Supply Side Economics: Time To Stick The Fork In?

[ParanoiA]

But that's kind of a side note. My overarching point is that it's easy to only think of what's right in front of you, but sometimes I think I'm the only person who takes into account what it's all for. What, exactly are we moving towards? What can we do that's going to matter in 10 years? 100 years?

The extremely slow transition of humans shedding in/out group psychological behavior, that may or may not still be necessary for the survival of the species, for a single, world collective? Seems like it anyway.

Is it actually good to be globalized like we aspire to be?

In nature, time and time again, it has been proven that the generalist survives extinction much better than the specialist. The specialist can outperform the generalist, at a specific task, but cannot "adapt" to a rapid change in environment, or outright elimination of that environment. As humans globalize, we also standardize our behaviors - through our governments and cooperation, as beautiful as it sounds, we centralize and thus specialize.

I'm worried that we will approve of that view, secure in its specious presentation and then will harmoniously die. Humans were bred to compete self-interestedly, and it would seem better for us to continue to empower that quality, and find a way to remain peaceful without becoming "the same". We need to stay as diverse as we possibly can. I'm not sure we can throttle globalization to right point.

This is partly why I find communism and socialism so threatening. Inevitably, they standardize human behavior. And that's not good for anybody.

[Plissken]

Good posts, folks. Just to keep us on track (and to summarize) the standing arguments against are:

1) I've conflated Supply Side with Reaganomics.

This is true. I've always thought "Supply Side" was a less perjorative term for "trickle down." (See? This is why I do this stuff.)

2) I'm leaving several other factors out - such as Government spending, de-regulation/regulation, and immigrants.

Reaganomics also included alot of de-regulation, which was also continued right through Clinton (doing squinty Arkansas accent: "The era of Big Government is over!") and Bush II.

And, while spending has gone up, I'd posit that, like regulation, smart spending largely hasn't happened.

On the regulatory side, de-regulation of banks led directly to the problems we're having now. On the spending side, we've had really misguided wars, (Obama doesn't have to actually do anything to make Bush look bad, you know.) NCLB, (which was pretty much the original No-Bid contract for the other Bush brother's Standardized Test printing company), etc.

These factors do affect the whole. For instance I imagine that, if naked short selling and such weren't the order of the day, markets providing capital to create stable businesses would be more of a practice than a theory at this point.

Okay, of to work (and to think about this some more).

[Cail]

Enacting intelligent legislation is going to make Obama unpopular with a lot of the people who elected him. That's what scares me. He might even have the courage to make a few right choices and stop passing the buck, but Pelosi sure as hell doesn't.

Excellent observation and one I agree with. Reid and Pelosi need to be reigned in. Last time I checked the White House wanted to end the $8,000 first-time homebuyer credit while Pelosi recently said that Congress would be renewing it and possibly expanding it to all homebuyers!

If you want to inflate a bubble this is precisely how it's done!

Absolutely true....Anything subsidized will grow. It's shocking that no one learned from the last housing bubble, but then again, this appears to be a shameless attempt to buy votes (how can you be against first-time home buyers?).

[Avatar]

Good posts TD. And some very interesting ideas. I'll just follow along quietly.

--A

[Cybrweez]

paranoia, interesting thoughts about globalization. I'm in some agreement. Just read in a book about the idea of utopia, and it leads to a loss of "life". Similar idea.

[Cail]

Speaking of the housing market....

The Obama Administration is prepared to do anything, including dramatically lowering mortgage lending standards, to keep real estate prices inflated, as demonstrated by statements, reports and events in the month of October.

How high can the government push real estate prices.First came the Federal Housing Authority inspector general's report [pdf] on the FHA's lender approval process, which found that FHA was missing or ignoring relevant information, failing to document loans, not preventing convicted financial criminals from participating in its lending program, and in most other ways failing to "ensure that lenders met all applicable requirements." The IG's spot check revealed, for example, that just one out of 22 approved applications contained all the documentation needed to meet the FHA's own standard for guaranteeing a loan.

The FHA's much more serious offense against lending standards -- its dangerously low 3.5 percent down payment minimum for guaranteed loans -- became the focus of attention this month when the authority admitted it was shown to be close to bankruptcy, and Rep. Scott Garrett (R-New Jersey) introduced legislation to boost that minimum to 5 percent.

There is both anecdotal and statistical evidence that the debased lending standards being pushed by FHA and other government entities are creating a dangerous dead cat bounce in real estate markets. Anecdotally, here's a profile of a new home borrower who as of this month is paying 54 percent of her income on a house. Statistically, defaults on government-approved loans continue to rise, with Fannie Mae-backed loans now breaking through a 3.3 percent delinquency rate.

We have covered the increasing rate of mortgage redefaults here, and it's notable that all mortgage modifications are now being done under the watchful eyes of the agencies that guarantee them. Yet redefaults continue to rise, strong evidence that the standards for loan mods are getting worse, not better, under government supervision. Lax lending standards are now policy. The only question is whether the policy is official or unofficial.

Real estate in October 2009 a classic dead-cat bounce.That's the dead cat part. Here's the bounce: While all economic indicators, from rising unemployment through rising mortgage defaults, describe a market in collapse, real estate prices continue to increase. The Case-Schiller August index, announced today, was up 1.2 percent. The National Association of Realtors (NAR) is celebrating a 9.4 percent jump in existing home sales. This Goldman Sachs report issued last week concludes government largesse is adding a full 5 percent to current real estate prices.

How are people buying all this expensive real estate? With nearly the same ratio of debt to down payment as they had in 2005. According to NAR, the median down payment is 4 percent -- slightly above what it was earlier in the decade -- but a third of all U.S. houses are still being bought with no money down.

That's a bad bet for us, because we will be on the hook for the defaults. As this San Francisco Federal Reserve report notes, nearly all mortgage securitization is now being done by the nationalized government sponsored enterprises, and virtually none by the private sector. So lenders are not just gambling on bad credit risks, but gambling with your money. Not surprisingly, it's the administration that gets the benefit, as real estate prices, in marked contrast to unemployment, are doing better than the most-adverse projections of the bank stress test conducted earlier this year. (Calculated Risk compares the trendlines.)

I'll have more about all this in an upcoming Reason print column, assuming the United States still exists at that time. There is plenty of rich material, including the way the above efforts concentrate costs at the bottom of the market, thus condemning poor folks -- whom Democrats and watchdogs like the strangely silent Center for Responsible Lending claim to champion-- to company-store-style indentures.

Meanwhile, it appears that October may be remembered as the month that the evidence, and the statements of many officials, all pointed to the same conclusion: The Obama Administration has taken a no-parachute leap of faith that real estate will stay inflated. If you're keeping score at home, this is the precisely the behavior Sen. Obama used to blame on the "ethic of greed."

[Tjol]

But anyway, the OP had 2 complaints, stagnant wages and income inequality. Why have wages been stagnant? We had a thread about income inequality before, but I don't think one on stagnant wages.

Wages are stagnant because there is more labor available than there is work to be done.

Wages are also stagnant somewhat due to the attempts to counter income inequality. Every tax and fee created to supposedly punish the wealthy, tends to instead prevent the poor from ceasing to be poor, by creating barriers that must be overcome before one can improve their income.

If you must save up a thousand dollars in order to increase your annual income five hundred dollars, and you're only making twenty five thousand a year most people won't make that extra five hundred dollars, let alone make it to thirty five thousand a year or sixty thousand a year or two hundred thousand a year.

Edit:

Cail, that article has an interesting possibility mentioned with regards to a return to indetured servitude. It is something I have concern of in some part, and then again, my bigger concern is that if such a state ever comes into being, the US is likley to be a much more violent and competitive place than it's been for quite a while.

[Harbinger]

Malik wrote:

It's a fact that you can't hav a job without someone putting up the capital to risk a new business venture. You can stick a fork in that idea if you want, but then where are you going to get a job? Are you going to start your own business? Great! But wouldn't it be easier to start that business if the government didn't penalize you the more money you made? It's not about what's fair. It has to be about what works. Fair doesn't create a job. Jobs don't grow on trees. They come from peolpe who have more initiative and work harder than you or I. People like Harbinger, who started his own business, and now employs dozens of people (and has offered anyone here jobs approaching 6 figures). He could decide it's not worth it and stop tomorrow. And all those people would be out a job.

It's a fact that my mouth (or fingertips) don't write checks that my ass can't cash.

And jobs are still available; right now in El Paso, TX. You could make 100k by spring if you wanted to bad enough. But you gotta be an eagle not an oyster.

[Cail]

And jobs are still available; right now in El Paso, TX. You could make 100k by spring if you wanted to bad enough. But you gotta be an eagle not an oyster.

Would I have to dress up like Little Bo Peep?

[Harbinger]

Ha Ha. No, I'm more of an Alice in Wonderland kinda freak. Seriously though, I did try to offer a guy (a rather odd looking one) that used to work for me a couple of grand to dress up like Peter Pan for a commercial but unfortunately he declined.

[Avatar]

That went weird quick.

--A

[Tjol]

I'm not quite understanding the oyster eagle thing... sounds like something from the tale of the Walrus that Tweedle Dee and Dumb told Alice?

Anyways, yes, sales jobs are available, but you won't make it in commision based work right now, because no one has the money to spend. So eventhough the sales jobs are available, they aren't going to make the kind of money that they could make for an 'eagle', if I guess your meaning correctly, in better times.

[Avatar]

That makes sense to me. Business-wise, many do still have money...they're just a hell of a lot more likely to be very careful about what they spend it on.

--A