Waldo Jaquith

Here is how Hale Stewart explained it for Mitch McConnell:

C+I+E+G = GDP (Gross Domestic Product).

C – consumer spending. This is now in the tank. Personal consumption expenditures are now negative year over year. Retailers just reported a terrible Christmas. In other words — 70% of our economy is out of order right now.

I – Investment. This has been neutral for awhile. You may be familiar with the housing bubble? Well – there was a housing bubble and it has crashed. As a result, total investment has been weak for some time now.

E = net exports. The US runs a mammoth trade deficit, so this ones out as well.

That leaves G — as in government spending — to pull us out of this mess.

Posted by Bubby on 6 January 2009 @ 11pm

A minor point in the above GDP description:

I (Investment), as it applies to housing, only includes expenditures on new housing, i.e. investment in new structures. Investment in this GDP context is investment in capital equipment, inventories, etc.–not investment in the wider context of putting money into investments (stocks, bonds, real estate, etc.) from which you expect to see a return.

Expenditures on rental housing are considered consumer spending (or consumption, “C” above). Owner-occupied existing housing is valued at a rental-equivalent rate (effectively valued as if an owner is renting to himself), so a decline in home prices in the existing-home market does not directly affect “I” above; rather, it directly affects “C.” (In contrast, a decline in new-home prices and/or new-home construction does directly affect “I.”)

Posted by Jeff Uphoff on 7 January 2009 @ 9am

> WTF? The average American could afford to trade in their car every three years? That’s totally unreasonable for anybody who isn’t flat-out wealthy.

Given that monthly lease payments for a new car are often significantly lower than would be loan payments for purchase of an equivalent car, I find that statement very believable, regardless of (and possibly in spite of!) wealth status.

It’s a classic case of short-term v. long-term thinking: “What’s my monthly payment going to be?” (regardless of duration) vs. “How much will this car cost me?”

If a monthly outlay is all that concerns you, you may wind up driving a nice(r) car and trading it in every few years (at lease expiration) for…another leased new car. So long as you don’t think about the total lifetime cost of this, the low monthly payments won’t crimp and life can seem bliss!

If total cost is what concerns you, however, you’ll buy (rather than lease) your cars, pay cash for them (or perhaps use a loan that you’ll pay off as aggressively as possible), and probably keep them for far longer than three years.

An irony here is that people who work their way toward becoming flat-out wealthy often tend to be the second group–folks who think longer-term about their expenditures and are more concerned with how much something will cost them over time than with its month-to-month outlay.

One running joke when I lived in Silicon Valley during the tech boom was related to cars. You could tell from the outside which part of a company’s building(s) the Sales/Marketing folks worked in and which part the Engineers worked in: parked in front of Engineering (stereotypically longer-term thinkers who perform R&D and develop products that steadily increase a firm’s value over time) was often a fleet of relatively modest Toyotas, Hondas, etc., and parked in front of Sales (folks with shorter-term concerns, such as making quarterly quotas) was a fleet of BMW’s and Mercedes (largely leased).

Posted by Jeff Uphoff on 7 January 2009 @ 9am

I was speaking with a coworker recently who’s own financial history explained alot about the nation’s economy. He and his wife started off with large student loans with considerable interest which simple got rolled into their mortgage through refinancing. They then carried a huge amount of credit card debt, and over five different cards each. When those got out of control they refinanced them into the mortgage. Despite this enourmous level of debt they still took out loans to buy new cars, and then refinanced those into the mortgage too.

Anyone see a problem here? I’d like to say this guy’s family was the exception, but I suspect it is the rule.

Posted by Lonnie on 7 January 2009 @ 3pm

I remember a series of radio ads for a car dealership in the Norfolk area that ran maybe 15 years ago. They tried to convince consumers that it was affordable to get a new car every year and chirped “while your neighbors are changing tires, you’ll be changing cars!” Even as a 10-year-old I thought that was irresponsible.

Posted by Megan on 7 January 2009 @ 3pm

Well, I’m not wealthy but cars are one of my few indulgences (I don’t take vacations to fancy places or anything like that) so yes, every 3 years (or less) is about right ;)

Posted by Vivian J. Paige on 7 January 2009 @ 5pm

Though you’re not exactly the average American, Vivian. :) You’re a career woman with no kids—you’re precisely who I’d expect to be getting a new car every three years!

Posted by Waldo Jaquith on 7 January 2009 @ 9pm

Now don’t be changing the definitions on me ;) You said “wealthy.” That I ain’t. (And if I recall correctly, you’re a DINK, too.)

Posted by Vivian J. Paige on 8 January 2009 @ 5pm

Vivian, you’re the rich liberal eastern elite!

~

Funny, that same story about cars had me thinking that there might be hope for larger adoption of my own approach – buy a quality car and take care of it. My current car (which doesn’t meet with Vivian’s approval, iirc :)) has 130k on it. Good solid machine that does what I need, and so long as it keeps doing that, there’s no reason to replace it. It wasn’t a cheap car at all, but I suspect that over time, my total cost of ownership is far far below those that insist on buying new and flipping every few years.

Posted by MB on 8 January 2009 @ 7pm

Now don’t be changing the definitions on me ;) You said “wealthy.” That I ain’t. (And if I recall correctly, you’re a DINK, too.)

Well, wealthy from a hetronormative (read as: having-kids-normative, a presumptive association that is, itself, heteronormative, incidentally) perspective. This blog entry originally included a paragraph explaining that our household is dual income, no kids (yet), but we’re planning to have kids (who will probably want to go to college), which means building a house that will accommodate them, saving for their educations, etc. It’s within that framework that I figure you’d have to be wealthy. If we had no plan to have children? Hell yeah, bring on the new car every three years. :)

Posted by Waldo Jaquith on 8 January 2009 @ 8pm

Heteronormative?

Oh, Waldo.

(Even bet that you end up in a Subaru. Heh.)

Posted by MB on 8 January 2009 @ 9pm

Hey, I should win points for a vocab word. That’s the first time I’ve worked that one in. :)

Posted by Waldo Jaquith on 8 January 2009 @ 10pm

What’s wrong with a Subaru? I love mine. (It’s 15 years old too!) :)~

Posted by Jeff Uphoff on 8 January 2009 @ 11pm

The way I figure it, a new car every 3 years is the equivalent of buying a new pair of Chucks once a month (when I should be able to get a good 3 months out of ‘em before they fall apart completely). I mean, it’d be nice and stylish, but I can’t afford that sort of frivolity.

Posted by Patrick A. Reed on 9 January 2009 @ 9am

Different Will.

Posted by Waldo Jaquith on 9 January 2009 @ 1pm