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Robert Samuelson is convinced that the U.S. economy is suffering from psychological problems. In a piece titled, “Why Job Creation Is So Hard” he tells readers:
We have gone from being an expansive, risk-taking society to a skittish, risk-averse one.
Point number one is the rise in the saving rate:
In the boom years, the personal saving rate (savings as a share of after-tax income) fell from 10.9 percent in 1982 to 1.5 percent in 2005. Now it’s edging up; from 2010 to 2012, it averaged 4.4 percent.
Is this really a matter of psychology? People have lost $8 trillion in housing wealth as a result of the collapse of the bubble. Homeless people generally don’t spend much money, is this due to psychological issues? As Samuelson noted, in the pre-bubble years the saving rate averaged more than 8 percent. If anything, we should be surprised by how much people are spending.
Next we have investment. Samuelson tells us:
Businesses have also retreated. They resist approving the next loan, job hire or investment. Since 1959, business investment in factories, offices and equipment has averaged 11 percent of the economy (gross domestic product) and peaked at nearly 13 percent. It’s now a shade over 10 percent, reports economist Nigel Gault of IHS Global Insight.
Okay, let’s look at this one more closely. If we check the data, the Commerce Department tells us that business investment averaged 10.9 percent from 1959 to 2012 (Table 1.1.5). In 2012 it was 10.3 percent. That’s a drop of 0.6 percentage points in an economy with huge amounts of excess capacity. Furthermore, if we break it down to the equipment and software component and the structure component, we see that all of the decline was in the latter. Equipment and software investment averaged 7.3 percent over the longer period compared to 7.4 percent in 2012. While the decline in structure investment may be due to psychology, it is possible that the large amount of vacant office and retail space is also an important factor.
Samuelson has even more bad news for us.
The market is simply regaining levels of late 2007. A report from Credit Suisse argues that returns to stocks will average about 3.5 percent annually (after inflation) in the next 20 years, down sharply from 6 percent since 1950.
As much as I would hate to argue with people that couldn’t see an $8 trillion housing bubble (or a $10 trillion stock bubble), it is difficult to understand how returns will only be 3.5 percent when the current ratio of after-tax profits to corporate equity is more than 7.5 percent. (The Fed reports the market value of the shares of U.S. corporations $19,698 billion at the end of the third quarter of 2012 [Table l.213, line 23]. The Commerce Department reports after tax profits for domestic corporations in the third quarter of 2012 were $1,515.2 billion [Table 1.12, Line 15].)
It’s hard to imagine what corporate America will do with the extra money if its earning 7.5 percent for each dollar of market capitalization but the return to shareholders is just 3.5 percent. It’s possible that Credit Suisse envisions a sharp plunge in profits from their current highs (it would have to be very sharp to get to 3.5 percent), but this would go in the opposite direction of the concern expressed in Samuelson’s next sentences:
To compensate for lower returns, companies would need to contribute more to pensions. Wages would suffer. Consumption spending would weaken.
Oh well.
There is one more point about the psychology and job creation story worth noting. If psychology, rather than lack of demand, explained slow job growth then we would be seeing firms filling the demand for labor through alternative mechanisms. Specifically we would see an increase in the length of the average workweek and increased hiring of temps. In fact, we see neither. The length of the average workweek is still slightly below its pre-recession level as is temp employment.
In short, the story of the downturn remains depressingly simple. We have nothing to replace the huge amount of construction and consumption demand created by the $8 trillion housing bubble. Perhaps if the problem were more complicated policy types would have an easier time seeing it.
Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.
22 Comments
Fixed that for you, Dean!
Unfortunately, it’s not too hard to imagine.
“As Samuelson noted, in the pre-bubble years the saving rate averaged more than 8 percent. If anything, we should be surprised by how much people are spending.”
With wages stagnant we are making less than thirty years ago. Even if one could save, where would we put it with savings accounts and CDs paying less than .50%.
The wealthy accumulate wealth by appropriating the wealth created by those who sell their wealth creating power to the wealthy. Everyone who receives a paycheck enhances the wealth of the wealthy by being paid less than the amount of wealth they produce. If you do not produce excess wealth for the wealthy, or otherwise contribute to the profit of the wealthy, your employment will be terminated.
The wealthy distribute that which they appropriate in a manner that
in their judgment best insures their continued accumulation of wealth.
Those who best serve the wealthy are best compensated for their
successful efforts at accumulation of wealth from the producers of
wealth for appropriation by the wealthy.
People commonly understand the wealthy as creators of wealth rather
than appropriators of wealth. People desire to serve those whom they see
as the the source of wealth for a share of the wealth, misunderstanding
that in serving the wealthy they are serving the distributors of
wealth, those who are also the appropriators of wealth, but not the
producers of wealth.
Wealth production, appropriation, and distribution: this is the means
by which the people are incentivized to serve the boards of directors,
whether of capitalist enterprises or capitalist governments.
Peoples movements will always be secondary when the first choice
available is to serve the wealthy masters. The masters have the power to
distribute wealth to those who serve them best; and those who do not
sufficiently demonstrate loyalty to the wealthy are cast out of the
system and exposed to risks and insecurity of poverty.
Those who control this wealth then control governments; and through
those governments, the very lives of millions of people. They destroy
ecosystems and societies and cultures. They destroy livelihoods and
displace peoples. Instead of societies controlling their own economic
system, an economic system is imposed from without that then controls
the very fate of that society.
Free Trade, neoliberalism, privatization — these are just
different names given to the fundamental act of sucking up the wealth
produced through the efforts of the many into the portfolios of the
rarefied few. It’s a global resource grab, too, of course. It’s
colonization on steroids.
Globalization is just the same old shit dressed up in fancy economic
theory to dazzle the unwary. It even goes right along with the same
military component it always has — the muscle that guarantees access to
the plunder.
Our earth is being plundered and despoiled by and for the enrichment
of a relative few. Their ultimate aim is the destruction of everything
that is the common good and the absolute rule of capitalism.
Fighting this fight against capitalism and the elites who pull the
strings is the crucial issue of our time. From capitalism being
practiced by the multi-nationals flow the twin ills of war and global
warming. It should be fought against without quarter.
If people are to survive we must revolt against capitalist’s domination over the planet.
A people without economic sovereignty is a people without control
over their governments, their livelihoods, their resources, their health
and their very lives.
The 10% of wealthy Villagers perched atop America will happily leave
the rest of us shivering in our skins, if it keeps them living in their
mansions. They will happily leave us lying naked and dying on the
streets as long as they can keep their comforts.
Unless…
… and until we come for them.
Many of the inequities of capitalism can be controlled by effective government in the public interest – something lacking since about the time of Richard Nixon (of all people!). What’s important is to have us focus on economic issues as rich vs. poor, owners versus renters, etc., not some conspiracy or wrongs by a racial group, a religious angle, or any other divisive social issue designed often to get our eye off fair wages and fair opportunities goals.
Results like a $15 minimum wage (Australia, of all places) go a long way to bring our children out of poverty and our communities able to deal with problems, because our people are no longer working themselves to death to escape poverty.
Universal Medicare would end class distinctions in healthcare. Universal college education, entrance by testing, would stop the denial of opportunity to the poor.
And ending campaign contributions by all things – human and corporate – would force the corrupted to go back to the days of bags of cash doled out in secret, instead of checks and electronic transfers. Bribing public officials should require more than the minimum effort needed today.
P.S. Samuelson has proven once again that he isn’t smart enough to tie Dean Baker’s shoelaces, let alone intelligently explain economics and psychology.
Well said Jimbo.
IF we’re risk averse, and too many are, it is because it if OBVIOUS that the rewards of taking risk will just be hoovered up in the rigged casinos run by the big boyz, for the big boyz, of the big boyz.
Oh yeah – it is also OBVIOUS that if you lose a job paying over 50 or 75k a year, you’ve got about a 90% or better chance of being screwed, forever.
See the 1% pigs & their toadie$ & their deliberate Blue Tarp Career, Blue Tarp Retraining & Unemployment, Blue Tarp “Health” Care Access, Blue Tarp Retirement, and Blue Tarp Housing… and see the DLC Blue Dog Turd Way lying yuppie scum making excuses.
I was cooking in Boston in the 80′s, while in my 20′s – I was a Microserf dot.bomber in the late 90′s in Redmond / Seattle – I knew countless people during the South Sea Bubble … I mean the Dutch Tulip Bubble … I mean the housing nonsense of the 2000′s – whatever.
Ever walked by a craps table in Vegas when a bunch of people are winning their bets? THAT was the psychology of the last 30 years… and … it is gone! wow. no shit.
Since Samuelson is a mouthpiece & a minion of those runnign the tables, he sure as hell can’t tell everyone the game is rigged.
rmm.
The U.S. _is_ suffering from a psychological problem: People like Samuelson are psychologically incapable of seeing there’s a demand problem, because that would create unbearable cognitive dissonance in their neoliberal noggins. Too bad there isn’t a pill for that.
Entrance by testing would not yield equal results for the rich and poor as long as school budget allocation is based on locality. The reality is kids in poverty stricken areas test poorly and don’t have the resources the rich do.
It is not hard to imagine at all. Those executive bonuses (or bonii) are looking low. The bonii need to be increased to reward the mighty captains of industry and commerce.
Risk averse? LOL Apparently, someone needs to tell Samuelson that it was excessive risk taking that caused the economic collapse to begin with. That isn’t just according to me, it’s according to almost every single person who reviewed the cause of the collapse of housing.
When corporate tax rates were much higher, it was very expensive to accumulate cash. Companies took advantage of various “tax breaks” and reinvested cash that now sits on the sidelines.
Demand is soft because people have no surplus disposible income. If companies want to stimulate the economy nothing would work better or faster than giving their employees a meaningful raise. Something in the range of 10-12% instead of the piddling 1-3% COL’s we have seen over the last thirty years.
Give people some money to spend and they will find something to spend it on.
I love what you do Dean, really I do. And I in no way whatsoever want you to stop.
But I’ve gotta ask. Does doing the job of reading the Washington Post and finding all they got wrong ever feel like shooting fish in a barrel??? It sure seems like it must.
Well said.
And the wealth is accumulated untaxed in offshore accounts, safe from those who created it, now to the tune of $30 trillion.
Even as alec and the kochs and fux news and limpdick work to build on the corruption that created that untaxed accumulated wealth.
I hope we come for them soon. How should we do that?
That greatest republican Ike told us that the 90% tax rate and unions and the huge investment in the infrastructure were absolutely required for a strong economy. I and my peers are a result of the strength that Ike created in America, before the takers stole it all from us. The takers of course are those accumulating untaxed wealth in off shore accounts. They have stolen the greatness of America.
Thank you, Jimbo.
As a child, I was the poorest of the poor, not even hot running water, and I tested very well. Neighbors who spent their time jabbering and drinking beer on the corner did not do as well.
The economy isn’t about psychology and never was. The economy is about money. It is a “show me the money Jerry” economy. When credit is expanding, showing the money, then the psychology of buyers, sellers and makers improves. It is never the other way around. All this ‘expectations’ crap and psychological mumbo jumbo from economists demonstrates that economics has reached a dead end. Good riddance.
That’s actually backwards. Once you understand that big business owns and operates the gov’t you’ll understand that the gov’t can’t control capital. What you’re saying is like saying the employees will tell the boss how to behave.
The economic system is the foundation on which the political superstructure is erected.
Robert’s gotta gun to the head of the confidence fairy and will take her out if we all just don’t start pretending it’s 2007 all over again.
How can you obtain wealth without screwing people? Aren’t they all focused on screwing someone out of something that was honestly earned? Just look at the methods utilized too- smaller portions, deregulation, artificial ingredients, deceptive claims and packaging, subsidies .. to mention a few that come to mind. There is no fair trade is there?
Or screwing the planet?
I can’t provide a link to the graph showing wealth for everyone increasing with growing productivity (Ike’s model), and showing the change that occurred when the wealth increase ceased for workers. But it clearly illustrates when the downfall of this country proceeded, and when the $30 trillion theft began. Someone please help identify who made these changes, then we’ll know whom to go after. The chart is labeled ‘Percent Growth in Productivity and Hourly Compensation’ ‘Workers Shut Out of Productivity Gains For Decades’. It is a recreation of a chart from the Economic Policy Institute, and offered by TPM. Help identify these unAmerican criminals for they knowingly prodeeded to try to destroy America, for their own greed. A definitional article, not causal, is here, in which the graph is presented. http://ngfgolfsat.com/cgi/survey.asp
Please excuse the drifting data, I was learning as I went, and in the middle of several things. The link at the end provides discussion of the growing productivity/wage gap, but not what caused it. I’ll look for what caused it next, if I have time. One thing I’m pretty sure of, it was not accidental. Someone took us to the cleaners. Some assholes.