Okay...this is *supposed* to be a thread about economics.
An interesting trend I have noticed is that Japan has always been about 10 years ahead of the U.S. in terms of economic growth. Japan's big boom was the 1980s; the U.S.'s was the 1990s. However, the 1990s were Japan's stagnant years, with still no end in sight to their economic stagnancy. It is now more than apparent that the U.S.'s boom of the 1990s is now over. Are we now on track for an indefinite stagnancy?
My issue with supply-side economics, as defined over the last twenty years, is that I believe it to be an unsustainable economic system, characterized by steadily higher consumer spending to continuously drive up corporate stock prices, coupled with constantly higher demands for lower production costs. The key problem, for me, are the words "steadily," "continuously," and "constantly." The Dow Jones Industrial Average is now at about 10,000, take or give a thousand points, depending on the day. Compare that to the average 11 years ago, which I believe was at about 3,000 (don't quote me on that), and stockholders shouldn't be complaining.
Of course, the mantra that has been drilled into our heads is that it will "always" go up. However, I question as to whether this will even happen again, as our economy is currently structured. Economic growth in the 1980s was stimulated by drastic tax cuts for those who could afford to invest (business and the wealthy), with the bulk of the tax burden being shoved on those who could not afford to invest (the working class). Wages were also being drastically cut, so it wasn't really spending that brought up this economy; it was investment speculation. The 1990s were stimulated by the rise of new technology, namely the internet, and the infusing of 401K retirement funds into the market, but, once again, there were no "real" profits; only investment speculation.
What can drive the 2000s? Well, tax cuts for business and the wealthy, like which drove the 1980s, are no longer going to work, because these individuals have already invested. Probably still recovering from losses sustained during the recession, these individuals are now looking towards more secure investments, namely bank services (either in CDs or government securities) or real estate. New technology, like with the 1990s, could be a potential spot for investment, but the idea of a whole new industry (as the dot-coms were) popping up is unlikely; the computer and the internet are now just as taken for granted as refrigerators and microwaves, which were once "new technology" in themselves for their days. Retirement funds? Not likely to happen, as new 401K investments levelled off a couple years ago, and, with the losses many people sustained, they are likely to convert their 401K accounts to something more secure like bank IRA accounts or invest the 401K into government securities. The present administration did propose theoretically infusing Social Security into the stock market, but this is not a viable idea either; the current structure of Social Security has no surpluses to invest and the several trillion dollar bailout that could allow this bailout no longer exists, thanks to the 2001 tax cut and the unexpected (and expensive) war on terrorism.
What option do we have left? First, I look at what I *believe* is necessary for an economy. Consumer spending is unarguably a necessary component in this equation. Stock investments are not; companies used to rely on self-investment to stay afloat, preventing a sudden stock panic from relegating them to bankruptcy. Tax cuts for the working class could help, but we also have an infrastructure to run. Federal tax cuts from 2001, for instance, have forced individual states and local communities to make up the difference, often resulting in increased taxation anyway. The only other alternative is to recreate a tax structure that gives incentives to raise wages substantially, which will, in turn, generate spending. Such a structure *did* exist until the 1980s, until inflation was redefined to put the burden on wages and the tax laws were repealed.
As it stands currently, I expect economic stagnancy much like Japan. We have an inflationary structure that demands high spending but low wages (high wages are the key indicator for inflation). As such, we also have high personal debt to make up for these demands; 30 years ago, it would have been unheard of to have these many new car loans, college loans, and credit cards. Now that we've maxed out our credit, we can no longer spend on suppressed wages. The last alternative, to me, is to stimulate wage raises, otherwise we will flounder much like Japan. The idea of "the stock market will always go up," as propagated by pop economists, may not be as simplistic as we'd like to think. You cannot create something out of nothing.
Your thoughts?
Melon
An interesting trend I have noticed is that Japan has always been about 10 years ahead of the U.S. in terms of economic growth. Japan's big boom was the 1980s; the U.S.'s was the 1990s. However, the 1990s were Japan's stagnant years, with still no end in sight to their economic stagnancy. It is now more than apparent that the U.S.'s boom of the 1990s is now over. Are we now on track for an indefinite stagnancy?
My issue with supply-side economics, as defined over the last twenty years, is that I believe it to be an unsustainable economic system, characterized by steadily higher consumer spending to continuously drive up corporate stock prices, coupled with constantly higher demands for lower production costs. The key problem, for me, are the words "steadily," "continuously," and "constantly." The Dow Jones Industrial Average is now at about 10,000, take or give a thousand points, depending on the day. Compare that to the average 11 years ago, which I believe was at about 3,000 (don't quote me on that), and stockholders shouldn't be complaining.
Of course, the mantra that has been drilled into our heads is that it will "always" go up. However, I question as to whether this will even happen again, as our economy is currently structured. Economic growth in the 1980s was stimulated by drastic tax cuts for those who could afford to invest (business and the wealthy), with the bulk of the tax burden being shoved on those who could not afford to invest (the working class). Wages were also being drastically cut, so it wasn't really spending that brought up this economy; it was investment speculation. The 1990s were stimulated by the rise of new technology, namely the internet, and the infusing of 401K retirement funds into the market, but, once again, there were no "real" profits; only investment speculation.
What can drive the 2000s? Well, tax cuts for business and the wealthy, like which drove the 1980s, are no longer going to work, because these individuals have already invested. Probably still recovering from losses sustained during the recession, these individuals are now looking towards more secure investments, namely bank services (either in CDs or government securities) or real estate. New technology, like with the 1990s, could be a potential spot for investment, but the idea of a whole new industry (as the dot-coms were) popping up is unlikely; the computer and the internet are now just as taken for granted as refrigerators and microwaves, which were once "new technology" in themselves for their days. Retirement funds? Not likely to happen, as new 401K investments levelled off a couple years ago, and, with the losses many people sustained, they are likely to convert their 401K accounts to something more secure like bank IRA accounts or invest the 401K into government securities. The present administration did propose theoretically infusing Social Security into the stock market, but this is not a viable idea either; the current structure of Social Security has no surpluses to invest and the several trillion dollar bailout that could allow this bailout no longer exists, thanks to the 2001 tax cut and the unexpected (and expensive) war on terrorism.
What option do we have left? First, I look at what I *believe* is necessary for an economy. Consumer spending is unarguably a necessary component in this equation. Stock investments are not; companies used to rely on self-investment to stay afloat, preventing a sudden stock panic from relegating them to bankruptcy. Tax cuts for the working class could help, but we also have an infrastructure to run. Federal tax cuts from 2001, for instance, have forced individual states and local communities to make up the difference, often resulting in increased taxation anyway. The only other alternative is to recreate a tax structure that gives incentives to raise wages substantially, which will, in turn, generate spending. Such a structure *did* exist until the 1980s, until inflation was redefined to put the burden on wages and the tax laws were repealed.
As it stands currently, I expect economic stagnancy much like Japan. We have an inflationary structure that demands high spending but low wages (high wages are the key indicator for inflation). As such, we also have high personal debt to make up for these demands; 30 years ago, it would have been unheard of to have these many new car loans, college loans, and credit cards. Now that we've maxed out our credit, we can no longer spend on suppressed wages. The last alternative, to me, is to stimulate wage raises, otherwise we will flounder much like Japan. The idea of "the stock market will always go up," as propagated by pop economists, may not be as simplistic as we'd like to think. You cannot create something out of nothing.
Your thoughts?
Melon