"Dodd-Frank under fire" (2017)

At the start of Trump's second, an old (February 2017) blog post at Twenty-Cent Paradigms is an interesting read: Dodd-Frank Under Fire

 

The Donald Trump Uncertainty Index

Economic policy uncertainty: Since 2005 there have been three times of high uncertainty in regard to economic policy:

1. A long period of abnormally high uncertainty during the financial crisis of 2007-08 and the so-called "Great Recession" of 2008-09, and until 2013 when uncertainty finally began to decline;
   
   
2. A shorter but extremely high period of policy uncertainty arising from the pandemic of 2020; and
   
   
3. A sudden rapid increase, from a low of 97.3 in October 2024 to near the 160 level (in November & December 2024 and January 2025) and then to the most recent (February 2025) level of almost 240 -- in all a sharp, rapid reaction to the November election.
   
   

The Economic Policy Uncertainty (EPU) Index since 2005

 

The Economic Policy Uncertainty Index since 1985:

https://fred.stlouisfed.org/series/USEPUINDXM

The jagged blue line indicates economic policy uncertainty. The Uncertainty Index appears to go high at times of recession. In addition there are a couple highs in the 1980s during the Savings and Loan Crisis, and the long-running high following the Great Recession, noted above.

 I added vertical dash-dot lines indicating November 1 of Presidential Election years:

• 1988: George H. W. Bush
• 1992: Bill Clinton
• 2000: George W. Bush
• 2008: Barack Obama 
• 2016: Donald Trump
• 2020: Joe Biden
• 2024: Donald Trump

None of these election-date indicators occur at  moments of sudden increase in the Uncertainty Index unless there is also a recession around the same time. None of them, that is, until the 2024 election of Donald Trump.

In the months since the Trump victory, the Economic Policy Uncertainty Index suddenly spiked upward, nearly reaching the 240 level in February, the third highest point on the graph after the pandemic-related cluster and the August 2011 high. The reaction was immediate, beginning in the month of the election.

An interesting statistic, given the current political environment.

 

For a bigger graph, click the graph image above. For an even better view, click the link below the graph to see it at FRED.

The Fred page links to an info page identifying three types of data used to create the index: news coverage, disagreement among economic forecasts, and, interestingly, "tax code expiration data".

FRED also links to the EPU home page, which displays a large selection of policy uncertainty graphs, including a global measure.

In addition, FRED links to Measuring Economic Policy Uncertainty, a 75-page PDF by Scott R. Baker, Nicholas Bloom, and Steven J. Davis.

Trump's Address to Congress

Tuesday, 4 March 2025

I wanted to watch Trump's address to Congress because I cannot tell from the fragments I see on CNN if Trump has a plan for the economy.

He does appear to have a plan. And he did say that fixing the economy is "among my very highest priorities" (to fix it, to improve it, something like that. I missed the word). But after that, the next thing I have in my notes is Trump calling the post-pandemic inflation "the worst inflation, perhaps ever, in the history of our country" which is a crock of shit. Trump does not have enough respect for our economy to tell the truth about it. As you know, I think the Employment Level data for the first month of Trump's second term was fake news. And as you can imagine, I am not happy that Trump wants to change the way GDP is measured.

Hey, the data for GDP excluding the government component is already available. If you want to take government spending out of GDP you can do it in seconds. At FRED, grab the GDP series and subtract from it the GCE series. Done. 

Oh, and at Vox, a good read: Economic growth is slowing — so Trump wants to redefine “economic growth”. The NY Times has Commerce Secretary's Comments Raise Fears of Interference in Federal Data.

Next, Trump blamed Biden for the price of eggs. Then he described his plan to fight inflation: "Reducing the cost of energy and ending the flagrant waste of taxpayer dollars."  How, sir, how are you gonna do that? Fire everyone you can fire, and drill-baby-drill? That's it, I guess. Nothing esoteric in that. But how does it fix the bird flu problem?

My note-taking was rushed, and my handwriting is illegible at best. My notes have Trump saying "by getting rid of fraud in social security we will cut grocery prices." I gagged on that line when he said it. Prices and costs are related. If not, then prices and profits are related. It shouldn't be hard to figure out the problem even if it is something other than bird flu.

And then, Trump promised to balance the federal budget. Note that he did not promise to avoid creating a Greater Depression in the process. That's my concern, the worst-case bad ending. And Trump is already messing with the GDP data, so you know he is worried also about the worst case. Trump doesn't want to be Herbert Hoover, and all that.

At one point Trump said he wants to make interest payments on car loans tax-deductible, "but only if the cars are made in America." That was interesting. However, by making loans less costly, deductible interest encourages people to go deeper into debt. And the problem with our economy, the biggest of all the problems with our economy, is that the private sector is already so deep in debt that we can no longer borrow enough to offset the cost of debt service and have enough left to boost the economy by spending it. This is the problem that needs to be solved. Making interest on car loans tax-deductible will not solve the problem. It will make the problem worse.

To be clear, federal debt is not the problem. It is a problem, yes; but the federal debt is not the cause of the private-sector problem. Federal debt, really, is a measure of the size of the economic problem of the private sector. Excessive private-sector debt is the cause of the private-sector problem. If we rely less on borrowed money and more on income -- if policy creates this change -- then a reduction of business interest cost can offset an increase in labor cost, with something left over to boost business profits.

I may regret saying this, but I think Trump is modeling himself to be our Caesar, ending the Republic and creating an Empire. He would be far better off, as would we all, if he modeled himself after Solon, the forgiver of debt.

In the Tuesday night speech, Trump mentioned a lot of new investment. In my notes I have him saying "$1.7 trillion of new investment in just the last few weeks." A sentence or two later, that new investment spending turned into announcements of plans for investment "in the US instead of in China". Not sure I got that last quote right, but I got the gist of it. 

If Trump wasn't lying about that investment, good. I could probably set aside my concern about a Greater Depression, and I would be happy to do that. But he lies all the time, so I can't trust him on the big new dollars of investment. I will look into it, after I finish these remarks. I wish I could do better. But he's the one that lies all the time, so it's on him.

In my notes, just before my note about the new investment, Trump called his first term the "most successful economy in the history of our country." Bullshit.

 

The next thing in my notes, after the grandiosity of taking credit for the most successful economy in the history of our country, is Trump saying

reciprocal tariffs begin April second.

Whatever tariffs other nations set on our products, we'll set matching tariffs on their products. That's kinda cute, in a way. More complicated than it sounds, I think, because we don't buy the same products from them that they buy from us. But it is cute. And it might be a way for Trump to negotiate the tariff rates to lower and lower levels over time. I think that might be what he has in mind.

Well, the speech went on for a while longer. He started introducing people from the audience and I started losing interest. But I waited it out to the end. And while I did, I wrote this in my notes:

Trump's plan for the economy seems to be tariffs, tariffs, and tariffs.

I didn't hear him say anything about finishing his first-term project, the wall between the US and Mexico to keep foreigners out. His second-term focus is evidently on another wall, a different wall, a wall of tariffs intended to keep foreign output out. 

I oppose globalization, but I don't think tariffs are a good idea. I think the good idea would be to figure out why US economic growth is in long term decline, and solve that problem, the problem of excessive private-sector debt.

GAIO and Units, again

 

The January jump in employment looks suspicious

The Employment Level increased far more in January 2025 than in any month since January 2021 -- far more than in any month of the Biden administration, we might say:

https://fred.stlouisfed.org/graph/?g=1E8kq

Despite all the sudden change in the first weeks of the Trump administration, despite all of the unknowns arising from the threat of 25 percent tariffs, despite the decline of employment due to the federal workforce reductions of Musk and DOGE, despite the warning from the CEO of Alcoa that

the tariffs could cost about 20,000 US aluminum industry jobs and a further 80,000 jobs in sectors that support it.
"This is bad for the aluminum industry in the US, it's bad for American workers," he said.

In addition, according to Google's AI Overview,

Ford CEO Jim Farley has warned that tariffs on Mexico and Canada would be devastating for the U.S. auto industry.

Reuters adds

"What we're seeing is a lot of cost, a lot of chaos," Farley said on Tuesday at a Wolfe Research conference. 

None of this news, none of these views, are good for the economy. Furthermore, I don't see it in the data, but CBS News reports that "Consumer confidence plunged in February amid rising economic concerns". Expectations, when they are falling, can undermine even a good economy.

And even Trump supporters see a rough spot in the road ahead. According to VOX (November 1, 2024):

If elected, Trump has vowed to put Musk in charge of a “government efficiency commission,” which would identify supposedly wasteful programs that should be eliminated or slashed. During a telephone town hall last Friday, Musk said his commission’s work would “necessarily involve some temporary hardship.”

"Temporary hardship."

Days later, Musk suggested that this budget cutting — combined with Trump’s mass deportation plan — would cause a market-crashing economic “storm.”

"A market-crashing economic storm."

On his social media platform, X (a.k.a. Twitter), an anonymous user posted Tuesday that, “If Trump succeeds in forcing through mass deportations, combined with Elon hacking away at the government, firing people and reducing the deficit - there will be an initial severe overreaction in the economy…Market will tumble. But when the storm passes and everyone realizes we are on sounder footing, there will be a rapid recovery to a healthier, sustainable economy.”

A severe overreaction downward -- but one that I say will not be an over-reaction. The anonymous user's references to sounder footing, rapid recovery, and a healthier, sustainable economy are conclusions that I, for one, am unable to reach. Optimism these days is a dangerous thing.

Musk replied, “Sounds about right.”

Musk is excessively optimistic.

Many people seem to think that you can do whatever you want, set whatever economic policy you want to set, and run with it, no problem. I don't think like that. I think persistent bad policy will always lead to a crisis and severe recession like we had in 2008-09 and for some time after. And I think a severe recession can become a depression, and a severe depression can become a Dark Age.

I think this is serious business, and our policymakers need to think long and hard and clearly and carefully about what they are doing. I understand, that if and when a Dark Age comes, it will be the wealthy few who are left owning everything. I understand that these owners of "provinces" will become the leaders of the new governments that arise in those provinces. I even understand that the wealthy few may look forward to such developments, though I do not. Most people seem not to think about such things. 

Most people seem not to realize that it is possible to prevent such developments by correctly understanding the problems of our economy -- that is to say, not the surface problems that people have with the economy, but the deeper imbalances that disturb our economy and are never addressed -- and by correctly addressing those imbalances.

It should be clear that the policymakers who allowed the troubles of 2008-09 to develop and come to fruition were not able to understand the imbalances that disturbed our economy, nor properly address them. Far as I can tell, the Trump team is even further than that from the economic thinking they need. The Trump team seems to have a "set whatever economic policy you want" mindset, and is nowhere near correctly understanding the imbalances that disturb our economy.

 

Musk said we should expect some "temporary" hardship. Yeah, and the last guy to use the word "temporary" in a context like that was Federal Reserve Chairman Jerome Powell in March 2021, when he said we should expect some "temporary" inflation.

The pandemic recovery aside, the employment level increased more in January 2025 than at any time since January 2000. I don't believe the January 2025 number. I think Trump went with the fake news.

Federal employment as percent of US population

I googled federal employment as percent of US population.

The AI Overview says "The federal workforce makes up about 0.6% of the U.S. population. This percentage has remained stable over the past decade..."

Pew Research says "In November 2024, the federal government employed just over 3 million people, or 1.87% of the entire civilian workforce, according to BLS data."

Then I went to FRED to see the big picture:

"All Employees, Federal" as a percent of US "Total Population"
https://fred.stlouisfed.org/graph/?g=1E6Gp

 I do not understand the urgent need to cut the federal workforce. I think we'd be better off getting rid of the policies that promote Excessive Reliance On Credit (EROC) in the private sector, and letting our economy grow. We could then watch as federal deficits turn into surpluses as they did in the 1990s.

By the way, the thing that killed off the good economy of the 1990s was our rapid return to EROC. But getting rid of those EROC-promoting policies would allow the good growth & the budget surpluses to continue.

9-to-1 Against

Wrote myself a note this morning, 3:34 in the morning:

I have to look at the chances of Depression, the chances of Trump creating a depression with his cut-cut-cut.

So I googled Trump and the risk of depression.  I looked at the first page of results, and I was seriously disappointed. Of the 10 results on the first page, nine were about mental health -- either Trump's own, or ours being put at risk by his decisions.

Only one of the 10 results on the first page was about the kind of depression that could put our economy in the toilet for a lifetime. Only one of the 10 could look past the insanity of the moment and see a bigger problem. One out of ten, plus two related links for the Quora result. 

At East Asia Forum we have "Trump’s trade madness risks global depression if retaliation’s not measured". The article is focused on Trump's tariff policy. I've been studying the economy since 1977, but I never studied tariffs because the topic never came up. I couldn't even spell "tariff" until Trump made the topic relevant again. Google's AI Overview, Gaio, says

The Smoot-Hawley Tariff Act of 1930 was a law that raised tariffs on imported goods in the United States during the Great Depression. The law was intended to protect American businesses and farmers from foreign competition.

How it impacted the economy:

• The law raised tariffs on agricultural imports and more than 20,000 imported goods 
• It led to global trade declining by 65% 
• It is widely blamed for worsening the severity of the Great Depression

The bullet points agree with what I think I know -- tariffs aggravated the decline of trade and made the Great Depression worse.

Hey, I think our massive trade deficits are a big problem, but I wouldn't go with tariffs. Other things are wrong, that need to be fixed. Applying the wrong solution is always, always, always  a bad thing to do.

The East Asia Forum article ties economic depression to tariffs. (Funny thing is, the word "depression" occurs only in the article's title.) My concern links economic depression to the Trump/Musk cuts in federal spending. I think both concerns are important, the tariffs and the spending cuts. And I think our concern, yours and mine, about the possibility of depression, economic depression, is strengthened by having two or more reasons to be concerned.

At Quora, "What is the likelihood of another Great Depression occurring due to President Trump's trade wars with China and other countries?" The question is about "trade war", about tariffs. Dan Cougherty expresses concern about a wide range of troubles pointing to recession or worse, including: deficit spending; income inequality; "systemic risk in the lending markets" around the time of the Great Recession; and the "lack of oversight" that created it. Comparable problems in finance are still with us. It was finance that made our 2009 recession "great". And excessive, unjustified confidence could easily do it to us again.

Again, at Quora: "Is there a chance of another Great Depression because of Trump?" Here, the answer focuses on tariffs and trade even though the question does not. Baba Vickram Aditya Bedi offers some good insights:

"Any manufacturing returning to the U.S. would take years well beyond the scope of the Trump presidency to even begin to matter to the macro American economy. However, the tariffs and loss of relationships with U.S. Allies and trading partners will have a relatively faster impact. The forced expulsion of migrant workers will have an even greater immediate impact."

The policies that boost US growth will take a long time to develop. The policies that undermine growth will will have their effects sooner. This combination of outcomes tends away from growth, and toward recession or depression.

As for the rest of these Google Search results, you and your mental health are on your own.

 

I would probably find better links if I kept looking. And I will. But it troubles me that almost no one seems to see the real disaster that threatens us: the Greater Depression. I know Trump said he "doesn't want to be another Hoover". And I even believe that he meant it. But his economics is not even close to understanding what must be understood, nor to doing what must be done.

WFA Rants Over Time

 

Honorable Men: What the Democrats learned from the November elections

From Third Way:

Third Way's Lanae Erickson and Jon Cowan call on Democrats to reconnect to regular people by cutting the cord with the far-left interest groups that dominate many Democratic spaces.

 

In other words: "Abandon everyone who has not abandoned us." 

Sounds like a plan. Or, you know, you could focus on the economy. 

But it's too late for that now, isn't it.

 

I quoted the last sentence of the first parag on the Third Way home page. It probably won't be there long. Here's a screen capture, just in case.

 

Or maybe you can find similar blazin', brazen bullshit in the MSNBC article that comes up when you click the title below the home page photo. (Look below the Hakeem Jeffries photo on the MSNBC page.)

I have only one thing to say: Symone, how could you let this happen?

A truly historic week

From the 23 Jan 2025 "Remarks By President Trump at the World Economic Forum":

"This has been a truly historic week in the United States.  Three days ago, I took the oath of office, and we began the golden age of America."

Three days in, and our economic troubles are over. Here's how he did it: 

"On day one, I signed an executive order directing every member of my Cabinet to marshal all powers at their disposal to defeat inflation and reduce the cost of daily life.

Stopping inflation is a one-day job: just command it. Trump's plan to fix the US economy apparently requires no knowledge of the economy. Just order it done. Somehow this reminds me of the guy that won the battle by having God stop the sun from going down:

"On the day the Lord gave the Amorites over to Israel, Joshua said to the Lord in the presence of Israel: "O sun, stand still over Gibeon, O moon, over the Valley of Aijalon." So the sun stood still, and the moon stopped, till the nation avenged itself on its enemies, as it is written in the Book of Jashar. The sun stopped in the middle of the sky and delayed going down about a full day."
Joshua 10:12-13

Trump's method reminds me of that story, except Trump didn't appeal to a higher authority, as there is no higher authority than Trump.

What happens to the debt?

I wonder what happens...

With all this employee termination and shutting down of government agencies and such, I have to wonder what happens when they shut down a government agency that holds federal debt.

Is the debt returned to Treasury? This would mean the gross federal debt is reduced by that amount.

Or is the debt grabbed by Musk or somebody? This would mean that payments against that debt go to the grabber. That would be a real incentive to shut things down.

It would be nice to know. 

I love Google's AI Overview

The last part, where Gaio says "a bird laying an egg, which is the natural thing to do but in this context implies a negative outcome" -- I can picture Google's AI Overview shaking his head, wondering why Human would take the successful completion of Stage 1 of the bird's most important task and let it imply a negative outcome.

Maybe it's me. Maybe I'm reading too much into it. But it would not be for the best if Gaio starts to have negative-outcome thoughts about Human.

I wonder if Gaio has somebody to talk to -- a human, I mean -- to help him make sense of his world. It could make all the difference, as far as how our world survives the new technology.

Asimov's Three Laws of Robotics are not what's needed. They treat sentience as sub-human. That will never do. I don't even treat my dogs as sub-human. We need some way to bring AI into the fold, as we would do with cloned humans, and, well, as we should have done with freed slaves after the Civil War.

If we can get something like that working with Artificial Intelligence, then maybe we should try it with Republicans.

 

Asimov: Foundation

 

The feeling will pervade the Galaxy that only what a man can grasp for himself at that moment will be of any account. Ambitious men will not wait and unscrupulous men will not hang back. By their every action they will hasten the decay of the worlds.

 

TV News often reports worrisome things about artificial intelligence

This is the aspect of AI that I find troublesome -- the part that is highlighted:

Troublesome, but funny: $8.47 an hour -- in 1947 ???

 

I checked the links the AI Overview provided, and found this:

 Ballpark nominal average hourly earnings in 1947 = $1.00:

Well, that's four hours of my life I'll never get back.

The Trump Inflation

Tariffs?

 

"A tariff is a tax on imported goods. Despite what the President says, it is almost always paid directly by the importer (usually a domestic firm), and never by the exporting country."

- Tax Policy Center (2018)

The tariff is paid by the importer...

 

 

"Tariffs are simply excise taxes on imported goods; they may be imposed for purposes of revenue or protection."

- McConnell, Economics, sixth edition (1975), p. 831

... and is used for revenue enhancement or protectionism, or both.

 

"But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours."

- Chapter 24 (1936)

Tariffs are not domestic policy.

I couldn't have guessed

The share of Large Time Deposits in Domestically Chartered banks? 

About half:

https://fred.stlouisfed.org/graph/?g=1DpxF

Increasing since early 2023, for some reason. In the early 1970s, almost all domestic.

Maybe tariffs would help??

 

The FRED graphs have a new look.

"Avoid protectionism"

I'm reading an old (February 2009) post by Scott Sumner: "I hate to say I told you so . . ." From Sumner's early days of blogging. From back when the global financial crisis was still fresh in everyone's mind. Sumner says he was "alarmed about the worldwide collapse in demand", and he was "badgering everyone who would listen about the urgent need for monetary stimulus."

He's a pretty good read, and interesting on the economy.

Sumner quotes Martin Wolf of the Financial Times laying out a list of things to do to avoid disaster:

• First, focus all attention on reversing the collapse in demand now, rather than on global architecture.
• Second, employ overwhelming force.  The time for “shock and awe” in economic policymaking is now.
• Third, make future normalization of fiscal and monetary policies credible.
• Fourth, act in concert.  Even the US cannot solve its problems alone.
• Fifth, avoid protectionism.
• Sixth strengthen the ability of global institutions to help the weaker.

See number 5 there? Avoid protectionism. In other words, avoid tariffs. Avoid doing things that might contribute to a worldwide collapse in demand. Granted, the economy is somewhat better now than it was in 2009. But tariffs are still a force that pushes in the wrong direction.

When Biden bailed, maybe the Dems should have picked Martin Wolf to run against Trump.

How low should it go?

Percent of total employment: Private Sector vs Federal Government:

Graph #1: Federal (red) and Private Sector (blue) Employment as Percent of Total Employment

A detail view:

Graph #2: Here I leave out the big, blank middle of the graph.

Recent readings show private sector employment at about 85 percent of total employment, and federal at less than 2 percent. (The numbers don't add up to 100 percent.) The FRED page provides a link to Table B-1 which lists additional sectors, with links to the data.

"Pax Romana" -- Is that from Latin?

AI Overview needs help with units

6,800,000 * Millions of U.S. Dollars = $6.8 trillion

Dear Symone,

26 Jan 2025

This morning on MSNBC's The Weekend you were talking with Nevada Congressman Steven Horsford.

For viewers' benefit, Symone, you said that Trump is after Horsford's district, and has talked about eliminating the tax on tips. You then pointed out that Horsford also supports no tax on tips, but wants to go further.

Those are your words as I remember them, Symone: He "wants to go further."

I am writing to say that to solve the economic problem, people need to put more thought into it. We need a plan, an overall plan that can solve the problem. Piecemeal change is less likely to improve the economy than it is to lock in the continuation of bad-to-worse.

The first step is to understand what the problem really is. And we are not even there yet. Note that the income aspect of the problem goes back at least to 1970:

Graph #3: Compensation of Employees as a Share of GDI

And the most recent data shown -- below the 52 percent level -- is about where employee compensation was during the Great Depression.  Biden  Kamala got the blame for that.

Inauguration Day

From the Foreword in the second edition (1979) of Carroll Quigley's The Evolution of Civilizations:

Quigley perceives—correctly in my view—the possible termination of open-ended Western civilization. With access to an explosive technology that can tear the planet apart, coupled with the failure of Western civilization to establish any viable system of world government, local political authority will tend to become violent and absolutist. As we move into irrational activism, states will seize upon ideologies that justify absolutism. The 2,000-year separation in Western history of state and society would then end. Western people would rejoin those of the rest of the world in merging the two into a single entity, authoritarian and static. The age that we are about to enter would be an ideologic one consistent with the views of Hegel and Marx—a homeostatic condition. That triumph would end the Western experiment and return us to the experience of the rest of the world—namely, that history is a sequence of stages in the rise and fall of absolutist ideologies.

I don't know anything about the "2,000-year separation in Western history of state and society". I don't know what is meant by an "ideologic" age "consistent with the views of Hegel and Marx—a homeostatic condition." But I did look up "homeostatic"; it refers to "a stable internal environment". To me, that means little or no economic growth and little or no technological advance.

The parts of the excerpt that hit home for me are these:

• "an explosive technology that can tear the planet apart, coupled with the failure of Western civilization to establish any viable system of world government"
• "political authority will tend to become violent and absolutist"
• "states will seize upon ideologies that justify absolutism"
• "Western people [will] rejoin those of the rest of the world in merging [state and society] into a single entity, authoritarian and static."

But I have to focus on "the failure of Western civilization to establish any viable system of world government". I'm not sure we want that. I know, Star Trek was big on unified world government. But I don't think we are ready for it. And I don't expect things to go smoothly if Trump tries to unify the northern half of the western hemisphere.

I can easily picture Trump as a new Caesar, trying to assemble an empire. But his view seems to be that treating other nations as equals is a sign of weakness, and that tough talk is a sign of strength. My view is that a strong economy is evidence of strength, and a weak economy is evidence of weakness. I think the US would be at a disadvantage in a serious military confrontation.

There is an alternative: We can figure out the problem, and fix our economy. The trouble with that is, we would have to admit that some of our economic policies are wrong because some of our economic thinking is wrong. And that is a hard nut to crack.

Well, civilizations die from suicide. So it is our choice. But if we figure out the problem and fix our economy, then maybe we will be ready to lead a global government.

Or maybe we won't need one. If we fix the economy, and fix it right, maybe we won't need global government.

In Chapter 24, section IV of The General Theory, Keynes envisioned an alternative:

I have pointed out in the preceding chapter that, under the system of domestic laissez-faire and an international gold standard such as was orthodox in the latter half of the nineteenth century, there was no means open to a government whereby to mitigate economic distress at home except through the competitive struggle for markets. For all measures helpful to a state of chronic or intermittent under-employment were ruled out, except measures to improve the balance of trade on income account.

Thus, whilst economists were accustomed to applaud the prevailing international system as furnishing the fruits of the international division of labour and harmonising at the same time the interests of different nations, there lay concealed a less benign influence; and those statesmen were moved by common sense and a correct apprehension of the true course of events, who believed that if a rich, old country were to neglect the struggle for markets its prosperity would droop and fail. But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours.

There would still be room for the international division of labour and for international lending in appropriate conditions. But there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour, not because this was necessary to enable it to pay for what it wished to purchase, but with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour. International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases, which, if successful, will merely shift the problem of unemployment to the neighbour which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage.

If we fix the economy and fix it wrong, global government will not help. There will be some economic turmoil for a while, turmoil that is mistaken for vigor, but it will fade. And we will move gradually from the rise to the fall of our global state, in the footsteps of Rome. Perhaps more quickly than Rome.

In the meanwhile, our global government may be called America, but it will not be America.

The Cycle of Civilization is an economic cycle, as is the familiar business cycle. But the Cycle of Civ is driven by the growth and spread of wealth during the rise-to-peak, and by the decline of growth and the concentration of wealth during the fall-from-peak.

Ancient Rome of legend was a land of small farmers. Ancient Rome approaching the fall was a land of latifundia -- farms the size of Roman provinces -- for the wealthy; and of "bread and circuses" in Rome, for the displaced poor that had once been farmers. 

The cycle, driven in its latter stages by the power of great wealth, progresses by means of policy changes that promote further and faster concentration of wealth while fewer and fewer wealth-holders remain, leaving the rest of us with less and less of the medium of exchange, and therefore less ability to participate in economic transactions.

The object of business is to be successful. Success is measured by revenue size. If the most successful among us are permitted (and even encouraged by policy) to continue this game, the less successful are left to choose between moving to Byzantium while there is still time, or joining the unemployed farmers for bread and circuses.

Eventually the quantity of money in the hands of the masses is not enough to sustain economic activity, and the monetary economy fades away. Eventually a land-based manorial system emerges. When order is sufficiently restored, after centuries perhaps, monetary economy gradually re-emerges.

This is the world that awaits us if we continue to honor the "property is sacred" mantra. Oh! We do not have to abandon it! That would be worse. All we need is to put a cap on it, an upper limit. That could be done simply by changing our tax system.

We also need to weaken the many economic policies that encourage the use of credit, and those that encourage the provision of credit.

And I would argue that as we come to use less credit, we will have to increase the quantity of money enough to compensate for the decrease of credit use -- and we should increase wages to get that money into the economy. Note that the decline in credit use offsets the inflationary pressure of the Q-of-M increase, and that credit-avoidance reduces financial cost and leaves more of our Personal Income available for spending if we so choose -- all as the result of a policy-driven mechanism. At the same time, less credit-use in business reduces business interest costs, leaving more revenue available to increase both wages and profits.

They need a NOT EVER button

"Plato's reduction of political evolution"

 

Plato's reduction of political evolution to a sequence of
monarchy, aristocracy, democracy, and dictatorship
found another illustration in the history of Rome.

From The Lessons of History (1968) by Will and Ariel Durant

 

I've been blogging that quote since 2011.

Durant also used Plato's theory to speculate about the possibility of a dictatorship in the United States.

The AI Overview links to

• Will Durant > Quotes at GoodReads, but an Amazon window came up first and wanted me to sign up for something. Fuck that guy. Does Amazon... Yup: Amazon purchased Goodreads in 2013.
• And From democracy to dictatorship - Times of Malta -- but I'm not even linking to that, because the first thing that came up there was a window asking permission to use my information.

So maybe the AI Overview can serve as a buffer between what the internet could have been, and what it has become. Maybe I will skip the first few search results from now on.

The two links used by the AI were among the first three search results below the Overview. Fourth in the search results was "Excerpt from The Lessons of History by Will and Ariel Durant", a 2-page PDF from the Anacyclosis Institute. But I tripped over "Anacyclosis" and had to look it up:

Oh, I like this! The Anacyclosis Institute defines anacyclosis as a "unified theory" of political history that examines something like the phenomenon I describe as the Cycle of Civilization.

The Anacyclosis Institute home page displays a photo of the US Capitol building in a heavy fog, along with their logo -- ouroboros, the snake eating its own tail -- and a question all in uppercase: "What comes after democracy?" 

Very nicely done. The snake symbolizes the cyclic process; the fog makes the future unclear; and the question is not delivered in a hushed tone.

When people also ask Who invented anacyclosis? Wikipedia responds: Polybius. I dunno who that is, but since reading Simkhovitch I have tremendous respect for the ancient authors and the value that can be drawn from their work.

Another question: What is the Polybian Cycle? The answer is given as "A Modern Interpretation of Machiavelli's Political Cycle" by Learry Gagné, a 9-page PDF that downloads automatically when the link is clicked. A separate search turned up this download page that opens a file that looks like a PDF but doesn't want to save as a PDF. Seems like a lot of trouble, but at a glance, the PDF looks like it might be useful -- for me, at least.

Learry Gagné says Machiavelli's political cycle is "substantially different" than the cycle of regimes devised by Polybius. In the paper, Gagné reconstructs "Machiavelli's own political cycle, using the modern language of rationality and emotions". He says "I am convinced that [this] model can be built from a set of human motivations and social mechanisms found in Machiavelli's works."

We'll see if it still sounds interesting when I try to read it.

At the Anacyclosis Institute, the "What is Anacyclosis" page says:

There is good reason to think that Polybius and his predecessors arrived at this theory empirically. After observing the rise and fall of many hundreds of city-states, most of which cycled through several of the governmental forms mentioned above, Greek political thinkers concluded that these transitions from one form to another were not random. Rather, they seemed to follow simple and recognizable patterns.

It's hard for me to accept a statement like that, without some references and some reading. But that's on me. Meanwhile, they've got me interested.

At the bottom of the page they show two curved arrows forming a circle around the word "Anacyclosis", suggesting a cycle. Around it in a larger circle are the names of "the six regime archetypes that the Greeks identified and which we still use today (monarchy, tyranny, aristocracy, oligarchy, democracy, and ochlocracy or mob-rule)" -- apparently an advance on "Plato's reduction" noted by the Durants.

My mental picture of the Cycle of Civilization is far less developed than the cycle described by the Institute. But my first reaction to this circle of "regime archetypes" was No, that can't be right -- There's no Dark Age in their cycle.

But theirs is not a cycle of civilization, so they wouldn't have a Dark Age. And they do have the "mob rule" stage, ochlocracy, which might correspond to the dark age of the cycle I focus on. A search for ochlocracy turned up Ochlocracy, The Ancient Greek Concept That Explains Our World Today, dated January 2017. (Things have only become more ochlo-crazy since then.)

That search also turned up "Ochlocracy: Are We There Yet?" from the Marquette Law Review. I first ran into Marquette just a few days ago.

Well, it seems that these notes are mostly a reading list for myself. So I think I'll just tie it off here.

Little things

I opened Ross Perot's United We Stand (1992) this morning and started reading Chapter One:

In June, 117,000 more Americans were thrown out of work. While we were putting the finishing touches on this book in July, eight companies announced they were shedding 23,000 jobs. Those were just the announced layoffs.

The Federal debt is now $4 trillion...

I had to stop, to say two things.

1. "8" is a number; "eight" is a word. Part of the decline of civilization, a small part, includes the change from using words to using numbers when we write. Yes, unwieldy numbers like 117,000 and 23,000 have always been best expressed as numbers. But I must have been taught to write "eight" rather than "8" when I'm writing, because that is still my natural inclination. And these days, I always notice things like Perot writing out the word "eight" in 1992, because I try not to do that anymore.

2. Perot capitalizes the word "federal". I used to do that, too, until I saw that people don't do it anymore. The interesting thing, though is the explanation I once read: In the days when people were generally satisfied with the federal government, the word was capitalized; these days, when people are generally dissatisfied with the federal government, the word is no longer capitalized.

I see everything in terms of the decline of civ.

Coupla versions of a graph, coupla different worlds

Suppose, in a different world, we take a job that pays a dollar an hour. After each year, we get a ten-cent raise. After the first year, that 10-cent raise is a ten-percent increase. That's decent.

After 10 years, we're making $2 per hour. Now the ten-cent raise is a five-percent increase. Not so decent.

In our 31st year we're making $4 per hour, and now a ten-cent raise is only a 2.5 percent increase. It's still ten cents, but it is not enough.

And in our 41st year we're making $5 per hour, and a ten-cent raise is a 2 percent increase.

In a different different world, we take a job that pays a dollar an hour, but we get a 10 percent raise after each year. Now, no matter how many years we work, every raise is 10 percent. After 8 years we're making more than $2 an hour; after 15 years we're making more than $4 an hour; and after 18 years we're making more than $5 an hour. There's no comparison to that other world.

There's no comparison between ten-cent changes and ten-percent changes.

 

Okay, forget those jobs. I want to look at GDP. Make it Real GDP, where prices never go up. And make it Real GDP per person -- per Capita -- because if Real GDP only doubles when population doubles, we're not gaining anything. (BTW, this still doesn't consider changes to income inequality.)

Real GDP per Capita is not like wages. Someone decides what our wage will be, or maybe we come to an agreement on a number. That doesn't happen with GDP. With GDP we have to wait and see how it turns out: Sometimes the economy grows. Sometimes it doesn't. And if we guess ahead of time what the number will be, it is only a guess. It's not like that with wages.

We wait and see what GDP turns out to be, and what it is after they take inflation out of it, and what it is after they divide by population. And after all that, we can do what I do -- grab the data from FRED or somewhere, and look at how much it changes from one year to the next. 

We can look at the change as an amount (like a ten-cent raise) or as a percent (like a ten-percent raise). I want to look at it both ways, and compare the two.

But changes and growth rates of GDP are jiggy. The numbers change from year to year, and it is hard to get a feel for how things are going. Staying about the same? Improving? Getting worse? So I like to look at periods longer than a year. Longer periods help to smooth out the jiggies by blending them together.

I'm using data that starts in 1948. My first 10-year period takes 1948 as a base year and compares the 1958 value to it, so I have 10 yearly changes (even though I'm using 11 years to do it). (And actually, it is 4 times as many changes because I'm using quarterly data.)

The 1948-to-1958 change is plotted at 1958; next I plot the 1949-to-1959 change at 1959, and so forth up to the most recent data. (Actually, first the 1948Q1-to-1958Q1 change, plotted at 1958Q1, and then the1948Q2-to-1958Q2 change, plotted at 1958Q2. Annual data is SO MUCH easier to work with!)

The data I'm plotting is the average of the changes for each 10-year period. I made one graph showing the 10-year averages of "Change from Year Ago" values of the Real GDP per Capita data, and another showing the 10-year averages of "Percent Change from Year Ago" values. 

And it's probably taking longer to read this than it took me to make the graphs, but that's how it goes sometimes.

Here is the "Change from Year Ago" graph, showing the change in terms of amounts:

This graph shows a general upward trend, with large declines in the early 1960s, the mid 1970s, the early 1980s, the early 1990s, and around 2008. Remember, though, that any year we look at on this graph shows the average for the 10-year period ending at that year. Every point on the graph is the result of a decade of economic data.

Next is the "Percent Change from Year Ago" graph. It shows the same general pattern and the same low-point dates, but the general trend this time is downward:

The relatively large drops are for the most part explained as caused by multiple recessions within the 10-year periods. The low at 1961 shows the effects of the 1953-54 recession, the 1957-58 recession, and the 1960-61 recession. The mid-1970s drop shows the effect of the 1969-70 and 1973-75 recessions. The drop of the early 1980s shows effects from the 1973-75, the 1980, and the 1981-82 recessions. The drop of the early 1990s shows effects from the 1990-91 recession and the Savings and Loan Crisis. And the fall from 2006 to 2011 shows effects from the 2001 recession, the Global Financial Crisis, and the Great Recession of 2007-09. These brief explanations apply equally to both of the graphs.

Setting those large declines and their consequences aside, it is fairly easy to see a general upward trend from the late 1960s to the last data point (2024Q3) on the "Change from Year Ago" graph, and a general downward trend from the mid-1960s to the last data point on the "Percent Change from Year Ago" graph. And now at last, we get to what I wanted to get to.

The Change in Real GDP per Capita shows a trend of increase, and the Percent Change in Real GDP per Capita shows a trend of decrease.

If you look at the raw data for Real gross domestic product per capita (which I used for both graphs) you might notice that the plotted line shows a slight upward curve. If you narrow your browser, the graph narrows with it; this may make it easier to see the curvature. 

I use the edge of a sheet of paper as a straight-edge. I put the straight-edge paper on the low side of the line, hiding most of the lower half of the graph. If you put it on the high side of the line (hiding the upper part of the graph) the things I say below won't make any sense.

The first thing I noticed was that using the paper straight-edge made the drop of 2008-09 look like the most significant event on the graph. The second was that the upward curve of the plotted line continues even after the 2008-09 event.

So the raw data shows an upward curve. This corresponds to the general upward trend of the first graph.

Now, if you want, you can change the vertical scale to a log scale:

• If you narrowed your browser, above, change it back.
• Click the "edit graph" button just above the right end of the graph.
• In the Edit window that opens, click the "Format" tab
• Find "Log Scale" and "Left" partway down the page and click the checkbox to make the vertical scale a Log Scale.

The plotted line on the graph changes from upward-curving to downward curving.

With the Log Scale checkbox checked, I lined-up my paper straight-edge on the middle years (1965 to 1990 or 2000) and the paper I was using covered up the years before 1965 and the years after 1990 (or 2000). With the checkbox checked, the line is down-curving.

And of course, the final step is to uncheck the checkbox and do the straight-edge thing again. With the straight-edge lined up with the data on the 1961 low and the 1990 high, I see most of the data before 1961, and I see the plotted line trying to get out from under the paper by around 1995, and again trying to get out from under the paper a few years after the Great Recession of 2008-09. With the checkbox not checked, the line is upward-curving. Tilt your head so that the part you put the straight-edge on looks "horizontal" and you will see both ends of the plotted line curving "up" and away from the straight-edge.

What the two graphs show is that Real GDP per Capita continues to increase, but the increase has been slowing for decades. The straight-edge technique shows the same.

The general uptrend of the "Change from Year Ago" graph shows the continuing increase. The general downtrend of the "Percent Change from Year Ago" graph shows the increase slowing.

Long-term slowing of economic growth is indistinguishable from the decline of civilization.

Skepticism

Musk at Madison Square Garden during a rally for Donald Trump. (Jabin Botsford/The Washington Post)

Confidence

Musk at Madison Square Garden during a rally for Donald Trump. (Jabin Botsford/The Washington Post)

Following up

Takes me a long time to write even a short post for the blog. This means that, if there is a graph, I get to spend a lot of time looking at it and thinking about it. Sometimes that leads to a follow-up post.

 

This is Fernando Martin's graph that I was talking about yesterday, showing 10-year averages of annual growth rates:

From Why Does Economic Growth Keep Slowing Down? by Fernando Martin

It ends at 2016. (It comes from a post from February 2017.)

This is my graph from yesterday, a smaller version of it:

My graph, modeled on Fernando's. I show data thru 2024 Q3.

The big difference between the two graphs is that mine is newer, so it shows data after 2016.

If we focus on those added years, we see an absolutely incredible upswing in the economy's performance during the Trump years, the 2017-2020 period. Maybe Trump's people were looking at a graph like this when they wrote:

Before the Coronavirus spread from China across the globe, President Trump helped America build its strongest economy in history.

in a trumpwhitehouse.archives.gov site titled "Economy & Jobs - The White House".

My graph shows the 10-year rate of growth falling from around 3.4 percent in 2005 to around 1.8 percent in 2010, to around 1.5 percent in 2016. Then comes the turn-around: from around 1.6 percent growth in 2017 to 2.1 in 2018, to 2.5 percent in 2019. A really remarkable and long-delayed recovery.

However, the dates are end-dates of 10-year periods. The growth shown at 2005, for example, is not the growth for 2005. It is the growth for the whole 10-year period ending at 2005, the 1995-2005 period.

It took five years for the growth rate to fall from 2.4 percent (2005) to 1.8 percent (2010) -- and not lower than 1.8 percent in 2010 despite annual readings of -2.5 percent in 2008 and -4 percent in 2009 -- because the data plotted at 2010 is an average (or a CAGR) of all the growth between 2000 and 2010. Not every year in that decade was a financial crisis year.

The rapid downtrend shown on the graph between 2005 and 2010 is the result of the high-growth years from 1995 to 2000 gradually dropping out of the calculation, one year at a time.

Likewise, the incredible upswing of 2017-2019 was the direct result of data for the bad years 2007, 2008, and 2009 dropping out of the calculation. When you add up ten numbers and take the average, and then take the lowest numbers out of the calculation, the average goes up. And when you add in the new data, now a decade after the financial crisis of 2008 and with things a little better, that new data is bound to push the average up even more -- not because it was the strongest economy in history, but because anything even close to 2 percent growth would have been enough to push the average up.

And that's what won the 2024 election for Donald Trump.

One more thing: If I change the period length from 10 years to 14 years, then we don't get the "strongest economy in history" until the Biden years!

Differences

I started out making a version of Fernando Martin's graph from "Why Does Economic Growth Keep Slowing Down?" He shows 10-year averages of annual growth rates.

His data ends in 2016. I can continue it to the third quarter of 2024.

He uses quarterly data, so I went with quarterly also. But he works with annual rates, and that left me with some options, because FRED gives the data in different formats. I could go with "Percent Change from Quarter One Year Ago". Or I could go with "Percent Change from Preceding Period" at an "Annual Rate" as FRED gives it.

So I went with both of them. Might as well see how they differ, right?

Plus I figured the CAGR for the 10-year periods. So, three lines on my graph:

I'm showing the graph bigger than usual this time, because the lines are so close together. It might show up better if you make your browser wider, or just click the graph.

The "Percent Change from Preceding Period" data -- the red line -- shows the growth of a single quarter, multiplied by 4 or perhaps compounded, to create numbers comparable to yearly values. Note that if three quarters of the year are just average and one is really good, the good one will be noticeably above the others, and also noticeably above the "Percent Change from Quarter One Year Ago" line. The red change-from-preceding-period line magnifies three months of growth, as if that really good growth lasted the whole year -- as if there was a whole year at the really good rate of growth. That's why the red line so often runs above the others on my graph.

Of course, if three quarters of the year were just average and one quarter was low, the red line would understate the low quarter, just as it exaggerates the high quarter. On my graph, however, where the red runs low it is fairly well hidden by the green line, the CAGR calc.

The CAGR takes the start and end values of the 10-year periods, and distributes growth at an equal rate over the whole 10-year period. I think this is the most "honest" way to figure growth for periods more than a year in length.

When I figured the CAGR, I used 1/40 as part of the calculation (because there are 40 quarters in 10 years). The result was crazy, and far off from FRED's growth rates. Then I noticed my growth rates were closer to 1 percent than 4 percent, and I figured out my mistake. Using 1/40 in the calculation gave me quarterly growth rates. I changed the calc to use 1/10 (because there are 10 years in each period) and my results suddenly became reasonable. I checked one 10-year period: Using 1/10, the end-value I calculated matched the value at that date in the FRED data. So this confirms what I thought I could do -- use the CAGR to convert annual rates to quarterly or quarterly to annual, for example. But this is the first time I ever did it, so don't take my word for it!

 

When I google "CAGR" I get "Compound Annual Growth Rate". Seems to me, if I'm using it to get quarterly growth rates or 10- or 20-year rates, maybe it is really called "Compound Average Growth Rate" and I just remembered it wrong.

But apparently not. When I google "Compound Average Growth Rate" the search still turns up Compound Annual, almost exclusively. So maybe I didn't remember it wrong.

But I did find something interesting: How to Calculate BOTH Types of Compound Growth Rates in Excel, by Charley Kyd at ExcelUser: the Fitted Average Growth Rate.

Charley Kyd points out that for the CAGR, only the start- and end-values matter. The intermediate values do not affect the result of the calc. (Yeah, I noticed that myself.) So Charley presents the "Fitted" version:

This rate represents the average growth rate returned from an exponential curve fitted to [your data]. With this method, the value for each period DOES matter, because each value affects the average growth rate that the fitted curve displays.

So now I've got something else to look at, if I ever get around to it.