[lit-ideas] Re: Priorities ??

  • From: Andy Amago <aamago@xxxxxxxxxxxxx>
  • To: lit-ideas@xxxxxxxxxxxxx, lit-ideas@xxxxxxxxxxxxx
  • Date: Wed, 29 Dec 2004 16:35:52 -0500 (GMT-05:00)

Adding to the mix of less disposable money for consumer spending (which dri=
ves the economy) is that Medicare is artificially higher than it has to be =
because the drug companies (yes, those drug companies again) grossly inflat=
e the prices they charge Medicare.  It's a big part of why health costs are=
 rising so fast.  The drug companies are now targeting Medicaid because sta=
tes have to, by law, balance their budgets and have heretofore put pressure=
 on pharma to lower prices.  Pharma is fighting back, so it's wait and see =
what happens.  Bush's claim that he doesn't want Americans buying from Cana=
da is because drugs are cheaper there and it costs pharma profits.  Pharma'=
s also targeting the Canadian system now.  Drug companies' stocks are falli=
ng precisely because they have no new products to offer and recycling the o=
ld drugs is wearing thin.  Pharma's become a drain on the economy.  Also, t=
he ultra rich don't pay taxes, so that's another huge drain there, a huge c=
hunk of income lost.  Basically, nobody who counts cares what's going on, i=
ncluding Bush, perhaps especially Bush with his tax cuts, and all these new=
 red states have blinders on.  Nobody cares, and I'm wasting my time.  Gott=
a go.

Andy Amago

-----Original Message-----
From: "Steven G. Cameron" <stevecam@xxxxxxxxxxxx>
Sent: Dec 29, 2004 4:05 PM
To: lit-ideas@xxxxxxxxxxxxx
Subject: [lit-ideas] Re: Priorities ??

**Now free from grading and able to participate -- this economic warning=20
from this morning's editorials...


/Steve Cameron, NJ


The Next Economy


By Robert J. Samuelson
Wednesday, December 29, 2004; Page A19

We are undergoing a profound economic transformation that is barely=20
recognized. This quiet upheaval does not originate in some breathtaking=20
technology but rather in the fading power of forces that have shaped=20
American prosperity for decades and, in some cases, since World War II.=20
As their influence diminishes, the economy will depend increasingly on=20
new patterns of spending and investment that are still only dimly=20
apparent. It is unclear whether these will deliver superior increases in=20
living standards and personal security. What is clear is that the old=20
economic order is passing.

By any historical standard, the record of these decades -- despite flaws=20
-- is remarkable. Per capita income (average income per person) is now=20
$40,000, triple the level of 60 years ago. Only a few of the 10=20
recessions since 1945 have been deep. In the same period, unemployment=20
averaged 5.9 percent. The worst year was 9.7 percent in 1982. There was=20
nothing like the 18 percent of the 1930s. Prosperity has become the=20
norm. Poverty and unemployment are the exceptions.

But the old order is slowly crumbling. Here are four decisive changes:

? The economy is bound to lose the stimulus of rising consumer debt.=20
Household debt -- everything from home mortgages to credit cards -- now=20
totals about $10 trillion, or roughly 115 percent of personal disposable=20
income. In 1945, debt was about 20 percent of disposable income. For six=20
decades, consumer debt and spending have risen faster than income. Home=20
mortgages, auto loans and store credit all became more available. In=20
1940, the homeownership rate was 44 percent; now it's 69 percent. But=20
debt can't permanently rise faster than income, and we're approaching a=20
turning point. As aging baby boomers repay mortgages and save for=20
retirement, debt burdens may drop. The implication: weaker consumer=20

? The benefits from defeating double-digit inflation are fading.=20
Remember, in 1979, inflation peaked at 13 percent; now it's 1 to 3=20
percent, depending on the measure. The steep decline led to big drops in=20
interest rates and big increases in stock prices (as interest rates=20
fell, money shifted to stocks). Stocks are 12 times their 1982 level.=20
Lower interest rates and higher stock prices encouraged borrowing and=20
spending. But these are one-time stimulants. Mortgage rates can't again=20
fall from 15 percent (1982) to today's 5.7 percent. Nor will stocks soon=20
rise twelvefold. The implication: again, weaker consumer spending.

? The welfare state is growing costlier. Since the 1930s, it has=20
expanded rapidly -- for the elderly (Social Security, Medicare), the=20
poor (Medicaid, food stamps) and students (Pell grants). In 2003,=20
federal welfare spending totaled $1.4 trillion. But all these benefits=20
didn't raise taxes significantly, because lower defense spending covered=20
most costs. In 1954, defense accounted for 70 percent of federal=20
spending and "human resources" (aka welfare), 19 percent. By 2003,=20
defense was 19 percent and human resources took 66 percent. Aging baby=20
boomers and higher defense spending now doom this pleasant substitution.=20
Paying for future benefits will require higher taxes, bigger budget=20
deficits or deep cuts in other programs. All could hurt economic growth.

? The global trading system has become less cohesive and more=20
threatening. Until 15 years ago, the major trading partners (the United=20
States, Europe and Japan) were political and military allies. The end of=20
the Cold War and the addition of China, India and the former Soviet=20
Union to the trading system have changed that. India, China and the=20
former Soviet bloc have also effectively doubled the global labor force,=20
from 1.5 billion to 3 billion workers, estimates Harvard economist=20
Richard Freeman. Global markets are more competitive; the Internet --=20
all modern telecommunications -- means some service jobs can be=20
"outsourced" abroad. China and other Asian countries target the U.S.=20
market with their exports by fixing their exchange rates.

Taken at face value, these are sobering developments. The great=20
workhorse of the U.S. economy -- consumer spending -- will slow. Foreign=20
competition will intensify. Trade agreements, with more countries and=20
fewer alliances, will be harder to reach. And the costs of government=20
will mount.

There are also global implications. The slow-growing European and=20
Japanese economies depend critically on exports. Until now, that demand=20
has come heavily from the United States, which will run an estimated=20
current account deficit of $660 billion in 2004. But if American=20
consumers become less spendthrift -- because debts are high, taxes rise=20
or benefits are cut -- there will be an ominous collision. Diminished=20
demand from Europe, Japan and the United States will meet rising supply=20
from China, India and other developing countries. This would be a=20
formula for downward pressure on prices, wages and profits -- and upward=20
pressure on unemployment and protectionism.

It need not be. China and India are not just export platforms. Billions=20
of people remain to be lifted out of poverty in these countries and in=20
Latin America and Africa. Ideally, their demands -- for raw materials,=20
for technology -- could strengthen world trade and reduce reliance on=20
America's outsize deficits. If so, exports (and manufacturing) could=20
become the U.S. economy's next great growth sector. Already, the dollar=20
has depreciated 15 percent since early 2002; that makes U.S. exports=20
more price-competitive.

What's at issue is the next decade, not the next year. We know that the=20
U.S. economy is resilient and innovative -- and that Americans are=20
generally optimistic. People seek out new opportunities; they adapt to=20
change. These qualities are enduring engines for growth. But they will=20
also increasingly have to contend with new and powerful forces that may=20
hold us back.

Robert Paul wrote:

> Lawrence writes:
>>Bush-Bashers should slow down a bit and wait for the facts.<
> (I had pointed out that as of last night, the US had pledged--not given,
> pledged--$35 million in relief funds, and that Bush's inauguration will c=
> _more than_  $40 million to stage.)
> Lawrence sees this as 'Bush-Bashing.' He is welcome to. But one might won=
> whether seeing these juxtaposed facts in this way does not itself constit=
> some unthinking flexing of the knees.
> Robert Paul
> The Reed Institute
> ------------------------------------------------------------------
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