Is a Two-Track Economy Emerging from the Rubble? 22 comments
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By Simon Johnson
The quick way to talk about how any economy is doing is in terms of “growth”. This is just what it sounds – a measure of how much the total value of production in a country has increased in the last month, quarter, or year.
Thinking in terms of total production – more precisely, this is usually Gross Domestic Product, GDP – never tells you everything that you want to know, but it usually gives you a sense of the near term dynamics: are business prospects expanding or contracting; is unemployment going to rise further; and will people’s wages outpace or fall behind inflation?
Seen in these terms, the balance of opinion on the near term outlook for the U.S. today has definitely shifted towards being more positive. A number of prominent analysts have revised upwards their growth expectation for the second half of this year considerably – for example, the ever influential Goldman Sachs (GS) was recently expecting 1 percent growth (annualized), now they guess it will be closer to 3 percent.
“Potential” growth in the U.S. is generally considered to be between 2 and 3 percent per annum – this is how fast the economy can usually grow without causing inflation to increase. So the Goldman swing in opinion is equivalent to switching from saying the second half of this year will be “miserable” to saying there will be a fairly strong recovery.
But at this stage in our economic boom-bust cycle, is it still helpful to think in terms of one aggregate measure of output? Or are we seeing the emergence of a two-track economy: one bouncing back in a relatively healthy fashion, and the other really struggling?
Think about this in terms of individuals and the households in which they live. Some people have lost their jobs and are finding reemployment very difficult; many will exhaust their unemployment benefits soon. Others find that what they owe on their mortgages far exceeds the value of their home. And many find they have been cheated by financial products, particularly home loans and credit cards — which is why we need effective consumer protection for finance, and in a hurry.
The traditional U.S. recession remedy is: move to another, more prosperous part of the country. But nowhere is exactly booming at present. And how do you move if you can’t sell your house?
The overall numbers on outcomes by groups can get complicated (here’s a partial guide), but the simple version is: the top 10% of people are going to do fine, the middle of the income distribution have been hard hit by overborrowing, and poorer people will continue to struggle with unstable jobs and low wages.
Can the richest people spend enough to power a recovery in overall GDP? Perhaps, but is that really the kind of economy you want to live in?
The United States has, over the past two decades, started to take on characteristics more traditionally associated with Latin America: extreme income inequality, rising poverty levels, and worsening health conditions for many. The elite live well and seem not to mind repeated cycles of economic-financial crisis. In fact, if you want to be cynical, you might start to think that the most powerful of the well-to-do actually don’t lose much from a banking sector run amok – providing the government can afford to provide repeated bailouts (paid for presumably through various impositions on people outside the uppermost elite strata).
Ultimately, of course, you get lower growth. But by the time that is clear in the numbers, it may be too late to do much about it.
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1. An economy of the Upper Class consisting of a tiny and grasping governing elite and those who live off their personal and transcactional connectivity with this elite: for them all times are boom times since they are adept at concentrating income, wealth and power; stealing and appropriating for private gai national resources and monetizing globalization. They view the USA as their private plantaion and the world as both their playground and financial mileu. Increasingly their ideology and behavior is Old World.
2. An economy of the Middle Class where almost the entire true Productive Econmy resides. This track is faltering badly and being bled of resources and creative energy by the upper class.
The Middle Class is still the repository of New World ideals and values but the Old World, at the moment, is successfully re-colonizing it.
3. The third track is the Lower Class where the Parasitic Economy reigns.Transfer payments from the Middle Class are now the principal economic fuel for this economy. The Lower Class is almost entirely a captive of the Upper Class via the latter's control over the magnitude and mechanisms of transfer payments. The global competitiveness of this track is negligible and its net ability or willingness to contribute to the long term wealth creating capacity of America is zero, at best and maybe a negative.
This track grows a transfer payments increase and as downward mobility forces households from the the lower middle class into the lower class.
In several ways the Lower Class is becoming ,in its social behavior and moral pathologies, the Third World.
In the US in 2009 we seem to have not just 3 tracks but 3 worlds . The New World is caught in a pincer between the callous depravity of the Old World and the corrupt mendacity of the Third World.
When the crisis hits, people will have a choice. More democracy and a move towards total socialism/fascism, or anti-democratic moves to restrict the peoples' ability to vote themselves OPP. The former people have the votes, the latter people have the guns.
On Aug 20 10:45 AM User 353732 wrote:
> The US is already a 3 track economy and becoming a 3 level society.
>
> 1. An economy of the Upper Class consisting of a tiny and grasping
> governing elite and those who live off their personal and transcactional
> connectivity with this elite: for them all times are boom times since
> they are adept at concentrating income, wealth and power; stealing
> and appropriating for private gai national resources and monetizing
> globalization. They view the USA as their private plantaion and the
> world as both their playground and financial mileu. Increasingly
> their ideology and behavior is Old World.
> 2. An economy of the Middle Class where almost the entire true Productive
> Econmy resides. This track is faltering badly and being bled of resources
> and creative energy by the upper class.
> The Middle Class is still the repository of New World ideals and
> values but the Old World, at the moment, is successfully re-colonizing
> it.
> 3. The third track is the Lower Class where the Parasitic Economy
> reigns.Transfer payments from the Middle Class are now the principal
> economic fuel for this economy. The Lower Class is almost entirely
> a captive of the Upper Class via the latter's control over the magnitude
> and mechanisms of transfer payments. The global competitiveness of
> this track is negligible and its net ability or willingness to contribute
> to the long term wealth creating capacity of America is zero, at
> best and maybe a negative.
> This track grows a transfer payments increase and as downward mobility
> forces households from the the lower middle class into the lower
> class.
> In several ways the Lower Class is becoming ,in its social behavior
> and moral pathologies, the Third World.
>
> In the US in 2009 we seem to have not just 3 tracks but 3 worlds
> . The New World is caught in a pincer between the callous depravity
> of the Old World and the corrupt mendacity of the Third World.
>
And the ruling class just keeps shrinking the safety net for the middle class, to terrorize us. I'm afraid things will have to get either much worse, or at least much less civil, before they get better.
We've certainly been taking on their emigrants.
Thus we are all serfs tending the fields to rake in income which can be taxed and dumped upon banks so the few rich their can keep paying out to their morally bankrupt executives. And on top of that the powers that be are selling your children into indentured servitude through giant national deficits. If you don't feel that the deficit is going to laid at the feet of your powerless kids, think again.
Personally, I'd rather live 10 years with no stimulus and no increase to my well being than have every kid in America get hit with a US$100,000 bill for our fiscal indiscretion which is roughly what the US deficit works out to be already. Jush how much more are we going to take of this tom foolery? You kids are the future poor!
The only reason why the senile form of capitalism was allowed to exist in Latin America, among other places, was because the masses of the Western "democracies" were under the illusion that their form of capitalism actually was to their benefit so minimal to no effort was put forward in preventing the American military and financial machines in supporting the corrupt elites of the senile capitalistic states of Latin America.
This allowed a perpetual extraction of massive profits by American corporations to the detriment of the local populace and the steady off-shoring of manufacturing American jobs.
It has come back full circle though, and the masses of the Western "democracies" will, eventually, come to see the capitalist bosses as the enemy they always really were. In other words, it looks like capitalism will have another fight for its "life" again, in the early 21st century, as it did in the early 20th century...
People never learn history, and the cycles are doomed to repeat, it seems.
On Aug 20 09:00 PM raising4daughters wrote:
> Yep, and I'd like the diversity police to point to one, just one,
> country in the world governed by mainly black or brown people that's
> worth a $hit.
By allowing pricey insurance plans from evil insurance companies, elites like the Kennedys and Dodds get treated at the best facilities by the heads of surgery. The rabble will get aspirin, mophine, vicodin and compassion, and be da__ thankful for it.