, say like RCA or Whirlpool, to equate to quality like you used to.  I see it more as the Wal-Martizing of consumer goods.  Demand cheaper prices from vendors and they will start making cheaper goods. 

As far as companies and industries dealing with lower profitability, that's what the unemployment issue is all about, letting workers go so the company can remain solvent with lower demand for their product.

Yes, but its irrelevant why the goods are being cheapened. The fact is there are no consumer durable goods anymore. A new generation insists on lower priced goods even though durable goods like refrigerators come from mature industries who are already producing low cost products. The basic design of a refrigerator, lawnmower, w/d, has not changed for over 60 years. They are basically industries relying on population growth to increase sales each year and good systems and material management to increase profitability. Now, that growth has slowed. In real terms, it has reversed direction as much of our population growth is in the low income demographics. Yet, stockholders still insist on continued profits at the BB consumption level. It isn't going to happen.

Here is a perfect, real world example Conan. I recently had to replace a steel braided inlet hose for my water heater. It lasted 2 years. The previous hose lasted 20 years. Since it is a product I usually only buy when the water heater fails, I am not too concerned about the price of the product. However, the previous water heater lasted 20 years as well. Reports are that current water heaters last less than 5 years. So, there was no demand to Wal-Martize the cost of the hose or the water heater for that matter. The manufacturer merely realized he didn't have to build such a good hose (now built in China using really cheap labor) and that with today's realities he could sell the same braided hose at Home Depot for the same price and 10 times as frequently with little negative repercussion. That is greed and shortsighted use of resources, but HOme Depot and the stockholders of all companies involved are ecstatic at the new profitability.

So, the next generation who are making more money because of their technical, digital savvy, are paying 10 times as much for their "durable goods" as we did.

[Conan71]

Waterboy, I'm sure there's some planned obsolesence in there with consumer goods.  Computers are a great example of that.  My larger flat screen TV took a dump after about 14 months, should have bought the extended warranty, right?  Talking to a TV repairman, he said it's really common for manufacturers (apparently many of them are guilty of this) to use capacitors which are slightly under-rated for the kind of duty they see.  They know they will last just beyond the warranty period, then start popping.

Big box stores demand low prices from their vendors because everything is price-driven to them.  That's why manufacturing has shifted to Maquilladoras in Mexico, China, and India.  Cheap labor and using cheaper raw materials is how they manage to produce something at the same price point they were selling it at 20 to 25 years ago.  Just like the example I use all the time of the little dorm refrigerators which now actually cost $10 less than they did 25 years ago. 

[waterboy]

Lots of interesting analysis, but no real solutions.

I'll ask the question again in a different format.

What does business need to see in order to engage, and expand commerce?

We have established that the wealthy/businesses are hording cash and waiting.

What are they waiting for?

It's an easy question, and yes Waterboy, it's a simple answer.

Its not an easy question. If anyone around here had solutions that would actually work, they wouldn't be posting here. They wouldn't have the time or inclination. Informed analysis and comment is the best we can hope for.

But if you continue to insist on simple solutions, here are some...get used to working on lower profit margins. Look to the past to see how other generations dealt with similar problems. Spend more money on educating your work force, not indoctrinating them. Pay people at the top in some manner reflecting what they are really worth, not like sports stars. Utilize the entire work force instead of cherry picking the youngest, the cheapest and the most conservative. Fight conformity by rewarding creativity. And, stop looking for simple answers.

[waterboy]

Waterboy, I'm sure there's some planned obsolesence in there with consumer goods.  Computers are a great example of that.  My larger flat screen TV took a dump after about 14 months, should have bought the extended warranty, right?  Talking to a TV repairman, he said it's really common for manufacturers (apparently many of them are guilty of this) to use capacitors which are slightly under-rated for the kind of duty they see.  They know they will last just beyond the warranty period, then start popping.

Big box stores demand low prices from their vendors because everything is price-driven to them.  That's why manufacturing has shifted to Maquilladoras in Mexico, China, and India.  Cheap labor and using cheaper raw materials is how they manage to produce something at the same price point they were selling it at 20 to 25 years ago.  Just like the example I use all the time of the little dorm refrigerators which now actually cost $10 less than they did 25 years ago. 

So, don't pay any attention to economic forecasts that rely on durable goods forecasts. There are none. Other indicators are also failing. The result is that any forecast of budgets, consumption, production right now are quite suspect. We are experiencing massive changes in our society that are reflective of changing population demographics. Truth is we don't produce anything and what we do produce is subject to cheapening by shortsighted accountants and CEO's. Planned obsolesence was just discussion back in the 60's. Now it is de riguer.

The wide disparity in income stats should be just as frightening as the employment stats yet you rarely hear any mainstream discussion of why executives in our country make 100's of times the average wage earner even though other countries do not. In fact we seem to praise the process. We lose foreign investment because of that too.

All the rules are changing, as well as the motivations. Wevus' description of the capitalist mentality is part of that new reality imo. I remember when Whirlpool was quite satisfied with making a good product and offered its stockholders dependable returns in a mature industry. There were other industries that offered higher returns but more risk. THey all had their place. Then the era of raiders in the 80's changed all that. Their short term view of profits killed off the durable goods industries. But it doesn't have to stay this way and I believe it won't. Madoff stuck his finger down our throat and we are regurgitating all our largesse.

But its all so simple...I guess.

[Gaspar]

Its not an easy question. If anyone around here had solutions that would actually work, they wouldn't be posting here. They wouldn't have the time or inclination. Informed analysis and comment is the best we can hope for.

But if you continue to insist on simple solutions, here are some...get used to working on lower profit margins. Look to the past to see how other generations dealt with similar problems. Spend more money on educating your work force, not indoctrinating them. Pay people at the top in some manner reflecting what they are really worth, not like sports stars. Utilize the entire work force instead of cherry picking the youngest, the cheapest and the most conservative. Fight conformity by rewarding creativity. And, stop looking for simple answers.

Sigh.

There are two factors that freeze commerce and slow growth.

1. Risk (increase)
2. Return (decrease)

Increase risk, and business/wealthy close their purses.  Even if return remains the same.

Lower return and businesses avoid risk altogether, and cease capital expansion.

So, again, what does business need to see in order to engage, and expand commerce?
What are they waiting for?

C'mon, even a Keynesian can answer this.

[guido911]

This is all so confusing. Are we supposed to be mad at the wealthy/corporate folks or not? I mean, the wealthy are not paying their fair share right?

[Townsend]

This all so confusing. Are we supposed to be mad at the wealthy/corporate folks or not? I mean, the wealthy are not paying their fair share right?

Blueberries, I like 'em.

[OpenYourEyesTulsa]

The economic system as a whole is broken and nothing we do can change it.  We will just create another bubble and have another downturn later and it will get worse each time it repeats.

[JeffM]

Blueberries, I like 'em.

I like cheese.

[Conan71]

Sigh.

There are two factors that freeze commerce and slow growth.

1. Risk (increase)
2. Return (decrease)

Increase risk, and business/wealthy close their purses.  Even if return remains the same.

Lower return and businesses avoid risk altogether, and cease capital expansion.

So, again, what does business need to see in order to engage, and expand commerce?
What are they waiting for?

C'mon, even a Keynesian can answer this.

Perhaps the government showing some confidence toward the economy and trying to help create a more business-friendly climate where companies would we willing to take risks?  Tax cuts for quality jobs?

[nathanm]

I hate that part. 

Yeah, I try to buy quality when it is to be found. I guess you can count me as part of the problem. 

Seriously, though, if we can head off deflation, we'll be fine. We might stagnate for a while at 8% unemployment, but that's not by any means catastrophic. It's well within the norm. Expectations are high, though, as we're coming off a long period of about as close to full employment as you can get without massive inflation. Between that and the disappearance of the home equity ATM, we will have to accept somewhat less from the economy than we previously had. It's simply unsustainable given the significant decline in real wages since their peak in the 60s.

Despite astronomical productivity gains, workers make less now than they did in 1964. If we continue with the same priorities, it seems obvious the results will remain the same. With wage differentials at historic highs, it's no wonder the middle class is getting squeezed out of existence and the economy is stuck in the toilet. We were just able to put off the pain for a decade and a half thanks to the mortgage loan racket.

[waterboy]

Higher risk generally yields higher returns but it is a gamble. Many businesses in the last decade wanted the high returns but were unable to stomach the losses.

Lower risk generally yields lower returns but is less of a gamble. Low exposure. Long, stable returns.

That's why the prudent businessman balances these two factors.

Maybe I'm just too dense. What you're saying is pretty meaningless to me. If you mean that the simple answer is that we reduce risk and increase returns to get the economy back in gear, that is pretty slight on specifics. What, protect the bankers from exposure to their past high risk gambles? Ignore the basic premises laid out above?

[heironymouspasparagus]

Gaspar,
It's simple - it needs me to go out this weekend and buy a jar of bar-b-que sauce and a brisket and some ribs to put it on.  I have been putting it off way to long, and I intend to do that this weekend.  Reasor's at 15th street, right??

Now, extend that 300 million times over a wide variety of items - ALL MADE HERE! - and we are humming!

All,
Check the label!  If it says 'Made in China', think about what that is doing to your fellow Americans.  See if you can't find one Made in USA.

Yes, it really IS that simple.

Sales pitch; go buy a new car battery this weekend!