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Is company cost-cutting company throat-slitting?
http://www.reuters.com/article/newsOne/idUSTRE5446N120090506

This Reuters article says the current economic light at the end of the tunnel may be a freight train coming right at us. Robert Reich's proposed solution: More government spending? I sure hope Keynes is right - it's a big, expensive experiment we're running now to test his theories, and this article says the experiment may get expanded before it's over.


I'm inclined to think we may eventually find a "new normal" where people spend less than they earn, and the economy finds a new balance. However, it may take a long, painful period to get to the new equilibrium. And maybe I'm just too optimistic that people will live sustainably rather than living in debt. It seems that a lot of economic activity was artificially, unsustainably due to people buying more stuff than they could afford.

As far as the economy continuing to decline, it seems to me that people still need to eat, wear clothes, etc. So the economy can only go down so much. But the Depression happened so I guess something like that could happen again.


In any case, it does seem like we may be living in a different world when this is all over. I hope it's a better one.


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Chief Slovenly
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cull wrote:
Is company cost-cutting company throat-slitting?
http://www.reuters.com/article/newsOne/idUSTRE5446N120090506

This Reuters article says the current economic light at the end of the tunnel may be a freight train coming right at us. Robert Reich's proposed solution: More government spending? I sure hope Keynes is right - it's a big, expensive experiment we're running now to test his theories, and this article says the experiment may get expanded before it's over.


I'm inclined to think we may eventually find a "new normal" where people spend less than they earn, and the economy finds a new balance. However, it may take a long, painful period to get to the new equilibrium. And maybe I'm just too optimistic that people will live sustainably rather than living in debt. It seems that a lot of economic activity was artificially, unsustainably due to people buying more stuff than they could afford.

As far as the economy continuing to decline, it seems to me that people still need to eat, wear clothes, etc. So the economy can only go down so much. But the Depression happened so I guess something like that could happen again.


In any case, it does seem like we may be living in a different world when this is all over. I hope it's a better one.




I hope I don't get too long-winded with this. Ah, too late.

To me, the question of "what happened with capitalism?" went a little like this:

1) Outsourcing and free-trade agreements did away with the whole company culture of the 50s and 60s -- people identified themselves by what company they worked for: "I'm an IBM man." If IBM or whatever company could just locate its plants in Malaysia or Singapore -- and lower-skilled manufacturing in maquiladores in Mexico -- it meant the death knell of being able to live very nicely in many areas on one income, or at least being able to live well and retire on a pension with one wage-earner... the 50s ideal.

2) This started to give way to two wage-earner households, partly as a result of the feminist movement -- women not wanting to be domestics -- partly as a result of Madison Avenue's keeping up with the Joneses, and sometimes out of simple survival. Latchkey kids of the 70s? That's where that comes from.

3) The 80s and 90s were an orgy of mergers and acquisitions, where companies cannibalized each other, either for selling off the parts for profit or for creating vertically/horizontally-integrated industries. This is when outsourcing really starts to take off, especially when it became much cheaper to manufacture somewhere else and ship to America. This is also when America really becomes a service industry nation rather than a manufacturer. This is also the age of the bloated executive salary.

4) But this is also when all that artificial wealth is responsible for generating its own feedback loops, for good or for ill.

My political spin: if you do away with the protections enacted in the aftermath of the Great Depression -- I'm thinking specifically of Glass-Steagall -- you have to accept (at least partially) the bad of greater economic panics and crises along with the good of amazing wealth creation.

In any event, I'm with you that America needs to get to a more Japanese model of being a saving culture, but that would mean the death of the American economy as we currently know it -- the American economic engine is completely based on consumerism.
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Jeff Brown
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Thanks for the analysis
bbenston wrote:
To me, the question of "what happened with capitalism?" went a little like this



Your original question here reminded me of today's dilbert cartoon:


I think part of the problem is that a free market doesn't work very well when nobody can be trusted in any deal. When people get too greedy and lose their virtue than a free market falls apart as well.
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cull wrote:



I'm inclined to think we may eventually find a "new normal" where people spend less than they earn, and the economy finds a new balance. However, it may take a long, painful period to get to the new equilibrium. And maybe I'm just too optimistic that people will live sustainably rather than living in debt. It seems that a lot of economic activity was artificially, unsustainably due to people buying more stuff than they could afford.


Yeah our economy became addicted to people spending far more than they can afford. The withdrawals will be extremely painful, except I don't know if we will ever get to a sustainable economy based on what we can afford because when people stop paying more than they can afford (which has been happening a long time) then the government starts picking up the tab by putting it on its own credit card. I don't think we are now seeing the full costs of an unsustainable economy and I shudder to think of what it will look like when we do.
 
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To get even more long-winded:

Looking at my own numbered points, there are a number of ways to take them, even though I think it's a reasonable (if probably really simplistic) interpretation of what happened economically over 50 years.

1) Outsourcing vs. "lifetime" employment + retirement in the 50s: I think it's interesting that FDR got major industries to sign on to the New Deal precisely by dropping the more severe aspects of it; sort of a social contract. It feeds into my thoughts about how lasting booms happen, strongly informed by Kevin Phillips' Wealth and Democracy:

a) Excesses in wealth, more precisely wealth inequality, lead to the exertion of undue political influence at the expense of the greater majority of people in whom wealth isn't concentrated.
b) A crash happens, or some event where the financial infrastructure collapses on itself: the Gilded Age, the Great Depression, or even the subprime mortgage crisis (although Phillips wrote W&D before that ever happened -- he was convinced another massive financial crisis was about to happen, although I'm aware of the logical flaws inherent in soothsayers).
c) Financial reforms coupled with great "wealth realignments" lead to greater income equality across greater strata of society, and therefore more purchasing power from the bottom up.

However, the global economy is what might throw a wrench in part of the theory: is it realistic to expect a company to offer lifetime employment plus a pension -- the 50s American and the 60s/70s Japanese model -- when some other company can completely undercut it by manufacturing in Vietnam for pennies?

2) Two wage-earner households? Either we're spending more than our means -- the best financial advice is to be able to live on one income if possible, and a second income is just gravy and should be socked away -- or we're in competition with high-technology workers in Hyderabad, or both. Either way I don't see it going away, not without some sort of protectionist legislation, and I'm not sure how I feel about protectionism anyway -- my gut feeling is that it's just a Band-Aid for a more structural issue I can't really think through fully.

3) The M&As that happened in the 80s/90s, facilitated by both legislation to make it easier plus record borrowing, really gutted our competitive infrastructure. All the financial innovations here made it really easy to make a lot of money, but also made it really easy to spread the bullshit around, to hype nothing, and to get leveraged beyond all reason, because that's what everybody else was doing -- a classic economic boom/panic.

Anyway. I'm completely predictable when I say this, but I figure the very first place to get the economy rolling again is for more of a return to the days of the 50s and 60s in terms of how incomes were taxed. Extreme income brackets were really taxed prohibitively... because at that income level the remaining 10% was more than enough to be absurdly wealthy -- and the American economy didn't seem to suffer for it at all. All that liquid wealth in the hands of people actually spending it is what makes companies real money.

Less predictable is what I'd be willing to deal with in terms of corporate taxes: if the US is truly one of the highest in the world as far as the array of corporate taxes each country levies, then we've got to make the US extremely attractive to locate in -- however, I think that means scrapping a couple of free trade agreements too, because I think we could charge zero corporate taxes and still not be competitive with sock factories, for example, in Guatemala.

I guess what I'm saying is that it's time for the "lucky duckies" to be better-served by their tax system and their government.
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