Stagflation Nation

[bokworker]

Nathan, maybe we should define inflation. Core rate, ex food and energy, not much going on but thankfully not falling anymore. the headline number is more volatile and hence not useful for policy decisions. Bottom line however is that with 9% unemployment and significant slack in the economy that inflation is not a foreseeable problem. If you think it is then you are more optimistic than I am.

And did anyone else notice the discussion around changing the CPI definition the government wants to use for COLA and benefit adjustments? The discussion is around using a measure that goes up more slowly, and down I suppose too, as a way to "save" money in the budget by limiting growth in benefits. It is comforting to see our policy makers making changes in "semantics" and claiming greater fiscal discipline.

[we vs us]

You are totally losing me here.

Either you think it's a good idea for a government to pay for idleness or you think it's a bad thing to want something in return for for those people and to expand their job skills because you somehow place a moral equivalence on it?  Which is it?

There's the pragmatic issue of a government with a crumbling infrastructure, public school systems falling apart, etc. yet we spend money to keep people out of the workforce when they could be adding something of value back to the country in exchange for receiving an income from the government.  Either you can put a shovel in their hand or they can help as a teacher's aide, or doing bookkeeping, being a museum guide, or a widget maker.  You also offer them the benefit of expanded educational opportunities.  I really fail to see what is wrong with that and really don't see why it's necessary to extract a bunch socially conceptualized mumbo-jumbo out of it.

We're on the same side here, I think.  Yes, I'm all for asking for work in exchange . . . especially now that the unemployment situation has revealed itself to be systemic and intractable.  (When the unemployment problem seemed less systemic and long term, I'd hoped that just extending unemployment benefits would've bridged folks back into the workforce; but at this point it's pretty proven that there just aren't jobs for these people to go to.)  I also think that enough people have been out of the workforce for long enough that retraining is as important as just having a job, so that's another reason that the Gross scenario appeals to me.

What's pissing me off about the national dialogue right now is the dependency argument which the GOP seems to be leaning on exclusively as an excuse for inaction.  ie, anything we do to help will create crippling dependency.  I don't think it's nearly the problem that the GOP is making it into (it certainly hasn't been in the past), but it's turned into a fetish and is keeping us from making even small steps towards fixing the situation.  

[nathanm]

I was attempting to point out that inflation isn't at all likely in the next year or two, despite the implication of the title of the thread. Stagnation, sure. We're in for a lot more of that if we keep doing the same thing we've been doing for the last year. But the inflation half of "stagflation" isn't coming around any time soon.

[Conan71]

We're on the same side here, I think.  Yes, I'm all for asking for work in exchange . . . especially now that the unemployment situation has revealed itself to be systemic and intractable.  (When the unemployment problem seemed less systemic and long term, I'd hoped that just extending unemployment benefits would've bridged folks back into the workforce; but at this point it's pretty proven that there just aren't jobs for these people to go to.)  I also think that enough people have been out of the workforce for long enough that retraining is as important as just having a job, so that's another reason that the Gross scenario appeals to me.

What's pissing me off about the national dialogue right now is the dependency argument which the GOP seems to be leaning on exclusively as an excuse for inaction.  ie, anything we do to help will create crippling dependency.  I don't think it's nearly the problem that the GOP is making it into (it certainly hasn't been in the past), but it's turned into a fetish and is keeping us from making even small steps towards fixing the situation.  

Kumbaya! Let's go split a box of wine!

We need to move beyond this as a partisan issue and take a serious look at what's happening in Europe.  One reason Greece is in such deep trouble is far too much personal dependence on the government and not near enough productivity to keep an adequate flow of revenue coming back into government coffers.   

It's important for people who are capable of it to be able to work both from the standpoint of what they add to the economy and also from a sense of positive self worth.  It may not be the job they are suited for nor the one they want for the rest of their life, but if the government could identify areas where they need work done which they cannot do or where temporary help would save money it's a no-brainer.  Considering they would essentially be using money which would have paid for idleness for productivity, it saves the government money and someone can apply for jobs showing they are currently employed.  That seems to have been an issue with out of work people struggling to get hired: they aren't working now.

[bokworker]

Conan, I can confirm the issue of being out of work hurting the job search, at least in my area. I find it interesting that the calls I receive from recruiters haven't slowed much but the referrals I give them for other candidates are met with that exact question first off..."are they currently working"..... That isn't how we are approaching candidates that we are trying to hire but it sure seems others are.

[Conan71]

Conan, I can confirm the issue of being out of work hurting the job search, at least in my area. I find it interesting that the calls I receive from recruiters haven't slowed much but the referrals I give them for other candidates are met with that exact question first off..."are they currently working"..... That isn't how we are approaching candidates that we are trying to hire but it sure seems others are.

Almost as if you have to prove you don't need a job to be considered for one.

[heironymouspasparagus]

Kind of like credit in that way, ain't it?  If you don't need it, you got it.

There are MANY companies that won't touch you if you aren't working.  Last time I was out of work, spend a LOT of time talking to many companies, most local - none of which got serious, despite obvious benefits and value.  After I found a job, the next 10 to 14 months was a continuous parade of headhunters for some of those same local companies, all wanting an interview.  Classic case of what you don't want for a dollar, you can't live without for two.  Got a really good company out of it.  Huge place.  Very good to their people.  And they are getting extremely good value for the money...

The locals missed out on a proven commodity with a track record of productivity and creating products the brought large amounts of revenue and profit for the investment (some are still benefiting from it).  Oh, well.

[Teatownclown]

Obumma releases 30 mill bo from the strategic reserve? This will not help but the stuff my be getting clumpy lying in storage..... 

[nathanm]

We need to move beyond this as a partisan issue and take a serious look at what's happening in Europe.  One reason Greece is in such deep trouble is far too much personal dependence on the government and not near enough productivity to keep an adequate flow of revenue coming back into government coffers.   

I agree with the rest of your post, but this is just inane. As Stewart pointed out on his show last night, their national debt is (slightly) less per capita than ours. It ends up being a problem not because of dependence or whatever other blame the victim BS people are peddling these days, but because they no longer borrow in a currency they control. We should be learning lessons from the likes of the UK, Australia, Canada and Japan, or even Germany and France, who basically control the Euro. They are the similarly situated ones, not Greece.

We already have the highest productivity in the developed world. The problems are that we have the lowest effective tax rate, the largest military, and highest health care spending per capita (without the best outcomes! ). Sadly, that last bit almost completely wipes out the advantage of the first bit.

Greece was fiscally irresponsible, as I believe running deficits in strong economic times is, but their situation is being exacerbated by Germany's insistence on monetary policy that is only really suitable for them. Spain, for example, was running a surplus prior to the meltdown, but finds itself in deep smile now that their growth industry (housing..how's that for familiar) went bust and the Germans refuse to let the Euro devalue. That asinine policy is probably already costing the Germans more in bailouts than it's saving their banks in reduced real Euro returns on their loans, and will cost them a hell of a lot more when Greece and possibly others exit the Euro.

[Conan71]

I agree with the rest of your post, but this is just inane. As Stewart pointed out on his show last night, their national debt is (slightly) less per capita than ours. It ends up being a problem not because of dependence or whatever other blame the victim BS people are peddling these days, but because they no longer borrow in a currency they control. We should be learning lessons from the likes of the UK, Australia, Canada and Japan, or even Germany and France, who basically control the Euro. They are the similarly situated ones, not Greece.

We already have the highest productivity in the developed world. The problems are that we have the lowest effective tax rate, the largest military, and highest health care spending per capita (without the best outcomes! ). Sadly, that last bit almost completely wipes out the advantage of the first bit.

Greece was fiscally irresponsible, as I believe running deficits in strong economic times is, but their situation is being exacerbated by Germany's insistence on monetary policy that is only really suitable for them. Spain, for example, was running a surplus prior to the meltdown, but finds itself in deep smile now that their growth industry (housing..how's that for familiar) went bust and the Germans refuse to let the Euro devalue. That asinine policy is probably already costing the Germans more in bailouts than it's saving their banks in reduced real Euro returns on their loans, and will cost them a hell of a lot more when Greece and possibly others exit the Euro.

It's not as simple as comparing metrics like debt/GDP ratios or GDP per capita or debt per capita from one nation to the next.  What industries drive the economies?  Off the top of my head agriculture, shipping, and tourism are all I can think of for Greece.  I'm sure there are more, but I don't believe their economy is near as diverse as ours is.  There are also cultural differences like public workers who expect fully-paid 6 week holidays and many other benefits people in the private sector would not dream of.

However there is one simple metric which catches up with all nations sooner or later: you simply cannot continue to spend more than you take in without there being a major cataclysm at some point.

[Teatownclown]

and then sometimes you have got to invest upfront to make more down the road. BTW, at what point does implosion begin?

[Conan71]

and then sometimes you have got to invest upfront to make more down the road. BTW, at what point does implosion begin?

I agree, except when it's proven the sort of investing one has been doing hasn't brought tangible results.

The Keynesian model only works well if the money the government spends isn't hoarded by those who wind up with the profits.  Certainly things could have been a lot worse without TARP and the stimulus, but look at how much free cash is sitting on the sidelines waiting for better assurance than more government spending.  They don't want more government spending for them to re-invest in the economy.  They want more government coddling in the way of relaxed regulations, fewer mandates like Obamacare, and what they perceive as a more friendly tax code.

Our previous discussions on the old tax codes with the loopholes which created incentive to invest have not been lost on me.  "Cut taxes" is the mantra small business appears to have bought into.  There's merit to the concept. The business climate in America is now dominated by small businesses, not large corporations.  Real or imagined, it's the perception of how business-friendly the administration and government are amongst those small business people that's counting.  What's unfortunate is when this administration has discussed raising taxes, it's marketed as a way to soak the rich so they ensure keeping the middle and lower class voting bloc and it really pisses off those who can most easily create jobs when they hear rhetoric like that. 

If those people most affected by tax increases thought there was something good to come from it, they would be on board.  Instead it becomes a transparent attempt at wealth redistribution, or the government trying to get more money into play by confiscating it.

I think if President Obama had, from day 1, said he would extend the Bush tax cuts long enough to help get the economy moving again, he could have been seen as being far more pro-business than he's perceived.  Instead, he kept talking about tax cuts and pushing his legacy issues.  Just bad miscalculations on the part of his handlers and himself.

As far as an implosion?  Your guess is as good as mine.  I'm guessing as soon as our debt rating starts to sink.  What's your guess?

[nathanm]

What's unfortunate is when this administration has discussed raising taxes, it's marketed as a way to soak the rich so they ensure keeping the middle and lower class voting bloc and it really pisses off those who can most easily create jobs when they hear rhetoric like that. 

Asking the top 0.1% or even top 1% for a couple of percent more is not "soaking the rich". They'll still be high and dry, what with the removal of much income to capital gains over the last 30 years and the drastic decreases in tax rates for the top income earners since 1950. I would buy that argument if anyone were talking about returning to even Carter-era tax rates, which were already low by the standards of the earlier 20th century.

There was a massive shift in the tax burden to the lower income brackets when the deal on Social Security was made in the 80s allowing the payroll taxes to go to the general fund, increasing the payroll tax, and lowering further the tax rates on upper income earners. Moving tax policy slightly in the other direction is not soaking the rich.

[we vs us]

The Keynesian model only works well if the money the government spends isn't hoarded by those who wind up with the profits.  Certainly things could have been a lot worse without TARP and the stimulus, but look at how much free cash is sitting on the sidelines waiting for better assurance than more government spending.  They don't want more government spending for them to re-invest in the economy.  They want more government coddling in the way of relaxed regulations, fewer mandates like Obamacare, and what they perceive as a more friendly tax code.

I've actually come to the conclusion that it's not so much waiting for a magical level of "government assurance of stability."  I think it's just that the conditions are now favorable for almost anything else other than hiring more workers.  It's a great time to buy new equipment or upgrade old; it's a great time to buy your competitor, or to expand your operations by entering a new market, or to invest in advanced production facilities.  It's a great time to lock in prices for raw materials.  It's a good time to prepare for good times because money is plentiful and cheap and there are a lot of distressed assets out there.  In the past this might have automatically meant more employment, but companies are now used to doing far more with far less and as nathan mentioned, the efficiency gains we've realized in the US through the recession have been stunning. 

[guido911]

Asking the top 0.1% or even top 1% for a couple of percent more is not "soaking the rich".

How do you know? Have you ever paid in taxes what they pay? Those little percentage points can amount to tens of thousands more for the low end 1%ers or perhaps millions to those on the higher end. I guess my beef is that talking about taxes in percentages sanitizes the discussion so folks like you can convince others that any increase is not significant. Seriously, "I'm just talking about a 4% increase on a few" may be an easier sell than, "I'm just talking about raising taxes X numbers of thousands ($10K alone on those $250K earners?) on a few" may not be. And by "few", I mean the millions of Americans, not the sanitized 3-4% of Americans, that fall in that category.

Before we start talking about raising taxes, why can't we start by first making EVERYONE pay at least some taxes. We all know that nearly 1/2 of us pay NO federal income tax.