Confidence or Customers

by Doctor Science

I shall attempt to make a brief post about the debt ceiling meltdown, despite barely knowing what I'm talking about.

I'm basically a Krugmanite, because

• I figure he knows more than me
• we live near each other(comparatively speaking)
• our life choices were inspired by the same writer.

No, this is not the *real* cover, this is Mighty God King's version. But it sums it up pretty well.

Anyway, one of the things Krugman often talks about is the confidence fairy theory, which states that businesses aren't hiring (despite record cash reserves and low interest rates) because they lack "confidence". The way to give them "confidence" is to cut government spending; once that happens, businesses will regain confidence, hire more people, and the economy will recover.

For instance, John Boehner, Speaker of the House:

Dealing with the president's request for an increase in the debt limit by focusing on what's best for jobs and our economy is "critically important," Boehner said, "because it will bring confidence to business people within the United States; it will help create jobs, if we are willing to take on the big challenges that face us."

April Fool's, by Norman Rockwell, of course. What are our businesses trying to sell us?

What Krugman argues, persuasively AFAIC, is that businesses lack *customers* -- because those customers (or the customers' customers) are under- or un-employed. In Krugman's Keynesian view, government should *increase* spending at this time, so that customers have money to spend, and businesses can expand to get it.

The thing is, if I think of businesses as expanding when they have *customers*, Krugman makes perfect sense. How can "confidence about the future" get a business to expand, when there are no extra customers? How does that work? Why expand unless you see demand?

So I was thinking about this earlier today, wondering "What kind of business thinks that way, really?" And it struck me that maybe the finance sector does -- they think a lot about "confidence", rather than boring old "customers" or "demand".

And then it happened that I was linked to a post by Mike Konczal on RortyBomb, Why Is the Obama Team Embracing Hooverism?, which led me to an Towards a Theory of Corporate and Financial Sector Solidarity. The basic question he's chewing on is, why is the general corporate sector (aka "big business") taking the finance (and insurance & real estate; FIRE, all together) industry's side at every turn, even when their interests should be opposed? For instance, why are businesses -- traditionally borrowers -- taking the side of lenders? Why didn't corporation press for financial reform, or for that matter for health insurance reform, when it would save them money?

Konczal is debating whether it's that all the big corporations have become more and more dependent on their own financial arms, so that e.g. GE Financial became more important than the part of GE that does anything to do with electricity. He also wonders whether the finance and business parts of corporations have become more culturally similar, coming out of the same MBA programs instead of separate finance (accounting, etc.) and applied (sales, engineering -- something related to what the business actually *does*) tracks.

The Moneylender and His Wife, Quentin Metsys. An allegory of how the lure of wealth distracts one from Christian duties and truths. Is the FIRE sector distracting corporate America from actually getting down to business?

So there's my attempt to put up a post on pressing political issues of the day. I hope it works; it certainly was a failure in the "write a post in only an hour, how hard can it be" department.

Comments

[johnw]

One major problem with the debt ceiling is simple framing. When you ask voters, should congress raise the debt ceiling? they think you mean, should they increase the debt. Actually, they did that when the passed the budget back in December, allowing Obama to extend unemployment benefits if Republicans got the tax cuts extended -- yes, you can spend more, but only if we tax less. Properly framed, the question is, should congress vote to default on America's debts to bond holders and people collecting social security insurance? Because in fact, raising the debt ceiling amounts to paying the bills you've run up.

Another part of the problem is, if you believe in the confidence fairy, it follows as the night follows the day that brinkmanship about defaulting on the debt must make the economy worse. And if you think making the economy worse will hurt your opponent more than you, well, why not? After all, to many politicians, the fortunes of their party trump the fortunes of their nation. Would the people who voted for the Bush tax cuts in the first place and for Medicare Part D be worried about the deficit when unemployment is above 9 percent if their party was in the White House? I doubt that very much. After all, look at when we had our last debt ceiling crisis.

[Matt McIrvin]

The hell of it is, I'm convinced that when Mitt Romney becomes president in 2013, we'll have a stronger recovery, simply because Republicans' aversion to spending is a lie anyway; they're only against stimulus when a Democrat is president. When they get in executive office, they forget all the deficit-hawkery and just spend away on wars and other unfunded programs (while still lowering taxes). They don't spend wisely or, generally, on good things, but they do spend.

So the best we may be able to do economically is to elect Republicans, because if they don't have the White House they'll wreck the economy by way of revenge, whereas if we submit to their ransom demands they'll let us have some goodies. And what the public will take home is that their ideology is successful.

[Countme-In]

Matt, your Stockholm Syndrome is showing.

[Matt McIrvin]

Ehh, I just lived through Reagan. It affects a person.

[Chameleon]

I think Konczal is right on both accounts. The MBAs of my immediate acquaintance are very nervous about the fact that the U.S. isn't a big producer of manufactured goods. It's easy for management to be focused on the financial sector when that's the only sector actually housed in the U.S. I think that better enforcement of environmental and safety regulation as well as more environmentally friends methods of production could be a big help here. Overseas production is challenging to oversee, and while some factories are no doubt doing an excellent job, there have been notable failings.

Similarly, investment (probably by the government, because who else is going to do it) in environmentally friendly methods of production will help the domestic production of goods, since lack of costly environmental regulation is another factor moving production overseas.

The cheap goods bubble will eventually burst the same way that the housing bubble did. In fact, I predict that the housing bubble has not yet fully bottomed out. 30 year mortgages were predicated on stable, long term income - a condition that largely no longer exists. The actual cost of new home construction for a 1k sq ft. home hovers around 100k in suburban areas http://building-cost.net
however, unlike most goods, that price doesn't drop off much at resale. In the future, I predict we'll see a lot more drop off in used home prices given the greater energy efficiency of newer home construction.

[wj]

Two, unrelated, points:

First, the step from "business lacks confidence" (and therefore isn't hiring), to "restoring confidence requires cutting government spending" is a huge leap. And one which, from what I've been reading, is asserted from first principles rather than demonstrated.

The Keynsians, right or wrong, at least have a chain of causality: more government spending ==> more people employed to do the work that spending pays for ==> more individual spending ==> more business growth.

The alternative view, if I have understood it correctly runs like this: big government is bad; therefore government spending should be cut; then, because "bad" has been reduced, business will florish. The first point is philosophical. There is a point at which government is too big, but where that point is remains undetermined. The philosophical view seems to be almost the extreme libertarian one: any is too much. (Well, except for enforcing morality, of course.)

The last step is asserted, rather than proven. Examples of government cuts causing private business expansion are thin on the ground. A few specific instances, but for an overall economy, not so much.

Second, the debt ceiling argument isn't really about reining in spending or reducing the size of government. The Congress could do that at any time by changing what the budget spends. Rather, it is about not paying the debts that the government already has. Debts that stem from spending that the Congress has mandated over the years.

The intention seems to be to have the President be forced to cut everything in sight (because we have hit the limit) -- and therefore spare the Congress from taking the heat for making cuts in popular programs. The fact that reducing government this way not only trashes the economy, and increases the cost of government borrowing for a long time to come is nothing compared to Congressmen avoiding hurting their personal reelection prospects.

do I think that government spending should be reduced? Yes. Do I think that doing so by refusing the raise the debt ceiling will have any positive effects? Absolutely not. "Absolutely not" as in I'm looking at ways to move my liquid assets out of the country. I really do think that the effects will be that bad. And that the House will drive us over that cliff.

[Turbulence]

When I hear about the 'confidence fairy' (and her inverse, the bond vigilante), I can't help but think of a pre-historic tribe of humans picking one of their own to be horrifically sacrificed to appease the gods. Like the Wicker Man.

The funny thing is that serious professionals can't just say 'I think we must make millions of people suffer horribly in order to appease angry gods', but what else does confidence fairy/bond vigilante refer to given the lack of any causal explanation?

[Doctor Science]

Turbulence:

ITA, and the "shared sacrifice" mantra -- which Obama, too, has been intoning -- only increases this feeling.

[Doctor Science]

wj:

do I think that government spending should be reduced? Yes.

Why do you think that, given the Keynsian causality chain you outlined? That is, where do you see the weak link in that chain that leads you to think government spending should be reduced at a time (NOW) of high unemployment and low interest rates?

[wj]

Dr. S: I was unclear, or incomplete, or most likely both. Sorry.

I think that the size of government should be reduced. But not in the current economic conditions, for just that reason. Perhaps my perspective is warped by living in California, where our state government has run amok.

I would also note that I'm real clear that the right approach isn't just to "cut government spending" -- that's way too simplistic, for all that it makes a punchy sound bite. Rather, I would like to be selective of what government is spending money doing which falls into any of these categories:

a) something that is actively counter-productive. That is, that not only does not achieve the ends intended, but actually makes the problem worse. The "War on Drugs" leaps to mind -- both at the federal and state levels. (Not to mention that something is seriously wrong when spending on prisons exceeds spending on education. That's just prisons, mind, not the whole justice system.)

b) stuff that costs more than it is worth. Building huge pension liabilities "because we don't pay enough to attract quality people otherwise," for one example.

c) stuff that makes it harder/more expensive to run a business, without having an adequate return in improved safety, transparency, etc. -- while running up government costs to administer it. (Or, worse, not enforcing them, so those who try to follow the rules are disadvantaged compared to those who don't.) Not that we don't need some kinds of regulation, but that we have way more regulation than is necessary or appropriate.

I should also note that I am not convinced that the Keynsians are completely correct in their assessment of how government spending works. (In some cases, their approach works to some extent. But it is not the perfect solution, and has negative side effects which they tend to blithely ignore.) But at least they present a causal chain where each step bears visible some relation to the previous one.

[JanieM]

he was the kind of man who doesn't take a woman's expressed wishes seriously if they conflict with what he wants

I'm tempted to say, "What other kind of man is there?" By which I mean, "What other kind of human is there?"

As far as I can tell, this is closer to being the human condition than to being a special case of atheist conference elevator encounters potentially having to do with sex. (Not that the possibility of sex being involved doesn't make it more fraught a lot of the time.)

I'm oversimplifying, but I don't have time to write a tome, nor do I mean to say that the whole mess Doc is describing isn't worth commenting on.

IGMFU: people's incessant jockeying to get what they want regardless of what anyone else wants, or what harm is done to anyone else, and all the self-serving rationalization thereof -- how much of the news every day could be boiled down to this principle?

[JanieM]

Also, what johnw said. People who are so cocksure of their rightness in the face of other people's alleged wrongness are looking in a mirror. Thus the "it sounds religious" aspect of this story.

Have any of these militant atheists provided a proof of the non-existence of god that would meet the same standards they would look for in a proof of the existence of god? I haven't seen one; I can't imagine there's one that would satisfy my (essential) agnosticism.

[Doctor Science]

JanieM:

Copy&paste them over there, then I'll delete them here.

Stuff happens, don't sweat it.

[DBN]

our life choices were inspired by the same writer.

This is not reassuring; psychohistory is as impossible as the perpetual motion machine. Hari Seldon and the God Emperor are ridiculous fantasies of human power over systems of staggering complexity, not figures to be aped in the real world. Idolization of these figures should be resigned to the masturbatory fantasies of 10th grade of omega males, not the pages of the Times.

[JanieM]

Thanks, Doc. You can disappear me from this thread now. :)

[sapient]

I appreciate the post, Doctor Science. This economic situation is terrifying. Matt McIrvin is right - the Republicans could, in fact, turn the economy around to their political advantage because their "principles" have nothing to do with the deficit or anything else they espouse. They are solely about rewarding wealthy people, ignoring the middle class and poor, and the way to do that is to give enough to the masses to win elections, but still gaming the system so that the wealth disparity continues to grow. Just look at their history: where did the 2000 surplus go? Halliburton, Republicans' 20-something children running Iraq's "reconstruction," etc.

And, true again, the corporations aren't worried about "uncertainty". They hire people if they need to make more products to sell to people with money. "Uncertainty" is the person with a house worth less than his mortgage who doesn't have a job who has no money to buy goods.

We're doomed - the Republicans are blowing the country up on purpose. We need to work very hard to deprive them of their reward for doing it.

[Republicans]

BOO!

[sapient]

Republicans, are you the guy in the elevator?

[CCDG]

"What Krugman argues, persuasively AFAIC, is that businesses lack *customers* -- because those customers (or the customers' customers) are under- or un-employed. In Krugman's Keynesian view, government should *increase* spending at this time, so that customers have money to spend, and businesses can expand to get it."

This is both true and incomplete. The reason that somewhere between 14-18% of Americans are consuming less is because they simply are unemployed. So they are not customers.

The other half of the equaation is that the middle class lost 7.38 trillion dollars of wealth in the economic downturn just on the value of their houses.

That number accounts for lots of statistics being thrown around (the frightening leap of disparity in wealth for one, most of the middle clas wealth was in their homes), but also accounts for the lack of customers in two ways.

First, it simply reduces the amount of money the middle class has to spend. In normal times some of that money gets taken out of those houses in sales and, yes, borrowing to spend on everything from improving them to college education and vacations. That money simply isn't there anymore, even for the employed.

Perhaps more importantly for the economy though, the combination of the two things above also creates a lack of confidence in those people who do have jobs and money and the capability to borrow. Americans have simply turned conservative faced with the lack of confidence in the future:

Since 2007, instead of taking $2 trillion out of their house, homeowners have put $1.3 trillion into them.

That is not counting the reduction in credit card debt and net increase in personal savings over that same time(from 240B a year to over 650B a year.

In fact the savings rate in April was 5.7%, a fifteen year high.

So, while Krugmans analysis that businesses lack customers is factually correct, it fails to go the one step further to point out that, at any increase in confidence, there are trillions of dollars in the hands of consumers that could be introduced into the economy to create a stimulus without spending a single government dime.

[CCDG]

"In fact the savings rate in April was 5.7%, a fifteen year high."

This was a bad stat. The rate actually fell to 5.0% in April. And is currently at an an annualized rate just below 600B (591.1 as of May) dollars. (Just checking my work)

[hairshirthedonist]

So, while Krugmans analysis that businesses lack customers is factually correct, it fails to go the one step further to point out that, at any increase in confidence, there are trillions of dollars in the hands of consumers that could be introduced into the economy to create a stimulus without spending a single government dime.

So we should hold our breath and wait?

[CCDG]

"So we should hold our breath and wait?"

No, but I just hate how Krugman always tells half the story. He is a wicked smart guy who knows the whole story. So he knows we should be pursuing policies that build confidence in both consumers and business in what to expect in the future.

1) Make the tax cuts permanent or repeal them, but make either one permanent.

2) Make relatively minor changes to Medicare and SS to ensure their stability for the next 75 years or so, then quit mixing them up with the general budget.
a) Raise the rates on Part B for anyone making over 150k to what it costs (somewhere between 10k and 15k a year)

b) Make everyone pay FICA on every dollar they earn

c) Then do of all those cost savings pilots and see if any work

3) RE: 1 I say repeal them all and spend the money on massive retraining to match the people with the jobs available(through the employers). That would sell.

4) Invest the rest in rebuilding a manufacturing economy, Now that we have taxed the top 50% to rebuild the middle class make sure we do by spending some of it on providing tax incentives to the industries that will employ a middle class.

5) Punish corporations that move jobs offshore, or leave them there, this includes importing L1 workers that actually displace workers that are available here. Make it cost.

6) Tell people that this will work. Then tell them again.

7) Quit talking about regulating everything and enforce the things we should be worried about. Bill Varney at Forbes has a short article this week on the cost of regulatory overreach to actually accomplishing stuff.

8) Learn that globalization is a marketing philosophy, not an economic plan. We want to sell globally, not be the global headquarters for multinational companies who do everything everywhere else.

But thats just me.

[Dr. Psycho]

Matt, once you start paying Danegeld, you never get rid of the Dane.

But as a fellow sufferer from Post-Reagan Syndrome, I can sympathize with your paralyzing horror which masquerades as cynicism.

[Doctor Science]

CCDG --

The overwhelming majority of "savings" in the economy is in the form of corporate cash balances, a *trillion* dollars in the US alone.

Regular people can't afford to draw down what savings they have -- they're almost certain to need them for medical or educational expenses.

What we need is to get those corporate dollars moving through the economy. Do you have any direct method for doing that besides taxing the corporations and using the money to pay regular people (to do stuff like repairing things, building things, nursing, or teaching)?

[CCDG]

"The overwhelming majority of "savings" in the economy is in the form of corporate cash balances, a *trillion* dollars in the US alone.

Regular people can't afford to draw down what savings they have -- they're almost certain to need them for medical or educational expenses."

Well, despite the fact that the vast majority of savings is not in those corporate cash balances, and the second assertion is pretty generic, I think I did address that to some extent.

Those balances would be used as capital for matching funds for the training programs, investment for manufacturing facilities, investment in other growth initiatives once regulatory and tax uncertainty is settled and, well, once they have more customers.

Confidence is a virtuous circle, companies invest cash when they perceive they are investing in an upturn. Investors get off the sideline when they perceive companies are investing in growth, consumers spend when companies spend on hiring.

Most of our discussions are about which part of that circle to try and impact. The Democrats have tried government as the customer. The Republicans try tax breaks to stimulate the customer as the customer, or to generically get business to invest.

Neither is necessarily wrong. But when companies are keeping a trillion on the sidelines, the consumer is saving over a trillion over a few years and investors at all levels are leaving trillions sitting in cash you really have to attack every point in the circle.

It may be that all of those companies dividending half of that cash to shareholders could turn out to be an effective stimulus if they did it all at once. Perhaps we should have a tax holiday for the repatriation of foreign cash ONLY if they immediately dividend it to shareholders.

[Doctor Science]

CCDG:

The article I linked above says that corporations are NOT dividending their cash. Here's a better link (Bloomberg, not exactly The Daily Worker):

Jobless Suffer as Corporate Cash Hits $1.18 Trillion

There's a lot of talk there about how businesses need "confidence" (that they won't be taxed), but IMHO that's a smokescreen.

Maybe I'm biased because I mostly know about small businesses, but we don't decide to hire people or order materials when we're "confident", we do it when we have more customers. Hence the title of my post.

Are large corporations really that different?

[Kenneth Almquist]

"at any increase in confidence, there are trillions of dollars in the hands of consumers that could be introduced into the economy to create a stimulus without spending a single government dime."

A lot of people have to save more money than they did in the past because in the past they were relying on the (mistaken) assumption that the value of their house was sure to increase. An increase in "confidence" won't change that.

[Morat20]

One question I always like to ask the smaller government folks -- like wj there -- is smaller how?

What bits do you think the government should stop doing? How much smaller do you think that will make the government? Why is this good? What will replace it?

I mean, it's pointless to ask the Paul Ryan folks -- "government should be 18% GDP and no more!" -- because they don't have an answer. Just a number they've pulled out of thin air, solely because it's smaller than the current number.

I'm a big more pragmatic. I'm happy to cut government or increase it -- tell me what you want to change (grow or shrink!) and how you see it working. Convince me.

[CCDG]

"Maybe I'm biased because I mostly know about small businesses, but we don't decide to hire people or order materials when we're "confident", we do it when we have more customers. Hence the title of my post.

Are large corporations really that different?"

Let me try to answer, not really that different.

Let's say you are a small business located on the main strip in town but not ideally on the corner strip mall. You know you could move to an open spot there but it would mean 400-500 more a amonth in rent, a thousand bucks in build out and (since its a little larger) you probably would need to carry more inventory. You are also currently open 9-6 Mon-Sat because you just don't get enough traffic otherwise. In the new place you would probably want stay open 9-9 7 days becaus eof the location. Or:

You own the Subway franchise in a town of 12000 people. You have a great location at one edge of town right off the highway and you do great business, but it's a little slower these days. There is a spot on the other end of town at another highway entrance that oyu yhink might be a great second location, it does have a local diner but you think it will support both. Of course you need to make an investment, but you've already proven you can make the investment work. But is the economy getting better or worse? Are people losing more jobs? Are house prices stabilizing? Is the government through changing things?

Both of those small business investments require confidence, both will create some number of jobs(1-10?), neither is simply a factor of getting more customers.

[CCDG]

"I'm a big more pragmatic. I'm happy to cut government or increase it -- tell me what you want to change (grow or shrink!) and how you see it working. Convince me"

Thats great, instead what I would like is for you to take every dollar that the government spends and convince me that it is being spent to my satisfaction, because I'm a pretty pragmatic guy.

If you can convince me that each dollar is being spent effectively on things that need to be done then I will decide the government is exactly the right size.

Otherwise, pragmatically, I need to start with a frame of reference that I think is reasonable and ask the government to work inside that. It is reasonably arbitrary based on how much we have spent historically, how much debt we have, how much we want to be in debt in the future, but it's a number I am comfortable with unless you would like to walk through the bydget line item by line item and....

Convince me.

[hairshirthedonist]

If you can convince me that each dollar is being spent effectively on things that need to be done then I will decide the government is exactly the right size.

This is overly limited logic. A government that spent all of its money filling in one really bad pothole on a busy street as cheaply as it could while still doing it properly, and that did nothing else, could meet this criterion, despite hundreds of thousands of potholes needing to be filled, not to mention a bunch of other very necessary stuff.

[Bernard Yomtov]

CCDG,

But is the economy getting better or worse? Are people losing more jobs? Are house prices stabilizing? Is the government through changing things?

Both of those small business investments require confidence, both will create some number of jobs(1-10?), neither is simply a factor of getting more customers.

But the ultimate confidence they require is that customers will show up. The rest just affects that.

Well, except for the worry about "the government changing things." Here's the thing. The government is not "changing things" now any more than it has in the past, and those changes are not going to have as much impact on how many sandwiches you sell as the level of unemployment and other economic factors.

What has happened is a PR campaign to convince people that the problem is uncertainty about regulations, and not the important economic conditions. It's worked to some degree, mostly because if you don't like Democratic policies you have to swallow some explanation that makes them seem bad.

[russell]

Otherwise, pragmatically, I need to start with a frame of reference that I think is reasonable and ask the government to work inside that.

If I understood Morat correctly, what he was asking for was some kind of description of what that frame of reference was.

Also, unless I'm mis-reading either you or Varney, the Forbes link isn't making quite the point I think you want to make. He's talking about the DOJ not having the resources to pursue a number of cases that are currently underway.

That can either mean (a) they're going after too much stuff because they're overstepping their bounds, or (b) they're underfunded and understaffed.

Not clear from the article which is so.

[crithical tinkerer]

But is the economy getting better or worse? Are people losing more jobs? Are house prices stabilizing? Is the government through changing things?

Both of those small business investments require confidence, both will create some number of jobs(1-10?), neither is simply a factor of getting more customers.

CCDG
Business confidence? confidence about what?

[CCDG]

"But the ultimate confidence they require is that customers will show up."

Yes, that is what most of confidence for business is, that the economy is improving and that if they make investments customers will show up. When they announce monthly business confidence numbers thats what they mean.

They also mean that the businesses have confidence that the government isn't going to do anything to make that change. Like raising taxes that add to unemployment. Or add regulations that add to unemployment.

It really has little to do with swallowing Democrats or Republicans positions, it has to do with persistent 9% unemployment and having no confidence that the policies of either party will actually fix anything.

When the average small business owner, since thats what we seem to be focused on, has heard daily for years that the policies of both sides won't work, then there is little to generate confidence that a deal between the two to do a watered down version of each will fix anything.

When, in fact, a huge investment in either policy would probably be better for the economy than a tepid trickle of putrid nothingness hashed out between people who don't understand the crisis of confidence or how to overcome it.

You don't get 3 trillion dollars off the sidelines by throwing 800b over 3 years at it. That was the stimulus package, all effects long gone.

QE1 and 2 added liquidity, translate devalued the dollar to the tune of 6 trillion, but it all went to banks playing the credit spreads and recapitalizing, but oddly was more effective than stimulus because it did hide inflation and add some confidence in the credit markets. At least Bernanke knew that the numbers he needed were in the trillions.

And, as Doc pointed out, the companies aren't dividending their cash back because it is rarely the best use for shareholders, the government hasn't done anything to incent them to actually invest that money. So the best we got is them buying each other, which is a net loss for jobs, but does put some cash in shareholders hands if they buy a public company.

It doesn't really do anyone any good to keep saying, well unemployment is the problem. Unemployment is NOT a problem on it's own. It is a painful symptom.

Outside of taking the Swedish model and just guaranteeing everyone lifetime employment, which isn't going to happen, then you have to fix the problems.

The best place to intercede in a really big way is to make sure we are building and rebuilding, training and retraining for industries that wil actaually employ a middle class. Then use all the guns, tax breaks, subsidies, government procurement preferences, to make sure those industries get started or restarted, or jumpstarted if they exist.

Everybody works on Mondays.

[crithical tinkerer]

CCDG
Bernard already answered it partially, and i'll try to answer to What confidence question.
Is the economy getting better or worse?
Depends on what month you look at, or what year, fiscal or callendar. But the answer will tell you if you will have more customers in the future, or less.
Are people loosing more jobs?
If more people are loosing jobs (correct framing) then there will be less customers. Government spending on infrastructure or anything will pay for more jobs/ more customers.
Are house prices stabilizing?
Knowing full well about the housing market effects on economy you would know that it doesn't play a factor on the economy but only on FIRE industry when prices go up not when stable. When people go into foreclosure they live in houses for free for some time having all that additional cash to spend on buying stale Subway sandwiches. If prices are stable there will be no house equity pigybanks, but population growth will keep building more houses so no effect for a local well established population around the Subway store. And since everyone knows that prices will not go up for a long time there is no effect on customers.
Is government trough changing things?
When the government was trough with changing things, any time in history of any country? i would really like to know. Oh i know. when US government was shut down in 1995. That was the age of prosperity and law, backed by superior morality. :-)

Oh you just want virtuous circle of jobs to start from investors with confidence. Just let them have confidence ha ha ha

[Bernard Yomtov]

CCDG,

It doesn't really do anyone any good to keep saying, well unemployment is the problem. Unemployment is NOT a problem on it's own. It is a painful symptom.

Whether it's the problem or a symptom, it needs to go away. And budget cuts aren't the way to do it. Real economic stimulus is. It creates demand - customers.

The actual stimulus was too small, by a lot. This is not hindsight. Lots of knowledgeable people thought so at the time. If Obama had said so he'd be much better placed right now, and so would the country.

When, in fact, a huge investment in either policy would probably be better for the economy than a tepid trickle of putrid nothingness hashed out between people who don't understand the crisis of confidence or how to overcome it.

A huge investment in Republican policies would be a disaster, if I understand their proposals correctly. Giant cuts in spending are exactly the opposite of what is needed.

The best place to intercede in a really big way is to make sure we are building and rebuilding, training and retraining for industries that wil actaually employ a middle class. Then use all the guns, tax breaks, subsidies, government procurement preferences, to make sure those industries get started or restarted, or jumpstarted if they exist.

This sounds like you are claiming that:

1. Unemployment is "structural," due to shifts in the economy and a resulting mismatch of skill to demand. Krugman has done a lot to refute this idea, and my question is, "What dramatic shifts have occured in the last three years or so that have led to such high levels of structural unemployment? Before you can present charts and graphs, you have to have some sort of real-world story to tell. Economies change all the time. What was the extraordinary change over the past few years that led us where we are?

2. That the government ought to "pick winners," as the derisive phrase goes. That's not so easy, at best. Anyway, I've always been a bit dubious of the whole retraining notion as a large-scale solution for economic problems. It's fine to have programs to teach workers skills, but an awful lot of the unemployed have perfectly useful skills. Are you going to turn an electrician into a chemical engineer with a six-week training program? Isn't it wiser to stimulate demand generally, so that electricians, among others, have more work?

[CCDG]

"That can either mean (a) they're going after too much stuff because they're overstepping their bounds, or (b) they're underfunded and understaffed."

Or c) The regular revolving door of people brought in that don't recognize the limits of government oversight and overrreach the reality, shattering the ability to effectively prosecute things that are important, leaving a mess behind to be cleaned up by the next person. A cycle which diminishes the effective use of even the resources they do have.

At least that's what I got out of it.

[crithical tinkerer]

CCDG
Talking about your hate of Krugman's half story telling, you were probably not aware of all those mirrors around you.
Krugman present a lot of facts that you should use do deduct your conclussions, but since most of republicans follow only good salespitch for logical narrative with less concern for facts of course you hate his ways.

[CCDG]

""What dramatic shifts have occured in the last three years or so that have led to such high levels of structural unemployment? Before you can present charts and graphs, you have to have some sort of real-world story to tell. Economies change all the time. What was the extraordinary change over the past few years that led us where we are?"

One at a time. The structural shifts didn't happen in the last three years. The stuctural shifts have been happening for thirty or forty years. In fact, prior to the last three years we had a tale of two economies.

We had an economy, I'll focus on tech for a minute, where there was an inflow of workers from offshore through the H1B program that was filled every year on the day new applications were opened. These where typically higher ed, highly skilled engineers and there simply were not enough of them in this country to fill all available positions.

Then we had a workforce of people who built and maintaned datacenters, racks, tape libraries, handled trouble calls, did desktop support, managed networks, every company had dozens if not hundreds of them. Then we had programmers, no telling how many, they were in between.

Now erase the second paragraph. In hundreds of companies in three years they are gone. The first paragraph remains. Not so competitive, depending on the technology of course, but the second paragraph got downsized, then offshored. In company after company they downsized and then never even considered rehiring.

For non tech based companies they outsourced those functions rather than rehire and those outsource companies offshored those jobs. The new trend is to bring a datacenter full of people in from India 5 months 29 days at a time on L1 Visa's, then swap them out. That way you don't have to pay them local competitive wages.

And the last three years was just the end of the last five percent. That wsan't a three year phenomenon, it has taken IBM years to become the second largest private employer in India. They had to be well prepared to take advantage of the downturn.

So thats an industry gone.

From a manufacturing standpoint I would have to do some Google work. But I will.

[Ugh]

Ah, the antitrust division of the DOJ. Low morale during the Bush years because they weren't doing jack, and now Mr. Singer reports (or speculates? hard to tell if he has any sources or is just spinning B.S.) that there's low morale because they're doing too much and don't have enough time to do it all correctly or follow through.

Thus, the nation's anti-trust laws are ineffectively enforced. I wonder which side of the aisle thinks that's just fine?

[russell]

The best place to intercede in a really big way is to make sure we are building and rebuilding, training and retraining for industries that wil actaually employ a middle class.

I basically agree with this. My questions:

What industries are those?
What intercessions can be made to encourage them, and who makes those intercessions?

Also, as an aside, I was recently hired by a small company whose long-term strategy was to get out of the outsourcing / offshoring model. For various reasons.

One small company does not a trend make, I just found it interesting in the context of the overall argument.

[CCDG]

Actually russell I think that the answer to

"What industries are those?"

May be what your company is doing. There are economic reasons that it could a reasonable focus for intercession. Unfortunately, the economics are easier to intercede in at smaller scale, the larger companies would require targeted tax breaks. The spreads have narrowed enough that a combination of economic incentive with just plain inconvenience could really impact the growth of that model.

The L1 model is a response to some of it's weaknesses that I think should be stopped.

[Hartmut]

Thus, the nation's anti-trust laws are ineffectively enforced. I wonder which side of the aisle thinks that's just fine?

Unfortunately both (one side 100%, the other close to it).