It's the Economy, stupid - Languishing & Lingering after the Great Recession

Stimulus is a general idea, and the real problems you mention are a specific set of circumstances. The idea of stimulus is simply government spending used to take the sting out of the bottom of the business cycle: essentially, smoothing out the rough patches in a down economy as it returns to the next phase of growth. It serves to stabilize.

If there are serious systemic problems in an economy, then, sure, stimulus can be viewed as a band-aid solution. But stimulus spending should not be viewed as a distraction from the problem; it should be used when it makes sense to.

However, if there are problems (and it can be argued that there remains, still, some serious systemic problems in the American economy, namely, the banking/financial sector), they need to be dealt with, stimulus or no stimulus. The American financial sector is in desperate need of a regulatory overhaul. There's no need to centre out stimulus spending. That's not a part of the problem (unless, of course, you consider the magnitude of stimulus spending being directly correlated to the damage caused by the systemic problems that go unaddressed).

 

2 quick points...

1. In truth, the stimulus was a morale kick-in-the-pants to the economy...when the banks froze and liquidity dried up.

2. The problem with dealing with waste, is the representatives that are supposed to control it are one of the main instigators.

The only way government can keep improving efficiencies is keep checking itself and reporting aloud any unnecessary items.
This way, awareness is a priority...and those pork/glut ladened instigators can't get away with it because it is known.

This is not to say government is bad and doesn't have its valuable uses.
This is to say that there are players politically who's interest is to keep their money despite no true need for it.

Just keep shedding light on it.

 

Will someone please give the governor a copy of The Supply-Sider's Guide to Ayn Rand or something? She clearly doesn't get it.

“In my view, the large and increasing amount of inequality in income and wealth, which has been an ongoing development for decades, may have exacerbated the crisis. More research is required to determine whether it may also pose a significant headwind to the recovery from the crisis for years to come.” ​

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— Fed governor Sarah Bloom Raskin​

Sarah Bloom Raskin: Inequality May Hurt Economic Growth

 

Unfortunately, they don't seem to be keeping their eye on the ball...

 

Honestly? We all should be watching Japan closely, as they're ahead of the curve. Not only that, but they're clearly willing to try things grounded in reality, even though I have concerns about some of them. It will be worth watching how the long-term outcome plays out. The Japanese market volatility will be a good test.

In the meantime, let's hope the U.S. and Europe does something about their "economic defeatism."

 

Again, pointing out that deflation is a real risk. People tend to worry only about inflation, even when the opposite lingers at the doorstep.

U.S. Economy In Second Month Of Deflation Pressures Bernanke On QE - Forbes

 

Quite frankly...I've always wondered about this...is deflation really that bad?

I mean I know over-inflation is not good...and most everything is encouraged to be growth oriented,
but a minimal amount of deflation...I don't see how that can be horrendous.

Are we ending up taking a good idea...and turning it into an extreme mindset?
There is balance to all...and while an ideal it would be "nice" to have constant controlled growth/inflation...is this realistic??

Personally, I'm not surprised that this may have occurred considering what the global economy just went through,
and unlike Canada and the US...the rest of the world is still going through their throws.

Should we just gird for a tide...during the storm?
Would there potentially be ANY benefit from it??

 

To the average citizen, and certainly communicated by the mainstream media, it may seem on the surface that dropping prices are a good thing (unless it's our houses...odd, that). I understand how easy it is to think, "Hey, cars are cheaper, food is cheaper, furniture is cheaper, recreation is cheaper, etc., that's good! It's easier on our wallets. We have had a tough time for a few years now."

The danger occurs when deflation gets out of hand, especially to the point where is spirals out of control. Like out-of-control inflation, it can have deleterious effects on the wider economy, and it can be devastating. Economic equilibrium is preferred, where prices are balanced out with healthy ebbs and flows of supply and demand. While a modest and temporary amount of deflation is manageable, if prices drop too sharply, things can get out of whack quickly. Also realize the difference between disinflation, the decrease in the rate of inflation, and deflation, a decrease in the price level of goods. While a slowdown in price increases may be welcome, actual drops in prices can be a problem.

Economics 101 will tell you that prices at different levels encourage different activities. Low prices will encourage more consumption, but on the other hand, it will discourage production. This happens for a reason. If you were a producer of furniture, and due to a recession can't charge as much as you used to in getting rid of your inventory, you slow down production to mitigate the risk. A chair you produced for a retail price of $200 isn't selling, so you drop the price to $175 and still struggle to keep your unit sales up. It makes sense to make fewer chairs; otherwise you risk making too many. Inventory costs can be brutal, especially now that your profit margin has suffered substantially due to the price drop.

What happens next? If it happens over the long-term, you start laying off furniture makers, or you remove a shift off the daily production line, which cuts into their pay. What happens next? The furniture makers and any others affected by such price drops have less money to spend, and they hang onto it more anxiously. What happens next? Other businesses have to drop their prices because fewer dollars are available for consumers to spend. What happens next? They too must start cutting production and employee costs. What happens next? Well, if it's bad, the spiral can continue and it can grow. The idea is to prevent the spiral. It causes its own misery, and so outside forces may be required.

Again, I will point to Japan, as they're ahead of the curve. They've been fighting deflation for years: TOKYO: Japan deflation persists, industrial output falls - Business Breaking News - MiamiHerald.com

Yes, balance is the idea. It's generally accepted that a target inflation rate of around 2% is preferred for stable economic expansion. This considers only the status quo of economic health in developed nations, rather than developing or industrial nations, or concepts such as no-growth/steady-state economies.

We still have our challenges here, mainly because the economy is globalized. The EU has an economy about the same size as the U.S. It's kind of a big deal. APEC represents 44% of world trade, and growth hasn't returned to previous "norms" (if there is such a thing anymore).

If there is any benefit, it's that we learn from past disasters. Time will tell if any lessons were learned.

In the meantime, yes, deflation is a risk in the U.S., despite people's concerns about having to pay for things in a down economy.

 

I've also gone on about this before. Apparently people need to keep going on about it.

Wage-Price Flexibility in a Liquidity Trap, Again Again Again - NYTimes.com

 

If neoliberalism seems ill-defined, it's because it's a complex concept.

You could say that Plato's Republic is ill-conceived. I mean, what the hell is he talking about, right? Is a republic an ill-defined concept?
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In theory, and on the surface, that may seem so, but this is what I've repeated before: a deflationary spiral is a risk to be avoided.

Prices go down, but not in a vacuum. Production goes down too. And jobs. And income. And spending. It's all connected. A deflationary spiral feeds on itself.

 

ooo...I'm glad I got politics kick-started again...we were in the doldrums there for awhile.

Can't have that while so many vicious and inane things are going on.

One would think we were in an anti-filibuster....stalled, but with no talking.

 

Don't you remember? I prorogued it.

 

Ok, I'm going to get off the US, which gets old-hat to talk about.
What about Europe?

Well, it looks like Europe is having even more a challenge than Uncle Sam.
Although, to give it the benefit of the doubt, it's more like when America was under the Articles of Confederation...with each state having it's own power, culture and focus.
The only difference is them being unified under the Euro.

It's not all sunshine and flowers for their economies or citizens...in the supposed "enlightened" nations by comparison to the US.

Personally, the article showed me a perspective I didn't account for...that the German businesses actually like the Euro now,
because it's anchoring effect has allowed them to expand & compete more effectively internationally...because their money's value is not too high.

Any more insights from anyone else?
I'm fascinated by all this.