Bernanke “Let Them Buy Cake” Reveals Pathological Blindness

There’s a genre of jokes about the ivory tower propensities of economists, and the monetary economists at the Fed are reputed to be the worst of the bunch. But even allowing for those proclivities, the remarks by Bernanke yesterday about consumer behavior showed a remarkable lack of engagement with the real world. He and his colleagues clearly do not know, or bother to know, members of the dying breed known as the middle class.

Today, Bernanke said in a speech that consumers ought to be spending more. The fact that they aren’t means it must be due to mood, or as he put it, that they had become “exceptionally cautious.” Since economists believe that consumers are rational, this outburst of illogical behavior is unexpected and the Fed can’t be blamed for it. The New York Times dutifully did stenography and played up the confidence meme:

Economic models based on historic patterns of unemployment, wages, debt and housing prices suggest that people should be spending more money….

Why? Well, one possibility is that Americans collectively are suffering from what amounts to an economic version of post-traumatic stress disorder….

There is a longstanding debate among economists about the importance of confidence. Research has found that consumers are not very good at predicting the future. Optimism often fails to correlate with growth; pessimism doesn’t necessarily foreshadow a recession.

Still, it seems intuitive that a lack of confidence can drag on the economy. As pessimistic people pull back — deciding that there is no point in looking for work; that this is not the year to go on vacation; that it may make sense to stop eating in restaurants — the economy shrinks.

There is a natural instinct to address this problem by trying to cheer people up. Mr. Bernanke in recent speeches has been careful to note that he continues to think that the American economy has a bright future.

Let’s look at what the Fed chairman said. Because Fed chairmen make an art form of speaking in as anodyne a manner as possible, what is disturbing about his discussion may not jump put at you:

One striking aspect of the recovery is the unusual weakness in household spending. After contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011. The temporary factors I mentioned earlier–the rise in commodity prices, which has hurt households’ purchasing power, and the disruption in manufacturing following the Japanese disaster, which reduced auto availability and hence sales–are partial explanations for this deceleration. But households are struggling with other important headwinds as well, including the persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high for many, notwithstanding that households, in the aggregate, have been saving more and borrowing less. Even taking into account the many financial pressures they face, households seem exceptionally cautious. Indeed, readings on consumer confidence have fallen substantially in recent months as people have become more pessimistic about both economic conditions and their own financial prospects.

Can you see how disconnected this is? Start with the term “recovery”: Bernanke is comparing this bounce off a nasty bottom with past post-recession upturns. Hello! Did he somehow miss that severe financial crises are different beasts than recessions, where changes in inventory levels explain more than 100% of the change in GDP?

Not only is making comparisons to past recoveries wrongheaded, Bernanke completely misses fundamental, structural changes in the workplace:

1. Much lower labor participation in economic growth. Did Bernanke somehow miss that corporate profits are at a record high percentage of GDP? That pattern started in the weak Bush upturn. As we noted in 2005:

Part of the problem is that companies have not recycled the fruits of their growth back to their workers as they did in the past. In all previous postwar economic recoveries, the lion’s share of the increase in national income went to labor compensation (meaning increases in hiring, wages, and benefits) rather than corporate profits, according to the National Bureau of Economic Analysis. In the current upturn, not only is the proportion going to workers far lower than ever before—it is the first time that the share of GDP growth going to corporate coffers has exceeded the labor share.

So the outlook for labor has been permanently diminished due to the change in how much goes to workers v. profits.

2. Shorter job tenures. Does anyone other than tenured professors have job security? I’m sure you can add to that list (members of the armed forces) but even so, the incumbents will account for a small slice of the job market. Shorter job tenures mean: high odds of periods of unemployment (which means running down savings just to get by) and greater risk of downward mobility (as in difficulty of maintaining one’s earning level, assuming one ever had a good paying job).

3. Difficulty of staying employed over the age of 40. Item 2 + bias against older people means there are a tremendous number of the middle aged, which was once workers’ peak earning years, who are un and under-employed. Quite a few of my colleagues have retired early and resigned themselves to a very modest lifestyle when they would rather be working. At least they have that option; most ordinary people don’t.

4. Two income trap. Couples with kids are likely to be two income families. That puts them at serious risk of downward mobility, since it is harder for a family to cut expenses. Elizabeth Warren’s research showed that most two income families were not spending on frivolities; their costs had gone up due to a bidding war for housing in decent school districts, having a second car, and escalating medical costs. In the old days of a single (male) working parent, the wife was a worker in reserve who could supplement the family income if disaster struck. That sort of insurance is largely gone.

5. Higher loads of student debt. Even though Bernanke gave lip service to “the many financial pressures that households face” I suspect he does not grasp how student debt, which cannot be discharged in bankruptcy, affects behavior. Too many young people have been sold on the notion that a college education is necessary to get a job. Even where that is true, some then pursue career paths where they will have difficulty earning enough to service their debt

6. Worse prospects for retirement. Bernanke also stunningly missed how the risk of retirement income has been shifted onto consumers. Defined benefit plans have become defined contribution. People who thought they had a secure pension have had them cut back. And how do you earn enough to retire these days? MyLessThanPrimeBeef did some math:

If you make $50,000/yr before retirement and wish to have 60% of that after retirement, how much do you have to save in order to earn that much in your 0.5% bank account?

Let’s see, $50,000 x 0.6 = $30,000

@ 0.5% interest:

$30,000/0.005 = $6,000,000.

If you didn’t have to split it, throught out your working career, with the government and if you didn’t have to eat or support a family, it would only take you 120 years to save up $6,000,000.

Assuming you started working @ age 12, it would mean you can comfortably retire when you’re 132 yr. old.

Plan accordingly (for those without defined benefit plans)!

Now of course Bernanke would argue that assuming a 0.5% interest rate over 120 years is proof of undue pessimism, but making the assumptions more realistic (taxes, expenses, some reversals due to job interruption or emergencies) puts you in a not-very-different place.

This fundamental deterioration in the finances of ordinary households was masked by access to debt. When I was a kid, no one financed a car. And no one could use their house as an ATM. Too many assumed they could rely on house price appreciation as a proxy for saving. We know how that movie ended.

So independent of broadly-measured unemployment at over 16% and damage to consumer balance sheets thanks to the housing market implosion and fall in stock market prices from their bubble peak, there are really sound reasons for consumers to save a lot more than they did in the past, which means they spend less. Factor in how weak the economy is and how little confidence people have in our political and business leaders, and the conclusion is pretty clear: the irrational person in this picture is Bernanke, not the suffering and correctly cautious consumer.

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101 comments

    1. kievite

      MyLessThanPrimeBeef did math wrong:

      If you make $50,000/yr before retirement and wish to have 60% of that after retirement, how much do you have to save in order to earn that much in your 0.5% bank account?

      Let’s see, $50,000 x 0.6 = $30,000
      @ 0.5% interest:
      $30,000/0.005 = $6,000,000.

      This is a blatant error as principal is untouched. In order to retire at 66 with $30K per year income and 0.5% interest and assuming 30 years payout period (or life expectancy 96 years)you need $840K. Assuming one start contributing at 25, monthly contributions and interest 0.5% you need to contribute $1500 per month to get this sum at 66.

      1. Bruce

        So you would need to contribute $18,000/yr or 36% of pre-tax income? That pretty much proves Yves’s point – people who can save are realizing they need to increase their savings levels.

        Its even worse in higher income brackets as people realize that existing savings no longer provide any compounding, much less compounding over inflation. If inflation is running a 3-5%, and all in tax rate is 35%, additional savings on top of existing savings are required at a 5-8% rate just to keep the existing savings purchasing power from being eroded. Just think if you had $100,000 saved for college tuition already for an 8
        year old. You know you will need almost double that just to keep up with tuition increases, and you won’t get it from “the market”, so you just have to spend less – but there is no real increase in “savings” by doing so.

        This is the real trap that Bernanke has set himself, as it’s an exponential function on saving for future expenses – the number starts to grow faster than anyone’s capacity to save no matter how frugal they become. But it won’t stop them from trying……

        1. kievite

          Bruce:

          So you would need to contribute $18,000/yr or 36% of pre-tax income? That pretty much proves Yves’s point – people who can save are realizing they need to increase their savings levels.

          Everything is wrong in this example :-). Adult male life expectancy in the USA is 84 I think. So if you are a male you can contribute twice less :-). If you are afraid of inflation use TIPS. They have decent return over the years. Of course if you want to play stock market you probably will be fleeced.

        2. BenE

          Yup, I did the calculation for myself just recently.

          The generation x/y, the 20 to 40 year olds, are squeezed severely by high house prices and stock prices. Since they can no longer rely on high capital gains to fund their retirement, they would in theory need their stocks at a p/e where they can rely on good dividends instead.

          Take my situation. I am a 30 year old engineer and my wife is a doctor. We live in Canada.

          Problem 1: Low interest rates. These might be good for propping up the banks but we are trying to save up for retirement here and lately, are lucky if I we get positive real returns on our investments. If you try online retirement savings calculator they all have default values of around 3% inflation and 8% expected returns. With these numbers, the calculator tells us we need to save about 12% of our income to get 50% of it for a good part of our retirement. We would need to save about $1000 a month on a combined $100 000 salary to secure a good retirement.

          However if I input a more realistic 4% return on investments, the calculator tells us we need to save 37% of our income, that is $3100 a month.

          result: minus $2100/month from us to the rest of the economy.

          This situations means our generation’s families, have something like 25% yearly less income compared to the previous generation to spend outside retirement savings.

          What do you think that does to the GDP numbers? Can spending from boomer retirees compensate for that?

          Problem 2. High house prices. We live in an apartment in part because houses are still very expensive. It seems the economic punditry sees high house prices as a good thing. I’m sure it is good for banks who are backing all the inflated mortgages but for those of us that are trying to become home owners, it makes things very difficult. It also means that when we do buy a house, it will be barely affordable and our monthly budget will largely go towards paying back the bank. Now problem 1 partly offsets this as we can get mortgages at lower interest rates but the low rates seems to keep the prices inflated and cancel out all the benefits (at least here in Canada).

          If you’re my age, the numbers simply don’t add up. Especially if, as some suggest, the stock prices stay high due to them being sold oversees instead of passed on to our generation. In the case of housing, this is happening right now in Vancouver for example, where houses are sold at insane prices to rich Chinese immigrants and we younger locals can only afford leftovers.

          1. Birch

            Thank you. I’m in the same boat you’re in. I think we can safely assume that whatever we save will be worth less when we need it than it is now. Retirement, in the 20th century sense, is probably on it’s last legs. Perhaps we will move back to an old-school broad family arrangement, where the working youth take care of the live-in elders – physically and financially – because they know that they will need the same treatment from the next youth when they’re old. I don’t think this is a bad thing – better than dumping the elders on the garbage heap anyway.

            One thing I can suggest, if you haven’t already, many credit unions in Vancouver offer better interest rates on term deposits and such than any of the (five) banks do. You can almost keep up with inflation – but not quite.

      2. Blissex

        There is another blatant error here:

        «you need $840K. Assuming one start contributing at 25, monthly contributions and interest 0.5% you need to contribute $1500 per month to get this sum at 66.»

        The blatant error in the above it is that the saving profile is constant across time, which means that most of the saving is done when the worker is youngest, so that interest can build up for the longest.

        The question here is how easy it is for the average 25yo worker to contribute $18,000/year to their pension account, and to keep contributing that sum every year for the next 40 years, with no periods of unemployment or illness, and the answer is that it is nearly impossible.

        If the contribution profile is such that most contributions to the pension account are made after 40-45, as it happens in the so-called real world, then things are nowhere as easy.

        There is also a composition fallacy here. By necessity someone’s financial assets must be someone else’s financial debt, and if there are 2 workers per retiree, and the retiree gets $30k per year from a capital of $840 going down to 0 at age 96, that means that each worker *must* have debts $420k down to whatever is left at the death of the retiree (let’s say on average” 210k each!).

        In any case if there are 2 workers per retiree spending 30k/y, each of them is therefore contributing via interest or profits $15k/year towards current pensions, which is amazingly similar to the $18k/year required saving rate, which is amazingly similar to the contribution rate, which means that the system is still pay-as-you-go.

        So if there is a low worker-retiree ratio like 2 workers must have gigantic debts and pay a lot of their income to retirees, and the only choice how efficiently that can be done (via low-overhead OASDI or high-margin financial products); and if the worker-retiree ratio is high, there is little problem.

        It is indeed impossible to avoid pay-as-you-go in the aggregate, because retirees accumulate financial assets, not stocks of food and clothes etc., so when they retire someone has to produce that food and clothes etc. that the retirees need to consume with their retirement income, and give them to the retiree.

        There is another composition fallacy in the total numbers.

        So suppose that there are 150m workers, each producing an average of 50k/y and 75m retirees, each consuming an average of 30k/y and each with a capital of 840k.

        Annual GNP is 150m*50k => 7.5 trillions, but retirees will own financial assets of up to 75m*840k => 63 trillions, or let;s say on average 31.5 trillions, which is a ridiculous idea.

        Unless of course there is a gigantic real estate and stock market Ponzi bubble fueled by worker demands for retirement assets, which is one of the real goals of those advocating private retirement accounts.

        1. Crazy Horse

          I don’t know what form of herb you guys are smoking. There won’t be any retirement for the ex-middle class Americans who are in the process of being evicted from the only asset they once had. Even those who still live in their underwater residences two or three years from now will have their “savings” eroded by serial joblessness and the price inflation of necessities like food and transportation.

          And how well do you think suburbia is going to work when the dollar is no longer the world reserve currency and we have to exchange real goods for the oil necessary to keep it functioning?

          The only way a middle class American can afford to retire today is to move to a country where the cost of living is in accord with their modest resources. If they in fact have a little savings left, they may be able to find a gringo enclave where they can play bridge with fellow expats and watch the sun set. In my case I’m moving back to the village in the mountains of Columbia where I lived as a Peace Corps volunteer 40 years ago. Little has changed there– farmers still bring their vegetables to market every Sunday on mule back and the eggs and coffee are better than anything available in the USA. One can go for months without hearing English spoken or hearing about the latest financial swindle which is fine with me. $500 per month is a kings ransom. And did I mention that Columbia ranks #36 in the world for health care, ahead of the US in 37th place?
          Ironic isn’t it– forty years after I was sent to a third world country to show them how to live a better life, the life they have, for all its faults, looks better than the imploding catastrophe of the USA.

          1. bogi666

            You’ve got it right about living abroad. I did it as long as I could and now that the Veterans Administration is going to locate outside the USA, it could be an option again. Did you notice how Bernanke has attempted to transfer the economic collapse by passing the responsibility to consumers for not spending, not the endemic fraud of the multinational banksters with their COUNTERFEIT DEBT, STOCKS, STOCK OPTIONS all accomplished by bribing all those necessary to not curtail the criminal activities of the bankers, for which Bernanke represents.

      3. Yves Smith Post author

        His math is correct, you don’t like his assumptions. :-)

        I don’t know how many old people you know, but no retiree I know is comfortable with the notion you posit (and retirement planners may push), that of liquidating principal. It is one thing to have that happen, another to plan for that. There are enough “shit happens” scenarios that afflict older people (start with the cost of assisted living or nursing home care) that you can blow through the $30K a year level assumed here in a heartbeat.

        Moreover, expected age of death is a moving target. At any point in time, someone 65 is expected to die older than a 20 year old because some people don’t make it to 65. That continues as you reach 70 and 80. So if you planned based on your life expectancy at 25 and actually live to 80, that means you can now expect to outlive the funds you get aside based on your life expectancy at age 20.

        Basically. your logic builds too few buffers in. Assuming you live off interest means you have your principal as a buffer. You may argue that is too conservative. but to each his own planning.

        1. Pwelder

          It was always the older folks whose spending accounted for a disproportionate share of consumer spending not financed by debt.

          But you can’t do financial repression without killing their cash flow. (Not to mention the huge increases in contributions required to fund defined benefit pension programs or the retirement income targets of individuals.)

          So a policymaker like Bernanke who goes for artificially low interest rates aimed at supporting the banks and/or government finances sets up a demand-killing downdraft that his models seem not even to recognize, much less measure. As noted in some comments above, he very likely can’t see what he’s doing.

          And there in a nutshell is the incoherence of current policy.

        1. Birch

          Almost free? Cummon, how much did she ‘invest’ in booze and drugs to fund her ‘retirement plan’. It’s not a cheap life style. This is a risky plan too, though; I know plenty of rock musicians that bought into this retirement plan, but behold, they’re into their forties now and they’re still living! Woops. Musicians never retire.

      4. Ray Phenicie

        Correcto mundo about the error in arithmetic, as playing with Microsoft Excel’s FV financial function will show. I did a more modest amount per month (there were times -for years at a time-when I did not have $1/mo let alone $1500)

        Had I the luck or the good sense to stay in college I might have done this.
        Stashed $280 in the Tooth Fairy Local Bank each month and received 5%. If I had started 45 years ago-about when I actually got my first full time job making auto parts in a local factory, (that would have been 95% of my weekly check then)I would today have ($586,289.42) which would give me a yearly before tax income of ($29,314.47)
        Since I would need another 10% for taxes (about) I’ll need to keep working for another 6 years in this Shangra La world.
        Fortunately the same Tooth Fairy is also going to essentially let me do the same thing via Social Security.
        I do believe in ghosts
        I do believe in ghosts

  1. don

    That Bernanke lives in a bubble should surprise no one – evident in his sterile and objectified language. The same can be said for the class for whom he represents, and for whom he serves.

    That citizens are referred to as consumers is so prevalent that it passes without notice. These same citizens are rarely referred to as workers, and when they are noted as a class, it is the middle class, never the working class. In fact physical workers are looked upon as being inferior. Even more so is this true for the poor, especially the of the global southern hemisphere.

    So common is it today to suggest that what ails the economy is a lack of aggregate demand. The language has so taken hold of us that we fail to see our own biases and assumption. No, it is not a lack of demand, it is a lack of a fair distribution of what is social wealth. It is the lack of a livable wage, of demeaning labor.

    We live in a world that is over developed, over built, in which mass consumption is considered the means to enrich our lives socially, at the cost of depleting natural resources, of biological diversity, of climate change, etc.. While so many are in desperate search for money, where money is scare, a minority hoards money to such excess that it is nothing less than immoral.

    1. Jose L Campos

      You are so right. The elimination of the concept citizen is simply amazing. And in a “democracy” no less.

    2. Toby

      “That citizens are referred to as consumers is so prevalent that it passes without notice.”

      This is an important point, because in it is implicit that consumerism is too taken granted, and in that background assumption (that humans live solely to buy and sell more and more stuff) is the systemic reliance on perpetual growth. Even if perpetual growth were possible, even if it were no trouble to grow and grow the human population and turn absolutely everything we do for each other into commercial transactions, and then grow yet further beyond that insane point, what on earth is the attraction of that future? What is it about that vision that so appeals, that so bewitches us?

      All I see is desperate and lonely addiction, and, on the part of those appointed to protect the system as it is, the most terrible arrogance.

      1. William Wallace

        National Infrastructure Bank http://en.wikipedia.org/wiki/National_Infrastructure_Reinvestment_Bank

        Seems like he wants lotsa train stuff, Now I remember buffet buying train companies a little ways back, what did he know that you didn’t? ;)

        It is expected to invest primarily in surface transport infrastructure, which is likely to include highways and mass transit.[4] Obama did not mention investments in water supply and sanitation as an area of activity for the new Bank.

        The original proposed legislation states that the “Bank” is actually an “an independent establishment of the Federal Government, as defined in section 104 of Title 5, United States Code.”[3] As explained in 5 US Code 104, an independent establishment of the Federal Government is “(1) an establishment in the executive branch (other than the United States Postal Service or the Postal Regulatory Commission) which is not an Executive department, military department, Government corporation, or part thereof, or part of an independent establishment; and (2) the Government Accountability Office.”[9]

        I want to build a an underwater tunnel linking keywest to St Croix with a high speed rail like the channel tunnel here in the UK, hell why stop there, there is talks underway linking an underwater tunnel from alaska to russia, and lets get one from california to Hawaii and on to Guam too – I am ready to hollow out the earth so that man can get from a to b on high speed rail, who is with me? Lets not forget the space elevator stuff either. Lots of NASA people unemployed now, so we can get cheap labor to build it with some of this NEW BANK loans :)

        1. ambrit

          Dear Free Scot;
          You forgot my favourite, Mars Direct. At least we’ll have a backup population in place when all H— breaks loose down here.
          Seriously though, such ‘pie in the sky’ projects do produce unexpected and wonderous ‘spin off’ results. Look at all the advances Project Apollo produced. As I’ve said earlier, a massive Manhattan Project like Alternative Energy Program would completely shift the Terran Paradigm. Unfortunately, as in evolutionary biology, Catastrophism seems to be the coming thing.

    3. doom

      Once you’ve been demoted from citizen to consumer your only degree of freedom is a consumption strike. Asceticism is much funner when you know it helps destabilize your regime.

      1. ambrit

        Dear Doom;
        Unfortunately, the ‘powers that be’ are promoting Austerity, a much more ‘depressing’ philosophy than Ascetisism. As I’ve asked before, who remembers the Poor Stoics?

        1. Skippy

          Toa poikilê “man is a rational, mortal animal” as the disguised conditional, “if something is a man, then it is a rational mortal animal” (Sextus Empiricus, 30I).

          Skippy…porches have a lot to answer for…eh…oh pickle barrels too!

        2. NaluGirl

          The powers that be want austerity, (the way they chant that word reminds me of a religious chant) for thee and me, but not, heaven forbid, for themselves. WE must be punished for our sins of not being personally wealthy. After all, only the Chosen will be rewarded by wealth, however it is gained. The rest of us deserve what we get, which is nothing.
          Prosperity gospel uses this circular reasoning, taken from Calvinism to rope in the masses. This is why so many people vote against their own interests, because they think they will soon be among the Chosen.
          This is an interesting article from a Republican “Who has Left the Cult”
          http://www.truth-out.org/goodbye-all-reflections-gop-operative-who-left-cult/1314907779

  2. Nathanael

    The student loan situation is particularly appalling.

    I hope judges start unilaterally discharging student loans, regardless of the unconstitutional Federal bankruptcy bill.

    Because otherwise, the *rational* thing for people with student loans to do is to leave the regulated economy and go into the black market economy. If you have debt which you can’t pay and which isn’t removable in bankruptcy, it is VERY much in your best interests to drop off the grid. In fact it’s the only sane thing to do.

    Encouraging most of the young educated population to do this is frankly a recipe for the government’s authority to vanish completely, or in other words for revolution.

    1. M.InTheCity

      The other way to “discharge” your debt and have a decent credit rating, as my husband found, is to leave the country. They might try, but the student loan people can’t do much in foreign countries. Not really a very realistic option for most, however!

    2. ambrit

      Dear Nathaniel;
      You left out the stealth option for the elites; the reimposition of Debtors Prison Farms and indentured servitude. The latter could be quietly imposed in lots of quiet and quite efficient ways. Such as; a requirement that ‘students’ discharge their indebtedness through ‘Public Service’ jobs. Such ‘Public Service’ employment would of course be at very low wages, and the ‘contracts’ of said workers would be tradeable, in the interests of ‘efficiency’ of course. There you have it; a class of semi free educated workers doing the donkey work of the elites on the cheap. Just like in Ancient Rome, Ancient Greece, Ancient Babylon…

        1. ambrit

          Dear Fannie;
          The Patriot Act is large enough for all the Scoundrels to find refuge in. Natch. And, good G__ Man! Not one of the dreaded Seven Days in May!? As for robo-signed; some kind of comment on the POTUS’ real status in the ‘scheme of things?’

  3. LucyLulu

    Another pressure influencing Americans shift towards higher savings is the threat to Social Security and Medicare. Gone are any reassurances of minimal public retirement benefits and the accessibility to affordable healthcare at a time when medical expenses would be expected to be the most burdensome.
    Four or five years ago I thought I was in great shape for a very comfortable retirement, even if I never saved another dime. Now I worry if I will have enough to scrape by.

    I’ve been thinking living to a ripe old age isn’t such a good idea after all.

    1. Blissex

      «Four or five years ago I thought I was in great shape for a very comfortable retirement, even if I never saved another dime.»

      Such a sudden reversal seems to indicate that four or five years ago you were relying on a stream of magic massive low-tax or tax-free capital gains to continue to happen, rather than saving on your income.

      And you probably felt that you were really happy with a winner-takes-all economy, based on massive capital gains for property owners, and resentful of the poor and minorities for their lazy, parasitical lifestyles, and wishing for ever lower taxes for you and lower wages for everyone else to make your well deserved capital gains go further.

      That’s the American Dream.

      1. monday1929

        Don’t be so hard on her. The path each person takes to becoming a revolutionary will be different. But it looks like everyone with a student loan is well on the way there.
        Will they sell out like the hippies?

        1. Blissex

          It is pretty difficult to be soft on those people who created the current mess by voting the way they did.

          Which were votes for stock P/E ratios doubling every ten years, and for real estate price/income ratios also doubling every ten years too.

          And never mind all those who voted for funding two expensive wars in other continents with massive tax cuts on property owners.

          German voters did not vote for any of the above, and their country is doing pretty well as a result.

      2. avgJohn

        And maybe she came from an average middle class family and her father worked in the local steel mill, and she went to school everyday, studied hard, stayed away from drugs and alcohol, applied for an job advertised in the local newspaper and wanted to have kids and raise them with the same values.

        Maybe she earned some scholarship money, and took out student loans, went to night school, applied herself at work and just felt that there were a lot of problems in the world, but she didn’t have a magic wand, she was just a working class girl trying to take care of her future and responding to a world not of her making, in the best way she could.

        Maybe she had no animosity or evil selfish feelings about wanting others to fail so she could succeed, her heart wasn’t full of anger and hate, and she was proud of being the first one in her family to attend college.

        Maybe she is appalled at the greed and corruption on Wall Street and doesn’t know how it could happen in a democracy. After all, the main stream media and society at large promotes a two party system, and both democrats and republicans have been shuffling in and out of office for decades, and thought surely these people were looking after the interest of America.

        I believe we all want a better world. But there are a lot of people with a lot of different approaches and ideas. Directing anger at our fellow citizens isn’t going to get us anywhere.

    2. Maria reads

      I’ve been lurking on this blog for ages. When we married 20 years ago, I figured social security was a no-go. That it wouldn’t last until our retirement. (We’re only halfway to r-day now). As a couple we committed to maxing out all available retirement plans every year. One thing people aren’t considering is that people are being forced to change jobs. If you have the privilege of a 401-k or 403-b, you still have to wait 6 months or more to qualify to contribute. Then, you’ve already had a 15%+ hit on your base salary, and you either have to save a buffer up (over and above the initial hit of salary reduction (oh – and you get the privilege of starting your SS withholding over again!)) for when you can start making contributions catch up. If you are determined to max out your retirement contributions — you could then have another 30+ percent hit on take-home pay. So even well compensated employees lucky enough to find a new job quickly are seeing a 50% reduction in disposable income in the absolute best of circumstances available to the (admittedly upper) middle class.

  4. Claudia

    Instead of bashing Ben Bernanke…an excellent economist, a dedicated public servant, and a decent person…why don’t you write something constructive about how to help the economy? The Fed is not the enemy here. They used up there usual ammo to help the economy quite quickly and have been working hard to write a new and expanded play book. The Fed as made mistakes but they have not sat idly by doing nothing. I dare you to find a person who is a student of the Great Depression and who grew up in a small town in the South (like Ben) and who does not recognize the immense costs of high unemployment…I am fairly certain Ben Bernanke gets it. His job constrains what he can say in public, he would never say ‘Let the Eat Cake.’ You are the one telling dumb jokes (in my opinion).

    1. Jim Haygood

      There was a time when Ben Bernanke was almost an ordinary Joe, living in Princeton N.J. and serving on the school board (his sole experience in political office). However, that was in the Nineties, in an economy very different from today’s.

      Yves: ‘When I was a kid … no one could use their house as an ATM. Too many assumed they could rely on house price appreciation as a proxy for saving.’ How did this mass delusion come about? At the core of it was a complete abandonment of lending standards to feed the mortgage securitization machine.

      At the center of this web of regulatory nonfeasance was none other than the Chauncey Gardiner of finance, Al ‘Blind Magoo’ Greenspan. As the housing bubble raged in 2004, and Greenspan held the Fed funds rate at 1 percent, Maestro Magoo chided irrational consumers for not saving on interest with adjustable-rate mortgages. Remember those great 1 percent ARM teaser rates? Who cared about the reset, when a year or two was plenty of time to flip a house in Vegas?

      Not only is the Fed the enemy; its depredations are a feature, not a bug. Its every attempt to ‘do something’ worsens the situation. Case in point: a retired woman in NYC asked my advice about using her meager savings to purchase a life annuity. Not a bad idea, but thanks to the Fed’s War on Savings Income, effective yields on annuities are near their lowest levels ever.

      These are not mere ‘mistakes’; they are the self-serving acts of a defective, corrupt and malevolent bank cartel, hell-bent on saving its TBTF members’ own skins without regard to the astronomical social costs. Only the outright abolition of this predatory cartel will stop the pain.

      Although to ward off recession by placating the gods, it certainly would not hurt to hurl Greenspan into the caldera of a volcano as a human sacrifice. Spare the virgins — sacrifice Magoo!

    2. joebhed

      Totally agree that this is the time when good suggestions are needed. And, Bernanke is not getting any from all his mon-econs at the Fed.

      So here is the BEST one to come down the economic pike in a hundred years.

      http://kucinich.house.gov/UploadedFiles/NEED_ACT.pdf

      And here is proof by a noted macro-monetary economist whose systems-dynamic modeling proves that it will work.

      http://www.monetary.org/yamaguchipaper.pdf

      So, Claudia, the question becomes what is the Fed going to do with it.
      Kill the messenger?
      Pretend they don’t see it?

      Or start the exit strategy from debt-based money, which is the basic cause for all of this?

      Thanks.

    3. doom

      Decent man. When klepto-palooka Ken Paulson undertook to loot the fisc to keep criminal bankers in charge, Benanke said, I’m with you. Now Bernanke beggars savers to resusitate banks hollowed out by control fraud, and he complains that our beggared savers do not spend enough. I hope to see a tribunal of the nation’s dispossessed extract Bernanke’s entrails and burn them before his eyes. Decent man.

    4. Maximilien

      @Claudia: Please understand that Bernanke is not the least bit interested in the welfare of the economy. His only concern is the welfare of the finance sector, which is merely a part of the economy.

      Once you understand this, you will make haste to get a job in the finance sector (if you don’t already work in it). Because by the time Ben is through, that’s all that’s gonna be left of the economy.

  5. appointmetotheboard

    Excellent article.

    We hear the same in the UK, but here inflation is a bit of a factor – food, heating, petrol, rent – that has reduced disposable incomes, even for those in work. Yet economists always talk about confidence.

    Same world, different planet.

    1. Blissex

      The economists who talk “confidence” always add that confidence is directly proportional to capital gains for property (share, house) owners and higher incomes for deserving producers.

      Therefore they argue for more quantitative easing to make property prices zoom plus lower taxes for producing high earners and lower state services for parasitical low income workers.

    2. Richard Kline

      I’d say, “Same planet, different world,” but your phrasing has a better ring to it I’ll admit. Besides which, you said it first.

      1. Jim Haygood

        Or as we seasoned interstellar travelers are fond of saying … ‘Same sh*t, different planet.’

  6. reslez

    Yes, exactly. How in the world could such an intelligent, educated man be so ignorant? How could the chairman of a venerable institution with access to so much economic data be so out of touch?

    As Lambert Strether always asks: Is he stupid… or just evil?

    Bernanke’s ignorance is the type that cannot be corrected. And since he cannot be educated he must be fought. His “pathological blindness” is functionally equivalent to evil. In action, deed and word he will always choose to break the middle class. He is our enemy. Of course, the same goes for the rest of the looter elite. (And when I say “looter” elite I’m referring to them all, not some subset.) Time’s run out on the benefit of the doubt: tik, tok.

    1. Rex

      I remember back when the the economy lurched out of control and we had just gotten this new hopey changey president and I had a tiny bit of optimism that things might shift a bit up from the last 8 evil years. Remember? Greenspan was gone and this Bernake guy was in the key position to patch up the horribly broken economy. We were told he was the perfect guy for the job because he was one of the best students of the depression.

      Cool. Bad situation but hope, change, and the perfect guys for the time. Now, it seems, there is no change, I am losing all hope and the student seems to acting out his depression studies like it was a script.

  7. Richard Kline

    It is essential for the Fed & Tres Gang to deny that there _was_ a financial crisis/crash. When one starts from an act of major denial, what follows typically lacks whole dimensions of engagement with reality. This, to me, is the first input to the irrational verbiage gushing from Uncle Ben.

    Then there is the fact that there _was_ no recovery for anybody under the top 30% in income in the US, and no recovery to speak of for any but the top 10%. The rest is just money velocity off of the manipulation/huge government money gifting of the financial markets plus a little tug from China. So any reasoning starting with “During the recovery . . .” is simply irrational in vector, fulcrumed as it is upon a non-existent premise.

    Then we have the Debt Which Never Died for the bulk of wage-earners since the crash, even while their incomes have shrunk and their assets drowned. Ben passes the corpses in the pond with a sentence or two to discuss ‘this odd mood’ in consumers who won’t spend, thus arriving at a condition which he hasn’t gathered the facts to explain.

    Then there’s the simple matter that Ben B. is lying to us through his teeth, since that is, after all, half of his job. (Giving away pixelated money to the oligarchy is the larger half of his job.)

    All the while, the markets max their correlations getting their sway up to speed for the Big Rollover. Of course, Uncle Ben didn’t have anything at all to say about that. Can’t someone just set the old son in a cushy rocker on the back porch where he can gab on to the larks and butterflies his Cloud Cuckoo Land jargonations while someone who actually knows which horizon the factual sun rises over gets to f/make financial policy before the telemonitors for a while? The best we could say about Bernanke is that he’s a gross embarassment, High Priest in the cult of the God Invisible, endlessly re-weighting the Levitating Sephiroth to yet again announce the hour when Dead Mammon will rise and bless the faithful.

    1. Rex

      Richard,

      I truly hate that we have this subject matter to deal with. It is already unpleasant and seems to be getting worse rather than better. We all want to have better things on our minds.

      Having said that, you are doing one fine job of putting these crap hurricanes swirling around us down in words.

      Thanks.

  8. Cahal

    ‘There is a longstanding debate among economists about the importance of confidence. Research has found that consumers are not very good at predicting the future. Optimism often fails to correlate with growth; pessimism doesn’t necessarily foreshadow a recession.

    Still, it seems intuitive that a lack of confidence can drag on the economy.’

    In other words: evidence contradicts the theory, but we really like the theory, so it must be true.

    Is anyone even surprised?

  9. Skippy

    Powdered Whigs and Face Paint, the fashion of social disdain in your face, it should have never ended, camouflage thingy.

    Skippy…Its Friday sooo.

    The Trooper(Bossa Nova Version)

    http://www.youtube.com/watch?v=PJkYGNiBkso&feature=related

    Louis Armstrong and Frank Sinatra Sing Death Blues

    http://www.youtube.com/watch?v=rlmRjqBt_mE&feature=related

    This is decanter-ed for crrazzyman…goes good with white or red vino…pills optional.

    Metallica-Enter Sandman (Smooth Jazz Version)

    http://www.youtube.com/watch?v=OBmM79YadYM&feature=related

      1. Skippy

        Ha, reality is just one sense away from readjustment..eh. Always interesting how people display cognitive bias by displaying horror at its / their biases challenge.

        Insanity breeds genus as long as its not too socially disruptive or destructive thingy lol.

        Skippy…horror becomes comedy becomes another emotive, all depending on a subtle or not change in one of the senses.

        Slipknot – Wait and Bleed (Radio Disney Version)

        http://www.youtube.com/watch?v=wG6G4XBnvLQ

  10. lambert strether

    Banksters in orange jumpsuits doing the perp walk.

    * * *

    That’s the only thing that will restore “confidence.” Why should anybody have confidence in a system that’s clearly run by looters and thieves?

  11. Ben Wolf

    “Difficulty of staying employed over the age of 40.”

    This is what has me personally worried. I won’t complete my Ph.D. until I am 40, and I’m not sure what opportunities will be available after that due to my age.

    1. Rex

      PhD at 40, huh? When did you start your education?

      From the post, “5. Higher loads of student debt.”

      You’re probably screwed anyway. Don’t let the age part bother you.

    2. Art Eclectic

      It’s not what opportunities are available, it’s what opportunities you create for yourself.

      If you aren’t creating your own job and your own future, you’re just another replaceable wage slave.

      1. Ming

        The bulk of the goods and services that we need everyday are not new innovations; food, clean water, clean air, clothes, gasoline, Internet, etc… These items may require high quality and consistency to be produced, but
        they are not items that require continous major innovations in product or manufacturing process. Hence the bulk of work available would require someone to be reliable, trustworthy, dilligent and dedicated to quality of output and minimization of waste and error; the attributes that German and Japanese workers are known for. And these people should be well paid; there is no reason why only ‘creative types’ should be well compensated.

        We should Also note, many creative types are only good at producing innovative garbage. If the wall street bankers were at least half as trustworthy as a union worker, they would not have produced the ‘innovative financial products’ that have bankrupted many of their own banks.

  12. But What Do I Know?

    Excellent post, Yves. The attitude of the elites towards the economy seems to me close to a child with an ant farm. Let’s see, I followed the directions, put the sugar in and they’ve got plenty of water–how come they’re not working? Should I tap on the glass to get their attention?

    Most of the tenured academics I know haven’t the slightest clue how or why a real business works or what motivates the people running it. It’s the equivalent of a child trying to figure out what makes the ants go.

  13. Cheyenne

    This is my personal favorite from Ben’s speech: “The temporary factors I mentioned earlier–the rise in commodity prices,” etc.

    Hold the phones. What did Bernanke tell us over a year ago?

    “I don’t fully understand movements in the gold price,” Mr. Bernanke admitted.

    http://blogs.wsj.com/economics/2010/06/09/bernanke-puzzled-by-gold-rally/

    So if you’re clueless for more than a year about the rising price of an asset, that just means that the uptrend is temporary? Huh?

    Only an economist could come up with that.

  14. Larry Headlund

    Re:Job security
    You write “Does anyone other than tenured professors have job security? I’m sure you can add to that list (members of the armed forces)”

    Members of the armed services not as much as you might think: search for “up or out” and see why some armed forces officers are forcibly retired in their 40’s.

  15. Escariot

    This notion of saving vs spending seems inadequate to my (and many of my friend’s) current realities. From here where I stand it looks like de-leveraging has only started the first round. We are frantically trying to disentangle ourselves from debt, ALL debt. But we are forced to prioritize. Every available dime goes to paying that down (perhaps a form of savings in the way you all are talking), as cash flow, available money, is used now, while we have it, knowing that we have no guarantee that it will be getting better soon.

    First to go is the debt for overpriced assets (underwater mortgages feel very much like throwing good money after bad), downsizing cars and car payments, getting rid of car payments if possible, minimizing the automatic deductions bill pays (cable, cell phones, subscriptions) and buying big box, avoiding the small stores that have to charge more where we prefer to shop but simply can’t afford to not buy at the cheaper place. And avoiding at all costs the credit cards. When all our choices seem bad, and we are simply prioritizing which ones are worse, for YEARS now, it is perhaps a pattern.I have a friend who had her car repo’d so she could keep her cobra.

    Why isn’t she out SHOPPING???!?

  16. joebhed

    Yves,
    Well enough said about Bernanke’s miscombobulation of economic realities for working Americans.
    But he had to say something.
    And he has been surrounded by the world’s central bankers who are now readily admitting that they don’t have a clue about what to do next – for one simple reason.
    We are globally and collectively at the point of debt-saturation, and the only way that the current economic model provides to grow the economy is – you guessed it – more debt.
    So, rather than call for any particular action – his advice is for Americans households and businesses to learn to “cope” with this economically-paralyzing reality.

    Combining Obama’s and Bernanke’s visions of economic reality today, it boils down to this one section from Congressman Dennis Kucinich’s NEED Act ‘Findings’ on the need for monetary reform:
    “”(14) The country is stymied by competing forces: a desire to put people to work and an aversion to borrowing money to create programs to do so.”

    Kucinich’s remedy is to abolish private money creation by issuing debt-based money, and rather have the government spend what is necessary into existence without debt – not too much unlike MMT’s deficit spending for public purpose goals.

    So, knowing what you know, were you Bernanke, what would you do, please?
    Thanks.

  17. gs_runsthiscountry

    One thing I have noted while talking to people the past couple years is lack of retirement funds. One of the fundamental problems is, and will be, trading that 401k deduction from a pay check for for student loan payment, or a multitude of other things for family or daily life.

    Further, and more importantly, the shorter term job tenures create a problem from the standpoint of how a 401k is constructed. People don’t get to keep their funds! If current trends continue the biggest issue is the employee is not at an employer long enough to be VESTED.

    So, what is scary to see is the attack on SS, coupled with the fact of job tenure being shorter. Among the other issues on the table these days, a really good scrutinization of how 401k’s (and IRA’s for that matter) needs to happen.

    I stand as an example of yves point #3 over 40 and a nestegg, however, I would have never got to that place without having been vested and been with an employer for years. I wouldn’t be going back to school with out the security of being able to fall back on rolled-over IRA that i could take penalties on withdraws to survive if need be.

    If the shorter job tenure is going to stay in place for years to come, then a serious look at pulling away the incentive VESTING structure needs to happen. (Fully Vested after 3 years perhaps?

    1. gs_runsthiscountry

      I should have clarified, I am speaking in regards to company match (the most important part of the 401k).

      1. Fraud Guy

        And then if you are in constrained conditions, where you can’t contribute, or have to raid the 401k due to extended job loss…where do you go from there?

  18. Ben Gold

    “…Because Fed chairmen make an art form of speaking in
    as anodyne a manner as possible,,,,”
    So, what was the meaning of the GOLD tie he wore yesterday?

  19. YankeeFrank

    I remember the day I realized that Bernanke operates under the clearly ridiculous notion that “consumers” have a constant supply of cash/credit that we can dip into whenever we feel “confident” enough to do so. We “choose” not to spend money — we’re apparently NEVER constrained by REALITY not to spend money because WE DON’T HAVE ANY. Forget whether we are behaving rationally or whatever, what the fuck planet does this man live on where he thinks we can just “spend” or “save” at will.

    I get it, he thinks we are all teeny tiny banks with access to our own mini fed discount window!

    This man runs our economy? This man is a “student” of the depression? I don’t think there’s a level in hell deep enough for such a duplicitous and mendacious cretin, because please don’t tell me he believes this pulsating pile of shit!

  20. El Snarko

    If Mr. Bernanke means this in a way that is other than the most theoretical he is crazy. I have seven purchases I want to make. A “new” used car for me, a brand new leased auto for my wife, new livingroom furniture and carpeting, a power rack, a Gibson 335 guitar, a few new suits and sports coats (having just lost 59 pounds), and a couple of nice vacations. Hawaii again and some sort of cruise…Europe, Alaska…maybe the Med. Sounds like demand to me.

    I aint doin any of it. Am working on another masters and just starting a third, as well as pondering what used to be called a MOUS cert, as well as a math tutorial and two academic certs that are directly job related. (geospatial mapping and community development)ALL of these educational items are hugely overpriced, although my single criteria in selecting my online providers is price, along with reginal accredation.The Feds should require special educational pricing for retraining…..say no more than 250.00 a grad credit for the next five years. If more training is important, it has to be both accessable AND affordable.

  21. El Snarko

    Yeah I know that was a typo. As a former high school page editor my pride has been long eclipsed by spell check!:) Hey even YOU guys typo!!!

  22. unbound

    Of course confidence is not something you can measure, so Bernanke can make whatever claims he wants about it…you can’t prove him wrong (or right for that matter). Like so much in today’s world, hard numbers are to be avoided (except where politically expedient) when you can talk about ambiguous concepts like confidence, markets, capitalism, and apple pie (which my kids tell me isn’t even associated with being American anymore…how sad).

    Looking at hard numbers, it is pretty easy to piece together why the economy continues to struggle. Average middle income compensation has held steady for the past decade (actually a bit of a decline depending on which cost of living adjustment you want to use). Average compensation of the employed below the senior executive level has dropped notably…many that were unemployed have ended up in jobs with substantially lower income than they had before.

    Minimum wage is a joke at this point. Working 8 hours / day, 5 days / week with no holidays and no vacations is 2,080 hours in a year. At current federal minimum wage, you will earn slightly over $15,000. Can you even imagine the living conditions you would be in to sustain yourself (much less others) on $15,000 / yr? With no holidays and no vacations…and likely no sick leave to boot.

    How do you think people even working at double the minimum wage can seriously contribute to the economy at large? Where is their disposable income? After paying for food, housing, clothing, and basic electricity for a cheap refrigerator (which, according to Fox News is apparently a luxury item that the poor shouldn’t have at all) and lights, what do you think is realistically left over?

    Until the economists start truing up their grandiose ideas with mathematical reality, I don’t see how you can take them seriously.

    1. Fraud Guy

      And my friend, the hard libertarian small business (restaurant) owner, feels we should lower the minimum wage because it hurts the economy (i.e., his bottom line). Half of his workers are teenagers (with their lower minimum wage), and the other half have no other jobs and trying to support a family. What about their bottom line?

      1. Mel

        He’s a smart guy — except that he’s relying on some other dumb employers to pay his customers well enough that they can afford to dine there. When he runs out of other dumb employers he will be the proverbial toast.

  23. Gil Gamesh

    I understand that there is draft legislation afloat in Congress that requires Americans to spend 120% annually of either their gross income or transfer payments, tentatively called “American’s Seriously Spending Heavily Over Legitimate Expectations Act”. Penalties for non-compliance include dismemberment and graduate work in economics at Princeton. I too share The Chairman’s amazement at gutless American consumers. Come on, jobs are overrated. The opportunities in this exceptional country are boundless. The future has never looked brighter, thanks to our tireless leaders in government, business, and academe. I can scare wait for the new Perry-Bachmann administration (with new Fed Reserve Chairman Mozillo) to lead us to even greater heights.

  24. Mark Alan

    “Even taking into account the many financial pressures they face, households seem exceptionally cautious.” – Ben “Polyanna” Bernanke

    We are being told Social Security and Medicare will have to be cut so people should expect to pay more and start saving accordingly. Unemployment benefits? Those may not be there either we are being told, so be sure to put something aside just in case. Well Ben, just how much of a bite out of spending did you factor that to be, because it isn’t caution when people start to do exactly what they are being told to do. That’s on top of rising food, energy, education, and health care costs and declining wages.

    When Bernanke says “households seem cautious”, is the Fed failing to take into consideration that maybe they are simply reacting to what Washington is telling them to do?

    And not every household has the luxury of being “cautious”. The numbers of unemployed have risen by millions, the number of households surviving week to week has grown by millions. I doubt their caution adds up to much in the way of bottled up spending.

    In speaking in broad terms about households Bernanke is failing to understand that his words come across as “let them eat cake” to the majority of households in this country are already screwed financially, but not that they have time to listen to him. The Fed should focus honestly on the problems and solutions. Bernanke won’t, and in the end he will look to be as much or even more stupid and out of touch than Greenspan.

  25. Art Eclectic

    Bernanke is just exhibiting the total disconnect that everyone in Washington and the rest of the financial elites exhibit. They have no idea what it means to live on $50k a year, try and get your kids a decent education and try and figure out how to save for retirement at the same time.

    Without the housing ATM there isn’t any money left over for most families. Without ever escalating home prices, there’s no retirement plan.

    The entire financial situation for what’s left of the middle class has changed dramatically.

    These are six figure (and more) a year people who are completely disconnected from the pocketbook issues of people making significantly less. Bernanke isn’t worried about his retirement, nor how he’s going to pay for college, nor the rapid rise of his health insurance cost.

  26. JTFaraday

    “Since economists believe that consumers are rational, this outburst of illogical behavior is unexpected and the Fed can’t be blamed for it.”

    People are being rational. The only irrational person in this picture is the person with all the twisted rationalizations.

    Somebody stop him before he hurts himself.

  27. PQS

    Shorter Ben:

    Why must these pesky peasants keep falling on noblemen’s swords?

    What Ben also fails to see is that the emphasis of all our policymakers on shredding the social safety net in the name of “deficit cutting” does nothing whatsoever to INSPIRE confidence, nor has the endless infighting and intransigence of our “leadership” done a single thing to convince average Americans that anyone in DC even Gets what’s going on, much less Cares. What did the so-called Tea Party House do upon taking power? Try to defund Planned Parenthood and repeal HCR, neither of which have a single thing to do with the unemployment crisis. What did the Demos and WH do in response? Double down on the conciliation and hand wringing.

    Why shouldn’t Americans be frightened out of their wits when it seems that America is turning into a Hobbesian nightmare complete with clueless, smirking oligarchs?

  28. Gaygaruda

    The disconnect stems from what people really make, and it’s something that we’re socially conditioned not to discuss with coworkers, family, or friends. Art Eclectic mentioned the $50K number, which is what my base is but– as a Salesman of consulting services– I can ideally add $25K+ to that base annually going forward (God I hope). I’ve got three kids whom my wife home schools and we rent (my wife also contributes about $250/month working part-time, and I provide part-time illustration services as much as possible which might add a few $K’s to the kitty on a good year). Our life is strictly pay check to pay check, but actually my check buys us 10-11 days of comfort until a few days shy of the next paycheck. I can’t conceive of any money left over for socking away or playing the market with, let alone contributing to a 401K (I also pay $300 a month towards $95K of student loans that will be with me for 25+ more years). I think if we all spoke more frankly about what we make (or don’t make) we’d all have a better understanding of what confidence or lack thereof has to do with the economy.

  29. Down South Doug

    I’ve noticed this odd code of silence as well with regard to compensation. It is corrosive, since it propagates the silly notion that work is about something other than money. Certainly, people should find their work emotionally rewarding in some way. Of course working in a team, or making progress on a project are wonderful feelings. But, in the end, we work for money. The last thing management wants employees to do is remember that fact, and definitely not discuss it. That leads to unions!

    I make $18k a year. My wife makes a little less. We both work full time and are STRAPPED! All of our expenses have gone up over the last 3 years, and our paychecks have shrunk (pay freezes coupled with hourly cutbacks). We’re at our wits end about how to pay the bills and still have enough left over to service our student loan debts. And we’re both slowly coming to the realization that there is no real hope. Interest will balloon our debts while our wages will be eaten away by inflation. Retirement is a fantasy, and it looks like even Social Security is on the way out the door.

    The people that I see and talk to in our area are in the exact same boat. Small businesses are failing without customers, and nobody is buying anything new (if at all). Housing is dirt cheap, but most people here can’t afford to get or pay a mortgage. Car dealerships are folding all over unless they sell BMWs. Apparently the powers that be decided in the Nixon/Carter/Reagan era that America just didn’t have enough poor people. Well, kudos to a job well done!

  30. Hugh

    Very interesting discussion. To ask whether someone making $30,000, $40,000, $50,000 can ever save enough to retire is to ask the wrong question. It is to get lost in a welter of conflicting mathematical models, as in so many of the above comments. It is to buy into a rentier based economy, to save enough for retirement we must all become small time rentiers. But as I said, this is asking the wrong question. The right one is whether we as a society have the resources to support retirement for those over 65. And the answer to that is we do and much more: healthcare, education, housing, infrastructure, and jobs.

    There were a few references in the above comments to wealth inequality. Think about it. You have 90% of the population trying to do all those things: retirements, healthcare, education, housing, infrastructure, and jobs using only about 30% of the nation’s wealth. The math looks impossible because under the constraint of massive wealth inequality it is.

    Wealth inequality is a natural consequence of the rentier system. It is a logical contradiction to think that somehow our pensions (o anything else) can be financed by participating in the very system that made that financing impossible.

    1. doom

      True. Technical questions of financial feasibility are a last-ditch defense for states that can’t do their job. The question is, How will the state perform its duty to protect the people’s right to a livelihood and to social security? Because a state that can’t do that has no reason to exist. Too much inequality means the state has failed to protect core economic rights. What? You can’t do it? The world’s only superpower, but you can’t do your duty? Can’t comply with UDHR Articles 17 and 22-27, or CESCR Articles 6-14? Where do you get off pretending to be a government?

  31. Jon Claerbout

    Assuming we are in a steady state world (interest=inflation) strongly affects one’s retirement savings strategy. A simplified model illustrates the consequences for you : Breaking an adult life into four 15-year parts, the boundaries of the four parts are at ages 25, 40, 55, 70, 85. The first three parts are the saving parts and the last part the retirement part. Assuming constant income throughout, in the first three parts you save 1/4 of your income leaving 3/4 to spend. That leaves you the same 3/4 for your retirement years, i.e. constant spending throughout life.

  32. MyLessThanPrimeBeef

    You are either a VOB (victim of Ben) or a VOB (victim of Bush) or VOB (victim of Barry).

    In any case, you are a VOB.

    Hi, my name is Vob.

  33. Possible explanations?

    He might be a little out of touch because 1) Fed employees do have defined benefit plans 2) Fed employees for all intents and purposes have tenure – even at the regional banks and 3) Student loan debt is not an issue for current/former Fed economists because they are paid to finish their dissertations at a rate that will surely cover their student loans. When they finish, they are paid (well) to do independent research. ON ANY TOPIC THEY WANT.

    Yep, I’m jealous. But all of the above might explain a sliver of that irrationality.

  34. Maximilien

    “….one possibility is that Americans collectively are suffering from what amounts to an economic version of post-traumatic stress disorder….”

    Ya gotta love the Wall Street/New York Times for its propensity for loopy statements like this.

    The problem is PTSD? Okay. Then what’s the cure Messrs. Editor, Krugman, Brooks, Sorkin? Counseling and Paxil for all?

    Here’s a better one: A WSNYT-free diet. Amazing how it will improve the thinking process.

  35. farmerjim

    Bernanke and all Republicans have a basic assumption that just ain’t true, and no matter how much they flog us with that assumption, it just will not change the reality. The assumption is that capitalism works on a trickle down from those that have to those who have less.

    The reality is that money trickles up … a little bit from here, a little bit from there and it all makes a sizable pool of money. Large business and astute business people count on this. Note that corporations and the richest are making the biggest profits ever and it ain’t trickling down. Nor will it until the rich and greedy are taxed to make the economy work.

    What none of them realize is that when (not “if”) they increase the size of the trickle up, and lower-middle and middle class lose their jobs, their homes, their retirement, then the trickle up drys up.

    It would be hilarious if it weren’t so tragic and serious — Two examples: Krogers and Home Depot who sell to middle class are backing Republicans with 90% of their large campaign donations. And the people (Republicans)they are backing are dismantling the income sources of these corporations.

    All i can say is that Krogers and Home Depot have been smart at selling but stupid in their political donations. They are cutting their own (figurative) throats.

    And nothing will happen on the economy, except that we will more and more become a 3rd world nation if we continue on the path we are now on.

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