Monday, February 28, 2022

US economic policy encourages inequality of wealth

My topic today: US economic policy encourages inequality of wealth. 

In the Melania post, I quoted from Michael Wood's book Domesday: A Search for the Roots of England, on ancient Rome:

The long-term effect of Roman government, then, may well have been to concentrate land in the hands of the governing aristocracy at the expense of the mass of the population at large.

We do the same thing. And it will end the same way, decline and fall, if we let it continue.


In the Homelessness post, I quoted from HUD on the Housing Choice Voucher program. The main points are:

  • "The housing choice voucher program is the federal government's major program" for housing assistance;
  • "A family that is issued a housing voucher is responsible for finding a suitable housing unit"; and
  • "A housing subsidy is paid to the landlord directly".

The wealthy are paid by the government to provide housing for the poor. That's a generalization, yes, but it's not an incorrect assessment. The long-term effect of the US government, then, may well be to concentrate wealth in the hands of a governing aristocracy at the expense of the mass of the population at large. Just as Michael Wood said of ancient Rome.

As if by the force of gravity, wealth attracts wealth. Policymakers make use of this principle to get things done. But their method is not a good one, because it accelerates the concentration of wealth. It moves the economy closer to the event horizon. It turns the trajectory of society directly toward the black hole.

Left to its own devices, the concentration of wealth would ultimately bring a Dark Age upon us. But we don't let nature take its course. No. And we don't do what we must: We don't create policies that undermine the natural process and keep capitalism at an early stage of development. No. Instead, our politicians create policies that accelerate the concentration of wealth. 

Civilizations die by suicide.

The housing voucher program is just one example of the bad method politicians use to solve our problems. (But let me stress that their method does not solve these problems. It only lets us cope with them. It helps us cope with what people see as problems (such as homelessness, unemployment, and financial crisis), but it does not solve the problems within the economic system that give rise to what people call problems. The economic system, could it speak, would say that what people see as "problems" are its solutions to imbalances in the system, primarily monetary imbalances like extreme inequality and excessive debt. If we would fix the imbalances, the economic system would have far less tendency to produce results that people see as problems.)

(And isn't that the whole point and purpose of policy.)

The housing voucher program is just one example. Another is the TARP program. The "Troubled Asset Relief Program" was created in response to the 2008 financial crisis. Investopedia says "TARP stabilized the financial system by having the government buy mortgage-backed securities and bank stocks." In other words, the government bought up financial assets that were failing to produce the expected income. 

Ordinarily, when the income from an asset falls, the selling price of the asset falls to minimize the change in the "return on investment" ratio. (I think I'm right about that.) The government must have been over-paying to buy these assets, so that the investors selling them could minimiize the losses that would have made the crisis worse. (I think I'm right about that, too. Otherwise, there would have been no reason for the government to get involved. They could have let asset prices fall until other private investors thought those assets were a good deal.)

To minimize the damage to the economy, the government overpaid to buy "troubled" assets from the people who were wealthy enough to have them. The government paid high prices to buy bad assets from wealthy people. Nothing wrong with that, huh?

The "mortgage-backed securities" that Investopedia mentions went bad because homeowners were having trouble making the mortgage payments. An alternative to TARP would have been for the government to make the debt go away by paying down the mortgages for the homeowners. In other words, pay the people who were too poor to pay their own mortgages instead of paying the people who are so rich that when they get in trouble the whole economy goes down.

Those mortgages were bad only because the payments were not being made. If the government started making the payments, the mortgages would no longer have been bad. The troubled assets would no longer have been troubled. See what I'm saying here? And the wealthy people would have ended up with the money anyway, just like they did under TARP. So where's the problem?

"It's just wrong for the government to pay off mortgages for people."

There is merit in the objection to the government making mortgage payments for people. There is also merit in the objection to the government buying bad assets at high prices from wealthy people. Together, these objections mean that the government must never again let such a situation arise, where all the solutions are objectionable.

It means tighter regulation of the finance industry is required, and immediate response when financial "innovation" creates financial "products" that escape the scrutiny and reach of regulators. The rule of thumb is obvious: Financial innovation is always intended to make more money for somebody in finance. More money going to people in finance means more money coming out of the nonfinancial sector, which is the productive sector where output is created.

We also need less government policy that encourages borrowing. The encouragement of borrowing is good policy for a low-debt economy like the US in the 1950s, but not for a high-debt economy like the US since the 1970s .

Also, the regulators should not be people from banking and finance. Regulators who think like bankers are a big part of the problem.

Hey, maybe homeless people should be hired to regulate finance. They need jobs right?


The economy cannot speak. At least, it doesn't speak English. But you know, if you pay attention to your dogs you can learn to understand their way of telling you what they want. It's no different with the economy. But you have to listen.

Sunday, February 27, 2022

When did homelessness become a problem?

That's interesting. The 1870s? Not what I expected. But the artificial intelligence never hesitates to provide a date when I ask for one.

You can click the Google snippet image to get to the source page. I recommend it: It could make you cry:

The HUD Rule on Affirmatively Furthering Fair Housing, authorized in 1968, was not published until 2016. Perhaps not surprising insofar as it took 50 years to issue the rule, enforcement of its provisions has been lackluster and inconsistent...

And then there is, um,

The Housing and Community Development Act of 1974 (P.L. 97-35) ... created the Housing Choice Voucher program, also known as the Section 8 program, to provide low-income housing through rental subsidies paid to the private sector. The “tenant-based” form of these rent subsidies, whereby families with a voucher choose and lease safe, decent, and affordable privately owned rental housing, is the mainstay of today's federal housing assistance programs for homeless and low-income individuals and families. The program serves more than 2.1 million households (Congressional Budget Office, 2015).

Okay, I need to go over this one. They provide "low-income housing" through "subsidies paid to the private sector." It's better than nothing, probably, if you are homeless. But it is not my idea of a solution to the problem. The fact that people are homeless does not mean "homelessness" is the problem. The problem, the real problem here, is that our economy generates homelessness. That's what needs to be fixed.

Bottom line: The Housing Choice Voucher program is just another way the government can give money to rich people.

Hey, I dunno, homelessness is not my specialty. I'm just reading the link. But if you want to fix the problem of homelessness, you don't do it by giving money to the people that own (and rent out) the homes. I understand that it helps the homeless. That's not the issue. The issue is that if you don't solve the problem that causes the increase in homelessness, there will be more and increasingly more people who need to take advantage of coping mechanisms like the "tenant-based" subsidies.

Coping mechanisms implemented as policy are not the way to solve the problem. They are a way to encourage the problem. In our policies you will find such encouragements in everything that is done to help those in need of help.

Republicans understand the principles of economics, but apply them only to improving the lot of the wealthy. Democrats are best understood as not understanding the principles of economics, and creating in policy only coping mechanisms that, on the surface, appease the concerns of recipients but in fact appease the greed of those who will be the lords of the manors when the next Dark Age comes.

Proofreading this post, I had to look up the Housing Choice Voucher thing. 

At the U.S. Department of Housing and Urban Development: the Housing Choice Vouchers Fact Sheet. I quote:

What are housing choice vouchers?

The housing choice voucher program is the federal government's major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Since housing assistance is provided on behalf of the family or individual, participants are able to find their own housing...

A family that is issued a housing voucher is responsible for finding a suitable housing unit of the family's choice where the owner agrees to rent under the program.

A housing subsidy is paid to the landlord directly by the PHA on behalf of the participating family...

Poor people get a place to live. Rich people get paid by the government for allowing it.

If the homelessness problem is that people don't have a place to live, then the Housing Choice Voucher program does help to solve the problem.

But if the homelessness problem is that a large and growing number of people don't have a place to live, then the Housing Choice Voucher program does nothing to solve the problem.

This is the typical solution, the kind everybody loves. Democrats love it because they get a place to live. Republicans love it because they get the money. That may be a crude way of putting things, but maybe you get the picture.

Friday, February 25, 2022


I found this online book:
Ancient Economic Thought (volume 1) edited by B. B. Price; first published 1997.

It covers Indian, Hebraic, Greek, and Roman economic thought. with two or more essays on each.

Didn't look through it much yet, but I did find this, from "Assumptions, Economics, and the Origins of Europe", an essay by Alan E. Samuel:

The kind of wealth assembled in land in the Late Empire is near-legendary. A few examples make the point.

The Melania who retired from the world in 404 had, with her husband, estates in Britain, Spain, Italy and North Africa which brought an income amounting annually to some 1,600 Roman pounds in gold, a figure which, even allowing for the possible exaggeration by her admiring biographers, must be compared with figures ranging between 700 and 6,667 Ib for the gold obtained from all of Egypt by forced sale at the beginning, of the fourth century. Melania and Petronius’ Trimalchio are often cited in discussions of private wealth in the Empire...

The phrase "retired from the world in 404" jogged my memory. I read about this Melania years ago -- my notes were last modified in 2004 -- in Michael Wood's Domesday book. Never made the name-connection to Melania Trump until I read the Alan Samuel essay.

From Domesday: A Search for the Roots of England:

The long-term effect of Roman government, then, may well have been to concentrate land in the hands of the governing aristocracy at the expense of the mass of the population at large.

Concrete evidence survives which gives a clear picture of this accretion of power and land by a British landowner at this very time. It consists of a Latin life of a Roman lady from the great family of the Valerii; she became a Christian, and the Church recorded her disposal of many estates to charity. In AD 404 Melania freed 8000 slaves out of a total of 24,000 on sixty farms, villas or hamlets which she owned in the vicinity of Rome. Her other landholdings included estates elsewhere in Italy and Sicily, Africa, Spain and Britain.... her rentals show her income to have been on a scale comparable to the imperial revenues.

Melania had income comparable to the imperial revenues. That, I remember. Her name I remembered only when I read Alan Samuel's essay. During the Trump years, nothing. 

I should have my memory bronzed, like baby shoes.

Wednesday, February 23, 2022

Messrs. K. and H.


Messrs. K. and H. assure the public
Their production will be second to none.

 I recently quoted Hayek from chapter 7 of The Road to Serfdom (p.92):

What in ordinary language is misleadingly called the "economic motive" means merely the desire for general opportunity, the desire for power to achieve unspecified ends.

The quote reminds me of something Keynes said in Chapter 16 of his 1936 book, about accumulating for an "unspecified" purpose being the problem:

The trouble arises, therefore, because the act of saving implies ... a desire for 'wealth' as such, that is for a potentiality of consuming an unspecified article at an unspecified time.
Maybe that sounds a little weird. But K is not saying that saving is always bad. He is saying there is no direct connection between saving and investment, and people often save with no productive investment in mind, and this can lead to an imbalance that is bad for the economy. That's what I hear him saying.

It has to do with inequality, I think: big income, big saving, big problem. Hayek didn't mention this problem. It wasn't a problem when he wrote the Serfdom book in 1944. But it was a problem in 1936 when Keynes wrote, and it is a problem again today.

Tuesday, February 22, 2022

Hayek and economic loss

If the economy is growing at 5%, but then it slows to 3%, that is an economic loss. The numbers are not negative, but the gain is less. Compared to the 5% we would have expected, it is a loss. If you expanded your business based on the expectation of 5% growth, you might suffer an actual loss because growth slowed to 3%. But either way, anticipated or experienced, the loss is real and monetary.

Real and monetary as opposed to the imaginary loss of an "opportunity cost". Opportunity cost is when you must choose between Plan A and Plan B, and you choose Plan A. Since you can't do both plans, you set Plan B aside, and you don't earn the money you imagined you would make from Plan B. They call that a cost, an opportunity cost. It's pathetic, really, to call it a cost. There is no actual (monetary) cost involved, and no real "loss".

People with so much money that they can take the time to sit around evaluating different plans to make even more money for themselves, those people consider every plan they don't adopt as a cost, and money lost. The rest of us know what cost is.

If economic growth slows from 5% to 3%, there definitely is a loss. Perhaps the 5% growth was more than "potential output" indicates, so that 5% was "unsustainable". Doesn't matter: If growth slows, there is still a loss. (Anyway, potential output is a made-up number, and they often change both the past and future estimates.)

Even if growth only slows, there is still real loss. That's my starting point.

From chapter 7 of The Road to Serfdom (p.92):

Strictly speaking there is no "economic motive" but only economic factors conditioning our striving for other ends. What in ordinary language is misleadingly called the "economic motive" means merely the desire for general opportunity, the desire for power to achieve unspecified ends.

Hayek's topic? The problem with economic planning. If we plan our own spending, we get to decide our spending priorities. But in a planned economy, the planning is centralized and the planner gets to decide what our spending priorities will be. You can see the problem.

Maybe you can't, I don't know. When I was young, I was taught that the communists had five-year plans. They planned their economy five years at a time. I don't remember anything but "five-year" plans and that the commies had em. If you were taught this as a kid in school, you can surely see the problem with economic planning. (The other thing I was taught was that ducking my head under my desk would protect me from nuclear attack.)

But I want to set aside planning, and talk about the economy. Hayek lays things out in terms of economic loss (p.93):  

So long as we can freely dispose over our income and all our possessions, economic loss will always deprive us only of what we regard as the least important of the desires we were able to satisfy. A "merely" economic loss is thus one whose effect we can still make fall on our less important needs, while when we say that the value of something we have lost is much greater than its economic value, or that it cannot even be estimated in economic terms, this means that we must bear the loss where it falls.

I love Hayek's argument. But the argument about bearing the loss is incomplete, because Hayek applies it only to economic planning. The economy I write about is an economy in long-term economic decline. Our world is littered with economic loss. In such a world, being deprived "only of what we regard as the least important of [our] desires" severely understates the problem.

Maybe we still get to choose what we give up when there is a loss. But in a world of long-term decline, the losses are endless. Now maybe we are strong of character, so we can take the losses and endure. We can "take it like a man". Is it still okay to say that?

But when you put numbers on loss, the losses add up. With the economy there are always numbers, and the numbers are money values. It's not like playing poker just to see who wins more often. It's playing for money. Playing for real.

In an economy in endless decline, at some point every one of us will reach a breaking point. Almost every one of us. When we reach our breaking point, we have not many options. If we were playing chess we could tip our king on its side. If we were playing Monopoly we could say "I'm out" and finally get out of the game. In real life, I guess we can go homeless; for this is the long-term decline version of "bear the loss where it falls". That, or we can insurrect. There are not a lot of options.

Let me say again, however, that insurrection is a political solution. Endless economic loss is the problem. It is an economic problem. Insurrection is a political solution to that economic problem. But political solutions cannot solve economic problems. We require an economic solution. I have nothing else to say about that.

For an economy in long-term decline, with gains and losses measured in terms of money, there is a  limit to the loss one person can endure. The following sentence offers Hayek's concept of how we deal with loss:

So long as we can freely dispose over our income and all our possessions, economic loss will always deprive us only of what we regard as the least important of the desires we were able to satisfy.

But again, Hayek's topic was economic planning, not long-term economic decline. His sentence doesn't properly evaluate economic loss during long-term decline.

Sunday, February 20, 2022

Most days are good days

Checked my email. Something from the wife:

I didn’t listen to this so I don’t know if you’ll like it or not

along with a link, something from "Civic Action". Something to listen to. I don't click things to listen to. Druther read at my speed, and re-read as I need, so I can think what I think instead of being bullshitted by a fast-talker with a smile to draw me in.

She still doesn't know that, the wife.

Instead of clicking the link I googled Civic Action. Google presents this clip:

We are a grassroots advocacy organization based in Seattle Washington. We will lead, catalyze, or participate in local and national civic actions that meet the ...

I get to fill in the blank myself? So I went to the homepage. They have a one-line message that keeps changing:

Let's end gun violence
Let's pass a liveable minimum wage
Let's save the planet
Let's cause some trouble
Let's make childcare universal
Let's restore overtime
Let's tax the rich
Let's cause some trouble

And below it, a one-line message that doesn't change:

A grassroots movement fighting for an economy that works for everyone, not just the rich.

Like all the rest. They all tell ya that you are on their side. But they don't tell you their plan. Just vague generalities of the polarized kind. Politics, not economics.

I scroll a bit down the screen... and here is their key line:

Become a troublemaker, donate now

Hokum and petty greed, dressed up as a friendly neighbor.

They want me to "join the movement". 

They want me to "donate". 

They want me to believe that we are on the same side.

I believe that if you want to fix a problem, first you have to know what the problem is. And then you have to understand what causes it. And then you can focus on that cause, think of it as the problem, and work to understand what causes it. And then you can think of that cause as the problem and work to understand what causes it.

And you just keep doing that until the cause you discover is "human nature and economic policy". By then you will know what policy must change, and how it must change. Or does that only work for me?

On a good day, I only have to satisfy myself.

Thursday, February 17, 2022

The Blankenhorn connection: thought and polarization

At The American Interest: The Top 14 Causes of Political Polarization by David Blankenhorn. Blankenhorn offers "a bakers-dozen worth of causes" and then says

None of these 13 causes directly perpetuate polarization. They are likely what analysts would call distal (ultimate) causes, but they are not proximate (immediate, direct) causes. They seem to have shaped an environment that incentivizes polarization, but they are not themselves the human words and deeds that polarize.

And so our bakers-dozen list ultimately doesn’t satisfy. We need a 14th cause, arguably the most important one. It’s certainly the most direct and immediate, the most proximate, cause of polarization.

14. The growing influence of certain ways of thinking about each other. 

Certain ways of thinking, he says. He's got a good list. Here's how it starts:

  • Favoring binary (either/or) thinking.
  • Absolutizing one’s preferred values.
  • Viewing uncertainty as a mark of weakness...

Certain problematic ways of thinking. Two paragraphs later, reinforcing the changes in our thinking as the cause of polarization, Blankenhorn writes:

At this point in the process, unless some cataclysmic social change (economic collapse, another world war) does it for us, the first thing to change to get out of this mess is our minds.

To summarize the article, Blankenhorn is saying that polarization arises from flawed thinking. From illogical logic. From having one's conclusions in the cart that's before the horse of argument.

I agree of course; that's why I'm quoting Blankenhorn. But I take it one step further back in the causal chain: "Wrong-headed thinking arises as the economy decays". To improve our thinking, we must first improve our economy.

The economy goes bad; our thinking follows; and then political polarization opens the door to a faster, broader decline, not just in the economy but also in government and society: This is the sort of thing historians look back on 2000 years later, trying to understand what caused the fall of that civilization. 

I want no part in this decline, except prevention.

Tuesday, February 15, 2022

Long-term economic decline

Fernando M. Martin, Assistant Vice President at the Federal Reserve Bank of St. Louis, in Why Does Economic Growth Keep Slowing Down? (2017) wrote:

Long-run growth rates were high until the mid-1970s. Then, they quickly declined and leveled off at around 3 percent per year for the following three decades.

Exactly: Economic growth was high until the mid-1970s. And Fernando Martin is not the only one who says so. I still remember Scott Sumner, in 2010, saying "growth in US living standards slowed after 1973". So there are at least two economists on the internet who are aware of the economic vigor we lost in the mid-1970s, and the slower economy since that time. At least two.

It's funny, though: Fernando Martin also says

Real GDP has averaged 2.1 percent growth per year since the end of the [2009] recession, which is significantly smaller than the average over the postwar period (about 3 percent per year).

As if he forgot the early period, when growth was high.


All told, there were three distinct periods: 1947-1973, 1973-2009, and 2009-2021. First high growth, then 3% growth, and recently 2% growth. For "high" growth, say 4%, or 1% more than we got in the middle period. 

During that middle period Newt Gingrich, writing in 1995 in To Renew America, said "a 1 percent increase in our economic growth rate" would

  • "shrink the federal deficit by $640 billion over the next seven years"
  • would "increase federal tax revenues by $716 billion without a tax increase"
  • "each and every adult citizen would earn $9,600 more", and
  • "the Social Security Trust Fund never runs out of money".

Gingrich was yearning for the 4% growth we had before the mid-70s.

Most economists, it seems, have given up on ever getting high growth again. You never hear them talk about it -- even though growth was that good in the latter 1990s. Instead, in this millennium, in the recent days of 2% growth, they yearn for 3%. They act like 3% is the best we can do.

In comments at Historinhas a decade back, Marcus Nunes told me that real GDP growth averaged "about 3.3% from the early 50s to 2007." More recently, Google Search turned up the statement

GDP Growth Rate in the United States averaged 3.21 percent from 1947 until 2017

from TradingEconomics, but that statement was already gone by the time I went looking for it. Likewise, Marcus, a decade back, said

"It´s more or less recognized that US RGDP is trend stationary"

but quickly added "maybe that´s changed now!" I think he was right, it has changed, because I don't find recent statements of the average growth rate of real GDP. Maybe the slowing from "about 3%" to "about 2%" made economists rethink the idea of "trend stationary" growth. But where are the economists who were rethinking that idea in the 1970s, when "about 4%" growth slowed to "about 3%"? 

Were they drowned out by those saying 3% is  all we can hope for? Maybe. But Newt Gingrich and me, we somehow missed that message.


A couple years ago I got tired of reading that 2% growth is good growth, so I googled it. 

  • The featured snippet said
    Most economists generally peg good economic growth in the 2 percent to 4 percent range of GDP, with the historical average around 2.5 percent annually.
    They left off the dates and reduced the average from "about 3%".
  • The Balance said: "Many economists place the ideal GDP growth rate at between 2%-3%."
  • Marketplace said: "A healthy GDP rate would be about 2 to 3 percent..."
  • But TradingEconomics, when I looked in 2020, said:
    The United States is the world’s largest economy. Yet, in the last two decades, like in the case of many other developed nations, its growth rates have been decreasing. If in the 50’s and 60’s the average growth rate was above 4 percent, in the 70’s and 80’s dropped to around 3 percent. In the last ten years, the average rate has been below 2 percent and since the second quarter of 2000 has never reached the 5 percent level.

Now the picture is coming into focus. Growth was higher in the early years. The average rate of GDP growth has been declining.


Even in the 1950s the decline of growth was evident:

Graph #N: Annual Growth Rates, Real GDP 1940-1970

When the morning weather gives you the forecast for the upcoming week, they report the expected high for each day. Looking at the high points of real GDP growth is like that: The economy was hot in the '50s, but it was cooling down.

Annual growth was above 15% for 1941-43 when World War Two spending was at a peak. The post-war recession, which bottomed out in 1946, was severe. But as the dashed line shows, the lows of the next three recessions were only a little below zero, all three of them. To my eye, the "post war adjustment" (noted by Marcus Nunes) was complete by the time of the 1949 recession. 

The graph suggests that the adjustment was still in progress at the time of the 1948 peak (below 5%), but by the 1950 peak again (to my eye) the adjustment was certainly complete.

During the 1960s, economic growth went above the trend of peaks because the absence of recession allowed growth to continue and to rise above trend. In the 1970s, with the inflation, policy went back to creating a recession every few years to cool things down. As a result, growth in the '70s slowed, as it had in the '50s.


The long-term decline of economic growth is clearly visible 

For the United States, it is also visible

Potential GDP -- I think of it as "best case" GDP -- is in decline. The best we can do, is getting worse. But that isn't the worst part. GDP is doing even worse than Potential GDP. 

Things are so bad that people -- economists -- are now calling the slowdown a "success". As if slow growth was the plan all along.

Sunday, February 13, 2022

A slow and gradual change in thinking, driven by persistent economic decline

My topic of late has been the idea that long-term economic decline changes the way we think. As a specific example, I said: "The bad economy changes our approach to problem-solving." As another example, I offer the rise of political polarization during the greater part of the post-WWII period.[1] The rise of polarization is a striking example of a change in the way people think.

Those of us who have not yet changed our thinking don't see it that way. We just think the other guys are wrong. But it helps, I think, to see it for what it is.

Years back I watched Lou Dobbs on CNN, for his reporting on the economy. But then he changed. He would interject exasperation into the reporting, and bring in politics to explain economic events. It was a change in thinking that was driven, I point out, by our declining economy. I stopped watching Dobbs before he stopped working at CNN.

The cause is perhaps not yet as clear, but a similar change in thinking has been noticeable for the past two or three years in Bill Maher. I still watch his show, but not "religiously".

How to express it?

I googled economic crisis and mental health . The links seem to draw a straight line connecting unemployment and suicide. But no, that's not what I'm thinking. I should have used a more subtle phrase than "mental health".

I tried economic crises and peace of mind. Google seemed momentarily taken aback because I used the plural of "crisis". Then, most of the results seem to drop the "of mind" and focus on "peace" (as opposed to war). One link that didn't was Dealing With the Stress of a Financial Crisis at VeryWellMind. I thought the article might have a milder, more subtle focus than "mental health". Nope.

I tried a third search: the effect of economic crisis on human thought patterns. On the first page of results, I still find the words "mental health" expressed or implied in several of the links (and in both "people also ask" questions, and in 6 of the 8 "related searches"). But two of the links, anyway, are related to differences or changes in thinking: 

The second of these links is close to what I was looking for. But rather than thinking in terms of a single recession, picture a psychological model describing a series of recessions that are part of a long-term economic decline. I have to think there would be a cumulative effect: a gradual change in our thinking and in the basic assumptions that underlie our thought. Every recession convinces more of us that, as the pollsters put it, the economy is not "on the right track".

"When the facts change," the man said, "I change my mind."

What do I find?

Many of the links turned up by those three searches share a common theme. Recession seems to be the causal factor most often considered, suicide the result most focused on, and social welfare spending the solution most often recommended:

  • Antti Uutela offers examples of the problem, and recommends a solution:
    The Asian economic crisis led to a sharp unemployment-related increase in suicide mortality in east Asian countries. In European Union countries rising unemployment was associated with significant short-term increases in premature deaths from intentional violence including suicides... Enough services for those in need should be provided and advocacy for societal support measures is of great importance.
  • The World Health Organization's Regional Office for Europe links economic troubles to mental health issues, and recommends the spending solution:
    The economic crisis is expected to produce secondary mental health effects that may increase suicide and alcohol death rates. However, the mental health effects of the economic crisis can be offset by social welfare and other policy measures.
  • A literature review by Diana Frasquilho et al reports that
    One-hundred-one papers met the inclusion criteria. The evidence was consistent that economic recessions and mediators such as unemployment, income decline, and unmanageable debts are significantly associated with poor mental wellbeing, increased rates of common mental disorders, substance-related disorders, and suicidal behaviours.
    It also points out the
    policy recommendations concerning the cost-effective measures that can possibly reduce the occurrence of negative mental health outcomes in populations during periods of economic recession.

In sum: Recession leads to suicide, and social welfare spending prevents it. That's what the internet offers. I'm not saying it is wrong. But it is not my topic.

The focus on suicide is a mistake, in my view. The problem is the economy; suicide is the result. But I understand the importance of the issue: Suicide is final. It is one change that cannot be reversed; it can only be prevented. I get it. However, suicide must surely be the option chosen by only the smallest percentage of people. Everyone, or nearly everyone, is harmed by economic decline. But very few choose suicide as their solution.

I certainly don't object to the good work being done by those whose path takes them from economic troubles to suicide prevention. But that path bypasses the great number of people whose thinking is gradually changed by the economic troubles. And it is these people, the great numbers, the survivors whose values gradually change, who come to reject the existing government and its policies.

Suicide may be crucial because it is irreversible, but it is probably the least common reaction. And everyone who takes that final step has no doubt been troubled in many ways by the same unsatisfactory economy. These other responses are MORE likely than the suicide option, I should think.

Not suicide, nor other mental health effects, but the connection between economic troubles and the resulting changes in our thinking is, for my purpose here, the central point.

The call for policy to address the mental changes through increased spending is, well, Keynesian. Not taking a stand here, but I must point out that, during this time of decline, for those who don't opt out by suicide but are changed by the economic decline, the key change in thinking is to abandon the Keynesian approach. It is not always brought up, but it is always there.

The natural outcome of the change in thinking is to increase the numbers of those who reject accepted thinking and choose to accept the rejected thinking. Thus we see the growth of polarization.


Sunday Morning Talk:

A story I've heard a few times on the Sunday morning talk shows: Democrats compromise and move toward the center; Republicans move away from the center; and the "center" itself shifts to the right. I don't know who told that story, but I know I heard it multiple times. And it does fit the long-term-change-in-thinking-driven-by-economic-decline model.

New York City, Tough on Crime:

According to Vox, "tough on crime" policy in New York City has been identified with Mayors Giuliani and Bloomberg. Both mayors were Republican. Today, the tough-on-crime mayor is a Democrat. First, the City moved far enough right to elect (and re-elect) tough-on-crime Republicans; now, Democrats have moved far enough right to get tough on crime. That's a long-term change in thinking, driven (in my view) by long-term economic decline.

The historian Rostovtzeff on the fall of Rome:

What happened was a slow and gradual change, a shifting of values in the consciousness of men. What seemed to be all-important to a Greek of the classical or Hellenistic period, or to an educated Roman of the time of the Republic and of the Early Empire, was no longer regarded as vital by the majority of men who lived in the late Roman Empire...
A slow and gradual change. A shifting of values. A change in thinking and in the basic assumptions that underlie thought. A change brought about by long-term economic decline.

The Arthurian view

In regard to the search results, I said above that

Recession seems to be the causal factor most often considered, suicide the result most focused on, and social welfare spending the solution most often recommended.

My view differs altogether from that of the search results:

  • The significant causal factor is long-term economic decline, not simply the occurrence of recession.
  • The result we most need to focus on is the one we most ignore: the changes in our thinking that arise during (and because of) the long economic decline.
  • The solution we require is not an increase in social welfare spending (though that could be part of it) but instead a viable solution to the problem of long-term economic decline.

Friday, February 11, 2022

"Live long and prosper"

From Op-Ed: The source of America’s political polarization? It’s us
by James E. Campbell, June 30, 2016:

Deep polarization is a fact of American political life in the 21st century, but our debates need not stay so overheated. What would dial it down? Giving Americans — left, right and center — what they have always wanted: peace and prosperity. They have gone without these for too long. Turmoil is too common, and our post-recession economy has sputtered to grow at barely 2% a year. Robust economic growth and domestic tranquility would not erase our ideological differences, but a less stressed-out nation might be better able to cope with them.

Campbell's solution to the problem of polarization:

  • "peace and prosperity"
  • "Robust economic growth"

I'm good with that.

Campbell says "a less stressed-out nation might be better able to cope" with our ideological differences. Certainly I agree. But certainly also, the troubles arising from economic decline magnify the significance of our differences. Economic decline increases polarization. 

Not only will prosperity make our differences easier to cope with; it will also make our lives satisfying again. When our lives are satisfying, we will find we have fewer differences and fewer reasons to be polarized.

Live long and prosper.

Wednesday, February 9, 2022

The Decline of Reason

A bad economy changes the way we think. We come to position ourselves for the greatest advantage out of economic necessity, even if other people are hurt by it. More and more we think micro ("what's best for me") instead of macro ("what's best for us"). It puts neighbors at odds. It is the source of polarization.

Monday, February 7, 2022

The cause (not the effect) of the decline of reason

As an example, let me ask: Given that low labor productivity is a problem, is it also a problem if industrial productivity is low?

I measure industrial productivity as output per dollar of profit. High profit means low productivity. High productivity means low profit. Every defender of profit is sure to say No, low industrial productivity is not a problem. The answer is obvious, because boosting industrial productivity means making less profit. 


There is a lot of that these days, a lot of evaluating the expected result and basing one's view on the outcome. This is exactly the opposite of the thinking we need. We need first to understand problems in terms of their causes, not in terms of the result of some potential solution. The time for thinking about solutions is only after we grasp the causes.

Wrong-headed thinking arises as the economy decays, as things more and more turn out worse than expected. The bad economy changes our approach to problem-solving. We come to position ourselves for the greatest advantage out of economic necessity, even if other people are hurt by it. More and more we think micro ("what's best for me") instead of macro ("what's best for us"). It puts neighbors at odds. It is the source of polarization.

Saturday, February 5, 2022

No happy medium

Graph #1: Total Reserves (excluding Gold) Since 1990
(The vertical scale is a log scale. The vertical red lines are equal length.)

Running about $60 Billion for two decades, then doubling to $120 Billion overnight.

Running about $120 Billion for a decade, then doubling to $240 Billion overnight.


PS: Since April 2020 the reserve requirement is zero.

Thursday, February 3, 2022

Quigley, Keynes, and the general negative

From Chapter One of Carroll Quigley's 1961 book, The Evolution of Civilizations. Quigley's topic is the scientific method:

Having gathered all the "relevant" evidence, the scientist may proceed to the second part of scientific methodology, making a hypothesis. In doing this, two rules must be followed: (a) the hypothesis must explain all the observations and (b) the hypothesis must be the simplest one that will explain them. 

The second rule, simplicity, is often called Occam's Razor.

The rule of simplicity or economy in scientific hypothesis has a number of corollaries. One of these, called "the uniformity of nature," assumes that the whole universe is made of the same substances and obeys the same laws and, accordingly, will behave in the same way under the same conditions. Such an assumption does not have to be proved—indeed, it could not be proved. It is made for two reasons. First, because it is simpler to assume that things are the same than it is to assume that they are different. And, second, while we cannot prove this assumption to be correct even if it is correct, we can, if it is not correct, show this by finding a single exceptional case. 

Quigley continues: 

We could demonstrate the uniformity of nature only by comparing all parts of the universe with all other parts, something that clearly could never be achieved. But we can assume this, because it is a simpler hypothesis than its contrary; and, if it is wrong, we can show this error by producing one case of a substance or a physical law that is different in one place or time from other places or times...
Thus, in the final analysis, these rules about scientific hypotheses are not derived from any sense of economy or of esthetics, but rather arise from the nature of demonstration and proof. The familiar judicial rule that a man is to be assumed innocent until he has been proved guilty is based on the same fundamental principles as these rules about scientific hypotheses, and, like these, rests ultimately on the nature of proof. 
We must assume that a man is innocent (not guilty) until we have proof of his guilt because it is always simpler to assume that things are not so than to assume that they are, and also because no man can prove the negative "not guilty" except by the impossible procedure of producing proof of innocence during every moment of his past life. (If he omits a moment, the charge of guilt could then be focused on the period for which proof of innocence is unobtainable.) But by making the general and negative assumption of innocence for all men, we can disprove this for any single man by the much easier procedure of producing evidence of guilt for a single time, place, and deed. Since it is true that a general negative cannot be demonstrated, we are entitled to make that general negative assumption under the rule of the simplicity of scientific hypothesis, and to demand refutation of such an assumption by specific positive proof.
A familiar example of this method could be seen in the fact that we cannot be required to prove that ghosts and sea serpents and clairvoyance do not exist. Scientifically we assume that these things do not exist, and require no evidence to justify this assumption, while the burden of producing proofs must fall on anyone who says that such things do exist.


Keynes's General Theory was published in 1936. Late in 1936, the Quarterly Journal of Economics presented responses to Keynes's book from Professor Taussig, Mr. Leontief, Mr. Robertson, and Professor Viner. Keynes, in turn, responded in the February 1937 issue of the Journal. The following is part of his response:

Mr. Leontief is right, I think, in the distinction he draws between my attitude and that of the "orthodox" theory to what he calls the "homogeneity postulate." I should have thought, however, that there was abundant evidence from experience to contradict this postulate; and that, in any case, it is for those who make a highly special assumption to justify it, rather than for one who dispenses with it, to prove a general negative.

Tuesday, February 1, 2022

FIP-to-NIP ratio ~ Real Interest Rate

Half as a joke, I started writing something that turned into the idea I call "industrial productivity":

To figure the labor productivity for our economy, we divide GDP by a cost factor, the hours of labor required to produce GDP. We want to do something similar when we ask how productive finance is.

But when we ask "How productive is finance?" we do not mean to ask how much the employees produce. We mean to ask how much the industry produces. The appropriate unit of cost is not the wage, but the profit. The appropriate ratio is not output-per-hour, but output-per-dollar-of-profit.

My natural inclination is to look at profit-relative-to-other-things, not other-things-relative-to-profit. But if the profit-per-dollar-of-output ratio is twice as high for financial corporate business as for nonfinancial, then output-per-dollar-of-profit must be half as high for finance. And if the productivity of finance is extraordinarily low, well, then the growth of finance is a big problem. And that is no joke.


I bring this up because I have one more graph to show. 

In Graph #1 here we compared profit per dollar of output for financial (FCB) and nonfinancial (NCB) corporate business. In Graph #2 we compared output per dollar of profit for financial and nonfinancial corporate business. And in Graph #3 we looked at the ratio for financial relative to nonfinancial, of the output per dollar of profit values. 

Table 1

The third graph shows that finance, on average, creates less than 40% percent as much output as nonfinancial corporate business, per dollar of profit. For example, if NCB produced $10 of output for every dollar of profit earned, FCB created less than $4 of output for every dollar it earned. Table 1 shows five dates when the NCB output-to-profit ratio was close to $10, and the FCB ratio for the same date. At the bottom it shows the five-value averages.

Reduced proportionally, as $10.18 falls to $10 even, $4.04 falls to $3.97. It's just dumb luck, really, that the FCB number comes out less than $4 for five sample values. For the whole dataset, however, it is not dumb luck at all. It is evidence. Per dollar of profit, the nonfinancial sector is far more productive than the financial sector. More yet, when you remove the "recasting" that exaggerates financial output.


But I have one more graph to show. We start with the third graph, the ratio of financial relative to nonfinancial industrial productivity. Then we add a second line, to show the real rate of interest.

Stephen Williamson shows "a crude measure of the real interest rate." I looked up his graph at FRED. He takes TB3MS, the 3-Month Treasury Bill Secondary Market Rate, and subtracts the percent-change-from-year-ago of PCEPI, the PCE price index. I used the same datasets and the same calculation for the second line on my graph.

PCEPI begins in 1959, so we miss some years at the start. And I end my graph early to eliminate the superhigh and superlow spikes of 2008, because they make everything else too small to see. But we still get to compare my ratio to the real interest rate for almost 50 years. 

To my eye, the comparison shows a lot of similarity:

Graph #4: Comparison of the FIP-to-NIP Ratio and the Real Interest Rate

The blue line is the ratio of industrial productivities, financial as a percent of nonfinancial, using the left scale.

The dark red line is Williamson's real interest rate, using the right scale.

The light red line that runs flat, just below the 40% level, left scale, shows the 37.9% average of all the blue values (Q4 1951 to Q3 2021).

The blue and dark red lines, to my eye, show similar trend paths, rising and falling together. It does look like blue leads and red lags behind; I'm looking at the blue lows of 1970, 1986, 1991, and 2001. And the high between 1986 and 1991, for example.

But red and blue show similarity all through the 1960s and into the 1970s. They separate sharply after September 1973, probably because of the oil embargo in October of that year. They are back on track, rising together, after 1977.

The only other separation that I see, comparable to the 1973 separation, occurs just at the end of the graph, after July 2007.


FCB = Financial Corporate Business
NCB = Nonfinancial Corporate Business
GVA = Gross Value Added
Industrial Productivity = GVA per dollar of Profit
FIP = Industrial Productivity of FCB
NIP = Industrial Productivity of NCB

The behavior of the FCB-to-NCB ratio is described as follows, other things equal:

Change in Financial Data:

Increasing GVA increases FIP as a percent of NIP
Increasing Profit reduces FIP as a percent of NIP
Increase in Industrial Productivity increases FIP as a percent of NIP
Change in Nonfinancial Data:
Increase in GVA reduces FIP as a percent of NIP
Increase in Profit increases FIP as a percent of NIP
Increase in Industrial Productivity reduces FIP as a percent of NIP

These changes appear to be related to changes in the real rate of interest.