Capitalism Hits the Fan

[Kidlicious]

A credit bubble can surely happen again. All that's really required for one is that lending rates are kept artificially low, and that there are borrowers willing to take money they can't really afford (always will be a given).

I don't doubt that the credit bubble can be reinflated. In fact, I'm sure it will. I can't see it keeping the system functioning for another 30 or 40 years though. If consumers can't pay their bills there's going to be trouble. Also, the transition to the credit economy isn't just the expansion of credit. It's increased speculation in derivatives, globalization and financialization.

[GePap]

What's your point? For lenders being able to lend their capital, they need people willing to take on more debt. Doesn't change the underlying fact that the social norms have changed (which is why the older folk in our country are less interested in taking on debt and for the most part consider it a shameful thing).

Social norms don't change for no reason, so the question to ask is why did heavy consumer borrowing become a new norm? Also, new norms generally trickle downward, not buddle upward.

It seems most plausible that the idea of keeping up with the Jones' drove continued consumer spending, but had wages continued to climb, this consumerism could have been fueled by wage growth, as it was before 1970. So if people all of a sudden wanted to kep buying, but now didn't have the money, they will be seeking more ways to borrow. At the same time, there is more capital to lend, so lending institutions become more and more lenient with their credit.

If anything, the fact that heavy consumer borrowing has become a new social norm supports the guys points.

[Saras]

s a proctitoiner i can say tis is loadss of crp. wtff that guy said **** wages are low in a one goegrapphical space!!!

[Zkribbler]

It seems most plausible that the idea of keeping up with the Jones' drove continued consumer spending, but had wages continued to climb, this consumerism could have been fueled by wage growth, as it was before 1970. So if people all of a sudden wanted to kep buying, but now didn't have the money, they will be seeking more ways to borrow. At the same time, there is more capital to lend, so lending institutions become more and more lenient with their credit.

This morning on NPR, an economist said that in 2000, the total debt of Americans totalled 50% of GDP. By last year it was up to 100%. The last time it was at 100% was in 1929.

No doubt in my mind, that our pervasive borrowing helped dig the hole we now find ourselves in.

Here's a chart of the Savings Rate of Americans.

[Imran Siddiqui]

Social norms don't change for no reason, so the question to ask is why did heavy consumer borrowing become a new norm? Also, new norms generally trickle downward, not buddle upward.

It seems most plausible that the idea of keeping up with the Jones' drove continued consumer spending, but had wages continued to climb, this consumerism could have been fueled by wage growth, as it was before 1970. So if people all of a sudden wanted to kep buying, but now didn't have the money, they will be seeking more ways to borrow. At the same time, there is more capital to lend, so lending institutions become more and more lenient with their credit.

If anything, the fact that heavy consumer borrowing has become a new social norm supports the guys points.

There is a reason the 70s was called the Me Decade . I think part of it was the loosening of traditional ideas during the 60s (not that there is anything wrong with that) and a more self gratifying age beginning.

I don't see how that backs the guy's points? The guy is trying to make an implication that the real wages stayed stagnant or were kept stagnant in order to make more money by lending, when there appears to be no proof of that.

Furthermore, what does this "didn't have the money" come from? Real wages stayed the same, not plummeted. In addition, what Zkribbler said. There have been previous periods of high debt. The 20s being the obvious one. Perhaps one could argue that high savings rate (low debt) era was an anomaly in 20th Century America as the people who were kids during the Great Depression decided to not live beyond their means, but their children decided to go back to the ways of the 20s.

[GePap]

There is a reason the 70s was called the Me Decade . I think part of it was the loosening of traditional ideas during the 60s (not that there is anything wrong with that) and a more self gratifying age beginning.

Sorry, but a slogan isn;t an explination. And even if borrowers wanted to indulge, someone has to have the capitol to lend: where did all this excess capital come from? Your explination does not account for that.

I don't see how that backs the guy's points? The guy is trying to make an implication that the real wages stayed stagnant or were kept stagnant in order to make more money by lending, when there appears to be no proof of that.

He makes no such implication - watch the full lecture, he asserts that wage stagnation in the 70's had to do with a growth in the workforce from greater immigration and women going into the workforce, as well as moving higher paying industrial jobs out of the country, plus the fact that the US economy had to again face competition that had been temporarily wiped out by WW2.

Furthermore, what does this "didn't have the money" come from? Real wages stayed the same, not plummeted. In addition, what Zkribbler said. There have been previous periods of high debt. The 20s being the obvious one. Perhaps one could argue that high savings rate (low debt) era was an anomaly in 20th Century America as the people who were kids during the Great Depression decided to not live beyond their means, but their children decided to go back to the ways of the 20s.

Again, even in 1929, that capital had to come from somwhere - this is a simple fact you can't escape. Where was all this excess capital to lend coming from?

As for the notion that wages stayed flat but did not fall, correct, but the American dream is ever RISING boats, that you will have more than your grandparents and parents. Once wages stagnate, that dreams dies, but I have yet to hear a single politician from any party tell the American people: sorry, you can;t live better off than your parents, only just as well.

[Imran Siddiqui]

Sorry, but a slogan isn;t an explination. And even if borrowers wanted to indulge, someone has to have the capitol to lend: where did all this excess capital come from? Your explination does not account for that.

The slogan came from somewhere. It wasn't just made up to sell something. Capital did indeed become more loose, but there is a question of whether it was a response to the increased demand for loose capital (after all, in the end, banks were lending out money they really shouldn't have, and become incredibly overleveraged - reserve rates being lower also contributed greatly, and of course the repackaging of investment options into far riskier gambles).

After all, the extra cash could have gone into dividends or reinvestment in the company. I see the companies investing in financial instruments to be a product of the age of debt, rather than something that was inevitable because the companies had more money now.

He makes no such implication - watch the full lecture, he asserts that wage stagnation in the 70's had to do with a growth in the workforce from greater immigration and women going into the workforce, as well as moving higher paying industrial jobs out of the country, plus the fact that the US economy had to again face competition that had been temporarily wiped out by WW2.

In the short clip in the OP, that implication was clearly there (especially with the mergers sections with names of the companies). If in the full lecture, it wasn't, then ok, I'll retract.

even in 1929, that capital had to come from somwhere

If what this guy says is true, the extra profits that come from increased productivity but stagnant real wages, had to go somewhere and that's what caused all the lending, how does that fit with the 20s? Capital simply being around doesn't magically make its way into risky investments .

the American dream is ever RISING boats, that you will have more than your grandparents and parents. Once wages stagnate, that dreams dies, but I have yet to hear a single politician from any party tell the American people: sorry, you can;t live better off than your parents, only just as well.

I don't necessarily see that as all the lenders' fault. Just because everyone else is socially irresponsible doesn't mean banks are on a higher plane. Everyone ends up with some blame. It's not just the capitalists' fault, as Kid continues to assert.

And, of course, even though the savings rates were down, a LOT more people than in the past were playing the stock market. Internet trading made it far easier, but they had money to drop into the market.

[Az]

Anyone who doesn't realize how a 30 year stagnation of wages coupled with an ever increasing rise in consumer spending isn't a recipe for an economic disaster is dumb.

It doesn't really matter who's "fault" it is. Maybe it's the Chinese fault for lending the money to the US! The bottom line is that all of this created a mass of financial obligation between entire parts of american society, and sometimes, between entire countries, that have failed. If one thinks that the cure is simply that "people have to be responsible with their money!" bootstraps-lumberjack-hoorah philosophy must be implemented, that person is the equivalent of sitting around in the middle of a firestorm going "lalalala I can't hear you".

The American and the British public have already failed this test once, and we're seeing the effects of that. They don't have the "WILLPOWAH" to live around like Cheap-E McScrooge, while seeing Jay-Z and whoever the **** else smacking *****ez and pimping their ride. They will fail it again. So either you come up straight to the american people and say "hey, I am sorry, but tis real dumb, all the money you spend, when you haven't had your paycheck increase since TVs were black and white and you had 8-track, and see a nice little revolution on your hands, or it's time to rethink and revalue worker compensation strategies in the west, yes, I am looking at you, Anglosaxons.

my 2c.

[Kidlicious]

In the short clip in the OP, that implication was clearly there (especially with the mergers sections with names of the companies). If in the full lecture, it wasn't, then ok, I'll retract.

If it's clear in the full lecture that he didn't make said implications then he didn't make them in the short clip.... Just sayin'

[Kidlicious]

I don't necessarily see that as all the lenders' fault. Just because everyone else is socially irresponsible doesn't mean banks are on a higher plane. Everyone ends up with some blame. It's not just the capitalists' fault, as Kid continues to assert.

I did my part

Kid 1
Capitalism 0

[Straybow]

ZZZzzz. Lenders became less responsible because the socialists forced sub-prime lending on them ten years ago. Then they needed to spread the liability risk, so they were permitted to repackage them as securities instead of debts. And so the liability has come up in full, and it has indeed been widespread.

[Alinestra Covelia]

I liked this.

[Imran Siddiqui]

Almost forgot about this thread. I saw an interesting blog post the other day by Matt Yglesias (no righty by any measure):

http://yglesias.thinkprogress.org/archives/2009/03/michael_mandel_recent_productivity_growth_is_a_myth.php

He's citing economist Michael Mandel, who basically states:

But if the gains from Internet Decade productivity growth didn’t go to labor and didn’t go to capital, then where did they go? His thesis is that it largely didn’t exist at all. The extra money went into increased costs of health care (while wages have been flat, “total compensation” has gone up because employer-side health insurance premiums are higher) but health care isn’t actually dramatically better than it was ten years ago. Mandel doesn’t put it this way, but you can understand the situation as real, but modest, productivity gains being essentially offset by the decreasing productivity of the health care sector. Instead of really growing, we’ve just been borrowing from foreigners who were willing to invest on the theory that America was going to produce awesome innovations in the IT and biotech sectors that never really panned out

A few points, one is that while real wages have been flat, real compensation has NOT. Health care costs have exploded, especially in the last 15 years, when most of the lending has been going on. One wonders how the graphs of productivity vs. wages would have looked if it was productivity vs. total compensation instead.

[Kidlicious]

Almost forgot about this thread. I saw an interesting blog post the other day by Matt Yglesias (no righty by any measure):

http://yglesias.thinkprogress.org/archives/2009/03/michael_mandel_recent_productivity_growth_is_a_myth.php

He's citing economist Michael Mandel, who basically states:



A few points, one is that while real wages have been flat, real compensation has NOT. Health care costs have exploded, especially in the last 15 years, when most of the lending has been going on. One wonders how the graphs of productivity vs. wages would have looked if it was productivity vs. total compensation instead.

Well there's the problem of measuring productivity, but profits are simpler. Corporate profits as a share of GDP boomed during the dot com boom and then fell back, but then increased dramatically during the recent bubble. Corporate profit swings are an indicator of the business cycle to a Marxist.