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"Never before have so few with so much promised to take away so much from so many and then laugh their asses off as the so many with so little vote for the so few with so much."
A James Pence Quote
"American Politics, a sport for the rich and enslavement for the rest of us."
A James Pence Quote

Sunday Train: A Brawny Recovery or Consumption-Led Growth?

by: BruceMcF

Sun Jun 05, 2011 at 15:53:25 PM EDT


... reprinted from about two years ago ~ June 2009 ...


Burning the Midnight Oil for a Brawny Recovery

On Agent Orange, bonddad writes:

Among the most important of the rules Rosie laid down, in my opinion, is #12: Get the US consumer right and everything else will take care of itself.  The reason is fairly simple:  The U.S. consumer has the biggest balance sheet on the planet.  The U.S. consumer represents 70 percent of our GDP and about 18 percent of global GDP.

This is, however, following the entrenched habits of thought that got us into this mess in the first place. My reply, below the fold.

BruceMcF :: Sunday Train: A Brawny Recovery or Consumption-Led Growth?
Also at

In a comment in reply, I write:

The problem with the 70% figure ...
... is that only a portion of that is free-standing spending, that is not financed out of income. Sustainable growth in aggregate demand occurs when there is a sustainable increase in spending that is not financed by income ... because the portion that is financed by income follows growth in incomes, it cannot lead growth in income.

If we are importing roughly 1/5 of our GDP, 15% of that consumption is imports and 55% is domestic.

If our income-expenditure multiplier is around 1.5, that implies about 2/3 leakages, 1/3 income financed consumption of domestic goods and services. So 55%-33%= about 22% debt-financed consumption of US goods and services that acts as a domestic growth driver. The rest of the 70% figure is domestic recirculation of income and income spill-over to the rest of the world.

Now, that is still a big chunk of change, and under Bushonomics, with the anti-export and anti-real-investment policies that were in place, was the main growth driver we were counting on.

However, it is clearly a growth driver that we can replace if we pursue an aggressive plan of government investment in energy efficiency and infrastructure in support of sustainable energy independence, combined with government policies that ensure ongoing growth in private investment in energy efficiency and production of energy for sustainable energy independence.

And unlike the growth regime founded on unsustainable increase in degree of leverage, its a growth regime founded on the real increase in both the quantity of domestic resources and the efficiency with which they are used.

Certainly, as our economy has evolved in the past three decades, debt-financed consumption has become the largest of the four sources of new injections into Aggregate Demand:

  • Government spending, which creates new fiat-currency
  • Real investment in new productive capacity, which is based on newly created credit-money
  • Debt-financed consumption, which is based on newly created credit-money
  • Exports, which is based on either kind of newly created money, depending on the source of the domestic currency flows into the foreign exchange market that were the ultimate source of the domestic currency paid for the exported products

The Brawny Recovery strategy shifts the focus, toward the transitional economy in which investment in the foundations of a sustainable economy are the source of new aggregate demand.

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Bruce (4.00 / 1)
I think you might be way over my head here, but let me try my best to answer your question:
A Brawny Recovery or Consumption-Led Growth?

I have no idea what a brawny recovery is, but consumption led growth may be something I can comment on. Here I go so forgive my economic ignorance.
consumption led growth really works well if a country is making stuff for other countries to consume (positive trade balance) but if a country is consuming more than it makes consumption led growth becomes a problem.
America's consumers have a very high debt burden. They're upside down on their houses and cars and it appears to me they're just treading water and treading water can't lead to a consumption led growth. To complicate matters health care cost, food prices, fuel prices are eating into the expendable incomes of the average American.
Bruce I hope I'm wrong but I really believe we're going to be in economic mess for long time. However if there's something similar to a World War 11 on the horizon (I hope not)everything could change in a heartbeat.
 

©"Never before have so few with so much promised to take away so much from so many and then laugh their asses off as the so many with so little vote for the so few with so much."
A James Pence Quote



We'll be in an economic mess ... (4.00 / 1)
... until we work our way out of it.

A Brawny Recovery is what is being defined here as opposed to, first, the kick the can down the road unsustainable debt-fueled recoveries we had in the early 90's and early part of last decade, and, second, the weak recovery we are having right now.

If growth is going to be income-fueled instead of debt-fueled, it has to involve doing something worth doing, or its not sustainable. Building the Oil-Independent long haul 100mph electric freight lines that we need, combined with long haul "electricity superhighways" to allow our energy resource areas to sell power to our energy consuming areas. Building the electric streetcars and trolleybus lines and high speed rail that we will need for people to get around without oil. Building and installing the equipment to harvest the renewable energy that presently goes to waste.

Like that. Building that stuff, which is a combination of government spending and private investment, would generate income growth, which would lead to income fueled growth in consumption, and as we build up those industries, would allow for exports of high value products of the future. That would be a Brawny Recovery.

Not this baloney sandwich with weak tea recovery we are in right now, with government spending cuts dragging the economy back to the brink of recession.

The Words of the Prophets
  Are Written on the Subway Walls
    And Tenement Halls


[ Parent ]
Thanks Bruce (4.00 / 1)
You are 100% correct when you say:
Like that. Building that stuff, which is a combination of government spending and private investment, would generate income growth, which would lead to income fueled growth in consumption, and as we build up those industries, would allow for exports of high value products of the future. That would be a Brawny Recovery.

Not this baloney sandwich with weak tea recovery we are in right now, with government spending cuts dragging the economy back to the brink of recession.


I guess we're same the same thing in different ways.
Again, thanks.

©"Never before have so few with so much promised to take away so much from so many and then laugh their asses off as the so many with so little vote for the so few with so much."
A James Pence Quote



[ Parent ]

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