Wednesday, February 29, 2012
Welcome To Appalachamerica
We didn't fall into a recession - we fell into a depression.
Look at Table 3. Net real dollar increase in Q4 GDP was 98.3. The swing in private inventories (counted as a plus in GDP, but inventory builds are generally a minus for future periods) alone from Q3 to Q4 was 96.4. Okay? There was no real growth in Q4.
Worse yet, while we did get this pickup in production activity (because of earlier inventory draws), look at the consumption figures. Food at home fell 2.4 billion. Gas fell 2.5 billion. Housing and utilities fell 11.4 billion Insurance fell 2.2 billion.
A whole chunk of people have fallen right through the poverty floor. Look at the nondurable goods portion of PCE. Over the last two quarters of 2011:
- Real spending on food dropped 2.6 billion.
- Clothing and footwear dropped 4.4 billion.
- Gas & fuel dropped 3.5 billion.
It's still big relative to GDP either way.
What is you best guess timeline/trajectory for the economy? My gut is telling me doom and gloom, but there seems to be reports of sunshine everywhere? Am I wrong to be a pessimist?
Don't get me wrong, it will still be down but we will have smoothed out the front loading.
If you look at this year's trend on carloads, things are not great. It depends on how much inventories load up. If it's a small adjustment to keep from packing, well and good.
If not, then we probably get the correlated downturn.
The quarterly growth rates for last year are misleading. The Japanese supply chain disruption was very real and drew down car inventories plus adjuncts.
When I look at auto inventories on some of the makers I keep sucking my thumb and saying "there's a bit more left there!" At some point I am going to have to grow up and deal, and I'm beginning to suspect that point is pretty near.
Anyway, the growth rates for Q2 and Q3 were depressed by supply constraints. Adjusting for that, it was far more of a steady economic decline last year.
If look at Table 3 and PCE, you can see what's happening. Those figures are dire. The utilities, food and gas all say the same thing - about 30% of the population can't meet basic subsistence needs, despite the awesome percentage of the population on food stamps.
Markets got a shock today because Bernanke wasn't promising helicopters, but he's clearly worried about inflation and rightly so.
I'd say you'd be nuts not to be worried. If they were pulling back on food to make fuel, that's one thing. BUT ALL THREE? And a two-quarter drop in real spending on clothing?
Anybody who's not worried has spent way too much time in the Ivory Tower, whether it be the one in DC, or the Ivy Ivories. You can always start to worry about any economy when spending on food drops in real terms. That's getting close to the bone.
See, people can only adapt so much by cutting that type of consumption, and then things start hollowing out from the bottom up.
And it can't be a small percentage of the population either - not with those figures.
You are looking at Japanese-style deflation, and here is where the Fed cannot in fact intervene. Only Congress can intervene.
Here, btw, the loss of the Democratic party is what hurts us so terribly. It used to be that there was a party in the US that would have argued against giving 2K tax breaks to those earning 100K a year, and would argue instead for giving significant tax breaks to those who are getting hit by 15-18% inflation at the bottom of the income rung.
Now the party that used to think that way is deeply involved in supporting the Ivories, so there is no hope.
There isn't much recourse for many of these people, if they are working and not retired, but to drop into the gray economy and make it up by not paying taxes. Wages at the bottom rung are now deflating rapidly.
If they're retired they can only work, which is hard when you are in your 80s.
It looks to me like we fell right through the ice and are sinking fast.
As for me, for a few weeks now I've been mulling over that the Luddites have been given a bad wrap. In school they were caricatured as fools that destroyed the machines of capital in a mis-guided desire to go back to the old ways. I call B.S. I rather suspect they destroyed the machines of capital because they saw that as their only way of getting even with the owners of capital. Technology was baking a bigger pie, but the 1% were keeping it all for themselves. So, methinks the Luddites decided they'd do what they could to lower the capitalists ROI. Might make them re-think their slash and burn attitude towards HR. As for the dis-information in the text books, wouldn't be the first time useful idiots in academia put up a smoke screen for the 1%. I'm inclined to develop the thought a bit more and post it myself.
Thanks in advance...Anon PA
Actually, the power loom and the other machinery to which the Luddites were objecting had benefits that went far beyond the 1%....for the entire population, the cost of clothing, once a very major expense item, went way way down, and average people no longer had to wear a shirt for a week before changing it.
This was little comfort, though, for a skilled weaver whose income did fall substantially because his skills were no longer in high demand. (Though if he was mechanically-minded, he might do very well for himself as, say, a millwright. This was the exception, though.)
But it is incorrect to say the benefits of mechanization were, even in the short term, monopolized by "the rich." Everyone who needed the products benefited.
I'm thinking about now how so many laud Amazon, Walmart, cheap Chinese imports, and the service economy, but when you look at the macro numbers over the last 30 years wages have been stagnant at best while the 1% have hoarded all the profits. If it weren't for Moore's Law and the tidal wave of women into the workforce, the useful idiots like Krugman would have some explaining to do. Extrapolating that back to the Luddites, maybe the median to +1 sigma wage earner were able to have 4 shirts/week instead of 1, but if capital goes from 7 to 70, and those from median to -1 sigma lose not only their shirt but also their lunch & dinner, well that's not such a good trade after all.
Regarding the "1%", it's important to keep in mind that the 1% (or .1%, or whatever) is comprised of a shifting set of people. There are plenty of individuals who were hanging on by their thumbnails 20 years ago who are now in the 1%, and there are more than a few who have moved in the other direction.
Could you expand a bit on the reference to the effects of Moore's Law and the entry of women into the workforce?
From my perspective, the problem with wages has been the exodus of production. In part that was due to government policy and in part it was due to empowered workers with little wisdom. Workers, and especially unionized workers, funded much of the original export of jobs in the US. That's an ugly truth.
Currently the US government is the great enemy of the worker, not the capitalist. There are hordes of CF-like people that would joyously throw money at start-ups. So the US is not capital short. The US is not skill short.
It is virtually impossible to start up small production in the US purely because of regulatory restraints. They are fixed cost that prevent small production units from starting up.
The feudal barons of the US government have done more to destroy the US worker than even the US worker has.
The Occupy crowd is in the same boat. The old industrial credentialism that awards white-collar positions to those with the right degree is on its way out, savaged by middleman-busting information technologies. So, the ivy scions are in the streets throwing wooden shoes. The new winners (many of whom don't have the "right" social connections or degrees) are already hustling to the top of the middle class at the head of their long-tail niche-market websites...
Democratic policies are now focused on preserving the positions of the upper middle class. If it were not such a confounded sinkhole of cultural and technical lunacy, that wouldn't be too bad. But this is one of the most privileged groups that history has ever known, and therefore it knows the least about reality.
It's now up to around $2000. He was stopped for driving while suspended a couple of weeks ago and managed to avoid jail time because they didn't have space for him. He's still having to drive to get to work and is terrified he'll lose the now full time job because he doesn't have a driver's license. This is a kid that was raised in a middle class family in the suburbs. It is just that easy to become a criminal these days. His fine would be nothing to someone with money. He made his own mistakes, it's true, but turning a speeding ticket into a crime because you can't afford to pay a fine strikes me as overkill.
If you owe back child support, any money put into the commissary account gets taken by the state for back child support! (I'm unclear where my friend actually owes this support but I suspect it's in another state). It does not seem to be enough for someone to be physically confined. The state can now confiscate any funds that someone else might put in for their benefit. Sadly my group of co-visitors contained a number of parents visiting their sons and at least one little girl, with her momma, visiting her daddy.