Obviously the free market works - a great deal of wealth is being created, albeit, mostly in the financial markets, and mostly concentrated in the hands of the top .5% of the population. However, and predictably, the chasm in economic inequality keeps getting larger i.e - real wages for the vast majority of Americans continues to fall, personal bankruptcies are up and the percentage of the population living below the poverty line (a ridiculously unrealistic measure), or, in prison for that matter, has increased. Unemployment IS low. Low wage, crappy jobs, often without any benefits, are readily available. But hey, beggers can`t be choosers! Fill out that application and remember, there is dignity in hard work and effort! - says the employer, in the interests of, those among the .5 who, above all else, want to remain completely undignified in this way. Free market fundamentalism sucks as bad as any other dogmatic orthodox belief - for the vast majority, things will just keep getting worse, regardless of what party is in power, as long as people continue to reject reason and fact, in favor of faith in this type of utopianism.
Americans are enjoying a negative savings rate. That is not sustainable. The Fed continues to go deeper into debt. That is not sustainable. Asset appreciation should not be a gauge of economic growth. It is merely wealth transference. Real economic growth is sustained by establishing profitable businesses and re-investing the profits into other productive activities.
I don't know if it does or not; what would the GPI or the ISH indicate about our current moment? If negatively impactful growth is indistinguishable from positively impactful growth in such a "gross" measure, how is it useful? Just we "grew?" Well, great.
Just so everyone employs similar language, I would agree with this: Also, if that's too outside locating humanity primarily in their economic frame, consider the Gross Sustainable Development Product (GSDP) and/or the Gross Environmental Sustainable Development Product Index: Quoted sections found here: http://www.consultmcgregor.com/PDFs/research/GDP and GPI.pdf
This is an editorial from Investors Business Daily. As other noted (positively and negatively) the savings rate does not take into account wealth creation espcially from home ownership (correctly I would say, as the issue is one of SAVINGS RATE not WEALTH CREATION). However, apparently, the savings rate numbers do not take into account money placed in 401(k)s. One could argue that is also correct, as amounts in 401(k)s are locked away, at least until you are 59 1/2 and that savings is about more than retirement. But I would like to see numbers run including 401(k) amounts.
Asset appreciation, from either stocks or home ownership, does not create wealth. It redistributes wealth. Lack of savings is a huge problem, in that Americans are not re-investing their profits from their productive activities. I'd look like I was living well (for a while) if I was earning $100K and spending $110K.
The idea that asset appreciation doesn't create wealth is ridiculous, but let's put that issue aside, read the IBD article, and return to your savings example: Worker earns $100k a year, deposits 15% into his 401k, has a $1500 mortgage half of which is applied to his principle. Despite investing $24,000 annually ($15k in his retirement and another $9k in his home) his savings rate is the "lowest since the Great Depression".
This example, while interesting, doesn't necessarily apply in a country in which the median income is ~$40,000 a year. Furthermore, you're leaving out second mortgages, student loans, car payments, and credit card payments--the interest on all of which is likely higher than the returns on the 401K investments.
The 100k figure was choosen by Roel, not me, but use 40k if you like with lower 401k and mortgage numbers. As for your sample American, they need to call Dave Ramsey
It is not ridiculous. I am a financial conservative, but not the type of credit card conservative that seems to be in vogue. The Economist sums it up pretty well, and I hope the link works. Subscriptions are typically required. http://www.economist.com/finance/displaystory.cfm?story_id=2461875&login=Y The $100K example is fine, especially for easy math. If wealth is created by refinancing a home, typical payments of that refi go to interest, not principle. Pretty much close to 100% interest. The interest is typically tax deductible, so the worker gets a nice federal subsidy for their debt.
I just can't imaging where the consumer is getting all of this money to spend on stuff and keep the economy afloat -- I mean, you know, their real wages are going down, and costs of energy, health care, everything is going up!
This makes the savings rate kind of misleading, since you're removing what for some people (I think A LOT of people) is their largest source of savings. Now having said that, one of the big problems with no one putting $$ into savings accounts or rainy day funds is that when problems do arise (job loss, unexpected expenses), they've got nowhere to turn except credit.
Exactly. The savings measure looks at your immediate cash flow. It tells you how Americans are paying for their consumption. You see, most people can't tap into their 401k, at least without incurring a hefty penalty. Also, you usually can't just sell your house and live on the street if you need quick cash, especially if you already have massive home equity debt. What the numbers are telling us is that (to elaborate on MttR's post) people are financing their current level of consumption by borrowing, mostly because real wages have been stagnant at best and total compensation has been falliung as companies have begun to shift more of the cost of healthcare and retirement onto their employees. As Roel pointed out, this borrowing is not sustainable indefinitely. As to why the savings number isn't as easily dismissed as the IBD editorial boards wishes: http://news.yahoo.com/s/ap/20070201...XcMBs2yBhIF;_ylu=X3oDMTA2Z2szazkxBHNlYwN0bQ-- "The near-record low savings rate is occurring at a time when 78 million baby boomers are preparing to retire. The oldest of the boomers will turn 62 next year, the first year they will be eligible to collect Social Security. As the nation's largest generation retires, that will further depress savings because typically retirees are drawing down their accumulated savings in an effort to make up the difference between the salaries they earned on the job and their smaller Social Security and other pension payments." And now it looks like things are about as good as they're going to get for a while as the economy is slowing down. Employment has already been softening for a while, gas prices are heading higher and Baby Boomers are frantically trying to make up for lost time in saving for retirement. It's no wonder that Reep triumphalism sounds like a sick joke to our the middle class: http://www.msnbc.msn.com/id/16927195/ “The top 20 percent is doing fairly well, and the bottom 20 percent is doing better,” said David Wyss, chief economist at Standard & Poor's in New York. “If there's a hole, it's in the middle, which frankly are those old blue-collar jobs that the Democrats say are leaving the country. And they're right." I'd also add that what's really freaking out the middle class is all the white collar jobs that have also been leaving the country. Finally, what Mr. Wyss points out really shows where the IBD article in particular misleads: in using the classic ridiculous right wing assumption that all Americans are equally wealthy. They're not. Wealth is highly even more highly concentrated now than it was in the 1920s. But right-wingers don't want to talk about wealth distribution for many reasons and they'll try to distract you from it any way they can.
Without a doubt, saving is a problem for many Americans. I really wish they'd teach personal finance and perhaps simple ecomonics in high school.
The link is no good. Just curious, if asset appreciation isn't a big part of your long term investment strategy where do you actually put your long term money?
By the way, I'm sorry the average BigSoccer poster had a bad run in 2006... but for the rest of America real wages rose 1.6% last year.
Like Mel said, 1.6% is pretty sparse if you've got 2% inflation. I'll say I had a pretty good late-'05 and 2006, but I can't speak for anyone else.
FYI, "Real Wages" means inflation adjusted. And I was incorrect, real wage growth was actual 1.7% in 2006. For comparision the average real wage growth during the Clinton years was 0.3%.