• About

RealityChek

~ So Much Nonsense Out There, So Little Time….

Tag Archives: The Motley Fool

(What’s Left of) Our Economy: America’s Growth and Savings Dilemma in a Nutshell

19 Monday Mar 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

bubbles, Financial Crisis, GDP, gross domestic product, housing, Maurie Backman, personal consumption, real GDP, recovery, The Motley Fool, USAToday, {What's Left of) Our Economy

An intriguing op-ed in USAToday provides a great opportunity to return to an important subject RealityChek has neglected a bit in recent weeks – the quality of America’s economic growth.

The article, by Maurie Backman of the Motley Fool investing website, does a fine job of scolding Americans for not saving enough – and of debunking many of the excuses heard for their lack of thrift. One of his especially interesting arguments: No matter how little one earns, it’s always possible to save something.

This is literally true, although economists widely agree on the seemingly commonsense proposition that (all else equal, of course!) the less you earn, the harder you’ll find saving, and in fact the less you’ll save. But what I immediately began thinking about is a major implication of this pattern. Namely, if Americans started saving even a little more, wouldn’t future economic growth be even slower than it’s been? At least unless the country found some other engine of growth – like investment or trade?

The light shed by the latest data on America’s growth shows just what an enormous transition this will entail. These numbers come from the government’s second read on the gross domestic product for the fourth quarter of last year and how its changed. (We’ll get one more fourth quarter figure next week and that will be the final result for that period – until a more comprehensive set of revisions is released a little further down the road.)

What they reveal is that the economy nowadays has never been more consumption-heavy. In fact, it’s even more consumption-heavy than at its peak during the mutually reinforcing credit and housing bubbles of the previous decade – which eventually collapsed into the worst financial crisis to hit the United States and the world since the 1930s.

During the fourth quarter, personal consumption as a share of the inflation-adjusted gross domestic product (GDP) hit 69.64 percent. That slightly eclipsed the former record of 69.60 percent – which dates only from the second quarter of last year.

So is it time to hit the economic panic button? Not (quite?) yet. Because housing – the second part of the toxic combination that helped trigger the crisis – still remains depressed compared with the previous decade’s levels. Housing’s share of real GDP peaked in the second quarter of 2005 at 6.17 percent. During the fourth quarter of last year, it was a relatively subdued 3.52 percent.

As a result, the toxic combination’s total share of the economy after adjusting for prices stood at 73.16 percent. That’s a bit lower than the old combined record of 73.27 percent (during the third quarter of 2005). But it’s only a bit lower.

And therein lies the biggest dilemma facing American policymakers – whether in the White House or the Congress or the Federal Reserve: Spending-based growth is unhealthy and unsustainable – and the story usually ends very badly. But reorienting the country’s national business model and turning it into “an economy built to last” looks to be disruptive enough to exact major short-term costs.

Blogs I Follow

  • Current Thoughts on Trade
  • Protecting U.S. Workers
  • Marc to Market
  • Alastair Winter
  • Smaulgld
  • Reclaim the American Dream
  • Mickey Kaus
  • David Stockman's Contra Corner
  • Washington Decoded
  • Upon Closer inspection
  • Keep America At Work
  • Sober Look
  • Credit Writedowns
  • GubbmintCheese
  • VoxEU.org: Recent Articles
  • Michael Pettis' CHINA FINANCIAL MARKETS
  • New Economic Populist
  • George Magnus

(What’s Left Of) Our Economy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Our So-Called Foreign Policy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Im-Politic

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Signs of the Apocalypse

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Brighter Side

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Those Stubborn Facts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Blog at WordPress.com.

Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy
  • Follow Following
    • RealityChek
    • Join 5,359 other followers
    • Already have a WordPress.com account? Log in now.
    • RealityChek
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Report this content
    • View site in Reader
    • Manage subscriptions
    • Collapse this bar