Once more: I WANT MORE SPENDING!

by: Daniel Becker

Ok some more information to bolster my position that my flower shop being down this year another 4.5% compared to last year (at least the decline is leveling off) is not the results of government debt or too much taxation or banks not lending or unions... nope, my shop is off because of one thing: Lack of income in the hands of the many and nothing to date has been done to change that.

As noted here and here, monetary policy is not going to cut it. (Please pray for the Greeks.)

Or I should say, not cutting it for anyone who earns a penny because someone else had an extra penny to spend beyond their non-discretionary expenditures. That is, they are at the point of autonomous consumption, but not at the point of offsetting income earned from their cognitive or physical labor with that earned from money. That means we're talking about the bottom 90% of the income earning population. (The top 10% own 82% of the stock.)

Two nice charts from the NY Fed bank

The first shows just how much of a dive spending has taken. Considering we're a "consumption economy", I don't think this bodes well for us. The second shows how lacking in recovery such spending is compared to prior recession.

I don't know about you, but I don't care how much money we pump into the economy at the top, if it doesn't get in the hands the bottom 90% of the income earners, there will be no recovery. It does not matter if the Fed's are pumping it in or the Government is doing it via tax reductions because both methods are not putting the majority of the money in the hands of the many. The Fed article notes that this discretionary spending is "services". It is 30% of all personal consumption expenditures (PCE). Non-discretionary is 34% of PCE, that leaves 36% somewhere in the middle? They state PCE is 70% of all output. So, 30% of 70% is 21% of all output? Using $14.7trillion means about 3.09 trillion has taken a 7% hit of $216 billion! ( I readily accept any math corrections in comments)

The author states:  

Really? "May" is the word one wants to use here? 

A Mr. Roche is more direct:

The real weakness in this recovery is rooted in the fact that consumer balance sheets are so mangled that they're spending primarily on non-discretionary items and saving the rest of their incomes to pay down debts. This is important to understand because policy must be geared in such a way that it does not further hinder the household balance sheet. And therein lies the problem with a policy such as QE2. Anything that can potentially cause cost push inflation will only further weaken the household sector and detract from any possible recovery. In the case of QE2 I think we saw the increased speculation contribute directly to rising commodity prices which ultimately squeezed consumers further and led to the current soft spot in the economy.

BINGO!

Let's not stop there. From Mr. Weisenthal Under "Scariest Job's Chart Ever" we get this one on the duration of unemployment.

 

Which brings me to my posting from 4/2008: The longest Recession Ever

I noted in this post that it took 20 months from the Bush 2 recession for the peak of what I call Person Weeks Unemployed (a multiple of the number of people out and the number of weeks out). I also noted that Reagan with back to back recessions did not see the peak until 30 months past the first recession. Almost 3 full years! He also double the quotient.

I ended with: 

There you have it.  You want to fix the economy?  Don't follow the conservative ideology.  The Republicans win in delaying recoveries. Yet, here we are with a "Democratic" president using the very language, words, framing of the group that is proven to not know how to create jobs and thus get money in the hands of the many in the shortest amount of time. Some say the Republicans are doing it this time with intention. I doubt that, though it is a meme that would make them seem to be the ultimate chess players.

Yes, I WANT MORE SPENDING!