Thursday, September 29, 2022

Things they never show

This one they do show, and they talk about all the time:

Graph #1: Gross Federal Debt as a Percent of GDP

 

 But this one you never see. And it's the same debt:

Graph #2: Gross Federal Debt as a Percent of Non-Federal Debt

You never see this one, either:

Graph #3: Non-Federal Debt (red) and Gross Federal Debt (blue) as Percent of GDP

The blue line here is the same shown on Graph #1 -- with a high around 120% in 1946 and a high around 130% in 2020. Those peaks don't look so high now, do they? Not compared to the red line, which shows debt other than the federal debt. You know: business debt, household debt, and state & local government debt, all added together.

Non-federal debt was bigger than federal already by 1952. 70 years ago.

Some people say federal debt is the only one that's a problem. But suppose we're all paying the same rate of interest. Then, if we have two or three or four times as much debt as the federal government, we're paying two or three or four times as much interest. And actually, we pay more than that because the federal government gets the lowest rates.

So in case you are still wondering what the hell I'm showing with these graphs: THE RED LINE IS THE PROBLEM THAT NEEDS OUR ATTENTION.

Saturday, September 24, 2022

Debt and Interest Cost of Nonfinancial Corporate Business

 

I'm thinking of new-use-of-credit as extra money spent into the economy. And I'm thinking of cost-of-interest as a reduction of money available for current spending. I think the "extra money" will have to be greater than the "reduction of money", or the economy will get no boost from the use of credit.

 

Sometimes I get lucky. I found data at FRED for interest paid by Nonfinancial Corporate Business. And I found data for the total debt liability of Nonfinancial Corporate Business.

Graph #1: Interest Paid (blue) and Debt Owed (red) by
Nonfinancial Corporate Business

The lucky part is that both datasets are for Nonfinancial Corporate Business. The interest is being paid by the same sector that owes the debt. Lucky, because too often I don't find two datasets I want, both for the same sector.

We can take the interest paid and look at it as a percent of debt owed, to get some idea of the interest rate paid by the Nonfinancial Corporate Business (NCB) sector as a whole. I've seen that rate called the "effective interest rate".

In their Fisher Dynamics PDF, Mason and Jayadev say

The effective interest rate i is total interest payments divided by the stock of debt at the beginning of the period.

For the longest time I didn't think it could be done in a FRED graph. It can be done:

Graph #2: The Effective Interest Rate paid by Nonfinancial Corporate Business

My main reason for looking at the effective interest rate is to see if my choice of data looks right. The pattern shown on Graph #2 is:

  1. Start low
  2. Rise to a 1981 peak
  3. Decline thereafter

That pattern matches the typical pattern of US interest rates since the late 1940s, so I'm happy with my choice of data. Note that the interest data is annual; the debt data is by default quarterly but I changed it to annual using "end-of-period" aggregation.

There is a glitch, however: If you click "Graph #2" in the caption to access the graph at FRED, click "EDIT GRAPH" to view the settings, and look past the three datasets and their units, you will see that below "Modify frequency" it says "Annual" (which is correct), but below "Aggregation method" it says "Average" (which is not the method I chose).

It is possible that I messed up. But I made this graph once, noticed the discrepancy, and made the graph a second time, carefully, conscious of the glitch. So I don't think it's me.

But either way, for my purposes today, the graph is close enough. 

 

Now I want to go in a different direction. I want to compare the size of interest paid each year to the change in the size of debt. The first graph compared the size of the interest paid to the size of total NCB debt. Now I want to see if the interest paid is more or less than the change in debt, the increase.

Hey, if I borrowed a dollar last year and (in the same year) paid 25 cents interest on my existing debt, I still had 75 cents "extra" to spend. But if I borrowed a dollar and paid $1.50 interest, I was fifty cents in the hole. 

Yeah, I know: If I didn't borrow the dollar I would have been $1.50 in the hole. That is the problem that comes with having debt. And every time you borrow, the hole gets deeper.

Okay. This next graph is a cost/benefit analysis for borrowing by US Nonfinancial Corporate Business. For the years before 1970, hard to see but it appears to be slightly above zero (new borrowing adds up to a little more than total interest paid on existing debt). For the years after 1975, it is clear that the line is almost continuously below zero (the cost of interest is almost always substantially more than new borrowing):

Graph #3: Cost/Benefit of borrowing for Nonfinancial Corporate Business

 Here's a view of the early years, thru 1975:

Graph #4: Cost/Benefit of borrowing for Nonfinancial Corporate Business, 1947-1975

Except for the occasional blip, the cost/benefit of NCB borrowing was continuously positive from 1947 to 1973. From 1975 to 2017 it was almost continuously negative.

In other words, if we think of it as NCB business borrowing in order to pay the interest on its debt, before 1974 there was almost always some borrowed money left over after paying the interest, that could be used to boost business activity and economic growth. But after 1974, after using all the borrowed money to pay interest, Nonfinancial Corporate Business typically still had more interest to pay. The money had to come out of business activity. Maybe they invested less. Maybe they gave smaller raises. Maybe they increased their prices.

Financial cost has been undermining living standards and the growth of output since the mid-1970s. Pass it on.

Saturday, September 17, 2022

Eva von Dassow on NPR

The wife came home from work the other day and said I might be interested in something she heard on NPR. Yup. The Academic Minute of 7 September 2022. The topic: Debt amnesty in ancient times. The speaker: Eva von Dassow of the University of Minnesota.

Highlights from her NPR minute:

  • [In ancient times] it was customary to cancel non-commercial debts from time to time.
  • Like Americans today, the people of the ancient Middle East went into debt to meet living expenses...
  • [Debt amnesty], first recorded around 2400 BC in Sumer, is widely attested in ancient Mesopotamia.
  • It was routinely triggered by the death of a ruler: his successor would raise a golden torch and proclaim the cancellation of debts, as part of his duty to establish justice and equity in his land. The biblical program for regular debt cancellation builds on this practice.
  • In the ancient world, such decrees functioned to restore socioeconomic balance – and the tax base – enough that the cycle of borrowing to survive could start over.

Friday, September 9, 2022

The Magus

Let me quote this again -- Herodotus describing the Persian method of sacrifice to their gods:

To pray for blessings for himself alone is not lawful for the sacrificer; rather, he prays that the king and all the Persians be well; for he reckons himself among them. He then cuts the victim limb from limb into portions, and, after boiling the flesh, spreads the softest grass, trefoil usually, and places all of it on this. When he has so arranged it, a Magus comes near and chants over it the song of the birth of the gods, as the Persian tradition relates it; for no sacrifice can be offered without a Magus. Then after a little while the sacrificer carries away the flesh and uses it as he pleases.

The Magus is interesting. Magus, plural Magi. Now that's a name I have not heard in a long time. Oxford Languages says a Magus is "a member of a priestly caste of ancient Persia." Sounds about right.

But note that "no sacrifice can be offered without a Magus". Then, after the ceremony, "the sacrificer carries away the flesh and uses it as he pleases." I take this as meaning that to make a sacrifice, you must have a Magus present, and the Magus must be paid for his services. After the Magus is paid, you can take your boiled mutton home and have a nice dinner. Or you can put it where the sun don't shine. The priestly class doesn't really care.

The alternate translation doesn't say "no sacrifice can be offered without a Magus". The alternate says:

It is not lawful to offer sacrifice unless there is a Magus present.

It is not lawful to do so. The law required a Magus at every ceremony of sacrifice. Doesn't that seem a little strange? What could be the reason for such a law? 

The reason for the Persian law that made sacrifice without a Magus illegal was to assure a stream of income to the Magi.

 

The Persian empire was part of Mesopotamian civilization. According to Carroll Quigley:

The first civilization, known to us as the Sumerian or Mesopotamian civilization, began after 6000 B.C., reached a peak of achievement about 1700 B.C., and ended in a series of empires of which the last was the Persian.

In The Evolution of Civilizations Quigley says every civilization has to have a "surplus-creating instrument". It has to have something like capital accumulation. However,

This surplus-creating instrument does not have to be an economic organization. In fact, it can be any kind of organization, military, political, social, religious, and so forth. In Mesopotamian civilization it was a religious organization, the Sumerian priesthood to which all members of the society paid tribute. [p.137-138]

In Mesopotamian civilization, including the Persian empire, the surplus-creating instrument was a religious organization, the priestly class. If you wanted to offer sacrifice to the gods, the Magus had to be paid.

According to Quigley, in a civilization you need a "surplus-creating instrument" so you will have a "surplus" that can be "invested" in the development of "inventions" that keep the civilization growing. In the Persian empire, the Magi and the laws that assured their participation were the source of the surplus.

To tweak a line from The Usual Suspects: The greatest magic the Magi ever pulled was convincing the Persians that the Magus must participate and must be paid.


Quigley again:

In Mesopotamian civilization it was a religious organization, the Sumerian priesthood to which all members of the society paid tribute... In the later period of Western civilization the surplus-creating instrument was an economic organization (the price-profit system, or capitalism, if you wish) that permitted entrepreneurs who organized the factors of production to obtain from society in return for the goods produced by this organization a surplus (called profit) beyond what these factors of production had cost these entrepreneurs.

When the surplus-creating instrument falters, civilization is at risk. But this does not mean boosting the surplus is the answer. It means we must figure out why the instrument falters. This is the step that was skipped in the later period of Western civilization.

Sunday, September 4, 2022

Supply-side economics and the nudge

Every day when I first open my gmail I get this important message:

"Google recommends using Chrome"

Important to google, not to me. To me -- hey, I didn't mind the first six times. I just figured I forgot to click DON'T SWITCH. But finally, I consciously stopped what I was doing and consciously clicked DON'T SWITCH.

The trouble with doing it consciously is: IT IS A DISTRACTION. And as you can imagine, with my shitty memory any little distraction can become a big problem when it causes me to forget the important thing I was doing, the important-to-me thing.

I get distracted all the time. I don't need google contributing to it.

Anyway, I clicked DON'T SWITCH and that was that until the next day, when I opened my gmail and there it was again. Well, the there-it-was-again problem happened about six times, and I decided to get rude.

I don't want to get rude, because that is a distraction, too. I use a computer to enhance what I do. Not for the distractions. Definitely not for the distractions.

But I want to point out that THIS SHOULD NOT BE HAPPENING. I shouldn't have to click my choice repeatedly. Computers are supposed to know better. Computers DO know better. People are dicks. The people who put that shit on my gmail screen are dicks.

Can't be helped, I guess; a dick is a dick. HOWEVER, THIS WOULD NOT HAVE HAPPENED IN THE DAYS BEFORE SUPPLY-SIDE ECONOMICS.

Supply-side economics favors the producer over the consumer. Once upon a time people would say "The consumer is always right" but that all went away because of supply-side economics. They thought it was important to make things easier and better for business because, they said, in the 1970s the economy slowed, growth slowed and job creation slowed. They said making things better for business would solve these problems.

It obviously didn't. 

What they should have done -- assuming they were right that the economy slowed in the 1970s -- what they should have done was FIGURE OUT WHY THE ECONOMY SLOWED. Then what they should have done was FIX THAT OTHER PROBLEM, the one that caused the slowing.

Instead, they just decided to make things better for business. That is supply-side economics, and that is what we got.


The other problem I have with google's friendly concern about my browser has to do with the options they give me. The options are YES and DON'T SWITCH.

That's not right. If one of the options is YES the other one should be NO.

YES and NO. I'm sure you are familiar with these terms. I'm even sure google is familiar with these terms. But google didn't use those terms. Maybe they are afraid that you would say Yes or no? No! I do not want google fucking with the choices I make.

They didn't offer "no" as an option. That's part of the "nudge".

The nudge is a little something extra that they provide, to get us to choose the answer they want us to choose. There is a whole science to this, the science called behavioral economics. 

What it is, plain and simple, is behavior modification. They try to trick us into giving the answer they want to get.

Even the YES option, being the default choice, is part of the nudge.

I would recommend resistance, but resistance is futile. If you want this shit to change, then you must take the position that you are opposed to supply-side economics and behavioral economics. Only by changing economic policy can we change the world,
because the world
is shaped by
economic policy.

Friday, August 26, 2022

The Trefoil Lawn

A year or so ago the wife pointed out some striking yellow flowers in our lawn. Rich color. Nice and low they were too, not like dandelions. She said maybe we could dig them up and put them in a wildflower patch. But then I saw some of them over by the rock wall, where I don't mow. They were a foot tall or more and didn't create the same impression. So I promptly forgot about transplanting them.

I looked em up. They're called bird'sfoot trefoil. Now, if I had any business sense at all, I'd be advertising and selling them as "Micro Trefoil". Kinda like the "Micro Clover" that came up in my Clover post: As long as you keep mowing it, it maintains the "micro" features that you paid an arm and a leg for.

If I had any business sense at all.

 

I don't think anybody ever gets my sense of humor.

 

I want it for my lawn

Around here, in April the low part of the yard is so wet you can't drive the mower there. By May things are better, and drier yet in June. In July and August things are so dry the plants start to die. This year again the lawn all turned brown -- or I should say, all except the weeds.

I'm never going to be a guy who can out-think the weather, remember when last it rained, and know when to water the plants. I only see it after things are dead or dying. Nor do I have time or hose enough to water the lawn. So I started looking at the survivors, the green weeds in the lawn, looking for something that would make a good-looking lawn, stay green despite drought, and stay low and fairly even for a week or more after mowing.

I found something, but it's not the clover. It's the trefoil, birdsfoot trefoil. The one the wife pointed out two years ago.

I'm just calling it "trefoil" by the way.

 

Herodotus, the old Greek, the father of history, wrote about the customs of the Persians, the enemies of Greece. In this part, from perseus.tufts, he writes of the Persian method of sacrifice to the gods:

To pray for blessings for himself alone is not lawful for the sacrificer; rather, he prays that the king and all the Persians be well; for he reckons himself among them. He then cuts the victim limb from limb into portions, and, after boiling the flesh, spreads the softest grass, trefoil usually, and places all of it on this. When he has so arranged it, a Magus comes near and chants over it the song of the birth of the gods, as the Persian tradition relates it; for no sacrifice can be offered without a Magus. Then after a little while the sacrificer carries away the flesh and uses it as he pleases.

Don't let the word "victim" get you thinking this was human sacrifice. It was some animal, probably a sheep that was sacrificed.

What I really want to say about this ancient Persian ritual is that they used "the softest grass, trefoil" when offering their sacrifice to the god. What I really want to say: If trefoil is good enough for the Persian gods, it is good enough for my lawn.

In a different translation, Herodotus says not "the softest grass, trefoil usually," but instead says

the tenderest herbage that he can find, trefoil especially.

"Trefoil usually" seems to leave it up to the sacrificer to decide what soft greenery to use. "Trefoil especially" seems to make trefoil the rule rather than just one of the options. 

Unfortunately, in the time of Herodotus and the ancients, they were not as fastidious about identification of plants as we have been since Linnaeus. It's more like they had a favorite name for plants they liked a lot, and they used that name for all those plants: They were all trefoil. 

And half of those, the most prized half, were the lotus.


The identification of plants

I found this great PDF from Harvard, called "Plants Named “Lotus” in Antiquity". I just call it Huh! Harvard. From the Abstract:

In ancient times, several plants were named “lotus.” They assumed very important roles in the religions and art of many cultures, but historiography and descriptions of the various plants called “lotus” have always been poor. The aim of this work is to define what plant species correspond to the ancient name “lotus.” Through analysis of classical texts and other historiographical sources, three types of “lotus” have been identified: “arboreal lotus,” “herbaceous lotus,” and “aquatic lotus.” From the sources examined, several botanical species have been identified for each “lotus” category.

For my lawn, I wouldn't want tree lotus or aquatic lotus. I'd want herbaceous lotus: something green and soft and nice to walk on. The "Huh! Harvard" paper identifies not one genus of plants, but four, and several species in total, as the plants the ancients described as "herbaceous and fodder lotus". Apparently no one really knows for sure which plants they were talking about.

It gets worse. At perseus.tufts I searched for lotus clover. The relevant results all offer interpretations of the ancient Greek word "λωτός" that apparently means "lotus". In the sumary below, I have shortened the text, and removed links and references. It looks like lotus is lotus. But for herbaceous and fodder lotus, lotus is trefoil is clover. And "clover" is not necessarily the clover we know as clover.

  • λωτός. The lotus here is a sort of trefoil or clover, not to be confounded with the lotus of bk. 9. According to Sprengel, Bot. Hist., it is the Lotus corniculatus of Linnaeus.
    From: W. Walter Merry, James Riddell, D. B. Monro, Commentary on the Odyssey (1886)

  • λωτός. name applied to various plants and trees providing fodder or fruit:
    [Under "fodder plants" they list]
    1. clover, trefoil, Trifolium fragiferum
    2. fellbloom, Lotus corniculatus
    3. fenugreek, Trigonella Foenum-graecum
    4. melilot, T. graeca
    4b Italian melilot, Melilotus messanensis
    From: Henry George Liddell, Robert Scott, A Greek-English Lexicon

  • λωτός. the lotus, name of several plants.
    I. the Greek lotus, a plant on which horses fed, a kind of clover or trefoil
    II. the Cyrenean lotus, an African shrub, whose fruit was the food of certain tribes on the coast, hence called Lotophagi
    III. the Egyptian lotus, the lily of the Nile
    IV. a North-African tree; from its hard black wood flutes were made
    From: Henry George Liddell, Robert Scott, An Intermediate Greek-English Lexicon

  • λωτός. lotus.
    (1) a species of clover
    (2) the tree and fruit enjoyed by the Lotus-eaters. Said to be a plant with fruit the size of olives, in taste resembling dates, still prized in Tunis and Tripoli under the name of Jujube.
    From: Georg Autenrieth, A Homeric Dictionary

I think the name "lotus" was applied to plants that were the most special in some way: for example, the ones that provided the softest herbage, the most satisfying narcotic, the most perfect flower, the most beautiful flute music.

The terms "trefoil" and "clover" described lesser members of the plant community, except the Greeks apparently thought their trefoil horse fodder was good enough to be called lotus: the best horse fodder ever. And apart from the upgrade to "lotus" for the fodder plant, the terms "trefoil" and "clover" appear to have been used interchangeably -- if they even had the two separate terms in the ancient language.

I'm still using "trefoil" to mean birdsfoot trefoil, or whatever it is I have in my lawn. But I do like that name "fellbloom".

Want to buy some Micro Fellbloom?

 

Why did Linnaeus call it Lotus?

One more item from the "Huh! Harvard" paper. I thought this was odd:

The most typical of autochthonous [native] plants used for fodder is Lotus corniculatus L. (Fabaceae), which has yellow flowers and rich nectar sought by bees. Therefore, the reference to the genus Lotus for herbaceous and foraging lotuses is well justified.

I think they are saying the yellow flowers and rich nectar justify Linnaeus's decision to use Lotus as the genus name for birdsfoot trefoil. I was wondering why he used that name; but their explanation seems a weak one, and odd I think: The paper seems to agree with the old Greeks that birdsfoot trefoil really did make fodder that was lotus-good. That's a strange explanation.

By the way, the "L." following the name Lotus corniculatus is used to indicate that it was Linnaeus himself who came up with that name for the species. News to me.

Here's a different explanation for Linnaeus's choice of the name "Lotus", this from Puzzlements, at In the Garden, jamesfolsom's place:

Linnaeus himself assigned the Latinized word Lotus to members of the bean family.  At the time, that was no surprise; the Greeks had long used the word for a group of small woody plants in the bean family.

I give this explanation more weight than the "flowers and nectar" explanation. But "Huh! Harvard" has a better explanation, too: Their opening sentence stresses the economic value of the various plants called lotus in ancient times.

In ancient times, the name “lotus” was applied to several plants, and each had a relevant economic importance...

"Huh! Harvard" also says the ancient lotus plants "assumed very important roles in the religions and art of many cultures". Sure. But I'd add that lotus became important in art and religion because it was important to people, because it was important economically.

As for myself, the months I spent reading Simkhovitch's "Rome's Fall Reconsidered" and Huntington's "Climatic Change and Agricultural Exhaustion as Elements in the Fall of Rome" made the important even more important to me. Either Simkhovitch's exhausted soil or Huntington's long-term drought caused the decline of Roman agriculture. But Huntington and Simkhovitch agree that the decline of agriculture (and agricultural income) caused the fall of Rome. (Remember, Roman civilization was based on agriculture. Declining agricultural income hurt almost everyone.)

To have an expanding civilization you need an expanding economy, particularly when civilization is organized so as to require expansion (as Carroll Quigley so wisely points out). Keynes, too, knew that civilization rises and falls with the economy. He said economists are "the trustees not of civilization, but of the possibility of civilization." Thus, if economists cannot fix the economy, the civilization cannot survive.

Me, I've said that so often I'm tired of saying it, and now I talk about trefoil.