Tuesday, February 27, 2024

Checkable Deposits and Currency held by the Bottom 50%

Graph #1: Held by Bottom 50% as a Percent of Total Held by 100%

Pretty sure the last drop-off (after 2019) is due to an insanely massive increase in M1 money arising from a 2020 change in Regulation D: The Fed started counting savings as part of transaction money. Probably increased "checkable deposits". I say this because all of the shares they report

  • Bottom 50%
  • 50th to 90th
  • 90th to 99th
  • Top 1%
  • Top 0.1% (not used in the graph above)

show a big increase (in millions of dollars, not percent of total) since 2020. 

But obviously the bottom 50% got a smaller share of that increase, as the line goes down on Graph #1. In other words, they had little in savings before the regulation change.

So, ignoring the years after 2019, looks like the paupers' share fell from 13 or 14% in the 1990s, to 12% in the naughts, to 10% after the 2009 recession. And it looks like Biden is going to get the blame for this shit.

(I don't do politics. I do my best not to have a preference. But I would like to see the old coot try a little harder.)

PS: FRED offers an interesting table: Levels of Wealth by Wealth Percentile Groups (but only since 1989).

The table includes breakdowns by

  • Total Assets
  • Nonfinancial Assets
  • Real Estate
  • Consumer Durables
  • Financial Assets
  • Checkable Deposits and Currency
  • Time Deposits and Short-Term Investments
  • Money Market Fund Shares
  • Debt Securities
  • US Government Securities and Municipal Securities
  • Corporate and Foreign Bonds

and too many more for me to list.

Might be useful.

Tuesday, February 20, 2024

Another day older and deeper in debt

For me the story is a simple one: Economic growth has been slowing for half a century because the inflation is cost-push. Demand-pull grows the economy; cost-push slows it. The cost pressure arises not from the examples that are unfailingly used on the internet (wages and oil) but from excessive use of credit. In this, I guess you could say I agree with those who hold the "debt supercycle" accountable, with those who say we have "too much finance", and with those who speak ill of financialization.

By the way, our vast government debt is part of the problem, but it is the least worrisome part. It is private-sector debt service that consumes private-sector income and slows private-sector growth. Since Keynes, government debt has been a rescue system for the private sector economy, and the first thing to realize is that the incredible size of the federal debt, as we apparently need that much rescuing, is evidence of how bad things have become in the private sector.

The second thing to realize is that the solution we have applied to the problem for the past fifty years has not worked, and this failure is evidence that we misunderstand the problem.

The cause of the excessive growth of finance is economic policy: human nature, and economic policy. The policy part of the problem is that for far too long we thought using credit was good for growth, and that the resulting accumulation of debt was not a problem. The human nature part is that we are too willing to borrow. 

When we borrow, we get money to spend. That's the use of credit, and it is indeed good for the economy. It boosts spending. It boosts the economy. But when we borrow money we take on debt. And debt must be repaid. Repayment takes money out of the economy, reduces spending, and slows economic growth. There is no free lunch: The boost we get by borrowing money comes with a drag on the economy that takes effect when we repay the debt. 

The debt supercycle is good in the early stages when debt is low. It is harmful in the late stages when debt is high. This is why our economy was great for a generation after World War Two, then pretty good for a generation, and bad in the years since. 

These days are late in the debt supercycle. We didn't know. We let the problem fester until we had the 2008 financial crisis. Our economy was slow for a decade after that. In recent years things seem to be improving -- but that is only because our use of credit has been increasing again. It's human nature: We are too willing to borrow money. But of course you can't change human nature. We need policy to protect us from ourselves -- but no! We need policy to protect the economy from human nature, to reduce our debt and keep it low so that our economy can improve. We need the opposite of the policy we have.

Our economy is bad because debt costs money and we have a lot of debt. Because the economy is bad, repayment of debt has become more difficult. We have... no! Policy has put us in a hole that is almost impossible to get out of. And since we can't get out of that hole, our economy cannot recover. Policy must stop encouraging us to be in debt. Policy must start encouraging us to get out of debt. And, as the problem is still so very bad, policy should begin by helping us get out of debt. Then, as the economy recovers, policy can prune back that help. But it must forever keep the policies that encourage us out of debt.

What we should shoot for, really, is the optimum level of debt, the level that best promotes economic growth. If you never thought about that, I have two blog posts you might want to read. First, some preliminary thoughts on the topic, in Two Thought Experiments. Second, some tentative targets for policy, in Establishing Parameters for Debt.

Saturday, February 17, 2024

The free community and the totalitarian state

I'm looking at How to Pay for the War, the 1940 book by J. M. Keynes.

I'm posting this not because of war concerns, but for Keynes's observation of one difference between the free community and the totalitarian state. It seems somehow relevant.

First this, for context:

Is it better that the War Office should have a large reserve of uniforms in stock or that the cloth should be exported to increase the Treasury's reserve of foreign currency? Is it better to employ our shipyards to build war ships or merchant-men? Is it better that a 20-year-old agricultural worker should be left on the farm or taken into the army? How great an expansion of the Army should we contemplate? What reduction in working hours and efficiency is justified in the interests of A.R.P.? One could ask a hundred thousand such questions, and the answer to each would have a significant bearing on the amount left over for civilian consumption.

Now the political observation, from page 7:

In a totalitarian state the problem of the distribution of sacrifice does not exist. That is one of its initial advantages for war. It is only in a free community that the task of government is complicated by the claims of social justice.

Sunday, February 4, 2024

Blustering our way to World War Three

I oppose World War Three.

Somebody has to be first to NOT react to the other guy's aggression. Somebody has to go first. Is the US not big enough to go first?

Our reaction leads to their reaction. Their reaction leads to our reaction. Each time, the reaction is a little bigger, a little bolder. Each morning the news is a little worse. The only way this can end is badly -- unless we choose to stop it.

Friday, February 2, 2024

Inequality, financialization, and economic decline

"Inequality, financialization, and economic decline"
PDF, 24 pages
by Pasquale Tridico and Riccardo Pariboni, 2017

From the Abstract:

The objective of this article is to argue that the labor productivity slowdown experienced in recent years by several advanced countries can be explained, following a Kaldorian-Classical approach, by a weak gross domestic product (GDP) performance and by a decline in the wage share. Moreover, drawing inspiration from recent post Keynesian literature, the authors identify the ongoing worsening in income equality and the increase in the degree of financialization as other major explanatory factors of sluggish productivity.

Should your nation, empire, or civilization survive all other calamities, financialization is sure to bring it down. Financialization makes transactions increasingly expensive. It increases the factor cost of money, reducing both nonfinancial profit and the wage share. 

The fall in profit leads to the "weak gross domestic product (GDP) performance" noted in the Abstract. And the decline of the wage share makes it so that "labor cannot support life", as Simkhovitch said in "Rome's Fall Reconsidered".

Also, financialization (in the form of growing debt) is a significant source of income inequality.

Thursday, February 1, 2024

The Economic Decline of Empires

A Google Book: The Economic Decline of Empires
Edited by Carlo M. Cipolla

I show here the first 2½ paragraphs of the Editor's Intro:

If I didn't think it important, I wouldn't post it.

If you want to prevent the decline of the US as a nation, or as an empire, or as a civilization -- whichever way you see it -- you need to act before it is too late. You, too, should start a blog that no one reads.