Where is the US economy headed?

It doesn't have to get flushed at all. Just return tax rates to the sensible levels we enjoyed in the 60's and 70's, while modestly cutting government where we can. Then there is no problem whatsoever in paying down the debt and deficit.

Cycloptichorn

By the way, because this is a thread about the US Economy -

http://articles.latimes.com/2010/jul/22/nation/la-na-immigration-phoenix-20100723

Phoenix and AZ in general are staggering under financial hardship due to the ill-advised anti-illegal immigrant legislation that has been passed. Way to go, conservatives!

Cycloptichorn

No, it's just 3% of the taxpayers who report business income (undefined as a percentage of all taxpayers). It's probably a very small % overall, but the point being attempted is that these folks are the most likely to create jobs (I don't buy it).

I agree; if they're the ones creating jobs, why haven't we seen any increase in jobs since 2008 - even at GW Bush's lower tax rates?

I hope I am not taking your quote out of the context you intended, Jaye, as I wander off into this thought.
I don't need a loan from the government to expand my business. Rather, I need more butts in my stores to keep us at the level we are (in my case, about $2M in sales). We need customers on the spending side of the equation.
It is silly for the government to offer incentives to businesses to hire people when there is no work to do.

I am sticking to my belief that there is, at least for now, a fundamental shift in how the American consumer is thinking regarding consumption of stuff. 70% of our economy is based on spending by the general public. We still spend a lot on coffee from Starbucks and the latest tech gadgets. But there are stats that show that we are paying down our debts and starting to put money into savings. Good for us individually but bad for the economy.

(Hi, Tak. Are you back?)

Cyc,

The tax rates in the 60s and 70s didn't result in a dramatically higher effective rate.
Reagan cut the rates dramatically but that was offset somewhat by reducing deductions and driving up taxable income.

The introduction of the AMT was the other thing that reduced the ability for the rich to hide income from taxation by taking it in stock.

As long as GDP is limited by spending, rather than by productivity as it normally is, and as long as the fed can't decrease interest rate, yes. But this state of affairs is not going to last forever. After it passes, cutting government spending will be neutral to GDP growth.

Your posting of Krugman's comments on bush's low approval ratings make me wonder:

1.) How is it the bush impeachment campaign never got off the ground?

2.) How is it that he was re-elected?

Wages for 80% of the population have stagnated since 1979 while wages for the top quintile have gone through the roof and those crybaby right wingers at the top of the heap who have robbed and raped 80% of the population weep when they have to pay taxes to fix the mess they made.

Cowards.

If the mythical family earns its $75,000 from two incomes, the breadwinners may be:

two teachers;

a teacher and a paralegal;

a teacher and a office worker;

two office workers.

You can not say that with any certainty.

Remember the movie Dave in which a presidential look alike fills in for a comatose president? Dave, the look alike, takes out a legal pad and starts trimming the budget.

The University of Michigan recently started trimming its budget in Dave fashion. Some of the small changes include emptying wastebaskets every other day, switching to energy star appliances and streamlining IT functions.

Why can't the feds take the "Dave" approach?

Slight correction: I"m not saying it would lead to negative GDP growth, but that it would be a negative contribution to GDP growth.

QUESTION!
WHAT THE HELL IS ENJOYABLE AND SENSIBLE ABOUT THE 70+% TAX RATES IN THE 60's AND 70's?
ANSWER!
NOTHING!

Hoover increased the tax rates in 1933.
What the hell was sensible and enjoyable about the subsequent consequences of that--the deterioration of the economy? Nothing!
Roosevelt jumped up the tax rates in 1936, 40, 41, 42, and 44.
What the hell was sensible and enjoyable about the subsequent consequences of that--the further deterioration of the economy? Nothing!

Eisenhower, Kennedy, and Johnson reduced taxes in 1954, 1964, and 1965. That was sensible and enjoyable, because the economy improved as a consequence.

Reagan reduced taxes in 1982, 1987, and 1988.
That was sensible and enjoyable, because the economy improved as a consequence.

Bush41 reduced taxes in 1991.
That was sensible and enjoyable, because the economy improved as a consequence.

Bush43 reduced taxes in 2001, 2002, and 2003.
That was sensible and enjoyable, because the economy improved as a consequence.

rjb, your observation is dead on correct. I have happened to notice that policy suggestion by the Obama administration as well, and immediately thought, woe - are those people stupid or what? And where do they find such ignorance for economic advisors? It is so typical however of liberal government, fix the symptom, not the problem. If we need more employment, simply pay people to employ more people, but not a thought about what would be logical to justify more employees.

Back in my corporate days, the company sent me to one of those seminar retreats, I think in West Virginia, where they taught some management classes. I distinctly remember one of those seminars that was titled "Problem Solving and Decision Making." Although some of the things discussed by the guest lecturer seemed so simple and almost silly, later I have drawn upon that seminar in many different situations. It was brought out very effectively that many people, businesses, companies, and government, they make a very common mistake, that of treating a symptom, not the problem. In order to solve a problem, the problem must first be accurately identified. Much of the time, the symptoms of problems are identified as the problems, which leads to many treatments and solutions that are ineffective or temporary at best, and even counter-productive at worst. We see this happen so often with government every single day, they are attempting to solve problems by treating symptoms, and your example is a very good one.

I think one of the things Obama does not understand and probably never will, for the economy to thrive, the government is not the solution, it is often part of the problem and merely needs to get out of the way, or to put it simply, create a more business friendly regulatory and tax world for businesses to operate in. Given favorable circumstances, the American people will thrive economically and will hire more people when the economy dictates the need for more employees. But since Obama seems to have a disdain for businesses, and perhaps even the American people, he will never see a solution not including the government solving it by taking it over.

I would argue that it is predatory, this trying to get business to take on debt that we know will not be able to be paid back because the economy is needing to shrink as we increasingly need to pay back those we have taken loans with.

The economy needs to shrink? That doesn't seem a very brilliant or correct statement. We will never get out of debt doing that, any more than a family will get out of debt by working less or producing less. I do agree we need to pay off our debts, but we can only do that with a healthy and expanding economy, not a shrinking one, I think.

I think one of the keys is that we need to once again become competitive as a nation. To do that, we need more favorable tax and regulatory environment. One thing I advocate is eliminating totally the income tax, and replacing it with a national sales tax, which I believe would unleash one of the biggest economic booms in history. Perhaps my second choice would be to eliminate all corporate or business income tax, but keep the personal income tax instead of a national sales tax. That tax reform alone would bring much business and manufacturing back stateside from offshore.

the government has only two choices, inflate the currency or collect more taxes so that the increasing debt payments can be made. Assume that we do not elect to do hyperinflation that means that less and less money will be available to circulate through the economy, as it is skimmed off the economy by the government in the form of taxes, and sent to china and so forth.

the plan for four decades was to grow the economy fast enough through juicing the economy (using low taxes, low regulation, cheap loans, and corruption) to pay the debts, but that has never worked, and the constantly busting bubbles have done a lot of damage to the fabric of America. I assume that we have given up on that, that we are going to buckle down and attempt to pay our bebts with one of the two methods that will work.

The 22 statistics detailed here prove beyond a shadow of a doubt that the middle class is being systematically wiped out of existence in America.

The rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a blinding pace.

So why are we witnessing such fundamental changes? Well, the globalism and "free trade" that our politicians and business leaders insisted would be so good for us have had some rather nasty side effects. It turns out that they didn't tell us that the "global economy" would mean that middle class American workers would eventually have to directly compete for jobs with people on the other side of the world where there is no minimum wage and very few regulations. The big global corporations have greatly benefited by exploiting third world labor pools over the last several decades, but middle class American workers have increasingly found things to be very tough.

Here are the statistics to prove it:

• 83 percent of all U.S. stocks are in the hands of 1 percent of the people.
• 61 percent of Americans "always or usually" live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.
• 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.
• 36 percent of Americans say that they don't contribute anything to retirement savings.
• A staggering 43 percent of Americans have less than $10,000 saved up for retirement.
• 24 percent of American workers say that they have postponed their planned retirement age in the past year.
• Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.
• Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
• For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.
• In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
• As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
• The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
• Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
• In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector.
• The top 1 percent of U.S. households own nearly twice as much of America's corporate wealth as they did just 15 years ago.
• In America today, the average time needed to find a job has risen to a record 35.2 weeks.
• More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.
• or the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
• This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
• Approximately 21 percent of all children in the United States are living below the poverty line in 2010 - the highest rate in 20 years.
• Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
• The top 10 percent of Americans now earn around 50 percent of our national income.

Giant Sucking Sound

The reality is that no matter how smart, how strong, how educated or how hard working American workers are, they just cannot compete with people who are desperate to put in 10 to 12 hour days at less than a dollar an hour on the other side of the world. After all, what corporation in their right mind is going to pay an American worker 10 times more (plus benefits) to do the same job? The world is fundamentally changing. Wealth and power are rapidly becoming concentrated at the top and the big global corporations are making massive amounts of money. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new "global" labor pool.

What do most Americans have to offer in the marketplace other than their labor? Not much. The truth is that most Americans are absolutely dependent on someone else giving them a job. But today, U.S. workers are "less attractive" than ever. Compared to the rest of the world, American workers are extremely expensive, and the government keeps passing more rules and regulations seemingly on a monthly basis that makes it even more difficult to conduct business in the United States.

So corporations are moving operations out of the U.S. at breathtaking speed. Since the U.S. government does not penalize them for doing so, there really is no incentive for them to stay.

What has developed is a situation where the people at the top are doing quite well, while most Americans are finding it increasingly difficult to make it. There are now about six unemployed Americans for every new job opening in the United States, and the number of "chronically unemployed" is absolutely soaring. There simply are not nearly enough jobs for everyone.

Many of those who are able to get jobs are finding that they are making less money than they used to. In fact, an increasingly large percentage of Americans are working at low wage retail and service jobs.

But you can't raise a family on what you make flipping burgers at McDonald's or on what you bring in from greeting customers down at the local Wal-Mart.

The truth is that the middle class in America is dying -- and once it is gone it will be incredibly difficult to rebuild.

Great observation, and one great argument for eliminating minimum wage laws in this country.