On the difference between Democrat and Republican Thinking

I didn't read the thing, but I looked at Kamala's 82-page PDF "A New Way Forward for the Middle Class: A Plan to Lower Costs and Create an Opportunity Economy".  Note that her plan, first thing, is "to lower costs". This was without doubt a response to the widespread, often repeated conservative focus (and the near-universal media attack) on "the Biden inflation".

I'm not saying it is wrong to want to lower costs. I'm not saying the Biden inflation was good for anyone other than Donald Trump. But the post-pandemic inflation was the biggest economic problem we have faced in decades. And what did Kamala say? She said she wanted to lower costs. That was not a strong argument. It was more like an apology for what her boss did, as if Kamala herself blamed Biden for the inflation. No wonder she lost the election.

MSNBC's favorite word for Donald Trump is "chaos". But the Republican plan is far from chaos. Their plan is to cut federal spending. Everything Republicans do is part of the plan to cut federal spending. Seen in this light, the Republicans are far from chaotic. The opposition to vaccines and vaccinations, for example, will increase the death rate of elderly Americans, reduce the number of people receiving Social Security, and reduce federal spending on Social Security.

As a bonus, the spread of highly communicable, sometimes deadly diseases like COVID-19 and the flu will be far more rapid without vaccines -- particularly in areas of high population density such as cities. And cities are home to many more Democrats than Republicans. But ending vaccinations will help solve that problem for Republicans. 

And health care is just one aspect of their plan. Happy New Year.

Ngrams 'prosperity'

An unexpected shape:

Among the details of the 20th century:

• A peak in 1915,
• A high from 1920 to 1933,
• A peak in 1944, and
• A low point in 1977.

 

I searched the Google Books from the year 1700 -- the kind of books that have words like "happinefs" and "profperity" -- and found Arch-Bishop Tillotson's Several Discourfes · Volume 5.  I can picture the old archbishop wagging a finger at his congregation and saying things like

Even the best of men are  more corrupted by prosperity than affliction.

and

Nothing afflicts a man more, and toucheth him more sensibly when he is in misery, than the remembrance of his former prosperity; had he never been happy, his misery would be the less.

And from William De Britaine's Humane Prudence ... The eighth edition corrected:

None will be so severe enemies to you in adversity, as those that in prosperity have been your friends.

Part of the complex process of misguiding voters about the economy...

I need one piece of data. I googled quarterly Real GDP data for 1946. I just need the data for the last quarter of 1946, if it exists, so I can get the growth rate for 1947 Q1. But then I would have to "annualize" that quarterly rate, to make it compatible with the FRED data.

In the same search, Google's "People also ask" turned this up:

How do you annualize quarterly data?

To annualize a number, multiply the shorter-term rate of return by the number of periods that make up one year. One month's return would be multiplied by 12 months while one quarter's return by four quarters.

Annualize: Definition, Formulas, and Examples - Investopedia

I know there are 12 months in a year. I know there are four quarters in a year. For me, the P.A.A. question is interesting because I want to know how economists handle compounding. Do they ignore it? I doubt it. But the P.A.A. answer from Investopedia seems to ignore compounding. Or maybe Google just left it out. We will see.

I read the Investopedia article even though they are low on my 'trustworthy' list. This is what I found:

To annualize a number means to convert a short-term calculation or rate into an annual rate. Typically, an investment that yields a short-term rate of return is annualized to determine an annual rate of return, which may also include compounding or reinvestment of interest and dividends. It helps to annualize a rate of return to better compare the performance of one security versus another. 

Yes, convert to an annual rate.

Yes, "may" include compounding. That's why we're here.

Yes, annualizing is helpful when comparing data, because growth is "typically" annualized. Sometimes it is hard to find monthly or quarterly data that is *not* annualized, and you have nothing to compare your data to unless you annualize it.

But Investopedia reduces their answer to "key takeaways":

• To annualize a number, multiply the shorter-term rate of return by the number of periods that make up one year.
• One month's return would be multiplied by 12 months while one quarter's return by four quarters.

There is nothing in the key takeaways about compounding. But just after the key takeaways, they say this:

If the yield being considered is subject to compounding, annualization will also account for the effects of compounding.

What? What are they trying to say? They tell me to take one quarter's growth and multiply it by 4 to get the year's growth.. Then they say that this "will also account for compounding" if my data "is subject to compounding". That's bullshit. I think what they mean to say is, if my data is subject to compounding, the compounding must also be figured. But they say nothing of the kind. 

This is why I don't trust Investopedia.

I searched their article for the word "compound". It occurs four times, all four with the "ing" ending:

• "Typically, an investment that yields a short-term rate of return is annualized to determine an annual rate of return, which may also include compounding or reinvestment of interest and dividends."
• "If the yield being considered is subject to compounding, annualization will also account for the effects of compounding."
• "Let's say a stock returned 1% in one month in capital gains on a simple (not compounding) basis. The annualized rate of return would be equal to 12% because there are 12 months in one year."

In the second of those three sentences, I think they mean annualization should also account for the effects of compounding. But that is not what they say. Their words indicate that the compounding is taken care of automatically when you multiply by 12 or by 4.

As I said: Bullshit.

Trump, Luigi, and a damn good read

From the Daily Beast: Donald Trump, Luigi Mangione and the Political Power of Raging Against the Machine by Jason Chukwuma, 16 December 2024.

The gist, from below the title: "A sharp shift in culture has led many to misinterpret the political moment, mistaking a wholesale rejection of entrenched power for a clash of ideologies."

Worth the read.

CutCutCutCutCutCutCut

I don't make predictions, but I don't mind looking at numbers.

I went to Rodger Malcolm Mitchell's Money Sovereignty site for start- and end-dates of the periods of US federal debt reduction. Added 2024 to the list, twice, for Musk's two estimates of deficit reduction -- $2 trillion, and $500 billion. I figure Musk seems to think he can do the cutting in two years, so I went with 2026 for the end date of this one.

I went to Chantrill's usgovernmentspending.com to get federal debt levels for Mitchell's dates. For each debt-reduction period I subtracted the end-year debt level from the start-year level. This tells me the amount of debt reduction in billions.

Chantrill shows a $400 billion increase in debt for the 1997-2001 period, where Mitchell shows a 15% decrease. I think this discrepancy arises because  Rodger is looking at deficits and I'm using gross debt numbers from Chantrill. The internet says the federal debt is the sum of the federal deficits, but if you actually add up the deficits they fall short of gross debt.

Come to think of it, I probably should have used deficits, as deficits are a measure of money that is spent into the economy in a year's time, and reducing deficits reduces the Q-of-M added into circulation... and reducing the money in circulation is a source of concern about the risk of depression. In an old post at Asymptosis, Steve quoted Randall Wray:

Since 1776 there have been six periods of substantial budget surpluses and significant reduction of the debt... The United States has also experienced six periods of depression.

I omit the dates that tie depression to debt reduction. But as Steve says:

Every depression was preceded by a big decline in nominal Federal debt.

I dwell on thoughts like that. My post today is one result. And for the moment, I'm ignoring the 1997-2001 discrepancy. Leaving that one off the list, and adding the proposed budget cuts of Trump's second term.

I went to MeasuringWorth and got their data on nominal GDP, back to 1792, and changed the units to billions. And I figured each debt reduction as a percent of its start-year GDP.

Here's the relevant part of my spreadsheet:

Slide the ScrollBar Right to See More, or just Click the Graph

So I got a low debt reduction, 1.27 percent of GDP, for the 1852-1857 reduction. I got a high of 11.73 percent of GDP for the 1823-1836 reduction, Andrew Jackson's reduction; and almost as high, at 10.94 percent, for the 1920-1930 reduction that led into the Great Depression. Milton Friedman said the Great Depression could have been avoided, and he's probably right. But I have to think that such a large reduction in the federal debt made that depression more difficult to avoid.

Most of the debt reductions are in the 5 or 6 or 7 percent range, including the proposed Musk $2 trillion cut. I thought it would be much higher. Still, if there is a change from increasing deficits to decreasing deficits, the Q-of-M will be affected. The Federal Reserve will have to keep both eyes open, and dance better than they danced around the so-called Biden inflation. Because this one will be the Trump depression, and I know he doesn't want that.

Neither do I.

Note the economic underpinnings of his thought

From a PDF excerpt of Benjamin Friedman's 2005 book The Moral Consequences of Economic Growth:

Our own experience, as well as that of other countries, demonstrates that merely being rich is no bar to a society’s retreat into rigidity and intolerance once enough of its citizens lose the sense that they are getting ahead. 

Actually I prefer the version in my paperback copy, page 5, which begins with the words

And as we shall see from our own experience ...

which makes it sound as if Friedman could see twenty years into the future, to the rigidity and intolerance of our time -- rigidity and intolerance that arose when enough of us lost the sense that we were getting ahead.

Let me quote a whole paragraph from Ben Friedman's PDF:

I believe that the rising intolerance and incivility and the eroding generosity and openness that have marked important aspects of American society in the recent past have been, in significant part, a consequence of the stagnation of American middleclass living standards during much of the last quarter of the twentieth century. If the United States can return to the rapid and more broadly based growth that the country experienced during the first few decades after World War II—or, more recently, the latter half of the 1990s—over time these unfortunate political and social trends will continue to abate. If U.S. growth falters, however, or if it continues slowly to benefit only a minority of U.S. citizens, then the deterioration of American society will, I fear, worsen once more.

And 20 years later, here we are.

If Friedman is right about this, and I think he is right, then what we need is better economic growth, without the supply-side focus that shifts income from labor to capital, and without so damn much finance. 

If the growth of finance had been restrained, that shift-to-capital would have been more toward non-financial business, the sector that actually produces output and, thus, economic growth.

Now let me quote myself:

The problem is the cost of excessive finance; the cause is economic policy; the reason is either (a) politicians still think that credit is good for growth and debt is not a problem, or (b) politicians are rich and make a lot of money by lending. I'm not sure which.

But I'm pretty sure. My money's on policy: The problem is policy, driven by the thinking that the use of credit is good for growth, and by the thinking that debt accumulation is not a problem (except of course for government debt). That thinking creates bad policy. Pruning back bad policy will give rise to better growth.

 

It is excessive private sector debt that holds back private sector growth.

The periods of prosperity Friedman mentions above -- "the first few decades after World War II" and "the latter half of the 1990s" are times of persistent increase on this graph:

Private Sector Debt relative to Federal Debt: FRED Graph 1CdIg

That persistent increase shows how the private sector pays for the prosperity that it creates. But the persistent increase comes to an end when private sector debt becomes excessive and unsustainable.

This same pattern of persistent increase and sudden failure appears in the prosperity of the Roaring Twenties and the onset of the Great Depression.

Now you know how to fix the economy. Help me make it happen.

The Shape of Economic Decline