tag:blogger.com,1999:blog-76221698477607087602024-03-28T04:15:54.982-04:00econcrit"The commonwealth was not yet lost in Tiberius's days, but it was already doomed and Rome knew it. The fundamental trouble could not be cured. In Italy, labor could not support life..." - <a href="https://www.jstor.org/stable/2141560">Vladimir Simkhovitch, "Rome's Fall Reconsidered"</a>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger1045125tag:blogger.com,1999:blog-7622169847760708760.post-58038207763329390132024-03-28T04:00:00.270-04:002024-03-28T04:00:00.284-04:00Overwhelming evidence<p>Milton Friedman didn't like <i>too much money</i>. But he also didn't like too <i>little</i> money. In <a href="https://archive.org/details/moneymischiefepi0000frie/page/48/mode/2up?q=%22One+major+finding%22">chapter 2 of <i>Money Mischief</i></a> he wrote:</p>
<blockquote>There is strong evidence that a monetary crisis involving a
substantial decline in the quantity of money is a necessary and
sufficient condition for a major depression.</blockquote>
<p>Insufficient money can cause a depression. If the "monetary base" grows too slowly it can cause a major
downturn. That has happened twice in the past hundred
years:</p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9GnfKlBEDixQ1UUiLNGlGeMZoUpShHuhWy6BLqT9oPQLLuqEbIGIMJ3HRab3t3tz9Vb-IJioh0Gp1pMUIG_Cx8YdK-Rm2CHZMT-56inNtv5U11pSve6a1PzhF3gOSnDBg1u36Ong1TS4/s1600/Base+Money+Growth+Rate+markup.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0NxD2ySDEM4OgICr4cj3R7JFXmkVfR5lWXeXdshyyHAEnmqh6O_yEpDZAMbPlft5XDLujA7_8Y8BPOeFL8cfPz6ql2KmESNLqRR9-cQGd6lrZYvV-2r_BG3gna4TxxlkIlPAgdLFrX6s/s1600/Base+Money+Growth+Rate+markup+fit.png" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=1ikD3">Graph #1</a>: Growth Rate of the Monetary Base<br />From mine of <a href="https://econcrit.blogspot.com/2021/02/wow-just-wow.html">10 Feb 2021</a><br />The downtrend before the Great Recession runs from 2001 to 2008.</td></tr></tbody></table>
<p></p><p><br /></p><p></p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnJLeMbJ_bVxBssbJ_WovzJLPN85IQNXbLROC3p-RbALS2DuVhREE47nJCEw1tG3fRd1BUukj7t9cxia4rXi3cKkQAPa8WmlfCjmQUGHtQqJ1hCkA3cor5VkDcq7sQBLojUyr4AvpIndKKB__s4wKO1YVVjSGfQE3tHtISQaIvh9GYKvAX_VTUaGBhRsM/s513/FedDebtHeldByPublic%20with%20Exponential%20Trend%202001Q2-2023Q3%20fit.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="345" data-original-width="513" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnJLeMbJ_bVxBssbJ_WovzJLPN85IQNXbLROC3p-RbALS2DuVhREE47nJCEw1tG3fRd1BUukj7t9cxia4rXi3cKkQAPa8WmlfCjmQUGHtQqJ1hCkA3cor5VkDcq7sQBLojUyr4AvpIndKKB__s4wKO1YVVjSGfQE3tHtISQaIvh9GYKvAX_VTUaGBhRsM/s16000/FedDebtHeldByPublic%20with%20Exponential%20Trend%202001Q2-2023Q3%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Graph #2: Federal Debt 1970-2023 and the 2001-2023 Exponential Trend<br />From mine of <a href="https://econcrit.blogspot.com/2024/03/federal-debt-held-by-public-1970q1.html">7 March 2024</a><br />The "below trend" data before the Great Recession runs from 2004 (or before) to 2008-09.</td></tr></tbody></table>
<p></p><p><br /></p><p></p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyoUOmu4ehFOF7IpNUBOC6loIXESWzsoN7KY8SbQ-AJGk1-LPFqu0Adifj1xs09iKSbqORb2Zvq6BOaadGOaXy6z4jAi5d3tWqAGSIUPXjWoeBBxKTBvapoV1CUhi_vnXzZ9u8KzBG7zkpXcoUgeZ66jZffBwjeXqfbm1wOoIgpS6GzkzrklmYUFTkMFY/s802/The%20Quantity%20of%20M1%20Money%20per%20dollar's%20worth%20of%20GDP%20markup.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKdRSlarlKNxpS_wZLsjmwxBcvcMBK99br7KoRDPZnebMxg-D3PqIUap8F6FQH7n8KxadyQBM7iFiXldRLc0CudrWcK1T7OUlhrlQpz28b4cUreLjfBvrbwFTYPoVx3j7JcuaE04GOyl-2y9iJBxehx1NzLR7_JF-le2YJdNn8KbSqoJNPdNqKpqRYfBs/s16000/The%20Quantity%20of%20M1%20Money%20per%20dollar's%20worth%20of%20GDP%20markup%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=1itOJ">Graph #3</a>: The Quantity of Transaction money per Dollar's Worth of GDP<br />The low before the Great Recession runs from 2004 to 2009.<br /></td></tr></tbody></table><p>
</p><p><br /></p><p>Fiscal and monetary policy cooperated, creating a substantial decline in the
quantity of transaction money, from the record low of 2000-01 to a level
at which our economy could no longer function.<br />
</p><p></p><p></p><p> "<i>... substantial decline in the quantity of money is a necessary and
sufficient condition for a major depression.</i>"</p><p>The evidence is overwhelming.<br /><br /></p><img alt="" border="0" src="https://4.bp.blogspot.com/_fZWzmzvDF4o/SnvWdCIeFsI/AAAAAAAAAJw/k_oiLTSVsYc/s400/divider2.gif" style="-moz-box-shadow: 0px 0px 0px transparent !important; -webkit-box-shadow: 0px 0px 0px transparent !important; background: none; border: medium; box-shadow: transparent 0px 0px 0px; display: block; height: 3px; margin: 11px auto 8px; padding: 0px; text-align: center; width: 305px;" /><p><br />As an afterthought, I quote from Robert Lucas's "<a href="https://www.nobelprize.org/uploads/2018/06/lucas-lecture.pdf">Ptize Lecture</a>" of 1995:</p><blockquote><p>Evidence on trade-offs is also marshalled, though in a very different way, in Friedman and Schwartz’s (1963) monograph <i>A Monetary History of the United States</i>. These authors show that every major depression in the United States over the period 1867-1960 was associated with a large contraction in the money supply, and that every large contraction was associated with a depression. These observations are correlations of a sort, too, but they gain force from the size of the largest contractions. In a period like the post-World War II years in the United States, real output fluctuations are modest enough to be attributable, possibly, to real sources. There is no need to appeal to money shocks to account for these movements. But an event like the Great Depression of 1929-1933 is far beyond anything that can be attributed to shocks to tastes and technology. One needs some other possibilities. Monetary contractions are attractive as the key shocks in the 1929-1933 years, and in other severe depressions, because there do not seem to be any other candidates.<br /><br />Sargent (1986) also examines large, sudden reductions in rates of money growth (though not reductions in the levels of money stocks). In his case, these are the monetary and fiscal reforms that ended four of the post-World War I European hyperinflations. These dramatic reductions in growth rates of the money supply dwarf anything in Friedman and Schwartz or in the post-war data used by McCandless and Weber. Yet as Sargent shows they were not associated with output reductions that were large by historical standards, or possibly by any depressions at all. Sargent goes on to demonstrate the likelihood that these reductions in money growth rates were well anticipated by the people they affected and, because of visible and suitable fiscal reforms, were expected by them to be sustained.<br /><br />... The observation that money changes induce output changes in the same direction receives confirmation in some data sets, but is hard to see in others. Large scale reductions in money growth can be associated with large scale depressions or, if carried out in the form of a credible reform, with no depression at all. <br /></p></blockquote><p>I'm not one to leap to Milton Friedman's defense. But in this case I have to. Robert Lucas presents a version of Friedman and Schwartz's view that is a satisfying equivalent of the Friedman quote in the opening of this post. But then Lucas seems to turn around and challenge Friedman's view:</p><blockquote><p>These observations are correlations of a sort, too, <i><b>but</b></i> they gain force from the size of the largest contractions. <br /></p></blockquote><p>Lucas could have said <i>they are correlations <b>and</b> they gain from the size</i> -- thus adding the two positives together -- but he chose to say <i>they are correlations <b>but</b> they gain from the size</i>, as if the size subtracts from the significance of the correlations.</p><p>And they are only correlations <i>of a sort</i>.<br /></p><p>Then, rather than appreciating Friedman's willingness to evaluate the largest contractions, Lucas minimizes Friedman's effort:</p><blockquote><p>[A]n event like the Great Depression of 1929-1933 is far beyond anything
that can be attributed to shocks to tastes and technology. <i><b>One needs
some other possibilities</b></i>. </p></blockquote><p>Lucas even takes advantage of an opportunity to criticize Friedman for using large contractions that were <i>not large enough</i> to disprove Friedman's view:<br /></p><blockquote><p>Sargent (1986) [studied] dramatic reductions in growth rates of the money supply [that] <i><b>dwarf anything
in Friedman and Schwartz</b></i> or in the post-war data used by McCandless and
Weber. Yet as Sargent shows <i><b>they were not associated with output
reductions</b></i> that were large by historical standards, or possibly by any
depressions at all.</p></blockquote><p>Lucas provides the weakest support for Friedman that I have ever seen: <br /></p><blockquote><p>Monetary contractions are <i><b>attractive</b></i> as the
key shocks in the 1929-1933 years, and in other severe depressions,
<i><b>because there do not seem to be any other candidates</b></i>.</p></blockquote><p>That's not support. Lucas is trying to undermine Friedman's view. But for crying out loud, what Friedman said (at least in <i>Money Mischief</i>) was<br /></p><blockquote><p>There is strong evidence that a monetary crisis involving a
substantial decline in the quantity of money is <i><b>a necessary and
sufficient condition</b></i> for a major depression.</p></blockquote><p>Friedman did not say a substantial decline in the Q-of-M <i>guarantees</i> that a depression will follow. Lucas was being ridiculous, saying what he said. Worse than ridiculous, and I'm being polite.<br /></p><p>Lucas concludes his thought by suggesting that good policy can prevent the depression, as if this somehow proves Friedman wrong. But surely, if policy was that good, it would not have created the substantial decline of money in the first place! And dumb luck doesn't count as good policy. It counts as luck.</p><p>Given what Lucas said, I must emphasize the point that economic policy is all-important. Lucas himself seems to miss that point, preferring to emphasize that Friedman was wrong. As if any fool could make good policy.</p><p>It takes a special kind of fool to make good policy. <br /></p><p></p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-66110502532633635352024-03-14T04:00:00.023-04:002024-03-14T04:00:00.158-04:00Employee Compensation as a Percent of GDP<p>Two questions: <br /></p><p>1. Why does no one say the Biden economy is good? One reason: As a percent of GDP, <a href="https://fred.stlouisfed.org/graph/?g=1icbD">employee compensation</a> has never been lower:<br /></p>
<!-- by "The Arthurian" -->
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrYbMXucx28JWryncmGkB_NN7oWN6XnvLZSqWDfzbhHlTrEumNYN9Ixl897VKghT8g2utb-XvHsgI-KIiSRlgdYzWxAkOAKLKKvX5eMqxs-bvlOpofMEo6xzqUfS7vrSw8lljQaNRfeX3wYsLdGKfvnrori-sYiLhtreRlMD_0wB-03d4wZ62P1T0nQUs/s800/Employee%20Compensation%20as%20a%20Percent%20of%20GDP.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="314" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjc-hxGymp64ySPL-I6cFoxcByqur2gKQ8rHRLeFqFWAYyuPHYOLFFMH8ARXW5dfHaCrg73Er6n2PWoX_3WL0Zeb7ttAg1BK4H68fTzpOi3Xn6TU-GZ3Diga5x8Rc0XtTx8l4H8VX0C9RJ3VngG7Iu_b-uv-u3IL2jiHPtxeBmjzdC-aDLRaPDXU7B71tM/s16000/Employee%20Compensation%20as%20a%20Percent%20of%20GDP%20fit.png" /></a></div><br /><p>2. Is that Biden's fault? No. Employee compensation has been all downhill for half a century. That's not Biden's fault.<br /></p><p></p><p> </p><p>Third question: What is to be done? The first three steps in solving a problem are</p><ol style="text-align: left;"><li>Correctly understand the problem.</li><li>Correctly understand the cause of the problem.</li><li>Correctly understand the cause of that cause. </li></ol><p>Hint: Low employee compensation is not the problem. It's a result.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com2tag:blogger.com,1999:blog-7622169847760708760.post-47592556931244377072024-03-12T04:00:00.001-04:002024-03-12T04:00:00.132-04:00A Political Note<p>For those on CNN and MSNBC who repeatedly wonder why no one appreciates how great the Biden economy is...</p><p>and setting aside my ordinary response BECAUSE THE ECONOMY ISN'T GREAT...</p><p>there is this statement from J. M. Keynes, quoted by Milton Friedman in chapter 8 of <i>Money Mischief</i>:</p><p><br /></p><blockquote><p><span style="font-size: medium;">There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction</span> ...</p></blockquote><p><br /></p><p>Keynes said it, and Friedman quoted it. That makes the statement twice as valuable, no matter which side you're on.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com1tag:blogger.com,1999:blog-7622169847760708760.post-57329716772883696022024-03-10T04:00:00.023-04:002024-03-10T04:00:00.392-04:00Don't brag about our economic growth, make it worth bragging about<p>My wife insists on watching CNN and MSNBC. I find the shows tiresome because their arguments are often weak. For example, a Biden supporter comes on the show and says the U.S. economy is doing better than any other country. I don't believe it. Last I checked, China's economic growth rate had fallen from 10% to 6%. That may be slow for China, but 6% annual growth is about twice the U.S. rate. </p><p>But even if it is true, it is not a strong argument. A strong argument would be to compare recent U.S. economic growth to <i>our own </i>past growth, and point out how well we are doing now. But we cannot do this because, by that standard, we are not doing well.<br /></p><p>To see how good our economy is now, I compare our current performance to the high points of our past performance. The red line on the graph below shows the trend of those high points:</p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_VFSRogebowr0316DToGAP8Hy7Rv8plBZXIHW_ac6RI0PcaRAk_fTHSzFZ6wYa8y7lsWKJqbp66F-6bn8D2REQFf-QgOZIaX8ksLnk2-siZtqDrh8-jGLDkarAHIVFArRkeqMGH9OzPotzdgWZaCoCmu6SUJt0RR34SVMyKtvHnmZ3McILGhfG-odI34/s800/Annual%20US%20RGDP%20Growth%20Rate%20and%20the%20Trend%20of%20Peaks%20%201948-2023%20%5BFRED%201i4dY%5D.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkkrr20ulPP6cpK0-QHWlTT-t5mPobV8G_XGttJCsQF1TyNJOmeX9repaX73uj7Y2kxlJrwcf140cjh8QkeD5rJYbzt254KtS8jwxgty7yOr7Yv1vsADSt66YzD6zGHcs7DafYBCfaQIq5NUTGdSyAjR-0THawFJjbNkOLfk0crSG2XbFXw0MwZgXx3ws/s16000/Annual%20US%20RGDP%20Growth%20Rate%20and%20the%20Trend%20of%20Peaks%20%201948-2023%20%5BFRED%201i4dY%5D%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=1i4dY">Annual US Real GDP Growth Rate and the Trend of Peaks 1948-2023</a></td></tr></tbody></table><p>I connected the 1955 peak (7.1% growth) to the 2018 peak (3.0% growth), then extended the red line out to 2023 and back to 1948. Three above-trend peaks are easy to spot:</p><ul><li>1950-1951: Probably due to Korean war spending</li><li>1984: Reagan's "Morning in America"</li><li>2021: Real GDP growth in the year after the covid shutdown</li></ul><p>In addition, U.S. economic performance surpasses the trend of peaks briefly in the mid-1960s, and again in the latter 1990s. Other than that, all the peaks are at or below the trend line. Even the 2023 data (which is preliminary and will likely change) is <i>below</i> the trend of peaks. If I was Biden, I would be embarrassed that my people are bragging about how good the Biden economy is. His people are probably losing him votes. <br /></p><p>By the way, the trend line itself shows a downtrend nearly as long-lived as Biden. This downtrend is clearly not Biden's fault. Maybe he should say as much, and add that he wants to turn the trend upward in the next four years. <br /></p><p>That trend can't go much lower. It fell five percentage points in less than 80 years, and is now near 2.5%. If the trend continues another 40 years, it will be approaching zero growth. Zero GDP growth means the only way to get a raise is to take income from someone else. That's not how things are done among a civil people.</p><p>There are better ways to run an economy, other than expanding credit and accumulating private-sector debt until the economy wants to die. "<a href="https://www.bradford-delong.com/1965/12/time-the-economy-we-are-all-keynesians-now.html">Perhaps the U.S. needs another, more modern Keynes...</a>"</p><p><br /></p><img alt="" border="0" src="https://4.bp.blogspot.com/_fZWzmzvDF4o/SnvWdCIeFsI/AAAAAAAAAJw/k_oiLTSVsYc/s400/divider2.gif" style="-moz-box-shadow: 0px 0px 0px transparent !important; -webkit-box-shadow: 0px 0px 0px transparent !important; background: repeat; border: medium; box-shadow: transparent 0px 0px 0px; display: block; height: 3px; margin: 11px auto 8px; padding: 0px; text-align: center; width: 305px;" /><p><br />I checked: They dunno 2023 yet. But for 2022, <a href="https://fred.stlouisfed.org/graph/?g=1i43J">China's real GDP grew 2.99%</a>. So, 3 percent in 2022. The U.S. GDP grew 1.9% in 2022, and 2.5% in 2023. In 2021, the bounce-back year after the covid-shutdown recession, U.S. GDP grew 5.8% while China's economy grew more than 8%. </p><p>"Which country is doing better?" is the not the question to ask. Better would be "How do we fix this?"<br /></p><p> </p><p>To my good eye, comparing US growth to that of other nations makes for a weak argument. Comparing our current economic growth to that of our own past makes a much stronger argument. But Biden can't do that until he makes the trend turn upward. And the trend will not show growth improving until we start making better economic policy decisions.<br /></p><p>Don't brag about our economic growth, make it worth bragging about. All we need is the right plan.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-9806891265502789402024-03-07T04:00:00.060-05:002024-03-23T06:52:50.534-04:00 Federal Debt Held by the Public, 1970:Q1 - 2023:Q3<p>So I happened to look at Federal Debt Held by the Public at FRED:</p><p></p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigh9X4x0JVpiwl-o86JAQTNK0NBkc8DWrpYOC1WE4O0iIKGr1b7nXXSUa8ZArTzztsgkT_vijzicuTTvOaxtlF3aUf_l0IyD6CMYTfLadM0bP1gXtPFhhTvWJDQdOPET7uXpe9rG0vZBTolcCKt_E_hb1lT2tA87dZc8RHCjqm5BRObGasBut8xgC5WJY/s800/Federal%20Debt%20Held%20by%20the%20Public.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIfOy_UMWNnNoSZtMdjWqfd2hirf8JltyoPFJN0an7R32Ly5V-chBttAxnHJxXo_rQvV63jSBO1u0ffmFXimwWb6471gNsxGJYHVsNQ3gjnY-9gcOBprI8yvl_v8MaydCdP0wnEwoIejSjzBK4KXD89kL2R8TC6ffBttxp2GF69pX7V1rnVGjHljkGCnM/s16000/Federal%20Debt%20Held%20by%20the%20Public%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/series/FYGFDPUN">Graph #1</a>: https://fred.stlouisfed.org/series/FYGFDPUN<br /></td></tr></tbody></table><p>It
curves up a little from 1970 to 1990. It curves down a bit then in the
1990s, the Clinton years, as you may remember. Then, since 2001, it goes
up for a short decade, and UP for a long decade, and then SCREAMING UP
to end-of-data.<br /></p><p>You may have heard some of that screaming in Congress in the past couple years.</p><p>Hey,
I'm writing this because the federal debt in the current millennium is
eye-catching (to say the least). My first reaction, looking at the years
since 2001, was <i>That's gotta be exponential</i>. So I had FRED show the "natural log" values:</p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWqmkLrNenByLnQmCsQgcbPcAOgGOsg5coWcMLI4E2_knQAhcEiTrHfVAzYaZU34EB7S94nje-vfOEUyD1QagSK0ix9Ye4te2XSdBQhlzjjpTcHNp6G-c6bE9yzmQQDadCxQrjK1qOW7bD4DUwIDH_OTKLU4Q6viWdYOZSURcRtzKjx4Nn1-SOGlJ87sU/s800/Natural%20Log%20of%20Federal%20Debt%20Held%20by%20the%20Public%20%5BFRED%201hHJY%20%5D.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWtwFYDjlI0xOnO4TbugFfReBEkuAtL_En9Q4oq3lXLXkd4oIM8gANppHJr1jfl4NzdcubOLrfZGZCeGgAkf2uv2tCbgNpbF_fEfBsdvne7D1xj00xMADLP_yZ4OdA0CoAIqfe8Ndgsq_Z21H_8sGWBPCDw8JN1Fzelhy1trMRS1QxT8akB8oYYxXhMoE/s16000/Natural%20Log%20of%20Federal%20Debt%20Held%20by%20the%20Public%20%5BFRED%201hHJY%20%5D%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=1hHJY">Graph #2</a>: https://fred.stlouisfed.org/graph/?g=1hHJY<br /></td></tr></tbody></table><p>Now it doesn't go up and UP and <span style="font-size: large;">UP</span>. Shown as log values, it's <b>almost a straight line</b> going up from the low point in 2001, to end-of-data in 2023.</p><p>When
log values show a straight line it means the rate of growth is
constant. That's "exponential" by definition -- a constant rate of
growth, and a constant doubling time. On this graph, since 2001, it looks pretty straight. It suggests that the growth rate of the
federal debt has been nearly constant since 2001 -- something that is
hard to see on the first graph. There is a bit more curve in the Obama
years than before or after. But there was more fixing of the
economy to do at that time, what with the financial crisis and all. </p><p>After
2020, the slope of the line looks about the same as the slope from 2001 to
2008. So, the rate of federal debt growth might be about the same in the Biden
years as it was in the George W Bush years.</p><p>Sure, there is more
debt after 2020 than there was by 2008. That's what happens when debt
grows. You get more of it. </p><p><br /></p><p>I wanted to put an exponential
curve on that first graph, to see how it fits the plotted data. FRED
doesn't let me do that. So I brought the data into Excel and did it
there:</p> <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuKQbH_v1dKL4ErF9nkpyRo26kNjTjRk1VNKcHDhSg7_-MWUWPnWGI_EErruaixJ_x0zf6YT_IV099YcWyZFxwJHSlrggkqOT6l_2aARkgmbZZ8WWetH18m7LMgz3kZXFyr3jLUDl4XoWV3Ere02z56C-kGOz1Y_TkpNupaqGC3_oTC2toCG0mb_VRUgc/s514/EXCEL%20Federal%20Debt%20Held%20by%20the%20Public%20&%20Exponential.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="346" data-original-width="514" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuKQbH_v1dKL4ErF9nkpyRo26kNjTjRk1VNKcHDhSg7_-MWUWPnWGI_EErruaixJ_x0zf6YT_IV099YcWyZFxwJHSlrggkqOT6l_2aARkgmbZZ8WWetH18m7LMgz3kZXFyr3jLUDl4XoWV3Ere02z56C-kGOz1Y_TkpNupaqGC3_oTC2toCG0mb_VRUgc/s16000/EXCEL%20Federal%20Debt%20Held%20by%20the%20Public%20&%20Exponential.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Graph #3: The red line is an exponential curve based on<br />data for the 2001:Q2-to-2023:Q3 period</td></tr></tbody></table><br /><p>The
red line shows the "trend" since 2001; data from before 2001 was not
used to create the red line. It shows the 2001-2023 trend of "held by
the public" federal debt. If the red line matches the blue in the 1970s
it is by chance, or due to the constancy of human nature maybe -- or my eye is off -- but it
is not due the arithmetic making them match.<br /></p><p>The lows of
2005-2008 (which probably contributed to starting the 2008 financial
crisis), of 2016-2020, and from 2022 to end-of-data, together offset the
high of 2009-2015 (a high which probably prevented a collapse of the
banking system). (Dates approximate.)<br /></p><p>And it is interesting to see that the very large debt increase of 2020 did no more than bring the federal debt <i>back up to the trend</i>.</p><p>Again,
these dates are approximate: From 1975 to 1995, debt held by the public
rose more and more above the trend. In other words, all through the
Reagan years, and the first Bush, and the Clinton years before the 'New
Economy" of the latter 1990s, the growth of federal debt ran
increasingly above trend.<br />
</p><p>The next graph uses the same data as graph #3, but shows the "natural log" values of that data (as with graph #2):</p><p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqUzVNLvu2S5qA2x-gEME_QUi2T6mmCfIjRvD8eDpBYFNkg_N8do4bTww2pjN6Ce11UMzNH9_DJmeQ_yYH-7iIoxMniXzo2sVVJgrfZ16bLr1SexGHt_BogQC031zKncXelXFFcgn7fFVpxmk6y53tb_3NobUHOW0wy8eK-4CxPv2JuFo9v0jq-usOFR8/s514/EXCEL%20Log%20Federal%20Debt%20Held%20by%20the%20Public%20&%20Exponential.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="346" data-original-width="514" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqUzVNLvu2S5qA2x-gEME_QUi2T6mmCfIjRvD8eDpBYFNkg_N8do4bTww2pjN6Ce11UMzNH9_DJmeQ_yYH-7iIoxMniXzo2sVVJgrfZ16bLr1SexGHt_BogQC031zKncXelXFFcgn7fFVpxmk6y53tb_3NobUHOW0wy8eK-4CxPv2JuFo9v0jq-usOFR8/s16000/EXCEL%20Log%20Federal%20Debt%20Held%20by%20the%20Public%20&%20Exponential.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Graph #4: The red line is an exponential curve gone straight<br />because the graph uses log values.</td></tr></tbody></table><br /><p id="BelowTrend">Based on what I see in these graphs, it still holds good that: <br /></p><ul style="text-align: left;"><li>The below-trend federal debt growth of 2005-2008 probably contributed to starting the 2008 financial crisis. There was also the <a href="https://fred.stlouisfed.org/graph/?g=1hoNU ">low growth of M1 money in the same years</a>, and the <a href="https://econcrit.blogspot.com/2021/02/wow-just-wow.html">low growth of base money in those same years</a> as well. As Milton Friedman points out in Chapter 2 of <i>Money Mischief</i>,
"a substantial decline in the quantity of money is a necessary and
sufficient condition for a major depression." We almost had one in 2008.</li><li>The high federal debt growth of 2009-2015 probably prevented a collapse of the banking system.
</li><li>And, again, the very large, covid-related debt increase of 2020 did no more than bring the federal debt <i>back up to the trend</i>. Graph #1 clearly shows the size of that increase and #3 shows the return to trend.</li></ul><p>The
graphs also show that all through the Reagan years, and the first Bush,
and the early Clinton years (before the 'New Economy" of the latter
1990s), the growth of publicly held federal debt ran increasingly above
the trend. People often talk about how <a href="https://newarthurianeconomics.blogspot.com/2015/03/they-didnt.html">the federal debt "exploded" after 1980</a>
-- how it grew so much faster than GDP. Well, debt did grow faster for some years after 1980 than before, but most of the difference we see on the graph is because <span style="background-color: #fcff01;" title="NOTE: The rate of inflation increases the GDP number. It also increases additions to debt, because prices are higher. But inflation does *not* increase debt that remains from prior years. Inflation increases every dollar of GDP and current additions to debt. Inflation increases only about ten percent of total debt in any given year. For this reason, inflation increases GDP far faster than it increases accumulated debt. Under high inflation, the more so. And the opposite is true when inflation is coming down: The inflation-induced changes to both GDP and total debt grow smaller. There is less inflation on all of GDP, and less inflation on a fraction of total debt. There is not a big difference between the two small increases arising from mild inflation. So as inflation dissipates, the increase in nominal GDP dissipates, and the more rapid growth of debt becomes easy to see.">the rate of inflation was coming down after 1980</span>.</p>
<p>At the lower rates of inflation, nominal GDP increased at a lower
rate, so the rapid growth of the debt was easy to see. Debt did grow
faster after 1980 than before, but most of that was due to inflation
coming down -- to disinflation -- not to accelerated debt growth.
Anyway, as the graphs show, above-trend growth of debt started in the
mid-1970s. So some, but not all of the rapid debt growth was due to
Reagan spending like a madman. I know nobody wants to hear it, but
that's how it is.</p><p></p><p><br /></p><p>One more graph:</p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSx4N8bgN4SjdDmcvuh5rd_m30DFKbf91kJUYz4T8xLWpv6qAdJ9aXyoDx9yWvIwgo0vV8_ArActePFd9LT2lDKPFv_aZNaHhj4zHVgeiGvvnl09pE3GR_0xzy-509j8eM4esERNCWI5H50cPKOdx16Y48c-WxfnRnLXd9Fg_jrW-bGQpGs3aAHh9pL6A/s514/Federal%20Debt%20Growth%20(5-Year%20CAGR).png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="346" data-original-width="514" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSx4N8bgN4SjdDmcvuh5rd_m30DFKbf91kJUYz4T8xLWpv6qAdJ9aXyoDx9yWvIwgo0vV8_ArActePFd9LT2lDKPFv_aZNaHhj4zHVgeiGvvnl09pE3GR_0xzy-509j8eM4esERNCWI5H50cPKOdx16Y48c-WxfnRnLXd9Fg_jrW-bGQpGs3aAHh9pL6A/s16000/Federal%20Debt%20Growth%20(5-Year%20CAGR).png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Graph #5: Five-Year CAGR Growth Rates<br />Each plotted point shows the end of a five-year period<br />and the compound annual growth rate for the period<br /></td></tr></tbody></table><p>Now I see that federal debt growth was all over the place. Some things are recognizable:</p><ul style="text-align: left;"><li>"Morning in America" around the time of the 1984 peak;</li><li>The federal budget falling toward balance, 1995-2001;</li><li>The response to the 2008 financial crisis, 2008-2013.</li></ul><p>I
find it interesting, too, that federal debt growth seems drawn to the
10% level: briefly, after 1975; momentarily after 1980; for the five
years from 1990 to 1995; and since 2020. It is as if some policymaker
said "I dunno, let's see what happens at ten percent." It is most strange to see such things in our economy. It doesn't fill me with confidence.<br /></p><p>Nor does my interpretation of logged data fill me with confidence... So much for the growth rate of the federal debt being nearly constant since 2001.</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-34836273948733646892024-03-05T04:00:00.001-05:002024-03-05T04:00:00.152-05:00"Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds" (2012)<p><a href="https://www.nber.org/system/files/working_papers/w18315/w18315.pdf">Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds</a> by Robert J. Gordon. 2012<br /><br />http://www.nber.org/papers/w18315<br />https://www.nber.org/system/files/working_papers/w18315/w18315.pdf</p><p><br /></p><p>Among the paper's "basic points":<br /></p><blockquote><p>Future
growth in real GDP per capita will be slower than in any extended
period since the late 19th century, and growth in real consumption per
capita for the bottom 99 percent of the income distribution will be even
slower than that.<br /></p></blockquote><p></p><p>But only if we fail to solve the problem.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-10177253826718362272024-03-04T04:00:00.001-05:002024-03-04T04:00:00.133-05:00"What Do We Know About Economic Growth? Or, Why Don't we Know Very Much?" (2001)<p><a href="https://faculty.nps.edu/relooney/KennyGrowthSurvey.pdf">What Do We Know About Economic Growth? Or, Why Don't we Know Very Much?</a> by Charles Kenny and David Williams, 2001.</p><p>https://faculty.nps.edu/relooney/KennyGrowthSurvey.pdf</p><p><br /></p><p>From the Conclusion:</p><blockquote><p>There
are, we think, a number of conclusions and implications which follow
from the analysis we have presented here. First, a review of the
available evidence suggests that the current state of understanding
about the causes of economic growth is fairly poor... What we are
arguing is that we are in a weak position to explain why some countries
have experienced economic growth and others not.</p></blockquote><p>If
even the views of experts offer a fairly poor understanding of the
causes of economic growth, then what would it hurt to consider the views
of a hobbyist like me?</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-71481992419803604332024-03-03T04:00:00.001-05:002024-03-03T04:00:00.297-05:00"U.S. Economic Growth at the Industry Level" (1999)<p>"<a href="https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=4e673908976625fa1c3173ad1652027f94d8505b">U.S. Economic Growth at the Industry Level</a>" by Dale W. Jorgenson and Kevin J. Stiroh. 1999</p><p>https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=4e673908976625fa1c3173ad1652027f94d8505b</p><p> </p><p>From the opening: <br /></p><blockquote><p>The
U.S. economy has expanded rapidly in recent years with total factor
productivity – the source of growth most closely identified with
technological gains – rising sharply since the mid-1990s. This strong
aggregate performance and the well-documented explosion of investment in
computers and other high-tech equipment have led many to believe that
the U.S. has experienced a permanent, technology-led growth revival.</p></blockquote><p>Technological innovation is not a sufficient condition for sustained vigorous growth.<br /></p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-33741309837780239242024-03-02T04:00:00.003-05:002024-03-02T04:00:00.146-05:00"Declining American economic growth despite ongoing innovation" (2018)<p><a href="https://bpb-us-e1.wpmucdn.com/sites.northwestern.edu/dist/6/5500/files/2021/04/Declining_growth_innovation.pdf">Declining American economic growth despite ongoing innovation</a> by Robert J. Gordon. 2018</p><p>https://bpb-us-e1.wpmucdn.com/sites.northwestern.edu/dist/6/5500/files/2021/04/Declining_growth_innovation.pdf</p><p> </p><p>From the Introduction:</p><blockquote><p>This paper starts from the proposition that GDP growth matters, not just productivity growth, because slower GDP growth provides fewer resources to address the nation’s problems...<br /></p></blockquote><p>Again, the importance of economic growth.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-14925517929406895972024-03-01T04:00:00.002-05:002024-03-01T04:04:24.187-05:00"Sustaining US Economic Growth" (2002)<p><a href="https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=d1728708e168b16af77022cd9a6a466fbf3bc227">Sustaining U.S. Economic Growth</a> by J. Bradford DeLong, Claudia Goldin, and Lawrence F. Katz. July 2002</p><p>https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=d1728708e168b16af77022cd9a6a466fbf3bc227</p><p> </p><p>From the Introduction:<br /></p><blockquote><p>With
rapid economic growth, social and economic problems become far less of a
burden. A fast growing economy is a rich economy. A rich economy is one
in which people have more options and better choices: the people
can—through their individual private and collective public
decisions—decide to consume more, lower tax rates, increase the scope of
public education, take better care of the environment, strengthen
national defense or accomplish any other goals they might choose. For an
economist these are sufficient reasons to consider growth a good thing.
A fast-growing economy is one in which people will have greater wealth,
higher incomes, and more of the necessities, conveniences, and luxuries
of life.<br /><br />Moreover, in America at least, slow economic growth
appears to heighten political gridlock, and thus reduce the quality of
political decisions.<br /></p></blockquote><p>Consider that last part a prediction.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-86292471662269209642024-02-27T04:00:00.006-05:002024-02-27T04:00:00.141-05:00Checkable Deposits and Currency held by the Bottom 50%<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHqCYyPhrVafNx_Um9EXJ8Huca6N6eYup67mmcb5Co8iqty1-pd_oJ-Q4AQWPoZiuVhm7M7HccsgvGUpdcJ7eqn1Qy7v-mkBl2s23k326U0BfbyY-GBjkLdFLmI1JaSaVusldu_-LiREmtR1dK2e7vDfMPQYSAeQKt0LieYHl2j6HDydNzM6NOyQqmmB0/s520/Checkable%20Deposits%20and%20Currency%20(since%201989)%20fit.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHqCYyPhrVafNx_Um9EXJ8Huca6N6eYup67mmcb5Co8iqty1-pd_oJ-Q4AQWPoZiuVhm7M7HccsgvGUpdcJ7eqn1Qy7v-mkBl2s23k326U0BfbyY-GBjkLdFLmI1JaSaVusldu_-LiREmtR1dK2e7vDfMPQYSAeQKt0LieYHl2j6HDydNzM6NOyQqmmB0/s16000/Checkable%20Deposits%20and%20Currency%20(since%201989)%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=1huux">Graph #1</a>: Held by Bottom 50% as a Percent of Total Held by 100%<br /></td></tr></tbody></table><br />Pretty sure the last drop-off (after 2019) is due to an insanely massive increase in M1 money arising from <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200424a.htm">a 2020 change</a> in Regulation D: <a href="https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/">The Fed started counting savings as part of transaction money.</a> Probably increased "checkable deposits". I say this because all of the shares they report<p></p><ul style="text-align: left;"><li>Bottom 50%</li><li>50th to 90th</li><li>90th to 99th</li><li>Top 1%</li><li>Top 0.1% (not used in the graph above)</li></ul><p>show a big increase (in millions of dollars, not percent of total) since 2020. </p><p>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.<br /></p><p><br /></p><p>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.<br /></p><p>(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.)</p><p><br /></p><p>PS: FRED offers an interesting table: <a href="https://fred.stlouisfed.org/release/tables?rid=453&eid=813668">Levels of Wealth by Wealth Percentile Groups</a> (but only since 1989).<br /></p><p>The table includes breakdowns by</p><ul style="text-align: left;"><li>Total Assets</li><li>Nonfinancial Assets</li><li>Real Estate</li><li>Consumer Durables</li><li>Financial Assets</li><li>Checkable Deposits and Currency</li><li>Time Deposits and Short-Term Investments</li><li>Money Market Fund Shares</li><li>Debt Securities</li><li>US Government Securities and Municipal Securities</li><li>Corporate and Foreign Bonds</li></ul><p>and too many more for me to list.<br /></p><p>Might be useful.</p><p><br /></p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-20030732942649321772024-02-20T04:00:00.020-05:002024-02-20T04:00:00.158-05:00Another day older and deeper in debt<p>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 <a href="https://fabiusmaximus.com/2016/01/18/debt-supercycle-update-93141/">hold</a> the "<a href="https://watermark.silverchair.com/9780262333450_cab.pdf?token=AQECAHi208BE49Ooan9kkhW_Ercy7Dm3ZL_9Cf3qfKAc485ysgAAAzswggM3BgkqhkiG9w0BBwagggMoMIIDJAIBADCCAx0GCSqGSIb3DQEHATAeBglghkgBZQMEAS4wEQQM_RdxiBRmU0bhhIaNAgEQgIIC7n26RIdheZ8WTnDEpY8XB7vPaGIffC7s5joCROBBH7RjBNbY-yOVcDYj_J9NO891APut1Pd4O2-4gloUzp0SzlNaBoK6lhT3QoPdXxrsbrIwMT9pI3WwamD_xddz0rEtyb9qSn9OaXl8WtRkrh1QRhcMCjyFuHw_-K9mqyQf7-SU600V9Lv5X8EG_fkfH0IBFz9GObtVPfJXhLmVL89_RBxGSgTIRMkD7vapQxrErwzloqMeEWT3K7m7R_X-sfZ3fQi9jlOFCtDinXsgbe-HkX9idBbWWOldlGbyE5EXrp_RYENxIg2t3MGF2_GfqvNMJk8wdDitsh1zBVQighKbL7rdnUadmjY1tAygRys4O8N-bOfTPVyKElrnmb3HwivH2IBU8kA4f-UCDM2xR_DMREjZ2sMinQK8N9kFvIVqHNedqUTBHqBtOeakvtwkmiTcqPmW43I1YB03FYBTBDLMBCnVlMFsQ-JEMEvp0_5xcLzJWu34WoaqXSKmAIBiQ-oCiFJt8drn1HpjxVkkZRhi5nOblWawVX1Mu-ANvBtC9dGawsuX_jdU61WIIWDcwzb43QOtlrNizntoZn3--zUPcm3lgbxpN9IFXt3oxlRybZqvcoSdb3VBtB8jFUojLh6RgRHMbSRPQoGNkbz5FdYMQBixAQtAiSivrFaejvqVTc_w90woEoX9-xtnpJBHDMxZuUvmitgBf09GuSCGFWVs8RAoIcvmmy6GXq8x3AevB0QX82jR3sL0M2wVZxGM3vEqSwVG1AM15PCc8BZZqvY84E8e8CliSsMRs6flrlLthIYqlMe4xPctRaYqmXtmL4woIGbcQk7M67Lk5zf19HdYn2oJW-6ST-E_iJmqRjBmvJwUgmmVDcVF6poKSd_eAAxqxb_adurnHPAaRUdNhdEpvK1RXk1-2MQxBX31xh0XTrOFY334MNds2tx_RkZJRbKYPzoUlDNfJI1_Pbkmsrdfe03ZI3TJ7ewgKsmEP6PfuA">debt supercycle</a>" accountable, with those who say we have "<a href="https://baselinescenario.com/2009/09/01/the-nature-of-modern-finance/">too much finance</a>", and with those who speak ill of <a href="https://thomaspalley.com/?p=2015">financialization</a>.</p><p>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.</p><p>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.</p><p>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. </p><p>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. </p><p>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. <br /></p><p>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 <i>to protect the economy</i> 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.</p><p>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! <i>Policy</i> 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 <i>helping</i> 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.</p><p>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 <a href="https://newarthurianeconomics.blogspot.com/2010/07/two-thought-experiments.html">Two Thought Experiments</a>. Second, some tentative targets for policy, in <a href="https://econcrit.blogspot.com/2019/10/establishing-parameters-for-debt.html">Establishing Parameters for Debt</a>.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com1tag:blogger.com,1999:blog-7622169847760708760.post-42821019946442084332024-02-17T06:49:00.000-05:002024-02-17T06:49:15.250-05:00The free community and the totalitarian stateI'm looking at <i>How to Pay for the War</i>, the 1940 book by J. M. Keynes.<p>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.<br /></p><p>First this, for context: </p><blockquote><p>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.</p></blockquote><p>Now the political observation, from page 7:</p><blockquote><p>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.</p></blockquote>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-78577831247720848302024-02-14T08:23:00.000-05:002024-02-14T08:23:30.148-05:00How's Biden doing?<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ6wTqqaGZa_pM-mVtOGTB44NYrPNozxrnuqmOX1Gvb8soH_mhalNIlxYw41DgehDCkbqN-ya1pTI55Vw76GeLJJBGaQ24UHVsxmxcb00Cwod7lEcAcEWcqrLQlQ_WU82O9RD_jXxOoXRA-TKde2m7pD098z-DmEb-bS3Ul12r5u_-8_KNK5G-105CXr-S/s700/How's%20Biden%20doing.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="548" data-original-width="700" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ6wTqqaGZa_pM-mVtOGTB44NYrPNozxrnuqmOX1Gvb8soH_mhalNIlxYw41DgehDCkbqN-ya1pTI55Vw76GeLJJBGaQ24UHVsxmxcb00Cwod7lEcAcEWcqrLQlQ_WU82O9RD_jXxOoXRA-TKde2m7pD098z-DmEb-bS3Ul12r5u_-8_KNK5G-105CXr-S/s16000/How's%20Biden%20doing.png" /></a></div><p></p><p><br /></p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com1tag:blogger.com,1999:blog-7622169847760708760.post-24033971052839678592024-02-04T07:20:00.000-05:002024-02-04T07:20:36.224-05:00Blustering our way to World War Three<p>I oppose World War Three.</p><p>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? </p><p>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.</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-78351091568229819712024-02-02T04:00:00.126-05:002024-02-03T07:11:12.371-05:00Inequality, financialization, and economic decline<p>"<a href="http://pinguet.free.fr/tridicopariboni2017.pdf">Inequality, financialization, and economic decline</a>"<br />PDF, 24 pages<br />by Pasquale Tridico and Riccardo Pariboni, 2017<br /></p><p>From the Abstract:</p><blockquote><p>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.<br /></p></blockquote><p>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. </p><p>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".</p><p>Also, financialization (in the form of growing debt) is a significant source of income inequality.</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-81772911919978006762024-02-01T04:00:00.005-05:002024-02-01T04:00:00.136-05:00The Economic Decline of Empires<p>A Google Book: <i><a href="https://www.google.com/books/edition/The_Economic_Decline_of_Empires/VANAs7nokSsC?hl=en&gbpv=1&dq=Economic+decline+theory+PDF&pg=PP2&printsec=frontcover">The Economic Decline of Empires</a></i><br />Edited by Carlo M. Cipolla<br /></p><p>I show here the first 2½ paragraphs of the Editor's Intro:</p><p></p>
<div class="separator" style="clear: both; text-align: center;">
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="border: 1px solid black; text-align: center;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3ErCbUnqkTrniEFyIl-Nb7RKvVTNQ-JXDcLhiUQmM_jnjCl1Sugcqwapo3oPrhEhSGjQ4mdlFCcOBZX1UDQRDVIi2WyjhXyusGq_srX8CG5TyxAR5q7FTupp_wpboVKsvnCuj9sPIre7fYwX9GdpfQ6i1Tz498_hNO8wuObirfFV3FZImnUCGtjdjduI/w351-h400/Cipolla%20The-Economic-Decline-of-Empires%20%20Editors%20Intro%20fit.png" style="margin-left: auto; margin-right: auto;" width="351" /></td></tr></tbody></table></div>
<p>If I didn't think it important, I wouldn't post it.</p><p>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.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-51000164681004259922024-01-30T06:28:00.001-05:002024-01-30T06:30:30.464-05:00One measure of inequality<p>From <a href="https://www.usatoday.com/money/blueprint/banking/savings/average-savings-by-age/">USA Today</a> of 24 Jan 2024:<br /></p><p></p><blockquote><p>The average American household has $62,410 in savings, per the <a href="https://www.federalreserve.gov/econres/scf/dataviz/scf/table/#series:Transaction_Accounts;demographic:all;population:1;units:mean;range:1989,2019">Federal Reserve</a>.</p><p>However, the median American household has just $8,000.</p></blockquote><p><br /></p><p>Note: The Fed link shows "transaction accounts" by default, not savings. But it looks like that site would be useful, if I could figure it out. For now, I'm just going with the quote from USA Today.<br /></p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com1tag:blogger.com,1999:blog-7622169847760708760.post-1021482545192031092024-01-28T04:00:00.001-05:002024-01-28T04:00:00.157-05:00What President Hoover said<blockquote>According to one account, Herbert Hoover, when queried a short time after he left office if there was anything he should have done while President that he had not done, replied: "Repudiate all debts."<div style="text-align: center;"><small>From <i>Franklin D. Roosevelt and the New Deal, 1932-1940</i> by William E. Leuchtenburg</small></div></blockquote>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-11900336666078661552024-01-12T04:00:00.028-05:002024-03-03T21:59:49.676-05:00The Arthurian Plan<p>I have to begin by saying that demand-pull inflation encourages
economic growth, and cost-push inflation causes growth to slow. But by
the time I get the thought out, half the internet is hollering THERE'S
NO SUCH THING AS COST-PUSH INFLATION and the other half didn't hear me,
doesn't believe me, or just doesn't care. For or against, then, they all go back to
preparing for the next insurrection.</p><p>If we could just fix the damn economy we wouldn't need insurrections. But no one stops to think about that.</p><p>Let me say it again: cost-push slows the economy. It means we get less income per dollar's worth of effort.</p><p>Now,
maybe it is true there is no such thing as cost-push inflation, because
we only get inflation if they print too much money. But here's the
thing: It isn't the inflation that slows the economy, it's the
cost-push. It's cost pressure that slows the economy. If policy prevents
the inflation but fails to relieve the cost pressure, the economy slows
anyway.</p><p>If policy prevents inflation but doesn't relieve the cost pressure, the economy slows
anyway. <br /></p><p>Maybe the cost pressure first arose with financialization
in the 1980s and 1990s. Maybe it first arose during the Great Inflation
of the 1960s and 70s. Maybe it first arose in the 1950s, or even
before. The point is that the cost pressure has been a problem for a
long time, and economic growth has been slowing all the while.</p><p>Economic growth has been slowing all the while.</p><p>Paul
Volcker quashed inflation in the early 1980s, and we thought he had
solved the problem. But the cost pressure problem was not solved. Then, <a href="https://www.stlouisfed.org/open-vault/2019/january/fed-inflation-target-2-percent">in 2012</a>,
the Federal Reserve adopted something called the two-percent target.
Now that sounds innocent enough, until you realize it means their goal
is to have two percent inflation every year. </p><p>The standard story is that Volcker quashed inflation. The fact is that
the Federal Reserve tried for 30 years, and then gave up on quashing inflation.</p><p>Hey, two percent inflation isn't bad, I'll give you that.
But two percent isn't zero. Two percent inflation is not stable prices.
It is rising prices. It is inflation. Economists call it "stable inflation." I call it hypocrisy. <br /></p><p>They gave up on quashing inflation. At the end of 1982 the <a href="https://fred.stlouisfed.org/series/CPIAUCSL">CPI</a>
was 97.7. At the end of 2012 it was 231.2. At the end of 2023 it was
308.9. Prices have more than tripled since Volcker quashed inflation.
And because of cost pressure, the economy has been slowing all the
while.<br /></p>If it is cost-push inflation -- or even if it is just cost
pressure, without inflation -- it slows the economy. It slows job
creation. It slows the production of output. And it slows the growth of
income. That's the killer, slow growth of income. That is the root
cause of our present dissatisfaction, I think, and the root cause of
insurrection and of the longing for insurrection.<p>As for myself, I would
prefer to fix the economy. All we have to do is solve the cost-pressure
problem. To me, that's an easy thing to do. The problematic cost is the
cost of finance. We have to reduce the cost of finance. We have to
reduce the bills.</p><p>Let me say it a different way: We need faster
income growth, faster GDP growth, faster job growth, and better jobs.
But none of that will solve the problem unless we reduce the growth of
financial cost.</p><p>That's the whole plan, in a nutshell.</p><p> <br /><br /></p><p>Let's
say we make it economic policy to cut the growth of household debt in half. It has to be policy or the plan won't work, because under existing
policy the increase in household debt gets bigger almost every year. It has to
be policy, and the new policy has to reduce the growth of household
debt.</p><p>The easiest way to do this is to make it policy to increase
employee compensation by a comparable amount. For every extra dollar of
income we get, policy encourages us to borrow a dollar less. So our
spending can stay about the same, our debt increases more slowly, and we
have smaller finance charges to pay. And that is how the plan works.</p><p>As
you may notice, the new policy I propose is just the opposite of
existing policy. Existing policy provides funds by expanding credit and fights inflation by restricting the quantity of money. The proposed
new policy accepts the view that the quantity of money should grow along
with output, that borrowing money should be minimized to reduce financial
cost in our economy, and that the proper way to fight inflation
is by restricting the growth of credit rather than the growth of money.<br /></p><p>Our existing policy
has been around for a long time. In the early days after World War Two
it worked well. Back then it worked because we didn't have a lot of debt
and our financial costs were low. The old policy worked so well that
economists and policymakers stuck with it, forever encouraging us to use
more credit. That was the mistake.</p><p>The existing policy didn't
treat debt as a problem, because in the early days we had little debt
and it wasn't a problem. Things are different now. These days, we can't
afford to live. It is time for policy to stop encouraging credit-use at
every turn. It is time for policymakers to admit that we now need less
reliance on credit and more reliance on the dollar -- more reliance on
income.</p><p>There was a time when encouraging the use of credit was
good policy. This is no longer that time. This is the time to discourage
the use of credit and to encourage the growth of income.</p><p> <br /><br /></p><p>If
you step back and look at this picture of the economy you will notice
that if we adopt the new policy and it works, and we stick with it, then
a day will come when we have too much money and not enough use of
credit. We will eventually be tempted to abandon the policy that
here is called "new" and to go back to the policy that here is called
"existing". That is not the best solution.</p><p>The best solution is to
seek the point of optimum balance between money and the use of credit.
The point of optimum balance gives the best economic growth. It is
tricky, because continually increasing the reliance of credit will cause
our economy to grow until we are far beyond the point of optimum
balance. That is what gets us into trouble, as it did in 2008. What we
need is to find the point of optimum balance between money and credit,
and stay there, so that our economy can perform well over the long haul.<br /></p><p>It can be done. We just need the right plan.</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-52708098300601498822023-12-22T04:00:00.003-05:002023-12-22T04:00:00.144-05:00Step One<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYY6HP3gS2d6mHhrvnEanze7wsSeaSyMdwfNDWabx3rfh7h_1xqMd849Iq_GKGUz3wZ8cOLVqUjZDNQE8h634AY8ec2ofc77c_-y7_Sz7KT61pLAnB9yb2PTqwexqiIRB6Xn-E7VUHCyrMao5nVVFH4qeu5WgOMQw275Nsm49yNoNYpnwLtkuWRetqJAs/s514/Policy%20Must%20Help%20Us%20Reduce%20Household%20Debt.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="346" data-original-width="514" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYY6HP3gS2d6mHhrvnEanze7wsSeaSyMdwfNDWabx3rfh7h_1xqMd849Iq_GKGUz3wZ8cOLVqUjZDNQE8h634AY8ec2ofc77c_-y7_Sz7KT61pLAnB9yb2PTqwexqiIRB6Xn-E7VUHCyrMao5nVVFH4qeu5WgOMQw275Nsm49yNoNYpnwLtkuWRetqJAs/s16000/Policy%20Must%20Help%20Us%20Reduce%20Household%20Debt.png" /></a></div><p>Let
reducing government debt be third on our to-do list, not first on that
list. After excessive private-sector debt comes down some -- after
business and household debt come down --it will be easier to reduce
government debt. Oh, and notice the word <i>help</i> in the graph title there.<br /></p><p>Happy Holidays. Merry Christmas. </p><p>Peace.</p>The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-57250338118627168632023-12-13T06:19:00.000-05:002023-12-13T06:19:37.583-05:00(13 Dec 2023)I want to look at household debt, the slowing growth of household debt.<p>Going
with debt relative to income, I'll compare household debt to
"disposable" personal income (DPI), the measure of "after tax" income.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCP7ehA0_ZL5mCor8MkMKyirkx6TzxvuymuIN9xij2YVyd5a-8AKE9tdyCRjMXCdA9c07Js_Qd_fbUVvhW7nn9SKQWBM7PGqxtvVxEszcq1fYduhHIB20_CcoEo6alKDCBhn17loGHvANTBbwb_gUghaxhTkuGVSNLNi2HBtzuIuHv3sSE6LaywfSGn1s/s376/Snip%20from%20FRED%20Table%202.1%20on%20DPI.PNG" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="223" data-original-width="376" height="190" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCP7ehA0_ZL5mCor8MkMKyirkx6TzxvuymuIN9xij2YVyd5a-8AKE9tdyCRjMXCdA9c07Js_Qd_fbUVvhW7nn9SKQWBM7PGqxtvVxEszcq1fYduhHIB20_CcoEo6alKDCBhn17loGHvANTBbwb_gUghaxhTkuGVSNLNi2HBtzuIuHv3sSE6LaywfSGn1s/w320-h190/Snip%20from%20FRED%20Table%202.1%20on%20DPI.PNG" width="320" /></a></div>
<p>In FRED's <a href="https://fred.stlouisfed.org/release/tables?rid=53&eid=42509">Table 2.1. Personal Income and Its Disposition: Annual</a>
they subtract "personal current taxes" from "personal income" to get
"disposable personal income". Then, from disposable personal income they
subtract three categories of cost </p>
<ul style="text-align: left;"><li>personal consumption expenditures,</li><li>personal interest payments, and</li><li>personal current transfer payments</li></ul><p>and what's left is called "personal saving".</p><p>Hey, I'm just making sure it makes sense to subtract household interest cost from DPI. Where else?</p><p>Funny you should ask. Because "Personal interest payments" is half or less than half the interest that is paid by households:<br /></p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJwfp77MiSQMHOLZjCFd04d-DPaaJAbkraGBIAJ0zuH0x63jBOtgfKkDRHvRCZe4xuB1hIZkyAFQYi-jbvMmVQ_3DsEg-sekKmb_nwn3p1fqdz8OrsmMhnTssCbQ7fgtV5ZdaA5W5zn5XPz_30rjBZ_WWrz7VOscJYs_UwJyMIh28mJVbmXbrez0itedk/s800/Personal%20Interest%20Payments%20as%20a%20Percent%20of%20the%20Monetary%20Interest%20Paid%20by%20Households.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjI_1F1VAPRgjjcIeuBoFfO9YuwWbFbiq0WBWnqKLaehjJ7i_OnqWP3vt9Q5C6BIRyD6kKXwHCuISsWlTMAX521KL9FM4cGeenuVva26GtTd3aEgkov6EuMPy9F9NfrsaU-3D4J_PxNHgKa_xbCtEgYLI9vwaLfkzBmpJm13mbk8BJDBS8d6uNEjf_DAXg/s16000/Personal%20Interest%20Payments%20as%20a%20Percent%20of%20the%20Monetary%20Interest%20Paid%20by%20Households%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=1cFKG">Graph #1</a>: "Personal Interest Payments" as a Percent of the Monetary Interest Paid by Households<br /></td></tr></tbody></table><p>Why? They have their reasons. Apparently the rest of the interest is counted as business expense. According to the <a href="https://www.bea.gov/system/files/2019-12/Chapter-12.pdf">CHAPTER 12: RENTAL INCOME OF PERSONS</a> PDF,</p><blockquote><p>The housing stock provides a flow of housing
services that are consumed by persons who rent their housing and by
persons who own the housing they occupy (referred to as
“owner-occupiers”). In the NIPAs, owner-occupiers are treated as owning
unincorporated enterprises that provide housing services to themselves
in the form of the rental value of their dwellings.</p></blockquote><p>Chapter 12 continues:</p><blockquote><p>Thus,
personal consumption expenditures (PCE) for housing services includes
both the monetary rents paid by tenants and an imputed rental value for
owner-occupied dwellings (measured as the income the homeowner could
have received if the house had been rented to a tenant)...</p></blockquote><p>So
the "Personal consumption expenditures", which is counted in GDP,
includes the cost of an imaginary monetary rent that homeowners (called
"owner-occupiers") pay to live in their own homes. Conveniently, this
cost is offset by imaginary income:</p><blockquote><p>... and rental
income of persons includes the monetary income earned by landlords and
an imputed rental income earned by owner-occupiers.</p></blockquote><p>Apparently,
this imaginary rental income is counted as an addition to homeowners'
income, offsetting the imaginary cost of paying the rent. This imagining
allows "owner-occupied" houses to be "treated as fixed assets" for
accounting purposes, just as "tenant-occupied" houses are.</p><p>In a paper on modeling imputed rent, <a href="https://www.bea.gov/system/files/papers/WP2017-7.pdf">Arnold J. Katz</a> points out that "The rental value of owner‐occupied housing ... accounts for about 8 percent of GDP". <a href="https://fred.stlouisfed.org/graph/?g=1cFP6">Katz is right</a>. Unbelievably, in 2022, imputed rent added two trillion dollars to GDP.<br /></p><p>Oh, they have their reasons.</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-8794498870485176052023-12-11T20:00:00.001-05:002023-12-11T20:00:00.264-05:00Things I want to remember about my dog Mish<p><br />5:31 AM Fri, 10/15/2021</p><p>She's getting old, and she knows it. Me too, I'm getting old and I know it, so I have sympathy for her.</p><p>Perhaps
I should say, I'm retired a few years now. Retiring simplified my life
and made the dogs a bigger part of it. They get a lot of my time.<br /></p><p>When
I bring her a treat her eyes are on me, not the treat. Until I'm
arms-length away from her, her eyes are on my eyes. (Our other dogs look
only at the treat.)</p><p>For the past couple months, her back leg
troubles her. She has a bit of a limp. It varies, some days worse than
others. Finally it occurred to me to stop the roughhousing. I keep an
eye on our (hundred-pound) puppy so he doesn't jump on her. Actually, he
caught on quickly. He knows, too, that she is getting old.<br /></p><p>Yesterday I noticed some blood by her butt. Oh, that can't be good.</p><p><br /></p><p>6:36 AM Fri, 10/15/2021</p><p>Sometimes, she wants something. "What do you want?" I ask. She licks her lips: <i>A treat, Daddy. I want a treat.</i><br /></p><p>I love it that she talks to me like that.<br /></p><p><br /></p><p>1:37 AM Sat, 10/16/2021 <br /></p><p>All the dogs I ever had, had dark brown eyes. Except Mish. Hers are very light brown, almost golden.</p><p><br /></p><p>28 Oct</p><p>She loves to "hold hands" -- to wrap her front leg around my forearm while I'm petting her with the other hand.</p><p>And I've been watching her eyes: She definitely watches my eyes when I bring her a treat, till I'm within arm's length of her.</p><p> </p><p>3 Nov 2021</p><p>When I take her paw in my hand, it's a handful. But she does prefer wrapping forearms.</p><p><br /></p><p>4 Nov 2021</p><p>Yesterday
I let our three dogs out and (later) in again, around lunchtime. I was
in a good mood and gave them each a "chicken stick" treat.</p><p>Today, just now, just before noon, I let them in. They all looked at me expectantly. Mish looked at me and licked her lips: <i>A treat, Daddy. I want a treat.</i></p><p>What a personality that dog has!<br /></p><p><br /></p><p>10 Nov 2021</p><p>I
was sitting on the couch. Mish was on the couch, lying down, her front paws out in front of her. I put my hand gently on her
paws. She pulled one paw out and put it on top of my hand.</p><p>Her butt is improved, by the way. No more blood.</p><p>She
has a lot of good days, too, with that achy hind leg. The MSM helps,
and the Dasuquin. And for a while we stopped the roughhousing that (I
think) was the original source of the ache. Gave her time to heal up. I
still interrupt them when they roughhouse, but not immediately.</p><p><br /></p><p>3:23 PM 1 Dec 2021 // Dad's birthday. Happy Birthday, Dad!</p><p>Garbage
day. Time for my weekly-if-I-remember
start-the-garden-tractor-and-let-it-run. Took the dogs out with me, two
birds one stone.</p><p>After about 15 minutes Mish came to get me --
came up within 5ft of the noisy tractor to get my attention. I
could see the other two by the house. Probably want to go in, I figured.
Hopped off the tractor & walked toward the house. Mish stayed right
with me.</p><p>As I got close to the house, Max and Lexi walked up to
the door, definitely ready to go in. I opened the door and as they went
in, I turned to look at Mish. She looked at me as if to say "No, I'm not
ready yet" and walked away.</p><p>That's my Mish.</p><p><br /></p><p>5:14 AM 15 Jan 2022</p><p>I love it when she looks me in the eye as I bring her a treat. She loves me more than she loves the treat!</p><p>Lately,
I have Mish on a leash every time she goes out. To prevent the running
and roughhousing. We seem to have it down to a schedule. Every two hours
Max (the puppy) is ready to go out again. So the four of us go out, Max
and <a href="https://newarthurianeconomics.blogspot.com/2015/02/new-puppy.html">Lexi</a> and <a href="https://newarthurianeconomics.blogspot.com/2013/05/mish.html">Mish</a> and me, with Mish and me leashed together. 20 minutes, give or take. Retirement creates time for such things.</p><p>Every two hours, 6 AM to 6 PM, but perhaps we can skip one around noon.</p><p><br /></p><p>//</p><p>7:52 PM Fri Aug 12 2022</p><p>Around
3:30 this afternoon, I figured it was time to watch a little TV. Found
season one of <i>Brokenwood</i>, set the volume right, and settled down into
the sofa.</p><p>Mish barked, that urgent bark that means
I-need-your-attention-pronto. I mumbled to myself and settled deeper
into the sofa. A minute later, the urgent bark came a second time.</p><p>I
got up. When I got close enough to see her, she looked me right in the
eye and licked her lips three times: "I'M GETTING PRETTY HUNGRY NOW"</p><p>The
nerve of that dog! I laughed and went back to the couch. Not five
minutes later, the third urgent bark. I shut off the TV and made their
dinner.</p><p>//</p><p>Later, about 20 minutes ago, 7:30 PM, the dogs are quiet, settled-in for the night. I decide to have a glass of wine.</p><p>I grab the glass, grab the bottle, pour the wine, you know the steps.</p><p>Before
I get to step four (put the wine away) Mish hobbles into the kitchen as
if to say "I'm ready for wine-on-the-porch". I couldn't feign
misunderstanding. We had to go out.</p><p>She does love her time outside.</p><p>/////</p><p>11 December 2023</p><p>Today, my
girl Mish died, a victim of the cancer. We found out seven months
ago. The vet gave her three months. She lasted seven.</p><p>She
was fine on Saturday. Sunday she woke up in pain so bad she could
hardly move. Monday, today, we took her to the vet and had her put to
sleep.</p><p>You spend your whole life developing a trust relationship with your dog. And the last thing you do for her is lie and say <i>the vet is going to help you sleep better now</i>. It was as close as I could come to <i>not</i> lying. But not close enough.<br /></p><p>She was the prettiest, smartest, most human dog I ever knew.</p><p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT6l1KGw2gQa_NyO4OLUuBPf7cLiPYLzu4Qfu_WxMZ4GZnkbhwIvzasaknf5PpUwTqnYHVdknb5kptJ6V9P1puxFIXwKOoEjx6nNWSIP4BQdo2qR4Q7ii9INsLfH0ziul_QPfNZyL0BYLPugom2CJlOiW2PUkuFX3oPLlZk09A1MHqqSPWUdHC6nnb0Dg/s672/Mish%20%20(April%204%202022).jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="672" data-original-width="504" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT6l1KGw2gQa_NyO4OLUuBPf7cLiPYLzu4Qfu_WxMZ4GZnkbhwIvzasaknf5PpUwTqnYHVdknb5kptJ6V9P1puxFIXwKOoEjx6nNWSIP4BQdo2qR4Q7ii9INsLfH0ziul_QPfNZyL0BYLPugom2CJlOiW2PUkuFX3oPLlZk09A1MHqqSPWUdHC6nnb0Dg/w300-h400/Mish%20%20(April%204%202022).jpg" width="300" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span style="font-size: medium;">Mish</span></td></tr></tbody></table><br /><br /><p></p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com2tag:blogger.com,1999:blog-7622169847760708760.post-41128555363739090952023-12-09T04:00:00.001-05:002023-12-09T04:00:00.261-05:00When did things go bad?<p>The blue line on the graph shows household debt service since 1980. The red
line is my estimate of household debt
service going back to 1946:</p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizJMZVjge-pHC5TOn8Q6415JxrgDyEa5zVAenOtWHqmIhXk9EY4s-htvvYaMM2Ma8N7g4nkVeV6pI3uBeCReNYAYYiN0m8xXqnHzQbJH2xn5jvzgI6KbEXbYh2BtGk9iQnFmeS2X5wtJF7DsBH2e2tsYHnVewtrQx03Sdp-FQoSiKJz4sS7hY9LS0bUus/s800/Household%20Debt%20Service%20estimated%20back%20to%201946%20%5BFRED%2019eMi%5D.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="293" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEkbnI7QDS_rsWckXM8QSw8kgjm2mWnFyDlluVPHlXcl5fD7TFZCTx3VykBcl1G9x_pbFXJWAAZSeSguYEelrllF1S1CwjmI-ltWIh9dqbi-jJJv3ndHl28KRmLCb_QV1RbCOyqyKL9YKfWDALBf9QyWkKemtNKFcaVIG3HoAxIYVS7gK9G9r_blovIj8/s16000/Household%20Debt%20Service%20estimated%20back%20to%201946%20%5BFRED%2019eMi%5D%20fit.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://fred.stlouisfed.org/graph/?g=19eMi">Graph #1</a>: Household Debt Service since 1980 (blue)<br />and my estimate back to 1946 (red)<br /></td></tr></tbody></table><p>My
estimate is based on 4.6% of outstanding household debt being repaid
each year. Less than 5%. Evidently the actual (blue) percentage varies some
from year to year: When the blue line is higher than the red, we are
repaying more than 4.6% of our outstanding debt; when the blue line is
lower than the red, we are repaying less than 4.6%.</p><p>The red line
starts in 1946 at almost exactly two percent. So, in 1946, my parents
probably used about 2% of their disposable (after-tax) income to pay
down their outstanding debt. The red line shows that by 1956 they were
probably using more than 5% of their income each year to pay down less
than 5% of their debt. And by 1965, when I turned 16, my folks may have
been using almost 7.5% of their income for the debt service payment -- while still repaying less than 5% of their debt.<br /></p><p>On average, by
my estimate, each year people were paying down less than 5% of their
existing debt. But by 1956, on average, people were using more than 5%
of their disposable income to make the payment. Perhaps we should say
that by 1956 people were already "under water" on their financial
obligations. <i>By 1956</i>.</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com0tag:blogger.com,1999:blog-7622169847760708760.post-59297605766385902552023-12-06T04:00:00.066-05:002023-12-06T04:00:00.168-05:00"CHAPTER 12: RENTAL INCOME OF PERSONS"<p>CHAPTER 12: RENTAL INCOME OF PERSONS<br />(Updated: November 2019)<br />https://www.bea.gov/system/files/2019-12/Chapter-12.pdf<br /><br /></p><img alt="" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwl6RAKqzMnsK-g0IzPKZH5hDkVW5vHkM25K8A2mUxIPlLekRS8CrSWVkYhfz2HdjitS7D2ujYLutwRI39bMBBMa0Fln6hu8iWeL3iHtLNC4wc6SF4v5USiVegZp1_2JbcPBXYIxS4JJG9/s400/divider2.gif" style="-moz-box-shadow: 0px 0px 0px transparent !important; -webkit-box-shadow: 0px 0px 0px transparent !important; background: none; border: medium; box-shadow: transparent 0px 0px 0px; display: block; height: 3px; margin: 11px auto 8px; padding: 0px; text-align: center; width: 305px;" /><p><br /> <br /><br /></p>
<blockquote><blockquote>The Bureau of Economic Analysis (BEA) makes the
official estimates of the National Income and Product Accounts (NIPAs).
Two key aggregates in these accounts are the nation’s gross domestic
product (GDP) and the personal income of households. The rental value of
owner‐occupied housing is an important component of both. It accounts
for about 8 percent of GDP and largely determines the rental income of
persons.<div style="font-size: x-small; text-align: center;"><a href="https://www.bea.gov/system/files/papers/WP2017-7.pdf">Imputing Rents to Owner‐Occupied Housing by Directly Modelling Their Distribution</a> by Arnold J. Katz <br /></div></blockquote></blockquote>
<p> </p><p> <br />I had been looking at the relation between what we spend
("Personal Consumption Expenditures") and our after-tax income
("Disposable Personal Income") and I got some particularly interesting
results because of a mistake in my calculation. So then I was being
extra-careful, going over details...</p><p>The FRED graph page listed
some tables for the data I was looking at. I've been discovering recently how useful such
tables are: They show components that are added together (or subtracted
out) to come up with the data; they identify all the datasets involved;
and the tables even provide links to the data.</p><p>Turns out, it's
not Disposable Personal Income minus Personal Consumption Expenditures
that leaves us with Personal Saving. Nope. It's Disposable Personal Income,
minus Personal Consumption Expenditures, minus Personal Interest
Payments, minus Personal Current Transfer Payments -- and after that,
what's left over is our Personal Saving.<br /></p><p>So I checked the
tables and gathered the data I should have been using. Then I had to go back and make
sure that when they use a data series in more than one table, it is always
the same dataset, not just the same description. Yup. I guess it has to
be, or the tables would be more trouble than they are worth.</p><p>One
of the things they subtract to get from DPI to personal saving is
"Personal Interest Payments". I looked at the data: Personal interest
payments are always less than 3% of Disposable Personal Income. I wish!
If our interest costs were really that low, our economy would be healthy
and vigorous. "Monetary Interest Paid: Households" hasn't been that low <a href="https://fred.stlouisfed.org/graph/?g=1cfYg">since the 1950s</a>!<br /></p><p>The interest cost measures I usually use are all
subsets of "Monetary Interest Paid". The "Household" subset has two
parts: the mortgage interest part, and the non-mortgage part. The
non-mortgage part runs close to the the "personal interest payments"
number, for some reason averaging roughly a quarter-point higher. But the two series
follow the same path. I figure those two are the same.</p><p>That leaves the
mortgage interest. Who pays that? We do -- but it's not counted as part
of Personal Consumption Expenditures or Personal Outlays. Where is is
counted? And why is it not counted as part of personal spending?</p><p>Well,
I rummaged around the internet for half an hour before I found
anything worth noting. In the glossary at BEA, "Personal interest payments" is
defined as "Non-mortgage interest paid by persons." So I got that
right. </p><p>But to answer the question <i>where is my mortgage interest counted?</i> took another hour or more of rummaging.<br /></p><p>I searched BEA for <i>mortgage interest</i>.
There seemed to be a lot on "rental income of owner-occupied property"
in the search results. That stood out when I saw it, because I remember
Oilfield Trash telling me about it a while back. Finally, <a href="https://apps.bea.gov/scb/issues/2022/11-november/pdf/1122-gdp-economy.pdf">somewhere in the search results</a> I found this:</p><blockquote><p>"Note that mortgage interest paid by households is an expense item in the calculation of rental income of persons."<br /></p></blockquote><p>So, my mortgage payment comes out of the money I pay myself for renting my house to me.<br /></p><p>After that, I searched BEA for <i>rental income of persons</i>, and then I started making progress.<br /></p><p>From page 5 in <a href="https://www.bea.gov/system/files/2019-12/Chapter-12.pdf">CHAPTER 12: RENTAL INCOME OF PERSONS</a>:<br /></p><blockquote><p>As
noted in “Chapter 2: Fundamental Concepts,” purchases of newly
constructed housing are treated as private fixed investment rather than
as consumption expenditures in the NIPAs, and the stock of housing is
treated as fixed assets. The housing stock provides a flow of housing
services that are consumed by persons who rent their housing and by
persons who own the housing they occupy (referred to as
“owner-occupiers”). In the NIPAs, owner-occupiers are treated as owning
unincorporated enterprises that provide housing services to themselves
in the form of the rental value of their dwellings.<sup><span style="font-size: xx-small;">8</span></sup> Thus, <b>personal
consumption expenditures (PCE) for housing services includes both the
monetary rents paid by tenants and an imputed rental value for
owner-occupied dwellings (measured as the income the homeowner could
have received if the house had been rented to a tenant), and rental
income of persons includes the monetary income earned by landlords and
an imputed rental income earned by owner-occupiers.</b> </p></blockquote><p>Emphasis added. Their thought continues:<br /></p><blockquote><p>This
treatment is designed to make PCE, GDP, and the incomes associated with
them invariant to whether the house is rented by a landlord to a tenant
or is lived in by the homeowner. <br /></p></blockquote><p>What, they do
all this imputed-rent stuff to make life easier for the stats guys?
Really? Or maybe, as footnote 8 says, they do it to be "consistent" with
the SNA. Footnote 8:</p><blockquote><p>This treatment is consistent with
that of the international System of International Accounts (SNA):
“Households that own the dwellings they occupy are formally treated as
owners of unincorporated enterprises that produce housing services
consumed by those same households” (SNA 2008: 6.117).<br /></p></blockquote><p>Yup:
My mortgage payment comes out of the money I pay myself for renting my
house to me. It's like something out of Alice in Wonderland.<br /></p><p>And what was it Arnold Katz said? "The rental value of
owner‐occupied housing ... accounts
for about 8 percent of GDP".</p>
The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.com1