Friday, December 20, 2013

A Rare Mention of Aggregate Demand, [Median] Consumer Income and Spending in the Popular Press

   (Commentary posted by Roger Erickson)

Biologists would integrate some concepts in economics, and suggest we move on to exploring our expanding levels of cultural options.

Economic rent = personal-hoarding;
Culture            = hoarding of coordination skills; [aka, group-hoarding]
  Cultural growth = return on coordinating rent&culture; [team-member & teamwork]
  Electorates wielding group intelligence can do this. Some better than others.

Will this catch on? It's only a matter of time.

More of the popular press is catching on, to the fact that the "new normal" that is setting in ... is normally not considered to be a positive development? In fact, all the lost output is a permanent setback, and a real disaster. Maybe next year you'll even see this sort of discussion dominating YOUR local media channels. We can only hope.

Mike Whitney, Counterpunch:
America's Missing Investors - Did Someone Say “Crash”?
"Bottom line: Net investment is down because there’s no demand."
"So, tell me: Why would a businessman invest in an economy where people are too broke to buy his products?"
"And that’s what the Fed’s zero rate policy does. It’s incentivizing businesses to use their capital in a way that’s damaging to the real economy."
"personal consumption [growth rate] has dropped from 3.6% to 1.1%?!?"
"There’s really no way the US economy can rebound without a dramatic reversal in the current fiscal policy."
"So why is Wall Street taking such dire warnings in their stride, you ask? It’s because investors no longer pay attention to the fundamentals. Demand doesn’t matter. Earnings don’t matter. What matters is the Fed and the Fed alone."

And, the article Mike Whitney refers to.

Rex Nutting, MarketWatch:
No one is investing in tomorrow’s economy. Commentary: Net investment still at lowest levels since Depression

No one will mistake either of these authors for experts in currency operations, but the publicity they bring is nevertheless helpful.
"Some economists fear that the slowdown in capex investment may be permanent."
For Pete's sake! That's what the dinosaurs feared too. Orthodox economists are dinosaurs? Do those people who believe in free will also believe in collective free will? And in group intelligence, not just the local intelligence of isolated individuals?

This author suggests that it's taking time to "recover from all the reckless investments we made in dot-coms, McMansions and shopping malls."

Yet what if the net policies of the USA have made us into one, giant, reckless investment?

Our investment in democracy can't improve without improved national policies? Ya think? Note to all citizens: improving national policy is not the Fed's job, although they, like all of us, have to speak truth to ALL their fellow citizens, including those in power.

After all this, Rex Nutting comes to a conclusion.
"But once businesses figure out that they need to expand their capacity in order to compete, investment will rebound, and the economy will too."
??  He just finished reviewing demand-led investment, yet contradicts himself and reverts to orthodoxy as a safe conclusion.  So close, yet so far. What about speaking truth to power? Or to oneself? Why review context, and then tell us to ignore it?

Compete with whom?
Invest where?

Likely not in the USA. Rather, wherever the public policy of some nation allows the largest net growth in aggregate demand?

All economic data always sums up a conflict between two, basic hoarding behaviors.

Scaling up personal-hoarding ["rent"] kills culture but preserves components.

Scaling up hoarding of coordination skills allows group-hoarding, which can threaten non-cooperative components.

Hence the contradiction which we always need to maneuver through, under, over and around. Compound growth zooms when we integrate both forms of growth, rather than letting them act in blind opposition. Then, we grow our culture AND keep all citizen-components alive (by constantly improving skills at repurposing citizen components; survival tracks net agility of groups; i.e., their maneuverability, which tracks their ability to reconfigure all interdependencies).

Our rate of adroitly coordinating those seemingly conflicting behavioral demands is what grows culture while keeping citizen-components adaptive.

We can do this the smart, smooth, fast way, or the dumb, intermittent, violent way. Adaptive races are no different than any other race. Slow is smooth and smooth is fast.

It boils down to selective focus. 

Slow adjustment of only the most adaptive changes. [Don't overtly kill momentum. Collectively set your culture's racing path.]

Smooth adjustments, of what is changed. [Don't subtly kill momentum. Keep your cultural-vehicle close to it's race path. No zigs & zags.]

Fast progress of our whole cultural system through unpredictable obstacle courses.  [Don't exit your cultural-vehicle in the middle of an adaptive-race track. Need this even be stated? Only to traitorous Libertarians wanting to run off with & sit on their static assets, rather than use culture as a force-extension tool.]


Matt Franko said...

Whitney: "But if the Fed creates incentives to do something else, like gaming the system with stock buybacks, then they can make the adjustment. And that’s what the Fed’s zero rate policy does. It’s incentivizes businesses to use their capital in a way that’s damaging to the real economy. "

What does "The Fed" have to do with any of this???

Whitney doesn't get it either...

Roger Erickson said...

Yes, he has it backwards, even though he,like Nutting, explains it to himself. Just lacks the courage to let his conclusions follow his own explanations. :)

ZIRP reduces private income, which reduced consumption, which dis-incentivizes capital investment.

Nevertheless, he's at least trying to discuss demand-led investment.

The changing balance of these sort of discussions will be interesting to follow.

No wonder the electorate remains confused.