Workers at the lower end of the spectrum gained the most: manufacturing workers enjoyed about a quarter more real income in 1945 than in 1940 (Kennedy, 641). These rising incomes were part of a wartime "great compression" of wages which equalized the distribution of incomes across the American population (Goldin and Margo, 1992). Workers are overextended and can't buy the things they make. They barely have enough to feed the kids and fill the tank for work.

Government borrowed money to increase war production so it put many people to work that were not before. Yes, it generated economic activity, but later you need to pay those bills . Government stood back?after all, there was little incentive for lawmakers to intervene. Members of Congress, who influence the agencies that oversee market-regulation functions, have never been unfriendly to windfall tax revenues, and the FIRE sector has very deep pockets.

Productivity declined some time ago with financialization of the US economy. Solvency is now the issue. Productivity continues to rise. And that means, in the long term, wealth will continue to rise.

Housing moved up for many years and it may take some time to reverse the slide. If there is a spurt in housing, I doubt it will last but the downturn may have stabilized enough to reduce the drag of housing on the economy which has a lot of resilience in other areas (energy, agriculture, exports). Housing prices decline and the consumer by less. And here we are and we?re getting reports that this Christmas season isn?t a very good one and again there are other reasons as well, there are high fuel prices, for instance, but one of the main the things that the studies show is when housing prices go down the consumer feels less flush and spends less. House prices at the national level either have continued to appreciate, though at a much more moderate rate than before, or have fallen moderately, depending on the price index you look at. Looking ahead, futures markets are expecting small price declines in a number of metropolitan areas this year.

Housing prices are flat or declining and Americans have lost their homes or are in danger of losing them. A credit crunch is making personal loans, student loans, or business loans harder to get. House prices, though, are still expected to drop this year and next.

But a decline in the profitability of past investment would surely depress the prospects for future profits from current investments. It is notable however that the decline in profits from the end of 1997 to the end of 1998 did not have much of a depressing effect on real investment in 1998. Investor Vinod Khosla and others have suggested that this uncertainty about the future of oil prices is the single most important factor limiting investment in alternative fuels. Thus, some have suggested taking actions that would sustain biofuels prices relative to gasoline in order to encourage major long-term investments.

Article by Christopher West

Http://whoischriswest.com