Hi, Mike, You mention a concept that, the more I think about it, leaves me puzzled. It is the idea of a 'multiplier effect' usually expressed in the following way: "Every dollar spent on the Defense department budget is worth seven dollars to the economy." I think Ray expressed something similar with regard to the arts recently.
Question, then, to everyone who might read this: do you know of any methodology that explains this notion of a multiplier effect? It is hard for me to conceive of what the factual basis for such a notion is, or, if the general notion is valid, how one sector of the economy would have a higher multiplier than another. I hope someone here can throw some light on this. Cheers, Lawry On Aug 2, 2010, at 4:58 PM, Michael Gurstein wrote: > Frankly I think this piece is complete and utter codswallop! It is part of > some sort of organized effort by the owners of the media all of whom are > rich to ensure that Obama doesn't cancel the tax cut that Bush provided to > his rich GOP friends. It is really really hard to believe that the trickle > down from the .05% who own the yachts, private jets and country club > memberships would quite match in multiplier what would come from increased > purchasing power in the hands of the bottom (or mid-range) folks who are > increasingly strapped to pay for their trips to WalMart. The problem isn't > that the wealthy aren't making the expenditures but rather that the US > economy has been gutted of jobs and so the advantage of any expenditure just > trickles through to China. > > M > > -----Original Message----- > From: [email protected] > [mailto:[email protected]] On Behalf Of Lawrence de > Bivort > Sent: Monday, August 02, 2010 10:49 PM > To: RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION > Subject: Re: [Futurework] As spending by wealthy weakens, so does economy > > > My guess is that wealthy people 'feel their wealth' in terms of the stock > market; if the stock market rises, so will their spending. Except... > > It may be that some portion of the wealthy and the upper middle class are > cutting back as a matter of life-style and cultural maturation. This may > involve the very notions of (excessive) wealth and (excessive) spending > becoming contemptible. Personally, i like this cultural shift -- if it is > taking place -- but recognize that it is bad for the traditionally defined > US economy. Keith has been returning to this notion of high-priced, > innovative, attractive consumer items. He is concerned that there seem to be > none on the horizon and asks whence the new high-end spending will come > from. To his concern I would add the idea that even if such products were > discernible, wealthy people might -- some of them -- simply have become > bored with consumption and materialism. > > When I think of the wealthy people I know, these speculations do not seem so > far fetched. The values of the US counter-cuture of the 60s may be > reemerging among those who were part of that on the 60s, who then went and > got jobs and had kids and have seen them through university, and who now > approaching retirement are remembering the values and dreams of the > counter-culture. (And, no, I don't mean drugs or those who think of, or > experienced the 60s in those terms....!) > > Cheers, > > Lawry > > > > > On Aug 2, 2010, at 6:55 AM, Michael Gurstein wrote: > >> >> Who knew? >> >> M >> >> >> Jeannine Aversa, AP Economics Writer, On Sunday August 1, 2010, 2:09 >> pm EDT >> >> WASHINGTON (AP) -- Wealthy Americans aren't spending so freely >> anymore. And the rest of us are feeling the squeeze. >> >> The question is whether the rich will cut back so much as to tip the >> economy back into recession -- or if they will spend at least enough >> to sustain the recovery. >> >> The answer may not be clear for months. But their cutbacks help >> explain why the rebound could be stalling. The economy grew at just a >> 2.4 percent rate in the April-June quarter, the government said >> Friday, much slower than the 3.7 percent rate for the first quarter. >> >> Economists say overall consumer spending has slowed mainly because the >> richest 5 percent of Americans -- those earning at least $207,000 -- >> are buying less. They account for about 14 percent of total spending. >> These shoppers have retrenched as their investment values have sunk >> and home values have languished. >> >> In addition, the most sweeping tax cuts in a generation are due to >> expire in January, and lawmakers are divided over whether the >> government can afford to make any of them permanent as the federal >> budget deficit continues to balloon. President Barack Obama wants to >> allow the top rates to increase next year for individuals making more >> than $200,000 and couples making more than $250,000. The wealthy may >> be keeping some money on the sidelines due to uncertainty over whether >> or not they will soon face higher taxes. >> >> The Standard & Poor's 500 stock index has tumbled 9.5 percent since >> its high-water mark in late April. Home values fell 3.2 percent in the >> first quarter, according to the Standard & Poor's/Case-Shiller 20-city >> home price index. >> >> Think of the wealthy as the main engine of the economy: When they buy >> more, the economy hums. When they cut back, it sputters. The rest of >> us mainly go along for the ride. >> >> Earlier this year, gains in stock portfolios had boosted household >> wealth. And the rich responded by spending freely. That raised hopes >> the recovery would strengthen. >> >> No longer. The dizzying plunge on Wall Street in May and June and >> lingering stock market turbulence have shrunk Americans' wealth. The >> Dow fell 10 percent for the April-June quarter. The broader Standard & >> Poor's 500 index dropped 11.9 percent. And the rich are once again >> more cautious about spending, economists say. >> >> The affluent went back to tightening their belts in June after months >> of vigorous showing. Data from MasterCard Advisors' SpendingPulse >> showed luxury spending fell in June for the first time since November. >> The decline followed a solid rise in sales revenue earlier in the >> spring. >> >> "It isn't a good omen for the consumer recovery, which cannot exist >> without the luxury spender," said Mike Niemira, chief economist at the >> International Council of Shopping Centers. >> >> At the same time, government reports show shoppers as a whole cut back >> on their spending in both May and June. >> >> Companies have responded by refusing to step up hiring. The housing >> market is stalling. And Americans are seeing little or no pay raises. >> It adds up to a recipe for a grinding recovery to slow further. >> >> And it helps explain why economists expect the rebound to lose >> momentum in the second half of the year. Especially if the rich don't >> resume bigger spending. >> >> "They are the bellwether for the economy," says Mark Zandi, chief >> economist at Moody's Analytics. "The fact that they turned more >> cautious is why the recovery is losing momentum. If they panic again, >> that would be the fodder for a double-dip recession." >> >> That's because whether they're saving or spending, the wealthy deliver >> an outsize impact on the economy. What's not clear is whether they >> will remain too nervous to spend freely again for many months. That's >> what happened when the recession hit in December 2007 and then when >> the financial crisis ignited in September 2008. >> >> As their stock holdings and home values sank, the affluent lost >> wealth. Their jobs weren't safe, either. Bankers, lawyers, accountants >> and mortgage brokers were among those getting pink-slipped. Those who >> did have jobs feared losing them. Neither group spent much. >> >> Instead, Americans' savings rate spiked. And most of the increase came >> from the richest 5 percent, according to research by Moody's >> Analytics. >> >> In the first quarter of this year, stocks rebounded, layoffs slowed >> and the rich were spending again. >> >> But now the rich are building up their savings and splurging less on >> discretionary items. That's starting to show up in softer sales at >> upscale retailers, such as Neiman Marcus and Saks Inc. It's because >> people like Angeli Gianchandani, 40, have cut back. >> >> She used to hit the mall every two weeks -- flicking through the racks >> at Saks or Bloomingdale's and returning home with a new frock. Not >> anymore. She's limiting her splurges now. The downturn in the stock >> market has played a role. >> >> "Rather than spending more money, I'm keeping more," says >> Gianchandani, who lives in New Jersey. >> >> Even with recent losses, household net worth has risen 13 percent from >> its bottom during the recession. Net worth -- the value of assets like >> homes, checking accounts and investments minus debts like mortgages >> and credit cards -- grew 2.1 percent in the first quarter. >> >> However, net worth would have to grow 21 percent more to regain its >> pre-recession peak. In the meantime, don't expect the wealthy to >> suddenly start spending lavishly. >> >> "The affluent -- as their wealth goes down -- they'll become more and >> more conservative," predicts David Levy, chairman of the Jerome Levy >> Forecasting Center. >> >> Associated Press Writer Anne D'Innocenzio in New York contributed to >> this report. >> >> >> _______________________________________________ >> Futurework mailing list >> [email protected] >> https://lists.uwaterloo.ca/mailman/listinfo/futurework > > > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework > > > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
