[superdave]

http://www.motherjones.com/kevin-dru...-ronald-reagan



Interesting chart.

The first, obvious question is, coincidence or causalation? The policy break starting with Reagan, and the economic break starting in the mid-late 70s, were each so severe that I have a very, very hard time buying "coincidence." It took about a year for Reagan's economic policies to have an effect. And that's pretty much when the savings rate started going down.

Krugman suggests that part of the cause was Reagan's blithe acceptance of federal deficits. After all, if the government didn't need to balance its books, why should anyone else? Thus was born an era of binge spending.

Meh. I don't think people operate on that kind of meta-level.

Fine. But I'd point to two other things that Krugman mentions: financial deregulation and stagnant median wages. Those seem like much more likely villains to me. Starting in the late 70s, middle class wages flattened out, which meant there was only one way for most people to support the increasing prosperity they had long been accustomed to: borrowing. At the same time, financial deregulation unleashed an industry that marketed itself ever more aggressively on all fronts: credit cards, debit cards, payday loans, day trading, funky home mortgage loans, and more. It was a match made in hell: a culture that suddenly glorified debt; an easy money policy from the Fed that made it available; a predatory financial industry that promoted it; and middle-class workers who dived in to the deep end without ever quite knowing why they were doing it.

So, yeah, Reagan did it. Sort of. But he had plenty of help.

I think this is much, much more powerful as an explanation. For many reasons, median income started stagnating, but people still were Americans, still expected to live better than their parents. Debt is a way to do that.

Still, if you want to argue "coincidence," have at it. Savings under Bush I were steady. Which side of the argument that proves is a judgment call; did he follow Reagan's policies, or not? The numbers under Clinton were good until the dot-com bubble started to burst.

[Matt in the Hat]

I think fed interest rates follow a similar pattern IIRC.

The big question would be is a high rate of personal savings a positive or a negative. Lower savings means more money in circulation which means more jobs.

So what would really be interesting is to compare this graph to the unemployment rate. Do they jive?

[Kobranzilla]

Looks pretty related

[That Phat Hat]

Originally Posted by Matt in the Hat

The big question would be is a high rate of personal savings a positive or a negative. Lower savings means more money in circulation which means more jobs.

Not that I disagree, but higher savings mean more available credit, giving industries more resources with which to invest, which means more jobs.

Both us can't be right, unless we both are.

[superdave]

Originally Posted by Kobranzilla

Looks pretty related

I disagree. The peaks are at the same place, but other than that....

[Matt in the Hat]

Originally Posted by That Phat Hat

Not that I disagree, but higher savings mean more money available credit, giving industries more resources with which to invest, which means more jobs.

Both us can't be right, unless we both are.

We are both rightish

Credit money costs more than receivables money.

Anyway if I am correct and unemployment follows the same graph than the solution is simple. Peg the funds rate to the unemployment rate.

Why don't I run the fed?

[Kobranzilla]

Originally Posted by superdave

I disagree. The peaks are at the same place, but other than that....

widely available credit at increasingly low rates? less incentive to save, more incentive to spend