It's the demand, stupid...

[Buzz]

I thought that the graph included in this post on the Krugman Blog was pretty interesting. It goes back to 1986.

http://krugman.blogs.nytimes.com/201...demand-stupid/

It’s Demand, Stupid

I’ve said this before, but Catherine Rampell has a very nice chart making the point: if you ask businesses — as opposed to their lobbyists — what their problem is, you find no hint of the stories the usual suspects are telling you about government interference, political uncertainty, etc.. Businesses aren’t hiring because of poor sales, period, end of story:

And the best thing government could do to help business would be to spend more, increasing demand. The fact that it’s not going to happen doesn’t change the fact that it’s the simple truth.

The graph comes from here:

http://economix.blogs.nytimes.com/20...ll-businesses/

What’s Holding Back Small Businesses?
By CATHERINE RAMPELL

The biggest single problem facing America’s small businesses isn’t taxes or overregulation. It’s low demand, according to a new report released by the National Federation of Independent Business.

Thirty-one percent of small businesses surveyed by the N.F.I.B. said that “poor sales” are their company’s “single most important problem.” The other options included were competition from large businesses, insurance costs and availability, financing and interest rates, government requirements and red tape, inflation, quality of labor, cost of labor and “other.”

Here’s a chart breaking down what percent of small businesses cited each of these problems as their biggest challenge, going back to 1986:


National Federation of Independent Business, via Haver
Much of the debate about how to spur growth and encourage hiring has focused on making the tax picture temporarily more business-friendly. But as you can see, the portion of small businesses citing taxes as their superlative problem has remained about the same — mostly in the 17-22 percent range, say — for about a decade.

Additionally, lending help for small businesses is another key stimulative policy in play, and meanwhile financial and interest rate concerns are a comparably negligible concern.

By contrast, the share of companies saying the poor sales is their main challenge has about doubled since the downturn began.

Exactly how to address soft demand, though, is even more complicated and contentious than supply-side policies like cutting taxes or providing interest-free loans.

The holy grail for the GOP is tax cuts. In fact, of the almost 800 billion stimulus bill, $300 billion or almost 40% of it was tax cuts. The amount of spending on infrastructure was cut and the amount of tax cuts was increased in order to placate a couple of Republicans and some conservadems. This is what the congressional budget has to say about the stimulative effect of tax cuts.

http://www.nytimes.com/2010/09/11/bu...GtS/KovGbMbJ4Q

Tax Cuts May Prove Better for Politicians Than for Economy

[E]conomic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.

The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.

The office gave higher marks to the proposal, now embraced by President Obama, to allow small businesses to write off 100 percent of their investment costs.

My grandfather started out at Cadillac Motors before it was part of GM, lived through the depression, then started and operated his own extremely successful businesses until the 70s. He used to talk about how important a vibrant middle class was to a healthy economy. He talked about how a healthy middle class created demand for the products he sold. Now we hear something completely different. Newt Gingrich said last weekend that tax cuts for the middle class are not effective in creating jobs, that it's the rich that hire people, that regular Joe's don't create jobs. You see, that's what today's politicians think. Rich people create jobs, demand is secondary. We need to help the benevolent rich get as rich as possible so they'll throw us peasants a bone and give us a job. I think it's what they call supply side economics.

If you ask most conservatives these days, we need to cut more taxes on the rich. And we need to cut pay for the middle class. After all, compared to workers in China and India, the middle class here makes too much money, has too much health care, and is just plain too used to having a good quality of life.

http://www.bloomberg.com/news/2010-0...n-hassett.html

Your Fat Paycheck Keeps Your Neighbor Unemployed: Kevin Hassett
By Kevin Hassett - Sep 6, 2010 8:00 PM CT
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Bloomberg Opinion

Kevin Hassett

Some observations perfectly at home in economics textbooks can be so beastly in practice that nobody is willing to mention them.

Ignoring the facts, though, leads to bad policies, and with the U.S. unemployment rate at a stubborn 9.6 percent, we don’t need more of those.

So here comes the leap into ice-cold water: The biggest problem with the labor market right now is that wages are too high. As Washington again turns to government spending as a cure for unemployment, some against-the-grain thinking is in order.

Economics teaches that full employment would be reached if wages adjust downward, to a level that better reflects current circumstances. At lower wages, employers would desire more workers. Labor markets generate persistent unemployment only if wages are sticky, failing to fall as demand declines.

A number of reasons help explain why wages don’t and won’t drop, beginning with federal and state minimum-wage laws.

Second, because union contracts generally cover multiple years, adjusting wages in response to economic circumstances would require a return to the bargaining table, which rarely happens.

Third, the natural reluctance of workers to accept lower pay is amplified by how their wage helps define their identity. A $60,000-a-year office worker might have an extra-hard time coming to terms with becoming a $40,000-a-year worker.

Finally, workers and jobs might be mismatched, either geographically or occupationally. Workers might be needed in places they don’t want to move to, or can’t afford to live.

Here is a great article that speaks to this point very well.

http://www.nytimes.com/2010/09/14/op...bert.html?_r=1

[dnf777]

Very interesting read, and also enjoyed the beautiful picture of the Northern Lights!

Sounds like the same philosophy Henry Ford had regarding the middle class, although I don't think that term was used then.

[Buzz]

Very interesting read, and also enjoyed the beautiful picture of the Northern Lights!

Sounds like the same philosophy Henry Ford had regarding the middle class, although I don't think that term was used then.

Your response to the "tailspin" thread is what motivated me to put together a thread on what I've been reading lately in way that naturally fits together. I thought the graph was not only perty, it was very interesting to see the shift in emphasis over different issues over the last 25 years.

I read an interesting article in The Economist this morning about executive compensation packages being voted down by stockholders recently, for the first time ever. About time...

[WaterDogRem]

If you ask most conservatives these days, we need to cut more taxes on the rich. And we need to cut pay for the middle class. After all, compared to workers in China and India, the middle class here makes too much money, has too much health care, and is just plain too used to having a good quality of life.

[/url]

Not sure what conservatives you talk to and have asked, but this non-sense explains your views.
My best guess is you're talking about Unions (your middle class) that have helped bankrupt GM.

[charly_t]

I only glanced through this thread so maybe I should not comment but I'm going to. Part of the problem with the failure of American businesses is their products. Made over seas by someone who has to get 100 plus made in a small amount of time. Same thing with some products made here in the USA. If I can get by without whatever the heck it is I'm not going to buy it.

Now I have told this story before but it needs repeating........family members work for a company who sends their work to China. These items come here not fitting the machine and must either be sent back for overhaul or someone here "fixes" them. This is not a savings when they send their work to China.

Shoes are now mostly made in China ( even the good brands if they can be called that anymore ). At least the last 10 pair or so that I have bought. They have not been made to fit American feet ( at least not mine ). They are long and very narrow in even wide sizes. The company that I order my shoes from has been in business for many, many years but they are going to fail if they don't wake up. Let these businesses fail that can't adapt ( they don't listen to the customer ).

[depittydawg]

_r=1[/url]

I completely agree. I heard some nonsense today on the Radio about the new Small Business package being heralded by Obama and the dems. All this incentive for small business to "borrow" in order to expand. Same crap they threw at us for Wall Street. Didn't work then, won't work now. Why? Business is lacking for capital. Capital is avialable for expansion now is cheaper than it has ever been in my lifetime. (and I'm no spring chicken). Why isn't either party talking about the ROOT CAUSE of jobs disappearing in America? NO jobs, no demand. That would be NAFTA and US trade and taxation policies.

[dnf777]

I completely agree. I heard some nonsense today on the Radio about the new Small Business package being heralded by Obama and the dems. All this incentive for small business to "borrow" in order to expand. Same crap they threw at us for Wall Street. Didn't work then, won't work now. Why? Business is lacking for capital. Capital is avialable for expansion now is cheaper than it has ever been in my lifetime. (and I'm no spring chicken). Why isn't either party talking about the ROOT CAUSE of jobs disappearing in America? NO jobs, no demand. That would be NAFTA and US trade and taxation policies.

Amen, Bro.

As much as I speak out against NAFTA, what is the alternative as the world flattens? Protectionism? There's got to be some kind of happy medium, one would think, but likely to be viewed as very arrogant as the rest of the world is producing more than we are, and wondering where the "dream" is for them.

Julie, since you have a penchant for running flags up poles, what's YOUR thought on NAFTA, and its effect of the economy?

[Clay Rogers]

Amen, Bro.

As much as I speak out against NAFTA, what is the alternative as the world flattens? Protectionism? There's got to be some kind of happy medium, one would think, but likely to be viewed as very arrogant as the rest of the world is producing more than we are, and wondering where the "dream" is for them.

Julie, since you have a penchant for running flags up poles, what's YOUR thought on NAFTA, and its effect of the economy?

I'm not Julie, but I will give it a shot. What would be wrong with "made in America" and "bought in America"? And I mean, quit buying stuff made over seas. That would mean clothes, cars, food, toys and the lot. Re-open the textile mills, re-open the closed auto factories, re-open the plastic plants that used to make all the toys. Start buying grain and crops from American farmers, use only American tobacco for smokes and chew. Don't import anything. If we can't make it, we don't need it. Plain and simple right? That would put alot of people back to work I think. We can export all day long, just not import. If the world doesn't want our goods, then so be it. I guess I said all that to say this, Why can't we be self-sufficent?

[dnf777]

I'm not Julie, but I will give it a shot. What would be wrong with "made in America" and "bought in America"? And I mean, quit buying stuff made over seas. That would mean clothes, cars, food, toys and the lot. Re-open the textile mills, re-open the closed auto factories, re-open the plastic plants that used to make all the toys. Start buying grain and crops from American farmers, use only American tobacco for smokes and chew. Don't import anything. If we can't make it, we don't need it. Plain and simple right? That would put alot of people back to work I think. We can export all day long, just not import. If the world doesn't want our goods, then so be it. I guess I said all that to say this, Why can't we be self-sufficent?

Stump,
I'm with ya on that buddy, but it ain't happenin'!
I have willingly paid much extra for American quality, American made such as llbean boots over foreign made, Filson wool shirts, and my home-state made Woolrich hunting and casual wear.

Guess what? My last Woolrich classic hunting coat is made in the Filipines. Filson is now "imported". And you still pay top dollar, but it goes a little bit to a chinaman toiling in a factory, and a lot to the corporate owners. That leaves the American worker out on the street. And he can't buy a shirt from the company he USED to work for anymore.

[Buzz]

Shoes are now mostly made in China ( even the good brands if they can be called that anymore ). At least the last 10 pair or so that I have bought. They have not been made to fit American feet ( at least not mine ). They are long and very narrow in even wide sizes. The company that I order my shoes from has been in business for many, many years but they are going to fail if they don't wake up. Let these businesses fail that can't adapt ( they don't listen to the customer ).

I used to wear Browning Wingshooter Kangaroo boots. I can't find them now, they must have stopped making them. I came across Irish Setter Wingshooter Kangaroo boots in a Cabelas Catalog. They are made in the USA, but the widest they have listed are EE. So, I went with Cabelas Uninsulated Kangaroo Uplands. They don't list where they are made, so I'm assuming they were made in China.

Maybe I should have tried the Irish Setter EE's. I have made a habit of ordering everything EEEE because anything else I try on are just too narrow. If they don't have EEEE, I look for something else. My dad has the same problem, can't find a pair of shoes wide enough and he was saying the same thing you were. Chinese don't know how to make shoes to fit American feet. Either that, or it's a Chinese conspiracy to ruin our feet.