Creative Class

U.S. household leverage, as measured by the ratio of debt to personal disposable income, increased modestly from 55% in 1960 to 65% by the mid-1980s. Then, over the next two decades, leverage proceeded to more than double, reaching an all-time high of 133% in 2007. That dramatic rise in debt was accompanied by a steady decline in the personal saving rate. The combination of higher debt and lower saving enabled personal consumption expenditures to grow faster than disposable income, providing a significant boost to U.S. economic growth over the period.

In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes.

Thoma believes this means recovery will be slow in coming because:

… unlike some recent recessions, this time the economy cannot go back to where it was prior to the recession, and the structural change that must occur to move resources out of housing and the financial sector and into other, productive uses will take time to bring about.

Economist View, Mark Thoma nails it:

The logical part of my brain says that the new administration needs people who are familiar with Washington, people who have been there before and have the necessary connections, people who can hit the ground running. There won’t be any time to waste learning on the job. All that matters is getting to the goal line. There will be lots of opposition and we need the best, most experienced team we can get.

But the emotional side reacts differently. I’m tired of Clintons, Bushes, and all that comes with them, and I’m tired of seeing the same people representing the two parties in the news. The faces never seem to change. Part of the attractiveness of this administration is that it represents a break from all of that old baggage, the promise of something different. If the administration is stacked with the same old names we have heard before, it will feel like we are going back to the same old tired politics and battles. I’ve had enough of that. More than enough.

It’s time for something new. There must be talented people who know Washington, people who aren’t the same five people from Harvard, or wherever, there must be new faces that can get the job done. Women and minorities might even be considered over the familiar gang of white guys.

I could not agree more. I cringed at the photo from the Economic Summit with literally the entire Clinton economic crew – old, tired and out-of-touch about the fundamental economic transformation we’re in.  Now talk of the auto bailout. But it’s still awfully early in the process, and nothing has been cast in concrete. I’m hoping this is just part of a necessary inclusive process and that based on the Obama campaign new people and new ideas will prevail.

The manufacturing sector is declining at a near record place. As Mark Thoma points out, this occurred prior to the meltdown; what could be next is truly scary. The Wall Street Journal’s Real Time Economics Blog reports:

For months and months, the widest-followed index of manufacturing activity, produced by the Institute for Supply Management, has wavered within a narrow range, showing essentially slight growth in the sector as other industries tanked. Then, along came September. The ISM manufacturing report released this morning showed a stunning decline in several key components as the overall index last month dropped by more than six points to 43.5, its lowest reading since October 2001. … New orders plunged by nearly ten points, the employment index sank by about eight points, and production overall dropped by a whopping 11 points last month, as all measures receded deeper into contraction. Export orders, a source of strength for the sector over the past year, dropped by five points. Inventory gauges also tanked, a sign that manufacturers are paring back… even though the enormously important holiday shopping season is fast approaching.

What do you think the geographic impacts of this will be?