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Maybe if more people read through this sort of data and worried less about "gold bugs" and "bubbles" we can quickly to back to a sane level of consumption and savings!
... it doesn't look like a big consumption difference to get us back to 65% historical levels but the 70% level is floating on higher consumer debt ratios (leverage levels). So, it's definitely not going to be a cakewalk to get ourselves back to more "sustainable" debt and consumption levels.
The good thing is that they've been going down (household debt is going down and easier to service) ... but still quite high compared to historical levels. At least it's going down though.
GDP = Consumption + Investment + Government + Net Exports
Current (3rd Quarter - in millions):
Total GDP: 14,420
Consumption: 10,169 (70.5%)
Investments: 2,013 (14%)
Government: 2,944 (20.4%)
Net Exports: -707 (-4.9%)
Historically:
Consumption -
Minimum 49.45% of GDP in 1944
Maximum 82.96% of GDP in 1932
Median 64.77% of GDP
Mean 65.71% of GDP
Investments -
Minimum 2.21% of GDP in 1932
Maximum 19.23% of GDP in 1979
Median 15.46% of GDP
Mean 14.38% of GDP
Government -
Minimum 9.07% of GDP in 1929
Maximum 47.91% of GDP in 1944
Median 20.30% of GDP
Mean 20.51% of GDP
Net Exports -
Minimum -5.75% of GDP in 2006
Maximum 4.42% of GDP in 1947
Median -.09%
Mean -.6%
In conclusion... our current consumption levels are slightly higher than our historical median/mean 70% vs. 64%/65%... Government and Private investments are pretty much in line with historical levels... And Net Exports are quite a bit lower than the median/mean -4.9% vs. -.6%.
So, to get us back to a more balanced "US" economy... we can reduce consumption a bit and increase our net exports a bit. The USA was never really an export powerhouse (the highest being 4.42% when the rest of the world needed our products).... and we've always been predominately consumers. We can achieve the 65% consumption and close to 0% net exports simultaneously. By reducing consumption we automatically reduce our reliance on imports. Furthermore, energy is a large component of our imports and can also be further reduced. Just these two changes can shift our economic makeup back to historical norms.
The interesting thing about our GDP growth is that it has accelerated exponentially since the 1970s fueling our ability to produce, consume, and fuel private and government expenditures. The primary driver, I believe, for better or worse for all of the last 30+ years of development is the introduction of credit systems and the maturity/"sophistication" of our financial systems. Without these things, a lot of the innovation of the last 30+ years could not have happened. Consumer Credit and the use of the "Revolving Line"/"Credit Line" has been pivotal for US economic growth - introduced and more frequently used since the early 60s onward.
So in short.. US Consumption has been the driver of economic growth throughout US history. Even during the 30s consumption made up actually over 74% of GDP. The only point where it dipped bellow 50% was during World War II. Credit expansion and the use of credit was the only way the US economy could sustain constant consumption driven economic expansion.
Bale002,
I'd like to update your equation a little to more how it currently works:
Credit isn't necessarily bad.. as it depends on your credit rating and purpose. The most important thing is incomes and ability to pay... which ultimately relies on the increase in aggregate value of US human capital (education). Basically the US in the last decade overly leveraged itself to enjoy a higher level of consumption instead of improving human capital to increase incomes.
We just have to get back to a more rational level of leverage and increase human capital value and incomes.... a return to steady state growth rate (exongenous growth model) or a sustainable growth rate (investment term).
-chuck22b
I agree, chuck22b, that if we can reduce C to around the historical average (around 64%) then it would go a long way to restoring healthy balance to the US economy.
This can be achieved with the right set of policies. The main points in my posts is that I have no confidence in current policymakers and that if we continue down the current path, then the doomsayers have a point, but it is still not too late.
It seems like a catch 22. If we spend, it's good for the economy but could be bad for us.
If we save, it's bad for the economy, and might be good for us.
this question represents the great flaw in our economy
this question represents the great flaw in our economy
No it doesn't. Unless you want to go back thousands of years in time any economy is going to require a certain level of consumption.
If everyone bought the bare necessities and tried to save any other income the economy would contract to the point where there was no more money to save.
No it doesn't. Unless you want to go back thousands of years in time any economy is going to require a certain level of consumption.
If everyone bought the bare necessities and tried to save any other income the economy would contract to the point where there was no more money to save.
Hi Humanoid,
You don't need to go back in time to see a society with a 100% savings rate. Visit a necropolis.
A drop in consumption means nothing with an equal drop in investment. The bad news is the poorer people are, their marginal propensity to consume goes up. Saving paper and yellow metal will not cause the next break though in cancer research or energy.
For those not familiar with marginal propensity to consume, it works like this. Equal distribution actually works against it. For example, if a person needs to eat 20 beans a day but would prefer to consume 30 an equal distribution of 100 beans will represent about 10 beans of surplus. On the other hand 50 beans for 1 and 25 beans for the others will result in 20 beans of surplus. That is how we operate. There is a level of subsistence that can only be forced and a level that is voluntary.
Anyone who thinks letting the economy just tank is the best of all possible things does not realize the down shift in wealth with cause more relative consumption. Real savings will go down. Does anyone think in these times more money will be spent on research and development or less?
Though I will say, the typical resident of mausoleum really can't be beat with regard to consumption. Unfortunately the productivity is a bit low.
Location: Georgia, on the Florida line, right above Tallahassee
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Quote:
Originally Posted by taurus430
It seems like a catch 22. If we spend, it's good for the economy but could be bad for us.
If we save, it's bad for the economy, and might be good for us.
There are enough idiots out there that don't save. I used to be one of them. Then, I realized I was sinking in debt, cut it down to beans and rice and paid it all off. You can't make me spend a dime today that I don't think, "I love you dime. I can't let you go for candy."
WANT CANDY!! NO! NO! YES, CANDY! NO! NO! <SLAPS FACE> GET IT TOGETHER!!! ARGHHH>.....and then I walk away from the candy.
Save your money. Let the idiots drown in debt. Pity them. I do.
Another way of looking at it is when you whip out that credit card or buy that shiny new gadget, imagine a big fat dude in a nice suit, rubbing his hands together and staring down at you from above, fiddling with his puppet strings and fishing out your wallet, all while muttering "Yes, yes my pet. Consume. You must...Consume!"
If you think about it, they are calling this a "credit" crisis. This is a debt crisis.
And the government is taking on more debt and urging the banks to let us take on more debt.
There is too much debt that cannot be paid off in a timely manner, if at all.
I don't see how taking on more debt will get us out of this debt crisis.
I only spend on what I need and I only spend the cash I have on hand. Actually I do use my CC but it gets paid off in full each month so I'm a freeloader on the bank's money.
I'm done playing the game; actually I was done about 3 years ago when I realized what the game was. I live below my means, save up for what I need or want and have a good savings buffer.
I'm done playing the game; actually I was done about 3 years ago when I realized what the game was. I live below my means, save up for what I need or want and have a good savings buffer.
You are only able to do this because someone else goes into debt.
This like many things in economics is a sort of prisoners dilemma. If one person reduces consumption and starts to save, they benefit greatly by shifting from using savings instead of debt. If everyone does it, every is worse off. Part of how you game a game is not telling others about your strategy = )
You are only able to do this because someone else goes into debt.
This like many things in economics is a sort of prisoners dilemma. If one person reduces consumption and starts to save, they benefit greatly by shifting from using savings instead of debt. If everyone does it, every is worse off. Part of how you game a game is not telling others about your strategy = )
How right you are Humanoid. But there are lots of people out there that want their toys and gadgets. Even this crisis is not stopping them from holding back.
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