January 15, 2008

Economics

I am not going to say that I told you so, but at least 2 years ago I started warning people about a severe decline or crash in the economy, as well as, the concept of “Peak Oil” and how gas prices would rise. People who are familiar with my opinion pieces knows that I have been sounding the alarm for sometime only to be ignored as some anti-capitalist anti-American doomsayers who actually wants to see the fall of capitalism and America. They dismissed me as a socialist/communist and retorted with historical examples of the failures of those systems and how our system was so much more superior and impervious to a similar fate. Well, our system is now on the edges of something tragic and could fall over from a certain combination of events or proceed in more orderly decline.

I am not going to get into the “why”, as I have been there and done that before. Suffice it to say however, it is not the result of the sub prime crisis, which is simply a symptom. Let’s just say that rise and fall is the natural order of life cycles and the life of our system cannot regenerate new cells, to replace the dying ones, at the rate we did when we were younger and vibrant. Moreover, the competition for the resources that we must consume for substance and growth has gotten so fierce that it will only compound our decline. China, India, Brazil and a hose of developing nations are the next generation, while the US and Western Europe is entering economic old age under globalization and the free market, which will continue to produce diminishing returns for the West until a price point wage equilibrium is reached globally between the West and the developing world.

Currently the mindset of the consumer is what is keeping the economy out of recession and depression. The economy is dependent upon consumers going into deeper and deeper debt in order to keep the economy out of recession. The reason that many were willing to do this is because of two assets, their home and their investment portfolio (stocks). Working age people over 30 looked at their home and their stocks, 401Ks, mutual funds and other investments as funding their retirement, due to strong growth in home appreciation and stock prices. Well the bottom has fallen out of the former and when it falls out of the later, the over 30 consumers will radically reduce consumption in order to save more for retirement and to be more responsible during declining economic times. This will create the collapse, deep recession and or depression.

This psychological threshold will be breached when the DOW falls below the psychological 10,000 mark. There will not be a stock market crash, like during the last Depression, however. There have been safe guards built into the system of trading to prevent that. What will happen though, however, is a long term cycle of ups and downs with the downs being much stronger than the ups, thus overtime will produce the same loss of wealth as a stock market one week crash. In the mean time, the monetary policy of lowering the cost of money (borrowing) is the strategy to keep consumers spending and providing stimulus for Wall Street, which has the effect of creating such a large amount of personal debt, which citizens will essentially become indentured servants to their debts. Not only that, such monetary policy will result in the collapsing of our currency and a hyperinflationary period that will send millions into abject poverty, government rationing and a radical change of America as we now know it.

There is nothing that can be done at this point but attempt to control our fall. Standing tall is no longer a viable option. The reason being is that the fiscal and monetary policy that is used to control the economy will make matters worse. Generally cutting taxes and lowering interest rates and the fiscal and monetary policy set up by the system to accelerate or decelerate economic activity. The problem is that we almost have the pedal to the metal, in regards to these policies, and the economy is decelerating. If we press harder on the accelerator the engine might blow. Cutting taxes in with during war time and record levels of government debt will debase the currency. Lowering interest rates will also debase the currency. The debasing of the currency will lead to rampant inflation that destroys the purchasing power of income that because it does not keep pace with the rise in prices. Millions of people then become the working poor as their income which once afforded middle class comfort can only provide basic substance.

Meanwhile, the basic loss of comparative advantage under globalization and the free market continues to send American jobs and production oversees. The catch-22 for America and Americans is that we want to have their cake and eat it too, which is impossibility. More precisely, we covet cheap prices. However, cheap prices come by virtue of cheap wages, as a general rule. A nation cannot sustain high wages and low prices as an economic model, due to how heavily wages and benefits weigh in on price. That said, a high wage nation in transition to a low wage nation will manifest both high wages and low prices until the transition is complete to being a lower or median wage nation, whatever the global price point of labor will produce. That is what is happening in America today as manufacturing, engineering, software design; call centers and a hose of other employment sectors are being off shored, while we are importing cheap labor from Mexico to drive down wages domestically as well.

If all that is not enough, I have yet to even integrate the effects of peak-oil (declining oil reserves growth/supplies married with increasing demand), the retirement of the baby boomers, war and the like. These things, even during good economic times, would hurt our economy, but that are manifesting at the same time as a host of other negative factors are hurting us. There are things that you can do to prepare yourself; however, very few can escape this. Traditionally, it is under such times that governments embark on wars to relive the population of angry males who could or would turn their wrath against the system and its elite. That way they can be sent off to war and die on the battlefields instead of filling the unemployment lines, jails or becoming radical militants attempting to overthrow the government, like the many anti-government militia groups that exist throughout America. War will help to create patriotism and get disenfranchised people feeling patriotic against an external enemy. Its not hard to guess what nation that will be, if it happens.

9 Comments:

At 6:58 PM, Blogger Jeremiah said...

Speak it on the mountain brother.

Cry havoc and let slip the dogs of war

 
At 11:57 PM, Blogger animo said...

I stumbled upon your blog and was skimming and came upon a post regarding our country's current economic "adjustment". Except it was posted by Noah TA at 6:56 AM on Oct 21, 2004. Boom. Now I've just read your latest posting(s). Powerful stuff. I need a drink -- Glad I found your blog though.

 
At 12:11 AM, Blogger mayank said...

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At 7:34 AM, Blogger dave said...

I'll start from early on in my evolution... I am a biracial man whose father is African-American and mother is Caucasian. My parents met in 1959 when my un-wed mother was in a nursing school where my father was employed as a nurses aide... my mother was engaged to a white man who was attending engineering school. My father had an African-American wife and (5) children at the time of his extra-marital relationship with my mother. At some early point of my mothers pregnancy with me she made the decision to marry her fiance, and to lie to everyone about who the father of her un-born child was... she achieved this by claiming that I had been afflicted with a skin-disease called "melanism".

My mother and step-father had four more children together in the space of nine years after I was born, and we grew up together in a middle-class household in white america where the subject of "race" was never discussed. My earliest recollections of having to be aware of race was when I was asked questions about the color of my skin by other classmates in first grade... "Why was my skin dark?", "Was I adopted?" race was certainly a hot-button issue in 1965-66 when I began school , but any awareness that my mother and step-father had achieved from growing up in their white neighborhoods in the 40's and 50's was insufficient in preparing them for raising a biracial child... and to complicate things, they were both in complete denial of their complicity in my mis-education. When I came home from school after having been asked questions by fellow students from my all-white school district, my mother then explained "the skin-disease story" to me... "other kids with this disease usually have dark blotches all over their bodies, so you should feel fortunate". When I would tell my mother about other boys and girls who would call me names or act aggressively for no apparent reason, I began to understand that I would get no further assistance from her to explain this rationale... my step-father was even more removed from the conversation and would only add, "You know what your mother said".

By the time that my step-father transferred jobs and our family of (7) had moved from the all-white Cleveland, Ohio suburb of Stow to the all-white school district of Portville in Western up-state N.Y. it was the spring of 1970 and I was in fourth grade, and already the veteran of many racial incidents and altercations between myself, classmates, and even some adults. My four younger siblings had also been told the same story, and had to explain the same things to their friends when asked why they had a brother who was black... "Hey, did your mother fool around a little bit??" I remember how much that hurt me when I heard it, and I'm sure that they felt just as badly when they did... nonetheless, this was a "subject" that we never discussed as a family, not once, at least in my presence.

I was taught through my observations of my mother and step-father to keep quiet about things that I wasn't sure about, and I was also taught to ignore the obvious.

As I matured into my teen-aged years and began to experience societies issues and insecurities in coming to terms with this countries racial in-equalities during the 70's, I felt an increasing need to rationalize and then codify the information that my mother had given me, regardless of what I was beginning to realize inside... I felt a growing discomfort/conflict, yet there was no one in my life to offer any other perspective... I had learned that black people were a part of society that we didn't talk about. ( There was a black family in my small town, and they were poor and lived in a run-down house near the river...I never had any opportunity or reason to associate with them)

I was a "B" student and also began taking an interest in sports where I was above average. Meeting other schools and student athletes were opportunities to then be exposed to populations that had not been inured by my story yet...I was just another black kid to them.

Communicating my experiences to my mother and step-father was difficult because they had no experience with racial prejudice, therefore when I had problems with other children it would be looked at as an issue that "I" had in getting along with others(as well as intra-family sibling issues).
Because "race" was being ruled-out entirely, by my mothers denial of my father, she could not logically use that rationale to explain any conflicts that I would have. My step-fathers complicity in this was to blindly support my mothers viewpoint.

The "white" viewpoint has always been that blacks(black society) were pretty well cared for, and what contact they did have would be polite and careful... What, with the Voting Rights and Civil Rights Acts being passed, the playing field had been leveled.(re: my mother and step-father's generation)
The feelings and comfort of my mother were apparently what was important, and her inculcation had to have been partly comprised of the idea that white society acted as the gate-keepers and care-takers of an infantilized black population.




questions:

How has black society formed its identity?

What role models have been used, and how does white society react to positive
black role models today? (Are they held to a more critical prism??)

Is there enough information readily available for black people to easily form a
positive racial identity?

Is it important that black society is able to connect accurately the dots of its social
evolution in America? and is it also important that white society can connect those
same dots??

What is White Privilege?

What is White awareness?

What is Whiteness?

What about Affirmative Action?

Is Race just a social construct?

How do we improve our society in America?

Is there any other way(besides the attrition of the old guard) to achieve this??



Dave Myers
www.discussrace.com

 
At 2:58 PM, Blogger Iam Robert said...

Japan and other Asian countries have a very interesting model that has worked somewhat for them. We in the US often call it Protectionism--they buy products native to their country, even if they cost a little more. I agree with you, the US cannot continue to pay high wages and sell cheap goods--companies are too greedy for that. We need to get back to basics.

First, people must understand that the economy is cyclic-- you're going to have up and down turns. People should save their money in good times so that they can not only survive bad times, but prosper. Believe me, someone's getting rich in this environment--why not you?
Next, Americans must live within their income, AT ALL TIMES.
American must also adopt a somewhat protectionist attitude (I know that's what we did with the car industry and got lousy cars) and buy US goods and services--even if they cost a little more.

Finally, African-Americans must shop in their own stores or stores that support their causes. Why pay $200 for a pair of sneakers if the company headquarters doesn't have a single black CEO?

 
At 1:35 PM, Blogger EconNOMA said...

Interesting economic perspective (especially the final paragraph which makes me wonder if this is satire).

Economics is an interesting discipline in that despite most people not understanding the theory, people feel free to chime in. This, of course, doesn't happen in physics or other disciplines.

You mention the Heckscher-Ohlin model of trade (where there's a global price equilibrium) but fail to account for comparative advantage by assuming a 0-sum game and free movement of capital, and further fail to account for change in technology. These two added considerations make the H-O model theoretically pleasing but empirically unlikely.

You then claim that a collapse/depression is inevitable. While I think recession is generally agreed upon, remember that business cycles are unavoidable but temporary (I still don't understand why you think innovation will stop which I assume the 'our economy can't regenerate new cells' is supposed to indicate). This is speculative at best.

The hyperinflation warning is ungrounded in monetary theory. The opposite concern, a price trap, is the more reasonable claim. The inflation concern is only valid if you expect the economy to pull out of a recession quickly, but then that is inconsistent with your previous points.

And finally, you return to the H-O model and complete your jeremiad. It's good that you seem to have an above average understanding to economics, but international trade theory is a step or two above macroeconomics 101.

 
At 5:24 PM, Blogger Teachforever said...

We are all in this together.

 
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