Where should I move to?
May 2, 2006 8:54 AM Subscribe
Has the US economic outlook always been so gloomy?
I keep reading about the deficits, the price of oil, a growing China, falling dollar, etc. and everything sounds so bad for the US economy in the long term. I mean, there is a lot of talk about how the US is in "serious" trouble going forward.
Has there always been doom and gloom predicted for the US by the pessimists, or is this one 'for real'?
Thanks!
I keep reading about the deficits, the price of oil, a growing China, falling dollar, etc. and everything sounds so bad for the US economy in the long term. I mean, there is a lot of talk about how the US is in "serious" trouble going forward.
Has there always been doom and gloom predicted for the US by the pessimists, or is this one 'for real'?
Thanks!
Which isn't to say "Cheer up it'll never happen!", just that there's no one to my mind who can authoritatively prove it will.
posted by PinkStainlessTail at 9:05 AM on May 2, 2006
posted by PinkStainlessTail at 9:05 AM on May 2, 2006
I would say economics is more like history than like medicine (or maybe like medicine was a century ago).
With history you have events occur, you have facts that you can accumulate about those events. And then people go out and write the story in the way that suits their beliefs (pessimism/optimism, conservativism/liberalism). Does that mean that no "unbiased" history (or economy) exists? There are several ways to answer that from the philosophical to the pragmatic. I would argue, yes, an unbiased history exists.
Economy has laws, the way gravity has laws, but what influences economy more is human behavior. For example, money is essentially valueless (so send it to me, you lose nothing). The Mona Lisa is a painting only worth the cost of making a reasonably indistinguishable copy. Neither of those statements are true. Money has the value we give it. The Mona Lisa has the value we give it. Because a large part of the economy is perception, it is easy to project on it our biases. This doesn't mean we don't have to eventually deal with reality (the Iraqi war didn't pay for itself, tulip bulbs are not worth more than a house), but it does leave the question open to debate of exactly when are we on solid ground and when are we like the coyote suspended in the air, about hit by the law of gravity.
posted by dances_with_sneetches at 9:32 AM on May 2, 2006
With history you have events occur, you have facts that you can accumulate about those events. And then people go out and write the story in the way that suits their beliefs (pessimism/optimism, conservativism/liberalism). Does that mean that no "unbiased" history (or economy) exists? There are several ways to answer that from the philosophical to the pragmatic. I would argue, yes, an unbiased history exists.
Economy has laws, the way gravity has laws, but what influences economy more is human behavior. For example, money is essentially valueless (so send it to me, you lose nothing). The Mona Lisa is a painting only worth the cost of making a reasonably indistinguishable copy. Neither of those statements are true. Money has the value we give it. The Mona Lisa has the value we give it. Because a large part of the economy is perception, it is easy to project on it our biases. This doesn't mean we don't have to eventually deal with reality (the Iraqi war didn't pay for itself, tulip bulbs are not worth more than a house), but it does leave the question open to debate of exactly when are we on solid ground and when are we like the coyote suspended in the air, about hit by the law of gravity.
posted by dances_with_sneetches at 9:32 AM on May 2, 2006
Economics is fondly known as the dismal science; it does have a tendency toward pessimism.
posted by Eater at 10:25 AM on May 2, 2006
posted by Eater at 10:25 AM on May 2, 2006
It is not called the "dismal science" for nothing.
posted by Quinbus Flestrin at 10:25 AM on May 2, 2006
posted by Quinbus Flestrin at 10:25 AM on May 2, 2006
everyone telling you not to take all economic predictions at face value is giving you incredibly sound advice. It also bears mentioning, however, that there were people who predicted the stock market crash and following depression, and at that time there were people who said "well, someone is always saying doom is right around the corner."
so yeah, don't assume everything you read is true, but don't assume it's all false, either.
posted by shmegegge at 10:49 AM on May 2, 2006
so yeah, don't assume everything you read is true, but don't assume it's all false, either.
posted by shmegegge at 10:49 AM on May 2, 2006
Ask ten economists for their opinions, and you'll get twelve opinions.
posted by Steven C. Den Beste at 10:50 AM on May 2, 2006
posted by Steven C. Den Beste at 10:50 AM on May 2, 2006
Best answer: There have always both optimists and pessimists, but the nature of the optimism and pessimism varies over time.
During the dot-com boom, there were lots of optimists saying that the economy was growing, that the wage-gap between low-income and high-income earnings was decreasing, and that the Federal Deficit was declining. There were also pessimists saying that that stock market was hugely overvalued. In retrospect, we see that both were correct.
Today, the optimism and pessimism are much different. The optimists point out that unemployment is down, average wages are up, and the economy is growing at a healthy pace. Pessimists point out that unemployment is only down because millions of people have abandoned the workforce, that wage increases have gone to the wealthiest Americans while middle and low income groups have seen their wages decline, and that our our economic growth appears to be stimulated artificially by unsustainable borrowing both by the government and by the private sector.
The downside scenario today is much more dire than it was in the 1990's. They also directly rebut the rosy-eyed statistics of the optimists in a way that did not occur, to my view, in the 1990's. Today's optimists and pessimists are mutually incompatible in a way they weren't then.
Who to believe? That's where you have read the arguments and make up your own mind. Or don't read the arguments and just believe the optimists, which is what the optimists would like you to do.
posted by alms at 10:53 AM on May 2, 2006
During the dot-com boom, there were lots of optimists saying that the economy was growing, that the wage-gap between low-income and high-income earnings was decreasing, and that the Federal Deficit was declining. There were also pessimists saying that that stock market was hugely overvalued. In retrospect, we see that both were correct.
Today, the optimism and pessimism are much different. The optimists point out that unemployment is down, average wages are up, and the economy is growing at a healthy pace. Pessimists point out that unemployment is only down because millions of people have abandoned the workforce, that wage increases have gone to the wealthiest Americans while middle and low income groups have seen their wages decline, and that our our economic growth appears to be stimulated artificially by unsustainable borrowing both by the government and by the private sector.
The downside scenario today is much more dire than it was in the 1990's. They also directly rebut the rosy-eyed statistics of the optimists in a way that did not occur, to my view, in the 1990's. Today's optimists and pessimists are mutually incompatible in a way they weren't then.
Who to believe? That's where you have read the arguments and make up your own mind. Or don't read the arguments and just believe the optimists, which is what the optimists would like you to do.
posted by alms at 10:53 AM on May 2, 2006
So, I too have been pondering this very question for some time. I wanted to run away to Canada and was told eh, if the US crashes so will they. At this point my question isn't just is it going to get bad? It is where do I go before it gets very bad? I found this site housing bubble news while it is specific to the housing bubble many of the articles cover the overall picture of the economy. I found this article to be the most helpful.
posted by kantgirl at 11:06 AM on May 2, 2006
posted by kantgirl at 11:06 AM on May 2, 2006
Best answer: There are a number of medium and long term trends in the US economy which are unsustainable in the long term. In each of these 3 or 4 situations, something will have to give. There's disagreement on how serious the consequences might be, and how quickly the changes might come about. There are lots of catastrophic scenarios out there. They make for good blog posts and magazine articles. No one's really sure if any of them will come about. However, any serious observer of the situation sees a number of trends taht are unsustainable in the long run:
-Deficit, Debt and taxes.
-The trade deficit.
-Vast, vast unfunded pension and health care obligations.
-An almost total lack of savings in the US economy.
These issues are linked, so if one goes bad, the others are likely to get worse before they get better.
The deficit and debt will not get any better under this administration. Taxes will have to go up. There's a lot of talk about cutting 'wasteful spending' or 'discretionary spending' but the truth is, there isn't much of that to cut, and it certainly doesn't add up to a balanced budget. The government spends most of its money on Social Security, Defense, Medicare and Medicaid, and Interest on the national debt. Can any of thse be cut? Unlikely. Will taxes go up to pay for all of this? Not until there is someone new in the White House.
Of course, the government has been spending more than it's taken in taxes for the better part of the last 40 years. Check out this fact sheet from the non-partisan Congressional Budget Office. You can see that deficits are nothing new, but the concern this time is a couple of things.
First, the boomers are about to retire, and they're retiring earlier than they used to. But their health care and social security will be mostly paid out of ongoing tax revenues. This means that taxes on those workers will have to go way up, or the money will need to be borrowed. The real issue here is that there will be fewer wokers per retiree than at any time in history.
Second, no one, especially in the United States, has any idea about how to cut health care costs. All of this is about to get a lot more expensive as new drugs and treatments come online. On average, the bulk of health care dollars spent in a person's lifetime will be spent in the last six months of life. Endstage cancer treatment, quadrouple bypass surgeries, and residential alzheimer's care are all monsterously expensive. The United States spends about 40% more on health care per capita than just about any country, and the results are no better than most other Western countries. A lot of this excess cost is a result of, and not a call for, more competition.
A second major problem is trade deficits. Americans are buying more goods from abroad than they are making and exporting to the rest of the world. Goods go in, cash goes out. Where's all this cash comning from? A lot of it is being lent to Americans by other countries. This can't go on forever, of course. One solution is just to print more money, which is essentially being done already. (This is roughly what all these loand accomplish.) This has the effect of making the American dollar worth less over time. The US dollar has been in a slow decline against many major currencies for quite a while.
If the dollar goes down, other countries and foreign investors will be less willing to lend americans money. They get paid back in US dollars, which will be worth less when repaid. There is concern that some of this reluctance is happening already, and that national banks will start to hold assets denominated in other currencies. Some people worry that China holds so many US T-bills that it could inflict some serious pain on the US economy by selling them. Sneetches' post above is correct in that, to an extent, this is a matter of perception. If there's ever a point where big players begin to serously doubt the economic strength of the US economy, they'll try to beat each other to the exit.
Oil, as an aside, isn't a huge worry for a lot of econimists. Gas prices seem to have huge psychological and political weight in America, but across the whole economy, oil is one input among many. The importance of oil to the american economy is considerably less than it was in prior decades.
One thing that worries me about the American economy is the nearly complete lack of savings in the economy. Besides the post 9-11 recession, the US economy has been growing by leaps and bounds for the better part of 12-15 years. And yet, consumers, covernemnt, business, none of the major players in the economy have managed to reduce the debt they've accumulated. In fact, they're all busy borrowing more money. Evenutally, whis will need to stop as well. No one is quite sure how this will happen, either. (One thing is for certain: the baby boomers are the beneficiaries of a massive transfer of wealth from their children. They receive massive payouts from pension and health care plans which are largely debt or pay-as-you-go financed, and their children will be left to pay fot it)
Oh, and most private (corporate) pension plans used the late 90's stock market boom as an excuse not to fully fund their pensions and instead claim higher profits. The resulting decline in stocks, and a decade of low intrest rates means many companies have a huge, unfunded pension liability that some are trying to toss off onto the woefully underfunded government pension insurance scheme. This is a big deal. Almost no one is talking about it.
Anyhow, the short answer to your question is that there are a lot of potential pitfalls in the long term for the US economy. A lot of risk, a lot of reason for concern. But for all these situations, there are ways in which the situation might unwind without too much pain. Part of what makes people worry is that governments and consumers don't seem to be bahaving as though they're aware of the problem at all.
Oh, and don't worry about moving to another country. Get rid of your debt, cut up your credit cards if you have to, get good insurance, save for retirement as if the social security system won't be there, diversify investments. You'll be fine.
posted by thenormshow at 11:40 AM on May 2, 2006
-Deficit, Debt and taxes.
-The trade deficit.
-Vast, vast unfunded pension and health care obligations.
-An almost total lack of savings in the US economy.
These issues are linked, so if one goes bad, the others are likely to get worse before they get better.
The deficit and debt will not get any better under this administration. Taxes will have to go up. There's a lot of talk about cutting 'wasteful spending' or 'discretionary spending' but the truth is, there isn't much of that to cut, and it certainly doesn't add up to a balanced budget. The government spends most of its money on Social Security, Defense, Medicare and Medicaid, and Interest on the national debt. Can any of thse be cut? Unlikely. Will taxes go up to pay for all of this? Not until there is someone new in the White House.
Of course, the government has been spending more than it's taken in taxes for the better part of the last 40 years. Check out this fact sheet from the non-partisan Congressional Budget Office. You can see that deficits are nothing new, but the concern this time is a couple of things.
First, the boomers are about to retire, and they're retiring earlier than they used to. But their health care and social security will be mostly paid out of ongoing tax revenues. This means that taxes on those workers will have to go way up, or the money will need to be borrowed. The real issue here is that there will be fewer wokers per retiree than at any time in history.
Second, no one, especially in the United States, has any idea about how to cut health care costs. All of this is about to get a lot more expensive as new drugs and treatments come online. On average, the bulk of health care dollars spent in a person's lifetime will be spent in the last six months of life. Endstage cancer treatment, quadrouple bypass surgeries, and residential alzheimer's care are all monsterously expensive. The United States spends about 40% more on health care per capita than just about any country, and the results are no better than most other Western countries. A lot of this excess cost is a result of, and not a call for, more competition.
A second major problem is trade deficits. Americans are buying more goods from abroad than they are making and exporting to the rest of the world. Goods go in, cash goes out. Where's all this cash comning from? A lot of it is being lent to Americans by other countries. This can't go on forever, of course. One solution is just to print more money, which is essentially being done already. (This is roughly what all these loand accomplish.) This has the effect of making the American dollar worth less over time. The US dollar has been in a slow decline against many major currencies for quite a while.
If the dollar goes down, other countries and foreign investors will be less willing to lend americans money. They get paid back in US dollars, which will be worth less when repaid. There is concern that some of this reluctance is happening already, and that national banks will start to hold assets denominated in other currencies. Some people worry that China holds so many US T-bills that it could inflict some serious pain on the US economy by selling them. Sneetches' post above is correct in that, to an extent, this is a matter of perception. If there's ever a point where big players begin to serously doubt the economic strength of the US economy, they'll try to beat each other to the exit.
Oil, as an aside, isn't a huge worry for a lot of econimists. Gas prices seem to have huge psychological and political weight in America, but across the whole economy, oil is one input among many. The importance of oil to the american economy is considerably less than it was in prior decades.
One thing that worries me about the American economy is the nearly complete lack of savings in the economy. Besides the post 9-11 recession, the US economy has been growing by leaps and bounds for the better part of 12-15 years. And yet, consumers, covernemnt, business, none of the major players in the economy have managed to reduce the debt they've accumulated. In fact, they're all busy borrowing more money. Evenutally, whis will need to stop as well. No one is quite sure how this will happen, either. (One thing is for certain: the baby boomers are the beneficiaries of a massive transfer of wealth from their children. They receive massive payouts from pension and health care plans which are largely debt or pay-as-you-go financed, and their children will be left to pay fot it)
Oh, and most private (corporate) pension plans used the late 90's stock market boom as an excuse not to fully fund their pensions and instead claim higher profits. The resulting decline in stocks, and a decade of low intrest rates means many companies have a huge, unfunded pension liability that some are trying to toss off onto the woefully underfunded government pension insurance scheme. This is a big deal. Almost no one is talking about it.
Anyhow, the short answer to your question is that there are a lot of potential pitfalls in the long term for the US economy. A lot of risk, a lot of reason for concern. But for all these situations, there are ways in which the situation might unwind without too much pain. Part of what makes people worry is that governments and consumers don't seem to be bahaving as though they're aware of the problem at all.
Oh, and don't worry about moving to another country. Get rid of your debt, cut up your credit cards if you have to, get good insurance, save for retirement as if the social security system won't be there, diversify investments. You'll be fine.
posted by thenormshow at 11:40 AM on May 2, 2006
however, that there were people who predicted the stock market crash and following depression, and at that time there were people who said "well, someone is always saying doom is right around the corner."
And a stopped clock is right twice a day.
posted by dagnyscott at 12:24 PM on May 2, 2006
And a stopped clock is right twice a day.
posted by dagnyscott at 12:24 PM on May 2, 2006
Response by poster: Thanks everyone for the answers! It can be hard to get a historical perspective on sentiments, but it's good to know this is not an uncommon occurrence.
posted by eas98 at 1:20 PM on May 2, 2006
posted by eas98 at 1:20 PM on May 2, 2006
Is this the thread for economist jokes?
My favourite is "an economist is someone who sees something working in practice, but can't help wondering if it works in theory"...
posted by AmbroseChapel at 2:03 PM on May 2, 2006
My favourite is "an economist is someone who sees something working in practice, but can't help wondering if it works in theory"...
posted by AmbroseChapel at 2:03 PM on May 2, 2006
For an economist, the real world is a special case.
posted by Steven C. Den Beste at 3:18 PM on May 2, 2006
posted by Steven C. Den Beste at 3:18 PM on May 2, 2006
This thread is closed to new comments.
posted by PinkStainlessTail at 9:03 AM on May 2, 2006