When I was in the sixth grade, I liked nothing better than to bring a pad of paper and a clipboard to school, and poll my classmates. Pen in hand, I thought I was acting the part of a girl reporter as I stopped them on the playground or in the hallway. But when I think back, I realize I was probably more like those annoying pollsters who harrass you in the mall. Even my line was the same: "Excuse me? I'm taking a survey..."
At first, people (especially the cool boys!) balked when I accosted them with my question of the week. My "survey" topics ranged from the silly ( Which joke do you think is funnier?) to the psychological (Who's stricter: your mom or your dad?) to the ever popular questions about favorite TV shows, super heroes, or top forty songs. But in the process of airing our opinions and preferences, I think we all learned a little more about ourselves and each other.
Decades later, I still like taking and participating in surveys. I think they're a great way to talk about important topics without the acrimony or judgment that creeps into so many potentially contentious discussions. In a survey, your opinion is just that--and you have every right to it.
One subject which I don't think is discussed nearly enough by either our political leadership or the media is where this economy is heading. Lately, most of the business news is bad. There's evidence that the sub-prime mortgage crisis will have far-reaching effects, and may infect the credit industry as well. At the same time, we face the surging cost of oil, the falling dollar, and serious trouble in some of our major financial institutions.
What do you think it means?
Are we in headed for a serious recession or even a depression?
Or are these events part of a necessary (and temporary) correction in an otherwise robust economy?
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Comments: 78
Two weeks ago Merrill-Lynch took an $8 billion dollar loss due to bad loan investments. Today, Citibank plans to book an $8 billion to $11 billion dollar loss. That's on top of $6.5 billion in the third quarter. On top of this, the subprime mortgage market is expected to deteriorate further. To add fuel to the fire, lenders are making it harder to get a home loan, even with good credit.
Crude oil is over ninety dollars per barrel. It is expected to hit one hundred dollars a barrel. This is not only affecting us consumers at the pump, it will also affect retailers, who will have no choice but to pass increased shipping charges onto the consumer.
Do I think we're headed for a recession? You bet I do.
All complex systems are cyclical by nature. What monetary policy has been learning to do is to flatten the highs and lows somewhat.
The wild card is that if everybody thinks a depression is coming they just might cause it themselves.
Yes, I do think that we are headed for another recession. I hope not, only time will tell.
I think that the odds favor a recession at this point. The mortgage foreclosure crisis does not seem likely to find a happy ending, with 2 million homeowners still in danger of losing their property. The Federal Reserve is clearly strongly tempted to pursue an interest rate policy designed entirely to minimize the fallout of the mortgage problems, but unfortunately they are stuck between a rock and a hard place: inflationary pressures of rising oil and other prices seem to require a raise in interest rates!
I do not think that this was inevitable. I think we can all see that adjustable rate mortgages were a dumb idea that never should have been used at all. But somebody got greedy, and the rest of the banking system followed them like little lemmings to the edge of the cliff. I think in a larger sense we can see from this that recessions have roots in human behavior. We think "a little risk taking paid off for me, so a lot of risk taking is going to pay off evern more!". Then we seem to be surprised, every time that ends up being wrong.
John Phillip: I also appreciate your polite dissent from the majority opinion. Your suggestion that we might cause (or hasten) a depression if we react to present conditions may partially explain the lack of news on the subject. Wall Street is clearly jittery enough. And yet, I think the average person who is still "living as if there's no tomorrow" as Ruth said, needs to prepare him or herself.
www.totalenslavementusa.blogspot.com
Recession seems to already be here and masked over. The economy is supposedly strong, yet statistics are showing that the middle classes' incomes are dipping. The mortgage foreclosures are an indicator. I'd say a depression is very possible.
I keep hoping that the silver lining in all the China recalls will be a herald for returning to American manufacturing. WE need the jobs, as well as the safety of in-border oversight.
Thanks for this, Patry. 10
In the long term, I think we will continue the trend over the last decade or more in which the gap between poor and rich is widening, and the middle class is being virtually eliminated. This does not bode well for our country or the global economy.
Finally, the media is using the spin of Wall Street to keep things from coming to light. Despite all the negative news (housing, the rising price of oil, our looming national debt that was only a few short years ago a surplus!, billions spent on Iraq and Afghanistan that are not going into US infrastructure projects, and so on), the media continue to say that Wall Street is optimistic and the Dow is holding on. However, I don't think this captures the overall picture very well at all, and unfortunately, I say we are headed for a depression!
Those who use the Dow as an indicator have no idea what they are doing. If this Country keeps starting wars and spending money we don't have, watch out! The Great Depression will be an afterthought in what is to come.
As to your question, which strikes at the heart of the matter, it appears that we have divergent trends right now, a fact that must be giving the Fed fits.
The escalating value of gold, the near record price of oil, the plunging dollar and the skyrocketing government debt are just four of the factors that suggest the threat of inflation. On the other hand, the spreading calamity known as the real estate crisis brings with it the threat of a severe recession.
The Fed seems to be more preoccupied with the latter threat these days, which may give us some idea of the potential seriousness of the real estate problem, given the Fed's well known fear of inflation.
The combination of the trends seems to suggest the possibility of stagflation, a term coined in the seventies, representative of one of the nastiest outlooks short of "depression" itself.
Looking ahead into this kind of scenario, suggests a very risky road, I believe.
Despite the tendency of the stock market to remain fairly bullish, there are evidences of a great deal of nervousness out there on the part of investors. An unanticipated financial "accident" or an international crisis in the near term could, in my opinion, initiate a panic in which most everyone suddenly tries to withdraw their cash from their banks or convert their liquid investments into cash at the same time.
Under those conditions, which thankfully rarely happen, the public discovers their cash- in-the-bank is simply not available and that the value of their liquid investments is crashing and that a moratorium has been placed on further sales.
This is the making of a depression, and given the current direction of multiple trends within the world, I believe the risk of one occurring is higher today than at any time since the last one, nearly 80 years ago.
Overall, however, I'd still peg the possibility at way less than 50%....
Incidentally, a "depression" is an extended period of falling prices. The resulting public psychology is the opposite of what it is in an inflation.
In an inflation, people are encouraged to buy items before the price rises further, and businesses build up their inventories for the same reason.
In a depression, the public defers purchases in anticipation of lower prices, businesses trim inventories to the bone, sales decline, layoffs occur, sales decline further and the vicious cycle begins.
Based on history, this deflationary cycle - or "depression" - is much more difficult to overcome than the inflationary cycle. It took World War II to get the economy back on its feet, more than 10 years after the start of the Great Depression...
This subprime mortgage thing is bad, but what is much worse is the erosion of consumer confidence caused by the repeated instances of recall of goods manufactured abroad because they are toxic, and the fact that when people are afraid of losing their jobs or feel they cannot afford to get sick because they don't have health insurance, it's a problem. Two-thirds of the economy rests on consumer spending in this country and people stop spending or cut back when they are scared. Add to that the specter of obscene gasoline prices, and soaring deficits and people at some point are going to get spooked.
I don't consider Wall Street the be all, end all indicator of the economy's health. So I definitely see a recession (which the pundits will call a "correction"). Depression? I'm not so sure about that. Depends I guess on whether or not Bush decides to nuke Iran.
Your wishes have been answered! While there is risk of recession, it's not nearly as high as everybody here thinks it is. While the credit and housing markets are in a tailspin, the rest of the economy hasn't exactly been robust, but at least healthy. Exports have been growing rapidly, and the trade deficit has not only been going down as a percentage of GDP, but also in nominal terms. Job growth has remained healthy, and although inflation does seem to be a risk, it hasn't gotten dangerously high yet. A lot of the news isn't good, but not everything is doom and gloom.
Personlly, I'd put the risk of recession at 40-50%.
I would see the risk of a recession slightly higher than you. Probably closer to 70%, particularly if the Christmas season turns out to be as bad as some experts are predicting.
The trade deficit is definitely good news, and I don't see inflation as being a huge problem as yet. The biggest contributors I see is lack of consumer confidence and soaring gas prices. Also, with winter upon us, many areas of the country will suffer under much higher heating costs. The money has to come from somewhere and wage growth is stagnant, that means cutting back on other things to make ends meet.
By the way, just for the record, you're too intelligent and too polite to be one of the bobble-heads. Just thought you might like to know.
Given the fixes that have happened (like the S&L bailout), we're in for decades of downpour.
We are awake and concerned and ready for a frank discussion about the economic challenges
that impact all of us. Hopefully, both those who hope to lead us, and the media will give us one.
> Based on history, this deflationary cycle - or "depression" - is
> much more difficult to overcome than the inflationary cycle. It
> took World War II to get the economy back on its feet, more
> than 10 years after the start of the Great Depression...
I think we are in little danger of a depression, or a prolonged
recession. Look at reality, unemployment is pretty low. Prices
are reasonable, and people have access to more goods and
services than ever.
Your comment about WWII is what prompted me to write this.
My opinion is that it was the government spending that got
us out of the depression, not the war. Roosevelt's WPA and
other projects got American working and back on its feet
building infrastructure and fixing things.
Where do people get this idea that China can call in their
loans - when did this little fantasy start up. First it would
not be in their best interest to do this, second, they are
the ones that need us, not we them. But whatever it is
mutally beneficial for us to work together with China.
That would be like Saudi Arabia wanting to take all
the property they own back to Saudi Arabia ... it is a
silly and meaningless idea.
If there was a depression it takes leadership and faith
in security, predicatability, and rule of law to start things
up again a long with investment, often from the government.
We are not doing so bad.
What would really give the world economy a huge boost
if it things would resolve in the Middle East in a positive
way. Most of the high prices and jitters and uncertainty
emanate from risk in that area. That is why it is better to
do what needs to be done and move on than it is to hand-
wring and whine for the next 100 years and languish in
the economic doldrums.
My worry is what is known as "event risk"...unknown events that change things dramatically, like the 911 attacks. You can't forecast them but they happen. They can render the most careful economic analysis completely useless.
Much apreciated.
A lot of people here seem to be cheering on a recession. Same thing with failing in Iraq--I know this to be true because I felt like that too, until the day I realized it. People point out the negatives, make the negatives seem bigger than they are, make up some of their own negatives, and then ignore the positives. I'm not saying there is no chance of recession, but it's not as likely as most of the people here seem to think.
It is not a matter of cheering on a recession as Daniel says. Nobody that I know of wants one. It's rather like those people who believe if you tell the truth about the situation in Iraq that you are advocating losing the war, as if it were not already lost and as if blowing sunshine would change that. I'm pleased to read that the deaths are down in Iraq of late. However, I also notice that the government over there still isn't doing jack of what it is supposed to be doing. Then again they have a good example to follow. All they have to do is look at our government past or present.
On a side note, I just find it interesting that we expect more from the Iraqi parliment than congress.
It sounds like too many are letting the media hype lead them, rather then listening to the numbers and what their own expericne is. The media reports that we aren;t saving money, it makes things sound bad. But, they don;t tell you that if you are putting money in a 401k or in a mutaul fund, investing in any way that it is not considered savings and they don't report it. Is their report accurate, should you trust them?
Everything has an ebb and flow, they need to rest every now and then, so a recession will happen and it isn;t a bad thing.
As far as how we are doing. How many of you have an ARM and are worried about your rate going up, how many of you don't plan to move soon and will need to sell your house. If your in the latter catagory then the subprime issue does have a direct effect on you. If you are in the former, get a fixed rate.
If the companies made money on the morgage loans then let them loss money too. Those companies lossing a few billioin are worth a hundred billion or more, they can absorb those losses.
The media is about hype, those hearings with Bernacke were about politics not the economy, and the majority of the investors are always looking for something to worry about. If you are in the homebuilding industry you are in a recession. If you are in mining equipment, airplanes, computers, etc. business is good. If you are in Detroit, you have been in a recesssion for years. If work in D.C. related to the government you are never in a recession.
I don;t want to say the media is biased, but whatever seems to create the most emotion in the public is what the media plays the hardest.
Do you consider unemployment below 5%, morgage rates below 7%, avoiding a recession (>o% GDP growth in every quarter), through mid 2009 as indicating that the media was wrong about the economy? If not, what do feel would be the right measures and for how long would they have to hold?
I picked mid 2009, because that is when I feel that who ever wins the 2008 election (President and Congress) will start affecting the economy.
One thing I know for sure is that we are all invested in hoping that the economy grows, and that we avoid either a serious recession or the prospect of stagflation. As far as the media goes, I think they are handling the subject of the economy quite conservatively, which may or may not be a good thing. No one wants to incite a panic and bring on the negative conditions we fear--as John Phillip suggested.
However, from what I see in my local area and hear from many friends around the country, I AM concerned.
* Yes, unemployment rates are offically down, but many of the recently touted new jobs are service positions which hardly pay a living wage. Many people are struggling to make ends meet, worrying about unstable jobs, and mired in heavy credit car debt.
*Increasingly, employers are offering less than full time hours in order to avoid paying for health insurance. That leaves many families one serious illness away from complete financial disaster.
*The staggering rise in oil prices, which affects every aspect of our lives, from gas to heating oil, to the cost of food and imports.
*Our increasing reliance of imports combined with the devaluing of the dollar.
*The fact that a lot of our major financial institutions are in serious trouble because of the number of bad loans they have issued. As I say, I'm hardly an expert, but I'm afraid the housing crisis will impact the entire economy--not just those with ARM loans.
Of course, I'm still hoping that many of these trends will turn around--that the cost of oil with drop as dramatically as it rose, the dollar will stabilize, new better paying manufacturing and high tech jobs will be created, and inflation will be tempered. If they don't, however, our economy will be in trouble long before 2009.
As for the measures we should take, these problems are very complex; and as I say, I'm not an economist. However, I do think our leaders should use their position to pull the populace together, and to promote the idea that we ALL have to sacrifice--not just the troops in Iraq. To me, that means realizing that conserving resources and living within our means, both as a nation and as individuals, is a patriotic act.
You have offered me so much and I truly appreciate your sharing. Tell me where I am wrong.
I believe that health care, indebtness, and job pay has a lot to do with personal choice. Let's use $10/hr as the living wage, and 2000 hours as a full time job. IF a person smokes $5 pack/day or $1820 per year that is nearly 20% of their income. I was obese, and that has created health problems, who should pay for that. The doctor said if I didn't change my lifestyle it would get worse. I am not svelte, but no longer obese and my health has improved.
How many of those that got the subprime loans were buying a starter home and how many were moving to bigger and better? How much of credit card debt goes for just by buying food and how much for the fun things? I know there are those that are in debt for food, but so many more for the toys.
I don't understand what is so bad about service jobs, nurses are service workers. Do want to stop the economy changing and have men digging ditches by hand? Why shouldn't people be worried about their jobs , don't their employers always have to worry about their company either not making what will be bought or that someone else will come in and do it better? I always worried about my job and look to see how I can be more valuable to my employer.
The media being "quite conservative" rather than play the public fears. Stagflation was coined in the late 70s when inflation was in the high single digits and touching double digits, mortgage rates were in the teens. Even if you don't believe the government numbers today (they were the same ones used in the 70s) no one is claiming they are anywhere near double digit and mortgage rates are just over 6%. Which is it conservative media or creating fear. Back then the best we could get was a 3 year ARM at 13%.
As far as dependence on foreign oil, how much do you use? Other than gas for my car and what is incidental in the items I buy hardly anything. Even the media says it is only 6% of our income. When we are willing to pay for electric cars, the hybrids cost so much more that some will take 17 years of use to break even, oil will be a convenience. We have more coal and tar sands than oil is in the whole world.
The financial institution being in serious trouble, for how many years have they had a good profit and now that they have a loss for a few quarters they are in serious trouble? If a few go into bankruptcy what will be so bad, their assets will be bought up by the better run companies and I won't feel the change. Go back to the Savings & Loan debacle where almost all of the S&L went away, we survived nicely.
Can you remember the last time that the Canadian dollar was on par let alone worth more than the US dollar? Guess what, the Canadians and their economy has survived nicely, just ask them.
If the numbers I offer stay true through mid 2009 will you reconsider your view of the media?
I disagree that these problems are very complex. If people took your advice to live within their means, and thought of themselves as business have to (offer more and cost less) then the problems you are worried about would get fixed. If you are waiting for the government to save us, remember Hoover and Roosevelt made the depression worse.
Appreciated your commentary! Agree with much of what you have to say. However, Hoover, a Republican and a great American, reacted to the depression with inaction which did, indeed, make it worse. But it was Roosevelt, a Democrat and another great American, who started doing something about it. He closed the banks to stop the runs. He initiated the CCC and several other programs to start getting some of the people back to work. It was his administration that initiated Social Security and put in place certain protections such as the FDIC to prevent the exact kind of thing the banks had faced.
While it was the WW II that totally ended the depression, the efforts of the Roosevelt administration were responsible for bringing us partly out of it and mitigating the tragedies inherent to the great depression!
Duane, there is nothing "wrong" with service jobs, if they just paid enough to live on! A nurse is not called a service job because it is a skilled job requiring post secondary education. A nurse around here will make about 25 dollars and hour or more while someone in the service industries is doing great to make $7 per hour. A service job, full time will gross you about $14,560 per year. A nurse will make $52,000 or more per year.
That is the problems, we are loosing our skilled jobs, not in the health industry, to foreign countries. It is not the "better managed" company that succeeds, it is the one willing to throw the American worker to the wolves and export his jobs to China.
We have a typical example of that right here in the Boise valley. Micron, long a staple among employers in this area, is in the process of trying to improve stock prices and profits and is adding to their China holdings every day. The CEO stated a few months back that they "did not have to hire another person here in the United States."
Two of my family work for Micron and neither feels there is much possibility of having a job for the next five years.
The goal of the United States should be for the citizens to have jobs and be able to support their families. Not for American started corporations to diversify all over the world and make the most outrageous profits possible!
I, for one, feel there are various steps that could be taken by our government to protect the welfare of the middle class instead of exporting it all over the world so the corporations can make their CEO and a few other rich!
There is a good book just out, "the forgotten man; a new history of the great depression" by Amity Shlaes.
I believe that Hoover agressive raised tariffs creating cutting off exprts/imports and put in wage and price controls ,the Fed at the time dried up the liquidity, and that Roosevelt continues those practice and put further controls and added more restrcition on business and the economy. There were sevral cooountries that did not tale tjose actions and did not expereicne depression. Roosevelts CCC and other governemnt practices were credited, but Hoover was just as agressive at getting provenment projects increased at the start of the depression, the largest is now called Hoover dam.
I thought service industries were not defined by wages, but were that work that did not manufacture a product or construct something. INsurance, wiindow cleaning, consulting, etc. were considered services.
I am not so naive as to believe that jobs are not being moved solely for lower wages. But jobs move both ways and has to do with value. My person expereicne has been that moev of the "help desk calls" I make are handled here in Norht America, they have begunmoving back.
I don;t know wjat an outrageous profit is. I don;t see any reason that a company started and headquartered in the US can have manufacturing or other facilities close to their markets. If a company is selling 10s to 100s of airplanes to China why shouldn;t they be allowed to manufacture part of the planes in China, similarly to other countriies.
I also believ that when countries start trying to manager the free flow of business, whether it is with tariffs or investmetn restrictions they disrutpt the market and damage their onw country. I thnk there several examples of countries that struggles for years try that and it is those countries taht have lifted the barriers have propered the most (Brazil, Ireland, Eastern Eusrope, etc.).
JUst as in the US, businesses go to states that have lowest restrictions and other burden relative to each other that campies move. There are those that move to incentives, but more are to those with less barriers.
If feel we should restrict companies, than obviously we should prevent international people playing in US leagues such as baseball, basketball, soccer, etc..
In th spirit of managing the economy it may feel good but in the practicality, it simply cretes disruptive and damaging dislocations that hurt those areas with the best intentions. Look at Europe.
Let me return to the outrageous profits. DO you feel a guy that can hit a ball better than most of his peers is making an outrageuos profit when he is paid a quarter o a billiion over 10 years? Do yuo think a person that makes 10 or 20 times their cost of living is making an outrageous profit? Do you think that a person should have to worry about his/her job because of how they perform or that someone else can do it better or cheaper? If not, why should you feel that way about companies because their risk of survval is even more tenuous. If yes, don't you feel people should be rewarded for the value of what they provide.
Let the market place determine the value of good, and the supplier the means of supply and efficeincies. Look at the price of corn, the Congress has pushed har to excelerrate the use ethanol and now the price of corn has risen so far so fast that the it is a real burden to those who use it for food. I will given even money that in their infinite wisdom the CONgress never gave that a thought.
Thank you, James C. for your eloquent and illuminating comment.
Duane B: Thank you, too, for stimulating such an important discussion. I strongly agree with you about personal responsibility. However, I think we also need responsible leadership. During World War II, the entire country was encouraged to make sacrifices, not just the troop. Now, in a war at least partly being fought for resources, we have received no such call. Instead, we are urged by the media and by predatory lending institutions to consume and consume more.
I also agree that many Americans are running up their credit cards buying "plastic toys" and things they don't need. However, when all the kids in the neighborhood are getting the latest toys they see on TV for Christmas (most likely purchased by moms and dads running up THEIR credit cards) it's hard for a parent not to succumb to the pressure to do the same.
While baseball players and actors (sometimes even authors!) may be paid outrageous sums for their services, it's really not analagous with corporate culture. Baseball players do not have thousands of employees counting on them to behave ethically and fairly. They don't hire lobbyists to push their agenda in Washington. Nor can their individual decisions affect the economy at large.
The strength of the country we all love is based on a strong middle class, and opportunity for all, not just the interests of the top 1 percent.
Relating events and activities to what and how I do things gives me a way to understand and come up with my views. In the case of excessive profits I look at myself as a small company, I sell my work. My costs are food, shelter, clothes, tools, transportation, training, and whatever else it takes to get me to do the work, the decisions about how I do my job, ethics, fairness, efficiencies, and pleading my case to my politicians and to my employer are part of my business (me), that all seems similar to a company.
For me there is an obvious complexity difference, but otherwise it only seems a matter of scale.
If I am getting 4% on my money in the bank and say Exxon is getting 8% on their money ($260billion in assets (plants and property) and $280billlioin in annual operating expenses) by taking all of the risk, I don't see they are making excessive profits. My money in the banks is in the thousands and there is half a trillion so the number of dollar they get should be in the multi billions.
I don't create 10s of thousands of jobs in the compnay and 10s of thousands outside, and rovide a product that 10s of thousands or millions more van use to get to their jobs, and that is somehting to factor in to the value of what they do for the money.
Thanks for the comments! I don't know that service industries are defined by salary but health care is a separate category from service industry. Service industry normally includes those who support, with menial labor, the various tourist type industries such as hotels, food joints, taxi drivers, etc.
All kinds of people provide services. Attorneys, doctors and police provide services but I've never heard them classed as service industry jobs. I guess it really doesn't make any difference what you call them. So many of the jobs being created today are low wage jobs which crimp everyone's standard of living.
I've encountered so much tech assistance with originates out of India. My son is a field engineer for GE Medical and his tech back up is now all out of India. Between the language problems and the cultural differences it has caused him many frustrations since the change.
Can I define "excess profits?" That's a difficult one! The ball player you mention probably qualifies as he is being paid so much more than the president of the United States. Though one must take into consideration the working life of a ball player.
I do believe that the insurance industry and the banking industry, which are all one and the same, is the industry that is the most corrupt and immoral of all industries. I don't mean that to apply to the teller at your local bank, he's just another guy trying to make a living. But the industry itself. The edifices they occupy are shrines to their lost morality!
We do need a strong middle class and that's what we had following WW II until recently. Now the middle class is being squeezed out. The poor class is increasing and a great number of theses is the working poor. These work in low wage jobs and usually are uneducated with minimal skills. We definitely need a number of manufacturing type jobs if we are going to ever restore the middle class.
You mentioned the building of Hoover dam. These public works programs were part of the effort to put citizens back to work wherever possible. The CCC camps were for this same purpose. We still have things in this state that were built by CCC workers during the depression.
While the United States had not fully recovered from the great depression until the war, the country was then positioned to grow the greatest middle class the world had ever know once the war was finished.
Roosevelt was an interesting politician. My dad, a life long Democrat, voted for Roosevelt the first time but because of Roosevelt's desire to stack the supreme court, dad voted against him the next three times he ran. After Truman took over dad was back solid in the Democratic column!
Duane, the concept of "free enterprise" is one which we all subscribe to in certain ways. The truth is that there is no "free enterprise" as such in this country or any other developed nation. Most everything is regulated to some extent and taxed whatever it will bear. Our constitution guarantees government regulation when it mandates that patents be issued by the government. One of the beefs we've had with other nations has been their nation offered greater assistance to certain industries than the US, thereby leaving US industries at a disadvantage on the world market. Obviously, when the government gives companies the protection by patent, it assumes the obligation that the companies, if they use their patent at all, do not use it to the detriment of the nations citizens.
A drug company patents a new drug and puts it on the market. You want to buy that drug because it is exactly the cure for your problem! Can you? Of course not, you must first go to a doctor, licensed by the government. If he writes you a prescription for that drug then you still must take it to a loosened pharmacy where a government licensed pharmacist will fill the prescription. OK, where in that scenario is there any "free market?"
To cap it off, you cannot legally order that drug, with a prescription, from a pharmacy in Canada! Another protection for the American drug company's profit margin. We've reduced a lot of controls since 1994 but these have been the controls that protected the consumer from big business. Those are bad controls but any controls forcing people to buy from companies, that's good controls!
The drug industry is trying to get legislation through in all countries limiting or prohibiting the sale of drugs to US citizens. And trying to get extended patent rights in all countries.
I don't know if we are going to have a depression or not. Right now we seem to have stagflation, the costs going up gradually and wages going up approximately at the same rate or less so that the working person has less real spendable income than they did in 1980.
The Federal Reserve has been responsible for this to some extent. They are mortally afraid of inflation, far more than their fear of recession. So they flirt with recession to keep that old inflation totally in check.
I am wrong to include nurses or other health care in service industry. The following is the governement definitons and it appear that there are several types of service indepenedent of pay or level of job that are included. Jobs in this catagory do include higher then low pay.
Service-producing industries (Standard Industrial Classification)
Includes transportation; communications; electric, gas, and sanitary services; wholesale trade; retail trade; finance, insurance, and real estate; and services.
Service-providing industries (North American Industry Classification System)
Includes trade, transportation, and utilities; information; financial activities; professional and business services; education and health services; leisure and hospitality; other services.
I do agree, we don;t have a true lassez-faire economy. But I do feel that people or businesses should recieve compansation relative to the risk they take, the specail knowledge and skills rquired to deliver the product of servie, and the investmant or sacrifice they make. I do not believe that there is any one person or team of people that can decide what whould be fiar conpensation nor that it would be worth the cost to try.
Who could say how much Edison should have recievd for the electric light or Salk for the vaccine, or the house keeper, so let the market decide.
Any regulation that governemtn makes becomes part of a barrier to competition.
I won;t challenge the change of real spendable income in 1980 or today, I wold say though what is purcahsed is far superior to what was purchased 50 or 40 or even 20 years prior. And that was driven by the desire and the opportuntiy for excessive income.
Thanks for doing the above research and posting it! I certainly agree that risk, effort and other factors contribute to what is reasonable for a person or company to make. I would also submit that many times the market does not give full credit to many services. For instance, the guy who jumps in the sewage tank and scrapes the walls wearing chest waders is one of the lowest paid of the sewer plant workers! It requires no education but for effort, disgust factor, disease potential and hard work this position is always underpaid! But that runs throughout our society, the higher your salary, the easier, in physical terms, is your job.
While market plays a role in this, market is influenced by such things as illegals who will work for less than minimum wage artificially depressing the wage scale in certain industries and times.
Frankly, if we block off the boarder to stop this I don't know where the elute of the nation will find their "slave labor" to keep things going! We've always had a class of people to fill this bill. There have been the blacks, and the Chinese and now the illegal immigrants.
I would only partially agree with any regulation that government makes becoming a barrier to competition. Many times government regulations and restrictions actually keep competition from arising, that is true. But sometimes government regulations make it possible for others to compete, especially when government is a potential customer.
Good comments, Duane B., thanks!
I would add that rock stars, baseball players and various other extreme high paid persons seem to fall outside of this type of categorization.
I believe that there is no system (free market or governement managed) that will eliminate the injustices. Just as when I was a child my arents couldn't make my life fair. We must recognize there will be the injustices and not expected them all to be eliminated (especially by government) because that will crete other injustices that can be worse, as happened in the great depression.
I see govenment being the colection of societies memory and a keeper of bounaries to dampen out the extremes that can cause mass suffering, but allowing the necessary cycles (ebbs ad flows everything needs). Prevent the depression, but allow the recessions. Establishe core requirements, but allow people to make mistakes. Secure a standard of morgages, but allow for high risk ones that people can suffer losses with (both lender and borrowere).
ANd as far as outrages profits/compensations, let them happen because they impact isn;t noticable on the economics of society only on our sense of fairness. And the possiblity of such excesses may motivate some extreme sacrifices that could out weigh the cost.
Well said!
Ten unsolicited points from the world's worst connection. Merry whatever you celebrate!
In an inflation, people are encouraged to buy items before the price rises further, and businesses build up their inventories for the same reason.
There is plenty of reserve oil in private hands right now, yet the price remains high. One sector David didn't mention was real estate, which is as much at the heart of the global financial crisis as oil is. When US home mortgages became packaged into investments (called derivatives), they were sold throughout the worldwide financial markets. I don't know if this caused the latest real estate "bubble," but when US home values declined, hundreds of billions of dollars simply vanished, all around the world.
The losses may be much larger, as this little blurb I read in the business section Wednesday suggests: Fannie Mae and Freddie Mac have a combined 3.7 TRILLION in "off balance sheet" mortgage-backed securities! I usually disagree with David, but I think he's about right on this one.
So maybe someone can tell me why my solution wouldn't work?