# consumer confidence best since oct 2007, Durable goods...



## Pluto (Sep 12, 2013)

http://www.cnbc.com/id/102127769?trknav=homestack:trending:2

consumer confidence at 94.5, highest since oct 2007, right around the time the S&P peaked, rolled over, and eventually crashed. (Not a prediction, just an observation). 


http://www.cnbc.com/id/102126664?trknav=homestack:mostpopular:9

Large decline in capital goods orders. Hmmmm. good or bad for stocks?


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## Pluto (Sep 12, 2013)

Here is another one: 

http://www.marketwatch.com/story/fo...ly-for-the-rest-of-2014-2014-10-28?link=MW_TD

4 reasons why the market will rally to year end. 

Among the reasons was, "The headline unemployment rate hasn't been as low as 5.9% since 2008." 

But what happened to stocks in 2008-9? Stocks were in a down trend. Typically bull markets end around the time unemployment gets low. Mind you, I'm not making a prediction, I'm observing facts that help to calculate the odds of stock market appreciation or depreciation. I'm hoping the market will rally to year end, and its not impossible, but I'm not betting the farm on it.


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## HaroldCrump (Jun 10, 2009)

Unemployment is not low.
Unemployment is at 35 year highs.


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## the-royal-mail (Dec 11, 2009)

^ That's why your idea to bring back milk delivery is so brilliant. People get their jobs back and fresh milk for everyone. Win win.


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## Pluto (Sep 12, 2013)

HaroldCrump said:


> Unemployment is not low.
> Unemployment is at 35 year highs.


OK, well what is headline unemployment then? Surely you are not saying it is a misprint. I suspect you are referring to non-headline unemployment - a broader measure perhaps. If what what is the broader measure then and now?

It would be helpful if you would give some reference to support your claims.


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## Cal (Jun 17, 2009)

The 5.9% is US data.

Canada http://www.tradingeconomics.com/canada/unemployment-rate


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## GoldStone (Mar 6, 2011)

Pluto said:


> http://www.cnbc.com/id/102126664?trknav=homestack:mostpopular:9
> 
> Large decline in capital goods orders.


Not exactly. Core durable goods grew strongly year over year, four months in a row.


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## swoop_ds (Mar 2, 2010)

Milk Delivery? I was just looking at a 2008 coin about that... http://www.mint.ca/store/coin/50cent-triangle-coin--milk-delivery-2008-prod180010


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## OptsyEagle (Nov 29, 2009)

Just so you know. If you are following these things to get some insight into the future of the economy or the stock market, you will find that consumer confidence rises and falls as the stock market and the economy rises and falls, not the other way around. In other words, it is a lagging indicator...at least in my opinion anyways. It only tells you what "has happened", not the more useful, "what is going to happen".

Actually the only indicator that can give any useful information about the future of the economy is the "US leading economic indicator", and even that can be a little off on the timing. The rest: consumer confidence, retail sales, inventory levels, employment levels, home sales, etc. are all useless in predicting the future of the economy and worse then useless in predicting the stock market.


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## Pluto (Sep 12, 2013)

OptsyEagle said:


> Just so you know. If you are following these things to get some insight into the future of the economy or the stock market, you will find that consumer confidence rises and falls as the stock market and the economy rises and falls, not the other way around. In other words, it is a lagging indicator...at least in my opinion anyways. It only tells you what "has happened", not the more useful, "what is going to happen".
> 
> Actually the only indicator that can give any useful information about the future of the economy is the "US leading economic indicator", and even that can be a little off on the timing. The rest: consumer confidence, retail sales, inventory levels, employment levels, home sales, etc. are all useless in predicting the future of the economy and worse then useless in predicting the stock market.


I agree, mostly. That's why I mentioned that the last time it was this high, the market peaked and turned down. They are not completely useless if used in a contrary fashion.


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## Pluto (Sep 12, 2013)

Cal said:


> The 5.9% is US data.
> 
> Canada http://www.tradingeconomics.com/canada/unemployment-rate


yes, it was a US context article.


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## Pluto (Sep 12, 2013)

GoldStone said:


> Not exactly. Core durable goods grew strongly year over year, four months in a row.


thanks. that could be bad.


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## GoldStone (Mar 6, 2011)

Pluto said:


> that could be bad.


Could be bad. Could be good. Could be neutral. No doubt about that. :biggrin:


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> OK, well what is headline unemployment then? Surely you are not saying it is a misprint. I suspect you are referring to non-headline unemployment - a broader measure perhaps. If what what is the broader measure then and now?
> It would be helpful if you would give some reference to support your claims.


I am referring to U6 unemployment and labor force participation rate, as below.
Both are at generational lows.




















Note that neither the U6 nor the U3 include those that have completely given up looking for work, and are beyond the UI claim ranges.
It does not include approx. 50M able-bodied people on food stamps.
According to USDA's own data, a record 20% of all US households received food stamps in 2013. 

Also note that neither the U6 not the U3 include able-bodied people living on fake disability.
_*Disability is supposed to be the new unemployment*_.

In 2013, there were approx. 1 out of every 12 workers on disability.
This is according to SSA's own data (US Social Security Administration).

And this is in spite of the fact that more physical hazard-prone jobs such as manufacturing, farming, etc. is an increasingly smaller share of US job market.
Services and knowledge work comprises the lion's share of the job market.









Yet, it is completely outside the unemployment calculations.

Next, let us talk about all the able-bodied men & women incarcerated in US prisons under trivial, trumped up, completely ridiculous charges, such as petty theft, non payment of child support, minor drug offences, etc.
According to the US Bureau of Justice, the incarceration rate is 500 per 100K residents.
This is the highest rate in the world - far above third-world, crime infested countries.
At this time, there are over 2 Million residents incarcerated, the vast majority being able-bodied young men, esp. of a particular race.
The large number of those are serving long term prison sentences for essentially unemployment-driven petty crimes, such as car theft, petty pilfering, B&E, etc.

So I am sorry, I do not believe any of this unemployment bullshit being sold by the US government and its statisticians.
These are not signs of a healthy, growing economy.
These are not even signs of a recovering economy.

You know what this is a sign of....this is a sign of _economic depression_.


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## GoldStone (Mar 6, 2011)

On average, 10000 US boomers retire *daily*. They will continue to retire at this rate for the next 20 years. The share of 65 and older age cohort is growing steadily.

This has nothing to do with the dropping participation rate, does it Harold?

http://www.washingtonpost.com/blogs...07/24/do-10000-baby-boomers-retire-every-day/


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## HaroldCrump (Jun 10, 2009)

The calculation eliminates the elderly that are not able to work due to health reasons.
So it does include able-bodied, retired people.
Some of that is offset by new additions to the work force via immigration and attaining the age of 16.

Yes, able bodied "boomers" retiring reduces the participation rate, but it also reduces economic activity.
If the desired end state is organic economic growth, you cannot withdraw 10,000 productive workers from the economy every day and expect any sort of economic growth (if that number is correct).
It is simply not sustainable.

BTW, my post was not just about the labor force participation rate - that just happened to be the first chart.
That is not the only, or even the worst, metric.

Boomers retiring cannot explain away all the issues with US labor market.
There are real, serious underlying issues there.


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## fatcat (Nov 11, 2009)

what we are seeing is the massive effect of automation and technology hitting a large group of people who simply have no marketable skills and are now competing for low-wage service sector jobs

and what makes it worse is the number of private colleges charging huge amounts of tuition and turning out "graduates" who still have no marketable skills and yet owe a trillion dollars in school loans

lower, lower-middle and middle class purchasing power is what worries me, there is virtually no upward pressure on wages

the united states is such a poorly run country that it boggles the mind


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## HaroldCrump (Jun 10, 2009)

I agree with you fatcat.
These are structural problems in the US economy.
These cannot be solved with monetary policy alone.
Setting interest rates to 0 and buying govt. bonds (to finance even more spending) will not solve structural problems.

Perhaps what we are looking at is a new, and permanent, _*natural rate of unemployment*_.
This is the rate that is going to balance the profitability demands of US corporations, and the global balance of payments & power (vis-à-vis China, Europe, and emerging countries).

Large swaths of the US population disenfranchised, disowned, and kept out of economic growth.
This will create tremendous social pressures, and we can expect to see more and more incidents like Ferguson, Missouri.

Some might say that this will lead to some sort of tax-payer funded minimum income subsidies paid to these chronically unemployed sections of the population.
But I don't think that will work out.

These kinds of situations inevitably create social unrest, violence, and class conflict.


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## sags (May 15, 2010)

From a review of Robert Reich's documentary ......Inequality for All.

http://inequalityforall.com/


_The major study on inequality was done by Emmanuel Saez (also at Berkeley) and French economist Thomas Piketty. Their innovation was to measure American income inequality historically. Existing data went back only to the 1970s. Tedious archival research at the Internal Revenue Service allowed them to stretch the data all the way back to 1913. *After World War II, there was a period in which the middle class did quite well. This lasted till approximately 1980. After that median wages remained flat up till the present day while the income of the upper 1% skyrocketed thus producing epic inequality.*

The US has one of the most unequal distribution of incomes and wealth of any country in the world. Rated by the gini coefficient, a measure of inequality, the US has more inequality than Turkey, Iran and the Ivory Coast to name just three.

Robert Reich does not advocate any radical solutions to this problem despite the fact that Bill O’Reilly has called him a communist on Fox News, the archival footage of which is included in the film. He points out that the two high points of the suspension bridge correspond to the points at which taxes were extremely low for the upper class. Reich is basically a Keynesian who would like taxes raised on the rich with the money spent to rebuild infrastructure thus providing middle class jobs. *He points out that the decline of the middle class exactly corresponds with the deunionization of the US, but labor unions will probably not be coming back any time soon due to the facts of globalization and robotization.* American workers do not have any leverage for jobs that can either be shipped overseas or roboticized. *Unions were able to bargain for better wages when the corporations really needed them in the period 1945-1980. They don’t really need them now.*_

http://sandiegofreepress.org/2013/10/another-view-of-robert-reichs-inequality-for-all/#.VFBVzGe8Fas

From another review

_The strongest moments aren’t the personal sob stories *but the explanations of the abstract economic trends that allowed them to happen.* Take that student loan debt: According to Reich, increased globalization meant jobs that didn’t require college degrees were outsourced overseas, making a degree more important to people’s future success. Recently, many public universities have seen a reduction in their state funding, leaving them to raise tuition—which, given stagnant or declining wages in the U.S., makes it more difficult for middle-class families to afford. In the 1960s, public college tuition was about 4 percent of median family income; today it’s almost 25 percent, according to Reich. People still need that degree, and they pay for it any way they can, usually by going into debt._

http://www.businessweek.com/article...ll-robert-reichs-analysis-of-wealth-disparity


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## sags (May 15, 2010)

One area that I would disagree with Mr. Reich is that education is going to solve the problem.

There are far fewer jobs being created that require higher education....than are the numbers of people graduating from schools of higher learning. In addition there are tens of millions of experienced employees competing for these same jobs.

The giant funnel of education, squirts out more doctors,lawyers, nurses, teachers...than government budgets can afford to pay.

Any analysis of current job reports show that "good" jobs are primarily being created in the public service realm........education and healthcare sectors......but the bulk of job creation is in low paid service jobs.........fast food restaurants and retail sectors.

Just slightly elevated above the service jobs...but below the professional, university education required jobs..is a thin layer of work.

Mostly, it involves skill labour with your hands.........kind of work.

Homes will always need a new roof. People are always putting up fences. Machinery and autos always need to be fixed.

These are jobs that can't be automated or outsourced.

This thin layer of jobs will provide work....but at a substantially lower income levels than in the past.

Typically though........university graduates are not drawn to these kinds of jobs after graduation.


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## HaroldCrump (Jun 10, 2009)

Regarding Thomas Piketty, I disagree with both the premise of his book, as well as the proposed solutions.
IMHO, it was cheesy of him to title the book _Capital_ - it is clearly a reference to Marx's _Das Capital_.
However, Piketty's 21st century tome does not even begin to come close to Marx's 19th century tome.
There are fundamental differences between the premise and the conclusions.

To begin with, concentration of capital is precisely the desired outcome of capitalism.
This is what Marx spent a lifetime trying to explain and prove.
That is what enables capitalism.

Secondly, Piketty completely misses the reason for interest, rent, and profit.
His premise is that this leads to concentration of capital, and therefore must be taxed away via legislated progressive taxation.

Marx told us over 100 years ago that interest, rent and profit are a direct result of private ownership of capital.
In classical bourgeois economics, it is the reward for risk taking (but ultimately both arguments are two sides of the same coin).

You can't keep taxing interest, rent & profits (incl. dividends) progressively and expect to have a well functioning capitalist system.
It leads to misallocation of capital.

A deeper discussion of Piketty's book is beyond to scope of this thread, so I'll leave it at that.

Regarding education, I agree with sags' analysis.
Education is concentrating into this subject areas that lead to govt. funded jobs, such as teachers & nurses.
Overall, there is education inflation.
Simply issuing more bachelor's and masters' degrees will not solve structural problems.
We have to solve the fundamental misallocation of capital that is going on.


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## HaroldCrump (Jun 10, 2009)

BTW, going back to the earlier issue of true US unemployment, let's keep in mind that the large %s of people on food stamps, disability (i.e. pseudo-unemployment), and incarcerations are all factors in keeping aggregate demand down in the US.
These groups of people do not spend much (or any) money in the consumer economy.
When you have eliminated nearly 1/3rd of the consumers from the aggregate demand, you can't expect consumer expenditure to grow at a healthy rate.

The effect of that is it keeps the velocity of money low.
More people spending, more people demanding credit increases the velocity of money.
Which, in turn, creates inflation (assuming constant supply of money) - which is precisely what the Fed has been trying to achieve since 2009.

In other words, this en masse "povertization" of the bottom rung of consumers is preventing the Fed from achieving their goals.
Their very policies of financial repression are preventing their success.
It is ironic.


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## Nemo2 (Mar 1, 2012)

sags said:


> Typically though........university graduates are not drawn to these kinds of jobs after graduation.


Makes the young guy I mentioned in post #11 here http://canadianmoneyforum.com/showthread.php/17146-What-Your-Kids-Are-Going-To-Do/page2 sound even more tuned in.


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## sags (May 15, 2010)

The party has been kept going by easy debt........but what happens next ?

At some point people will be maxed out on debt..........and the real problem starts when they have to repay the debt from their troubled finances.

People will not only be earning a stagnated income........but part of it will have to go towards debt repayment.

If this isn't a depression lining itself up...........I don't know what is.


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## HaroldCrump (Jun 10, 2009)

sags said:


> The party has been kept going by easy debt........but what happens next ?


The plan is to inflate away the debt - not just the personal debt, but govt. debt as well.
Inflation is a friend of the debtor, and an enemy of the saver.



> At some point people will be maxed out on debt


Already are



> and the real problem starts when they have to repay the debt from their troubled finances


The debt will be marked down. and/or transferred to the tax-payers.
Think about all those R/E write-downs, foreclosures, and bailouts from 2008 - 2009.
Essentially, the bad debts have been written down/off, and the rest transferred to the tax-payers.



> If this isn't a depression lining itself up...........I don't know what is.


As I said in the post above, by certain measures, the US may already be dangerously close to one (the food stamps, the unemployment, etc.).
There are many different types of crisis, recessions, depressions, etc.
We try to predict one by looking back at the characteristics of previous crises, but it may not be the same.

The crisis of 1929 was different than 1907, which was different than 1870s, etc.
The media archives from the 1920s show that those days people used to refer to the 1870s as the great recession, or something to that effect.

The stagflation of the 1970s and early 1980s was different than the 1930s.

So, everyone is looking at the salient features of previous crises and trying to forecast the next one...but it may not be the same.
The problems that caused the 1929 crisis may not cause the next one.
The solutions that worked in 1933 (or in 1980) may not work next time.


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## sags (May 15, 2010)

I agree Harold..........

Without all the social programs in the US.......imagine what the nightly news would be showing.

50,000,000 people in lineups at soup kitchens ? 

People everywhere with signs........"work for food" ?

Add in a lot of people who are paying for their own food......but barely getting by each month.

And all those people who started collecting SS benefits early at a reduced rate........just to pay the bills.

They are forever stuck at that low level of income.

Government handouts are hiding the depth of the problems.


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## sags (May 15, 2010)

What is telling that anytime a journalist takes to the road and talks to people in main street coffee shops, that regardless of the political leanings of the reporter..........the story is always the same.

People are really struggling. Their incomes haven't kept up......if they have a job at all. They are worried about their future and feel that nobody is listening to them. Politics only come up in who to blame for it all.

The Tea Party was supposed to give people a voice.......but it was taken over by right wing zealots who made the movement look ignorant and stupid.

Maybe that was the goal....to make the movement look like a bunch of survivalists and nut cases.....to stub the real message.

I remember when Rick Santelli started the movement on CNBC. I was watching it live and thinking.........right on Rick.

But the conservative Tea Party petered out......and then the liberal Occupy Movement gave it a go.....but both were ignored and faded away. The people in control aren't right wing or left wing.......they are agnostic politically (they donate to both sides) and perfectly willing to screw both sides of the political spectrum........if it puts more money into their pockets.

Maybe the next time a grassroots movement starts up........it won't be so easily dismissed.

Maybe it will be a coalition of left and right.......fiscal conservatism with a social heart for those in need.

That would be a force everyone could get behind.


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## Pluto (Sep 12, 2013)

HaroldCrump said:


> I am referring to U6 unemployment and labor force participation rate, as below.
> Both are at generational lows.
> 
> 
> ...


I appreciate your social justice concerns. Apparently the first guy to get a life sentence under the three strikes and you're out law, got 25 years for stealing a slice of pizza from a street vendor. 

As to the economy, and participation rates, one graph you supplied gave rates back to 48. I notice the 48 to 1960 era had lower rates than today. Would you then claim that was an era of economic depression? Typically it is considered to be an era of increasing prosperity, with a great bull market. I guess I don't buy your thesis that low participation rates = economic depression. So perhaps you could explain that more.

I might add that sags posted (post 19) the following quote: "After World War II, there was a period in which the middle class did quite well. This lasted till approximately 1980. After that median wages remained flat up till the present day while the income of the upper 1% skyrocketed thus producing epic inequality."

The era that is identified as epic inequality is also the era of higher participation rates that you seem to like. So what's hoping on here? Does that mean in order to have higher participation rates, we need "epic inequality"?


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> I appreciate your social justice concerns.


It is not just a bleeding-heart, social justice matter.
Keeping such a large section of the population out of the consumer market has real economic implications.
These people are not spending on consumer goods, not borrowing money, buying houses, working at jobs, etc.

And by "people" I don't mean just the incarcerated...I mean the entire swath of welfare-dependent, fake disability dependent, the working poor (i.e. food-stamp dependent), etc. 



> As to the economy, and participation rates, one graph you supplied gave rates back to 48. I notice the 48 to 1960 era had lower rates than today. Would you then claim that was an era of economic depression?
> ...
> So perhaps you could explain that more


Sure - the calculation eliminates all members of armed forces, army reserves, national guard, etc.
It also excludes homemakers (i.e. women for the most part).
Back in that period you are talking about, women still had not entered the work-force in the big way.
That movement started only since the 1970s.
That is the effect that you are seeing.

So, essentially, the US labor force participation rate has fallen back to the times when women had not yet entered the work-force in a big way.

Also, to clarify, low participation rates per se do not equate a depression - I didn't mean to over-simplify it in those terms.
It is only one of the factors, as I have pointed out more than once.

It is also the food stamps, the working poor, the fake disabled, the fake incarcerated, etc. - a very significant number of the population living outside the realm of productive economic activity.

One last thing - in that article linked to by GoldStone, it claims that 10,000 boomers are retiring every year.
While it does (perhaps artificially) lower the participation rate, it is not good news.
Quite the contrary.

Many of those people are not retiring because they have tons of money to travel the world, play golf, and relax on the white sandy beaches of Florida.
They are retiring simply to start claiming their (reduced) social security.
There is lots & lots of ageism in the workplace.
These people cannot find well-paying jobs commensurate with their experience.
Therefore, they are taking the easy way out and "retiring", which is simply a way to claim SS.

Then there is the 800 lb. elephant in the room - health care costs.
That is one of the reasons, these boomers are not able to find well-paying, steady jobs commensurate with their experience - companies do not want to increase their health care insurance costs.
Keeping these boomers on the payroll increases the average age of their workforce.

They'd rather hire young people, fresh out of university, willing to work 18 hr. days for low pay.
That exacerbates unemployment (i.e. 1 worker is doing the job of 1.5 or even 2 workers).

And it keeps the health care costs down.

So, the boomers are essentially compelled by circumstances to "retire".
They are also able to claim Medicare at this point.

Having "retired", what do they do?
They turn around and become part-time greeters at Wal-Mart, and take up other low-paying, marginal jobs.

If 10,000 boomers were truly retiring every day, you wouldn't be able to book a hotel room in Miami beach


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## Pluto (Sep 12, 2013)

^

Harold, 

I might add that sags posted (post 19) the following quote: "After World War II, there was a period in which the middle class did quite well. This lasted till approximately 1980. After that median wages remained flat up till the present day while the income of the upper 1% skyrocketed thus producing epic inequality."

The era that is identified as epic inequality is also the era of higher participation rates that you seem to like. So what's hoping on here? Does that mean in order to have higher participation rates, we need "epic inequality"?

Also, with roughly half of adults, (women) not participating in the paid workforce, back then, the economy did fine. Isn't it possible that with social and political pressure on both women and men to have paid jobs, there are too many people seeking too few jobs? It could be that there are social-political expectations of an economy that can not meet those expectations. Why is it necessary for an economy to supply the possibly Utopian ideals of a society? and if the economy doesn't meet unrealistic expectations, why is it that there must be something wrong with the economy?


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## Nemo2 (Mar 1, 2012)

'We' have (d)evolved from a labor-intensive agrarian society, through a labor-intensive industrial society, to a consumer-intensive society with a huge labor surplus...........is there a possible solution? 

I fear humankind will resort to the 'tried & true' basics.....i.e. "They've got some, let's take it".


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## fatcat (Nov 11, 2009)

HaroldCrump said:


> It is not just a bleeding-heart, social justice matter.
> Keeping such a large section of the population out of the consumer market has real economic implications.
> These people are not spending on consumer goods, not borrowing money, buying houses, working at jobs, etc.
> 
> And by "people" I don't mean just the incarcerated...I mean the entire swath of welfare-dependent, fake disability dependent, the working poor (i.e. food-stamp dependent), etc.


exactly and it seems to me you have to remedy the problem by putting more money in the hands of these people or increasingly they will just "take it"

you either a) create real living jobs or you b) implement a progressive tax system and move money down in programs like the guaranteed income supplement or guaranteed annual income or the like

and it appears to me that the former is unlikely to take place since though there is a demand for skilled labor, there is huge mismatch of skills and b) there is a large portion of the (present) population that aren't capable of learning and holding living-wage jobs

canada and the western socialist countries seem to understand this much better than the usa where the right is essentially putting a stop to everything except the faint hope of possibility a ...


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> The era that is identified as epic inequality is also the era of higher participation rates that you seem to like. So what's hoping on here? Does that mean in order to have higher participation rates, we need "epic inequality"?


The post-war period was a period of re-building and relative calm (except the Korean war, which was rather brief).
But the key thing was the re-building - in the US, Europe, and Japan.
Governments, corporations, etc. all came together to re-build the productive capacity of the developed world.
This was also the time all the modern-day aid and welfare programs were being put in place.
There was so much excess capacity built up during the war that utilizing it to re-build society produced a lot of prosperity.

Also, on the economic fundamentals aspects, this was a period of stable currencies, low inflation, and steady balance of payments between the major powers.
Thanks to the Bretton Woods system, the world had stable currencies, and all the major powers had the amount of gold they needed.

The inequality begins to re-appear in the 1970s because of several factors.

As the Hegelian dialectics show, inside every equilibrium, there are seeds of its own destruction and disequilibrium.

First came the misguided welfare policies of Lyndon Johnson (the "Great Society" programs).
Johnson started leveraging the strong, gold-backed US dollar and started running large deficits to finance his visions of welfare state.
The Vietnam War started during that time as well, which meant even more deficit financing.

Then came Nixon, who was equally misguided and corrupt.
He really ramped up the deficit-financing to fund the war.
Nixon - in his infinite stupidity - pursued a full-employment policy, egged on by his incompetent and politically motivated advisors.

Unfortunately, at this time, he had a puppet Fed governor - Arthur Burns, who realized how wrong these policies were, but didn't do anything to stop it.

Several key economists such as Paul Samuelson were repeatedly warning Nixon to abandon this full employment goal.
But he was politically motivated, and was trying to cover up problems in other areas (the war, the Watergate, etc.)

All of that eventually led to the Great Inflation period in the 1970s and early 1980s.

Inflation hurts the working class like nothing else.

Since then, inequality has been steadily growing.



> Also, with roughly half of adults, (women) not participating in the paid workforce, back then, the economy did fine. Isn't it possible that with social and political pressure on both women and men to have paid jobs, there are too many people seeking too few jobs? It could be that there are social-political expectations of an economy that can not meet those expectations. Why is it necessary for an economy to supply the possibly Utopian ideals of a society? and if the economy doesn't meet unrealistic expectations, why is it that there must be something wrong with the economy?


Right, and that is the whole welfare state argument i.e. the govt. must follow a full employment policy at all times.
This is what Nixon did, and produced disastrous results.
There used to be a concept called _*The Phillips Curve*_, which created a negative correlation between inflation and employment.

Your question is a good one - why should govt. policy be responsible for creating full employment.
There is no easy answer - it is mostly a mix of political and socio-economic reasons.
Paul Samuelson used to warn that even a 3% rate of unemployment is too low, and would lead to inflation (and it did).

Then there is the concept of a _*natural rate of unemployment*_.
So, perhaps, what we are seeing now is a historically high rate of natural unemployment, which is structural.

I believe shadow stats, etc. estimate the alternative rate of unemployment to be closer to 30%, by accounting for all the fake disabled, food-stamp dependent working poor, etc.
U6 itself is sitting at around 12%, so it is not entirely a stretch that accounting for all the underemployment and other factors, unemployment may be in the 20% to 30% range.

There is one other very serious effect of these low wage jobs, which the US has not yet started to grapple with, but the UK is already facing - and that is the fall in aggregate tax receipts, even with full employment.
UK unemployment is lower than the US, and they have recently made lots of gains in employment.
Yet, govt. tax receipts from income tax has actually _fallen_.
This is because people are working in lower & lower paying jobs.
So, yeah, govt. may claim that unemployment is only 3%, but the wages are a lot lower than before the recession, and thus income tax receipts are lower.

So, the final question that arises is - how are our welfare & social program addicted governments continue to fund their welfare state with falling tax receipts?
Corporations sure as heck aint willing to pay additional taxes - corporate tax rates are at historical lows, and despite that there is lots of tax inversion shell games going on.

Answer - the tax burden will be more aggressively distributed among a shrinking tax base.
This means punitive levels of progressive taxation.
This means lowering of income tax brackets.

We are already seeing this in Ontario, which has a very strong welfare state and high deficits (next only to Quebec).


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## HaroldCrump (Jun 10, 2009)

fatcat said:


> you either a) create real living jobs or you b) implement a progressive tax system and move money down in programs like the guaranteed income supplement or guaranteed annual income or the like
> 
> and it appears to me that the former is unlikely to take place since though there is a demand for skilled labor, there is huge mismatch of skills and b) there is a large portion of the (present) population that aren't capable of learning and holding living-wage jobs


I would say option b. is unlikely to be successful as well.
For several reasons.
Fundamentally, you can't keep over-taxing people that make above average incomes and re-distribute their wealth in the form of free guaranteed annual incomes.
There will be extreme resentment among that group of people, and it is inevitable that they will back political parties and candidates that promise to put an end to that stupidity.
It will create social strife.

Secondly, it is very inefficient from an economic perspective.
Think about who the people in this group are - these are highly educated and trained professionals like doctors, lawyers, professors, bankers, etc.
You can't over-tax these people, and re-distribute to an ever increasing section of non working population.

The problems in the US are structural and ideological.
There is colossal waste and misallocation of capital there.

Part of the misallocation is induced by monetary policy (ZIRP, Q/E, LSAP, etc.)

The rest of the misallocation is political, in terms of war & conflict related waste.
The US has been financing global warfare of over 50 years.
This is essentially a misappropriation of productive wealth, and re-allocation to destruction and waste.

Then there are inefficiencies and waste in the health care sector.
Their health care policy is dictated by big pharma and big insurance.
Again, there is an appropriation of hard-earned wealth in other sectors by the private health care sector.

There are still gross inefficiencies in the labor market.
The manufacturing, construction, and govt. services sectors are still heavily unionized.
That is preventing free movement of labor.
On the govt. side, it is preventing all levels of govt. from introducing efficiencies and cutting waste, over-compensation, etc. (although the problem of over-compensation of unionized govt. sector in the US is a fraction of that in Canada).

We can see that in states that have been clamping down on unions and introducing the so-called "right to work" legislations have seen a resurgence of manufacturing jobs.
Industry has come back into those states and municipalities.
Jobs are being created, and people are able to earn living wages in those jobs.

De-unionization is very important first step to fix structural problems and improve mobility of labor.
The waste and misallocation of capital will take longer to fix, if there is any political will at all.


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## Pluto (Sep 12, 2013)

OK Harold, in response to pot #33. I agree, Nixon was stupid. Surely Samuelson was not using u6. surely he was using a measure that is the same as, or similar to the U? that is most quoted in the media. I forget which U it is, but it isn't u6. 

Also, the social expectations regarding paid work have changed. More women, compared to the 50's, expect now to engage in paid work. So doesn't that tend to bloat U6? And uf U6 is bloated due to changing social expectations, why does that mean the economy has structural problems? Why couldn't it be that the economy just can't supply what changing social expectations demand? Moreover, the change in social expectations, ie all women should work, increased the workforce, and the increase in supply of labour, made labour cheaper. So now, the complaint of "low wage jobs" arises. couldn't that be the cause of low wages? (Mind that I am not blaming women who work or want to work. I say go for it.) I'm just saying that when the supply of labour increases, it tends to lower the cost of labour. Would we be happier if fast food restaurants became automated and 90% of jobs in McDonalds was done by robots? thereby eliminating a crappy low wage job?


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> Surely Samuelson was not using u6. surely he was using a measure that is the same as, or similar to the U? that is most quoted in the media. I forget which U it is, but it isn't u6.


It's U3.



> Also, the social expectations regarding paid work have changed. More women, compared to the 50's, expect now to engage in paid work. So doesn't that tend to bloat U6?


Yes, but keep in mind that the primary reason to work is to earn money (ideological matters, aside).
One wants to earn money if & only if one needs it.
So, the pool of labor (the denominator of U6) is people that _want _to work to earn money.
If they can't find work, IMO, it is unemployment.

None of the unemployment measures say anything about the demand side (i.e. how many workers are needed), or the wages (i.e. the cost of labor), or the productivity (i.e. GDP per hr. of human labor).
All it says is X number of people want to work, but can't find jobs.

The solution is not to decrease the pool of labor by removing sections of workers from the supply side, but to increase the demand for labor.
However, the official measure of employment is doing precisely the former.
It is progressively eliminating groups of workers from the supply side in its equation, and thus lowering the "unemployment" rate.

If this process continues, soon we will have 3% unemployment, and after that 1% unemployment.
Yet, wages will be down, income tax receipts will be down, more people on welfare stamps, more people on fake disability, more crime & incarceration, etc.
And even U6 does not measure them...

But that is hardly a desirable situation.

The state of society where people voluntarily opt out of the workforce (stay at home moms, early retirees, etc.) is very different than a society where they are forced by circumstances to stay out of the job market.
The former is a sign of increasing productivity, more leisure time, and generally a healthy society. The latter is the exact opposite.



> And uf U6 is bloated due to changing social expectations, why does that mean the economy has structural problems?


People want to work not because of ideological reasons, but because they need the money.
You are referring to the women's lib movement that happened over 40 years ago.
That's all done & behind us.
The women that want to work today need the money.



> Moreover, the change in social expectations, ie all women should work, increased the workforce, and the increase in supply of labour, made labour cheaper. So now, the complaint of "low wage jobs" arises. couldn't that be the cause of low wages?


Not necessarily.
Hypothetically, if we were to legislate that women are not allowed to work, it will create a severe contraction.
Wages may go up temporarily in certain sectors, but it will not solve the underlying problems of low wages, welfare dependency, etc.
In fact, families that today rely on two incomes will be rendered destitute.
It is not as if that suddenly the working spouse will begin making double salary.



> I'm just saying that when the supply of labour increases, it tends to lower the cost of labour. Would we be happier if fast food restaurants became automated and 90% of jobs in McDonalds was done by robots? thereby eliminating a crappy low wage job?


No, because the increase in profit accrues to the corporation, not to society.
What you then need to do is tax away that profit, and re-distribute it as a minimum guaranteed income.
That is not sustainable.

Artificially squeezing the supply of labor to increase wages leads to inefficiency, mediocrity, and backlash.
After all, that is the unionized labor model - regulate the supply of labor to extract higher wages.
It causes businesses to automate jobs, offshore jobs, relocate entire business, evade taxes, and to lobby political parties & candidates to counter those policies.

This is a structural problem.
It cannot be solved by contracting the supply of labor, or through monetary policy.


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## fatcat (Nov 11, 2009)

HaroldCrump said:


> I would say option b. is unlikely to be successful as well.
> For several reasons.
> Fundamentally, you can't keep over-taxing people that make above average incomes and re-distribute their wealth in the form of free guaranteed annual incomes.
> There will be extreme resentment among that group of people, and it is inevitable that they will back political parties and candidates that promise to put an end to that stupidity.
> It will create social strife.


you end up with strife whichever way you go ... the rich are already making moves to disenfranchise the underclass in a thousand different ways .. the strife you predict is fully underway

i lay the blame on the far right (never mind my issues with the far left which are many) which has a group (aided and abetted by the electoral college and the 12th amendment) which simply will not bend, they are so ideologically rigid that they will take the country down if they can


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## Pluto (Sep 12, 2013)

response to post 36.
Ok, Harold, its U3. I assume U3 has been in constant use since Nixon & Samuelson. And I assume your stats of U6 and the shadow data are correct meaning that unemployment is more like 12 to 30%. If the latter is true, it shouldn't matter if U3 goes to 3%, or even 0. Yes? So maybe if Nixon meant 0% measured by U3, he wasn't so stupid on that matter. Are you saying that back in the Nixon era U6 was not as high as it was today? 

And also, why does unemployment have to be a %. Why not use another measure, such as evidence of wage inflation? I suppose economists start to anticipate inflation at a specific % due to historical precedent.


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## londoncalling (Sep 17, 2011)

Expectations in the post war economy are much different than today. Not a lot of people expected a vacation to (insert foreign location here) on annual basis. Most consumers change TVs cell phones, homes and computers more than consumers of the 40s replaced any household items. When lower class families can be offered ridiculous mortgages and live on maxed credit eventually the house of cards comes crashing down. Most things are different today than any of the times mentioned above. Incomes, costs, expectations, technology, etc. It is an apples and oranges comparison. The symptoms of the late 2000s and the late 20s may be different but the disease is the same. Unrealistic expectations, euphoric faith in an unrealistic and unsustainable marketplaces (stocks in the late 20s vs. US real estate in the late 2000s) lack of fiscal restraint by Joe and Jane citizen as well as the Govts. Historically, the solution to depression, recession has usually been war. We definitely live in interesting times.


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> Ok, Harold, its U3. I assume U3 has been in constant use since Nixon & Samuelson.


Yes, and no.
The various US statistics reporting agencies keep changing/tweaking the formulas for calculating the various key indicators.
It is well know that the "inflation" formula has been changed several times since the 1970s.
After the Great Inflation experience of the 1970s, governments would have said - never again. We will do whatever it takes to never have inflation again.
So they report it in a manner that understates inflation.

I will have to go back and check whether U3 as defined has been changed since the 1960s or not.
However, that is a little beside the point I am making here.

My point is that it does not matter that U3 is - the fact is as long as you have people that are involuntarily out of the work force, there is unemployment.

People that can work, and should be working - because they clearly need the money - there is unemployment.
These people are not out of the workforce because they have enough money, and are playing golf or sunbathing all day long.
To me, it is pretty clear.

The only question remains whether this is a monetary issue (i.e. tight money supply preventing business investment) or a structural issue (business reluctant to invest).
To me, these are structural issues.
But we can debate that.

IMHO, we are debating something that ought to be pretty clear - that there is massive unemployment in the US - regardless of whatever the official rhetoric may be.



> And also, why does unemployment have to be a %. Why not use another measure, such as evidence of wage inflation? I suppose economists start to anticipate inflation at a specific % due to historical precedent.


Wage inflation is a completely different metric.
There is the Phillips Curve effect, for instance.
However, to me it is pretty clear that in a ZIRP environment, the Phillips Curve is clearly not working.

But that aside, using wage inflation as a measure of employment could be very misleading.
You may have a small % of highly trained, skilled people making a lot of money, while a vast majority of population is impoverished or stuck in dead-end, low-wage jobs (sound familiar?)
That leads to massive social imbalances, social unrest, and constant rhetoric from both sides.
If anything, that will end up hiding terrible income inequality.


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## Pluto (Sep 12, 2013)

Response to #40.
I believe you, it is structural. I have heard other economists claim businesses are not investing like one would hope. He claimed they are not investing because they don't think they can make money. So low interest rates are not stimulating business investment - as long as they think they can't make money, they won't borrow to invest regardless of low rates. So government intervention isn't working to the extent one would desire. That's one of the dots that economist connects to support the belief that the next recession will be very bad, perhaps worse than the last. 

I don't have any grounds to debate if it is structural or not. That's way beyond my area of knowledge. So I wasn't aware this was a debate. I thought I was just asking questions to clarify your perspective. In short, your perspective is, I think, unemployment is way higher than U3 indicates, and it is a structural phenomenon. And you seem to be implying, that if U3 got pretty low, say 4%, that still would not induce inflation because unemployment is way bigger than u3 indicates. Yes? no?


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> In short, your perspective is, I think, unemployment is way higher than U3 indicates, and it is a structural phenomenon.


Yup, that's my view.



> And you seem to be implying, that if U3 got pretty low, say 4%, that still would not induce inflation because unemployment is way bigger than u3 indicates. Yes? no?


Yes, but with a caveat (more on that below).
But yes, unemployment rate will no doubt come down to 4% sooner or later.
As the labor participation rate keeps falling, more people go on disability, and essentially drop out of the productive economy (both from producing as well as consuming), the official unemployment rate will be 4% soon.

Note that 3% is commonly considered a "full employment" level.

Once unemployment rate dips below 4%, quite likely the Fed will declare victory and wash their hands off the whole thing.
They will leave the govt. - and society - to deal with this massive problem instead.

Now, regarding inflation - when the Fed (or our BOC) say inflation is low, they are again looking at a metric (CPI).
Therefore, how that metric is calculated, what's included, what's not, what the relative weights are, etc. determines what the number says.
CPI may be low, but there is massive inflation (i.e. rise in prices) where it hurts the most - in food, energy, gasoline, and basic services.

This is true in Canada as well, and in fact, marginally worse than the US because of our weakening currency lately.

But sticking with the US, there is massive inflation in food.
For instance, just in the last year:

- Butter is up 23.7%
- Meat rose 13%
- Beef alone is up 17.8% (the biggest rise since 2004)
- Whole milk rose 8.7%
- Fruits rose 9.5%

*Meat, fruit, milk and butter prices skyrocket*

and:

_*U.S. Food Inflation Running at 22%*_

Whatever the official CPI stats may say, people on the street are feeling the pinch.

When speaking with my friends/colleagues in the US, everyone is complaining how they keep running out of money before the end of the month.
Many of them are dual-income families with good jobs, not burger flippers.
Some keep rolling over their outstanding balances between 2 - 3 cards to buy themselves an extra 30 days to pay.
Most of them have reduced their mortgage costs significantly in the last 5 years by refinancing at very low rates.

In spite of that, they are frustrated that there simply isn't any money left over at the end of the month.

*The cost of tuition for the kids is going up at never before seen rates*.

*Health care costs are rising faster than inflation*

What that article doesn't say is that many US corporations are laying off aging workers because of their higher health insurance liabilities.
They want to reduce the average age of workers.
No one is hiring these laid off workers, regardless of skills.
Eventually, they drop out of the workforce even though they have not saved enough for retirement.
They join the U6 pool...or worse, completely drop off the radar...

So, if everything that matters is rising much faster than inflation, what good is that metric?
The Fed is ignoring real inflation and real unemployment - not that they don't know, or don't care, or don't understand.
Of course they do...but they are powerless to solve these problems.


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## Pluto (Sep 12, 2013)

OK, cool. I don't have any disagreement with 1. a measure of inflation broader than CPI shows high inflation, and 2. Unemployment is higher than U3 claims. 

But for my purposes, does it matter? When I look at a long term chart comparing a major US stock index to u3 unemployment, typically stocks peak when unemployment is < 6%. (I am not aware of anytime national unemployment has reached 3%.) So, unemployment used as a contrary (approximate) indicator, seems viable. One of my goals is to avoid being fully invested in a bear market, and the better the economy gets, the more vigilant I become in looking at more precise indicators. 

Two of your pet peeves seem to be CPI isn't accurate and U3 is not accurate. One of my peeves is the myth that if the economy is good, it must be safe for ma and pa to go all in. I've seen it happen: a smiling well dressed articulate professional sounding financial advisor takes a big fat cheque while assuring ma and pa that everything is fine because the economy is great and has been really cooking for some time, so stocks are bound to go up. He takes that big cheque, and buys them mutual funds that pay him a huge commission and peel off and additional 2.7% a year. Ma and pa don't even know about the commissions and fees. then like clockwork, after years of a recovering economy, and a rising stock market, stocks start to weaken. But ma and pa are resolute because the nice guy in the suit said things were fine. Months later they get a statement saying they just lost 40% of their life savings. the nice guy in the suit basically sweet talks them off the phone with a bunch of babble they don't understand. Besides, they signed a form stating they were informed of the risks, so even if they weren't it doesn't legally matter to the advisor. At this point they don't trust the advisor, and insists he sell everything, making the loss fairly permanent. 

You never know, maybe some ma and pa will read something somewhere about being cautious of stocks around the time the economy is really good, and the market has been going up for over 4 years. They might save themselves some grief.

Anyway, thanks for the input. The original intent was having great consumer confidence numbers doesn't necessarily mean things are fine for stocks, and that fits under the umbrella of the more general theme, that a good economy is bad for stocks. And as you suggest, the finer details of unemployment and inflation may not matter for my purposes because the fed may well ignore it.


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> But for my purposes, does it matter?


Well, the massive disconnect will show up sooner or later in some form or another.
If trend continues, we can have "full employment" at 3%, while 1/3rd of the US population could be on welfare + disability.
Something's gotta give...at that point it may not matter where the stock market is...we could have bigger problems on our hands.



> Anyway, thanks for the input. The original intent was having great consumer confidence numbers doesn't necessarily mean things are fine for stocks


All the talking heads are going on and on about how the falling price of retail gasoline is increasing consumer confidence, and that people will spend more money, etc.
I don't think so.
Yes, falling price at the pumps may increase consumer confidence, but many people will not spend the surplus.
People will act rationally and either save it, or use it to reduce consumer debt.
I know the stereotypical image of the US consumers is an idiot that keeps spending money on consumption and racks up consumer debt, but real people are not that stupid.
They will take the surplus and deleverage i.e. reduce consumer debt.

There is no consumer spending binge coming up...



> And as you suggest, the finer details of unemployment and inflation may not matter for my purposes because the fed may well ignore it.


The Fed is not ignoring it.
They are very well aware of it.
One of the other metrics that the Fed watches keenly are real wages.
Yellen watches it every week, every month.
These are not just details...


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