Tag: economics

It’s interesting how so few of the objective measures tally well with the GDP statistics:

U.S. incomes plummeted again in 2009, with total income down 15.2% in real terms since 2007, new tax data showed on Wednesday. The data showed an alarming drop in the number of taxpayers reporting any earnings from a job — down by nearly 4.2 million from 2007 — meaning every 33rd household that had work in 2007 had no work in 2009.

Average income in 2009 fell to $54,283, down $3,516, or 6.1% in real terms compared with 2008. … Compared with 2007, average income was down $8,588 or 13.7%.

So, income is down 15.2% and I previously calculated that current U3 unemployment comparable to the Depression-era estimates are around 15.5%. I’m just not seeing a lot of economic growth there, seven straight quarters of reported GDP growth notwithstanding.

He also doesn’t anticipate QE3 from Jackson Hole:

in 2000 an economist named Ben Bernanke offered a number of proposals for policy at the “zero lower bound.” True, the paper was focused on policy in Japan, not the United States. But America is now very much in a Japan-type economic trap, only more acute. So we learn a lot by asking why Ben Bernanke 2011 isn’t taking the advice of Ben Bernanke 2000.

Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years,” which would encourage borrowing and discourage people from hoarding cash; and “an attempt to achieve substantial depreciation of the yen,” that is, to reduce the yen’s value in terms of other currencies.

Was Mr. Bernanke on the right track? I think so — as well I should, since his paper was partly based on my own earlier work. So why isn’t the Fed pursuing the agenda its own chairman once recommended for Japan?

We’ll see what Ben Shalom has to say soon enough. But I note that gold buyers would have to be salivating at the idea that the Fed would target a 4% inflation rate. I just wonder why Krugman doesn’t go all the way and call for electronic currency that actually degrades in face value over time.

And give Rick Perry some credit, if firing that public shot across Bernanke’s bow was sufficient to intimidate him. And we would be remiss to fail to note another downward revision to GDP.

Gross domestic product growth rose at annual rate of 1.0 percent the Commerce Department said, a downward revision of its prior estimate of 1.3 percent.

Don’t worry, they’ll revise it into negative territory long after the fact, just like they did for 2008.

UPDATE – “Federal Reserve Chairman Ben S. Bernanke said the central bank still has tools to stimulate the economy without providing details or signaling when or whether policy makers might deploy them.”

Translation: No QE3 until after the autumn round of market crashes.

Readers here are aware that I have staunchly maintained the U.S. economy has been in an economic depression since 2008. I have done so despite NBER declaring the “recession” over in 2009 and in the face of seven straight quarters of positive GDP growth statistics because I don’t believe that either the agencies or the statistics they report have much, if anything, to do with the observable economic reality.

To give one example, the U3 unemployment rate is presently reported at 9.1%. But this is a heavily massaged number which not only depends upon survey-based employment estimates, but upon the subsequent manipulation of the raw data. Since it’s not possible to radically alter the number of reported “employed” without looking as if they are blatantly manipulating the numbers, the BLS manages to keep the official unemployment rate artificially low by reducing the size of “the labor force”, chiefly through reducing “the participation rate”.

However, is it reasonable to believe that people are any less inherently willing to work in these difficult economic times than they were in the year 2000? I don’t see any justification for it. The suggestion that something is amiss can be seen when comparing the labor force participation rates with the employment population ratios (EPR) for 1973 and 2000 versus today. Given that the percentage of women participating in the labor force has methodically risen from 44.7% in 1973 to 59.2 in 2009, and that this increase has outpaced the exit of elderly men from the labor force since 1973, the current overall participation rate should be significantly higher than it was in 1973. But this is not the case, according to the BLS.

Dec 1973 Participation rate 61.2 EPR 58.2 U3 4.9
Jan 2000 Participation rate 67.3 EPR 64.7 U3 4.0
Jul 2011 Participation rate 63.9 EPR 58.1 U3 9.1

Now, if we simply compare the present number of reported employed to the present size of the civilian, non-imprisoned population, but calculate the labor force based on the 2000 participation rate, we get an unemployment rate that is 50 percent higher than the currently reported rate of 9.1%. Note that numbers given are in thousands as per the BLS.

239,671 Civilian non-imprisoned population x.673 participation rate equals

161,299 Labor Force minus
139,236 Employed equals
22,063 Unemployed

22,063 divided by 161,299 equals 0.13678

This means the current U3 unemployment rate according to the BLS metric should be 13.7%, not 9.1%. Note that this is higher than the “unemployment rates” reported in the first two years of the Great Depresion, 1930 (8.9%) and 1931 (13.0%). Please also note that the two historical “unemployment rates” are estimates made well after the fact as the BLS didn’t track unemployment statistics until 1948. Finally, one also must take into account that the current rate would be considerably higher were it not for the 2,868,000 more people that are now employed by the federal government than were employed in 1940, much less before the New Deal of 1933. Including these extra 2.8 million government workers in the unemployed list, as one must do in order to make a reasonable comparison between 2011 and 1930-31, indicates a comparable “unemployment rate” of at least 15.5%.

A second sign is the woeful state of the housing market. “A telling sign of how bad things have gotten for the housing industry: Prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s. And it took 19 years for prices to fully recover after the Depression.”

Of course, we can always apply Paul Krugman’s reasoning and launch an alien war to solve the economic problem. If we can simply arrange for 30 million people to be slaughtered by the aliens, that will reduce the labor force and lead to full employment overnight.

I swear, Neo-Keynesians must never look at debt statistics. I mean, they literally NEVER seem to look at them! Our favorite Nobel Prize-winner comments on what is supposed to be the mysterious failure of interest rates to rise in line with the massive expansion of government debt since 2008 and erroneously concludes that this proves his belief in unicornsthe ability of government to borrow indefinitely without affecting interest rates:

I mean, common sense — or at least common sense as the WSJ sees it — would tell you that massive government borrowing would send interest rates soaring. And that’s certainly what the WSJ editorial page told its readers would happen. Only us fancy-schmancy Keynesians said otherwise; and here’s what actually happened:

Yes, interest rates have declined from 4.7% in 2007 to 2.3% in 2011 even as government borrowing has almost doubled, but what Krugman fails to point out is that the neo-classicals at the WSJ were assuming, incorrectly, that the private demand for debt, (a 12x larger factor), would continue to increase, and therefore increased government borrowing added on top of that would cause overall debt to expand in excess of its average annual post-WWII rate of 8.7%. This OVERALL increase in demand for debt would increase the price of debt, thereby causing interest rates to rise. All very sensible and perfectly in line with both post-war economic history and basic economic theory alike.

However, what the WSJ failed to anticipate was that despite the 82.9% increase in government borrowing since 2008, total debt outstanding only grew 4.8% in 2008 and actually SHRANK 0.32% in 2009 and 0.87% in 2010. That’s not a liquidity trap, that’s a 22.5% demand gap between the overall amount of debt anticipated and the actual amount borrowed!

Even an Econ 101 student knows what happens to price when supply goes up and demand goes down. The price goes down. Interest rates are at historic lows for the obvious reason that OVERALL demand for debt, relative to GDP, is at historic lows as well, even though the federal government sector has increased rapidly. The WSJ made what at the time appeared to be a safe and perfectly reasonable assumption, given that between 1946 and 2007, there had never been a single year in which overall debt grew less than 4%. Their assumption also happened to be absolutely wrong, but the incorrect nature of that assumption does not mean that Krugman and his fancy-schmancy Keynesian-imagined exception to the law of supply and demand is therefore correct.

It’s been working so well, after all:

The Federal Reserve said it will keep its monetary policy stimulus for “at least through mid-2013” in an effort to support a flagging economy and fragile global markets that faced considerable internal dissent.

The Fed really does appear to have a terminal case of martellus clavus. Their only hammer is a loose money supply, therefore the problem MUST be a nail. Hit it again! And by the way, for those who don’t speak Fed, this announcement of zero interest money for a minimum of two years in advance is about as close as Ben Bernanke is ever going to get to admitting that the economy is in a depression until it becomes a matter of public record.