Let us consider for a moment what was driving the great economic engine before the collapse. Primarily it was the artificially stimulated housing market where borrowers were able to get loans and buy houses that they could not really afford. A great many of those loans were adjustable rate mortgages with a very low interest rate on the front end. It appeared that nobody could lose. You could buy a house with a small down payment and at very low interest rates and turn it over before the mortgage's higher interest rate kicked in, usually about 5 years, take the equity generated by the escalating price of real estate and buy even a bigger house the same way.
The banks and other lending organizations, such as Fanny Mae and Fanny Mac thought they were safe because the ever escalating value of homes covered their risk. To add to the problem the government was on a kick where everyone should own a home and was urging the lending institutions to make that happen. That spurred a building boom, with it's corresponding growth, in fairly well paying jobs in the building industry and the resulting spread of money through the the whole economy. The ever escalating value of property poured money into the coffers of the local and state governments and they naturally went wild trying to spend it.
The apparent wealth resulted in a consumer frenzy of buying. We were turning over houses at a profit and constantly trading equity gained through inflation of the market into bigger houses and consumer products. We were taking out home equity loans on the inflated values of our property and using that money to buy all kinds of goodies.
All was peachy keen as long as the formula held. As the wealthiest nation on earth we literally fueled the economic engine of the world. We bought all kinds of things we really couldn't afford. China became an economic power house due to our import of Chinese made goods.
The banks and other lending organizations, such as Fanny Mae and Fanny Mac thought they were safe because the ever escalating value of homes covered their risk. To add to the problem the government was on a kick where everyone should own a home and was urging the lending institutions to make that happen. That spurred a building boom, with it's corresponding growth, in fairly well paying jobs in the building industry and the resulting spread of money through the the whole economy. The ever escalating value of property poured money into the coffers of the local and state governments and they naturally went wild trying to spend it.
The apparent wealth resulted in a consumer frenzy of buying. We were turning over houses at a profit and constantly trading equity gained through inflation of the market into bigger houses and consumer products. We were taking out home equity loans on the inflated values of our property and using that money to buy all kinds of goodies.
All was peachy keen as long as the formula held. As the wealthiest nation on earth we literally fueled the economic engine of the world. We bought all kinds of things we really couldn't afford. China became an economic power house due to our import of Chinese made goods.
Then the bubble burst. Just like what happened to the stock market in 1929, the housing market experienced the same effect in 2007, except instead of stocks it was housing. Such a condition, as existed, is clearly not sustainable. The value of property was reaching it's upper limits, even in this kind of environment. The adjustable rate mortgages low interest rate times were expiring and higher rates were kicking in, and guess what, a lot of the borrowers couldn't meet the higher monthly payments. So many of them were coming into this condition that the market began to be over supplied with housing by people trying to unload their property. The buying slowed down. The sellers trying to unload the homes they could not afford found they could no longer get enough money from their sale to cover the outstanding balance.
So the foreclosures started. The banks were heavily invested in these sub-prime mortgages and so they began to have real problems. Suddenly there was a surplus of houses on the market that were underwater on their mortgages. And the whole house of cards came tumbling down. It was like a snowball rolling down hill. Getting bigger and bigger as it progressed. Pretty soon the whole economy was in a state of chaos. Two of Americas car makers had to declare bankruptcy and were be bailed out by the government. The largest banks required government help to stay afloat. The big mortgage holders (Freddie Mae and Freddy Mac) were going belly up. We really were on the verge of total economic collapse.
The government blamed the bankers and the bankers blamed the government.
Consider the situation now. The banks have tightened their lending requirements such that the only people buying homes are ones that can afford them. The Feds have done a great deal trying to get the housing market to be active again; we now have the lowest historical interest rates on mortgages, with only minimal impact. The banks, hesitant to make risky loans, don't want to get caught in the same trap again. The result is now, and in the foreseeable future, that the housing market is pinned to overall economic growth.
Many more workers have to become employed in higher paying jobs. The minimum wage type job just doesn't support the purchase of a home. But, wait a minute. Where are these jobs coming from? We have essentially shipped the blue collar middle class jobs that once were the bread and butter of the economy overseas. And, they are not likely to return. The unions and government together have drove the cost of doing business in this country to levels such that many industries can not afford to compete against foreign made products with their cheaper labor and far less restrictive regulations. It's cheaper to have that TV or computer made in Taiwan or China and shipped here, than to build it here. The other thing that's driving the engine is the ever increasing use of automation to perform tasks that once were accomplished by labor. It seems that all the clothing, electronics, a huge percentage of cars, appliances and a host of other products are made in China, Japan, or elsewhere or are largely made with computer driven machines requiring far few workers.
We have been adding jobs lately as the economy recovers and the government likes to tout those numbers. But, wait a minute what kind of jobs are they? In an article by Bernard Condon and Paul Wiseman of the AP, we lost 7.5 million jobs during the recent recession, of which half were middle class earners ($38,000
to $68,000 per year). But, only 3.5 percent of the 3.5 million jobs gained since the end of the recession were mid pay. Nearly 70 percent are low-paying jobs; while 29 percent paid well. They point out the countries that use the Euro are actually worse off than we are. Almost 4.3 million low-pay jobs have been added since 2009 but, the loss of mid pay jobs has never stopped. A total of 7.6 million disappeared from January 2008 through last June. To put icing on the cake, they point out that a great number of the mid level jobs are not coming back. They didn't get moved somewhere else, they just disappeared, the tasks they performed now being accomplished by computers crunching numbers or driving robotic machines.
What's left in this country, with a few exceptions, are two classes of workers. The service industry, which for the most part doesn't pay all that well, and the high tech industry which requires extensive training and education to enter and is exceptionally well paid. Of course you always have the government, which is another story. By high tech I mean all professions that require education and training, engineers, RN's, doctors, skilled technicians, i.e. Science, Technology, Engineering, Math. American schools are not turning out these kinds of trained people at rate approaching the need. And that is our best hope of competing on the world market.
Our universities graduate lots of young people with degrees in fields which have no known requirements in the real world. Very few of the liberal arts degrees have any real application in the modern work place. The colleges and universities are turning out graduates with degrees in Philosophy, Psychology, Black Studies, Political Science, Art History, etc. at an astounding rate. Try competing for a job outside of government or some non-profit with those degrees. Especially a job in an industry that competes on the global stage. The latest statistics I read indicated the something like 50 percent of the college graduates from the last 2 years are either not employed or are severely underemployed in jobs that have no relevance to their degree.
Of course we have a growing class of government workers who make good money for what they do and realize lush fringe benefits. But government workers don't contribute to the economy. They spend money that was taken from some worker in the private sector, so there is no net increase in the buying power of the population. And, their retirement benefits are causing local and state governments to have real budgeting problems. They produce nothing that can be sold in the global market.
There is a surplus of workers to fill the low skilled type jobs and a real need of personnel to fill the jobs requiring extensive training and education.
People that have jobs, and many who don't, are spending money on things they need and want, but they are a little leery of overspending on high ticket items. We still sell lot's of IPads, Smart Phones and other nonsense which really isn't needed, but satisfies some inner desire. In general the consumers are still cautious about too much debt, and rightly so. And, they are likely to remain that way. All the lending institutions have tightened their credit requirements making it harder for the buyer to really get in over their head.
To get the economy moving upward toward the pre-recession levels would require buying and lots of it. I just don't see that happening. Where we are, is exactly where we can expect to remain, with slow, and we hope steady, growth over the next decade of so. The wild times of the decade are not likely to repeat.
Government stimulus packages do not generally have a significant impact on the overall economy. The primary reason for that is the way that the stimulus money is allocated, primarily to activities directly tied to the public sector such as welfare and public service. I.e. schools, law enforcement etc. And, sometimes we create new organizations; remember the WPA, the NRA (National Recovery Act), the PWA and the whole New Deal alphabet of bureaus created by FDR. After all, government can only redistribute money. It's takes money from Peter to pay Paul. It's a zero sum game. If Peter doesn't have the money to pay Paul what the government wants to pay him, they borrow it, and we go deeper into debt with corresponding higher interest payments cutting into the budget and a growing inflation rate.
History has shown us that large government spending in the private sector can create a vigorous economy, at least for awhile. Remember WWII. The spending to create the war machine for that war pulled us out of the depression. All the social programs created by FDR prior to that time did not have any real effect on the economy, but it did make the poor feel good. The unemployed rate was about the same in 1938 as it was in 1932 and the GNP remained fairly flat. Hitler pulled the German government out a deep economic depression by spending on infrastructure, remember the Autobahn, and building up the German war machine. Hitler and FDR used the same formula to lift the economies of the countries from crippling recessions. Defense spending during the height of the cold war resulted in a thriving economy. Eisenhower's spending to create the Interstate highway system created a lot of high paying jobs. But that only lasts as long as the spending lasts. Generally we have to borrow money to sustain large spending over any extent of time in either the private or public sector and that is not sustainable in the long term.
The liberals love Keynesian economics philosophies. The problem is that they love only one side of the Keynesian model, not the other. The Keynesian model is based on the idea the government should spend money in the bad times to stimulate the economy and pay it back in good times. The attempt is to level out the hills and dales to which economies are subject. We have fervently embraced the spending part of the model but have neglected the pay back part.
Unfortunately that has been going on for well over a score of years as the government goes deeper into debt and the dollar has lost buying power as the government prints money to pay it's bills.
So, I contend that a rapid return of the economy to pre-recession levels is not going to happen quickly and that we are where we should be. The real unemployment rate will remain fairly high, probably in the neighborhood of 7 to 10 percent at best (it's actually about 15% now). The unemployment rate stated by the government is not the actual rate as the job seekers that have literally given up are not reported, only those actively seeking employment through government monitored agencies. Adding to the problem is the fact that a very high percentage of the jobs being added in the future are low paying.
I don't think anybody has a good idea what do about this problem. Entrenched government entitlements, bureaucracies, regulations and the influence of public employee unions make for a hostile environment for opening and maintaining a small business, especially one the competes on the global stage. Unfortunately our government has created a montage of rules and regulations that really hamper the establishment and growth of small business. I don't think that large manufacturing will be the solution. Manufacturing, while more profitable than ever, is becoming highly tech driven, requiring far less workers than were used only a few years ago. And, even start up small businesses have embraced technology and are using fewer workers that would have been previously employed.
So the foreclosures started. The banks were heavily invested in these sub-prime mortgages and so they began to have real problems. Suddenly there was a surplus of houses on the market that were underwater on their mortgages. And the whole house of cards came tumbling down. It was like a snowball rolling down hill. Getting bigger and bigger as it progressed. Pretty soon the whole economy was in a state of chaos. Two of Americas car makers had to declare bankruptcy and were be bailed out by the government. The largest banks required government help to stay afloat. The big mortgage holders (Freddie Mae and Freddy Mac) were going belly up. We really were on the verge of total economic collapse.
The government blamed the bankers and the bankers blamed the government.
Consider the situation now. The banks have tightened their lending requirements such that the only people buying homes are ones that can afford them. The Feds have done a great deal trying to get the housing market to be active again; we now have the lowest historical interest rates on mortgages, with only minimal impact. The banks, hesitant to make risky loans, don't want to get caught in the same trap again. The result is now, and in the foreseeable future, that the housing market is pinned to overall economic growth.
Many more workers have to become employed in higher paying jobs. The minimum wage type job just doesn't support the purchase of a home. But, wait a minute. Where are these jobs coming from? We have essentially shipped the blue collar middle class jobs that once were the bread and butter of the economy overseas. And, they are not likely to return. The unions and government together have drove the cost of doing business in this country to levels such that many industries can not afford to compete against foreign made products with their cheaper labor and far less restrictive regulations. It's cheaper to have that TV or computer made in Taiwan or China and shipped here, than to build it here. The other thing that's driving the engine is the ever increasing use of automation to perform tasks that once were accomplished by labor. It seems that all the clothing, electronics, a huge percentage of cars, appliances and a host of other products are made in China, Japan, or elsewhere or are largely made with computer driven machines requiring far few workers.
We have been adding jobs lately as the economy recovers and the government likes to tout those numbers. But, wait a minute what kind of jobs are they? In an article by Bernard Condon and Paul Wiseman of the AP, we lost 7.5 million jobs during the recent recession, of which half were middle class earners ($38,000
to $68,000 per year). But, only 3.5 percent of the 3.5 million jobs gained since the end of the recession were mid pay. Nearly 70 percent are low-paying jobs; while 29 percent paid well. They point out the countries that use the Euro are actually worse off than we are. Almost 4.3 million low-pay jobs have been added since 2009 but, the loss of mid pay jobs has never stopped. A total of 7.6 million disappeared from January 2008 through last June. To put icing on the cake, they point out that a great number of the mid level jobs are not coming back. They didn't get moved somewhere else, they just disappeared, the tasks they performed now being accomplished by computers crunching numbers or driving robotic machines.
What's left in this country, with a few exceptions, are two classes of workers. The service industry, which for the most part doesn't pay all that well, and the high tech industry which requires extensive training and education to enter and is exceptionally well paid. Of course you always have the government, which is another story. By high tech I mean all professions that require education and training, engineers, RN's, doctors, skilled technicians, i.e. Science, Technology, Engineering, Math. American schools are not turning out these kinds of trained people at rate approaching the need. And that is our best hope of competing on the world market.
Our universities graduate lots of young people with degrees in fields which have no known requirements in the real world. Very few of the liberal arts degrees have any real application in the modern work place. The colleges and universities are turning out graduates with degrees in Philosophy, Psychology, Black Studies, Political Science, Art History, etc. at an astounding rate. Try competing for a job outside of government or some non-profit with those degrees. Especially a job in an industry that competes on the global stage. The latest statistics I read indicated the something like 50 percent of the college graduates from the last 2 years are either not employed or are severely underemployed in jobs that have no relevance to their degree.
Of course we have a growing class of government workers who make good money for what they do and realize lush fringe benefits. But government workers don't contribute to the economy. They spend money that was taken from some worker in the private sector, so there is no net increase in the buying power of the population. And, their retirement benefits are causing local and state governments to have real budgeting problems. They produce nothing that can be sold in the global market.
There is a surplus of workers to fill the low skilled type jobs and a real need of personnel to fill the jobs requiring extensive training and education.
People that have jobs, and many who don't, are spending money on things they need and want, but they are a little leery of overspending on high ticket items. We still sell lot's of IPads, Smart Phones and other nonsense which really isn't needed, but satisfies some inner desire. In general the consumers are still cautious about too much debt, and rightly so. And, they are likely to remain that way. All the lending institutions have tightened their credit requirements making it harder for the buyer to really get in over their head.
To get the economy moving upward toward the pre-recession levels would require buying and lots of it. I just don't see that happening. Where we are, is exactly where we can expect to remain, with slow, and we hope steady, growth over the next decade of so. The wild times of the decade are not likely to repeat.
Government stimulus packages do not generally have a significant impact on the overall economy. The primary reason for that is the way that the stimulus money is allocated, primarily to activities directly tied to the public sector such as welfare and public service. I.e. schools, law enforcement etc. And, sometimes we create new organizations; remember the WPA, the NRA (National Recovery Act), the PWA and the whole New Deal alphabet of bureaus created by FDR. After all, government can only redistribute money. It's takes money from Peter to pay Paul. It's a zero sum game. If Peter doesn't have the money to pay Paul what the government wants to pay him, they borrow it, and we go deeper into debt with corresponding higher interest payments cutting into the budget and a growing inflation rate.
History has shown us that large government spending in the private sector can create a vigorous economy, at least for awhile. Remember WWII. The spending to create the war machine for that war pulled us out of the depression. All the social programs created by FDR prior to that time did not have any real effect on the economy, but it did make the poor feel good. The unemployed rate was about the same in 1938 as it was in 1932 and the GNP remained fairly flat. Hitler pulled the German government out a deep economic depression by spending on infrastructure, remember the Autobahn, and building up the German war machine. Hitler and FDR used the same formula to lift the economies of the countries from crippling recessions. Defense spending during the height of the cold war resulted in a thriving economy. Eisenhower's spending to create the Interstate highway system created a lot of high paying jobs. But that only lasts as long as the spending lasts. Generally we have to borrow money to sustain large spending over any extent of time in either the private or public sector and that is not sustainable in the long term.
The liberals love Keynesian economics philosophies. The problem is that they love only one side of the Keynesian model, not the other. The Keynesian model is based on the idea the government should spend money in the bad times to stimulate the economy and pay it back in good times. The attempt is to level out the hills and dales to which economies are subject. We have fervently embraced the spending part of the model but have neglected the pay back part.
Unfortunately that has been going on for well over a score of years as the government goes deeper into debt and the dollar has lost buying power as the government prints money to pay it's bills.
So, I contend that a rapid return of the economy to pre-recession levels is not going to happen quickly and that we are where we should be. The real unemployment rate will remain fairly high, probably in the neighborhood of 7 to 10 percent at best (it's actually about 15% now). The unemployment rate stated by the government is not the actual rate as the job seekers that have literally given up are not reported, only those actively seeking employment through government monitored agencies. Adding to the problem is the fact that a very high percentage of the jobs being added in the future are low paying.
I don't think anybody has a good idea what do about this problem. Entrenched government entitlements, bureaucracies, regulations and the influence of public employee unions make for a hostile environment for opening and maintaining a small business, especially one the competes on the global stage. Unfortunately our government has created a montage of rules and regulations that really hamper the establishment and growth of small business. I don't think that large manufacturing will be the solution. Manufacturing, while more profitable than ever, is becoming highly tech driven, requiring far less workers than were used only a few years ago. And, even start up small businesses have embraced technology and are using fewer workers that would have been previously employed.
