Sunday, August 01, 2010
When Life REALLY Wants To Get You
Last week we saw what looked like a little bug bite on the toddler's (my brother's and sister-in-law's first child) arm. By Thursday, it had grown and there was a clear center, middle and well-defined rim. We took her to the pediatrician, who suspected Lyme Disease. So the child is now on amoxicillin and watchful waiting. We tried for one blood test but the tech freaked. I got a scrip from the doc for hospital testing in a papoose so we will try to get that in next week.
Needless to say, my sister-in-law did not find that this development lightened her load....
So you can understand that I have no time to post.
However, for those who have time to read it, the last GDP update (advance for Q2) is very interesting.
This one contained the standard update and revision of previous stats. Not surprisingly, the revisions were relatively large. You can get this in a text version and in a pdf version. This is a long release because it contains all the tables with revisions back through 2007, so it is really 06 through Q2 10.
The meat is in tables 10 through 12, which cover personal incomes and corporate profits. In the pdf version, these tables start on page 28. After looking at these results, I am very certain that I have my timing right. That, of course, probably means that I have it wrong, but anyway....
A) Recession began between the third quarter of 2007 and the fourth quarter.
B) Trough in May 2009, meaning recovery begins in June 2009.
C) Tentative yet, but it does seem that April 2010 was the peak for the recovery, and we entered a down cycle. Given income trends, I do not feel we are in a double dip as yet.
D) But unfortunately this depends entirely on Congress, because....
E) Income trends are far too weak to withstand significant tax increases in 2011, and some are already scheduled in new legislation. Plus there is another implicit tax increase concentrated in utilities due to earlier renewables mandates on utilities, which is going to deliver significantly higher electricity bills to a majority of consumers for years and years to come. And then there is the whole expiration of Bush tax cuts issue, plus the AMT indexing issue.
In particular, you might want to take a look at Table 10, Personal Income and Its Disposition, which continues in two blocks. The first covers annual from 2006 through 2009, and the earlier quarterly data, and the second continues the quarterly data.
Running through this table and watching the change since 2006 will show you just how big a fix we are in. At the bottom of the table (second line from bottom) you see personal income in 2005 dollars MINUS personal current transfer receipts. From 2007 through 2009 (annual figures) this fell from 9,656.5 billion to 9,191.1 billion. It also fell from 2006, when it was 9,404.9 billion.
Of course, this number includes taxes paid, which are a deduction from personal income. But I begin with this number, because it clarifies our basic situation. From 2006 to 2009, personal current transfer receipts grew from 1,605.0 to 2,132.8 billion (or 1.6 trillion to 2.1 trillion). Personal current transfer receipts include all government payments on behalf of or to individuals, such as Social Security, various welfare programs such as food stamps, insurance programs, earned income tax credits, etc.
Please note that a great deal of this increase is NOT due to the recession. Wage disbursements peaked in 2008, but personal current transfer receipts grew in 2007, and in 2008 had reached 1,879.2 billion, or 1.9 trillion. A lot of this increase is structural, and will in fact continue to increase through the recovery and after as retirees begin collecting retirement and medical benefits. Also, Congress keeps increasing other types of social benefits.
As proof, look at personal current transfer receipts by quarter. We began in the first quarter of 2006 with 1.56 trillion. In the second quarter of 2010, we find ourselves at 2.8 trillion. (These figures are annualized and seasonally adjusted.) That is an increase of more than 1.2 trillion dollars.
If anyone really believes that we can use tax increases to close that gap of over 1.2 trillion ANNUALLY, that person is probably in Congress already.
So let's pretend that we are talking to a Congress Critter who is recommending a tax increase and telling us that this will make it all better. The question we must ask our Critter, in a very sensitive and respectful way, is:
Most honored and noble S_n_t_r, please deign to hear my question. I will remain kneeling as requested, awaiting your kind response. As I review federal government figures by quarter, they tell me that real incomes excluding government transfer payments (without adjustment for taxes) began 2006 at the 9.3 trillion level. We are starting the Summer of Recovery with real incomes at the 9.2 trillion level. It is true that this number has begun to increase, but won't slapping on tax increases of 200 or 300 billion a year bring personal incomes without government transfer payments below those of 2006? And wouldn't that put us into a second cycle of contraction.
Generally, your critter would either beat you up or sic a pit bull on you at this point. Or maybe both. But assuming you survive the first response, the second Critter question would be:
But S_n_t_r, I understand that you are doing wonderful things with the money to help needy people. But since personal incomes in constant dollars have actually declined over four years, except for the money the government is paying to people, aren't you really taxing government transfer receipts? Wouldn't it be more efficient just to pay less government transfer receipts?
You would not survive the answer, which might contain a neutron bomb. Due to the very large contributions of the real estate and financial industries, critters are very respectful of buildings.
So grim as it may seem, this is where we are. We can afford to make sure that people, even poor people, eat. We can give them some form of medical care, but massive rationing is in our future. We really have to do something about the illegal immigrant problem, because we cannot afford to support this much of the population of South America. And we have to cut our middle class welfare programs, and we have to slowly raise taxes.
We will have to raise taxes slowly on most of the population, because rich people don't have the income, or even the assets, to pay even one year's worth of this staggering rise in government payments to individuals.
And this is also why I say that healthcare reform as passed was DOA, because where can the government find the money to pay for it? The government could confiscate all of the Walmart fortune, Bill Gates' considerable trove and knock of ol' Buffet as well, and it still wouldn't come up with enough money to cover the increase in government entitlement programs plus the new health care subsidy for ONE YEAR. This tax the rich thing can only go hand in hand with a social austerity program.
And to conclude, you can read journalist after journalist, and article after article pontificating on this subject, and none of them will ever give you the figures. That is because they are allergic to numbers and believe that poetry and verbal skills are the highest form of human achievement. And they are wrong, because no amount of reason ever overcomes reality. True reason shows us what reality is and how to adapt to it.
A: When we stop electing them to Congress.
I'm from the government and ...
stimulate the economy and help the working poor
would be to eliminate the payroll tax.
In any case, without jobs the recovery will falter. We have to remained fixed on that reality.
Tom - Yeah, I thought it might be a spider bite too. It's quite difficult to differentiate between spider/tick bites. She does appear to be improving.
But the rash responded very quickly to the amoxicillin, so it's definitely not methicillin resistant, although it could be staph.
Thanks for the tip.
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