Not to worry, the rich can keep their economy afloat and that's all that really matters to them anyway.

the housing downturn has not yet lead to a significant decline in employment? it has here, at least within the construction industry itself.

Don't worry, once the liberal media stops micromanaging our genrals, the Iraqi people (who survive) will start buying all of our products, and we'll be all set.

What happens? The economy will correct itself. You probably wont like the mechanism, though.

Do I hear another War?

Nonsense. The money that the defense contractors are pocketing by the millions will be infused into the economy in classic Reagan trickle-down economics. Duh!

What I don't understand is why the markets are so high right now, with all that going on and a dollar that keeps on dropping. Is the bubble alternating back into the stock market??? Is there something the moneymakers know that we don't?

, Dan Drezner suggests that this might presage an era of low productivity growth but high wage growth

So he is predicting high inflation?

Woo... hoo...

Yes, inflation ex-inflation. Barry Ritholtz over at Big Picture has similar sentiments.
On Drezner, I think he has a Republican contrarian reflex--that is, it only kicks in when he sees a piece of bad economic news under a Republican administration. He then explains why it's wrong and the rosy scenario is right. But he's not a wingnut. Usually if you press him on something, he thinks clearly enough.

tomeck,

the rich feel the pressure too. it's just that they spend differently. you and i might decide to stretch out another year or two out of the car we've been driving for the last 10 years. they might decide not to buy that new yacht. who cares? we might ask. if you made your living building boats or repairing them, you'd care. everything in the economy has consequences.

What I don't understand is why the markets are so high right no

The money fleeing from housing has to go somewhere.

Oh, and the money from GWB's tax cuts as well

"What happens next?"

Military coup?

The middle class can't keep borrowing forever, and the rich can't keep the economy afloat all by themselves. So what happens now?

—Kevin Drum 12:24 PM

The rich all move to gated communities protected by armed guards and we middle class people can learn how to dumpster dive as our houses are forclosed, our cars are repossessed, and our children go hungry. The dream of the American elite is nearly fulfilled. America is becoming a banana Republic.

The American Middle Class cannot stand another 8 years of neglect. Twenty eight years of drift is enough. We need a president and congress who give a shit about the Middle class.

The middle class can't keep borrowing forever, and the rich can't keep the economy afloat all by themselves. So what happens now?

What happens now is that it all trickles down and fixes itself (i.e., the Invisible Hand puts on its Work Glove and saves the day) and if it doesn't, why, we'll just cut taxes on the rich some more!

...okay, now, with a straight face: we find these rich people, and take their money, and redistribute it amongst ourselves.

Umm, don't the people at Goldman Sachs know a lot more about the economy than the people at the Washington Monthly? Is this post really saying not to listen to Goldman Sachs? That doesn't seem like a good way to get ahead.

So what happens now?

The government reduces and within a year stops spending huge amounts of money on a war in Iraq, and starts spending that money in a way which has a more expansionary effect on the domestic economy.

Or at least, that's what should happen.

The housing market has in fact lead to increased unemployment and layoffs, it's just that these layoffs have occured within the illegal labor market and thus do not register with the official statistics. Indirect evidence of this can be seen in the recent decline of foreign remitances to Latin America. Presumably, undocumented workers in the construction industry are not able to send as much, if any, money home to their families in the current circumstances.

Ah, Kevin.

Leave it to a liberal to find the one speck of dirt in an otherwise glistening pool of gold.

The economy is now in its 6th year of expansion, after the Bush 01 and 03 tax cuts. Average unemployment under Bush has been lower than average unemployment under Clinton. Real wages are going up. As people earn more and keep more of their take home pay rather than forking it over to Uncle Same, the economy will even further expand. We are leaving Europe, the sick man of Europe, in the dust economically. We are building strategic economic alliances with the future powers of India and China. The future is in the Pacifac, not the Atlantic. Only the US is strategically placed to play off whichever continent is booming.

Home ownership is higher than ever before. If you asked your great grandfather how his great grandchild would have lived, he would have been amazed at all the wealth that we take advantage of today.

Yes, inequality is exanding. But real wages down the line are growing, and its just that those at the top reap the biggest rewards because they take all the risks. They are the engine of the economy, and we all benefit.

So what happens now?

We eat the rich.

Or, we start taking care of labor.

The Egbert modus operandi: when statistics contradict you, make up your own statistics.

One word: unions. Force companies to redirect all the wealth they're directing at senior management now towards the working class who actually do the work that makes the company viable. More money in workers pockets should translate into multiples of spending growth over time.

Economic downturn coupled with food shortages, that bee disappearing thing, is going to put the patriarchy in a very strong position to dictate social policy.

don't the people at Goldman Sachs know a lot more about the economy than the people at the Washington Monthly?

Like the people at Enron, the Goldman Sachs folks are the smartest ones in the room. Do not trust them to advocate for the commonwealth, they work for the wealthiest 1%.

Egbert,

"Yes, inequality is exanding. But real wages down the line are growing, and its just that those at the top reap the biggest rewards because they take all the risks."

Two people start small businesses. One is worth $5 million, and invests $500K into his business.

Anther is worth $500K and invests $400K.

Which takes the bigger risk?

(Kevin-you've got the legend for the graph cropped off)
The blue line is 12-month growth in real labor compensation.
The green line is 12-month growth in real personal consumption.
The red line is the savings rate, 6 mo. m.a.

Well, it looks likes we've had the pedal to the metal on consumption and have been throwing everything into the gas tank (especially the kitchen sink).. and we're getting air bubbles in the fuel pump from the tank running dry and the car is starting to buck. The real question is where is the fuel going to come from when we stall out?

y81, Goldman Sachs knows the same things as Kevin but they dare not say them. Watch Bloomberg for awhile - when the anchors ask the commentators where the stock market boost is coming from, they all say, "The economy is strong." Sort of like Tony Snow saying we're making progress. If they ever say something approaching the truth, their own industry can forget any "soft landing."

Kevin: "Dan Drezner suggests that this might presage an era of low productivity growth but high wage growth"

Disputo: "So he is predicting high inflation?

Woo... hoo..."

Dan might be worried, because a recession starting now (or in the past few months) would really kick the GOP in the *ss for 2008. Lose two wars *and* put people out of work?

-They are the engine of the economy, and we all benefit.
egbert

How do all of the people losing their homes to forclosure benefit? How did all the people who lost their money in accounting scandals and the dot-com bust benefit? How did the people who lost everything in the Great Depression benefit from the greed and wild speculation that caused that collapse? You can argue that we benefit as a result of these events through reforms that were made, but then why do they keep happening?

If our government had been more proactive in regulating home loans and tightening lending standards to ensure that people purchase homes that they can actually pay for, we wouldn't have our current problems. That would be an example of good governance. But its politics baby, and people like egbert need to be able to quote favorable statistics when defending BushCo. Economics is politics, and what are a few million displaced families when the fate of God's political party is at stake? Not to mention egbert's pride. I mean, if you voted for Bush twice, you'd have to deal with some serious guilt if you let it get to you.

Posted by: y81: "Umm, don't the people at Goldman Sachs know a lot more about the economy than the people at the Washington Monthly? Is this post really saying not to listen to Goldman Sachs? That doesn't seem like a good way to get ahead."

Um, wouldn't anybody in Goldman Sachs happily lie to us, if it'd make them money? Weren't they pushing dot com stocks right up until nobody was foolish enough to buy?

So what happens now?

Maybe the proles break out the guillotines?

Teach the American greedheads what the European elite learned all ready?

"Wouldn't anybody in Goldman Sachs happily lie to us, if it'd make the money?" I dunno, ask Robert Rubin and Jon Corzine.

The problem is the reliance on capital gains over dividends. If dividends were high with corporate profits, then money would be dispersing through the entire economy, creating more economic churn, and keeping things overall good.

But it's not.

So we focus on capital gains, which forces business to work for the quarter, and not the longer view. The problem with capital gains, is that with this eocnomic focus, the treadmill gets harder and harder each year, so companies have cut and slice more and more to keep up, then they fall apart and we get buyouts and mergers.

The solution? Captial gains should be taxed through the wazoo, and taxes on dividends should be cut even more (or maybe the first 10k of dividends per year are tax free. I like that)

This will cause a stock market correction. But this is going to happen when the boomers start liquidating their retirement portfolio anyway.

Goldman's tea-leave readers are just like everyone elses, except perhaps a little (lot!)better paid. Their forecats about future economic activity are just that - forecasts. Their economists have access to the same government data, the same charts, the same weather vanes, etc, as everyone else on the Street. Trust me when I tell you, Goldman has been plenty wrong in the past and will continue to be plenty wrong in the future when it comes to hypotheses about the economy. Guessing what the future holds is not necessarily how Goldman has masses their great wealth and reputation (facilitating relationships and exploting them for their customers and ultimately for their own personal gain is what Goldman is knon for.)

Sell-side brokerage forecasters participate in the the great con of the optimists (not that they are wrong, he added optimistially).

Look, if the sun was predicted to explode this Friday at market closing time, thus destroying the Earth in a cosmic fireball, CNBC would be crowded with barkers pounding the table for you to buy the stocks of sunglass manufacturers and the high-yield debt of sun-block manufacturers.

Asbestos would be touted as the new growth industry heading into the weekend.

I dunno, ask Robert Rubin and Jon Corzine.

I like how wingnuts assume that liberals are as rabidly partisan, and as eager to vote against their class interests, as they are.

this will all be taken care of as soon as the housing industry improves its productivity by firing a bunch of people

A lot of them were illegal immigrants who have in fact already been fired. they were never counted in the work force in the first place, so firing them has not resulted in a reduction of total employment.

So what happens now?

We invest more in domestic energy supplies. Short-term, that's more jobs in PV cell manufacture and installation, wind turbine manufacture and installation, etc. Long-term, that's reduced fuel prices and increased energy security.

not only does it "happen now", but it "is happening now".

It's not the whole story, but it's a part of the story. I ordered an appraisal for installing PV cells on my house. It looks like the break-even point, including interest on the loan (or lost interest on the cash in savings) is about 15 years. For a young new home-builder in summy parts of California, it is alrady cost-competitive to install PV cells and reversible heat pump in a new house instead of separate gas heater and electric A/C, at least if they are planning on using A/C. I just ventilate the house at night (even in 100 degree summer times) and don't use the A/C. But analyses also show that adding PV cells increases the resale value of a house (though that may not be true if you sell during a buyers' market.)

"summy parts of California"

Must be those parts where sun and smog are mixed.

But, to paraphrase a line from Gone With The Wind, "We must ask rdw, Katie Scarlett, yes, that's what we'll do, we'll ask rdw. He'll know what to do about the economy>"

Don't summon the feedback loop...We just about have all of those idiots banished, or at least they are off working on new material...

Kevin

The economy sucks, absolutely sucks. Ask any small business owner and they will tell you. The economists don't look at the little people in business, just the big corporations. Thanks for posting this and shining a light on the fact that we're in a mess!

Yes, the economy is driven by consumerism, which conservatives want to destroy by dismantling the system by which we redistribute money to keep the flow of goods and services moving.

It rains, water flows down rivers and streams to the oceans, which evaporate and cause it to rain . . .

Businesses make money off the sale of goods and services, the profits flow down the tax pipes to the government which redistributes it to consumers who buy more goods . . .

Cutting taxes and keeping them low stops economic growth, just like stopping or limiting evaporation would stop or limit the Earth's water cycle with the result that all of the water ends up where the big fish swim and the streams and rivers run dry.

Conservative economics 101: They live in the ocean and they will drain you dry to enrich themselves.

"Umm, don't the people at Goldman Sachs know a lot more about the economy than the people at the Washington Monthly? Is this post really saying not to listen to Goldman Sachs? That doesn't seem like a good way to get ahead."

Umm, don't the people at Enron know a lot more about the energy industry than the people at the Washington Monthly? Is this post really saying not to listen to Enron? That doesn't seem like a good way to get ahead.

Looks like Kevin and his lil pilot fish have been reading Krugboy and his class warfare 101 economics primer in the Liberal Death Star.

Lil Paul has predicted a recession every year GWB has been POTUS and is batting zero for four last time I checked.

class warfare 101 economics primer

I got a copy of that -- it is also known as the Republican Platform.

What happens now? What ALWAYS happens when we have a crazy economic downturn, especially if it affects the world--we tear each other to pieces in a global war.

Let's see if it happens this time.

Don't listen to Goldman Sachs because they've been the biggest contributor to Democrats in 2004 and I think in 2000 as well. With that track record, who would believe them?

The market is still up because the amoun of liquidity is still high. Those pension plans and insurance companies have to put that money somewhere.

Don't listen to Goldman Sachs because they've been the biggest contributor to Democrats in 2004 and I think in 2000 as well. With that track record, who would believe them?

Well, the stock market and the economy always do better when Democrats are in power, so you can see why it's in their interests to do so....

oh, I think Goldman does pretty well no matter the president. Like 2006

"So what happens now?"

It's called a recession - if we are lucky. And it has already started - I work in the travel-tourism-leisure industry and I can feel the panic out there. The numbers and realization of how bad things are RIGHT NOW will lag because people are in an advertising panic trying to stay alive, so they are spending money and there seems to be a flurry of activity - but it will end, and a lot of people will be going out of business (and laying people off, and losing their houses, etc. etc.)

It seems people (meaning the vast majority of us) are a.) finally broke and b.) so disgusted by the current state of affairs that they are basically going to sit home and spend the little money they have left on gas, food and the cable bill. There is no way the Fed can raise interest rates - not with all the foreclosures already out there - and there is obvious inflation in most items (the rising price of corn and corn based products is another sickening side effect of idiotic administration "policy").

Anecdote - a good friend runs a summer concession. Coca Cola has been busting his chops for years, every summer they take away something else, every summer prices go up, etc. This year, a tank of CO2 to make the fizz in your soda - a bottle of compressed gas - is going from $17 to $25. Why? Because this behemoth looked around and realized they needed X more dollars to make the quarter and there was no where else to get it. This is price gouging, and inflationary, and a sign of an industry and country in trouble. Not to mention that if you have a soda fountain, the Coke "repair" man now has NO PARTS ON HIS TRUCK and you must schedule an appointment after which he must "order" the parts from the warehouse, which could take days. They won't even let the techs keep a stock of parts anymore! How are all these sweaty Americans going to get their diet Coke!!! We're all in trouble.

Egbert:
"Europe, the sick man of Europe"

Now I appreciate that you may have the IQ of a stunned duckling and the spelling prowess of a brick but we're going to help you here.

The phrase "XXXXX: The Sick Man of Europe" was orginally coined bu the Economist magazine to refer to any specifc country that was perfroming badly against other European economies. Thus it would refer to either Germany or France or the UK.

So saying Europe, the sick man of Europe makes no sense whatsoever, which works alright in your posts as they always make no sense. However, it does make you sound like rdw's bastard love child.

See, stick with egg-fart too long and you start picking up on his bad habits:

"coined bu the Economist"

Should have read:

"coined by the Economist"

Mea culpa, mea culpa, mea maxima culpa!

What happens next? Two words:
Great Depression

Daveinboca, how're those redhot condo deals goin for ya?

The last time predictions of a depression were being bandied about was just after the dot com bubble burst. Things were rocky for awhile till the public started cashing in on the real estate inflation that was driven in part by all the consumption by the winners of the 90's boom. All that money that was sloshing around from the IT boom is finally tied up in morgages right up to the limit of the supporting power of the labor force. There is no more money left to sweep up in get rich quick equity scams. Worse, the oil glut of the 90's that also pumped a lot of cash into the system is long gone. Like the $.05 12 oz. candy bar it's never coming back. It's pretty clear that the brief return to under $60 a barrel oil was merely a brief pause in a permant ever rising spiral of energy inflation. The Fed. could cut the prime rate to essentially 0% (like Japan has) and have no more effect on general price inflation than a beebee gun on an enraged elephant. The stagflation of the late 70's will look like paradise in comparison. Gird yourselves, the price gouging of Enron will be the typical bill of the future. What are you going to do when your electric bill tops $2000? What do you think that's going to do to the prices in places like Walmart that rely so heavily on huge fleets of trucks? I watch the world economy these days with the dread filled facination of watching the film of the Tacoma narrows bridge collapse. The damn thing is under impossible strain but you don't know just where the first wire will snap.

Ack, the prime rate would be being raised to control inflation but the basic problem would be commodity deflation as the energy prices soared leaving consumers with the dilemma of not being able to heat and cool their homes or pay for the fuel to get to and from work. Raising rates would be the death knell for non-energy industry and a zero rate would simply be absorbed by inflation in the energy sector.

If you define productivity in terms of the "value" defined by market value of what is produced, which shifts around from demand and gaming process, then you will have a faulty definition of productivity. Is that what they are doing? We need a constant "utility" definition somehow.