Would this be similar to a demographic argument. Perhaps the consumption model is taxed ( pun intended) today because a mass of productive consumers are changing to lower spending habits as they exit the workforce? Perhaps the FED and Obama should promote free love again like in the 60s?
What changed in 1980
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Would this be similar to a demographic argument. Perhaps the consumption model is taxed ( pun intended) today because a mass of productive consumers are changing to lower spending habits as they exit the workforce? Perhaps the FED and Obama should promote free love again like in the 60s?
Massive liquidation of American companies via LBOs for cash.
Thank you for all the replies on my question. Some proposals were effects and some were causes but I was uncomfortable with a clear fundamental cause and effect so I left it simmering in my mind.
I have heard the best explanation recently by Gail Tverberg of peak prosperity discussing peak oil. (It is funny when I let questions sit, something I see or hear triggers my answer months or even years later).
So my belief (at least for today - LOL) is that US peak oil production and the nature of government caused the major fundamental change in 1980. At least that theory seems to tie dozens of related threads and questions together in my thoughts.
Relatively cheap oil allowed for US government subsidies of food and business. Those subsidies were never recognized as surplus spending ability. They were not used wisely. When they disappeared, the US government didn't change its spending habits, first defaulting on its international payments by decoupling gold ( in defiance of international agreements it had made IMO) and then by increasing its relative spending in the middle of a demographic shift to get votes. It is a form of "tragedy of the commons" IMO.
Can anyone see a contradiction to this basic concept?
I have heard the best explanation recently by Gail Tverberg of peak prosperity discussing peak oil. (It is funny when I let questions sit, something I see or hear triggers my answer months or even years later).
So my belief (at least for today - LOL) is that US peak oil production and the nature of government caused the major fundamental change in 1980. At least that theory seems to tie dozens of related threads and questions together in my thoughts.
Relatively cheap oil allowed for US government subsidies of food and business. Those subsidies were never recognized as surplus spending ability. They were not used wisely. When they disappeared, the US government didn't change its spending habits, first defaulting on its international payments by decoupling gold ( in defiance of international agreements it had made IMO) and then by increasing its relative spending in the middle of a demographic shift to get votes. It is a form of "tragedy of the commons" IMO.
Can anyone see a contradiction to this basic concept?
Good points. My opinion has always been that our deflationary market really started in 2001 (after the tech bubble) and we've been scrambling for ways to create growth since. Starting in 2001, 9/11 gave a cyclical upswing to the defense sector (Afghanistan + Iraq) and changes to tax and interest rates lead to the housing boom (a huge creator of small business jobs that hasn't really recovered to peak levels). Then 2007-2008-2010/2011 large cap industrials and commodities benefited from China's industrial construction boom.
Whats next? Probably oil/gas exporting to China and selling consumer driven goods/services to countries with a growing middle class.
Were still saddled with deflation and are trying to spend (inflate) our way out. Look at GE over the last 13 years. They have barely grown, decreased headcount and taken on debt. Below are Revenues/Employees/Debt
2000: 130 bill/313000/82 bill
2005: 150 bill/316000/212 bill
2012: 147 bill/305000/236 bill
I'm surprised by how long the market has justified its valuations based on our growth prospects. Looking forward, I don't think the market will crash like 2008 but I do see a slow bear market downtrend/sideways that could last a couple years.
I believe one secret to this is just who has been buying stocks in the last decade or so. The G20 said they would do whatever it takes (even lying perhaps?) and I read that several countries have admitted to buying stocks directly. (IMO, perhaps to help their rich friends cope with the deflationary pressures?)
Also, after years of not caring about returns like dividends, there was a miracle conversion to buying back shares in the past decade . Supposedly, to return money to shareholders, but IMO really to ensure good payouts for the options of senior corporate management after the scandal of options back-dating and possibly to manage expectations by managing stock price with news events. In the next decade, I predict senior salaries to return closer to the average corporate salary as investors refuse to pay so much for poor performance.
In short, I don't think that the mix of stock ownership is the same as when the country was more prosperous decades ago. ( with apologies to dead poets society - Cape Diem - to seize the options!)
I invite everyone to read my long posts above. I stick by them as being, in the main, correct. And please do also read the many intelligent responses by Stardust, oldtime, and others. This is a thread that largely explains how the U.S. got to where it is at present. If we understand how we got here, then surely we can understand how to change in ways that will correct the excesses and the outright mistakes -- the things we did in the 1980's that did not turn out as we hoped they would.
We are still a great country. It is not too late to change direction. We are a resilient nation, and we can cope with the foibles and errors of the past. Above all, we must recognize our errors and take a different road going forward. Let's do it.
Because today we are faced with so much obviously bad government regulation, it is far too easy to be snared in the trap of our natural gut reaction to yet another government restriction of our freedom, and assume that any and all government regulation is bad. In reality, some is good, and much is bad. We must learn to both discriminate and accept imperfections as a natural consequence of being human.
We are still a great country. It is not too late to change direction. We are a resilient nation, and we can cope with the foibles and errors of the past. Above all, we must recognize our errors and take a different road going forward. Let's do it.
Because today we are faced with so much obviously bad government regulation, it is far too easy to be snared in the trap of our natural gut reaction to yet another government restriction of our freedom, and assume that any and all government regulation is bad. In reality, some is good, and much is bad. We must learn to both discriminate and accept imperfections as a natural consequence of being human.
Simple: Outsourcing. And perpetual deficits to offset the economic impact.
Manufacturing jobs peaked in 1978. Since then, manufacturing employment was decimated. The media and Government reassure us it's everything BUT outsourcing when China's GDP is approaching 8 Trillion dollars, USD, at a suppressed Reminbi. You really really think?
In 1980, Americas population was 222 million. Manufacturing employment was 19.5 million.
Assuming that same ratio (19.5:222), we should have 27.5 million manufacturing jobs, at a population of 315 million, today.
Now do the math here. Look at the graph above. We've got 12 million manufacturing jobs today. The difference between what we ought to have (27.5 million) and what we do have (12 million) is 15.5 million manufacturing jobs.
What's the average wage of a factory job? All in? Benefits and pension etc? Pretty good. Like 70k a year. 70k x 15.5 million = 1.085 Trillion.
Now multiply that by the multiplier (the spin off effect one job generates in the economy (baker pays the miller who pays the farmer who pays the bank who pays their employees etc). A conservative estimate is 1.4. I'm using a conservative estimate of the fiscal multiplier because I couldn't find an estimate of the actual multiplier. Say it's 1.4 (one job creates 1.4 new jobs in economic activity).
1.4 x 1.085 Trillion = 1.5 Trillion.
Drumroll.
Current US deficit is ~700 Billion
Current FED QE is 1 Trillion
= 1.7 Trillion x 1.4 (fiscal multiplier) = 2.38 Trillion (that's how much the US economy is in the hole right now....15% GDP).
So if we had all our manufacturing jobs back, we'd still be in the hole, but we'd have about 9% more GDP to show for it. That 9% GDP we exported to China and replaced with debt
Hows this for a visual. Picture a dumpster or large bin connected to China by a large
chute. Out pour sneakers, laces tangled , flecked with blood and rat feces, colors unsorted.
An American worker press fits a lace eyelet ( value added federal tax only for the eyelet),
then cleans and packages as Nike with a $400 retail tag. Duffel bags of dollars are sucked into another shute to some offshore tax exempt destimation. Call it branded marketing,
horizontal supply chain management, globalization, free trade, outsourcing etc...
Thats a sneaker. Helluva job to get $400. Does Walmart carry Nike? Never mind.
I have one question for Piezoe and others well versed in these matters.
Specifically, what could have been done to keep the sneaker factory in the US?
After payroll and administrative business functions, textiles were the 1st major industry to seek cheap labor here(the south) and abroad. So solve this one and high tech and other manufactluring stays home.
chute. Out pour sneakers, laces tangled , flecked with blood and rat feces, colors unsorted.
An American worker press fits a lace eyelet ( value added federal tax only for the eyelet),
then cleans and packages as Nike with a $400 retail tag. Duffel bags of dollars are sucked into another shute to some offshore tax exempt destimation. Call it branded marketing,
horizontal supply chain management, globalization, free trade, outsourcing etc...
Thats a sneaker. Helluva job to get $400. Does Walmart carry Nike? Never mind.
I have one question for Piezoe and others well versed in these matters.
Specifically, what could have been done to keep the sneaker factory in the US?
After payroll and administrative business functions, textiles were the 1st major industry to seek cheap labor here(the south) and abroad. So solve this one and high tech and other manufactluring stays home.
High tariffs against third and second world nations.
Corporations don't want this. Easier to outsource then to invest in automation
Corporations don't want this. Easier to outsource then to invest in automation
Excellent post OP!! especially for those who invest macro and cycle basis.
Btw, you forgot about the rise of computers in the daily lives starting the early 80s.
Analog computing gave way to Digital by mid 90s and soon in 5 years we will see Quantum computing. By 2018-2020, if quantum computing catches on we can see another bull market in store, ofcourse after few more 2008 like corrections in next 5-7 years.