Consumer Spending Loses Forward Momentum
In other news, Americans were saving more of their money in November. Although still very low, the savings rate edged up to 0.3 percent of after-tax income.
Taken together, these numbers paint a picture of average Americans in an increasingly defensive financial posture, particularly in light of the fact that interest rates they can earn on savings remain modest despite the recent rise in rates caused by massive federal budget deficits and a more aggressively anti-inflation posture being taken by the Federal Reserve as it ratchets up short-term interest rates.
Historically, strong and growing consumer demand for goods and services has propelled the U.S. economy, so the November numbers add to concerns in some circles that 2005 will be characterized by an economy struggling to hold off recession. This past week, in fact, the President's Council of Economic Advisers dramatically reduced its forecast for the number of new jobs the economy will generate in the coming year. In February, the Council had predicted 3.6 million new jobs, but it has now revised that number downward by more than 40%, to 2.1 million new jobs.
If consumer spending continues to lag behind inflation, the outlook for next year might become even more bleak, since goods and services bought by consumers encourage businesses to hire more workers to meet the demand for their products.
But complicating this assessment is the weakness of the U.S. dollar with respect to the euro, the yen, and other currencies. Some observers point out that this weakness, which causes U.S. exports to become cheaper in other countries, will spur hiring in domestic, export-related industries. Others disagree, arguing that any additional job formation caused by increased demand for American goods and services overseas will be modest, at best, and will be overwhelmed by the negative effects on the broader domestic business picture of rising interest rates and the government's limited policy options for fiscal stimulus.
Published 12/26/2004 01:22:43 AM
<< 26 Comments Total
Some self imposed ignorance by staying away from the annoying reality can do marvelous things... but since I'm back for a few moments to reality and it really seems that this "blind knot" (comes from the Portuguese "nó cego" a kind of knot you can't untangle, don't know if in the US this expression is familiar) is getting tighter, is there any way it is going to be possible to untangle and who is going to do it? And by the way, is there any chance that the weak dollar policy might really work instead of being a complete disaster? And what, and when, will the rest of the world do to protect themselves from this fake "strong dollar" Bush policy (I know the Europeans are starting to make some serious comments on the subject, maybe something is already happening underneath these comments)?
Joseph has already asked the question I always want to know the answer to: what does the weak american dollar mean for countries abroad? Wraith, you have pointed out that it often means different things for different countries. I would be interested in knowing what it means for relatively countries like Europe. Do they stand in an advantageous position in situations like this (when recession looms in the U.S., that is?)
Joseph, my mind is literally racing all over the idea of the "blind knot." I paused for whole minutes pondering the implications of this phrase. It is possible that it can allude to a seemingly unsolvable problematic or even some kind of impediment or block that one cannot see--literally, one is "blind" to it. Like Sisyphus or like some Existentialist hero, a person pursuing a "blind knot" persists in a meaningless task.
--cam
To the "blind knot" visual, I'd like to bring to the table these possible scenarios:
I think it's safe to say that the middle and lower classes carry out the brunt of the work. If too many died off due to hunger or prolonged sickness, the rich would have to start working. Unless the rich want to cut back in their luxuries (not going to happen en masse) then some bodies have to be kept alive to keep the rich pampered and sheltered from real life.
So, not out of benevolence but out of economic avarice, programs for the poor could possibly be dragged off the dusty shelves and implemented barely enough and conveniently in the nick of time -- provided the poor are "grateful" for their food and don't mind selling their souls in the process. (Oh, wait, I think most businesses require you to check your conscience at the door as it is. Are we past this stage and waiting for something worse to happen?)
Of course, the alternative is to deny sustenance to poor altogether to their deaths, leaving the rich to duke it out and having no one left to screw but themselves.
wiseguy
Good evening, Joseph.
First of all, the term you used, "blind knot," has an equivalent: "Gordian Knot," from the story of the intricate knot with no ends visible that came from the Kingdom of Gordian, ruled by the father of Midas, King Gordia (or Gordius or Gordium, in some renditions). The puzzle of the knot, which had befuddled legions of observers, was said to have been solved quite rudely by Alexander, who simply chopped it up with a sword.
Zeus, far from being annoyed by Alexander's less-than-elegant solution to the Gordian Knot, was pleased by Alexander's creativity, and so granted favor to Alexander.
So much for that little aside.
You asked, "Is there any chance that the weak dollar policy might work?" The answer is pretty clear: It will work, but only for a little while. A weak dollar will undoubtedly turn the terms of trade around on a dime. Prices of American goods in other countries are already down noticeably; and prices of foreign imports here in the U.S. are beginning to show some signs of rising. However, we get so many of our imports from China, which pegs its currency to the U.S. dollar at a ridiculously low exchange ratio, that we in the U.S. are not going to see everything that's an import go up in price. Fortunately, too, the amount of oil on the high seas, in our refineries, and in storage facilities is very high, right now, so the price of oil—especially the intermediates and sweets (never mind the sour sludge Iraqi oil fields belch out)—will not reflect the exchange rate effect at all for a while... not until OPEC gets an effective quota regimen back underway, again.
But the export-related industries in the United States will not generate enough jobs to really make much of a dent in the U.S. economy, and rising interest rates will slow down the dollar's skid soon enough. It won't stop the slide, though: while many European economists are now talking about $1.40 to the euro being in sight during 2005, I wouldn't be surprised if we see something closer to $1.46 to the euro.
At that nose-bleed level, one thing is for sure, and another thing is possible: for sure, the American dollar permanently loses its status as the currency of reserve for the world; also, possibly, the U.S. stock markets will have what we diplomatically call a "correction."
But any way the Bush Administration decides to cut this Gordian Knot—rather than meticulously, thoughtfully, and intelligently untangling it—the U.S. economy is about to suffer far more long-term harm than good.
The Dark Wraith heads back up to the top of the blog to see if anyone's up there.
Good evening, Wise Guy.
The traditional choice for management of the poor is to allow nature to do its thing. Poverty drives up birth rates. In the absence of readily available abortion services, as well as less information about birth control alternatives to chastity, those birth rates could skyrocket.
So, of course, could infant mortality rates; but that's okay: the U.S. has already slipped from having one of the lowest infant mortality rates in the world to the point where it is now not even in the same league as the remainder of the First World.
All in all, nature will help the controllers of capital by making the supply of impoverished and desperate labor quite large, which will drive down wage rates.
The only issue in this—one that appears to have been solved—is giving the poor the false impression that they could, if they really wanted to, vote out of office the scoundrels who make them so miserable.
As I said, though, it appears (at least from what happened in the 2004 Presidential Election) that this minor little bit of PR work has been ironed out nicely.
The Dark Wraith blogs onward.
I have an idea.
Seeing that consumers aren't buying as much because they don't have as much money -- and I know this is a stretch -- but perhaps they will not be so quick to start families because they cannot afford to do so.
The last ditch effort to dismantle this Administration's greed would be to use the very program touted by the Administration, abstinence, to call their bluff. If the labor pool doesn't increase any, someone presently employed has to pick up the bill. Let's sock it to them and make them pay.
Abstinence has a most freeing aspect to it for those able to wear its mantle: Something about an abundance of time and focus of mission.
wiseguy
In my position it is a bit embarassing to admit that my knowledge of populations biology and ecology is a bit "dusty" but if I remember correctly poor conditions and difficult survival conditions enhance the natality in populations. It has to do with: so the species can survive, in poor conditions, in order to at least some to live you have to give birth to a lot of them and improve the possibilities. I remember some years ago when I was a student when someone asked why in underdeveloped countries women kept having a lot of babies, even when there was hunger, famin and sickness around. The answer surprised us: in those conditions the endocrine system, the hormones, works in order that people will be more into breeding than in other conditions... survival of the species is triggered...
Good morning, Joseph.
The idea you are describing was a hot issue of debate several decades ago in a sub-discipline called "development economics," which was one of my field specializations. At the time, the idea was known by various names, but the one that always stuck in my mind was the "Dead Baby Replacement" hypothesis. The whole debate got really nasty: it tended to have more supporters who were conservative economists, but a number of more liberal economists also agreed that it was a viable possibility. Econometricians stepped into the fray on more than one occasion, using what were at the time pretty powerful statistical methods on existing population data to sort out whether or not the hypothesis could be rejected. Unfortunately, as is often the case with controversial underlying issues, whichever way the econometricians found that the data pointed, someone from the other side of the debate was right there to point out the flaws in the econometric model used.
Worse still, development economics was and still is something of a "black sheep" among the sub-disciplines of economics, especially at colleges and universities with a more conservative faculty. One local university has asked me if I would teach a course in developmental economics—a course that has been in the course catalogue for a couple of decades but has not been offered in a very long time—but so far, they haven't decided whether or not to put their money where their hearts are; and part of this is because they are concerned about the "reputation" of the department.
Interestingly, I was also exposed to the "Dead Baby Replacement" hypothesis in a graduate-level urban geography course; but there, it was stated as an obvious fact, not as a proposition. When I explained to the professor that it was a contentious and unproven hypothesis in economics, the poor fellow gave me a look that was somewhere between contempt and bewilderment. I could almost hear him thinking, "Oh, god, why can't the Registrar keep those econ grad students from enrolling in my class?"
Anyway, the bottom line is that, after some years on the front burner, the debate subsided, and most scholars I know state the Dead Baby Replacement hypothesis as fact. I would say, however, that it will again percolate to the surface in developmental economics in this decade, and with some new and muscular econometric tools at our disposal, we'll have a somewhat more solid conclusion.
Until, that is, the econometricians bring up their results in a seminar, where some hot shot on the other side of the debate will, once again, blast gaping holes in their methodology.
And the beat goes on.
The Dark Wraith stays in the back corner of the seminar room.
Good morning, Wise Guy. I was afraid you had abandoned The Dark Wraith Forums.
It is interesting to see the distinction between the secular conservatives and the religious conservatives on issues such as this. Obviously, the fundamentalists and other very conservative, religious people want an American society where procreation occurs only within the bonds of marriage. This would likely have the effect of substantially reducing birth rates, although some would argue that this is not necessarily the case, as evidenced by Mormons and by certain Catholics.
But here's the really funny thing, my friend. Abstinence education, along with other factors, will have far more of an effect on middle-class, Caucasian young people than it will on other socio-economic/ethnic groups; and the Caucasian sub-population in America is already experiencing declining birth rates, year over year. This means, of course, that any effectiveness that abstinence programs will have will differentially hit the sub-population most likely to keep Right-wing conservatives in power.
By the ends of our lives, Wise Guy, Caucasians will be a minority group in this country. That's a fact. So the only thing the religious conservatives are doing by touting abstinence is hastening the time when that will happen.
Almost hilarious, isn't it?
The Dark Wraith prepares for minority status.
About the "Dead Baby Replacement" hypothesis, I can't help but think that's sick. Something about that makes the whole idea impersonal.
Obviously, abstinence for the life of the species would not be sustainable, but having babies like cats have litters doesn't come across as a sound idea, either.
What doesn't settle well with me is the mixed idea I get from conservatives (Protestants in this particular instance). On the one hand, abstinence is touted as a way to keep oneself for a future mate (these people assume you will get married eventually -- I think you misunderstand just a shade -- these are the same people who think something is wrong with you if you don't get married and have children): On the other hand, there is a strict hierarchical obedience within the family. Follow their logic: They reproduce so they will have someone at their command. The abstinence message of Catholicism and the abstinence message of Protestantism have an entirely different tone to them. Sure, both have their hangups about sex, but as long as the one endorses natural birth control, the other tries to "fix" singles, and both of them worship babies, the Caucasian race isn't going to die off any time soon as long as pastors and priests are taken seriously in all situations.
wiseguy
Good afternoon, Wise Guy.
I agree with you that the term "Dead Baby Replacement" is impersonal to the point of crass. This is the way economists sometimes speak in their own lexicon and away from others. In a school where conservative, Right-wing, and Libertarian economists ruled, being exposed to that kind of terminology was part of the ritual through which grad students were taken (willingly or unwillingly) as their way of seeing the world was being permanently and fundamentally altered. This was not the case in grad programs where the faculty was, in general, more liberal; and even at my school, only the most insensitive of the professors and teaching assistants used this kind of terminology around the undergraduates.
I hope you all understand that on this blog I am showing my visitors windows into the world of economics and finance, primarily insofar as the tools we use, but also in the way we—and I use the first person plural somewhat loosely, here, since I am not in the mainstream, anymore—think.
I just thought I should clarify that point before the folks on this blog bring out the pitchforks and torches to come and do me serious harm.
The Dark Wraith peeks out the window.
One does however see the "dead baby replacement" mechanism in the natural world - routinely. In fact, ecologists have a pair of relative terms for describing the degree to which a given species uses this strategy.
Species which "heavily" (relatively speaking) use this strategy are referred to as "r-selected", while species which use the opposite strategy are referred to as "K-selected". (I may have switched which one gets capitalized, since I don't quite recall.) I forget the equation, but the "r" and the "K" come from a population biology equation in which "r" refers to a population's intrinsic rate of increase, and the "K" refers to an environment's "carrying capacity" (ie., the ability of the environment to sustain a given population level).
White-tailed deer (and most other mammalian herbivores) are an example of an r-selected species, in which relatively few species resources are devoted to protecting the survival of any one individual (no claws, no dangerous fangs, etc.), while lots of resources are devoted to reproduction (rapid gestation, large litters, rapid maturation, etc.) This compensates for a relatively high mortality rate. Bald eagles (and probably all other North American raptors) are K-selected: there's only one litter a year; the litter is small (clutch size is usually two - at most three - eggs, and usually only one chick actually survives to fledging); the chick won't be mature for two or three years; etc. Given an absence of human hunters, eagles have relatively low mortality rates. (Once they get beyond the nest, they don't die all that quickly from other natural causes - beyond aging.)
This means deer are well positioned to exploit a highly variable resource (such as forest growth in a good year, or an autumn in which there is a superabundance of acorns), while eagles rely on a strategy of stability. They raise that extra chick in a year in which there's an abundance of prey, but not otherwise.
One can also do the same thing with plants. (Much or most of the rose family is definitely r-selected.)
From a population ecologist's viewpoint, humans are highly K-selected (all those years to maturity!), but it would appear those living in an environment of scarce & variable resources are less so than those who are not.
I've just put a whole new spin on crassness, haven't I?
- oddjob
Oddjob, are you reducing people to the level of animals? If so, do you think animals are capable of such sophisticated calculation?
wiseguy
wiseguy:
Let me rephrase. I'm making an observation about all living organisms (which is why I included the plants, too). Assuming that all humans make their reproductive choices rationally, I don't know that the organisms that don't think as we do use the rational processes we use. (I highly, highly doubt it! Then again, how sure are we that our fellow humans are always making rational reproductive choices?)
Regardless of the means by which the decisions are made, from an evolutionary viewpoint those other organisms do appear to make the same kinds of decisions we do.
In a world of non-unlimited resources, it's probably unavoidable.
- oddjob
Good afternoon, Wise Guy.
When I use the most sophisticated mathematics in my portfolio, I always keep a certain humbling thought in mind: no matter how powerful my mathematical tools are, they don't even begin to compare to the power of what I call the "organic calculus of the universe."
You see, I can work with a system of differential equations that barely handles the various nuanced and gross motions of a person driving a car; but the person driving the car, once comfortable with the process, can do it with an ease that I shall never achieve in my manipulation of equations.
When crows flying over a field count the number of hunters below them, they do so with an ease that is far greater than a child of three could do the same task; and the crows can design defensive strategies based upon the numbers they get, an ability the child would not have until somewhat older.
When a bird chases an insect through the air, the flight dynamics, the chase and evasion maneuvers, the corrections for wind speed, air temperature, humidity, and myriad other factors, are at a level of precision and purpose that our most powerful computers are just now beginning to reach.
When a pine cone, a pineapple, and a flower all use the same sequence of numbers that arises from a subtle arithmetic calculation (the same sequence, by the way, governing musical note scales used in different cultures), they are doing something they've been doing for hundreds of millions of years that human mathematicians noticed only a couple of centuries ago.
We, as thinking, calculating, rationalizing human beings are pressing into service a feature of consciousness called intelligence that the universe and all of the life in it has been using since the beginning of time. Now, we can think our way through problems of great complexity. And we shall, in the fullness of time, come to understand the cosmos very well, perhaps someday even as well as the cosmos understands itself.
And us.
The Dark Wraith has spoken.
Oddjob, Dark Wraith, you both touch on a many splended thing.
Instinct.
On the one hand, instinct shows itself when otherwise docile animals are reported to have attacked intruders when their masters were threatened. Many animals have sought help for wounded people in some of the most amazing ways.
On the other hand, instinct also shows itself when oceanic creatures ingest plastic because it resembles jellyfish or when smaller fish are distracted by authentic-looking lures that end up arresting their jaws.
Also, human instinct is (wrongly) blamed for the blind pursuit of any number of so-called pavlovian temptations.
Dread the thought that the baser instincts of man even the animals would not dream of utilizing.
Sometimes I ask why God gave us free will. Other times I know why.
wiseguy
"A plant in need is quick to seed."
--some kind of proverb.
Cam has spoken.
The proverb is accurate. I learned that as a Horticulture undergraduate student, and I also see it outside my home. There is a sick flowering cherry tree immediately outside, and a healthy sibling across the driveway. They are in virtually identical settings and so should bloom together in the spring. Uh-uh. The sick one (which is in noticeably poorer condition) blooms madly as soon as it possibly can, while the other one comes into bloom more slowly about one week later.
- oddjob
To the proverb, "A plant in need is quick to seed," I have an observation.
Have you noticed the poorest segments of our society are called upon to give the most? Military recruits target poor areas because they know young people are desperate for employment and may more quickly say yes. Unscrupulous pastors target widows and guilt them into parting with their government checks. "Plant your seed," they say. (Actually, they say a lot of things. Short story, the widows get bilked out of their life savings and the shysters are made filthy rich with new cars, spiffy suits, and larger sanctuaries.)
It's probably better to plant the seed corn than eat it, as a reasonable defense mechanism: However, when you have a government who pays farmers to throw away food, should people be acting solely on instinct (trust) and expect their loaned crop to be watered and returned to them with measure? I would rethink my thesis that instinct is the highest route man can possibly take, considering we have so much more entrusted to us than has been given to animals.
wiseguy
I'm not convinced someone responding to a pitch from any salesman (most definitely including the frocked sort) is responding via what I would call instinct.
- oddjob
Good morning, OddJob.
I'm not so sure that Wise Guy isn't on to something. Many scams and marketing schemes do have a demographic target that is receptive to messages of proliferation. In a world where the poor are powerless—and deep down inside, they know they are—any prospect of expanding their lives to things beyond themselves, greater than themselves, will resonate profoundly.
Good heavens, I even know of people who run things called "blogs" on the Internet just so other people will know they exist. I heard of one such person who runs a blog offering knowledge about economics and financial matters.
Almost pathetic: the poor bastard actually thinks he can affect the future.
The Dark Wraith feels the heat.
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