Erdman on the economy
I heard a fascinating interview with economist Paul Erdman on KCBS Sunday morning. (The half-hour "In Depth" interview show at 8:30 a.m. Sundays is always worth tuning in.)
Erdman, who's an insightful guy and a homeboy of sorts — he lives here in Sonoma County — made a number of excellent observations about the current state of the economy that bear analysis.
First, Erdman did a turnaround on the Bush tax cuts, which he originally favored. In retrospect, Erdman said, the tax cuts focused too exclusively on the very wealthy -- people making over $200,000 annually, and those rich folks aren't spending the money due to the unsettled conditions in Iraq and in the domestic economy. They're sitting on the cash rather than pumping it into the system.
No surprise, from my perspective. I think the whole tired trickle-down concept has been pretty thoroughly discredited. Most rich people aren't rich because they spend their money frivolously, just because they have it to spend. They're rich because they're conservative and cautious, and know how to hang onto a buck. The notion that giving rich people more money will encourage them to spend more is foolish — if anything, it encourages them to stockpile more. The only way tax cuts boost the economy is if they're given to middle-class people, who are just itching to have a wad of cash to blow on some long-desired purchase.
Second, Erdman was surprisingly sanguine about the bugbear of outsourcing. As he put it, outsourcing is part of a capitalist economy — you produce goods or offer services where it's cheapest to do so. By Erdman's calculations, outsourcing is only responsible for a tiny portion of the job loss. Sure, those jobs are significant if one of them was yours, but in the larger scope of the economy, it's not a huge factor.
I think outsourcing is simply a fact of life. As Erdman says, the capitalist ideal is to go where it costs the least. But there will always be goods and services that can't be outsourced to any practical degree, or that are simply more convenient to produce domestically even if they could be done less expensively abroad. Plus, these kinds of things are cyclical. Erdman noted that the U.S. benefited in a major way in the post-WWII era from entire industries being outsourced from Europe because so many of the factories there were destroyed.
Third, Erdman finally said what I've been saying for some time about the crash of Silicon Valley — that the problem was overcapacity. The high tech industry simply developed the ability to produce more product than the market wanted to buy, and that efficiency killed them. That's exactly what happened to the PC manufacturers. They were cranking out new machines at record pace, thinking that people would upgrade every time a new model hit the market, turning their Pcs over every year or so. Well, the fact is that people don't upgrade anywhere near that often.
Most of us learned fairly early on in the PC boom that as long as your present machine still runs all the software your business and/or home situation requires, you can sit on that machine until it either goes bust on you, or your needs outgrow it. Given the capacity of most PCs on the market now, that need to upgrade is miles down the road for the majority of users. My current PC, for example, is two years old. It has an 80GB storage capacity on two drives, a 20GB and a 60GB. In two years, I haven't come close to maxing out the capacity of the smaller drive. The machine is plenty fast enough for all the tasks I perform, and more than adequate for all the apps I run. Unless it blows up, I could easily continue using it for many years to come, without needing to upgrade. And I think I'm typical of the home office PC user.
Erdman's bottom line in this interview was that the much touted recovery is smoke and mirrors. We could very well be headed back into recession by year's end, especially if the situation in Iran continues to tank, and the oil supply becomes adversely affected. I take no joy in saying it, but I suspect he's right.
Erdman, who's an insightful guy and a homeboy of sorts — he lives here in Sonoma County — made a number of excellent observations about the current state of the economy that bear analysis.
First, Erdman did a turnaround on the Bush tax cuts, which he originally favored. In retrospect, Erdman said, the tax cuts focused too exclusively on the very wealthy -- people making over $200,000 annually, and those rich folks aren't spending the money due to the unsettled conditions in Iraq and in the domestic economy. They're sitting on the cash rather than pumping it into the system.
No surprise, from my perspective. I think the whole tired trickle-down concept has been pretty thoroughly discredited. Most rich people aren't rich because they spend their money frivolously, just because they have it to spend. They're rich because they're conservative and cautious, and know how to hang onto a buck. The notion that giving rich people more money will encourage them to spend more is foolish — if anything, it encourages them to stockpile more. The only way tax cuts boost the economy is if they're given to middle-class people, who are just itching to have a wad of cash to blow on some long-desired purchase.
Second, Erdman was surprisingly sanguine about the bugbear of outsourcing. As he put it, outsourcing is part of a capitalist economy — you produce goods or offer services where it's cheapest to do so. By Erdman's calculations, outsourcing is only responsible for a tiny portion of the job loss. Sure, those jobs are significant if one of them was yours, but in the larger scope of the economy, it's not a huge factor.
I think outsourcing is simply a fact of life. As Erdman says, the capitalist ideal is to go where it costs the least. But there will always be goods and services that can't be outsourced to any practical degree, or that are simply more convenient to produce domestically even if they could be done less expensively abroad. Plus, these kinds of things are cyclical. Erdman noted that the U.S. benefited in a major way in the post-WWII era from entire industries being outsourced from Europe because so many of the factories there were destroyed.
Third, Erdman finally said what I've been saying for some time about the crash of Silicon Valley — that the problem was overcapacity. The high tech industry simply developed the ability to produce more product than the market wanted to buy, and that efficiency killed them. That's exactly what happened to the PC manufacturers. They were cranking out new machines at record pace, thinking that people would upgrade every time a new model hit the market, turning their Pcs over every year or so. Well, the fact is that people don't upgrade anywhere near that often.
Most of us learned fairly early on in the PC boom that as long as your present machine still runs all the software your business and/or home situation requires, you can sit on that machine until it either goes bust on you, or your needs outgrow it. Given the capacity of most PCs on the market now, that need to upgrade is miles down the road for the majority of users. My current PC, for example, is two years old. It has an 80GB storage capacity on two drives, a 20GB and a 60GB. In two years, I haven't come close to maxing out the capacity of the smaller drive. The machine is plenty fast enough for all the tasks I perform, and more than adequate for all the apps I run. Unless it blows up, I could easily continue using it for many years to come, without needing to upgrade. And I think I'm typical of the home office PC user.
Erdman's bottom line in this interview was that the much touted recovery is smoke and mirrors. We could very well be headed back into recession by year's end, especially if the situation in Iran continues to tank, and the oil supply becomes adversely affected. I take no joy in saying it, but I suspect he's right.
SwanShadow was randomly pounding the keyboard at 1:19 AM
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