Archive for the ‘Uncategorized’ Category
Ever the iconoclast, Dean Baker over at the Center for Economic and Policy Research uses some data that shows consumers are on a tear right now, and that what’s really holding our economy back is our chronic trade deficit, much of which comes from our need to import hundreds of billions of dollars in petroleum.
On the arithmetic front, the piece comes up with a story where consumption of durables is $267 billion below the long-term average, while consumption of non-durables are $127 billion below their long-term average. While it has consumption of services somewhat about the long-term average, the next effect is that weak consumption is a big drag on the economy and accounts for a large share of the shortfall. It tells us:
“Consumers are holding onto their wallets — a continuing burden for the weak economy.”
Wow, that isn’t what the Commerce Department is telling my spreadsheet. I get that the average share of consumption (all categories together) in GDP was 67.3 percent in the years from 1985 to 2005. I get that it was 70.8 percent in the most recent quarter. This means that consumption was 3.5 percent higher than its longer period average as a share of GDP. This means that consumers are not hanging onto their wallets at all. In fact, they are spending at very ambitious rate. (Boys and girls, you can check this one for yourself by going to the National Income and Product Accounts and clicking up Table 1.1.5.)
This is consistent with the data showing that consumption is higher than normal relative to disposable income. (The adjusted consumption line has to do with the treatment of the statistical discrepancy in the national income accounts.) This means that consumption is not holding back the economy, it is actually unusually high.
Source: Bureau of Economic Analysis.
The amount of excess consumption is even more than this comparison suggests, since one reason that consumption is high relative to GDP is that tax revenue is low relative to GDP (i.e. we are running large budget deficits). If the deficit starts to come down, then disposable income will fall relative to GDP, which means that consumption will fall relative to GDP, even if the saving rate stays constant.
The other error along these lines is that imports should be expected to rise relative to GDP as the economy moves back toward its potential. If GDP were to rise by 6 percent to bring it back in line with its potential then imports would rise by roughly 20 percent as much or 1.2 percentage points of GDP. This would make it more clear that the biggest factor that is out of line with our historical experience is the trade deficit. That would be even more clear if we took a longer period as the basis of comparison that was not so distorted by asset bubbles.
Of course given the Washington Post’s unabashed celebration of recent trade agreements its reporters are probably not allowed to call attention to such facts.
Beezer here. I pass this article along because it might challenge our belief that household savings is the biggest drag on our economy. Can households be spending this much AND saving too? Or is the consumption figure really one of spending on petroleum, which is sucking money away from other productive enterprises? If that is the case, then a push to boost our own resource use could mitigate that drag a lot. Of course I would prefer we use sustainable energy rather than fossil energy, which imposes very expensive costs on society that never appear on those companies’ bottom lines because these costs happen after they’ve sold their product. Which means we pay the costs in other ways, to other vendors, like health care providers who make money treating chronic problems like asthma. Robert F. Kennedy gives a good explanation below as to why we might be a lot better off using alternative energy resources.
Considering the 2007-2008 economic collapse it’s understandable that households have been reducing their debt levels, wherever possible. This de-leveraging is a primary reason why economic recovery has been slower than most people anticipated. De-leveraging as a practical matter equates with less demand. And less demand equates with more people not working, raising the unemployment rate.
Author Matthew Yglesias, writing in Slate, argues that with private households everywhere rebuilding their balance sheets the only agent who can step up and boost demand is the federal government. And if they do that, then unemployment will inevitably fall. A nice side effect is that boosting employment will actually allow private households to get their balance sheets right-sided more quickly.
Despite all the talk from politicians about “out of control” federal debt, the truth is that by almost any sensible measure the federal government isn’t borrowing enough money. Consider Bloomberg’s report that total debt in the United States “has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.”
Leading the charge, as you can see above, is the precipitous decline in household borrowing. It’s hard to see how that could have been avoided, but it takes a big bite out of the economy that needs to be filled by foreign demand (exports), business investment, and government purchases. But of course businesses aren’t going to just invest for no reason. They’d be investing either to sell things to households, to foreigners (exports again), or to the government. More aggressive government borrowing could help smooth the situation over either by directly bolstering government purchases, by reducing taxes on debt-constrained households, or by giving grants to state and local government so that they can boost purchases or cut taxes. And rather than “undermining confidence” in a problematic way, sky-high debt would, at worst, undermine the international value of the dollar and bolster exports.
It absolutely cuts against the grain of everything everyone’s saying right now, but it’s still true. The economy is suffering from insufficient debt, and the only party capable of borrowing enough money at sufficiently low price is the federal government.
Rupert Murdoch has owned the venerable Wall Street Journal for a couple years now, unfortunately. The result was inevitable: The WSJ has become untrustworthy as a source of real unbiased news. Most recent case in point is where the WSJ publishes a Heritage chart ‘proving’ the current recovery is the worst ever. Oh well. Over at the Big Picture blogsite there’s an informative article that includes a discussion of the falsity of the Heritage claim. This is important because the WSJ use of the chart can be cited by those ads which claim this recovery is the worst. It’s simply not true. More lies from the right, in other words.
Again – and this is not my first go-round on this type of intellectual dishonesty – the WSJ recently ran a misleading chart which was, not surprisingly, the work of the Heritage Foundation:
Note to the Journal (and Heritage): We measure recessions from economic peaks and recoveries from economic troughs (as determined by the NBER). This is not controversial. When you claim this is “the slowest recovery since the 1960s” while pegging your chart to the period “before the recession began 55 months ago,” you are (deliberately) misleading your (ever-dwindling) readership, just as you were the first time I called you out on it 18 months ago. Perhaps in the future, you can find a better model of economic analysis than Niall Ferguson.
The fact, as I’ve repeatedly demonstrated, is that this is not the slowest jobs recovery since the 1960s. In fact, the last jobs recovery was slower than this one:
Here’s what an honest chart would look like – not much chance we’ll be seeing this anytime soon from the Journal
Beezer here. In addition to this information, it’s also important to point out this last recession was the largest since the Great Depression and also that it was the only recession caused by a financial seizure and near collapse of the banking system–since the Great Depression. These types of financial seizures are rare and recovery from them is far more difficult. That said, there’s no excuse for the non-response we’ve gotten from our Congress. Congress has had the ability all along to help the economy recover more quickly than it has. Congress needs to use potent fiscal tools that guarantee job creation or maintain existing jobs. Congress can transfer funds to states and municipalities that stop public employee layoffs, and it can also fund large infrastructure programs that would hire millions of people and make the economy more competitive for decades into the future. If you’re looking for the part of government that’s totally failed to help this economy, then look at Congress.
It’s almost not fair, really. Economist Paul Krugman of Princeton and New York Times economic columnist and blogger has been having a field day pointing out Republican fantasies.
Here he compares some employment numbers between George W. Bush and Obama.
Beezer here. The spike in the bottom chart is the temporary census hiring.
Like him or not, former President Bill Clinton summed up the GOP campaign succintly in his speech Wednesday night at the Democratic convention. The campaign, said Clinton, boils down to Republicans admitting Obama inherited a huge mess created by GOP policies but he hasn’t yet completely cleaned the mess up. So fire him and hire the GOP back.
And continue the same policies that got us in trouble? A rather week reed to use, no?
Even the ‘are you better off today than four years ago,’ gambit came acropper when, during an interview with talk show host Piers Morgan, Morgan asked Ryan ‘Were we better off 8 years after President Clinton?’ Touche. After a few seconds trying to answer that question, Ryan wisely changed the subject. After all, Ryan supported George W. Bush throughout his two terms.
Not to mention Romney’s use of esoteric tax laws to avoid paying taxes. Or the interview with a Republican strategist who dismissed fact checkers’ criticism that the Romney/Ryan proposals flunk the arithmetic test, by stating the Republican campaign isn’t being run on facts and, therefore, factual standards don’t apply.
One begins to wonder whether there are enough old white guys and their wives to bring the GOP victory. Even the GOP must be worried about that because they’ve run a partially successful campaign in the states making it more difficult to vote.
It could boil down to the old adage ‘Money talks, everything else walks.’ Romney’s ace in the hole is the $2 billion it is estimated he’ll have in TV advertising, about twice what will be spent by the President. After that deluge, even the lies will become truth.